SS&C Technologies Holdings, Inc. — Q3 2023 Form 10-Q
Reporting period: Three and nine months ended September 30, 2023. Amounts are in U.S. dollars; financial figures are in millions except per-share amounts. SS&C provides software-enabled services and software licenses, maintenance, and related services.
Financial performance
| Metric | Q3 2023 | Q3 2022 | Nine months 2023 | Nine months 2022 |
|---|---|---|---|---|
| Revenue | $1,365.9 | $1,321.0 | $4,091.2 | $3,944.7 |
| Gross profit | $654.4 | $623.8 | $1,932.5 | $1,867.9 |
| Gross margin | 47.9% | 47.2% | 47.2% | 47.4% |
| Operating income | $306.4 | $304.2 | $874.7 | $841.6 |
| Net income attributable to SS&C common stockholders | $156.0 | $160.0 | $412.7 | $442.7 |
| Diluted EPS | $0.61 | $0.61 | $1.62 | $1.68 |
| Net cash from operating activities | Not presented quarterly | $826.7 | $764.6 |
Financial position and liquidity
- At September 30, cash and cash equivalents were $447.6; total debt carrying value was $6,866.0, including $127.3 current and $6,738.7 long-term debt. The $2,000.0 of 5.5% senior notes mature in 2027; secured term loans mature in 2025 or 2029.
- The company reported $787.5 of funds receivable and held on behalf of clients, matched by $787.5 of client funds obligations. These client-related balances are not equivalent to unrestricted corporate liquidity. Cash-flow-statement cash, cash equivalents and restricted cash totaled $1,180.4, including client-related restricted cash.
- The revolving facility had $523.7 available at quarter-end. The company said cash on hand, operating cash flow and available credit were expected to fund obligations, working capital and capital spending for at least the next 12 months. It was in compliance with covenants; the reported maximum secured net leverage covenant was 6.25x versus an actual 2.21x.
- Nine-month investing cash use was $167.1, including $140.9 of capitalized software development and $40.7 of property and equipment additions. Financing cash use was $812.6, including $341.0 of treasury-stock purchases, $224.5 of net debt repayments, $160.9 of dividends and a $163.7 net reduction in client-fund obligations.
Changes versus comparable periods
- Revenue rose 3.4% in Q3 and 3.7% year to date. Software-enabled services grew 6.9% in Q3 and 4.3% year to date; license, maintenance and related revenue fell 10.1% in Q3 but increased 1.3% year to date.
- Management attributed revenue growth to organic strength in GlobeOp fund administration, virtual data room services, Global Investor and Distribution Solutions, and Blue Prism, alongside acquisition contributions and, in Q3, favorable currency translation. Year-to-date growth also included $71.7 of revenue from 2022 acquisitions and was partly offset by unfavorable currency effects.
- Q3 gross margin improved to 47.9%, while year-to-date gross margin edged down to 47.2%. Operating income rose modestly in Q3 and 3.9% year to date, but attributable net income declined 2.5% for Q3 and 6.8% year to date. Year-to-date diluted EPS fell to $1.62 from $1.68.
- Net interest expense increased to $120.6 in Q3 and $350.5 year to date, versus $86.0 and $203.0, respectively, primarily because average borrowing rates rose. Average rates were 6.87% in Q3 and 6.56% year to date, compared with 4.55% and 4.21% in 2022.
- Equity in earnings of unconsolidated affiliates was $27.5 in Q3 and $42.6 year to date, versus losses in the comparable 2022 periods. This included a $26.4 Q3 and $38.8 year-to-date mark-to-market increase in the carrying value of an investment.
Outlook, risks and unusual items
- The filing provides no specific revenue, earnings or cash-flow guidance. Management cautioned that higher interest rates, inflation and foreign-exchange movements could have uncertain, potentially material effects.
- Variable-rate debt was approximately $4,905.1 at quarter-end; a 100-basis-point rate increase was estimated to raise annual interest expense by approximately $49.1. Management noted that interest earnings on client cash balances partly offset rate exposure.
- The DST ERISA-related global settlement received final court approval on October 25, 2023. SS&C recorded a $55.1 accrued liability for DST’s share; the balance was $51.0 at September 30 after a scheduled payment. Payment and dismissal remained subject to settlement conditions and the appeal deadline. The company noted uncertainty about any additional exposure until resolution.
- Other notable items include $25.0 of severance expense for the first nine months, $117.5 of stock-based compensation expense, and $13.4 of year-to-date other income from settlement of a pre-acquisition dispute. The 2023 year-to-date effective tax rate was 28.8%, up from 26.9%, mainly reflecting uncertain tax positions, partly offset by stock-award tax benefits.
- On October 1, 2023, SS&C acquired OneVue Fund Services for approximately $32.5 in cash. Management reported effective disclosure controls and no material change in internal control over financial reporting; no material changes to previously disclosed risk factors were reported.
Most important facts for investors to verify
- Whether growth in software-enabled services offsets continued weakness in license, maintenance and related revenue, and how organic growth compares after acquisition and currency effects.
- Debt-service costs and refinancing timelines, given higher variable borrowing rates and the 2025 maturities of several term loans.
- Unrestricted cash and revolver availability after distinguishing corporate liquidity from client funds and restricted cash.
- Final settlement payments, appeal status and any remaining exposure related to the DST ERISA matters.
- The durability and cash realization of affiliate investment gains, and the effects of continued repurchases, dividends and investment in capitalized software.