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

Thank you all. My name is Matt Roswell. I'm part of the payment processing and IT services team here at RBC. And it's my pleasure to welcome Rahul Kanwar, who's President and COO of SS&C; and Justine Stone, who is -- it's great to see, and I always forget your titles.

Head of IR.

So I guess we're asking everybody this question and that a lot of macro volatility out there. What does demand look like? And as part of that, could you kind of go through each of the business lines?

Sure. Thanks for having us. We really appreciate it. I think, the thing that we would highlight about our business is we tend to have really sticky products and services that are, for the most part, mission-critical. So we have the world's biggest fund administration business. Those funds need their NAVs almost regardless of macro climate. We've got a big transfer agency business, very similar kind of thing. We're doing portfolio accounting, tax reporting, regulatory reporting, essential. So for us, where we primarily see some of the macroeconomic effects are, maybe, a little bit in our -- some of our more transaction-oriented businesses. So we have an order management system and depending on how much volatility there is in the market and are there more transactions or less transactions. We've got a business called Intralinks, which is the leading provider of virtual data rooms for the M&A and due diligence process. There will see some impact depending on what's going on in the M&A. But for the most part, our business has been really healthy. And while our customers are clearly concerned about what's going on with political environments and world markets and things like that, it doesn't really have that corresponding effect on our business.

Can you remind me what percentage of revenue is tied directly to asset levels?

It's, sort of, one of those numbers that's hard to get at. And the reason it's hard to get at is even in customers that are directly tied to AuA or have an AuA component, they still have minimum fees and transaction fees and fees for specific services and generally floors and things like that. So we have some impact of AuA primarily in our fund administration business and in some of our software businesses where we're charging based on AuA, but it's pretty small.

And is volatility just in general, is it positive or negative in terms of demand?

It is -- in general, it's positive for some of our businesses. And so it's positive for our, as order, management system business, as one example. And for the most part, it's relatively neutral.

Okay. What are you seeing in terms of like the sales cycle and the implementation cycle?

Healthy demand. We've gotten -- in most of the markets that we're in, and most of the types of things that we're doing, we're the world's biggest fund administration business. We're the leading provider of data rooms. We've got a suite of technology products that we sell out to asset managers, which -- products like Advent, Geneva and others, which are leading products. So for the most part, when people do RFPs, they're looking at us, right? We're on that list. And then obviously, we have to execute and we have competition. But pipelines remain full, and there still seems to be a healthy buying environment.

And what about the competitive environment, sort of, thinking about each of the business lines?

I think that, that's one of those attributes of healthy markets, right? There's a lot of competitors, and our competitors kind of fall into maybe a few different categories, depending once again on what business. But on the one hand, we have the large custodian banks and many of them are also customers. And they obviously have some positive attributes to their business. But usually, our competitive differentiator is that, when we're talking about software or technology-led businesses, we can build technology a lot faster than most of those very heavily regulated type organizations. And we can -- and that innovation then translates into practical applications a lot quicker. So that's kind of one element, the big custodian banks. We do have another type of competitor might be, sort of, the smaller FinTech type start-ups, things like that. And what we're increasingly seeing in our 22,000 customers around the world is bigger customers, bigger mandates. They want strategic partners. They want people that can do not one or two things for them, but 15 or 20 things for them around the world at scale. And so we've got that going for us. So we're kind of in the sweet spot where we're still nimble enough to be able to innovate at a rapid clip, but big enough to be able to provide scale around the world for some of the bigger organizations.

How often are you competing against, I guess, the term in the day seems to be inertia. So in other words, the client has a system that's okay, but it's 10, 15 years old, et cetera?

Every day.

Every day.

Every single day, right? Because you're almost always -- unless it's a brand-new organization, you're almost always displacing something. And that's something that you're displacing at least half the time, if not more, is -- has an element of homegrown, built internally, private ownership, people that don't want change, all those kinds of things. In some ways, the -- what's happening with technology is making that easier, because the odds are stacking up against those arguments for, let's just -- this is fine or we can do this thing, because a lot of times, they'll say, all right, we need this piece of functionality, and they'll go get a quote for an internal build. And they'll say 3 years from now, maybe and nobody believes a 3-year estimate, right? Whereas if you come to somebody like SS&C and it usually already exists. It's been deployed, it's market tested. And so that's a much better argument.

Let's move from demand to organic growth. That's always been one of the kind of -- investors have always questioned the organic growth. They want to know what the numbers are. You did -- I mean, first quarter, you did great, 5.1% overall for the company overall, 5.9% if I just look at recurring financials. So I'm excluding the healthcare business. Don't worry, we'll get into healthcare later, of course. But the 2Q guide was -- is about 2.5% at the midpoint. I'm reading my notes correctly, without my reading glasses on. So I guess, why the slowdown in the second quarter? And then why the acceleration that's implied in 4.4%, 4.5% at the midpoint for all of FY '25? Can you walk us through that?

Yes, I'll take that. To begin with, Matt, I think, when we're doing our planning and our budgeting process and our forecasting, we're really looking for a full year target that we're looking to hit. And there can be some variability depending on which -- depending on what happened last year, license deals sold, what quarter can be the strongest quarter. And typically, what we see is Q1 is strong from an absolute revenue basis, because we do have some additional services that we perform in Q1 on behalf of our clients like tax services and financial statements. And then Q4 is typically strong as people are wanting to spend their budgets before the end of the year and before they reset. So when we did our budgeting process at the beginning of the year, we always knew that Q2 was going to be a bit lighter than Q1. And then, we did see strengthening in the back half of the year due to already sold deals that we know are coming online. And Battea, which has been an acquisition also becomes organic at the end of Q3 and fully in Q4, which we think should be additive to the growth rate as well. So there's a little bit of that. I mean, we think our businesses are still performing, kind of, where we saw them at the beginning of the year. The one that maybe doesn't look quite the same is Intralinks. We don't have quite the strength from M&A that we thought we were going to have in '25. But we are seeing a little bit of an opportunity for that to come back modestly in the second half of the year as well.

GlobeOp had, what was it, 10% organic growth plus in the first quarter. I mean, that seems awful fast for that business. Was it?

That's kind of in line -- I mean, that's kind of in line with maybe on the high end of where we would expect GlobeOp grow. That business has gotten better and has strengthened over the past 5 years. So the growth rate has ticked up a little bit, but we expect on an average year, 7% or 8% growth. If things are a little bit better, like in Q1, we do have those additional services. We have won some larger clients over the past couple of years. They're fully ramped up now. It can do a bit better than that 7% or 8%. And if we're really seeing maybe a slower down in fund launches or something, it might come in a little bit below. But anywhere in that range, we're comfortable.

That's the fund administration business.

Yes, correct. Yes.

Just in case using them.

No, where we're really seeing strength in fund administration has been in the private markets, continues to grow over 10%. And then a smaller piece, but is growing pretty fast is retail ops.

Digging into the private growth in fund administration. That's something that you've been talking about for a while. What is -- it seems like it's finally getting its momentum. What's been the change?

One part of it is that, it started out as being a small part of our fund administration business. So as it's gotten -- because it's been growing faster, as it's gotten bigger, it has a bigger impact on numbers. So today, it's probably 30%, 40% of our administrative.

Yes. I'm sorry. It's 30%.

Yes. So, that's more meaningful than it was 10%. But on the whole, in private, one, there's still a fairly healthy appetite for private credit, private equity, oil, natural gas, you name it. There's a lot of funds being launched still. And then what we do, which is a blend of fund accounting and technology is somewhat unique in those markets, particularly in the private markets where the traditional accounting/administration was very excel and kind of manual focused. And so, we've got a -- we've sort of got a natural tech advantage. And then the fact that the markets have been healthy and a lot of people are doing it themselves and they're trying to get away from doing it themselves has been good for us.

Yes. And I would say where hedge fund is probably in close to 100% penetrated in terms of a third-party fund admin. Private markets is probably maybe less than 50% still. So there's still a large number of very large private equity and private markets firms that do it in-house. And increasingly, they're looking to outsource more. And it might be a fund at a time, a new fund launch, maybe if they're launching private credit or it could be kind of a function at a time. So there's more opportunity to get deeper within those organizations.

Pivoting a little bit, the Australia lift out. Where do we stand? And what's attractive about that market?

Well, there's a lot of wealth in that market, is one part of it. Sophisticated customers, we think pretty discerning buyers of technology and high-quality services. We've been in Australia since the mid-'90s. So we've been there for a long time. We have a number of different products and services that are sold in Australia, including fund administration, transfer agency, wealth management, obviously, what we're doing for super funds now and a number of our software products as well. I think, what's attractive to us primarily is that it feels to us, at least what we're hearing from the folks that have selected us and the prospects that we're talking to, is the market is somewhat underserved in terms of kind of who the competitors are and how sophisticated their offerings are. So we have to obviously be successful at implementing and getting live and getting referenceable some of the big deals that we have won. But they're looking for us as a viable alternative and somebody that can really help them in that marketplace.

Have you sized the Insignia deal?

Well, we have a variety of different estimates. But yes, we expect it to be fairly material for us in Q3 and Q4 and onwards.

And you mentioned other mandates. Can we expect to hear announcements? Or is it going to be more of a non-disclosure where...

No, we've done some announcements. Most of the announcements we've done so far, the mandates are smaller, but it's -- so it's not so much that individually, they will greatly move the needle for us. It's just when you put the story together, you've got some momentum here that we think we will be able to sustain for a period of time.

Okay.

And I think what the big outsourcing or the big lift-out deal gives us is a really strong presence in the region, a really strong outsourcing presence that we could do organically instead of through an acquisition. So we'll have however many 1,400, 1,500 people.

1,400 people.

1,400 people, that know the -- are experts, know the industry, know the client base and the work that needs to be done, and we're going to be able to expand and leverage that workforce.

You mentioned the competition in Australia. What sort of firms are they? Are they the custodial banks, like you see here or?

Yes, there's some custodial banks. There's some stand-alone kind of independent firms. There's -- I'd say more service firms than pure technology firms. And that tends to be our advantage, which is we will have service combined with technology. And over time, when people are looking for outcomes, when they're looking for cost savings, operational leverage, a better experience for the ultimate -- the end client, technology makes a big difference.

Are there other markets that look kind of like Australia, where you have large funds?

We're also pretty bullish on kind of our opportunities in the Middle East. The sovereign wealth funds and some of the other big organizations there are, are pretty big consumers of what our clients produce around the world. So they're big investors in alternatives. They're big investors in traditional asset managers. They're big investors in real estate and infrastructure and things like that. And so we have been able to get some standing with those organizations, and we're, in many cases, their administrator. So as they deploy more capital around the world, we think that's a pretty good opportunity for us as well.

Okay. I promised we would get to healthcare. Now are the healthcare questions.

Fire away.

Had strong organic growth in the fourth quarter and then returned to kind of flattish down a little in the first quarter. What happened fourth quarter to first quarter? And then how should investors think about it, organic growth for the remainder of the year?

I think, we're expecting flattish to slightly positive for this year as a whole. The thing to remember, and this is true for really all of our business is -- and maybe it's a little more stark in healthcare is it's a mix of license sales as well as recurring revenue tied to services. So if we have a big license quarter where we have two or three deals hit at the same time, which is what we had in Q4 last year, all of a sudden, it pops a little, right? And then, if we could, maybe those license deals that we had one or two in Q1, Q1 would have been slightly positive, too. But we don't get to control that too much. And as Justine was talking about with respect to fund administration, we're really just looking at it a year at a time. But also more importantly, we are looking at what's the overall trajectory. And we do think that the healthcare business is strengthening. We think that this new platform that we built, DomaniRx has now processed over 200 million claims. So new software at scale being used all over the market. And so our opportunities are outsized relative to the size of the business that we have.

You mentioned DomaniRx. Can you give a little brief overview? And then are there any milestones that investors should look to for the next couple of quarters?

Sure. So we built with some partners that are large health organizations, Humana, which is a really big customer is probably the one that I would highlight. We built a brand-new system that's cloud native. So, and it runs kind of off of APIs to process pharmacy claims in the United States. So this is the system that sits on the desktops of the -- whenever you go fill a prescription, kind of this is what checks the prescription, it validates it against the formulary, figures out what your payment process is with the insurance company and facilitates the entire transaction. So it's a fairly important piece of technology that obviously has millions and millions and millions of things going through it. Most of the software that is being used to process these kinds of things is very, very old. It's -- and so nobody has built a brand-new system and then been able to deploy it to do hundreds of millions of transactions that we're aware of. There are some new systems out there, but they don't nearly have the scale or the volume tied to them. So we've got a proven new technology at scale, and we've got lots of people looking at it.

Any milestones?

I think the milestones to think about are each year, each plan year or each -- the start of the calendar year are sort of big selling motions for that. So I would certainly look at the start of next year and the start of the following year as kind of big opportunities for us to meaningfully change the trajectory.

And the competition, you mentioned, everybody seems outdated.

Yes. And it's outdated and there's conflicts all over the place, right? So some of that is the big health plans themselves have their own technology. They try to do it for third parties, but then you end up with these conflicts where you're giving your data to a competitor, things like that. That's a part of it. You've got some start-up what would be the equivalent of FinTech, but healthcare start-up type companies, technology companies that are -- they're having a hard time getting the traction.

And I think what -- where we benefit is that, yes, Domani is a brand-new built from the ground-up system, but RxNova, which was kind of our legacy healthcare pharmacy claims systems, works perfectly fine and handles a large number of pharmacy claims on it already. So we already have that as kind of a starting point for being able to grow on top of that. So -- and we built Domani not just in a vacuum, but with a partnership with two pretty influential healthcare partners, so that we knew the specifics of what they needed and what goes into actually doing this kind of work.

If we take healthcare over medium term, how should investors think about the organic growth?

I think the way to think about healthcare is, today, it's a relatively small part of SS&C and with an outsized opportunity, right? So it's not just think about the healthcare organic growth rate, which we obviously expect to improve from here. But it's also -- can healthcare as a business meaningfully add to SS&C's organic growth rate, and that's how we think about it.

Okay. And you think it can add to -- company?

Yes.

Excellent. I haven't asked about margins yet. Historically, you guys have gotten great margin expansion on an annual basis. Is there still additional levers to pull?

I think so. It's both. We think, we have leading margins in most of the markets that we're in. Most of the people that we compete with, our margins are quite a bit better. At the same time, we're also well aware that there's lots of people that work at SS&C., there's lots of repetitive processes. There's lots of ways in which we can bring technology to bear. So we've been at this -- we acquired Blue Prism as in 3 years ago, and we've been at this process now for maybe 2.5 years or so, to be able to take our own technology that we now own and put that through the organization. And our estimate is that we have saved about 2,500 people, which is roughly 10% of our workforce, almost 10% of our workforce in terms of not having to add as we grew. What it's also done for our employees is it's made their jobs better, because we're taking out the lowest level of processing, right? We're taking out the routine, the sort of in the trenches day-to-day type work and making their jobs a little more analytical, a little more client focused and client facing. So it's a really good story, but we would also say that we're kind of just getting started. Right? So we've got margin opportunity and opportunity to keep deploying that technology for a long time.

And I think for this year, it's about a 50 basis point improvement for the full year. And that's kind of in the range of what we would expect annually.

Okay. You mentioned Blue Prism and deploying it internally. When you bought Blue Prism, it had about -- if I'm remembering correctly, about half its clients were outside of financial services. But what have you been seeing with selling it outside of kind of your core market?

I think the mix. The mix today is very similar, where financial services is obviously a big part of the client base. And depending on whether you do it based on number of clients or revenue, it's still a little less than half. So the other half is everything other than financial services. That is still -- we've got lots of healthcare applications primarily, because we have a little bit of a healthcare presence ourselves. But we're in every kind of manufacturing company. We're really all across the industry.

And demand is still strong?

Yes. We're not seeing anything disproportionate in terms of the client base.

And who does Blue Prism really compete against?

It's the -- it's a variety of things. There's homegrown automation technologies. There's some other robotic process under Automation Anywhere, a couple other ones. I think some of the big tech players are getting into it. And then, more and more, the trend is Agentic AI and just taking advantage of some of the more recent AI-type technologies. And that's, we think, a pretty exciting area for us.

Do you think your clients' data is sufficient? Or I guess, strong enough to actually run some of the more modern AI solutions?

So there's a couple of fundamental things that you have to have to build a solution that will actually work, right? It will be more than just a science experiment. And one of them, particularly when you get really sophisticated and you talk about agents, is a deep understanding of the actual workflow that you're trying to process, right? And that's not just one flavor of the workflow, it's the hundreds of thousands of different, which I think really is your question, right? You kind of need to know what happens when something deviates from the norm even a little bit, right? Because that's usually when most of these models break down. The advantage that we have is while any one of our customers individually might not have the entire spectrum or the entire landscape of possible things that can happen. So the large data set that then trains the model, we do, right? Because one, we've got all those customers, but we also, in most cases, are large processors ourselves. So we've got firsthand knowledge. So where software companies, in general, are learning from their customers, and we have that as well, we're also learning from ourselves. So we're providing them with sophisticated models that ought to be able to do everything they have and then some. So that when you get that errant piece of data that breaks the model, the system is already learned.

As we think about you deploying Blue Prism and AI internally, how are clients looking to kind of share in those efficiencies? I'm getting to the sort of the pricing question as well.

Yes. And look, we have maybe not specific to Blue Prism, but -- and I'll come back to Blue Prism in a quick second. This is the age-old question, right, which is as we get more efficient, do we get demand for some of that efficiency to be passed on. And it's a pretty natural -- you would think that would be the case, except that's not the case. It never has been in our business going back 20, 25 years. Fund administration is a great example of that, which is, as our products have become more sophisticated, our margin has improved, our technology is getting better. We're not getting a lot of demand for savings back when we get that individual, but those are ads driven by the unique circumstances of that particular fund or that particular client. And a big part of that is, for the most part, the things that we're providing are relatively cheap compared to their operating budgets and what they're spending money on, and they're also extremely essential, right? So this isn't -- it's not commodity stuff. It's really high-value expertise-driven technology that is mission-critical to them. And they would just assume it work well and pay you a little bit more than try to fight you over pricing and have you be unhappy and create some potential disruption. And that's been -- we think that applies to all of these things.

And I think, for the most part, the things that we're doing that essentially end up saving us money and making us more efficient. It's making their processes more efficient, more accurate, faster. So they're getting a better product as we deploy digital workers and RPA and AI throughout our processes.

I'm going to switch gears again. You mentioned the Battea acquisition. It goes organic third quarter, I think?

End of Q3.

End of Q3. Could you remind us what that does? And then can you kind of use that to talk about the current AI -- M&A environment?

Sure.

AI on the brain.

So Battea provides Class Action Services and in particular, for investors. So funds, whether that's hedge funds or traditional asset managers or really anybody that has a portfolio. And the technology as well as the expertise is, they scan your portfolio, try to figure out if you're entitled to potential class action money, because some of those companies have some litigation against them or whatever the case may be that pays to the benefit of investors. And then they go and facilitate the process of getting you in that pool and shepherding that through the process and making sure you get paid and then they get paid as a result. So that's the business. We think it's a natural adjacency in particular to our fund administration business. But really, many of our businesses, our customers are investment organizations. So they run portfolios and many of them don't pay attention to this part, and it's sort of a -- it's almost -- it's free money, right? It's -- if you spend a little bit of time and you have some experts do it for you, you get something that you weren't getting before. So it's been a good acquisition for us. We're doing pretty well with it. The introductions and the cross references that we've made with our fund administration business have been -- they've been really well received, and we've signed up a large percentage of the clients that we've approached so far. So that part, we're really positive on. I think, the larger kind of the comment on the M&A market in general, look, we're seeing -- it doesn't have as much impact on Battea directly, because Battea is much more on the -- what the companies are doing within the portfolios. But we're seeing a little bit of a softening as it relates to that in Intralinks, as Justine talked about. But even there, it does feel like there's some hope in terms of kind of what we would expect to see in Q3 and Q4.

And what about SS&C acquisitions? What are you seeing in terms of targets?

Yes. I think that -- we obviously just put out a press release about our stock buybacks that we announced it a quarter early, and we upped it by 50%. So that obviously indicates that we are still pretty bullish on our stock and directing capital towards buybacks. In terms of the M&A market, we still look at everything. And if there is something that fits kind of our criteria and at the right valuation, something similar to Battea, perhaps a little bit bigger, perhaps a little bit smaller, we would be interested in doing that and kind of building out offering for the long term. But it has to fit our -- the financial profile that we're looking for, growth accretive, ability to get to our corporate average margins and at a fair price, not -- we don't look to spend 30x EBITDA for some of these companies.

Good to hear. Well, thank you very much.

Thank you.