SS&C Technologies Reports Q2 2016 Results

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 (%)

–

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

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

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

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.