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spk06: Ladies and gentlemen, thank you for standing by. At this time, I would like to welcome everyone to the SSNC Technologies Third Quarter 2021 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during this time, simply press star then the number one on your telephone keypad. If you would like to withdraw your question, simply press star 1 again. Thank you. I would now like to turn the call over to Justine Stone, Investor Relations, for opening remarks. You may proceed.
spk00: Hi, everyone. Welcome and thank you for joining us for our Q3 2021 earnings call. I'm Justine Stone, Head of 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 the 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 Security Litigations 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 the risk factor section of our most recent annual report on Form 10-K, which is on file at the SEC and can also be accessed on our website. These forward-looking statements represent our expectations only as of today, October 28, 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. In the third quarter, we entered into a joint venture named Domani Rx LLC, in which we are the majority interest holder and primary beneficiary. All earnings figures discussed today, including operating income, EBITDA, net income, and EPS, are attributable to SSMC based on the ownership interest retained by SSMC. I will now turn the call over to Bill.
spk10: Thanks, Justine, and thank everyone for joining. Our results for the third quarter are $1.266 billion in adjusted revenue, up 9.5%, and $1.32 in adjusted diluted earnings per share, up 20%. Adjusted consolidated EBITDA was $530 million, and we are on track to end the year with over $2 billion in EBITDA. Our adjusted consolidated EBITDA margin grew to 42%. 0.6% in the quarter, up 230 basis points from Q3 2020. Our third quarter adjusted organic revenue was 8.2% as we continue to gain momentum and beat Q2 7.2% organic revenue. All of our businesses outperformed our expectations and our alternatives, interlinks and software businesses drove the top line growth. We have accelerated our new business wins and competitive takeaways while capitalizing on strong markets. The past few quarters highlights S&C's financial power. Without digesting large acquisitions, we were able to drive strong top line growth organically while improving margins over 200 basis points and growing earnings at 20%. We have maintained our lower cost structure through the pandemic and continue to drive efficiencies through automation. Machine learning, robotics, process automation, and artificial intelligence capabilities are being implemented across our businesses and products. We are currently rolling out our strategic development enhancement within the hedge fund services portal, whereby we are leveraging various AI principles and concepts to enhance controls, provide greater transparency around NAV anomalies, exceptions, and key operational processes. This new product is called Go Central. These types of development efforts not only generate revenue, but are margin enhancing. SS&T generated net cash from operating activities of $944.8 million for the nine months ended September 30, 2021, up 25% from the same period last year. We repurchased 2.1 million shares of common stock in Q3 2021 at an average price of $75.97 per share for $162.9 At our current valuation, we will continue to aggressively buy back stock. We've paid down $317.8 million in debt for the first nine months of 2021, and our leverage ratio stands at 1.97 times secured and 2.96 times total leverage. We remain committed to a shareholder-friendly capital allocation strategy, and now that we are under 3.0, Times levered, we have increased flexibility to allocate more cash towards buybacks. Our business is running on all cylinders. Our pipelines are strong with increasingly complex global large deals as organizations review their complete operating model and technology stack. Several of our products have met milestones, the most recent being Precision LM, exceeding 100 clients. The growth comes as banks and non-bank lenders have increased their investment portfolios, private credit lending activities, and exposure to commercial and residential loans. Precision LM added 20 new clients in the last 12 months. We are capitalizing on market trends and recently launched our ESG reporting solutions platform for asset managers to better monitor and report on ESG exposure. Our solution provides accurate and detailed ESG ratings data, which is a game changer to help investors understand sustainable investing and ESG exposures. I'll now turn the call over to Rahul to discuss the quarter in more detail. Thanks, Bill.
spk13: Most of our global offices have reopened, and we're seeing employees attending in increasing numbers on a voluntary basis. We're optimistic that the added opportunities for in-person collaboration, combined with the Work Anywhere flexibility we're providing to our staff, will enhance innovation and execution. Our businesses are benefiting from the global trend towards outsourced technology and services. As firms evaluate their desired post-pandemic operational state, our fund administration, middle office, and advent businesses are seeing greater demand. This trend also impacts private market alternatives with firms looking at their operational capability and limited partners assessing the resilience and scalability of the managers they invest with. Our functional depth continues to grow in lockstep with the steady addition of signed and live clients. Collaboration across SS&C teams, combined with R&D investments, have resulted in a new generation of enterprise solutions. These allow asset managers, banks, insurance companies, alternative managers, retirement and wealth management firms, and others to look to SS&C as a strategic partner that offers a comprehensive solution set to address several of their requirements. As a result, we're seeing larger deal sizes and greater appreciation for the ways in which we can deliver value to our customers. Now I will mention some key deals. One of the world's largest hedge funds, an existing middle office client, chose SS&C to run shadow accounting. A managed account platform chose SS&C Global for fund services, financial statements, bank loan servicing, and reconciliation. A $30 billion plus hedge fund who had been running access for over 20 years upgraded to Geneva and Geneva Cloud Delivery after a three-year evaluation. A $10 billion-plus Canadian prime broker added Advance and Cova to their technology stack, citing its scalability. A $50 billion AUA asset manager chose Black Diamond because of our partnership focus. A U.S.-based wealth manager sought a higher level of support and stability and chose a combination of SEMS and Market Trader to replace their current solution. A top U.S. insurance company chose Corus our latest automated workflow solution. An existing fund administration client expanded their relationship to include retail alternatives, transfer agency, digital investor, and chorus. I'll now turn it over to Patrick to run through the financials.
spk09: Thanks, Raul. Results for the third quarter of 2021 were gap revenues of $1,264.4 million Gap net income of $184.4 million and diluted EPS of 69 cents. Adjusted revenues were $1,266.3 million, including the impact to the adoption of the Revenue Standard 606 and for acquired deferred revenue adjustments for acquisitions. Adjusted revenue was up 9.5%. Adjusted operating income increased 16.8%. and adjusted EPS was $1.32, a 20% increase over Q3 2020. Overall, adjusted revenue increased 110.1 million or 9.5% over Q3 2020. Our acquisitions contributed 10 million in the quarter. Foreign exchange had favorable impact of 10.4 million or 0.9% in the quarter. Adjusted organic revenue increase on a constant currency basis was 8.2%. We had strength across several product lines, including alternative assets, advanced software, retirement business, ALPS, a brokerage business, and the interlinks business. Adjusted operating income for the third quarter was $524.1 million, an increase of $75.3 million, or 16.8% over the third quarter of 2020. Adjusted operating margins increased 38.8%. Adjusted operating margins increased from 38.8% in Q3 2020 to 41.4% in the third quarter of 2021, or 260 basis points improvement driven by strong revenue increase in cost controls. Expenses increased 2.2% on a constant currency basis. In addition, acquisitions added $9.6 million of expenses, and foreign currency increased costs by $8.4 million. Adjusted consolidated EBITDA, which is defined in Note 3 of our earnings release, was $538.9 million, or 42.6% of adjusted revenue, and increased $72.6 million or 15.6% from Q3 2020. Adjusted consolidated EBITDA margins increased 230 basis points from the third quarter of 2020. Net interest expense for the third quarter was $50.2 million. It includes $3.3 million of non-cash amortized financing costs and OID. The average rate in the quarter for our credit facility and our senior notes was 3.1%. compared to 3% in the third quarter of 2020. A reduction in our debt balance resulted in interest expense decreasing 4.5 million or 8.2%. During the third quarter, in connection with the legacy DST ERISA matters and associated legal proceedings, we recorded an expense of 43.4 million to other income and expense. Due to the inherent uncertainty associated with the resolution of this litigation, the ultimate resolution of any potential exposure related to this matter is somewhat uncertain at this time. We recorded a gap tax provision in the quarter of $60.6 million or 24.7% of pre-tax income. and expect the gap tax provision to be approximately 26% for the full year. Adjusted net income was 352.9 million, adjusted EPS was $1.32, and the effective tax rate used for adjusted net income was also 26%. Diluted shares increased to 266 point, decreased from 266.5 million from 267.6 million in the second quarter. The impact of share repurchases was partially offset by an increase in the average share price and option exercises. On the balance sheet and cash flow, we ended the third quarter with $351.1 million in cash and cash equivalents and $6.2 billion of gross debt. SS&C's net debt, as defined by our credit agreement, which includes, excludes any cash and cash equivalents of $138 million held at the Damani RXJV was $6 billion as of September 30th. Cash flow for the nine months ended September 30th was $944.9 million, $189.8 million, a 25% increase compared to the same period in 2020. A couple highlights for the nine months. We've purchased Treasury stock buybacks of $487.9 million for purchases of 6.8 million shares at an average price of $71.74 per share. In July 2021, the Board authorized a new stock repurchase program for up to $1 billion of stock buybacks. The program today, Treasury stock buybacks of $162 million for purchase of 2.1 million shares at an average price of $75.97. Net debt payments were $317.8 million compared to $330 million in the same period of 2020. We declared and paid $122.8 million of common stock dividends, an increase of 22.9% the prior year. In the nine months, we've paid $173.2 million of interest compared to $212.7 million in 2020. In income taxes, we've paid $230.8 million compared to $182.5 million in the same period in 2020. Capital expenditures and capitalized software were $96.2 million or 2.6% of year-to-date adjusted revenue compared to $80 million or 2.3% year-to-date in Q3 of 2020. Our LTM EBITDA, which is used for covenant compliance, was $2,019.5 million as of September 2021. It includes $1.8 million of acquired EBITDA and cost savings related to acquisition. And based on a net debt of $6 billion, our total leverage was 2.96 times, and our secured leverage ratio was 1.97. On outlook for the fourth quarter, I'll cover a couple assumptions first. You know, we'll continue to focus on delivering quality client service. and we expect our retention rates will continue in the range of our most recent results. We'll expect foreign currency exchange to be at approximately current levels. And adjusted organic growth for the year will be in the range of 4.8% to 5.9%. Adjusted organic growth for the fourth quarter will be in the range of 1.1% to 5.3%. Interest rates on our term alone will be approximately the one-month LIBOR plus the spread, which is currently 175 BIPs. We expect expenses to increase sequentially due in part to the impact of higher personnel costs as a result of our annual merit increases, which took effect October 1st. And we're seeing increased employee benefit costs. We'll continue to invest in our business long term and capital expenditures will be approximately 2.8%. And we'll continue to allocate free cash flow to both stock buybacks and some debt pay down. Before the fourth quarter of 2021, we expect revenue in the range of $1,225,000,000 to $1,275,000,000. Adjusted net income in the range of $311,000,000 to $334,000,000. Diluted shares in the range of $266.2 million to $266.7 million. And for the full year, the range for revenue will be $4,988,000,000 to $5,038,000,000. Just the net income in the range of $1,312,000,000 to $1,335,000,000. And diluted shares in the range of 266.9 to 267.4 million. And for the full year, we expect cash from operating activities to be in the range of 1,365,000,000 to 1,385,000,000. And now I'll turn it over back to Bill for final comments.
spk10: Thanks, Patrick. We are proud of the progress we've made this year. All of our businesses are gaining momentum, capitalizing on opportunities and continuously improving. Organic growth was up 8.2% and we expect around 5.5% for the full year. Hopefully we can surprise you positively. Alternative assets under administration increased another 80 billion in Q3 for a total increase of 480 billion since the first quarter of 2020. We now have 2.2 trillion in assets under administration and we were hundreds of billions ahead of our next competitor. Our EBITDA margins were up 230 basis points and we were operating at our highest margins since the large acquisitions we made in 2018. We have a number of strong leaders and an abundance of opportunity which we will showcase on November 10th, Virtual Analyst Day. Please see our events on our investor relations webpage to register and reach out to Justine for additional information.
spk03: I'll now open it for questions.
spk06: The floor is now open for your questions. To ask a question, simply press star, then the number one on your telephone keypad. We do ask to please limit to one question and one follow-up question. Thank you. Your first question comes from Surrender Send of Jefferies.
spk08: Congratulations on the call, gentlemen. My first question is related to just the margin profile. There was a significant increase in the margins quarter over quarter, and then we had a similar increase last quarter. On the call, you talked a little bit about automation being one of the drivers. Is there any additional color that you can provide in terms of what might be a normalized level? When I look at the gross margins for your software services enabled business, it seems that's where you're realizing most of the the savings?
spk03: Well, I'll give that a little crack and then Rahul and Patrick, you guys can chime in.
spk10: But, you know, since the pandemic, you know, we're not leasing near as much space as we did in the end of 2020. And I believe that will continue into 2022. And we also have had you know, less aggressive hiring than we have had in the past. Not that we aren't hiring. We are. But we have probably had some pickup because of the number of people we had versus what we had expected. So I think those are two big things. And I think that, you know, our pricing discipline has helped us. And I believe it will continue.
spk03: Rahul? Rahul?
spk13: Bill, I agree with all of that. And I think the things that I would add are we've also had an opportunity to spend a fair amount of energy on R&D. So, you know, Bill talked about machine learning and some of the other things we're doing. And that has resulted in productivity. And we expect those productivity gains to continue.
spk08: So just to clarify, is the current level of margins that you're generating in the neighborhood of what we should expect on a go-forward basis, subject to any kind of seasonality?
spk03: I think that's right.
spk10: I mean, again, right, it's, you know, we've always been around 40, and I think the latest print's 14.6, and, you know, so I would say it's going to be somewhere between 40 and, you know, and 44, you know, and it will fluctuate based on investments we make, and And, you know, we tend not to be particularly aggressive about capitalizing software and stuff like that. So, you know, I think we will continue to not be particularly aggressive on that. And so, you know, I would think that our margins, you know, will depend on, you know, some of the ability to, which we have proven that we can close big deals, and we have proven that we can get them live. But, you know, the difference between getting them live and the third quarter and getting them live in the fourth quarter, you know, can often impact margin, you know, in the 10 to 20 basis point range.
spk08: That's helpful. And as my follow-up, Bill, in terms of just the capital allocation strategy, now that you're kind of below the three times leverage ratio, you talked about having additional flexibility. If we were to translate that into practically, what does that mean? Is that that you're going to primarily now focus on share repurchases at this point, or is there, you know, you're willing to take leverage down further? Is there kind of a level that you're not willing to go below when it comes to leverage? Just any color you can provide there in terms of while you wait for the right acquisition.
spk10: Yeah, you know, if you look at the, if you look at our, you know, what we expect in cash flow, which is, you know, around $1.3 billion, I think, and And I think that share counts, Patrick quoted, were $2.66 to $2.67. You know, you're talking about $5 a share in cash. And so, you know, obviously on a finance basis, buying back shares is a lot better than paying off 2% debt. Now, at the same time, you know, we would like to deploy, you know, that $4 billion we have in 2% debt. to faster growing assets and obviously with better margins. And so we're constantly on the lookout to try to do that. And I would tell you that primarily our lookout right now is that we have a lot of faith in our development teams, but we have a lot of excitement around Damani Rx. We think the things like Go Central and other things that we are bringing out are indicative of our development capability And I would say that we will continue to drive cash towards those things. But I think, you know, on the surface, we would probably be a little more aggressive in stock buybacks than we would be in debt repayment.
spk03: That's helpful. Thank you, Bill.
spk02: Your next question comes from Michael Young of Truist Securities.
spk03: Hey, thanks for taking the question.
spk12: I wanted to ask kind of a follow-up on the margin profile question and just think about it in the context of some of the macro drivers, mainly inflation. You know, net-net, does that, you know, kind of help you guys on the pricing side and being able to push pricing higher more so than it impacts on the cost side? Any thoughts there would be helpful.
spk03: Hey, I think that's a great question.
spk10: I think that, you know, obviously in inflationary times and you know, all of your organizations are in similar issues with the increasing wages, which, you know, I hope to pay our people more. And I know that our clients like to have continuity with the talented people that we have on their accounts. So I think they also understand that there will have to be some revenue adjustments to them, some price increases. So, you know, net-net, I think you're right. We might be able to get, you know, 50 basis points, maybe 100 basis points more on the revenue side than on the expense side. But I wouldn't say it's going to be. I mean, if inflation goes wild, then that's a lot different. But if inflation stays 2%, 3%, 4%, you know, then I think it will be, you know, could be a little bit of a tailwind, but it's not going to be massive.
spk03: Okay, that's helpful.
spk12: And then maybe just the second, just on kind of general sales pipeline, as we're kind of getting back to normal, maybe post-pandemic, more in-person sales ability, et cetera, are you seeing strengths or opportunities to land kind of larger deals or any update there, just kind of on pipeline and progress there?
spk03: Yeah, I believe we are. We're also engaging
spk10: at higher and higher levels in organizations. And we have a number of very successful lift outs that we have done that we are going to, you know, turn into a, you know, into a pitch book on how we could, you know, maybe take some of your people as well as these accounting processes and reporting processes, risk processes, compliance processes, and other things that we do exceptionally well. and try to be able to really streamline these large financial institutions' middle and back offices. And also, you know, obviously we have front to back, so we can do, you know, trading and compliance and risk and ESG and other things. And so, you know, we're pretty optimistic about our opportunity to continue to go upscale.
spk02: Your next question comes from Andrew Schmidt of Citi.
spk03: Hey, guys. Thanks for taking my questions and a good quarter here.
spk12: First, I just want to dig into the third quarter organic revenue growth performance. Really nice to see the acceleration and growth. Can you talk about just the factors that drove that acceleration in the second quarter, third quarter? Patrick, I know you mentioned strength in a few products, If we could dig into that a little bit more, that'd be helpful. And then based on the momentum you have in the third quarter, just, you know, how you're thinking about the fourth quarter setup from an organic growth perspective based on those factors, because it does seem like you have some pretty good momentum here. So just curious to get your thoughts around third quarter and then how those factors relate to the fourth quarter performance.
spk03: Thanks. Well, again,
spk10: You know, we do believe we have some momentum. And, you know, again, as we said in our remarks as well as in our press release, you know, our software businesses, Advent in particular, and our fund administration businesses as well as our interlinks businesses have been particularly strong. And, you know, we would expect all three of those to continue growing. that strong pattern. And I think that, you know, again, as we add, you know, the tens of billions of dollars to our AUA, you know, those revenues start to flow into our financial statements, and obviously that's some tailwind as well.
spk03: Rahul, could you add to that?
spk13: Well, I think, you know, I'd echo all of that. I'd also say that You know, some of what we've done in the last 18 months or so is really fostered this collaboration within SS&C where our products and services are much more integrated and our teams are much more integrated when they go talk to large asset managers or large banks or, you know, whatever prospects they might have. And that's resulted in the opportunities that we have in front of us, you know, have larger ticket sizes. And sometimes they take a little longer to sell, but if you have enough of them, That's pretty additive to the revenue process, and we think that that helps us drive sustainable growth.
spk03: Got it. That's helpful.
spk12: And not to front-run the analyst state, but it does seem like the comments on the margin front are pretty constructive in terms of your runway there based on both scale and the efficiency initiatives. And then on the top line, it seems like based on your comments, Raoul, that you have pretty good visibility based on some of the, or I should say better visibility based on some of the investments you've made. Is providing an intermediate or a long-term outlook based on those factors something you might consider just to help people think about the longer-term algorithm for the business?
spk03: Thanks.
spk10: Yeah, I believe that, you know, we're constantly studying how we deliver information to all of you. And, you know, I think over the next quarter or two, we will start being a little more granular and try to give you a little bit longer viewpoint of where we think things are going to be. And I think that that might be pretty well received by the analyst and
spk03: and investing community. Got it. Thank you very much, Bill. Appreciate it, guys. Thanks.
spk02: Your next question comes from Peter Heckman at DA Davidson.
spk04: Hey, good afternoon. Just wanted to follow up on fund administration. The company continues to gain share. Can you talk a little bit about where you're gaining share and how you're gaining share? Is it primarily from the smaller and mid-tier fund administrators, or is there a mix of funds outsourcing for the first time, and what other dynamics should we be thinking about? I know there's some transition going on in, I think, the domicile of Malta. I don't know if that's going to require any changes in your business, but really, how does SSE continue to win new contracts and continue to gather AUA?
spk10: Well, you know, I believe we're somewhat by far the most innovative fund administrator in the world. And, you know, we use our own software in our fund administration business as do 40 other fund administrators. But, you know, we're always on the current release and we're always pushing the envelope. So the kinds of products like GoCentral, You know, we will be the first to adopt and the first to demonstrate, and it will create excitement. And then, you know, often larger financial institutions have more difficulty, you know, installing releases in large-scale systems. And so sometimes they get behind on a few releases, and they don't do the training like we do the training. And, you know, there's a whole series of things that we do. And we have a very strong sales force, very capable, and increasingly our marketing is more targeted and our audience is more interested because of the breadth and depth of what we deliver.
spk03: Do you add to that, Rahul?
spk13: That covers a lot of ground. I think maybe a couple other things. On some of the types of things that we're seeing that are additive are New funds for sure, but also particularly in the private markets business with private equity and real estate, we've said now for several quarters, if not years, that the larger funds are embracing outsourcing. They just happen to be doing it at their own pace. And as Bill just pointed out, as we get bigger and we make more investments, we get bigger. you know, more recognized out in the marketplace, that pace of change for them and the rate at which they're able to embrace our services is just accelerating. So I think we're seeing acceptance, greater acceptance into larger players. We continue to be very, very strong in the startups. And then we have a large and prestigious client base that continues to raise assets and add new funds. And all of those things work together.
spk04: Okay, maybe just as a follow-up, has there been much change in pricing on a net basis? I mean, you could think of the more illiquid assets and the more complex assets might help raise the overall, but can you comment on how pricing has trended the last couple years?
spk13: Pricing has been pretty stable with the thing that changes the baseline is we have more products and services to sell into any individual market. manager that we're speaking with. So, overall deal size is larger, but the prices for, you know, kind of the same kinds of services is pretty comparable to what it was.
spk03: Okay. I appreciate it.
spk02: Your next question comes from Mayank Chandan of Niedermann Company.
spk11: Thank you. Good evening. Bill, just given your comments around demand, and it sounds like decision-making also is I was just curious, as you look out into 22 and beyond, and maybe you'll talk about this at the end of the day, but just wondering, is the trendline growth for SSMC potentially better? What I mean by that is, I think in the past, you've talked about, say, mid-single-digit organic growth and then supplement that with M&A. But obviously, you're growing a little bit faster right now. Is that sustainable, or do you think growth reverts back to trend as you look out a little bit longer term?
spk03: Well, Mayank, we like the current trends.
spk10: So going back to previous seasons doesn't enthrall us. But as I said before, when we deployed $8.4 billion in capital in 2018, we got something like $2.9 billion in revenue. And, you know, probably close to a billion in EBITDA. You know, if you try to do that in 2021, you know, who knows how much you would have to pay. And so, you know, we feel pretty good about when we gathered assets and the discipline that we have shown. And again, trying to, you know, we still like to make money, you know, and, you know, we want everybody to you know, to also understand that we're good citizens in all of our communities and we pay well and all those things. But, you know, our earnings are, you know, $1.33, $1.64, you know, $1.94, something like $2.92, $3.83, and last year we did $4.30, and now we're saying we're going to do, you know, somewhere around very close to $5. So I think, you know, that focus is going to stay the same. You know, I think our opportunity to grow faster is because of, you know, the breadth and depth of what we're offering. And then the size of our current client base, you know, in particular, you know, it's the largest hedge funds. You know, the biggest banks, the biggest mutual fund companies, the most complex issues. You know, as I say, you know, if you want to double your capacity in a server, you pull out one wire and stick in another wire. you want to do derivative mortgage-backed securities on a retrospective or prospective basis, you better get deep into an accounting book, right? And so I think the complexity of the world, the complexity of the investing world, the drive for increasing information across the number of different analytics isn't going to change. All of you are insatiable. So all we have to do is make sure that what we deliver to you is stuff that you want. And I think as long as we do that and keep our size and our strength and our expertise, I think the future does look bright for us.
spk03: Right.
spk11: There seems to be plenty of runway, no question. Bill, as a quick follow-up on the health, I don't think I caught anything in terms of an update on the health business. Any updates on that in terms of positioning, competition, how that's faring, and maybe your longer-term thoughts on how core that is to your business versus maybe, I know you've talked about it in the past, potentially looking at it as part of the core, but just curious on what the latest is on the health side.
spk10: Well, I mean, we announced Damani RX, I think, last quarter, and, you know, that's capitalized with a billion dollars, and, you know, PVM is a pretty hot area, pharmacy benefit management, and in particular, the capabilities of your technology. And we have a really bright team that are building out our new platform for Damani. And we have, obviously, some pretty sophisticated partners with us, with Anthem and Humana. And we expect others to convene with us, large scale, sophisticated healthcare providers and healthcare plans. And we believe that it is a very big opportunity for us. And, you know, how you ultimately monetize that bank, I think, is still, you know, in the formative stages. You know, we're now you know, our nose to the grindstone and getting the product done and getting excitement, adding new customers. And I think the healthcare business will perform well over the next several years.
spk03: Got it. That's helpful. Thank you so much.
spk02: Your next question comes from Jackson Ader of J.P.
spk06: Morgan.
spk12: Great. Thanks for taking my questions, guys. The first one says State Street bought Brown Brothers, or the accounting and fund administration piece. And I was just curious whether, you know, you had any comments on that that seemed like it would be right up your alley, you know, S&C's alley, I should say. And $3.5 billion wouldn't have topped your former largest deal. So I'm just curious your thoughts on the deal and whether you guys were also interested.
spk03: We would have been. You know, I think that that was maybe baked already.
spk10: And so, you know, both of them are good clients and we wish them well. And hopefully there's another large financial institution that wants to get out of the fund administration business. They hopefully create a little bit more of an option.
spk12: Yep. Okay. Understood. And then, so you mentioned one of the things that helps, I think you mentioned that one of the things that helps margins is big go lives that happen to fall into a particular quarter. Was there anything in this third quarter that maybe pulled forward from the fourth quarter that would explain the organic revenue growth decel as we look out to 4Q?
spk10: Well, I you know, I think you know again we we. We we we want to make sure we don't get ahead of ourselves. We don't get over our skis and and you know if there's going to be a surprise, we prefer it to be positive. So you know we have been. Circumspect on on how how aggressive to be on. On on guidance and and I think it is, you know, last few quarters has served us well. And, you know, I think as our sales and marketing organizations get increasingly sophisticated, our ability to really, you know, have a higher growth rates and feel very comfortable about hitting those, I think will be emerging for you. And I think that You know, right now we have a pipeline that's bigger than we've ever had. You know, pipeline's nice, but that doesn't count for revenue. You've got to close that pipeline. And, again, we have a really strong sales force, and we're pretty excited about what we can do.
spk03: All right. Thank you.
spk02: Okay, your next question comes from James Fawcett of Morgan Stanley.
spk05: Hey, this is Jonathan Otter for James. Thanks for taking our questions. There's been a flurry of capital markets activity around higher growth assets in the investment management solution space. And with that in mind, I think you touched on this earlier, how are you thinking about your acquisition strategy around growth-oriented assets? What are you seeing in the market?
spk03: What types of assets are you looking for? less expensive ones than are in the market right now.
spk10: So, you know, when you start looking at 10 and 12 times revenue, it becomes, you know, for, you know, the mass, it becomes pretty tough. And so, particularly when you have as talented development teams as we have. So, you know, the trade-off is, you know, we don't really want to... have the elapsed time, you know, and risk of developing software if we could buy some of that functionality at, you know, only a moderately ridiculous price. But when it's a completely ridiculous price, then we get a little more circumspect. So I think, you know, we like the wealth management sector. We like reg tech. We think insured tech looks pretty good. you know, we will almost always be in the bidding for fund administration businesses. So those things, and we also think that we have, you know, a growing and strong presence in Asia that we would like to buttress as well.
spk03: Thanks for that, Bill.
spk05: And, you know, you mentioned development teams and the skill sets that you have there. So on the topic of hiring, Are you seeing any headwinds as it relates to finding and hiring that talent for those development teams given the constrained talent environment?
spk03: Yes. So what we have figured out is to pay people more.
spk02: Your next question comes from Chris Sennott of Piper Sandler.
spk12: Thanks for taking my questions. One, just ask another one on the category of fourth quarter guidance and revenue. Just because the revenue guidance is down 3% or up, a range of down 3% to up 1% from the third quarter. And just can you remind us what the swing factors can be in your revenue besides the timing of onboarding? You know, how much, like, services work you can have or other factors that can affect the revenue recognition quarter to quarter, especially with your 96.5% revenue retention level.
spk03: You're in a pretty predictable world. Well, I think that's a good question, too.
spk10: I would I would say that the two things that come to my mind is, you know, the fourth quarter is usually our biggest license revenue quarter. And in general, licenses are a little more difficult to predict than recurring revenue increases. And the second thing is that the fourth quarter is not a particularly long, not a particularly strong quarter for adjacent services in our fund administration businesses, like tax work and other things like financial statements. Almost all of that work comes in the first quarter and second quarter. So those are a couple of things. And Rahul probably has some other comments.
spk13: I think those are, you hit the big ones. It's the seasonality of the special services that we do in fund administration. It's, you know, it tends to be a bigger license quarter. And I think, you know, sequentially the difference between the midpoint of our guidance for Q4 and our actual for Q3 is huge. something like $15 million, right? So we're not really that far off, and I think well ahead of anything we've said for Q4 during the course of the year.
spk12: Okay, got it. And then, Raul, I just want to make sure I heard you correctly. I thought you said you had a $30 billion hedge fund client that was running Access for 20 years. Is that right? And how many other clients are out there running Advent's legacy Access software? Or did I hear it wrong?
spk13: No, you heard it right. And, you know, that's a great question, right? So there exists within that client base opportunities like that. And I think, you know, that opportunity resulted in a sort of a 10x revenue pickup, right? And lots of value to that particular customer. But we have others where, you know, some of these products that have been around for a while are very functional and people really like them. But invariably, they start investing in things or have new requirements, and they need to upgrade, and we've got a natural upgrade path. And when that happens, it can be pretty positive for them and for us from a revenue standpoint.
spk03: Okay. Understood. Thanks very much.
spk02: Your next question comes from Patrick O'Shaughnessy of Raymond James.
spk07: Hey, good evening. So this topic was kind of touched on earlier, but there's been a couple of recent IPOs of firms that compete against SS&C in certain areas. And those competitors are pitched as cloud native or they're SaaS based. Curious about how comfortable you are with your competitive positioning, particularly on the software side of the business.
spk03: Yeah, that's a great question, Patrick.
spk10: You know, I think that we are very competitive. competitive on the software side. In particular, you know, to just name a few products would be, you know, our Singularity platform, our Geneva platform, our Ezeclips platform, our Interlinks platforms, Precision LM. Those are all, you know, best in class. And I think, you know, relative to, say, infusion or clear water, you know, I think this quarter we added $110 million in revenue, you know, which is about half of Clearwater's annual revenue. And I think it's more than, you know, maybe double what infusion does. So, you know, competitively, I think, you know, I think they have some good some good technologists at both of those companies. But, you know, when they get into bigger and bigger companies, they're going to find that, you know, being able to do syndicated bank loans, interest rate derivatives, compliance and risk, and other functional requirements, I think is going to really start to tip the scale towards us. Plus, we have a new product called Aloha that has IBOR and all kinds of other neat features in it. So we're, you know, we're, we're pretty, pretty proud of our development teams and we're, and we're looking to step on the gas on the sales market.
spk07: Yeah, that's helpful. Thank you. And then, so you guys have obviously been pretty aggressive on the share repurchase front over the last several quarters, but like on a year over year basis, your fully diluted share count is essentially flat is the impact of the repurchases has been offset by a lot of dilution stock-based compensation related dilution. So obviously there's variables at play, you know, in terms of your capital allocation opportunities and the stock share price, but at a high level, would you expect to start making a bigger dent in your diluted share count going forward?
spk10: Well, you know, again, uh, I, I think the answer to that is, is yes. You know, although I think that our, you know, one of the stated stated goals of our board and our comp committee is to make sure we have, uh, We have adequate, you know, equity awards for our staff. And so, you know, that's a balancing act. And, you know, I think that, you know, we go from a few years back having $250 million in authorization, then a $750 million in authorization, now we have a billion. You know, and I think that, yeah, we would like to make a bigger dent in that. And I think we will continue to be quite aggressive when it comes to buying back stock.
spk03: You know, we're just way bigger, Patrick. You know, we're $5 billion in revenue now. I mean, three years ago, we were, you know, $3 billion in revenue. So three and a half. So things take time. Gotcha. Appreciate it. Thank you.
spk02: Your next question comes from Jack Semater of JP Morgan.
spk12: Thanks, Sarah. I'll jump back in. Patrick, do we have – could we get the organic revenue growth by segment, you know, fund administration as interlinks, et cetera?
spk03: Yeah, sure, in Q3. So the fund administration business was up, I think, 14.8%. organically in the quarter. Interlinks was up 23.5% in the quarter. Our DST financial services segment was up 3.7%.
spk09: And then our core software business plus some other of the smaller products But mostly advent in our institutional businesses in this segment was up 6.9% of the quarter.
spk03: Okay, awesome.
spk12: Just quick follow-up on that interlinks number. How much of that was driven by, you know, M&A activity in the market that might be outside of your control, like more market factors versus like S&C's own executions?
spk10: We're really proud of our team's execution. They're gaining market share, and I believe that they're innovating, and we're very pleased with all the aspects of that team.
spk03: Okay. All right. Thank you very much.
spk06: At this time, there are no further questions. I will now turn the floor back over to Bill Stone for any additional or closing remarks.
spk10: Again, thanks, everybody, for being on this call, and we look forward to talking to you after the fourth quarter. And, you know, please stay safe, and we'll see you next quarter.
spk03: Thanks a lot.
spk02: Ladies and gentlemen, this concludes today's event. You may now disconnect. Thank you for your participation.
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