Image source: SS&C Technologies.
Shares of SS&C Technologies Holdings (SSNC 1.78%) drifted down a modest 1.4% Friday, after the company announced third-quarter 2016 results. But recalling the market's muted response to last quarter's reasonably strong report, investors shouldn't take that as an indication of trouble underlying the financial-services technology specialist's business.
Let's take a closer look at what SS&C Technologies achieved in its latest quarter.
SS&C Technologies results: The raw numbers
| Metric |
Q3 2016 Actuals |
Q3 2015 Actuals |
Growth (YOY) |
|---|---|---|---|
|
GAAP revenue |
$383.3 million |
$280.9 million |
36.5% |
|
GAAP net income |
$38.7 million |
($34.6 million) |
N/A |
|
GAAP earnings per share (diluted) |
$0.19 |
($0.18) |
N/A |
Data source: SS&C Technologies.
What happened with SS&C this quarter?
- On an adjusted (non-GAAP) basis -- which includes roughly $8.6 million in purchase accounting adjustments to deferred revenue from its acquisition of Advent early last year -- revenue grew 25.8% year over year, to $391.9 million, marking SS&C's 18th straight quarter of record adjusted revenue.
- Adjusted net income grew 27.5% year over year, to $87.5 million, and adjusted net income per diluted share increased 23.5%, to $0.42.
- For perspective, adjusted revenue was in line with guidance, which called for a range of $388 million to $394 million. And the bottom line was well ahead of SS&C's expectations for adjusted net income of $82.5 million to $85 million, and adjusted net income per share of $0.40 to $0.41.
- Adjusted recurring subscription revenue increased 25.1% year over year, to $360.3 million, including:
- 37.7% growth in software-enabled services revenue, to $248.8 million.
- 3.9% growth in maintenance and term license revenue, to $111.5 million.
- Adjusted non-recurring revenue grew 34.8%, to $31.5 million, including:
- 60.8% growth in professional services revenue, to $27.1 million.
- a 32.6% decline in perpetual licenses revenue, to $4.4 million.
- Adjusted consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 19.7% year over year, to $156.7 million.
- Organic growth on a constant-currency basis was 4.6% for the quarter.
- SS&C generated $237 million in cash flow from operations through the first nine months of the year, a 96.6% increase from $120.6 million through the first nine months of 2015.
- The quarter ended with $101.8 million in cash and equivalents and just over $2.55 billion in gross debt.
- The ratio of net debt to adjusted consolidated EBITDA leverage was reduced to 4.08, down from 4.36 last quarter.
What management had to say
SS&C CEO Bill Stone stated:
Our business has grown sharply over the past year, and our last 12 months' consolidated EBTIDA is over $600 million. We have integrated the people and products from Advent, Varden, Primatics, and Citi Alternative Investor Services. At SS&C, we change. Our research-and-development spend, acquisitions, and onboarding talent encourages creativity and critical thinking. This enables us to service our clients' demands in a complex and evolving regulatory environment.
Looking ahead
For the current quarter, SS&C anticipates adjusted revenue of $394 million to $403 million, adjusted net income of $89.4 million to $92.4 million, and adjusted net income per share in the range of approximately $0.43 to $0.44.
SS&C also further honed its guidance for the full year of 2016, calling for a narrower adjusted revenue range of $1,513.4 million to $1.522.4 million, compared with $1,511 million to $1,524 million previously, with adjusted net income of $331.8 million to $334.8 million, up from its previous range of $326 million to $334 million. Based on its latest expected share counts at year end, adjusted net income per diluted share for 2016 should to be in the range of roughly $1.61 to $1.63, a $0.02-per-share increase to the lower end of previous guidance. SS&C also anticipates that operating cash flow for 2016 will be $380 million to $390 million, compared with its previous expected range of $380 million to $395 million.
In the end, while there were no big positive or negative surprises to drive the kinds of enormous post-earnings swings to which tech investors have grown accustomed, there was little not to like about this report. That said, it also fulfilled part of management's promise from last quarter that organic growth would turn positive for the remainder of the year, driven by growth at Advent, a robust sales pipeline, and cross-selling initiatives from other acquired businesses. Assuming it can continue driving the same steady progress going forward, and even with shares still hovering down around 8% year to date, I think long-term investors should be content with where SS&C Technologies stands today.
