SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) Q3 2023 Earnings Call Transcript

SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) Q3 2023 Earnings Call Transcript October 26, 2023

SS&C Technologies Holdings, Inc. beats earnings expectations. Reported EPS is $1.17, expectations were $1.16.

Operator: Good afternoon, ladies and gentlemen, and welcome to the SS&C Technologies Q3 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode, and please be advised that this call is being recorded. After the speakers’ prepared remarks, there will be a question-and-answer session. [Operator Instructions] Now at this time, I would like to turn the call over to Ms. Justine Stone, Head of Investor Relations. Please go ahead, ma’am.

Justine Stone: Welcome and thank you for joining us for our Q3 2023 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 Brian Schell, our Chief Financial Officer. Before we get started, we need to review the Safe Harbor statement. Please note that various remarks we make today about future expectations, plans, and prospects, including the financial outlook we provide, constitute forward-looking statements for the purposes of the Safe Harbor provision under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K, which is on file with the SEC and can also be accessed on our website.

These forward-looking statements represent our expectations only as of today, October 26, 2023, while the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. During today’s call we will be referring to certain non-GAAP financial measures, a reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is included in today’s earnings release, which is located in the Investor Relations section of our website at www.ssctech.com. I will now turn the call over to Bill.

William Stone: Thanks, Justine, and thanks everyone for joining. Let’s all welcome Brian to his first SS&C earnings call. He has been with us for two months and has found his bearings. We’re excited about his ideas and intellect he brings to the organization, and I encourage all of you to get to know him. Results for the third quarter are record adjusted revenue of $1,366.7 million, up 3.4% and adjusted diluted earnings per share of $1.17. We also achieved our second-highest adjusted consolidated EBITDA in our history at $533.9 million. Our EBITDA margin was 39.1%, a 230 basis point increase from Q2 2023. Our third quarter adjusted organic revenue was up 2.3%, driven by strength in our alternatives, particularly private markets, Intralinks, Retirement and Blue Prism.

Our recurring revenue growth was [amidst] (ph) the license and professional service revenue streams was up over 5%, which we think is an indicator of our underlying business’ strength. The Financial Services retention rate for Q3 2023 was 97.3%, the highest level in the SS&C history. SS&C generated cash from operating activities of $826.7 million for the nine months ended September 30th, up 8.1% over the same period last year. In Q3 2023, we bought back 1.7 million shares for $96.9 million at an average price of $55.82. We also raised our common stock quarterly dividend of 20% to $0.24 per share, delivering $156.6 million in total cash return to shareholders in the quarter and $501.9 million year-to-date. SS&C paid down $54.7 million in debt in Q3 2023, bringing our net leverage ratio to 3.18 times consolidated EBITDA, attributable to SS&C.

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Q&A Session

In the near term, we believe SS&C’s common stock is undervalued, and we expect to maintain a higher level of stock repurchases versus debt paydown. We’ve made a lot of progress within the firm while Blue Prism’s digital worker deployment. We have a 2,000 full-time equivalent headcount savings year-to-date, which is 7% of our January 1, 2023 employee base. Conservatively at 50,000 per FTE , this is $100 million in run rate savings. So far, the biggest successes have been within our large outsourcing businesses, GIDS, and Alternative Fund Services. One example is a GIDS client asked us to run a campaign to contact over 20,000 customers to clear their small cash balances. We programmed 25 Blue Prism Digital Workers to perform the follow-on processing, saving about $140,000 on contractors that would have been required to process the responses manually.

Within Alternatives, operational functions such as manual statement downloads, reconciliation and break investigation and resolution, investor statements in contract notes, and loan closing and compliance have benefited from digital workers. We believe we have just begun to reap the benefits from this initiative. I’ll now turn the call over to Rahul to discuss the quarter in more detail.

Rahul Kanwar: Thanks, Bill. Our core businesses continued to grow nicely with Alternatives, Intralinks, and Retirement accelerating from last quarter. Our Alternatives business grew 8.4% in the quarter, boosted by the strength of our private markets business. We signed a very significant private credit client in Q3 and see opportunities to sustain and accelerate growth for the foreseeable future. Intralinks also accelerated in the quarter, growing over 10% despite M&A deal volume remaining low. The growth can be attributed to increase in contract values, longer due-diligence timelines and more large deals won. We released new tools to help us drive these large deals in contract values. DocuAI uses generative artificial intelligence to proactively deliver document summaries, suggested document classification, document translation and identify potential risks.

Intralinks DealVault, a cloud-based storage solution designed for streamlined access to archives and efficient deal data management, recently launched and has attracted interest from corporate clients. In Q3, the largest new Black Diamond sales to date was closed. This client chose the Black Diamond platform to power their newly-launched Wealth Management business created through the acquisition of multiple RIAs and broker-dealers. We continue to invest in R&D and support our customers. We won four awards from Waters Technology, including Best Buy-Side Order Management System, Best Execution Management System, Best Portfolio Management System, and Best Accounting Provider. SS&C Blue Prism was also recognized by Gartner as a leader in the 2023 Magic Quadrant for robotic process automation for the fifth year in a row.

We believe these recognitions are indicative of our market-centric approach to R&D. I’ll join Bill and the rest of our management team in welcoming Brian to SS&C. And now I’ll turn the call over to him to run through the financials.

Brian Schell: Thanks, Rahul, and thank you, Bill, for those kind remarks. I’d like to start by saying, I’m excited to be part of the SS&C leadership team and looking forward to help build on the strength of SS&C today with the ultimate goal of delivering long-term shareholder value. As noted in our press release, our Q3 2023 GAAP results reflect revenues of $1,365.9 million, net income of $156 million and diluted earnings per share of $0.61. And as Bill noted earlier in the call, our adjusted revenues were $1,366.7 million, up 3.4%. Adjusted operating income increased 6.4% and adjusted diluted EPS was $1.17, a 1.7% increase over Q3 2022. Adjusted revenues increased $44.7 million, or 3.4% over Q3 2022. Our acquisitions contributed $2.4 million or approximately 20 basis points.