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

All right. We will go ahead and get started. Thanks, everybody, for joining us this afternoon. I think it's rainy outside right now, so you're all stuck inside with us. But I think you'll hear a good story here over the next half an hour. I'm Patrick O'Shaughnessy, the capital markets technology analyst here at Raymond James. And up next, we have SS&C Technologies. And then on their behalf, we have Chairman and CEO, Bill Stone, Founder, Chairman and CEO. Bill is going to go through a handful of slides, and then we'll do a little Q&A after that. So Bill, welcome.

Thanks. Thanks a lot, Patrick. And thanks, everybody. Appreciate you coming out late on whatever the day is. I think it's Tuesday, but I appreciate it. And I think other than software companies now not having any terminal value, which as you guys might imagine, I think it's probably mostly bull*, but we will go through why and then hopefully be able to explain that from a standpoint of SS&C, this -- so there's a safe harbor site. So I'm not sure you guys think 1,000 of these are about the same. So we're a leading provider. And why we say that is, is that we have 23,000 clients in 100 offices in 40 countries, and we have about 200 products and services. And we bought Blue Prism in like March of 2022, so about 4 years ago when we got deep into RPA and machine learning and natural language processing and so forth and so on. And we deployed more digital workers and SS&C than Blue Prism ever deployed in their history and faster than they've ever deployed. So we deployed about 4,000 in about 2 years. And it's really saved us a lot of money. We think, I believe, over the last a couple of years, 3 years, we've added about $1 billion in revenue and not any headcount. So we think that as we go forward, we think we have a big moat. I mean everyone thinks that AI is going to eat everyone's lunch. And I don't think so. I mean I think this has taken me 40 years to put this together. And we -- like I said, we do a lot of things for a lot of people. So one of our clients is Millennium, and they might do 5 million or 10 million trades in a day, and you better get them all in there and you got to get them processed and you got to get it ready to trade the next day because there's 5 million or 10 million more coming tomorrow. And so we do those kinds of things for big sophisticated places. big clients of ours are like Capital Group or JPMorgan or Fidelity, T. Rowe, Raymond James. And again, it's being able to handle sophisticated portfolios with high IQ people, high IQ clients and low patients. So we do that. We do lots of things throughout this -- we do derivatives, we do mortgage-backed securities. We do every kind of fixed income and every kind of option. And so that's what we do. We try to do hard stuff because we think it's harder to replicate that. And we have 6 different business units that we're kind of chopped up into -- and each of the ones on the left do about $1.5 billion, $1.6 billion in revenue. And then we have 3 other on the right, intelligent automation and analytics. We have things such as Blue Prism and algorithmics. We own a company that does structures municipal bonds called DBC. We do one that does timeshare wares for like Marriott and Hilton called timeshareware, very innovative name. And we have Intralinks, which is, I think, the largest M&A, virtual data room. So we have thousands of customers in Intralinks. And SS&C Health, which gets more questions than maybe ought to, we have 5% of our revenues there, but we really like the opportunity in health. We think it's one of the largest industries that really need accounting and systems, and that's what we do. And so now we're a big pharmacy benefits manager claims payer. We're not a PBM, but we're a claims payer, and we built a product called DomaniRx, and we think we have a great opportunity. We run at 31% margins in that business. So we're not like we're hemorrhaging or anything. And we think that that if we can do to the health care industry, what we did to the fund administration industry, we have an opportunity to build a multibillion-dollar business. So that's what we think. AI, as you've all heard over the last 6 weeks is the death now for all software companies. So now we're a services company. We don't really do software. Everybody can pivot, right? So -- but we really do things that are very difficult. And we do it at scale. And there's things that we have helped like St. James Place in London that they're RIA and the big RIA here in the States might have 100 people or 200 or 300 St. James Place has 5,000. So they're doing lots of trades for a lot of different families in the U.K. in Australia and Scotland and so forth and so on. We also really think that Agentic AI and the other large language models are going to change a lot of what we do. But I tell people all the time that the only real technology that's changed all of our lives has been this one, right? Everybody hates to lose their cell phone. I'm too old, but we used to hate to lose our wallet, but now we hate to lose our cell phone. And I think that's probably what's going to happen with things like AI. All of us use the Internet, we use it all the time, but to change your life, really change your life. I doubt it. And is AI going to change your life? Maybe, but it's not nearly a done deal. And that's the thing you have to see how it plays out. And most of these things, depending on -- they're all spending tens of billions of dollars to build out infrastructure and build out data centers. And pretty soon, it will take too much energy or will take too much of this or take too much of that. And all of us will have Broadcom knocking on our door asking another $300 million, right? It's like, well, only paid you $100 million last year, but we went $300 million. And that's when we'll have to go see some antitrust lawyers or something. We do acquisitions. We do acquisitions when our clients want something and we can't build it fast enough for them. So we'll go get it. And we'll integrate it into our workflows and make sure that it's what they want because we're really a customer-centric business. And when you have 23,000 of them and you want to keep them, you better be willing to talk to them. You better be willing to answer their questions, you better be willing to meet their needs. And that's what we've done pretty well. We bought DST Systems in 2018. They had 14,400 people and 1,600 contractors for about the next 4 years, I was in the desert breaking rocks. So changing that company and changing that culture, we finally are making progress. So our global investor in distribution systems, GIs is $1.6 billion, $1.7 billion. It was negative growth. But last year, it was up 6%, 7%. This year, it's going to be up more. We won a piece of business in Australia called Insignia that pays us about $100 million a year, very demanding, but we're doing a great job for. And that's what changes the entire kind of outlook. We have something called Black Diamond. As I said, it has about 4,000 clients, has over $4 trillion in assets on it. And we bought the wealth business from Morningstar and added 600 clients into Black Diamond last year, and it continues to grow at double digits. And we have integrated it with our trust system. And so now we're teaching the money managers, the wealth managers that, look, your best customers are going to get old like me. You might get rich, but I'm going to give my money away. I'm probably going to give it to my kids or my grandkids, and I bet they go into trust. And if you can't do trust accounting, then you're going to lose your best customers. And these people that manage wealth, they don't want to lose their best customers, and so they won't. So they will come and buy our stuff. And that's what we constantly -- we just did Calstone, -- we spent over $1 billion. They have 5,000 funds on their network. They're big in tokenization, and they're also big in ETFs and mutual funds, all areas where we're a big player, and now we're bigger. And I just think that we do things like Batteo, which does class action processing. And we can find people money all the time, and they're always happy because we just send them checks. We take a little vague for ourselves, but it's very minor compared to like Broadcom. So we really think AI is a way more of a tailwind to us than a headwind. Are there risks? Of course, there's risk. There's risk all the time. But you build up a business over 40 years and you have clients that you've had for 35, 40 years, and they know they can count on you and that we're going to accurately do what we say we're going to do, and we're going to protect them just like with AI, we're not putting AI in our products without guardrails. We put it in a box that cannot get out. and that allows it to secure. You won't secure AI. And if you don't think it can hurt you, I think you're mistaken. I was in Abu Dhabi a few weeks ago, and they had a Formula 1 race and everyone is talking about it. And I know those Formula 1 cars, they're really fast. And they don't just have a gas pedal in those cars, they got to break. And if you start using AI and you don't have a break, you're going to find out that that flying into one of those walls hurts. And I think that's something that people get all excited and then maybe this thing could hurt us as much as it could help us. And I think that's something that people have to pay attention to. And then they go, you're just an old auditor. Well, mostly, I'm a salesman. I did pass the CPA exam, a long time ago and you had to use a pencil. But I think this is what we do as a company. I think we embrace what we do. We like to win. We're unapologetic. We're capitalists. We -- I hope Mami does great in New York City, but I'm still a catalyst. And I think that the things that we're doing across all of our AI and all of our automation first stuff, I think, is really important for our company, and it gives us an opportunity to really excel more so than our competitors and that we've invested a lot more money. We spent $500 million in cash on R&D, plus I think we've spent $11 billion or $12 billion in acquisitions over the last few years. And so we're investing in our business constantly. And we recognize that the world changes and changes pretty fast, and you have to be pretty nimble. And if you're not, you get run over. And that's the nature. As I tell people all the time, starting a fintech company is not that difficult. building SS&C might be a little more difficult. But any of you have an idea and you have a programmer, you can build an app and you get somebody to buy it. And if they really like it, there'll be a reference and you can sell another one. And you could sell another one and sell another one. And now we have 2,000 people that are selling all the time. And again, the business that we bought, we bought GlobeOp in 2012, I think, and they were a public company traded on the London Stock Exchange. And they were going to go private with TPG and one other private equity firm, and we thought, wow, this is -- they're stealing one great thing about U.K. takeover rules is that you can put in a superior bid and they have to take it. And so we did that in one Clowop. We did that one FMC. We did that -- another one down in Australia. When we won Insignia in Australia, we took 1,400 people from them. Now we have 3,000 people in Australia. It's a great market. And we think that we have opportunities throughout that to do more and more. And we think that, that's a real opportunity to really -- like I said, we have $400 billion or $500 billion in superannuation assets that are on our systems, and it's a $4 trillion market. And so we have a really great opportunity there. And I think it's stuff that, again, we're solving people's problems, and they trust us and they ought to. We're not perfect by any stretch. But when we screw something up, we tell you. We don't duck and we fix it. And we don't fix it. We might as well duck. So it's something that we take very serious and we take our customers very serious. We make a lot of money. That's what we're supposed to do. I think our adjusted revenue, obviously, in Q4 '25 was $1.654 billion. It was up 8%. We generated operating cash flow of $1.744 billion. We have about 250 million shares outstanding. That's about $7 a share. So our earnings turn into cash, and we think that's important. As people at SS&C, Bill, you're like a fanatic on cash. I said, yes, they accountants, they lie. You got to look out for those accruals, and they sometimes don't turn into cash. We have a high-margin business model. We do run at 39%, 40% margins, and we have opportunities to grow those. We think AI will help us. We have thousands of people that do reconciliations, we think we might be able to cut that down by a minimum of 50%, maybe as high as 90%. We have to see if it really works. Everyone says it does. Of course, I would suggest that proof is in the pudding. So we have run this way for a long time. I think we'll continue to run this way. Why not kind of? So we have added assets under administration in our hedge fund business by $637 billion in the last 2 years. I think $637 billion by itself would be a top 10 fund administrator. So we're the biggest. We're getting bigger and stronger, and we have the best funds and we do the best work, and that's why it keeps growing. We spend money. We spent $729 million, and the guy that runs our CTO is -- he likes to spend money. He finds all kinds of little gadgets with lights that shine up and all that kind of stuff, but it runs pretty good most of the time, too. But we have a fund administration business which uses our Geneva platform. We also license our Geneva platform and 41 other fund administrators run Geneva, like big ones like State Street and Bank of New York, BNP Paribas and a bunch of others. We are pretty focused on our shareholders. One reason is I'm the largest shareholder. So we really focus on some of our shareholders, particularly. But we think it's important to take care of our shareholders, shareholders, employees, communities, suppliers. Those are the people that really matter, and we have focused on them for a long time. We repurchased over $1 billion of shares in '25. We think that's about what we'll do in '26, maybe a little bit more. And we pay down debt, and we look for acquisitions. We like good acquisitions a lot. And then we were a General Atlantic Partner company for 8 years and a Carlyle company for 9 years. We know all the tricks. So we can kind of deploy money like private equity guys. Our earnings per share in '25 were $6.14, and we're going to expect to do $6.86 in '26, and we'll make more than that in '27. Guidance, which is always fun. But we think we'll do 4% to 8% organic revenue growth, and we'll add a couple more points in acquisitions and continue to grow and continue to throw off tons of cash. So that's pretty much who we are and what we do. We have our tax rate is about 21%, 22%. We hope to make that lower if we can. but we don't run the business to save taxes. Thank you. Enough already.

Thank you have a seat. I think one of the things you said was really interesting that you guys have grown a lot in the last 3 years, and yet you've not really added any headcount and a lot of that's because of AI-related productivity that you've seen. How has that translated in margins? How does it translate to your ability to invest in technology and other things?

Yes. I think primarily, it's allowed us to maintain our margins at 38%, 39%, 40% margins. At the same time, we put 2 million hours into building DomaniRx. We spent another 500,000 hours building Genesis. We've invested heavily in our Eclipse platform and other platforms that we have. And that's what that kind of cash flow does for you.

As you looked at the different parts of your business, where do you expect growth to be led from in 2026? You mentioned in the presentation, GIDS, you expect that to maybe accelerate a little bit further in 2026. What are some of the other areas of strength that you're seeing right now?

I mentioned Insignia, which is GIDS' biggest platform now, but it also has won a number of other superannuation funds in Australia and won a number of pension mandates in Europe, particularly in the U.K. And then our hedge fund business is really strong. The hedge fund industry is strong. We run a couple of indexes. One is how many redemptions are coming into hedge funds, and they're at the lowest they've been in 5 years. And another one is what are the returns? What is the -- and that's been pretty strong to risk-adjusted returns in the hedge fund industry. And that's given us, I think, last quarter, we grew 8%, 9% in the hedge fund business.

And Intralinks saw its growth slowed down in the last couple of years as M&A activity slowed down. Are you guys seeing any green shoots there that give you more optimism for 2026?

We do. I mean they're optimistic. And so I'm optimistic with them, except not quite as optimistic as them because you have to be able to see what happens in the M&A, right? And wars don't usually help M&A. So we would like us to get out of wars if we could and have people do more M&A. And it was also viewed that this administration that maybe the Hart-Scott and Rodino and the other impediments to really getting deals done quickly would alleviate a little bit, and I haven't really seen much of that. It's still a pretty tough game.

Overall, how would you evaluate the health of your clients as it translates to budgets to buy your services and your content and your software? You talked about, I think, health care -- or sorry, hedge funds are generally pretty healthy, but if you look at the share price of some of the private asset owners and there's maybe some concerns there. So how are you generally evaluating the health of your clients as it translates to their budgets?

I run a worldwide sales call every 2 weeks. It takes me a couple of hours, and we have never had more opportunities. So our pipelines are pretty full. We have lots of opportunity. People are trying to get their tech stack in order. As you know, most of Wall Street runs on 50-year-old technology. And so that needs to get upgraded at some point. And you know they're going to have to upgrade it when all the COBOL programmers die. So they're well on their way, but I don't think they're quite there yet. And so that there's a lot of pent-up demand for improved systems. And my view on this health care stuff is that a lot of these great big health care companies run 5, 6, 7 systems, duplicative expenses all over the place, but it's so much revenue in health care. They kind of just loss on buy, but you won't always be able to loss on buy. You're going to have to get more efficient. You're going to have to do things better, and we'll be a natural person right there.

You had a slide where you kind of showed how AI is being implemented within your own products and services right now in each of the different 6 components. Any examples of areas that you're able to monetize AI as you're selling that to clients right now?

Yes. We've had some successes. We've been able to -- we are now reading radiology in the National Health Service in the U.K. So we're reading all the x-rays and all the MRIs, and we've saved them thousands of hours of their radiologists time. That's been very positive. We also have a couple of banks, one that's using them to proof checks as they come through their thing. And so that's taken out a lot of expense. And another one is doing all the credit checking and the AML and KYC stuff for another bank. And so there's -- and we call ourselves customer 0 because we're such a big services user. We have probably 10,000 people that that do accounting and reporting in hedge funds and private equity funds. So we can test these new agents in our business before we roll it out to the public. And we're getting tremendous feedback. The pipelines are growing. We're getting -- so it's a question of you got to monetize it, I realize, but it's -- you got to let some of this stuff gel, right, before you get in such a big hurry that you want to go get that golden goose and get all the eggs out right now. I've always found when you try to do that, you end up with a dead goose. So you want to kind of take it easy when everyone else is running around like a chicken with their head cut off.

In the slide where you talked about the 4% to 8% revenue growth algorithm, there's multiple components, cross-sells, upsells, AI, I'm sure is part of that. But the pricing is part of that. How are you guys thinking about pricing this year as compared to recent past?

I think we've done a pretty good job of getting some lift in our pricing because of the stickiness of our software and the capabilities and training our relationship managers on how to get more. So I think we will probably get maybe an extra 50 to 100 basis points. And last year, I think we got close to 200 basis points on pricing. So maybe we'll get 250, 300 this year.

As you guys are able to use AI to take out costs internally and clients are...

I'm usually def to that question. I mean you're going to come after us. Why don't you go after Broadcom. Why don't you go after Microsoft, why don't you go after Google, why don't you -- I don't know -- we're charging you 5, 6 basis points, you're charging 1.5 and 20. I don't think it's my 5 or 6 basis points that's really crippling you. So we -- and we need to be strong about that. It doesn't do us any good to -- any of you that run businesses understand that pricing is about the most important thing you do. You do the same amount of work, you pay more. You do the same amount of work, you get paid less. I like the first one of those 2. And -- but you got to deliver a great service and you got to be there and you got to be on top of it. And then people don't -- they don't want them. They don't want to fight about it anyway. But you got to give them a reason why they're with you and why they should continue to be with you, and you got to work at it.

And then maybe last for me. This AI-driven market sell-off and all things software, you said terminal value has questions now in people's mind. Does that create more attractive valuations for you guys as your balance sheet leverage is quite low at this point. You have a lot of cash flow. Is there maybe a greater opportunity for you on the M&A front given some of this market dislocation?

Maybe. And it's finding the right opportunities and then making sure that you don't get giddy and you don't have an investment banker really helping you decide what you should do. You need to have analysis on your own and you need to make sure that whatever that judgment comes down is that it's going to hang, right, that you're not on man, I just spent $3 billion and I got a pig in a poke. So you just -- you have to do your own diligence. You have to do the work. And if you don't do the work, you're just impersonating doing the work. And then you -- all of a sudden, you get all surprised and well no kidding. So we're pretty disciplined. We're not as disciplined as I wish we were. But I think what Kurt Seti, I'm from Indiana on celebrating still. But he said that we're -- we have a lot of discipline. We have a lot of teamwork and $300 million. And I really help this football team, I think.

All right. Well, I think on that note, we will wrap it up. There will be a breakout session downstairs. Thanks, everybody, for coming, and thank you very much, Bill.