All right, well, thanks, everyone, for joining us today, and welcome back. My name is Dan Perlin . I head up the Payments Processing and IT Services Practice here at RBC, and I am delighted to be joined by SS&C, and from SS&C, we have Rahul Kanwar, who's been a great friend to RBC for a number of years, so thank you for that. Rahul is the President and Chief Operating Officer at SS&C, and we're delighted to have you here.
Yeah, thank you. Thanks for having us. We really appreciate it.
Yeah, always, always, always a pleasure. I wanted to just jump right off and kind of the demand environment overall. You know, specifically, it sounded pretty optimistic, you know, coming off of last quarter. When we look at kind of the deal pipeline that you guys have with new clients, I'm interested to know where you sit kind of today and how that feels versus maybe a year ago or even kind of leading up into kind of the exit strategy for 2025.
Sure. Sure. You know, I think that, in context, right, and I give you both an internal and external perspective. The internal perspective is we have been working hard on our business for the last, not that we don't always work hard on our business, but for the last couple of years, we've really been focused on making sure we have the right executive leading business units, that we're getting some benefit and synergy from our scale when it comes to things like R&D spend and the pace of technology development, paying attention to customers. We're now in a place where we have 20,000 customers, many of whom use multiple of our products and services, making sure they're being covered holistically and that we have an opportunity to expand.
So all of those things that we have been working on, not that any of those things are ever complete, are in a better place than they have been, right? And so coming back to your question, how do we feel about it internally looking outward, let's say a year later, we feel better because we've done more of the work, you know? And that's not to say that there isn't, you know, hopefully over the next year, there'll be more work done and it'll get even better. So that's kind of one part of it.
I think from an outside-in perspective, really what I would say in most of the markets that we're in, we are likely the only people that a prospect would talk to that is somewhat agnostic to, you can buy a system from us, you can have us host it for you, you can run it in the cloud, you can have us provide the services. So there's a wealth of choices, right? So we've got both a lot of breadth when it comes to, you know, we could do your fund administration, we could give you an order management system, we could sell you a back office accounting system, we could do regulatory reporting for you. So there's a lot of different product capability. There's also a lot of different operating model capability.
And as folks look more and more at their own operating models and how do they get scale and how do they get leverage, those things are pretty attractive. So that also is the overall, the demand environment is pretty positive. And I think those are some of the reasons.
Yeah. It feels like the market underappreciates or maybe misunderstood how much kind of preparatory change is actually taking place in the organization to kind of land you guys at this point in time. Because listening to you talk about it is like there's structural differences clearly in the organization than would have been the case maybe, I don't know, maybe two years ago or something to that effect.
I think that's right.
Can we talk about like three areas of interest for a lot of investors? GIDS, obviously, wealth and investment tech and then alternatives as we think about those growth areas. Both or all three have been doing really well. So if we start with GIDS just as an example, kind of what are you seeing some of the dynamics near term?
So, you know, part of that change, that internal change, we have refocused GIDS on R&D and innovation driving the way, paying a lot of attention to customers and delivering. You know, it sounds very simple and it is simple to say. It's not always easy to do, but just following through and making sure things go live and the service levels are good and things like that. It is also GIDS is truly a global business, right? And so we might be selling a large deal in Australia, we might have one in Singapore, and then, you know, we might be doing a major outsource for a big customer in the U.S., and it's obviously got a huge European and U.K. presence. So it's all over the world.
It's continuous, but we're getting better at having more outward-facing sales and marketing, better product delivery, and then just being really, really focused on that customer experience. We think that translates to sustainable growth, right? And part of that is the mix is changing too. There's more wealth in there now. We're in Australia, there's more super in the U.S. and in the U.K., there's much more wealth. We're benefiting from some of the trend towards retail alternatives, things like that. So there's some secular things that are happening that are changing the mix for us a little bit.
Okay. And then again, like as we think about, you say wealth, like that seems to be an area that's been quite strong for you guys as alternatives. So I'm just wondering what are the key secular dynamics maybe that are going to allow you to underwrite kind of a longer-term duration in that business? Both of those businesses, quite frankly.
Yeah. And I think then that also goes pretty nicely with wealth and investment technology, which I think is one of the, you know, so that's the technology part of it, right? That's the, and so I have enough to do it for you. You want to run a system or you want to run a module or you want to have some blend. And both of those are benefiting from the fact that there is more independent asset, you know, whether it's a Registered Investment Advisor or something else, there's just a lot more high net worth and folks that are investing in a lot of different asset classes and things like, you know, direct indexing, for example, where they take an index and they add a tax harvesting strategy on top of that.
So you can, you know, buy the S&P and then get some kind of a tax overlay and potentially an advantage. Those kinds of things are becoming really popular with, you know, retail clients, right? But they come with some processing overhead. And we're the sort of one of the likely suppliers of that processing capability, whether it's through a web portal and self-service like our Black Diamond platform, or whether it's through GIDS doing the work for you like it does in the UK for some really big clients. And so that's what we're seeing.
Okay. Okay, and then same kind of question in terms of like secular dynamics around alternatives. This has been a space for you that has been very strong for a very long period of time. It's kind of had a couple of ebbs and flows, but it feels like it's kind of starting to have a payday again a little bit. Are you seeing that? You can see it in the numbers, but I mean, are you feeling confident about it?
Yeah, no, it feels really good, and I think the biggest change, if I was contrasting 2024 to 2023, is, you know, we have strong private markets growth in 2024. We've had it in 2023. We've had it for a long time. We expect that to continue. Some of that is because we think we're in a dominant position. You know, we were talking this morning and we think we have twice as many private markets assets in our platform than our, you know, next number two competitor. So we're in a little bit of a good position. We think we earned that because we have ownership of technology and lots and lots of expertise, and we fully intend to sustain that, right, so that's one part of it.
I think the private markets, but I think the biggest difference from last year is the hedge fund market, where the hedge fund part of that business is now growing what we would normally expect. You know, I came to SS&C in 2005, and most of my career before my current job was in the fundamental trading business. And you would expect the hedge fund market, almost regardless of what the market did, would grow 5% to 10%, right? Some of that would be we take market share. Some of that would be we get deeper into customers. We didn't do that in 2023, but we're back to doing that in 2024, which then makes the overall picture better.
Yep. Yep. So one of the questions just as a broad brush that we're asking kind of every company given the time of year where we are now in this cycle is, you know, we have clarity now in the administration. As you've talked with clients kind of pre and post, are you feeling like those investment dollars that they might have been willing to unleash are going to be more readily available now that they have clarity? And are you feeling that there's a sense of urgency or difference between what you might have seen just even a few months ago?
Look, I think it's still pretty early, right? In some ways, we have businesses that directly benefit from a reduction in regulation, perhaps a little more M&A, right? A little more optimism in kind of the markets and maybe more fund allocation. So we have a lot of businesses that are poised to benefit from some of what you read about, but it hasn't shown up yet.
Yeah. Not yet. Okay. All right. And not in the conversations or anything like that, the tone of.
The tone remains, you know, as I've sort of been describing, in general, the conversations we're having with our customers, our prospects have trended better and better and better as we get better, right? That's been, would I say it's directly a consequence of the recent presidential election?
Not yet. Okay. Okay. All right.
Well, let's hit the number one question that we get, which you and I were just talking about before we went live, which is kind of the organic growth rate deceleration implied in the fourth quarter, right? So you had a really strong third quarter. The midpoint of the range in fourth Q kind of implies about a 400 basis point deceleration. And I know there's some gives and takes, so maybe you should flesh that out. And then is that the right way to really be looking at this business as we go forward, as we maybe normalize some of those things you're about to?
Yeah, and you know, so the nice thing about this question is we've had three meetings so far, so we've had three opportunities to warm up.
I figured.
So let me see if I can remember some of what I've said or no.
This is a better distribution now. We can sell it here and hopefully a lot more people will.
I appreciate it. I appreciate it. So look, I know that the 90-day is important, right? But if we just zoom out for a second, if you indulge me, where we thought we were at the start of the year, we've done better, right? So when we laid out the quarters at the start of the year and we laid out Q1 to Q4, for each of Q1 to Q3, we've done a little bit better than we thought we would.
And right now, our guidance for Q4 is a little better than we thought we had it, right? Because we're just looking at it as, you know, we've got a base of recurring revenue. We expect to sell some more. We expect to get some price increases. Hopefully, we can manage the attrition rate, which we've done. And so it ought to do this, right?
In a perfect world, and it has done that, right? So the challenge, I think a lot of, at least what we're hearing is that when you compare those quarters, which in and of themselves are pretty good quarters in absolute numbers, but when you compare them to what happened last year, right? Q4 looks like it's decelerating relative to what we've been able to do. And the biggest part of that, and I've said this before, is, you know, Q1 to Q3 last year in 2023 was $1.360 billion give or take, 363, 366. Q4 was $1.411 billion, right? So we had $50 million extra revenue in Q4 than we did in any of the other quarters. And that $50 million included some specials that we don't think they happen every year. We don't always predict which quarter they happen, right?
So I think that there's a fair amount of comfort to be gained from the fact that year over year, the numbers are in line with what we expect to have happen, right? We think that there's a lot of positive we've done on the fundamentals, which means we have a reasonable chance of sustaining that over the long term. I think the real concern is, do we think that the Q4 growth rate is really what we would expect going forward? I don't believe that.
Yeah. I mean, it's hard to digest when you gave a midterm, or I guess a medium-term guide, 4% to 8%. So maybe you can dovetail into some of the things that allow you to kind of feel confident in that range. I know that the high end of the range might have some inorganic aspects to it, but if you wouldn't mind elaborating on that.
Sure. Sure. And I think then the second, the sort of the added part to that is, you know, just what's the historical context for it, right? More than anything else. And I think that if you kind of look at our business over the last five years, let's say, right? Where a lot of people would say, "Hey, you haven't really done that in the last five years." You know, I would say we kind of look at it by business. For two-thirds of our business, we have done, right? And what we've had is some overhang and some suppression of the overall growth rate from primarily the DST businesses that we acquired in 2018, which we're turning around, right? We've worked hard to turn them around. If you're already seeing it in GIDS, we're fairly confident you're going to see it in healthcare.
We really just need the rest of our businesses to perform as they have over the last five years, and that automatically puts you in the range. You know, some of the other things are our retention rates a little bit better, so maybe that's 100 basis points, something like that, so obviously that's a part of that. Our ability to get price is a little more disciplined. We're not saying that the, you know, we think we probably get 150 basis points, 200 basis points more in price now than we did over the last three to five years, so that alone, you know, once again, gets you squarely in that range, and we're not saying we're done yet, right? We think we have an ability to get a lot more focused on price and get even more.
And then the business itself, for all the reasons that I described, whether it's the sales capability, the R&D capability, the business is better, right? So I think that all those things mean that while there's execution left, which is always the most important part, we're still pretty good.
Yeah. You know, you've mentioned bundling, not so much on stage right now, but in the past and in the context of this kind of 4% to 8% organic growth rate. So what about bundling that is going to allow you to be, like, you know, again, more growth-enabled? You're pulling all these products together. Is that a function of the structure that you talked about early on about how you've changed the business over the past couple of years?
No, it is. It's really important to us. If you look at our top 100 or so customers, the biggest customers use six or seven of our products and services. But there's many customers in there that use two or three, which means that, and they're all, you know, within a particular market or a particular kind of firm, they're all the same, right? So if they don't buy it from us, they're buying it from somebody else or they're doing it themselves. So increasingly, we're finding that when we step back and we say, "Okay, how are we really covering this customer? And where are we covering them? And how good is our internal intelligence about their strategy and their objectives and what they're trying to do?" We find opportunity, right? And that's one of those continuous processes.
And I wouldn't say that we think we're really good at it, but we're better than we have been in a long time. And that is starting to yield some growth.
Okay. Okay. I did want to just kind of cover up the cadence before Q to 1Q. We get a lot of questions on this as well. So historically, on an absolute dollar basis, that number is building on itself. So I think there had been some questions about the slowdown in 4Q. Is that going to continue to be the case? Is there any reason why, like seasonality or anything that's in the pipeline, that that number wouldn't continue to build or?
Yeah. So then I kind of point you to just a couple of things, right? Maybe put a final point on a couple of things. There's two parts to any given quarter, right? There's the recurring revenue that repeats. And we expect that base to absolutely continue to grow. It has all year. We think it grows in Q4. We think it'll continue to grow. That's what we expect, right? Not having been through a formal budgeting process. Then there's the special, right? There's the additional license we sell or something else like that. So I'd be pleased to answer your question and be affirmative. Other than if we sell a $50 million license in Q4, then Q1's not going through. You know what I mean?
would just try to bring it back to, if you look at it a year at a time, right? And I know it's really hard to do, but I would just try to bring it back to, if you look at it a year at a time, right? We expect that 2025, once we're done with this process, will be reasonably positive compared to, you know, and within the range of what we have said in the past, but it's early. We haven't done that yet.
Yep. Okay. Let's spend a minute on healthcare because, you know, this has been an area that has been kind of like the Achilles heel for SS&C for a while. It was starting to really move in the right direction in terms of its organic trends. And then in third quarter, it looked like it kind of hit a little bit of a wall. So maybe let's talk about why that occurred and then why you think it can actually continue to grow in 2025. If you're still committed to pretty reasonable growth in 2025.
Yeah. Yeah. So hey, we've said this previously, but in Q3 in particular, we had one large license deal that we worked on till midnight and didn't get done because our customer decided they needed a couple more steps in their procurement process. And we looked, we do our best to manage that, but truly out of our control, right? But they did. They completed the steps. They signed it in October. We think that was worth $8 million. The healthcare business is only, I think, $64 million in Q3, something like that, $65, $56 million. So 8 million, you know, changes that, right? So that's one part of it. That's the kind of the micro look at a particular quarter. And those are the kinds of kind of things that, you know, sometimes change the conversation.
The more important and I think the real opportunity in healthcare is we've worked hard on DomaniRx for three, four years, right? We've invested hundreds of thousands of hours. You know, Tori Dargati, every time I say that, says a million hours. It's a million hours. So most people that spend that kind of money on systems, they take a lot of risk. Doesn't always finish. Maybe when it finishes, it's not what you expected. We went live in January. We processed 160 million claims on it so far this year. And the feedback from our customers has been outstanding, right? So we kind of think we have the newest system in the pharmacy benefits market that is also capable of doing things at scale, which we have demonstrated.
That's bearing out in some of the conversations we're having with prospects, some of whom can transform the size of our healthcare business. But we got to do it, right? And so I think that the market for some transformational change in that business is probably the outlook's better than it has been. In the meantime, you know, the things that were big negatives, the clients rolling off and the attrition and so on and so forth, we do think that's behind us. And so, you know, once again, feel a little better about healthcare.
Okay, so you're still feeling like that's going to be a growth business, like an organic growth business? Because I think there was at one point even talk of it maybe hitting double digits at some point, and I think this last quarter maybe threw that in the question, so.
Yeah. No, I understand that. It definitely has. We would expect it to grow, and there are some things out there that it might go really fast.
Yep. Okay. Humana, is that still coming online? Like that's still on track to be kind of a January conversion? And how meaningful is that?
I think parts of Humana already, but yeah, it's meaningful. You know, a lot of what sells the money is the scale. The more scale we can get on it, that helps. As part of coming online, they do take some modules from us and some additional modules. We'll get some revenue off there.
Okay. Okay. I want to spend a minute on Blue Prism. You know, this has been kind of a two-sided opportunity for you. You bought the asset. You actually turned it on yourself a little bit. You've gained a lot of efficiencies and scale out of it. The question we get all the time is just how much more room do you have? I think the original goal was to get like $100 million out of the digital workers that you had. I think you said you had like 1,100 in the third quarter, something like that. So where are we in that process of kind of hitting a wall on that? Or is this going to be like the continual process that just goes through SS&C for multiple years?
Yeah. So the 1,100 is the number of full-time equivalents we think we have deployed or saved this year so far.
Got it.
Right and look, the math is all over the place depending on what kind of job and where they're based and all that stuff, but if you just do, you know, round numbers, you do $60,000 a head as an average or something like that, you got 1,100, and you tack on benefits and you tack on, you know, the cost of real estate that you save and all this stuff, you get to $100 million pretty quick, right, and in a lot of ways, that's additive to at least a similar number, maybe even a bigger number that we did last year.
Right, so it's been the internal utilization of Blue Prism has been really positive for us, and it's been positive not just because of Blue Prism itself, but also it forces us to take a look at the processes and see if they lend themselves to digital workers.
And if they don't, why not? So a lot of times we can improve the underlying process and make it, you know, 50% better or 30% better or something that's, but you know, all that said, we still have 27,000 people that work at SS&C.
Yeah.
And we would like to be able to, you know, this year we're going to go whatever, 5% plus, something like that, right? 4.5% to 5%, something like that. And we're going to do it without really adding headcount. We'd like to see how long we can do that. And that obviously has a pretty dramatic impact on margins and the scale we can get. And that's. We're still in early stages.
Still early in terms of being able to roll that out.
Yeah, that's right. That's right. So you know, it's both how many of our businesses use it at scale? We've saved some.
Yep.
And then how much do they use? We've also saved some, right? So it's a two-part opportunity.
Yep. So now that you've had it kind of internally for a couple of years, how are you taking those learnings and deploying those out to selling it to the clients? Like, and how has that sales pitch gone?
The biggest, so there's a lot of technologies out there, right? And the biggest question people just have is, okay, how does this solve my problem?
Yep.
Right. So when we have a customer or a prospect come sit with us and we say, look, you're doing an investor statement or you're sending this kind of reporting out, we had this example and it's a live example where we have 1,148 of these statements. It used to take us three days to do it. Now it takes us 30.
Yeah.
Right. And it's because the machine does it. And the nice thing about machine does it is generally speaking, the machine compares two numbers and tells you they're correct. The numbers are probably correct. It's not because a human being got tired and, you know, all right, I already checked 50 of these, 51 is probably okay. You know, that machine doesn't do that. And so that's really helpful. Taking those use cases, whether it's an investor statement validation or reconciliation or improving the processing time on a phone call into us or something like that, and then turning that back around and showing it to a prospect and saying, this is how it can help you, has been powerful, but we are very early.
Got it.
So we have the applications built internally. In terms of package them up and being able to sell them back out, we're just starting.
Okay. Okay. That's awesome. I wanted to touch on the acquisition of Battea Class Action Services. I think, you know, from what we've heard from investors, I think they're still a little surprised, just buy it. Not that you guys would do M&A, that's clearly part of the DNA of the company, but just this one in particular. So if you wouldn't mind maybe refreshing, what's the strategic importance of having something like this in your portfolio? And does it create variability that, you know, we might need to be aware of?
Sure. Sure. So, you know, a little bit, and just to make sure we're all thinking about this, I think the way we would think about it, a little bit, you know, you have to look at what Battea does.
Okay.
And so it is, and who are the end customers, right? And the end customers are for the most part anybody that runs a portfolio. Anybody who runs a portfolio trades equities. If they screen their equities to figure out if any of those companies have been in class action suits for which there've been payments, and they can be sophisticated enough and so painstaking enough to step through the class action process, they're likely going to get some money, right?
That's the, it's really as simple as that, right? So a big part of what makes Battea, you know, has had a really good track record of doing it and doing it very, very profitably. And they built some IP to allow you to go through the nuances of the court system all over the world and extract whatever your fair share is out of that proceeding or settlement.
A lot of times if you show up and nobody else does, your share grows, right? So that's the opportunity. We think that the synergy for us is we already have a lot of these customers as customers, right? And when they, a lot of times people don't hire somebody like Battea because this is sort of on the margins. It's important, but it's not that important. And they either don't take the time or they don't know how to evaluate. With us, it's, hey, we already scanned your portfolio. And by the way, do you know Uber just paid $490 million? And if you own this many shares, and this is what it would have been. And it's free money, right?
And that's, I think, the real synergy for us is it's one more capability that we can sell to our current customers that does not take a lot of. It's not a tough sell. It's mostly just, can you get in there? And that's part of that. That's what we've seen.
Okay. Yeah. It's interesting because most of the acquisitions you've done historically, not everyone, but many of them are either businesses that were suboptimal or, you know, EBITDA margins were way lower, just generally not run very efficiently. But this one has better growth, better EBITDA margins than your business. So it begs the question of, is it changing like the way you're thinking about M&A? The way you just described it makes a lot of sense, but it's also got some characteristics that run contrary to the workflow nature of what you've done.
Yeah. You know, Dan, I would say that the way we think about M&A is probably pretty consistent, which is we try to look at everything and we try to look at everything individually for the merits of that and then make the best decision we can. So no, it's not. I don't think the fact that Battea grows nicely or is very profitable is us. I mean, we would like to have those things in everything we buy, but it's not always the case, right? Price point and valuation matters, but for us with Battea, it is mostly the cross-sell capability from them into our client base and the fact that they have 900 customers of their own, and if we can sell some SS&C products and services and some of those customers, you know, then it's a win.
Cool. Staying on M&A for the moment, you're again kind of releasing kind of animal spirits, as they say. Your leverage is still kind of under three, I think, on a pro forma basis with this deal closed. You, you know, you raised some capital. You have some excess capital as a result of that, I think so. And you've got variable rate debt. So presumably there might be some interest benefits coming to you at some point this year. So we're due. You are due. Big time. So what are you thinking about M&A outside of what we just talked about in Battea? Like, are you guys still feeling like there's room for that in 2025?
We do. We do. We're interested. There's a lot of looks right now and there is some optimism, we think. And, you know, we're continuing to be focused on. We know, even though I appreciate Dan, we were able to tell question number 40 asked, but we know organic growth is important, right? So we're focused on that.
Yeah.
But we've always done M&A. It's been a good way for us to add to our capability. We think we'll do that again.
Okay. On the excess cash that came with this transaction, are you thinking about that more in the context of buyback right now?
You know, I think our capital allocation process is probably pretty similar for the foreseeable future as it has been in the most recent past, which means it's skewed a little bit more to, you know, we probably will still pay down some debt, but it's skewed a little bit more to buybacks just at these valuation levels. We still think that that's a good use of our capital.
Okay. Great. And then we have maybe another minute left. But just lastly on kind of the EBITDA margin trajectory, you know, you're kind of getting yourself back to more historical levels. And it sounds like you're a much more efficient organization and you've got Blue Prism that's helping that along with other things. But is it safe to assume like that trajectory can continue as we go into 2025? Or are there certain investments that are out there that we need to be mindful of so that we're not putting ourselves too far afoul when it comes to margin?
I don't think there's any investments that are out there that we can impact margin. You know, in general, we generate a lot of cash. We're fairly profitable. We understand our investment needs and they're sort of baked into our ongoing process. So I don't think there's anything that's out there that, you know, we ought to be worried about. But I do think that our opportunity to improve is, you know, as strong as it's ever been. So it's not like we've used it up. We like to think we can get 50-100 basis points of margin improvement in steady state. That's what we would expect. We could probably go faster and get more, but, you know, we're much more focused on driving the top line and we'll get more efficient while we do.
That's great. Well, it sounds like you got a lot of good things heading into 2025. You got some organic momentum. Hopefully we'll carry through margin expansion and you get some leverage on the balance sheet and interest expenses coming down. So hopefully all those things will come to fruition.
Thank you.
Thanks so much for being here. Really appreciate it.
Yeah, really appreciate it. Thank you.
Thank you.