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spk13: ladies and gentlemen thank you for standing by my name is brent and i will be your conference operator today at this time i would like to welcome everyone to the ssnc technologies second quarter 2022 earnings conference 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 at that time simply press star followed by the number one on your telephone keypad If you would like to withdraw your question, again, press star 1. Thank you. It is now my pleasure to turn today's call over to Justine Stone, Head of Investor Relations. Please go ahead.
spk01: Hi, everyone. Welcome and thank you for joining us for our Q2 2022 earnings call. I'm Justine Stone, Investor Relations for S&C Technologies. 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, let's review the Safe Harbor Statement. Please note the various remarks we make today about future expectations, plans, and prospects, including financial outlook we provide constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Security 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 the risk factor 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, July 27, 2022. 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, reconciliation of these non-GAAP financial measures to comparable GAAP financial measures. It's included in today's earnings release, which is located in the investor relations sections of our website at www.ssctech.com. In the third quarter 2021, we entered into a joint venture named Domani RX LLC, 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 SS&C based on the ownership interest retained by SS&C. I will now turn the call over to Bill.
spk10: Bill, you might be on mute. Thanks, Justine, and thanks, everyone, for joining.
spk11: Our results for the first quarter are $1.33 billion in adjusted revenue, up 5.5%, and $1.10 in adjusted diluted earnings per share, down 11%. Adjusted consolidated EBITDA was $464.3 million for the quarter, and our EBITDA margin was 35.4%. Continued elevated labor prices, higher than expected interest rates, FX headwinds and a weaker economic backdrop put pressure on our results versus our expectations.
spk10: Our first quarter adjusted organic revenue was up 2.2%.
spk11: Our alternatives, interlinks, and advent businesses continued to be the growth leaders. X the impact of our healthcare business, our Q2 22 organic growth in financial services, about 94%. of our revenue was up 4.4%. SS&C generated net cash from operating activities of 446.5 million for the six months ended June 30. We were restricted from buying back stock in Q2 22 due to some M&A discussions which have ended and we paid down 234.7 million in debt. Our consolidated net leverage ratio now stands at 3.45 And our net secured leverage ratio is 2.48 times consolidated EBITDA. And our goal is to reduce leverage to three or less. Overall, our business is seeing more headwinds than we initially expected, especially compared to 21. We believe there are three main challenges affecting our revenue growth, the weakness in the healthcare business, while somewhat expected as we invest in DomaniRx, which will continue to be a 100 to 200 basis headwind to total company organic growth. We have a lot of faith in Damani and what it can deliver in 2023 and beyond, and development is currently on target for broad-scale release on 1-1-24. Second, the slowdown in the M&A market is affecting interlinks by about $20 million from our original plan. They're still growing close to 15%, and it still has excellent margins. And despite the dip in deal volume and total deal value, Interlinks continues to gain market share and expects to continue to grow in about the 15% level. Lastly, the DSC financial services business has taken the brunt of the FX impact. As many of you know, the dollar has been unprecedentedly strong, and we expect an additional $28 million in FX headwinds in the second half. On the expense side, our labor costs remain elevated, but there are signs of this plateauing. We communicated bonuses and a second round of merit increases in March and April, which has curbed some of the attrition, along with our employee-focused initiatives, which we have highlighted in our slide deck. We'll be tightly controlling our costs for the remainder of the year. Real estate reductions, IT spending, and implementing Blue Prism's digital workers throughout our operations will drive our margins back up to historical levels exiting the year. I'll now turn it over to Rahul to discuss the quarter in more detail.
spk14: Thanks, Bill. Our business remains resilient in the face of macroeconomic challenges that manifested in Q2. As you noted, Bill, foreign exchange headwinds impacted our international business with the largest impact to our European transit agency and wealth revenue streams. Interlinks is also seeing some muting in the demand environment due to reduction in M&A volumes, but grew 14.2% in Q2. The alternatives business demonstrated our longstanding thesis that diversification among fund types, asset classes, and our commercial models gives us a strong hedge against market pressures. The alternative business grew nicely, despite some impact to new fund launches and fund inflows. Go Central continues to roll out new functionality, enabling more efficiencies in daily processing and NABs, and providing an important market differentiator in our sales process. We now have 69 clients on Go Central in production, totaling 1,500 funds with an approximate AUM of over $300 billion. As in our financial markets business, at a strong quarter in the wake of market volatility and are well positioned to take advantage of shifting investment strategies given the breadth of our product offering. Domani RX joint venture also notes continues to make progress. The new cloud-based system can now successfully execute a financial cycle and we have completed the initial build and configuration of the API gateway and developer portal. We have accelerated our go-to-market plans and Domani Rx can now be delivered in a modular fashion sold as individual products including finance, drug management, and communications hub for existing SS&C health clients and prospects starting in Q4 2022. SS&C private markets grew 15% in the second quarter despite a slowdown in fundraising following several years of elevated activity. Prospects and clients in private markets are more than ever looking to partner with key service providers, can drive efficiencies utilizing technology expertise and data private credit and hybrid funds are a particularly attractive sub-segment we continue to innovate in this space incorporating geneva and other leading technologies and have multiple large private credit deals in the pipeline now we'll mention some key deals for q2 a 42 billion aum hedge fund An existing Geneva user chose SSNC's tax optimizer to replace a big four accounting firm solution. An existing retirement client extended their track 403B account record-keeping services with SSNC to service a recently acquired business. An existing GIDS client added SSNC event center services. A large customer added our transfer agency services for retail alternatives for their non-traded real estate investment trusts. An existing customer extended their Sylvan, Porsche, and Recon licenses to a newly acquired division, significantly improving their workflow. An investment manager in Australia seeking to transform its operating model to gain operational efficiency and provide improved services shows SSNC's aloha due to its advanced technology and our global wealth expertise. A large U.S. insurer shows SSNC's singularity after a multi-year sales process. A Dutch private equity firm launching a registered investment fund for the first time chose SS&C for interval fund services and retail alts transfer agency services. I will now turn it over to Patrick to run through the financials.
spk02: Thank you. Results for the second quarter were gap revenues of $1,328,000,000, gap net income of $110,600,000, and diluted earnings per share of $0.42. Adjusted revenues were $1,330,000,000, including the impact of the adoption of Revenue Standard 606 and for acquired deferred revenue adjustments for the acquisition. Adjusted net income was $289.6 million. Adjusted revenue was up 5.5%. Adjusted operating income decreased 8.2%. And adjusted diluted EPS was $1.10. an 11.3% decrease over Q2 2021. Adjusted revenue increased 69 million or 5.5% in Q2. Our acquisitions contributed 65.6 million. Foreign exchange had an unfavorable impact of 24 million or 1.9% in the quarter. Adjusted organic revenue increased on a constant currency basis was 2.2%. We had strength across several product lines, including alternatives, interlinks, AS, and the advent businesses. That strength was impacted by weakness in our GIDS transfer agency business and healthcare businesses. Adjusted operating income for the second quarter was 455.3 million, a decrease of 40.5 million or 8.2% in the second quarter of 2021. Adjusted operating margins were 34.2% in the second quarter of 22 compared to 39.3 in the second quarter of 2021. Expenses increased 8.1% on a constant currency basis. Acquisitions added 67.8 million in expenses and foreign currency decreased costs by 20.6 million. Our cost structure was impacted by wage inflation, high recruiting costs, and higher staff to support our businesses. Net interest expense for the second quarter was 67.7 million. It includes 3.9 million of non-cash amortized financing costs and OID. The average rate in the quarter, including the senior notes, was 3.45% compared to 3.02% in the second quarter of 2021. We recorded a GAAP tax provision of $45.2 million, or 29.1% of pre-tax income. Adjusted net income as defined in Note 4 in the earnings release was $289.6 million, and adjusted EPS was $1.10. The effective tax rate used for adjusted net income was 26%. Diluted shares decreased to $263.9 million from $267.6 million in Q1. The impact of option exercises was offset by the decrease in the average share price during the quarter. On our balance sheet and cash flow, we ended the second quarter with $438.3 million of cash and cash equivalents and $7.4 million of gross debt. Net debt has defined our credit agreement, which excludes cash and cash equivalents of $148.3 million held by Demonte Rx with $7.1 billion as of June 30th. Operating cash flow in the six months ended June 30th was $447.5 million, a $114.8 million decrease compared to the same period in 2021. During the three months ended June 30th, we paid down $234.7 million of debt. Operating cash flows were down as a result of several factors, including payment of transaction expenses associated with the Blue Prism acquisition, of approximately $67 million, which includes amounts paid by Blue Prism in the post-acquisition period and our operating activities compared to last year. Overall, for acquisitions here today, we've paid $1.1597 million, and that includes Blue Prism, HubWise, O'Shares, and MineralWare. And that number is net of cash acquired. Treasury stock buybacks were 170.9 million for purchase of 2.3 million shares in the six months. We did not buy any shares in the second quarter of 2022. In the six months, we've declared and paid 102.4 million in common stock dividends as compared to 82.1 million last year, an increase of 24.6%. Total interest paid in the quarter was 112.6 million and that compares to $97.8 million in 2021. In the six months this year, we've paid $156.5 million of income taxes compared to $144.2 million in the same period last year. Our accounts receivable, DSO, ticked up a little in the quarter, up to 55.9 days compared to 52.7 days as of March 2022. Capital expenditures and capitalized software were a total of 85.9 million with 3.3% of adjusted revenue. Spending was predominantly for capitalized software and IT infrastructure. And our LTM consolidated EBITDA that we used for covenant compliance was 2 billion and 45.6 million as of June. And based on the net debt of $7.1 million, our total leverage ratio was 3.45 times and secured leverage 2.48 times as of June 30th. On outlook for the remainder of the year, I'll go through a couple of assumptions. We have assumed that foreign currency exchange will be at current levels for the remainder of the year. average interest rates will increase 100 bps in the third quarter an additional 50 bps in the fourth quarter we expect to reduce our cost structure through staff reductions productivity improvement facility reduction and controlling variable expenses to improve our operating margins and we'll continue to invest in our business in the long term with capital expenditures and cap software of approximately 3.4 percent On cash flow, we will focus on improving our working capital requirements to generate cash. In addition, we are recapitalizing one of our real estate joint ventures to generate approximately 70.70 million of cash distribution. We've also assumed we'll continue to allocate free cash flow to both debt and stock buyback, and we'll use a tax rate of 26% on an adjusted basis. So for the third quarter of 2022, we expect revenues in the range of $1,324,000,000 to $1,364,000,000. That will result in adjusted organic growth in the range of 1.6 to 4.8%. Adjusted net income in the range of $302 to $318,000,000. And diluted shares in the range of $263.2 to $262.7 million. For the full year of 2022, we expect revenue in the range of $5,320,000,000 to $5,406,000,000. Adjusted organic growth in the range of 0.6% to 4.8%. Adjusted net income in the range of $1,256,000,000 to $1,297,000,000. And diluted shares in the range of 264.6 to 263.6 million. And on operating cash flow for the full year, we expect operating cash flow to be in the range of $1,180,000,000 to $1,220,000,000. And I'll turn it over to Bill for final comments. Thank you.
spk10: Bill, you may be on mute again. Thanks, Patrick.
spk11: We appreciate your continued interest in SS&C, and we believe we're on the right track to deliver stronger revenue growth and a more digitized workforce, which will be a lower expense base. Our deliver conference is the first week in October. and we hope to see you in Orlando. I'll now open it up to questions.
spk13: At this time, I would like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. If you would like to withdraw your question, again, press star one. In the interest of time, we request that you limit yourself to one question and one follow-up question. Your first question comes from the line of Alex Kram with UBS Financial. Your line is open.
spk08: Yes. Hey, everyone. Good evening. There was a comment in the deck, I think, around like stepping up conversations on pricing with your clients. So just hoping that you can flush this out a little bit more and in particular, maybe remind us what you thought at the beginning of the year pricing could add and how maybe those fresh discussion could maybe change that number? And then most importantly, is that already reflected in your updated organic growth guide, or could that be incremental to what you just laid out?
spk10: Thanks. Well, I think, Alex, that we have incorporated some price increases into our guidance.
spk11: and we're implementing as we speak, and we have implemented. And I think, you know, we have CPI in most of our license maintenance. And obviously, CPI is quite a bit higher than it was over the last few years. And then also, we've had individual businesses raising prices throughout. And I think Rahul might have a few numbers on that.
spk14: Yeah, I think where we have CPI, obviously, you know, we're in the range of, you know, it's CPI plus three, CPI plus four, and some of those numbers look like, you know, anywhere between seven and 10%. We're also doing, going back to customers, as we've talked about, with price increases, where contracts are renewing, or you know, where just in the context of the inflationary environment makes sense. And in general, I would say we're targeting, you know, five to seven or higher percentage increases. Now, you know, this is an ongoing conversation. And in some cases, we'll end up a little better. And in some cases, we'll end up a little bit worse. And as Bill noted, you know, some of that has already been reflected in the future forecast.
spk00: Okay, fair enough.
spk08: And then maybe just a quick one. You mentioned no buybacks this quarter because of M&A discussions. Maybe anything to flesh out there in general? Maybe what kind of areas you've been looking at? And then just to clarify, was that to buy something or are you actually looking to maybe divest some businesses, if you can be that specific?
spk07: Thanks.
spk11: Yeah, well, you know, it really, you know, we don't really comment on what we're buying or selling, Alex. But, you know, we look at our portfolio all the time. And, you know, we're pretty interested in being able to bolster our private markets business. We're excited about some of the new stuff we're doing in tax. And we continue to look at... that unique asset classes that we think our clients may be moving more strongly into. So we have a variety of different conversations going on at any one time. And I think we thought that there was a pretty good chance that that something would happen. And that's why we felt like we had material nonpublic information. So we didn't trade our stock. But those conversations have ended, and I would guess that we will be active in Q3 in stock buybacks.
spk07: Sounds good. Just figured I'd check if there was more to disclose. Thanks.
spk13: Your next question is from the line of Peter Heckman with DA Davidson. Your line is open.
spk12: Good afternoon, everyone. Thanks for taking the question. Bill, can you comment on... What do you think is the bottom in terms of year-over-year growth in healthcare? Are we seeing it this quarter?
spk10: Are the client losses fully reflected?
spk11: I think that as we start showing some of the modules of Damani Rx, we will start getting kind of a reversal of trend. That's why, you know, we have such a focus on that. You know, for healthcare to be down the 24%, it was, you know, we had some more attrition that we really didn't expect. But again, it's, you know, it's 6% of our revenue or so. And so while, hey, we don't like reductions in revenue in anything, But we're pretty optimistic that we're spending a lot of money. There's a lot of interest in that healthcare business, you know, and there has been ever since we bought DST. So I think we have a lot of optionality when it comes to healthcare. And, you know, to date we have felt like owning it is a lot better than divesting it.
spk12: Got it, got it. And if we thought about the healthcare business without the attrition um can you give us an idea how revenue would look just you know based on the underlying you know metrics um you know would this be approximate i mean is attrition the main issue here or is there also an issue around you know uh you know number of prescriptions processed or or claims or covered lives yeah i think you know that the the biggest driver is the number of of uh
spk11: claims we adjudicate and pay. And that's probably the biggest driver on the revenue. And we've been up close to the $500 million range, and we're probably down in the $380, $390 million. But with the money, we expect a large uptick in that. As always, there's a lot of regulation of PBMs and fees that they charge. And different states have different rules. And so we're constantly monitoring that and being able to comply with new rules all the time. And in general, the new rules are not revenue enhancing. So we deal with that regulatory environment as well.
spk10: Okay. I appreciate it. I will get back in the queue and follow up later. Your next question comes from the line of Andrew Schmidt with Citi. Your line is open.
spk04: Hey, guys. Thanks for taking my questions, and good evening.
spk03: I wanted to dig in a little bit on DST Financial Services. And I know you partially mentioned this, but if you could just talk a little bit more in depth of what drove the step down in organic growth in the second quarter. And then, you know, based on implementation and sales pipelines, how you're thinking about growth in this business in the back half an inch next year.
spk10: Thanks.
spk11: Well, we have very robust pipelines and we have a reasonably strong backlog of projects that we're implementing now that should give us some lift You know, I think the challenge on some of this is these are very large organizations, and the implementations are sometimes drawn out. And, you know, again, they're still our customers, and we support them all the way through the process. But sometimes the rev rec gets delayed. You know, I would say that, you know, we think that the – the ability for us to deploy digital workers throughout our business is to help us both in our sales pipeline development as well in reducing the rate of increase of personnel. So we think we have identified several hundred FTEs that these digital workers are going to be able to be substituted for so instead of hiring another three 350 we we think we're going to be able to deploy digital workers in order to uh to satisfy those needs and these are in like reconciliations break you know break resolution and and different things you know compliance with blue sky laws and so forth and so on so we're very optimistic about about our margin our margin uh, rebounding back to our historical levels. And, you know, like I said, we've had, we've had some, um, FX headwinds we've had, we've had, um, uh, you know, labor, uh, becoming a dominant and therefore having a way higher, higher wage rates than, than has been the norm over the last five or 10 years. And even with all of this, You know, we run at 35% margin. So, you know, we have an excellent business that I think over the next number of quarters will just be more excellent.
spk04: Got it. Thanks for that, Bill. I appreciate the detailed response.
spk03: And then this is a related question, but I recall last quarter, you know, the retention issues were having an impact on implementation issues. It seemed like that was starting to get smoothed out, but if you'd just, you know, give us an update in terms of where we're at in terms of just stabilizing just the workforce and the implementation timelines across the business, that would be helpful.
spk10: Thanks.
spk11: Well, you know, it's not the hemorrhage that it was in the, you know, towards the back half of the first quarter and the beginning of the second quarter. It's not quite that. You know, obviously, you know, you've seen slowdowns in a lot of the major companies in their hiring and also a number of them that have announced cutbacks. You know, those kinds of things, you know, tend to give people pause, right? You don't really want to switch jobs and then be subject to a risk. You know, people also like working for us because we are profitable, you know, and we do realize our biggest asset is our people. And so we've done a number of things, and you can see some of it in spots that we've put together. But we're really optimistic about what Blue Prism is going to be able to do for us. You know, I was on a call with a prospect today on Blue Prism, and I think it, again, you know, SSMC is making big investments. big investment in this business because we believe accounting is not going away. We don't think tax returns are going away or financial statements are going away or any of the other of the mission critical things we do are going away. You know, so, you know, trees don't grow to the sky, but, but, you know, we'll be at a still about five, 5.3 billion or so in revenue at the end of this year, maybe better, you know, and I don't think that we're anywhere near what we can be and we're expecting us to execute better. But the first thing you got to do is you got to maintain your workforce and you got to focus on customer service. And so that's what we've been doing. We have spent tremendous amounts of money on our selling and marketing and R&D. I think R&D is up about 18%. I think our sales and marketing is up about 40%. So I think we are spending the money.
spk10: I think we're spending it wisely. And we expect it to pay dividends. Got it. Thank you very much, Bill. Appreciate the comments. Your next question comes from the line of Patrick O'Shaughnessy with Raymond James.
spk13: Your line is open.
spk09: Hey, good evening. So you guys, your presentation notes that you're committed to reducing your debt in a rising interest rate environment. But on the call today, you also indicated that you look to be active in the share repurchase market. How do you think about balancing those priorities right now?
spk10: Carefully. Right?
spk11: So, you know, we'll look at it, you know, depending on how much cash we generate. But I would guess that we'll probably, you know, right now I think our forecast has this at about 50-50. you know, 50% debt reduction, 50% stock buybacks. But, you know, that could fluctuate, you know, as much as 15%. So it could be 65-35. It just depends on what happens with either market.
spk09: Got it. That's helpful. Thank you. And Patrick, maybe a question for you. Do you have a general rule of thumb for how much, you know, a given change in FX would impact the company's EBITDA or EPS?
spk02: for the second quarter?
spk09: Just in general, but I mean, second quarter, if you have that, but just in general, to get the dollars up.
spk10: Yeah, I mean, in the second quarter, the impact of the EPS was probably somewhere around a penny to a penny and a half negative, the EPS.
spk02: And I would suspect it'd be you know, based on where the current exchange rates are today, it'd be pretty similar in this third or fourth quarter.
spk10: Got it. Thank you. Your next question is from the line of James Fawcett with Morgan Stanley.
spk13: Your line is open.
spk06: Hey, it's Michael. I'm for James. Thanks for taking my question. Um, I just wanted to hit on the sort of like the hedge fund backdrop quickly. Um, Obviously, we've seen the number of launches slowing, but you've also seen the size of those launches also decreasing. So just anecdotally, how are you sort of performing in the blue chip launches? What's your share capture? And sort of how are you thinking about hedge funds in general in this current environment?
spk10: You want to take that, Rahul? Sure.
spk14: You know, I think what we're seeing is what we tend to see in periods of market volatility and when people come into pressure, which is more viewed as the leader in the fund administration space and in the hedge fund space, as well as private equity. And so, you know, we actually tend to perform better in terms of market share in these kinds of environments. We saw that in the financial crisis in 08, 09, and we're seeing that again. So, you know, as you know, there aren't as many new launches and the ones that are aren't aren't as large. But most of our revenue capture is, you know, new clients and conversions and takeaways as opposed to new launches, which take, you know, generally some period of time before they become material to us. And so that process is going pretty well and we're winning our share of what's out there in the marketplace. And if anything, strengthening and we expect that, you know, as things turn around, that'll be pretty positive for us.
spk06: Great. Thanks, Rahul. And then just quickly, I saw on the deck that, you know, you're also looking at headcount in Blue Prism specifically. Can you just comment on the nature of those potential headcount reductions? Is that sort of back office staff? Is it quarter carrying sales reps? How should we think about that?
spk10: Yeah, we almost never cut back on quarter carrying.
spk11: salespeople. I think this is much more on, you know, as you combine these companies, right, there's a number of functions that are duplicative. And so we're moving relatively quickly on being able to reduce that headcount, you know, whether that's in legal, finance, IT, and other support organizations. But we're excited about what we have with
spk10: with Blue Prism and what our opportunities are. Great. Thanks, Bill.
spk13: Your next question is from the line of Chris Donat with Piper Sandler. Your line is open.
spk15: Good afternoon. Thanks for taking my question. Bill, I wanted to ask another question on the price increases you're putting in related to inflation and other things. I'm curious if you can give us some color on the receptivity from your clients. I would imagine given the market conditions, they have very little appetite for the price increases, but they recognize the inflation side of it for you. Just wondering how they're reacting to it. Is it grudgingly or with a lot of pushback?
spk10: Just some color would be helpful.
spk11: Yeah, I mean, you kind of characterized it. Nobody particularly likes to have price increases. At the same time, they want their current team to be well-paid and well-respected. And they realize that that's not for free. And so I think that You know, this is an industry that is populated by big boys and girls. And, you know, we're certainly not in, you know, we're not mega tech companies that walk in and say, you know, 25% more take or leave it. That's not our MO. And so, you know, they know that we're really just passing on the inflation that's hitting us. And our guess is that they're trying to pass on expenses increases that they have. So it's a natural cycle. And you do it with as much sensitivity as you can and with a little bit of determination and persistence. So I think it's going pretty well. And I think our people understand that
spk15: that these are the things that are going to you know kind of maintain you know our bonus structure and our ability to uh to compensate well okay and then for my follow-up wanted to see if i'm connecting things correctly here you've got the uh cost controls and reducing your real estate footprint uh separately you've got under hr initiatives the hybrid work and you made some comments about having some employee attrition but i think said you think plateauing are is the hybrid work initiative and the uh real estate footprint are those related issues are they really separate well if people don't come into the office which they don't i would say they're related right so we don't need real estate footprint that we have
spk11: And, you know, we're doing much more of a hoteling concept rather than, you know, everybody having their office or their own space. So, you know, that's just changed the way we work and we're trying to be, you know, as flexible as we can be, you know, as long as we can maintain customer service and be able to hit our deliverables and meet our growth targets. But yeah, for sure they're related.
spk10: Okay, thank you.
spk13: Your next question is from the line of Kevin McVey with Credit Suisse. Your line is open.
spk05: Great, thanks so much. Is there any way to think about, maybe this is for Patrick, what the cost controls, what the impact is on the guidance, the revised guidance? I guess maybe start there. Is that fully in it or... Any way to think about how that comes in over the course of the year?
spk02: I think if you look at the baseline costs for Q2, we've got in the back half of the year about $50 million in cost reductions, of which I think about 25 have already been completed. And then the rest is mostly reducing, continue to reduce facilities and productivity improvement with the Blue Prism product.
spk10: And then, you know, holding back as much as possible on other discretionary spending. That's helpful.
spk05: And then it looks like the revenue retention and the AUA really kind of hung in there despite the market volatility. Anything to call out there?
spk10: I'm sorry, can you repeat that?
spk05: Bill, it looks like the revenue retention rates improved from Q1 to Q2, and then the AUA was actually flat sequentially despite the market volatility. Anything to call out amongst clients? Just anything in particular that drove that?
spk11: I think what Rahul said earlier about in these kind of tumultuous times, people fight quality. We think that's going to help us over the next couple of years. There's been an awful lot of acquisitions in the fund services space and extremely high prices paid. You know, and SSMC has not been much of a participant in that. We think that's going to put some of our competitors under immense strain, and we think we'll be a beneficiary of that.
spk10: And that shows up in our AUA as well. Thank you.
spk13: Again, if you would like to ask a question, press star followed by the number one on your telephone keypad. Your next question comes from the line of Jeff Schmidt with William Blair. Your line is open.
spk16: Hi. Good afternoon. On Blue Prism, it sounds like it's performing better out of the gate than you expected. Maybe I missed it, but do you have an update on your revenue growth and EBITDA margin projections for that company. I think you were expecting like 15% to 20% top line, and then you thought you could get the 30% to 40% margins by maybe it was 2024 exit. Is that still the case, or do you see any change to that?
spk11: Yeah, I think in the second quarter, Prism grew right at 17%. It was maybe about what we expected, maybe a little bit better. And I think they had a couple million dollars in operating losses. We expect them to move to profitability in the second half of this year and probably end the year at about 10%. We think next year they'd be up to about 25% and then around 40% in 2024, which are our corporate averages. And we're pretty optimistic. And we're really optimistic about what it's going to do for our own business. Besides all the customers, we're going to be able to really help.
spk16: Right. Right. That's helpful. And on the health care business, if the client loss is there, are those mainly for the medical claims part of the business, not the pharmacy claims? I'm just curious how big of a difference sort of the margins are in those two businesses, like how much, just trying to get a sense on how much EBITDA you're losing if that's sort of the medical claims business that you're losing there.
spk11: Yeah, you know, the business as a whole still remains profitable, pretty profitable, actually. And, you know, we are, as we have had some attrition in our client base. We've had some attrition in our workforce. So, you know, we're trying to maintain, you know, that kind of profitability ratio. And obviously, you know, the Damani RX is a billion dollars of and our two partners. And so, you know, we remain pretty optimistic, you know, because that's a pretty big bet for us. And at least what we see in the marketplace today, there's not going to be a competitor to Damani or X when we come out of the gate. And that's what gives us the optimism, right? I mean, we're not in general, you know, we're a bunch of accountants and systems people, right? So in general, we're pretty sober when it comes to those kinds of things. And We don't just take buyers. We like to place pretty strategic bets that we expect great returns on.
spk10: Absolutely. Okay. Thank you for the answers. There are no further questions at this time.
spk13: I will now turn the call back over to Mr. Bill Stone.
spk11: Again, we appreciate all of the interest that all of you show, and Obviously, we hope to improve upon our results. And as I said, we've had a lot of headwinds in the second quarter, and we still came out with about 35% EBITDA margins. And we look forward to talking to you at the end of October. And we hope to see all of you in Orlando. So thanks again. Bye.
spk13: Ladies and gentlemen, thank you for participating. This concludes today's conference call.
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