Shares of SS&C Technologies (SSNC -1.39%) fell 17.8% in May, according to data from S&P Global Market Intelligence, after the financial services software company announced reasonably strong first-quarter results but left investors wanting more with underwhelming forward guidance.
To be sure, SS&C stock fell nearly 12% on May 1, 2019, alone. That was the first trading day after it revealed adjusted quarterly revenue had climbed nearly 165% year over year (albeit largely driven by acquisitions) to $1.15 billion, while adjusted net income more than doubled to $239.4 million, rising around 72% on a per-share basis to $0.91. Both the top and bottom lines compared favorably to the midpoints of SS&C's guidance provided three months earlier, which called for earnings closer to $0.86 per share on roughly the same revenue.
Company chairman and CEO Bill Stone touted progress integrating last year's acquisitions of DST Systems, Eze Software, and Intralinks, adding that SS&C had already completed around $265 million of a $300 million cost-synergy goal (or 88%) since the DST purchase, in particular.
But he also alluded to the company's light forward guidance.
"We continue to build software and cross sell our products and services," Stone added. "We are optimistic we will accelerate revenue in the back half of the year."
Sure enough for the second quarter, SS&C told investors to expect adjusted revenue of $1.138 billion to $1.168 billion, with adjusted net income per share of $0.87 to $0.94. Most analysts were looking for revenue just above the high end of that range with earnings of $0.91 per share.
SS&C also trimmed its full-year revenue outlook to call for a range of $4.675 billion to $4.765 billion (revised from $4.69 billion to $4.79 billion before), while simultaneously increasing its expected adjusted earnings to a range of $993 million to $1.042 billion (from $970 million to $1.105 billion before).
During the subsequent conference call, management elaborated that its revenue-guidance reduction was largely driven by the company's decision to wind down a zero-margin business within DST.
That's fair enough -- there's little sense in SS&C chasing unprofitable revenue growth when those resources could be better used elsewhere, and this further explains the boost to its earnings guidance.
Assuming SS&C can indeed accelerate profitable revenue growth (on an organic basis) as the year wears on, I think the company will emerge even stronger for it. And I suspect the stock will likely respond in kind.