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Edited Transcript of SSNC.OQ earnings conference call or presentation 30-Apr-20 9:00pm GMT

Q1 2020 SS&C Technologies Holdings Inc Earnings Call

WINDSOR Jun 24, 2020 (Thomson StreetEvents) -- Edited Transcript of SS&C Technologies Holdings Inc earnings conference call or presentation Thursday, April 30, 2020 at 9:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Justine Stone

SS&C Technologies Holdings, Inc. - Head of IR

* Patrick J. Pedonti

SS&C Technologies Holdings, Inc. - Senior VP & CFO

* Rahul Kanwar

SS&C Technologies Holdings, Inc. - President & COO

* William C. Stone

SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO

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Conference Call Participants

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* Alexander Kramm

UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Exchanges, Ebrokers

* Andrew Garth Schmidt

Citigroup Inc, Research Division - VP & Analyst

* Ashish Sabadra

Deutsche Bank AG, Research Division - Research Analyst

* Jackson Edmund Ader

JP Morgan Chase & Co, Research Division - Analyst

* Jonathan Lee

Morgan Stanley, Research Division - Research Associate

* Matthew Van Roswell

RBC Capital Markets, Research Division - Assistant VP

* Mayank Tandon

Needham & Company, LLC, Research Division - Senior Analyst

* Peter James Heckmann

D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, thank you for standing by, and welcome to the Q1 2020 conference earnings call. (Operator Instructions) I would now like to hand the conference over to your speaker today, Justine Stone. Ma'am, you may begin.

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Justine Stone, SS&C Technologies Holdings, Inc. - Head of IR [2]

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Hi, everyone. Welcome, and thank you for joining us for our Q1 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, 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, April 30, 2020. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so.

(Operator Instructions)

And I will now turn the call over to Bill.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [3]

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Thanks, Justine, and thanks, everyone, for joining us today. I hope you and yours are safe and healthy at home. I'll discuss our results for the quarter and walk through our assumptions for the remainder of the year as we navigate this COVID-19 world. Our results for the first quarter are $1.178 billion or $178 million (sic) [$1.178 billion] in adjusted revenues, up 2.4% and $1.03 in adjusted diluted earnings per share, up 13.2%.

Our adjusted consolidated EBITDA was $463.5 million, and our adjusted consolidated EBITDA margin was 39.3%, up 80 basis points from Q1 last year. Q1 organic revenue growth adjusted for DST terminations prior to the close of that acquisition was 2.7%. This was driven by strong performance in our alternatives fund administration business with over 8% growth.

Business was strong through February. In March, social distancing and work-from-home pushed some license sales into Q2. Q1 2020 net cash from operating activities came in at $147,700,000, up $10.3 million from Q1 2019.

Our secured net leverage ratio was 2.67x, and our total net leverage ratio was 3.74x. Covenant restrictions, as you know, on our debt are light with only a 6.75x max secured net leverage being relevant. The 3-plus turns of leverage that are available to us represents $5.8 billion in available room.

We are living in unprecedented times. We have taken prudent steps and carefully review contingency plans covering personnel, business operations and client delivery. We have validated they operate as intended. SS&C moved swiftly to protect our employees, and 99% of our global workforce is now remote. Overall, we have had minimal disruption in client service and client satisfaction remains high.

We have seen an uptick in interest for outsourcing services for our clients to create a more resilient and efficient operation. One example is the SS&C ALPS customer asking us to take on their settlement processing during the height of the crisis as they were challenged with work-from-home. Our Eze Software client service saw a 50% spike in client inquiries. Given the unprecedented volume increases, SS&C products performed and our service level remained high. The team worked long hours and continued to deliver outstanding service. SS&C Health has deployed our AI-based Vidado technology to state and local government to scan handwritten documents and forms.

Due to the uncertainty surrounding the global pandemic, we are withdrawing our 2020 guidance. We are providing possible revenue, margin and cash flow scenarios based on different assumptions. These scenarios are our best estimates given current economic climate. Please refer to Slides 5 and 6 of our earnings results slides posted on our IR website.

In our Q3 revenue scenario, that means that the economy recovers in Q3, we expect revenues of $4.65 billion or a little over $50 million less than our previous guidance. In this scenario, we expect to have 38.5% EBITDA margins and $1.145 billion operating cash flow for the year. If we don't recover until Q4, we expect revenues of $4.6 billion or a little over $100 million less than our previous guidance. In this scenario, we expect to have 38.2% EBITDA margins and $1.125 billion in operating cash flow.

Finally, if we don't see economic recovery until Q1 2021, we expect 2020 revenues of $4.55 billion or about $220 million less than our previous guidance. We'll have 37.8% EBITDA margins and about $1.1 billion in operating cash flow.

I'll now turn the call over to Rahul to discuss the revenue impacts in more depth.

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - President & COO [4]

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Thanks, Bill. We have noted at various times that even in the face of significant market volatility, we expect the impact on our Fund Administration business to be muted due to fixed fees, minimum thresholds and non-AUA-related revenue drivers. We're pleased to see this hold up in the current environment where we're expecting our alternatives business will continue to grow through 2020, albeit at the lower end of historical ranges.

The reduction is primarily due to delayed launches on new funds, delayed decisions where new customers are not eager to switch from competitors while in the business continuity mode and some impact from asset level declines. The scenarios for our transfer agency and wealth business assume high client retention but a slowdown in new sales and customers delaying large-scale conversions. We also see the negative impact of FX from the British pound and reduced interest earnings on balances.

In our trading, software and financial markets businesses, including Eze, our OMS and EMS trading software, we get some incremental benefit from market volatility, which largely offsets an expected reduction in new software sales. At Intralinks, our scenarios assume a decline in the pipeline of new M&A deals, still, current data rooms remain open longer and we derive some revenue benefit from the resulting extended usage. We also have some ability to pivot to other applications of the data rooms such as corporate restructuring efforts.

Our software businesses, particularly Advent and Institutional and Investment Management are expected to see reduced growth from our initial guidance as a result of customers delaying new license purchases until conditions start to normalize. We continue to see demand in SS&C Health with some slowdown in purchasing decisions on new mandates. COVID-related medical activities have driven up claims processing which is offset by reduction in elective and preventative procedures.

A bright spot is Algorithmics. We expect revenue to be on the high end of our initial guidance in the 2021 recovery scenario around $60 million, Algorithmics is a high-quality business with talented management, and we have high expectations.

Now we will mention some key deals for Q1 2020. An existing client with a long-standing relationship with DST chose SS&C's retirement outsourcing services, including customer interface development. A managed care provider extended their relationship with SS&C Health through professional services and technology. The Hong Kong wealth management arm of a multinational bank upgraded its AWD platform. A large New York-based single-family office chose SS&C's private capital fund services. An existing SS&C GlobeOp fund admin client sought to improve its data model through SS&C's core SightLine platform and enhance their middle office operations.

An existing SS&C GlobeOp fund administration client expanded their relationship to include their real assets funds. A deep understanding of their fund structures and internal processes allowed us to provide a solution quickly. A $4 billion in assets trust firm chose a suite of SS&C Advent products for a family office, including partnership accounting. They were previously contemplating building this in-house.

A $600 million AUM bank asset manager based in the Middle East, an existing APX client licensed Syncova and Investrack. A Greenwich, Connecticut-based hedge fund upgraded to the Eze Eclipse cloud platform. The firm was impressed with the analytics capabilities for analysts and portfolio managers to access from a laptop or tablet.

I will now turn it over to Patrick to run through the financials.

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - Senior VP & CFO [5]

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Thanks. Our results for the first quarter of 2020 was GAAP revenues of $1,173.6 million, GAAP net income of $99.2 million and EPS of $0.37. Adjusted revenue was $1.178 billion, excluding the impact for the adoption of the revenue standard 606 and for acquired deferred revenue adjustment for the DST Intralinks and Algorithmics acquisitions.

Overall, we had a strong quarter. Adjusted revenue was up 2.4%. Adjusted operating income increased 5.5%, and adjusted diluted EPS was $1.03, a 13.2% increase over Q1 2019.

Adjusted revenue in total increased $28 million or 2.4% over Q1 2019. The acquisitions of Investrack, Algorithmics and Captricity contributed $18.1 million in the quarter. Foreign exchange had an unfavorable impact of $5.5 million or 0.5%. And adjusted organic growth on a constant-currency basis was 2.8%, driven by the strength in the Institutional Investment Management alternatives and Eze businesses.

Adjusted operating income was $444.2 million, an increase of $23.3 million or 5.5% from the first quarter of 2019. Foreign exchange had a positive impact of $4.8 million on expenses in the quarter. And adjusted operating margins improved from 36.6% in the first quarter of 2019 to 37.7% in the first quarter of 2020.

Adjusted consolidated EBITDA, which is defined in Note 3 in our earnings release, was $463.5 million or 39.3% of adjusted revenue and increased 4.5% over Q1 '19. Net interest expense for the first quarter was $77.4 million and includes $3.5 million of noncash amortized financing costs and OID. The average rate in the quarter for our amended credit facility, including the senior notes, was 4.18% compared to 4.77% in the first quarter of 2019. We recorded a GAAP tax provision in the quarter of $24.8 million or 20% of pretax income.

Adjusted net income was $274 million, and adjusted EPS was $1.03. Adjusted net income excludes $157.6 million of amortization of intangible assets; $22.5 million of stock-based compensation; $9.5 million of purchase accounting adjustment, mostly deferred revenue adjustment and depreciation related to revaluation of assets; $3.5 million of amortization of noncash amortized financing costs and OID; $2.8 million of loss and extinguishment of debt related to our repricing in the first quarter; $2.3 million of adjustments related to ASC 606 revenue standard; and $0.7 million of equity and earnings of unconsolidated affiliates; and $48.8 million of nonoperating costs, including $31.4 million of severance costs related to staff reductions; $11.3 million loss on mark-to-market adjustment on investments; $6 million of foreign exchange impact. Effective tax rates we used for adjusted net income was 26%.

On our cash and cash flow for the quarter, we ended March with approximately $374 million in cash and a net debt position of approximately $7 billion. Operating cash flow for the 3 months was $147.7 million, a $10.3 million or 7.5% increase compared to the same period of 2019.

A few highlights on our -- the quarter. We paid gross debt of $95.9 million, and we borrowed $246 million from our revolver as a precaution to provide near-term liquidity, if necessary. We've paid down $2.142 billion of debt since we acquired DST.

In the quarter, we paid $102.5 million of cash interest compared to $96.4 million in the same period last year. In the quarter, we paid $17.7 million of cash taxes compared to $60.3 million in the same period last year. We will be deferring our tax payments into Q3 as provided by the CARES Act.

Accounts receivable, DSO was 52.4 days compared to 49.7 days as of December '19 and 53.7 days as of March 2019. And we used $26.5 million of cash or 2.2% of adjusted revenue for capital expenditures, capitalized software, mostly IT and leasehold improvements. In the quarter, we declared a dividend of $31.9 million, an increase from $25.2 million in the same period last year.

Our LTM consolidated EBITDA was $1.873 billion as of March and includes about $25 million of acquired EBITDA and cost savings related to our acquisitions. Based on a net debt of $1 billion, the total leverage ratio was 3.74x and secured was 2.67x.

On our view for the year, due to the current unpredictability of market and economic conditions, we're withdrawing our specific guidance and providing 3 scenarios for the year depending on the timing of the recovery.

A few assumptions we've used in our scenario. We've assumed that markets will continue to be volatile; large-scale outsourcing deals and license deals will be impacted; AUA, inflows and outflows in our fund administration business will continue to be volatile and fund launches will be delayed. But as Bill mentioned, we're focusing on client service, and our retention rates continue to be high, and we'll use our most recent -- our retention rates will be assumed in our plans for the year.

Foreign currency exchange, we've assumed current levels, and that will impact the business approximately $30 million for the remainder of the year compared to our original plan. Adjusted -- as a result, adjusted organic growth for the year in the range will be between 0% and negative 2%. We've assumed that interest rates in our term loan facility will be approximately the current 12-month LIBOR plus our current spread which is 175 bps.

On the expense side, we'll manage our expenses during this period by controlling variable expenses and staff hiring, but we'll continue investing in our business for the long term and capital expenditures will be approximately 2.7% of revenues. On the tax rate, we've assumed for GAAP in the range of 24% to 25%, the tax rate for adjusted earnings to be 26%.

For the...

(technical difficulty)

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [6]

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So Patrick apparently you dropped.

So the first scenario assumes that economic conditions start improving in the third quarter 2020. Under this assumption, we expect approximately the following results: adjusted revenue of $4.65 billion; adjusted net income of $1.077 billion; diluted shares of 269.5 million and operating cash flow of $1.145 billion. The second scenario assumes that economic conditions start improving in the fourth quarter of 2020. Under this assumption, we expect approximately the following results: adjusted revenue of $4.6 billion; adjusted net income of $1.05 billion; diluted shares of 268.5 million and operating cash flow of $1.125 billion.

The third scenario assumes that the economic conditions don't start improving until 2021. Under this assumption, we expect approximately the following results: adjusted revenues of $4.55 billion; adjusted net income of $1.025 billion; diluted shares of 267.5 million and operating cash flow of $1.1 billion.

Patrick will now turn it over to me for final comments.

We can pass up on the thanks, Patrick. But thanks, Patrick. We are all adjusting to this new normal, and we are evaluating our operations, customer service and productivity on an ongoing basis. We are a strong company and these trying times reiterate the resiliency of SS&C's business model. We reported $373.7 million in cash and cash equivalents as of March 31, and we expect to generate at least $1 billion in operating cash flow for the year. Our capital allocation strategy will remain the same, and we will prioritize debt pay-down and allocate capital towards high-quality acquisitions in a methodically opportunistic manner.

As we begin to open the call for questions, I wanted to reiterate, SS&C is a strong company with a highly educated and productive workforce, which stands at 23,000 strong. SS&C markets and sells its products and services to a worldwide client base of over 18,000 and a total addressable market in the hundreds of billions. SS&C is a nimble and innovative company with little or -- who, with little or no disruption, we redeployed 99% of our workforce to work from home. Since our IPO on March 31, 2010, SS&C has annually compounded its adjusted revenue, revenue per share and cash flow by 34%, 27% and 38%, respectively. I will now open it up for questions.

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Questions and Answers

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Operator [1]

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Yes, we do have a question from the line of Alex Kramm.

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Alexander Kramm, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Exchanges, Ebrokers [2]

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Alex Kramm, UBS. One of the -- on your guidance, one of the things that stood out to me was your assumption that retention rate is going to remain at this 96% level. Just wanted you to maybe flesh this out a little bit more. I mean I guess the question is why are you so comfortable if there's carnage out there, certain hedge funds may be going under? I mean is there a risk to that, I guess, is what I'm saying?

Or if it is a bad environment, which I just outlined, is this more of a flowing into 2021 results, and that's why you didn't really touch it? I guess what are the puts and takes that could make this get a little bit worse?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [3]

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Well, I mean, obviously, Alex, you hit the nail on the head. If everybody goes out of business, it won't be 96%. But so far, what we have seen is very little shutting of the doors. We have seen more where it's not as quick to launch. But as you saw in Q1, we had 8% growth in the fund administration business, and I don't think you think that most of the major banks or most of the major insurance companies or mutual fund complexes are going to fold.

So you're really looking at the alternative space, and we've seen really no change in private equity. And our hedge fund business has shown remarkable strength, and I think it will continue. And I think this may be a catalyst to SS&C's growth, not a -- short term, it's not going to be -- but 3, 4, 5 quarters out, it could certainly be a -- we need an administrator that this is all they do. And they focus on it and they're resilient, and they have experts, and it's all the way up to the top of the house. So I don't know if you have anything, Rahul, to add.

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - President & COO [4]

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Well, I would just echo what you said, which is we've seen some slowdown in people that were going to start new funds. But with current customers, I think, if anything, what we have seen in the last 6 to 8 weeks is more opportunity where folks are looking at how they've done in this environment and what their business continuity plans are and trying to figure out if they can outsource more activities to us.

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Alexander Kramm, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Exchanges, Ebrokers [5]

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All right. Great. And then maybe just another quick one, and I'll jump back in the queue. But one of the things that you were messaging last quarter was pricing becoming a little bit of a bigger lever. Just wondering if in this environment, is that basically just off the table? Is that still kind of normal inflators that are happening? Or is this going to be more, again, a story that we need to revisit next year as people maybe have different things to worry about right now?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [6]

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Well, we -- as we spoke on the last 2 calls, I mean, we have implemented a lot of this, so it's behind us now, Alex. That doesn't mean it was 100% behind us, but I'm guessing it was maybe probably in the 60%, 70%, 75% range, maybe. So it's not really nearly as front and center as it was. And then we'll revisit it, obviously, again in December. And depending on what's transpired between now and December, we'll see whether or not maybe a modest increase is sustainable.

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Operator [7]

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And we have another question from the line of Andrew Schmidt.

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Andrew Garth Schmidt, Citigroup Inc, Research Division - VP & Analyst [8]

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Andrew Schmidt from Citi. Question on just the quarterly trajectory as we progress throughout this year. Maybe you could talk a little bit more about just what we should expect on a quarterly basis. And just a clarification, when we think about Q3 recovery, Q4 recovery, et cetera, is that a comment on revenue bottoming out? Or is it a comment in terms of return to revenue growth?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [9]

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Well, I think I'll comment and then maybe Rahul can comment, but what I would say is that, Andrew, is that the scenarios you're trying to do is to give you -- we're not all looking at the COVID pandemic as being an accelerator in our businesses, unless maybe you're Gilead or some other pharmaceutical company. The rest of us are trying to navigate the rapids. And so yes, the scenarios that you see us delivering to you are an expectation that we don't get the fund launches we expected. People are hesitant about large perpetual licenses, which has to get sometimes capital improvements -- capital approval from the Board.

So there's a lot of things like that. Large-scale outsourcing mandates when people are in business continuity mode, I think, are less likely. And so, yes, this is an analysis of what could happen while the world's economy comes back to full strength. Rahul, would you comment?

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - President & COO [10]

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Sure. I think in terms of the trajectory, in general, what we've assumed is the Q3 recovery scenario assumes that things start to normalize towards the end of Q2. So Q3 is -- we're building our way back up and Q4 is nearly almost as good of a quarter as perhaps we would have anticipated previously. In the Q4 scenario, it's the same thing, but 1-quarter delayed. So towards the end of Q3, people are getting back to work. And Q4 is better from that going forward. And in 2021, once again, all of these are just timings.

In 2021, we're assuming that, that really doesn't happen. These things don't start to normalize and people start to buy again at historical levels until the end of the year, so we don't really see the full benefit of that until the first quarter of '21.

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Andrew Garth Schmidt, Citigroup Inc, Research Division - VP & Analyst [11]

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Okay. That's helpful context. And then just for my follow-up, what is the proportion of, I guess, just in the scenario analysis, what's the proportion of revenues that are just delayed implementations versus maybe a slower sales cycle? Any comment on that?

And then just to maybe correspond with that, just can you talk about what you've been hearing from clients recently? I mean you made some pretty positive comments in terms of just -- it sounds like clients consulting with you more to see how they can outsource a little bit better and things like that. But maybe just a question in terms of what you're hearing and when clients will be prepared to get back and start implementing solutions.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [12]

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Well, again, I've been talking to a lot of our clients at the most senior levels, and most of them have been quite complimentary of our response to this COVID-19 crisis, and I can understand why. I mean we redeployed 23 -- 22,750 people, and we did it in a week or 2, and we have not had disruptions in our service. And I don't know if that's true around the financial services marketplace. So when you can be in a crisis and you can differentiate yourself, then when things start to come back to normal, people say I never want to go through that again. And where can I turn? And I think we have a chance to be that shining a light on the hill.

We've got to continue to execute, and these are not the easiest of times. And all of us hope that the pandemic goes away, but I don't think we're just going to snap our fingers and it goes away, so we have to be diligent. We have to focus. And I think we have a great team, and I think that's what they've been doing.

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Operator [13]

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And we do have a question from the line of Peter Heckmann.

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [14]

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Could you confirm for me that the most recent acquisitions are not included in your scenario analysis? And if possible, could you give us a revenue estimate in the aggregate of the Captricity and the 2 pending deals?

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - Senior VP & CFO [15]

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Yes, this is Patrick. So to give you an idea, Innovest was -- they had about $42 million of revenue in 2019. And they're probably -- it's hard to predict if they'll have some impact this year, but they've probably been growing in the high single digits in revenue. And then Captricity, assuming they close in June 1, and then for the remainder of the year would -- probably around $20 million of revenue.

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [16]

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That's the Capita deal?

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - Senior VP & CFO [17]

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That's Capita. Yes, Capita, Captricity is already included.

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [18]

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That's right. All right. Perfect. And then just as a follow-up, Rahul, can you just give us a little bit of color on -- within [fund man biz] I see on the last slide of the deck is AUA, just a 1% sequential decline. Can you talk about the interplay between market action and net flows on that?

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - President & COO [19]

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Sure. So we had a pretty good sales quarter, particularly at the start of Q1. So there's some -- included in there is, obviously, those assets coming on. The -- we did see market declines in our hedge fund business and in particularly at the end of March, and we are starting to see some recovery there as well. And our private equity business and real assets business continue to have both good sales levels as well as good asset inflows into current funds.

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Peter James Heckmann, D.A. Davidson & Co., Research Division - Senior VP & Senior Research Analyst [20]

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Got it. Got it. And any notable change in the mix that we should think about?

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - President & COO [21]

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No, not really.

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Operator [22]

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(Operator Instructions) And we have a question from the line of Mayank Tandon.

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Mayank Tandon, Needham & Company, LLC, Research Division - Senior Analyst [23]

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Bill or Rahul, could you comment on the visibility in terms of how much of that recurring piece of revenue that you have is truly under a long-term contract that would be not vulnerable. But then what is the project-centric or the variable piece that could be more exposed, especially the downturn is prolonged, which might render some of the scenarios maybe not as conservative and maybe the recovery is more later in '21? Just want to get a better feel for the visibility you have under these various scenarios.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [24]

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Well, I'll take a quick crack and let Rahul comment. But Mayank, when you think about the various components of our revenue streams, the per basis point charges that we get from the hedge funds and private equity funds and fund of funds, that has all kinds of buffers in it. So depending on the decline in various asset prices or asset values, that can have more impact. But we have the volatility like you saw in March and has continued through April, that just is more kind of like a sales swinging from side to side. It ultimately does not impact revenue very dramatically.

We do tax returns and financial statements and stuff like that, that are all per piece or per year charges. The other recurring revenue we have is in maintenance on our software contracts, and asset values are not impacted -- do not impact. Those are already set fees, and similar, I think, with our maintenance on our term licenses, which is all ASC 606-defined anyway.

So almost all of our revenue that is recurring is not impacted. The per piece revenue that we get that, like, on our FIX network or on our data businesses or on some of Eze's business that gets paid by number of trades, that will be more tied to volatility and volumes than it will be asset values. So we're pretty insulated. Rahul, maybe you can add?

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - President & COO [25]

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Bill, I think I would just add that in the businesses where we do have some degree of variability tied to some external driver, we've tried to take a conservative view on those. So Mayank, what's -- I think we do have pretty good visibility into what we're now -- as Bill said earlier, things will get a lot worse and then, okay, maybe not, but based on what we've seen so far in the business, we've got pretty good visibility.

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Mayank Tandon, Needham & Company, LLC, Research Division - Senior Analyst [26]

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That's very helpful. And just one quick one for Patrick. Patrick, could you size the expenses that you laid out? And then how much more levers do you have if you were to have to pull them in the case of, again, a more prolonged downturn that goes beyond early '21?

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - Senior VP & CFO [27]

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Well, I think it ranges to the 3 scenarios. But I think it's somewhere between $75 million and $50 million of expenses that we took out from our original projections for the year. We're also benefiting from LIBOR being down significantly this quarter. Now we've assumed in our plan, the LIBOR rate for the 12-month LIBOR. But LIBOR has dropped significantly from the first quarter so that's helping us out, too, on the interest rate line item.

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Operator [28]

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And your next question comes from the line of Jackson Ader.

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Jackson Edmund Ader, JP Morgan Chase & Co, Research Division - Analyst [29]

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It's Jackson Ader from JPMorgan on. Bill, the question that I have is on large deals. I understand that things are being delayed either fund launches or large outsourcing deals getting delayed. But do you see any risk in the more time these deals are delayed, maybe they get modified to the downside, either purchasing fewer products or maybe moving less assets over to SS&C?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [30]

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Jackson, I really think it's going to be the opposite of that. If you go back to Madoff and other things that really kind of rocked the investment services outsourcing business, people wanted independence. People wanted strong internal controls. People wanted businesses that were run by experts in these things. So like these are not banking businesses, these are accounting businesses, right? They're systems businesses, so they're systems and accounting businesses. It's really doing accounting with systems.

And all 3 people that you're talking to here are accountants by training. And I think that we understand what, the 23,000 people we have, what they do for a living in somewhat of an expert fashion.

So our ability to move quickly and with confidence is greatly enhanced, right? We're used to ASC 606 or FAS 91 or FAS 52 or EITF 99-20 or some other arcane accounting rule and reporting rule that regulators and taxing authorities are very intense about. So I think clients look around and they start saying, "Well, we better get somebody that's really steeped in these things." And I think we'll be a significant beneficiary of that."

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Jackson Edmund Ader, JP Morgan Chase & Co, Research Division - Analyst [31]

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Okay. That makes sense. And then the follow-up question, you took out a little bit more debt from the revolver in this particular quarter. As we look at some of these -- some of the time lines of recovery, how should we be -- maybe thinking about either levels of debt either to the upside or maybe pace of paydown?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [32]

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Well, I think in all 3 scenarios, I think the one with the most impact where the recovery's in 2021. We still expect $1.25 billion in operating cash flow. So we have, obviously, plenty of money to pay for our CapEx and our interest expense. And so when you look at the $800 million that we can do with -- from a capital allocation standpoint, my guess is that a vast majority of that will go to pay down debt. And obviously, we like good acquisitions. I think if we take the acquisitions that we have done over the last year, we're getting really good businesses at reasonable prices.

There hasn't been any reasonableness in this marketplace for a couple of years and interest rates are at historical lows. So SS&C in general would be prowling and looking for something to feed the pack. And I think that with interest rates where they are and the capabilities where we are and the number of people that may not want to operate companies anymore,

I mean these things are very difficult for entrepreneurs and even for private equity firms that had great gains and now see their gains get spiced. So we're there. We have the capital. We have the expertise. We have the management capability, and so we're optimistic where we are.

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Operator [33]

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We have another question from the line of Ashish Sabadra.

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Ashish Sabadra, Deutsche Bank AG, Research Division - Research Analyst [34]

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Maybe just a quick question. If I missed it, could you give any kind of guidance or color on how we should think about the growth in the second quarter?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [35]

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No.

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - Senior VP & CFO [36]

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We have not.

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Ashish Sabadra, Deutsche Bank AG, Research Division - Research Analyst [37]

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Okay. And then just maybe a quick question on the margins. Patrick, you provided some color on the cost takeout, but we're seeing some margin pressure here historically. The company has always a bit like exceeded the expectations on margins. Are there opportunities for potentially for more cost takeouts and -- on the margin front?

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - Senior VP & CFO [38]

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Well, I think -- go ahead, Bill.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [39]

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Go ahead. No, go ahead.

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - Senior VP & CFO [40]

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Yes. We did announce some staff reductions that we did in the first quarter, so we've got those cost savings built in. Under this plan, we'll reduce costs, variable costs, an additional amount, and then we continue to bring our -- bring DSTs contractor, India workforce into in-house workforce, and that will save us some additional funds. So in the assumptions we've included a significant amount of other additional cost reductions while this business runs at a lower revenue.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [41]

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And remember, almost all of our costs are variable. So the flexibility we have -- and what COVID-19 has kind of proved to be is do you need to spend all the millions that you spend now on travel and entertainment, which we spend millions monthly? And do you need to go to all the various conferences that are now being done virtually?

So that -- I mean, the cost structure of a lot of the American business, I think, is going to change. And for people who like profits, it's going to change in a positive way.

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Ashish Sabadra, Deutsche Bank AG, Research Division - Research Analyst [42]

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Yes. That's very helpful, Bill and Patrick. Congrats once again on a solid quarter, and it's good to see the resilience of the revenues even in a global pandemic.

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Operator [43]

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And our next question comes from the line of James Faucette.

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Jonathan Lee, Morgan Stanley, Research Division - Research Associate [44]

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This is Jonathan Lee on for James from Morgan Stanley. First question, you mentioned minimal disruption in your prepared remarks. Can you talk through some of the disruption that you did see and whether you think that will be a headwind during the rest of the year?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [45]

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Well, I mean, I think the only thing that we really had that were at all disruptive or -- when we shipped everybody home in India, some of the remote areas in and around Gurgaon and pan-Mumbai and Hyderabad and Pune, they didn't have as good a telecom infrastructure, so we upgraded lots of routers and make sure that we gave them the best possible speed. And we also shipped out thousands of laptops to people in India to make sure they had up-to-date equipment to work on.

Our guys, Anthony Caiafa's team and all the team, the IT team in India did an outstanding job, and they continue to do an outstanding job.

But those were the major points of any disruption. I mean I've talked to any number of senior people at our clients, and the comments are, 'first rate' and 'thank you', and that your people in India, your people here in Australia or the U.K. have all done a yeoman's job for us, and we really appreciate it.

So in general, in our business, that's not the kind of calls you get and that's not the kind of comments, right? I mean we're the back-office dudes, how come something is not reconciled yet, so I -- but I think that's pretty high praise.

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Jonathan Lee, Morgan Stanley, Research Division - Research Associate [46]

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Got it. And as a follow-up, you touched on pricing earlier, are there any customers asking for pricing concessions?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [47]

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I don't know that we have specifics on people asking for pricing concessions. I can tell you that we don't have people asking for pricing increases.

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Rahul Kanwar, SS&C Technologies Holdings, Inc. - President & COO [48]

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Yes. And I'd just add to that, Bill, we really haven't seen any systemic demands for price reductions or things like that. It's really been business as usual.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [49]

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When there's turmoil like this, like real turmoil, you're not sitting there asking about price, you're asking about stitches, if somebody knows how to sew. So I think that who knows over the next multiple quarters, whether or not that comes into focus. But right now, we need to get our stuff done. And we're having trouble enough in our own internal operations. Thank God, we have you.

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Operator [50]

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And your next question comes from the line of Alex Kramm.

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Alexander Kramm, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Exchanges, Ebrokers [51]

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Just a couple of follow-ups. There was one earlier question on the kind of sensitivities in your business outside of some of the things that you've outlined. I wonder if you can be a little bit more specific and actually provide a little bit more, I guess, quantitative items. So for example would be very interested in how much Eze contributed from the higher trading volumes that you saw. You've updated us on market sensitivity in the past. Maybe you can give us an update there and maybe also some other businesses that you've acquired since then like, for example, the ALPS business, I think, has some market sensitivity.

And then maybe any other items around Intralinks and how much of the M&A business may be more, I guess, transactional. So I know those were 4 things. If you can think about a few others, it would be really great to dimensionalize those things that could still move one way or another in your guidance this year.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [52]

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Yes. Alex, I think you just kind of go through those businesses. I would tell you that the amount of variability you're talking about is in the $20 million range in Eze or maybe $25 million. And then Intralinks, you're not having as much as you might think. I mean it's been pretty impressive that Intralinks has been the backbone for one of the largest banks in the country to deliver the Payroll Protection Program for the U.S. government. So that's been a really great help for that business, and they have a strong business. And obviously, M&A is not quite what it was, but it's also not dead. So we think we'll be in a strong position as that comes back.

The other businesses, we're conservative about it, and we manage for cash flow and earnings, and we also like revenue growth. So I think in other businesses, you have -- without companies really going out of business or if you were managing $2 billion and now you manage $50 million, okay that's tantamount to about going out of business. Well, then our revenues will get impacted. But I don't think in general that we have, hey, it was $250 million a quarter and now it's $172 million. That's not -- it's the same thing, right? You may not get as big a bonus this year at UBS. My guess is your tax accountant will charge you the same.

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Alexander Kramm, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Exchanges, Ebrokers [53]

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That's pretty sure.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [54]

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Yes. That's the nature of our business. And if he wants to raise your fee 5%, tells me, you say, "Okay." So I don't think it's not as volatile as it sometimes looks to people on the outside.

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Alexander Kramm, UBS Investment Bank, Research Division - Executive Director and Equity Research Analyst of Exchanges, Ebrokers [55]

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All right. And then maybe just last one for me. Just going back on the M&A. It sounds like your appetite is strong as ever, and you mentioned that $5.8 billion number in your prepared remarks, I think, in terms of, I guess, capacity. I mean I assume it's the max capacity, but is -- how comfortable are you going even that high? Or where would you feel comfortable?

And in terms of deal sizes, are there deals out there that could become attractive if there's a [forced] seller and that's -- or is it more a bunch of like little things that you're seeing out there?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [56]

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Well, remember, I mean, if we use that $5.8 billion, we're going to get some EBITDA, right? We're not going to spend $5.8 billion and get 0 EBITDA, right? So we need to factor that in.

And then secondly, when there's some smart guy out in Omaha that says "When everyone's scared, be greedy." So right now, a lot of people scared and interest rates are at historical lows, and it looks like markets are -- fixed income markets are -- if not wide open are certainly open. And so there's opportunity to do things. And you want to be wise about it. We're going to pick up a couple of hundred million dollars in revenue over the year. And we're getting that at, at least reasonable prices. So you don't want to pull in your horns and hide in your house when the hunting is the best.

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Operator [57]

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Your next question comes from the line of Dan Perlin.

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Matthew Van Roswell, RBC Capital Markets, Research Division - Assistant VP [58]

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Yes. It's actually Matt Roswell sitting in for Dan. Two really quick questions. I guess the first part, did you give the organic revenue growth in the alternative channel?

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - Senior VP & CFO [59]

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For the first quarter?

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Matthew Van Roswell, RBC Capital Markets, Research Division - Assistant VP [60]

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Yes, for the first quarter.

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Patrick J. Pedonti, SS&C Technologies Holdings, Inc. - Senior VP & CFO [61]

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Yes, it was -- for the first quarter, it was 8.2%.

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Matthew Van Roswell, RBC Capital Markets, Research Division - Assistant VP [62]

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Okay. And then why the stock component of the acquisition that you announced to that, is there anything to read into that?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [63]

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I don't think so. I mean everyone is liquidity-crazy, so we're just a little crazy. So it's not very much money. We get to include a portion of restricted stock. And I think the sellers were happy to have our stocks. So there's a little upside for them, I hope. And as we go forward, hopefully, that works out better for them. And it's a really good asset, and we're excited about it.

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Matthew Van Roswell, RBC Capital Markets, Research Division - Assistant VP [64]

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Okay. And if I could end with sort of a really big question. What you're seeing now when you go out and talk to clients, do you think it's a deferral of demand or a disruption of that demand?

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [65]

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I think that most people that are at senior levels of companies more look at it as if this too shall pass, no different than 9/11, no different than the stock market crash of '87, no different than the Russian bond crisis, no different than a lot of different things. Obviously, this is different, right? It's the whole world at once. And so there's reduction of economic activity everywhere, but it's the same thing.

There's an awful lot of smart people in the world. And there's an awful lot of smart people in finance, and they start looking for opportunities. So as much as large-scale launches are going to slow down, there's a bunch of distressed and credit funds that are launching all over the place. And you've probably seen that most of the debt offerings that are out there are all oversubscribed and being upsized.

So when people have talked about the world's awash in money, they weren't kidding. And then with the Fed and all the other central banks around the world, basically turning the spigots on, I think that there's going to be plenty of money for restructurings and plenty of money for other things where people see real opportunity. And I think SS&C will be a beneficiary.

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Operator [66]

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And there are no further questions. I will now turn the call over to Bill Stone for further remarks.

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William C. Stone, SS&C Technologies Holdings, Inc. - Founder, Chairman of the Board & CEO [67]

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Thank you. And thanks, everybody, and stay safe and stay healthy, and we look forward to talking to you at the end of the next quarter. Good night.

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Operator [68]

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And this does conclude today's conference call. You may now disconnect your lines.