SS&C Technologies Holdings, Inc. — 2015 Form 10-K
Reporting period: Fiscal year ended December 31, 2015. This is an annual filing, not a standalone quarterly report; selected unaudited fourth-quarter results are included below.
Business context
SS&C provides financial-services software and software-enabled services, including fund administration, investment management, accounting, reporting, and compliance solutions. It served more than 10,000 clients and reported that 92% of 2015 revenue was recurring. No single client represented more than 5% of revenue. The company completed the Advent acquisition in July 2015 and also acquired Varden and Primatics; its announced $425 million acquisition of Citigroup’s Alternative Investor Services business was pending at year-end.
Key financial metrics
| Metric | 2015 | 2014 |
|---|---|---|
| Revenue | $1,000.3 million | $767.9 million |
| Operating income | $164.7 million | $200.4 million |
| Net income | $42.9 million | $131.1 million |
| Diluted EPS | $0.45 | $1.50 |
| Gross margin | 47% | 47% |
| Cash from operating activities | $230.6 million | $252.5 million |
| Cash and cash equivalents, year-end | $434.2 million | $109.6 million |
| Total debt, year-end | $2,820.0 million | $645.0 million principal under prior facility |
Recurring revenue increased 29% to $916.6 million; software-enabled services revenue rose 13% to $670.2 million, while maintenance and term-license revenue more than doubled to $246.4 million, primarily reflecting acquisitions and a change in revenue mix. The filing reports 2015 revenue from outside the United States of $318.0 million. It separately states that 26% of revenue came from outside North America.
Year-end debt comprised $2.22 billion of secured credit facilities and $600 million of 5.875% senior notes due 2023. The $150 million revolving facility was undrawn. The company reported a 3.24x net senior secured leverage ratio against a 5.50x maximum covenant and stated it was in covenant compliance. Management expected cash, operating cash flow, and facility availability to be sufficient for obligations, working capital, the pending Citi acquisition, and capital spending for at least 12 months.
Material changes versus prior periods
- Revenue grew 30%, largely because Advent, Varden, Primatics, and DST Global Solutions contributed results, alongside continued demand for fund-administration services.
- Operating income fell 18% and net income fell 67%. Increased acquisition-related operating costs, higher interest expense, and a $30.4 million debt-extinguishment loss were significant factors. The effective tax rate rose to 30% from 26%.
- Debt rose substantially to finance Advent and refinance existing obligations. Interest expense increased to $79.3 million from $27.2 million.
- Cash from operations declined despite higher revenue; the company cited $66.4 million of Advent acquisition and financing payments and $4.2 million of payments related to eliminating redundant positions.
- 2015 included a $717.8 million net common-stock issuance. Quarterly dividends totaled $45.5 million, or $0.50 per share for the year.
Outlook, risks, contingencies, and unusual items
Management identified opportunities in recurring software-enabled services, cloud delivery, regulatory complexity, international expansion, and acquisitions, and stated it intended to pursue margin improvement through efficiencies and cost synergies. The filing does not provide quantified forward guidance for revenue, earnings, or margins.
- Key risks include acquisition integration and realization of synergies; substantial debt, variable-rate exposure, refinancing needs, and restrictive covenants; cybersecurity, service interruption, data privacy, and technology risks; competition; economic and financial-market conditions; and exposure to hedge-fund industry activity and assets under management.
- A 1% interest-rate change was estimated to affect annual interest expense by approximately $19.6 million. The company said it did not currently hedge foreign-currency exposure.
- The pending Citi transaction, announced at $425 million subject to adjustments and closing conditions, was expected to close in the first quarter of 2016.
- Substantive claims in the Millennium Actions had been settled or resolved in GlobeOp’s favor; allocation of certain attorneys’ fees and costs remained before an arbitration tribunal. Management did not believe other proceedings would have a material adverse effect.
- Management and the auditor reported effective internal controls as of year-end; Advent was excluded from the internal-control assessment because it had been acquired during 2015.
Important facts for investors to verify
- Track post-acquisition operating performance, integration costs, and whether Advent-related and other acquisition synergies materialize.
- Review debt amortization, variable-rate exposure, covenant headroom, and the company’s ability to service debt while funding the Citi acquisition and other needs.
- Assess whether operating cash flow converts into sustained free cash flow after interest, taxes, capital spending, and acquisition-related payments.
- Monitor recurring-revenue retention, client assets and transaction volumes, and the effect of currency movements on reported growth.
- Confirm the closing, final purchase price, and integration impact of the pending Citi acquisition; monitor the remaining Millennium fee-allocation matter and tax exposures.