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spk01: We're thrilled to close out the day today with SS&C. We've got CEO Bill Stone. Really appreciate you taking some time out. Brian Sheldon, new CFO, and Justine Stone, who does a terrific job with IR. I'm Kevin McVeigh, one of the UBS software analysts. I recently came over from Credit Suisse and really thrilled to be covering SS&C as part of our application software effort here. I'd like to keep this as collaborative as possible. I'm going to start with a couple of questions, but you can pass around a microphone. If anyone has any questions, you can come through the iPad or just email me, kevin.mcveigh at ubs.com. And that's M-C-V-E-I-G-H. We'll try to keep it as collaborative as possible. Again, we really appreciate you folks taking some time out, Bill especially. So, Bill, I feel like I started the same question last year, and I think it's really important because you've been one of the most effective CEOs in the sector for a long time. And I think from starting the company, you've seen a lot of different tech cycles, and I think one of the things that's always impressed me is your ability to identify trends early and really attack those trends, but also the opportunities around the people you hire, retain, and create I think it's a real strategic rationale. So I wanted to start maybe talking about specific points in time for mass SNC from maybe the founding up until maybe the first buyout and then the second buyout and kind of where we are today with maybe a little bit of an emphasis on DST, interlinks, because I think there were just specific events that really helped position you for where you are today and go into kind of more of the current environment. But I think It's one of the things I don't think the market fully appreciates is the optionality and the embedded IP you've created over three decades. And there's a real skill to that that manifests itself, in my mind at least, through the cash flow, the market profile, the business. And what I think and feel very confident about is accelerating organic growth.
spk04: Well, thanks for having me, Kevin. I appreciate all of you taking some time. And, you know, it is appreciating that I was one of the most effective rather than one of the oldest So both of which may have been more, I'm not sure which one would have been more accurate. But I started this business in 1986, right? And I wasn't 21, I was 30, 30 years old. And I'd been an operations executive at a broker dealer. I'd been a DPA at KPMG. I'd worked in St. Louis. I got transferred to Hartford. I got to run the Aetna audit as a kid. So I got to learn a lot of things. And when I started in 86, You know, it was kind of the golden age of entrepreneurs getting into technology. Gates, Jobs, Joy, a few others that were all about the same age. And the reason that it was so effective is that the technology was changing. You know, for those of you that are too young, you know, the Charlie Chaplin and the IBM PC was 1981. You know, by 1986, they were up to, say, the 386. then the 486, and then the Pentium chip came out, and then Novell Networks. And Novell Networks really, since the late 80s until now, has been the primary way in which people get data and access all the data out in server farms. Smart client, server farms, client goes out, grabs the data that you want, you get to ask questions, and you get things like what Google did in and others and they make it easier and more broad and all those kinds of things but fundamentally it was client server technology from the late 80s to really until about now and now this chat GPT or generative AI and you know intelligent automation and you know natural language processing and so forth and so on you know machine learning pick one you know but what that's doing is changing the world so you know, I'm pretty proud that I was kind of a driving force of us buying Blue Prism. You know, and if you go way back in SS&C's history, you know, General Atlantic Partners came into SS&C in 1994. Bill Ford, who now runs General Atlantic Partners, we were his first investment. So Bill and I go back for, you know, almost 30 years, I guess. And, you know, I thought those guys knew everything. organized like this, do this, do this, go hire these people, go use this, use this. The best lawyer in the country is John Burgess. If you don't use him, use Dave Segretti. Burgess is at Hale and Dorr. Segretti is at Wilson Sincini. I didn't know who these people were, you know, but I was smart enough to say he seems to know. So let's do what he says, you know. And so we did that. We started growing pretty fast. We bought something called Chalk, which was one of the biggest actuarial firms in the country in 1995. Jane Chalk was the was the founder and we were doing about 14 doing about 14 million in revenue and they were doing about 10 and so when we went public that year we did 26 in 1996 and you know managing 62 actuaries was not something that I had always had my heart set on and that didn't last that particularly long you know but it was a very good acquisition for us we made a lot of money and then in the 96th Republic and you know we were our red herring was 9 to 11 and we priced at 19. I'll never forget being a strong management in Milwaukee and the guy holds up our red herring goes this is gold pure gold I'm going oh my god he's buying this hook line and thicker this is a bad thing you know it's like how do you dampen this enthusiasm and well we didn't and And so we went public May 31st in 96 and 19. Stock went up to 25. August we reported we missed by a penny. Stock went to 3. I don't know if any of you know but when you're the CEO you get 5% of the shares for friends and family. So we sold 3.75 million so I got about 175,000 shares I got to hand out to friends and family. And by September I still had family. So But, you know, we recovered and we went back up to 27 and, you know, we were really kind of booming. We opened an office in London. We went from three to 100 people in London. And then, you know, Y2K stopped. You know, as soon as they figured out that all the computers weren't going to stop when it turned 2000, you know, all the consulting projects stopped. You know, so Y2K stopped and there were euro conversions. So, you know, like the Swiss Franc and the Deutsche Mark and all this stuff, French Franc, all was converting to the Euro, and that all stopped. So, I mean, like half our business stopped. So we were at 27, we went to five. You know, not fun. But by that time, I had friends again, and I didn't give them any stock, so I wasn't in any trouble. But so then you go back, you go through this, and in 2005, We were going private with Carlisle, and there was a company called Financial Models Corp based in Toronto, a really good company. And what we felt, they were going to merge with Line Data, which is a French company. And what I learned about Canadian takeover rules is that if you can come make a superior bid, then you're going to win. So we started analyzing it, and I thought that the price that they were going to pay was way too cheap. And they were at about $12.20 and we ended up paying $17.70. So we paid $165 million and they were making about $11 million in EBITDA. And this was like April 19th of 2005. By the end of 2005 they were making $34 million. By April of 2006 they were making $44 million. And by the end of 2006 they were making 48 million. We took something that was making 11 million turned into 48 million in about 18 months. What it taught me was is you know there's a lot of people who spend a lot of money on a lot of things that make no sense. So when I first went up and. And looked at their space which is in Mississauga very nice nice building. And they named all their. Conference rooms. After cities. So you'd see London and New York and Toronto and Paris and Montreal and yada yada. I saw Nairobi. I mean, how many conference rooms do you have to have to have Nairobi as one of your conference room names? I figured too many. So, you know, we cut their space way back and we save like $700,000 per floor in this space, you know, and it's like, wow. And so So that was a great deal in 2000 and 2005. And we went back public in 2010. And then in 2012, we saw it again. So now it's Globop. And Globop traded on the London Stock Exchange. They're going to go private with TPG. So we look at this, you know, we were like the number nine fund administrator and Globop was number eight or vice versa. They were nine, we were eight. But if we merge, we're going to be three. But we were really interested. And so, you know, we went to get an investment bank. So all the investment banks that I'd used, J.P. Morgan, Turn Me Down, Morgan Stanley, Goldman Sachs, Bank of America, one more, Credit Suisse, And finally, Deutsche Bank would be our banker. And so we go in there, and the guys at Globop says, you know, I did a survey of our clients. Nobody wants you. The guy's name was Hans Huffschmidt. He says, you know, Hans, you were an FX trader at Long-Term Capital, right? Salomon Brothers before that. So what you're saying is all your clients want this FX trader to be their accountant and not this CPA to be their accountant. But I might be so. But I bet you if I bid more than you and TPG bid, I bet everybody comes to me. Because nobody wants you. It's the story of my damn life. So, of course, we bid more and we won, right? And so that vaulted us to number three in fund administration. And in 2012, and literally, right, we've made a fortune. TPG was based in In San Francisco. And we. We. Made our final bid. San Francisco 49ers were playing. I think the Dallas Cowboys in the Super Bowl. I sent it at kickoff time. I sent that to TPG. Kickoff time. When we put our final bid in. So we won that. That really vaulted us to number three as a fund administration. And you know shortly thereafter we became number two. Took over from. from Sitco, then it was State Street and us, and we finally passed up State Street. State Street ultimately bought all of our technology and jettisoned all their technology. That was a little bit like Pepsi going to the Coke formula. So we did that one, and that was in 2012. And then in 2015, we bought Advent. And we were the biggest user of Geneva, and I kept telling Rahul that we either got to go buy Geneva or we got to get off. You know, he was a grown man. I hate to see him cry. So we ended up buying Geneva. But we're in Morgan Stanley's trading room or something. And they're going, we were at $44.25. They wanted $44.75. Morgan Stanley says, don't offer them another nickel. Don't give them another nickel. I said, you guys are out of your mind. I'm at $44.25. I offered them another quarter. It's going to make no difference. Either this is gonna work or it's not gonna work, and that quarter ain't gonna amount to a hill of beans. So we bought that. That was a great acquisition in 2015. And it's those things. And the Blue Prism, which we bought, and we also did DST and ES and Intralinks in 2018, and we probably have, you know, three billion in revenue and almost a billion in EBITDA out of those three acquisitions, and we paid 8.3 billion, which in today's dollars would be a bargain of all bargains, right? But since I did it in 2018, it's, you know, since that time I ate all dumb pills, but it's not really true. So, you know, we did Blue Prism about maybe 20 months ago. When we bought them, they had about a 4% negative EBITDA margin. They'll come out of the fourth quarter probably close to 35. So we've changed that almost 40% in margin expansion in about 20 months. So we still know what we're doing and the acquisitions aren't as attractive as they used to be because of the price. And we don't like to do things where we have to be perfect. So we don't. But we still, last quarter we made $533.9 million of consolidated EBITDA. We had the most revenue in our history. We'll probably do $2 billion to $2.1 billion in EBITDA for the year. We'll generate... pretty well in excess of a billion dollar in cash flow. And, you know, we're going to buy back $500 million or so in cash, I mean in stock. And we bought $500 million last year. We bought $500 million the year before. You know, as long as we're that cheap, we'll just keep buying our stock. So, you know, and we feel like it's a good store for our shareholders. And, you know, we're pretty confident. You know, and, you know, my financial advisor thinks I'm a little light on SSNC. You know, I've got to count. Stock up.
spk01: The scale is one of the things I've marveled at in terms of, to your point, you're at almost $6 billion of revenue, $2 billion EBITDA, $1 billion free cash flow. And I think you were up around six and a half times at the time you did DST Interlinks. And now you're back down to three. I mean, the cash flow gives you a lot of opportunity to continue to perpetually reinvest in the business, which you do both organically and inorganically. I want to spend a minute on Blue Prism because I think not only operationally how much you've improved it, but what it can do for your clients as well as internally. So you've scaled their margins. There's a huge opportunity across SSNC in and of itself. Maybe take us through that a little bit and what that can mean from a reinvestment perspective.
spk04: Yeah, you know, Blue Prism is kind of, you know, its two biggest competitors have been UiPath and Automation Anywhere, and we bought We bought. The prison master Vista. Went after. So you know we follow those private equity firms and when they go after somebody you know they do a proctology exam on due diligence. So. And then we looked at what they're selling for versus what UiPath was selling for and what Automation Anywhere was selling for. We viewed it as cheap. You know so. So we went after it and won. And you know we think. That we have a hundred million dollars in run rate savings. by the deployment of digital workers, which is what we call the robots. And we've managed to keep it growing at 10% to 15% in the outside world. So we're still selling. It's very vertical. Some of the productivity enhancements are unbelievable. For the state of New Mexico, we took enrollment in Medicaid from three to 30 days to get one person onto Medicaid in New Mexico to 15 minutes. So when you can do those kinds of productivity enhancements, you really have something that's valuable to people. And I think that's what we keep getting smarter. We make smarter digital workers. They do things that humans don't like to do or humans get bored. When humans get bored, they get lazy. When they get lazy, they make mistakes. So the digital workers are very good. They don't get tired. They work 24-7. Never one of them has ever asked me for a raise, and I've never heard them pitch. So they're really good workers.
spk01: One thing I think, Bill, maybe it's helpful to frame a little bit is I keep coming back to the concept of the IP you've created over time. And the digital work is only as good as the IP you're layering on top of, right? And that's, to me, at least a huge competitive advantage to some of the other LLM models out there. And you're in the business of regulation, recurring, and you've perfected that art. Maybe help frame the audience a little bit. Some of that IP that is 30 years in the making continues.
spk04: Well, I mean, you all are in financial services, and you know how many regulators there are, right? Whether it's the SEC or the Federal Reserve or the Ministry of Finance in Tokyo or the Office of Supervisor of Financial Institutions in Ottawa or a hundred others. You know, there's always something coming at you, whether it was farm PF or some other kind of regulation in farm that all of you had to fill out. I mean, we went to Australia probably 15 years ago, and everybody was talking about, you know, can you do short sale reporting for the Australian Stock Exchange? I guess it's a report. I guess we can do it, right? But, you know, knowing about these things and being able to, you know, naturally know who all these regulators are and, what they're going to ask for and getting ahead of it and understanding that it can't be wrong. You know, you file those reports, they have to be right, you know, so you have to hire people and train people and stay on top of them. And that's what that IP does is that it creates a moat, right, where people can't really come and you can start a fintech company relatively easy, but Building it to where you have 27,000 people in 100 offices in 40 countries and a couple hundred products and services, that's not so easy.
spk01: You see that in the scale of the clients. I mean, it's been amazing kind of the average client sizes that's evolved over time.
spk04: You know, if you, you know, when I started as a CPA lawyer, did you ever believe you'd be this big? I mean, of course not. But, you know, I started as a C Corp. I didn't start as S Corp. You know, and I was a CPA, and I knew as a C-Corp, I had to pay taxes twice, right? I had to pay it on my salary, whatever I take, and I had to pay it on whatever earnings the corporation has. And if you're an S-Corp, you only have to pay once. But no S-Corp goes public. You know, so I wasn't going to try to convert an S-Corp to a C-Corp when I wanted to go public, and I wanted to go public. And the reason I wanted to go public is because I thought that's how you got rich. It's true, too. You know, so, and if you take them public twice, you get richer, I guess. So those things are pretty effective things to do. I think Jack Welch said, look, this isn't philosophy or religion. This is business. There's one or two answers. I have 50. And people say, well, why do you keep working? I don't know. I like it. And I keep score. And I like to win. And I'm lucky enough to work with a lot of really smart people. And it's a privilege. So as long as I'm healthy, I'll probably do it for a while.
spk03: Any questions in the audience?
spk04: I would say that we have better margins than we do today. Our organic growth rate is now close. climbing towards double digits. We have a high customer satisfaction percentage, and we run our retention rates above where they were last quarter, which was the highest in our history, or close to the highest in our history at 97.3. So we'd like to run them at 98, 99. So that would be a very highly profitable company that will broaden our shareholders and our employees, our suppliers, and our debt holders, people that loan us money. We appreciate that, too. I think, you know, there's several things that the market is not particularly enthralled about us. One is that we're more of a conglomerate than we are a pure play. So we're one of the biggest wealth providers, one of the biggest hedge fund, well, the biggest hedge fund administrator, the biggest private equity administrator, the biggest mutual fund transfer agent. We're also a reasonably good-sized player in virtual data rooms, probably the biggest, we have about a $500 million business there. And we also have a big private markets business that grew 20% last quarter. Geneva's the number one player in large scale investment accounting systems. So there's a lot of things that SS&C is, and most analysts, not Kevin, but most analysts don't want to really dive in and understand, oh, I haven't had time to look at your healthcare business. But we think that's going to be a pretty good grower in 2024. And the second thing is that the market really doesn't like hedge funds. You know if you look at hedge funds and you think about how you know I think the market likes community banks and credit unions that Jack Henry serves better than it likes hedge funds that we serve. Now I think on balance we get a lot more money out of the hedge funds that we serve than they get out of the credit credit unions and community banks that they serve. But you know there are multiples of
spk03: triple what ours is.
spk01: Bill, I want to pivot to the organic growth because I think a certain amount of it is mechanical. I think there's been a target out there of 4% to 7%. It seems like you're somewhere in the 2.5% reported today. recurring probably closer to five and a half but when you think about the success on the retention the pricing but also I think it's fair to say inflection in the health care business as well as the kids business I mean those are two bigger percentages of the revenue they've been headwinds for a while it feels like we're on a more sustainable path particularly as a retention continues to improve so maybe any thoughts around that because I think you know, my view of the world has been that's always been one of the debates in the stock, too, is kind of the sustainability of that re-accelerating growth. And I think part of that is just the narrative that's been in the market relative to some of your competitors that are newer entrants.
spk04: Yeah, yeah. We view them as nats. But, you know, we grow more than they're big, right? So, you know, I think a little bit of that. You know, we bought DST... They were 14,400 people, 1,600 contractors. People said, boy, that's a pretty sleepy business. I said, well, it proves to be asleep, right? So you got to wake it up. You got to get it to be competitive again. You got to get it to understand that we got to bring some new technology. We got to have a marketing program. We got to have a sales force. And you got to teach people how to win, right? You know, you don't get into the ring and they hit you with a two-by-four, you don't go, boy, that's not very sporting of you. No, you hit them in the head with a two-by-four yourself, right? You got to compete. And so we've taught them, again, to compete. You know, they've gotten a mutual fund business in 1968. Good business to get in in 1968 until about 2012. You know, then ETFs and passive versus active and all kinds of stuff started coming out, and they were ill-prepared to compete, you know, so... Yeah, we got Nick Wright in charge of, you know, the global investor in distribution services, GIDS business, you know, transfer agency, and he's done a great job. We're up to 3%. He's pretty confident going into 24. Same thing with health care. You know, we buy it, and Cigna's our biggest client, but Cigna has just brought Express Scripts. Express Scripts they paid $59 billion for. Something tells me they're not going to keep using us, right? So that was probably $100 million client, you know, so health care loses out. $100 million client, but we did sign a four-year contract on the way out, so it just ran out. So that looks like headwinds, but we didn't lose that this year. That got lost when we bought DST in 2018. I've gone through five heads of healthcare, but I'm pretty confident that that's an enormous business, an enormous market, and there's no new entrants. Haven't been any new entrants in a long time, and we have a chance to
spk01: really have a big business in health care and it might take you know three to five years but it will be on that kind of trajectory I think maybe talk about because I think you frame it pretty eloquently the opportunities and kind of the health care prescriptions relative to trade ticket and I think it's a pretty powerful analogy that maybe helps drive to anyone listening or participating because it's the optionality there on the prescription side and both sides really seems pretty pretty powerful yeah I mean you know we
spk04: One of the reasons we're so successful on the fund administration side is we can handle volume. So Millennium's a great client of ours, and they might do one to five million trades in a day. Very few fund administrators could handle that. You could do it every day. So when we look at a trade ticket, number of shares, symbol, CUSIP, price, and maybe trader. And you look at the prescription, it's number of pills, Rx number, some sort of symbol, and maybe doctor, and five, six pieces of information. We did 400 million of them last year. So you have to be able to process them. You have to be able to collate all that information and then slice it and dice it and give it back to whoever is the user. It could be a regulator. Could be a physician practice, could be an insurer. There's a lot of constituents in that. And it's highly regulated. Hip is a pain in the neck. But those are the kinds of businesses that people don't like to get into that you have a lot of margin opportunity because you're doing stuff they don't want to do. And so we think that's a really great analogy to what we did in fund administration. 2002, we had no assets under administration. Now we have about $3 trillion. You know, and we constantly grow faster than our competitors. And the one competitor that has outbid us on a number of acquisitions is something called Apex. And I just read a Fitch report that said they're 9.6 times levered. You know, that seems to me to be a lot of leverage. You know, and a lot of leverage with interest rates up 500 basis points. Ouch.
spk01: I imagine they don't have the same free cash flow you do.
spk03: Not according to this report. Anyone else in the audience.
spk00: Obviously you should have requested a meeting. Bill can you just I don't want to hammer the same issue again but like organic growth. You mentioned the high single digits. You mentioned four to seven. Like, what is the path to the higher organic growth so that we look back and see this is, you know, growing businesses, generating cash flow, et cetera?
spk04: Yeah, you know, I think some of it's pricing increases, right? And then obviously it's cross-sell and up-sell, which has meant trying to, as much as we can, merge our sales forces. Now, you do 72 acquisitions, and people think they know everything. And then I think they don't. So then we have to change how people operate. And that's not simple, right? Because you can stop everything that was good that was going on, not just what was bad. So we think our cross-sell and up-sell opportunity is probably worth a couple points to us, as is pricing, two, three points maybe. You know, and then I think the new logos. You know, we still win big deals. We won Dell Family Office. We won Elliott just recently. You know, and we won Nationwide and JP Morgan and a whole bunch of other ones. And so, you know, we're executing better. You know, we put an overlay of the sales executives on top of all the sales forces. You know, and so that's different. You know, we just had our user group in Austin, Texas. We had 1,000 people there. You know and one of our big clients going down the escalator looks at me and goes you have a thousand people here and you guys ran this flawlessly. You know and we had first time we didn't have any you know you didn't see any as you didn't see any advent you didn't see any interlinks you didn't see any any of our acquisitions. All you saw was SS&C all over the place you know and that was a Rio was our best one we ever had and I think that that's given us a lot of momentum. coming out of it, and I think that we will continue to have momentum going forward. And you've got to execute, right? You've got to win. You've got to win, then you've got to get them installed, and they've got to be happy, and you've got to go back and see them and sell them some more, and the whole cycle.
spk01: One thing to add on that, though, correct me if I'm wrong, pricing wasn't something, relative to some of your peers, 21, 22, wasn't nearly the level of the industry, so that's, you know, I don't think there's any fatigue there. So where some may see some decelerating benefit, you're really not going to be impacted by that.
spk04: It's, you're probably still on a... Yeah, we're on a growth incline because we, you know, we've got focus. You know, when we've done training and we teach people, you know, you don't have to say stick them up. You know, you can be nice to them and show them some new value that we've given them and things that we're doing and And people get reasonable with, you want to keep your same team, and they've really done a great job, now they have another year of experience, I've got to pay them more. And you guys have to help me. So those are those kinds of processes that we've been going through, and it's been pretty effective.
spk01: Then you have all the leverages. Blue Prison comes in even from an absolute hiring level, it seems like. There's a lot of benefit from that as that continues to scale within the organization.
spk04: And it was, you know, there's 1,200 techies that marry all these functional experts. You know, it works really well about building really strong digital workers. And that's the key. The key is the functional expertise and knowledge that creates that digital worker. You know, you can't be kind of good. You've got to be the best.
spk03: You know, because they're going to do exactly what you program. Anything else? OK. Thanks, Kevin. Thank you, Bill. Terrific. Appreciate it.
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