SS&C Technologies Holdings Inc Q3 FY2022 earnings

SS&C Technologies reported GAAP revenue of $1.32 billion for the third quarter of fiscal 2022, up 4.5% from the prior-year quarter, and adjusted revenue of $1,322.0 million, up 4.4%. Growth looked better before currency. Total company revenue growth was 7.5% on a constant currency basis, and organic growth was only 1.6%. Profitability moved the other way. Operating income was $304.2 million, down 10.6%, and the operating margin fell to 23.0% from 26.9%. Gross profit of $623.8 million was flat versus the prior-year quarter. Net income was $160.0 million, down 13.2%, and diluted earnings per share came to $0.61, down 11.6%. Adjusted diluted earnings per share of $1.15 fell 12.9%.

The business mix was uneven. Healthcare organic revenue fell 20.3% on expected client losses. DST Financial Services declined 2.2%. Intralinks grew 7.2%, but management said a slower M&A market is weighing on that unit. Eze/Financial Markets grew 3.8%. The stronger businesses were IIM at 15.7%, Advent at 7.8%, and Alternatives at 4.0%, where private markets grew 18%. Financial services organic growth excluding healthcare was 3.3%, and that group represents 94% of revenues. Acquisitions added $68.2 million of revenue in the quarter, while foreign currency translation reduced revenue by $32.5 million. Management pointed to weak market conditions, FX headwinds and rising interest rates, and said pipelines remain full. Adjusted consolidated EBITDA attributable to SS&C was $501.7 million at a 38.0% margin, up 260 basis points from the second quarter but below the 42.6% reported a year earlier. Adjusted operating income attributable to SS&C fell 7.3% to $486.1 million.

Cash generation slipped with earnings. Net cash from operating activities was $317.1 million for the quarter, down 17.1%, and $764.6 million for the nine months ended September 30, 2022, down 19.1%. Capital expenditures were $30.7 million in the quarter, up 129.1%, and $53.3 million year to date, up 71.9%. Deferred revenue, current portion, reached $435.9 million, up 33.8%. Remaining performance obligations were $923.2 million, up 70.0%, reflecting acquired contracts. The company paid down $55.6 million of debt in the third quarter and reported net leverage of 3.51 times and secured net leverage of 2.52 times against a 6.25 times covenant. It also repurchased 3.7 million shares for $214.5 million at an average price of $57.62.

Guidance for the fourth quarter of 2022 is adjusted revenue of $1,305.0 million to $1,355.0 million, adjusted net income attributable to SS&C of $285.3 million to $307.5 million, and adjusted diluted earnings per share of $1.12 to $1.20. For the full fiscal year 2022, the company guided adjusted revenue to $5,253.0 million to $5,303.0 million, adjusted net income attributable to SS&C of $1,208.2 million to $1,230.4 million, and adjusted diluted earnings per share of $4.62 to $4.70. Full-year cash from operating activities is guided to $1,125.0 million to $1,145.0 million, with capital expenditures at 3.9% to 4.1% of revenue, diluted shares of 261.5 million to 262.0 million, and an effective income tax rate of 26%. The full-year organic growth midpoint is 2.0%, compared with 0% for the fourth quarter.

Risks are tied to the environment and the balance sheet. Management cited weak market conditions, foreign exchange headwinds and rising interest rates. A softer M&A market pressures Intralinks, healthcare faces expected client losses, and cost actions include a 700,000 square foot real estate reduction by the end of 2022 and more than 100 digital workers deployed using Blue Prism automation. The filing also lists exposure to the financial services industry, client consolidation, competition, litigation, and the LIBOR transition, along with substantial indebtedness and a plan to reduce leverage toward 3.0 times.