Good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the SS&C Technologies Third Quarter 2022 Earnings Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press Star followed by the number One on your telephone keypad. If you would like to withdraw your question, again, press the Star followed by the number One on your telephone keypad. We also ask that you kindly limit yourself to one question and one follow-up question. Thank you. Justine Stone, Head of Investor Relations, you may begin your conference.
Hi, everyone. Welcome and thank you for joining us for our Q3 2022 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 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 27, 2022. While the company may elect to update these forward-looking statement, 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 thanks everyone for joining. Our results for the third quarter are $1.322 billion in adjusted revenue, up 4.4% and up 7.5% on a constant currency basis. Our adjusted diluted earnings per share were $0.15, down 12.9%. Adjusted consolidated EBITDA was $502 million for the quarter. Our EBITDA margin was 38%. Our third quarter adjusted organic revenue was up 1.6%. We saw strong growth in our software businesses, including Advent and Institutional Investment Management, as well as part Private Markets Fund Administration and Retirement Solutions. Ex the impact of our healthcare business, our Q3 2022 organic growth in financial services, which is 94% of our revenue, was 3.3%.
SS&C generated net cash from operating activities of $764.6 million for the nine months ending 9/30. We paid down $55.6 million in debt in Q3, and our consolidated net leverage ratio now stands at 3.51, and our net secured leverage ratio is 2.52 consolidated EBITDA. In Q3, we bought back 3.7 million shares for $214.5 million, an average price of $57.62. We have bought back 6 million shares to date in 2022. We are currently planning on allocating 50% of our cash flow to stock buybacks and 50% to debt pay down. In August, we closed a small acquisition, Tier1 Financial Solutions, and are now working to integrate with our existing customer relationship management offering.
We will create one of the largest financial services-focused CRM systems in the marketplace with capabilities that are applicable to nearly all of our 20,000 clients. We continue to see revenue headwinds from the weaker economic backdrop and negative foreign exchange. Impacts from the equity markets are seen in our Hedge and ALPS businesses, and the slower M&A market has impacted our Intralinks business. Our assets under administration came in at $2.2 trillion, down from Q2 and flat year to date. This is compared to a $271 billion increase in AUA in 2021. However, we believe hiring and cost pressures that our clients face are catalysts to increased outsourcing. As firms globally continue their modernization efforts, we have unique opportunities to assist in staff augmentation, automation, and record-keeping solutions.
Our Q3 2022 EBITDA margin was 38%, and we are on track to exit 2022 at near our corporate average margins of 40%. We have already seen large successes implementing Blue Prism's digital workers throughout our organization. We have, for instance, validated 1,200 monthly client statements using digital workers, replacing over 40 hours of manual checking. We expect to have over 100 digital workers deployed by the end of the year and over 10x this number in 2023. In an era of high labor costs, Blue Prism will prove to be a very smart acquisition. On a constant currency basis, Blue Prism grew revenue of 16% in Q3. Our clients and prospects remain engaged.
At the beginning of October, SS&C hosted our first SS&C Deliver Client Conference in Orlando, Florida since 2019. We hosted over 1,000 people, and feedback has been very positive. We look forward to next year's SS&C Deliver in Austin, Texas. I'll now turn the call over to Rahul to discuss the quarter in more detail.
Thanks, Bill. Our business continues to display resilience despite some impact from FX, primarily the British pound, reduced M&A deal volumes and volatility in the overall economic environment. Our plans to grow despite these issues are centered around new product launches, amplified sales and marketing campaigns, and continuing our focus on customer satisfaction and delivery. In our funds administration business, a significant growth initiative is to enhance the offering for hybrid and credit funds, leveraging the full software capabilities of Advent products in partnership with GlobeOp Fund Services capabilities. In Intralinks, we launched deal services, which enables our customers to stay focused on the execution of their M&A deals while we take on labor-intensive tasks such as redaction as a service and reporting as a service. These offerings have already proven to be a differentiator for us, helping to drive recent wins.
We saw strength in our software business this quarter. Aloha, our newest platform in institutional investment management, has had some early success. Eight new clients signed in Q3 to bring our total Aloha client base to 29 clients, about a third of which are new logos to SS&C. In September, we appointed Bhagesh Malde to lead the consolidated SS&C Global business, including private markets, hedge, and insurance outsourcing. We continue to see a convergence between hedge and private markets. Bhagesh Malde has delivered strong revenue growth and built an excellent leadership team in our real assets and private markets business over the past five years, and we're confident he will lead the combined Global business in the next phase of its growth. We're starting to gain traction with our rollout of Blue Prism internally and across our client base.
Within our outsourcing and service businesses, we view Blue Prism as a significant competitive differentiator. It has widespread applications that will generate accuracy and timeliness benefits for our client base and free up our talented staff to focus on higher level and analytical roles and accelerate their career growth. We are targeting having digital workers be 5%-10% of our overall employee base by the end of 2023. We expect a savings of approximately $50,000 annually for each such role that we migrate to Blue Prism. Now I will mention some key deals for Q3. A wealth manager with 260,000 accounts chose Black Diamond to offer best-in-class solution to their end clients and large employee base. An existing fund services client expanded their relationship with SS&C to include additional funds and loan servicing on their private book.
A large real estate manager based in Singapore and New York chose SS&C's middle office capabilities due to our real estate expertise and global operating model. An existing Portia client upgraded to our new Aloha solution, noting the enhanced fixed income functionality. A large transfer agency client selected SS&C for their web modernization project. A large financial services group in Africa chose SS&C for its best-of-breed technology and BPO capabilities, including DWB, Percana, Policy Administration, and Blue Prism RPA. We're providing an end-to-end solution to administer a broad range of multi-asset, multi-region product types for their individual retail investors. I will now turn it over to Patrick to run through the financials.
Thank you. Results for the third quarter of 2022 were GAAP revenues of $1.321 billion, GAAP net income of $160 million, and diluted GAAP EPS of $0.61. Revenues were $1.322 billion. Adjusted revenue was up 4.4%. Adjusted operating income decreased 4.3%, and adjusted diluted EPS was $1.15, a 12.9% decrease from Q3 2021. Overall adjusted revenue increased $55.7 million or 4.4% over the third quarter of 2021. Our acquisitions contributed $68.2 million in revenue. Foreign exchange had unfavorable impact of $32.7 million or 2.6% in a quarter. Adjusted organic revenue increase on a constant currency basis was 1.6%.
We had strength across several product lines, including alternatives, Advent, Institutional Investment Management, and the Intralinks business. That strength was impacted by weakness in our GIDS transfer agency business and the healthcare business. Adjusted operating income for the third quarter was $486.1 million, a decrease of $38 million or 7.3% from Q3 2021. Adjusted operating margins were 36.8% in the third quarter compared to 41.1% in the third quarter of 2021. Expenses overall increased 9.2% on a constant currency basis. Acquisitions added $53.1 million expenses, and foreign currency decreased costs by $27.6 million. Our cost structure has been impacted by wage inflation and higher staffing to support our business.
We've improved operating margins sequentially from 34.2% in the second quarter of 2021 to 36.8% in the third quarter as we managed our cost structure. Adjusted consolidated EBITDA was $501.7 million or 38% of adjusted revenue, a decrease of $30.9 million from Q2 2021. Interest expense for the third quarter of 2022 was $86 million and includes $3.7 million of non-cash amortized financing costs and OID. The average interest rate in the quarter for our credit facility and the senior notes was 4.55% compared to 3.12% in the third quarter of 2021.
The increase in the interest rates contributed an increase of $26.6 million in interest expense in the quarter, and the higher average debt balance related to the financing of the Blue Prism acquisition added $8.6 million in interest. Our recorded GAAP tax for the quarter was $53.4 million, or 25% of pre-tax. Adjusted net income, which is defined in note four, was $298.8 million, and adjusted EPS was $1.15. The effective tax rate used for adjusted net income was 26%. Diluted shares decreased to 260.9 million from 263.9 million in Q2. Share repurchases and lower average stock price during the quarter led to the decrease.
On the balance sheet and cash flow, we ended the third quarter with $401 million of cash and cash equivalents and $7.3 billion of gross debt. SS&C's net debt, defined per our credit agreement, which excludes the cash of $151.6 million held at DomaniRx, was $7 billion as of September 30th. Operating cash flow for the nine months ended September was $764.6 million, $180.3 million or 19% decrease compared to the same period in 2021. Operating cash flows were impacted by transaction expenses associated with the Blue Prism acquisition of approximately $67 million, which includes amounts paid by Blue Prism in the post-acquisition period. In addition, it was impacted by the quarterly bonus that we initiated this year, in Q3 of approximately $29 million.
Interest paid in this period was $223.4 million, compared to $173.2 million in the same period of 2021. In the nine months, we paid $211.5 million in taxes, compared to $230.8 million in 2021. Our accounts receivable DSO improved to 51.7 days from 55.9 days as of June 2022. On investing and financing cash flows, we've paid about $1.629 billion for acquisitions including Blue Prism, Hubwise, MineralTree, O'Shares and Tier1. Capital expenditures and capitalized software of $158 million or 4% of adjusted revenue. The spending was predominantly for capitalized software and IT infrastructure.
In addition, we received a distribution of $66.2 million from one of our joint venture partners. During the three months ended September thirtieth, we paid down net debt of $55.6 million, and we bought back in the quarter $214.5 million. We spent $214.5 million for 3.7 million shares at an average price of $57.62. Year to date, we've declared and paid a dividend of $153 million to our common stock shareholders, as compared to $122.8 million last year, an increase of 19.9%. On outlook, for the fourth quarter, on assumptions, you know, we're continuing to focus on client service.
We expect client retention rates to continue in the same range as most recent results. We have assumed foreign currency exchange at approximately the current levels, and that will result in a negative impact of approximately $37 million on revenue growth in the fourth quarter. On adjusted organic revenue growth for the year, we expect 1.6%-4.6%. On adjusted organic growth for the fourth quarter, we expect to be in the range of -1.9% to +1.9%. On interest rates, we've assumed average rates of about 5.5% in the fourth quarter, and that compares to 4.55% we had in the third quarter of 2022. We'll continue to manage expenses during this period by controlling variable expenses and maintaining and improving our operating margins.
We expect our GAAP tax rate to be approximately 26% on an adjusted basis.
For the fourth quarter of 2022, we expect revenue in the range of $1.305 billion-$1.355 billion. Adjusted net income in the range of $285.3 million-$307.5 million, and diluted shares in the range of 255 million-267 million. For the full year, we expect cash from operating activities to be in the range of $1.125 billion-$1.145 billion. I'll turn it over back to Bill for final comments.
Thanks, Patrick. SS&C continues to be a highly profitable cash-generating enterprise. We continue to win large-scale world-renowned businesses, and we are constantly improving our processes. Sales, development, marketing, and management are all improving. We hope to show you with improved financial performance in the upcoming quarters. I will now open it up to questions.
At this time, I would like to remind everyone in order to ask a question, press star then the number one on your telephone keypad. We ask that you kindly limit yourself to one question and one follow-up question. Thank you. We'll pause for a moment to compile the question-and-answer roster. Your first question comes from the line of Andrew Schmidt from Citi. Your line is open.
Hey, guys. Thanks for taking my questions. I just want to start off with the 4% core organic growth assumptions. If you could just unpack that and perhaps break down the major assumptions by business, I think that would be helpful. You know, I know it's a little bit early to talk about 2023, but it does sound like there's some optimistic commentary in terms of client engagement and pipeline, et cetera. Obviously, the macro remains uncertain, but just wondering if there's a framework that we can use to start thinking about 2023, based on what you see today. Thanks a lot, guys.
I can get into some of the detail and maybe Patrick and Rahul can chime in after. You know, we expect that similar to Q3, that we will have, you know, some significant strength in our software businesses. You know, we've brought out a number of new products. Rahul talked about Aloha. I think Singularity is up to about 60 clients. Geneva continues to be very strong, and we have a lot of software that we've built over the past year and we're excited about some of those opportunities. I think our technology offerings are going to be well-received. And then in the fund administration business, you know, we continue to win large mandates. We have lots of opportunities.
Obviously, the real revenue growth is when we get these clients live. That will be in Q4, Q1, Q2. I think fund administration businesses and services businesses, you know, both in private markets as well as hedge funds will also be pretty strong, and insurance as well. We think that's got opportunity. I think we have a lot of things that are moving in a positive direction. You know, obviously, the British pound is at historic lows and, you know, we're not expecting it to have any giant rebound or anything. At the same time, there's probably good likelihood that it won't stay at historic lows.
Interest rates are gonna do what interest rates do, and we should have, you know, more than adequate cash flow to pay down a bunch of debt and buy back stock. I don't know if you have any comment, Rahul.
No, I think, you know, the only added thing I would have is that the underlying business, so the fundamentals that we look at, whether it's, you know, how many deals we have in the pipeline or how many wins we have and our path to innovation and rollout of new products all remain pretty strong. You know, clearly the economic backdrop, the FX rates, M&A volumes, things like that are impacting us right now. You know, 2023, to your question on the framework for 2023, that'll really just depend on how much that rebounds. You know, the things that we control, we actually feel are going reasonably well.
All right. Thank you, Bill. Thank you, Rahul. Appreciate the comments.
Your next question comes from the line of Alex Kramm from UBS. Your line is open.
Just actually wanted to follow up on your comments you made about fund admin just now. Sounds like you're relatively bullish still, but if I look at the AUA over the last few quarters, I think you mentioned the prepared remark has been flat or even down, and you see the alternatives growth come down at the same time. If I just eyeball how those trends in AUA have been, it almost looks like that fund admin business could go negative in the fourth quarter. Just wondering where your positive commentary is coming from, if this is more of a 2023 outlook or if I'm missing something on the 4Q. Because as I said, it seems like that business is decelerating right now given the market backdrop.
Well, I think, Alex, that you know, we're still doing pretty well with takeaways, and we're doing pretty well with signing, you know, major fund complexes. We think some of that revenue will start flowing through in Q4 and all throughout 2023. You know, we would say, you know, particularly in private credit and some other strategies that it's quite strong, and we don't see. You know, I mean, hey, if the market falls another 500 points or something, or 5,000 points, you know, okay. But other than that, I think they're talking about October being the best October in about 20 years in the equities markets.
Those kinds of things give us some tailwind, just like when they fall, it gives us some headwind. I think we are pretty optimistic about our fund administration business and we think that not Rahul, but Bhagesh is a very talented executive and he's already moving to streamline some of the stuff we do, and our sales force is really starting to sell bundles of our products and broad scale solutions. Rahul probably has a comment on that too.
Yeah. I think on the changes in AUA, you know, just we talk about frequently how that doesn't exactly correlate to what we expect from revenue outlook. There's some impact, but, you know, it's weakly correlated. You know, point taken that AUA is not going up. You know, if you look at our historical range on fund administration growth, it's somewhere between 4%-9%. You know, when we have tough markets like this, we expect to be at the lower end of that range. I wouldn't expect us to get negative unless there was a dramatic change in macroeconomic outlook.
Okay. No, that's great. Thank you. Just quickly as a follow-up, I think on previous calls you've talked about how the labor market has driven some implementation challenges. I think it was primarily on DST. Just maybe an update how if those are, you know, gone through, if it's easier to implement or if there's still challenges. I guess the question is what's the backlog like, and is that gonna help DST or other businesses where that's been an impact?
Alex, that's a great question. You know, we have a very large backlog of sold businesses that we're in the midst of implementations. You know, just for instance, one client that, you know, pays us several hundred thousand dollars a month, but when they go live, which we hope happens in the next five or six months, you know, that moves from several hundred thousand to several million. You can imagine that we're pretty focused. We can be as focused as we wanna be. You know, we really have to get these clients live and, you know, get into a steady state of them using our products and services on a day to day, week to week, month to month basis.
I think we are quite focused on that.
Has it been improving or still some challenges?
Oh, it's improving, but it's never improving fast enough, if you know what I mean. The rapidity, you know, is the key. You know, I would say we're getting better, and I would say we need to get better faster. I think that's. You know, but these are very large organizations. It's complex implementations and, you know, and you're doing it while they're still operating. Sometimes they're operating, sometimes they're doing acquisitions. You know, sometimes they're doing divestitures. You know, all of that adds to the complexity of these implementations. You know, we think we have a great team. We think we have great opportunities. You know, it's execution.
Fair enough. Thanks again, guys.
Your next question comes from the line of Peter Heckmann from D.A. Davidson. Your line is open.
Good afternoon. Thanks for taking the questions. Can you give us, say, an update on the development work on DomaniRx and how are you feeling about the timetable for the first quarter conversion?
Well, I think that you know, DomaniRx remains a very large system. And we're trying to make sure that we are really aligning our deliveries around times when these large health plans and you know are making decisions on new providers. You know, that's a work in progress, but we are certainly focused on DomaniRx. I don't. Rahul, do you have a deeper comment?
Bill, I don't. I think that's right.
Okay. Just on the kind of the legacy SS&C investor management software that I think it said it was up 16%. Now I guess I would assume that most of that business is coming on a subscription, but were there some larger licenses in there that would have affected that number?
Yeah, we sold a few on-prem Geneva licenses and even sometimes even though we may host it, they may still do all the work. So it's not a business process outsourcing service.
Yeah, you know, we have a, you know, refreshed group of technology that we think has some, you know, links to its acceptance in the market. We're doing quite well against our competitors, and we believe that will continue.
All right. That's helpful. Thank you.
Your next question comes from the line of Jeff Schmitt from William Blair. Your line is open.
Hi. Good afternoon, everyone. This just seems like the type of environment where you can really kind of push through pricing increases that you couldn't typically get. What type of pricing increases are you getting in the fund administration business? Are there other businesses where, you know, you're getting sort of material increases relative to historical levels?
Yeah, I think, you know, we've had, you know, a program to get some price increases, and that's worked pretty well. I think it's, you know, the price increases are more substantial than they have been, you know, over the last, you know, probably five years, as, you know, obviously inflation has gone up and, you know, people recognize that they want to keep the same team. You know, we have very talented people and they want to keep the same team. The conversation, while no one likes to have their prices increased, they understand that to, you know, keep these talented people and continue to deliver service at a very high level, there's gonna be some price increases.
We've had, I would say, pretty good success with that.
Okay. On the EBITDA margin expansion in the quarter, I think you said it was 260 basis points for the prior quarter. You pointed out a couple of drivers of that, utilizing Blue Prism, reducing the real estate footprint. How much did they drive that increase? I mean, could we get sort of the components of that?
Well, I think what we said was 260 basis points, you know, and I would say that the, you know, the management of the variable expenses was probably 100 to 120 of those 260 basis points. And probably the real estate footprint, you know, maybe another. What do you think, Patrick? 40, 50 basis points, maybe? Yeah. Probably around $5 million in the quarter. $5 million-$7 million. Okay. And then there's a variety of other things that we've done about. You know, we buy lots of services from lots of different people and we've gotten some help with, you know, more volume, but at a less rate. But I think those are the major components. And I think
I think, also Blue Prism operating margins improved in the quarter.
Okay. How big of an impact was that, or is it still small at this point?
I think they were up over 10% operating margin, so it was pretty significant in the quarter sequentially.
Okay. That's great. Thank you.
Your next question comes from the line of Kevin McVeigh from Credit Suisse. Your line is open.
Great. Thanks so much. Hey, I don't know if this is best for Bill or Rahul, but any sense of, you know, given some of the volatility, any changes in the competitive dynamics of the business? I wonder if you could give us just an update on kind of Blue Prism in terms of go to market, how that's been helping from competitive perspective.
Well, I think, you know, competitively, we believe we're in a very strong position and we continue to have takeaways. You know, we continue to have, you know, outreach from the industry coming to us, and we think that that's gonna continue. The breadth and depth of our offering, we believe is unmatched. We think that that's a very strong position to be in. You know, the addition of Blue Prism, you know, has really been in demonstrable ways that people can use digital workers for things like, you know, statement verification, reconciliation, you know, and a whole host of other things.
You know, as Rahul said, it's that, you know, we hope we come out of 2023 with, you know, between 5% and 10% of our workforce being digital workers. I think that that's a significant number of people.
Just following up on that, is that helping Bill internally in terms of managing some of the cost pressure that you saw earlier in the year? You've seen a little bit of benefit from Blue Prism and then the environment overall. Is that starting to help on the cost side in terms of it. It just feels like labor's, you know, maybe not as tight as it was earlier this year. Is that fair?
I think it is fair. You know, it's still tight though, right? You know, it's gonna be a while before labor is not in an ascendancy. You know, I think that in most of the people's businesses that are on this call, you know, there's pressures on various whether it's investment banking fees or other types of fees. You see that happening where there are significant cuts around large scale financial institutions. That generally puts more talented labor in the workforce.
You know, we are getting a lot of great resumes and, you know, our ability to really deploy Blue Prism is something that allows us to put people into higher-level analytical positions that give them, you know, a career paths that are, we think, pretty exciting.
Very helpful. Thanks, Bill.
Your next question comes from the line of James Faucette from Morgan Stanley. Your line is open.
Hey. I wanna go back to Jeff's questions on pricing, et cetera. I think you've mentioned that as a function of your pricing review, you've enabled more automatic escalators, at least in more contracts. You know, I guess recognizing that those are mainly in the licensing business. You know, is that comment really directed at new customer signings, or have you been able to go further and include some of those escalators in contracts that didn't previously have them? Should that ultimately result in more consistent pricing changes in future periods?
Well, it doesn't include our current client base with,
Rahul, maybe you can give a few.
I think it's both. We are, you know, obviously making that a standard in new customer contracts. As part of the conversation with current customers that did not have escalators in their contract, we're both agreeing to updated price levels, you know, at the present, and also sort of having this regimen of CPI or something indexed to a cost of living type adjustment built into the contract. That also has, to Bill's point, you know, nobody really wants to talk about these things, but they understand where we're coming from, and so that's gone reasonably well. It does make for, as you point out, a more automatic and consistent process going forward.
I guess just as a quick follow-up, then I'll pose my second question at the same time. Does that mean that, like, we should start to see some of that benefit in future periods, or is it still too nascent to think about that impacting next year? Is kind of the follow-up there. My second question was just on the, you know, we always ask about M&A environment. You guys historically have done a great job adding value and through acquisitions, and we've started to see some of the venture capital funding amounts come down. Just wondering if you're seeing some thawing and incremental opportunities there yet.
Well, I think the M&A market is active. I think there's, you know, you're seeing some major software deals being announced over the last few weeks. But prices are still pretty firm and, you know, I think that the clarion call for organic growth is something that we've put a lot of focus on and have a lot of new products and services that we think will drive significant revenue for us. Then the same thing with the pricing. I think, you know, that stuff builds. I think, you know, it will continue to build throughout 2023.
Hopefully we would be able to point to specifics of, you know, several percentage increases in the overall revenue streams on different services and products that is caused by price increases.
That's great context. Appreciate it.
Your next question comes from the line of Patrick O'Shaughnessy from Raymond James.
Hey, good afternoon. By my math, your full year organic constant currency revenue growth outlook moved about 10 basis points lower versus last quarter's guidance. If I have that right, does that then imply that most of the revision lower to the full year revenue and EPS guide was just a function of FX?
I think we think that's a yes.
Uh.
I mean, there is some FX impact. But I think the midpoint of our full year revenue guide is about 2% right now. I think at the end of the third quarter we were at about 3.2%.
Okay. Appreciate it.
Some of it is organic, some of it is organic reduction. Probably, I would say maybe $20 million is FX. From the guidance we gave at the end of the second quarter.
I thought I heard earlier on the call you said the range for the full year organic constant currency was 1.6%-4.6%. Did I mishear that?
Yeah, I think so. I think the midpoint's around two.
Okay. I can go back to the transcript after the call and look up what you said earlier. You know, I guess maybe a question about capital allocation. Bill, you touched on, you know, clearly the focus is on organic growth, but also just from an accretion standpoint, you know, given where the share price is, repurchases are pretty accretive given where interest rates are. Debt reduction is pretty accretive. Does that kinda change your thinking versus M&A, you know, relative to where maybe you've kind of been thinking historically?
You know, obviously, Patrick, you understand that process, you know, probably as well as anybody, and you know, that's way more art than it is science, particularly when interest rates are going up, you know, and we view our stock as undervalued. You know, you get kind of, you know, kind of anything you do is pretty positive. Interest rates at 5.5% compared to stock price at $50, you know, the stock price at $50 is quite a bit financially better. We still like acquisitions. We like the talent we get, and we like the ability to drive margins up. We like to get the new technology, the new services, the talent, you know.
You know, I don't think that the overall philosophy is much different. It's just that the magnitude that you can do and the impact that, as you said, both are accretive, but share buybacks are quite a bit more accretive, I think, than debt paydown. People, you know, people would prefer, you know, we drive our leverage ratio to below three, and I think, you know, again, you know, we moved our EBITDA margins up, I think 260 basis points, and people wondered if our margins were permanently back, you know, based on Q2.
Our view is if we have a lot of leverage in this business, Blue Prism, even what Rahul said, at 5%-10% of our workers, you know, you calculate those numbers out and you're talking about tens of millions. We're trying to be conservative, you know. I think there's a lot of opportunity for us and you know, even with our 38% margin, you know, which we would like it to be higher, it still stacks up pretty well against most of our competitors.
Great. Thank you very much.
Again, if you would like to ask a question, press star, then the number one on your telephone keypad. Your next question comes from the line of Mayank Tandon from Needham & Company. Your line is open.
Hey, good evening, guys. This is actually, Kyle Peterson on for Mayank. Thanks for taking the question. I guess to kind of frame the 2023 question either way, it seems like you guys are pretty confident on, you know, the margin trajectory. Thinking about next year, like, is there any reason that, you know, with, you know, Blue Prism integrated that you guys can't get back to kinda historical EBITDA margins that you guys have operated? Or like, outside of like, you know, like a black swan event or anything like that?
Yeah, we think better.
Okay. Like to hear that. Yeah, just a follow-up. You know, just, I know at least some of your past acquisitions, you guys have sometimes come across, you know, some non-core assets that might not have specifically, you know, fit with your portfolio. Are there anything left on the balance sheet from whether it's Blue Prism or anything else that you guys might be able to monetize and use to either, you know, pay down debt or buy back your own stock at these levels?
We got a few buildings for sale if you're interested. You know, if we have some other.
Yeah, sure.
Assets on our balance. We have some other assets on our balance sheet.
All right. Well, I'll contact my broker. Maybe we can work something out. Thanks, guys. Nice quarter.
We have several cities.
Yeah, yeah. There we go. Thanks, guys.
Yeah. We have some other assets on our balance sheet that. But nothing particularly significant that's gonna make, you know, $100 million or anything like that.
Okay. Understood. Thanks, guys.
Your next question comes from the line of Surinder Thind from Jefferies. Your line is open.
Thank you. Can you maybe dig a little bit deeper into the trends within DST Financial Services?
Yeah, I think that, you know, DST Financial Services particularly, you know, that we have a pretty big U.K. business. A lot of the headwinds with the British pound and-
The targets.
Are we still talking about DST Financial Services?
Yes.
Yeah. A large component of that business is in the U.K. and I think that we still have lots of opportunities there. We've spent a lot of money and we think we have improved our products and our service levels. I think it is still a competitive business and I think that we have a chance to continue to improve that business. I think we have a you know a stronger sales force in there and that we're doing some smart things. I think we'll continue to do that. Rahul, do you have anything else to add to that?
The other components of DST Financial Services, you know, the retirement business we've been, for the last 12 or so months, working on a couple of big customers that were, you know, getting much closer to that go live situation. You know, we expect to see growth in those businesses as a result. Brokerage remains pretty strong and we're encouraged by the fact that we're seeing more and more deals coming out of DST Financial Services that are sort of cross-sell enterprise type deals, where we're selling multiple of our products and services, including Advent and Fund Services and other things, which is really what, you know, we had hoped would happen. There's a lot of positive, you know, despite kind of some macro trends.
Understood. In terms of just a follow-up, maybe any additional color in terms of just you've talked about digital workers maybe getting to 5%-10%, potentially $50,000 in savings for each digital worker. Now, are you thinking that, about that in terms of, you know, reinventing existing processes? Is it primarily intended to be savings from future workers? Can you talk a little bit about the dynamics? Obviously, you've kind of given some idea of where 2023 might end up, but just what the longer term outlook for that might be.
Well, I think if you go back to the rationale of why we bought Blue Prism is we believe we have the strongest group of experts in the industry, and it's the functional experts married to the, you know, the high-powered technology and technologists in Blue Prism that allows us to build smarter and smarter digital workers that can do increasingly sophisticated work. You know, that's why you have the optimism that you hear here. You know, we do, you know, literally thousands and thousands of reconciliations and hundreds of thousands of limited partner statements and other things that are can be quite manually intensive.
The more that we can build expert digital workers to take an awful lot of that, you know, tedious and time-consuming work, you know, off of our workforce, the more we can get increasingly better and drive margin. You know, because we don't have to have as many people in that in those kinds of roles.
That's helpful. Thank you.
There are no further questions at this time. Mr. Bill Stone, I turn the call back over to you.
Again, we appreciate everybody being on here. You know, obviously, we prefer to grow and, but we also did smart things, I think, about protecting our workforce. You know, making sure that we're extremely competitive on talent acquisition and talent retention, as well as client acquisition and client retention. We're gonna focus on that, and we're gonna deliver on that, and we think that will play well for everybody. Thanks again, and we look forward to talking to you after the end of the year. Thank you.
This concludes today's conference call. You may now disconnect.