SS&C Technologies Reports Q2 2016 Results

Q2 GAAP revenue $373.1 million, Fully Diluted GAAP Earnings Per share $0.14, Adjusted revenue $384.4 million, Adjusted Diluted Earnings Per Share $0.39

WINDSOR, Conn., July 27, 2016 /CNW/ -- SS&C Technologies Holdings, Inc. (NASDAQ: SSNC), a global provider of investment and financial software-enabled services and software, today announced its financial results for the second  quarter ended June 30, 2016. 

GAAP Results

SS&C reported GAAP revenue of $373.1 million for the second quarter of 2016, compared to $212.8 million in the second quarter of 2015, a 75.3 percent increase. GAAP operating income for the second quarter of 2016 was $66.0 million, or 17.7 percent of revenue. This represents a 13.2 percent increase compared to $58.4 million, or 27.4 percent of revenue, in 2015's second quarter. GAAP net income for the second quarter of 2016 was $28.2 million compared to $39.1 million in the second quarter of 2015, a 27.9 percent decrease. On a fully diluted GAAP basis, earnings per share in the second quarter of 2016 were $0.14.

Adjusted Non-GAAP Results (defined in Notes 1-4 below)

Adjusted revenue in the second quarter of 2016 was $384.4 million, up 80.4 percent compared to $213.1 million in the second quarter of 2015. Adjusted operating income in the second quarter of 2016 was $140.5 million, or 36.6 percent of adjusted revenue. This represents a 64.3 percent increase compared to adjusted operating income of $85.5 million, or 40.1 percent of adjusted revenue, in the second quarter of 2015.

Adjusted net income for the second quarter of 2016 was $79.4 million, up 35.3 percent compared to $58.7 million in 2015's second quarter. Adjusted diluted earnings per share in the second quarter of 2016 were $0.39 per share, up 18.2 percent compared to $0.33 per share in the second quarter of 2015.

Highlights:

• SS&C adjusted revenue for Q2 2016 was $384.4 million, our 13^th straight quarter with record adjusted revenue.
• Second quarter R&D spend contributed to new releases of SS&C's CAMRA, Global Wealth Platform, Black Diamond, and SS&C Geneva, SS&C APX, SS&C Moxy, and SS&C TradeEx products.
• SS&C paid off $125.5 million in debt in Q2 2016, and $415.3 million since acquiring Advent one year ago.
• Our net debt to adjusted consolidated EBITDA leverage ratio has been reduced to 4.36x.

"SS&C once again delivers record adjusted revenues of $384.4 million for the second quarter of 2016, and we grew our adjusted consolidated EBITDA 65.0 percent to a record $147.5 million," says Bill Stone, Chairman and Chief Executive Officer. "After a full quarter of ownership, the Citi Alternative Investor Services group is adjusting nicely into SS&C's fast-paced, sales-oriented culture. Great strides have already been made in the integration, including a significant upgrade of the Geneva Platform, and a revitalized focus on top line growth."

Annual Run Rate Basis                                                                                              

Annual Run Rate Basis (ARRB) recurring revenue, defined as adjusted recurring revenue on an annualized basis, was $1,424.3 million based on adjusted recurring revenue $356.1 million for the second quarter of 2016. This represents an increase of 88.0 percent from $189.4 million and $757.6 million run-rate in the same period in 2015 and an increase of 12.8 percent from $315.7 million for the first quarter of 2016, an annual run rate of $1,262.9 million. We believe ARRB of our recurring revenue is a good indicator of visibility into future revenue.

Operating Cash Flow

SS&C generated net cash from operating activities of $139.3 million for the six months ended June 30, 2016, compared to $100.7 million for the same period in 2015, representing a 38.3 percent increase. SS&C ended the quarter with $95.2 million in cash and cash equivalents, and $2,664.7 million in gross debt, for a net debt balance of $2,569.5 million. SS&C's leverage ratio as defined in our credit agreement stood at 4.36 times consolidated EBITDA as of June 30, 2016.

Guidance                                                                                                                        

	Q3 2016	FY 2016
Adjusted Revenue ($M)	$388.0 – $394.0	$1,511.0 – $1,524.0
Adjusted Net Income ($M)	$82.5 – $85.0	$326.0 – $334.0
Cash from Operating Activities ($M)	–	$380.0 – $395.0
Capital Expenditures (% of revenue)	–	2.5% – 2.8%
Diluted Shares (M)	206.0 – 206.4	205.2 – 205.9
Effective Income Tax Rate (%)	–	28%

Non-GAAP Financial Measures

Adjusted revenue, adjusted operating income, adjusted consolidated EBITDA, adjusted net income and adjusted diluted earnings per share are non-GAAP measures. See the accompanying notes to the attached Condensed Consolidated Financial Information for the reconciliations and definitions for each of these non-GAAP measures and the reasons our management believes these measures provide useful information to investors regarding our financial condition and results of operations.

Earnings Call and Press Release

SS&C's Q2 2016 earnings call will take place at 5:00 p.m. eastern time today, July 27, 2016. The call will discuss Q2 2016 results and our guidance and business outlook. Interested parties may dial 877-312-8798 (US and Canada) or 253-237-1193 (International), and request the "SS&C Technologies Second Quarter 2016 Conference Call"; conference ID#46494657. A replay will be available after 8:00 p.m. eastern time on July 27, 2016, until midnight on August 3, 2016. The dial-in number is 855-859-2056 (US and Canada) or 404-537-3406 (International); access code #46494657. The call will also be available for replay on SS&C's website after July 27, 2016; access: http://investor.ssctech.com/results.cfm.

Certain information contained in this press release relating to, among other things, our financial guidance for the third quarter and full year of 2016 constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995.  Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects", "estimates", "projects", "forecasts", "may" and "should" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words. Such statements reflect management's best judgment based on factors currently known but are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such risks and uncertainties include, but are not limited to, the state of the economy and the financial services industry, the Company's ability to finalize large client contracts, fluctuations in customer demand for the Company's products and services, intensity of competition from application vendors, delays in product development, the Company's ability to control expenses, terrorist activities, exposure to litigation, the Company's ability to integrate acquired businesses, the effect of the acquisitions on customer demand for the Company's products and services, the market price of the Company's stock prevailing from time to time, the Company's cash flow from operations, general economic conditions, and those risks discussed in the "Risk Factors" section of the Company's most recent Annual Report on Form 10-K, which is on file with the Securities and Exchange Commission and can also be accessed on our website. The Company cautions investors that it may not update any or all of the foregoing forward-looking statements.

About SS&C Technologies

SS&C is a global provider of investment and financial software-enabled services and software focused exclusively on the global financial services industry. Founded in 1986, SS&C has its headquarters in Windsor, Connecticut and offices around the world. Some 10,000 financial services organizations, from the world's largest institutions to local firms, manage and account for their investments using SS&C's products and services. These clients in the aggregate manage over $44 trillion in assets.

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SS&C Technologies Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Operation
(in thousands, except per share data)
(unaudited)
		Three Months Ended June 30,								Six Months Ended June 30,
		2016				2015				2016				2015
Revenues:
Software-enabled services		$	244,672			$	150,123			$	450,319			$	303,690
Maintenance and term licenses			103,392				38,978				198,512				78,952
Total recurring revenues			348,064				189,101				648,831				382,642
Perpetual licenses			5,039				12,948				10,254				16,018
Professional services			19,974				10,719				38,123				19,843
Total non-recurring revenues			25,013				23,667				48,377				35,861
Total revenues			373,077				212,768				697,208				418,503
Cost of revenues:
Software-enabled services			146,243				88,548				259,971				177,150
Maintenance and term licenses			46,460				12,338				93,406				26,505
Total recurring cost of revenues			192,703				100,886				353,377				203,655
Perpetual licenses			643				1,021				1,141				2,045
Professional services			17,133				7,596				32,645				16,110
Total non-recurring cost of revenues			17,776				8,617				33,786				18,155
Total cost of revenues			210,479				109,503				387,163				221,810
Gross profit			162,598				103,265				310,045				196,693
Operating expenses:
Selling and marketing			28,535				13,931				58,396				27,318
Research and development			40,827				17,520				77,274				37,128
General and administrative			27,199				13,463				57,894				30,763
Total operating expenses			96,561				44,914				193,564				95,209
Operating income			66,037				58,351				116,481				101,484
Interest expense, net			(32,846)				(5,419)				(65,935)				(11,019)
Other income (expense), net			12				(164)				(1,835)				(1,671)
Income before income taxes			33,203				52,768				48,711				88,794
Provision for income taxes			4,982				13,640				13,485				23,420
Net income		$	28,221			$	39,128			$	35,226			$	65,374
Basic earnings per share		$	0.14			$	0.23			$	0.18			$	0.39
Basic weighted average number of common shares    outstanding			198,765				170,810				198,143				169,674
Diluted earnings per share		$	0.14			$	0.22			$	0.17			$	0.37
Diluted weighted average number of common and common    equivalent shares outstanding			204,916				179,104				204,596				177,974
Net income		$	28,221			$	39,128			$	35,226			$	65,374
Other comprehensive (loss) income, net of tax:
Foreign currency exchange translation adjustment			(26,793)				22,808				(17,472)				(13,411)
Total comprehensive (loss) income, net of tax			(26,793)				22,808				(17,472)				(13,411)
Comprehensive income		$	1,428			$	61,936			$	17,754			$	51,963

See Notes to Condensed Consolidated Financial Information.

SS&C Technologies Holdings, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands)
(unaudited)
		June 30,				December 31,
		2016				2015
ASSETS
Current assets:
Cash and cash equivalents		$	95,222			$	434,159
Accounts receivable, net			239,428				169,951
Prepaid expenses and other current assets			32,598				27,511
Prepaid income taxes			39,319				40,627
Restricted cash			2,818				2,818
Total current assets			409,385				675,066
Property, plant and equipment, net			69,557				67,143
Deferred income taxes			2,018				2,199
Goodwill			3,636,495				3,549,212
Intangible and other assets, net			1,571,384				1,508,622
Total assets		$	5,688,839			$	5,802,242
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of long-term debt		$	30,878			$	32,281
Accounts payable			20,033				11,957
Income taxes payable			—				1,428
Accrued employee compensation and benefits			55,836				83,894
Interest payable			22,386				28,903
Other accrued expenses			45,964				36,231
Deferred revenue			238,785				222,024
Total current liabilities			413,882				416,718
Long-term debt, net of current portion			2,569,971				2,719,070
Other long-term liabilities			61,915				51,434
Deferred income taxes			478,641				509,574
Total liabilities			3,524,409				3,696,796
Total stockholders' equity			2,164,430				2,105,446
Total liabilities and stockholders' equity		$	5,688,839			$	5,802,242

See Notes to Condensed Consolidated Financial Information.

SS&C Technologies Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
		For the Six Months Ended June 30,
		2016				2015
Cash flow from operating activities:
Net income		$	35,226			$	65,374
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			113,440				52,103
Stock-based compensation expense			27,913				8,314
Income tax benefit related to exercise of stock options			(23,760)				(5,065)
Amortization and write-offs of loan origination costs			5,312				2,874
Loss on sale or disposition of property and equipment			150				209
Deferred income taxes			(24,056)				(7,395)
Provision for doubtful accounts			1,257				299
Changes in operating assets and liabilities, excluding effects from acquisitions:
Accounts receivable			(13,458)				(1,804)
Prepaid expenses and other assets			(1,516)				2,488
Accounts payable			7,870				(2,405)
Accrued expenses			(25,851)				(20,186)
Income taxes prepaid and payable			23,757				11,064
Deferred revenue			13,052				(5,148)
Net cash provided by operating activities			139,336				100,722
Cash flow from investing activities:
Additions to property and equipment			(13,593)				(5,750)
Proceeds from sale of property and equipment			43				—
Cash paid for business acquisitions, net of cash acquired			(317,554)				(7,863)
Additions to capitalized software			(3,306)				(1,792)
Purchase of long-term investment			(1,000)				—
Net cash used in investing activities			(335,410)				(15,405)
Cash flow from financing activities:
Repayments of debt			(155,325)				(174,000)
Proceeds from exercise of stock options			19,212				8,735
Withholding taxes related to equity award net share settlement			(4,615)				—
Income tax benefit related to exercise of stock options			23,760				5,065
Proceeds from common stock issuance, net			—				717,866
Purchase of common stock for treasury			(10)				—
Payment of fees related to refinancing activities			(223)				—
Dividends paid on common stock			(24,790)				(21,101)
Net cash (used in) provided by financing activities			(141,991)				536,565
Effect of exchange rate changes on cash and cash equivalents			(872)				(1,651)
Net (decrease) increase in cash and cash equivalents			(338,937)				620,231
Cash and cash equivalents, beginning of period			434,159				109,577
Cash and cash equivalents, end of period		$	95,222			$	729,808

See Notes to Condensed Consolidated Financial Information.

 

SS&C Technologies Holdings, Inc. and Subsidiaries

Notes to Condensed Consolidated Financial Information

Note 1. Reconciliation of Revenues to Adjusted Revenues

Adjusted revenues represents revenues adjusted for one-time purchase accounting adjustments to fair value deferred revenue acquired in business combinations. Adjusted revenues are presented because we use this measure to evaluate performance of our business against prior periods and believe it is a useful indicator of the underlying performance of the Company. Adjusted revenues is not a recognized term under generally accepted accounting principles (GAAP). Adjusted revenues does not represent revenues, as that term is defined under GAAP, and should not be considered as an alternative to revenues as an indicator of our operating performance. Adjusted revenues as presented herein is not necessarily comparable to similarly titled measures. Below is a reconciliation between adjusted revenues and revenues, the GAAP measure we believe to be most directly comparable to adjusted revenues. 

 

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)		2016				2015				2016				2015
Revenues		$	373,077			$	212,768			$	697,208			$	418,503
Purchase accounting adjustments to deferred revenue			11,335				302				30,318				699
Adjusted revenues		$	384,412			$	213,070			$	727,526			$	419,202

The following is a breakdown of recurring and non-recurring revenues and adjusted recurring and non-recurring revenues.
		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)		2016				2015				2016				2015
Software-enabled services		$	244,672			$	150,123			$	450,319			$	303,690
Maintenance and term licenses			103,392				38,978				198,512				78,952
Total recurring revenues			348,064				189,101				648,831				382,642
Perpetual licenses			5,039				12,948				10,254				16,018
Professional services			19,974				10,719				38,123				19,843
Total non-recurring revenues			25,013				23,667				48,377				35,861
Total revenues		$	373,077			$	212,768			$	697,208			$	418,503
Software-enabled services		$	244,763			$	150,123			$	450,549			$	303,690
Maintenance and term licenses			111,324				39,280				221,274				79,651
Total adjusted recurring revenues			356,087				189,403				671,823				383,341
Perpetual licenses			5,039				12,948				10,254				16,018
Professional services			23,286				10,719				45,449				19,843
Total adjusted non-recurring revenues			28,325				23,667				55,703				35,861
Total adjusted revenues		$	384,412			$	213,070			$	727,526			$	419,202

Note 2. Reconciliation of Operating Income to Adjusted Operating Income

Adjusted operating income represents operating income adjusted for amortization of acquisition-related intangible assets, stock-based compensation, purchase accounting adjustments for deferred revenue and other expenses. Adjusted operating income is presented because we use this measure to evaluate performance of our business and believe it is a useful indicator of the underlying performance of the Company.  Adjusted operating income is not a recognized term under GAAP.  Adjusted operating income does not represent operating income, as that term is defined under GAAP, and should not be considered as an alternative to operating income as an indicator of our operating performance.  Adjusted operating income as presented herein is not necessarily comparable to similarly titled measures.  The following is a reconciliation between adjusted operating income and operating income, the GAAP measure we believe to be most directly comparable to adjusted operating income.

 

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands)		2016				2015				2016				2015
Operating income		$	66,037			$	58,351			$	116,481			$	101,484
Amortization of intangible assets			51,995				22,312				101,675				44,493
Stock-based compensation			12,566				4,208				27,913				8,314
Capital-based taxes			—				(636)				472				(636)
Unusual or non-recurring charges (1)			1,301				994				4,919				8,579
Purchase accounting adjustments (2)			8,630				302				24,258				699
Adjusted operating income		$	140,529			$	85,531			$	275,718			$	162,933
(1)     Unusual or non-recurring charges include proceeds from legal and other settlements, severance expenses, transaction costs and other one-time expenses, such as expenses associated with facilities consolidations and acquisitions.
(2)     Purchase accounting adjustments include (a) an adjustment to increase revenues by the amount that would have been recognized if deferred revenue were not adjusted to fair value at the date of acquisitions and (b) an adjustment to increase personnel and commissions expense by the amount that would have been recognized if prepaid commissions and deferred personnel costs were not adjusted to fair value at the date of the acquisitions.

Note 3. Reconciliation of Net Income to EBITDA, Consolidated EBITDA and Adjusted Consolidated EBITDA

EBITDA represents net income before interest expense, income taxes, depreciation and amortization.  Consolidated EBITDA, defined under our Credit Agreement entered into in July 2015, is used in calculating covenant compliance, and is EBITDA adjusted for certain items.  Consolidated EBITDA is calculated by subtracting from or adding to EBITDA items of income or expense described below.  Adjusted consolidated EBITDA is calculated by subtracting acquired EBITDA from consolidated EBITDA. EBITDA, consolidated EBITDA and adjusted consolidated EBITDA are presented because we use these measures to evaluate performance of our business and believe them to be useful indicators of an entity's debt capacity and its ability to service debt. EBITDA, consolidated EBITDA and adjusted consolidated EBITDA are not recognized terms under GAAP and should not be considered in isolation or as alternatives to operating income, net income or cash flows from operating activities as indicators of our operating performance.  The following is a reconciliation of EBITDA, consolidated EBITDA and adjusted consolidated EBITDA to net income.

 

		Three Months Ended June 30,								Six Months Ended June 30,								Twelve Months Ended June 30,
(in thousands)		2016				2015				2016				2015				2016
Net income		$	28,221			$	39,128			$	35,226			$	65,374			$	12,714
Interest expense, net			32,846				5,419				65,935				11,019				162,690
Income tax provision			4,982				13,640				13,485				23,420				8,045
Depreciation and amortization			58,167				26,107				113,440				52,103				212,171
EBITDA			124,216				84,294				228,086				151,916				395,620
Stock-based compensation			12,566				4,208				27,913				8,314				63,678
Capital-based taxes			—				(636)				472				(636)				1,936
Acquired EBITDA and cost savings (1)			1,046				389				5,814				2,156				28,468
Unusual or non-recurring charges (2)			1,289				1,158				6,754				10,250				22,652
Purchase accounting adjustments (3)			8,630				302				24,258				699				73,486
Other (4)			769				47				1,553				142				2,940
Consolidated EBITDA		$	148,516			$	89,762			$	294,850			$	172,841			$	588,780
Less:  acquired EBITDA			(1,046)				(389)				(5,814)				(2,156)				(28,468)
Adjusted Consolidated EBITDA		$	147,470			$	89,373			$	289,036			$	170,685			$	560,312
(1)     Acquired EBITDA reflects the EBITDA impact of significant businesses that were acquired during the period as if the acquisition occurred at the beginning of the period, as well as cost savings enacted in connection with acquisitions.
(2)     Unusual or non-recurring charges include foreign currency gains and losses, proceeds from legal and other settlements, severance expenses, transaction costs and other one-time expenses, such as expenses associated with the facilities consolidations, acquisitions and the sale of fixed assets.
(3)     Purchase accounting adjustments include (a) an adjustment to increase revenues by the amount that would have been recognized if deferred revenue were not adjusted to fair value at the date of acquisitions and (b) an adjustment to increase personnel and commissions expense by the amount that would have been recognized if prepaid commissions and deferred personnel costs were not adjusted to fair value at the date of the acquisitions.
(4)     Other includes the non-cash portion of straight-line rent expense.

Note 4. Reconciliation of Net Income to Adjusted Net Income and Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share

Adjusted net income and adjusted diluted earnings per share represent net income and earnings per share before amortization of intangible assets and deferred financing costs, stock-based compensation, capital-based taxes and other unusual and non-recurring items. Adjusted net income and adjusted diluted earnings per share are not recognized terms under GAAP, do not represent net income or diluted earnings per share, as those terms are defined under GAAP, and should not be considered as alternatives to net income or diluted earnings per share as indicators of our operating performance.  Adjusted net income and adjusted diluted earnings per share are important to management and investors because they represent our operational performance exclusive of the effects of amortization of intangible assets and deferred financing costs, stock-based compensation, capital-based taxes, other unusual and non-recurring items, purchase accounting adjustments, and loss on extinguishment of debt that are not operational in nature or comparable to those of our competitors.  The following is a reconciliation between adjusted net income and adjusted diluted earnings per share and net income and diluted earnings per share.

 

		Three Months Ended June 30,								Six Months Ended June 30,
(in thousands, except per share data)		2016				2015				2016				2015
GAAP – Net income		$	28,221			$	39,128			$	35,226			$	65,374
Plus: Amortization of intangible assets			51,995				22,312				101,675				44,493
Plus: Amortization of deferred financing costs and   original issue discount			2,659				1,439				5,312				2,874
Plus: Stock-based compensation			12,566				4,208				27,913				8,314
Plus: Capital-based taxes			—				(636)				472				(636)
Plus: Unusual and non-recurring items (1)			1,289				1,158				6,754				10,250
Plus: Purchase accounting adjustments (2)			8,630				302				24,258				699
Income tax effect (3)			(25,914)				(9,194)				(46,742)				(19,920)
Adjusted net income		$	79,446			$	58,717			$	154,868			$	111,448
Adjusted diluted earnings per share		$	0.39			$	0.33			$	0.76			$	0.63
GAAP diluted earnings per share		$	0.14			$	0.22			$	0.17			$	0.37
Diluted weighted-average shares outstanding			204,916				179,104				204,596				177,974
(1)     Unusual or non-recurring charges include foreign currency gains and losses, proceeds from legal and other settlements, severance expenses, transaction costs and other one-time expenses, such as expenses associated with the facilities consolidations, acquisitions and the sale of fixed assets.
(2)     Purchase accounting adjustments include (a) an adjustment to increase revenues by the amount that would have been recognized if deferred revenue were not adjusted to fair value at the date of acquisitions and (b) an adjustment to increase personnel and commissions expense by the amount that would have been recognized if prepaid commissions and deferred personnel costs were not adjusted to fair value at the date of the acquisitions.
(3)     An estimated normalized effective tax rate of 28% has been used to adjust the provision for income taxes for the purpose of computing adjusted net income.

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SOURCE SS&C

For more information, Patrick Pedonti, Chief Financial Officer, Tel: [phone],E-mail: [email protected], Justine Stone, Investor Relations, Tel: [phone], E-mail: [email protected], http://www.ssctech.com