SS&C Technologies Holdings, Inc. — Q3 2021 Form 10-Q
Reporting period: Quarter and nine months ended September 30, 2021. Unaudited consolidated financial statements; amounts below are in millions of dollars except per-share data.
Business context and results
SS&C provides software-enabled services, software licenses, maintenance and related services. Software-enabled services represented 84.6% of Q3 revenue. Management said COVID-19 had caused some client delays but had not materially harmed results to date, while noting that future effects remain uncertain.
| Metric | Q3 2021 | Q3 2020 | Nine months 2021 | Nine months 2020 |
|---|---|---|---|---|
| Revenue | $1,264.4 | $1,152.8 | $3,756.8 | $3,464.5 |
| Gross profit / margin | $624.0 / 49.4% | $523.9 / 45.4% | $1,778.1 / 47.3% | $1,543.2 / 44.5% |
| Operating income | $340.1 | $257.0 | $922.1 | $717.1 |
| Net income | $184.7 | $159.4 | $549.4 | $428.1 |
| Net income attributable to SS&C common stockholders | $184.4 | $159.4 | $549.1 | $428.1 |
| Diluted EPS | $0.69 | $0.60 | $2.05 | $1.61 |
| Operating cash flow | Not provided for quarter | Not provided for quarter | $944.9 | $755.1 |
Financial position and liquidity
- At September 30, cash and cash equivalents were $351.1, versus $209.3 at year-end 2020. Funds receivable and held for clients were $2,493.1, matched by client-funds obligations of the same amount; these balances should be distinguished from corporate liquidity.
- Total debt was $6,140.7, including $4,134.0 under secured credit facilities, $38.0 drawn on the revolving facility and $2,000.0 of 5.5% notes due 2027. The filing reports $209.3 of revolver availability. Debt was $6,442.4 at December 31, 2020.
- Management said cash on hand, operating cash flow and credit availability should fund obligations, working capital and capital spending for at least the next 12 months. The secured-credit covenant leverage ratio was 1.97x against a maximum of 6.25x.
- Nine-month cash flow: investing used $58.2; financing provided $483.5, including a $1,226.3 increase in client-funds obligations. The company repaid $317.8 net debt, repurchased $487.9 of stock and paid $122.8 in dividends.
Changes versus prior comparable periods
- Q3 revenue rose 9.7%; management attributed $91.3 to organic growth, $10.0 to acquisitions and $10.3 to favorable currency translation. Nine-month revenue increased 8.4%, reflecting $193.2 organic growth, $46.4 from acquisitions and $52.7 from currency translation.
- Q3 gross margin rose 4.0 percentage points, and operating income increased 32.3%. For the nine months, gross margin rose 2.8 points and operating income increased 28.6%.
- Net interest expense declined to $50.2 in Q3 and $152.6 for nine months, primarily from lower average debt balances and, for the nine-month period, lower average rates.
- Q3 other expense was $44.9, compared with $15.1 of other income a year earlier. The 2021 expense included a $43.4 accrual for DST-related ERISA litigation. Nine-month other expense was $20.4, versus $18.8 of income in 2020.
Outlook, risks and unusual items
- The filing provides no specific revenue or earnings guidance. Management cited strength in fund administration, Black Diamond, Geneva, retirement solutions, ALPS Advisors and virtual data-room services.
- In July, SS&C obtained an 80.2% interest in DomaniRx, a consolidated variable-interest entity developing a pharmacy-benefits platform. SS&C committed $240.6 in additional cash contributions and bears up to $100.0 of further development-cost overruns without additional ownership. DomaniRx assets are restricted to its operations and do not have recourse to SS&C’s general credit.
- DST-related ERISA proceedings remain a significant contingency. In Q3 SS&C recorded a $43.4 legal accrual; the filing says ultimate resolution and additional exposure are uncertain. By October 27, 2021, 70 arbitration awards had been confirmed as judgments against DST, subject to appeal. A proposed $27 settlement had not received preliminary court approval.
- Variable-rate debt was approximately $4,172.0; a 1 percentage-point rate increase was estimated to increase annual interest expense by approximately $41.7. SS&C also reported foreign-currency and equity-investment risks.
- The company repurchased $487.9 of shares in the first nine months and had a July 2021 authorization to repurchase up to $1 billion. Nine-month severance expense was $22.8, primarily related to integration of acquired businesses.
Important facts for investors to verify
- Track outcomes and potential additional exposure from the DST ERISA litigation, arbitration awards and appeals; the recorded accrual may not capture the ultimate resolution.
- Confirm the timing and funding of DomaniRx’s committed contributions and possible development overruns.
- Assess corporate liquidity separately from client funds, and monitor debt repayments, variable-rate exposure and covenant headroom.
- Separate organic growth from acquisition and foreign-exchange contributions when evaluating revenue trends and margins.
- Review the company’s subsequent filings for updated outlook, legal contingencies and capital-allocation activity.