SS&C Technologies Q3 2023 Earnings Call Transcript

Quartr
Provided by Quartr
October 26, 2023

There are 12 speakers on the call.

Operator

Good afternoon, ladies and gentlemen, and welcome to the SS and C Technologies Q3 2023 Earnings Conference Call. At this time, all participants are in a listen only mode and please be advised that this call is being recorded. After the speakers' prepared remarks, there will be a question and answer session. You can withdraw your question by pressing star 1 again. And we do ask that you please limit yourself to one question and one follow-up question.

Operator

Now at this time, I would like to turn the call over to Ms. Justine Stone, Head of Investor Relations. Please go ahead, ma'am.

Speaker 1

Welcome and thank you for joining us for our Q3 2023 earnings call. I'm Justine Stone, Investor Relations for SS and C Technologies. 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 provision under the Private and the Securities Litigation Reform Act of 1995.

Speaker 1

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 ks, 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 26, 2023. 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 for 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, which is located in the Investor Relations section of our website at www.ssctech.com.

Speaker 1

I will now turn the call over to Bill.

Speaker 2

Thanks, Justine, and thanks, everyone, for joining. Let's all welcome Brian to his first SS and C earnings call. He's been with us for 2 months and has found his bearings. We're excited about his ideas and intellect he brings to the organization and I encourage all of you to get to know him. Results for the Q3 are record adjusted revenue of $1,366,700,000 up 3.4% and adjusted diluted earnings per share of $1.17 We also achieved our 2nd highest adjusted consolidated EBITDA in our history at $533,900,000 Our EBITDA margin was 39.1%, a 230 basis point increase from Q2 2023.

Speaker 2

Our Q3 adjusted organic revenue was up 2.3% driven by strength in our alternatives, particularly private markets, Interlinx, Retirement and Blue Prism. Our recurring revenue growth, which omits the license and professional service revenue streams, was up over 5%, which we think is an indicator of our underlying businesses strength. Financial Services retention rate for Q3 2023 was 97.3%, the highest level in SS and C history. SS and C generated cash from operating activities of $826,700,000 for the 9 months ended September 30, up 8.1% over the same period last year. In Q3 3, 2023, we bought back 1,700,000 shares for $96,900,000 at an average price of $55.82 We also raised our common stock quarterly dividend 20 percent to $0.24 per share, delivering 156,600,000 and total cash returned to shareholders in the quarter and $501,900,000 year to date.

Speaker 2

SS and C paid down $54,700,000 in debt in Q3 2023, bringing our net leverage ratio to 3.18 times Consolidated EBITDA attributable to SS and C. In the near term, we believe SS and C's common stock is undervalued and we expect to maintain a higher level of stock repurchases versus debt versus debt pay down. We've made a lot of progress within the firm wide Blue Prism digital worker deployment. We have a 2,000 Full time equivalent headcount savings year to date, which is 7% of our January 1, 2023 employee base. Conservatively at $50,000 per FTE, this is $100,000,000 in run rate savings.

Speaker 2

So far the biggest client asked us to run a campaign to contact over 20,000 customers to clear their small cash balances. We programmed 25 Blue Prism Digital Workers to on the follow on processing, saving about $140,000 on contractors that would have been required to process the responses manually. Within alternatives, operational functions such as manual statement downloads, reconciliation and break investigation and resolution, Investor statement and contract notes and loan closing and compliance have benefited from Digital Workers. We believe we have just begun to reap the benefits from this initiative. I'll now turn the call over to Rahul to discuss the quarter in more detail.

Speaker 3

Thanks, Bill. Our core businesses continue to grow nicely with alternatives, Intralinks and Retirement accelerating from last quarter. Our alternatives business grew 8.4% in the quarter, boosted by the strength of our private markets business. We signed a very significant private credit client in Q3 and see opportunities to sustain and accelerate growth for the foreseeable future. Intralinks also accelerated in the quarter, growing over 10% despite M and A deal volume remaining low.

Speaker 3

The growth can be attributed to increase in contract values, longer due diligence time lines and more large deals won. We've released new tools to help us drive these large deals and contract values. DocuAI uses generative intelligence to proactively deliver document summaries, suggested document classification, document translation and identify potential risks. Intralink Deal Vault, a cloud based storage solution designed for streamlined access to archives and efficient deal data management, recently launched and has attracted interest from corporate clients. In Q3, the largest new Black Diamond sale to date was closed.

Speaker 3

This client chose the Black Diamond platform to power their newly launched wealth management business created through the acquisition of multiple RIAs and broker dealers. We continue to invest in R and D and support our customers. We've won 4 awards from Waters Technology, including Best Buy Side Order Management System, best execution management system, best portfolio management system and best accounting provider. SS and C Blue Prism was also recognized by Gartner as a leader in the 2023 Magic Quadrant for robotic process automation for the 5th year in a row. We believe these recognitions of our market centric approach to R and D.

Speaker 3

I'll join Bill and the rest of our management team in welcoming Brian to SS and C and now turn the call over to him to run through the financials.

Speaker 4

Thanks, Rahul, and thank you, Bill, for those kind remarks. I'd like to start by saying I'm excited to be part of the SS and C leadership team and looking forward to help build on the strength of SS and C today with the ultimate goal of delivering long term shareholder value. As noted in our press release, our Q3 2023 GAAP results reflect revenues of $1,365,900,000 Net income of $156,000,000 and diluted earnings per share of $0.61 And as Bill noted earlier in Our adjusted revenues were $1,366,700,000 up 3.4 percent. Adjusted operating income increased 6.4 percent and adjusted diluted EPS was $1.17 a 1.7% increase over Q3 2022. Adjusted revenue increased $44,700,000 or 3.4 percent over Q3 2022.

Speaker 4

Our acquisitions contributed $2,400,000 or approximately 20 basis points. Foreign exchange had a favorable impact of $13,200,000 or 1%. As a result, adjusted organic revenue growth on a constant currency basis was 2.3%. Adjusted operating income for the Q3 of 2023 was $517,400,000 an increase of $31,300,000 or 6.4% in Q3 of 2022. Adjusted operating margins were 37.9 percent in the Q3 of 2023 as compared to 36.8% in the Q3 of 2022.

Speaker 4

The 110 basis point margin expansion reflects the positive impact of both revenue growth and disciplined expense management. While our cost structure has been impacted by general inflation, higher personnel costs and increased professional fees compared to 2022, Our core expenses only increased 30 basis points or $2,600,000 excluding acquisitions and on a constant currency basis. Acquisitions added $2,000,000 in expenses and foreign currency increased costs by $8,400,000 And note that our expenses calculated on a similar basis is down $28,600,000 or 3.3 percent sequentially. Adjusted consolidated EBITDA attributable to SS and C, defined in Note 3 in the earnings release, was $533,900,000 or 39.1 percent of adjusted revenue, an increase of $32,200,000 were 6.4% from Q3 last year. The 39.1 percent EBITDA margin reflects both a sequential and year over year improvement of 230 and 110 basis points, respectively.

Speaker 4

Net interest expense for the Q3 of 'twenty three was $117,300,000 an increase of $35,100,000 from Q3 'twenty two. The Q3 2023 net interest expense excludes $3,400,000 of non cash amortized financing costs in OID. The average interest rate in the quarter for the amended credit facility, including the senior notes, was 6.87% compared to 4.55% in the Q3 of 2022. Adjusted net income, as defined in Note 4 in the earnings release, was $295,900,000 and adjusted diluted EPS was $1.17 The effective tax rate used for adjusted net income was 26%. Share repurchases of 1,700,000 drove the diluted share count down to 253,900,000 from 255,000,000 in Q2.

Speaker 4

SS and C ended the 3rd quarter with $447,600,000 in cash and cash equivalents and $6,900,000,000 in gross debt. SS and C's net debt, as defined in our credit agreement, which which excludes cash and cash equivalents of $106,100,000 held at DomaneRx LLC, was $6,600,000,000 as of September 30. Our LTM consolidated EBITDA used for covenant compliance was $2,063,800,000 as of September 2023. Based on net debt of approximately $6,600,000,000 our total leverage ratio was 3.18 times. Our secured leverage ratio was 2.21x as of September 30.

Speaker 2

As we look forward to

Speaker 4

the Q4 and establishing our guidance, Note that we will continue to focus on client service and assume that our retention rates will continue to be in the range of our most recent results. We will continue to manage our expenses with a cost disciplined approach by controlling and aligning variable expenses to ensure efficiency, increasing productivity to improve our operating margins to leverage our scale and effectively investing in the business, marketing, sales and R and D to take advantage of future growth opportunities. Specifically, we have assumed adjusted organic growth for Q4 in the range of 1.8% to 4.8%, resulting in adjusted organic growth for the year in the range of 2.1% to 2.9%. FX rates will be at current levels, interest rates to remain flat through the end of the year compared to the ending rate in the Q3 GAAP tax rate of approximately 26% on an adjusted basis, which is unchanged from prior guidance Capital expenditures to remain at 3.9% to 4.1% of revenues, which is unchanged from prior guidance and a more weighted emphasis to share repurchases similar to what we did in Q3. For the Q4 of 2023, we expect revenue to be in the range of $1,370,000,000 to $1,410,000,000 Adjusted net income in the range of $305,000,000 to $327,000,000 Interest expense, excluding amortization of deferred financing costs and original issue discount, in the range of $116,000,000 to $119,000,000 diluted shares in the range of 252,000,000 to $254,000,000 and adjusted diluted EPS in the range of $1.21 to 1 0.29 For the full year 2023, we expect revenue to be in the range of $5,463,500,000 to $5,503,500,000 adjusted net income in the range of $1,159,900,000 to $1,181,900,000 Diluted shares in the range of $254,500,000 to $255,000,000 adjusted diluted EPS in the range of $4.55 to 4.64 and cash from operating activities to be in the range of $1,180,000,000 to $1,230,000,000 Now I'd like to turn it back over to Bill for final comments.

Speaker 2

Thanks, Brian. Earlier this week, we hosted nearly 1,000 clients and prospects at our SS and C Deliver Conference in Austin, Texas. Delivering the Future was a theme of the conference with a big emphasis on the power of AI and robotics process automation. We showcased over 40 solutions across the key market segments we serve and initial feedback has been positive. I'll now open it up for questions.

Operator

Thank you, Mr. Stone. And and one follow-up question. And we'll pause for just a moment. We'll go first this afternoon to Dan Perlin at RBC Capital Markets.

Speaker 5

Thanks. Good evening. I just had a question on the revenue retention rates. As we kind of went back and looked at them,

Speaker 4

I mean, I know it's

Speaker 5

a modest uptick, it's actually pretty reasonable, but it looks like to be maybe the highest level we've certainly seen back to 2019, maybe ever, quite frankly. So can you just talk about some of the metrics that are driving that and how that might play into your thinking as we go into next year around organic growth? Thanks.

Speaker 2

Dan, I think The retention rates really reflects the concentration we put on customer service and Making sure that we run these customer satisfaction calls Every month and we keep track of them and we're really putting a tremendous amount of emphasis. And we also believe that the ability for us to Cross sell and up sell into our current client base is much stronger than we may have looked at it before. And so I think the renewed emphasis on that and our customer relationship management programs is starting to pay off.

Speaker 3

On that same vein, Bill,

Speaker 5

could you talk a little bit about the deal pipeline and conversion cycles you're seeing? I know Rahul called out specifically wins within private markets, which has obviously been very strong and then obviously with Black Diamond. I'm just wondering how things are kind of setting up? How those conversations are going today? And are you feeling better about conversion cycles, as we sit here now or pretty much the same as maybe it's, I don't know, 6, 9 months ago?

Speaker 5

Thank you.

Speaker 2

Yes. I would say that I think our pipeline In our foot administration businesses is over $400,000,000 So that's a lot of revenue. Now you got to close it, right? And then you got to Get them live and so it's not just a walk in the park, but it does indicate kind of the lead we have In a number of our areas, Intralinks is seeing picks up in their lead generation and our ability to Close on additional M and A that's happened in that marketplace. And I think the private markets Looks like it's going to remain strong through the end of the year.

Speaker 2

And we have we were a little light on license revenue, but 606 and Renewals is always kind of a crapshoot and I think that Q3 was particularly soft, but that ought to rebound a little bit in Q4 and also in 2024.

Speaker 5

That's great. Thank you, Bill.

Operator

Thank you. We go next now to Peter Heckmann at D. A. Davidson.

Speaker 6

Good afternoon, everyone. I wanted to follow-up on a couple of pieces. You noted that Little bit light on software revenue. I assume that was primarily the legacy software businesses. And just trying to clarify if there was a Particularly tough comparison there.

Speaker 6

And I know you don't do it in your filings, but if you could quantify roughly the amount of software license revenue in quarter, that would be helpful.

Speaker 3

I think the difference in What we expected versus where we ended up from a software license revenue was in the order of magnitude of about $20,000,000 to $25,000,000 in the quarter.

Speaker 6

Okay. And then but it does appear that it was concentrated within the legacy software businesses?

Speaker 3

That's right. That's right. Primarily Institutional and Investment Management business and some impact in Advent as well.

Speaker 6

Okay. Okay. And then just on the retirement side, 15% up in the quarter, sequential acceleration. I'm sorry if I missed it, but does that reflect the go live of some of the large clients in the conversion pipeline?

Speaker 3

Yes, it does. We're continuing to make progress as you know we did win a few large deals. I was want to say 18 months to 24 months ago that we've been working hard on implementing and what we are right now is we have one of them fully live and another one scheduled to go live in Early 2024 and you're starting to see really the revenue benefit of that happening.

Speaker 6

Great. Thank you.

Operator

Thank you. We'll go next now to Andrew Schmidt at Citi.

Speaker 7

Hey, guys. Thanks for taking my questions and welcome, Brian. Brian, maybe I could put you on the spot for a second. I know it's a little bit early, but Talk about just initial observations and maybe some early priorities you have as you hit the ground here, if that'd be helpful. Thanks a lot.

Speaker 4

Yes. No, thanks for the question. And I would say the priorities that we have are continuing to And build on the momentum here as I said in my opening comments. I think that one of the things the finance group and our leadership is looking to do is Continue to enhance some of the tools that the leaders of the front lines are actually using with respect to the contracts to help make better decisions, more timely decisions, what they're looking at around pricing, what they're looking around implementing investment and expenses to drive future revenue growth, I think has been important. I think the team has already has always been focused on looking at expenses and trying to make sure that the expense Level and spend, the variable and fixed adjusts in accordance with, I'll call it, revenue outlook, So that revenue growth is obviously very important, but so is making sure that we have an appropriate margin that we're bringing to our shareholders.

Speaker 4

So I would say continuation along those lines. I think we'll continue to try and drive some incremental metrics to give increasing visibility To again, to continue to help understand what's driving the business and the strength that we see in it that sometimes may be masked by the aggregate numbers and some of those trends. So we'll continue to try and highlight those. And lastly, I would say on The capital allocation piece, again, putting that in perspective of how we view and how we're going to maybe be a little bit more proactive around What we're doing with respect to that cash flow, I think we've indicated, like I said, a more heavier lean and allocation towards share buyback and continue to be transparent about where we think we're going to put the capital to work.

Speaker 7

Got it. Appreciate that, Brian. Very helpful. Then if you could pick up on the margin comment, the implied 4th quarter margin, pretty good progress there. It looks like it's If my math is right, up at least 200 bps year over year.

Speaker 7

As we look ahead, Can you talk about an opportunity for maybe above trend margin expansion, just given all the opportunities you have in front of you, whether it's Digital workers, cost efficiency, obviously, some top line scale hopefully, anything around that would be helpful. Thanks a lot.

Speaker 2

Yes, Eric. I think that as we've said on a number of these calls that driving our margins up is We don't find to be particularly difficult. We have great clients. We have great people And we continually look at productivity enhancements and Blue Prism has been a great addition to that, Not only in us deploying 1700 or 1600 digital workers and By the end of this year and then also having also allowed us to grow and not add FTEs into our workforce. So we're pretty excited about that opportunity and even as a business itself, we have some talented people running that business And they have driven margins from a little bit negative when we acquired them in the Q2 of 2022 to probably going to end the Q4 at above 30% margins at Blue Prism, which is kind of a hallmark Of SS and C is that we manage our businesses, we drive high EBITDA, we pay down debt quickly, we're buying back stock.

Speaker 2

We're pretty bullish. Wall Street is not particularly bullish, but we're pretty bullish.

Operator

Got it. Thank you very much, Bill. Thank you. We'll go next now to Alex Kramm at UBS.

Speaker 8

Yes. Hey, good evening, everyone. Just wanted to Go and look at the 4th quarter organic growth guidance. If my memory serves me right, I think last quarter the cadence That was implied was something more in the mid single digits for the Q4. So a little bit of a, I guess, downdraft And your expectation here by a point 0.5 or so.

Speaker 8

So can you just maybe help us understand what has changed In the last 3 months relative to prior expectations and what the swing factors could be still into year end?

Speaker 2

Yes, Alex. I think primarily the swings are there's a lot of stuff going on in the world, right? And just like The license businesses get people get skittish about major capital allocations. And so That was a little soft in Q3 and we're hoping it rebounds in Q4, but we're not trying to stick our neck out on license revenue. Like we said at the beginning, our recurring revenue growth in the Q3 was over 5% up.

Speaker 2

That's primarily all of our Fund Administration businesses and other recurring revenue businesses. And We got maybe a little conservative here in Q4, but we're trying To give you our best guess, and then we're trying to go out and continue to build the business.

Speaker 8

Fair enough. And then maybe just more specifically, I don't think the Gits business has come up, but obviously that's a Very sizable business for you and an area of pain in the last few years, but seems to really be stable here in this 3% or so range. You feel pretty good about the outlook there and continue in this kind of environment at that range? Or is there still The ability to maybe even accelerate that into maybe something more in the mid single digits or is that business just too mature and maybe the end markets are too tough That you're happy with what you're seeing?

Speaker 3

I think that, 1, we're happy with The progress, right. At the same time, we do believe there's more opportunity. If you kind of think about the end markets, the end markets include Wealth managers in Europe, wealth managers in Australia were selling a comprehensive array of services and software. And as we think through our pipeline that gives business has some of the biggest deals that we have as a company. So we're, I think, reasonably optimistic that we can accelerate the growth rate from where we are currently.

Speaker 3

And I

Speaker 2

would just add a little bit, Alex, that We're a technology company, right. So we need to make these products better. And we compete against big gigantic financial institutions That you guys are very familiar with and we think our ability to out innovate, our ability to deliver more product, Our ability to have more intuitive systems is one of our greatest strengths. And some of my kids, as you're well aware, is in a pretty mature business. But at the same time, if we can continue to innovate, then when we go up against our competitors, there's really they don't have a chance.

Speaker 2

And I think that's our real opportunity and that's why we've stuck with the knitting and that's what we're doing both in GID, that's what we're going to do with Domane Rx, That's what we're doing across everything we're doing. That's why we remain reasonably bullish.

Speaker 8

Fair enough. Thanks guys.

Operator

Thank you. We go next now to Ella Smith at JPMorgan.

Speaker 9

Hi, this is Ella Smith on for Alexey Gobala from JPMorgan. So my first question is for you Bill surrounding M and A. Are you seeing anything for sale in the market? And if you were to pursue a tuck in acquisition in the next 6 to 12 months, what products or businesses do you think could enhance Compliment SS and C's existing offerings.

Speaker 2

Well, we're constantly in the marketplace and it all depends on What's for sale at what price and can we sell our stuff to their client base and can we take what we buy And sell it into our client base. So I would imagine just like Iris that we did here a couple of months ago and we have a few other small Tuck ins that we'll probably do. We really like the Australian market. We really like the Canadian market As well as the U. S.

Speaker 2

Market and there are some things that we like in the UK that we think are pretty interesting. So I think we might deploy $100,000,000 in the next 3 to 6 months on acquisitions, but we don't have anything right now that we would Be closing on in that range. So we like M and A. We think we're good at it. We think we can Drive margins and give the people a good place to work.

Speaker 2

But you got to get them at the right price and you got to be disciplined about it. And so that's how we operate.

Speaker 9

Great. Thank you very much, Phil. And I think this next question will be for Rahul or whoever wants to take it, but You've alluded to this, but retirement did quite well in the 3rd quarter growing 15%, much higher than in the 1st and second quarters. I was hoping you could speak more to what's driving the growth there?

Speaker 3

I think it's primarily We've been working on a number of large deals and bringing them live and as they come live we see our revenue tick up. So that's there was some backlog on that revenue that kind of showed up in the quarter which we were happy to see and we do think that we have some more opportunity to have These kinds of step changes in 2024 as well.

Speaker 9

Great. Thank you all so much.

Speaker 10

Thank

Operator

you. We go next now to James Faucette at Morgan Stanley.

Speaker 11

Thank you very much. Just quick question on Eze. It was great to see the press release on Ezecliff earlier today. Any sense As to how the new client figure of 60 compares to last year that you can share with us or maybe What a more normalized hedge fund formation market might look like? Just trying to get a sense on what growth trajectory and potential is or as especially on as to clips?

Speaker 3

I think There's kind of as it's kind of a little bit 2 things going on in that business, but I think as it relates to Eclipse, The number of new clients we have this year is maybe 1.5 times what we had in kind of a similar period last year. So we are accelerating. We're seeing kind of a lot of acceptance and it's not just new hedge funds right. It also is we continue to add Fixed income workflows, derivative workflows, other operational workflows and so the kinds of organizations that This kind of suite of software and services whether that's Eze or Eclipse appeal to, they keep getting bigger. So our markets are expanding and our sales Progress is we're making progress there.

Speaker 3

There is a little bit of an impact of the kind of market volatility and equity volumes and things like that which Shows up in the numbers, but underlying that sales performance is very strong.

Speaker 11

Got it, got it. And then I think in the last couple of years Pricing has been an issue across the industry. How should we think about like what the contribution What price has been to the growth this year or at least your outlook for this year? And how should we anticipate that as a contributor for next year?

Speaker 8

Yes. Luis, so we've as

Speaker 4

we look at this and we've kind of factored this in, And this again, this is kind of a mix relative to the flows, inflows and outflows. I think we've kind of talked about the, I'll call it, the 100 and $30,000,000 to $150,000,000 range. Again, sometimes it's hard to disaggregate to a single factor and that Kind of builds over time right through and that could, I'll call it accelerate in the 4Q to have incrementally more versus the Q3. So we're seeing nice price increases. We're building in more and more contracts and a lot of them are having this in here for TPI adjustments are automatic adjustments, so they kick in.

Speaker 4

So we're seeing adoption. We're seeing it going in place. It's not an insignificant contributor to incremental revenue growth. So I would expect to see more of that on a go forward basis.

Speaker 3

Yes. And maybe I'd just add on the back of that. We're still what you're seeing in price, the numbers Brian just talked about, Really still only represents in a given year maybe a third to half of our client base, right. So as we get more automatic on these escalators and there are still conversations that we need to have in 2024, we do expect that will continue to help.

Speaker 2

Sure, that makes sense. And James, we also will continue to innovate. It allows our clients when we do raise prices to feel good about What we're spending their money on, right? So if you look at our R and D spend, it goes up every quarter, it goes up every year That this year we'll spend close to $500,000,000 and that's besides spending like $1,700,000,000 on Blue Prism or What we've spent on Iris or what we've spent on other things that gives our clients a more robust offering across all the different segments we serve.

Speaker 11

Yes, got it. Appreciate that. Thank you, guys.

Operator

We'll go next now to Surinder Thind at Jefferies.

Speaker 10

Thank you. Bill, just one big picture question here. Just in terms of how are you thinking about just Automation Technologies in general such as RPA here and maybe the grander scheme of productivity enhancements. And I guess what I'm getting at is, obviously there's a lot of hype around generative AI. So is there Complimentary stuff here, is there competition here between the newer technologies or different technologies?

Speaker 10

How should we think about the market opportunity?

Speaker 2

Well, I think the whole key to this kind of a business is how efficient can you be, Right. This is not glamor here, right. You need to be in balance, right. If you need to be in balance and some of our customers do millions of trades a day, What they want us to do is make sure we process them, balance them, get you ready to trade the next day, right. And so that's a big part of what we do and that's a big part of how We're using the new technologies to allow us to spot problems before it becomes a crisis and to be able To always be there for our clients and like when COVID hit and things like that, we had all kinds of clients coming to us, Right, because we stood up, we kept processing all through that stuff and people learned that, wow, they don't really have failover.

Speaker 2

They don't really have the infrastructure that we have and what we've spent to have it. And so I think some of those kinds of things are what these new Technologies are allowing you to do somewhat easier, somewhat faster, but then you got to be careful that You have to still be in balance. You have to still be able to reconcile. You have to still be able to understand what that means, Right. The humans have to be in charge.

Speaker 2

Otherwise, you start looking at this technology and decide it's always right. And it's not always right. So it's important To have the right controls, the right processes, the right procedures as you add sophisticated Technology that artificial intelligence stuff and stuff like that, that Sometimes it'd be a little bit too artificial. So I think it's important for us to stay awake and put in the proper Processes and controls to make sure that our customers are served well.

Speaker 10

That's helpful. And then just kind of turning to the healthcare business here, just as we kind of look over the next year in DemoneRx And the investments that you've made, just any kind of an update there in terms of progress, how we should be thinking about the cadence? And then obviously just in terms of just understanding near term dynamics on it, it looks like the healthcare business has started to stabilize in its current format. So just any color

Operator

there, please.

Speaker 2

Well, I think it is stabilizing. I think We've done a good job. We have really improved our relationships with our clients. We have some big opportunities Even outside of DemaniRx and we have huge opportunities with DemaniRx. We're on schedule to put Upwards tens of millions of lives on Demantirx in the Q1 of 'twenty four, and we're poised to do that.

Speaker 2

So we're optimistic and we think healthcare is an excellent segment to be in with a lot of opportunity And similar aging technology where our innovation capabilities and technology capabilities will be very well received.

Speaker 10

Got it. And then just in terms of as you think about the investments you made, like Does healthcare operate relatively independently of everybody else within the organization? Or how should we think about that business in terms of the what I would call the amount of investment that's going on there and your ability to kind of leverage internal resources.

Speaker 2

Well, again, remember, most of these healthcare organizations also have insurance backgrounds in them. And so a big Singularity client is At the CVS and Cigna and we're also pitching other big healthcare and insurance organizations like Anthem. And so We think that the health and wealth process is also pretty important. And as you have aging population, all of us that are You might have a relative or someone that gets ill or something and you need to be able to take care of them And really understanding the provider networks and being able to add value to all of our clients across All of our segments. I think it's symbiotic, and that's something that we've stayed with and we've made the investment.

Speaker 2

Yes, we took a couple of whacks on the chin, but hey, you don't get anywhere unless you As one of our great clients said to me once was, you got to have perseverance to get through these large system developments.

Speaker 3

And there is just to add to kind of the second part of that, there is a fair amount of overlap internally on the compute that we're using and the data centers and operational processes. So the businesses are helping each other.

Speaker 10

Got it. Okay. That's it for me. Thank you.

Operator

Thank you. We'll take a follow-up question now from Peter Heckmann at D. A. Davidson.

Speaker 6

Thanks. I apologize if I missed it. Did you provide an updated target date for the first big conversion on Demani?

Speaker 2

Yes. We're going to convert. We have a big drug discount card business that we're going to convert beginning in the Q1 of 'twenty four And that's tens of millions of lives. Okay.

Speaker 6

24, okay. And then just in regard some of the carryover investments from DSP. Can you just remind us what's left in the unconsolidated affiliates And as well some of the investments, I think I would have expected that investment number to be falling a little bit and moving into Cash column, but still have a number of fairly illiquid investments in that category.

Speaker 4

Yes, there is definitely There's still more there. I would say the most illiquid is a lot of real estate that we are continuing to market and take a look at. That's a tough market right now and particularly in some of the properties with respect to office buildings located in downtown centers. There's still some investments that are actually yielding positive results, but we're not Pulling those into earnings on an active basis even though it is a positive number. So I would say there's still a bit of balance sheet hang that we are doing a reasonably good job of keeping cash flow neutral.

Speaker 4

But is it quite covering everything that's out there? Maybe not, but it's getting close. So we are winding it down. Those real estate assets are probably going to take some time. They're still sitting out there.

Speaker 6

Okay. I appreciate it.

Operator

Thank you. And gentlemen, it appears we have no further questions this afternoon. Mr. Stone, I'd like to turn things back to you, sir, for any closing comments.

Speaker 2

Well, again, we appreciate all of you being on. We appreciate the questions we got and we appreciate where we stand And we look forward to talking to you after the end of the year. Thanks.

Operator

Thank you, Mr. Stone. Ladies and gentlemen, that will conclude the SS and C Technologies Q3 2023 earnings call. Again, we'd like to thank you all so much for joining us and wish you all a great day. Goodbye.

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Key Takeaways

  • Record adjusted revenue of $1.3667 billion, up 3.4%, and adjusted diluted EPS of $1.17, with a 39.1% EBITDA margin—marking the second-highest adjusted EBITDA in company history and a 230 bps sequential margin improvement.
  • Underlying strength in recurring streams drove adjusted organic revenue growth of 2.3% and over 5% recurring revenue growth, while Financial Services retention hit a record 97.3%.
  • $826.7 million of operating cash flow generated for the nine months ended September 30 (up 8.1% y/y), with $96.9 million in Q3 share buybacks, a 20% dividend increase, and a net leverage ratio reduced to 3.18× EBITDA.
  • Deployment of Blue Prism RPA delivered 2,000 FTE savings year-to-date (≈$100 million run-rate) and client-specific savings (e.g., $140K on a 20,000-customer cash-balance campaign), with further cost efficiencies expected.
  • Growth accelerators in alternatives (8.4%)—especially private markets—and Intralinks (>10%) complemented by new AI-powered tools (e.g., DocuAI, Intralinks Deal Vault) and industry awards for SS&C platforms.
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Earnings Conference Call
SS&C Technologies Q3 2023
00:00 / 00:00