SS&C Technologies Holdings Inc 10-K

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STO CKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES Our common stock trades on The Nasdaq Global Select Market under the symbol “SSNC”. As of February 21, 2023, we had approximately 227,000 beneficial shareholders of our common stock. 36 Our equity plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this annual report on Form 10-K. Issuer Purchases of Equity Securities The following is a summary of the repurchases of our common stock in the fourth quarter of 2022 (in millions, except average price per share): Period (1) (a) Total Number of Shares Purchased (2) (b) Average Price Paid per Share (c) Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs (3) (d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet be Purchased Under Plans or Programs (3) October 1, 2022 – October 31, 2022 — $ — — $ 785.5 November 1, 2022 – November 30, 2022 1.2 $ 49.78 1.2 $ 725.9 December 1, 2022 – December 31, 2022 0.6 $ 50.86 0.6 $ 694.8 Total 1.8 1.8 (1) Information is based on trade dates of repurchase transactions. (2) Represents shares repurchased in open market transactions pursuant to the Common Stock Repurchase Program. (3) Share repurchases were made pursuant to our Common Stock Repurchase Program authorized by our Board of Directors in July 2022. The program allows for the purchase of up to $1 billion of outstanding common stock in one or more transactions on the open market or in privately negotiated purchases. 37 Performance Graph This performance graph shall not be deemed “soliciting material” or to be “filed” with the SEC for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of SS&C Technologies Holdings, Inc. under the Exchange Act. The following graph shows a comparison from December 31, 2017 through December 31, 2022 of cumulative total return for our common stock, the Nasdaq Composite Index and the Nasdaq Technology Dividend TR Index. Such returns are based on historical results and are not intended to suggest future performance. Data for the Nasdaq Composite Index and the Nasdaq Technology Dividend TR Index assume reinvestment of dividends. COMPARISON OF CUMULATIVE TOTAL RETURN* Among SS&C Technologies Holdings, Inc., the Nasdaq Composite Index and the Nasdaq Technology Dividend TR Index * $100 invested in stock on 12/31/2017. Return calculations of indices assume the reinvestment of dividends. 12/31/2017 12/31/2018 12/31/2019 12/31/2020 12/31/2021 12/31/2022 SS&C Technologies Holdings, Inc. 100 112 154 184 209 134 Nasdaq Composite - Total Returns 100 97 133 192 235 159 Nasdaq Technology Dividend TR Index 100 98 131 155 202 158 38 ITE M 6. [Reserved] ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Business. We are a leading provider of mission-critical, sophisticated software-enabled services that allow financial services providers to automate complex business processes. Our portfolio of software products and rapidly deployable software-enabled services allows our clients to automate and integrate front-office functions such as trading and modeling, middle-office functions such as portfolio management and reporting, and back-office functions such as accounting, transfer agency, compliance, regulatory services, performance measurement, reconciliation, reporting, processing and clearing. We provide our solutions globally to thousands of clients, principally within the institutional asset and wealth management, alternative investment management, brokerage, retirement, financial advisory and financial institutions vertical markets. In addition, we provide solutions to the healthcare industry including pharmacy, healthcare administration and health outcomes optimization solutions to satisfy their information processing, quality of care, cost management and payment integrity needs. Our healthcare solutions include claims adjudication, benefit management, care management and business intelligence services. Acquisitions . To supplement our growth, we evaluate and execute acquisitions that provide complementary products or services, add proven technology and an established client base and expand our intellectual property portfolio or address a highly specialized problem or a market niche. Since the beginning of 2020, we have spent approximately $1.9 billion on our seven most significant acquisitions, using a combination of cash on hand and debt financing (as discussed in Notes 8 and 11 to our Consolidated Financial Statements). The following table lists the significant businesses we have acquired since January 1, 2020: Acquired Business Acquisition Date Acquired Capabilities, Products and Services Tier1 August 2022 Extended SS&C's customer relationship management offerings O'Shares ETF June 2022 Expanded the offerings of SS&C ALPS Advisors, SS&C's wholly-owned asset manager Minerals Management, LLC May 2022 Extended SS&C's offerings into the energy market while helping clients streamline operations across all asset classes and type Hubwise Holdings Limited March 2022 Enhanced SS&C's capacity to help customers create highly automated and efficient multi-asset, multi-currency and multi-wrapper strategies Blue Prism Group Plc March 2022 Added deep expertise in intelligent automation and robotic process automation Innovest May 2020 Added web-based trust accounting and unique asset servicing solutions Captricity March 2020 Added data transformation platform to extract handwritten and machine printed data from paper documents The discussion in this Part II, Item 7 of this Annual Report on Form 10-K includes the operations of the businesses listed in the table above for the respective time periods each was owned by SS&C. Revenues. As we have expanded our business, we have focused on increasing our software-enabled services. Since 2020, we have seen increased demand in the financial services industry for these services from existing and new customers. We have taken a number of steps to support that demand, such as automating our software-enabled services delivery methods, expanding our service offerings and providing our employees with sales incentives. We have also acquired businesses that offer software-enabled services or have a large base of term license or maintenance clients. In particular, the acquisition of Blue Prism increased our term license and maintenance revenues. Our software-enabled services revenues increased from $3,891.3 million and 83% of total revenues in 2020 to $4,273.9 million and 81% of revenues in 2022. We believe that our high level of these contractually recurring revenues provides us with the ability to better manage our costs and capital investments. To support the growth in our software-enabled services revenues and maintain our level of customer service, we have added personnel, expanded our facilities and invested in IT. Liquidity. In March 2022, in connection with our acquisition of Blue Prism, we entered into an Incremental Joinder to our credit agreement, which is described in Contractual Obligations, resulting in new term loans totaling $1,530.0 million. In December 2022, we entered into an amendment to our revolving credit facility, which is also described in Contractual Obligations, which increased the capacity of our revolving credit facility from $250.0 million to $600.0 million. 39 We generated $1,134.3 million in cash from operating activities in 2022, compared to $1,429.0 million and $1,184.7 million in 2021 and 2020, respectively. In 2022, we used our operating cash flow, $91.8 million in proceeds from the exercise of stock options and existing cash to fund acquisitions, pay $203.1 million in dividends, purchase $476.1 million of common stock for treasury and invest in capital expenditures in our business. The COVID-19 pandemic and ongoing macroeconomic conditions, such as increases in interest rates and inflation rates and changes in foreign currency exchange rates, could have impacts on our results that are uncertain and, in many respects, outside our control. The situation remains dynamic and subject to rapid and possibly material change, which ultimately could result in material negative effects on our business and results of operations. We will continue to evaluate the nature and extent of the potential impacts to our business, consolidated results of operations, liquidity and capital resources. Results of Operations Revenues We derive our revenues from two sources: software-enabled services revenues and license, maintenance and related revenues. As a general matter, fluctuations in our software-enabled services revenues are attributable to the number of new software-enabled services clients as well as total assets under management in our clients’ portfolios and the number of outsourced transactions provided to our existing clients. Software-enabled services revenues also fluctuate as a result of reimbursements received for “out-of-pocket” expenses, such as postage and telecommunications charges, which are recorded as revenues on an accrual basis. Because these additional revenues are offset by the reimbursable expenses incurred, there is no impact on gross profit, operating income and net income, however the reimbursements billed and expenses incurred can lead to fluctuations in revenues, cost of revenues and gross margin percentage each period. License, maintenance and related revenues consist primarily of term and perpetual license fees, maintenance fees and professional services. Maintenance revenues vary based on customer retention and on the annual increases in fees, which are generally tied to the consumer price index. License and professional services revenues tend to fluctuate based on the number of new licensing clients, the timing and terms of contract renewals and demand for consulting services. Our results of operations below include the results of our recent acquisitions from the date which they were acquired, including Captricity in March 2020, Innovest in May 2020, Millennium in December 2020, Capita in March 2021, Blue Prism and Hubwise in March 2022, MineralWare in May 2022, O'Shares in June 2022, Tier1 in August 2022 and CFO in December 2022. The following table sets forth the percentage of our total revenues represented by each of the following sources of revenues for the periods indicated: Year Ended December 31, 2022 2021 2020 Software-enabled services 80.9 % 84.3 % 83.4 % License, maintenance and related 19.1 % 15.7 % 16.6 % Total revenues 100.0 % 100.0 % 100.0 % The following table sets forth revenues (dollars in millions) and percent change in revenues for the periods indicated: Year Ended December 31, Percent Change From Prior Period 2022 2021 2020 2022 2021 Software-enabled services $ 4,273.9 $ 4,256.1 $ 3,891.3 0.4 % 9.4 % License, maintenance and related 1,009.1 794.9 776.6 26.9 % 2.4 % Total revenues $ 5,283.0 $ 5,051.0 $ 4,667.9 4.6 % 8.2 % Fiscal 2022 versus Fiscal 2021 . Our revenues increased $232.0 million, or 4.6%, primarily due to acquisitions, which contributed $223.6 million in revenues, and an increase of $101.7 million in organic revenues driven by strength in the SS&C GlobeOp fund administration, Eze, Black Diamond, Geneva, and virtual data room services and products. These increases were partially offset by the unfavorable impact from foreign currency translation of $93.3 million. Software-enabled services revenues increased $17.8 million, or 0.4%, primarily due to an increase in organic revenues of $54.8 million, and acquisitions, which added $37.2 million. These increases were partially offset by the unfavorable impact from foreign currency translation of $74.2 million. License, maintenance and related revenues increased $214.2 million, or 26.9%, primarily due to acquisitions, which added $186.4 million in revenues, and an increase in organic revenues of $46.9 million. These increases were partially offset by the unfavorable impact from foreign currency translation of $19.1 million. 40 Fiscal 2021 versus Fiscal 2020 . Our revenues increased $383.1 million, or 8.2%, primarily due to an increase of $272.7 million in organic revenues driven by strength in the SS&C GlobeOp fund administration, Black Diamond, Geneva, Retirement Solutions, ALPS Advisors and virtual data room services and products. Our revenues also increased due to acquisitions, which contributed $56.9 million in revenues as well as the favorable impact from foreign currency translation of $53.5 million. Software-enabled services revenues increased $364.8 million, or 9.4%, primarily due to an increase in organic revenues of $263.2 million, and acquisitions, which added $56.9 million in revenues, as well as the favorable impact from foreign currency translation of $44.7 million. License, maintenance and related revenues increased $18.3 million, or 2.4%, due to an increase in organic revenues of $9.5 million and the favorable impact from foreign currency translation of $8.8 million. Cost of Revenues Cost of software-enabled services revenues consists primarily of costs related to personnel utilized in servicing our software-enabled services and amortization of intangible assets. Cost of license, maintenance and other related revenues consists primarily of the costs related to personnel utilized in servicing our maintenance contracts and to provide implementation, conversion and training services to our software licensees, as well as system integration and custom programming consulting services and amortization of intangible assets. The following tables set forth each of the following cost of revenues as a percentage of their respective revenue source for the periods indicated: Year Ended December 31, 2022 2021 2020 Cost of software-enabled services 56.5 % 54.7 % 58.0 % Cost of license, maintenance and related 35.0 % 39.7 % 40.8 % Total cost of revenues 52.4 % 52.3 % 55.1 % Gross margin percentage 47.6 % 47.7 % 44.9 % The following table sets forth cost of revenues (dollars in millions) and percent change in cost of revenues for the periods indicated: Year Ended December 31, Percent Change From Prior Period 2022 2021 2020 2022 2021 Cost of software-enabled services $ 2,414.8 $ 2,326.0 $ 2,257.3 3.8 % 3.0 % Cost of license, maintenance and related 352.9 315.7 316.8 11.8 % (0.3 )% Total cost of revenues $ 2,767.7 $ 2,641.7 $ 2,574.1 4.8 % 2.6 % Fiscal 2022 versus Fiscal 2021 . Our total cost of revenues increased by $126.0 million, or 4.8%, primarily due to an increase in organic costs of $123.6 million and acquisitions, which added $63.8 million in costs, partially offset by the favorable impact from foreign currency translation of $61.4 million. Organic cost increases are primarily due to personnel costs, including the impact of wage inflation, costs to support organic growth and independent contractors, partially offset by decreases in costs such as amortization and rent expense. Cost of software-enabled services revenues increased $88.8 million, or 3.8%, primarily due to an increase of $119.0 million in organic costs and acquisitions, which added $22.7 million in costs, partially offset by the favorable impact from foreign currency translation of $52.9 million. Cost of license, maintenance and related revenues increased $37.2 million, or 11.8%, primarily due to acquisitions, which added $41.1 million in costs and an increase in organic costs of $4.6 million, offset by the favorable impact from foreign currency translation of $8.5 million. Fiscal 2021 versus Fiscal 2020 . Our total cost of revenues increased by $67.6 million, or 2.6%, primarily due to acquisitions, which added $40.5 million in costs, as well as the unfavorable impact from foreign currency translation of $34.9 million. Total costs of revenue, excluding the impact of acquisitions and foreign currency translation, decreased by $7.8 million primarily due to a decrease in costs such as travel, depreciation and amortization, partially offset by an increase in costs to support organic revenue growth. Cost of software-enabled services revenues increased $68.7 million, or 3.0%, primarily due to acquisitions, which added $40.1 million in costs, as well as the unfavorable impact from foreign currency translation of $30.0 million, partially offset by a decrease in organic cost of revenues of $1.4 million. Cost of license, maintenance and related revenues decreased $1.1 million, or 0.3%, primarily due to a decrease in organic costs of $6.4 million partially offset by the unfavorable impact from foreign currency translation of $4.9 million and acquisitions, which added $0.4 million in costs. 41 Operating Expenses Selling and marketing expenses consist primarily of the personnel costs associated with the selling and marketing of our products, including salaries, commissions, travel and entertainment. Such expenses also include amortization of intangible assets, the cost of branch sales offices, trade shows and marketing and promotional materials. Research and development expenses consist primarily of personnel costs attributable to the enhancement of existing products and the development of new software products. General and administrative expenses consist primarily of personnel costs related to management, accounting and finance, information management, human resources and administration and associated overhead costs, as well as fees for professional services. The following table sets forth operating expenses as a percentage of our total revenues for the periods indicated: Year Ended December 31, 2022 2021 2020 Selling and marketing 9.5 % 7.8 % 7.6 % Research and development 8.5 % 8.2 % 8.6 % General and administrative 8.0 % 7.1 % 7.5 % Total operating expenses 26.0 % 23.1 % 23.7 % The following table sets forth operating expenses (dollars in millions) and percent change in operating expenses for the periods indicated: Year Ended December 31, Percent Change From Prior Period 2022 2021 2020 2022 2021 Selling and marketing $ 500.1 $ 394.1 $ 356.3 26.9 % 10.6 % Research and development 447.3 414.9 399.4 7.8 % 3.9 % General and administrative 425.0 358.0 352.3 18.7 % 1.6 % Total operating expenses $ 1,372.4 $ 1,167.0 $ 1,108.0 17.6 % 5.3 % Fiscal 2022 versus 2021 . Operating expenses increased $205.4 million, or 17.6%, primarily due to acquisitions, which added $186.3 million in expenses, and an increase in organic operating expenses of $53.0 million. These increases were partially offset by the favorable impact from foreign currency translation of $33.9 million. Total operating expenses, excluding the impact of acquisitions and foreign currency translation, primarily increased due to an increase in personnel costs, travel and entertainment, marketing costs and information technology related expenses. Fiscal 2021 versus 2020 . Operating expenses increased $59.0 million, or 5.3%, primarily due to an increase in organic operating expenses of 29.1 million, the unfavorable impact from foreign currency translation of $16.7 million and acquisitions, which added $13.2 million in expenses. Total operating expenses, excluding the impact of acquisitions and foreign currency translation, primarily increased due to an increase in personnel costs and technology-related expenses, partially offset by a decrease in professional fees. Comparison of Fiscal 2022, 2021 and 2020 for Interest, Taxes and Other Interest expense . We had interest expense of $312.2 million in 2022 compared to $205.7 million in 2021 and $249.9 million in 2020. The increase in interest expense for 2022 as compared to 2021 is due to higher average interest rates on debt and higher average debt balances. We had an average interest rate of 4.22% and 3.05%, respectively, for the twelve months ended December 31, 2022 and 2021. Our total debt balance as of December 31, 2022 was higher compared to the prior year due to the Incremental Joinder we entered into in connection with our acquisition of Blue Prism. The decrease for 2021 as compares to 2020 related primarily to lower average interest rates as well as lower average debt balances. These facilities are discussed further in “Liquidity and Capital Resources”. Other income (expense), net . We had other income, net of $20.8 million in 2022 compared to other expense, net of $18.2 million in 2021 and other income, net of $41.6 million in 2020. Other income, net for 2022 included net investment gains of $38.7 million, which includes fair value adjustments to increase the carrying value of our investments and dividend income. Other income, net for 2022 also included an expense of $8.1 million relating to a legal accrual recorded in connection with the DST ERISA litigation discussed in Note 18 – Commitments and Contingencies of the Notes to the Consolidated Financial Statements. The remaining portion of other income, net consisted primarily of foreign currency translation gains and losses. Other expense, net for 2021 included 42 an expense of $43.4 million relating to the DST ERISA litigation, and investment gains and dividends totaling $30.1 million. The remaining portion of other expense, net consisted primarily of foreign currency translation gains and losses. Other income, net for 2020 consisted primarily of foreign currency transaction gains and investment gains. Equity in earnings of unconsolidated affiliates, net . We had equity in earnings of unconsolidated affiliates, net of $25.8 million for 2022, $25.4 million for 2021 and $(1.5) million for 2020. Our equity in earnings of unconsolidated affiliates in 2022 is primarily related to a $29.3 million adjustment to increase the carrying value of one of our investments. Our equity in earnings of unconsolidated affiliates was a loss in 2020 due to losses incurred by one of our affiliates that operates a hotel and had a significant impact to their operations due to the COVID-19 pandemic. During 2021, this affiliate sold its primary asset, the hotel, for a gain that resulted in the significant increase in earnings of unconsolidated affiliates, net. Loss on extinguishment of debt, net . We recorded a $5.5 million and $10.9 million loss on extinguishment of debt in 2022 and 2021, respectively, relating to the write-off of a portion of the unamortized capitalized financing fees and the unamortized original issue discount associated with additional prepayments on our term loans prior to their scheduled maturity. We recorded a $4.2 million loss on extinguishment of debt in 2020 primarily related to the amendment of our credit agreement and the write-off of capitalized financing fees and original issue discount associated with the prepayment of our term loans. Provision for income taxes. The following table sets forth the provision for income taxes (dollars in millions) and effective tax rates for the periods indicated: Year Ended December 31, Percent Change From Prior Period 2022 2021 2020 2022 2021 Provision for income taxes $ 227.1 $ 236.4 $ 150.6 (3.9 )% 57.0 % Effective tax rate 25.9 % 22.8 % 19.4 % Our 2022, 2021 and 2020 effective tax rates differ from the statutory rate primarily due to the effect of our foreign operations and permanent book to tax differences. Our effective tax rate for 2022 includes increases in valuation allowances on deferred tax assets, benefits related to stock-based awards and releases of uncertain tax positions due to statute of limitation expirations. Our effective tax rate for 2021 included benefits related to stock-based awards and recognition of tax expense related to a law change in the U.K. Our effective tax rate for 2020 included benefits related to stock-based awards, recognition of a state tax benefit related to a law change and releases of uncertain tax positions due to statute of limitation expirations and closed audits. The increase in the effective tax rate from 2021 to 2022 was primarily related to decreases in relative favorable impacts of stock based compensation in the current year, an increase in valuation allowances on deferred tax assets in the current year and the impact of uncertain tax positions. In addition, the prior year effective tax rate was unfavorably impacted by tax expense related to a law change in the United Kingdom. Our effective tax rate includes the effect of operations outside the U.S., which historically have been taxed at rates lower than the U.S. statutory rate. While we have income from multiple foreign sources, the majority of our non-U.S. operations are in India and the U.K., where the statutory rates were approximately 29.0% on a blended basis and 19.0%, respectively, in 2022, approximately 31.0% on a blended basis and 19.0%, respectively, in 2021, and 29.1% and 19.0%, respectively, in 2020. A future proportionate change in the composition of income before income taxes from foreign and domestic tax jurisdictions could impact our periodic effective tax rate. Liquidity and Capital Resources Our principal cash requirements are to finance the costs of our operations pending the billing and collection of client receivables, to fund payments with respect to our indebtedness, to invest in research and development, to acquire complementary businesses or assets, repurchase shares of our common stock and to pay dividends on our common stock. We expect our cash on hand, cash flows from operations, and cash available under our Credit Agreement to provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending for at least the next twelve months. Our cash, cash equivalents and restricted cash and cash equivalents, including amounts held on behalf of clients, at December 31, 2022 were $1,337.6 million, a decrease of $1,833.8 million from $3,171.4 million at December 31, 2021. The decrease in cash was primarily due to the decrease in cash and cash equivalents associated with funds held on behalf of clients. See Notes 8, 10 and 11 to our Consolidated Financial Statements for further discussion of acquisitions, debt and equity, respectively. 43 Client funds obligations include our transfer agency client balances invested overnight as well as our contractual obligations to remit funds to satisfy client pharmacy claim obligations and are recorded on the Consolidated Balance Sheet when incurred, generally after a claim has been processed by us. Our contractual obligations to remit funds to satisfy client obligations are primarily sourced by funds held on behalf of clients. We had $966.3 million and $2,755.7 million of client funds obligations at December 31, 2022 and 2021, respectively. Cash flows from operating, investing and financing activities, as reflected in our Consolidated Statements of Cash Flows, are summarized in the following table (in millions): Year Ended December 31, Change From Prior Period Net cash, cash equivalents and restricted cash provided by (used in): 2022 2021 2020 2022 2021 Operating activities $ 1,134.3 $ 1,429.0 $ 1,184.7 $ (294.7 ) $ 244.3 Investing activities (1,757.6 ) (148.2 ) (210.5 ) (1,609.4 ) 62.3 Financing activities (1,184.5 ) 556.7 (1,428.1 ) (1,741.2 ) 1,984.8 Effect of exchange rate changes on cash, cash equivalents and restricted cash (26.0 ) (4.0 ) 2.4 (22.0 ) (6.4 ) Net (decrease) increase in cash, cash equivalents and restricted cash $ (1,833.8 ) $ 1,833.5 $ (451.5 ) $ (3,667.3 ) $ 2,285.0 Fiscal 2022 versus 2021 Operating activities: Cash provided by operating activities during the year ended December 31, 2022 resulted from net income of $649.0 million adjusted for non-cash items of $700.4 million, partially offset by changes in our working capital accounts (excluding the effect of acquisitions) totaling $215.1 million. The changes in our working capital accounts were primarily driven by decreases in accrued expenses and other liabilities and deferred revenue and an increase in contract assets and accounts receivable. Cash provided by operating activities was negatively affected by approximately $68.0 million of transaction costs related to the Blue Prism acquisition. The decrease in accrued expenses was primarily due to the payment of annual employee bonuses in the first quarter of 2022 and the payment of transaction costs related to the Blue Prism acquisition that were recorded as liabilities by Blue Prism at the time of the acquisition. Investing activities : Cash used in investing activities during the year ended December 31, 2022 totaled $1,757.6 million, which included cash paid for acquisitions (net of cash acquired) of $1,636.2 million, capitalized software development costs of $144.9 million, capital expenditures of $63.4 million and investments in securities of $10.0 million, partially offset by distributions received from unconsolidated affiliates of $66.2 million, proceeds from the sale of property and equipment of $11.4 million, receipts from the collection of other non-current receivables of $9.8 million and proceeds from sales and maturities of investments of $9.5 million. Financing activities: Cash used in financing activities during the year ended December 31, 2022 was $1,184.5 million and resulted from the decrease in client funds obligations of $1,709.0 million, treasury stock repurchases of $476.1 million, quarterly dividends paid of $203.1 million, deferred financing fees paid of $14.7 million and withholding taxes paid related to equity award net share settlements of $0.7 million. These expenditures were partially offset by net borrowings of debt totaling $1,127.3 million and $91.8 million received from the exercise of stock options. Fiscal 2021 versus 2020 Our cash, cash equivalents and restricted cash and cash equivalents, including amounts held on behalf of clients, at December 31, 2021 were $3,171.4 million, an increase of $1,833.5 million from $1,337.9 million at December 31, 2020. The increase in cash was primarily due to the decrease in cash and cash equivalents associated with funds held on behalf of clients. See Notes 8, 10 and 11 to our Consolidated Financial Statements for further discussion of acquisitions, debt and equity, respectively. We also had $2,755.7 million and $1,227.4 million of client funds obligations at December 31, 2021 and 2020, respectively. Operating activities: Cash provided by operating activities primarily resulted from net income of $800.6 million adjusted for non-cash items of $689.7 million, partially offset by changes in our working capital accounts (excluding the effect of acquisitions) totaling $61.3 million. The changes in our working capital accounts were primarily driven by increases in our accounts receivable and decreases in deferred revenue, partially offset by a decrease in our prepaid expenses and other assets. The increase in accounts 44 receivable was due to increases in revenues earned and an increase in days’ sales outstanding. The decrease in deferred revenue was primarily due to the recognition of revenue associated with a multi-year license agreement where we received payment in 2019. Investing activities : We used net cash of $148.2 million primarily related to $85.3 million in capitalized software development costs, $66.0 million in contributions to unconsolidated affiliates, $51.3 million in capital expenditures and $20.1 million in investments in securities, partially offset by proceeds from sales and maturities of investments of $50.9 million, receipts from the collection of other non-current receivables of $11.0 million, $7.3 million in cash paid for business acquisitions, net of cash acquired and proceeds from the sale of property and equipment of $5.3 million. Financing activities: Cash provided by financing activities of $556.7 million primarily resulted from the increase in client funds obligations of $1,480.5 million, proceeds of $197.7 million from stock options and proceeds from noncontrolling interests of $67.3 million. These proceeds were partially offset by the net repayments of debt totaling $519.9 million, $487.9 million in treasury stock repurchases, $174.0 million in quarterly dividends paid and $7.0 million in withholding taxes paid related to equity award net share settlements. We have made a permanent reinvestment determination in certain non-U.S. operations that have historically generated positive operating cash flows. At December 31, 2022, we held approximately $199.0 million in cash and cash equivalents at non-U.S. subsidiaries where we have made such a determination and in turn no provision for income taxes had been made. At December 31, 2022, we held approximately $106.4 million in cash that was available to our foreign borrowers under our senior secured credit facility and will be used to facilitate debt servicing of those entities. Contractual Obligations The following table summarizes our contractual obligations as of December 31, 2022 that require us to make future cash payments (in millions): Payments Due by Period Contractual Obligations and Other Commitments Total Less than 1 Year 1-3 Years 3-5 Years More than 5 Years Short-term and long-term debt $ 7,129.9 $ 55.7 $ 3,808.3 $ 2,026.2 $ 1,239.7 Interest payments (1) 1,622.6 434.8 695.9 389.7 102.2 Operating lease obligations (2) 357.6 69.9 104.6 69.6 113.5 Tax payable (3) 24.2 2.0 22.2 — — Purchase obligations (4) 280.7 131.3 107.0 42.4 — Total contractual obligations $ 9,415.0 $ 693.7 $ 4,738.0 $ 2,527.9 $ 1,455.4 (1) Reflects interest payments on our Credit Agreement at an assumed interest rate of one-month LIBOR of 4.38% plus 1.75% on our Term B-3, B-4 and B-5 facilities, one-month SOFR of 4.42% plus 2.25% on our Term B-6 and B-7 facilities and 5.5% on our Senior Notes. (2) We are obligated under noncancelable operating leases for office space and office equipment. (3) Represents our obligation under the Tax Act to pay the deemed repatriation tax on certain non-US earnings over eight years. (4) Purchase obligations include the minimum amounts committed under contracts for goods and services. As of December 31, 2022, our liability for uncertain tax positions and related interest and penalties payable was $116.5 million and $28.4 million, respectively. We are unable to reasonably estimate the timing of such liability and interest payments in individual years beyond 12 months due to uncertainties in the timing of the effective settlement of tax positions. As a result, these amounts are not included in the above contractual obligations table. Senior Secured Credit Facilities On April 16, 2018, in connection with our acquisition of DST, we entered into an amended and restated credit agreement with SS&C Technologies, Inc. (“SS&C”), SS&C European Holdings SARL, an indirect wholly-owned subsidiary of SS&C (“SS&C SARL”) and SS&C Technologies Holdings Europe SARL, an indirect wholly-owned subsidiary of SS&C (“SS&C Tech SARL”) as the borrowers (“Credit Agreement”). Also in 2018, we entered into amendments to the Credit Agreement in connection with our acquisitions of Eze and Intralinks. On March 22, 2022, in connection with our acquisition of Blue Prism, we entered into an Incremental Joinder to the Credit Agreement with certain of our subsidiaries. Pursuant to the Incremental Joinder, a new $650.0 million senior secured incremental term loan B facility (“Term B-6 Loan”) and a new $880.0 million senior secured incremental term 45 loan B facility (“Term B-7 Loan” and together with the Term B-6 Loan, the “Incremental Term Loans”) was made available to us, the proceeds of which were used to finance substantially all of the consideration for the acquisition of Blue Prism. The Credit Agreement had a revolving credit facility with a five-year term available for borrowings by SS&C with $250.0 million in available commitments (“Revolving Credit Facility”). The Revolving Credit Facility also contained a $25 million letter of credit sub-facility. On December 28, 2022, we entered into an amendment (the “Revolving Facility Amendment”) to the Credit Agreement with certain of our subsidiaries. Pursuant to the Revolving Facility Amendment, the Revolving Credit Facility was amended to: (i) extend the maturity date to December 28, 2027, (ii) amend the interest rate provisions to replace LIBOR with Term SOFR as the interest rate benchmark, (iii) increase the aggregate commitments from $250.0 million to $600.0 million, (iv) increase the letter of credit sub-facility from $25.0 million to $75.0 million and (v) make certain other revisions fully set forth in the Revolving Facility Amendment. As of December 31, 2022, there was $2.5 million utilized of the letter of credit sub-facility and $597.5 million available of the Revolving Facility Amendment. The table below provides a summary of the key terms of our Senior Secured Credit Facilities and Senior Notes: Amount Outstanding at December 31, 2022 Maturity Scheduled Quarterly Interest (in millions) Date Payments Required Rate Senior Secured Credit Facilities Term Loan B-3 $ 1,199.0 April 16, 2025 0.25% Variable rate (1) Term Loan B-4 974.8 April 16, 2025 0.25% Variable rate (1) Term Loan B-5 1,650.1 April 16, 2025 0.25% Variable rate (1) Term Loan B-6 520.7 March 22, 2029 0.25% Variable rate (2) Term Loan B-7 784.5 March 22, 2029 0.25% Variable rate (2) Revolving Credit Facility — December 28, 2027 None Variable rate (3) Senior Notes 2,000.0 September 30, 2027 None Fixed at 5.5% (1) Initially incurred interest at either LIBOR plus 2.50% of at the base rate plus 1.50%, and were subject to a step-down at any time our consolidated net secured leverage ratio was less than 4.75 times, to 2.25% in the case of the LIBOR margin and 1.25% in the case of the base rate margin. In January 2020, we entered into a pricing amendment, whereby the interest rate margin applicable to the term loans was reduced from LIBOR plus 2.25% to LIBOR plus 1.75%. (2) Bears interest at, at our option, either (a) the Base Rate, plus 1.25% per annum or the (b) Term Secured Overnight Financing Rate (“SOFR”), which is subject to a floor of 0.50%, plus a credit spread adjustment set forth in the Credit Agreement, plus 2.25% per annum. (3) Bears interest at, at our option, the Base Rate per annum or the Term SOFR. Loans based on the Base Rate bear interest at a rate between the Base Rate plus 0.25% or 0.50%, depending on our consolidated secured net leverage ratio. Loans based on Term SOFR bear interest at a rate between Term SOFR plus 1.25% and Term SOFR plus 1.50%, depending on our consolidated secured net leverage ratio. SS&C’s and SS&C SARL’s obligations under the Term Loans are guaranteed by (i) our existing and future U.S. wholly-owned restricted subsidiaries, in the case of the Term B-3 Loan, Term B-5 Loan, Term B-6 Loan and the Revolving Credit Facility and (ii) our existing and future wholly-owned restricted subsidiaries, in the case of the Term B-4 Loan and Term B-7 Loan. The obligations of the U.S. loan parties under the Credit Agreement are secured by substantially all of the assets of such persons (subject to customary exceptions and limitations), including a pledge of all of the capital stock of substantially all of the U.S. wholly-owned restricted subsidiaries of such persons (with customary exceptions and limitations) and 65% of the capital stock of certain foreign restricted subsidiaries of such persons (with customary exceptions and limitations). All obligations of the non-U.S. loan parties under the Credit Agreement are secured by substantially all of our and the other guarantors’ assets (subject to customary exceptions and limitations), including a pledge of all of the capital stock of substantially all of our wholly-owned restricted subsidiaries (with customary exceptions and limitations). The Credit Agreement includes negative covenants that, among other things and subject to certain thresholds and exceptions, limit our ability and the ability of its restricted subsidiaries to incur debt or liens, make investments (including in the form of loans and acquisitions), merge, liquidate or dissolve, sell property and assets, including capital stock of its subsidiaries, pay dividends on its capital stock or redeem, repurchase or retire its capital stock, alter the business we conduct, amend, prepay, redeem or purchase subordinated debt, or engage in transactions with its affiliates. The Credit Agreement also contains customary representations and warranties, affirmative covenants and events of default, subject to customary thresholds and exceptions. In addition, the Credit 46 Agreement contains a financial covenant for the benefit of the Revolving Credit Facility requiring us to maintain a minimum consolidated net secured leverage ratio. In addition, under the Credit Agreement, certain defaults under agreements governing other material indebtedness could result in an event of default under the Credit Agreement, in which case the lenders could elect to accelerate payments under the Credit Agreement and terminate any commitments they have to provide future borrowings. Senior Notes On March 28, 2019, we issued $2.0 billion aggregate principal amount of 5.5% Senior Notes due 2027 (“Senior Notes”), the proceeds of which were used to repay a portion of the outstanding Term B-3 Loan under our existing senior secured credit facilities. The Senior Notes are guaranteed, jointly and severally, by SS&C Holdings and all of its existing and future domestic restricted subsidiaries that guarantee our existing senior secured credit facilities or certain other indebtedness. The Senior Notes are unsecured senior obligations that are equal in right of payment to all of our existing and future senior unsecured indebtedness. Interest on the Senior Notes is payable on March 30 and September 30 of each year. At any time on or after March 30, 2022, we may redeem some or all of the Senior Notes, in whole or in part, at the redemption prices set forth in the following table, expressed as a percentage of the principal amount, plus accrued and unpaid interest to the redemption date: Redemption Date Price On or after March 30, 2022 104.125 % On or after March 30, 2023 102.750 % On or after March 30, 2024 101.375 % March 30, 2025 and thereafter 100.000 % We may also, from time to time in our sole discretion, purchase, redeem, or retire our existing senior notes, through tender offers, in privately negotiated or open market transactions, or otherwise. The indenture governing the Senior Notes contains a number of covenants that restrict, subject to certain thresholds and exceptions, our ability and the ability of our domestic restricted subsidiaries to incur debt or liens, make certain investments, pay dividends, dispose of certain assets, or enter into transactions with its affiliates. Any event of default under the Credit Agreement that leads to an acceleration of those amounts due also results in a default under the indenture governing the Senior Notes. Covenant Compliance Under the Revolving Credit Facility portion of the Credit Agreement, we are required to satisfy and maintain a specified financial ratio at the end of each fiscal quarter if the sum of (i) outstanding amount of all loans under the Revolving Credit Facility and (ii) all non-cash collateralized letters of credit issued under the Revolving Credit Facility in excess of $20 million is equal to or greater than 30% of the total commitments under the Revolving Credit Facility. Our ability to meet this financial ratio can be affected by events beyond our control, and we cannot assure you that we will meet this ratio. Any breach of this covenant could result in an event of default under the Credit Agreement. Upon the occurrence of any event of default under the Credit Agreement, the lenders could elect to declare all amounts outstanding under the Credit Agreement to be immediately due and payable and terminate all commitments to extend further credit. Any default and subsequent acceleration of payments under the Credit Agreement would have a material adverse effect on our results of operations, financial position and cash flows. Additionally, under the Credit Agreement, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to baskets and ratios based on Consolidated EBITDA. Consolidated EBITDA is a non-GAAP financial measure used in key financial covenants contained in the Credit Agreement, which is the material facility supporting our capital structure and providing liquidity to our business. Consolidated EBITDA is defined as earnings before interest, taxes, depreciation and amortization (“EBITDA”), further adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance under the Credit Agreement. We believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Consolidated EBITDA is appropriate to provide additional information to investors to demonstrate compliance with the specified financial ratio and other financial condition tests contained in the Credit Agreement. Management uses Consolidated EBITDA to gauge the costs of our capital structure on a day-to-day basis when full financial statements are unavailable. Management further believes that providing this information allows our investors greater transparency and a better understanding of our ability to meet our debt service obligations and make capital expenditures. 47 Consolidated EBITDA does not represent net income or cash flow from operations as those terms are defined by generally accepted accounting principles, or GAAP, and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. Further, the Credit Agreement requires that Consolidated EBITDA be calculated for the most recent four fiscal quarters. As a result, the measure can be disproportionately affected by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent four-quarter period or any complete fiscal year. Consolidated EBITDA is not a recognized measurement under GAAP and investors should not consider Consolidated EBITDA as a substitute for measures of our financial performance and liquidity as determined in accordance with GAAP, such as net (loss) income, operating (loss) income or net cash provided by operating activities. Because other companies may calculate Consolidated EBITDA differently than we do, Consolidated EBITDA may not be comparable to similarly titled measures reported by other companies. Consolidated EBITDA has other limitations as an analytical tool, when compared to the use of net income, which is the most directly comparable GAAP financial measure, including: • Consolidated EBITDA does not reflect the significant interest expense we incur as a result of our debt leverage; • Consolidated EBITDA does not reflect the provision (benefit) of income tax expense in our various jurisdictions; • Consolidated EBITDA does not reflect any attribution of costs to our operations related to our investments and capital expenditures through depreciation and amortization charges; • Consolidated EBITDA does not reflect the cost of compensation we provide to our employees in the form of stock-based awards; • Consolidated EBITDA does not reflect the equity in earnings of unconsolidated affiliates; and • Consolidated EBITDA excludes expenses and income that are permitted to be excluded per the terms of our Credit Agreement, but which others may believe are normal expenses for the operation of a business. The following is a reconciliation of net income to Consolidated EBITDA attributable to SS&C common stockholders, as defined in our Credit Agreement. Year Ended December 31, (in millions) 2022 2021 2020 Net income $ 649.0 $ 800.6 $ 625.2 Interest expense, net 307.9 201.6 245.9 Provision for income taxes 227.1 236.4 150.6 Depreciation and amortization 671.6 667.4 725.3 EBITDA 1,855.6 1,906.0 1,747.0 Stock-based compensation 124.8 114.0 87.8 Acquired EBITDA and cost savings (1) 4.2 1.3 2.3 Loss on extinguishment of debt 5.5 10.9 4.2 Equity in earnings of unconsolidated affiliates, net (25.8 ) (25.4 ) 1.5 Purchase accounting adjustments (2) 9.4 6.3 6.9 ASC 606 adoption impact (1.9 ) 1.0 5.2 Foreign currency translation losses (gains) 11.2 8.1 (14.1 ) Investment gains (38.7 ) (30.1 ) (26.7 ) Facilities and workforce restructuring 32.3 30.0 34.0 Acquisition related (3) 41.5 45.0 — Other (4) (6.7 ) 1.0 8.2 Consolidated EBITDA $ 2,011.4 $ 2,068.1 $ 1,856.3 Consolidated EBITDA attributable to noncontrolling interest (5) (1.1 ) (2.0 ) — Consolidated EBITDA attributable to SS&C common stockholders $ 2,010.3 $ 2,066.1 $ 1,856.3 (1) Acquired EBITDA reflects the EBITDA impact of significant businesses that were acquired during the period as if the acquisition occurred at the beginning of the period, as well as cost savings enacted in connection with acquisitions. (2) Purchase accounting adjustments include (a) an adjustment to increase revenues by the amount that would have been recognized if deferred revenue were not adjusted to fair value at the date of acquisitions (b) an adjustment to increase personnel and commissions expense by the amount that would have been recognized if prepaid commissions and deferred 48 personnel costs were not adjusted to fair value at the date of the acquisitions, and (c) an adjustment to increase or decrease rent expense by the amount that would have been recognized if lease obligations were not adjusted to fair value at the date of acquisitions. (3) Acquisition related includes costs related to both current acquisitions and the resolution of pre-acquisition matters. (4) Other includes additional expenses and income that are permitted to be excluded per the terms of our Credit Agreement from Consolidated EBITDA, a financial measure used in calculating our covenant compliance. (5) Consolidated EBITDA attributable to noncontrolling interest represents Consolidated EBITDA based on the ownership interest retained by the noncontrolling parties of DomaniRx, our consolidated variable interest entity. Our covenant requirement for net senior secured leverage ratio and the actual ratio for the year ended December 31, 2022 are as follows: Covenant Requirement Actual Ratio Maximum consolidated net secured leverage to Consolidated EBITDA ratio (1) 6.25x 2.40x (1) Calculated as the ratio of consolidated net secured funded indebtedness, net of cash and cash equivalents, excluding $134.1 million of cash and cash equivalents held at DomaniRx, to Consolidated EBITDA, as defined by the Credit Agreement, for the period of four consecutive fiscal quarters ended on the measurement date. Consolidated net secured funded indebtedness is comprised of indebtedness for borrowed money, letters of credit, deferred purchase price obligations and capital lease obligations, all of which is secured by liens on our property. Critical Accounting Estimates A number of our accounting policies require the application of significant judgment by our management, and such judgments are reflected in the amounts reported in our Consolidated Financial Statements. In applying these policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on our historical experience, terms of existing contracts, management’s observation of trends in the industry, information provided by our clients and information available from other outside sources, as appropriate. On an ongoing basis, we evaluate our estimates and judgments, including those related to revenue recognition, goodwill and other intangible assets and other contingent liabilities. Actual results may differ significantly from the estimates contained in our Consolidated Financial Statements. Information about recently adopted accounting pronouncements and accounting pronouncements not yet effective is included in Note 2 to our Consolidated Financial Statements. We believe that the following comprise the accounting estimates or assumptions we have made where the nature of the estimates or assumptions could be material due to the levels of subjectivity and judgment involved. Accounting for investments We have five significant types of investments: 1) investments in unconsolidated affiliates; 2) partnership interests in private equity funds; 3) investments in marketable equity securities related to our deferred compensation agreements; 4) non-marketable equity securities; and 5) seed capital investments. The equity method of accounting is used for investments in entities, partnerships and similar interests (including investments in private equity funds for which we are a limited partner and hold a greater than 5% partnership interest in the fund) in which we have significant influence but do not control. Under the equity method, we recognize income or losses from our pro-rata share of these unconsolidated affiliates’ net income or loss, which changes the carrying value of the investment of the unconsolidated affiliate. Our investments in unconsolidated affiliates are accounted for under the equity method of accounting. The carrying value of our investments in unconsolidated affiliates exceeds the proportionate share of net assets of the unconsolidated affiliates, resulting in basis differences. We recognize our proportionate share of the results of the unconsolidated affiliates and amortization expense related to basis differences in equity in earnings of unconsolidated affiliates, net on our Consolidated Statements of Comprehensive Income. Our partnership interests in private equity funds, marketable equity securities and seed capital investments, other than those accounted for under the equity method of accounting or those that result in consolidation of the investee, are recorded at fair value, with changes in the fair value recognized in other income (expense), net on our Consolidated Statements of Comprehensive Income. Our marketable equity securities and seed capital investments have readily determinable fair values in the market. We use net asset 49 value as a practical expedient for the fair value of partnership interests in private equity funds that are not accounted for under the equity method of accounting. Investments in non-marketable equity securities that do not have readily determinable fair values and do not qualify for the practical expedient to measure the investment using a net asset value per share are recorded using the measurement alternative in Accounting Standards Update (“ASU”) 2016-01. These investments are recorded at cost, less impairment, adjusted for observable price changes in orderly transactions for an identical or similar investment of the same issuer. At each reporting period, we assess if these investments continue to qualify for this measurement alternative. Impairment is recorded when there is evidence that the expected fair value of the investment has declined to below the recorded cost. Future adverse changes in market conditions or poor operating results of underlying investments could result in losses or an inability to recover the carrying value of the investments that may not be reflected in an investment’s current carrying value, thereby possibly requiring an impairment charge in the future, which could have a material effect on our financial position. Long-lived Assets, Intangible Assets and Goodwill We must test goodwill annually for impairment (and in interim periods if certain events occur indicating that the carrying value of goodwill or indefinite-lived intangible assets may be impaired) by comparing the fair value of a reporting unit to its carrying value. Judgement is required in the determination of goodwill reporting units. As of December 31, 2022 and 2021, we have two reporting units, one is our health business and the other includes the rest of our operations. To the extent that we do not achieve our revenue or operating cash flow plans or other measures of fair value decline, including external valuation assumptions, our current goodwill carrying value could be impaired. Our impairment analysis indicated that the fair values of our reporting units significantly exceeded their carrying values at December 31, 2022. We assess the impairment of identifiable intangibles, long-lived assets and goodwill whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Factors we consider important which could trigger an impairment review include the following: ● significant underperformance relative to historical or projected future operating results; ● significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and ● significant negative industry or economic trends. When we determine that the carrying value of intangibles and long-lived assets may not be recoverable due to the existence of one or more of the above indicators of potential impairment, we assess whether an impairment has occurred based on whether net book value of the assets exceeds related projected undiscounted cash flows from these assets. We consider a number of factors, including past operating results, budgets, economic projections, market trends and product development cycles in estimating future cash flows. Differing estimates and assumptions as to any of the factors described above could result in a materially different impairment charge, if any, and thus materially different results of operations. Software Capitalization Significant management judgement is required in determining which projects and costs associated with software development will be capitalized and in assigning estimated economic lives to the completed projects. Management specifically evaluates software development projects, milestones achieved and the commitments to continue funding the projects. Significant changes in any of these items may result in discontinuing capitalization of development costs, as well as immediately expensing previously capitalized costs. We review, on a quarterly basis, our capitalized software for possible impairment. Acquisition Accounting In connection with our acquisitions, we allocate the purchase price to the assets and liabilities we acquire, such as net tangible assets, completed technology, customer relationships, other identifiable intangible assets, deferred revenue and goodwill. We apply significant judgments and estimates in determining the fair market value of the assets acquired and their useful lives. For example, we have determined the fair value of existing client contracts based on the discounted estimated net future cash flows from such client contracts existing at the date of acquisition and the fair value of the completed technology based on the relief-from-royalties method on estimated future revenues of such completed technology and assumed obsolescence factors. While actual results during the years ended December 31, 2022, 2021 and 2020 were consistent with our estimated cash flows and we did not incur any impairment charges during those years, different estimates and assumptions in valuing acquired assets could yield materially different results. 50 Revenue Recognition Our revenues consist of software-enabled services and license, maintenance and related revenues. Software-enabled services revenues, which are based on a monthly fee or are transaction-based, are recognized as the services are performed. Software-enabled services are generally provided under contracts with initial terms of one to five years that require monthly or quarterly payments, and are subject to automatic annual renewal at the end of the initial term unless terminated by either party. We recognize software-enabled services revenues on a monthly basis as the arrangement is a single performance obligation or a stand-ready performance obligation, which in either case is comprised of a series of distinct services that are substantially the same and have the same pattern of transfer to the customer (i.e. distinct days or months of service). We apply a measure of progress (typically time-based) to any fixed consideration and allocate variable consideration to the distinct periods of service based on usage or summarization of account information. These variable payments relate specifically to our efforts to perform the services in the period in which the fee applies. This variability is solely attributed to and resolved as a result of the transfer of these services; these fees are independent of the transfer of past or future goods or services. These fees meet the allocation objective of ASC 606 because they represent the amount of consideration we are entitled to for these services. Revenue is generally recognized over the period the services are provided, which results in revenue recognition that corresponds with the value to the client of the services transferred to date relative to the remaining services promised. We generate revenues in the form of software license fees and related maintenance and services fees. License fees include perpetual license fees and term license fees that differ mainly in the duration over which the customer benefits from the software. Maintenance and services primarily consist of fees for maintenance services (including support and unspecified upgrades and enhancements when and if they are available) and, in some cases, professional services which focus on both deployment and training our customers to fully leverage the use of our products. Software license revenues are recognized at the point of time when the software license has been delivered. Term license fees are typically due in annual installments at the beginning of each annual period and we record a contract asset for amounts recognized as revenue in excess of amounts billed. We recognize maintenance revenues ratably over the term of the underlying contract term because we transfer control evenly by providing a stand-ready service. The term of the maintenance contract on a perpetual license is usually one year and the duration of a term license contract is usually between one to five years. Renewals of maintenance contracts create new performance obligations that are satisfied over the term with the revenues recognized ratably over the term. Revenues from professional services consist mostly of services provided on a time and materials basis. In contracts with multiple performance obligations, we account for individual performance obligations separately if they are distinct. We allocate the transaction price to each performance obligation based on our relative standalone selling price out of total consideration of the contract. Standalone selling price is determined utilizing observable prices to the extent available. If the standalone selling price for a performance obligation is not directly observable, we estimate it maximizing the use of observable inputs. For maintenance and support, we determine the standalone selling price based on the price at which we separately sell a renewal contract and the economic relationship between licenses and maintenance. We primarily determine the standalone selling price for sales of license arrangements using the residual approach. For professional services, we determine the standalone selling prices based on the price at which we separately sell those services. We occasionally enter into license agreements requiring significant customization of our software that are not material to our results of operations. We account for the license and professional service fees under these agreements as a single performance obligation, recognized over time using an input method during the development of the license. This method requires estimates to be made for costs to complete the agreement utilizing an estimate of development man-hours remaining. Revenue is recognized each period based on the hours incurred to date compared to the total hours expected to complete the project. Due to uncertainties inherent in the estimation process, it is at least reasonably possible that completion costs will be revised. Such revisions are recognized in the period in which the revisions are determined. Provisions for estimated losses on uncompleted contracts are determined on a contract-by-contract basis, and are made in the period in which such losses are first estimated or determined. Stock-based Compensation Using the fair value recognition provisions of relevant accounting literature, stock-based compensation cost is measured at the grant date based on the value of the award and is recognized as expense over the appropriate service period. Determining the fair value of stock-based awards requires considerable judgment, including estimating the expected term of stock options and the expected 51 volatility of our stock price. In addition, for stock-based awards where vesting is dependent upon achieving earnings per share growth targets, we estimate the likelihood of achieving the performance goals. Differences between actual results and these estimates could have a material effect on our financial results. A deferred income tax asset is recorded over the vesting period as stock compensation expense is recorded for non-qualified stock options. The realizability of the deferred tax asset is ultimately based on the actual value of the stock-based award upon exercise. If the actual value is lower than the fair value determined on the date of grant, then there would be an income tax expense for the portion of the deferred tax asset that is not realizable. Income Taxes The carrying value of our deferred tax assets assumes that we will be able to generate sufficient future taxable income in certain tax jurisdictions, based on estimates and assumptions. If these estimates and related assumptions change in the future, we may be required to record additional valuation allowances against our deferred tax assets resulting in additional income tax expense in our Consolidated Statements of Comprehensive Income. On a quarterly basis, we evaluate whether deferred tax assets are realizable and assess whether there is a need for additional valuation allowances. The carrying value of our deferred tax assets and liabilities is recorded based on the statutory rates that we expect our deferred tax assets and liabilities to reverse into income. We estimate the state rate at which our deferred tax assets and liabilities will reverse based on estimates of state income apportionment for future years. Each of these estimates requires significant judgment on the part of our management. In addition, we evaluate the need to provide additional tax provisions for adjustments proposed by taxing authorities. As of December 31, 2022, we had $116.5 million in liabilities associated with unrecognized tax benefits. All of the unrecognized tax benefits, if recognized, would decrease our effective tax rate and increase our net income. Additionally, we recognize accrued interest and penalties relating to unrecognized tax benefits as a component of the income tax provision.