Earnings Call Transcript - SSNC Q2 2025

Operator, Operator

Ladies and gentlemen, thank you for standing by. My name is Abby, and I'll be your conference operator today. At this time, I would like to welcome everyone to the SS&C Technologies Second Quarter 2025 Earnings Call. Thank you, and I would now like to turn the conference over to Justine Stone, Head of Investor Relations. You may begin.

Justine Stone, Head of Investor Relations

Welcome, and thank you for joining us for our Q2 2025 earnings call. I'm Justine Stone, Investor Relations for SS&C. With me today is Bill Stone, Chairman and Chief Executive Officer; Rahul Kanwar, President and Chief Operating Officer; and Brian Schell, our Chief Financial Officer. Before we get started, we need to review the safe harbor statement. Please note that various remarks we make today about future expectations, plans and prospects, including the financial outlook we provide, constitute forward-looking statements for the 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 the Risk Factors section of our most recent annual report on Form 10-K, which is on file with the SEC and can also be accessed on our website. These forward-looking statements represent our expectations only as of today, July 23, 2025. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so. During today's call, we will be referring to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is included in today's earnings release, which is located in the Investor Relations section of our website at www.ssctech.com. I will now turn the call over to Bill.

William C. Stone, Chairman and Chief Executive Officer

Thanks, Justine, and welcome, everyone. Our second quarter results include record adjusted revenue of $1.5378 billion, up 5.9%, and adjusted earnings per share of $1.45, a 9.8% increase. We delivered record adjusted consolidated EBITDA passing $600 million in the quarter for the first time, up 7.4%, resulting in a quarterly adjusted consolidated EBITDA margin of 39%. Second quarter adjusted organic revenue growth was 3.5% with performance driven by GlobeOp, GIDS, and WIT businesses. GlobeOp organic growth of 7.3% was driven by double-digit growth in private markets and retail alternatives. GIDS continues to win key clients and deliver high-level professional services. Health finished the quarter with flat organic growth. Q2 Financial Services recurring revenue growth was 3.9%, which includes software-enabled services and maintenance revenue. Internationally, we are seeing strength in Europe, Australia, and the Middle East, spanning multiple business units. This broad success reflects a positive trend of increased international win rates attributable to the investments we have made over the past several years and our ability to provide increasingly sophisticated services. Overall, we deliver our service with a client-focused approach, and our retention rate was stable at 97%. For the six months ended June 30, 2025, cash from operating activities was $645.1 million, up 14% year-over-year. In Q2, we bought back 3.4 million shares for $269 million at an average price of $77.99. We will continue to buy back shares opportunistically and recently grew our share repurchase authorization to $1.5 billion. We are continuously investing in our AI strategy. We believe some of our most significant competitive advantages lie in partnering Blue Prism with our business units to identify workflow, build new AI agents, and deploy them internally. During the quarter, our approach successfully resulted in our first AI agent sale to an insurance conglomerate in the Midwest. The client processes hundreds of credit agreements monthly, and the AI agent reduces manual effort by up to 80%, speeds up processing by 3x, and improves accuracy to over 99%. We believe this win is indicative of future opportunities across our 22,000 strong client base. I'll now turn it over to Rahul to discuss the quarter in more detail.

Rahul Kanwar, President and Chief Operating Officer

Thanks, Bill. We had a solid second quarter with 3.5% organic revenue growth and 50 basis points of margin expansion year-over-year. Our fund administration business, GlobeOp, continues to show strength with private markets growing over 10%, driven by the complexity of credit and hybrid funds as well as family offices. Retail alternatives, while still a smaller part of this business, are growing 20% with substantial runway. Battea, our class action services business, won 30 new clients in Q2 with two-thirds of them being SS&C client cross-sells. Our newer software solutions continue to gain traction. Genesis is well positioned to support both new and existing customers with multiple implementations underway. Our most recent client went live with a $75 billion-plus bank trust in the Midwest, where we replaced a competitor. Similarly, Singularity has had recent success winning large insurance companies. We are focused on continuing to enhance asset coverage and functionality and are launching new features in bank loans, commercial mortgage loans, and enhanced income monitoring tools. We have noticed previously that the strength in our business and the diversification of our revenue across product lines and types of customers often allows us to overcome macroeconomic challenges that may arise and still perform in a predictable way. We proved that this quarter with success despite Intralinks having some macroeconomic challenges, including declines in global deal volume and active deal flow in Q2. Early indicators do show activity is picking up in the second half of the year, and our brand-new platform, DealCentre, combines the power of AI with an enhanced user experience and increases our win rates. With that, I'll turn it over to Brian to walk through the financials.

Brian Norman Schell, Chief Financial Officer

Thanks, Rahul, and good day, everyone. Unless noted otherwise, the quarterly comparisons are Q2 2024. As disclosed in our press release, our Q2 2025 GAAP results reflect revenues of $1.537 billion, net income of $181 million, and diluted earnings per share of $0.72. Our adjusted non-GAAP results include revenues of $1.538 billion, an increase of 5.9%, and adjusted diluted EPS of $1.45, a 9.8% increase. The adjusted revenue increase of $85 million was primarily driven by incremental revenue contributions from GlobeOp of $28 million, WIT of $15 million, acquisitions of $21 million, and a favorable impact from foreign exchange of $14 million. As a result, adjusted organic revenue growth on a constant currency basis was 3.5%, and core expenses increased 3.1% or $28 million. Adjusted consolidated EBITDA was $600.4 million, reflecting an increase of $42 million or 7.4% and a margin of 39%, a 50 basis point expansion. Note, EBITDA of $600.4 million is a quarterly record high for SS&C. Net interest expense for Q2 '25 was $106 million, a decrease of $8 million, primarily reflecting lower short-term interest rates. Adjusted net income was $366 million, up 10.2%, and adjusted diluted EPS was $1.45, an increase of 9.8%. Our effective non-GAAP tax rate was 24%. Note, for comparison purposes, we have recast the 2024 quarterly adjusted net income to reflect the full-year effective tax rate of 23.1%. Cash flow from operating activities grew 14%, which was driven by growth in earnings. Our year-to-date cash flow conversion was 88% compared to 85% last year. SS&C ended the second quarter with $480 million in cash and cash equivalents and $6.9 billion in gross debt. SS&C's net debt was $6.4 billion, and our last 12 months consolidated EBITDA was $2.4 billion. The resulting net leverage ratio is 2.72x. As we look forward to the third quarter and the remainder of the year with respect to guidance, we will continue to focus on client service and assume that retention rates will be in the range of our most recent results. We will continue to manage our business to support our long-term growth and manage our expenses by controlling and aligning variable expenses, increasing productivity, improving our operating margins, and effectively investing the business through marketing, sales, and R&D. Specifically, we have assumed in our guidance, interest rates to remain at current levels and an effective tax rate of approximately 24% on an adjusted basis, and capital expenditures to be in the 4.1% to 4.5% of revenues with no impact related to the Calastone acquisition. For the third quarter of '25, we expect revenue to be in the range of $1.525 billion to $1.565 billion and 4.5% organic revenue growth at the midpoint. Adjusted net income is expected to be in the range of $364 million to $380 million. Interest expense, excluding amortization of deferred financing costs and original issue discount, is anticipated in the range of $101 million to $103 million, with diluted shares in the range of $252.5 million to $253.5 million and adjusted diluted EPS in the range of $1.44 to $1.50. For the full year '25, we are raising our top line guidance by $15 million at the midpoint and now expect revenue to be in the range of $6.143 billion to $6.243 billion and 4.5% organic revenue growth at the midpoint. For the full year '25, we are also raising our earnings guidance. Specifically, we expect adjusted net income to be in the range of $1.462 billion to $1.542 billion, diluted shares in the range of $251.5 million to $254.5 million, adjusted diluted EPS in the range of $5.82 to $6.06, up $0.10 at the midpoint, and cash from operating activities to be in the range of $1.479 billion to $1.559 billion. Our 2025 guidance reflects our solid results in the first half of 2025 with a continued positive outlook for the remainder of the year. And now back to Bill.

William C. Stone, Chairman and Chief Executive Officer

Thanks, Brian. On Monday, we announced a definitive agreement to acquire Calastone expected to close in Q4 of this year. We're excited about the attractive geographies, additional capabilities that we can provide in the ETFs, digital assets, and money market products, as well as cross-sell opportunities. The acquisition is accretive to revenue growth, EBITDA margin, and will be EPS accretive within 12 months. This aligns with our capital allocation strategy of finding high-quality businesses that are a strategic fit. I will now open it up for questions.

Operator, Operator

And our first question comes from Jeff Schmitt with William Blair.

Jeffrey Paul Schmitt, Analyst

On the Calastone deal, could you discuss the revenue synergy potential here? You've called out some cross-selling opportunities. Where do you see the biggest cross-selling opportunities? And could you quantify it at all?

William C. Stone, Chairman and Chief Executive Officer

Well, it's still early. I wouldn't say that we have anything that I can pinpoint. But they have 4,500 clients, and we have probably 10,000 that could be addressable with those 4,500 in areas like crypto and other digital assets as well as ETFs. So they're very strong in ETFs, and we have a pretty nice ETF business ourselves. So we think the cross-selling and upselling in that space will be pretty attractive. Additionally, we would expect Calastone, which has been growing in excess of 10%, closer to 15% for the last several years, to have the opportunity for us to perhaps accelerate that.

Jeffrey Paul Schmitt, Analyst

Okay. And then capital expenditures have been over 4% of revenues in the last 2 years. You're expecting it again this year. Previously, they were more like 2% to 3%. I was just curious how much of that increase is going to higher maintenance CapEx versus investments in growth.

William C. Stone, Chairman and Chief Executive Officer

Well, I would say that we have a large suite of products, technology products. And so those take some of those R&D dollars. Also, we're moving into different products and services. We've had considerable success in Australia, and we have built software specifically for that market. We do that across many of our geographies and product suites. As Rahul said, we have significant development in private assets and retail alternatives in our GlobeOp division, and we also have brought out Genesis in our Wealth and Investment Technologies division. We are still investing in DomaniRx, and we see lots of opportunities.

Jeffrey Paul Schmitt, Analyst

Okay. So it sounds like more, I guess, investments in growth? Should we expect it to stay up at these higher levels going forward?

William C. Stone, Chairman and Chief Executive Officer

Well, Anthony Caiafa, who's our CTO, thinks it will. So as much as we try to slow him down, technology is our seed corn. We've got to be careful that we don't cut off our nose despite our face. So we're going to continue to invest in our business. We're generating lots of cash, paying down debt, buying back stock, and looking at acquisitions. But we're not going to starve our development teams or our services teams.

Operator, Operator

And our next question comes from the line of Alexei Gogolev with JPMorgan.

Alexei Mihaylovich Gogolev, Analyst

First of all, Brian, organic growth guidance for Q2 was ahead of your initial forecast, and yet you almost did not change your organic revenue outlook for the full year, which still remains around 4.5%. Mechanically, this implies that you're now assuming slightly weaker organic growth in the second half. Were there any deals that were pulled forward that resulted in better performance in the quarter?

Brian Norman Schell, Chief Financial Officer

No, thanks for the question. If you look at it overall, the first half and second half are roughly similar in terms of organic growth. We are continuing to compare against higher quarterly figures from 2024. Therefore, we still have strong expectations for the second half when viewed in the context of the 4.5% growth for the full year.

Alexei Mihaylovich Gogolev, Analyst

Okay. Another question related to acquisitions. I don't know, maybe, Bill, this is perhaps for you. What would you see as a comfortable level of leverage should you see any potential attractive deals beyond the one that you announced earlier this week?

William C. Stone, Chairman and Chief Executive Officer

Yes. I mean, I think that would be comfortable for us to be in the mid-4s. We're currently at 2.72x, so getting into the mid-4s would be almost 2 turns, which would give us around $4.8 billion. Additionally, we would have some cash to probably support a $5 billion acquisition. It ultimately depends on how good the acquisition is. We're not afraid to run the business with the debt load because we're a very sticky business. We have great relationships with our clients, our clients are growing, and we operate in the sweet spots of Financial Services.

Operator, Operator

And our next question comes from the line of Kevin McVeigh with UBS.

Kevin Damien McVeigh, Analyst

Congratulations on the results and the deal. Bill, I think you mentioned within GIDS, a high level of professional services. Is there any way to think about, number one, what percentage of the revenue is professional services? And then is that a leading indicator? Is it that professional services you do the work, and then ultimately, it pivots to revenue? Is that a fair way to think about it? Typically, what's the lead time? I mean, I know some of the wins are getting bigger, but just are we thinking about that right?

William C. Stone, Chairman and Chief Executive Officer

Well, I think the professional services are really to build out the service or technology to meet the demands of any of these specific clients. Generally, that's a 3- to 6-month process. We typically get paid for that during those 3 to 6 months, which counts as revenue. However, it usually transitions into a services contract where we perform the work, like with Insignia, where we rebadged 1,300 people from Insignia to us. Thus, our charge is to help them grow and also manage our expenses to increase profitability.

Kevin McVeigh, Analyst

That's helpful. And I think the other thing you mentioned was the EBITDA obviously at a record high. Any way to think about the pacing and the seasonality on that? Obviously, it's a Q2, which is a terrific outcome. But any shift in the seasonality of the business and how we're thinking about the EBITDA over the course of the year?

Brian Norman Schell, Chief Financial Officer

As you look at the course of the revenue growth over time, some of that will depend on the revenue growth in the various business units and where it comes from. Obviously, with revenue recognition and ASC 606, if you get a bit more revenue from some of those businesses that have a higher margin during that quarter when it's booked, you tend to see a lift in Q4. Therefore, you will see a little pickup in the EBITDA margin. So we look at it over different lines of businesses and roll that up over time, trying to grow revenues faster than expenses, thereby leveraging your scale.

Operator, Operator

And our next question comes from the line of Dan Perlin with RBC Capital Markets.

Daniel Rock Perlin, Analyst

I was wondering if you could comment on what Battea is actually growing at like revenue growth rates in the quarter kind of on a year-over-year basis as we're kind of contemplating that rolling into organic growth in the fourth quarter?

Brian Norman Schell, Chief Financial Officer

Yes, it’s basically growing at a historical growth rate because I know we didn't own it during the second quarter. So it's growing at kind of a low double-digit growth rate. We expect to see seasonally accelerated growth in the second half, which has been the trend historically. It wasn't necessarily the case last year, but it looks similar this year.

William C. Stone, Chairman and Chief Executive Officer

Yes. We operate with the different law firms that have won these cases and ensure they are staying in touch with the judges so that they release the funds when everyone gets paid.

Operator, Operator

Our next question comes from Surinder Thind with Jefferies.

Surinder Singh Thind, Analyst

Bill, can you just provide an update on Blue Prism strategically, where you think you are on the product life cycle in terms of all the new features and functionality and just what you see in the pipeline at this point?

William C. Stone, Chairman and Chief Executive Officer

Well, we've been rolling out a case study of what we did with Blue Prism since our acquisition in March or April of 2022. We've deployed several thousand digital workers performing increasingly complex tasks. We believe this investment has saved us or kept us from spending a couple of hundred million dollars. We're starting to generate real interest as a solution for many manual issues. We remain optimistic that Blue Prism has a lot of runway ahead of it, but it's competitive, and it's a challenging landscape. Thus, we need to approach this wisely and ensure client protection.

Surinder Singh Thind, Analyst

Got it. And then just kind of on the Intralinks piece and the whole idea of volumes and deal counts. How significant has the degradation been from the beginning of the year to now? How do you see the back half shaping up?

Rahul Kanwar, President and Chief Operating Officer

Deal counts are up, things like that. There usually is a lag, but we do expect some growth from this point in the back half of the year.

Operator, Operator

And we have no further questions. So I will now turn the call back over to Mr. Bill Stone for closing remarks.

William C. Stone, Chairman and Chief Executive Officer

Thank you, and thanks, everybody, for being on the call. We're working hard for our shareholders as we always do, and it's nice to present good results. We look forward to seeing you in October. Thanks a lot.

Operator, Operator

Ladies and gentlemen, this concludes today's call, and we thank you for your participation. You may now disconnect.