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

Well, we get offered to kick tires, of course, on almost everything. But I mean, at least what I saw was they make $151 million. Then you're going to pay $4 billion, if you finance it at 7%, really good arithmetic, but I think that's $280 million. How do you pay for that with $151 million. But these Germans are really smart. So we probably got that figured out. But that's not something we would like. We like cash flow, we like earnings. We like Blue Prism because when we bought them, they didn't have any earnings, they didn't have. But when they left in 2022, fourth quarter, they had about 25% earnings, and by the end of this year, they have 35% earnings. And people say, how do you do that? We pay attention, and we're not trying to toss like we're investing in Blue Prism. We're not afraid to spend money. But it's our shareholders' money. We don't throw it away. I mean do we really need Blue Prism TV? I don't think Disney is worried. And so you have to look at what you're spending money on and what's the return on the money. And again, not that we're always right. We try all kinds of things. But we think that Blue Prism, both internally at SS&C with us deploying 1,350 to 2,700 digital workers this year and over the next 3 or 4 years, deploying another 10,000 to 15,000 that, but that's going to save us a fortune. And how much? I don't know, $300 million, something like that.

But I think you were saying $50,000 per each digital worker, right?

Yes. So even being conservative, we think that's conservative. So we're optimistic about where we sit and what we're doing. We've brought out a bunch of new software, right? We had a press release that our Advent Software Group just brought out a whole bunch of new products and services and we have Aloha, we have Singularity, we have a number of new things like GoCentral and Genesis, which is a new release of Genesis. So I just think that where we sit, we're innovating faster than our competitors, and we think that will bode well for our financial statements and the returns for our shareholders.

And I find it quite fascinating how you bring some of these companies to a very high level of profitability, like you did to Blue Prism. And you mentioned a very high focus. But could you elaborate a little bit on that? I mean one of the elements that I think that we were discussing recently was low hanging fruit at some of these firms. And one of those elements was hosting. You maybe talk about like your view on that element of the expense?

Yes. I mean we run our own data centers, large world-class data centers. We host our applications. That's a pretty big business for us. So our ability to move their technology into our data centers and run our application suite for that type of stuff has proven to be pretty attractive for the acquisitions that we've done, but also for their customers. So when we bought Advent in 2015, they gave all that away. So they had consultants that did this and other technology companies that did their hosting. And on that, we went -- we find this to be the lowest hanging fruit. You know that if you have competent data center managers and executives, you can run those things and be able to literally pull one of those little things out of one thing and stick it into another one and you just doubled capacity, which often makes you double price. And it took all of about, I don't know, on a bad day, maybe 10 minutes, and on a good day 2 minutes. And I learned this a long time ago when I used to watch IBM coming to us and watch them go. So you were here for like 20 minutes and you charge for me double. What did you do. When they reach inside, they have a wire curves and they clip a capacitor, all of a sudden, you had access to twice as much. Still reach twice as much compute power and you got twice a bigger bill. What a great business that is. So again, we think doing very sophisticated performance and performance attribution are really understanding EITF 99-20 and better not to do retrospective or prospective discounted cash flows for derivative mortgage-backed securities, we think is very complicated, very complicated. And as Wall Street comes out with increasingly complicated securities, everybody talking about private credit, private debt. Hey man, that stuff is, there's all kinds of triggers, there's all kinds of things that you have to have stored, that you have to know. And if you don't, you do accruals and then the cash comes in, and the cash isn't anywhere close to what the accrual is. So then you're going to go try to figure, okay, so why is it off? You know what that's like to go back for 6 months and figure out where the -- what happened is a pain in the neck amongst other places, right? So you have to go through this whole thing. And it's like, well, you only got like 400 of them -- 400. I mean although the Chief Investment Officer is yelling at me and I'm smiling. He is yelling at me and I'm trying to smiling, he is yelling at me and I start yelling at him. He says we get these things from these PE guys and it's all private credit and he goes, I don't know, where did you get the numbers. Your guys are supposed to find the numbers. I said that's about 300 pages, and you want us to find 5 numbers. I said, do you think our accountants make as much money as you do? They do not. If you don't tell them where the numbers are that you won't posted to your ledgers. And again, this is one of those damn things. They get couple of hundred of them. So you really have to build the right process, the right procedures, have the right technology and then be very disciplined about it. And a lot of times, people don't want to be that disciplined. Oh, yes, it's close enough and tell us not. And then well, why did you let us do that. I'm not the fiduciary, you are. But they don't want to hear that. So I try not to say that. I try to fix it. I try to fix it and send them a bill. Like Pricewaterhouse, but I'm not as good at as they are, but I'm learning. So it's just the complexity that's going into the capital markets, is not less. And that's opportunity for us, but it's also hiring the right people, training the right people, being able to have ongoing training courses, ongoing education. So that's a real opportunity, but it's difficult.

Bill, if I may ask a few questions about the health care platform. I feel like the opportunity there is very significant. So firstly, I was wondering when do you think we could expect the platform to be launched, whether you're seeing some better progress in that? And also, which phases of pharmacy claims, does this cloud-based technology handle? And when do you think we could see this platform really show monetization and traction?

Yes. So we're scheduled to bring Humana onto that. They're one of our joint venture partners, 1/1/2024. We're out now showing a variety of our customers, the platform. We're getting very positive feedback. It's not done yet. It's a large-scale system development. So it's not without risk, right? But so far, the feedback has been pretty strong. And this does the whole adjudication process, the checking of the claim, checking of the prescription at the pharmacy. So right at the point of sale and then make sure that your insurance covers this, and here's the copay and all that kind of stuff. So right now, we do $400 million of these things a year and we're up 24/7. I don't think other than scheduled maintenance, we've been down in 2 years. So that's really important as you go to get prescription filled that it works, right? And people get frustrated quick if it doesn't work. So we're bringing out a new platform that has a way better user interface, has all kinds of APIs, has all kinds of capabilities above and beyond what we have in our current platform, what's called RxNova. But we get looked at everything in the market, potentially buying everything in the market. But I really like the health care business because I think there's all kinds of money in it. And it's also often being paid by third parties. So you get a little more flexibility, maybe a little less scrutiny. And so we're with one of our partners, and they say they started this one business, and now they're up to over $1 billion in a year. You know what it's like to get $1 billion in revenue in a financial services software company -- very, very difficult, impossible maybe, right? So we look at -- if you look at a prescription, it looks like a lot like a train ticket; number of shares, number of pills; Rx number, [indiscernible] number; Rx symbol, symbol; doctor, trader and there's millions of them. So you got to collect them, you got to account farm, you got to collate them, you've got to slice up that data and deliver it back to the plan sponsors, the insurance companies, the employers or all the different constituents regulators. So we look at it as a very similar business to our fund administration business. And everyone told us that we shouldn't go into fund administration. And now 20 years later, we have $2.4 trillion, and it's about $1 billion in revenue and close to $500 million in EBITDA business. We don't think health care should take that long.

Perfect. And Bill, this wouldn't be a TMC fireside chat, if I weren't to ask you about AI. We've been working on robotics automation for many years. So you have a lot of expertise. You also talked about digital workers just now. What are your thoughts about AI? How much of a tailwind can it be for your business in some of the routine projects that your employees are working on?

Well, like I said with the statement processing that it can validate and other things that we're doing, We took -- we just had a press release out about the New Mexico Medicaid Program that when they have a new infant in that program, it was taking between 3 and 30 days to get them enrolled. So we have this bot, we call baby bot. Now it takes 15 minutes. So when you get those kinds of productivity increases, you realize that we better embrace this. We better understand how we're going to roll it out, we better figure out how we're going to control it. We're going to figure out how we have a moat around it. So that the value proposition comes back to our shareholders. right? I mean we're a public company. We're a business for our shareholders. We're trying to make money for our shareholders. So we're not -- not that we don't want to help the world, but we're a for-profit place. And so it's using those things in ways that improve our customers' capabilities, really cement us in as a critical partner to them and then -- and then allows us to how the best people, pay them very well, take care of our customers and have great returns for our shareholders.

Bill, final question. You've always been very balanced with your capital allocation approach. It was always 30% debt repayment, 50% would go towards buybacks. Is there anything that you think could change in current environment? Or do you feel like keeping this balanced approach is important for your shareholders?

Well, I think one of the things that you're trying to do in this thing, and I think it's more than a science and even meeting with some of the -- some of our shareholders and debt holders yesterday and today is everybody likes SS&C to do deals because we cut a bunch of costs when we make a lot of money. But a lot of times, we need to borrow money when we do that. So you'd like to keep our debt holders happy too and they like to see you repay in advance. They get some pickup in their returns and -- so we look at that. We also look at that, hey, we're going to generate about $5 a share in cash and stock is trading at $55. I'm not sure exactly what that is, but I think it's about.

It's a nice return.

About 9%, 9.5%, right? Plus we pay a $0.80 dividend, right? So that -- the $5 plus that $0.80 is $5.80, so good at arithmetic -- about $5.80 divided by 58 gives you a 10% return. So buying back shares from a CFA standpoint is a lot more accretive to us paying down debt. But there's a variety of different things that you want to accomplish in your capital allocation process, and we don't ascribe to any one algorithm.

Of course. Bill, this has been great. Thank you very much for joining us today. I hope to see you soon. Thank you.

Thanks a lot. Appreciate it.