SS&C Technologies Holdings Inc (SSNC) 2004 Q1 法說會逐字稿

Good afternoon. My name is Michael and I will be your conference facilitator. At this time, I would like to welcome everyone to the SS&C first-quarter 2004 earnings release conference call. All lines have been placed on mute to prevent any background noise. (Operator Instructions). I would now like to turn the call over to Mr. Bill Stone, CEO of SS&C. Sir, you may begin your conference.

Thank you, and good afternoon, and welcome, everyone. I am Bill Stone and I'm the CEO of SS&C. And I would like to thank you for joining us on our call today.

With me are Norm Boulanger, our Chief Operating Officer, and Patrick Pedonti, our Chief Financial Officer. Patrick and Norm will give you some details after I give you some highlights of the quarter, which ended March 31, 2004.

Before I begin, let me remind you that various remarks that we may make on this conference call about our future expectations, plans, prospects constitute forward-looking statements for purposes of the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995.

Actual results may differ materially from those indicated by these forward-looking statements as result of various important factors, including those discussed in SS&C's filings with the Securities and Exchange Commission -- including the Company's registration statement on form F3 (ph), which was last amended on April 9, 2004.

I'm pleased to once again be able to present positive results for SS&C. We had strong operating results for Q1, completed several acquisitions and put some significant business strategies in motion.

Let me start by giving you some financial highlights for Q1. Our net income for Q1 rose 52 (ph) percent to 3.8 million or 19 cents per share, compared with 2.3 million or 12 cents per share in Q1 of '03.

Our operating earnings for Q1 were 6 million, an increase of 69 percent from 3.6 million in Q1 '03.

Q1 revenues increased 22 percent over last year to 19.2 million. Not only did some of our recent acquisitions make an immediate contribution to Q1, (technical difficulty) our core business had solid results in all of our sectors.

The license revenue increased by 22 percent and our recurring revenue was up by 23 percent. Recurring revenues would include both maintenance and outsourcing revenues now represents over two-thirds of our total revenues, and it remains a key component of both our business and acquisition strategy. Q1 produced a solid recurring revenue results, particularly with our outsourcing revenues which increased 69 (ph) percent to 5.2 million over Q1 of '03, and was up 44 percent sequentially over Q4 of '03.

We maintain a strong balance sheet, with 56 million in cash, cash equivalents and investments and marketable securities. We also generated 8.8 million in operating cash flow this quarter. Our financial strength gives us tremendous leverage for executing our long-term growth plan.

Many of you acquisitions are an essential part of our long-term growth plan. We look for opportunities to broaden our reach in new markets, or gain depth by adding features and functionality to the existing market. We capitalized on several opportunities in Q1.

In January we acquired the Investment Advisory Network, we renamed its SS&C IAN Wealth Management. The business is headquartered in Denver, Colorado, and is managed by Michael Winnick, our Vice President and General Manager. IAN provides a Web-based Wealth Management Service to financial institutions, broker-dealers and financial advisers who offered managed accounts to private wealth market.

In February, we acquired NeoVision Hypersystems, Inc. NeoVisions heat maps products is a powerful visualization tool. We believe trading portfolio management and RISC applications, of which we market several, will be well served with this technology.

In March, we just signed a definitive agreement to purchase OMR Systems Corp.'s (indiscernible) OMR Systems International Ltd. from ADT (ph) Financial Information Systems. And last week we closed on the transaction. The acquisition of OMR provides expanded global presence for our hedge funds and Finance Services markets. OMR's exact service provide comprehensive hedge fund administrations, and OMR's trade through is a treasury processing system with multibank, multicurrency and multi-entity features.

In addition to acquisitions, other noteworthy events occurred in Q1. In February, we announced the 3 for 2 stock split. And in March, we filed a public offering with the SEC for 4.5 million shares of common stock, led by Goldman Sachs and co-managed by J.P. Morgan, SunTrust Robinson, Humphrey's, Jefferies Broadview and American's First Capital.

Although your Company has been challenged with this flurry of activity in Q1, we rose to the challenge and delivered. Based on this we currently expect Q2 '04 revenues to be in the range of 22.5 to 23.5 million, and net income to be between 19 and 20 cents per diluted share.

For 2004, our expectation is for revenue to be between 90 and 95 million, and diluted earnings per share to be between 76 and 80 cents.

Now, I would like to turn over the floor to Norm Boulanger, our Chief Operating Officer.

Thanks, Bill. As Bill stated, we have a tremendous amount of activity in the first quarter. 2004 is an exciting time for SS&C as we execute on our business plan. It's just as important to (indiscernible) results each and every day, (indiscernible) in Q1 by focusing on our four main goals. Increase in revenue, open the line on operating costs, integrating our acquisitions, and enhancing our technology.

Continue to meet our goal of increase in revenue quarter-over-quarter. In Q1 there was a combination of factors that produced the overall revenue increase of 22 percent from Q1 2003. License is up 22 percent. This is an incursion signed (indiscernible) up its IT budget.

In Q1 we signed a large CAMRA license deal with a prominent asset management firm.

In each our markets, our core business is strong. And in Q1, internal growth accounted for nearly 65 (ph) percent of the increase in revenues. Our outsourcing revenues continued trend upward across verticals. (indiscernible) sales pipeline are (indiscernible) with the cross sell opportunities we're experiencing as a result of our acquisition. (indiscernible) our momentum to build throughout 2004, as we continue to integrate their new product and services and expand our penetration to new markets. Both domestically and globally.

One of our primary goals is to expand our margins by keeping our operating costs in line and implementing operational efficiency. In Q1 our total operating expenses were 7.045 million compared to 7.03 million for the same period last year. Minimal increase in expenses speaks to our ability to implement efficiencies, while driving growth.

Another important goal for us this quarter was to actively manage and integrate our acquisitions in order to realize results quickly. We have seen a high degree of cooperation between existing staff and newly required staff -- whether it was human resources, administration, IT, development, marketing, or sales -- both sides have been eager to work together and share information. This has made the task of integration much easier.

It is not common to see several product services and verticals represented on one sales call. And yet, (indiscernible) to produce results. For example, heat map visualization platform for the trading community has been integrated into our (indiscernible) management system, Antares. Sales demonstrations are already taking place and the response has been favorable.

Another prime example of our integration success is the piece of (indiscernible) administration business we signed late last year, and implemented in Q1. As a direct result of integrating our (indiscernible) administration services, we were able to offer a total solution to a large on and offshore fund for multilevel (indiscernible) structure, of shareholder services, the fund accountant, from daily reconciliations to multiple prime brokers, to management and client reporting.

We are now positioned as the single source vendor for end-to-end solutions for hedge fund administration.

On the product development front, our main focus in Q1 was on the year-around regulatory releases for CAMRA, AdvisorWare, PTS, LMS, and Skyline Ii. In March, we launched the full release of Finesse HD (ph), which included significant business and technical enhancement features.

In Q2, we will continue to manage our acquisition, integration and to make sure we stay on track with regard to time and (indiscernible) financial projections, with specific emphasis on the OMR transaction.

Overall, in Q2 we will focus on increasing out market presence and keep our goals of increasing revenues and controlling expenses in sight.

Now, I would like to turn it over to Patrick Pedonti, our CFO.

Thanks, Norm. For a summary of the first quarter, our results for Q1 '04 -- revenues of 19.2 million, and net income of 3.8 million. With diluted earnings per share of 19 cents.

This strong performance in Q1 was a result of solid sales results, continued strong gross margins and operating expense controls. Revenues for first quarter increased 2.5 million or 22 percent compared to prior year. This increase came both from a demand for our core products and services, and from recent acquisitions.

Norm said (ph) internal growth represented approximately 65 percent of the growth, and mostly came from demand for our CAMRA products and services. And our direct SS&C Outsourcing services.

The recent acquisitions of Fun Services EN (ph), and NeoVision contributed $1.2 million to the revenue growth when compared to the first quarter of 2003.

Outsourcing revenues were 5.2 million in the first quarter, an increase of 2.1 million or 69 percent from prior year and up 44 percent sequentially from Q4 '03.

In the first quarter, our outsourcing gross margins continue to improve and reached 47 percent -- an 1,100 basis point improvement from 36 percent in Q1 2003.

Recurring revenues, which consist of maintenance and outsourcing revenue, are up $2.5 million or 23 percent, to 13.2 million in Q1 '04 from Q1 '03.

Total expenses for the quarter were 13.2 million. This is up $1 million from Q1 '03 and up 1.3 million sequentially from the fourth quarter of '03. As revenues increased 22 (ph) percent, total Company expenses increased 8 percent when compared to first quarter '03. The sequential cost increase was mostly due to costs acquired to support increased revenues and from expenses added to the recent acquisition. Operating expenses were $7 million in the first quarter, flat from Q1 '03.

A summary of our balance sheet and cash flows -- as Bill said, our balance sheet continues to be strong at 56.6 million in cash and marketable securities as of March 31, 2004. Our cash and marketable securities position increased for the quarter by 4.2 million, even after spending 3.9 (ph) million to acquire EN and NeoVision.

Subsequent to the end of the quarter we used 19.7 million in cash in April to complete the acquisition of OMR.

Operating cash flow for the quarter ended March 31, 2004, was 8.8 million. Contributors to the strong cash flow are increased earnings, tax benefit on option exercises and accounts receivable collections of deferred maintenance revenue. Accounts Receivable days outstanding is 41 days at the end of the quarter, down from 43 as of December 31, '03, and down from 71 days as of March 31, 2003.

Our annualized return on equity for the first quarter of '04 was 24 percent compared to 16 (ph) percent in the first quarter of '03.

Comparing our guidance -- the following are a couple of details that might be helpful. (indiscernible) acquisitions closed on April 12, so we expect to have about 2.5 months of activity in the second quarter for OMR.

In addition, our preliminary acquisition accounting for OMR will require approximately $1.2 million of amortization per year for capitalized completed technology, and we have included that into our guidance that we gave on our press release.

In addition, on OMR, their revenues are mainly outsourcing and maintenance revenues. And we can expect outsourcing to be about 50 (ph) percent of their total revenue, and maintenance revenues to be about 25 percent of their total revenue -- and the majority of the remainder is mostly professional services.

Now I'll turn it over back to Bill.

Thanks, Patrick, and thanks, Norm. Before I open the call comments, I would just like to take this opportunity to welcome all the newly acquired employees into the SS&C family. As I visited the various sites and met with many of the people, I have been impressed by the tremendous pool of talent we have added to our existing group of professionals. I am confident the intellectual capital they collectively offer will serve us well as we move forward.

(indiscernible) talks with our new groups emphasize how much attention they will receive from our senior management team. I'm sure they are excited about meeting the challenges ahead.

Now, I would like to open it up to any calls.

(Operator Instructions). Phillip Rueppel, America's Growth Capital.

I got a couple questions. First on the OMR acquisition -- do you foresee any particular issues -- this is one of your larger acquisitions. Do you see any particular issues with integration? And/or have you sort of already started that? And can you give us an update on that progress? I know it's only been a couple weeks.

Sure. I will start and then maybe Norm and Patrick will pitch in. We have -- we began the negotiations for OMR even back in October and November of last year. So we have gotten pretty familiar with that operation.

We have had a number of our people down there -- three particular people are Ward McGraw (ph), John Sharp (ph) and Colleen Nelson (ph). And they have been -- are going (indiscernible) getting their hands around things as well as Norm Patrick and I. So we feel pretty comfortable that we -- we know what we have acquired. And we have good people down there and I think we're in pretty good shape to integrate that pretty smoothly.

Just to expand on that a little bit -- this is Norm. We have already had some joint sales calls -- we have a couple of lined up, and we're already seeing some great synergy on the marketing and sales front.

And we have had some quality time (indiscernible) regional data centers and development structures as well as looking at potential leverage for integrating our hedge fund solution and our lighting product. So, we see some great opportunity to get some synergies. And we see some products that the OMR organization has that we can start selling across our markets as well.

On the admin side, Phil, OMR was a division of ADP -- a subsidiary of ADP. But pretty much operating on a stand-alone basis as far as admin and finance. But, we're going to integrate them immediately into our financial systems and controls. And, we start the planning of that before we closed. And immediately start implementing that after the close on the 12.

So, we don't -- and they are very similar to us. So we don't (indiscernible) difficulty in integrating the finance and (inaudible)

Thanks. And Patrick, forgive me -- I got cut off for a little bit but -- on the margin front it looked like you've got some nice increase in outsourcing margins -- but service margins fell off a little bit. Was there any particular reason for that?

When you compare it to Q4 (indiscernible)? I think it's mostly utilization. (technical difficulty) revenue in Q4 for professional services was significantly higher due to the -- one major project we had going on then. So it's really kind of utilization (inaudible)

Okay. Thanks. Finally, Norm, you mentioned a brief comment about potentially that the industry -- the capital budgets -- starting to loosen up a little bit. Are you seeing that kind of broadly across all the industry verticals? Or is there any particular area where you are starting to see some increased customer interest in purchasing?

I would say -- on balance (technical difficulty) pretty good activity on all market verticals.

Thanks very much.

(Operator Instructions). At this time there are no further questions.

Well, again, we would like to thank everybody for being on the call today. And obviously, the results must be pretty good, or we would have a lot more questions from you. So, again, thanks again and we'll see you at the end of next quarter. Thanks a lot, Michael.

Thank you, Sir. This concludes today's SS&C first-quarter 2004 earnings release conference call. You may now disconnect.