SS&C Technologies Holdings Inc Q3 FY2023 earnings

SS&C Technologies reported third quarter 2023 GAAP revenue of $1,365.9 million, up 3.4% from the prior-year quarter. GAAP operating income was $306.4 million, up 0.7%, while GAAP net income attributable to SS&C fell 2.5% to $156.0 million. GAAP diluted EPS was $0.61, flat versus the prior-year quarter. For the nine months ended September 30, 2023, GAAP revenue was $4,091.2 million, up 3.7%. On a non-GAAP basis, adjusted revenue was $1,366.7 million, up 3.4%, and adjusted diluted EPS was $1.17, up 1.7%. Adjusted consolidated EBITDA attributable to SS&C was $533.9 million, up 6.4%, with a 39.1% margin, up 110 basis points. Adjusted operating income attributable to SS&C was $517.4 million, up 6.4%, with a 37.9% margin, up 110 basis points.

Business mix explains part of the quarter. Software-enabled services revenue rose 6.9%, but license, maintenance and related revenue fell 10.1%. Total revenue growth included $29.4 million of organic revenue, $13.0 million from favorable foreign currency translation, and $2.5 million from 2022 acquisitions, according to MD&A. Gross profit was $654.4 million, up 4.9%, and gross margin improved to 47.9%, up 0.7 pp. Operating margin slipped to 22.4%, down 0.6 pp, as operating expenses rose 8.9%, driven by organic operating expenses, foreign currency, and a non-recurring stock-based compensation reversal true-up in the prior-year period. Management pointed to digital workers, with a 2,000 FTE headcount benefit year to date, and said the 2023 digital worker target was met. Revenue retention for the financial services business was 97.3%, the highest in company history. Organic growth by business was mixed: Alternatives rose 8.4%, Retirement rose 15.3%, Intralinks rose 11.6%, and Blue Prism rose 10.2%, while Healthcare was down 0.1% and Eze/Financial Markets was down 1.9%. Private Markets continued to grow over 20%.

Cash generation was mixed. Operating cash flow for the nine months ended September 30, 2023 was $826.7 million, up 8.1%. Third quarter operating cash flow was $242.5 million, down 23.5%. Capital expenditures were $16.5 million in the quarter, down 46.3%, and $40.7 million for the nine months, down 23.6%. Deferred revenue, current portion only, was $458.7 million, up 5.2%, and remaining performance obligations were $940.9 million, up 1.9%. The company bought back 1.7 million shares for $96.9 million at an average price of $55.82 and paid down $54.7 million of debt in the quarter, bringing net leverage to 3.18 times consolidated EBITDA attributable to SS&C. Net secured leverage was 2.21 times. Dividends paid on common stock were $160.9 million for the nine months. The company paid quarterly cash dividends of $0.20 per share in March and June 2023 and $0.24 per share in September 2023.

Guidance points to modest growth. For Q4 2023, management guides adjusted revenue of $1,370.0 million to $1,410.0 million and adjusted diluted EPS of $1.21 to $1.29. For FY2023, it guides adjusted revenue of $5,463.5 million to $5,503.5 million and adjusted diluted EPS of $4.55 to $4.64. It also guides Q4 and FY2023 organic growth midpoints of 3.3% and 2.5%, respectively. Risks include macroeconomic conditions such as higher interest rates, inflation and foreign currency swings. The average interest rate on debt was 6.87% for the quarter, compared with 4.55% in the prior-year quarter. The company has substantial debt and a net leverage ratio of 3.18 times, and it must maintain a maximum consolidated net secured leverage to EBITDA ratio of 6.25 times. Other risks include client consolidation, competition, litigation, regulatory scrutiny, privacy and cyber concerns, foreign operations, tax matters, and joint venture exposure.