SS&C Technologies Holdings Inc. - 10-Q Summary
Business Context and Reporting Period
This Quarterly Report on Form 10-Q covers the three-month period ended March 31, 2011. SS&C Technologies Holdings, Inc. is a provider of software and software-enabled services to the financial services industry. The company operates in one reportable segment and manages its business primarily on a geographic basis, with significant operations in the United States, Canada, Europe, and Asia Pacific.
Key Financial Metrics
| Metric | Q1 2011 | Q1 2010 |
|---|---|---|
| Total Revenues | $89.0 million | $78.2 million |
| Gross Profit | $44.5 million | $39.0 million |
| Operating Income | $23.1 million | $19.4 million |
| Net Income | $9.8 million | $9.0 million |
| Diluted EPS | $0.12 | $0.14 |
| Cash and Equivalents (End of Period) | $70.8 million | $21.2 million |
| Net Cash from Operating Activities | $12.1 million | $15.5 million |
| Total Debt (Long-term + Current) | $224.5 million | $290.8 million |
| Gross Margin | 50.0% | 50.0% |
Material Changes vs. Prior Period
- Revenue Growth: Total revenues increased 14% to $89.0 million, driven by a $5.4 million increase in organic revenue and $4.4 million from acquisitions (GIPS, TOS, TSW, and BXML). Software-enabled services grew 17% to $57.7 million.
- Profitability: Net income rose 9% to $9.8 million. However, Diluted EPS decreased from $0.14 to $0.12 due to a significant increase in the weighted average number of shares outstanding following a follow-on public offering.
- Debt Reduction: The company redeemed $66.6 million of its 11 3/4% senior subordinated notes in March 2011. This resulted in a $2.9 million loss on extinguishment of debt (including a $2.0 million premium and $0.9 million write-off of deferred financing fees).
- Capital Raise: In February 2011, the company completed a follow-on public offering, raising approximately $52.0 million in net proceeds.
- Acquisition: On March 10, 2011, the company acquired BenefitsXML (BXML) for approximately $15.1 million in cash, contributing $0.4 million in revenue and $0.2 million in earnings for the remainder of the quarter.
- Tax Rate: The effective tax rate increased to 33.6% from 12.3% in the prior year, primarily due to the reversal of uncertain tax positions and refunds in the 2010 period.
Guidance, Outlook, and Risks
- Outlook: Management forecasts the effective tax rate for the full year 2011 to be between 33% and 34%. The company expects cash on hand, operating cash flows, and credit facility availability to fund obligations for at least the next twelve months.
- Debt Covenants: The company is in compliance with all financial covenants under its senior credit facilities. As of March 31, 2011, the actual leverage ratio was 1.34x (limit 5.50x) and the interest coverage ratio was 5.93x (minimum 2.25x).
- Risks: Key risks include the ability to meet debt covenants based on Consolidated EBITDA, exposure to foreign currency exchange rates (approx. 31% of revenue from outside the U.S.), and the integration of recent acquisitions. The company notes that a breach of covenants could result in a default and acceleration of debt.
- Unusual Items: The $2.9 million loss on debt extinguishment is a non-recurring charge impacting the quarter's bottom line.
Investor Verification Checklist
- Verify the impact of the $52.0 million equity raise on future share count and potential EPS dilution.
- Confirm the integration progress and revenue contribution of the BXML acquisition ($0.4M revenue in < 1 month).
- Monitor the company's leverage ratio and interest coverage ratio to ensure continued compliance with senior credit facility covenants.
- Review the trajectory of the effective tax rate to ensure it remains within the 33-34% forecast for the full year.
- Assess the sustainability of the 14% revenue growth, distinguishing between organic growth ($5.4M) and acquisition-driven growth ($4.4M).