SS&C Technologies Holdings, Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022. Financial amounts are in U.S. dollars; millions unless stated otherwise. SS&C provides software-enabled services and software licenses, maintenance and related services.
Financial performance
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $1,295.0 | $1,233.4 | +5.0% |
| Gross profit | $619.8 | $559.1 | +10.9% |
| Operating income | $291.8 | $269.1 | +8.4% |
| Net income | $171.3 | $174.9 | -2.1% |
| Net income attributable to SS&C common stockholders | $172.1 | $174.9 | -1.6% |
| Diluted EPS | $0.64 | $0.65 | -1.5% |
| Net cash from operating activities | $183.5 | $185.7 | -$2.2 |
Gross margin increased to 47.9% from 45.3%; operating margin was approximately 22.5% versus 21.8%. Revenue growth reflected $52.8 million of organic growth and $17.4 million from acquisitions, partly offset by $8.6 million of unfavorable currency translation. Software-enabled services revenue rose 4.0%; license, maintenance and related revenue rose 10.4%. Management cited strength in GlobeOp fund administration, Black Diamond, Geneva and virtual data room services.
Operating expenses rose 13.1% to $328.0 million, including $23.4 million of acquisition-related expenses, of which $11.0 million were transaction costs. Stock-based compensation increased to $39.9 million from $27.8 million. Other expense was $9.0 million, versus $18.0 million of other income a year earlier, primarily reflecting $9.7 million of foreign currency translation losses and investment losses. The effective tax rate increased to 27.0% from 25.8%.
Cash, debt and liquidity
- Cash and cash equivalents were $558.1 million at quarter-end, compared with $564.0 million at December 31, 2021. The cash-flow statement’s $3,007.8 million ending total also includes restricted cash held on behalf of clients; client funds and matching obligations were each $2,549.6 million.
- Total debt, net of unamortized discounts and issuance costs, was $7,520.4 million, up from $5,948.9 million at year-end. This followed acquisition financing. The company had $157.5 million available under its $250 million revolving facility and reported compliance with its debt covenants.
- The secured net leverage ratio was 2.51x against a maximum covenant level of 6.25x. Variable-rate debt was approximately $5,583.6 million; a 100-basis-point rate increase was estimated to raise annual interest expense by approximately $55.8 million.
- Operating cash flow was $183.5 million. Investing used $1,583.5 million, principally for acquisitions; financing provided $1,240.9 million, principally from net borrowings. Operating cash flow included approximately $30 million of Blue Prism transaction costs and was affected by working-capital movements, including bonus payments and annual maintenance billing.
- The company paid $51.1 million in dividends, repurchased $170.9 million of shares, and declared a quarterly dividend of $0.20 per share. Management expects cash on hand, operating cash flows and credit availability to fund obligations and projected needs for at least the next 12 months.
Acquisitions and other material developments
SS&C acquired Blue Prism on March 16 for approximately $1.6 billion in cash and Hubwise on March 25 for approximately $75 million. The acquisitions contributed $10.9 million of reported-quarter revenue, as they were consolidated only from their acquisition dates. Purchase accounting remains preliminary; approximately $1.03 billion of goodwill was added for the acquisitions. New $650 million and $880 million term loans, due in 2029, helped finance Blue Prism.
Comprehensive income attributable to SS&C common stockholders declined to $143.9 million from $183.8 million, chiefly reflecting a $28.3 million foreign-currency translation loss. No full-year financial forecast or numerical guidance is provided in the supplied filing text.
Outlook, risks and contingencies
- Management reported no direct material adverse effect from COVID-19 to date, while noting client delays and that future effects remain uncertain.
- The company remains exposed to variable interest rates, foreign currency movements and equity-price changes. Approximately 29% of revenue came from clients outside the United States.
- Extensive DST-related ERISA litigation and arbitration matters remain unresolved. SS&C recorded a $43.4 million liability and expense in 2021; the ultimate resolution and any additional exposure are uncertain. The filing describes 579 arbitration demands, 177 confirmed arbitration awards under appeal, and a Department of Labor case in which motions to dismiss were denied. Management says it is vigorously defending the matters and does not believe the proceedings are likely to have a material adverse effect, but the outcome cannot be assured.
- The filing reports no material changes to previously disclosed risk factors, no material off-balance-sheet arrangements, and effective disclosure controls as of March 31, 2022.
Key facts for investors to verify
- How Blue Prism and Hubwise perform after integration, and how final purchase-price valuations affect goodwill, amortization and taxes.
- Whether operating cash conversion improves as acquisition costs and working-capital effects normalize.
- Debt repayment capacity and sensitivity to interest rates, particularly as variable-rate borrowings have increased.
- Developments in DST ERISA litigation, arbitration appeals and potential additional losses beyond the recorded accrual.
- The distinction between available corporate cash and client funds included in reported cash-flow totals.