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

Good day, and thank you for standing by. Welcome to the SS&C Technologies Third Quarter 2026 Earnings Call. [Operator Instructions] Please be advised that today's conference is being recorded. [Operator Instructions] I would now like to hand the conference over to your speaker today, Justine Stone, Head of Investor Relations.

Hi, everyone. Welcome, and thank you for joining us for our Third Quarter 2026 Earnings Call. I'm just Justine Stone, Head of IR for SS&C. With me today is Bill Stone, Chairman and Chief Executive Officer; Rahul Kanwar, President and Chief Operating Officer; and Brian Schell, our Chief Financial Officer. Before we get started, we need to review the safe harbor statement. Please note that various remarks we make today about future expectations, plans and prospects, including the financial outlook we provide, constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K, which is on file with the SEC and can also be accessed on our website. These forward-looking statements represent our expectations only as of today, October 22, 2026. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. During today's call, we will be referring to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is included in today's earnings release located from the Investor Relations section of our website at www.ssctech.com. I will now turn the call over to Bill.

Thanks, Justine, and welcome, everyone. I'm happy to report another strong quarter for SS&C with growth in revenues, earnings and margin expansion. We have momentum to finish the year strong. Our third quarter results were adjusted revenues of $1.691 billion, up 7.8% and adjusted diluted earnings per share of $1.78, a 14.8% increase. We delivered record adjusted consolidated EBITDA of $674,800 million, up 9% and an adjusted EBITDA margin of 39.9%, 40 basis points improvement. Adjusted organic revenue growth was 5.2% with continued performance by our largest businesses. Throughout the quarter, we had strong sales to both new and existing customers, achieved implementation milestones and benefited from market tailwinds. Our pipelines continue to grow and we are bullish on several large mandates as we look into 2027. For the 9 months ended September 30, 2026, cash from operating activities were $1.216 billion, up 10.4% year-over-year. This quarter, we returned $225 million to shareholders, which included 1.9 million shares, repurchased for $154.8 million and [ $70.5 million ] in dividends. In August, we increased our common stock dividend 11.1% to $1.20 per share annually, which reflects the strength and consistency of our cash flow. Our business keeps generating strong recurring free cash flow, and that gives us real flexibility in how we put capital to work. We can raise our dividend, keep buying back shares, pay down debt and pursue high-quality acquisitions, all at once. We don't have to choose. On M&A, the opportunity set is growing as private equity firms look to exit some of their holdings. We continue to pursue the right deals aggressively, but we'll stay disciplined on price. Financial services technology and services M&A continue to command high valuations making our own stock one of the most attractive investments we can make. Last month, more than 1,000 leaders from financial services and health care, clients joined us in Orlando for SS&C Deliver our annual client conference. The message from that room was clear. Our clients are no longer asking weather to transform. They're asking how, how fast and with whom. At Deliver, we unveiled a portfolio of next-generation solutions built on 2 SS&C platforms, AI Gateway, our AI governance platform and WorkHQ, our award-winning agentic orchestration platform. Together, they led our clients put AI agents to work on their most complex, highly regulated workflows. These agents work securely with governance built in from day 1. Agentic AI is moving quickly from experimentation into production. We see it inside SS&C where our customer program is driving innovation and efficiency across all operations to the date over 900 agentic workflows, 200 AI agents and over 60 digital workers have been built in the WorkHQ development environment as our business units explore dozens of use cases. We're bringing the same approach to tokenization as traditional and digital assets come together. Our clients need infrastructure that handles both and SS&C already sits at the center of that infrastructure. Across all of this, our clients are rethinking their operating models end to end. That's a transformation, not a single technology purchase. It takes a partner with deep domain expertise global scale and a proven track record of execution. Few companies can bring all 3. SS&C can, and we're doing it today. I'll now turn the call over to Rahul to discuss the quarter in more detail.

Thanks, Bill. As you noted, we delivered strong third quarter results with 5.2% organic revenue growth and 39.9% EBITDA margins. These results are driven by deep customer relationships and the critical role our products and services play. Our clients keep growing with us and the multiple ways we deliver broad and deep solutions, including outsourcing, core sourcing and lift-outs are a competitive advantage. In our Technology businesses, we see a steady rate of multiyear renewals, reflecting our customers' confidence in the enduring benefit they will receive from our applications. We also see sustained interest in our new products and services, reinforcing that as a technology provider and outsourcer with scale, we are uniquely positioned to deliver the next generation of AI-enhanced applications. We handle huge volumes of trades, reconciliations, NAV calculations, investor transactions, regulatory filings and hundreds of other functions that require expertise. Our Intelligent Automation and Analytics business built around the Blue Prism acquisition in 2022 is at the center of how we capture the opportunities new technologies bring. As Bill mentioned, we have hundreds of AI-enhanced processes and agents and production, many more in development. These make us faster and more accurate and expand our capacity to take on new business as our clients grow. Externally, our new products are gaining traction. We're also bringing AI directly to clients through collaborations with frontier model companies, integrations with the leading AI platforms and new features built into our applications. Our global footprint is growing and remains a competitive advantage. We are expanding our presence in the Middle East, Australia and Europe and have recently expanded our operations in Luxembourg and Thailand. With that, I'll turn it over to Brian to walk through the financials.

Thanks, Rahul, and good day, everyone. Unless noted otherwise, the quarterly comparisons are to Q3 2025. As disclosed in our press release, our Q3 2026 GAAP results reflect revenues of $1.69 billion, net income of $199 million and diluted earnings per share of $0.83. Our adjusted non-GAAP results include revenues of $1.691 billion, an increase of 7.8% and adjusted diluted EPS of $1.78, a 14.8% increase. The adjusted revenue increase of $122 million included acquisitions of $39 million and a small favorable impact from foreign exchange of approximately $1.7 million. As a result, adjusted organic revenue growth on a constant currency basis was 5.2%, and our core expenses increased 4.3% or $42 million, which also excludes acquisitions and impact of FX. Adjusted consolidated EBITDA was $675 million, reflecting an increase of $56 million or 9%, a margin of 39.9%, to 40 basis point expansion. Net interest expense for the third quarter was $107 million, an increase of $3 million compared to last year. Adjusted net income was $429 million, up 9.6%, resulting in the adjusted diluted EPS of $1.78. Our effective non-GAAP tax rate was 22.5% this quarter. Note for comparison purposes, we have recast the 2025 adjusted net income to reflect the full year effect of tax rate of 22%. The diluted share count is down nearly 5% to $20.46 million from 252.6 million shares year-over-year, primarily due to the continued impact of treasury share purchases. Cash flow from operating activities grew 10%, largely driven by growth in earnings. SS&C ended the third quarter with $525 million in cash and cash equivalents and $7.5 billion in gross debt. SS&C's net debt was $7 billion and our last 12 months consolidated EBITDA was $2.7 billion. The resulting net leverage ratio is [ 2.63 ]. We are currently in the process of refinancing our $2 billion of notes due next year and will provide an update when that has been completed. As we look forward to the fourth quarter and full year 2026 with respect to guidance, we will continue to focus on client service and expect that retention rates will be in the range of our most recent results. We will continue to manage our business to support our long-term growth and manage our expenses by controlling and aligning variable expenses, increasing productivity and leveraging technology and AI tools to improve our operating margins and strategically investing in the business, especially with respect to R&D and sales and marketing. Specifically, we have assumed short-term interest rates to remain at current levels and effective tax rate of approximately 22.5% on an adjusted basis, capital expenditures to be 4.4% to 4.8% of revenues and a stronger weighting to share repurchases versus debt reduction. For the fourth quarter of '26, we expect revenue to be in the range of $1.7 billion to $1.74 billion and 4% organic revenue growth at the midpoint. Adjusted net income in the range of $454 million to $470 million; interest expense, excluding amortization of deferred financing costs and original issue discount in the range of $103 million to $105 million, and adjusted diluted EPS in the range of $1.88 to $1.94. For the full year 2026, we increased several revenue and earnings expectations as follows: revenue to be in the range of $6.736 billion to $6.776 billion and 5.5% organic revenue growth at the midpoint. Adjusted net income in the range of $1.726 billion to $1.742 billion, adjusted diluted EPS in the range of $7.11 to $7.17, reflecting approximately 16.3% growth at the midpoint. We are now targeting EBITDA growth of 10%, EBITDA margin expansion of 90 basis points for the year and exiting the year with 41% EBITDA margins. And now back to Bill.

Thanks, Brian. We're pleased with our third quarter and the momentum we're carrying into the rest of the year. We exceeded expectations on revenue and margins, and we are raising our outlook for the full year. Our clients continue to invest in SS&C and expand their relationship with us, and our pipelines are healthy across our businesses and regions. As we look ahead to 2027, we're excited about the opportunities in front of us. Demand for our outsourcing solutions remains strong. Our technology keeps getting better and the capabilities we're building are changing how we serve clients. As always, we'll stay disciplined in how we operate, invest and allocate capital to create long-term shareholder value. And with that, we'll start taking questions.

[Operator Instructions] Our first question comes from Dan Perlin with RBC Capital Markets.

I had a question on the kind of midpoint of the organic growth assumptions for 4Q. Obviously, you had big renewals in the second quarter, this quarter at [ 5.2% ] seemed like more normalized. And so I'm just trying to make sure I understand kind of what's the gating factor to get this to decelerate? I know that there's the anniversarying partially of Insignia that probably plays into that. But everything else seems to be going fairly well. So any details around what would be the key drivers to that would be helpful.

Dan, I think in general, right, it's, again, that we have a lot of pretty big mandates in our pipelines. And while we're getting buy signals all over the place, we prefer ink on contracts. And so that's the thing that changes organic revenue growth, 100, 150 basis points, 200 basis points that's just the nature of large-scale contracts. And so our contracts now could be $25 million, $50 million and up. And so there's a lot of lot of lawyers out there. They haven't gone away. And so it's getting that down and negotiated and signed and then getting them live.

Got it. That makes total sense.

Very quickly, if I could just add to the back of that. The other thing is as you will note, absolute revenue was actually up in Q4 relative to Q3, right? And very much in line with kind of, I'd say, ahead of where we thought we were going to be for the year. So most of this is really just quarter-over-quarter timing. So if you look back at Q3 and Q4 last year, that's probably part of the explanation.

That was one of the largest growth quarters we had last year, fourth quarter of last year, as you recall, too.

Yes, that's a very good point. Just a quick follow-up, Bill, on the M&A commentary looking more interesting, I guess, as [ PE ] firms are kind of looking to exit their portfolios. I'm just wondering, what are the areas that you're most interested in looking to expand as you think about these opportunities that are facing the company in '27 and ultimately '28?.

Well, as you see, right? I mean, there's been a lot of fintech M&A in the last 90 days even. And the multiples are pretty eye-popping. So we think we have very valuable businesses. A number of our businesses are bigger in those areas and some of the M&A that's going on and more profitable. So we have big successful businesses, and we'll probably expand. And if we could find stuff in fund administration, we would. But we've probably bought 20 fund administration companies over the last 20 years. And we were kind of the pioneer in that and how they drive prices to points where you wonder if that's where we should go. And we've also done really a great job of transforming our global investor and distribution services that we acquired with DST. And that's now got great momentum within Insignia. That's still a very large client with a lot of work for us to do. But but on what we've done for them so far, the outsourcing their business as usual to us has been a very big success. And I believe that's what's going to happen with a number of other large institutions that become somewhat constricted in what they can do and how fast they can do it. And we move a little faster. We're a little more decisive than what we do. And as I've said many times, we don't dabble. As Rahul said earlier, we bought Blue Prism in 2022 for about $1.6 billion. Last year, we bought Calastone, which gives us a real leg up in tokenization, and they also run about a 7,000 funds network. So we don't dabble. We get in, we get the expertise and we distribute it on a global scale.

Our next question comes from Kevin McVeigh with UBS.

Great. Congratulations on the results. I mean just really continue to execute at a super high level. I guess the margins continue to really, really be [ importing ] these ever larger engagements. Can you maybe talk to that a little bit on where you are on the AI journey. And I guess related to all of that, does that change the acquisition strategy in terms of willing to even size up something more just given how strong operationally at this point?

Kevin, you've been around us for a while, and you kind of understand the process we go through to kind of validate what acquisitions we want and what areas we want to get larger in, we would do a big acquisition, and there's a lot of companies out there that ever since mass scare on SaaS businesses, some of them haven't recovered nearly like we have. I don't believe they have as strong a business as we do, but that's somewhat in the eye of the beholder. But we continue -- like earnings were up 14.8% and we generated $1.216 billion in cash flow in 9 months. And as we said in our prepared remarks, we don't have to choose what we want to do. We can do all of them. We can fund them ourselves. We can execute the capital markets are very friendly to us. They know we borrow money, we pay it back. right? And we work hard for our shareholders. And that's a constant theme with anyone you talk to at SS&C. So we're pretty focused. We're pretty ambitious. And we're also pretty judicious. So I think that's kind of what we're looking at as M&A. I'm pretty certain there's some really big places that are for sale. And we just have to make sure that if we were to buy one, we got it at the right price.

Super helpful. And then just real quick, the AUA just continues to move ahead despite the volatility and concern about private equity, so on and so [indiscernible]. Anything to call out in terms of just the sequential build because it's just that the pacing of it is just really, really impressive. Is that just spinouts that you're winning or just normal pace, anything to call out on the AUA?

Well, Kevin, again, we have almost all of the large-scale global macro funds -- so -- and they tend to be the one hoovering up the most assets that are out there. So we get a very large chunk of those. And we invest heavily to make sure that we can satisfy their needs and then also branch into where they want to go, whether that's Abu Dhabi or that's private markets. So it's something that we invest a lot of money and it has proven, as you've seen on how big those assets grow every quarter to have been a pretty successful strategy. And I think Rahul really close to that business.

Yes. So in addition to our big clients having a lot of success in getting bigger the other thing that's happening is with all the focus on technology, folks are starting to realize that ownership of the entire technology stack that runs the fund administration business is a huge advantage, right? And gives us the opportunity to deploy AI and new functionality at a very, very quick pace. And so that's helped us -- it's helped us in the win rate.

Yes. And it gives us -- we talk about across the entire fund administration tech stack. We have very powerful trading systems. We have a very powerful network that's in 60, 70 countries. So we have a big fixed network right? So there's not many things that we don't do. We have models that are value fixed income. We have tons of different strategies across all the different fund type companies. And so we're pretty optimistic about where we sit, and we remain very competitive.

Our next question comes from Jeff Schmitt with William Blair.

So debt leverage is low compared with historical levels with interest rates rising and then you have debt refinancing coming up next year. How are you thinking about capital allocation in '27, especially if the Fed keeps hiking?

Well, again, like right now, if you look at our stock trade in the mid-80s that we're going to generate $7.25 in cash or something like that. And we pay $1.20 dividend so that gets you up to, say, [ $8.50 ] maybe. So [ $8.50 ] on an $85 stock is 10%. So we think buying back our stock where we say that that [ $8.50 ] on every share is a little more attractive than paying down 6.5%, 7% debt. [indiscernible] interest is tax deductible. So that's kind of the math we do, but we still pay down some debt all the time, and we buy back shares all the time. And we look at acquisitions all the time, and we raised our dividend, most of the time. So I think that's kind of how we look at the capital allocation and people say, "So why do you talk to your debt holders?" Because we might want to do a big acquisition, and we're going to have to borrow money right? So it's making sure that we have constant communications with the banks. We have constant communications with our clients as well as with obviously our workforce and that's something that I think we really pride ourselves on.

Okay. Great. And then for the Intelligent Automation and Analytics, organic growth declined 4.5% in the quarter. Just curious how much of that reflects kind of continued pressure in Blue Prism? And could newer offerings like WorkHQ return that business to growth?