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

All right. Thank you for joining us this morning. My name is Maya Kilcullen. I work on the software team at JPMorgan, and I'm joined this morning by Bill Stone, CEO of SS&C Technologies. Bill, could you just take a few minutes to introduce yourself and the company?

Sure, Maya. I started SS&C. I don't think Maya was probably on earth yet. So I started SS&C in 1986 in Windsor, Connecticut, and we have grown pretty rapidly. When we ended '86, we did $86,000 in revenue. When we went public in '96 we were doing about $26 million in revenue. And then when we went private in 2005, we were doing $161 million in revenue, and when we went public in 2010, we were doing $329 million in revenue. And in 2015 when we bought Advent Software, we were doing $1 billion in revenue. And last year, we did about $5.1 billion in revenue. So we've had a pretty long track record of revenue growth, and we have focused on financial services and very sticky parts of financial services, and parts that everyone is not trying to dive into, which we appreciate the moat that we've been able to build around the accounting and operation support services that we do, plus all of the technology that we bring to the table. So we now have almost 27,000 employees. We have 140 offices in 40 countries. We have over 20,000 clients, and we think we have tremendous opportunity going forward. We're -- we run at about 40% EBITDA margins, have for about 20 years. And we think that we can because we differentiate ourselves with our expertise. Last quarter, we grew at about 4% organically, and we have a health care business that we're investing in tremendously to bring out DomaniRx, which is a next-generation PBM technology. And if you take health care out, we were up organically almost 6%. So -- we think we can grow faster than that. We also will, at times, grow slower than that. We'd prefer there not be any more land wars in Europe. We'd just as well somebody pay attention to supply chain so that we have baby food for people, and we don't have chip shortages and other things that cause heartburn in our economy. So with that, we have recently bought Blue Prism, which is a $1.6 billion acquisition of a robotic process automation company. And knock on wood, we've owned it for maybe going on 6 weeks. We're pretty pleased with what it offers and the broad range of solutions that it helps provide to the Great Resignation.

Thank you. And so a couple of things I want to come back to on that. But in terms of the organic growth drivers, SS&C is probably one of the most diversified companies that we cover. Can you talk about what are some of the different ways across your solutions that you differentiate from competitors?

Would you guys think diversified was a pejorative or a compliment? Well, I think it's true that we have a broad range of products and services. And I think that what differentiates us is, is that it's a little bit like an orchestra. You might like horns, somebody else might like percussion and somebody else might like winds and -- or violins or whatever and strings. And so you have to have the right conductors and you have to play the music in a way that it was written. But if you take fund administration, we got into fund administration business in 2002. State Street we got into in 1924. And Bank of New York, somewhere around then. And we now have $2.3 trillion in assets under administration and we're way larger than any other fund administrator. And not only are we way larger, we're unbelievably more profitable. And why are we more profitable? Well, we're experts. You don't come and ask us and we're, let me go check with our consultants or let me go find George or Betty or Fred or I don't know, here's the answer. And that's what we do, and that's very attractive to our customers. We continue to bring out additional technology all the time. We bought DST Systems in April of '18. We paid $5.4 billion, a lot of money. And at the time, it was about 13x EBITDA, which today things are -- at least 6 months ago, things sold at 13x sales, but 13x EBITDA, and they were doing about $400, $450 million in EBITDA, and now they do about $900 million. And maybe all of you can go out and take something and double its EBITDA in less than 4 years, actually less than 3 years, and we have lots of opportunities. You have to change a lot of people when you buy a company that's gotten 14,400 people and 2,100 contractors, and really felt like sales came to them. And in this business, sales is pretty competitive. So we believe we have lots of opportunities in the transfer agency business. It's not particularly glamorous, but it generates a tremendous amount of cash. And we get to use that cash to buy fast-growing assets like Blue Prism and then have plenty of cash to pay off our debt in a reasonably big hurry. So we think those are good things. We bought Intralinks in November of 2018, and Intralinks has almost doubled its EBITDA. It does -- we expect it to do $200 million, $250 million in EBITDA this year. When we bought it, it was doing about $120. We own Eze, which is a trading system, Eze Software, and we brought out Eclipse, and I think we're up to almost over 200 clients on Eclipse. And again, we're driving these businesses. When we bought Advent, it wasn't growing. Last year, it grew 10.4% -- or 12.4%. So sometimes these things take time. And yes, I understand that I'm closer to seeing the Grim Reaper than Maya is, but I'm not ready anytime soon. And we don't want to get precipitous. We don't want to do stupid -- it doesn't mean that we grow as fast as some brilliant analyst that's about 26 or something tells us that we ought to do or some portfolio manager that thinks that we ought to be doing X or we ought to be doing Y and when you start asking a few questions, they kind of realize that we might not be right, but we're thoughtful. And you might not think it, but I view it as my money. So I tend to want to husband it. At the same time I take risks, always have, and will continue. And if there's something that looks like it's a home run, we'll go hard. Really hard. And we have plenty of banks that will help us. So we think that we're a platform for growth and high earnings and lots of cash flow. And I mean those things used to be important. Understanding what's important in 2022 is a woke exercise.

So going off of that, can you give us just an overview of some of the strategic decision-making behind the Blue Prism acquisition? And what some of the benefits you see from the integrated business?

That's a good question. I mean we were doing a lot of stuff with AI and RPA prior to Blue Prism. And we were using both UiPath and Automation Anywhere. And we thought that this was a very strong answer to turnover problems in our Indian operation, where we have about 7,000, 8,000 people and other parts of our business, not just India. So when we looked at Blue Prism, we saw what we thought was a very institutional RPA, whereas we found UiPath, that we used, and Automation Anywhere to be maybe more retail. I think of it as UiPath and Automation Anywhere is kind of at the desktop. And Blue Prism is kind of at the server. So we tend not to sell to retail. We tend to sell to institutions. Our biggest customers are the biggest financial institutions in the world. And so we need as institutional-grade software as you can get your hands on. And since we've bought Blue Prism, the economy has cooled a little bit, maybe a lot a bit. But -- and the workforce churn is a little bit less. It's not way less, but it's a little bit less. I guess what it really is, it's not getting worse, right? So that seems like it's getting better. But the workforce in 2022 is radically different. It's never going back. And the idea that somebody goes to work and is going to be a GE man for 30 or 40 years or a GM woman for 30 or 40 years, that's over. They're all much more like the long-term investors when you do an IPO. We've got a really bunch of long-term investors, Wall Street long term, about 90 days. And that's true about workers. If you're not going to do for those workers what they want, they're leaving. I've never lived in Nashville, I'm not going to go live in Nashville. Can you imagine getting out of college, like when I got out of college, which was 1977, so I did get out of college. And Marquette won the national championship, and I was a graduate that year. But you take a job and that somebody does something you don't like, you quit after 90 days or 30 days or 180 days, hasn't happened. Now it happens all the time. I think I'm going to go live in California. I have been here for around, I've been in California for 6 months. There's nothing else in California. I'm going to go to Idaho. What? Where I call up, and people say, I ask them, where are you? Oh, I'm in Long Beach. Long Beach City like on Long Island, like where you're supposed to be? Like no, like Long Beach, California. People say, you mean you just moved? I don't think you walked. So what do you do? He's good, really good, or she is. You fire them? That doesn't make any sense. So can they get the work done from wherever they are and can you have kind of an improvement in your service levels? And can you maintain your internal control system and make sure that this works. And I think that what the fluidity of the workforce doesn't quite understand is, is that people that run companies like me, we'll figure out ways to do it with less people. And that's what Blue Prism is. It's deploying digital workers. And it's no different than ATMs. Something tells me the teller population in the United States is a lot less than it was, say, 50 years ago. And the number of visits to bank branches I bet is down 70%, 80%. Some of us haven't been in a bank branch in who knows how long. I know one thing, betting with my children when all they ever say is, "well, I've got Venmo, I've got $20 bills. So it's just a different world and it's not going back, in my opinion. And if you start acting like by God, everybody's going to be here, and they're going to be here from 9 to 5 and 5 days a week and get on with it. Next week, you'll you know I was just kidding. I was just -- how many titans of industry have we watched do that on television. I know him, Wow, he should have kept his mouth shut. So it's just -- it's a realization. People make these draconian statements. And I'm always thinking, wow, they must be a lot smarter than me. I don't want to have to go back and reconcile those NAV calculations for our 7,000 hedge funds. But if everybody quits, I guess that's what I'll be doing. So we can't have that happen. We have to be kinder and gentler, and so learn all the pronouns and get on with life.

And so looking ahead at M&A, can you just talk about your strategy now that valuations have come down a bit? What areas are you looking at?

Well, our M&A strategy for 20, 30 years has been look at everything. Look at everything, learn from what you look at, see how people are going to market, see what kind of products that they're doing. You don't get information like you get on acquisitions. So no one ever shows you their pricing strategy or what their product road map is or anything, unless you're going to buy them. And then you either buy them or you don't buy them. But now you can't disclose anything, but most of us don't forget what we learn too. So you get smarter. So we still look at things. We've probably looked at, I don't know, 75 companies this year, and we bought a couple. And we've got some others that we're looking at. But valuation has come down a bit. I think ICE just bought Black Knight for 15x revenue or something like that. That's $600 million in EBITDA and $15 billion, $16 billion in market cap -- or sales price. So I wouldn't say things are cheap by any stretch. So we're prudent, we think, and we think we have plenty to do if we don't do acquisitions. So we have a big development staff, and we've got to build new systems. We brought out GoCentral, we brought out a brand new treasury management system, that are big productivity increasers. And so we think those will help us as well.

Thank you, Bill. So I just want to -- thank you, I was just going to pause and remind the audience to raise your hand with any questions you have. So please. Not sure...do we have any microphones we can pass around? No? Okay.

When you talk about the value of software companies I've invested in over the years, sales software always had very high margins. How is that changing going forward? You own a lot of software companies and you probably know more about the trends that are happening here. How do you think that's changing over time? What do you see going on?

Well, I mean it's intrinsic in the software business, right? It used to be you can produce a disk and send it to somebody, and that probably cost you $10 maybe. So now you don't have to send it. You don't have to produce the disk. You can just put it out on the Internet and they can download it until it doesn't cost you $10, probably cost you $1, right? And maybe you can sell it for $500,000. And then they can sell it to you for $500,000. They're not going to sell it to you for $500,000, right? So that's a pretty attractive business model. And the challenge becomes is, as you do more and more apps and as you have larger and larger scale worldwide companies like Apple and Google and Microsoft, you have to have something that you're dominant in, right? And if you can have that -- like I don't think that any of those companies are going to become experts in GAAP or tax or statutory or performance or performance measurement or other things that are pretty intricate, pretty difficult and not these high-powered engineers coming out of Stanford are going to be too excited about learning. So we think that's a big moat. And so I think that's the key to the software that -- otherwise, there are these guys, if they don't break them up, if the government doesn't break them up because of monopolies, they're going to dominate -- they just -- they've got too much economic power. They've got too many of all of ours' attention, and there's not going to be a way to compete against one of them. So I mean, I think that we view our software franchises are very valuable, but some of them are in decline, and we have to replace those and you have to replace them with the new interfaces. And you're competing with lots of people that can do start-ups on a shoestring. And they don't even need to do it on a shoestring because there's so much cash out in the marketplace.

So talking about some of the market volatility that we've seen in the last several months. Can you just talk about the different drivers of the transfer agency business versus the fund administration business during those times?

Well, those are -- the transfer agency business is really in registered funds, mutual funds here in the U.S. and like UCITS and other things in the U.K. and Europe, QIFs. And so that's -- the mutual fund transfer agency is a much more mature industry and it's gone through a variety of different changes. We kind of think that there's still a bunch of great big funds that do it themselves and there's a bunch of great big banks that do it. But once again, it's not a banking business. At some point in time, the banks shoot themselves in the foot. Usually, they shoot both feet at the same time. So you have a chance to really grow because they won't invest. The idea that they would spend $1.6 billion on something like Blue Prism is almost beyond imagination. But it's those kinds of things that differentiate you from your competitors, and so we think we can radicalize the transfer agency business. It's not going to be radicalized in a snap of your fingers. We just signed a 10-year transfer agency extension with one of the biggest mutual fund companies in the world, a couple of trillion in assets. We have most of them as our clients. So these things only come up 3-, 5-, 7-year contracts. So it's not going to be something that is instantaneous. The fund administration business is -- again, the biggest accelerator for us was when you have the guy in Palm Beach that stole everybody's money. What's his name -- Madoff, I think his name was. Thank you, Bernie. Because after that, nobody did that stuff in-house, right? So they all used a fund administrator, and we were a big beneficiary of that. So we've been able to dominate, I think, in fund administration. And we bought a lot of fund administrators back before they started paying 10x revenue for a fund administrator. So we feel we have competitive advantage in technology. We have competitive advantages in the people we've been able to hire and retain. And that business has been growing for us at double digits for any number of years and our private markets business has been growing at about 15%.

And then on Eze, have you seen an uptick in trading volumes over the last few months? Just what is the update there?

Yes, there's been some -- there's been some uptick in the volumes but probably I'd say closer to several weeks than several months. But I think we're getting more and more adoption with Eze, and we're getting more and more adoption when we couple Eze with Geneva, which is kind of our broad-based accounting, investment accounting system. So we are making a lot of money with Eze. We are working on it to grow faster. But when markets are really volatile, we get more trading volume through Eze, but traders are busy. They don't switch systems, even systems they don't like. They wait until markets are more calm before they're willing to do a switch.

So how are you driving better adoption with Eze? What's the sales motion there?

Well, I mean, we have revamped our sales organization and put a kind of a overall structure to our -- we had all these sales teams that were around the world, and it was kind of like maybe the revolutionary armor, a revolutionary army hiding behind trees, and here comes the Brits and their red coats. And so we've become a little more disciplined as far as making sure that we're pitching the right technology at the right time and that's really helped the Eze. That's really helped the focus and the programs and the things that we're doing with them. And again, they are running at 40%, 42% margins and they'll probably grow 5%, 6% this year.

Great. And can you give an update on the Singularity platform? And how many users you have now?

Yes. I believe I was told there's between 75 and 80 users of Singularity. We have a number of very, very large well-known customers on Singularity now. And probably, we are pushing $500 billion in assets, maybe better. And it's got a lot of room to run. We think that the systems that we compete against that just take bank debit and dump it into their system is not a very good internal control process. In fact, [ Eze ] sucks as an internal control process because you're not reconciling to anything. You can't reconcile if you just take the data. It's like, I reconcile my bank account. How did you do that? Well, I agreed with the bank. Okay. Well, it's one way to do it, I guess. And if you look at the errors in your bank account that the bank made, it's almost never that they made many that hurt them. It's kind of like the error accounts we used to have in brokerage accounts. The only thing that went into error accounts were one that had lost trades, because if it was an error with a gain, they called one of their customers and said would you like this straight, right? So I mean that's just -- that's the nature of the beast. And we're -- I'm an old CPA and Rahul Kanwar, who's our President, is a CPA. And we believe in separation of duties, we believe in internal controls, and that's how we operate. And sometimes accountants slow things down. Bernie kind of sped things up. So I would suggest that I tell people when it's -- look, if it was my money, I wouldn't do that. I would not have your prime broker and your fund administrator and your transfer agent be the same place. Well, it's different divisions of that big bank. Really. You think it reports to the CEO? I bet it does, right? So you get conflicts of interest all over the place and you want to protect yourself. It's your money. For God's sakes, don't let them steal it. I like it if they're going to rob me, they've got to collude.

Shifting over to Intralinks. Can you talk about some of the drivers of that business, especially with private equity and capital markets activities drying up recently?

Well, I mean it's been a tremendous business, been growing about 20% a year, and we don't see that -- there's some slowdown, but not really, if you included the SPACs and everything over the last 24 months or so, it's been hyper, right? So you slow down from hyper and everybody goes wow, it's really slowed down. Why, it was on hyper mode before. And you sometimes have to shake those things out of the system. Right now, there's about 60,000 announced M&A transactions a year. And we're really only involved in about 20% of those. So about 12,000. So there's lots of white space in transactions. And there's also a lot of things that we do with the Intralinks platforms. We have gigantic clients that use our Intralink secure data process for know your customer, KYC. So that's been very effective for us. We also -- when they had that big PPP plan, one of the biggest banks in the U.S. used us to distribute the money through their PPP plan, and that was another big opportunity we took advantage of with the platform. It's very flexible, it's very secure, and it's used thousands and thousands of times every day.

Yes. And on that 20% of transactions that the platform is involved in, what are some of the ways to increase that percentage?

So always win more always helps. But it's also -- it's constantly innovating with the different things. Like we're using AI now to go through all the documents in a virtual data room on an M&A and redact sensitive data, redact stuff that would violate a nondisclosure agreement and be able to also go search all the documents that are put into a virtual data room on criteria that our client asks for. So you might want to look at termination clauses in contracts. You might want to look at restrictions on price increases. So there's a lot of things that you might want to have the system do that's now going to spit out 8, 10, 12 exceptions that then you can have somebody evaluate them and decide yea or nay. So those are a couple of things. Other things that people are really, really interested is you get these systems that give people false positives. So it tells you that, hey, there can be a compliance breach. And then you go look at it and it's not. So when 90% of the ones that you're going to look at are not, you would prefer to have a process that has increasing expertise, and that's some of the stuff that we're doing at Intralinks.

Okay. So we just have a few minutes left. I just want to do a call for questions. Yes.

Yes. I just wanted to ask, you obviously have a great track record of growing EBITDA at a much faster post-acquisition clip than pre-acquisition for targets you've acquired. And I think some of that is accelerated top line growth but also expanding margins. Would love to hear just kind of your framework and how you think, you think about it differently than a lot of the companies and management teams you acquired? And then how you're thinking about that framework and applying it to Blue Prism [ going forward ]?

Yes. I think the hardest thing for people to do is to move fast, right? And your only opportunity to really kind of sculpt that acquisition is if you move fast. Because if you don't, then now everybody is your buddy, and everybody is in these meetings, and you have all these things and then you don't do things. That's your job. It's your job to run it as efficiently as you can. And that -- we bought this one company in Australia, very similar to PORTIA that we own and CAMRA that we own. And PORTIA was running with about 140 people and CAMRA was running with about 115 people, and this company was running with 391 people. Well, come on. It's triple the number of people, you know what I mean? Makes no sense. So you just take marketing, sales, development, finance, implementation, legal and you put the number of people that are in there. And say look, a number of these other companies that we haven't, you know. I didn't make them get to 140. But we got to 240. So we went from 391 to 240 in about 90 days. You know what that did to profitability? It shot it to the moon. And it runs better. I don't have to ask you and then you, and then you, and then let's all vote and oh, I don't like that vote. Let's go ask everybody again. I don't want to ask them to start with. Hey, that person is the smartest person in the room. Let them talk. And that person is the dumbest in the room, keep your mouth shut. But people don't do that. We're, oh, let's see what George has to say. George hasn't had an original thought in 25 years. Do we have to sit through this meeting? But that's what happens when companies get sleepy and you're unwilling to do things that are difficult. I don't like to do them either. Nobody likes to lay people off, it sucks. But it's your job. You can't sit there and duck. And that's -- when you're investing your funds, somebody's got to have understanding of what the role is of the CEO and what the role is of management. Management is to make it as efficient as possible and try to manage risk in a way that makes the most sense. And we don't try to run SS&C like we're in Vegas. Throw the dice, throw the dice. At the same time, we like to go fast. So it's a little bit of an oxymoron or a little bit of a conflict of those 2 things. But if you don't have paradox in your mind, you don't have a very big job. Because paradox comes with a big job because they're conflicting. It's always conflicting and so you try to make the best decisions that you can.

All right. Well, we are out of time. Bill, thank you so much, and thank you for everyone for joining.