Q3 2023 SS&C Technologies Holdings Inc Earnings Call
[music].
Please standby were about to begin.
Good afternoon, ladies and gentlemen, welcome to the FMC Technologies Q3, 2023 earnings conference call. At this time all participants are in a listen only mode and please be advised that this call is being recorded.
After the Speakers' prepared remarks, there will be a question and answer session. If you would like to ask a question. During this time simply press star one on your telephone keypad and if you do find to your question has been addressed you can withdraw your question by pressing star one again and we do ask you. Please limit yourself to one question and one follow up question.
Now at this time I would like to turn the call over to MS. Justine Stone head of Investor Relations. Please go ahead ma'am.
Welcome and thank you for joining us for our Q3 2023 earnings call I'm Justine Stone Investor Relations for FMC technologies with me today is Bill Stone, Chairman and Chief Executive Officer, Rahul Kanwar, President and Chief operating Officer, and Brian Shell, 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 provision 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 October 26, 2023, 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.
Comparable GAAP financial measures is included in today's earnings release, which is located in the Investor Relations section of our website at Www Dot as Steve Peck Dot com.
I will now turn the call over to Bill.
Thanks, Justin and thanks, everyone for joining.
Welcome Brian to his first SFC earnings call he's been with US for two months and is found as bearings. We're excited about his ideas and intellect. He brings to the organization and I encourage all of you to get to know him.
For the third quarter, a record adjusted revenue of $1 billion and $366 7 million up three 4% and adjusted diluted earnings per share of $1 17.
We also achieved our second highest adjusted consolidated EBITDA in our history at $533 9 million. Our EBITDA margin was 39, 1% a 230 basis point increase from Q2 'twenty three.
Our third quarter adjusted organic revenue was up two 3% driven by strength in our alternatives, particularly private markets interlinked retirement and Blue prism.
Our recurring revenue growth was you'll Miss the license and professional service revenue streams was up over 5%, which we think is an indicator of our underlying businesses strength.
Financial services retention rate for Q3 2023.
Was 97, 3% the highest level necessity history.
<unk> generated cash from operating activities of $826 7 million for the nine months ended September 30.
Eight 1% over the same period last year.
In Q3 2023, we bought back one 7 million shares for $96 9 million at an average price of $55 82.
We also raised our common stock quarterly dividend, 20% to 20 <unk> per share delivering a $156 6 million and total cash returned to shareholders in the quarter and $501 9 million year to date.
<unk> paid down $54 7 million in debt in Q3, 2023, bringing our net leverage ratio to $3. One eight times consolidated EBITDA attributable to <unk> and.
The near term, we believe that <unk> common stock is undervalued and we expect to maintain a higher level of stock repurchases versus debt paydown.
We've made a lot of progress within the firm wide blue Prism digital worker deployment.
A 2000 full time equivalent head count savings year to date, which is 7% of our January one 2023 employee base <unk>.
Conservatively at 50000 per FTE. This is $100 million and run rate savings. So far the biggest successes have been within our large outsourcing businesses.
Good and alternative fund services. One example is a good client asked us to run a campaign to contact over 20000 customers declare their small cash balances.
Program 25, Blue Prism digital workers, who performed the follow on processing saving about 140000 on contractors that would have been required to process the responses manually.
Within alternatives operational functions, such as manual statement downloads reconciliation and break investigation and resolution <unk>.
Investor statement and contract notes and loan closing and compliance have benefitted from digital workers we.
We believe we have just begun to reap the benefits from this initiative.
I'll now turn the call over to Rahul to discuss the quarter in more detail.
Thanks, Bill our core businesses continue to grow nicely with alternatives and drilling center retirement accelerating from last quarter.
Our alternatives business grew eight 4% in the quarter boosted by the strength of our private markets business, we signed a very significant private credit client in Q3, and see opportunities to sustain and accelerate growth for the foreseeable future.
Interlinked also accelerated in the quarter growing over 10%. Despite M&A deal volume remaining low the growth can be attributed to increase in contract values longer due diligence timelines and more large deals one.
We have released new tools to help US drive these large deals and contract values <unk> AI users generative artificial intelligence to proactively deliver documents summaries suggests the document classification document translation and identify potential risks.
<unk> a cloud based storage solution designed for streamlined access to archives and efficient deal data management recently launched and has attracted interest from corporate clients.
In Q3, the largest new black Diamond sales to date was closed this client chose the black diamond platform to power their newly launched wealth management business created through the acquisition of multiple Ria's and broker dealers we.
We continue to invest in R&D and support our customers. We won four awards from waters technology, including best buy side Order management system Best execution management system Best portfolio management system invest accounting provider as SMT Blue Prism was also recognized by Gartner as a leader in the 2023 magic quadrant for ROE.
Body process automation for the fifth year in a row. We believe these recognitions are indicative of our market centric approach to R&D.
Join Bill and the rest of our management team and welcoming Bryan to SMC and now I'll turn the call over to him to run through the financials.
Thank you all and thank you bill for those kind remarks, I'd like to start by saying I'm excited to be part of the <unk> leadership team and looking forward to help build on the strength of SFC today with the ultimate goal of delivering long term shareholder value.
As noted in our press release, our Q3 2023 GAAP results reflect revenues.
$1 $365 $9 million net.
Net income of $156 million and diluted earnings per share of <unk> 61.
And as Bill noted earlier on the call. Our adjusted revenues were $1 billion $366 7 million up three 4%.
Adjusted operating income increased six 4% and adjusted.
Diluted EPS was $1 17, a one 7% increase over Q3 2022.
Adjusted revenue increased $44 7 million or three 4% over Q3 2022, our acquisitions contributed $2 4 million or approximately 20 basis points.
Foreign exchange had a favorable impact of $13 $2 million or 1%.
As a result, adjusted organic revenue growth at a constant currency basis was two 3%.
Adjusted operating income for the third quarter of 2023 was $517 4 million.
An increase of $31 3 million or six 4% in third quarter of 2022.
Adjusted operating margins were 37, 9% in the third quarter of 2023 as compared to 36, 8% in the third quarter of 2020 to the 110 basis point margin expansion reflects the positive impact of both revenue growth and disciplined expense management.
While our cost structure has been impacted by general inflation higher personnel cost and increased professional fees compared to 2022, our core expenses only increased 30 basis points or $2 6 million excluding.
Acquisitions and on a constant currency basis acquisitions added $2 million in expenses and foreign currency increased cost by $8 4 million.
And note that our expenses calculated on a similar basis is down $28 6 million.
Or three 3% sequentially.
Adjusted consolidated EBITDA attributable to <unk> FMC defined in note three in the earnings release was $533 9 million.
Or 39, 1% of adjusted revenue, an increase of $32 2 million or.
Or six 4% from Q3 last year to 39, 1% EBITDA margin reflects both a sequential and year over year improvement of 230 at 110 basis points respectively.
Net interest expense for the third quarter of 2003.
It was $117 3 million.
An increase of $35 1 million from Q3 'twenty to the Q3 23 net interest expense excludes $3 4 million of noncash amortized financing costs and OID.
The average interest rate in the quarter for the amended credit facility, including the senior notes was 687% compared to 455% in the third quarter of 2002.
Adjusted net income as defined in note four in the earnings release was $295 $9 million and adjusted diluted EPS was $1 17, the effective tax rate used for adjusted net income was 26%.
Share repurchases of $1 7 million drove the diluted share count down to $253 9 million from $255 million in Q2.
FSC ended the third quarter with $447 $6 million in cash and cash equivalents and $6 9 billion in gross debt.
<unk> net debt as defined in our credit agreement, which excludes cash and cash equivalents of $106 1 million.
That day money Rx LLC was $6 6 billion as of September 30th.
LTM consolidated EBITDA used for Covenant compliance was 2 billion $63 8 million as of September 2023.
Based on net debt of approximately $6 6 billion or.
Our total leverage ratio was three eight times, our secured leverage ratio was 221 times as of September 30th.
As we look forward to the fourth quarter in establishing our guidance note that we will continue to focus on client service and assume that our retention rates will continue to be in the range of our most recent results. We will continue to manage our expenses with our cost discipline approach by controlling and aligning variable expenses to ensure efficiency.
Increasing productivity to improve our operating margins to leverage our scale and effectively investing in the business and marketing sales and R&D to take advantage of future growth opportunities.
Specifically, we have assumed adjusted organic growth for Q4 in the range of one 8% to four 8%, resulting in adjusted organic growth for the year in the range of two 1% to two 9%.
FX rates will be at current levels.
Interest rates to remain flat through the end of the year compared to the ending rate in the third quarter.
GAAP tax rate of approximately 26% on an adjusted basis, which is unchanged from prior guidance.
Capital expenditures to remain at three nine.
To four 1% of revenues, which is unchanged from prior guidance and a more weighted emphasis to share repurchases similar to what we did in Q3.
For the fourth quarter of 2023, we expect revenue to be in the range of $1 billion $370 million to $1.410 billion.
Adjusted net income in the range of 305 million to $327 million.
Interest expense, excluding amortization of deferred financing costs and original issue discount and the range of $116 million to $119 million.
Diluted shares in the range of 252 million to 254 million and.
And adjusted diluted EPS in the range of $1 21 to $1 29.
For the full year 2023, we expect revenue to be in the range of 5 billion $463 5 million to 5 billion $503 5 million.
<unk> net income in the range of $1 billion, $159 9 million to $1 billion $181 9 million.
Diluted shares in the range of $254 5 million to $255 million.
Adjusted diluted EPS in the range of $4 55 to $4 64.
And cash from operating activities to be in the range of $1 billion $180 million to $1 $230 million now I would like to turn it back over to Bill for final comments. Thanks.
Thanks, Brian.
Earlier this week, we hosted nearly 1000 clients and prospect.
S SMC deliver conference.
Austin, Texas.
Delivering the future was the theme of the conference with a big emphasis on the power of AI and robotics process automation.
We showcased over 40 solutions across the key market segments, we serve and initial feedback has been positive.
Now open it up for questions.
Thank you Mr Schon, ladies and gentlemen at this time just to reminder, any questions. Please press star one and also please limit yourself to one question and one follow up questions and we'll pause for just a moment.
We'll go first this afternoon to Dan Perlin at RBC capital markets.
Yes.
Thanks, Good evening I just had a question on the revenue retention rates as we kind of went back and looked at them.
I mean, I know, it's a modest uptick it's actually pretty reasonable, but it looks like to be maybe the highest level. We certainly seen back to 2019, maybe ever quite frankly, so can you just talk about some of the metrics that are driving that and how that might play into your thinking.
Thinking as we go into next year around organic growth and.
One follow up.
You know Dan I think the.
The retention rates really reflects.
Concentration we've put on.
Customer service and making sure that we run these.
Customer satisfaction.
Calls every.
Every month, and we keep track of them and we're really putting a tremendous amount of emphasis and we also believe it.
But the ability for us to cross sell and up sell into our current client base is much stronger.
And then we may have looked at it before and so.
The renewed emphasis on that in our customer relationship management programs.
It's starting to pay off.
Yes.
On that same vein bill could you talk a little bit about the.
The deal pipeline and conversion cycles, Youre seeing I know Rahul called out specifically.
Wins within private markets, which has obviously been very strong and then obviously with black Diamond I'm just wondering how how things are kind of setting up how those conversations are going today and are you feeling better about conversion cycles as we sit here now or.
Pretty much the same as maybe itself I don't know six nine months ago. Thank you.
Yes, I would say that.
I think our pipeline.
Sure.
Fund administration businesses is over 400 million.
So that's a lot of revenue close it right and then you got to get them live and so it's not a.
Not just a walk in the park, but what it does indicate.
Kind of the lead we have.
And a number of our areas intra links.
<unk> picks up in there.
Lead generation and our ability to close on additional M&A, that's happened in that in that marketplace.
And I think.
The private markets looks like it's going to remain strong through the end of the year.
And we have we were a little light on license revenue, but 606 renewals as always.
Kind of a crap shoot.
And I think that.
Q3 was particularly soft, but but that ought to rebound a little bit in Q4 and also in 'twenty four.
That's great. Thank you Bill.
Thank you the next now to Peter Heckmann at da Davidson.
Okay.
Hey, good afternoon, everyone I wanted to follow up on a couple of pieces that you noted that a little bit light on software revenue I assume that was primarily the legacy software businesses.
Just trying to clarify if there was a particularly tough comparison there.
I know you don't do it in your filings, but if you could.
Quantify roughly the amount of software license revenue in the quarter.
That'd be helpful.
I think the difference in what we expected versus where we ended up from a software license revenue was in the order of magnitude of about 20% to $25 million in the quarter.
Okay.
Okay, and but it does it does appear that it was concentrated within the legacy software businesses.
That's right, that's right, primarily institutional and investment management business and in some impact and add Ben as well.
Okay. Okay, and then just on the retirement side, 15% up in the quarter sequential acceleration I'm, sorry, if I missed it but does that does that reflect the go live of our.
Some of the large clients in the conversion pipeline.
Yes. It does we're continuing to make progress as you know we did win a.
A few large deals.
I'd say about 18 to 24 months ago that we've been working hard on implementing and where we are right. Now is we are one of them fully live on another one scheduled to go live in early 2024, and Youre starting to see really the revenue benefit of that happening.
Great. Thank you.
Thank you the next now to Andrew Schmidt at Citi.
Hey, guys. Thanks for taking my questions and welcome Brian.
Brian maybe for you on the spot for a second I know, it's deliberate early but.
About just initial observations and maybe some early priorities you have as you.
As you have hit the ground here that'd be helpful. Thanks, a lot.
Yes, no. Thanks.
Thanks for the question and I would say no.
The priorities that we have are continuing to try and build on the momentum here as I said in my opening comments.
I think that what are the things the finance group and our leadership is looking to do is continue to enhance.
Some of the tools that the leaders at the front lines are actually.
Using with respect to the contract to.
To help make better decisions more timely decisions, what theyre looking at around pricing, what theyre looking around implementing <unk>.
Investment and expenses to drive future revenue growth.
I think has been important I think the team has already has always been focused on looking at expenses and trying to make sure that the expense.
Level and spend the variable and fixed adjust.
In accordance with I'll call. It revenue outlook. So that revenue growth is obviously very important but so is making sure that we have an appropriate margin that we're bringing to our shareholders. So I would say its continuation along those lines I think we'll continue to try and drive some incremental metrics.
To give increasing visibility to again to continue to help understand.
What's driving the business and the strength that we see in it that sometimes may be masked by the aggregate numbers and some of those trends and we'll continue to try and highlight those.
And lastly, I would say on the capital allocation piece again, putting that in perspective of how we view and how we're going to maybe be a little bit more proactive around what we're doing with respect to that cash flow I think we've indicated like I said more heavier lean and allocation towards share buyback and canyon to be transparent about.
Where we think we're going to put the capital to work.
Got it I appreciate that Brian it's very helpful. And then if you could pick up on the margin comment the implied fourth quarter margin.
Pretty good progress here it looks like if my math is right up at least 200 bps year over year.
As we look ahead.
Can you talk about any opportunity for maybe above trend margin expansion.
Given all the opportunities you have in front of you, whether it's digital workers cost efficiency, obviously, some top line scale hopefully.
Anything around that would be helpful. Thanks, a lot.
Yes, Eric I think that is.
We've said on a number of these calls.
We are driving our margins up as well.
We don't find to be.
Particularly difficult.
We have great clients, we have.
Eight people.
And we continually look at productivity enhancements in blue.
Blue Prism has been.
Great addition to that.
Not only in us deploying.
<unk> hundred or <unk> hundred digital workers.
By the end of this year and then also having halved.
Having also allowed us to grow and not add ftes into our into our workforce. So we're pretty excited about that opportunity and even as a business itself.
We have some talented people running that business.
And they have driven margins.
From a little bit negative when we acquired them in the second quarter of <unk>.
Of 22 to probably get it in the fourth quarter at above 30% margins.
At Blue.
Blue Prism, which is kind of a hallmark of <unk> is that we manage our businesses we drive high.
EBITDA, we pay down debt quickly, we're buying back stock.
We're pretty bullish.
Wall Street is not particularly bullish but we're pretty bullish.
Got it thank you very much bill.
Thank you and the next now to Alex Kramm at UBS.
Yes, Hey, good evening, everyone. Just wanted to go and look at the fourth quarter organic growth guidance. If my memory serves me right I think last quarter. The cadence that was implied was something more in the mid single digits for the fourth quarter, so little bit of I guess down downdrafts in your expectation here.
By a point and a half or so so can you just maybe help us understand what has changed.
Relative.
Three months relative to prior expectations and what's the swing, Texas could be still.
Yes.
Yes, Alex I think primarily be the swings are theres a lot of stuff going on in the world right and just.
Mike.
The license businesses.
Get skittish about about major capital allocation.
Allocations and so that was a little soft in Q3, and we're hoping it rebounds in Q4, but we're not trying to stick our neck out on license revenue.
Like we said at the beginning.
Recurring revenue growth in the third quarter.
Was over 5% up so thats, primarily all of our fund administration businesses in.
Another recurring revenue businesses and so we.
We were maybe a little conservative here in Q4, but we're trying to give.
To give you our best guess.
And then we're trying to go out and continue to.
To build the business.
Fair enough and then maybe just more specifically I don't think that gets business has come up but obviously, that's a very sizable.
All business for you and in the area of pain in the last few years, but seems to really be stable here. In this 3% is the range you feel pretty good about the outlook there and continue in this kind of environment at that range or is there still.
The ability to maybe even accelerate that into maybe something more than mid single digits or is that business just to mature and maybe the end markets are too tough stat.
You are happy with what you're seeing.
We think that one we're happy with the progress right at the same time, we do believe there's more opportunity.
If you kind of think about the end markets. The end markets include wealth managers in Europe wealth managers in Australia, we're selling a comprehensive array of services and software.
And as we think through our pipeline.
That gives business has some of the biggest deals that we have as a company. So so we're I think reasonably optimistic that we can.
Accelerated growth rate from where we are currently.
I would just add a little bit of our extent.
Technology company right, so we need to make these products better and.
And we compete against big gigantic financial institutions.
The two guys are very familiar with.
We think our ability to out innovate our ability to deliver more products our ability to have more intuitive systems is one of our greatest strengths. Since so some of them I guess busier as youre well aware is it a pretty mature business, but at the same time, if we can continue to innovate and then when we go up against our competitors.
Theres really no chance.
I think that's a real opportunity and that's why we've stuck with permitting and that's what we're doing both of them give thats what were going to do with <unk>. That's what we're doing across everything we're doing and that's why we remain reasonably bullish.
Fair enough thanks, guys.
Okay.
Thank you we'll go next now to Ella Smith at Jpmorgan.
Hi, This is Alex Smith on for let's say go go ahead from Jpmorgan.
So my first question is for you Bill surrounding M&A are you seeing anything for sale in the market and if you were to pursue a tuck in acquisition in the next six to 12 months.
Products or businesses do you think could enhance our complement <unk> existing offerings.
Okay.
Well, we're constantly in the market marketplace and it all depends on what's for sale and what pricing.
And.
Can we can we can we sell our stuff to their to their client base and can we take what we buy and sell it into our client base.
Would imagine just like I risks that we did here a couple of months ago, and we have a few other small tuck ins that will probably probably do we really like the Australian market, we really like the Canadian market as well as.
As well as the U S market and there are some things that we liked in the UK.
That we think are pretty interesting.
I think we might deploy $100 million in the next three to six months on acquisitions, but.
We don't have anything right now that we would be.
To be closing on in that range. So.
Like M&A, we think we're good at it we think we can.
Drive margins in <unk>.
And given the people are good place to work.
But you got to get them at the right price and you've got to be disciplined about it and so that's that's.
That's how we operate.
Great. Thank you very much Bill and I think this next question on the <unk> or whoever wants to take it but you've alluded to this but retirement did quite well in the third quarter growing 13% Macquarie.
Second quarter I was hoping you could speak more into what's driving that.
Growth there.
I think it's primarily.
We've been working on a number of large deals and bringing them live and as they come live we see our revenue tick up. So there was there was some backlog on that revenue that kind of showed up in the quarter, which we were happy to see and we do think that we have some more opportunity.
These kinds of step changes in 2024 as well.
Great. Thank you all so much.
Thank you and just a quick reminder, ladies and gentlemen star one for questions. Today. We go next to James Faucette Morgan Stanley.
Thank you very much.
Just a quick question on as it was great to see the press release on an as eclipse earlier today any sense.
As to how the new client figure of 60 compares to last year that you can share with us or maybe what a more normalized hedge fund formation market might look like just trying to get a sense on what growth trajectory and potential is.
Or or as especially you on as the clubs.
Yes, I think.
<unk>.
There's kind of.
Two things going on in that business, but I think as it relates to eclipse.
The number of new clients. We have this year is maybe one five times, what we had in kind of a similar period last year. So we are accelerating our.
Seeing kind of a.
A lot of acceptance and its not just new hedge funds. It also is.
We continue to add fixed income workflows derivative workflows other operational workflows and so the kinds of organizations that.
This kind of a suite of software and services, whether thats as or eclipse appeal to they keep getting bigger so our markets are expanding and our sales progress, we're making progress there.
Operator: Please stand by. We're about to begin. Good afternoon, ladies and gentlemen and welcome to the SS&C Technologies G3 2023 earnings conference call.
Operator: At this time, all participants are in a listen only mode and please be advised that this call is being recorded. After the speakers prepared remarks, there will be a question and answer session. If you would like to ask a question during this time, spend the press star one on your telephone t-pad, and if you do find that your question has been addressed, you can withdraw your question by pressing star one again. And we do ask that you please lend yourself to one question and one follow-up question.
There is a little bit of an impact off the kind of market volatility and equity volumes and things like that which shows up in the numbers, but underlying that sales performance is very strong.
Got it got it and then I think in the last couple of years pricing has been.
An issue across the industry.
How should we think about like what the contribution of price has been to the growth this year or at least your outlook for this year and how should we anticipate that as contributor for next year.
Justine Stone: Now at this time, I would like to turn the call over to Ms. Justine Stone, head of investor relations. Please go ahead, ma'am. Welcome and thank you for joining us for our Q3 2023 earnings call. I'm Justine Stone, investor relations for SS&C Technologies. 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.
Yes, Lisa as.
As we look at this and we've kind of factored this in.
Again, this is a kind of a mix relative to the flows inflows and outflows I think we've kind of talked about the I'll call. It 100.
$30 million to $150 million range again, sometimes its hard to disaggregate to a single factor and that kind of kind of builds over time right through I'll.
Justine Stone: 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 process, including the financial outlook we provide, constitute forward looking statements for the purposes of the safe harbor provision under the private security litigation reform act of 1995. Actual results made different deteriorally from those indicated by these forward looking statements as a result of various important factors, including those discussed in the risk factor section of our most recent annual report on form 10K, 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, October 26th, 2023, while the company may elect to update these forward looking statements. It specifically disclaims any obligation to do so.
I'll call it accelerated in the <unk> to have incrementally more versus the third quarter. So we're seeing nice price increases.
We're building more and more contracts and a lot of them already habits, and therefore, CPI adjustments or automatic adjustments.
They kick in so we're seeing adoption, we're seeing a growing place.
Not an insignificant contributor to incremental revenue growth.
I would expect to see more of that on a go forward basis.
And maybe I'd just add on the back of that we're still what you are seeing in price the numbers, Brian just talked about really still only represents.
Justine Stone: During today's call, we will be referring to certain non-gap financial measures, a reconciliation of these non-gap financial measures, to comparable gap financial measures, is included in today's earnings release, which is located in the investor relations section of our website at www.ssttech.com.
Given year, maybe a third to half of our client base.
Alright, so as we get more automatic on these escalators and there are still conversations that we need to have in 'twenty. Four we do expect that will continue to help store.
Sure that makes sense.
Hey, Jason.
So we will continue to innovate and allows our clients when we do raise prices to feel good about what we are spending their money on right. So if you look at our R&D spend.
William Stone: I will now turn the call over to Bill. Thanks, Justin, and thanks everyone for joining.
William Stone: Let's all welcome Brian to his first SSNC earnings call. He's been with us for two months and has found his bearings. We're excited about his ideas and intellect. He brings through the organization and I encourage all of you to get to know him.
It goes up every quarter. It goes up every year, but this year, we'll spend close to $500 million.
And thats, besides spending like $1 seven on Blue Prism, but we've spent on higher risks from what we spend on other things, but that gives our clients.
William Stone: Results for the third quarter are record adjusted revenue of $1,366.7 million, up 3.4% and adjusted deluded earnings for share of $1.17. We also achieved our second highest adjusted consolidated in our history at $533.9 million. Our EBITDA margin was 39.1%, a 230 basis point increase from Q223. Our third quarter adjusted organic revenue was up 2.3%, driven by strength in our alternatives, particularly private markets, interlinks, retirement, and blue prism. Our recurring revenue growth, which you'll meet the license and professional service revenue streams, was up over 5%, which we think is an indicator of our underlying business strength.
Our robust.
Offering across all the different segments, we serve.
Yep got it appreciate that thank you guys.
Okay.
We'll go next now to surrender send at Jefferies.
Thank you.
Bill just one big picture question here.
In terms of how are you thinking about just automation technologies in generals such as RPI here.
Maybe the grander scheme of productivity enhancements and I guess, what I'm getting at is that obviously theres a lot of hype around generative AI. So.
Is there.
Complimentary stuff here is there competition here between the newer technologies are different technologies.
William Stone: Financial Services Retention Rate for Q3 2023 was 97.3% the highest level on SS&C history. SS&C generated cash from operating activities of 826.7 million for the nine months ended September 30, up 8.1% over the same period last year. In Q3 2023 we bought back 1.7 million shares for 96.9 million at an average price of $55.82. We also raised our common stock quarterly dividend 20% to 24 cents per share delivering 156.6 million in total cash returned to shareholders in the quarter and 501.9 million year to date.
Should we think about the market opportunity.
Well I think the whole key to this kind of a business is how efficient can you be.
<unk> does not grammar here right you need to be imbalance.
If you need to be imbalanced.
Some of our customers through millions of trades a day alright.
They want us to do is make sure we process them balance if you're ready to trade. The next day right and so that's that's a big part of what we do and Thats a big part of how we're using the new technologies to allow us to spot problems before it becomes a crisis and to be able to always be there for our clients.
William Stone: SS&C paid down 54.7 million in debt in Q3 2023 bringing our net leverage ratio to 3.18 times consolidated EBITDA attributable to SS&C. In the near term we believe that SS&C's common stock is undervalued and we expect to maintain a higher level of stock repurchases versus debt pay down.
Like when Covid hit and things like that we had all kinds of clients coming to US right. Because we stood up we kept processing all through that stuff in and people learn that wow. They don't really have fail over and they don't really have the infrastructure.
That we have and what we've spent to.
To have it and so I think some of those claims are things of what these new technologies are allowing you to do somewhat easier.
William Stone: We've made a lot of progress within the firm wide blue prism digital worker deployment. We have a 2000 full-time equivalent headcount savings year to date which is 7% of our January 1, 2023 employee base. Conservatively at 50,000 per FTE this is 100 million in run rate savings. So far the biggest successes have been within our large outsourcing businesses. GID and alternative fund services. One example is a GID client asked us to run a campaign to contact over 20,000 customers to clear their small cash balances.
Somewhat faster, but then you've got to be careful.
You have to still be imbalance you have to still be able to reconcile yet still be able to understand what that means the humans have to be in charge. Otherwise you started looking at this technology and decided it's always right.
It's not always right. So it's important.
To have the right controls the right processes, the right procedures as you add sophisticated technology that that artificial intelligence stuff.
William Stone: We program 25 blue prism digital workers to perform the following processing saving about 140,000 on contractors that would have been required to process the responses manually. Within alternatives operational functions such as manual statement downloads, reconciliation and break investigation and resolution, investor statement and contract notes and loan closing and compliance have benefited from digital workers. We believe we have just begun to reap the benefits from this initiative.
And stuff like that that Ken.
Sometimes be a little bit too artificial so I think it's important for us too.
Stay awake.
And put in the proper processes and controls to make sure that our customers are served well.
That's helpful. And then just kind of turning to the health care business here.
As we look over the next year and into <unk> and the investments that you've made.
Rahul Kanwar: I'll now turn the call over to Rahul to discuss the quarter in more detail. Thanks Bill. Our core businesses continue to grow nicely with alternatives, intro links and retirement, accelerating from last quarter. Our alternatives business grew 8.4% in the quarter, boosted by the strength of our private markets business. We signed a very significant private credit client in Q3 and see opportunities to sustain and accelerate growth for the foreseeable future. Intro links also accelerated in the quarter growing over 10%, despite M&A deal volume remaining low.
Any kind of an update there in terms of progress how we should be thinking about the cadence and then obviously just in terms of just understanding near term dynamics on it looks like the health care business has started to stabilize or what.
In its current format. So just any color there please.
Well I think it is stabilizing I think we have.
We've done a good job with we have.
<unk> really improved our relationships with our clients.
We have some big opportunities even outside of demanding of Rx and we have huge opportunities with <unk>.
Rahul Kanwar: The growth can be attributed to increase in contract values, longer due diligence timelines and more large deals once. We've released new tools to help us drive these large deals and contract values. DocuAI uses generative artificial intelligence to proactively deliver document summaries, suggested document classification, document translation and identify potential risks. Intro links deal vault, a cloud-based storage solution designed for streamlined access to archives and efficient deal data management recently launched and has attracted interest from corporate clients.
We're on schedule to put.
Upwards tens of millions of lives undermining our Rx in the first quarter of 'twenty four.
And we're poised to do that so we're optimistic and we think healthcare.
As an excellent segment to begin with with a lot of a lot of opportunity in.
And similar <unk>.
<unk> technology, where our innovation capabilities and technology.
Capabilities will be very well received.
Rahul Kanwar: In Q3, the largest new black diamond sale to date was closed. This client shows the black diamond platform to power their newly launched wealth management business created through the acquisition of multiple RIAs and broker dealers. We continue to invest in R&D and support our customers. We won four awards from water technology, including best buy-side order management system, best execution management system, best portfolio management system, and best accounting provider. SS&C Bluperism was also recognized by Gardner as a leader in the 2023 magic quadrant for robotic process automation for the fifth year in a row. We believe these recognitions are indicative of our market-centric approach to R&D.
Got it and then just in terms of.
As you think about the investments you've made.
Is health care.
Great relatively independently as everybody else within the organization or how should we think about that business in terms of.
Steve what I would call the amount of investment.
Going on there.
And your ability to kind of leverage internal resources.
Again remember most of these health care organizations also have insurance.
Backgrounds in them and so a big singularity decline hitting the Cvs and Cigna.
And we're also pitching other big.
Brian Schell: I'll join Bill in the rest of our management team and welcoming Brian to SS&C and now turn the call over to him to run through the financials. Thank you all and thank you Bill for those kind remarks. I'd like to start by saying I'm excited to be part of the SS&C leadership team and looking forward to help build on the strength of SS&C today with the ultimate goal of delivering long-term shareholder value.
Health care and insurance organizations like anthem Amendment and so.
We think that that the health and well process is also pretty important.
You have an aging population all of US that are working you know might have a relative or someone that.
That get fill or something and you need to be able to take care of them.
Brian Schell: As noted in our press release, our Q3 2023 gap results reflect revenues of $1,365.9 million net income of $156 million and diluted earnings per share of $61. As Bill noted earlier in the call, our adjusted revenues were $1,366.7 million, up 3.4%, adjusted operating income increased 6.4%, and adjusted diluted EPS was $1.17, a 1.7% increase over Q3 2022. Adjusted revenue increased $44.7 million or 3.4% over Q3 2022. Our acquisitions contributed $2.4 million or approximately 20 basis points.
Really understanding the provider networks.
And being able to add value.
To all of our clients across all of our segments I think its a symbiotic and thats something that we stayed with and we've made the investment.
Yes, we took a couple of <unk>.
<unk>, Jim, but but hey.
If you don't get anywhere unless you.
As one of our great clients said to me once you receive youre going to have perseverance to get through these large system developments.
And there are just too just to add to kind of the second part of that there is a fair amount of overlap internally on the compute that we're using in the data centers and operational processes. So the businesses are helping each other.
Got it okay. That's it for me thank you.
Brian Schell: Born exchange had a favorable impact of $13.2 million or 1%. As a result, adjusted organic revenue growth and a constant currency basis was 2.3%. Adjusted operating income for the third quarter of 2023 was $517.4 million and increased up $31.3 million or 6.4% in third quarter of 2022. Adjusted operating margins were 37.9% in the third quarter of 2023 as compared to 36.8% in the third quarter of 2022. The 110 basis point margin expansion reflects the positive impact of both revenue growth and discipline expense management.
Thank you, we'll take a follow up question from Peter Heckmann with D. A Davidson.
Thanks.
<unk> if I missed it did you provide an updated target date for the first big conversion on demand.
Yes, we're going to convert.
Have a big drug discount card business that we're going to convert beginning in the first quarter of 'twenty four.
And that's tens of millions of lives.
Okay.
124, Okay, and then just in regard to some of the carryover.
Investments from from DST.
Can you just remind us what's left in the unconsolidated affiliates.
And as well some of the investments I would I think I would have expected that that investment number to be falling a little bit in moving into the cash column.
Brian Schell: Wildlife cost structure has been impacted by general inflation, higher personnel costs, and increased professional fees compared to 2022. Our core expenses only increased 30 basis points or $2.6 million excluding acquisitions and on a constant currency basis. Acquisitions added $2 million in expenses and foreign currency increased cost by $8.4 million. A note that our expenses calculated on a similar basis is down $28.6 million or 3.3% sequentially. Adjusted consolidated EBITDA attributable to SSNC defined in note three in the earnings release was $533.9 million or $39.1% of adjusted revenue and increased up $32.2 million or 6.4% from Q3 last year.
Still have a number of fairly illiquid investments in that category.
Yes, there is definitely theres still more there I would say the most illiquid as a lot of real estate.
That.
We are continuing to market and take a look at.
That's a tough market right now and particularly in some of the property with respect to.
Office buildings located in downtown.
Brian Schell: The 39.1% EBITDA margin reflects both a sequential and year-over-year improvement of 230 and 110 basis points respectively. Net interest expense for the third quarter of 23 was $117.3 million, an increase of $35.1 million from Q322. The Q323 net interest expense excludes $3.4 million of non-cash, amortized financing costs and OID. The average interest rate in the quarter for the amended credit facility, including the senior notes, was 6.87 percent compared to 4.55 percent in the third quarter of 22.
Centers.
There is still some.
Theres still some investments that are actually yielding positive results, but we're not pulling those enter into earnings on an active basis, even though it is a positive number so I would say there is still a bit of.
Balance sheet hang that.
We are doing a reasonably good job.
Keeping cash flow neutral.
But.
Is it quite covering everything thats out there maybe not but it's getting close so we are winding it down those real estate assets are probably going to take some time, they're still sitting out there.
Hello.
Okay I appreciate it.
Thank you and gentlemen, it appears we have no further questions. This afternoon, Mr Stone I'd like to turn things back to you Sir for any closing comments.
Well again, we appreciate all of you being on we appreciate the questions. We got and we appreciate the time.
Where we stand and we look forward to talking to you after the end of the year. Thanks.
Brian Schell: Adjusted net income as defined in note 4 in the earnings release was $295.9 million, and adjusted the diluted EPS was $1.17. The effector tax rate used for adjusted net income was 26 percent. Share repurchases of 1.7 million drove the diluted share account down to 253.9 million from 255 million in Q2. SS&C ended the third quarter with $447.6 million in cash and cash equivalent and $6.9 million in gross debt. SS&C's net debt as defined in our credit agreement which excludes cash and cash equivalent of $106.1 million held at Domani RX LLC was $6.6 billion as of September 30.
Thank you Mr Stone, ladies and gentlemen that will conclude the <unk> technologies Q3, 2023 earnings call again, we'd like to thank you all so much for joining us and wish you all great day Goodbye.
[music].
Okay.
[music].
Yes.
Brian Schell: Our LTM consolidated EBITDA used for covenant compliance was $2.63.8 million as of September 2023 based on net debt of approximately $6.6 billion. Our total leverage ratio was 3.18 times. Our secured leverage ratio was 2.21 times as of September 30. As we look forward to the fourth quarter and establishing our guidance, note that we will continue to focus on client service and assume that our retention rates will continue to be in the range of our most recent results.
Brian Schell: We will continue to manage our expenses with a cost discipline approach by controlling and aligning variable expenses to ensure efficiency, increasing productivity to improve our operating margins to leverage our scale, and effectively investing in the business to marketing sales and R&D to take advantage of future growth opportunities. Specifically, we have assumed adjusted organic growth for Q4 in the range of 1.8 to 4.8% resulting in adjusted organic growth for the year in the range of 2.1 to 2.9%.
Brian Schell: FX rates will be at current levels. Interest rates to remain flat through the end of the year compared to the ending rate in the third quarter. Gap tax rate of approximately 26% on an adjusted basis which is unchanged from prior guidance. Capital expenditures to remain at 3.9 to 4.1% of revenues which is unchanged from prior guidance and a more weighted emphasis to share repurchases similar to what we did in Q3. For the fourth quarter of 2023, we expect revenue to be in the range of 1.370 million to 1.410 million dollars.
Brian Schell: Adjusted net income in the range of 305 million to 327 million dollars. Interest expense excluding ammarization of deferred financing costs and original issue discount in the range of $116 to $119 million. Deluted Shares in the range of $252 million to $254 million and adjusted deluded EPS in the range of $1.21 to $1.29. For the full year 2023, we expect revenue to be in the range of $5.463.5 million to $5.503.5 million, adjusted net income in the range of $1.159.9 million to $1.181.9 million.
Brian Schell: Deluded Shares in the range of $254.5 million to $255 million, adjusted deluded EPS in the range of $4.55 to $4.64 and cash from operating activities to be in the range of $1.180 million to $1.2 million to $30 million.
William Stone: Now, I'd like to turn it back over to Bill for final comment. Thanks, Brian.
William Stone: Earlier this week, we hosted nearly 1,000 clients in prospect at our SS&C Deliver Conference in Washington, Texas. Delivering the future was a theme of the conference with a big emphasis on the power of AI and robotics process automation. We showcased over 40 solutions across the key market segments we serve and initial feedback has been positive.
Operator: I'll now open it up for questions. Thank you, Mr. Stone. Ladies and gentlemen, at this time, just a reminder of any questions.
Operator: Please press the star one. And also, please limit yourself to one question and one follow-up question. And we'll pause for just a moment.
Daniel Perlin: We'll go first this afternoon to Dan Perlin at RBC Capital Markets. Thanks.
William Stone: Good evening. I just had a question on the revenue retention rates as we kind of went back and looked at them. I mean, I know it's a modest uptick. It's actually pre-reasonable, but it looks like to be maybe the highest level we've certainly seen back to 2019, maybe ever, quickly. So can you just talk about some of the metrics that are driving that and how that might play into your thinking as we go into next year around organic growth?
William Stone: Thanks. Let's follow up. You know, Dan, I think the retention rates really reflect the concentration we put on customer service and making sure that, you know, we run these customers satisfaction calls every every month and we keep track of them and we're really putting a tremendous amount of emphasis. And we also believe that that the ability for us to cross fell and upsell into our current client base is much stronger than then we may have looked at it before. And so I think the renewed emphasis on that and our customer relationship management programs is starting to pay off.
William Stone: You know, on that same vein, Bill, could you talk a little bit about the deal pipeline and conversion cycles you're seeing? I know we're called out specifically. You know, wins within private markets, which has obviously been very strong and then obviously with black diamond. I'm just wondering how things are kind of setting up, how those conversations are going today. And are you feeling better about conversion cycles as we sit here now or pretty much the same as maybe itself, I don't know, six, nine months ago.
William Stone: Thank you. Yeah, I would say that, you know, I think our pipeline in our fund administration businesses is over 400 million, you know, so that's a lot of revenue. You got to close it, right? And then you got to get them live. And so it's not a, not just a walk in the park, but, but it does indicate, you know, kind of the lead we have in, in the number of our areas, interlinks is, is seeing ticks up in their lead generation and our ability to close on additional M&A that's happened in that in that marketplace.
William Stone: And I think, you know, the private markets looks like it's going to remain thrown through you into the year. And we have, you know, we were a little light on license revenue, but, you know, 606 and renewals is always a, you know, kind of a craft shoot. And I think that, you know, Q3 was particularly soft. But, but that ought to rebound a little bit in Q4 and also in 24.
William Stone: That's great. Thank you, Bill. Thank you.
Peter Heckmann: We're going to next now to Peter Heckman at DA Davidson.
William Stone: Good afternoon, everyone. I wanted to follow up on a couple pieces. Now, you noted that the little bit light on software revenue. I assume that was primarily the legacy software businesses and just trying to clarify was if there was a particularly tough comparison there. And, you know, you don't do it in your filings, but if you could quantify roughly the amount of software license revenue in the quarter, that would be helpful. You know, I think the difference in what we expected versus what we ended up from a software license revenue was in the order of magnitude of about 20 to 25 million in the quarter.
William Stone: Okay. But it does appear that it was concentrated within the legacy software businesses. That's right. Primarily institutional and investment management business and some impact in ad then as well.
Rahul Kanwar: Okay. And then just on the retirement side, you know, 15% up in the quarter sequential acceleration. I'm sorry if I missed it, but does that represent that reflect the go live of some of the large clients and the conversion pipeline. Yeah, it does. You know, we're continuing to make progress. As you know, we did win, you know, a few large deals. I was want to say about 18 to 24 months ago that we've been working hard on implementing.
Rahul Kanwar: And what we are right now is we have one of them fully live and another one scheduled to go live in early 2024 and you're starting to see, you know, really the revenue benefit of that happening.
Rahul Kanwar: Okay.
Operator: Great.
Operator: Thank you.
Andrew Schmidt: We're going next now to Andrew Schmidt at city. Thank you guys. Thanks for taking my questions and welcome Brian.
Brian Schell: Brian, maybe I can put you on the spot for a second. I know it's a little bit early, but talk about just initial observations and maybe some early priorities you have is you as you hit the ground here. That'd be helpful. Thanks a lot. Yeah, no, thanks for the question. And I would say, you know, the priorities that we have are, you know, continuing to try and build on the momentum here as I said in my opening comments.
Brian Schell: I think that one of the things the finance group and our leadership is looking to do is continue to enhance some of the tools that the leaders that the front lines are actually using with respect to the contracts to help make better decisions more timely decisions. What they're looking at around pricing, what they're looking around implementing investment and expenses to drive you to revenue growth. I think it's been important. I think the team has already has always been focused on looking at expenses and trying to make sure that the expense.
Brian Schell: Thanks a lot, level and spend, the variable and fixed, you know, adjust in accordance with, I'll call it revenue outlook, so that, you know, revenue growth is obviously very important, but so is making sure that we have an appropriate margin that we're bringing to our shareholders. So I would say it's continuation along those lines. I think we'll continue to try and address incremental metrics to give increasing visibility to, you know, again, to continue to help understand what's driving the business and the strength that we see in it that sometimes may be masked by the aggregate numbers and some of those trends.
Brian Schell: So we'll continue to try and highlight those. And lastly, I would say on the, the capital allocation piece, again, putting that in perspective of how we view, and how we're going to maybe be a little bit more proactive around what we're doing with respect to that cash flow. I think we've indicated, like I said, a more heavier lean and allocate the allocation towards share by back. And can you to be transparent about where we think we're going to put the capital to work. Got it. Appreciate that Brian. Very helpful.
William Stone: And then if you could pick up on the margin comment, you know, the implied fourth quarter margin, you know, pretty good progress there looks like it's, if my math is right, up at least 200 bips year over year. You know, as we look ahead, you talk about an opportunity for maybe above trend margin expansion, just given all the opportunities you have in front of you, whether it's a digital workers cost efficiency, obviously, you know, some top line scale, hopefully, anything around that would be helpful.
William Stone: Thanks a lot. Yeah, Eric, I think that that as we said on a number of these calls that, you know, driving our margins up is we don't find to be particularly difficult, you know, we have great clients, we have great people. And we continually look at productivity enhancements and, you know, blue prism has been a great addition to that, you know, not only in, you know, us deploying, you know, 1700 or 1600 digital workers.
William Stone: And, and, you know, by the end of this year and then also having, having also allowed us to grow and not add FTEs into our into our workforce. So, you know, we're pretty excited about that opportunity and even as a business itself, you know, we have some talented people running that business and, and they have driven margins, you know, from a little bit negative when we acquired them in the second quarter of.
William Stone: Of 22 to probably going to in the fourth quarter at above 30% margins at, at, at blue prism, which is kind of a hallmark of, of SS and C is is that, you know, we manage our businesses, we drive high, EBITDA, we, we pay down that quickly, we're buying back stock, you know, we're, we're pretty bullish. You know, Wall Street's not particularly bullish, but we're pretty bullish. Yeah, thank you very much, Bill. Thank you.
Alex Kramm: The next now to Alex Kram at UBS. Yes.
William Stone: Hey, good evening, everyone. Just wanted to go and look at the fourth quarter organic growth guidance. If my memory serves me right, I think last quarter, the cadence that was implied was something more in the mid-signal digits for the fourth quarter. So, a little bit of a, I guess, down, down draft in your expectation here by a point and a half or so. So, can you just maybe help us understand what has changed in the last three months, relative to prior expectations and what the swing tactics could be still into your end?
William Stone: Yeah, Alex, I think primarily the swings are, there's a lot of stuff going on in the world, right? And just like the license businesses, you know, people get skittish about major capital allocations. And so that was a little soft in Q3. And we're hoping it rebounds in Q4, but we're not trying to stick our neck out on license revenue. You know, our recurring revenue growth in the third quarter, you know, was over 5% up.
William Stone: So, you know, that's primarily all of our fund administration businesses and, and, and other recurring revenue businesses. And so, you know, we, we, we got maybe a little conservative here in Q4, but you know, we're trying to, to give you our best guess. And then we're trying to go out and continue to, to build the business. Fair enough.
William Stone: And then maybe just more specifically, I don't think the GITS business has come up, but obviously that's a very sizable business for you and an area of pain in the last few years, but seems to really be stable here in this 3% or so range. You feel pretty good about the outlook there and continue in this kind of environment at that range, or is there still the ability to maybe even accelerate that into maybe something more than the mid single digits, or is that business just too mature and maybe the market is too tough that, you know, you're happy with what you're seeing.
William Stone: You know, it thinks that one we're happy with the progress, right? At the same time, we do believe there's more opportunity. You know, if you kind of think about the end markets, the end markets include wealth managers in Europe, wealth managers in Australia, we're selling a comprehensive array of services and software. And as we think through our pipeline, you know, that GITS business has some of the biggest deals that we have as a company.
William Stone: So we're, I think, reasonably optimistic that we can, you know, accelerate the growth rate from where we are currently. And I would just add a little bit now, Alex, that you know, we're a technology company, right? So we need to make these products better, you know, and we compete against big gigantic financial institutions. You know, that you guys are very familiar with and, you know, we think our ability to out innovate, our ability to deliver more product, our ability to have more intuitive systems.
William Stone: It is one of our greatest strengths. And so some of my GITS is your, as you're well aware, is in a pretty mature business. But at the same time, if we can continue to innovate, then when we go up against our competitors, there's really, they don't have a chance. You know, and I think that's our real opportunity and that's why we've stuck with the knitting and that's what we're doing, you know, both in GITS, that's what we're going to do with Domani RX. That's what we're doing across everything we're doing. That's why we remain reasonably bullish. Fair enough.
Ella Smith: Thanks, guys. Thank you.
William Stone: We'll be the next now to Ella Smith at JP Morgan. Hi, this is Ella Smith on for Alexa Gogola from JP Morgan. So my first question is for you, Bill, surrounding M&A. Are you seeing anything for sale in the market? And if you were to pursue a tech and acquisition in the next six to 12 months, what products or businesses do you think could enhance or complement SSNC's existing offer? Well, you know, we're constantly in the marketplace and it all depends on, you know, what's for sale and what price and, you know, can we, can we, can we sell our stuff to their, to their client base and can we take what we buy and sell it into our client base.
William Stone: So I would imagine, you know, just like Iris that we did here a couple months ago and we have a few other small tuck ins that we'll probably, probably do, we really like the Australian market. We really like the Canadian market as well as, as well as the US market and there's some things that we like in the UK and that we think are pretty interesting. So I, you know, I think we might deploy $100 million in the next three to six months on acquisitions, but we don't have anything right now that we would be closing on in that range.
William Stone: So, you know, we like M&A, we think we're good at it, we think we can drive margins and give the people a good place to work. But, you know, you've got to get them at the right price and you've got to be disciplined about it and, and so that that's, that's how we operate.
Rahul Kanwar: Great, thank you very much, Phil, and I think this next question will be for a whole or whoever wants to take it, but you've alluded to this, but retirement did quite well in the third quarter growing 15% mature than in the first and second quarters, as hoping you could speak more to what's driving the growth there. I think it's primarily, you know, we've been working on a number of large deals and bringing them live, and as they come live, we see our revenue take up.
Rahul Kanwar: So that's there was some backlog on that revenue that kind of showed up in the quarter, which we were happy to see, and we do think that we have some more opportunity to have, you know, these kinds of step changes in 2024 as well. Great, thank you all so much.
Operator: Thank you, and just a quick reminder, ladies and gentlemen, star one for questions today.
James Faucette: We go next now to James Fossette at Morgan Stanley. Thank you very much. Just a quick question on as is great to see the press release on as eclipse earlier today. Any sense as to how the new plant figure of 60 compares to last year, but you can share with us, or maybe what a more normalized hedge fund formation market might look like. Just trying to get a sense on what growth trajectory and potential is, or as, especially on as eclipse.
James Faucette: You know, I think there's kind of, you know, as it's kind of a little bit, two things going on in that business, but, but I think as a release to eclipse. The number of new clients we have this year is, you know, maybe one and a half times what we had in kind of a similar period last year, so we are accelerating. We're seeing kind of a lot of acceptance, and it's not just new new hedge funds, right?
James Faucette: It also is we continue to add fixed income workflows, there have been workflows, other operational workflows. And so the kinds of organizations that this kind of suite of software and services, whether that's as or eclipse appeal to, you know, they keep getting bigger. So our markets are expanding and, you know, our sales progress is what we're making progress there. There is a little bit of an impact of the kind of market volatility and equity volumes and things like that, which shows up in the numbers, but underlying that fails performance is very strong.
James Faucette: Got it, got it. And then, you know, I think in the last couple of years pricing has been an issue across the industry. How should we think about what the contribution of price has been to the growth issue or at least your outlook for this year? And how should we anticipate that as a contributor for next year? Yeah, we, so we've, as we look at this and we've kind of factor this in, and this again, this is kind of a next relative to the flows in flows and outflows.
James Faucette: I think we've kind of talked about the, I'll call it the 130 to 150 million dollar range. Again, it's sometimes it's hard to disaggregate to a single factor and that kind of builds over time right through, you know, and that could be a call accelerating to 4Q to have incrementally more versus a third quarter. So we're seeing, you know, nice price increases. We're building in more and more contracts and a lot of them already have this in here for CPI adjustments or automatic adjustments so they kick in.
James Faucette: So we're seeing adoption, we're seeing it going in place. It's not in giving a contributor to incremental revenue growth. So I would expect to see more of that on a go forward basis. And maybe I just add on the back of that, you know, we're still what you're seeing in price. The numbers Brian just talked about really still only represents, you know, in a given year, maybe a third to half of our client base.
James Faucette: Right. So as we get more automatic on these escalators and we there, there's still conversations that we need to have in 24, we do expect that will continue to help. Sure. And we also will continue to innovate that allows our clients when we do raise prices to feel good about what we're spending their money on. Right. So if you look at our already spend, it goes up every quarter, it goes up every year that this year will spend, you know, close to 500 million.
James Faucette: And that's besides spending like a billion seven on blue prism or what we spend on iris or what we spend on other things that gives our clients a more robust offering across all the different segments we serve. Yep. Got it. Appreciate that. Thank you guys.
William Stone: We'll next now to surrender and Jeffries. Thank you. There'll just one big picture question here just in terms of what how are you thinking about just automation technologies in general, such as our PA here and maybe the grander scheme of product to be enhancements. And I guess what I'm getting at is that obviously there's a lot of hype around generative AI. So is there, you know, complementary stuff here, is there competition here between the newer technologies or different technologies.
William Stone: How should we think about the market opportunity. Well, I think the whole key to this kind of a business is how efficient can you be. Right. That does not glamour here, right. You know, you need to be in balance. Right. If you need to be in balance and you know, some of our customers through millions of trades a day. Right. What they want us to do is make sure we process them, balance them, get you ready to trade the next day.
William Stone: Right. And so that's a that's a big part of what we do. And that's a big part of how we're using the new technologies to allow us to spot problems before it becomes a crisis and to be able to to always be there for our clients. And you know, like when COVID hit and things like that, we have all kinds of clients coming, to us, right? Because we stood up, we kept processing all through that stuff, and people learned that, wow, they don't really have failover, they don't really have the infrastructure that we have, and what we've spent to have it.
William Stone: And so I think some of those kinds of things are what these new technologies are allowing you to do somewhat easier, somewhat faster. But then you've got to be careful that you have to still be in balance, you have to still be able to reconcile, you have to still be able to understand what that means, right? The humans have to be in charge. Otherwise, you start looking at this technology and decide it's always right.
William Stone: And it's not always right. So it's important to have the right controls, the right processes, the right procedures, as you add, sophisticated technology, that artificial intelligence stuff, and stuff like that, that can sometimes be a little bit too artificial. So I think it's important for us to stay awake and put in the proper processes and controls to make sure that our customers are served well.
William Stone: That's helpful. And then just kind of turning to the healthcare business here, as we kind of look over the next year in the Manearax and the investments that you've made, just any kind of an update there in terms of progress, how we should be thinking about the cadence, and then obviously just in terms of just understanding near-term dynamics on it, looks like the healthcare business has started to stabilize in its current format.
William Stone: So just any color there, please. Well, I think it is stabilized. I think we've done a good job. We have really improved our relationships with our clients. We have some big opportunities, even outside of the Manearax, and we have huge opportunities with the Manearax. We're on schedule to put upwards tens of millions of lives on Manearax in the first quarter of 24. And we're poised to do that. So we're optimistic, and we think healthcare is an excellent segment to be in with a lot of opportunity and similar aging technology where our innovation capabilities and technology capabilities will be very well received.
William Stone: Got it. And then just in terms of, as you think about the investments you made, does healthcare operate relatively independently of everybody else within the organization, or how should we think about that business in terms of what I would call the amount of investment that's going on there, and your ability to leverage internal resources? Well, you know, again, remember, most of these healthcare organizations also have insurance backgrounds in them. And so, you know, a big singularity coin is that at the CVS in Stigna, and we're also pitching other big healthcare insurance organizations like Anthem.
William Stone: And so, you know, we think that health and wealth process is also pretty important. And you know, as you have aging population, you know, all of us that are working, you know, might have a relative or someone that gets ill or something, and you need to be able to take care of them, and really understanding the provider networks and being able to add value to all of our clients across all of our segments.
William Stone: I think it's symbiotic, and that's something that we've stayed with, and we've made the investment. Yeah, we took a couple of wax on the chin, but hey, you know, it's, you don't get anywhere unless you, as one of our great clients said to me once was you, you've got to have perseverance to get through these large systems about it. And there's, you know, just to add to kind of the second part of that, there is a fair amount of overlap internally on the compute that we're using and the data centers and operational processes so the businesses are helping each other.
William Stone: I did an updated target date for the first big conversion on demonic. Yeah, we're going to convert, we have a big drug discount card business that we're going to convert beginning in the first quarter of 24 and that's tens of millions of lives. Okay. And then just in regards, some of the carryover investments from, from DSP, can you just remind us what's left in the unconsolidated affiliates and as well, some of the investments I would, I think it would have expected that investment number to be falling a little bit and moving into the cash column.
William Stone: But still have a number of fairly illiquid investments in that category. Yeah, there is definitely, there's still more there. I would say the most illiquid is a lot of real estate that we are continuing to market and take a look at. That's a tough market right now, particularly in some of the properties that respect to office buildings located in downtown centers. There's still some, there's still some investments that are actually yielding positive results, but we're not pulling those into, into earnings on an active basis, even though it is a positive number.
William Stone: So I would say there's still a bit of balance sheet hang that we are doing a reasonably good job of keeping cash flow neutral. But, you know, is it quite covering everything that's out there? You know, maybe not, but it's getting close. So we are going to get down, those real estate assets are probably going to take some time, there's still sitting out there. Okay, I appreciate it. Thank you.
Operator: In gentlemen, it appears we have no further questions this afternoon.
William Stone: Mr. Stone, I'd like to turn things back to you, sir, for any closing comments. Well, again, we appreciate all of you being on. We appreciate the questions we got, and we appreciate where we stand, and we look forward to talking to you after the end of the year. Thanks.
Operator: Thank you, Mr. Stone.
Operator: Ladies and gentlemen, that will conclude the SSNC Technologies Q3 2023 earnings call. Again, we'd like to thank you all so much for joining us and wish you all a great day. Goodbye.