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

Good afternoon, everyone. Why don't we go ahead and get started. So my name is Jeff Schmitt. I cover wealth tech stacks here at William Blair. I'd like to introduce SS&C Technologies. They're a leading provider of enterprise software and outsourcing solutions for the financial services industry. And it was actually our top pick for the year. So we have with us today Brian Schell, he's the CFO, to discuss the business. But first, I do want to point you to our website for a list of research disclosures and any potential conflicts of interest. And with that, I will open it up to turn it over to Brian.

Thank you, and we appreciate the invite. It's a great conference, a great opportunity to meet with all of you and have a lot of really good dialogue on SS&C. I've got a slide presentation we'll run through here. I'll try to not necessarily hit every single bullet point on every slide. And obviously, I'll go with the obligatory safe harbor statement. And if some of you are newer to the story, I'll still cover some high-level points but still try to get some of those who are existing shareholders and have followed the story for a while, try to tease out some of the finer points about what we do with respect to what we provide and our software for financial services and health care industries. We think it's mission-critical. And we think that's why we've weathered much of this storm that a lot of folks have had to go through. I'd say probably one of the best slides, one of my favorite slides in the deck is this kind of our placemat slide because if there's one slide that I had to talk to about SS&C, this would be it because it really covers our investment thesis, what we do, some of the key metrics and the industries that we serve, right? So as we tried to summarize why do we exist, what do we have is what we want to do and why we have what we have is we think there's value in the depth and breadth of our offerings to financial services clients and to the health care industry. And when you look across the gamut of everything of what we do, right? So there's transaction processing, there's investment accounting, there's trading, there's supporting of operations. There's investor services, there's compliance work. There's analytics that we provide. And again, I talked about the asset coverage that the industry coverage we have, right? We have asset management, we have hedge funds. We have private banking. Anybody who manages or touches assets, we are likely providing a software solution or a software-enabled service to help them do that more effectively and more accurately. And again, focusing on automation and data are all the things that we think are really important. A couple of the key metrics, right? So been in the business for over 38-plus years, founder-led, still our CEO and Chairman of the Board, about a $20 billion market cap right now, 27,000 employees, enterprise value of $26 billion and over 22,000 clients. So a very diverse set of clients, over 35 different countries and closer to $6 billion in revenues in all likelihood in . A couple of other, I think, are pretty interesting metrics that are still amazed by is it's not on the slide, but over $4 billion of AUA that we help provide services for, over 45 million accounts on our transfer agency platform and over 500 million health care claims processed on our SS&C technology platform. So that kind of gives you a broad overview of SS&C and kind of what we do. Just to dig into a little bit deeper, a different look, we've tried to simplify what we look like and what is SS&C by breaking out in these different 6 business units. SS&C has built -- been built on the back of a lot of acquisitions over its history. There's been a lot of organic growth, but also that organic growth on top of a lot of acquisitions. And so we've -- over the last couple of years, we simplified -- tried to simplify our investor story to understand what do we do and what do we look like. And the easiest way to think about that is that 75% of our revenue is generated by 3 of the largest business units, right? So the largest one is the GlobeOp business, which people generally think of synonymous with SS&C is servicing the alternative asset space, hedge funds, private markets, retail alts, those types of assets that are different than, say, the second largest business, which is GIDS, which is more about a transfer agency type of service and related services, that's about another 25% of the business. And then the third leg of that 75% is our wealth and investment technology that's actually referred to as WIT, which again is selling those software licenses and to multiple, call it, segments within the industry with focus on wealth, alternatives, asset management, the insurance market. So lots of really strong offerings and product leading -- industry-leading products. And one of the -- I think the key benefits that we have or key advantages that SS&C has is that we own the software that we use to service our clients. So if there's an edit, if there's a change, if there's enhancements we need to make, there is no supply chain issue. We have it, we control it, and we get that implemented for others. Then the rest of the business, the remaining 25%, think about it, obviously, the 5% with health care that I talked about. And the other 20% are more really 2 verticals. One is the intelligent automation business and analytics that kind of can go across a broad set of industries, primarily financial services. And then the other is many know about Intralinks, which primarily associated with the supporting transactions. Again, product spotlight, a couple of things, and you may have heard of many of these products with respect to the different groups that I just mentioned. Black Diamond, that services the wealth market. It's been probably clearly the #1, I'd say, RA software right now, and we're seeing that continue to grow. Probably the fastest-growing software solution that we do have in our probably our entire portfolio that's of size. DomaniRx is the pharmacy platform, claims adjudication platform that we JV-ed with, have a couple of partners, Elevance and Humana that's processing the claims. I mentioned about Intralinks and its deal center is the primary product there. And then Blue Prism, which is the robotic process automation that was in that intelligent automation piece of the business that I talked about. The other, obviously, 2 large products that are not on the screen here is Geneva, which is what is used primarily to service a lot of the alternative asset base and as -- which many of you probably know with the order management system is primarily associated with, and we've been able to integrate those into many of our product offerings. Some recent big wins, kind of my hair up on the screen. And a lot of these wins in '23 and '24 has led to the strong growth that we've already seen in 2025, starting off the year. I won't read through all the names, but these have been important as we continue to build a foundation going forward. I don't have 2025 updated, but probably one of the marquee wins out there is doing some work in Australia with the superannuation funds and the largest there as far as the revenue contribution to SS&C has been Insignia. To briefly touch on the financials, again, we just popped in a slide of the first quarter just to remind people of the first quarter highlights, a little over 5% organic growth rate. We had a -- excuse me, growth in our EBITDA of a little over 6%, and we had a margin expansion over the prior year of about 30 bps. Again, overall targeting as far as the guidance go, about 50 basis points for the full year. So we're making progress along the way. And then you can see the earnings growth -- EPS growth of a little over 8%. And then we had a really strong cash flow conversion this quarter and grew the cash flow from operations by over 51%, primarily some enhancements in working capital more broadly. Again, being familiar with the SS&C business, we do have a fairly healthy margin business. This is EBITDA margin. We were operating at -- been operating right around 40%, and we were doing that up until '22 and '22 reflects a dip from the Blue Prism acquisition, which was about $300 million in revenue with essentially no EBITDA at the time that we bought it. And so we've completely turned that around from an earnings contribution perspective. And you can see us gradually increasing productivity, leveraging our scale over the last several years, building that up closer to that 40% level with this past year ending at 39.3%. And we generally target about a 50 basis point improvement year-over-year, which allows for continued productivity enhancements as well as an opportunity to reinvest in the business to make sure that we're growing revenues in the longer term, but still providing cash to our shareholders. Revenue retention has been relatively strong at 97%. You can see there's been a little bit of a variation with a few basis points here and there over any -- kind of any of the quarters. We generate around 97%. Again, given the nature of the recurring revenue nature of the business, the stickiness of the services that we sell because they are more critical to their overall operations. And so it's not something that's easily changed. So like I said, this makes it more -- a little bit easier to forecast some of the revenues that we have. But again, it shows to its strength of SS&C and its overall business model. Again, just a quick overview of how we've seen EPS grow over time. The current -- the $5.85 that you see on the slide here for '25 is analyst consensus. And overall, it's been roughly a 5% growth rate going back to '20. You see a little bit of a dip in '22 and '23 on the balance sheet. We had a lot of floating rate debt. And when SOFR spiked -- short-term rates spiked, that took a big dent out of some of the EPS. But you see us recovering back with more top line growth and a stabilization of rates and a reduction of some of that debt along the way as well. If we look at one of the things that we do like to talk about and we like to raise, and this is what we think drives future revenues and future earnings is we still think it's important to continue to reinvest in the SS&C platform. So we like to highlight the R&D spend that we have with the percentage of revenue, percentage of the kind of the more software-related revenue with the licensing and maintenance fees. And so it's a number that continues to increase every year. We want to make sure we're ensuring the growth longer term of our business. The -- I mean, it's easy to take money to the bottom line and not spend it but not reinvest, but we think it's really important, again, to drive that longer-term growth rate. And we think that this is something that is important for us. And if you see maybe any others that you're comparing us to, when you look at the other software organizations, take a look at this line item and make sure that they're keeping up. Again, we think it's important to continue to reinvest, taking that client feedback and putting it back into the product and the services that we have. In the short term, some of the guidance that we've laid out for the quarter is for the full year, we're looking at a little about 4.5% organic revenue growth rate. You can see the revenue range there of roughly $6.2 billion and just rounding there. And we tried to lay out some of the key metrics for the investor community to try to get a sense of what we see happening, what we have visibility to. So we think it's important to lay out our expectations and hold us accountable for what we think is going to go on and as we look into our own operations and try to perform against that. One of the things that we've continued to work on is driving down our tax rate. I think you've noticed that in recent periods and continue to overall manage the cash flow and continue to raise that cash flow conversion. Spending a little bit of time on our 3-year organic growth rate target. We put a number, a range out there, which is admittedly a little bit wider of 4% to 8% as far as the targeted range of revenue growth. And how do we get there? And what are the component parts, right? So we continue to look at what's the growth of the, I'll call it, the share of wallet of our clients and continuing to provide them more and more services. I think it's been a nice big part of that growth. We look at the new products, not just enhancements that we have, but also brand-new products that we think can provide additional services. We look at the cross-sell and upsell to existing clients -- and one of the things we're trying to do now to improve those results is continue to enhance an enterprise, call it, sales team that has knowledge of the entire suite of products that we have versus a siloed approach to a product by product. And this is something I think we're making more traction on. We're supporting that with stronger CRM data across the entire enterprise to make sure we understand who the key decision-makers are and relationship managers, particularly within the larger institutions who they may not know themselves within their own 4 walls who other may be buying FS&C services within their own organization. So helping make that introduction and make that consistent is not necessarily rocket science, but it is gravy work, and we're doing it. So I think we're making some nice strides there. We think pricing can become an increasingly important part of our overall growth story. Traditionally, it's been 1% to 1.5% and we're looking to make that -- that potentially could increase over time as we look to be more strategic and looking at those overall rate changes. I mentioned Insignia with Australia and the superannuation funds, we do think international can continue to be a big part of our growth strategy more broadly organically. And the last part of that is a little bit harder to move, but has been client retention, right? We've seen that number consistently around 97%, but you move that by another 100 basis points, that obviously just enhances your growth right on top of it. So those are things we're looking to do is looking at our client -- our customer service and how can we enhance that efficiently kind of across the board and then implement that where we see the successes. The last thing on this bullet on the left-hand side of the chart, spending a little more time on this page because I want to make sure we kind of cover some of the key growth initiatives is the lift outs, and essentially as outsourcing, rebadging employees and providing services to large financial institutions because we think we can do it at a lower cost, more efficiently and our own services and really leverage the SS&C scale and network that we have. This is actually what Insignia, we would call a lift out where we're essentially taking on 1,400 of their employees and providing those services to them that we believe and hopefully, the outcome there is from the service model is it's enhanced, it's higher quality, more accuracy and more efficient. So that along the way, it adds to our bottom line, it also adds to their bottom line because we're doing it more efficiently than what we were able to do it. As far as the M&A, and this approach is a little bit around the capital allocation approach, but just to touch on it, is the reason that M&A has been important to us is that we do think that while we like the adjacency of the businesses that we may acquire that over time, we think that can continue to actually boost and enhance the overall organic growth rate. If we can, over time, consistently add 1 to 2 percentage points of revenue growth from M&A inorganically and then turn even more of that and then grow from that base into even further organic revenue, that's a real win. And that's what we look for in the transactions. So we're looking for those types of transactions that we can leverage our existing products, our existing cost base, the existing geographies. And again, we're looking to make sure that, that happens in a way that's additive to our revenue growth rate as well as adding to our overall EPS accretion. But the most important thing that in M&A for us has been making sure we have the appropriate price discipline, right? So I know that's a tall order for M&A is to have something that's revenue growth accretive, it makes money, but we're not going to pay a really, really high multiple as it doesn't make sense for our shareholders. So maintaining that price discipline has been really important. So we want to make sure the M&A adds value to our shareholders. I want to touch a little bit on capital allocation. This tends to be one of the larger and probably one of the most important things that we talk about and to make sure that your management team is doing what it needs to be doing is as we think about M&A, absent the M&A -- excuse me, for capital allocation, absent the M&A, share repurchase has been a big priority for us. We recently announced a new share repurchase authorization. We actually announced it a quarter earlier than we normally do. We actually upsized it by 50%. And reading between the lines or what caused that. One is in the absence of the M&A that we think can be accretive to our shareholders, we think it's the best utilization of that capital is share repurchase, particularly where it's priced today. So we essentially had exhausted our previous authorization earlier than anticipated. We continue to increase the amount of cash flow that we do have. So we needed to implement a new program as well as just given our growth and our size, we actually decided to increase the level of the authorization as well from $1 billion to $1.5 billion. So we think that was a pretty positive sign. Absent that, we will also, on the edges, pay down debt. The incremental cost of debt right now is roughly 6.3%, 6.4%, depending on where SOFR is trading. And so that still is accretive to the bottom line. It still helps create additional debt capacity if we were to go out and pursue M&A opportunities as of scale. And this allows us to be able to do that without getting in the way of being able to execute on that transaction. So around the edges, we will do that. We've been able to reduce the leverage ratio to roughly 2.7x now. So we're pretty close to investment-grade territory, not necessarily our goal to be investment grade. We like the financial flexibility and where we are and to be able to lever up to pursue a transaction that we think can be, again, add value to our overall -- to our shareholders. And then the last thing I'll say here is that we will continue to look at the dividend, look at the payout and add to that modestly on an annual basis. But it's not a huge focus of return of capital. One of the items, and this kind of ties it all together with respect to some of the M&A that we've done in these next couple of slides. These are just kind of representative of some of the larger transactions that we've executed. I mentioned that SS&C was -- a lot of it was built on M&A over the last 10, 15 years. And you can see some of the more sizable transactions here, 2018 being a very significant year where a lot of transactions were closed and a lot of leverage was added that we -- and helped generate a lot of the revenues that we see today. But you can see how this has really kind of placed across the board with some of the key businesses that we have today with respect to GlobeOp, Intralinks, Advent Software, which forms the basis of our wealth and investment technology software business. Obviously, DST had a multiple portions of that business with health care within our existing GIDS business. Obviously, you're aware of Intralinks and then as is also part of our wealth and investment technology business more broadly. And then Blue Prism was a foundation of our intelligent automation and analytics group. And then finally, with Battea, which is call it class action litigation services as far as claims and recovering claims for people who own those securities. That's been a real nice win, and we've been very pleased with that transaction. Here's just how we approach M&A and debt capital markets and when we've looked at it is you can see that we've levered up for each of those kind of sampling of transactions anywhere between 4 and 5x. And we've made the commitment to delever to our -- the debt capital markets and the rating agencies with levering down, focusing capital allocation to get to a, call it, a more manageable level and acceptable level. And so this is the financial flexibility that we like to have. We think this, again, can add value to shareholders versus necessarily buying something with equity. We like the idea of using debt. I was recently at a debt capital markets conference and they would like to see more debt. So they're anxious to -- anxious in a positive way. We would like to see some more acquisition activity, obviously, soon it makes sense so they can actually want to invest in more paper, I'll be honest. So they're a little bit selfish in their wants there. So not to blame them. So again, this is a slide that kind of indicates our approach to capital allocation and leveraging that market. That concludes the slides that I have prepared for you today. We're about 5 minutes early. I don't know if you want to turn to questions or we just save that for later.

Yes. If anyone has questions, we have 5 minutes here. So feel free to, okay.

Your organic growth that you guided to for the second quarter, 2.5% .

Yes. So for -- I assume everybody can hear the question, but basically asking about our 2Q forecast for guidance for organic revenue growth. And we knew going into the year, when I look at back where we were at the end of last year when we set out the full year guidance and looked at how do we think the revenue growth rate was going to fall. We knew 2Q was going to be a lower growth rate relative to the other quarters, certainly the first quarter and the second half. And we're not officially or formally changing guidance on the 2% -- roughly 2.5%. I would say that there's probably less uncertainty around market dynamics or people have gotten used to some volatility around whether it be the market changes, administrative changes, the potential tariff battles. So we've not seen any slowdown in the dialogue with people's commitments to wanting to transact with us. So that negative, which we didn't see at the time has not surfaced. So that's the good news, the absence of that negative. So we'll see at the end of the day, if it proves to be conservative, I only have 1 month so far in my head or the second month here soon as far as closing out the quarter. So right now, we hope to it proves to be conservative, but we'll see. There's nothing negative that has surfaced that makes us change that guidance right now.

For the year, is Insignia in that organic $35 million to $70 million of revenue for, You hear me? Yes. So Insignia, I think you're projecting $35 million to $70 million of revenue. And so if you sort of back into your numbers and you look at it, you're basically projecting 5% organic in the second half, but at least a point of that is from Insignia, if not a little bit more. So it's kind of guiding a little softly or at least at the very bottom of your range.

Yes. So the Insignia is the $35 million to $70 million, $35 million was reference to just the -- was the, call it, the second half results, so only half year. The $70 million would be the annualization number of that. So that is in our guidance. So that explains some of the strength and confidence in the second half of the year, some of the growth rates. The other remaining portions of why do we feel confident about the overall growth rate for the year is, again, just looking at pipeline, where they line up from the other transactions. I mentioned Battea and this is kind of more math than anything else, but it becomes organic in its growth in the fourth quarter, so the second half of the year. And it's set up to be a stronger fourth quarter, say, than the prior year as we look at it -- the pipeline of cases and looking at the history of settlement and when that occurs. The courts like to kind of clean up a bit in the fourth quarter. So we typically will see a stronger fourth quarter as the strongest quarter of any of them. So it tends to be a little bit lumpy. So we try to forecast that and try to bake that in. We have really good visibility over a 2- to 3-year perspective. And sometimes on a quarterly basis, it's a little bit more challenging because some of that rev rec is dependent on the court's decision to basically -- for some repayment. So those are the things that we're looking at, I think, that gives us confidence in some of the growth rate numbers.

So the breakout will be in Ginnie A in 10 minutes.