Image source: SS&C Technologies.
SS&C Technologies (SSNC +0.35%) announced first-quarter 2016 results Thursday after market close. And similar to its post-earnings drop in February after light guidance overshadowed an otherwise solid fourth quarter, SS&C stock fell nearly 6% Friday as investors contemplated its latest results.
Let's take a closer look at why the market is frowning upon the financial services software company today:
SS&C Technologies results: The raw numbers
|
Q1 2016 Actuals |
Q1 2015 Actuals |
Growth (YOY) | |
|---|---|---|---|
|
Adjusted Revenue |
$343.1 million |
$206.1 million |
66.5% |
|
Adjusted Net Income |
$75.4 million |
$52.7 million |
43% |
|
Adjusted Earnings Per Share |
$0.74 |
$0.60 |
23.23% |
Data source: SS&C Technologies.
What happened with SS&C this quarter?
- Based on generally accepted accounting principles (GAAP) -- which excludes $19 million in purchase accounting adjustments to deferred revenue from its acquisition of Advent last year -- revenue grew 57.5% year over year, to $324.1 million.
- GAAP net income fell 73.3%, to $7.0 million, or $0.07 per share.
- Adjusted recurring subscription revenue increased 62.8%, to $315.7 million, while adjusted non-recurring revenue increased 125%, to $27.4 million.
- Adjusted results once again exceeded SS&C's guidance, which called for revenue of $327 million to $333 million, and adjusted net income per share of $0.70 to $0.74.
- Adjusted consolidated earnings before interest, taxes, depreciation, and amortization (EBITDA) increased 74.1% year over year, to $141.6 million.
- Organic growth at constant currencies was 2.2%.
- Cash flow from operations fell 40.4% year over year, to $18.6 million, driven by the company's annual employee cash incentive, higher debt-interest payments from senior credit facility and notes put in place to acquire Advent last July, and an increase in accounts receivables.
- Cash flow from operations grew 24.7% year over year in Q4, to $110.1 million, bringing full-year cash from operations to $230.6 million, down from $252.5 million in 2014. Operating cash flow in 2015 was negatively affected by $67 million in costs related to the financing and acquisition of Advent, Primatics Financial, and current pending acquisitions.
- Closed on acquisition of Citi Alternative Investor Services on March 11, 2016 for $321 million.
- Released the latest version of its Geneva platform to strengthen its fund-administration service through new operational workflows and efficiencies.
- Announced automation of agent notices processing within SS&C Bank Loan Services.
- Rolled out significant improvements to reporting and client communications within its Black Diamond wealth platform.
- Enhanced capabilities for straight-through-margining service model for collateral management with its Over the Counter Collateral Optimized (OTCCO) service.
- Paid down $29.8 million in debt, bringing debt paid down during the past three quarters following the Advent acquisition to $290 million.
- Ended the quarter with $101.8 million in cash, and just over $2.79 billion in gross debt -- something to watch
What management had to say
SS&C Technologies CEO Bill Stone added:
We are committed to providing advanced, reliable, and efficient software to our customers, this quarter announcing exciting new releases of SS&C products. These products underpin our growing fund administration and middle office operations businesses. Today, SS&C conducted a grand opening ceremony of the new office in Evansville, Indiana as the growing mid-west operating center surpasses 200 employees. This office continues to service our global customer base and we are excited to occupy the signature building in Sterling Square.
Looking forward
For the current quarter, SS&C expects adjusted revenue of $378 million to $384 million (up 78.8% at the midpoint), and adjusted net income of $76 million to $78.5 million. On a per-share basis, adjusted net income in Q1 should be roughly $0.74 to $0.76, up from $0.66 per share in the same year-ago period. SS&C also anticipates operating cash flow will improve to $100 million in the current quarter.
For full-year 2016, adjusted revenue should be $1.505 billion to $1.535 billion, with adjusted net income of $321 million to $337.5 million. Based on estimated share counts at year end, adjusted net income per diluted share for fiscal 2016 is expected to be in the range of approximately $3.12 to $3.28, up from $2.66 per share in fiscal 2015. SS&C also expects operating cash flow for the year to be in the range of $375 million to $390 million.
By comparison, both ranges are roughly in line with analysts' consensus estimates, which called for full-year adjusted revenue and earnings of $1.52 billion and $3.22 per share, respectively.
SS&C's second-quarter guidance technically fell short of analysts' consensus estimates calling for revenue of $387.7 million. But keeping in mind that we don't generally lend much credence too Wall Street's near-term demands -- and combined with SS&C Technologies' usual habit of under promising and over delivering -- it's hard to believe that that would justify today's plunge.
As long as SS&C continues to improve its products, demonstrate reasonably healthy organic growth, and improve its balance sheet following its recent large acquisitions, I suspect the stock will eventually reflect its efforts to reward patient shareholders over the long term.
