SS&C Technologies Reports Q2 2014 Results

Q2 GAAP Diluted Earnings Per Share of $0.31, and Adjusted Diluted Earnings Per Share of $0.57, Q2 YTD Operating Cash Flow Increased to $92.8 million, Up 32.6%

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| Source: SS&C Technologies

WINDSOR, Conn., July 31, 2014 (GLOBE NEWSWIRE) -- 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 quarter that ended June 30, 2014.

Financial Highlights:

  • Record revenue of $188.7 million in the second quarter 2014, representing an increase of 6.3 percent from the second quarter 2013
  • Adjusted diluted EPS (defined below) increased to $0.57 in the second quarter of 2014, representing an increase of 18.8 percent
  • Net cash from operating activities of $92.8 million for the first six months of 2014, representing a 32.6 percent increase
  • Paid down $107.0 million of debt in the first six months of 2014, bringing our net debt to consolidated EBITDA leverage ratio to 1.97x

"SS&C has had nine straight quarters of record revenues. Our earnings and cash flows are strong and give us the financial flexibility to reinvest in our products and services, pursue acquisitions, buyback stock and/or pay down debt," said Bill Stone, Chairman and Chief Executive Officer, SS&C Technologies. "Our strong and consistent performance on both the top and bottom line is a testament to SS&C's best-in-class software and services, as well as management's ability to expand margins by increasing productivity and utilizing the latest technology."

Results

SS&C reported GAAP revenue of $188.7 million for the second quarter of 2014, compared to $177.5 million in the second quarter of 2013, a 6.3 percent increase. GAAP operating income for the second quarter of 2014 was $45.4 million, or 24.1 percent of revenue. This represents an increase of 0.2 percent compared to $45.3 million, or 25.5 percent of revenue, in the second quarter of 2013. GAAP net income for the second quarter of 2014 was $27.2 million compared to $26.1 million in the second quarter of 2013, a 4.3 percent increase. On a fully diluted GAAP basis, earnings per share in the second quarter of 2014 were $0.31.

Adjusted operating income (a non-GAAP measure defined in note 2 to the attached Condensed Consolidated Financial Information) in the second quarter of 2014 was $74.0 million, or 39.2 percent of adjusted revenue. This represents a 7.6 percent increase compared to $68.8 million, or 38.7 percent of adjusted revenue, in the second quarter of 2013. Adjusted net income (a non-GAAP measure defined in note 4 to the attached Condensed Consolidated Financial Information) for the second quarter of 2014 was $49.6 million compared to $41.0 million in 2013's second quarter, a 20.9 percent increase. Adjusted diluted earnings per share (a non-GAAP measure defined in note 4 to the attached Condensed Consolidated Financial Information) in the second quarter of 2014 were $0.57 compared to $0.48 in the second quarter of 2013, an 18.8 percent increase.

Operating Cash Flow

SS&C generated net cash from operating activities of $92.8 million for the six months ended June 30, 2014, compared to $70.0 million for the same period in 2013, representing a 32.6 percent increase. SS&C ended the quarter with $73.5 million in cash, and $675.0 million in gross debt, for a net debt balance of $601.5 million. SS&C's leverage ratio as defined in our credit agreement stood at 1.97 times consolidated EBITDA as of June 30, 2014.

Annual Run Rate Basis

Annual Run Rate Basis (ARRB) recurring revenue, defined as the sum of maintenance and software-enabled services revenue for the quarter on an annualized basis, was $685.0 million based on maintenance and software-enabled services revenue of $171.2 million for the second quarter of 2014. This represents an increase of 4.8 percent from $163.5 million and $653.8 million annual run-rate in the same period in 2013 and an increase of 0.2 percent from $170.9 million for the first quarter of 2014, an annual run rate of $683.6 million. We believe ARRB of our recurring revenue is a good indicator of visibility into future revenue.

Guidance

  Q3 2014 FY 2014
Adjusted Revenue ($M) $190.0 – $194.0 $757.0 – $770.0
Adjusted Net Income ($M) $50.5 – $52.2 $198.5 – $206.0
Cash from Operating Activities ($M) N/A $225.0 – $235.0
Capital Expenditures (% of revenue) N/A 2.3% – 2.8%
Diluted Shares (M) 87.4 – 87.7 87.5 – 87.8
Effective Income Tax Rate (%) 28% 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 earnings call will take place at 5:00 p.m. eastern time today, July 31, 2014. The call will discuss Q2 2014 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 2014 Second Quarter Earnings Conference Call" conference ID# 69661370. A replay will be available after 8:00 p.m. eastern time on July 31, 2014, until midnight on August 6, 2014. The dial-in number is 855-859-2056 (US and Canada) or 404-537-3406 (International); access code # 69661370. The call will also be available for replay on SS&C's website after July 31, 2014; 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 2014, 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 6,900 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 $26 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 Six Months Ended
  June 30, June 30, June 30, June 30,
  2014 2013 2014 2013
Revenues:        
Software-enabled services $145,547 $138,047 $290,930 $273,786
Software licenses 9,866 6,626 17,365 12,696
Maintenance 25,691 25,410 51,217 51,425
Professional services 7,618 7,374 15,020 12,768
Total revenues 188,722 177,457 374,532 350,675
         
Cost of revenues:        
Software-enabled services 86,040 80,245 171,731 160,972
Software licenses 806 1,348 1,657 2,622
Maintenance 10,077 10,283 20,008 20,803
Professional services 5,310 4,885 10,336 9,805
Total cost of revenues 102,233 96,761 203,732 194,202
         
Gross profit 86,489 80,696 170,800 156,473
         
Operating expenses:        
Selling and marketing 12,203 10,563 24,101 20,027
Research and development 13,939 13,639 27,526 27,441
General and administrative 14,958 11,202 26,759 21,717
Total operating expenses 41,100 35,404 78,386 69,185
         
Operating income 45,389 45,292 92,414 87,288
         
Interest expense, net (6,569) (11,784) (13,667) (24,289)
Other (expense) income, net (59) 2,370 (745) 2,516
         
Income before income taxes 38,761 35,878 78,002 65,515
Provision for income taxes 11,516 9,759 24,309 17,967
         
Net income $27,245 $26,119 $53,693 $47,548
         
         
Basic earnings per share $0.33 $0.32 $0.65 $0.59
         
Basic weighted average number of common shares outstanding 83,118 81,186 82,921 80,268
         
Diluted earnings per share $0.31 $0.31 $0.62 $0.56
         
Diluted weighted average number of common and common equivalent shares outstanding 87,091 85,280 86,999 84,550

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,
  2014 2013
ASSETS    
Current assets:    
Cash $73,520 $84,470
Accounts receivable, net 89,428 91,221
Prepaid income taxes 12,780 19,932
Deferred income taxes 5,367 6,526
Prepaid expenses and other current assets 17,454 16,567
Restricted cash 1,477 2,460
Total current assets 200,026 221,176
     
Property and equipment, net 53,212 51,697
     
Deferred income taxes 1,037 1,077
Goodwill 1,547,504 1,541,386
Intangible and other assets, net 420,652 459,988
     
Total assets $2,222,431 $2,275,324
     
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current liabilities:    
Current portion of long-term debt $23,814 $23,212
Accounts payable 8,503 8,368
Income taxes payable -- 2,169
Accrued employee compensation and benefits 25,418 44,664
Other accrued expenses 27,369 26,028
Deferred maintenance and other revenue 57,265 62,561
Total current liabilities 142,369 167,002
     
Long-term debt, net of current portion 644,384 751,295
Other long-term liabilities 17,469 14,913
Deferred income taxes 104,267 110,406
Total liabilities 908,489 1,043,616
     
Total stockholders' equity 1,313,942 1,231,708
     
Total liabilities and stockholders' equity $2,222,431 $2,275,324

See Notes to Condensed Consolidated Financial Information.

SS&C Technologies Holdings, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(unaudited)
     
  Six Months Ended
  June 30, June 30,
  2014 2013
Cash flow from operating activities:    
Net income $53,693 $47,548
Adjustments to reconcile net income to net cash provided by operating activities:    
Depreciation and amortization 49,832 49,742
Stock-based compensation expense 5,770 4,035
Income tax benefit related to exercise of stock options (8,235) (4,941)
Amortization of loan origination costs and original issue discount 2,956 2,988
Loss on sale or disposition of property and equipment 698 322
Deferred income taxes (5,550) (4,474)
Provision for doubtful accounts 473 314
Changes in operating assets and liabilities, excluding effects from acquisitions:    
Accounts receivable 1,532 (6,418)
Prepaid expenses and other assets (1,403) (4,712)
Accounts payable 789 (2,248)
Accrued expenses (15,507) (14,245)
Income taxes prepaid and payable 13,250 5,600
Deferred maintenance and other revenue (5,478) (3,506)
Net cash provided by operating activities 92,820 70,005
     
Cash flow from investing activities:    
Additions to property and equipment (9,460) (7,724)
Proceeds from sale of property and equipment 1 55
Additions to capitalized software (1,704) (428)
Other 983 --
Net cash used in investing activities (10,180) (8,097)
     
Cash flow from financing activities:    
Repayment of debt (107,000) (102,000)
Proceeds from exercise of stock options 12,337 14,086
Income tax benefit related to exercise of stock options 8,235 4,941
Purchase of common stock for treasury (7,386) --
Other (512) (1,917)
Net cash used in financing activities (94,326) (84,890)
     
Effect of exchange rate changes on cash 736 (2,592)
     
Net decrease in cash (10,950) (25,574)
Cash, beginning of period 84,470 86,160
Cash, end of period $73,520 $60,586
     
Supplemental disclosure of non-cash activities:    
Excess tax benefit related to stock option exercises $ -- $12,956

See Notes to Condensed Consolidated Financial Information.

SS&C Technologies Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Information

Note 1. Reconciliation of Revenue to Adjusted Revenue

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

  Three Months Ended Six Months Ended
  June 30, June 30,
(in thousands) 2014 2013 2014 2013
Revenue $188,722 $177,457 $374,532 $350,675
Purchase accounting adjustments to deferred revenue -- 22 -- 136
Adjusted revenue $188,722 $177,479 $374,532 $350,811

Note 2. Reconciliation of Operating Income to Adjusted Operating Income

Adjusted operating income represents operating income adjusted for amortization of acquisition-related intangible assets and 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 Six Months Ended
  June 30, June 30,
(in thousands) 2014 2013 2014 2013
Operating income $45,389 $45,292 $92,414 $87,288
Amortization of intangible assets 21,285 21,174 42,611 42,192
Stock-based compensation 2,795 1,929 5,770 4,035
Capital-based taxes -- -- 6 --
Unusual or non-recurring charges 4,511 395 5,839 (15)
Purchase accounting adjustments -- (24) (27) 41
Adjusted operating income $73,980 $68,766 $146,613 $133,541

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 March 2012, 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.

          Twelve Months 
  Three Months Ended Six Months Ended Ended
  June 30, June 30, June 30,
(in thousands) 2014 2013 2014 2013 2014
Net income $27,245 $26,119 $53,693 $47,548 $124,040
Interest expense, net 6,569 11,784 13,667 24,289 30,657
Taxes 11,516 9,759 24,309 17,967 33,634
Depreciation and amortization 24,896 24,990 49,832 49,742 99,870
EBITDA 70,226 72,652 141,501 139,546 288,201
Stock-based compensation 2,795 1,929 5,770 4,035 10,121
Capital-based taxes -- -- 6 -- 188
Acquired EBITDA and cost savings -- -- -- -- 204
Unusual or non-recurring charges 4,570 (1,976) 6,584 (2,532) 5,995
Purchase accounting adjustments -- (24) (27) 41 (120)
Other 132 6 83 217 101
Consolidated EBITDA 77,723 72,587 153,917 141,307 304,690
Less: acquired EBITDA -- -- -- -- (204)
Adjusted Consolidated EBITDA $77,723 $72,587 $153,917 $141,307 $304,486

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 and other unusual and non-recurring items 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 Six Months Ended
  June 30, June 30,
(in thousands, except per share data) 2014 2013 2014 2013
GAAP – Net income $27,245 $26,119 $53,693 $47,548
Plus: Amortization of intangible assets 21,285 21,174 42,611 42,192
Plus: Amortization of deferred financing costs and original issue discount 1,436 1,600 2,956 2,988
Plus: Stock-based compensation 2,795 1,929 5,770 4,035
Plus: Capital-based taxes -- -- 6 --
Plus: Unusual and non-recurring items 4,570 (1,976) 6,584 (2,532)
Plus: Loss on extinguishment of debt -- -- -- --
Plus: Purchase accounting adjustments -- (24) (27) 41
Income tax effect (1) (7,761) (7,815) (13,743) (15,704)
Adjusted net income $49,570 $41,007 $97,850 $78,568
         
Adjusted diluted earnings per share $0.57 $0.48 $1.12 $0.93
         
GAAP diluted earnings per share $0.31 $0.31 $0.62 $0.56
         
Diluted weighted-average shares outstanding 87,091 85,280 86,999 84,550
         
(1)  An estimated normalized effective tax rate of 28% has been used to adjust the provision for income taxes for the purposes of computing adjusted net income.
For more information
Patrick Pedonti
Chief Financial Officer
Tel: +1-860-298-4738
E-mail: 

Justine Stone
Investor Relations Coordinator
Tel: +1-212-367-4705
E-mail: