SS&C Technologies Holdings, Inc. (SSNC) Q3 2020 Earnings Report, Transcript and Summary

Ladies and gentlemen, thank you for standing by, and welcome to the SS&C Technologies Third Quarter 2020 Earnings Conference Call. [Operator Instructions] I will now 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 Litigations Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K, which is on file with the SEC and can also be accessed on our website. These forward-looking statements represent our expectations only as of today, October 28, 2020. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. During today's call, we'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 us today. I hope you and yours are home safe and healthy. I'll discuss our results and walk through our assumptions for the remainder of the year as we continue to navigate the COVID-19 world. Our results for the quarter were $1.156 billion in adjusted revenue, up 0.5% and $1.10 in adjusted diluted earnings per share, up 18.3%. Our adjusted consolidated EBITDA was $463 million -- $466.3 million, and our adjusted consolidated EBITDA 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 recent corporate businesses, and we have continued weaknesses in our perpetual [indiscernible] when we can get back in front of people, and we face some COVID specific headwinds in our health care business. Obviously, people had 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 9 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 at 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 accounts in 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 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 their 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 InnoTrust, and we have begun to get some traction. Banks and trust companies are competing with wirehouse's not RIAs, and we anticipate this being an ongoing trend in 2021. Our alternatives business set a new record high for our alternative assets under administration at $1.89 trillion, surpassing our previous record set last quarter. So much for the demise of the alternatives industry. We believe alternative asset managers are well positioned in these volatile markets. Our 2020 scenario analysis can be found on Pages 15 of our earnings results slides. We continue to use 202's1 scenario as our baseline with an incremental increase -- decrease of about $25 million dependent upon the state of the economy, which, obviously, is also dependent upon the global pandemic. We anticipate earnings per share to come in at about $4.21 as our baseline, up $0.11 from last quarter's estimate. I'll now turn the call over to Rahul to discuss the quarter in a little more detail.

Thanks, Bill. While a majority of our workforce is still remote, we have 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. SS&C continues to innovate how our employees continue to collaborate despite working from home. Within Intralinks, we have enhanced our investor vision portal with expanded general partner capabilities, launched an Intralink steel marketing and road show offering and integrated Zoom web conferences. Integration between Algorithmics and Singularity brings embedded risk analytics to our Singularity product. We have already signed one client using this expanded functionality and are building momentum. We've also rebranded our Global Transfer Agency Business to Global Investor and Distribution Solutions, GIDS. GIDS delivers transfer agency and 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 asset 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 Genesis for rinsing 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. The 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 that 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 asset hedge fund shows SS&C's fund administration services, including middle office, regulatory reporting and tax preparation, citing our reputation and commitment to implement on a tight time frame. The European alternative investment manager converted to SS&C fund services from a competitor due to our expertise and ability to meet loan servicing requirements. A large DSD insurance client required a reporting solution and chose to license vision, with a successful cross-sell offer 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 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% over $5.4 million over Q3 2019. Our acquisitions contributed $29.8 million in the quarter. Foreign exchange had a favorable impact of $6.5 million or 0.6% in the quarter. Organic revenue decline on a constant-currency basis was 1.4%, driven by some weakness in the DSD asset management and health care 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 cost factors, lower out-of-pocket expenses and lower travel expenses. Adjusted consolidated EBITDA, which was defined in Note 3 in the earnings release, was $466.3 million or 40.3% 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 noncash 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 GAAP tax provision for the quarter of $58.6 million or 26.9% of pretax income. Adjusted net income, as defined in Note 4 of the earnings release, was $294.2 million, and adjusted diluted EPS was $1.10. And the effective tax rate used for adjusted net income was 26%. Diluted shares increased 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 gross debt for a net debt position of approximately $6.7 billion. Operating cash flow for the 9 months ended September 2020 was $755.1 million. For the 9 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. The 9 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 9 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 leasehold of -- facilities leasehold improvements. Option exercises 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 got basically these assumptions included -- assumed in our outlook. We assume that markets continue to be volatile, large-scale outsourcing deals and license sales are impacted. AUA levels remained 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 but we'll continue to invest in our business for the long term with capital expenditures of approximately 2.4% of revenue and R&D expenditures 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: Adjusted revenue of $4.650 billion, adjusted net income of $1.130 billion; diluted shares of 267 million and operating cash flow of $1.130 billion. The second scenario assume that the economic conditions continue the same as current conditions. And in this assumption, we expect the following results: adjusted revenue of $4.625 million; adjusted net income of $1.120 billion, diluted shares of 266.3 million, and operating 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 $4.600 billion; adjusted net income of $1.110 billion, diluted shares of 265.5 million and operating cash flow of $1.100 billion. And now I'll turn it back over to Bill for final comments.

Mr. Stone, do you have any closing remarks?

Thanks, Patrick. In the past 34 years, we have put together a remarkably diverse portfolio of products and services, supported by a diverse group of talented professionals. Each year has presented challenges but perhaps no year more so than this year, an election year, a global pandemic, civil unrest. SS&C, 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, trades, 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&C will continue to be a trusted partner to our clients, a strong and successful company for our employees and a haven for value for our investors. And with that, we'll open it up to questions.

[Operator Instructions] Your first question comes from the line of Rayna Kumar with Evercore.

It looks like the organic revenue in the quarter came in a lot better than what The Street is modeling. And if you can maybe talk a little bit about the drivers of that organic revenue, how much of that came from growth from the fund administration business, the ease business and growing -- 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 fourth quarter and the drivers for your baseline case?

Rahul, you want to take that?

Yes, I can certainly start and maybe Patrick can comment on the underlying assumptions. But I think that the business is -- we have pretty good performance across the board in Q3, but the businesses that -- the highlights of our 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&A business again, and so Intralinks had a pretty good quarter as well. And Patrick, if you could comment on the guidance or the scenarios, rather?

Sure. I think at the -- I'll talk about the midpoint of the scenario -- of the scenarios, we expect adjusted organic growth to be, negative about 5.5%. And difficulty in the fourth quarter is that there's a very difficult comp compared to Q4 2019 when revenue was $1.212 billion, and we had very strong license sales in that quarter. But we expect fund administration business growth to continue and be around 5% for the full year and also our influence business and seeing some improvement in the DSD business.

Got it. That's very helpful. And if you can call out the actual growth rate for the fund administration business in the fourth -- in the third quarter, and definitely, if you can talk a little bit about the growth that we saw in DST, and if it's possible to get back to at least low single-digit top line growth in 2021.

I'll give you -- so the alternatives fund administration business was up 4.3% in the quarter. And the DST business, on an adjusted basis, was down 3.8% in Q3.

And if you look forward…

All right. 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 Crédit Suisse.

This is Marco on the line for Brad. I wanted to talk a bit about the hiring of Frank. I think this is for you, Bill. So what excites you about this hiring? Is there perhaps a shift in M&A strategy? Or nothing changing in the environment?

Well, I think Frank has been a pretty senior person at a number of different investment banks, including UBS, and then he found something 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 health care. 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. 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?

I think most of the -- I think all the contractors would transition to in-house employees in the quarter, and the savings was about $6 million in the quarter, somewhere in that neighborhood.

Your next question is from the line of Jackson Ader with JPMorgan.

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? And then, any particular revenue recognition and oddities that we should be aware of in those retirement business wins?

I think in general, it's -- again, it's matrixed and it's the number of participants, the size of the assets and the number of transactions. So these are all large deals, and JPMorgan also came out with the -- probably every day 401(k) or something along those lines that we're also going to administer that for you guys. And again, these are large-scale deals. I mean, JPMorgan is a start-up, but you guys don't have a lot of market power. So there's great anticipation. And then nationwide has a big business at the ICMA. And so we're expecting tens of millions of revenue in 2021 and then an acceleration to 2022.

Got it. Okay. 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 it's more plain vanilla, you're not able to get the same type of basis points on the assets under administration? Any comments you have there?

Bill, I could take a shot at that. So I think what's happening is as 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. And that's probably what you're seeing.

Your next question is from the line of Alex Kramm with UBS.

Just a couple of quick ones. First, on retention, noticed that tick down. I mean 95.3% is still a very high number. But just curious if you would call out anything why that's come off a little bit. I mean, again, tough environment, but just curious, any particular ideas?

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 million range, what are the biggest swing factors with 2 months left to still have such a wide range? Like what could go awry, 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 this fourth quarter, and we could not sign some large-scale licenses where we take very large chunk revenue in the fourth quarter. Now I think that's just about it.

Okay. No, that's fair.

Your next question is from the line of Peter Heckmann with D.A. Davidson.

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?

Capita has not closed.

It 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 what 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. Last acquisition, I think, was in a vest 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 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 that an opportunity for the DST business?

Yes. We went in just a -- we would say all of our all of our money management businesses are participating in the capabilities that we are packaging together for Brooks and Macdonald and other large-scale U.K. money managers and actually throughout Ireland and Scotland and then into the -- Europe. We also have a lot of opportunities in Australia [indiscernible] and in the rest of Asia. So I think some of the pandemic slowed down stuff. It's really that you're going to get a chance to get in front of them and maybe be able to cement vehicles faster. But Brooks Macdonalds, 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. And then -- and you're breaking up there just a little bit, just so you know but just in Health Solutions, I guess you talked -- 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 -- I mean, a lock in on the contract and then making sure that the revenue streams are coming again. But we have some momentum in health care, and we're cautiously optimistic about what we can do.

Your next question is from the line of Mayank Tandon with Needham.

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 add-in products that we've built around and acquired around Black Diamond like [indiscernible] 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, that continues, as Rahul had spoken about that prior, and that's a very full pipeline and still may come out 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 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 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 trust, which is you need trust accounting. And Milltrust is a very, very powerful product, and we're excited about our opportunity to cross them and upsell into those [indiscernible]

That's a helpful color. And then if I could just ask about '21, as we're trying to frame our models of the various scenarios you actually laid out, when you say a mid-2021 recovery or an early '21 recovery or with the recoveries back-end weighted, what does that mean in terms of the organic growth and margin levels when we talk about these recovery levels for '21?

Yes. I think, Mayank, again, the margin levels are really -- SS&C manages its business. So we can manage our expenses. And as we've 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 sails. We've hired a lot of new salespeople, and we're training them through soon. 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 just to be able to close deals. People want to really look at you in the eye and make sure X, Y and Z, whereas in the smart 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 going to work, right, whereas if you buy a big license then you have to do the implementation, you get concerned that you're not going to have people on-site from us. It adds to the trepidation. So that's the real challenge with the revenue side.

Your next question is from the line of Ashish Sabadra from Deutsche Bank.

Actually, my question for you, for the fourth quarter organic guide, if we exclude that onetime difficult comps from license headwinds in the license revenues in the prior year, what would the organic growth would have been excluding that was one like difficult comps?

I'll take the last part here…

[indiscernible] Patrick.

Yes, I'll take about -- yes. That's about right. So that's about a 3.5% impact or so.

Okay. That's helpful.

3% to 4% impact.

3%, 4%. That's helpful. And maybe a question for you, Bill, if you can size the DST prospect pipeline. You talked about $60 million to $65 million pipeline last quarter. Obviously, you've had some really good large deal 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 it get back into a growth mode at low single-digit growth next year?

I think we have opportunities. It's -- again, it's a very competitive business, but the wins that ICMA -- and that nationwide and that JPMorgan, for that matter indicate that we have a superior offering, and we have to get out and get after it. Now we have a talented group of executives working in that business with Mike Sleightholme and Kevin Rafferty and John Geli and a number of others, but those 3 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 Stone who's also a fairly talented sales executive. And I think that we're getting some -- we're getting focused, we're getting tracking and we're getting increased intensity. So I'm optimistic about where we're going with this. And I think that the addition of things like Algorithmics with the embedded analytics and embedded risk and 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 on a state's law. I think there's a lot of stuff like that, that SS&C has gathered like Vidado 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.

Congrats once again on a good quarter.

Your next question is from the line of Andrew Schmidt with Citi.

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 closed 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?

Well, again, Andrew, I think trying to be perspicacious about this. I think is 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 needs are now, going soon, are Webex, whatever Microsoft is, or whoever is, right? But some sort of collaboration software where people are in normal places. And as are our preparation meeting, all of our preparation meetings are through Zoom and collaboration software. And so back to normal seems like a very difficult -- a very, very difficult standard to define. And the further that we get away from February of 2020, the harder it is to remember what normal was, right? So traveling for business and in the 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 to ensure we're supporting our team and our customers. And then when you see spots of lightness, pounce. So I think it's much more kind of a watchful waiting. We're watchfully waiting, right? And like a hawk in the tree. Until we see movement on the ground, we're not going to waste our 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. No, 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. And then just a question on capital allocation. We saw the buyback this quarter. Should we expect consistent buybacks? And then I guess, in terms of the M&A pipeline, just any update there in terms of prospects and things like that?

Well, again, that's another wise discussion point, right? So we'll sit down and we'll talk in there. We can buyback debt. But as Patrick pointed out, our debt is 1-month LIBOR plus our spread, and 1-month LIBOR right now is [indiscernible]. So our interest rate on our -- 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. So we want to be cognizant that if 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. And it looks like now we can buy something in the open market and then also buy back shares.

Your next question is from the line of Chris Shutler from William Blair.

Just looking at the fourth quarter implied net income range. I'm coming up with a range of $266 million, $286 million. You did $294 million in the third quarter. So I guess the question is, why would net income come down from Q3 to Q4?

Well, there's a little bit of decline in sequential revenue. But the midpoint scenario, right? And the fourth quarter also typically has higher costs related to employee reviews and raises that are effective on October 1. So we're going to see that increase in compensation and a few other expenses 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 ranges for 2020, while more modest than they are generally, still in the $30 million to $40 million range. So $8 million to $10 million a quarter.

Okay. Got it. And then, Bill, I just want to come back to the hiring of Frank Egan one more time. You've obviously led the R&D effort for a long time at SS&C, and you've been a very large acquisitive growing company for years. So maybe just -- would you mind putting a finer point on why you brought on Frank? I guess, I'm still not clear on it?

Well, Chris, I think SS&C is a way bigger place, right? We're at $4.6 billion and we have upwards of 25,000 employees, we have 50 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 in the incoming numbers of acquisitions and then the ability to really project how I think or Rahul thinks our Patrick think, we still have full-time jobs, right? I mean, we still try to manage the business. We try to help the sales force on-call. We try to help the development people get the right people in and be able to really get to 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 bunch of science projects. That's really cool, and you could 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 banks 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 first 60 days, [indiscernible] is to help the business unit managers understand how you're going to go about negotiating this, how are you going to make that target feel well, feel good, how you're going to keep Patrick informed and Joe Frank informed for the finance and legal 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. We need to be more disciplined 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 the 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. 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, 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 [indiscernible]. We did do an offer of $750 million 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 million worth of those [indiscernible] shares. 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 CFE 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 that the way we do. And we're focused, and we're disciplined, and we're not -- we haven't changed our general philosophy that our target is good acquisitions. Second is we want more leverage. Third is, is when our stock appears to be undervalued, which we believe it is, but we're not charge of setting the value of our stock to market's in charge to set the 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 got a great workforce. We're ambitious, we're disciplined. And I think you can go back to 2015, we did $1 billion of revenue. 2010, when we went public, we did $329 million. 2005, when we went private with Carlisle, we did $95 million. So 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 would like to join us, like Nina Wallis at Alco, [indiscernible] at Innovest, all kinds of different people that are still with us that we have bought their companies. So I think that's a great diverse group products and services and a diverse group of people. And we're just excited about where we sit and how we perform vis-à-vis our competitors in the fintech business.

That's very helpful, Bill. And as a quick follow-on. In terms of just when we think about the -- where you're seeing opportunity in terms of the mix, and there's 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 sign 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 I think at the same time, we're at $4.6 billion in revenue, and my estimation of transaction processing in the financial technology space, there's $100 billion in the United States, and another $100 billion in the United States. And I would guess, in health care, transaction processing is at least [ $100 million ] in the United States and I don't really know what it might be outside United States. So if you take $4.6 billion and you divide it by $300 billion, we represent to 0.5%. 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 has a need or ICMA may have a need or JPMorgan have a need or -- we have to have a need, Brooks Macdonald or other ones, right? They 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.

And your final question comes from the line of Crispin Love with Piper Sandler.

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 some flows into. The private equity and real assets have tended to raise some larger funds. And so maybe it's skewed a little bit in that direction. And within the hedge fund market, the credit focus funds 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?

I would just -- again, I 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.