Q3 2020 SS&C Technologies Holdings Inc Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the FMC Technologies third quarter 2020 earnings Conference call. At this time all participants are in a listen only mode. After the speaker presentations there will be a question and answer session to ask a question there.
And the fashion you want me to press Star one on your telephone. Please yeah that you limit your questions to one question and one follow up question.
And now I'd 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 FMC technologies with me today is Bill No Chairman and Chief Executive Officer, Rahul Kanwar, President and Chief operating officer, and Patrick to Don to your Q.
Financial Officer before we get started we need to read you. 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 is 995.
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 FCC and can also be accessed on our website. These forward looking statements, which represent our expectations only as of today.
Today October 28, 2020, while the company may elect to update forward looking statements. It specifically disclaims any obligation to do so guarantee.
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 Dot at the Tech Dot Com I will now turn the call over to Bill.
Thanks, and thanks, everyone for joining us today.
I hope you and yours are on safe and healthy.
I'll discuss our results for the quarter, then walk through our assumptions for the remainder of the year.
Opinion, 11, <unk> <unk> IP world.
Our results for the quarter or 1.156 billion.
Dollars and adjusted revenue up a dollar.
Adjusted earnings per share of <unk>.
<unk>, 0.3% or just <unk>.
Consolidated EBITDA was 463.3.
Do you want to 66.3 million and our adjusted <unk>.
EBITDA margin.
Increased to 40 point.
I think that was up 180 basis points or.
For Q3, adjusted organic revenue was down 1.4% and while we have seen some sales improvement within a reasonable corporate this is beautiful we have we have continued weaknesses or product.
Be rectified.
In front of people.
And we face some covert specific headwinds in our health care business.
If you've not been able to be prescriptions as they did prior to cope.
Alternative fund administration had a strong quarter with 4.3% organic growth and the rebound in the M&A market.
Dr. Intralinks broke the 5.9%.
Organic cash flow was 755 million for the nine months ended September 32020 person.
Or secured net leverage is 2.52 times and total leverage is 3.58 times.
We bought back 3.1 million shares of common stock at an average price of 61 44 per share for 191.9.
We still prioritize high quality acquisitions and are evaluating a number of that.
In September we brought on Frank eating to be managing director of murder mergers and acquisitions.
Frank has over 35 years of experience in investment banking as much alcohol.
And he will help us both source new deals and worked with our business unit managers to evaluate.
Different acquisition prospects.
Depended back has caused a lot of uncertainty in our global economy and major slim soft market.
Despite this efficiency has preserved our core DNA.
Salesforce is hungry Arctic college students are going to be over.
Over the past couple of months Weve signed two of the largest deal ever remember a time.
We continue to be a hot area for us and we hope to build solid references at nationwide and I see them.
The industry continues to adopt it flips and we signed a record 20 new clients in September.
As you know so as the clips funny.
Term basis, so the revenue will be ratably earned over there.
Next few years.
We have been agreed black Diamond and no cross and we've begun to get some traction.
Thanks, and trust companies are competing with warehouses not far away, we anticipate this being an ongoing trend in 2020.
Our alternatives business set a new record high for alternative assets under administration of 1.89 trillion dollars.
Surpassing our previous record set last quarter.
So much for the goodbye alternatives.
We believe alternative asset managers are well position to 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 is our baseline with an incremental increase or decrease of about 25 million.
Depending 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 and 20.
One cents as our baseline up 11 cents from last quarters.
I'll now turn the call over Cooper, who will discuss the quarter and a little more detail.
Thanks Bill.
While the majority of our workforce is still remote we've opened four international offices and are in the planning phase for several more.
We're all anxious to return to normal seasonal to 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.
Not to open an office unless it takes to do so.
Since he continues to innovate and our employees continue to collaborate despite working from home.
We didn't intralinks, we've enhanced our investor vision portal with expanded general partner capabilities launched in Intralinks field marketing and road show offering an integrated zoo web conferences.
Integration between algorithmic send singularity.
Things embedded risk analytics to our singularity product, we've already signed one point using this expanded functionality and are building momentum.
We've also rebranded our global transfer agency business, the global Investor in distribution solutions good.
Good delivers transfer agency Investor services powered by a single global servicing platform Nick right.
Previously leading financial services International has assumed the newly created role of head of kids to bring together SNC transfer agency capabilities around the world.
Now I will mention some key deals for Q3.
A $40 billion in assets hedge fund and turn fund administration clients license Geneva.
Their internal operations.
A long term advent client upgraded their IPX license to 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.
The boutiques Superannuation fund based in Australia licensed our Bluedoor solution for its ability to meet their complex requirements.
An existing it's essentially held client absorbing a number of acquisitions and the resulting increase membership required additional licenses and infrastructure to support that growth.
A large hedge fund based in Boston extended their fund administration services.
A $4 billion in assets hedge fund Joe. This is entering its fund administration services, including Middle office regulatory reporting and tax preparation.
Writing a reputation and commitment to implement on a tight timeframe.
The European alternative investment manager converted to SNC from services from a competitor due to our expertise and ability to meet loan servicing requirements.
Largely as the insurance client required a reporting solution and chose to license vision.
With a successful cross sell out there between DSD 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 words, GAAP revenues of 1 billion 152.8 million.
GAAP net income of 159.4 million.
Diluted earnings per share of 60 cents.
Adjusted revenues were 1 billion, one or 56.2 million.
Including the impact of adoption.
Revenue statistics, so six and for acquired deferred revenue adjustments for acquisitions.
Adjusted revenue was 1.5%.
Adjusted operating income increased 5.5% and adjusted EPS was $1.10 and 18.3% increase over Q3 2019.
Adjusted revenue increased 5.4% 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, 4.6% in the quarter.
Organic revenue decline on a constant currency basis was 1.4%.
Driven by some weakness in the DST asset management and health care businesses.
These were offset by strength in the funding ministration intralinks businesses.
Adjusted operating income for the third quarter was $448.8 million and.
An increase of 23.2 million or 5.45, 0.5%.
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.
38.8%.
Third quarter of 2020 for.
Driven by lower personnel costs.
Lower.
Cost related to independent contractors lower out of pocket expenses and lower travel expenses.
Adjusted consolidated EBITDA, which was defined and those three.
In the earnings release was 466.3 million.
40.3% of adjusted revenue.
An increase of 20.5 million or 4.6%.
Q3 2019.
Net interest expense for the third quarter was 54.7 million.
That includes $3.4 million noncash amortized financing costs and whole I'd.
The average interest rate in the quarter.
For our amended credit facility and the senior notes.
It was 3.0% compared to 4.84%.
Quarter of 2019 and.
Then resulted in interest expense decreased to $43.8 million.
We recorded a GAAP tax provision for the quarter 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.
Adjusted diluted EPS who's going to town center.
Effective tax rate is for adjusted net income was 26%.
Diluted shares increased.
206.7 million from 265.8 million.
Two two.
The impact of an increase in the average share price and option exercises, partially offset by share repurchases.
On the balance sheet and cash flow as of September then approximately a 184 million of cash and cash equivalents.
And approximately 6.9 billion of gross debt.
Our net debt position of approximately 6.7 Boeing.
Operating cash flow for the nine months ended September 2020, with 750 755.1 million.
For the nine months, we had net debt payments of 300.
$30.3 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.
The 1.3 million shares in 2019.
For the nine months, we declared and paid 99.9 million of common stock dividends. This compares to 76 million.
In the same period last year, an increase of 31.4%.
You heard Dave we paid interest of $212.7 million compared to 294.6 million plus.
Last year, the lower debt levels and lower average interest rates.
In the nine months, we've paid income taxes of $182.5 million compared to 180.3 million in the same period of 2019.
Our accounts receivable dsos improved in the quarter to 50.4 days compared to 53.3 days as of June 20 Twond.
Capital expenditures and capitalized software totaled 80 million or 2.3%.
Adjusted revenue.
Compared to $99.1 million or 2.9%, though adjusted revenue in the prior year.
Spending was probably predominantly for capitalized software.
Infrastructure and.
Please hold.
Some of the facilities lease hold improvements.
Option exercise increased this year to 129.6 million propose seeds and 4.2 million shares compared to 74.5 million of proceeds in 2.7 million shares last year.
On an LTM consolidated.
So EBITDA, which is used for covenant compliance.
It was $1 billion 876 million as of September.
Includes $8 million of acquired EBITDA and cost savings related to our.
Yep.
Based on net debt of approximately 6.7 billion, our total leverage ratio was 3.58 times.
And our secured ratio was 2.5 to 10 years.
[noise] paas outlook for the year.
That's cool Cup basically this.
Some shows including the assumed in our outlook.
Oh It was sub markets continue to be volatile volatile large scale outsourcing deals and license sales are impacted.
They were levels remain flat and fund launches or 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 approximate will be approximately to one month LIBOR floor.
Plus the spread which is currently has 175 bips.
We will manage our expenses during this period by controlling variable expenses.
Staff higher but.
Well, we'll continue to invest in our business for the long term with capital expenditures of approximately 2.4% of revenue.
R&D expenses of approximately 400 million on a GAAP basis.
We expect.
The tax rate to approximately 26% on an adjusted basis.
The first scenario assumes that 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.
Operating cash flow of $1.130 billion.
The second scenario assumes that the economic conditions continue the same as current conditions.
And then this assumption we expect.
The following results adjusted revenue of 4.625 billion.
Adjusted net income of $1.120 billion.
A little bit shares of 266.3 million.
Operating cash flow of $1.115 billion.
The third assumption assumes that economic conditions don't started improving until later in 2021.
Under this assumption, we expect possibly the following results adjusted revenue.
A 4.600 billion.
Adjusted net income of 1.110 billion.
Lose share with the $265.5 million.
An operating cash flow of 1.100 billion.
And now I'll turn it back over to Bill quick final comments.
Yes.
Mr. Stoned 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.
It has presented challenges, but perhaps no year more so than this year.
An election year.
Global pandemic sit.
Civil unrest.
Assess it seemed like a fine time piece just keeps ticking away.
Cdps up 18% for the quarter and we suspect 2020.
We'll be up 10% for the year.
Yes, the suky as the transaction processing and accounting engine.
Great dividends interest payments pharmacy claims tax returns Medicare Medicaid compliance checks mutual fund redemptions in subscriptions and hundreds of other regulatory tax and commercial transaction.
The World has more people generally doing more things.
Assistance, he will continue to be a trusted partner to our clients.
A strong and successful company for our employees.
Haven for value for our investors.
With that.
Well 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 being told by compiled acuity 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 on came in a lot better than what the chases modeling if.
If you can maybe talk a little bit about the driver of that organic revenue how.
How much of that came from.
I'm going to turn the fund administration business.
The IEA Beggars anchoring center and the equity that would be really helpful and definitely if you can also talk about what the underlying organic revenue growth assumption is for the fourth quarter and the driver.
Sorry, your baseline case.
Okay.
Oh, you want to take that.
Yeah, I can certainly start and maybe Patrick can comment on the.
On the underlying assumptions, but but I think that the you know the businesses, we had pretty good performance across the board in now.
Q3, with the businesses that the highlights our fund administration had a really a pretty good quarter.
And we also saw within Intralinks, a bounce back or you know starting to build some momentum in the M&A business again until Intralinks had a pretty good quarter as well.
Patrick if you'd comment on the guidance.
For the scenarios rather.
Sure I think that the ill talk about the mid point of the scenario of the scenarios we expect.
Adjusted organic growth could be negative about 5.5%.
And the the difficulty in the fourth quarter or is that there's a.
Very difficult comps compared to Q4.
2019, when revenue was 1.212 billion.
And we have very strong license sales in that quarter.
But but we expect.
Our fundamental spreads from business.
You know growth to continue and be around 5% for the full year.
And and.
Then also 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 on Productizing ministration does not and therefore, it and in the third quarter and definitely if you can talk a little better back on the growth that.
Anytime the Korean.
It's possible I get back to you Ali I was working on the top line growth and 2021.
I'll give it to the alternatives on those friction business was up 4.3% in the quarter.
Then the DST business on an adjusted basis.
Was down 3.8% in Q3.
And then if you look forward to.
Please go ahead.
2021.
You know these deals that we have.
Hi press releases out on.
Our very large deep goals and the revenue really starts to kick in.
Through throughout the.
The fourth quarter, and then really kicks in and then.
In 2021, so you know we have some reason for optimism.
Leaf that though.
We have a lot more prospects in the pipeline.
Your next question comes 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 Franke again. This is for you. Both so what excites you about this hiring there, perhaps a shift in M&A strategy or something changing in the environment. Thanks.
Well I think you know Frank has been a pretty senior person that a number of different.
Investment banks, including your BS and then he found it seems like bridge capital.
Hi.
And ran that venture capital funds for a number of years he is very well connected.
In both intact and in health care.
And so he brings a network of people and capabilities.
That that.
We didnt really have been 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.
We are confident way, where the target is comfortable.
With what we're trying 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 this 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 margin this quarter and how should we think about the potential for savings going forward. Thanks.
I think.
You know most of the.
Recall the contractors were transition.
The in house employees in the quarter.
And.
And the savings was about $6 million in the quarter somewhere in that Daypart.
Your next question is from the line of Jackson It here with JP Morgan. Please go ahead.
Hi, guys. Thanks for taking my question just a quick follow up on some.
Some of those retirement services deals building you talked about.
Can you give us a sense how those contracts are priced today are they based on dollars per account similar to that to the mutual fund accounting business. The DST has and then any any particular revenue recognition. The oddity that we should be aware of in those retirement.
I think.
I think in general.
You know its again its matrix doing that you know the number of participants the science of the assets and Andrew.
And the number of transactions.
So these are.
All large deals.
Okay few Morgan also came out with that.
Well, the everyday Htwo and carrier.
Something along those lines.
Let's do that for you guys.
And again these are large scale deals.
You can work through the start up.
You have a lot of market power centers.
You know great anticipation.
Your next Mike has a big business as you maybe.
So you would expect.
Tens of millions of revenue in 2021.
Acceleration.
Okay.
Got it okay.
Okay. Thank you and then.
On the on the bundled administration business I think.
This is the second quarter in a row that that the 80 low has actually outpaced the organic.
Revenue growth and I'm just curious in this.
A signal of pricing pressure isn't it signals, maybe the types of assets that are flowing into your customers maybe there.
You know more plain vanilla, you're not able to get the same type of basis points on the on the assets under administration any comment you have there.
Yeah, Bill I think I could I could take a shot at that so you know you think I think what's happening is it's all private equity and real assets business is continuing to grow quickly.
Some of the times of mandates for getting in there are for things like our 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, when that's probably what you're saying.
Okay that makes total sense. Thank you.
Your next question is from the line of Alex Kramm with KBS. 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 that's come come off a little bit I mean, again tough environment, but just curious any any any particular parties.
I understand that you know there's been a couple of accounts that weve withdrawn from.
And that makes up the bulk of that.
Okay, and then and then maybe just on the on the on the guide I guess the updated guide.
I know these are scenarios, but at the same time, where I guess at the end of a similar with two months left in the year. So just curious to 50 million range. What are the biggest swing factors with two months left to still have such a wide range and what not but what could go right, but because of whatever on still and.
Just this year.
We could see signs from large scale.
Where we take a very large chunk of revenue into the fourth quarter.
And we could not sign some large scale licenses, where we take very large chunk of revenue in the fourth quarter.
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.
Hi, good afternoon, Thanks for taking my question.
Patrick did you comment on the closing of the unit.
I think it was capita.
The timing of that in the quarter and that type of revenue that capex, what kind of acquired Devry that contributed.
Our capital has not closed.
Okay has not close it still hung up with.
Some regulatory approvals and some other approvals says.
And who we're not sure at this point.
What its going to close.
Okay. So so there is no acquired revenues per capita in your in your updated guidance ranges.
No there is that Theres really no changes from our.
Previous guidance you know last acquisition I think was in a best in May.
Got it Okay, all right Thats helpful and then.
Just the.
I saw the recent UK when come across.
It.
Finally, a little bit of the say James contract is he is the re platforming of wealth manager still ongoing within the UK and and and do you feel that you can use that the successes to gain share there is an opportunity for the DSD business.
Yeah, we we wouldn't just say.
We we would say all of our all of our money management businesses are participating in the capabilities that we are packaging together for.
So Brooks Mcdonald.
Berger.
Other large scale.
You paid money managers and you know actually throughout.
Ireland and Scotland.
Yes.
That's what happened.
Sure.
And the rest of Asia, So I think.
Some of the.
Some of the pandemic.
No it's really the chances of front of maybe.
Thank you.
Sumit deals faster.
Right, but perks mcdonalds, the first class place them and we have a great.
Great opportunity partners.
Partnership with them and then also leverage or for more business.
Throughout the UK Europe.
Got it got it and then.
You're breaking up there just a little bit just so you know, but it just in health solutions.
I guess you talked to you called out a couple of wins, there and maybe some opportunities but is that a business that you think can grow high single digits over the next three or four quarters.
Oh, we have the pipeline for it to be able to run to close or at.
At higher rates, even than that I think you know we have some momentum that it's a question of stock.
Have you know like on the contract and then making sure that that the the revenue streams or are coming in but we have some momentum in health care and animal.
You know cautiously optimistic about what we can do.
Got it right well 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 shift in competition implications for pricing then haga win rates been trending across the various segments of your portfolio.
Yeah I think.
Do you know the two.
The strongest areas continues to be you know wealth management, where you see black diamond.
And then a few together and in products that.
We looked around and acquired around Black Diamond likes went to another.
Another products like that then you have real.
Real assets that have.
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 spoken about that prior and that's a very full pipeline.
No, it's still not making a comment.
On a smaller spaces still 70% of the dollars in private equity are still.
Administered in house, so, there's a real opportunity for us to grow.
Executing to that business, even more so.
And I think you know right I think we we believe retirement.
It's going to be a very nice sweet spot for us because the deals are large and Anna.
And the contracts are large are long.
And as our Arca tightness for the right relationships. So you know.
That that's really that's the kind of the essence of the business you know by kidding invest we get into a trust.
You know we have 16 diamond.
Our is and you know what their five minutes to get into.
You know what our high net worth individuals who is a lot of them have trust.
Which these you need trust account.
No trust is a very very powerful product.
And we're excited about our opportunities to cross selling upselling deals.
Okay.
That's so helpful color and then if I could just ask about 21 as were trying to frame our models of the various scenarios yet you laid out.
When you say, a mid 2021 recovery or an early 21 recovery or recoveries backend weighted what does that mean in terms of the organic growth.
Margin levels, when we talk about these recovery level for 21.
Yeah, I think back again may be good margin levels are really.
Assesses he manages its business.
So you know we can manage our expenses and as we've talked many times.
You know we have.
We have some flexibility in and how much money we expect.
So so we're not as concerned about incremental margins.
No we're not as concerned about the earnings.
You know, but we have a very good sense for students.
And the court will pan out.
Hasn't crippled US you know it certainly has not put wind.
In our sales we've hired a lot of new salespeople and we're training them through.
But no they don't get though.
The interaction.
The ability to to be able to bounce ideas. After you know it hung on each other and be able to see.
What's working in the rest of the sales force so.
No that's been the biggest biggest issue for us is to be able to.
Close deals.
People want to really doing YOD get make sure X y and Z where.
No worries.
On the large scale as we speak.
Fund administration business here.
You know, we're we're such a colossus in these businesses that we really have a lot lot lot correct.
References.
And.
We're doing the work.
Right, whereas if you buy a big license that you have to do the implementation.
Get concerned that you're not going to have people on site from.
From auction it adds to the trepidation.
So so that's the real challenge with though with the revenue side.
Got it thanks Bill.
Your next question is from the line of Ashish Sabadra from Deutsche Bank. Please go ahead.
Hi, Thanks for taking my question and a good quarter actually my question for you.
The fourth quarter organic guide if.
If we exclude that one time difficult comps from license had mentioned the license revenues in the prior year.
Well do that the organic growth would have been excluding that was what blake difficult comps. Thanks.
Thanks.
Yes.
I think.
Well take last 40 are accurate.
Think about yeah, that's about right so.
So that's about three.
3.5% impact or so.
Okay. That's helpful.
Maybe if there is an impact.
Before that I mean.
Maybe a question for you Bill if you can size.
So I used the DST prospect pipeline, you talked about 60 to 65 million on the pipeline. Thus what color obviously, you've had some really good large deal wins and.
And so what the prospect pipeline and as we think about it as you mentioned as you close each prospect pipeline and then you gave.
Oh look question was how do we think about the DSD cool next keeler.
Can it get back into a a go to more that it just seems like you could cook next year. Thanks.
I think we have opportunities you know, it's it's again, it's a very competitive business, but.
With that I'd hear me ended and nationwide and that JP Morgan for that matter indicate that we have a superior offering and and we have to get out and get after it.
Now you know we have a talented group of executives working in that in that business with Mike Sleightholme and.
Yep property and John T. lie and.
And a number of others, but but both of those three guys are leaving a very.
The talented group of people that are.
That are in their sell in and sell them hard as you know we put.
Financial services sales.
North America under right now.
Also refer balances are still projected overnight I think that we're getting some out.
We're all getting focused we're getting traction.
Increased intensity.
So I'm optimistic about where we're going with that and I think.
With the addition.
Okay. Thanks for the algorithmic embedded analytics and risk.
Thanks, I cannot trust, which gives you the ability to handle.
You know like Inquiry Trust Act.
Holy knows and be able to answer for different state from their trust in us.
Speech.
Well I think there's a lot of stuff like that.
Since we have gathered like teradata or good does that.
Handwritten.
No in being able to immediately converted she reasonable I mean, there's a lot of things like that that gives our solution.
A superior.
Look superior fuel has been superior productivity and I think that that's the optimal.
Bill Thanks for the color.
And congrats once again on the quarter.
Your next question is from the line of Andrew Smith with Citi. Please go ahead.
Hey, guys. Thanks for taking my questions just a question buying behavior in the sales cycle. It seems like you guys pulled through some nice wins over the over the past quarter and seems like.
The.
You say, there's still some pressure, but it sounds like the.
The sales cycle in closing closing close rates and things like that are starting to normalize I guess just to get your perspective on that and then you know it.
There is improvement what have you seen into the fourth quarter from that perspective. Thanks.
Well again, Andrew I think.
No.
Trying to be perspicacious about this.
No I think the.
It is very difficult because.
Everybody's Crystal ball is a little cloudy.
You know and when you say things are coming back to normal.
I would tell you 80 or 90% of course to lead to now Sue.
Or.
Webex.
Whatever Microsoft's.
Whomever, but.
But some sort of collaboration software.
Normal place.
And as our preparation meetings.
All of our preparation meetings.
Yeah, you know collaboration software.
And so.
No.
Back to normal.
It seems like a very difficult.
A very very difficult standard time.
You know in the further we get away from February of 2020.
The harder it is to remember what normal was.
All right so.
You know traveling for business in an airplane I have not done.
And.
Six months maybe.
Hi.
That hasn't happened in 30 years so.
So I, just think we need not to get precipitous and we need to be able to.
You know work, particularly as they.
Sure we're supporting our team.
Okay.
And then and then.
When you see spots of whiteness.
Perhaps.
So I think it's much about.
Kind of a watchful waiting.
You know, we're watchful waiting right in.
You know like a hawk in a tree you know until we see movement in the on the ground that you know not gotten a western energy.
So that's what we're trying to do with what we're trying to be why.
And when.
October 2020, that's a difficult proposition.
Sure no that makes a lot of sense I guess in a virtual selling environment.
How do you see quite sort of that gap this sort of environment in terms of buying patterns or is it still very you know very much tenuous and kind of just a virtual sales engagement perspective.
Well I, it's just longer right. It just it just takes longer and then you know there's a contract I didnt.
That's virtually two so sure so the length of those kinds of things all trying to stretch out in you know I know Rahul has been.
While in the midst of a number on that and I think you know maybe a whole you could kind of give your perspective.
Yeah Yeah.
I think just to just to add 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 are that they some of their challenges those challenges do need to get fault.
Right, but but at the same time, just all about rate of buying behavior more than anything else. So we are seeing prospects make decisions and signed contracts and move forward and and maybe there's maybe the rate of that happening is a little better than it was three or four months ago for sure, but it's not it's nowhere close to what it would be in that normalized environment.
I think that that's really what we're facing.
Understood understood. Thank you for that perspective, and then just.
Question on capital allocation.
We saw that the buyback this quarter should we expect consistent buybacks and then I guess you know in terms of the M&A pipeline.
Just just any update there in terms of prospects and and things like that.
Well you know again, that's another that's another wife.
No.
Discussion point right. So we'll sit down and we'll talk in there too you know, we can buyback, Dave that but as Patrick pointed out or.
That is.
No one month LIBOR plus our spread in one month LIBOR right now is that.
So our interest rate on our her friends about.
4.8 billion.
No.
Term loan B pad is is 1.9%.
You know last year, I think we generated $5 a share in cash.
$5 per share and cash so.
You know we want to be Cogs.
Cognizant.
That.
We have a.
Quality acquisition.
It is now at a fair price then we want to make sure we have the wherewithal to do that.
And then we're going to split.
Most of our cash flow.
Paying down debt looks like now we can bite.
And.
And then also.
From buying back shares.
Okay. Thank you very much guys appreciate the comments.
Your next question from the line of Chris Shutler from William Blair. Please go ahead.
Hi, Good afternoon, just looking at the fourth quarter implied.
Net income range I'm coming up with a range of 266 $286 million.
You did 294 million in the third quarter.
So I guess the question is why wouldn't net income come down from Q3 to Q4.
Well, there so there's a little bit of that.
The decline in sequential revenue at.
The mid point of sale.
Right.
And.
The fourth quarter also typically it has.
Higher costs.
Related to us.
[laughter] employee reviews and races that are effective October 1st so.
So for US we're going to put in to see the increase in compensation.
And.
And two other expenses.
Well go up sequentially in Q4 as it and then you know at the midpoint revenue was down a little bit.
Okay.
Yes.
We can.
It is true.
So that began in October the first and I think our races.
For 2020, while more modest than they are generally.
We're still in the $30 million to $40 million range. So you know $8 million to $10 million per quarter.
Right.
Okay got it.
And then Bill I just wanted to come back to the hiring of Franke again, one more time, you've obviously led the R&D effort for a long time at us as a C and D.
In a very large acquisitive growing company for years. So maybe let me just would you mind, putting a finer point on why you're brought on Frank I guess I'm still not clear on it.
Well, Chris I think you know assistance either way bigger place right, where we are.
1.6 billion, we have upwards 25000.
Employees, we have 150 offices were 35 40 countries right there's opportunities over the world.
And and we've done a number of acquisitions, where those management teams are used to.
Buying stuff too.
So.
[noise] income numbers.
The acquisitions and then the ability to.
To really project.
Do you know, how I think or Rahul, thanks, or Patrick thanks.
Well, we still have full time jobs right I mean, we still try to manage the business. We try to help the salesforce on calls we try to help the development people get the right people in it and be able to really get high enough level people at our prospects and.
And our clients to make sure that what were building people are going to.
Right you know you get you get as many developers. This we have that have a lot of talent.
You got to be careful you don't have a bunch of science projects.
That's really cool good sell it to you.
<unk>.
That's it.
[music].
You know we might have a.
We we do we have.
Opportunities to buy things, Germany, France over the United States and Asia.
Right.
Mexico, when and and all that so.
Frank job.
So far in the first.
Rob.
Is to help both business unit managers understand.
How you're going to go about.
[noise] negotiating this are.
Are you going to make that target feel well feel good how you're going to keep Patrick and formed and Joe Franklin form for the finance and legal.
I will have a cadence through this whole thing so it's not like I'm getting out of it I'm not.
Yeah I'm sorry.
Veto power.
[laughter] discipline.
When we're going to have so many opportunities.
Around the world.
Alright understood. Thanks, so much.
Your next question is from the line of surrender then 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 that.
The go forward basis, as we think about.
The opportunity set that up for you.
Can you help me understand.
The tradeoff between share repurchases versus maybe just paying down debt I understand that debt is effectively free you know 1.9% at this point, but.
Maybe that allowing yourself to increased flexibility in terms of maybe doing even a bigger deal or.
Obviously, one of the challenges with the firm from an outsider's perspective, it's been just leverage ratios and stuff.
Well I think hasten to do that's a really good question and you know that's that's where you try to be wise.
Thats why we spent $330 million on.
Down back buying back debt.
And we spent 191 million on.
Buying back shares.
Now you know we received an offer from $750 million to buy back shares and.
No we don't send out.
Press releases on authorizations that we don't have any intention on acting upon.
That doesn't mean, we're going to buy $750 million.
Yes.
Well.
But same time, when you're generating $5 a share in cash.
You know that's a pretty compelling.
I don't see us a ton of malice effects too [laughter].
[laughter] more.
Economically valuable to you, but it looks like your points well taken right with the market.
Prefers that we have less debt that would have less leverage and that we are.
We pay down debt faster, but.
But aren't many places that pay down debt the weight.
We're focused we're disciplined and you.
You know we're not.
No we haven't changed our general philosophy that first our target is good acquisition.
Second as we weren't lower leverage.
You know third is when our stock appears to be undervalued, which we believe it is.
But you know were on charges set in the value of our stock the buckets charged our stock.
We're generating lots of cash when his big new deals we've got a lot of great technology coming out we've got a great workforce.
[noise] vicious, we're disciplined and I think.
You can go back to 2015 <unk> billion in revenue 2010, when we went public we did 329.
2005, when we went private.
With Carlyle, we did 90.
95.
We will always have a history.
A girl.
And I believe will keep growing because that's what we do it's in our DNA, It's who we are.
You know we.
No words that like to join us.
You know Wallace that out though.
At the end of that.
You know all kinds of different people that are still with us that we have bought their companies. So I think thats a great.
You know the first group of products and services in a diverse group of people and you know, we're just excited about where we sit and how we perform.
You know vis-a-vis our competitors.
That's very helpful, Though and then 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 was an earlier question about.
How maybe the sales process has changed with the time how.
How much of your new business, you're looking to win.
He is maybe with existing client first.
Versus trying to bring in the door at this point and is it the new clients that are maybe has to sign the bigger deals at this point or.
Any color there would be appreciated it. It's just it's one of those things where you.
Maybe not this quarter are now but.
As we kind of get more comfortable with.
You know living with the current of ours, but.
Sales just kind of ultimately gets back to a normalized.
The place regardless of what the environment might be like.
Yes.
You know you know as we get bigger obviously right.
More and more people are our client centric or its 18000 now and.
And so you know obviously our opportunity in the cross sell upsell and our current client base continues to grow.
Now did you know same time were 4.6 billion revenue and.
My estimation of transaction processing.
Huh.
Uh huh.
Hundred billion dollars in the United States.
I was outside.
Yeah, and I would guess in health care.
Transaction processing you.
Uh huh.
In the basin.
No well outside.
Outside.
So.
You know if you take $4.6 billion in you.
Divided by 300 billion yeah.
You know, we you know we represent.
On a half percent.
So so there's plenty of opportunity if it's a question of being able to.
Right products at the right time at the right place.
And then have a need right now.
As you might have a need or I see that may have a leader <unk> Morgan habit leader.
We have to have a neat brooks macdonald or or other ones.
Even though we have to meet.
And we have to meet it at the right price with the best solution.
And I think in general.
We do that and we do that very well.
Thank you Bill.
And your final question comes from the line of assisting laugh with Piper Sandler. Please go ahead.
Hi, Thanks for taking my questions. So the monthly redemption date, it seems to be mostly unaffected by the pandemic over the last several months I was just wondering if theres anything interesting going on underneath the surface in terms of the types of bodies that are raising assets or is it versus those that are seeing some outflows.
[music].
We're continuing to see you know as I mentioned earlier, we will continue to see broad based flows so really all of the different parts of our business, whether its 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 Greece from larger funds and so maybe it skewed a little bit in that direction and within the hedge fund market. The credit focused once you don't continue to do.
Well, but but it is pretty widespread.
All right. Thank you that's helpful.
And there are no further questions at this time Mr. stone do you have any closing remark.
I would just again appreciate everybody being on there and you know as always we we worked very hard for our shareholders and we appreciate.
Your interest in our company.
Thank you.
Stay safe right.
Thank you and this does conclude today's conference call you may now disconnect.
[music].
And.
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