SS&C Technologies Holdings, Inc. (NASDAQ:SSNC) Q4 2023 Earnings Call Transcript February 13, 2024
SS&C Technologies Holdings, Inc. beats earnings expectations. Reported EPS is $1.26, expectations were $1.24. SS&C Technologies Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Thank you for standing by. My name is Greg, and I will be your conference operator today. At this time, I would like to welcome everyone to the SS&C Q4 and Full Year 2023 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. [Operator Instructions] Thank you. I would now like to turn the call over to Justine Stone, Investor Relations with SS&C. And with that, Justine, you have the floor.
Justine Stone: Welcome, and thank you for joining us for our Q4 2023 Earnings Call. I'm Justine Stone, Investor Relations for SS&C. With me today is Bill Stone, Chairman and Chief Executive Officer; Rahul Kanwar, President and Chief Operating Officer; and Brian Schell, our Chief Financial Officer. Before we get started, we need to review the Safe Harbor statement. Please note that various remarks we make today about future expectations, plans and prospects, including the financial outlook we provide, constitute forward-looking statements for the purposes of the Safe Harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K, which is on file with the SEC and can also be accessed on our website.
These forward-looking statements represent our expectations only as of today, February 13, 2024. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. During today's call, we will be referring to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is included in today's earnings release, which is located in the Investor Relations section of our website at www.ssctech.com. I will now turn the call over to, Bill.
William C. Stone: Thanks, Justine, and welcome everyone to our fourth quarter results, which are record adjusted revenue of $1.412 billion up 5.5% and our adjusted diluted earnings per share were $1.26 up 8.6%. Adjusted consolidated EBITDA was $563 million for the quarter, the highest in our history and our EBITDA margin was up to 39.8%. This is a 300 basis point increase from the second quarter of 2023. Our fourth quarter adjusted organic revenue growth was 4.5%. The fourth quarter revenue acceleration was driven by strength in our alternatives, retirement and Intralinks businesses. We also saw acceleration in GIDS, Advent and Eze businesses. Our recurring revenue growth rate for financial services was 6.9%, which includes all software enabled services and maintenance revenue.
This is sequential increase from 5.9% in Q3. For the year, total organic growth was 2.8% and financial services recurring revenue growth was 4.9%. Our financial services revenue retention remains over 97% on the last 12-month basis. In 2023, SS&C generated net cash from operating activities of $1.215 billion. We paid down $150 million in debt in Q4 2023, bringing our net leverage ratio to 3.05 times and our net secured leverage ratio to 2.1 times. We bought back 2.4 million shares for $131 million at an average price of $54.74 per share. For the year, we have allocated $375 million towards debt pay down and $472 million towards stock buybacks. We anticipate a similar higher focus on share repurchase in 2024. On January 1, DomaniRx, our brand new pharmacy benefits platform, went live with our Phase I drug discount clients.
We have processed 15 million claims in January over 10% more than we had originally anticipated for the month of January and our response time of under one second is quite better than industry standard. We project we will process 45 million claims by the end of first quarter. Customers who have migrated have touted the cutover to Domani was frictionless. Our second release of DomaniRx is scheduled for June 1, 2024 and will include full commercial Medicare and Medicaid functionality. We are pleased with the successful launch of DomaniRx, and we look forward to adding new clients in the second half of 2024. We also completed a major retirement system implementation with one of the world's largest insurance companies. Regulatory change has driven a lot of activity around our retirement income solution and rollovers.
We look forward to capitalizing on this opportunity. I'll now turn the call over to Rahul, to discuss quarter in more detail.
Rahul Kanwar: Thanks, Bill. In Q4, we saw acceleration in revenue and healthy margin expansion. Notably, alternatives grew 7.8%, Intralinks grew 18.6%, and Retirement grew 12.8%. Our EBITDA margin exit rate was 39.8%, a result of higher revenue growth, cost controls and our digital worker initiative. For the year, we obtained approximately 2,000 full-time equivalents in digital worker productivity, which we expect to yield $100 million savings annually. We are optimistic about our ability to continue to drive additional benefit from digital workers and other automation strategies. We're seeing a lot of opportunities across the financial services industry as large firms look for ways to drive down costs within their back office operations while improving their front end technology.
These market dynamics can be beneficial for our GIDS, Retirement and Alternative Fund Services businesses. Across the company, we have focused on offering comprehensive solutions to our customers comprised of multiple products and services in an integrated and holistic way. As one example, in 2023, we signed 12 Trust Suite clients, a new platform for banks and trust companies combining back office and regulatory reporting from Innovest, the front office experience of Black Diamond and our CRM capabilities through Salentica. Similarly, the integration of Eze, Eze Eclipse and Advent Geneva has been positively received. We've also signed over 70 new Eclipse clients in 2023, bringing the total number of clients on Eze Eclipse to over 250. We are gaining momentum and have an opportunity to increase market share from here.
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I will now turn it over to Brian, to run through the financials.
Brian Schell: Thanks, Rahul. As noted in our press release, our Q4 2023 GAAP results reflect revenues of $1.412 billion net income of $194 million and diluted earnings per share of $0.77. And as Bill, noted earlier in the call, our adjusted revenues hit a record level at $1.412 billion up 5.5%. Adjusted EBITDA also hit a record at $563 million of 8.5% or $44 million, and adjusted diluted EPS was $1.26, an 8.6% increase over Q4 2022. The adjusted revenue increase of $73 million over Q4 2022 was primarily driven by the incremental revenue contributions for Alternative, Intralinks and GIDS. Our acquisitions contributed $4.1 million or approximately 30 basis points. Foreign exchange had a favorable impact of $11 million or 80 basis points.
As a result, adjusted organic revenue growth on a constant currency basis was 4.5%. Our cost structure has been impacted by general inflation, higher personnel costs and increased professional fees compared to 2022. However, by maintaining a cost disciplined approach and the use of digital workers, our core expenses only increased 2% or $17 million excluding acquisitions and on a constant currency basis. Acquisitions added $5 million and foreign currency added an additional $8 million of expenses. With the combination of our revenue growth outpacing our expense growth, adjusted EBITDA margin of 39.8% reflects both a sequential and year-over-year expansion of 70 basis points and 110 basis points respectively. Net interest expense for the fourth quarter of 2023 was $119 million an increase of [$14 million] (ph) from Q4 2022.
The average interest rate in the quarter for the amended credit facility including the senior notes was 6.93% compared to 5.64% in the fourth quarter of last year. Adjusted net income was $317 million and adjusted diluted EPS was $1.26. The effective tax rate used for adjusted net income was 26%. Share repurchase of 2.4 million helped to drive the diluted share count down to 252.1 million from 253.9 million in Q3. While Q4 reflects strong results, our 2023 annual earnings per share reflects a slight decline of $0.04 per share compared to last year. The single biggest contributor to this decline was the impact of the rise in short-term interest rates, increasing the interest expense on our debt by approximately $164 million or nearly $0.47 per share on an after tax basis, assuming a 26% tax rate.
SS&C ended the fourth quarter with $432 million in cash and cash equivalents and $6.8 billion in gross debt. SS&C's net debt as defined in our credit agreement, which excludes cash and cash equivalents of $100 million held at DomaniRx was $6.4 billion as of December 31. Our year-end total leverage ratio was 3.05 times and our secured leverage ratio was 2.1 times. As our term loans B-3, B-4, and B-5, totaling approximately $3.5 billion approach maturity in April of 2025, we anticipate refinancing them in the near-term. Also as previously noted, SS&C generated net cash from operating activity of $1.215 million an increase of 7.1%. The increase reflects the incremental earnings as well as improved working capital management. As we move into 2024 and establishing our guidance, note that we will continue to focus on product innovation and enhancements as well as client service.
We assume that retention rates will continue to be in the range of our most recent results. We will also continue to manage our expenses with a cost disciplined approach by controlling and aligning variable expenses to ensure efficiency, rationalizing our real estate footprint, increasing productivity to improve our operating margins to leverage our scale and effectively investing in the business through marketing, sales and R&D to take advantage of future growth opportunities. For the full-year 2024, we have assumed adjusted organic revenue growth in the range of 2.7% to 6.3%, foreign currency exchange rates to be consistent with 2023 levels. Short-term interest rates remained flat through the first half of the year with small declines in the second half of the year.
GAAP tax rate of approximately 26% on an adjusted basis, which is unchanged from the prior year. Capital expenditure to be consistent with 2023 at 4.3% to 4.7% of revenues, a continued slight overemphasis to share repurchases similar to how we allocated capital in 2023. As a result, for the full-year 2024, we expect revenue to be in the range of $5.668 billion to $5.868 billion. Adjusted net income in the range of $1.221 billion to $1.321 billion interest expense excluding amortization of deferred financing costs and original issue discount in the range of $438 million to $448 million. Diluted shares in the range of 252.7 million to 255.7 million. Adjusted diluted EPS in the range of $4.85 to $5.15 and cash from operating activities to be in the range of $1.292 billion to $1.392 billion.
For the first quarter of 2024, we expect revenue to be in the range of $1.397 billion to $1.437 billion. Adjusted net income in the range of $300 million to $316 million. Interest expense excluding amortization of deferred financing costs original issue discount in the range of $113 million to $115 million, diluted shares in the range of 253.2 million to 254.2 million shares and adjusted diluted EPS in the range of $1.19 to $1.25. Now, I'd like to turn it back over to Bill, for final comments.
William C. Stone: Thanks, Brian. I'd also like to welcome Debra Walton-Ruskin as the newest Director on our Board. Ms. Walton-Ruskin has had an impressive career at the London Stock Exchange Group, Refinitiv, Thomson Reuters and Thomson Financial. Her expertise in fintech, global market, executive sales leadership and financial data fit well with SS&C's strengths and focus. We look forward to collaborating with Debra. We have recently recruited a Senior Executive, Ezra Baylin, who will head up Mergers and Acquisitions. Ezra has the experience and expertise to guide us in our M&A pursuits. Q4 was a good quarter and we look forward to reporting throughout 2024. I now will open it up for questions.
