SS&C Technologies Holdings Inc (SSNC) 2009 Q3 法說會逐字稿

At this time I would like to welcome everyone to the 2009 third-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.

Welcome, everybody, and thanks for joining us. I am Bill Stone, Chairman and CEO of SS&C, and Patrick Pedonti, our Chief Financial Officer, is with me.

Before we get started, we need to read the safe Harbor statement. Various remarks we may make on this conference call about our future expectations, plans, 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 10K for the year ended December 31, 2008.

I will make some brief comments about the quarter and then I'll turn it over to Patrick, who will go through the finances for you, and then I will summarize at the end.

For Q3 we reported revenue of $68.9 million, down from $71 million in the third quarter of 2008. This is $2.1 million or a 3% decrease. In the first nine months of 2009, revenue was $199.9 million, a decline of $5.6 million when we compare it with the $211.8 million in 2008.

In Q3 and year-to-date, we continue to focus on our operating margins. We manage expenses very diligently and we improved our adjusted operating margins from 38.3% in 2008 to 39.3% in 2009. This is a 100 basis point pickup.

We did see a number of deals signed in this quarter and we are pleased to see a 32% increase in license revenue over the second quarter of 2009.

Notable deal for the quarter included alternative investment group at a $1.6 billion fund of funds shows our fund services as their independent fund administrator. Bank of the West, a United States $62 billion bank, selected our trading and accounting system lightning. Missouri Housing Development Authority licensed our camera system and (inaudible) that trade capture transformation data transformation business that we acquired recently in Burlington, Massachusetts signed multiple deals including General Mills, (inaudible) and New Jersey Education [Facilities] Authority.

Our acquisitions continued to contribute to our portfolio of world-class application software and software [naval] services. This IP library has enhanced SS&C's ability to maintain the existing client base and continually enhance our acquired solutions.

We have found many clients willing to fully embrace SS&C's strategies. These clients see the value of buying more products and services from us and taking advantage of the existing integration between best-of-breed solutions.

A recent example is our integration of Zoologic Courseware with our solutions for asset management, real estate and municipal finance market verticals. Users of these applications can now access relevant Zoologic Courseware directly from their applications, thereby increasing productivity and expertise as they manage their daily tasks.

We continue to see opportunity in cross-selling and upselling our portfolio solutions and in order to continue to serve our client partners, we are increasing our [count] coordination for our large strategic accounts.

In Q3 and year-to-date we continue to see demand for our fund administration services, for hedge funds, fund to funds and private equity funds. We continue to see demand for our services because our independence, our financial stability, and the quality of our in-house expertise in the system.

In the face of these challenging market conditions, our team has continued to perform. We took action early to deal with the changes in the business environment, particularly in the fourth quarter of 2008 when we reduced our headcount by 10%. But we have also continued to invest in R&D and released new versions of our leading products, including IFRS Reporting in our AdvisorWare product. New web-based front end for [Pacer]. Extensive pre- and post-execution compliance in our TradeThru product.

We have gotten CFA accreditation in our Zoologic Courseware. We have added additional capability in our FundRunner product, which is for customer relationship management in the fund arena. We have also added to the GUI in our Lightning product.

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

Thanks, Bill. The results for Q3 '09 are revenues of $68.9 million and reported net income of $5.6 million.

Included in the net income includes acquisition amortization of $7.9 million and stock-based compensation of $1.6 million. Revenue decreased $2.1 million or 3% over Q3 '08. Excluding acquisition revenue and the negative impact of foreign currency, organic revenues decreased 7.9% in the period.

Acquisitions, including MDS, [Havare], and Maximus contributed $4.7 million in the quarter. And foreign exchange negatively impacted revenue by $1.2 million. Foreign currency impacted maintenance revenues negatively by about $300,000 and software-enabled services by about $700,000.

In our financial statements, we've included note 1 and note 2 to present operating income and EBITDA on a comparable basis. Adjusted operating income for the third quarter was $27.1 million, a decrease of $100,000 from the third quarter of 2008 as revenue decrease was offset by headcount reduction and expense controls.

During the slowdown we have improved our operating margins from 38.3% in the third quarter of '08 to 39.3% in this quarter as we have initiated cost controls and process correcting the improvement in our software-enabled services business.

Consolidated EBITDA in note 2 of the financial statement is defined in our credit agreement and is used in calculating our covenant compliance. Consolidated EBITDA for the quarter was $28.7 million and LTM EBITDA as of September 30, 2009 was $112.7 million.

Net interest expense for the third quarter was $9.1 million and includes $579,000 of amortized financing costs.

For the year, nine months, our revenues are $199.9 million and reported net income for the period is $13 million. And that includes acquisition amortization of $23.1 million and stock-based comp of $4.4 million. Revenue decreased $11.8 million or 6% from 2008. Excluding acquisition revenue, and the negative impact of foreign currency, organic revenue decreased 6.7%.

During the nine months, acquisitions contributed $10.8 million and foreign exchange negatively was $8.4 million. Adjusted operating income for the nine months decreased by $3.3 million or 4% over 2008.

But operating margins improved from 37.1% in '08 to 37.9 -- .7% in the nine months '09.

We ended the cash -- we ended the quarter with $52.5 million in cash and $402.6 million of debt for a net debt position of $350.1 million, assuming full credit for the cash position.

We increased our cash position this year to give us the ability to take advantage of further potential acquisitions. We generated $45 million in operating cash flow in the nine months and we invested in operating cash flow in acquisitions and to pay down debt. We paid down $11.7 million of debt year to date.

In addition, we've implemented temporary controls on our capital expenditures and we've reduced capital expenditures this year to $1.2 million or 0.6% of revenues compared to 2.9% of revenues in 2008. As we're seeing growth in our revenue, we will expect to see the capital expenditures pick up in future quarters.

In the nine months '09, we paid $16 million of income taxes compared to $10.7 million in the same period of '08. Included in the '09 payment was $3.5 million, which was a deposit for '08 tax liabilities since we weren't required to make that deposit until 2009.

Our LTM EBITDA is $112.7 million and our EBITDA growth and lower debt position has reduced our leverage from approximately 6.8 at the go private transactions November of 2005 to 3.3 as of September 30, 2009.

Our accounts receivable DSO was 49 days as of September 2009, a decrease from 59 days as of September 30, 2008, as we saw receivables improve significantly over that period.

Now I'll turn it back over to Bill for final comments.

Thanks Patrick. We are encouraged by the revenue growth that we had from Q2 '09 to Q3 '09. Our solutions, we believe, are well-suited to address these -- to address the issues that the firms that we're selling to are addressing, particularly when they have decreases in staff and are under revenue pressure.

We're also seeing a lot of acquisition opportunities. So these candidates are across the spectrum of our business units and we probably are still looking at 10 to 15 potential acquisitions a quarter. As you all well know we are very disciplined to acquire and we buy way fewer than we look at.

Now I would be willing to take any questions that anybody may have. [Carrie]?

(Operator Instructions). [Grant Jordan] with Wells Fargo.

Good morning. Thanks for taking my questions. Appreciate all the color on the call.

Just a follow-up on the acquisition comment. Can you maybe give us an idea, are you looking at more smaller deals or do you think there is anything that could be fairly sizable that you would be interested in out there?

Sure. Maybe you would give me your definition of fairly sizable.

Maybe add 20 to 30% of revenue or --?

We don't have anything quite that large. We have stuff in the hopper we think that would add 10 to 15% to revenue. But the other -- yes, there's a bunch of stuff out there, it's just a question of negotiating the right price and under the right terms.

But right now, we don't have anything at $40 million or $50 million. We have a couple at $20 million, $15 million -- in that area.

How do you characterize sellers' expectations say, today, versus maybe three months ago?

I think that three months ago, I think an awful lot of sellers were still in crisis to see whether or not they're going to have anything to sell. And I think now that the thing has stabilized, I think what they're trying to do is to get liquidity so that the assets that they have built up over their lifetimes, particularly the entrepreneurs, that they want to assure that they have liquidity in that asset.

So I think it's the prices are reasonable right now, I think. And there's a lot of opportunity.

Great. Well, thank you. That's all I have.

[Todd Morgan] with [Opco].

Thank you. I guess two things. Just following up on the acquisition topic is, if I were someone who had just been through a tough spot and as a potential seller, for example, I think I would be trying to hold out here. And can you give -- yet you sound fairly optimistic about your ability to potentially find attractive acquisitions.

Can you give me a sense of what would be the seller motivation at this point? Why not wait until we see a more definitive stronger economy emerging and presumably the price would be going up at that time as well?

I think that the difference is is that somebody, let's say, built an asset that, let's say, does $10 million in revenue and does $3 million in earnings and in '08 it does $7 million in revenue and no earnings. And then in '09, it gets a little bit stronger and it gets up to $9 million in revenue and $1.5 million in earnings. And there's an offer on the table of, say, $9 million.

A lot of people would view that that '08 dip scared them so much that their asset may go to zero. So they may have had a line of credit and it got pulled. They may not have been able to get any financing. They may have had too delay payroll a little bit.

Any of those kinds of things which would put an awful lot of uncertainty into some entrepreneurs' mind. And I think that that is what we are seeing some places. You know, that is just our experience.

Okay, that makes sense. That's fair. A second question on DSO improvement. I mean, that is a pretty dramatic improvement. Is there any -- just simply a matter of focusing on that area or is there anything more fundamental going on?

I think we have a lot of focus on cash flow. We always have. And one area where we think we can generate some cash is in working capital, so we focus weekly. We have weekly reports on to business managers on their receivables and so it's just a matter of focus.

All right. Well, thank you then.

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

I think there is one.

I'm sorry. Your next question comes from [Mike Storms] with [Mountain Capital].

I just throw this last question in there. How are you planning to finance any of the acquisitions or the cash on the balance sheet (inaudible)?

We have cash on the balance sheet and we have availability of $75 million on our revolver. And we also have the ability on our secure debt. We've got a $100 million accordion.

All right. So you -- well, you could use -- you're saying you could use any of those, but which one were you planning on using?

Cash on the balance sheet first.

Cash first. Okay. Thank you. That's good. All right. Thank you very much.

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

Once again, we appreciate everybody being on the call and we look forward to talking to you next quarter. Thanks.

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