SS&C Technologies Holdings, Inc.

Good day and thank you for standing by and welcome to the SSMC Technologies first quarter 2021 earnings call. At this time, all participants are on a listen only mode. After the speaker's presentation, there will be a question and answer session. To ask a question during the session, you will need to press star 1 on your telephone. Please note that today's call has been recorded. If you require any further assistance, please press star 0. Now I'm going to turn the conference over to Mrs. Justine Stone. Thank you. Please go ahead.

Hi, everyone. Welcome and thank you for joining us for our Q1 2021 earnings call. I'm Justine Stone, Investor Relations for SS&C. With me today is Bill Stone, Chairman and Chief Executive Officer, Rahul Kanwar, President and Chief Operating Officer, and Patrick Pedanti, our Chief Financial Officer. Before we get started, we need to review the Safe Harbor Statement. Please note that various remarks we make today about future expectations, plans, and prospects, including the financial outlook we provide, constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in our risk factors section of our most recent annual report on Form 10-K. which is on file with the SEC and can also be accessed on our website. These forward-looking statements represent our expectations only as of today, April 26, 2021. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. During today's call, we will be referring to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is included in today's earnings release which is located in the investor relations section of our website at www.ssctech.com. I will now turn the call over to Bill.

Thanks, everyone, for joining. Our results for the first quarter are $1.235 billion in adjusted revenue, up 4.9%, and $1.18 in adjusted earnings per share, up 14.6%. Our adjusted consolidated EBITDA was $491.9 million for the quarter. and our adjusted consolidated EBITDA margin was 39.8%. Our first quarter adjusted organic revenue was up 2.9%. Strength in our alternatives business, interlinks, and our software businesses contributed to this growth, surpassing our own expectations. GST came in at 0.1% growth for both financial services and health care. Operating cash flow was $185.7 million for the three months ended March 31, 2021, up 25.7%. We bought back 2.7 million shares on the stock in Q1 2021 at an average price of $67.15 per share for $181.4 million. Our secured net leverage ratio now stands at 2.29 times and our total net leverage ratio is at 3.35 times. We continue our focus on organic revenue growth and we're beginning to see some positive trends. We are growing our sales force and building new revenue generating products and services. We continue to make product improvements and new technologies across our business. In SS&C Health, our digital capabilities continue to grow in partnership with our customers, an expert user experience design team. A pilot of the SS&C Digital Experience platform will launch in early Q2 2021, with the platform expanding to over 2 million members by early Q4 2021. This represents an exciting opportunity for our customers to unify their digital solutions and provide a single-member experience, aligning to member and market expectations. We continue to integrate Vedato across our various business lines and have new mandates using this technology. ESG investing is becoming increasingly more important to our investors and our clients. While we are working to expand and improve our own disclosures and policies, we are also building solutions to help our clients address their ESG needs. Our Learning Institute is developing an introductory ESG online course to be released in Q2 2021. This course will introduce users to environmental, social, and governance factors used by investors and lenders for making investment decisions. The course will equip learners with basic fluency and core ESG concepts, explore risk, and outline ongoing debates in the field. We completed the Capital Life and Pension Services Ireland acquisition in the first quarter, adding 308 employees. This acquisition makes S&C the largest technology and service providers in the international life and pensions market in Ireland and provides us with an excellent opportunity to expand in Ireland and across Europe. We also are continuing our efforts to acquire Mainstream Group, their board unanimously recommending our proposals. Mainstream is a provider investment administration, middle office, fund and accounting, superannuation administration, share registry and unit registry, services to leading fund managers and superannuation funds, family offices and dealer groups. Earlier this month, we announced a reduction in force of 2.2% of our global employee base. These decisions are always difficult, and we have delayed our plans since the first quarter of 2020. And we have and will continue to treat everyone fairly, provide severance and transition assistance. The markets we serve and our customers demand innovation and overall productivity increases. These pressures often dictate cost containment efforts. Our ability to continue to give pay raises, bonuses, and other career development opportunities require us to manage our costs carefully and fairly. I'll now turn the call over to Rahul to discuss the quarter in more detail. Rahul Kumar Thanks, Bill. We had a strong quarter with a broad base list in revenue both year over year and sequentially. Intralinks had robust growth as the M&A market is off to a brisk start and economic stimulus continues. Increased carve-outs and restructuring and overall economic activity driving acquisitions contributed to our deal and opportunity counts, and win rates remain high. In our alternatives business, the number of qualified prospects has returned to pre-COVID levels, and there's increased fundraising momentum across strategies. Our existing clients are growing organically through new fund launches and performance, and we continue to win new clients at healthy levels. We ended the quarter with over $2 trillion in assets under administration for the first time, a significant milestone. Our software business performed well. Outsourced technology trends across wealth, asset management, and alternatives remain strong. Customers increasingly demand the ability to select and configure their operating model, including both software applications and outsourced services. Our capabilities are proving to be a valuable differentiator. As one indicator, over 90% of SS&C Advent's Q1 new sales included hosting or other operational services. Many service offerings for our Geneva and ES applications continue to get traction in the marketplace. Now I will mention some key deals for Q1. A top alternatives fund administrator, an existing Geneva client, extended their Geneva license to 40 Act funds. A new hedge fund launch shows a suite of SS&C products, including SOMS, EMS, Global Fund Services, Advent Outsource Services, and FixLink. A large Canadian asset manager expanded Vision and Pacer licensing to support its business plan. This client shows SS&C's real assets fund services, investor services, and financial statement preparation for their real estate funds. A newly launched retail brokerage and wealth management business in Southeast Asia chose GWP for its end-to-end capabilities. One of Asia's leading investment firms chose SS&C Global Fund Services for bank loan servicing. A Swiss-based asset manager chose SS&C's fund services and regulatory solutions for valuation capabilities around complex derivatives. An existing mutual fund customer chose SS&C's digital investor experience. A large multinational asset manager and existing transfer agency client expanded their relationship with us to include their Luxembourg business. I will now turn it over to Patrick to run through the financials. Thanks. Results for the first quarter of 2021 were GAAP revenues of $1,233.4 million, GAAP net income of $174.9 million, and diluted EPS of $0.65. Adjusted revenues were $1,235.4 million, including the impact of the adoption of Revenue Standard 606 and for the acquired deferred revenue adjustment for acquisitions. Adjusted revenue was up 4.9 percent. Adjusted operating income increased 7.1 percent. And adjusted EPS was $1.18, a 14.6 percent increase over Q1 2020. Adjusted revenue increased $57.4 million. Our acquisitions contributed $18.6 million in a quarter. Foreign exchange had a favorable impact of $16.1 million, or 1.4 percent. Adjusted organic revenue increased on a constant currency basis by 2.9 percent, given by strength in the Alternatives Fund Administration, ADVENT, and Interlinks products. These were offset by weakness in the institutional asset management, healthcare, and the EZ products. Adjusted operating income for the first quarter was $475.8 million, an increase of $31.6 million, or 7.1% from the first quarter of 2020. Foreign exchange had a negative impact of $13.2 million on expenses in the quarter. Adjusted operating margins increased from 37.7 in the first quarter of 2020 to 38.5 in the first quarter of 2021, driven by cost controls. Expenses increased 3.5% on a constant currency basis. Acquisitions added 6.3 million, and foreign currency increased costs by 13.2 million. Adjusted consolidated EBITDA was $491.9 million or 39.8% of adjusted revenue, increase of $28.4 million from Q1 2020. Net interest expense for the first quarter was $51.4 million, includes $3.3 million of non-cash amortized financing costs, NOID. Average interest rate in the quarter for the amended credit agreement, including our senior notes, was 3.01% compared to 4.18% in the first quarter of 2020, and resulted in an interest expense decrease of $26 million, or 33% in the quarter. We recorded a GAAP tax provision in the quarter of $60.8 million, or 25.8% of pre-tax income. Adjusted net income as defined in Note 4 of the earnings release was $316.5 million, and adjusted diluted EPS was $1.18. And the effective tax rate used for adjusted net income was 26 percent. Diluted shares remain unchanged in Q4 at $268.1 million. The impact of an increase in the average share price and option exercises was offset by the share repurchases. On cash flow and our balance sheet, as of March 31st, we had approximately $253.7 million of cash and cash equivalents and approximately $6.6 billion of gross debt for a net debt position of approximately $6.3 billion. Operating cash flow for the three months ended March was $185.7 million, a $38 million or 25.7 percent increase compared to the same period in 2020. For the three-month end of March 31st, we purchased Treasury stock buybacks of $181.4 million for purchases of 2.7 million shares at an average price of $67.15 per share, compared to no Treasury buybacks in the first quarter of 2020. Program and date Treasury stock buybacks totaled $469.5 million for purchases of 7.8 million shares at an average price of $60.38. There's $280.5 million remaining on the current program, which was initially $750 million that the Board approved. Net debt borrowings in the quarter were $70.6 million compared to net borrowings of $150.1 million in 2020. We declared an issue and paid a dividend of $41.2 million. That's compared to $31.9 million last year, an increase of 29 percent. We paid interest in the quarter of $76.6 million compared to $102.5 million last year. In the quarter, we paid $42.5 million in income taxes compared to $17.7 in 2020. Our accounts receivable DSO was 48.9 days as of March 31st compared to 48.4 as of December 2020 and 52.4 days as of March 2020. Capital expenditures of capitalized software totaled $31.4 million or 2.5 percent of adjusted revenue. Spending was predominantly for capitalized software and IT infrastructure. Our LPM EBITDA that we used for covenant compliance was $1,886.4 million as of March 2021. It includes $4 million of acquired EBITDA and cost savings related to our acquisitions. And based on that debt of approximately $6.3 billion, our total leverage ratio was 3.35 times, and our secured ratio was 2.29 times. For outlook for the remainder of the year, the following assumptions are included in the outlook for 2021. We'll continue focusing on client service, and our retention rates will continue to be a range of most recent results. We've assumed foreign currency exchange will be at current levels for the remainder of the year. We expect the impact on DSC Health Unit pre-acquisition client terminations to impact revenue by approximately $17 million for the remainder of the year. Adjusted organic growth for the year will be in the range of 1.7% to 4.7%. Adjusted organic growth for Q2 will be in the range of 2.4% to 5.9%. Interest rate in our term loan facility will approximately be one month LIBOR plus the current spread, which is 175 BIPs. We will continue to manage expenses during this period and control variable expenses and staff hiring. And we'll continue to invest in our business long term with capital expenditures above 2.8% of revenue. And we expect the tax rate to be approximately 26% for the full year. For the second quarter of 2021, we expect revenue in the range of $1,190,000,000 to $1,230,000,000. Adjusted net income in the range of $294 million to $310 million and diluted shares to be in the range of $267.8 to $268.3 million. For the full year of 2021, we expect revenue in the range of $4,825,000,000 to $4,965,000,000, adjusting that income in the range of $1,213,000,000 to $1,279,000,000 and delivered shares in the range of $267.4 to $268.9 million. And for the full year, we expect cash from operating activities to be in the range of $1,280,000,000 to $1,340,000,000. And I'll turn it over to Bill for final comments. Thanks, Patrick. With almost $500 million in adjusted consolidated EBITDA for the quarter, exceeding $2 trillion in assets under administrations in our alternatives business, adjusted revenue growth of almost three percent, and reducing our security and total leverage ratios to 2.29 and 3.25 times, we have built a powerful franchise. The franchise continues to add talent and opportunities as we embark on a new post-COVID world. I will now open for questions.