Earnings Call Transcript - SSNC Q1 2020

Justine Stone, Investor Relations

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. As we anticipate a lengthy Q&A session, I request that you please limit yourself to one question and one follow-up. And I will now turn the call over to Bill.

Bill Stone, Chairman and CEO

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 $1,178 million 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 alternative 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 $147.7 million, up $10.3 million from Q1 2019. Our secured net leverage ratio was 2.67 times, and our total net leverage ratio was 3.74 times. Term restrictions, as you know, on our debt are light with only a 6.75 times max secured net leverage being relevant, with three plus turns of leverage that are available to us representing $5.8 billion in available room. We are living in unprecedented times. We have taken prudent steps and carefully reviewed 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 from 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 local 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 the current economic climate. Please refer to slides five and six of our earnings results slides posted on our IR website. In our Q3 revenue scenario, if 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 30.5% 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 million 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.

Rahul Kanwar, President and COO

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, while 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 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 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 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 a reduction in elective and preventative procedures. A bright spot is Algorithmics, so 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. Now we will mention some key deals for Q1 2020. An existing client with a long-standing relationship with DST shows 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.

Patrick Pedonti, CFO

Thanks. Our results for the first quarter of 2020 were GAAP revenues of $1,173.6 million, GAAP net income of $99.2 million, and EPS of $0.37. Adjusted revenue was $1,178 million, excluding the impact for the adoption of the revenue standard 606 and for acquired deferred revenue adjustments 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%. 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. 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 three in our earnings release, was $463.5 million or 39.3% of adjusted revenue and increased 4.5% over Q1 2019. Net interest expense for the first quarter was $77.4 million and includes $3.5 million of non-cash 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 pre-tax 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 non-cash 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 non-operating 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 used for adjusted net income were 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 three months was $147.7 million, a $10.3 million or 7.5% increase compared to the same period of 2019. A few highlights for 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 2019 and 53.7 days as of March 2019. 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 million as of March, which includes about $25 million of acquired EBITDA and cost savings related to our acquisitions. Based on net debt of $1 billion, the total leverage ratio was 3.74 times and secured was 2.67 times. On our view for the year, due to the current unpredictability of market and economic conditions, we're withdrawing our specific guidance and providing three 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 retention rates 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. As a result, adjusted organic growth for the year will be in the range of 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 will manage our expenses during this period by controlling variable expenses and staff hiring, but we will 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%, and the tax rate for adjusted earnings to be 26%.

Bill Stone, Chairman and CEO

So Patrick, fairly drops. So the first scenario assumes that economic conditions start improving in the third quarter of 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. You 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 in these trying times; to reiterate the resiliency of SS&C's business model. We reported $373.7 million in cash and cash equivalents as of March 31st, 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 paydown and allocate capital towards high-quality acquisitions in a methodically opportunistic manner. As we begin to open the call for questions, I want 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 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.

Justine Stone, Investor Relations

Manisha, are you there?

Operator, Operator

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

Alex Kramm, Analyst

Yes, hello, how are you? Alex Kramm from UBS. Thank you for the detailed information. Regarding your guidance, I noticed your assumption that the retention rate will stay at 96%. Could you clarify that a bit more? My question is why you're so confident in this rate considering some hedge funds are struggling. Is there a risk here? If the environment is as challenging as described, could this impact your results going into 2021, and is that why you haven't addressed it? What factors could potentially worsen this situation?

Bill Stone, Chairman and CEO

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 benefit, but three, four, five quarters out, it could certainly catalyze growth as people may need an administrator that specializes in this area and can respond effectively. So, I don't know if you have anything, Rahul, to add.

Rahul Kanwar, President and COO

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 six to eight 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.

Alex Kramm, Analyst

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?

Bill Stone, Chairman and CEO

We have made significant progress on this since our last two calls. While it's not completely resolved, it's likely around 60% to 75% complete. It's not as much of a priority as it once was. We will review it again in December, and based on what happens between now and then, we can determine if a small increase is feasible.

Alex Kramm, Analyst

All right. Fair enough. I'll jump back in the queue. Thank you.

Operator, Operator

We have another question from the line of Andrew Schmidt.

Andrew Schmidt, Analyst

Hey, guys. Andrew Schmidt from Citi. Thanks for taking my questions. Question on just the quarterly trajectory as we progress throughout this year. Maybe you could talk a little bit more about just what you 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?

Bill Stone, Chairman and CEO

I’d like to share my thoughts first, and then perhaps Rahul can add to them. Andrew, in response to your question, we're not viewing the COVID pandemic as a catalyst for our businesses, unless you are a company like Gilead or another pharmaceutical firm. The majority of us are working through a rapidly changing environment. The scenarios we're presenting reflect the expectation that we may not see the funding launches we anticipated. There's hesitation regarding large, ongoing licenses, which often need approval from the board. Additionally, large outsourcing contracts are likely to be less common while companies are focused on maintaining business continuity. So, this is an assessment of potential outcomes as the global economy strives to regain its full strength. Rahul, would you like to add your thoughts?

Rahul Kanwar, President and COO

Sure. I think in terms of the trajectory, what we've assumed is the Q3 recovery scenario assumes that things start to normalize towards the end of Q2. So Q3 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 one quarter delayed. So towards the end of Q3, people are getting back to work and Q4 is better from that point forward. And in 2021, once again, all of these are just timings. In 2021, we're assuming that things won't normalize in demand until around the end of the year, so we don't really see the full benefit of that until the first quarter of 2021.

Andrew Schmidt, Analyst

Thank you for the helpful context. For my follow-up, could you provide the proportion of revenues attributed to delayed implementations compared to a slower sales cycle? Additionally, could you share what you've been hearing from clients recently? It seems like clients are consulting with you more to explore better outsourcing options. Could you elaborate on their feedback and when they might be ready to start implementing solutions?

Bill Stone, Chairman and CEO

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 22,750 people, and we did it in a week or two, and we have not had disruptions in our service. 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 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. I think we have a great team, and I think that's what they've been doing.

Andrew Schmidt, Analyst

Great. Thank you very much, guys.

Operator, Operator

We do have a question from the line of Peter Heckman.

Peter Heckmann, Analyst

Hey, good afternoon, everyone. 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 two pending deals?

Patrick Pedonti, CFO

Yes, this is Patrick. To give you an idea, Innovest generated approximately $42 million in revenue in 2019. It's difficult to predict, but they are likely experiencing growth in the high single digits in revenue this year. Assuming we close on June 1, we anticipate that Captricity will contribute around $20 million in revenue for the remainder of the year.

Peter Heckmann, Analyst

Patrick, that's the Capita deal?

Patrick Pedonti, CFO

That's Capita. Captricity is already included.

Peter Heckmann, Analyst

That's right. Perfect. As a follow-up, Rahul, can you provide a bit more detail on the fund of funds? I noticed on the last slide of the deck that there was just a 1% sequential decline in AUA. Can you discuss how market action and net flows are influencing that?

Rahul Kanwar, President and COO

We had a solid sales quarter, especially at the beginning of Q1. This includes the new assets we brought on. However, we experienced market declines in our hedge fund business, particularly toward the end of March, though we are beginning to observe some recovery in that area. Our private equity and real assets divisions continue to demonstrate strong sales and asset inflows into existing funds.

Peter Heckmann, Analyst

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

Rahul Kanwar, President and COO

No, not really.

Operator, Operator

And we have a question from the line of Mayank Tandon.

Mayank Tandon, Analyst

Well, thank you. Good evening. 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 vulnerable? But then what is the project-centric or the variable piece that could be more exposed, especially if the downturn is prolonged, which might render some of the scenarios maybe not as conservative and maybe the recovery is later in 2021? Just want to get a better feel for the visibility you have under these various scenarios.

Bill Stone, Chairman and CEO

I'll give it a try and then let Rahul share his thoughts. Mayank, when we look at our revenue components, the fees we charge from hedge funds and private equity funds in the fund of funds include buffers. Therefore, if asset prices decline, it can have an impact. However, the volatility we experienced in March has continued into April and is more of a fluctuating sales pattern that doesn't significantly affect our revenue. We conduct tax returns and financial statements, which are charged on a per piece or annual basis. Another source of recurring revenue comes from maintenance fees on our software contracts, which are fixed fees not influenced by asset values. Most of our recurring revenue remains stable. The revenue from our F6 network, data businesses, or Eze's business that depends on the number of trades is more closely related to volatility and volumes rather than asset values, so we are quite insulated. Rahul, do you have anything to add?

Rahul Kanwar, President and COO

Bill, I would like to mention that in businesses where we experience some variability linked to external factors, we have adopted a cautious approach. Mayank, we have a strong understanding of the current situation. As Bill mentioned earlier, things might worsen, but based on our observations in the business, we have good clarity.

Mayank Tandon, Analyst

That's very helpful. And just one quick one for Patrick. Patrick, could you size the expenses that you laid out? And then how many 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 2021? Thank you.

Patrick Pedonti, CFO

Well, I think it ranges to the three 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.

Mayank Tandon, Analyst

Got it.

Patrick Pedonti, CFO

We're also benefiting from LIBOR being down significantly this quarter. 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.

Mayank Tandon, Analyst

Thank you.

Operator, Operator

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

Jackson Ader, Analyst

Great. Thanks. It's Jackson Ader from JPMorgan on. Bill, the question 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 that maybe they get modified to the downside, either purchasing fewer products or maybe moving less assets over to SS&C?

Bill Stone, Chairman and CEO

You know, Jackson, I really think it's going to be the opposite of that. If you go back to Madoff and other events that really rocked the investment services outsourcing business, people wanted independence. They wanted strong internal controls and businesses run by experts in these things. So these are not banking businesses, they're accounting businesses; they're systems businesses. It's really doing accounting with systems. All three people you're talking to here are accountants by training. Our ability to move quickly and confidently 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, 'We better get somebody that's really steeped in these things.' I think we'll be a significant beneficiary of that.

Jackson Ader, Analyst

Okay. That makes sense. Thank you. 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 timelines of recovery, how should we be thinking about either levels of debt either to the upside or maybe pace of paydown?

Bill Stone, Chairman and CEO

Well, I think in all three scenarios, I think the one with the most impact will be recoveries 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. When you look at the $800 million that we can do from a capital allocation standpoint, my guess is that a vast majority will go to pay down debt. We like good acquisitions. I think if we take the acquisitions we've 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 for something to feed the pack. 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.

Jackson Ader, Analyst

Great. Thank you.

Operator, Operator

We have another question from the line of Ashish Sabadra.

Ashish Sabadra, Analyst

Thanks for taking my question. 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?

Bill Stone, Chairman and CEO

No.

Patrick Pedonti, CFO

We have not.

Ashish Sabadra, Analyst

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 exceeded the expectations on margins. Are there opportunities potentially for more cost takeouts and on the margin front?

Patrick Pedonti, CFO

Well, I think go ahead, Bill.

Bill Stone, Chairman and CEO

Go ahead.

Patrick Pedonti, CFO

Yes. We did announce some staff reductions 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 we continue to integrate DST's contractor, India workforce into our in-house workforce, which 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.

Bill Stone, Chairman and CEO

And remember, almost all of our costs are variable. 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? We spend millions monthly. Do you need to attend all the various conferences that are now being done virtually? The cost structure of a lot of the American business is going to change. For those who like profits, it's going to change positively.

Ashish Sabadra, Analyst

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. So thanks.

Operator, Operator

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

Jonathan Lee, Analyst

Hey. 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?

Bill Stone, Chairman and CEO

Well, I mean, I think the only thing that we really had that was at all disruptive was when we shipped everybody home in India; some of the remote areas in and around Gurgaon, Mumbai, and Hyderabad didn't have as good a telecom infrastructure, so we upgraded lots of routers and made sure that we gave them the best possible speed. Our IT team in India did an outstanding job, and they continue to do so. But those were the major points of any disruption. I've talked to many senior people at our clients, and the comments are first, great and thank you, and that your people in India and your people here in Australia or the UK have all done a great job for us, and we really appreciate it. In general, in our business, that doesn't happen. We're the back-office guys; how come something is not reconciled yet? But I think that's pretty high standard.

Jonathan Lee, Analyst

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

Bill Stone, Chairman and CEO

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.

Rahul Kanwar, President and COO

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

Bill Stone, Chairman and CEO

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.

Operator, Operator

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

Alex Kramm, Analyst

Hello again. 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 item. 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 four 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.

Bill Stone, Chairman and CEO

Yes, Alex, I think you just need to look at those businesses. The amount of variability you're discussing is around $20 million or possibly $25 million. Regarding Intralinks, the impact is less significant than you might expect. It’s impressive that Intralinks has supported one of the largest banks in the country in executing the Payroll Protection Program for the U.S. government, which has been beneficial for that business, and they are performing well. While M&A activity isn’t as strong as it used to be, it’s not inactive either. We believe we’ll be well-positioned when it picks up again. As for the other businesses, we take a cautious approach, focusing on cash flow and earnings, but we also value revenue growth. In other sectors, even if companies aren’t going completely out of business, if you were managing $2 billion and now it's just $50 million, that's essentially like going out of business, and it will affect our revenues. However, typically we aren't facing a situation where revenue drops from $250 million a quarter to $172 million; it should remain relatively consistent. You might not receive as large a bonus this year at UBS, but I expect your tax accountant's fees will stay the same.

Alex Kramm, Analyst

That's pretty sure.

Bill Stone, Chairman and CEO

Yes. That's the nature of our business. If he wants to raise your fee 5%, tell me, you say, okay. I don't think it's not as volatile as it sometimes looks to people on the outside.

Alex Kramm, Analyst

All right. For my last question, regarding M&A, you seem to have a strong interest, and I noted the $5.8 billion figure mentioned in your prepared remarks related to capacity. I assume that's the maximum capacity, but how comfortable are you with going that high? What level would you feel more at ease with? Also, in terms of deal sizes, are there attractive opportunities out there, especially if there’s a forced seller, or are you mostly seeing smaller deals?

Bill Stone, Chairman and CEO

If we invest that $5.8 billion, we will generate some EBITDA. We're not going to invest that amount and receive no EBITDA in return, so we need to take that into consideration. Additionally, there's a saying from someone wise in Omaha: when everyone is fearful, be bold. Currently, many are afraid, and interest rates are at historic lows. The fixed income markets seem to be open, presenting opportunities. We intend to acquire $200 million in revenue throughout the year, and we want to do so at reasonable prices. It’s important to remain proactive instead of retreating when the market offers the best potential.

Alex Kramm, Analyst

Understood. Thanks again.

Operator, Operator

Your next question comes from the line of Dan Perlin.

Matt Roswell, Analyst

Yes. Good evening. 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?

Patrick Pedonti, CFO

For the first quarter?

Matt Roswell, Analyst

Yes. For the first quarter.

Patrick Pedonti, CFO

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

Matt Roswell, Analyst

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

Bill Stone, Chairman and CEO

I don't believe that's the case. It seems like everyone is focused on liquidity, and we're just a bit unconventional in that regard. The amount involved isn't significant. We get to account for a part of restricted stock, and I think the sellers are pleased to have our stocks. I hope there's some potential benefit for them moving forward. This is an excellent asset, and we are looking forward to it.

Matt Roswell, Analyst

Okay. 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?

Bill Stone, Chairman and CEO

I think that most people at senior levels of companies look at it as, 'If this too shall pass,' no different than 9/11, no different than the stock market crash of 1987, no different than the Russian bond crisis–this is different, right? It's the whole world at once. There's reduction of economic activity everywhere, but it's the same thing. Lots of smart people in the world and in finance are 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 out there are all oversubscribed and being upsized. When people have talked about a world awash in money, they weren't kidding. With the Fed and all the other central banks around the world, basically turning the spigots on, I think there's going to be plenty of money for restructurings and plenty of money for other things where people see real opportunity. I think SS&C will be a beneficiary.

Matt Roswell, Analyst

Okay. Excellent. Thank you.

Operator, Operator

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

Bill Stone, Chairman and CEO

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.

Operator, Operator

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