SS&C Technologies Holdings, Inc. ($SSNC)

Great. Hello, everyone. My name is Alexei Gogolev, Head of Vertical SaaS here at JPMorgan. Welcome to first day of Boston Conference. Today, we're delighted to be hosting CFO of SS&C, Brian Schell. Brian, welcome.

Thank you.

And I guess to begin the conversation, Brian, could we talk about the durability of the organic growth engine for your business? What are the most important internal leading indicators that you track to assess the organic growth durability, things like net new bookings or renewals and which matter most by segment?

Yes. Thank you. I would say that, first of all, let me just say you guys do an amazing job with the investors that you have brought here and all the logistics...

Appreciate it, Brian.

Well done to JPMorgan. I think there are the multiple factors that you kind of highlighted there that are most important, right? And I would say the number one, the way we think about it is where we've seen the most growth and that organic growth has been share of wallet and the continued expansion of services, both within an existing business unit and a service provider as well as then across SS&C that may cross over into another part of the business unit, whether that be providing transfer agency and investor-related services as well as potential Intralink services or intelligent automation business that we've continued to see more and more of that revenue growth come from. So the share of wallet I would say then the new logo and that pipeline conversion are metrics we look at very closely and see how that is going. I would say pricing is always a consideration that we evaluate, but it's not the primary consideration at the end of the day. And then the last couple of things that we look at and we may touch on later is we always take an eye at looking at those renewals, which I know can be a little bit lumpy in some of our quarterly revenue results, but looking at the duration -- the contract duration length and when that hits and any other considerations, any incremental services that are added into that.

Thank you, Brian. That actually is a good segue. So how is the mix of recurring versus more transactional or license-driven revenue has been evolving? And what operational choices are you making to reduce the lumpiness that you just referred to?

Absent not complying with revenue recognition of 606, which is obviously not a choice or not an option, I would say our primary objective is to meet the client where they are, right, is that is that while I love the idea of having a higher percentage of recurring revenue, if nothing else for predictability, stability and everything that goes along there. But if they choose to do something that may be more transactional in nature or incremental service or project-related work, we know that, that leads to longer-term growth over time. And we've seen several clients where we started out with a source contract that's kind of a stated -- here's your statement of work. This is what I want you to do. Here's the price. They may engage us on some incremental work that may be project in nature and then that turns into a longer-term statement of work that becomes more permanent. So we've seen a lot of that evolution over time. So we've seen, like I said, more of that. Now some of the business will remain transactional at the end of the day. Even if we do sign a long-term contract, say, for example, with Intralinks, Intralinks will sign a long-term contract. And let's say, we signed a long-term contract with JPMorgan, and that still may be periodic in transactions that we will support in conjunction with you and your teams with JPMorgan to be able to do that as well as some of our -- as business. So otherwise, I think you're going to continue to see that evolution of recurring revenue across literally every single segment with maybe the exception of Intralinks.

And Brian, the retention has already been very high for a while. Where is the biggest opportunity to drive it further? Is it price realization or maybe some expansion modules or additional services?

I would say I think it's more of the -- honestly, I think it's the additional services at the end of the day is for that, I'll call it, that net revenue retention, right? So I would love to see, obviously, the gross continue to increase. I would -- we might be able to see that increase with lengthening contract renewals. Like I said, pricing is always an element, but it hasn't been a material part of the way we've grown revenues, as you know. And so that's more of where I think we would see that grow is that incremental share of wallet to really kind of look at that gross retention and then the incremental organic growth rate to really help to continue to try and drive that higher.

Okay. And Brian, you've done quite a few lift-outs in the past couple of years. What have you learned about what makes lift-out successful operationally? And how do you see kind of ensuring that margins improve as the engagement matures?

Yes. So this is I would say this first one isn't maybe that terribly insightful, but let's make sure you're aligned with the client and what they want the outcome to be and how quickly you get there and how you're going to define success along the way. So that's very important. That's probably a very important part of any engagement or any type of service you're providing to your client. But beyond that next step is, I think some of the key has been around the data and systems migration to your platform and what that's going to look like. A lot of the efficiency, and this feeds in really the third part of your question about where do you see the margins? How does that evolve over time is understanding how you're able to move that data or those processes to the SS&C system at the end of the day, right, because of the efficiency and our scale and the operational know-how at the end of the day, right? So that's what we bring that to the table is the software, it's the people and it's the technology. And that will take some time. We do put in some contractual provisions to make sure there is some retention and some consistency over the first year of the contract, then you start seeing a step function of margin expansion as that operational efficiency kicks in as some of those extra costs are removed as you start seeing the technology migration as a real benefit and you start seeing those step functions in 1 year 6 months after that and then 2 year and all along the way. It's -- and I think the discipline around looking at that performance, at least from a, I'll call it, a finance standpoint, is talking with that business on a monthly basis, how are we doing against our plan.

Any implementation capacity constraints that you're seeing in some of those lift-outs, especially large transactions when they're done at scale. When you're delivering talent, data migration and tooling, like how are you investing to avoid those bottlenecks?

Yes. I think that comes with having a good playbook being able to plan for that, right? So we know we're going to need some key talent hires to maybe help execute that playbook. We're also not coming in cold. So we do know who is likely going to become part of that lift-out transaction. So we know the resources that are coming in. And we spot the talent and identify we think that's going to be the person to help us. That will be a strong interface with the people who are leading the lift-out from the, call it, the core or the legacy SS&C side of things as we move that forward. And what we found also with that talent is some of the talent that we're picking that's becoming part of SS&C is very leverageable to other parts of our business that's usually within the existing business unit because we found that they can actually take on some of our existing work as well. And so we get a lot of -- we're starting to see some productivity gains, which goes back to accruing to a more expansive margin over time.

And Brian, tying it all together, you discussed a path towards 40% margin exit. Where are the biggest levers? Like maybe it's automation or you mentioned pricing, productivity mix? And what are the biggest offsets like those AI costs that everyone is talking about and maybe some integration costs?

Yes. I would say that my favorite place to get margin is scale is revenue growth, right? And a lot of times, when we're adding that revenue growth, it has a much higher margin on that incremental revenue. And so that's my favorite place to get it. But obviously, for the business, what we do is we put in productivity targets with every single one of our business unit leaders in primarily trying to drive that through use of technology, not necessarily staffing reductions or what that looks like. It's more around how can you get technology gains to improve efficiency and productivity such that maybe headcount does not increase with that next incremental dollar or next client that is signed. And that's the goal in leveraging that and improving your workflow, improving the accuracy, improving the results. And so that's really how we're trying to drive that across the board. So it's really coming through that technology initiatives and leveraging the existing infrastructure scale that we have today.

In terms of CapEx and some capitalization strategy, how do you think about the right level of CapEx to software capitalization in order to sustain this product modernization that you're facing?

I think over the last several years, we've kind of settled into that 4.3% to 4.8% of revenue as far as a percentage of revenue. And that feels like it's been accommodating both our R&D efforts and ongoing support effort as far as enhancements to our clients. And again, our goal is to invest, whether that show up in OpEx or CapEx to try and drive that long-term revenue and earnings growth rate. And that's kind of where we've settled out. We haven't seen things shift too much. That may change in the future, but I think we'd be cautious and be measured at it because we do know it's important to invest in the business, but also continue to deliver enhanced margins to the business longer term to our shareholders.

Okay. Brian, diving deeper into your segments. So starting from Globe Operations, can you talk about the growth algorithm here? What are the key drivers of the business growth? And where is the best runway over the next few years? Is it going to be maybe private markets or retail alternatives or hedge funds?

Yes. So the -- I would say where we've seen the biggest growth, and it's also the growth that's AV -- usually easier to accommodate and usually the most profitable has been existing client growth, right? It's that revenue -- that's that incremental revenue from an existing client. As they grow and as they do well, it's that much easier and better for us. And we're able to facilitate that growth in a very manageable way because same systems and same, I'll call it, infrastructure within those clients. So that's where we see that growth. It's not necessarily always restrict us to just a higher AUA because there are different strategies that a lot of these managers deploy, whether they be long, short, whether it be different factors. there's -- you just can't measure it based on looking at the -- where is the S&P 500 Index trading because it's different asset types and different geographies, as I mentioned. So we see the benefit also of potentially when some firms decide -- some of the managers decide to start off on their own within those firms. And it's almost like an extension of the existing firm because a lot of times they will pick up the same SS&C solution that they had when they were with some of these other firms. So hedge fund is the biggest part of our business, and it continues to grow at that mid- to high single-digit growth rate, both from fees as well as some basis points on their AUA growth. We're seeing a combination of both. We're seeing some nice new logo wins at the end of the day. But the highest growth rate, albeit still small but growing quickly is retail alts. That certainly is the fastest growing from a percent, but kind of smallest of all the asset bases between that private markets, which is, again, also still growing rapidly and hedge fund.

If I may ask about private credit. How do you think about exposure and the associated revenue sensitivity? Like what's structurally resilient in your fee model?

Yes. So the -- I'd say the good news here from an SS&C standpoint is that, one, we're not exposed to any credit losses. Obviously, longer term, if a firm managing that private credit is -- has a lot of losses. They won't be around. So you have that potentially longer-term revenue exposure. But most of our funds that we support are closed end. So they're not faced with the redemption activity that you're reading about a lot of times in the headlines. The other parts of these funds are actually sitting within hedge funds and what they're doing. So they've been able to diversify that risk and hedge that risk as well. So we haven't quite seen as much of some of the negative press might indicate in some of the funds. And actually, shorter term, we've been doing a little bit more work helping firms address some of the higher-than-expected redemptions. So we saw some of the growth rate declining in 2025, and we didn't bake in a massive amount of growth in '26. So we feel good about where that sits right now.

Moving to the other large sector of yours, GIDS. How do you separate some of those structural growth trends versus lift-outs that we spoke about earlier? And what does the steady-state growth look like for this segment?

Yes. We like the lift-out work, and it basically allows us to apply all aspects of our expertise for our clients, the people, process and technology to enable them to do better on their margins, and it helps us with our growth as we continue to leverage scale. And incrementally, each one of those lift-outs, I think, enhances SS&C and our overall value to our shareholders. So we've had some recent large wins, and that's accounted for a large percentage of the growth, probably close to half of the growth rate. So much of the growth that we've had, though, has been coming from core independent of those lift-outs. But having said that, those lift-outs, we have more in the works from new clients as well as incremental work, we think that can occur from existing clients from some of those lift-outs. So this is going to be -- it's really been a really nice source of growth for -- certainly for GIDS.

Another segment that's not part of the 3 large segments, but still an important one, Intralinks solution. How are you evolving the product to improve conversion and retention, workflow features like AI enhancements? And what customer feedback has most influenced this road map?

So we replatformed -- started a replatforming effort on this a couple of years ago and started integrating AI as part of that platform a couple of years ago. And so that's really showing up. It's more of a seamless. It doesn't look like it's an add-on button type of thing. So we've been working through that. I think one of the key items that we've been bringing to that product feature is really incorporating more of the total deal life cycle into it, not just maybe it's just a diligence element, but how we are managing the teams that who have access, the NDA workflow, the different teams workflow that really kind of steps beyond just what's the core data in the data room. So bringing that into a secure environment and allowing those incremental tools that can be applied without having to go outside of a secure kind of area from where the data is and the communications channel has been critical, and that's really been a nice point of leverage for success and wins for us.

Moving to another large part of your business, wealth and investment technologies. So what's driving one of your very strong solutions, Black Diamond? What's driving the growth most? Is it new advisers or maybe some wallet share expansion that you're seeing? And what are the biggest risks to sustaining that growth?

Yes. We're seeing a lot of new logo wins there. We've also been -- with some of the RIA roll-up approaches that we've seen, some of the medium to larger-sized firms, they've been primarily Black Diamond clients on the acquiring side, the acquirer. So we continue to see expansion of their RIA base, which means incremental usage of the product. We've brought incremental features such as more AI features into the software, which is particularly attractive to the medium-sized types of clients. And I would say, finally, what's helping continue to drive that growth has been bringing in Trust Suite services into the software as we know that RIAs and as their asset base and as their client level sophistication grows, a lot of times they're looking for a trust solution and having that capability and being able to provide that to the RIA community within that software as part of that support has been a real competitive differentiator.

Okay. Brian, can we talk about the Healthcare division? Like from a long-term play perspective, what needs to change for health care to become a more predictable grower? Are you looking at maybe product readiness or some go-to-market focus? Maybe you think there could be some regulatory changes? Like what do you think could happen?

Yes. So what we've seen and actually what we've done over time is that it still has some licensing revenues attached to it and what it does. But I think this goes back to one of your earlier questions actually is around kind of that recurring revenue growth and how we've seen that continue to be a bigger part of our overall revenues. And this is contributing to this. So we've also done lift-outs in this part of the business. We've worked very closely with, for example, with Humana. We're taking on more of their business over time. And it's been more of a kind of recurring revenue model versus a licensing fee. So that revenue growth has been more of that stable month-by-month grower. So you're seeing more of that stability and then it grows over time such that our expectations for that business is that's a low single-digit growth that we've talked about. But we think in the future, absent some of the larger contracts that we think are prospects for, we think its growth rate can accelerate as it continues to add these services with new logos as well as with existing clients.

Brian, maybe taking a quick step back and looking at the overall portfolio, which regions globally are the most attractive incremental opportunities that you see? Is it maybe Australia or Middle East? And what needs to be true for SS&C to scale efficiently in those markets?

Yes. So I think you nailed the first 2 as far as how we're thinking about it and where we see the opportunities across the various businesses. Australia certainly has been a really key market for us, and we've seen a lot of growth there. And so that continues to remain kind of top priority. as far as new markets go. I think number two is closely followed by the Middle East. We've expanded. We've put in new offices in various geographies there in the Middle East. And actually, the new offices that we've recently opened, We've actually expanded already that coming to part of the facilities team as I see where all those expansions are occurring or being requested, and that's one area where a lot of that work is tied to, I'll call it, desk space or facility space to be able to accommodate that growth. And then I would say probably the third area has been -- as far as geographic goes, would be APAC outside of Australia, we're starting to see pockets of some nice growth. Again, those are the kind of the newer geographies. Again, North America still holds, obviously, a predominant share of where the assets are in that continued increasing share of wallet.

And this growth you're talking about in those local markets, is it coming from product localization or maybe some regulatory or staffing requirements?

It's kind of more of the product, I mean, and what we're doing there versus any incremental requirements. We have a mixed feeling on regulatory requirements and incremental compliance. That usually means better business for us as far as incremental services and what we do because there's usually complexity and/or risk. But we also like the idea of a, I'll call it, a more open market that we think can help facilitate asset growth and managing that. And so we certainly benefit from that, and we certainly like that from our clients to be able to maintain that growth...

Brian, I would love to talk a bit more about your AI and automation. First of all, starting with Blue Prism and some intelligent automation solutions. What are the most important drivers to reaccelerate that division? Do you expect to see some more AI agent attach or maybe platform adoption? And what's the biggest friction in customer decision-making?

So if we go back to the core, if we think about where this kind of started with RPA as its core, we've seen a real stabilization and actually renewal of RPA at the end of the day, right? And so I think that's been a very promising element. Actually, the core Blue Prism actually was higher first quarter inside that business unit than the prior year. So that's been a really good solid sign because at the end of the day, RPA is still a very cost-efficient, very effective tool to use in establishing automation. Number two, is what we've seen as far as the agent elements and the use of AI is, as you know, we recently launched WorkHQ, which is an orchestration layer of agents across existing technology that makes it much easier for people to use their existing platform, the existing technology to help manage their workflow across their platform, across different systems because at the end of the day, what SS&C's expertise is that IP in the broader sense of managing that workflow is that they have data and transactions that are occurring over here on the left-hand side, there's a lot of things that need to happen, different processes and different touch points, different environments, control checks and end up with, call it, 3, 4, 5, 10 different outputs that are required from different constituencies. And that knowledge and help of that orchestration of that workflow is I think is where we've turned our attention to, and we started with client zero doing that ourselves in our different business units and then selling that solution that's a proof of concept on a piece of paper, it's actually done in process and working.

Brian, you spoke a lot about governance first AI as an important differentiator and obviously emphasized regulated environments and various inaccuracy risks. So what does your governance framework look like in practice? And how do you productize it to the advantage of your customers?

So this is -- I'm sure every organization can -- either their executive management and/or their audit committee is asking, and this is obviously a big topic is around that framework. So we have an AI framework that we started out with, and this is kind of how we initiated the whole effort. Again, as you mentioned, right, the regulatory requirement of our clients and our own, you can't make up a number if you don't know what it is in between to get there. It's got to be right given the financial records and they're being filed with a regulatory body, a taxing authority, a government body that differentiated a statutory report. So it's -- the level of accuracy is critical. And so we've designed the AI framework for people, again, almost with us, our ownselves in mind of what do we want, what do we need? We need to make sure it's secure and there's no leakage outside of it. We need to make sure that we can insert human touch points within any loop at any point in time. We need to make sure there's a reconciliation where we are. We need to make sure there's an audit trail if someone moves it or touches it and it potentially is redirected. And if it's going in a direction where it shouldn't be going, there's an ability to stop that. So those are just some of the, I'll call it, more critical elements that we have around the framework to make sure that all those steps along the way that there's accountability as far as what's happening and who's making what decision and how.

Brian, as you think about that framework you just described, where do you see the clearest monetization opportunities for AI agents? And how do you ensure pricing captures ROI without creating some friction with customers?

So the first opportunity is internally. I know your question was more revenue focused, but that's part of back to a little bit of client zero. And we think that's a really nice productivity enhancement opportunity. We also think that actually helps lend itself to a greater revenue opportunity, which is, I think, the source of your question, broadly, right? And as far as the folks that are leveraging different systems and how do they make that outcome the way they would like it to be to be a more efficient manner. At the end of the day, people have this, like I said, a workflow that they need to get to, and we're trying to engineer the solution, and that's where we think the revenue opportunity is. And it doesn't just have to be financial services. We've seen it already in the health care, even though was independent of the health care business unit. And so we've seen it across financial services as well. Again, it's still nascent in its approach and the revenue generation, but we've seen it applicable across a lot of different use cases.

Brian, talking about M&A, you've done so many over the years. How do you set valuation guardrails for some of those potential deals? And more importantly, with this acquisitive history, what have you changed in your integration playbook to reduce complexity?

I would say that when we look at transactions, obviously, valuation is very important. And we look at the valuation, we look at revenue growth rate and profitability and what are the assumptions and how good do we feel about that historically on a go-forward basis and what does it provide to us. So there's a discipline around that from that standpoint. From a playbook on the front office, call it the business, the revenue-generating side of it, it feels like there's a good playbook about for whatever reason they're being brought in, are they being brought in for product, geography or clients and knowing where those strengths are and how that's going to interplay. So there's a plan upfront about what we plan to do with the asset. Why do we want this asset and why do we need it and then basically put that in place. And so that, I think we've actually done a pretty good job at. What we've done better at, I think, over the last several years is making sure that back-office integration is also happening that we're all on the same general ledger. We're on the same human capital management project. We're on the same payroll. All of those things help tighten the process so that the communication and the financial reporting and the analysis basically help us determine whether we're achieving the returns or make the adjustments we need to make.

Okay. Brian, final question on your capital allocation. You've done a great job balancing buybacks and dividends and debt paydown and some acquisitions. So in this cycle, like where are you currently leaning more towards? And should an attractive acquisition opportunity come along, how far would you be willing to lever up to satisfy some of those potential acquisitions?

Yes. I would say that in a consistent theme, I think that our capital allocation priority has always been that attractive M&A opportunity at the end of the day. We think that, that's -- and given our history, that wouldn't be a surprise to anybody who follows SS&C. Again, that's because there's discipline around that valuation and what that looks like and what that can do for us. But absent that, we are leaning into share repurchase opportunity. Again, there's a lot of challenges around valuations and where people are coming together on bid-ask spreads. But again, we're still -- that would still be a priority for capital allocation. As far as the theoretical, is there a leverage opportunity, whether the markets accept this or not, I think the debt capital markets have been fairly open right now. I know there's been some windows of open and close. But generally, where we sit, I think the market has been pretty receptive to any debt issuance. Historically, the company has levered up to 4.5x to 5x. Whether that's still the case or not, we would see, but I haven't heard anything that would indicate it would be different given the focus and the history in being able to take the cash flow and redirect it to delevering back to a -- we call it a more normalized level.

Great. Well, thank you very much, Brian. This has been great, and I appreciate you being here with us.

Thank you.