Q2 2022 SS&C Technologies Holdings Inc Earnings Call
[music].
Ladies and gentlemen, thank you for standing by today's conference call is scheduled to begin momentarily until that time your lines will again be placed on music hold we thank you for your patience.
[music].
Ladies and gentlemen, thank you for standing by my name is Brent and I will be your conference operator today at this time I would like to welcome everyone to the U S. S. N C Technologies' second quarter 2022 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. If you would like glass quick question at that time simply press star followed by the number one on your telephone keypad.
I would like to withdraw your question again press Star one thank you.
It is now my pleasure to turn today's call over to Justine Stone head of Investor Relations. Please go ahead.
Hi, everyone welcome and thank you for joining us for our Q2 2022 earnings call I'm Justine Stone Investor Relations for.
Or at the peak.
With me today is Bill Stone, Chairman and Chief Executive Officer, Rahul Kanwar, President and Chief operating Officer, and Patrick put onto our Chief Financial Officer.
Before we get started I'm, let's 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 Security Litigation Reform Act 1995.
<unk> 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 27th.
Me too 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.
In today's earnings release, which is located in the Investor Relations section of our website at Www Dot SSC check dot com and.
In the third quarter 2021, we entered into a joint venture named don't want any Rx LLC, which we are in the morning majority interest wolter in primary beneficiary all earnings figures discussed today, including operating income EBITDA net income and EPS are attributable to occupancy based on the ownership interest retained by MPC.
I will now turn the call over to Bill.
Yeah.
Bill you might be on mute.
Thanks, Justin and thanks, everyone for joining.
Our results for the first quarter of $133 billion in adjusted revenue up five 5%.
And one and $1 10, and adjusted diluted earnings per share down 11%.
Adjusted consolidated EBITDA was $464 3 million for the quarter and our EBITDA margin was 35.4.
Perfect.
Continued elevated labor prices higher than expected interest rate.
Wins in a weaker economic backdrop.
The pressure on our results versus our expectations.
Our first quarter adjusted organic revenue was up two 2%.
Our alternative interlinked and advent businesses continued to be the growth leaders.
The impact of our health care business, our Q2, 'twenty two organic growth in financial services about 94%.
Of our revenue was up four 4%.
We generated net cash from operating activities of $446 5 million.
For the six months ended June 30.
We were restricted from buying back stock in Q2 'twenty to <unk>.
M&A discussions.
And we paid down $234 7 million in debt Arkansas.
Our consolidated net leverage ratio now stands at 345.
Our secured net our net secured leverage ratio was 248.
Consolidated EBITDA.
Our goal is to reduce leverage.
Three are less overall, our business is seeing more headwinds than we initially expected, especially compared to 'twenty one.
We believe there are three main challenges affecting our revenue grow the weakness in the healthcare business well somewhat expected as we invest in the Omani Rx.
Which will continue to be 100 to 200 basis headwind to total company organic growth.
We have a lot of faith in tomorrow, and what it can deliver in 2023 and beyond and development is currently targeted for broad scale release.
One $1 24.
Second the slowdown in the M&A market is affected by about $20 million from our original plan.
Still growing close to 15% and Theres still.
Excellent margins.
Despite the dip in deal volume and total deal value.
<unk> continues to gain market share.
We expect to continue to grow.
About the 15% level.
Lastly, the DSD financial services business has taken the brunt of the FX impact as many of you know the dollar has been.
Unprecedentedly strong and we expect an additional $28 million.
FX headwinds in the second half.
On the expense side, our labor costs remain elevated but they are a sign of this flat totaling we've communicated bonuses in the second round of merit increases in March and April .
Just some of the attrition.
Along with our employee focused initiatives, which we have highlighted.
In our slide deck.
It will be effectively controlling our costs for the remainder of the year real estate reductions it spending and implemented.
Blue Prism digital workers throughout our operations will drive our margins back up to historical levels exiting the year.
I'll now turn it over to Rahul to discuss the quarter in more detail.
Thanks, Bill our.
Our business remains resilient in the face of macroeconomic challenges that manifested in Q2.
As you noted bill foreign exchange headwinds impacted our international business with the largest impact to our European transfer agency and wealth revenue streams.
<unk> is also seeing some muting in the demand environment due to a reduction in M&A volumes.
Grew 14, 2% in Q2.
The alternatives business demonstrated our longstanding thesis that diversification among fund types asset classes and our commercial models. It gives us a strong hedge against market pressures if you will.
This business grew nicely despite some impact to new fund launches and fund net flows.
<unk> central continues to rollout new functionality, enabling more efficiencies and daily processing in any of these and providing an important market differentiator in our sales process.
We now have 69 clients on Dow central and production totaling 500 bonds with an approximate eight AUM up over 300 billion.
As in our financial markets business had a strong quarter in the Waco market volatility.
And are well positioned to take advantage of shifting investment strategies, given the breadth of our product offering.
Good morning, Rx joint venture also nodes continues to make progress the new cloud based system can now successfully execute our financial cycle and we have completed the initial build and configuration of the API gateway and developer portal.
We have accelerated our go to market plans and Omani Rx can now be delivered in a modular fashion sold as individual products, including finance drug management and communications hub for existing SMC health clients and prospects starting in Q4 2022.
And so since the private markets grew 15% in the second quarter. Despite a slowdown in fundraising following several years of elevated activity.
Prospects and clients in private markets are more than ever looking to partner with key service providers that can drive efficiencies utilizing technology expertise and data.
Private credit and hybrid funds.
A particularly attractive sub segment, we continue to innovate in this space, incorporating Geneva, and other leading technologies and have multiple large private credit deals in the pipeline.
I will mention some key deals for Q2 of.
A $42 billion AUM hedge fund and existing Geneva user chose Ssn's. These tax optimizer to replace a big four accounting firms solution.
And existing retirement client extended their track for a <unk> account recordkeeping services with SMC.
We can service the recently acquired business in existing gets client added S&P event Center services.
Large customer added our transfer agency services for retail alternatives for their non traded real estate investment Trust.
And existing customer extended their sylvan Porsche and recon licenses to our newly acquired Division <unk>.
Significantly improving that workflow.
In investment management in Australia seeking to transform its operating model to gain operational efficiency and provide improved services showed essentially it's aloha.
Its advanced technology in our global wealth expertise, a large U S insurer chose SSC singularity after a multiyear sales process.
I will now turn it over to Patrick to run through the financials.
Thank you.
Results for the second quarter were GAAP revenues of 1 billion $328 7 million.
GAAP net income of $110 6 million and diluted earnings per share of <unk> 42 cents.
Adjusted revenues were $1 $330 million, including the impact of the adoption of revenue standard 606.
And for acquired deferred revenue adjustments for the acquisition.
Net income was 299 6 million.
Adjusted revenue was up five 5% adjusted operating income decreased eight 2% and.
And adjusted diluted EPS was $1 10.
Seven 3% decrease over Q2 2021.
Adjusted revenue increased $69 million or five 5% in Q2, our acquisitions contributed $65 6 million.
Foreign exchange had an unfavorable impact of $24 million.
Or one 9% in the quarter.
Adjusted organic revenue increase.
Increased on a constant currency basis was two 2%.
We had strength across several product lines, including alternatives intra links.
As in the advent businesses.
That strength was impacted by weakness in our goods transfer agency business and health care businesses.
Adjusted operating income for the second quarter was $455 3 million, a decrease of $40 5 million or eight 2%.
In the second quarter of 2021.
Adjusted operating margins were 34, 2% in the second quarter of 'twenty, two compared to $39 three in the second quarter of 2021.
Expenses increased eight 1% on a constant currency basis.
Acquisitions added $67 8 million of expenses and foreign currency decreased cost by $20 6 million.
Our cost structure was impacted by wage inflation.
Recruiting costs and higher staff to support our businesses.
Net interest expense for the second quarter was $67 7 million and.
That includes $3 9 million of noncash amortized financing costs and OID.
Average rate in the quarter.
Including the senior notes was.
It was 3.45% compared to three point <unk>, 2% in the second quarter of 2021.
We recorded a GAAP tax provision of $45 2 million or 29, 1% of pretax income.
Adjusted net income as defined in note four in the earnings release was $289 6 million.
And adjusted EPS was $1 10.
In fact, the tax rate used for adjusted net income was 26%.
Diluted shares decreased $263 9 million from $267 6 million in Q1.
The impact of option exercises was offset by the decrease in the average share price during the quarter.
Okay.
On our balance sheet and cash flow, we ended the second quarter with $438 3 million of cash and cash equivalents.
And $7 4 million of gross debt.
Net debt as defined in our credit agreement, which excludes cash and cash equivalents of $148 3 million.
Bye good money Rx was $7 1 billion as of June 30, yes.
Operating in class operating cash flow in the six months ended June 30th was 447 5 million.
<unk> $14 8 million decrease compared to the same period in 2021.
During the three months ended June 30th we paid down $234 7 million of debt.
Okay.
Operating cash flows were down as a result of several factors, including payment of transaction expenses associated with the Blue Prism acquisition.
Of approximately $67 million.
Which includes amounts paid by Blue Prism and the post acquisition period.
And our operating activities compared to last year.
Overall for acquisitions year to date, we've paid one points.
$1.597 billion and that includes blue Prism hub wise, Oh shares and mineral wear.
And that number is net of cash acquired.
Treasury stock buybacks.
$170 9 million for purchase of 2.3 million shares in the six months, we did not buy any shares in the second quarter of 2022.
And the six months was declared and paid $102 4 million of common stock dividends as compared to $82 1 million.
Last year, an increase of 24, 6%.
Total interest paid in the quarter was $112 6 million and that compares to a nice seven 8 million in 2021.
Okay.
In the six months this year, we've paid $156 5 million of income taxes compared to a $144 2 million.
And the same period last year.
Our accounts receivable DSO ticked up a little in the quarter up to $55 nine days compared to 52 seven days as of March 2022.
Capital expenditures and capitalized software were total of $85 9 million with three 3%.
Of adjusted revenue.
Spending was predominantly for capitalized software and it infrastructure.
And our LTM consolidated EBITDA that we use for covenant compliance was.
$2 billion and $45 6 million as of June and based on the net debt of $7 1 million. Our total leverage ratio was 3.45 times.
The secured leverage to four eight times as of June 30.
On outlook for the remainder of the year.
A couple of calls there were a couple of assumptions.
We have assumed that foreign currency exchange will stay at current levels for the remainder of the year.
We've assumed average interest rates will increase to 100 bips.
The third quarter and.
An additional 50 bps in the fourth quarter.
We expect to reduce our cost structure through staff reductions productivity improvement.
Facility reduction and controlling variable expenses to improve our operating margins.
And we will continue to invest in our business and our long term with capital expenditures and cap software of approximately three 4%.
On cash flow, we will focus on improving our working capital requirements to generate cash.
In addition, we are recapitalizing, one of our real estate joint ventures.
To generate approximately 70 point $70 million of cash distribution.
Okay.
It's also assume will continue to allocate free cash flow to both debt and stock buyback.
And we use a tax rate of 26% on adjusted basis.
So for the third quarter of 2022, we expect revenues in the range of $1 324 million.
Two 1 billion or $364 million.
That will result in adjusted organic growth in the range of 1.6% to four 8%.
Adjusted net income in the range of 302 of its $318 million.
And diluted shares in the range of 263 to 262 7 million.
For the full year of 2022, we expect revenue in the range of $5 $320 million.
$5.406 billion.
Adjusted organic growth in the range of 6% to four 8%.
Adjusted net income in a range of $1 $256 million to $1.297 billion.
And diluted shares in a range of 264.6.
$263.6 million.
And on operating cash flow for the full year, we expect.
Operating cash flow to be in the range of 1 billion in 180 million to $1 $220 million.
And I'll turn it over to Bill for final comments. Thank you.
You may be on mute again.
Yeah.
Okay.
Thanks, Patrick.
We appreciate your continued interest and that's definitely and we believe we're on the right track.
To deliver stronger revenue growth and a more digitized workforce, which would be a lower expense base.
Our deliver conferences the first week of October and we hope to see you in Orlando.
I'll now open it up to questions.
At this time I would like to remind everyone in order to ask a question press star followed by the number one on your telephone keypad.
I'd like to withdraw your question again press Star one.
In the interest of time, we request that you limit yourself to one question and one follow up question.
Your first question comes from the line of Alex Kramm with UBS financial your line is open.
Yes, hey, everyone. Good evening.
There was a comment in the deck I think.
<unk>.
Stepping up conversations.
Conversations on pricing with your clients.
So just hoping that you can flush this out a little bit more and in particular, maybe remind us what your thoughts at the beginning of the year pricing could add and how maybe there was some fresh discussion could maybe.
Change that number and then most importantly is that already reflected in your updated organic growth guide or could that be incremental to what you just laid out.
Well I think Alex.
Okay.
We have incorporated.
Price increases into our into our guidance.
We're implementing as we speak and we have implemented.
And I think we have.
CPI.
And then most of our license maintenance.
And obviously CPI quite a bit higher than it was over.
Over the last few years.
And then also we've had individual.
Businesses.
Zinc prices throughout and I think Rahul might have a few numbers on that.
Yes.
Where were we have CPI obviously.
We're in the range of Sop.
CPI plus three CPI, plus four and some of those numbers look like anywhere between 7% and 10%.
What we're also.
Doing now.
Going back to customers as we've talked about with price increases where our contracts are renewing.
Sure.
We're just in the context of the inflationary environment. It makes sense and in general I would say we're targeting.
5% to seven or higher percentage increases now this is an ongoing conversation and in some cases, we'll end up a little better and in some cases, we'll end up a little bit worse and as Bill noted some of that has already been reflected in the future forecasts.
Okay Fair enough and then maybe just a quick one.
You mentioned no buybacks this quarter because of M&A discussion.
Discussions.
Maybe anything to flesh out there in general maybe what kind of areas you have been looking at and then just to clarify.
Was that to buy something or are you actually looking to maybe divest some businesses. If you can be that specific.
Yes.
It really.
Comment on what we're what we're buying or selling Alex but.
But we look at our portfolio all the time.
And.
We're pretty interested in being able to.
Bulk bolster our private markets business, where we're excited about some of the new stuff we're doing in Tac.
And we continue to look at.
That unique asset classes.
That we think.
For our clients.
Maybe moving more strongly into so we have a variety of.
Different conversations going on at any one time.
Yes.
I think we thought that there was a.
Pretty good chance that.
Sure.
That something would happen and Thats why.
We felt like we had material nonpublic information.
We didn't trade our stock.
But those conversations have ended.
And I would guess that we will be active in.
In Q3 and stock buybacks.
Sounds good just to go to a check if there was more to disclose thanks.
Your next question is from the line of Peter Heckmann with D. A Davidson your line is open.
Good afternoon, everyone. Thanks for taking the question can you comment on.
What do you think is the bottom.
In terms of year over year growth in healthcare are we seeing it this quarter or is that the client losses fully reflected.
Okay.
I think that.
That.
As we start showing some of the modules of the mommy.
We will start getting up.
Yes kind of a reversal of trend.
That's why we have such a focus on that.
For for <unk>.
Health care to be down 24% was.
We had some more attrition that we really didn't expect.
But again.
6% of our revenue or so and so while we.
We don't like reductions in revenue and anything, but we're pretty optimistic that where we're spending a lot of money. There is a lot of interest in that healthcare business.
And there has been ever since we bought <unk>.
DFT.
So I think we have a lot of optionality when it comes to help Karen.
To date, we have felt like owning it.
Is that a lot better than divesting it.
Got it got it.
We thought if we thought about the healthcare business without the attrition.
Can you give us some idea of how revenue would love just based on the underlying metrics.
Yes.
The nutrition debate issue here or there also next year round.
Yes number of prescriptions processed or four claims are covered lives.
Yes, I think that.
No.
The biggest driver is the number of <unk>.
James we adjudicate and pay.
And that's.
Probably.
The biggest driver on the revenue.
And we're probably.
Been up close to the $500 million.
Range and we're probably.
Down in the.
380 $390 million.
But with the mining we expect.
A large uptick in that.
As always there is a lot of regulation.
Of Pbms and fees that they charge in different states have different rules. So.
We're constantly monitoring that.
And being able to.
Complying with new rules, all the time and in general they are not.
The new rules are not revenue enhancing.
No.
So we deal with that regulatory environment as well.
Okay I appreciate it I will get back in the queue and follow up later.
Yeah.
Your next question comes from the line of Andrew Schmidt with Citi. Your line is open.
Yeah.
Hey, guys. Thanks for taking my questions and good evening.
I wanted to dig a little bit on that key financial services and then you partially mentioned this but if you could just talk a little bit more in depth about what drove the step down in organic growth in the second quarter.
And then based on implementation and sales pipelines, how youre thinking about growth in this business in the back half and into next year. Thanks.
Okay.
Well, we have very robust pipelines and we have.
Reasonably strong backlog of.
Projects that were implementing now that should get you.
Give us some lift.
<unk>.
Thank you.
No I think the challenge on some of this is these are very large organizations and the implementations.
Our sometimes drawn out.
And again, there is still our customers.
And we support them all the way through the process.
But sometimes the Rev Rec.
It gets delayed.
I would say that.
We think that that fee.
<unk>.
The ability for us to deploy digital workers.
Throughout our business.
It helps us both in our.
And our sales pipeline development as.
As well.
And reducing the rate of increase of personnel. So we think we have identified.
Several hundred.
Ftes that these digital workers are going to be able to be.
Be substituted for.
Instead of hiring another three 350, we we think we're going to be able to deploy.
Digital workers in order to.
To satisfy those needs and these are unlike reconciliation breaks.
<unk> resolution and different things compliance with Blue Sky laws, and so forth and so lots of work.
We're very optimistic about about our margin.
Our margin.
Rebounding back to our historical levels.
We've had we've had some.
FX headwinds we've had.
<unk>.
Yes.
Labor.
Becoming dominant and therefore, having.
Way higher.
Here.
Wage rate.
And has been the norm over the last five or 10 years.
And even with all of that.
We run at 35% margins.
We have an excellent business.
Over the next number of quarters, we will just be more excellent.
Yes.
Got it. Thank you for that I appreciate the detailed response and then this.
This is a related question, but I recall last quarter.
The retention issues, we're having the impact and implementation.
And it seemed like that was starting to get smoothed out, but if you could just.
Give us an update in terms of where we're at in terms of just.
Stabilizing just the the workforce and the implementation timelines across the business that would be helpful. Thanks.
Well.
It's not the hemorrhage than it was in the.
And.
Towards the back half of the first quarter and the beginning of the second quarter.
It's not quite that obviously.
You've seen slowdowns in a lot of the major companies.
And they are hiring.
And also a number of them that have announced.
Cutbacks.
Those kinds of things tend to give people pause.
Right, you don't really want to switch jobs in.
And then and then be subject to a risk.
People also like working for us because we are profitable.
And we do realize our biggest asset.
As our people and so we've done a number of things and you can see summary slide that.
That we put together, but we're fairly optimistic about what blue prism.
It's going to be able to do for us.
I was on a call with a prospect today.
Blue Prism and I think again.
You see us, making big investments big.
Investment in this business because we believe accounting is not going away. We don't think tax returns are going away. Our financial statements are going away or any of the other of the mission critical things, we do are going away.
Trees don't grow to the sky, but we'll be able to still about five.
$5 3 billion or so in revenue at the end of this year maybe better.
I don't think that we're anywhere near what we can be and we're expecting us to execute better but the first thing you got to do is you got to maintain your your workforce and you've got to focus on customer service and so that's what we've been doing.
Have spent tremendous amounts of money.
Our selling and marketing.
And R&D I think R&D is up.
About 18% I think our sales and marketing is up about 40%.
I think we are spending the money I think we are spending wisely and.
And we expect it to pay dividends.
Got it. Thank you very much I appreciate the comments.
Your next question comes from the line of Patrick O'shaughnessy with Raymond James Your line is open.
Hey, good evening. So you guys. Your presentation notes that you are committed to reducing your debt in a rising interest rate environment, but on the call. Today. You also indicated that you would look to be active in the share repurchase market. How do you think about balancing those priorities right now.
Carefully.
Okay.
Alright, so well look at it.
Spending on.
<unk>.
On how much cash we generate.
But I would guess that we'll probably.
Right now I think our forecast.
<unk>.
50 50.
50% debt reduction, 50% stock buybacks.
But that could fluctuate.
As much as 15% so it could be $65 35.
It just depends on what happens.
With either market.
Got it that's helpful. Thank you.
And Patrick maybe a question for you do you have a general rule of thumb for how much given change in FX would impact the companys EBITDA or EPS.
For the second quarter.
In general I mean.
Quarter, if you have that but just in general.
Yes, I mean in the second quarter.
Okay.
The impact of the Aps was probably somewhere around.
Penny to a penny and a half.
Negative.
EPS.
And I would suspect it would be.
Based on where current exchange rates are today, it would be pretty similar in the third and fourth quarter.
Got it thank you.
Your next question is from the line of James Faucette with Morgan Stanley . Your line is open.
Hey, it's Michael on for James Thanks for taking my question.
I just wanted to hit on the sort of like a hedge fund backdrop quickly obviously, we've seen the number of launches slowing.
But you've also seen the size of those launches also decreasing so just anecdotally how are you sort of performing and the blue chip launches, what's your share capture and sort of how are you thinking about hedge funds in general in this current environment.
Okay.
Okay.
You want to take that Rahul.
Sure.
Ill.
I think what we're seeing is what we tend to see in periods of market volatility and when people come into pressure, which is viewed as the leader in me.
Fund administration space and in the hedge fund space.
As well as private equity.
And so we actually tend to perform better in terms of market share in these kinds of environments. We saw that in the financial crisis in <unk> and we're seeing that again so.
As you know there aren't as many new launches and the ones they are or aren't as large but most of our revenue capture is.
New clients and conversion and takeaways as opposed to new launches which stake.
Generally some period of time before they become material to us and so that process is going pretty well and we're winning our share of what's out there in the marketplace and if anything strengthening and we expect that as things turnaround that'll be pretty positive for us.
Yeah.
Great. Thanks, Rahul and then just quickly I saw on the deck.
Matt.
Youre also looking at head count and Blue Prism, specifically can you just comment on the nature of those potential head count reductions is that sort of back office staff is it quota carrying sales reps, how should we think about that.
Yes.
Yes, we almost never cut back on quarter.
What would it be.
Salespeople.
I think this is much more on.
As you combine these companies right.
Number of functions that are duplicative.
And so we're moving well.
Relatively quickly on on being able to reduce that head count whether thats been legal finance.
And other support our organization.
But we're excited about what we have with <unk>.
Blue Prism and what our opportunities are.
Great. Thanks Bill.
Yes.
Your next question is from the line of Chris Donat with Piper Sandler Your line is open.
Good afternoon, Thanks for taking my question.
Bill I wanted to ask another question on the.
The price increases.
Putting in related to inflation and other things.
Curious if you can give us some color on on the receptivity from from.
From your clients I would imagine given the market conditions, they have very little appetite for the price increases, but they recognize the inflation side of it for you just wondering how they are reacting to and is it.
Grudgingly or with a lot of pushback.
Some color would be helpful.
Yes.
You kind of characterized it nobody nobody, particularly likes to have.
All rights to have price.
Price increases at the same time.
They want their current team.
They want their current team to be should be.
Well paid.
And well respected.
So and they realize that.
That's not for free.
And so I think that that.
Yes.
Does the industry that is populated by big boys and girls.
And.
We're certainly not in.
Yes.
Major tech.
Tech companies that walk in and say 20.
25% more take or leave it.
That's not our ammo.
They know that where we are.
Sure.
Really just passing on the inflation.
Hitting us.
Yes.
Our guess is that.
They're trying to pass on expense increases that.
Yeah. So.
Natural cycle.
And you do it with.
Sensitivity as you can.
<unk>.
With a little bit at the terminal.
And persistence, so I think it's going pretty well and I think.
I think our people understand it.
These are the things that are going to.
Kind of maintained.
Our bonus structure and our ability to.
To compensate well.
Okay, and then for my follow up wanted to see if I'm connecting things correctly here you've got the.
Cost controls and reducing our real estate footprint.
Separately, you've got under HR initiatives.
Hybrid work.
You made some comments about having some sort of employee attrition, which I think so do you think.
<unk> R.
As the hybrid work initiative and the.
Our real estate footprint are those related issues or are they really separate.
Well if people don't come into the office, which they don't I would say they are related.
So we don't.
Real estate footprint that we have.
And we're doing much more of a hotel in concept rather than everybody, having their office or are there.
On space. So that's just changed the way.
The way, we work and we're trying to be.
As flexible as we can be.
Long as we can maintain customer service.
And being able to hit our deliverables.
And meet our growth targets.
But yes for sure they are related.
Okay. Thank you.
Your next question is from the line of Kevin Mcveigh with Credit Suisse. Your line is open.
Great. Thanks, So much is there any way to think about maybe for Patrick what the cost controls with the impact is on the guidance.
The revised guidance I guess, maybe start there and is that fully in it or any any way to think about how that comes in over the course of the year.
Okay.
Yes, I think if you look at.
The baseline costs for Q2.
We've got in the back half of the year.
About $50 million in cost reductions of which.
Take about 25.
I've already been completed.
And then the rest is mostly.
Reducing continuing to reduce facilities.
Productivity improvement what blue prism product.
And then hold back as much as possible on other discretionary spending.
That's helpful and then it looks like the revenue retention in the U a really kind of hung in there despite the market volatility anything to call out there.
Okay.
Im sorry can you repeat that.
Yes, Bill it looks like the revenue retention rates improved from.
From Q1 to Q2, and then the AA was actually flat sequentially. Despite the market volatility anything to call out amongst clients.
Just anything in particular that drove that.
I think what Rahul said earlier about these kind of.
It's a multiyear with times okay.
By quality.
We think that's going to help us over the next.
Couple of years.
It's been an awful lot of acquisitions.
And the fund services space.
And.
Extremely high prices paid.
And Thats FMC has not been much of a participant in that.
We think thats going to put some of our competitors under.
Immense strain.
We think we'll be a beneficiary of that.
And that shows up in our <unk>.
As well.
Okay.
Thank you.
Again, if you would like to ask a question press star followed by the number one on your telephone keypad Youre.
Your next question comes from the line of Jeff Schmitt with William Blair. Your line is open.
Hi, good afternoon.
Blue Prism it sounds like it's performing better out of the gate than you expected.
Yes, and maybe I missed it but do you have an update on your revenue growth and EBITDA margin projections for that company. I think you were expecting like 15% to 20% top line and then you thought you can get the 30% to 40% margins by 2020 for exit.
That's still the case or do you see any change to that.
Yes, I think in the second quarter, where prism brew.
Right at 17%.
Was maybe.
About what we expected maybe a little bit better.
And I think they.
Hello.
Couple of million dollars.
Operating losses, we expect them to move to profitability in the second half of this year and probably end the year at about 10%.
We think next year, they would be up to about 25% and then now around 40% in 2000, and 2024, which are our corporate averages.
And we're pretty optimistic.
And we're really optimistic about.
But it's going to do for for our own business.
Hi to all the customers, we're going to be able to.
Really helpful.
Yeah.
Right right that's helpful.
And on the health care business at the client losses there.
Are those mainly for the medical claims part of the business not the pharmacy claims.
I'm just curious how big of a difference or the margins are in those two businesses like how much just trying to get a sense on how much EBITDA you are losing if that if that's sort of the medical claims business. That's.
Hey, you are losing there.
Yes.
The business as a whole still remain profitable.
Pretty profitable actually.
And we are Rs.
As we have had.
Attrition in our in our client base, we've had some attrition in our workforce.
We're trying to maintain that.
That kind of profitability ratio.
And obviously you know that.
So.
The demand <unk> acts as a $1 billion.
Doug.
Okay.
And our two partners and.
And so we.
We remain pretty optimistic.
Because that's a pretty big bet for us.
And and at least what we see in the marketplace today.
There is not going to be a competitor to <unk>.
When we come out of the gate.
And that's what gives us the optimism right.
We're not in general yes.
Bunch of Accountants and systems people right. So in general we're pretty sober when it comes to those kinds of things.
And.
And.
We don't just take buyers we like to.
Place pretty strategic bets that we expect.
Great returns on.
Absolutely Okay. Thank you for the answers.
There are no further questions at this time I will now turn the call back over to Mr. Bill Stone.
Again, we appreciate all of the interest that all of you show and obviously, we hope to.
Improve upon our results.
As I said right, we had a lot of headwinds in the second quarter and we still came out with about 35% EBITDA margin.
We look forward to.
So talking to you.
At the end of October and we hope to see all of you in Orlando. So thanks again.
Goodbye.
Ladies and gentlemen, thank you for participating. This concludes today's conference call you may now disconnect.
[music].
Okay.
[music].
Okay.
[music].
Okay.
[music].
Okay.
Yes.
[music].
Yes.
[music].