SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) Q3 2022 Results Conference Call October 27, 2022 5:00 PM ET
Justine Stone - Head of Investor Relations
Bill Stone - Chairman and Chief Executive Officer
Patrick Pedonti - Senior Vice President and Chief Financial Officer
Rahul Kanwar - President and Chief Operating Officer
Conference Call Participants
Andrew Schmidt - Citigroup
Alexander Kramm - UBS Investment Bank
Peter Heckmann - D.A. Davidson
Jeffrey Schmitt - William Blair & Company
Kevin Damien McVeigh - Crédit Suisse
James Faucette - Morgan Stanley
Patrick O'Shaughnessy - Raymond James
Kyle Peterson - Needham & Company
Surinder Thind - Jefferies
Good afternoon. My name is Abby, and I will be your conference operator today. At this time, I would like to welcome everyone to the SS&C Technologies Third Quarter 2022 Earnings Conference Call. [Operator Instructions]
Thank you. Justine Stone, Head of Investor Relations, you may begin your conference.
Hi, everyone. Welcome, and thank you for joining us for our Q3 2022 earnings call. I’m Justine Stone, Investor Relations for SS&C Technologies. With me today is Bill Stone, Chairman and Chief Executive Officer; Rahul Kanwar, President and Chief Operating Officer; and Patrick Pedonti, our Chief Financial Officer.
Before we get started, we need to review the safe harbor statement. Please note that various remarks we make today about future expectations, plans and prospects, including the financial outlook we provide, constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K, which is on file with the SEC and can also be accessed on our website. These forward-looking statements represent our expectations only as of today, October 27, 2022. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so.
During today’s call, we will be referring to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is included in today’s earnings release, which is located in the Investor Relations section of our website at www.ssctech.com.
I will now turn the call over to Bill.
Thanks, Justine, and thanks, everyone, for joining. Our results for the third quarter are $1.322 billion in adjusted revenue, up 4.4% and up 7.5% on a constant currency basis. Our adjusted diluted earnings per share were $1.15, down 12.9%. Adjusted consolidated EBITDA was $502 million for the quarter. Our EBITDA margin was 38%.
Our third quarter adjusted organic revenue was up 1.6%, and we saw strong growth in our software businesses, including Advent, and Institutional and Investment Management as well as Private Markets, fund administration, and Retirement Solutions. Ex the impact of our health care business, our Q3 2022 organic growth in financial services, which is 94% of our revenue, was 3.3%.
SS&C generated net cash from operating activities of $764.6 million for the nine-months ended 9/30. We paid down $55.6 million in debt in Q3, and our consolidated net leverage ratio now stands at 3.51, and our net secured leverage ratio was 2.52 consolidated EBITDA.
In Q3, we bought back 3.7 million shares for $214.5 million at an average price of $57.62. We have bought back 6 million shares to date in 2022. We are currently planning on allocating 50% of our cash flow to stock buybacks and 50% to debt paydown.
In August, we closed a small acquisition, Tier1 Financial, and are now working to integrate with our existing customer relationship management offering. We will create one of the largest financial-services-focused CRM systems in the marketplace with capabilities that are applicable to nearly all of our 20,000 clients.
We continue to see revenue headwinds from the weaker economic backdrop and negative foreign exchange. Impacts from the equity markets are seen in our hedge and ALPS businesses, and a slower M&A market has impacted our Intralinks business.
Our assets under administration came in at $2.2 trillion, down from Q2 and flat year-to-date. This is compared to a $271 billion increase in AUA in 2021. However, we believe hiring and cost pressures on our client - that our clients face are catalysts to increased outsourcing. As firms globally continue their modernization efforts, we have unique opportunities to assist in staff augmentation, automation and record-keeping solutions.
Our Q3 2022 EBITDA margin was 38%, and we are on track to exit 2022 at near our corporate average margins of 40%. We have already seen large successes implementing Blue Prism’s digital workers throughout our organization.
We have, for instance, validated 1,200 monthly client statement using digital workers, replacing over 40 hours of manual checking. We expect to have over 100 digital workers deployed by the end of the year and over 10x this number in 2023. In an era of high labor costs, Blue Prism will prove to be a very smart acquisition.
On a constant currency basis, Blue Prism grew revenue at 16% in Q3. Our clients and prospects remain engaged. At the beginning of October, SS&C posted our first Deliver client conference in Orlando, Florida since 2019. We hosted over 1,000 people, and feedback has been very positive. We look forward to next year’s SS&C Deliver in Austin, Texas.
I will now turn the call over to Rahul to discuss the quarter in more detail.
Thanks, Bill. Our business continues to display resilience despite some impact from FX, primarily the British pound, reduced M&A deal volumes and volatility in the overall economic environment. Our plans to grow despite these issues are centered around new product launches, amplified sales and marketing campaigns, and continuing our focus on customer satisfaction and delivery.
In our fund administration business, a significant growth initiative is to enhance the offering for hybrid and credit funds, leveraging the full software capabilities of Advent products in partnership with GlobeOp’s strong fund services capabilities.
In Intralinks, we launched Deal Services, which enables our customers to stay focused on the execution of their M&A deals, while we take on labor-intensive tasks such as redaction as a service and reporting as a service. These offerings have already proven to be a differentiator for us, helping to drive recent wins.
We saw strength in our software business this quarter. Aloha, our newest platform and institutional investment management, has had some early success. Eight new clients signed in Q3 to bring our total Aloha client base to 29 clients, about 1/3 of which are new logos to SS&C.
In September, we appointed Bhagesh Malde to lead the consolidated SS&C GlobeOp business, including private markets, hedge and insurance outsourcing. We continue to see a convergence between hedge and private markets. Bhagesh has delivered strong revenue growth and built an excellent leadership team in our real assets and private markets business over the past five-years, and we are confident he will lead the combined GlobeOp business in the next phase of its growth.
We are starting to gain traction with our rollout of Blue Prism internally and across our client base. Within our outsourcing and service businesses, we view Blue Prism as a significant competitive differentiator, as widespread applications that will generate accuracy and timeliness benefits for our client base and free up our talented staff to focus on higher level and analytical roles and accelerate their career growth.
We are targeting having digital workers to be 5% to 10% of our overall employee base by the end of 2023. We expect a savings of approximately $50,000 annually for each such role that we migrate to Blue Prism.
Now I will mention some key deals for Q3. A wealth manager with 260,000 accounts chose Black Diamond to offer best-in-class solution to their end clients and large employee base. An existing fund services client expanded their relationship with SS&C to include additional funds and loan servicing on their private book.
A large real estate manager based in Singapore and New York chose SS&C’s middle-office capabilities due to our real estate expertise and global operating model. An existing PORTIA client upgraded to our new Aloha solution, noting the enhanced fixed income functionality.
A large transfer agency client selected SS&C for their web modernization project. A large financial services group in Africa chose SS&C for its best-of-breed technology and BPO capabilities, including AWD, Percana policy administration and Blue Prism RPA. We are providing an end-to-end solution to administer a broad range of multi-asset, multi-region product types for their individual retail investors.
I will now turn it over to Patrick to run through the financials.
Thank you. Results for the third quarter of 2022 were GAAP revenues of $1.321 billion, GAAP net income of $160 million and diluted GAAP EPS of $0.61. Revenues were $1.322 million. Adjusted revenue was up 4.4%. Adjusted operating income decreased 4.3%, and adjusted diluted EPS was $1.15, a 12.9% decrease from Q3 2021.
Overall, adjusted revenue increased $55.7 million or 4.4% over the third quarter of 2021. Our acquisitions contributed $68.2 million in revenue. Foreign exchange had unfavorable impact of $32.7 million or 2.6% in the quarter. Adjusted organic revenue increase on a constant currency basis was 1.6%.
We had strength across several product lines, including alternatives, Advent, Institutional and Investment Management, and the Intralinks business. That strength was impacted by weakness in our GIDS transfer agency business and the health care business.
Adjusted operating income for the third quarter was $486.1 million, a decrease of $38 million or 7.3% from Q3 2021. Adjusted operating margins were 36.8% in the third quarter compared to 41.1% in the third quarter of 2021.
Expenses overall increased 9.2% on a constant currency basis. Acquisitions added $53.1 million expenses, and foreign currency decreased costs by $27.6 million. Our cost structure has been impacted by wage inflation and higher staffing to support our business, but we have improved operating margins sequentially from 34.2% in the second quarter of 2021 to 36.8% in the third quarter as we managed our cost structure.
Adjusted consolidated EBITDA was $501.7 million or 38% of adjusted revenue, a decrease of $30.9 million from Q2 2021. Interest expense for the third quarter of 2022 was $86 million and includes $3.7 million of noncash amortized financing costs and OID.
The average interest rate in the quarter for our credit facility and the senior notes was 4.55% compared to 3.12% in the third quarter of 2021. The increase in the interest rates contributed an increase of $26.6 million in interest expense in the quarter, and the higher average debt balance related to the financing of the Blue Prism acquisition added $8.6 million in interest.
Our recorded GAAP tax provision for the quarter was $53.4 million, 25% of pretax. Adjusted net income, which is defined in note 4, was $298.8 million and adjusted EPS was $1.15, and the effective tax rate used for adjusted net income was 26%. Diluted shares decreased to 260.9 million from 263.9 million in Q2. Share repurchases and lower average stock price during the quarter led to the decrease.
On the balance sheet and cash flow, we ended the third quarter with $401 million of cash and cash equivalents and $7.3 billion of gross debt. SS&C’s net debt defined per our credit agreement, which excludes the cash of $151.6 million held at DomaniRx, was $7 billion as of September 30.
Operating cash flow for the nine-months ended September was $764.6 million, a $180.3 million or 19% decrease compared to the same period in 2021. Operating cash flows were impacted by transaction expenses associated with the Blue Prism acquisition of approximately $67 million, which includes amounts paid by Blue Prism in the post-acquisition period. In addition, it was impacted by the quarterly bonus that we initiated this year in Q3 of approximately $29 million.
Interest paid in this period was $223.4 million compared to $173.2 million in the same period of 2021. In the nine-months, we paid $211.5 million in taxes compared to $230.8 million in 2021. Our accounts receivable DSO improved to 51.7 days from 55.9 days as of June 2022.
On investing and financing cash flows, we have paid about $1.629 billion for acquisitions, including Blue Prism, Hubwise, MineralWare, O’Shares and Tier1; capital expenditures and capitalized software of $158 million or 4% of adjusted revenue. The spending was predominantly for capitalized software and IT infrastructure. In addition, we received a distribution of $66.2 million from 1 of our joint venture partners.
During the 3 months ended September 30, we paid down net debt of $55.6 million, and we bought back in the quarter $214.5 million - we spent $214.5 million for 3.7 million shares at an average price of $57.62. And year-to-date, we have declared and paid a dividend of $153 million to our common stock shareholders as compared to $122.8 million last year, an increase of 19.9%.
On outlook for the fourth quarter, on assumptions, we are continuing to focus on client service. We expect our retention - client retention rates to continue in the same range as most recent results. We have assumed foreign currency exchange at approximately the current levels, and that will result in a negative impact of approximately $37 million on revenue growth in the fourth quarter.
On adjusted organic revenue growth for the year, we expect 1.6% to 4.6%. On adjusted organic growth for the fourth quarter, we expect to be in the range of minus 1.9% to positive 1.9%. On interest rates, we have assumed average rates of about 5.5% in the fourth quarter, and that compares to 4.55% we had in the third quarter of 2022.
We will continue to manage expenses during this period by controlling variable expenses and maintaining, improving our operating margins. We expect our GAAP tax rate to be approximately 26% on an adjusted basis.
So for the fourth quarter of 2022, we expect revenue in the range of $1.305 billion to $1.355 billion, adjusted net income in the range of $285.3 million to $307.5 million and diluted shares in the range of 255 million to 257 million. And for the full year, we expect cash from operating activities to be in the range of $1.125 billion to $1.145 billion.
And I will turn it over back to Bill for final comments.
Thanks, Patrick. SS&C continues to be a highly profitable cash-generating enterprise. We continue to win large-scale world-renowned businesses, and we are constantly improving our processes. Sales development, marketing and management are all improving. We hope to show you with improved financial performance in upcoming quarters. I will now open it up to questions.
[Operator Instructions] Your first question comes from the line of Andrew Schmidt from Citi. Your line is open.
Hey guys, thanks for taking my questions. I just want to start off with the fourth quarter organic growth assumptions. If you could just unpack that and perhaps break down the major assumptions by business, I think that would be helpful. And then I know it is a little bit early to talk about 2023, but it does sound like there is some optimistic commentary in terms of client engagement and pipeline, et cetera. Obviously, the macro remains uncertain, but just wondering if there is a framework that we can use to start thinking about 2023 based on what you see today.
Well, I can get into some of the detail, and maybe Patrick and Rahul can comment after. But we expect that similar to Q3 that we will have some significant strength in our software businesses. We have brought out a number of new products.
Rahul talked about Aloha. I think Singularity is up to about 60 clients. Geneva continues to be very strong. And we have a lot of software that we have built over the past year, and we are excited about some of those opportunities. So I think our technology offerings are going to be well received.
And in the fund administration business, we continue to win large mandates. We have lots of opportunities. Obviously, the real revenue growth is when we get these clients live, so that will be in Q4, Q1, Q2. So I think fund administration businesses and services businesses, both in private markets as well as well as hedge funds, will also be pretty strong. And in insurance as well, we think that is got opportunities.
So I think we have a lot of things that are moving in a positive direction. Obviously, the British pound is at historic lows, and we are not expecting it to have any giant rebounds or anything. But at the same time, it is probably good likelihood that it won’t stay at historic lows.
And so interest rates are going to do what interest rates do, and we should have more than adequate cash flow to pay down a bunch of debt and buy back stock. So I don’t know if you have any comment, Rahul.
I think the only added thing I would have is that the underlying business or the fundamentals that we look at, whether it is how many deals we have in the pipeline or how many wins we have and our path to innovation and rollout of new products, all remain pretty strong.
Clearly, the economic backdrop, the FX rates, M&A volumes, things like that are impacting us right now. And so 2023 - to your question on the framework for 2023, that will really just depend on how much that rebounds. But the things that we control, we actually feel are going reasonably well.
Alright. Thank you Bill, thank you Rahul. I appreciate the comments.
Your next question comes from the line of Alex Kramm from UBS. Your line is open.
Just actually wanted to follow up on your comments you made about fund admin just now. Sounds like you are relatively bullish still. But if I look at the AUA over the last few quarters, I think you mentioned, in the prepared remarks, has been flat or even down, and you see the alternatives growth come down at the same time. If I just eyeball how those trends in AUA have been, it almost looks like the fund admin business could go negative in the fourth quarter. So just wondering where your positive commentary is coming from, if this is more of a 2023 outlook or if I’m missing something on the 4Q because, as I said, it seems like that business is decelerating right now given the market backdrop.
Well, I think, Alex, that we are still doing pretty well with takeaways, and we are doing pretty well with starting major fund complexes. And we think some of that revenue will start flowing through in Q4 and all throughout 2023. And we would say, particularly in private credit and some other strategies, that it is quite strong. And we don’t see - I mean, hey, if the market falls net of 500 points or something or 5,000 points, okay.
But other than that, I think that - I think they are talking about October being the best October in about 20-years in the equities markets. And those kinds of things give us some tailwind. Just like when they fall, it gives us some headwind.
But I think we are pretty optimistic about our fund administration business, and we think that Rahul is a very - not Rahul, but Bhagesh is a very talented executive, and he’s already moving to streamline some of the stuff we do. And our sales force is really starting to sell bundles of our products and broad scale solutions. Rahul probably has a comment on that, too.
Yes. I think on the changes in AUA, just - we talk about frequently how that doesn’t exactly correlate to what we expect from revenue outlook. There is some impact, but it is weakly correlated, so point taken that AUA is not going up. But - and if you look at our historical range on fund administration growth, it is somewhere between 4% and 8%, 9%. And so when we have tough markets like this, we expect to be at the lower end of that range, but I wouldn’t expect us to get negative unless there was a dramatic change in macroeconomic outlook.
Okay. No, that is great. And then just quickly as a follow-up, I think on previous calls, you have talked about how the labor market has driven some implementation challenges. I think it was primarily on DST. So just maybe an update how - if those are gone through, if it is easier to implement or if there is still challenges, I guess the question is what is the backlog like. And is that going to help DST or other businesses where that is been an impact?
Alex, that is a great question. And we have a very large backlog of sold businesses that we are in the midst of implementations. And just, for instance, 1 client that pays us up several hundred thousand dollars a month. But when they go live, which we hope happens in the next five or six months, that moves from several hundred thousand to several million. So you can imagine that we are pretty focused.
But we can be as focused as we want to be, but we really have to get these clients live and get into a steady state of them using our products and services on a day-to-day, week-to-week, month-to-month basis. And I think we are quite focused on that.
Sorry, but has it been improving or still some challenges?
It is improving, but it is never improving fast enough if you know what I mean. So the rapidity is the key. And I would say we are getting better. And I would say we need to get better faster. So I think that that is - but these are very large organizations. It is complex implementations, and you are doing it while they are still operating.
Sometimes, they are operating. Sometimes, they are doing acquisitions. Sometimes, they are doing divestitures. And all of that adds to the complexity of these implementations. And - but we think we have a great team. We think we have great opportunities. It is execution.
Fair enough. Thanks again guys.
Your next question comes from the line of Peter Heckmann from D.A. Davidson. Your line is open.
Good afternoon. Thanks for taking the questions. Can you give us today an update on the development work on DomaniRx? And how are you feeling about the timetable for the first quarter conversion?
Well, I think that DomaniRx remains a very large system. And we are trying to make sure that we are really aligning our deliveries around the times when these large health plans and - are making decisions on new providers. So that is a work in process, but we are certainly focused on DomaniRx. Rahul, do you have a deeper comment?
Bill, I don’t. I think that is right.
Okay. And then just on the kind of the legacy SS&C investment management software that - I think you said it was up 16%. Now I guess I would assume that most of that business is coming on at subscription. But were there some larger licenses in there that would have affected that number?
Yes. We sold a few on-prem, good-sized licenses. And even sometimes the - even though we may host it, they may still do all the work. So it is not a business process outsourcing service. So yes, we sold and we have a refreshed group of technology that we think has some link to the - to its acceptance in the market. So we are doing quite well against our competitors, and we believe that will continue.
Alright, that is helpful. Thank you.
Your next question comes from the line of Jeff Schmitt from William Blair. Your line is open.
Hi good afternoon everyone. This just seems like the type of environment where you can really kind of push through pricing increases that you couldn’t typically get. What type of pricing increases are you getting in the fund administration business? And are there other businesses where you are getting sort of material increases relative to historic levels?
I think we have had a program to get some price increases, and that is worked pretty well. And I think it is - the price increases are more substantial than they have been over the last probably even five-years as, obviously, inflation has gone up and people recognize that they want to keep the same team. We have very talented people, and they want to keep the same team.
So the conversation, while no one likes to have their prices increased, they understand that to keep these talented people and continue to deliver service at a very high level, there is going to be some price increases. And we have had, I would say, pretty good success with that.
Okay. And then on the EBITDA margin expansion in the quarter, I think you said it was 260 basis points from the prior quarter. You pointed out a couple of drivers of that, utilizing Blue Prism, reducing the real estate footprint. How much did they drive that increase? I mean could we get sort of the components of that?
Right. I think what we said was 260 basis points. And I would say that the management of the variable expenses was probably 100 to 120 of those 260 basis points. And probably, the real estate footprint maybe another - what do you think, Patrick, 40, 50 basis points maybe?
Yes. Probably around $5 million in the quarter, $5 million to $7 million.
And then there is a variety of other things that we have done about - we buy lots of services from lots of different people, and we have gotten some help with more volume but at a less rate. I think those are the major components.
And I think also, Blue Prism operating margins improved in the quarter.
Okay. How big of an impact was that? Or is it still small at this point?
I think they were up over 10% operating margin, so it was pretty significant in the quarter sequentially.
That is great. Thank you.
Your next question comes from the line of Kevin McVeigh from Credit Suisse. Your line is open.
Great, thanks so much. I don’t know if this would be for Bill or Rahul. But any sense of - given some of the volatility, any changes in the competitive dynamics of the business and I wonder if you could give us just an update on kind of Blue Prism in terms of go to market, how that is been helping from a competitive perspective.
Well, I think competitively, we believe we are in a very strong position, and we continue to have takeaways. We continue to have outreach from the industry coming to us. And we think that that is going to continue. The breadth and depth of our offering, we believe, is unmatched. So we think that that is a very strong position to be in.
And then the addition of Blue Prism has really been a demonstrable way that people can use digital workers for things like statement verification, reconciliation and a whole host of other things. And as Rahul said, it is - we hope we come out of 2023 with between 5% and 10% of our workforce being digital workers. And I think that that is a significant number of people.
And then just following up on that, is that helping, Bill, internally in terms of managing some of the cost pressure that you saw earlier in the year? We have seen a little bit of benefit from Blue Prism and then the environment overall. Is that starting to help on the cost side in terms of - it just feels like labor is maybe not as tight as it was earlier this year. Is that fair?
I think it is fair. It is still tight, though and it is going to be a while before labor is not in an ascendancy. I think that in most of the people’s businesses that are on this call, there is pressures on various - whether it is investment banking fees or other types of fees that - and you see that happening where there are significant cuts around large-scale financial institutions.
And that generally puts more talented labor in the workforce. And we are getting a lot of great resumes. And our ability to really deploy Blue Prism is something that allows us to put people into higher level analytical positions that give them career paths that are, we think, pretty exciting.
Very helpful. Thanks Bill.
Your next question comes from the line of James Faucette from Morgan Stanley. Your line is open.
I want to go back to Jeff’s question on pricing, et cetera. I think you have mentioned that as a function of your pricing review, you have enabled more automatic escalators, at least in more contracts. And I guess recognizing that those are mainly in the licensing business, is that comment really directed at new customer signings or have you been able to go further and include some of those escalators in contracts that don’t - that didn’t previously have them? And should that ultimately result in more consistent pricing changes in future periods?
Rahul, maybe you can get a few [Technical Difficulty].
Sure. Yes. So I think it is both, where we are obviously making that a standard in new customer contracts. But as part of the conversation with current customers that did not have escalators in their contract, we are both agreeing to updated price levels at the present and also sort of having this regimen of CPI or something indexed to a cost of living type adjustment built into the contract. And that also has - to Bill’s point, nobody really wants to talk about these things, but they understand where we are coming from. And so that is gone reasonably well. And it does make for, as you point out, a more automatic and consistent process going forward.
And I guess just as a quick follow-up, and then I will pose my second question as - at the same time. But does that mean that - like we should start to see some of that benefit in future periods or is it still too nascent to think about that impacting next year, is kind of the follow-up there.
And then my second question was just on the - we always ask about M&A environment. You guys historically have done a great job adding value and - through acquisitions. And we have started to see some of the venture capital funding amounts come down. So I’m just wondering if you are seeing some falling and incremental opportunities there yet.
Well, I think the M&A market is active. I think there is - you are seeing some major software deals being announced over the last few weeks, and - but prices are still pretty firm. And I think that the clearing call for organic growth is something that we have put a lot of focus on and have a lot of new products and services that we think will drive significant revenue for us.
And then the same thing with the pricing. I think that stuff builds, and I think it will continue to build throughout 2023. And hopefully, we would be able to point to specifics of several percentage increases in the overall revenue streams on different services and products that are - that is caused by price increases.
That is great context, I appreciate it.
Your next question comes from the line of Patrick O’Shaughnessy from Raymond James.
Hey good afternoon. So by my math, your full year organic constant currency revenue growth outlook moved about 10 basis points lower versus last quarter’s guidance. If I have that right, does that then imply that most of the revision lower to the full year revenue and EPS guide was just a function of FX?
I think we think that is a yes.
There is some FX impact, but I think the midpoint of our full year revenue guide is about 2% right now. And I think at the end of the third quarter, we were at about 3.2%. Some of that is organic reduction. And probably, I would say maybe $20 million is FX from some of the guidance we gave at the end of the second quarter.
Okay. I thought I heard earlier on the call, you said the range for the full year organic constant currency was 1.6% to 4.6%. Did I mishear that?
Yes, I think so. I think the midpoint is around 2%.
Okay. And I can go back to the transcript after the call and look up what you said earlier. And then I guess maybe a question about capital allocation. Bill, you touched on - clearly, the focus is on organic growth. But also just from an accretion standpoint given where the share price is, repurchases are pretty accretive given where interest rates are. Debt reduction is pretty accretive. Does that kind of change your thinking versus M&A relative to where maybe you have kind of been thinking historically?
Obviously, Patrick, you understand that process probably as well as anybody. And that is way more art than it is science. Particularly when interest rates are going up and we view our stock as undervalued, you get kind of a - anything you do is pretty positive. But interest rates at 5.5% compared to stock price at $50, the stock price at $50 is quite a bit financially better.
But we still like acquisitions. We like the talent we get. We like the ability to drive margins up. We like to get the new technology, the new services, the talent. And so I don’t think that the overall philosophy is much different.
It is just that the magnitude that you can do and the impact - as you said, both are accretive, but share buybacks are quite a bit more, I think, than debt paydown. But people would prefer we drive our leverage ratio to below 3, and that is something that we are focused on.
And I think, again, we moved our EBITDA margins up, I think, 260 basis points. And people wondered if our margins were permanently back based on Q2. And our view is that we have a lot of levers in this business. Blue Prism, even what Rahul said, is 5% to 10% of our workers.
Now you calculate those numbers out, and you are talking about tens of millions. And so we are - and we are trying to be conservative. So I think there is a lot of opportunity for us. And even with our 38% margin, which we would like it to be higher, it still stacks up pretty well against most of our competitors.
Great. Thank you very much.
[Operator Instructions] Your next question comes from the line of Mayank Tandon from Needham & Company. Your line is open.
Good evening guys. It is actually Kyle Peterson on for Mayank. Thanks for taking the question. So I guess to kind of frame the 2023 question another way, it seems like you guys are pretty confident on - in the margin trajectory. So thinking about next year, like is there any reason that with Blue Prism integrated, that you guys can’t get back to kind of historical EBITDA margins that you guys have operated, like outside of like a black swan event or anything like that?
Yes, we think better.
Okay. I like to hear that. So yes, just a follow-up, just I know - at least some of your past acquisitions, you guys have sometimes come across some noncore assets that might not have perfectly fit with your portfolio. Are there anything left on the balance sheet from - whether it is Blue Prism or anything else that you guys might be able to monetize and use to either pay down debt or buy back your own stock at these levels?
We got a few buildings for sale if you are interested. And we have some other assets on our balance sheet.
Well, I will contact my broker. Maybe we can work something out.
We have several cities. Yes. And we have some other assets on our balance sheet that - but nothing particularly significant that is going to make $100 million or anything like that.
Okay, understood. Thanks guys.
Your next question comes from the line of Surinder Thind from Jefferies. Your line is open.
Thank you. Can you maybe dig a little bit deeper into the trends within DST Financial Services?
Yes. I think that DST Financial Services, particularly that we have a pretty big U.K. business, and so a lot of the headwinds in the - with the British pound and...
Are we still talking about DST Financial Services?
Yes. So a large component of that business is in the U.K. And I think that we still have lots of opportunities there. We have spent a lot of money, and we think we have improved our products and our service levels. But I think it is still a competitive business, and I think that we have a chance to continue to improve that business. And I think we have a stronger sales force in there and that we are doing some smart things. And I think we will continue to do that.
Rahul, do you have anything else to add to that?
Well, the other components of DST Financial Services, the retirement business, we have been, for the last 12 or so months, working on a couple of big customers that were getting much closer to that go-live situation, and we expect to see growth in those businesses as a result.
Brokerage remains pretty strong. And we are encouraged by the fact that we are seeing more and more deals coming out of DST Financial Services that are sort of cross-sell enterprise-type deals, where we are selling multiple of our products and services, including Advent and fund services and other things, which is really what we had hoped would happen. And so there is a lot of positive despite kind of some macro trends.
Understood. And then in terms of just a follow-up, maybe any additional color in terms of just - you have talked about digital workers maybe getting to 5% to 10%, potentially 50,000 in savings for each digital worker. Now are you thinking about that in terms of reinventing existing processes? Is it primarily intended to be savings from future workers? Can you talk a little bit about the dynamics? Obviously, you have kind of given some idea of where 2023 might end up but just what the longer-term outlook for that might be.
Well, I think if you go back to the rationale of why we bought Blue Prism is we believe we have the strongest group of experts in the industry. And it is the functional experts married to the high-powered technology and technologists in Blue Prism that allows us to build smarter and smarter digital workers that can do increasingly sophisticated work.
That is why you have the optimism that you hear here. We do literally thousands and thousands of reconciliations and hundreds of thousands of limited partner statements and other things that are - can be quite manually intensive.
And the more that we can build expert digital workers to take an awful lot of that tedious and time-consuming work off of our workforce, the more we can get increasingly better and drive margin because we don’t have to have as many people in that - in those kinds of roles.
That is helpful. Thank you.
There are no further questions at this time. Mr. Bill Stone, I turn the call back over to you.
Again, we appreciate everybody being on here. And obviously, we prefer to grow and - but we also did smart things, I think, about protecting our workforce, making sure that we are extremely competitive on talent acquisition and talent retention as well as client acquisition and client retention.
So we are going to focus on that, and we are going to deliver on that. And we think that will play well for everybody. So thanks again, and we look forward to talking to you after the end of the year. Thank you.
This concludes today’s conference call. You may now disconnect.