SS&C Technologies Holdings, Inc. — FY2021 Form 10-K
Reporting period: Year ended December 31, 2021. This is an annual report, not a standalone fourth-quarter report; separate Q4 results are not provided in the supplied filing text. Amounts are in U.S. dollars unless otherwise noted.
Business context
SS&C provides software, software-enabled outsourcing, cloud solutions and related services to financial services and healthcare organizations. Its offerings span fund administration, asset and wealth management, retirement, banking, virtual data rooms and healthcare claims and pharmacy services. Revenue is largely recurring: software-enabled services represented 84.3% of FY2021 revenue. The company reported average retention above 95% over the prior five years for specified core software-enabled services and maintenance and term-license contracts.
Financial performance and liquidity
| Metric | FY2021 | FY2020 | Change |
|---|---|---|---|
| Revenue | $5,051.0 million | $4,667.9 million | +8.2% |
| Software-enabled services revenue | $4,256.1 million | $3,891.3 million | +9.4% |
| License, maintenance and related revenue | $794.9 million | $776.6 million | +2.4% |
| Gross profit / gross margin | $2,409.3 million / 47.7% | $2,093.8 million / 44.9% | Margin +2.8 pts |
| Operating income | $1,242.3 million | $985.8 million | +26.0% |
| Net income attributable to SS&C common stockholders | $800.0 million | $625.2 million | +28.0% |
| Diluted EPS | $2.99 | $2.35 | +27.2% |
| Cash from operating activities | $1,429.0 million | $1,184.7 million | +$244.3 million |
Operating margin was approximately 24.6%, versus 21.1% in 2020; net margin was approximately 15.8%, versus 13.4%. Management attributed revenue growth to $272.7 million of organic growth, $56.9 million from acquisitions and $53.5 million from favorable currency translation. Organic strength included GlobeOp fund administration, Black Diamond, Geneva, Retirement Solutions, ALPS Advisors and virtual data room services and products. Improved gross margin reflected lower service costs relative to revenue; total operating expenses rose 5.3%.
FY2021 investing cash outflow was $148.2 million, including $85.3 million of capitalized software development and $51.3 million of capital expenditures. Financing cash flow included $519.9 million of net debt repayments, $487.9 million of share repurchases and $174.0 million of dividends, partly offset by a $1,480.5 million increase in client funds obligations. Cash and restricted cash totaled $3,171.4 million at year-end, but included $2,603.2 million of restricted client funds; balance-sheet cash and cash equivalents were $564.0 million. Client funds are not equivalent to unrestricted corporate liquidity.
Total debt was $5,979.7 million at year-end (balance-sheet carrying amount, net of issuance costs, was $5,948.9 million); $3,974.5 million was variable-rate debt. The company reported a 1.72x consolidated net secured leverage ratio against a 6.25x covenant maximum. It had $247.3 million available under its revolving facility. Annual interest payments were estimated at approximately $184.5 million. Management said cash, operating cash flow and available credit should fund obligations, working capital and capital spending for at least the next 12 months.
Material changes and notable items
- Revenue growth accelerated versus 2020, when revenue increased just 0.8%; FY2021 software-enabled services growth was 9.4% versus 0.6% in 2020.
- Net income rose to $800.6 million before $0.6 million attributable to noncontrolling interest, compared with $625.2 million in 2020. Lower interest expense ($205.7 million versus $249.9 million) and higher operating income contributed. The tax provision increased to $236.4 million from $150.6 million, and the effective tax rate rose to 22.8% from 19.4%.
- Other expense included a $43.4 million accrual for DST ERISA litigation. Equity earnings from unconsolidated affiliates were $25.4 million, including a $23.4 million gain related to a hotel asset sale. The company also recorded a $10.9 million debt-extinguishment loss.
- SS&C consolidated DomaniRx, a pharmacy-benefit platform joint venture, in July 2021 after obtaining an 80.2% interest. SS&C may be responsible for additional capital contributions up to $240.6 million and development-cost overruns up to $100.0 million, as described in the filing.
- The company announced a recommended acquisition of Blue Prism for approximately $1.7 billion, expected to close in the first or second quarter of 2022, subject to conditions. Management planned to fund it with cash and debt.
Outlook, risks and contingencies
The filing provides no quantitative FY2022 revenue, earnings or cash-flow guidance. Management described continued demand for outsourcing, cloud migration and digital transformation, and emphasized organic growth, cross-selling, international expansion and disciplined acquisitions. It also noted expected opportunities from regulatory complexity and automation, alongside plans to improve margins through scale, technology and operating efficiencies.
Key risks include substantial indebtedness and variable-rate exposure, refinancing and covenant limitations, cybersecurity or service disruptions, regulatory and privacy obligations, competition, market activity and client asset levels, acquisition integration, foreign currency movements and reliance on skilled employees. The filing states that COVID-19 had not materially affected 2021 results to date, while warning that impacts remained uncertain. The DST ERISA matters remained unresolved; the company had recorded the $43.4 million accrual, and further exposure was uncertain. Goodwill was $8,045.5 million; no impairment was recorded, although the auditor identified the health-business goodwill assessment as a critical audit matter. Management and the auditor reported effective internal control over financial reporting.
Important facts for investors to verify
- Reconcile the filing’s geographic disclosures: the business overview says 76% of revenue came from North America and 24% from outside it, while the geographic revenue table implies approximately 72% North America and 28% international.
- Assess unrestricted liquidity separately from client funds and restricted cash, and verify the funding plan and final cost of the Blue Prism acquisition.
- Review debt maturities, floating-rate exposure and the effect of benchmark-rate transition; the filing lists major term-loan maturities in 2025 and $2.0 billion of notes due 2027.
- Monitor developments and potential additional exposure in DST ERISA litigation, including appeals and the status of arbitration awards.
- Track DomaniRx funding commitments and execution, as well as the assumptions supporting the carrying value of goodwill, especially the health reporting unit.