SS&C Technologies Holdings Inc (SSNC) 2009 Q2 法說會逐字稿

Good morning, my name is Theresa, and I will be your conference operator today. At this time, I would like to welcome everyone to the SS&C Second Quarter Earnings 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 session. (Operator Instructions) Thank you. Mr. Stone, you may begin your conference.

Thank you, Theresa. Welcome and thank all of you for joining us for our Q2 2009 Earnings Call. I'm Bill Stone, Chairman and CEO of SS&C and with me today is Patrick Pedonti, our Chief Financial Officer.

Before we get started we need to review the Safe Harbor Statement. Various remarks we may make on this conference call about our future expectations, plans and prospects constitute 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 discussed in SS&C's filings with the Securities and Exchange Commission, including the Company's annual report on Form 10-K for the year-ended December 31, 2008.

I'll start with a brief overview of the quarter, and then turn it over to Patrick, who will take us through the financials, after which I will summarize some business highlights and then open up for your questions.

For Q2, we reported revenue of $67.3 million down from $72.2 million in the second quarter of 2008. Q2 results included Evare for the full quarter and Maximis for about one month. Revenues are down $4.9 million year-over-year or a decrease of about 6.8%. The revenue decrease is primarily a function of license revenues and professional services being down and an unfavorable foreign exchange environment.

We continue to manage expenses diligently and decreased operating expenses by more than $1.6 million in Q2 2008 -- from Q2 2008. We managed headcount closely and through June 30, 2009, we are down 30 headcount from December 31, 2008. This, of course, excludes acquisition-related headcount.

We did see a number of new deals signed during the quarter, but we also saw decisions being delayed due to market conditions. Our sales pipeline primarily is software-enabled services is strengthening, and we are pleased with sales and marketing activities that we are embarking upon to further develop our pipeline. Also positive was a 12.4% increase in our software-enabled services revenues from the first quarter of 2009.

In Q2 and year-to-date, we continued to see demand for our credit administration services, employment funds and private equity funds. We've seen an increase in referrals from our relationships with client brokers as well as our existing clients.

Nearly half of our wins in 2009, so far, were conversions from market competitors or self-administered funds.

We are continuing to see demand for our services because of our independence, our financial stability, and the quality of our in-house expertise.

During the quarter we continued to invest heavily in R&D and released new versions of our (audio break) including our integration of Evare, our Recon reconciliation product, and our network product, SS&C Net. We also have added SBA loan processing and regulatory updates in LMS. We have added the standard North American contracts [snack] industry protocol for our debt and derivatives (inaudible) capability. We have also added prime dealing capability from FAS 157 with enhancements to our Lightning fixed income and bank fund processing products.

We have improved our [master feeder] automation and data management and AdvisorWare, and we continue to add capabilities in our reconciliation product, Recon, which has gotten very high market acceptance.

As you know, in Q2, we acquired the assets in (inaudible) businesses associated with Unisys Corporation's Maximis software. We have met with the executive teams of our Maximis clients, and we will be -- that's our first SS&C Maximis (audio break) in California on August 12th and 14th just later this week.

We feel this acquisition represents an excellent strategic fit within our (inaudible) software and services offering, and we look forward to showcasing Maximis synergies at our user conference.

I'll now turn it over to Patrick to review the financial results for the quarter.

Thanks, Bill. Results for Q2 '09 are revenues of $67.3 million and reported net income for the period is $3.5 million. It includes acquisition and amortization of $7.8 million and stock-based compensation of $1.5 million.

Revenues decreased $4.9 million, or 6.8% of our Q2 '08. Excluding acquisition revenue and a negative impact of foreign currency, organic revenue decreased 8.3% in the quarter.

Acquisitions, including MBS, Evare, and Maximis contributed $4.1 million in the quarter, and foreign exchange negatively impacted us by $3 million, or 4.2% as the US dollar strengthened.

Foreign exchange impacted maintenance revenue negatively by $0.5 million and software-enabled services revenue by $2.1 million.

The financial statements included note 1 and note 2 to present operating income and EBITDA on a comparable basis. Adjusted operating income for the second quarter was $25.1 million, a decrease of $1.7 million, or 6% from the second quarter '08 as revenue decrease was offset by headcount reductions and expense controls.

During this slowdown, we've improved our operating margins from 37.1% in the second quarter of '08 to 37.3% in '09.

Consolidated EBITDA in note 2 of the financial statement, so it's defined by a credit agreement, is used when calculating our covenant compliance. Consolidated debt for the quarter was $28.1 million, and includes $857,000 for acquired EBITDA for the Maximis acquisition.

LTM EBITDA as of June 30, 2009, is $114.5 million. Net interest expense for the second quarter was $9.3 million and includes $575,000 of amortization for financing costs.

Results for the six months ending June are revenues $131 million and a reported net income of $7.4 million and includes acquisition and amortization of $15.2 million, and stock-based compensation of $2.8 million.

Revenues decreased to $9.7 million, or 7%, over the similar period in '08. Excluding acquisition revenue and the negative impact of foreign currency, organic revenue decreased 6%. Acquisitions contributed $6.1 million and foreign currency exchange negatively impacted revenue for $7.3 million year-to-date.

Adjusted operating income for the six months decreased $3.2 million, or 6% over '08 and operating margins improved from 36.5% in '08 to 36.8% for six months '09.

Our balance sheet and cash flow, we ended the quarter with $39.1 million in cash and $409.8 million of debt for a net-debt position of $370.7 million. We increased our cash position this year to give us the ability to take advantage of potential acquisitions.

We have generated $20.9 million of operating cash flow for the six months '09, and we have invested operating cash flow and the acquisition of Evare and Maximis and debt paydown. For the acquisition of Evare and Maximis, we paid $10.3 million. In addition, we've put in temporary controls on capital expenditures, and we reduced our capital expenditures for the six months of $621,000, or half a percent of revenues. And then we paid down $1.2 million in debt -- just the required payments -- during the period.

In the six months 2009 we paid $11.7 million of income taxes compared to $8 million in the same period '08. Included in the '09 payment was a $3.5 million deposit, which was for the 2008 tax liability, as we weren't required to make it until 2009.

Our LTM EBITDA as of June is $114.5 million, and our EBITDA growth and our lower debt position has reduced our leverage to 6.8 at the time of closing in November of '05 to 3.3 times as of June 30th.

Accounts receivable DSO improved in June and was 51 days, a decrease from 60 days as of March 2009 as we saw improved accounts receivable collections.

And now I'll turn it over to Bill.

Thanks, Patrick. Despite slower decision times and tighter budgets by financial institutions in many of our segments, I am encouraged by the increased interest in our outsourcing businesses and the upturn in revenues from Q1 to Q2. We are seeing revenue contribution in Q2 from our Evare acquisition, and we are seeing upsell opportunities for complementary SS&C (inaudible) within our Maximis client base.

While it remains a tough sales climate, our solutions are well-suited to address the growing issues firms have as their staff size decreases and volumes and complexities increase. We are also seeing lots of acquisition opportunities ranging from single to hundreds of millions of dollars of revenues. We are also seeing these candidates across a spectrum of our business units.

Our cash has continued to grow, and we have a $75 million revolver and $110 million accordion, both of which remain untapped.

That being said, SS&C has been a very disciplined acquirer, and we pass way more often than we purchase.

I would now like to open it up for questions.

(Operator Instructions) Grant Jordan.

Good morning, Grant Jordan from Wells Fargo. Just a couple of questions. On the M&A environment, obviously, you guys have done some tuck-in acquisitions. Have you seen anything of interest that would be more sizable?

We're seeing a number of things that are of varying sizes. Stuff we're looking at ranges from $20 million in revenue to $80 million in revenue to several hundred million in revenue. Obviously, the larger and more complex the organization, the more due diligence is necessary prior to us going forward.

And in terms of appetite for what you're willing to pay and sellers' willingness to sell -- do you feel like the market is starting to come back a little bit? Maybe that gap is widening, or do you still think there are still some good opportunities?

I think there's good opportunities. I think that sellers have become more realistic, particularly as their businesses have had challenges and the ability to refinance their businesses has become more challenging. So I think that the bridge is shorter between buyers and sellers, and, you know, ultimately, that will play itself out over the next six to nine months.

Great. And then on the G&A line, it looks like you guys continue to take cash out. Is that a -- what are the main drivers of the reduction in that line item?

We're pretty much across the board. We're looking hard at consolidating telecom suppliers, so we've reduced that significantly, and then we're looking at any outside services that we use. And either consolidating vendors or renegotiating pricing are actually cutting it out completely.

So we're mostly contract employees, outside services, telecom, and then renegotiating some facilities leases.

Great, and then my last question -- on the $75 million revolver -- is that fully available or is there some borrowing base calculations?

No, it's fully available.

Okay, great. Thank you very much.

(Operator Instructions) There are no further questions at this time.

Again, we appreciate everyone coming onto the call. We remain diligent in trying to deliver good numbers. It's been a tough environment and, as I said, we're cautiously optimistic, going forward. Thank you.

This concludes today's conference call. You may now disconnect.