SS&C Technologies Holdings, Inc. — Q2 2023 Form 10-Q
Reporting period: Quarter and six months ended June 30, 2023. Dollar amounts are in millions except per-share data. SS&C provides software-enabled services and software licenses, maintenance, and related services, primarily to financial services and healthcare clients.
Financial performance
| Metric | Q2 2023 | Q2 2022 | Six months 2023 | Six months 2022 |
|---|---|---|---|---|
| Revenue | $1,362.6 | $1,328.7 | $2,725.3 | $2,623.7 |
| Gross profit / gross margin | $641.1 / 47.0% | $624.3 / 47.0% | $1,278.1 / 46.9% | $1,244.1 / 47.4% |
| Operating income | $288.2 | $245.6 | $568.3 | $537.4 |
| Net income attributable to SS&C common stockholders | $130.7 | $110.6 | $256.7 | $282.7 |
| Diluted EPS | $0.51 | $0.42 | $1.00 | $1.06 |
| Net cash from operating activities | Not presented quarterly | $584.2 | $447.5 |
- Q2 revenue grew 2.6%; software-enabled services rose 3.3%, while license, maintenance and related revenue declined 0.7%. Management attributed growth principally to organic strength in several fund administration, virtual data room, investor services, Blue Prism and Geneva businesses, plus acquisition contributions, partly offset by foreign currency effects.
- Six-month revenue increased 3.9%, including $69.2 of revenue from 2022 acquisitions and $55.5 of organic growth, partly offset by $23.1 of unfavorable currency translation. The six-month comparison includes acquired businesses.
- Q2 operating income increased 17.3% as operating expenses fell 6.8%, including lower general and administrative costs and a stock-based compensation adjustment. Six-month operating income rose 5.8%, while operating expenses were nearly flat.
- Net income attributable to stockholders rose in Q2 but fell for the first half. Higher interest and tax expense weighed on first-half earnings. Net interest expense was $229.9 for the half versus $117.0 a year earlier; the company cited higher average borrowing rates.
Cash, debt and liquidity
- Cash and cash equivalents were $439.7 at June 30, 2023, versus $440.1 at year-end 2022. Cash, cash equivalents and restricted cash totaled $722.8, down $614.8 during the half; the reported total includes client-related restricted cash.
- Operating cash flow was $584.2. Investing used $114.4, including $97.2 of capitalized software development and $24.2 of property and equipment additions. Financing used $1,085.2, including a $613.6 net decrease in client fund obligations, $244.1 in share repurchases, $169.8 in net debt repayments and $101.2 in dividends.
- Total debt carrying value was $6,917.0, including $4,959.7 of variable-rate senior secured facilities and $2,000.0 of 5.5% senior notes due 2027. The facilities include term loans maturing in 2025 and 2029; the revolving facility matures in 2027 and had no amount outstanding. The weighted-average rate on secured facilities was 7.09% at quarter-end.
- The company reported compliance with debt covenants and a 2.28x consolidated net secured leverage ratio against a 6.25x maximum. Management said cash, operating cash flow and available credit should fund obligations and projected working capital and capital spending for at least the next 12 months.
- Client funds receivable and obligations were each $345.6 at quarter-end; these balances relate to funds held for clients and should not be treated as unrestricted corporate liquidity.
Outlook, risks and unusual items
- The filing provides no specific revenue, earnings or margin guidance. Management cautioned that results may be affected by macroeconomic conditions, including interest rates, inflation, foreign exchange movements and continuing uncertainty related to COVID-19.
- A 100-basis-point increase in rates was estimated to increase annual interest expense by approximately $49.6, based on variable-rate debt outstanding. The filing also estimates an offsetting rate sensitivity from interest earned on client cash balances; actual balances and effects may vary.
- SS&C recorded a $55.1 accrued liability for its share of a proposed global settlement of DST-related ERISA matters. The settlement agreement, submitted for preliminary court approval on July 14, 2023, would require DST to pay approximately $55.1 and resolve related claims if approved. Payment was not expected before Q4 2023 and remained subject to court approval; the filing notes uncertainty about ultimate resolution and any additional exposure.
- Other Q2 items included $13.4 of income from settlement of a dispute related to pre-acquisition matters and an $8.5 reduction in previously recorded performance-award stock compensation expense. Six-month severance expense was $17.0 versus $6.5 a year earlier.
- The board authorized a new $1 billion share repurchase program in July 2023. During the first half, SS&C repurchased 4.3 million shares for approximately $246.6 and declared dividends of $0.40 per share. The company reported effective disclosure controls and no material change in risk factors from its 2022 Form 10-K.
Key facts for investors to verify
- Whether the proposed $55.1 DST settlement receives court approval, is paid as expected, and fully resolves the related claims and appeals.
- How higher variable borrowing costs affect interest expense, earnings and cash generation, and whether debt covenants remain comfortably satisfied.
- Whether organic revenue growth persists and how acquisition contributions, currency movements and wage inflation affect growth and margins.
- How much reported cash is unrestricted and available to service corporate obligations, excluding client-related balances and cash held in subsidiaries.
- Execution of the new repurchase authorization alongside debt repayment, dividends and software investment.