SS&C Technologies Holdings Inc (SSNC) 2003 Q2 法說會逐字稿

Good afternoon. My name is Heather. And I'll be your conference facilitator today. At this time, I would like to welcome everyone to the Q2 earnings release conference call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer period. If you would like to ask a question during this time, simply press star, then the number one on your telephone keypad. If would you like to withdraw your question, press star, then the number two. Thank you.

Mr. Stone, you may begin.

William Stone Thanks, Heather. Good afternoon and thank you for joining us. With me today are Norman Boulanger, our Chief Operating Officer and Patrick Pedonti, our Chief Financial Officer. Norman will give business overview and Patrick will discuss the details of financial results to the second quarter which ended June 30th, 2003. Before I begin, I would like to remind everyone that various remarks that we may make on this conference call about our future expectations, claims (ph) and prospects constitutes forward-looking statements for 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 disclosed in SS&C's quarterly report on Form 10-Q for the quarter ended March 31, 2003, which is on file at the Securities and Exchange Commission.

Once again, we are pleased to be able to report another solid quarter following with strong operating results. Although Norm and Patrick will speak to the details, I'd like to cover what I think are some of the key take-aways for the quarter. Despite a soft economy, our team delivered a strong performance. $4.2 million, up 34% over Q2 of last year. One of the things we've been talking about is recurring revenue which is a key component of our business strategy. Although total revenue for the quarter did not change from last year's Q2, our recurring revenues increased to $11 million, up 8% over last year. These recurring revenues now represent 69% of our total revenues, a new high for us. Despite tough economic conditions, customers are continuing to choose our solutions because they work. We don't oversell them and we have some nice take-aways from our competitors in this quarter. A balance sheet is also a testament to our success. No debt and plenty of cash. We continue to generate strong operating cash flows, year-to-date excluding stock buy-backs of $9.4 million and option proceeds of$3.2 million. We have increased our cash in marketable (ph) securities by $10.7 million or 81 cents per diluted share. As a vote of confidence, our board extended our stock repurchase program by a year and authorized an additional $30 million. At the end of Q2, we still have over $29 million available under this program.

Based on these positive results and our ability to prudently manage our finances, I am confident about adjusting our earnings forecast for the remainder of the year. In Q3 we expect revenues to be in the range of $16-$17 million and net income will be between 21 and 24 cents per diluted share. For the full year we're looking revenue to be between $65 and $68 million and diluted earnings per share to be 81 and 86 cents. Now I'll turn it over to Norm who will go through a few more details inQ2.

Thanks, Bill. Each of our markets performed consistent with, or slightly better, than our expectations. Our sales team recorded some key wins with high-profile clients across multiple markets. Our camera license sales had a particularly strong quarter. Our sales philosophy has been simple, emphasize to our prospects that we have proven technology that works, whereby high caliber people with reputable clients willing to back our claims. We're pleased with the current sales momentum. And we continue to build our pipelines. It looks really better than it has in a long time. We completed a couple of major site consolidations related to our recent acquisitions. We combined the BBC operation with our existing New York office and most of the real-time operation with our existing Chicago office. These two moves will save us over $300,000 annually in facilities expenses.

Another example of operational efficiency is our online solution center which is a Web-based resource for our license customers. This quarter we extended it to include our skyline customer base. (inaudible) technical information over the Internet, download product updates, and query extensive knowledge base online any time of day. Obviously, that allows us to service our customers and free up resources rather than direct phone support as a primary method of service.

The efficiency efforts we've undertaken are now showing up in our margin increases. While still providing world-class customer service, we can take on new business more profitably. This operating operating is especially powerful when combined with (inaudible) return on revenue. Our investments and efforts to build quality scalable operations are working to contributing our ability to deliver strong earnings growth that you are seeing. This quarter, we also hosted our annual client conferences in North America and Europe. These events give us an excellent opportunity to showcase our product extensions and help lay out a blueprint for future development. With so many industry-leading customers, we can use these venues to take the cause of the overall market and gain valuable insights on the real business needs of the industry.

Lastly on the product development front, we expect to roll out a major update for our BBC products suite of municipal bond financing at the end of this month. And also come up a fourth quarter, we plan to release a new residential version of our skyline real time product in the market in '04. I would like to turn over to our CFO, Patrick Pedonti.

Thanks, Norm. The results for second quarter of 2002 revenues up $15.9 million, net income of $2.7 million and earnings of diluted shares of 21 cents. The strong performance in the quarter was from solid sales results, margin improvements and continued expense reduction.

Operating income for Q2 was $4.2 million, an increase of$1.1 million from Q2, 2002. And Q2's operating income was a new record for the company. The $1.1 million increase was a 34% improvement, was a result from improved margins and continued reductions in operating expenses.

License revenue for the second quarter was $3.7 million, a reduction from $4.2 million in the prior year but a 10% sequential improvement over Q1 2003. The quarter had strong camera edge and municipal finance product sales. Maintenance revenues were both $7.7 million for the second quarter, a 13% increase from the prior year. The increase was mainly attributable to the manageable finance product. Special services revenue for the second quarter was$1.3 million, $300,000 lower than the same period last year. Out-sourcing revenues of $3.2 million for the second quarter, a decrease of 100,000 or 3% from the prior year, but up 4% sequentially for Q1.

In the second quarter, our out-sourcing gross margins continued to improve and reached 36%. This compares to 32% for the full year 2002. Our recurring revenues was consist of maintenance and out-sourcing revenues were up $800,000 or 8% to$10.9 million in Q2 from Q2 2002. It now represents 69% of total revenues, up from 64% in the second quarter of last year. Expense area, our total expenses in the second quarter were $11.7 million. This is down over $11 million over down over $1 million from Q2 2002 and down $400,000 sequentially from Q1 2003.

We continue to carefully review all costs in our business and recently announced cost savings by consolidating some of our facility. Our annualized revenue (inaudible) increased $800,000 in Q2 2003, an increase of 10% from Q2 2002. Our cash flow and balance sheet, our balance sheet continues to be strong with $46.2 million in cash and marketable securities, $3.74 per basic share. We generated $9.7 million in operating cash flow in the first six months of 2003. And our cash and marketable securities position increased by$4.5 million, even after spending $9.4 million to purchase approximately 740,000 shares of our stock for the six-month period.

In addition, for cash-flow purposes, our company is a full taxpayer in 2003 versus an A.M.T. taxpayer in 2002, and this has resulted in higher tax payments in 2003. Our book value as of June 30 was $57.3 million, or $4.64 per share, and our return equity for the second quarter was 19% on an annualized basis, which is also a record. The accounts receivable days outstanding are 61 days on June 30, which is in the low range of our expectation. Referring our stock buybacks, this company currently has authorization for about an additional $29 million of stock buyback through May 2004. Over the past three years we have purchased over 5 million shares for a total of $45.1 million. Now I'll turn it back to Bill for closing remarks.

William Stone Thank you, Patrick. Thanks, Norm. As you just heard (inaudible) SS&C has had another solid quarter. A positive performance quarter after quarter can be attributed to several factors. One is our customers. You know our customers are industry powerhouses. They have high expectations set, high benchmarks, and they also have high budgets. Well if we can continue to meet their needs, and can listen to them to bring out products and services that meet those needs, there is a lot of budget for us to go after. The way to meet that is to just to keep our standards high and have our commitment excellent. We think our products do that. Our products we do not change trends, we were not trying to figure out how to spend all of our shareholders' money probably about what we felt wold work.

We have product to do work, we continue to invest in making them work more, and we are going to continue do that. We use proven technology we are not trying to be on the bleeding edge of everything. Our clients use our products for mission critical applications, regulatory filings for meeting management information needs, and it is very important that it work day-in-day-out so that their customers are satisfied. The depth and breadth of the financial services market that we serve many areas within the financial services market, and that gives us some flexibility and also allows us to move resources, and move marketing and sales resources into areas that are high.

Obviously for the last couple of years, the (inaudible) market has been a particularly strong market for us. Recently, the commercial lending market has been particularly strong. We think as rates have gone down and all the refinances, you create many new pools, many new securitizations and that gives us a lot of opportunity to sell in the commercial lending market, and the last thing is our people. We have a lot of subjected matter expertise and we have high expectations of our people. We expect to pay them well. We expect to reward them well with equity compensation and we expect a lot of them, and that has worked out very well for us, and I think it has worked out very well for them. For that, Heather, will take any questions

If you would like to ask a question at this time, you may press star, then the number one on your telephone keypad. We will pause for a moment to compile the Q&A roster. Your first question comes from Chris Rowen with SunTrust Robinson Humphrey.

Hi, guys. Good quarter. What was the share count at the end of the quarter?

William Stone The total outstanding share is not the basic as those who are looking for Chris.

Well what is the basic.

William Stone The basic was 12,000,003 to 12,000,004 as a share at the end of the quarter $12.3 million to $12.4 million.

Okay.

William Stone We had 13,150 diluted.

Right. At the end of the quarter was it 13,150?

William Stone Yes.

And then why the dip in professional services sequential?

William Stone A really professional services is driven by license implementations and we have had much more of a recurring revenue growth than we have had license implementations and that generally impacts the professional services line

Okay.

William Stone Although, we think over the next couple of quarters, we have an increasing amount of work to do, so we think those numbers will improve.

So maybe return to Q1 levels by Q4?

William Stone I think that's a reasonable expectation.

Okay. Okay. Thanks.

William Stone Welcome.

At this time I would like to give everyone an additional moment to press star, then the number one for any questions.

At this time, there are no further questions.

Either we impressed all of you with our quarter here and have been able to be so succinct that you don't have any questions about us. We do have some guarded optimism over the next couple of quarters and that's why we increased our estimates for the rest of the year. And we're going to continue to perform. So we appreciate you taking the time out of your day to be on this call. And we look forward to speaking to you in October. Thanks.

Thank you for participating in today's conference. You may now disconnect.