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

Yes, again for the afternoon sessions. My name is Dan Perlin. I head up the payments processing and IT services practice here at RBC, and we are delighted to have the management team of SS&C joining us today. From the company, we have Rahul Kanwar, who we've known for a long time, who's the President and Chief Operating Officer. And we also have Justine Stone, who heads up the Investor Relations department, who I'm sure many of you have had a chance to meet over the years. So thank you both for being here. Really appreciate your time, and I'm hopeful that at some point in the future, we'll be able to do this back in the physical world. But at this point, we're still virtual. But you're looking good. So that's all that matters.

Dan, thanks for having us. We appreciate it.

Absolutely. So what I've been doing thus far throughout the discussions today is really starting at a high level and then kind of funneling down to get into some of the more specific areas. And so if we can continue with that trend, I'm thinking about the demand environment, in particular, the macro environment for you guys and how that is unfolding across your various business areas, as many of those are in a little bit different cycles. So if you could start from that perspective, that would be super helpful.

Sure. In general, we see things are improving, and we're pretty optimistic about that. And the improvement is in both, Dan, as you mentioned, the macro trends, right, whether that is volumes in our claims processing in our health business, or what happens with how many transactions people make or equity volumes or things like that. So that's good to see. We're also seeing far more important than some of those kind of volume type metrics are just buying environment and buying optimism and are people willing to take some risk in, make a purchase and convert service providers. And that is -- that once again is picking up. So on the whole, we're starting to -- I don't think it's quite back to pre-pandemic levels, but it's certainly a lot better than it has been.

Yes. No, that's encouraging to hear. I've heard you speak a little bit in the past, I guess, several weeks and months, either at conferences or even post earnings, about areas like Intralinks and some of the things that have been helping that demand environment get into a better groove, so to speak, M&A markets in particular. So maybe you could speak to that point.

Yes. I think the -- Intralinks is a really good business for SS&C. And Ken Bisconti and Bob Petrocchi, who run that, have done a very nice job, both in terms of bringing a sales and marketing focus to the business, but also just trying to make sure the product is continuously getting better, right? And our product there, just to provide a little bit of background is the biggest business within Intralinks is a virtual data room that folks use to securely exchange confidential documents. But we also have a business that does statement generation and investor contact management for usually big private funds, big private equity firms and hedge funds and things like that. And then there's a banking and securities business that also relies on secure document exchange. So there's a bunch of things that we do there. And we're being helped by the M&A market being stronger than it has been in recent history. But we're also being helped by the fact that the product's gotten better, and that's allowed us to take some competitive share.

Yes. No, that's very true. I know you guys have made a concerted effort to continue to invest in that -- that area for some time now since you got into it. When we think about the alternatives business, maybe more broadly, I have heard you talk about getting back to maybe even pre-COVID levels in aggregate. I'm wondering if you could talk about some of the key attributes that are driving the resumption of growth there.

Yes. The alternatives business has been a good business for us even through the pandemic. But we are starting to see, Dan, as you say, activity return to pre-pandemic levels. And by activity, I'm talking about both fund flows as well as new fund launches. And that's true in the hedge fund market. The private equity and real estate markets have been stronger throughout, and they remain strong. And so our opportunities and alternatives include winning new funds. And therefore, the more new funds that come into the market, that's a pretty good driver for us. They -- we benefit from assets flowing into our customers, but we also benefit from the fact that we approach this market as a technology and expertise provider. So we're continuously thinking of ways in which we can get deeper with product coverage and get broader in terms of the things we can do to help a fund manager operate. And so as that technical and technological differentiation process continues, we win more deals, we have more market share. The deals we win come with bigger price tags associated with them, and we're still delivering a lot of value. And then there are markets, such as real assets and private equity, where outsourcing has still not been as widely embraced as it has in the hedge fund market. So there, we've got plenty of greenfield to go after as well. And all of those make for a business that is growing nicely.

Yes. I actually wanted to kind of pin you down a little bit on the private equity and the real assets market, because we've kind of talked about it for a little while. But as you say, it hasn't really moved into this big outsourcing mode, whereas you've seen that in other areas around hedge funds and stuff. So what do you think is the gating factor from keeping those individuals and those enterprises from taking that next step?

Well, a lot of the reasons why people have in-house infrastructures and operations is because when they launch their firms, that was the best way to do it, right? So some of the biggest private equity firms have been in operation for literally decades. And the fund administration business and the kinds of things that we do is a lot more mature now than it was back then, right? So for a lot of those clients, they are -- I think they are believers in outsourcing. But it's also -- there needs to be a catalyst, right? And so the catalyst might be, they started a new fund or somebody new came in to be COO or CFO or they had some hiring requests or some technical requests but they needed to replace a system. And then they start to look at somebody like us, and we have any number of these great big firms that we work with in some limited capacity, which then tends to increase over time, right? So it's an ongoing process. I think anybody that starts a new firm today, almost always outsources. And that's true even at the larger ends of the thing. So I think it is the -- it's widely accepted, and we're going through this process where the stronger firms in this market will benefit from, kind of, what's left out there, which is really as much as half of the industry still, over a number of years.

Yes. That's a huge addressable market that you guys, I think, are really well positioned to take advantage of. It just, as you say, it's had a little bit of a -- it needs to have a rotation, I guess, in some ways, the turnover for that to really occur. And I would have thought maybe the current environment might have compressed that a little bit. But I wanted to talk more broadly about your new sales pipeline. I've heard you guys talk about this. And this is a question in the context across all of your verticals. It's not necessarily specific to one area. But it does seem like there's been a noticeable pickup as of late around that sales pipeline. And I'm wondering, is that just the demand environment? Is there a go-to-market strategy that's helping that process? Have you made some concerted efforts in terms of how you're attacking certain verticals and that is also driving the uplift?

I would say it's all of the above, right? So clearly, the demand environment, as we've talked about, is better than it was 9 months ago, right? I think it's also very true that the changes we have made across the business, whether that is changes in our sales and marketing process and where we've invested, or in some of the senior executives that manage some of our business units, as well as in just sheer focus when it comes to technology. And if you remember, Dan, in 2018 we did 3 big acquisitions, right? And so we've had a number of years where absorbing those acquisitions and bringing some of our practices to bear in those companies is starting to yield fruit for us, I think.

That's great. That's really good to hear. No, I remember those acquisitions well. They were not insignificant. Another interesting area that I think has kind of come to bear as of late is this intelligent automation solutions, I guess, is what you guys are calling it. And there's some debate as to whether or not that is a new division inside of the organization that's designed to create more bundled solutions. But I would like to just hear from you, what is the strategic imperative here around bringing in new individuals and really ultimately carving out a new internal organization to drive growth?

Well, it starts with -- we had a pretty good foundation, because we had a product that was a part of DST called AWD that did workflow, right? Just helped facilitate workflow. And a lot of the use cases for that were specific to the mutual fund industry and the process for accepting a client and the validations that you have to do at various points. So that's kind of how it started. When we got into this in 2018 and we looked at this product, we thought that its use could be expanded to a variety of different industries. So we have applications for it in health care. We have applications for it in loan management and others. And really what has happened is, as technology evolves and continues to evolve, and folks are doing a lot more with machine learning and artificial intelligence and things like that, some of these workflow tools go beyond systematizing what you do today in a system, but making it more efficient, right, which has kind of traditionally been the focus to turning out, what does the human being do? What does the human being think at various points? What are the data points that they're presented with? How do we learn how they react when they're presented with these data points and make that something that the machine, over time, gets more and more confidence in? So that's a -- it's a pretty exciting area. It's got widespread applications for us because of how big of a processor we are internally. And it's got really widespread applications for our customers. And so that's really what we're focused on then. We're bringing in new people that have the right kinds of expertise, but we're building on foundation we already have.

Yes. Are you thinking about this more as a revenue enhancer? Or an efficiency gainer inside the organization? And maybe even something you offer through to your clients?

We have to -- we obviously have to execute at a high level. But if we can do that, I think it's both. It's both a sales opportunity for customers that are looking for ways in which they can get operating leverage in their organizations as well as an efficiency tool for us.

Yes. So if we think about the aggregate outsourcing trends that you guys are seeing, here again, I've heard you talk recently about -- and again, barring private equity and real assets, which we just talked about. But in aggregate, here, again, outsourcing seems like it's moving in the right direction for you guys. So there's 2 questions there. One is, how sustainable do you think that is? Do you think that there have been a lot of trends that have been compressed, and therefore, you are going to see this bigger push for longer, not just 1 year? And then secondly, what are the incremental investments, if any, that are going to be necessary for you to support capturing a lot of that incremental growth?

I can take that one, Dan. I think we look at the outsourcing trend as being a pretty long-term trend that we've been talking about for a number of years now. And it's just as our customers and our prospects get bigger and extend their arms into different asset classes, different parts of the world, they need to have a scalable solution, and it's really hard for them to do that internally, maintain their software, maintain their people and hire people every time they want to launch a new fund or get into a new country or jurisdiction or whatever it is. So we think it's been a long-term trend. And the events of the past 1.5 years has proven that this is really a sustainable model and the way to go for these types of organizations. So I think COVID is definitely a catalyst towards increased outsourcing. If our clients were -- or our prospects were considering it before, they're probably considering it a bit more seriously now and really doing their work to see what it will take to move on and just sort of change their organization to make it. So that if there were another pandemic or some sort of global crisis where there are -- where these kind of issues come up, it's off their backs, it's out of their hands. And someone like SS&C has the bandwidth and the expertise to handle that, which we did really well through -- during the pandemic, we got great feedback from our clients across the globe. And I think it's going to help us in the future, and we should see that materialize over the next several quarters.

Yes. That sounds good.

And I think in terms of investment, I think the fact that we have invested in a native India operation, we don't use contractors. Our software is ours. We don't use third party software, and we have our own data centers. Our means of production is in our complete control, and we're not relying on anyone else for us to give our deliverables to our clients. And I think that's something that some of our competitors struggled with over the past year or so.

No, I completely agree with that. Along the same vein of seeing greater trends, kind of pre-COVID, there was a lot of discussion around the pricing becoming a little more surgical, trying to be a little more precise and disciplined, I think, were the words you guys used, with your clients. I'm wondering how has that evolved kind of pre-COVID? And where do we kind of stand today? Did it accelerate that ability to have those discussions, given the demand that you guys saw?

I think that the intent going into it was always to be moderate, right? Just have some kind of process where -- we could have a reasonable conversation periodically, and that's what we've done. So it -- not really impacted by the pandemic, and it's gone pretty well and continues to go pretty well.

Okay. So clients are receptive to what is likely to be tweaks to pricing as opposed to like large-scale pricing increases?

Yes. Dan, I'm always careful because I don't think anybody welcomes a price increase, right?

No.

Yes. So receptive might be overstating it. Understanding is probably more what I would say. But mostly, what I would say is that, hey, we're pretty focused on making sure that we deliver a lot of value, right? So the product is continuously getting better. And our customers appreciate that our costs go up when we do that. And -- so it's been a good process. We haven't had any fallout. There have not been any concerns. There are individual accounts as part of our business where, when we take a look at the air profitability, and what we're doing for them and what they're getting, hey, there are some where it does require restructure. But those are few and far between. For the vast majority of our customers, this is a pretty modest cost of living type increase that we've become more disciplined on, and I think they've accepted as part of the process.

Yes. Yes, that makes sense. When we think about DST inside the organization, and I'm just wondering, how do we -- how should we be thinking about the remainder of the year? How do we think about the cadence of that business, maybe both into the current quarter, but even in longer term? And looking at it through both of its kind of financial services angle versus the health care business as well. So can you just paint the picture as to what we should be expecting and kind of what some of the strategies are going to be in order to continue to try and accelerate some growth there?

I think most of what we feel good about is the changes that we have made over the last couple of years where we see, having made an impact, right? And hey, it's not easy to go from 18%, 19% margins to close to 40% margins. And we understand and appreciate that what everybody would like to see at the same time is robust growth, right? And we think we're starting to turn the corner on growth. So one of the -- I'll give you a couple of different areas of focus and continuing areas of focus to point to, one being -- DST is an overlay, right? It's much more they say retirement business, there's a transfer agency business, there's a brokerage business, there's a health business, there's an intelligent automation solutions business. There's a bunch of different things that we do, and they're all different. They have different end markets. They have different clients. They have different cycles that they're going through. The thing that's pretty consistent across all of those, is if we build great technology and we focus on the customers, we can do pretty well, right? There's all kinds of opportunities. Some of those were further along in that process. Some of those were where we're making strides, but we've got a ways to go. And that's kind of where we are. But I think that's what you're going to see us focused on. You're going to see us focused on the individual businesses, making sure people are in charge, and they recognize that, hey, we're expecting results, and we're expecting you to go fast. But it's not go fast, and we're not here to support you, right? We have a wealth of assets that we can bring to bear. And there's also a fair amount of overlap. Businesses where we're processing for individual accounts, they're looking for a better digital interface. They're looking for it no matter where they go, whether it's the web or mobile app or somebody makes a phone call or whatever the case is, that they can do the same kinds of things. And the transaction that they're trying to process, so the change they're trying to make, replicates across all of those in real time. So it really is a touch-and-feel in technology problem that we're trying to solve, which we think we're a lot better positioned to solve than most of our competitors in those spaces.

That's good to hear. Let me pivot a little bit and we talk about the wealth management side of the house, right? There's been a huge renewed, I think, interest in this space, both from new entrants as well as players who've been around for a long time. So maybe you could speak to what you're seeing there today, what are the demand environments? Maybe key enhancements to the products to help facilitate a lot of this growth that you're seeing, both in terms of the RIA space and so forth?

Yes. Look, it's a really good business, right? As you just pointed out, it's -- there's a lot of good things that are happening. We have, whether it's our Black Diamond business or our GWP business or some of the things that we do with Innovest, we've got a number of ways in which we address wealth management in general. Our focus is similar to our focus in other parts. It's both to get broader -- so to do more things than we do now. And there's a number of things that we're doing, whether it's working on a model marketplace or working on an insurance marketplace. And so that's kind of one part. And one part of it is just if you're a registered investment adviser or somebody that's a financial adviser, and you're coming to us and using our Black Diamond product or one of our other products, are there things we can do for you that go beyond what we're doing now? And so extending that product, that's a big part of it. And the second part of it is that just getting deeper in functional expertise. So rebalancing investments and doing that in the best way we can. And we think we've got a little bit of an advantage so that folks can convert there. They can implement a new strategy or a new asset allocation paradigm pretty quickly. That's a part of what we're doing. And in general, as our product gets better, we're able to go upmarket and win deals at bigger places, bigger wirehouses, larger broker-dealers. And so those are some of the initiatives in wealth management.

Yes. No, it's a really rapidly growing space. I mean, there's no doubt about it. We see it kind of all over the place. I did want to kind of dovetail that into this acquisition that you guys are going after this mainstream group. So maybe if you could spend a few minutes as to why that's strategically important to SS&C longer-term and really even just how this kind of came to be, so to speak.

Yes. And Dan, I think that the -- look, we think it's a really good business, and it's -- we'd like to get bigger in Australia. And we think there's a lot of wealth in that marketplace, and we have a number of products there. I think mainstream, in particular, we just announced this morning, we're not going to match. So we've been in this bidding process for the last -- since March. And it started at $1.20, and I think our last bid was $2.76. And at some point, no matter how good an asset, there is a price that's a little too rich for us, and that's where we are. So we're going to go -- we're not going to match at this point. And -- but we think a lot of the things that we saw as strategic opportunities there, we can fulfill through different parts of our company, and there will be other opportunities. It's a really good business. I've done it, and they've done a great job getting value for their shareholders out of this process.

Yes. And now I was just wondering because it seemed as though that was a market that when we heard you guys talk about it, was an area that you wanted to remain focused on. And it sounds like even still that could potentially still be an area for you guys.

That's right. And we've been in Australia for a long time. We've got a high portfolio product that has a number of big Australian clients. We've got Bluedoor down there and a number of other former DST servicing arrangements. So we're in that market, and we're very comfortable continuing to sell and grow organically. And we'll look at acquisitions as they come up.

Speaking of M&A, just broadly speaking, I mean, prices seem, as you just alluded to, continuing to go up. And that makes it, I would think, harder to find the type of assets that you want, especially given the track record for a lot of things that SS&C has participated in, in the past, just buying businesses that you really can enhance the operating margins around and things of that nature. So when you look at the current environment, are you finding that the pipeline is just not as robust as it's been in years past? Or is it as robust and we're just making much ado about nothing?

Well, I think it's as robust. I think it's also true that valuations are reasonably full, right? But if you kind of look at our history, and I think we paid a pretty good number for Advent, we paid a pretty good number for GlobeOp, right? And there's a number of other ones, right? So -- and I think the recent one that we just talked about is both a demonstration of the discipline that we bring to the process, where we're willing to walk, but it's also a demonstration of the fact that we are willing to pay in a wide range of levels depending on the level of conviction we have and what we think we can do with the business. So the nice thing about what's happening right now is the world is opening up, and we see that in the M&A market. So there's a lot more opportunities. And just given that there's a lot more opportunities, it's certainly possible that there will be more things that are actionable for us. So we feel pretty good about that.

Okay. We have just a few more seconds left here. And I just want to -- I want to end at some point. I'd be remiss if I didn't just speak about organic growth for 1 second. How are you thinking about that playing out for the remainder of the year? You don't have to go through the pinwheel necessarily of each division. But just broadly speaking, how should investors, to take away from our discussion today about the organic growth trajectory?

Rahul assigned that one to me, so I'll take a stab at it. I think we're feeling really good about the numbers that we put out for you guys in the guidance we gave. And I think we're probably even bullish on those numbers. I think, if you look at our range of alternatives, 4% to 7% growth, we should -- it's looking like we'll end up on the higher end of that range. Intralinks continues to perform really well, and they're back up in that high single-digit, should close the year out at around 10%. And I think our software business, if you just kind of like group it all together, 1% to 2% grower. And that's still some leftover COVID -- COVID pressures and also maybe just a long-term change towards a more full-service model, which -- that just kind of shifts revenue into other areas of our business. And you'll see higher growth in other areas. And I think DST, we're -- should end up around 2% or better this year. And we have some pretty big opportunities within health care that could drive that outlook from flat to maybe down a bit to flat to up. So we're feeling pretty good about the year, and we think that with the markets opening up, with restrictions being lifted, it should only get better.

That's great. Well I'm glad to hear it's tilting maybe a little bit to the higher end of the range. I'm not going to put words in your mouth, but it does sound like it was in that direction. So we're out of time at this point, we can probably go on all day long with this discussion. But Rahul and Justine, thank you so much for being here today. We really appreciate it, and it's always great to see you guys. So thank you again.

Great. Thank you, Dan. Take care.