SS&C Technologies Releases Q4 and Full Year 2019 Earnings

Q1 2020

FY 2020

Adjusted Revenue ($M)

$1,150.0 – $1,190.0

$4,692.0 – $4,852.0

Adjusted Net Income ($M)

$248.5 – $264.5

$1,084.5 – $1,139.5

Cash from Operating Activities ($M)

–

$1,220.0 – $1,260.0

Capital Expenditures (% of revenue)

–

2.9% – 3.1%

Diluted Shares (M)

268.5 – 267.5

273.0 – 270.0

Effective Income Tax Rate (%)

26%

26%

SS&C Technologies Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Comprehensive Income (Loss)

(in millions, except per share data)

(unaudited)

Three Months Ended December 31,

Twelve Months Ended December 31,

2019

2018

2019

2018

Revenues:

Software-enabled services

$

974.5

$

935.2

$

3,869.2

$

2,798.9

License, maintenance and related

229.0

175.8

763.7

622.2

Total revenues

1,203.5

1,111.0

4,632.9

3,421.1

Cost of revenues:

Software-enabled services

577.8

559.9

2,305.7

1,753.0

License, maintenance and related

80.2

78.1

306.0

298.1

Total cost of revenues

658.0

638.0

2,611.7

2,051.1

Gross profit

545.5

473.0

2,021.2

1,370.0

Operating expenses:

Selling and marketing

92.6

74.7

353.9

211.0

Research and development

100.4

104.0

383.7

318.2

General and administrative

91.2

80.5

369.2

313.9

Transaction expenses

—

1.4

—

97.8

Total operating expenses

284.2

260.6

1,106.8

940.9

Operating income

261.3

212.4

914.4

429.1

Interest expense, net

(100.5)

(97.3)

(404.9)

(271.0)

Other (expense) income, net

(1.4)

(6.6)

25.7

8.2

Equity in earnings (loss) of unconsolidated affiliates, net

1.5

(0.7)

3.6

2.1

(Loss) gain on extinguishment of debt, net

—

1.1

(7.1)

(43.3)

Income before income taxes

160.9

108.9

531.7

125.1

Provision for income taxes

19.3

50.2

93.2

21.9

Net income

$

141.6

$

58.7

$

438.5

$

103.2

Basic earnings per share

$

0.56

$

0.24

$

1.73

$

0.44

Diluted earnings per share

$

0.54

$

0.23

$

1.66

$

0.42

Basic weighted average number of common shares outstanding

253.5

245.6

252.9

232.5

Diluted weighted average number of common and common equivalent shares outstanding

264.4

255.8

264.2

243.7

Net income

$

141.6

$

58.7

$

438.5

$

103.2

Other comprehensive income (loss), net of tax:

Change in unrealized gain (loss) on interest rate swaps

0.5

—

(2.8)

—

Foreign currency exchange translation adjustment

124.6

(175.7)

92.8

(260.3)

Total other comprehensive income (loss), net of tax

125.1

(175.7)

90.0

(260.3)

Comprehensive income (loss)

$

266.7

$

(117.0)

$

528.5

$

(157.1)

SS&C Technologies Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in millions)

(unaudited)

December 31,

December 31,

2019

2018

Assets

Current assets:

Cash and cash equivalents

$

152.8

$

166.7

Funds receivable and funds held on behalf of clients

1,729.9

1,014.7

Accounts receivable, net

669.7

681.7

Contract asset

20.0

18.5

Prepaid expenses and other current assets

204.5

160.1

Restricted cash

9.0

6.4

Total current assets

2,785.9

2,048.1

Investments

160.1

190.5

Unconsolidated affiliates

234.8

239.3

Property, plant and equipment, net

466.4

553.2

Operating lease right-of-use assets

375.3

—

Contract asset

78.6

31.5

Goodwill

7,959.9

7,858.0

Intangible and other assets, net

4,680.1

5,186.9

Total assets

$

16,741.1

$

16,107.5

Liabilities and Stockholders' Equity

Current liabilities:

Current portion of long-term debt

$

76.3

$

87.5

Client funds obligations

1,729.9

1,014.7

Accounts payable

36.9

41.4

Income taxes payable

13.3

11.1

Accrued employee compensation and benefits

290.6

322.0

Interest payable

27.6

0.2

Other accrued expenses

268.4

199.2

Deferred revenue

333.2

245.7

Total current liabilities

2,776.2

1,921.8

Long-term debt, net of current portion

7,077.8

8,168.5

Operating lease liabilities

348.6

—

Other long-term liabilities

333.7

235.5

Deferred income taxes

1,088.7

1,201.7

Total liabilities

11,625.0

11,527.5

Total stockholders' equity

5,116.1

4,580.0

Total liabilities and stockholders' equity

$

16,741.1

$

16,107.5

SS&C Technologies Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in millions)

(unaudited)

Twelve Months Ended December 31,

2019

2018

Cash flow from operating activities:

Net income

$

438.5

$

103.2

Adjustments to reconcile net income to net cash provided by operating activities:

Depreciation and amortization

775.2

518.5

Equity in earnings of unconsolidated affiliates, net

(3.6)

(2.1)

Cash distributions received from unconsolidated affiliates

2.5

4.2

Stock-based compensation expense

72.4

96.9

Net gains on investments

(35.1)

(0.9)

Amortization and write-offs of loan origination costs and original issue discounts

28.4

13.6

Loss on extinguishment of debt, net

—

43.3

Loss on sale or disposition of property and equipment

2.6

0.3

Deferred income taxes

(87.1)

(105.8)

Provision for doubtful accounts

6.2

4.0

Changes in operating assets and liabilities, excluding effects from acquisitions:

Accounts receivable

9.9

50.4

Prepaid expenses and other assets

49.1

31.9

Contract assets

(48.1)

(22.3)

Accounts payable

(0.7)

(91.0)

Accrued expenses and other liabilities

(43.2)

(2.9)

Income taxes prepaid and payable

(35.0)

(17.4)

Deferred revenue

196.3

16.2

Net cash provided by operating activities

1,328.3

640.1

Cash flow from investing activities:

Cash paid for business acquisitions, net of cash acquired

(94.1)

(7,066.7)

Additions to property and equipment

(63.0)

(33.6)

Proceeds from sale of property and equipment

6.2

9.7

Additions to capitalized software

(67.4)

(55.5)

Investments in securities

(0.3)

(16.4)

Proceeds from sales / maturities of investments

65.1

45.1

Distributions received from unconsolidated affiliates

2.8

7.8

Collection of other non-current receivables

10.2

7.0

Net cash used in investing activities

(140.5)

(7,102.6)

Cash flow from financing activities:

Cash received from debt borrowings

2,241.0

8,744.0

Repayments of debt and acquired debt

(3,364.8)

(3,141.0)

Fees paid for debt extinguishment and refinancing activities

(6.1)

(86.4)

Net increase in client funds obligations

681.6

604.8

Proceeds from exercise of stock options

125.7

84.9

Withholding taxes paid related to equity award net share settlement

(22.8)

(17.5)

Proceeds from common stock issuance, net

—

1,399.1

Purchase of common stock for treasury

(60.3)

—

Dividends paid on common stock

(107.7)

(70.9)

Net cash (used in) provided by financing activities

(513.4)

7,517.0

Effect of exchange rate changes on cash, cash equivalents and restricted cash

1.7

(5.9)

Net increase in cash, cash equivalents and restricted cash

676.1

1,048.6

Cash, cash equivalents and restricted cash, beginning of period

1,113.3

64.7

Cash, cash equivalents and restricted cash and cash equivalents, end of period

$

1,789.4

$

1,113.3

Reconciliation of cash, cash equivalents and restricted cash and cash equivalents:

Cash and cash equivalents

$

152.8

$

166.7

Restricted cash and cash equivalents

9.0

6.4

Funds receivable and funds held on behalf of clients

1,627.6

940.2

$

1,789.4

$

1,113.3

SS&C Technologies Holdings, Inc. and Subsidiaries

Disclosures Relating to Non-GAAP Financial Measures

Note 1. Reconciliation of Revenues to Adjusted Revenues

Adjusted revenues represents revenues adjusted to include a) amounts that would have been recognized if deferred revenue were not adjusted to fair value at the date of acquisition and b) amounts that would have been recognized if not for adjustments to deferred revenue and retained earnings related to the adoption of ASC 606.  Adjusted revenues 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 our business.  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 presented by other companies.  Below is a reconciliation of adjusted revenues to revenues, the GAAP measure we believe to be most directly comparable to adjusted revenues.

Three Months Ended
December 31,

Twelve Months Ended
December 31,

(in millions)

2019

2018

2019

2018

Revenues

$

1,203.5

$

1,111.0

$

4,632.9

$

3,421.1

ASC 606 adoption impact

6.6

11.3

18.7

39.9

Purchase accounting adjustments impact on revenue

2.1

10.5

17.2

17.7

Adjusted revenues

$

1,212.2

$

1,132.8

$

4,668.8

$

3,478.7

The following is a breakdown of software-enabled services and license, maintenance and related revenues and adjusted software-enabled services and license, maintenance and related revenues.

Three Months Ended
December 31,

Twelve Months Ended
December 31,

(in millions)

2019

2018

2019

2018

Software-enabled services

$

974.5

$

935.2

$

3,869.2

$

2,798.9

License, maintenance and related

229.0

175.8

763.7

622.2

Total revenues

$

1,203.5

$

1,111.0

$

4,632.9

$

3,421.1

Software-enabled services

$

976.4

$

945.6

$

3,886.8

$

2,815.1

License, maintenance and related

235.8

187.2

782.0

663.6

Total adjusted revenues

$

1,212.2

$

1,132.8

$

4,668.8

$

3,478.7

Note 2. Reconciliation of Operating Income to Adjusted Operating Income

Adjusted operating income represents operating income adjusted for amortization of intangible assets, stock-based compensation, purchase accounting adjustments for deferred revenue and related costs, ASC 606 adoption impact 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 our underlying performance.  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 by other companies.  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
December 31,

Twelve Months Ended
December 31,

(in millions)

2019

2018

2019

2018

Operating income

$

261.3

$

212.4

$

914.4

$

429.1

Amortization of intangible assets

162.2

142.5

652.0

418.4

Stock-based compensation

16.7

20.8

72.4

96.9

Purchase accounting adjustments (1)

11.2

19.6

52.1

46.5

ASC 606 adoption impact

6.7

11.3

19.0

40.2

Other (2)

11.9

14.9

32.8

178.8

Adjusted operating income

$

470.0

$

421.5

$

1,742.7

$

1,209.9

(1)

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 acquisition, (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 and (c) an adjustment to decrease depreciation expense by the amount that would not have been recognized if property, plant and equipment were not adjusted to fair value at the date of acquisition.

(2)

Other includes expenses and income that are permitted to be excluded per the terms of our Credit Agreement from Consolidated EBITDA, a financial measure used in calculating our covenant compliance.  These include expenses and income related to foreign currency transactions, facilities and workforce restructuring, legal settlements and business 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 April 2018, as amended,  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 (as defined below) 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.  These measures are not necessarily comparable to similarly titled measures by other companies.  The following is a reconciliation of EBITDA, Consolidated EBITDA and Adjusted Consolidated EBITDA to net income.

Three Months Ended
December 31,

Twelve Months Ended
December 31,

(in millions)

2019

2018

2019

2018

Net income

$

141.6

$

58.7

$

438.5

$

103.2

Interest expense, net

100.5

97.3

404.9

271.0

Provision for income taxes

19.3

50.2

93.2

21.9

Depreciation and amortization

192.4

175.6

775.2

518.5

EBITDA

453.8

381.8

1,711.8

914.6

Stock-based compensation

16.7

20.8

72.4

96.9

Acquired EBITDA and cost savings (1)

3.9

24.6

49.6

523.5

Non-cash portion of straight-line rent expense

(0.1)

0.1

0.1

—

Loss (gain) on extinguishment of debt, net

—

(1.1)

7.1

43.3

Equity in (earnings) loss of unconsolidated affiliates, net

(1.5)

0.7

(3.6)

(2.1)

Purchase accounting adjustments (2)

1.6

9.8

14.0

17.8

ASC 606 adoption impact

6.7

11.3

19.0

40.2

Other (3)

13.3

21.4

7.1

170.5

Consolidated EBITDA

$

494.4

$

469.4

$

1,877.5

$

1,804.7

Less:  acquired EBITDA and cost savings (1)

(3.9)

(24.6)

(49.6)

(523.5)

Adjusted Consolidated EBITDA

$

490.5

$

444.8

$

1,827.9

$

1,281.2

(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)

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 acquisition 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)

Other includes expenses and income that are permitted to be excluded per the terms of our Credit Agreement from Consolidated EBITDA, a financial measure used in calculating our covenant compliance.  These include expenses and income related to foreign currency transactions, investment gains and losses, facilities and workforce restructuring, legal settlements, business acquisitions and other items.

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, purchase accounting adjustments and other items.  We consider adjusted net income and adjusted diluted earnings per share to be 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, purchase accounting adjustments, loss on extinguishment of debt and other items, that are not operational in nature or comparable to those of our competitors.  Adjusted net income and adjusted diluted earnings per share are not recognized terms under GAAP.  Adjusted net income and adjusted diluted earnings per share 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 as presented herein are not necessarily comparable to similarly titled measures presented by other companies.  Below is a reconciliation of adjusted net income and adjusted diluted earnings per share to net income and diluted earnings per share, the GAAP measures we believe to be most directly comparable to adjusted net income and adjusted diluted earnings per share.

Three Months Ended
December 31,

Twelve Months Ended
December 31,

(in millions, except per share data)

2019

2018

2019

2018

GAAP – Net income

$

141.6

$

58.7

$

438.5

$

103.2

Plus: Amortization of intangible assets

162.2

142.5

652.0

418.4

Plus: Amortization of deferred financing costs and original issue discount

15.1

4.2

28.4

13.7

Plus: Stock-based compensation

16.7

20.8

72.4

96.9

Plus: Loss (gain) on extinguishment of debt, net

—

(1.1)

7.1

43.3

Plus: Purchase accounting adjustments (1)

11.2

19.6

52.1

46.5

Plus: ASC 606 adoption impact

6.7

11.3

19.0

40.2

(Less) Plus: Equity in (earnings) loss of unconsolidated affiliates, net

(1.5)

0.7

(3.6)

(2.1)

Plus: Other (2)

13.3

21.4

7.1

170.5

Income tax effect (3)

(80.7)

(35.1)

(262.1)

(219.1)

Adjusted net income

$

284.6

$

243.0

$

1,010.9

$

711.5

Adjusted diluted earnings per share

$

1.08

$

0.95

$

3.83

$

2.92

GAAP diluted earnings per share

$

0.54

$

0.23

$

1.66

$

0.42

Diluted weighted-average shares outstanding

264.4

255.8

264.2

243.7

(1)

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 acquisition, (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 and (c) an adjustment to decrease depreciation expense by the amount that would not have been recognized if property, plant and equipment were not adjusted to fair value at the date of acquisition.

(2)

Other includes expenses and income that are permitted to be excluded per the terms of our Credit Agreement from Consolidated EBITDA, a financial measure used in calculating our covenant compliance.  These include expenses and income related to foreign currency transactions, investment gains and losses, facilities and workforce restructuring, legal settlements, business acquisitions and other items.

(3)

An estimated normalized effective tax rate of approximately 26% for the three and twelve months ended December 31, 2019 and 26% and 25% for the three and twelve months ended December 31, 2018, respectively, has been used to adjust the provision for income taxes for the purpose of computing adjusted net income.