SS&C Technologies Holdings Inc (SSNC) 2006 Q1 法說會逐字稿

Good afternoon, my name is Shannon, and I will be your conference operator today. At this time I would like to welcome everyone to the SS&C first quarter 2006 earnings conference call. After the speakers’ remarks, there will be a question and answer session. [OPERATOR INSTRUCTIONS]

Mr. Stone, you may begin your conference.

Thank you and welcome everybody, to our first quarter earnings call. I’m Bill Stone and I’m here with Patrick Pedonti, our CFO.

SS&C had an excellence first quarter with revenue of $49.8 million and adjusted operating earnings of $18 million. This compares with $27.4 million in revenue and $9.9 million in operating earnings in 2005 respectively. Percentage increases are both 82%.

We had particular strength in our FMC business, which we acquired in April of 2005. We have restructured this business and we are proud of our teams in Mississauga, Montreal, London and Sydney, as well as New York. They have driven the increases in revenue to double-digits and they have reduced expenses by double-digits.

FMC is now one of our leaders in EBITDA percentage, which is up from 15% in Q1 of 2005.

Notable sales were our performance attribution system, Sylvan, which we sold a worldwide license to AIG. Our Pages reporting system to Barclays Global Investors. Altair, our Dutch securities processing system to [Europek]. Total Return, which is one of our hedge fund platforms, to [Great Fritz]. FundRunner, our investor relationship management software to Union [Oncar]. And Recon to long-time SS&C client, Liberty Mutual.

We also had a good quarter in outsourcing sales, which should begin to ramp-up on Q2. We have generated strong cash flow and we paid down a net of $5.3 million in debt and paid $11.9 million on a net basis for Cogent Management, and we expect Cogent to generate over $2.25 million in EBITDA for calendar 2006.

We’ll continue to invest heavily in our infrastructure and systems. We believe our focus on people, process and technology is a winning combination. As many of our competitors move accounting and operations jobs offshore, SS&C is delivering an increasingly automated service. Very well-trained personnel with company-owned world-class software, advantages SS&C and its clients with tailored technologically advanced solutions.

We can value credit default swap and other illiquid and pass-dependent assets. Our solutions include performance attributions, German transparency tax reporting, [lettering] and aggregation methods of tax computations, and extremely flexible and high-powered reporting tools.

We believe this is going to really bode well for us over the coming quarters.

For now I’ll turn it over to Patrick to dig deeper into the financial results.

Thank you, Bill. The results for Q1 2006, were revenues of $48.4 million on a GAAP presentation method. Included in revenue is a $1.4 million reduction in revenue caused by the purchase accounting at fair value our deferred revenues as of the acquisition.

Excluding this adjustment, revenue was $49.8 million, an increase of 82% from last year. Reported net loss for the period was $226,000 and includes acquisition amortization of 5.5 million.

Strong growth came from several products that are in the quarter. New products acquired in the FMC acquisition, our hedge fund product and outsourcing services business, SS&C direct outsourcing business for institutional asset managers and our derivatives product.

In the financial statements we’ve included two notes to present operating income and EBITDA on a comparable basis. Adjusted operating income in the first quarter was 18 million and excludes purchase accounting adjustments and amortization of acquired intangibles.

Adjusted operating income increased 8.1 million or 82% from first quarter of ’05. Consolidated EBITDA in note 2 of our financial statements to plan our credit agreement and [a view] calculating our covenant compliance.

Consolidated EBITDA excludes interest expense, income taxes, depreciation, amortization, and is further adjusted to eliminate purchase accounting adjustments, any unusual or non-recurring items and adjusted to reflect acquisitions and cost reductions eliminated at those acquisitions as if owned for the full quarter.

Consolidated EBITDA on this basis for the first quarter was 20 million.

Net interest expense for the quarter was 11.5 and includes $653,000 of amortized financing costs. Other expense for the first quarter was $61,000 and it’s mainly foreign exchange losses.

Due to capital taxes in some of our foreign jurisdictions, we had a tax expense of $83,000 in the quarter.

We ended the quarter with $13.2 million in cash and marketable securities and $486.2 million of debt, with a net debt position of $470 million. In addition, we paid approximately $11.5 million in cash, net of cash required for acquisitions in the quarter, which was paid out of our operating cash flow during the quarter.

On an LTM consolidated EBITDA as of March 31, 2006, including the acquisition of Cogent, as it’s owned for the past 12 months, LTM consolidated EBITDA was 76 million. This will have reduced our leverage from approximately 6.8 million at the close on November 23rd, to 6.2 times as of March 31st, 2006.

A couple of the highlights on our balance sheet, our DSO was 70 days as of March 31st. This is on the high end of the range we normally expect and was mostly caused by operations outside of North America. Also in addition, we received a tax refund in the quarter of $5.2 million for tax payments in ’05.

And I’ll turn it over to Bill for his final comments.

Thanks, Patrick. As you can tell, we’re excited about our business and our prospects. We believe we have a superior business model and it continues to be driven by knowledge of our customers’ business.

The instrument that they invest in and trade, enable the environments in which they transact business and the constituencies, both internal and external, public and private that they report to. Again, we appreciate all of you coming on the call today and now we’ll take any questions.

[OPERATOR INSTRUCTIONS] Andy Green with Wachovia Securities.

Just a couple of quick questions. One, Bill, you mentioned that the growth rate – well that outsourcing is up pretty strong sales in the quarter, obviously it was up sequentially and strong year-over-year. Is that back in kind of late ’05 you were looking for something around greater than 10%, say maybe 12% growth in that market this year.

Is that decrease in outsourcing sales, is that consistent with what you were thinking before or is it coming in a little bit higher than expected?

I think that the new business that we’re generating is coming in a little bit higher than we expected, but we’ve had a couple of accounts that we’re kind of jointly walking away from, ones that we can’t make any money on and they’re very demanding. We have gone back and said we’re going to raise prices and they said, no, and we said okay, goodbye. We did it in a very nice way.

But we pride ourselves on being able to deliver very complex services at favorable costs to our clients and I think that there’s going to be a real rude awakening for a couple of our clients that we peeled away.

So I think on a net basis, we were a little lower than we had expected, but we think that the business is very robust and that we should hit our targets for the year.

And was the rest of the business, the other three segments, were they pretty much in line with your expectations or was there anything materially better or worse than you expected?

I think that the FMC business was better than we expected and I think that we put a lot of time and effort into that business. We have a lot of talented people that are very motivated and I think that that proves to be very strong for us in the quarter and we have very high hopes.

One of the things we mentioned was selling Recon to Liberty Mutual. I think Liberty Mutual has been a camera client in SS&C products for 12 years or something, and now we sell them an FMC product into that. I think that that cross-fertilization is going to accelerate. That was very positive.

I think that our license revenue in some of our institutional products, primarily camera, Antares, our trading systems and LMS, commercial loan systems, were not particularly strong in the first quarter, but we are optimistic for the rest of the year and we think that that will ramp again.

Okay. And one last question. Bill, what are you seeing on the acquisition front, in terms of available candidates and the purchase prices, is it fairly consistent with what you’ve seen in the past and you’ll be able to buy at reasonable prices?

We’ve got a very good business in the Cogent acquisition. Again, the guys that we got, led by Pat [Marin], was an extremely talented team of people. We’re excited about that. We paid them a very fair price. But at the same time, we think that the combination of them and us can really drive that EBITDA number for us.

The other ones, as you well know, we have a pretty full pipeline of potential acquisitions almost at all times, and they’re both large and small, and we would say that prices have firmed, but we have enough in the pipeline that we believe that we will continue to do credit accretive acquisitions.

[OPERATOR INSTRUCTIONS] At this time there are no questions.

Again, we really appreciate everyone coming on the call today and again, we look forward to talking to you next quarter. We’re glad to see that your bonds are trading at 107.25, at least that’s what I heard today – an 11.75% coupon. We continue to strive to drive our cash flow and look forward to talking with you in 3 months. Thanks.

And this concludes today’s conference call, you may now disconnect.