Ladies and gentlemen, thank you for standing by, and welcome to the SS and C Technologies Third Quarter 2020 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speaker presentation, there will be a question and answer session. 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 and C Technologies. With me today is Bill Stone, Chairman and Chief Executive Officer Rahul Kanwar, President and Chief Operating Officer and Patrick Pedanti, our Chief Financial Officer. Before we get started, we need to review the Safe Harbor statement.
Please note that various remarks we make today about future expectations, plans and prospects, including the financial outlook we provide, constitute forward looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent Annual Report on Form 10 ks, which is on file with the SEC and can also be accessed on our website. These forward looking statements represent our expectations only as of today, 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.ssbtech.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 and then walk through our assumptions for the remainder of the year as we continue to navigate the COVID-nineteen world. Results for the quarter are $1,156,000,000 in adjusted revenue, up 0.5 percent and $1.10 in adjusted diluted earnings per share up 18.3%. Our adjusted consolidated EBITDA was 4 $66,300,000 and our adjusted consolidated EBITDA margin increased to 40.3 percent.
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 our recent business, we have continued weaknesses in our perpetual care 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 percent organic growth and the rebound in the M and A market helped drive Intralinks growth to 5.9%.
Organic cash flow was $755,000,000 for the 9 months ended September 30, 2020. Our secured net leverage is 2.52x and total net leverage is 3.58x. We bought back 3,100,000 shares of common stock at an average price of $1.44 per share or $191,900,000 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 and 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 has caused a lot of uncertainty in our global economy and major swings in the stock market. Despite this, SS and C has preserved our core DNA, our sales force is hungry and our technology teams are innovating. Over the past couple of months, we have signed 2 of the largest deals ever in the retirement space. We believe retirement will continue to be a hot area for us and we hope to build solid references at Nationwide and ICMA. The industry continues to adopt Edge Eclipse and we signed a record 20 new clients in September.
As you know, we sell as Eclipse on a term basis, so the revenue will be ratably earned over the next few years. We have integrated Black Diamond and Intotrust, and we have begun to get some traction. Banks and Trust companies are competing with wirehouses and RIAs, and we anticipate this being an ongoing trend in 2021. Our alternatives business set a new record high for alternative assets under
$89,000,000,000
surpassing our previous record set last quarter, so much for the demise of the alternatives industry. We believe alternative asset managers are well positioned to these wild markets. Our 2020 scenario analysis can be found on Pages 4 and 5 of our earnings results slides. We continue to use 2021 scenario as our baseline with an incremental increase or decrease of about 25,000,000 dollars 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 opened 4 international offices and are in the planning phase for 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. SSNC continues to innovate and our employees continue to collaborate despite working from home.
Within Intralinks, we've enhanced our investor vision portal with expanded general partner capabilities, launched an Intralinks deal marketing and roadshow offering and integrated Zoom Integration between Algorithmics and Singularity brings embedded risk analytics to our Singularity product. We've already signed one client using this expanded functionality and are building momentum. We've also rebranded our global transfer agency business to Global Investor Distribution Solutions, GIDS. GIDS delivers transfer agency investor 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 and C's transfer agency capabilities around the world.
Now I will mention some key deals for Q3. A $40,000,000,000 in assets hedge fund and turn fund administration client licensed Geneva for their internal operations. A long term Advent client upgraded their APX license to a cloud delivery solution, added Genasys for rebalancing capabilities and BD Link as an investor portal. 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 Blue Door solution for its ability to meet their complex requirements.
An existing SSNC Health client absorbing a number of acquisitions and the resulting increased membership required additional licenses and infrastructure to support their growth. A large hedge fund based in Boston expanded their fund administration services. A $4,000,000,000 in assets hedge fund shows SSNC's fund administration services including middle office, regulatory reporting and tax preparation, citing our reputation and commitment to implement on a tight timeframe. The European alternative investment manager converted to SS and 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 effort between DSD 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 Q3 2020 were GAAP revenues of $1,152,800,000 GAAP net income of 159,400,000 dollars and diluted earnings per share of $0.60 Adjusted revenues were $1,156,200,000 dollars including the impact of the adoption for the revenue standard 606 and for acquired deferred revenue adjustments for acquisitions. Adjusted revenue was up 0.5%. Adjusted operating income increased 5.5% and adjusted EPS was $1.10 an 18.3 percent increase over Q3 2019. Adjusted revenue increased 5.4 percent over $5,400,000 over Q3 twenty nineteen.
Our acquisitions contributed $29,800,000 in the quarter. Foreign exchange had a favorable impact of $6,500,000 or 0.6 percent in the quarter. Organic revenue decline on a constant currency basis was 1.4%, driven by some weakness in DSD Asset Management and Healthcare Businesses. These were offset by strength in the Fund Administration and the Intralinks businesses. Adjusted operating income for the 3rd quarter was $448,800,000 an increase of $23,200,000 or 5.5 percent in the 3rd quarter.
Foreign exchange had a negative impact of $3,200,000 on expenses in the quarter. Adjusted operating margins improved from 37% in the Q3 of 2019 to 38.8% in the Q3 of 2020, driven by lower personnel costs, lower costs related to independent cost tractors, lower out of pocket expenses and lower travel expenses. Adjusted consolidated EBITDA, which was defined in Note 3 in the earnings release, was $466,300,000 or 40.3 percent of adjusted revenue, an increase of $20,500,000 or 4.6 percent over Q3 2019. Net interest expense for the 3rd quarter was $54,700,000 and includes $3,400,000 of non cash amortized financing costs and OID. The average interest rate in the quarter for our amended credit facility and the senior notes was 3.0 percent compared to 4.84% in the Q3 of 2019 and resulted in interest expense decrease of $43,800,000 We recorded a GAAP tax provision for the quarter of 58 point $6,000,000 or 26.9 percent of pretax income.
Adjusted net income, as defined in Note 4 of the earnings release, was 294 $200,000 and adjusted diluted EPS was $1.10 And the effective tax rate used for adjusted net income was 26%. Diluted shares increased to 266,700,000 from 265,800,000 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 $184,000,000 of cash and cash equivalents and approximately $6,900,000,000 of gross debt for a net debt position of approximately $6,700,000,000 Operating cash flow for the 9 months ended September 2020 was $755,100,000 For the 9 months, we had net debt payments of 300 and $30,300,000 compared to $629,100,000 in 20 19. Treasury stock buybacks totaled $219,800,000 for purchases of 3,600,000 shares at an average price of $61.07 per share compared to treasury stock buybacks of 60,300,000 dollars or 1,300,000 shares in 2019.
In the 9 months, we declared and paid $99,900,000 of common stock dividends as compared to $76,000,000 in the same period last year, an increase of 31.4 percent. Year to date, we paid interest of $212,700,000 compared to $294,600,000 last year due to lower debt levels and lower average interest rates. In the 9 months, we paid income taxes of $182,500,000 compared to 180 point $3,000,000 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 $80,000,000 or 2.3 percent of adjusted revenue compared to $99,100,000 or 2.9 percent of adjusted revenue in the prior year.
Spending was predominantly for capitalized software, IT infrastructure and leasehold facilities leasehold improvements. Option exercise increased this year to $129,600,000 for proceeds and 4,200,000 shares compared to $74,500,000 of proceeds and 2,700,000 shares last year. On an LTM consolidated basis, EBITDA, which is used for our covenant compliance, was $1,876,000,000 as of September and includes $8,000,000 of acquired EBITDA and cost savings related to our acquisition. Based on net debt of approximately $6,700,000,000 our total leverage ratio was 3.58x and our secured ratio was 2.52x. On outlook for the year, we've got basically these assumptions included in assumed in our outlook.
We assume that markets continue to be volatile, large scale outsourcing deals and license sales 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 1 month LIBOR plus the spread, which is currently at 175 bps.
We will manage our expenses during this period by controlling variable expenses and staff hire, We will continue to invest in our business for the long term with capital expenditures of approximately 2.4 percent of revenue and R and D expenditures of approximately $400,000,000 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 Q4 of 2020. Under these assumptions, we expect approximately the following results: adjusted revenue of $4,650,000,000 adjusted net income of $1,130,000,000 diluted shares of $267,000,000 and operating cash flow of 1,130,000,000 dollars The second scenario assumes that the economic conditions continue the same as current conditions. And in this assumption, we expect the following results: adjusted revenue of $4,625,000,000 adjusted net income of 1,120,000,000 dollars diluted shares of 266,300,000 and operating cash flow of 1,115,000,000 dollars The 3rd 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 4,600,000,000 dollars adjusted net income of $1,110,000,000 diluted shares of 265,500,000 and operating cash flow of $1,100,000,000 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 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 and C, like a 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 and C is a transaction processing and accounting engine. Trade, dividend, 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 and 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.
Your first question comes from the line of Rina 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 was modeling.
And if you can maybe talk a little bit about the drivers of that organic revenue, how much of came from growth from the Fund Administration business, the EASE business and drillings and DST that would be really helpful. And separately, if you can also talk about what the underlying organic revenue growth assumption is for the Q4 and the drivers for your baseline case?
So, Hou, you want to 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 Fund 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 and A business again. 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 at the I'll talk about the midpoint of the scenarios. We expect adjusted organic growth to be negative about 5.5%. And the difficulty in the 4th quarter is that there's a very difficult cost compared to Q4 2019 when revenue was $1,212,000,000 and we had very strong license sales in that quarter. But we expect our Fund Administration business growth to continue and be around 5% for the full year and also our Intralinks 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 4th and in the Q3? And separately, if you can talk a little bit about the growth that you saw in DST and if it's possible to get back to at least a low single digit top line growth in 2021.
I'll give you so the alternatives administration business was up 4.3% in the quarter. And then the 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 Q4 and then really kicks in in 2021. So we have some reason for optimism. 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 in M
and A strategy or is
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 found a subject called Lake Ridge Capital and ran that venture capital fund 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, this quarter? And how should we think about the potential for savings going forward? Thanks.
Amit, I think most of the I think all the contractors were transitioned to in house employees in the quarter and the savings was about $6,000,000 in the quarter similar to what they brought.
Your next question is from the line of Jackson Ader with JPMorgan. Please go ahead.
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 business that CSP has and then any particular revenue recognition oddities that we should be aware of in those retirements
of this
win? I think in general, it's again, it's matrix and it's the number of participants, the size of transactions. So these are all large deals and JPMorgan also came out with, I think, probably everyday 401 or something along those lines that also going to administer that for you guys. And again, these are large scale deals. I mean, JPMorgan is a startup, but you guys have a lot of market power.
So there's great anticipation. And then, Nationwide has a big business as does by CNA. And so we're expecting tens of millions of revenue in 2021 and then an acceleration for 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, if it's more plain vanilla, you're not able to get the same type of basis points on the assets under administration. Any comment you have there?
Bill, I could take a shot at that. So I think what's happening is, as our private equity and real assets business continue to grow quickly, some of the kinds of mandates we're 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 Okay. That makes total sense. Thank you. Thank you. Thank you.
Thank you.
Okay. That makes total sense. Thank you.
Your next question is from the line of Alex Kran with UBS. Please go ahead.
Hey, good evening, everyone. Just a couple of quick ones. First on retention, notice that ticked down, I mean, 95.3 percent 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'd just say that there's been a couple of accounts that we've withdrawn from and that makes up the bulk of that.
Okay. And then maybe just on the guide, I guess, the updated guide. I know these are scenarios, but at the same time, we're, I guess, at the end of October with 2 months left in the year. So just curious, the $50,000,000 range, what are the biggest swing factors with 2 months left to still have such a wide range? Like what could go right, what could go wrong still in this year?
We could sign some large scale licenses where we take a very large chunk of revenue into the Q4, and we could not sign some large scale licenses where we take very large chunk of revenue in the 4th quarter. And I think that's just about it.
Your next question is from the line of Peter Heckmann with D. A. Davidson. Please go ahead.
Hey, good afternoon. Thanks for taking my questions. Patrick, did you comment on the closing of the unit of, I believe it was Capita, the timing of that in the quarter and what type of revenue that what kind of acquired revenue that contributed?
Our capital has not closed. Capital has
not closed. Okay.
Has not closed. It's still hung up with some regulatory approvals and 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, was Innovest in May.
Got it. Okay. All right. That's helpful. And then just the I saw the recent U.
K. Win come across. It remind me a little bit of the St. James contract. Is the replatforming of Wealth Manager still ongoing within the U.
K? And do you feel that you can use some of the successes to gain share there? I mean, is
all of all of our money management businesses are participating in the capabilities that we are packaging together for Brooks Macdonald and other large scale U. K. Money managers and actually throughout Ireland and Scotland and into that Europe. But we also have opportunities in Australia in this front 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 in front of them and be able to cement deals faster.
But Brooks McDonald is a 1st 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 U. K. And Europe.
Got it. Got it. And then you're breaking up there just
a little bit just so
you know, but just in Health Solutions, I guess you 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 3 or 4 quarters?
We have the pipeline for it to be able to close at higher rates even than that. I think we have some momentum. It's a question of locking 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 Timken with Needham. Please go ahead.
Thank you. Bill, just looking at the portfolio of offerings that you have, any noticeable shifts in competition implications for pricing? And then how have 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 added products that we've built around and acquired around Black Diamond like Cisco and other products like that. And then you have real assets that have done a very nice job and continue to have a very full pipeline. We also have a lot of opportunity in private equity. We think that continues as Rahul had spoken about that prior and that's a very full pipeline.
And still, on a 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 when 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 relationships. So that's really the kind of the essence of the business. By getting invest, we get trust. We have 16 Diamond RIAs and what they're finding as they get into high net worth individuals is a lot of them have trust, which is trust accounting. And MillTrust is a very, very powerful product and we're excited about our opportunity to cross sell and upsell into those 69
plants. That's helpful color. And then if I could just ask about 'twenty one, as we're trying to frame our models of the various scenarios you actually laid out, when you say a mid-twenty 21 recovery or early 'twenty one recovery or if the recovery is back end 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, again, the margin levels are really SS and C manages its business. So we can manage our expenses. And as we've told many times, we have some flexibility in 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 the global pandemic 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 through Zoom. But 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, people want to read up to you in the eye and make sure X, Y and Z, whereas 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 breadth of references.
And we're doing the work, right? Whereas if you file a big license and 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 Bank.
Please go ahead.
Thanks for taking your question and a good quarter. Patrick, my
question for you. For the Q4 organic guide, if we exclude that one time difficult comps from license headwinds in the or license revenues in the prior year, what would the organic growth would have been excluding those like difficult comps? Thanks.
I think last year yes, I think about yes, that's about right. So that's about it's a 3.5% impact or so.
Okay. That's helpful. 3% impact. 3%. That's helpful.
And maybe
a question for you, Bill, if
you can size the DST prospect pipeline, you had talked about $60,000,000 to $65,000,000 pipeline last quarter. Obviously, you've had some really good large deal wins. And so both 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 you get back into a growth mode or low single digit growth next
year? Thanks. I think we have opportunities. Again, it's a very competitive business, but the wins at ICMA 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 you know we have a talented group of executives working in that business with Mike Switholme and Kevin Rafferty and John Gee lie 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 sales in North America under Rob Snow, is also a very talented sales executive. And I think that we're getting some we're getting focused, we're getting traction 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 algorithmics, embedded analytics and embedded risk and things like IntiTrust, which gives you the ability to handle 1940 Trust Act portfolios and be able to answer for different states on their trust and the state's law.
I think there's a lot of stuff like that that SS and C has gathered like FEDADO that does handwritten notes and being able to immediately convert it 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.
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. It seems like the obviously, there's still some pressure, but it sounds like the sales cycle and close rates and things like that are starting to normalize.
I guess, just to get your perspective on that. And then if there is improvement, what have you seen into the Q4 from that perspective? Thanks.
Well, again, Andrew, I think trying to be perspicacious about this, I think it's very difficult because everybody's crystal ball is a little cloudy. And when you say things are coming back to normal, I would tell you 80% or 90% of our sales meetings are now through Zoom or WebEx or whatever Microsoft is, whomever, right? But some sort of collaboration software where people are in normal places. And as are our preparation meetings, all of our preparation meetings are through Zoom and collaboration software. And so back to normal seems like a very difficult standard to define.
And the further we get away from February of 20 20, the harder it is to remember what normal was. So traveling for business in an airplane, I have not done in 6 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, have data, make
sure we're supporting our teams and our customers. And then when you see spots of lightness counts. So I think it's much more of a kind of a watchful waiting. We're watchfully waiting, right? And like a hawk in a tree, until they see movement on the ground, they're not going to waste their energy.
And so that's what we're trying to do. We're trying to be wise. And in October of 2020, that's a difficult proposition.
Sure. That makes a lot of sense. I guess in a virtual selling environment, have you seen clients sort of adapt this sort of environment in terms of buying patterns? Or is it still very much tenuous from just a virtual sales engagement perspective?
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 length of those kinds of things all kind of stretch out.
And I know Rahul has been in the midst of a number. 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 some of their challenges, those challenges do need to get solved, right? 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 3, 4 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 really what we're facing.
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 and A pipeline, just any update there in terms of prospects and things like that?
Well, again, that's another wise discussion point, right? So we'll sit down and we'll talk in there. We can buy back debt. But as Patrick pointed out, our debt is 1 month LIBOR plus our spread and 1 month LIBOR right now is up. So our interest rate on our about $4,800,000,000 in term loan B debt is 1.9%.
Last year, I think we generated $5 a share in cash, dollars 5 per share in cash. So we want to be cognizant that we have a quality acquisition that we can get it at a fair price, then 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 between paying down debt. It looks like now we can buy something to open market and then also buy back shares.
Your next question is from the line of Chris Shutler from William Blair. Please go ahead.
Hi, good afternoon. Just looking at the 4th quarter implied net income range, I'm coming up with a range of 266,000,000 to 286,000,000 You did $294,000,000 in the 3rd quarter. So I guess the question is why would net income come down from Q3 to
Q4? Well, there's a little bit of decline in sequential revenue at the midpoint scenario, right? And the Q4 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 a few other expenses that kind of go up sequentially in Q4 and then at the midpoint, revenue is down a little bit.
So that began on October 1. And I think our rate is for 2020, while more modest than they are generally, we're still in the $30,000,000 to $40,000,000 range, so $8,000,000 to $10,000,000 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 and D effort for a long time at SS and C and been a very large acquisitive growing company for years. So maybe just would you mind putting a finer point on why you brought on Frank? I guess I'm still not clear on
Well, Chris, I think SS and P is a way bigger place, right? We're $1,600,000,000 and we have upwards 25,000 employees. We have 150 offices. We're in 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 the incoming numbers of acquisitions and then the ability to really project how I think or Rahul thinks or Patrick thinks, we still have full time jobs, right? I mean, we still try to manage the business. We try to help the sales force on calls. We try to help the development people, get the right people in and be able to really get high enough level people at our prospects and our clients to make sure that what we're building people are going to buy, right?
You 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. I know that's really cool and you couldn't sell it to your mother, right? So 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, in France, all over the United States, in Asia, right, and in Mexico and all over the place. So I think Frank's job and so far in the 1st 60 days, his job is to help those business unit managers understand how you're going to go about negotiating this, how you're 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 the legal? We're going to have a cadence through this whole thing. So it's not like I'm getting out of it.
I'm not. And there's a chance I might have some veto power, right? But we need more discipline when we're going to have so many opportunities around the world.
Your next question is from the line of Surinder Thind with Jefferies.
Just a clarification on the commentary around capital allocation. From my perspective, obviously, share 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 out for you, can you help me understand the trade off between share repurchases versus maybe just paying down debt? I understand that debt is effectively free at 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 firm from an outsider's perspective has been just leverage ratios and stuff.
Well, I think, hey, Samantha, that's a really good question. And that's where you try to be wise. That's why we spent $330,000,000 on paying down debt and buying back debt. And we spent $191,000,000 on buying back shares. Now we did get an authorization of $750,000,000 to buy back shares.
And 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 $750,000,000 worth worth of the excess cash. 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 CFA kind of analysis as 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 there aren't many places that pay down debt the way we do.
And we're focused and we're disciplined and we're not we haven't changed our general philosophy that first, our target is good acquisition. 2nd is we want lower leverage. 3rd 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. The market is in charge of
setting value of our stock. We're generating lots of cash, winning big new deals, we've got a lot of great technology coming out, we've got a great workforce, We're ambitious. We're disciplined. And I think even go back to 2015, we did $1,000,000,000 of revenue. 2010, we went public, we did $329,000,000 2,005, when we went private with Carlyle, we did 90 sites.
We have a history of growing And I believe we'll keep growing because that's what we did. It's in our DNA. It's who we are. We have other entrepreneurs like to join us, Nina Wallace at Algo, Ed Schmidt at Innovest, all kinds of different people that are still with us that we have bought their company. So I think that's a great diverse group of products and services and a diverse group of people and we are just excited about where we sit and how we perform vis a vis our competitors in the FinTech space.
That's very helpful, Bill. And as a quick follow on, in terms of just when I think about where you're seeing opportunity in terms of the mix and there was an 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 signing the bigger deals at this point? Or any color there would be appreciated if 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 some upwards of 18,000 now. And so obviously, our opportunity in the cross sell, upsell in our current client base continues to grow. Now at the same time we're $4,600,000,000 in revenue and my estimation of transaction processing and the financial technology spend, there's $100,000,000,000 in the United States and another $100,000,000,000 outside the United States. And I would guess in healthcare transaction processing, you have $80,000,000 in the United States and I don't really know what it might be outside of the state.
So if you take $4,600,000,000 and you divide it by $300,000,000,000 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 JPMorgan had a need or you have to have a need, Brooks McDonald or other ones, right? You 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 Sispen Love with Piper Sandler. Please go ahead.
Hi, 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 service in terms of the types of funds that are raising assets versus
those that are seeing some outflows?
We're continuing to see as I mentioned earlier, we'll continue 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 maybe it's skewed a little bit in that direction. And within the hedge fund markets, the credit focused funds, you don't continue to do pretty well, but it is pretty widespread.
And there are no further questions at this time. Mr. Stone, do you have any closing remarks?
No, I would just 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.