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

Thank you, all, for attending and for folks on the webcast as well. We're thrilled to close out the 28th Annual UBS Tech Conference with Bill Stone, the Chairman and CEO of SS&C. We're just thrilled to host Bill. I'm Kevin McVeigh, part of the UBS research effort here.

Bill, this is the third time we've been fortunate to host you. I've always started with the same question. And I think it's important to level set what you've done with SS&C over time. And so maybe just briefly talk about, I think, the business you started in 1986 with $86,000 of revenue and you're kind of pacing to $6 billion today. And over the course of time, there's been some transformational events, whether it's the acquisition of DST, Intralinks. So maybe talk about the initial vision and kind of some of those more transformational acquisitions that kind of put you where you are today, because you've been -- just had so much foresight for the industry and continue to really, really execute at a high level.

Well, thanks. Thanks for having me, and thanks for all of you for spending some time. You go back to 1986, the world was a different place, right? I mean, that's the beginning of the PC as really the workhorse in the tech. So the ability to have a smart client rather than a big mainframe or even a mid-range was really what really changed the world. And when I first started, we were doing -- building systems for large-scale insurance companies and pension funds for their investments. These places didn't trade like a hedge fund or a broker-dealer. They traded 5, 6, 7 trades a week, sometimes a month. And so you have a PC that says MIPS. Not that I'm some tech wizard by any stretch of the imagination but I think that stands for millions of instructions per second. Let's see, if you're doing 5 trades in a week, I bet you can get those through a PC in a pretty fast time. And so when we did the first system called CAMRA, Complete Asset Management Reporting and Accounting system in 1987 at General American Life Insurance Company in St. Louis. And I had audited General American when I was with KPMG, and the guy who was an assistant treasurer, a guy named Larry Rubenstein, had risen to be Chief Investment Officer. And I had started SS&C and he hired me to build him the system. And he was paying their IT department about $90,000 a month to run a system called bond and stock. And I think that was owned by Policy Management Systems Corp., and that was another one that was owned by like all American Systems, and it was called stock and bond. Really great marketers in this business, right? So he's paying $90,000 a month. It cost him over $1 million to run it. We build him a system for $115,000. He has a little server in a closet. He doesn't have to pay the $90,000 a month anymore, and he's got a system that he has real-time access. So those kinds of things are what happened in the '80s. You fast forward, really, we still have the same thing. Now the power of the handheld is the way we hire in the infrastructure, right? You can get on your phone, you can call anybody in the world anywhere. And that infrastructure is what's allowed us -- and we're going through the big things that I think since the '80s and that's this AI revolution. So all this Gen AI, all this intelligent automation, all this stuff is changing because what it's doing, it's replacing humans. Before, you didn't really replace humans. You just changed how they worked. But now we're using digital workers instead of humans. And what do you get? Well, they don't b***, for starters. They don't get raises. They work 24/7 and you just have to build really smart ones. And then you have to make sure that your people that start using all this Gen AI and everything, that they don't forget to think, right? Because they don't do a lot for you. And so we think it's really important to have the right controls, the right security, the right education, the right training in order to be able to take advantage of it without taking undue risk. So that's what we're thinking. And so we've always tried to get a large portfolio of systems and services that we could sell because we sell to big places. So we have Capital Group, and there are tens of millions in revenue to us if we can sell them something new and get a 10% uptick, that might be worth $10 million to us, whereas if you get an old one that's a couple of hundred thousand, you get a 10% uptick, you get $20,000. When you're at $6 billion and you need to get my friends out here, they want us to grow mid-single digits at $20,000, man, you need to do a bunch of those. So we need to get big players and we do have big players: JPMorgan, Fidelity, Capital Group, St. James Place. And now you see things like I've told you before, like companies have problems like Link Administration in Australia. So now we're a big player in superannuation and we're going to get way bigger, right, because we have great products and great services, and we've delivered and we have a number of very highly referenceable clients in Australia. And so those are really big pools of money, like $100 billion, $200 billion, some older things. St. James Place in London has 4,600 RIAs, again, a huge place. We do a lot of stuff in private, so we do it with like KKR and Carlyle and all this and I think we're up to about $900 billion in private assets that we track and report on. So it's that kind of stuff. And the acquisitions we've done have really accelerated what we do. The latest one is Battea and they do class action recovery services. So for our clients, they used to just throw those things in the trash. Now we take them and we go down, we track it all down, get them what their payment is going to be and just send them a check. And we take -- we clip a 15% fee on it. But it's all found money for them. So it's really worked out very, very well for us.

When I do this, I try to remove my CPA bias, but it's hard to do. But one of the things I think that -- and we've been covering the sector a long time. But I think one of the things we've always marveled at is, I feel like sometimes the market doesn't fully discount the complexity of what you do and how embedded your systems are. And I think you've been able to prove that out, to your point, on average client size, which has scaled pretty dramatically. And the more embedded the service, the more embedded the disruption they try to change. And I think another thing we think about is as your clients become more complex from an asset allocation perspective, they need to lean into you more, given the complexity of the accounting system. So maybe talk to that a little bit. And one thing with -- remember, I think it was 2018, you acquired DST, Intralinks and Eze, and it was about $8.3 billion in capital you committed. Since that time, you've delevered the balance sheet from 6.5 turns down to sub-3, which underscores the free cash flow. But maybe talk to the average client size and how much more you're embedded because you've been talking about this for a while where the larger the client, right, the longer the implementation, you're starting to see that today. And that's going to lead to this next question, but maybe help us frame that a little bit.

Well, if you go back to '18, we've spent that $8.3 billion. And I think this year, it's going to generate over $3 billion in revenue, $1 billion in EBITDA, and it's going to have grown from about, I think when we did Intralinks, they were at $350 million, now they're at $550 million. We bought Eze. They were at about $250 million and now they'll be at about $310 million. And DST is not -- hasn't grown us but it's starting to grow now. It just took a long time. But we've got EBITDA from about $400 million up to $900 million. So we didn't just sit on our hands, right? We generated more and more cash flow. And the complexity is always that you -- we had Marc Rowan, who's the CEO of Apollo in our offices and he talked about private markets. Let me tell you, he knows a lot about it. And so the kinds of things that he needs to be able to structure in these private markets means you need to understand how they're going to structure these things and what triggers a cash flow or what triggers some sort of optionality. And you have all these rules. So there's something called EITF, which I'm sure all of you really are very interested in because it's the Emerging Issues Task Force of the Financial Accounting Standards Board. So EITF 99-20 was about how you account for structured mortgage-backed securities and whether you're going to use prospective or retrospective accounting, and whether you're going to use PSA or CPR and how you're going to do it. And everybody goes, "Oh, my God. What the h*** is that?" But if you don't do it right, you get the yield wrong. You get the yield wrong, portfolio managers, "Oh my God, listen. Take it easy. We'll get it right." I tell our people, when you're down to that last basis point, round up, right? It'll always make the portfolio manager happier than rounding down. So that's kind of what we try to do. But it's all minutia. And that's what the private markets are offering to these high-powered private equity funds is an ability to structure things outside the public market. And I think that's going to continue to be a big trend. And we're right in the middle. And the ones that you hear about, like, one of the big ones that switched, well, Elliott decided to go not do it in-house anymore. So who did they pick? Well, they picked us, right? Bobby Jain spun out of Millennium. Who do you pick? Well, he picks us, right? Because we do Millennium. And we do Point72 and we do Baupost, and we do. Every other one of the great big ones, we do. We do them all. And so that's where most of the money that's going into global macro are going into all these great big funds. And so we get a flush of money. Like -- so you'll see our, I think, our AUA is at few hundred billion, about $50 billion is Elliott. $20 billion, $25 billion is Hudson Bay. Bobby Jain just launched about a $6 billion fund, and probably in a year or 2, he'll be at $20 billion. So it's those kinds of clients that really drive the business.

And that really proves that, I mean, I think if you look at the AUA, you disclosed about $2.5 trillion in the most recent quarter. It's up almost 15% since 2022 in a market that's been uneven. And to your point, it just got the private market dynamics of that and really impressive. Switching to kind of the growth targets, just rounding out the M&A. Maybe talk to Blue Prism a little bit. Just you've had it a couple of years. There's been a real opportunity on both the revenue side but also the margin. So maybe how we're thinking about that, particularly, I think, both internally and maybe the go-to-market externally as well.

Yes. I think that the robotic process automation with all of the natural language programming and machine learning along with the generative AI is creating this enormous interest. So it is trying to make sure you manage that process so that you can -- if you build a bot with a dummy, you get a dumb bot. It doesn't really work. So you got to take some of your best people and they have to concentrate on really building a top-quality service that this bot is going to do. So it's done a lot of things for us like one of our clients is a big hedge fund, $40 billion. And the GP's maniacal about every statement has to be perfect. We used to have 3 people spend 3 days proofreading every statement. We put a couple of digital workers on it. We don't have 3 people doing it anymore. They get it done in about 3 or 4 hours. They don't make any mistakes. They spell like they write, right? They do Kevin with a K, not with a C. So it's all those kinds of things become very important and you don't have to worry about it. They're not taking time off. You're not going to see them at the water cooler. So it is something that is really a productivity increaser. And I think back in '22 when we're in the height of the Great Resignation part of COVID, and I think our 2Q '22, I think our margin went down to 34.6% and everybody is going, "God, are we ever going to get back?" Yes, we'll get it back. But I got to go save my talent, right? I'm not going to sit here and worry that my margin is not 38.9% or 41.6%. Okay, it's 34.6%. We're not going broke but you have to protect your franchise. And so that's what we've done. And some people say, well, you won this business. Why isn't the revenue coming to us? Look, this hedge fund had 900 special-purpose vehicles. 900. So you've got to convert all 900. Some of them they haven't looked at for a few years. So it's not exactly like it's a pristine data that you get to convert. So there's a lot of work that goes into doing it and doing it right. And so that's what we do. The quality is really becoming the coin of the realm. One of our great clients is State Street. And we're the biggest fund administrator in the world, and they were second. They decided not to use their technology anymore. They shut theirs down and went to us. It's not very often that Pepsi goes global from you but that's what happened. And I think that's the kind of things that we've been able to do. Many of you might know Link Administration, the one in Australia that had all the problems with Woodford and in the U.K. Well, that's a big opportunity for us because we're in Australia. We've won a bunch of superannuation, we're going to get really big there. So we think those kinds of things have really helped us.

In addition, what's been really impressive growth on the AUA, the retentions really increased, too. Is that a function of the client mix as you're kind of scaling more up? Maybe help us understand that a little bit because I think it's -- when I think of AUA and the retention and the pricing, which I'll get into a minute, I think it really helps explain some of the success you've seen on the organic growth. But maybe just talk to the retention a little bit.

Yes. I think, again, as these funds get more complex and you start seeing things like GREIT and GCRED, or BREIT and BCRED, which is Blackstone and Goldman going into like retail alts, right, it gets complicated again. And like we're the only ones that have transfer agency and fund administration. So we don't like to sell them individually anymore. You want one, you got to take the other. Sometimes great big clients don't like that much, but sometimes being the good Americans we are, we cave but not that often. When we're getting better at saying up, we're not selling them individually anymore. But then a bunch of the fund administrators are also clients of ours. So like we use our technology to run our fund administration business, but we also licensed our technology out to 40 other fund administrators. But usually, when we compete against one of them, I'm always saying, "Well, who do you think runs the technology better, given that we own the source code?" No one else has it. I think maybe we do better. And so that's usually a pretty good selling pitch. And we get references from all over. And I'm going to go to Abu Dhabi next week, Abu Dhabi Finance Week. We opened an office in Abu Dhabi about a year ago. It's really doing well. They just pump money out of the ground every day, I think. It's amazing.

You had a terrific Investor Day in the fall. I think what we're really encouraged about was the organic growth targets of 4% to 8%. I think historically, it was probably closer to 4% to 7%. I was just to kind of frame that a little bit. I think the midpoint of the range for '24 is 4.9%, which is up pretty meaningfully from 1.6% in '22. One of my big takeaways from kind of the new range was it didn't feel like it was macro. It felt a little bit more structural to me, right, whether it's pricing, retention, AUA, average quantas. So maybe talk to that a little bit, if you can, because I think it's been a really nice outcome in terms of, again, a lot of the larger wins, as they start to come in kind of create this base, that you can kind of grow off of. So maybe any way to dimensionalize the pricing as opposed to retention as opposed to -- and again, it doesn't feel like we're in the best launch environment. Clearly, there hasn't been an M&A cycle yet, ECM, which would impact things like Intralinks, but maybe just any thoughts around that?

Yes. I think when you see the retention and also the focus we've now taken to, we've traditionally been hunters, right? We go get new names and that's what we do. We're aggressive. We go out and get new wins. We have a big sales force, probably the biggest by far in the fund administration space. But now we're saying, well, wait a minute, we have all these clients. Why don't we maybe pay a little more attention to cross-selling and upselling? And so now we have a whole team that, that's all they do is take care of our clients, make sure we know what they want, make sure we have it for them. When they're ready to do something, we're there. So like I said, somebody like Capital Group will get a 10% increase in revenue, we'll have $10 million. And that's a big meaningful thing that you see and that keeps retention. It keeps them happy. We just met with their senior management team. It was great. And so there's real opportunity with these great big players. And so like right now, St. James Place is going through some transition but we can help them. We can do things a lot faster. We don't have FCA hanging over the top of us or the SEC or the Fed or any of the other one. We're not regulated. It's not that we don't have any regulation, but we don't have anything like with the banks. We're no SIFI or anything like that. So we can move a lot faster. We're way more innovative. We bring out more technology and that's what gives you the retention. It also is what's helping us with price increases because you got to give them something. It's not hey, we're just going to raise your price. Who do you think you are, Microsoft? I know we're not down. But because they just raise your price. So we have to come up with what the pitch is and how we're going to sell it and how much it's going to be worth it to them. And if you do it right, you get pretty much acceptance, especially as they get to keep the same team. You can't have the same team and think you're going to keep paying the same amount. I can't pay them the same amount. I got to pay them more or they quit. And if you don't pay attention to your staff, the first ones to leave aren't your worst ones. The first ones to leave are your best ones because someone is recruiting them all the time. So staff retention really helps with price increases. Having a dedicated team to just go after our top 100 clients, top 200 clients. And so that's something that has really driven our capabilities. I met with the CEO of Henderson. He's brand new. And you're the third highest paid vendor we have. I said, "How do I get to second?" I don't think that's what he was thinking. But that's what I was thinking. And you have to make them feel valued, right, valued. Shouldn't you do it this way? Wow, that really helped us. Yes, we're consultants, too. We understand this very, very well. We have our clients, I think, manage something like $50 trillion in assets. So there's usually not an asset, not a derivative, not a fixed income, not an equity, not anything that we haven't seen 100 times. And we probably screwed it up the first 50 but now we're good at it. And that's what happens. You get happier and happier and happier and that's how Elliott. It's hard. It's really hard to get them. And they've been doing it the same way for a long time. But that's not the best way to do this. But you have to teach and you have to have patience and you have to go through it time and time and time again. And then finally, they go, you see a light goes on and wow, there's a lot easier than the way we did it. I think we kind of knew that. But it doesn't matter what you know until they agree with what you know. That's what we try to do. And we get better at it. And the big institutions don't really get better at it. They're all wrapped up and can't get out of their own way.

That's helpful. Any questions from the audience? Probably pretty good time to open up or anyone -- I'll check, anything on the line? All right. Terrific. We'll keep going then. You alluded to this a little bit but I think it's important. Maybe talk to -- because the margin impact in '22 was staffing levels. Also maybe some of the margin dilution from Blue Prism. You scaled up pretty dramatically, right? But you talk about efficiency with your staff, maybe how Blue Prism can impact the efficiencies because I think one of the things that we think is terrific is, right, some of that lower pick and axe work that your staff don't need to do and you can kind of upskill them, right? And to your point, pay them more without maybe having the same impact on margin as what you might have had historically. So maybe talk to that a little bit and where we are in the pacing of Blue Prism internally at assets. And obviously, there's a pretty important external go-to-market motion but a big opportunity internally as well.

Yes. I think we've deployed something like 1,100 bots so far this year. We'll probably get another 100 this month, probably get to about 1,200. And there's a lot of opportunity left. We've done a lot of acquisitions. We're moving everybody to Workday. We currently run 5 different ledgers so that's a lot of people. And we think our accounting and finance staff will probably shrink over time because we'll get them on to 1 platform. And they're accountants and systems people so we have all kinds of jobs. If they're interested, we'll keep all the best ones. And so we think there's real opportunity by using digital workers getting wiser about how we use them, getting more complex tasks that it can do. And as they come out with next gen of Blue Prism, it will give us additional capability that it can handle more complex tasks. And that's what you want to, again, do is that you want to not lose your expertise in the humans, right? You want to maintain that intellectual curiosity and that expertise and that heft and not get to where nobody knows how to reconcile the Fed wire anymore because it was always done automatically and now the system is down. So that's a bad thing. So you have to have controls and stuff that bores people but you've got to do this, this way. And we stay on the map. We don't get off the reservation, so to speak. And that's what's been very effective for us across the world.

One thing, because, as long as we've covered you, you've been maniacal about cash flow. And again, you've delevered the balance sheet from, I think, 6.5x in 2018 to sub-3. If you look at the pacing of that, I probably don't have it to the dollar, but over that period, it was probably 50% deleveraging, 25% buyback, 25% dividend. More recently with the leverage where you want it, it seems like you really increased the buyback. So maybe any thoughts on capital allocation, given where you are? And you've been much more, I'd say, selective on M&A. Just any thoughts around just capital allocation more broadly?

Yes. I mean, we did the math, right? So if you look at the cash flow that we'll generate this year is about $5 in cash per share, plus we pay $1 dividend. So for every share we buy back, we get $6, right? So $6 on what, $75 or $77 or something like that, that's about 9% or something like that. So 9% is a lot better than paying down 7% debt. That 7% debt, you give 26% Uncle Sam pays, but that 7% is down to, what, 5 3/8% or something like that. And so we like 9% but only like 5 3/8% but people like us to pay down debt so we don't stop paying down debt. We maybe don't pay down as much. So we're probably going to have 65-35 on buybacks versus debt pay down. And again, we're still going to -- if we can find the Batteas or we can find the Blue Prisms and then we'll selectively do acquisitions. But we're not -- acquisitions have gotten way pricey, particularly if you do fund administration acquisitions. They're really, really pricey and interest rates aren't as cheap as they were. So we don't think the opportunity is quite as good as it was when we were doing all the acquisitions. But again, people start following us and doing what we did and then they jack up the price. And a lot of times, Rahul and I would start bidding on things that we knew we weren't going to win, we just want to make sure our competitors had to pay more.

Sounds like [ Wan Soto ]. I'm glad you mentioned competition because maybe talk to that a little bit. And to your point on, I think, the market endorsing your strategy, whether it's SimCorp being acquired by Deutsche Borse, Addenda being acquired by NASDAQ and really healthy multiples. Maybe talk to that a little bit in terms of, has that created any opportunity on that integration or anything across the broader spectrum? Because again, was kind of $86,000 but of -- revenue. But when you look at 2018, the shift in the scale of the business, I think, is a opportunity, really scaling to much larger clients and deliver on that, which we really like because it creates more stability, more retention, more predictability. Maybe just talk to that a little bit.

Well, it also -- our size is now being recognized as well, they're experts still. And now they have whereas we compete against places like Infosys and Tata and other large-scale Indian outsourcers, but they don't have our expertise. I mean, we have, I don't know how many, 7,000, 8,000, 9,000, 10,000 CPAs and chartered accountants. We have 14,000 funds that we do NAVs on. So that's a tremendous amount of expertise across every asset class, across every fund structure, across every geography, across every regulator. That expertise that we bring to the table is pretty impressive. Tax. Tax's a big deal. So one of the things we're working on is how do we get our tax rate lower. So we'll probably start moving some things around and maybe moving more things to Florida because they don't have an income tax. New York with city and state income, I get over 10%, 11%, 12% so it's getting out of high-tax states just like the whole country and figuring out ways to keep more of that money at home.

Two other, and correct me if I'm wrong, but I think it used to be historically, you'd have to hire somewhere around 1,500 accountants a year to service the incremental revenue that you'd have come in, in any given year. I think that number has been reduced. Maybe I think in '24, it was flat. I don't know if it's quite going to be flat going forward, but any thoughts as to some of the leverage just -- and again, it's right, you drive more expertise as some of the lower end things get automated. But any thoughts -- because we always thought one of your real core competencies was the hiring process because it's -- when I started Deloitte, class was 450. I think it's 200 now. So there's a supply-demand imbalance in CPAs, but just any thoughts on what you need to hire to kind of serve the demand, if you would?

Well, again, it's both technical competence but it's also the human aspect, right? You have to get along with your clients. You have to listen, right? You have to come up with solutions. You have to be collaborative. A lot of things that accountants haven't been maybe necessarily the greatest communicators of all time. So you got to teach. I tell all of our senior people, you have to teach. You can't just do. You have to teach, you got to get these people. And the public accounting route where they take you through all the steps, right? But the -- my old boss at the broker-dealer I worked in say they ruin you. But what they really do is they put objective and that's what you do. You go after that objective. And you sort of sometimes don't pay any attention. So you're kind of being harsh and it's better not to be so harsh. You can get a lot done with honey than you can with vinegar. So I think it's remembering that and trying to teach people that smile, I tell you laugh, have a good time. People like to be around people of good cheer. So as many times as you can smile at people. You don't have to frown at them all the time. It's like I tell people, when I grew up in Indiana and we have a huge office in India. The first time I went to Mumbai, I got on a plane. I thought I was going back to Indiana and I ended up in India. That's not true. But it's those kinds of things, right, that you grow and you learn. When I think that we're 27,000 people and we're now about $6 billion in revenue. And that's a long way from 1 person and $86,000.

No doubt. I think we'll close it there unless any last questions in the audience?

We're going to start the exam then. Thank you.

Thank you, all. Thanks, Bill. Awesome.