Great. Hello, everyone. My name is Alexei Gogolev, Head of JPMorgan Vertical Software team, and today I'm delighted to host a fireside chat with Founder and CEO of SS&C, Bill Stone. Bill, welcome. First of all, if I may, ask you to talk a little bit about the latest changes in the way you disclose and group some of your revenues. And, maybe elaborate a bit more on how you're thinking about strategically positioning some of these products together to better penetrate your customers.
Thanks, Alexei. Thanks for having me, and thanks, everybody, for coming. You know, we did two things. We moved our retirements business into the same business that Global Investor and Distribution Services were. They have a lot of common clients, and the Global Investor and Distribution Services business has maybe 7,000 employees, and Retirement maybe has 1,500. So we thought by putting those 8,500 people together, we would be able to get some efficiencies, have development that would be more pointed, and then go to market in a way that is broader and stronger. Similarly, and also Nick Wright runs that business, and we're very pleased with his capabilities. We also moved our Institutional & I nvestment Management business into our W ealth & I nvestment Technologies business.
So they have again have a lot of overlapping clients as well as products. So things like Portia and CAMRA and HiPortfolio and Total Return and Geneva and APX and Moxy and a bunch of others, those all serve similar things. But, you know, a fixed income manager is not gonna be the same as an equity manager, and one that uses derivatives is not gonna be the same as one that doesn't use derivatives. So there's gonna be purpose-built software and services around, you know, the various and sundry targets that those asset managers have. So those were the reasons, was to really get a little tighter with our product and service base and then go to market with a stronger message and try to be able to grow faster than what we're growing right now.
So that, that was pretty much why we did that. And, you know, so far, I mean, it's early, but we are pleased with the results.
Bill, even after the consolidation of some of these assets, you still have a lot of moving parts. As you always say, it's, you know, it's hard to see them all move in the, in the right direction. But, generally, the trajectory has been improving. I was wondering if you've seen anything that kind of surprised you on the upside or on the downside in the most recent quarter, like in terms of perhaps dynamics, the demand from your customers, those sort of things?
Well, I mean, I think in the most recent quarter, Intralinks was a kind of a star. It was up 23%. You know, it's already a $500 million or so annual revenue business, and it trades at in excess of 50% EBITDA margins. So that, that was a very nice, very nice performance, and we've brought out a number of new features and functions in our Intralinks product set. So we're, I think, the largest provider of virtual data rooms. But M&A was not particularly strong in the first quarter, and it's really not particularly strong in the second quarter. But, you know, our transactions that Intralinks is managing for people are large and complex, and the data rooms are open longer.
So people keep putting more information in there, and that generally drives revenue for us. We also had pretty good performance out of our fund administration businesses, and in particular, private credit remains strong for us. And I think that, you know, our wealth primary wealth product is Black Diamond, and it continues to grow in mid-teens. We have about 2,400 RIAs, and they represent about $3.3 trillion in assets. And then we're also combining things, like we bought something called Innovest in 2022, and maybe 2021. 2021, 2022, and they have something called InnoTrust.
So we've married Black Diamond with InnoTrust so that the RIAs, as their clients get older and they start wanting to set trusts up for their children or grandchildren or whomever, that RIA can continue to service that client. Otherwise, if they can't offer trust services, there's a good chance they lose the assets. So we think that'll be a very good product area for us.
Generally, for a long time, SS&C has been perceived as a premium service provider, SaaS provider. What do you think is the most competitive advantage that you see for your business versus some of your competitors, both on the legacy side and also among some of those disruptors that have been appearing recently?
Yeah. You know, again, I talk about some of the disruptors as kinda like gnats. You know, "Get away!" You know, and but of course, they're there, and they're always gonna be there, just like we were when I started. You know, when I started, there were two major systems that were sold into the investment industry, in the life and property casualty, and one was called Bond and Stock, and the other one was called Stock and Bond. They were great marketers back then, you know. So you know, now I think it's much more that our strength is the depth and breadth of our knowledge.
So we probably have, I don't know, several thousand CPAs and chartered accountants and all kinds of CFAs, and so we're experts in what we do, and so we are able to do things with, like Blue Prism, where we bring so much expertise from a fundamental basis, and they bring so much expertise from a robotic process automation and artificial intelligence and natural language processing and machine learning, that you get a really rapid response. So we've rolled out, you know, 2,000 or so light digital workers in our business alone, besides selling it out and around the world. So that's really improved our processes, reduced our errors, and improved our customer satisfaction.
And Bill, for those that are less familiar with your business structure, could you elaborate a bit more on the importance of COGS components that you have owning your own network, your data centers? That obviously has an impact on gross margins that are somewhat lower than those in the SaaS space that we cover, but at the same time, your EBITDA margins are among the highest in our universe. So how do you think about the importance of those components of your infrastructure?
Well, you know, it's purpose-built, right? So we have our own data centers. They're world-class data centers. You go there, they're enormous. They're 100 feet underground. There's all kinds of security. And then we have our own networks and our own compute, and so it is something where we have our own purpose-built private cloud, and that gives us a lot of strength as far as being able to secure it, you know, manage it in such a way, and not be such a target, right? We're not Microsoft, right? So they're not coming after us. We're not Amazon. They're not coming after us. Bad actors around the world are gonna come after both of those because they're such icons. You know, we get to play under the radar for...
You know, some of the largest institutions in the world, we do this for, and so we get audited by all of them, and, and, besides our own audits and our own SOC 2s and all that stuff. But, I, I think what it does is it gives us control, and it also, I've always said that when I call Anthony Caiafa, who's our Chief Technology Officer, I don't, I don't have to... You know, I call Amazon, I say, "This is Bill." They say, "Bill, who? Bill, Bill Gates, Bill Joy, Bill this, Bill that." I call Anthony Caiafa, he knows who Bill is. I'm in charge of his raise and his bonus and his equity awards. It's amazing the kind of attention you get in that situation and, and the ability to move quickly in order to solve your clients' problems.
You know, when our clients are the biggest hedge funds in the world, they're the biggest banks, they're the biggest insurance companies, you know, and some of those people have very short tempers. So, you know, you wanna, you wanna placate them as quickly as possible.
Absolutely. And, obviously, Bill, I mean, you have decades of experience in the industry, and it feels like the financial industry is always going through phases when, you know, often, top management, they choose, a lot of services to be in-house, and then there's another phase when, the big banks start to, do more outsourcing. Do you feel like, the complexity of financial products and, you know, growing regulatory pressure is pushing some of your customers to do more outsourcing these days?
Yeah, I think that, I think that's kind of been a standard, you know, really for the last 20-30 years, right? Things have gotten increasingly complex. You know, the mathematics that you can get out of something like Excel and others allow people to build pretty sophisticated models and, you know, cash flow models, and create different types of securities, you know, using different types of, of assets. So that, that gets to becoming, you know, quite sophisticated in its own right, but then you start tacking in that it's very difficult to recruit and retain personnel. Like if you take accounting, in most of the college programs, it's down 20, 30, 40%. People don't want to work that hard. You know, I think the same thing's happened with analysts in, in the, in the major investment banks. "What? Saturday? Ha!
That's when I go to the spa," you know? You know, that isn't, that isn't quite how it worked when... "Saturday? Oh, I'd love to be there Saturday. You want me Sunday, too?" You know, so I, it, the, the world changes, you know, and, and you're in the midst of having the largest transfer of wealth in the history of mankind happening to where some of us, and I'm one of them, thinks they made it, now I give it to my kids, and they act like they made it. Whoa, whoa, whoa, whoa, whoa! You know, but, but I, I think those things are, are, are, are around the world, you know, and, and can you get the same work ethic that, that you got generation and generation to generation?
You know, and every generation thinks they worked harder than the, you know, the one after them, but, but I think in today's world, there's so many ways to make money now. You know, how about, you know, I, I think I'll be an influencer. You know, maybe I'll wear a different hairdo every day and see if I get my edit. You know, but I, I just think those kinds of things versus, "Yeah, why don't you go build about 11 models on this potential IPO and come back to me. I'd like it by 1:00." You know, that, that kind of stuff is what, what, what I grew up with, and I, I think that, you know, you're gonna have to live in a different world to be successful in 2024.
And, obviously, throughout your history, you know, you, you have various investors. Some love your M&A activity, some don't. But, in many cases you've proven that, you know, a lot of acquisitions you've done have been quite successful. How do you feel about M&A, at this point in time? You know, how much appetite you have for sizable transactions, and, you know, are there any areas that you're more interested in at this point, maybe geographies or specific expertise you want to add?
Well, I mean, we still have a big appetite, but I mean, when your interest rates are 2% or your interest rate's 7%, you know, and you're the buyer, 2's better, right?
Mm.
So, we like the two, and we also, you know, we don't pay 10 times revenue. You know, that's just not our. You know, we're—I mean, we think we're brilliant, but we're not that brilliant. You know, when you set the thing up to where you have to be perfect to make money, you find out pretty quickly that you're not so perfect. So, you know, putting stress on an organization when you're doing a large-scale acquisition, and you priced it to where you have to have perfection, I don't think is a very wise strategy. So, you know, we like to move fast.
We are reasonably nimble, and I think we started looking at Blue Prism, which we spent $1.7 billion, you know, maybe a month, maybe 6 weeks before we bought it. You know, if it was one of the major banks and they were buying it, I think it'd be closer to 6 years than 6 weeks, right? So that's a big advantage we have. We can move a lot faster and that gives us a lot, a lot more capability and a more quick response time.
In terms of your pricing power, you know, we talked about your services being considered a premium product. How much pricing power do you feel you have at the moment? Update us on where you see price increases contributing to the top line this year.
Yeah, I think last year we got right close to 3% price across the board, and we would want to do a little better this year than we did last year, and then we would, you know, like to get a little more, a little more aggressive about it. You know, people want their same team, they want their same processes, they want more capabilities, and all those things cost money, you know. And so you, you need to be able to explain that to the client, and then you have to have some, you know, some backbone so that, you know, if, well, it's a 5% price increase and they look at you cross-eyed, "You know, well, how about 4.5? 4? 3.5? God, I gotta go back with something!" You know, you can't do that.
You can't beg them. Well, you can beg them a little, but you can't beg them a lot. And so, you know, it's really teaching and training how you do that, and, and, and giving people confidence that, you know, you're selling them. You know, and then once you do that... I mean, Microsoft just wires announcements says, "It was $10 million last year, it's $12.5 million this year." Let's see. That's 25%. Boy, then we negotiate hard and get them down to 23.5%, something like that, you know? So it's, it's, again, you know, it's where are you in the, in that pendulum, and then what, what, what can you maintain a great relationship with your clients and, and raise prices?
One of the big strategic focuses for the business was to improve efficiency of your operation. You've talked a lot about the so-called digital workers. Can you remind us some use cases for how you would apply that across the firm?
Yeah. So we have, as you know, we have most of the very large hedge funds are our clients, and so we have a couple of them where they're fanatics about the, the monthly statements they send out to their LPs. So we would put two or three people, and we would proofread them for two or three days, right? So that, that they were as perfect as humans could make them. But humans get tired. You look at the same statements, you get about 400 of them, and about, what do we say? Maybe 75th one or maybe even 125th, but after that, it's like right? I'm not gonna notice that Alexei is spelled with two E's, not just one, right? You know, so you're gonna start making, you know, common mistakes that, that, that humans make. You put a digital worker on there, one.
Goes through all of them, doesn't take any breaks. Never bitches. You know? You know, and 3, 4 hours later, he's looked at every one of those statements. He's also checked it for grammar and checked it for spelling and all those kinds of things, and you just saved 5, 6 man days worth of work. And same thing with reconciliations. I mean, I think we have something like 7,000 hedge funds and, you know, $3 trillion in assets, and so that's a lot of reconciliations with probably almost every bank in the world that we have some interface with. And so now you can put, you can put digital workers on that, and they can reconcile it for you.
You might still have human reviews, but you have Digital Workers that, you know, can spot a break, can take a copy of the transaction, can create an email, can send it to the counterparty, can get it back, and if it resolves a break, can process it. You know, versus how many times you would have to have a human in that process. So there's a lot of those kinds of things that are very susceptible to Digital Workers, and then more so as they get better, you can do more and more sophisticated things. But you really have to put your best people on it, and they need to understand, right? You can't build a Digital Worker that's, you know, got a 70 IQ. That means you got a 70 IQ Digital Worker.
They don't reconcile them near as well as, you know... So it's, it is something where you recognize that, you know, the amount of effort and quality you put in, that's what you get out.
In the past, you talked about some of the savings you're hoping to make, and we've already discussed that your margins, EBITDA margin, is quite high as it is. But what sort of opportunity do you see to further improve your profitability?
Well, you know, we don't really go out and say, "Well, hey, we have 26,681 workers, and boy, using digital workers, we're gonna be able to lay off a bunch of you." You know, that's, that's a bad strategy, you know, so we don't ever say that. You know, we say that what we're gonna do is grow our revenues and not have to grow our workforce at nearly the same rate, so that hopefully, you know, three, four, five years from now, we're not doing $5.7 billion, but we're doing $8.2 billion, and we still have 26,821 workers or whatever.
You know, so it's much more of trying to be able to have avenues of growth, have ways in which to improve your process, have ways in which to improve customer satisfaction, and do it with less headcount.
Absolutely. And, another exciting part of your business, Blue Prism, that you acquired. Can you also talk about the application of Blue Prism, especially externally? Like, where do you see that division expanding into, how it can help you gain more customer, market share?
Yeah, so we've used Blue Prism. So for the state of New Mexico, for them to add a new person into their Medicaid enrollment in the state of New Mexico, was taking between 3 and 30 days, and we put some digital workers in that workplace, and now it takes 15 minutes. So that's a pretty big productivity enhancement. We're doing the National Health Service in the U.K., and it was taking 20 minutes to answer the phone. Now it's down to 5 minutes, and maybe we can get it down to 2.5 minutes, and then maybe we can get it down to a minute. But, you know, from 20 to 5 is a pretty big improvement, you know, so all those kinds of things.
Nobody likes to be left on hold, you know, so we're trying to find things like that that we can put digital workers on, that again, you know, they're there 24/7.
Right. That's a good segue to discuss your healthcare business and specifically DomaniRx. Can you remind us what's next? Like, what's the next phase in the development? You've started to roll out the platform earlier this year. I think the next big milestone is June first. So maybe talk a little bit about what to expect in the second half of the year.
Yeah. So when we started on DomaniRx a couple years ago, you know, it was a big development. We, I think, we spent more than 1 million hours building this out, which is a very large development project, and we think we have a lot of feature and functionality that's not available in the marketplace except at DomaniRx, and it's at scale. So when we first started off, we were gonna do, we were gonna do our drug discount card business and commercial accounts for health insurers. And the first one was gonna be Humana, but Humana sold their commercial business. So we just did our drug discount business first. We got about 80 million lives on DomaniRx on that, and we're processing hundreds of thousands of claims a week, if not millions.
So it's been great reviews, and now we're gonna start moving Humana's Medicaid and then Medicare business. We hope to have that done in the fourth quarter of this year, and then we'll start looking to move Carelon's. That's our two joint venture partners, and move them on to Domani. And then we think we can go out to, you know, major players that adjudicate and pay claims and really help them with... A lot of them have latency issues. Technology's old. The more volume they put in it, the slower it gets. You know, and if you're standing in front of a pharmacist, you know, with us, it's generally sub-second or, you know, a one-second response time. You know, you start getting to 8 seconds and 10 seconds and 12 seconds, people get furious.
You know, so you need to have a customer satisfaction process that allows you to move quickly when you're in front of a pharmacist or, you know, it's no different than being in an ATM. You know, you put your PIN number in there, and if it takes five minutes, it's like, "What's going on here?" You know, so that's been a big value to what our joint venture partners are telling us.
... And, the recent Change Healthcare cyber attacks, has that had any impact so far on demand to switch to the, the DomaniRx?
It, you know, like most things, is that people get frustrated. When that happened, I think Change Healthcare was down 16 days, which means they couldn't pay any claims for 16 days. Like, we had some clients that were using us and Change, and, you know, they basically weren't getting paid. You know, it's not like you're dealing with JPMorgan, you're dealing with these small co-pay companies that don't really have much capital, and so they need that cash flow or they're out. You know, so we stood up a bunch of them and probably have garnered somewhere in $30 million-$50 million in revenue.
We think that we're really getting a great reputation with both them, and then also the drug manufacturers, 'cause they're the ones that, you know, push, whether it's Ozempic or something else, through their pipelines. That can be a very lucrative business for us.
But in terms of potential impact on the overall business, clearly, I mean, it's still a relatively small part at this point, but would you expect it to have more of an impact next year in terms of the growth trajectory?
I think so. And again, this $30 million came in in about 45 days, and so it wasn't like it was... You know, we had a big you know, a big program to go after this. You know, they were in crisis, and we helped fix the crisis, and that's something where you get a pretty good chance to grow from there. So-
Mm.
-we're optimistic.
That's great. Maybe if we, if we could get the mic and look at the questions in the room. If anyone has any questions, please raise your hand.
Just ask on Blue Prism and AI, how much is AI helping versus how much is it being, you know, more competitive and therefore making it actually harder for that to take hold?
That's a good question. I, you know, would say that in general, we have found Blue Prism and now its applications of AI in parts of its area to be pretty productive. You know, but you're still constantly trying to manage it so that you're aware of where, you know, we're getting off track. You know, so it's something. You know, they start saying "intelligence," and that means it's making some of its own decisions, you know, and you gotta make sure that those decisions are compatible with what you set up as the objectives to start with. So we're pretty good at that. We keep doing it and refining it and refining it, so we're optimistic.
This morning, you announced another dividend. Could you maybe talk about your vision of capital allocation? I know you've always been, you know, very balanced in terms of, and I guess opportunistic in terms of how you allocate capital, but are you leaning towards a certain capital allocation strategy more these days than before?
You know, I think we are looking still to you know, give back to shareholders, you know, 65-70% of the cash flow through stock buybacks and dividends, and then, you know, maybe 30-35% in debt paydown. You know, we like to keep all of our capital holders, whether they be equity holders or debt holders, in good stead. In case we wanna do a big acquisition or something, we need the credit guys to loan us a lot of money. We like that. And we also are trying to take advantage of what we think is a pretty good investment in our own stock.
Sort of more of an industry question about consolidation in the hedge fund space. It's been going on obviously for a while, but it feels like it's accelerated. The process has been more visible in the last couple of quarters. Have you seen any tailwind for your business? Like, have your larger customers been consolidating more market share?
Well, I mean, you know, the vast amount of money has gone into the big multi-strat funds, right? Whether that's Millennium or Point72 or, you know, a number of the other ones, Baupost, Citadel. So at the same time, right, I mean, Henry Ellenbogen was at T. Rowe Price, and he spins out of T. Rowe Price and sets up Durable Capital, great client of ours. I think Henry's managing somewhere upwards of $20 billion. You know, I think he's been at it for four years, maybe four and a half years. So those kinds of things. Bobby Jain, I think, is spinning out of Millennium, you know, so we're deep in the, you know, the pre-launch of his funds, Jain Global, I think it's called, and a number of other ones, right?
You know, the more, the more there's animal spirits out there, the more you young ladies and young men should go out and start hedge funds. We can help you. No, I can't offer capital, but I can do accounting.
In terms of generally the competitive environment that you've seen, across a number of segments, especially from some of the well-established players like, Aladdin, BlackRock, and, you know, PAM by State Street, have you seen any incremental investments in technology, any incremental aggressiveness in terms of pricing? How have those competitors performed, versus historic dynamics?
Yeah, I think, you know, Aladdin's still a big, you know, system that's got a lot of, you know, board power when it goes to sell. So... And BlackRock's what? Got 10 trillion in assets it manages or something. So they're definitely formidable. And then I think, State Street's PAM is, you know, kinda getting... You know, State Street bought Charles River Development, and I think they're building out a product. And so I think, you know, we don't see PAM very often. You know, the one you see in that space really is either Clearwater or SimCorp or one of those that's more prominent.
Absolutely. Any more questions in the room? I had another one related to your kind of midterm targets. And obviously, as you mentioned, you're always considering M&A. It's never sort of a good idea to buy anything expensive, but in terms of your organic growth, which investors seem to focus on lately more than they used to, where do you see this business growing organically in sort of the normal state?
I mean, I think they've been concentrating on it for about 15 years, so... You know, I, I think we're gonna grow mid-single digits, and, and then hopefully we'll get some acceleration from there, and then hopefully be mid to high single digits, and, and, and then see, you know, can we really start to... You know, we kinda rolled up the fund administration business when we got in it in 2002, and, you know, we probably did, I don't know, 15 acquisitions in that space. And then other people came in and started, you know, overbidding what we would say. So we started just concentrating on winning all the big, winning all the big, platforms, and, and we were pretty successful at that.
I think we will continue to be pretty successful at that because, you know, we spend $500 million in cash on software development, you know, and that's more than some of these disruptors have in revenue, you know? So we're not as nervous about, you know, about where they're coming from and what expertise they bring to the table, you know? So it's an expertise game, and you have, you know, pretty demanding clients, and it's staying on top of that is what's gonna make you successful, and, you know, you gotta continue to focus, you know, and that's not always easy.
'Cause, I mean, growing mid-single digits or high single digits at your scale, and that's a lot of $hundreds of millions, especially considering that there's always going to be a certain level of churn involved. Like, where do you feel, which area of your business do you feel mid-term or longer term has more opportunity to grow than, than maybe other segments?
Well, there's massive scale coming in wealth technology, so where we have Black Diamond and other products that we sell into the wealth sector. You know, when you transfer all that money from generation to generation, you know, the younger generation sometimes doesn't wanna keep it where the older generation made it and gave it to them. So there will be a lot of dislocation in the wealth industry, and we think we're very well positioned there. We think we continue to have the leading product in fund administration in Geneva. We have 40 of our competitors that buy software from us. We think that's a lot better than us buying software from them, you know, so we think that's another pretty advantageous place to be.
And then, you know, Intralinks has been a very pleasant surprise with its strength, and we think it will continue to be successful, too.
Perfect. Thank you very much, Bill, for being with us today. Appreciate you coming to our conference.
Thank you so much. Okay, Alexei.