Ladies and gentlemen, thank you for standing by, and welcome to the SS&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. To ask a question during the session, you will need to press star one on your telephone. Please, we ask that you limit your questions to one question and one follow-up question. 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 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 factor 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 28th, 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'll 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 t hanks 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 the COVID-19 world. Our results for the quarter are up $1.156 billion in adjusted revenue, up 0.5% , $1.10 in adjusted diluted earnings per share, up 18.3%. Our adjusted consolidated EBITDA was $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 our recently acquired businesses, we have continued weaknesses in our perpetual [audio distortion] 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 2.52x , and total net leverage is 3.58x . 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 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&C has preserved our core DNA. Our sales force is hungry, and our technology teams are innovative. Over the past couple of months, we have signed two 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 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 ratably earned over the next few years. We have integrated Black Diamond and InnoTrust, 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 administration at $1.89 trillion, surpassing our previous record set last quarter, so m uch 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 four and five of our earnings results slides. 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 the majority of our workforce is still remote, we have opened four international offices and are in the planning phase for several more. We are all anxious to return to normalcy, but the health and wellbeing 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 InvestorVision portal with expanded general partner capabilities, launched an Intralinks deal 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 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&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, added Genesis for rebalancing capabilities, and BD Link as an investor portal. An existing large strategic client looking to consolidate vendors extended our transfer agency services to their European operations. A boutique superannuation fund based in Australia licensed our Bluedoor solution for its ability to meet their complex requirements.
An existing SS&C 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 billion in assets hedge fund chose SS&C's fund administration services, including middle office, regulatory reporting, and tax preparation, citing our reputation and commitment to implement on a tight timeframe. A 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 effort between DST and our institutional 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 $1.1528 billion , GAAP net income of $159.4 million, and diluted earnings per share of $0.60. Adjusted revenues were $1.1562 billion, including the impact of the adoption of the Revenue Standard 606 and for required 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% increase over Q3 2019. Adjusted revenue increased $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% of the quarter. Organic revenue decline on a constant currency basis was 1.4%, driven by some weakness in the DST asset management and healthcare businesses. These were offset by strength in the fund administration and the 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 in the quarter. Adjusted operating margins improved from 37% in the 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 three 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 and 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 pre-tax income. Adjusted net income, as defined in note four of the earnings release, was $294.2 million, and adjusted diluted EPS was $1.10. The effective tax rate used for adjusted net income was 26%. Diluted shares increased to 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 ending 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 lower debt levels and lower average interest rates. In the nine months, we paid income taxes of $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 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 our covenant compliance, was $1.876 billion 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 3.58x , and our secured ratio was 2.52x . On outlook for the year, we've got basically these assumptions 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 - 1% to - 2%.
Interest rates on our term loan facility will approximately be one-month LIBOR plus the spread, which is currently at 175 basis points. We'll 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 of 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: a djusted revenue of $4.65 billion, a djusted net income of $1.13 billion, d iluted shares of 267 million, and o perating cash flow of $1.13 billion. The second scenario assumes that the economic conditions continue the same as current conditions.
Under this assumption, we expect the following results: a djusted revenue of $4.625 billion, ad justed net income of $1.12 billion, d iluted shares of 266.3 million, and o perating cash flow of $1.115 billion. 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 $4.6 billion, adjusted net income of $1.11 billion, diluted shares of 265.5 million, and operating cash flow of $1.1 billion. 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, a n election year, a global pandemic, civil unrest. SS&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&C is a transaction processing and accounting engine, t rades, dividends, interest payments, pharmacy claims, tax returns, Medicare, Medicaid, compliance checks, mutual fund redemptions and subscriptions, and hundreds of other regulatory tax and commercial transactions. 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.
With that, we'll open it up to questions.
At this time, if you would like to ask a question, please press star, then the number one on your telephone keypad. If you would like to withdraw your question, press the pound key. Please, we ask that you limit your questions to one question and one follow-up. Please hold while I compile the Q&A roster. Your first question comes from the line of Rayna 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. If you can maybe talk a little bit about the drivers of that organic revenue, how much of that came from growth from the fund administration business, the Eze business, Intralinks, and DST, that would be really helpful. 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, you want to take that?
Bill, I can certainly start, and maybe Patrick can comment.
Sure.
On the underlying assumptions. I think that the businesses, we had pretty good performance across the board in Q3, but t he businesses that the highlights are funds administration had 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. Intralinks had a pretty good quarter as well. Patrick, if you'd comment on the guidance or the scenarios rather.
Sure. I think I'll talk about the midpoint of the scenarios. We expect adjusted organic growth to be negative, about 5.5%. The difficulty in the fourth quarter is that there's a very difficult cost compared to Q4 2019 when revenue was $1.212 billion, 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. If you can call out the actual growth rate for the fund administration business in the third quarter, 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.
The alternatives fund administration business was up 4.3% on the quarter and t he DST business, on an adjusted basis, was down 3.8% in Q3.
All right.
If you look forward to.
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 wh at excites you about this hiring? Is there perhaps a shift in M&A strategy, or is something changing in the environment? Thanks.
I think Frank has been a pretty senior person at a number of different investment banks, including UBS, then he founded something called Lake Bridge 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 h e brings a network of people and capabilities that we didn't really have in the organization before. I think that he's helping our individual business units on how to frame, how to make an offer, then how to move towards close in a confident way where the target is comfortable with what we're going to do. 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 all the contractors were transitioned to in-house employees in the quarter, and t he savings was about $6 million in the quarter, somewhere in that neighborhood.
Your next question is from the line of Jackson Ader with JP Morgan. 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 business that DST has? Then, any particular revenue recognition oddities that we should be aware of in those retirement services wins?
I think in general, again, it's matrixed and it's the number of participants, the size of the assets, and the number of transactions. These are all large deals. JP Morgan also came out with, it's called the Everyday 401(k) or something along those lines, someone else is going to administer that for you guys. Again, these are large-scale deals. JP Morgan is a startup, but you guys have a lot of market power, so there's great anticipation. Then, Nationwide has a big business, as does ICMA, so w e're expecting tens of millions of revenue in 2021 and then an acceleration for 2022.
Got it. Okay. Thank you. Then, on the fund administration business, I think this is the second quarter in a row that the AUM has actually outpaced the organic revenue growth. 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. I think what's happening is our private equity and real assets businesses 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 yield in terms of basis points. 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 of 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, a ny 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. 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 two months left in the year, so j ust curious, the $50 million range, what are the biggest swing factors with two months left to still have such a wide range? 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 fourth quarter, and we could not sign some large-scale licenses where we take a very large chunk of revenue in the fourth quarter. I think that's just about it.
Okay. No, that's fair. Thanks.
Your next question is from the line of Peter Heckmann with D.A. Davidson. Please go ahead.
Hey, good afternoon. Thanks for taking my question. Patrick, did you comment on the closing of the unit of, I believe it was Capita, t he timing of that in the quarter, and what type of acquired revenue that contributed?
Capita has not closed.
It has not closed? Okay.
Capita 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. Then, just, I saw the recent U.K. win come across. It reminded me a little bit of the St. James contract. Is the re-platforming of wealth managers 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 it an opportunity for the DST business?
Yeah. We would say 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 then moving into the rest of Europe. We also have a group of opportunities in Australia in this one and in the rest of Asia. 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 Macdonald's a 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 U.K. and Europe.
Got it. Got it. You're breaking up there just a little bit, just so you know. But just in health solutions , I guess 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. It's a question of locking down the contract and then making sure that the revenue streams are coming in. 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 of offerings that you have, any noticeable shifts in competition implications for pricing? Then, how have your win rates been trending across the various segments of your portfolio?
Yeah, I think the strongest area is continuing to be wealth management, where you see Black Diamond, and then a few of the other Advent products that we've built around and acquired around Black Diamond, like [audio distortion] and other products like that. 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 that continues, as Rahul had spoken about that prior, and t hat's a very full pipeline. Still, Mayank, on a dollar 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.
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, as are the tightness of the relationships. That's really the kind of the essence of the business. By getting Innovest, we get InnoTrust. We have 16 Diamond RIAs, and what they're finding as they get into high-net-worth individuals is a lot of them have trusts, which you need trust accounting. InnoTrust is a very powerful product, and we're excited about our opportunity to cross-sell and upsell into those 16 clients.
That's helpful color. If I could just ask about 2021, as we're trying to frame our models off the various scenarios you actually laid out, w hen you say a mid-2021 recovery or an early 2021 recovery, or if the recovery's 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?
Yeah, I think, again, the margin levels are really, you know, SS&C manages its business. 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, and we're not as concerned about the earnings. We have a very good sales force, and the global pandemic, while it hasn't crippled us, it certainly has not put wind in our sails. We've hired a lot of new salespeople, and we're training them through Zoom, but t hey don't get the interaction and the ability to be able to bounce ideas off each other and be able to see what's working in the rest of the sales force.
That's been the biggest issue for us, is to be able to close deals where people want to really look 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 references and we're doing the work, right? Whereas if you buy a big license and you have to do the implementation, you get concerned that you're not going to have people on site for months, and it adds to the trepidation. 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 my question, and a good quarter. Actually, 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 those one, like, difficult comps? Thanks.
I think last year.
Yeah, Patrick.
Yeah, that's about right. That's about a 3.5% impact or so.
Okay. That's helpful.
3%-4% impact.
3%, 4%, t hat's helpful. Maybe a question for you, Bill, if you can size the DST prospect pipeline. You had talked about $60 million-$65 million pipeline last quarter. Obviously, you've had some really good large deal wins. So, both the prospect pipeline and as you think about, as you mentioned, as you close these prospect pipelines 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 opportunities. Again, it's a very competitive business, but the wins at ICMA and at Nationwide, and at JP Morgan 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 th ose three guys are leading a very talented group of people that are in there selling and selling hard. We put the financial services sales in North America under Rob Stone, who's also a very talented sales executive, and I think that we're getting focused, we're getting traction, and we're getting increased intensity.
I'm optimistic about where we're going with this because I think the addition of things like Algorithmics, embedded analytics, and embedded risk, a nd things like InnoTrust, which gives you the ability to handle 1940 Trust Act portfolios and be able to answer for different states on their trust and estate law. I think there's a lot of stuff like that SS&C has gathered, like Vidado, that does handwritten notes and being able to immediately convert it into machine readable. There's a lot of things like that that gives our solution a superior look, a superior feel, and then superior productivity. I think that's the optimism.
Bill, thanks for the color. Congrats once again on a 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 it seems like, 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 fourth quarter from that perspective? Thanks.
Well, again, Andrew, I think, trying to be perspicacious about this, I think it is very difficult because everybody's crystal ball is a little cloudy. 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's is, whomever, right? Some sort of collaboration software where people are in remote 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. The further we get away from February of 2020, the harder it is to remember what normal was, right? 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, have data, make sure we're supporting our teams and our customers. Then, when you see spots of lightness, pounce. I think it's much more of a kind of watchful waiting. We're watchfully waiting, right? Like a hawk in a tree. Until they see movement on the ground, they 're not going to waste their energy. That's what we're trying to do. We're trying to be wise. 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 that's done virtually, too.
Sure.
The length of those kinds of things all kind of stretch out. I know Rahul has been in the midst of a number of them, and I think, maybe Rahul, you could kind of give your perspective.
Yeah. I think just to add to some of that. There are signs that people are getting more comfortable. I think people are adjusting to the, like Bill said a little while ago, some of their challenges, those challenges do need to get solved, right? At the same time, this is all about rate of buying behavior more than anything else. We are seeing prospects make decisions and sign contracts and move forward, and maybe the rate of that happening is a little better than it was three, four months ago, for sure, but i t's nowhere close to what it would be in that normalized environment. I think that's really what we're facing.
Understood. Thank you for that perspective. Just a question on capital allocation. We saw the buyback this quarter. Should we expect consistent buybacks? 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 live discussion point, right? We'll sit down and we'll talk, and we can buy back debt, but as Patrick pointed out, our debt is one- month LIBOR plus our spread. One- month LIBOR right now is about [audio distortion] . Our interest rate on our [audio distortion] about $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. We want to be cognizant that if we have a quality acquisition that we can get at a fair price, then we want to make sure we have the wherewithal to do that. Then, we're going to split the rest of our cash flow between paying down debt. It looks like now, we can buy some in the open market and then also buy 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.
Hey, 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. 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? The fourth quarter also typically has higher costs related to employee reviews and raises that are effective on October 1st. We're going to see that increase in compensation and a few other expenses kind of go up sequentially in Q4. Then, at the midpoint, revenue's down a little bit.
Okay.
Yeah. [crosstalk] That begin on October 1st. I think our raises for 2020, while more modest than they are generally, are still in the $30 million-$40 million range. So, $8 million-$10 million a quarter.
Okay. Got it. 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. Maybe just, would you mind putting a finer point on why you brought on Frank? I guess I'm still not clear on it.
Chris, I think SS&C is a way bigger place, right? We're $4.6 billion, 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. We've done a number of acquisitions where those management teams are used to buying stuff, too. 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, w e try to help the salesforce on calls, w e 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. Wow, 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, in France, all over the United States, in Asia, right, i n Mexico and all over the place.
So, I think Frank's job, and so far in the first 60 days, he's done a good 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, h ow you're going to keep Patrick informed and Joe Frank informed for the finance and the legal, h ow we're going to have a cadence through this whole thing. It's not like I'm getting out of it, I'm not. There's a chance I might have some veto power, right? We need to be more disciplined when we're going to have so many opportunities around the world.
All right. Understood. Thanks so much.
Your next question is from the line of Surinder Thind with Jefferies. Please go ahead.
Thank you. 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 o n 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, Surinder, that's a really good question, and that's where you try to be wise. That's why we spent $330 million on paying down debt and buying back debt. And we spent $191 million on buying back shares. Now, we just did an authorization, $750 million to buy back shares. 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 assets, I don't think we will. At the same time, when you're generating $5 a share in cash, that's a pretty compelling CFA kind of analysis as to what's more economically valuable to you. 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.
There aren't many places that pay down debt the way we do. We' re focused and we're disciplined. We haven't changed our general philosophy that first, our target is good acquisitions. Second is we want lower leverage. Third 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, t he market's in charge of setting the value of our stock. We're generating lots of cash. We're winning big new deals. We've got a lot of great technology coming out. We got a great workforce. We're ambitious, we're disciplined, and I think you can go back to 2015, we did $1 billion in revenue. 2010, when we went public, we did $329 million. 2005, when we went private with Carlyle, we did $95 million.
We have a history of growing, and I believe we'll keep growing because that's what we do. It's in our DNA. It's who we are. We have other entrepreneurs that like to join us, like Mina Wallace at Algo, Glenn Schmidt at Innovest, all kinds of different people that are still with us that we have bought their companies. I think that's a great diverse 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-a-vis our competitors in the fintech space.
That's very helpful, Bill. As a quick follow-on, in terms of just when we 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, h ow 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? Is it the new clients that are maybe hesitant to sign the bigger deals at this point, or any color there would be appreciated? If 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, more and more people are our clients. I think we have upwards of 18,000 now, and so, obviously our opportunity in the cross-sell, up-sell in our current client base continues to grow. Now, at the same time, we're at $4.6 billion in revenue, and my estimation of transaction processing and the financial technology space is there's $100 billion in the United States and another $100 billion outside the United States. I would guess, in healthcare, transaction processing is at least $100 billion in the United States, and I don't really know what it might be outside the United States. If you take $4.6 billion and you divide it by $300 billion, we represent 1.5%, so t here'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 Macdonald 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. I think in general, we do that, and we do that very well.
Thank you, Bill.
Your final question comes from the line of Crispin Love with Piper Sandler. Please go ahead.
Hi, thanks for taking my questions. 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.
As I mentioned earlier, we'll continue to see broad-based flows, so r eally, 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. You know, the private equity and real assets have tended to raise some larger funds, and so, m aybe, it's skewed a little bit in that direction. And within the hedge fund markets, the credit-focused funds continue to do pretty well, but it is pretty widespread.
All right. Thank you. That's helpful.
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. As always, we work very hard for our shareholders, and we appreciate your interest in our company. Thank you. Stay safe. Bye.
Thank you. This does conclude today's conference call. You may now disconnect.