SS&C Technologies Holdings, Inc. (SSNC) Earnings Call Transcript & Summary

Okay. Great. So apologies for the little delay, everybody. My name is Jackson Ader. I'm from the software technology team here at JPMorgan. Welcome to our 48th Annual Technology, Media and Communications conference. Very happy to have Bill Stone, Founder, CEO of SS&C Technologies with us via video chat. So Bill, without any further delay, if you just maybe want to introduce yourself, introduce the company for just a few minutes, talk about the customers you serve and the markets you're in, that would be great.

Sure, Jackson. Thanks for having me. And welcome, everybody. SS&C is around since 1986. I'm kind of a grand old man of the place and we have done, I think, 57 or 58 acquisitions now. We are a pretty large-scale fintech company. Last year, we did $4.662 billion in revenue and about $1.850 billion in EBITDA. So we're quite profitable. We service the greater financial services industry. We're the largest hedge fund and private equity fund administrator in the world. I also think we're the largest transfer -- mutual fund transfer agency. Our biggest acquisition to date has been DST Systems that we bought in April of 2018. We've also bought Advent Software. We bought Citi Fund Services, Wells Fargo Fund Services, GlobeOp and some number of others. And then I would just say that over the last 4, 5 months we've closed on Algorithmics, we've closed on Captricity, which has the Vidado technology. We also should close Innovest in the next few days, and we've done a couple of lift-outs of a couple of our clients. So in total, those things add up to almost $200 million in revenue that we've added to the company. And we're optimistic about where we are and where we're going.

That's great. Yes. I think that that really segues nicely into the first topic, which is M&A. You've been an extremely acquisitive company over the last, not just recently, I mean, in the entire life of the company, really. So what have been some of the more transformative acquisitions that you've done, if we can keep it maybe to the last -- maybe since Advent, if you'd like? And why is it that these acquisitions have made sense under the broader umbrella of SS&C?

Well, Jackson, I mean, I think there's a lot of discussion today about what a corporation's job is and what executive management team of a corporation's job is. And for us, it's shareholder value. And we think shareholder value is driven by cash flow and earnings per share and then also, obviously, revenue growth. But revenue growth without any profitability in it is a challenge for old line companies that are used to making a lot of money. And so we think you can do a lot with the cash that we generate, whether you want to pay back debt or buy back stock or pay bigger dividends or do more acquisitions. So the big ones we've done since Advent, which was July of '15, we bought Citi Fund Services in March '16. We bought Wells Fargo Fund Services in December of '16. And we bought a number of other companies since then, but I think the opportunities for us -- you probably know we bought DST Systems in April of '18, we bought Eze Software in September of '18 and we bought Intralinks in November of '18. So we have been acquisitive. Almost all of our acquisitions have worked out pretty well. We generate a lot of cash. We have ways in which we can knit products together, so we have new offerings, and we get a lot of new talent. And we get talent that has been trained outside of SS&C. So they come in with their own ideas and their own hardheadedness, which is good for us.

Yes. So what are some of those things when you talk about being trained under the SS&C way? What are some of the differences that you see when talent enter the door and maybe when SS&C is able to maybe reshape their focus?

Well, when we bought Advent, they were based in San Francisco, and they had a really great employee engagement process and client engagement process, and so they taught us a lot of things about that. We bought Intralinks, and they have a very strong sales culture. Of the 1,200 or so people at Intralinks, they have 350 people, salespeople. So they have quite a sales force. And now that we have them, we have a path for those salespeople to move into enterprise sales, bigger deals where you might be able to sell a $10 million a year contract that will be quite lucrative to that salesperson. And so there's a lot of things that we're able to do. We get talent, Ken Bisconti and Bob Petrocchi who run Intralinks for us have done a great job. Rahul Kanwar, who we got with an acquisition in '05, is now President and COO. He's done a tremendous job. Mike Sleightholme and a number of the people at Citi Fund Services are running big parts of our business. The GlobeOp people are still one of the big parts of our business. Ken Fullerton from GlobeOp, Joe Patellaro from Citi. Nick Wright came in with DST. So there's a whole ton of people and we've hired them on as well. So in these kinds of businesses which are primarily intellectual property businesses, service businesses, it's all about talent. It's about acquiring the talent, continuing to train the talent and then have high expectations and then people perform and perform well.

Great. Before we move on, I rushed the introduction a little bit. I should mention for those that are on the webcast or the webinar, there is a Q&A function. If you want to ask any questions if they pop up during our fireside chat here, please use the Q&A button. We'll see if we can get to your questions. Bill, just quickly back to what you see as the core competency here. In SS&C, you're often -- you will say, "Hey, we're counting things." This is -- we're accountants. So as you think about some of the core competencies, even as the company has changed pretty dramatically through some of these acquisitions over the last decade or so, what remains core to the SS&C value proposition?

Well, again, right, I mean I was talking to you about earlier in my career that I worked for pretty senior people and what I learned was if you got them the data they wanted, when they wanted it and it was accurate, they thought you were smart. And if you didn't, they didn't think you were so smart, right? So kind of the premise of the whole company is we have to be able to get data, turn it into information and then deliver it to the people that need it in the form that they want it and accurately and timely. And the form might be a web portal, might be an iPhone, might be an iPad, might be a paper report, might be an Excel spreadsheet, might be a PDF. So there's lots of different ways, but people get comfortable in how they do things. And if you can deliver that and deliver that in a way where they get confident. And I was talking to one of our clients that's big asset manager in the U.K. and he told me, "Bill, we don't like to change anything, and we like you guys, but we need to have better service." He says, "For instance, we haven't changed auditors in 160 years." So I mean that even made me look young. So I told him, I said, "I will call you every month until everything on your chat -- or everything on your chart is all green." But everything we do -- and so I would do that. And I -- last time I called him, he says, "You know, Bill, I haven't heard your name, not mine personally, but SS&C's name in a number of months." That's always good, right? Because the portfolio managers and the traders, people that gather the assets and the executives, they want to do what's the need sector. Let's go talk to Jackson about this software or this software-enabled or let's talk about this new way to get alpha. No, let's not go talk to Bill about EITF 99-20 or FAS 5 or some other accounting paradigm. That's just not their interest and that is our opportunity.

If we just look at the appetite or potential for future M&A, most of it -- I think you may agree, most of the acquisitions you've done, including Algorithmics and some of these others have been maybe more tuck-in. What's the appetite? I'm sure that you see many, many deals come across your desk with relative frequency. So what are you seeing in maybe private market valuations? What kind of looks interesting and what's your appetite?

Well, it's taken a little bit of a hit here, right, in the last 45, 60 days. And generally, during those periods, there's opportunity. Particularly for entrepreneurs that have built the business and all of a sudden, it might be worthless, right? And so that's something where -- maybe they don't quite get the valuation that they wanted, but they get cash. And I'm always very sensitive to that need and then being able to move quickly which satisfies that nervousness, maybe, you might call it. And so that's been a pretty good opportunity for us to look at things. And then for people to be able to sell to us, like we're really excited about the Vidado technology that we got with this Captricity acquisition, and we're also really excited with the group of people that we're getting in with Innovest and then also the organization Algorithmics has also been a very pleasant surprise of the capabilities and expertise that they bring to the table.

Great. And what about your debt capacity? You've been paying down tons of debt since the DST acquisition. Are you comfortable with it now? Would you lever up a few times to go after something that you felt was really particularly attractive on the M&A side?

We would. And what it comes down to is what is particularly attractive. We've not been able to put parameters around that and then also recognize that we're going to get EBITDA with whatever the target is, right? And the ones that are selling at 10x, 12x, 15x revenue, we try to get them to buy us, but we're not likely going to buy down. So -- and again it's focusing execution and then, of course, we know what the stock price is, but we don't run the business for the stock price. It's going to fluctuate. I think there's an old guy named JPMorgan that said that. Markets move fast, right? So I think it's having enough perspective, having enough -- I've gone through the stock market crash in '87 and the financial crisis in '08 and '09, and there's been a bunch of other ones in between. But there's never been anything quite like this COVID-19 thing [indiscernible] our economy down.

Yes, that's actually a good segue that there's a question. First question in the queue comes from an investor, wondering, can you compare and contrast maybe previous recessions or market volatility compared to what we're seeing now?

Well, we have what we wrought, right? Everybody wanted a global economy, everyone wanted their bills to cost $0.10, not $0.15, everybody got a supply chain, everybody did everything. All of us were a part of it. We have, of our 23,000 people, probably, I don't know, 12,500, 13,000, 14,000 are overseas, right? So okay. So -- and then we also have an enormous capacity for news. So media now becomes 24/7 and there really isn't as much veracity in the news as it was before. And I don't mean that as a shot. I just meant that there's not enough time to go verify and still have a scoop, right? So they're in between -- this is my scoop. It's the best thing forever until they let it out and then it's wrong, right? So that's a -- and so now we're dealing with an awful lot of stuff that's not true. And when you're running a business, you've got to get to the truth, right? You have to -- you really have to act on facts. That doesn't mean you get all the facts. You still have to take advantage of opportunities. And with acquisitions, you never know everything, right? Did you get -- of course, we got surprised. We've done 57 acquisitions. We've gotten surprised 57 times. The question is how small of a surprise, right? So those things are pretty critical. And I think that's -- So I've never seen anything quite like this. I've never seen us act as maybe [ tapping ] might be a good word or almost afraid. And I don't know that, that's best. I mean like I tell people -- I'm not an infectious disease expert. I'm also not a climate change expert. I'm a whole bunch of other things. I'm just a business guy trying to make some money for our shareholders. And I don't think that a lot of the asking CEOs -- to be the new priest to it. We're not priests. We have a bunch of guy and gal trying to make a buck. And I'll solve the world's problems next lifetime.

Okay. Sounds good. What about market volatility, though? How does -- regardless of the underlying reason for the volatility, how does your business either benefit or how is it impacted negatively from significant volatility?

Well, it does both from the transaction processing businesses that we do, where we get paid for our fixed network or we get paid for transaction processing network on a click basis, then it has improved it. But those aren't the biggest parts of our business which -- the biggest parts of our business are primarily the number of accounts or assets under management or how many reports you want, how many tax returns you want us to file and how many financial statements, that type of stuff. So there's pluses and minuses. I would say volatility where the market fluctuates 1,000 points a day, people pull their horns in and that doesn't help us, right? But I think for trading organizations like JPMorgan or Goldman Sachs and a number of your other colleagues in the trading business, I think it's really been effective. And we have a lot of hedge funds for our clients, and they tend to do better with volatility. So this, in some ways, really exposed the wheat from the chaff.

You -- so just speaking of JPMorgan, Goldman Sachs, the more traditional banks or the custody banks are really your primary competitors in a lot of spaces. What is SS&C's primary advantage over some of the more traditional kind of brick-and-mortar banks?

Well, I mean you could probably explain to me more about how nimble JPMorgan is compared to how nimble we are, right? So I think that probably when -- and your colleagues in the business, right, a lot of them have gotten out. Goldman Sachs does fund administration, Crédit Suisse, Wells Fargo, Citi, and a bunch of other ones have decided that this really isn't their core mission, right? So we tend to be focused on this. We tend to be experts. Our people tend to be CPAs and other accountants and securities operations people. And it's a chance for people to be the executives in our business, right? To be the stars, right? The accountants become the salespeople. They get commissions, right? And that's a real -- as you well know, right, there's a front office and a back office in most of the financial services companies. And you know what they call people that want to go from the front office to the back office? Not very bright. So we don't have that, right? We're all back office. And that creates a more egalitarian kind of situation and allows us to really acquire talent. So our talented people are the best operators, the best accountants, the best systems people, right, because those are the stars in our business. They're not the gun investment maker or the great trader or the great asset gatherer. So that's a big advantage on a talent competition.

Yes. A couple of questions from the audience. Just talking about the scenarios that the company laid out for the rest of the year, I'd loved it. I thought it was a great move to just say, look, here's 3 different time lines and here's how we believe our business would react in those time lines. Can you just give us maybe a brief overview of those time lines, and then we'll get into some specifics?

Yes. We talked in the 3 of them. I think once that Q3 recovery, once at Q4 recovery and once at 2021 recovery. And again, Jackson, as you well know, right, we're making assumptions, right? And someone might say assumption, yes, okay, it's a guess, right? It's a different word, but I think the reality is, is that none of us really know. And we want to take as educated a guess as we can, but to guess nonetheless. And -- but we think we gave enough information and look, we spent a lot of time. And we debated it and went through the whole thing, watched what other people did, talked to a bunch of our colleagues in the banking world. And these are things we thought were valuable for our shareholders. And so far, I think we have an opportunity that the recovery begins in Q3. And if they can open the states and we don't have surges in sickness, then I think we'll be well on our way. And we need youngsters to kind of get the immunity out into the marketplace and not into the entire population. And we need to protect the most fragile in our society, and that's what we ought to be doing.

But it's a highly recurring business, I mean, across your different lines. What percent is recurring now? And another question from the audience was, what about renewal rates? Where did they get in the worst of the 2008, 2009? And what would be your expectation for renewal rates as we fight this current environment?

Yes. I think the lowest we got in the '08, '09 was 91%, 92% renewal rate. And currently, we're running about 96%.

Would you expect -- I'm sorry, just really quickly, would you expect that the current SS&C would have -- would be more resilient than it was in 2008, 2009 based on the businesses you've added or...

Well, I think so. I think that one of the things, as -- remember in '08, we did $280 million in revenue, right? And then '09, we did $270 million. Last year, we did $4.662 billion, right? So it's hard to compare the 2 companies without recognizing that Intralinks is the size of SS&C in '08, '09. In fact, it's bigger. So you don't -- and we don't operate the place the same as we did before in lots of ways. And our EBITDA in '08 was $113 million and in '09 was $111 million. And in '10 when we went public, '10 ended up at $329 million and about $130 million in EBITDA, $125 million, $130 million. And so -- and I recite these numbers because SS&C is a number-based place. And everybody that runs any of our businesses understand that when you talk to Bill or you talk to Rahul or you talk to Ken or you talk to Bill or you talk to Mike, they're going to ask that numbers, just like what you do. How's the retention, what's the recurring revenue, which is about 94%? It comes down to -- that's the world. The world is run by numbers. What's the growth rate? What's the organic growth rate? Those types of things. And so we focus hard on that, and we have been pretty effective.

Organic growth, what kind of levers do you think that you'll be able to pull to maybe accelerate organic growth coming out once maybe we get past this disruption?

Well, we've had a big focus on our technology groups about, we need to have innovation. We need to have something that when Jackson sees it he goes, "Wow, this is really something I need. This would help me." Right? So if we can make you more effective, make our clients more effective, then there's the real opportunity. You can't put lipstick on a pig and try to act like you're not selling a pig, right? You have to have real innovation, real productivity improvements, real -- new ways of looking at things, insights, right, which we have millions, millions of pieces of data. Now what can I do that shows you insights that you didn't know before? Oh, wow. I mean that would -- when people talk about big data and all this kind of stuff, what they're really looking for is actionable items that you believe so that when you go into do something and you do it confident versus here's another guess, here's another guess. No, no, that's not a guess. There's 10 million pieces of information and we clean these 1,400. We think these 1,400 are the most important out of all 10 million. That gets to be pretty valuable.

Which recent acquisitions have really been able to drive more of the insight your use of artificial intelligence in order to clean these things?

Well, we were spending a lot of money doing that and we have a couple of AI groups that are doing that. And the addition recently of Vidado, which is AI-based recognition, that's using handwriting recognition and other types of recognition. And then with Algorithmics, you get 350 flunks. Mina Wallace who runs that business has a really talented team. And so scenario analysis, monthly call simulations, all those types of step we can do as well as anybody in the world.

The -- another question from the audience, pretty broad or strategic, however you want to frame it, they move -- the continued shift or wave from active management to passive management? How does that impact your business? And where are you in terms of your exposure to either active or passive management?

Well, I have said for a number of years that the demise of active management, I think, is premature. And I think this COVID-19 crisis is one thing about you see what happens when everything is passive, and you have no choice but to settle in a route, right? Whereas you'll see our hedge fund business and our hedge fund capital markets movements in our other indexes has been very resilient. And those are really smart people that are watching their baskets of eggs very, very closely and move very, very quickly and don't have the restraints, right? They can go long, they can go short, they can use all kinds of derivative instruments. There's no limitations. And if you have the right ones and they have the right strategies and they're able to be, again, nimble, right? It's a little bit more difficult to be nimble like, you can feel for Warren Buffet. He's got $137 billion in cash on the balance sheet. That would be a nice thing to have. But you have to be able to deploy it, right? And that becomes challenging. And I think it's realizing that one of the reasons that we're going to be one of the better performers, I think, is in rough seas, we react quickly. And we listen to our clients, and we make sure that what they need and where they need it and in what form they need it, that we focus on it and they appreciate it. And that builds stronger bonds.

Yes. Small part of the DST business that you acquired actually has some health care exposure. How is that business holding up in this current environment?

Well, it's worked out pretty well so far, and we have a very strong pipeline. And we look at the health care very much like we used to look at fund administration. We didn't get into fund administration until 2002, right? And since 2002, we've gone from 0 assets under administration to about $1.8 trillion. Now same thing here on health care is just that a prescription looks an awful lot like a trade ticket. Number of shares, number of pills. [indiscernible] price per share. Rx number, CUSIP number, right? Trader, doctor. So there's a lot of -- there's intermediary and it's a pharmacist. Here, an intermediary might be an exchange. But mostly, it's about data, right? It's about grabbing that data and being able to give people insights. So one of the things we've already brought out is something called waste, fraud and abuse module in health care where we can show you, well, which pharmacy in this 5-mile radius is writing the most opioid prescriptions. And how come they're 10x more than any other pharmacies? And which physician practices are writing those prescriptions? So you start to see information, again, where there's millions of prescriptions. But now it's being able to look at it as a transaction processor and an information deliverer and say, what kind of parts? And how come when they write this prescription, they're always given 50 pills and all these other pharmacies are only given 10. So there's a lot of things that you don't think about that when you have access to data that has a really valuable information, I think people will and have started to see that we innovate faster and we go in directions with some conviction.

Yes. The parallels between prescription and trade ticket is gold. That's really helpful. Another -- only a couple of minutes left, so just really quickly, another question from the audience. How do you think that you -- you're still the largest shareholder. I mean it's -- you're obviously, founder, CEO, very involved. But what is different from the way that you run the company maybe in 2020 from when it was still private in 2008, 2009 and just before 2010?

Well, I've been fortunate to work with places like JPMorgan and go private with a company like Carlyle and go public with Alex. Brown and HEQ, which HEQ is now part of you as well. And so I've been able to see a lot, but Jackson, the world and individual businesses are about people, right? And you have to get really good people and you have to motivate them. And primarily in business, you motivate them through compensation, right? But you also have to give them interesting work and they have to feel valuable and you have to listen, right? So if you have an idea, you can't sit here and go, done with hell, right? You can't do that, right? You got to say, "Hey, thanks, Jackson. I think we can incorporate with this. What do you think? Could we add this or add that or -- and how quickly can we get to market?" So there's a lot of things about treating people the way you want to be treated and people have things to offer and that you want to move quickly. So we've done well and hopefully, that's what we're going to continue to do.

That's great. Thank you very much, Bill, for joining us. Thanks, everybody, for joining us this morning. Really appreciate it, Bill. Good to talk to you.

Okay, Jackson. Stay safe.