Hello. My name is Matt Roswell. I'm part of the Payment Processing and IT Services team here at RBC. It's my pleasure to welcome Rahul Kanwar, who's President and COO of SS&C, and Justine Stone, who is—I'm sorry, Justine, I always forget your titles.
Head of Investor Relations.
Nothing. Nothing.
Nothing.
Nice and simple. I guess we're asking everybody this question, and that's a lot of macro volatility out there. What does demand look like? As part of that, could you kind of go through each of the business lines?
Sure.
Thanks for having us. We really appreciate it. You know, I think the thing that we would highlight about our business is we tend to have really sticky products and services that are, for the most part, mission critical. You know, we have the world's biggest fund administration business. Those funds need their NAVs almost regardless of macro climate. We've got a big transfer agency business, very, very similar kind of thing. We're doing portfolio accounting, tax reporting, regulatory reporting, essential. For us, where we primarily see, you know, some of the macroeconomic effects are maybe a little bit in our—some of our more transaction-oriented businesses.
We have an order management system, and depending on how much volatility there is in the market and are there more transactions or less transactions, we've got a business called Intralinks, which is the leading provider of virtual data rooms for the M&A and due diligence process. There we'll see some impact depending on what's going on in the M&A. For the most part, our business has been, you know, really healthy. While our customers are clearly concerned about what's going on with political environments and world markets and things like that, it doesn't really have that corresponding effect on our business.
Can you remind me what percentage of revenue is tied directly to asset levels?
It's sort of one of those numbers that's hard to get at. The reason it's hard to get at is even in customers that are directly tied to AUA or have an AUA component, you know, they still have minimum fees and transaction fees and fees for specific services and generally floors and things like that. We have some impact of AUA primarily in our fund administration business and in some of our software businesses where we're charging based on AUA, but it's pretty small.
Is volatility just in general, is it a positive or negative in terms of demand?
It is, in general, it's positive for some of our businesses.
Okay.
It is positive for, you know, our order management system business as one example. For the most part, it is relatively neutral.
Okay. What are you seeing in terms of, like, the sales cycle and the implementation cycle?
Healthy demand. We've gotten, you know, in most of the markets that we're in and most of the types of things that we're doing, we're, you know, we're the world's biggest fund administration business. We're the leading provider of data rooms. We've got a suite of technology products that we sell out to asset managers, which, you know, products like Admin Geneva and others, which are leading products. For the most part, when people do RFPs, they're looking at us, right? We're on that list. Obviously we have to execute and we have competition, but pipelines remain full and there still seems to be a healthy buying environment.
What about the competitive environment? Sort of thinking about each of the business lines.
I think that, you know, that's one of those attributes of healthy markets, right? There's a lot of competitors, and our competitors kind of fall into maybe a few different categories, depending once again on what business. On the one hand, we have the large custodian banks, and many of them are also customers. You know, they obviously have some positive attributes to their business. Usually our competitive differentiator is that when we're talking about software or technology-led businesses, we can build technology a lot faster than most of those, you know, very heavily regulated type organizations. We can—and that innovation then translates into practical applications a lot quicker. That's kind of one element, the big custodian banks. We do have, you know, another type of competitor might be sort of the smaller fintech type, you know, startups, things like that.
What we're increasingly seeing in our 22,000 customers around the world is, you know, bigger customers, bigger mandates. They want strategic partners. They want people that can do not one or two things for them, but 15 or 20 things for them around the world at scale. We have that going for us. We're kind of in that sweet spot where we're still nimble enough to be able to innovate at a rapid clip, but big enough to be able to provide scale around the world for some of the bigger organizations.
How often are you competing against, I guess the term of the day seems to be inertia? In other words, the client has a system, it's okay, but it's 10, 15 years old, etc.
Every day.
Every day.
Every single day, right? Because you're almost always, unless it's a brand new organization, you're almost always displacing something. That something that you're displacing at least half the time, if not more, has an element of homegrown, built internally, pride of ownership, people that don't want change, all those kinds of things. In some ways, what's happening with technology is making that easier because the, you know, the odds are stacking up against those arguments for, let's just, you know, this is fine or we can do this thing because, you know, a lot of times they'll say, all right, we need this piece of functionality and they'll go get a quote for an internal build and they'll say three years from now maybe. Nobody believes the three-year estimate, right? Whereas you come to somebody like SS&C and it usually already exists. It's been deployed, it's market tested.
That's a much better argument.
Let's move from demand to organic growth. That's always been one of the kind of investors have always questioned the organic growth. They want to know what the numbers are. You did, I mean, first quarter you did great, 5.1% overall for the company overall, 5.9% if I just look at recurring financials, so I'm excluding the healthcare business. Don't worry, we'll get into healthcare later, of course. The 2Q guide was, is about 2.5% at the midpoint, if I'm reading my notes correctly, without my reading glasses on. I guess why the slowdown in the second quarter and then why the acceleration that's implied in the, what is it, 4.4%, 4.5% at the midpoint for all of fiscal year 2025? Can you walk us through that?
Yeah, I'll take that to begin with, Matt. You know, I think, you know, when we're doing our planning and our budgeting process and our forecasting, we're really looking for, you know, a full year target that we're looking to hit. There can be some variability depending on which quarter, you know, depending on what happened last year, you know, license deals sold, what quarter can be the strongest quarter. Typically what we see is Q1 is strong from an absolute revenue basis because we do have some additional services that we perform in Q1 on behalf of our clients, like tax services and financial statements. Q4 is typically strong as people are wanting to spend their budgets before the end of the year and before they reset.
You know, when we did our budgeting process at the beginning of the year, we always knew that Q2 was going to be a bit lighter than Q1. We did see strengthening in the back half of the year due to already sold deals that, you know, we know are coming online. Pathia, which has been an acquisition, also becomes organic at the end of Q3 and fully in Q4, which we think should be additive to the growth rate as well. There is a little bit of that. I mean, you know, we think our businesses are still performing kind of where we saw them at the beginning of the year. The one that maybe does not look quite the same is Intralinks. We do not have quite the strength from M&A that we thought we were going to have in 2025.
You know, we are seeing a little bit of an opportunity for that to come back modestly in the second half of the year as well.
GlobOp had, what was it, 10% organic growth plus in the first quarter. I mean, that seems awful fast for that business.
That's kind of in, I mean, that's kind of in line with, you know, maybe on the high end of where we would expect GlobOp to grow. You know, that business has gotten better and has strengthened over the past five years. The growth rate has ticked up a little bit. We expect, you know, on an average year, 7-8% growth. You know, if things are a little bit better, like in Q1, we do have those additional services. You know, we have won some larger clients over the past couple of years that are fully ramped up now. You know, it can do a bit better than that 7-8%. If we're really seeing maybe a slowdown in fund launches or something, it might come in a little bit below. Anywhere in that range, we're comfortable.
That's the fund administration business.
Yeah.
Correct? Yeah. Just in case.
No, where we're really seeing strength in fund administration has been in the private markets, continues to grow over 10%. And then a smaller piece, but is growing pretty fast, is retail alts.
Digging into the private growth in fund administration, that's something that you've been talking about for a while. What is, it seems like it's finally getting its momentum. What's been the change?
You know, one part of it is that it started out as being a small part of our fund administration business. So as it's gotten, you know, because it's been growing faster, as it's gotten bigger, it has a bigger impact on numbers. So, you know, today it's probably 30-40% of our fund administration.
Yeah, probably 30.
Yeah. So, you know, that's more meaningful than it was 10%. On the whole, in private, one, there's still a, you know, fairly healthy appetite for private credit, private equity, you know, oil, natural gas, you name it. There's a lot of funds being launched still. What we do, which is a blend of fund accounting and technology, is somewhat unique in those markets, particularly in the private markets where the traditional accounting slash administration was, you know, very Excel and kind of manual focused. We've sort of got a natural tech advantage. The fact that the markets have been healthy and a lot of people are doing it themselves and they're trying to get away from doing it themselves has been good for us.
Yeah. I would say where hedge fund is probably close to 100% penetrated in terms of a third-party fund admin, private markets, it's probably maybe less than 50% still. There is still a large number of very large private equity and private markets firms that do it in-house. Increasingly, they're looking to outsource more. It might be a fund at a time, a new fund launch, maybe if they're launching private credit, or it could be kind of a function at a time. There is more opportunity to get deeper within those organizations.
Pivoting a little bit, the Australia lift-out, where do we stand and what's attractive about that market?
There is a lot of wealth in that market, is, you know, one part of it. Sophisticated customers, we think pretty discerning buyers of technology and high-quality services. We have been in Australia since the mid-1990s, so we have been there for a long time. We have, you know, a number of different products and services that are sold in Australia, including fund administration, transfer agency, wealth management, obviously what we are doing for super funds now, and a number of our software products as well. I think what is attractive to us primarily is that it feels to us, at least what we are hearing from the folks that have selected us and the prospects that we are talking to, is the market is somewhat underserved in terms of kind of who the competitors are and how sophisticated their offerings are.
We have to obviously, you know, be successful at implementing and getting live and getting referenceable some of the big deals that we have won. But they're looking for us as a viable alternative and somebody that can really help them in that marketplace.
Besides the Insignia deal?
We have a variety of different estimates. But yeah, we expect it to be fairly material for us in Q3 and Q4 and onwards.
You mentioned other mandates. Can we expect to hear announcements, or is it going to be more of a non-disclosure where?
No, we've done some announcements. Most of the announcements we've done so far, the mandates are smaller. It is not so much that individually they will, you know, greatly move the needle for us. It is just when you put the story together, you've got some momentum here that we think we'll be able to sustain for a period of time.
I think what the big outsourcing or the big liftout deal gives us is a really strong presence in the region, a really strong outsourcing presence that we could do organically instead of through an acquisition. You know, we'll have, however many, 1,400, 1,500 people, 1,400 people that are, you know, our experts, know the, you know, know the industry, know, you know, the client base and, you know, the work that needs to be done. We're going to be able to expand and leverage that workforce.
You mentioned the competition in Australia. What sort of firms are they? Are they the custodial banks like you see here or?
Yeah, there's some custodial banks. There's some, you know, some standalone kind of independent firms. There's, I'd say more service firms than pure technology firms. You know, that tends to be our advantage, which is we will have service combined with technology. Over time, when people are looking for outcomes, when they're looking for cost savings, operational leverage, a better experience for the ultimate, you know, the end client, technology makes a big difference.
Are there other markets that look kind of like Australia where you have large funds?
You know, we're also pretty bullish on kind of our opportunities in the Middle East. The sovereign wealth funds and some of the, you know, other big organizations there are pretty big consumers of, you know, what our clients produce around the world. They're big investors in alternatives. They're big investors in traditional asset managers. They're big investors in, you know, real estate and infrastructure and things like that. We have been able to get some standing with those organizations and we're in many cases their administrator. As they deploy more capital around the world, we think that's a pretty good opportunity for us as well.
Okay. I promised we would get to healthcare.
Yeah.
Now are the healthcare questions.
Fire away.
Had strong organic growth in the fourth quarter and then returned to kind of flattish down a little in the first quarter. What happened fourth quarter to first quarter? How should investors think about it, organic growth for the remainder of the year?
I think we're expecting, you know, flattish to slightly positive for this year as a whole. The thing to remember, and this is true for really all of our business is, and maybe it's a little more stark in healthcare, is, you know, it's a mix of license sales as well as recurring revenue tied to services. If we have a big license quarter where we have two or three deals hit at the same time, which is what we had in Q4 last year, it, you know, all of a sudden it pops a little, right? If we could, you know, maybe those license deals, if we had one or two in Q1, Q1 would have been slightly positive too. We don't get to control that too much.
As Justine was talking about with the respective fund administration, we're really just looking at it a year at a time. More importantly, we are looking at what's the overall trajectory. We do think that the healthcare business is strengthening. We think that this new platform that we built, Domani Rx, has now processed over 200 million claims. New software at scale is being used all over the market. Our opportunities are outsized relative to the size of the business that we have.
You mentioned Domani Rx. Can you give a little brief overview? Are there any milestones that investors should look to for the next couple of quarters?
Sure. So, you know, we built with some partners that are large health organizations, Humana, which is a really big customer, is probably the one that I would highlight. We built a brand new system that's cloud native. You know, it runs kind of off of APIs to process pharmacy claims in the United States. You know, this is the system that sits on the desktops of the, whenever you go fill a prescription, kind of this is what checks the prescription, it validates it against the formulary, figures out what your payment process is with the insurance company and facilitates the entire transaction. It is a fairly important piece of technology that obviously has millions and millions and millions of things going through it. Most of the software that is being used to process these kinds of things is very, very old.
It's, you know, and so nobody's built a brand new system and then been able to deploy it to do hundreds of millions of transactions that we're aware of. There are some new systems out there, but they don't nearly have the scale or the volume tied to them. We've got a proven new technology at scale and we've got lots of people looking at it.
Any milestones?
I think the milestones to think about are each year, each plan year or each the start of the calendar year are sort of big selling motions for that. You know, I would certainly look at the start of next year and the start of the following year as kind of big opportunities for us to meaningfully change the trajectory.
The competition, you mentioned everybody seems outdated.
Yeah, you know, and it's outdated and there's conflicts all over the place, right? Some of that is the big health plans themselves have their own technology. They try to do it for third parties, but then you end up with these conflicts where you're giving your data to a competitor, things like that. That's a part of it. You've got some startup, what would be the equivalent of fintech, but healthcare startup type companies, technology companies that are, you know, they're having a hard time getting the traction.
I think what, you know, where we benefit is that, you know, yes, Domani is a brand new built from the ground up system, but RxNova, which was kind of our legacy healthcare pharmacy claims systems, works perfectly fine and handles a large number of pharmacy claims on it already. We already have that as kind of a starting point for being able to grow on top of that. We built Domani not just in a vacuum, but with a partnership with two pretty influential healthcare partners so that we knew the specifics of what they needed and, you know, what goes into, you know, actually doing this kind of work.
If we take healthcare over a medium term, how should investors think about the organic growth?
I think the way to think about healthcare is today it's a relatively small part of efficiency, you know, and with an outsized opportunity, right? So it's not just think about the healthcare organic growth, right? Which, you know, we obviously expect to improve from here, but it's also can healthcare as a business meaningfully add to SS&C's organic growth, right? And that's how we think about it.
You think it can add to the whole company?
Yeah.
Excellent. I haven't asked about margins yet. Historically, you guys have gotten great margin expansion on an annual basis. Is there still additional levers to pull?
I think so. You know, it's both. We think we have leading margins in most of the markets that we're in. Most of the people that we compete with, you know, our margins are quite a bit better. At the same time, we're also well aware that there's lots of people that work at SS&C. There's lots of repetitive processes. There's lots of ways in which we can bring technology to bear. We've been at this, we acquired Blue Prism, I guess, three years ago, and we've been at this process now for maybe two and a half years or so to be able to take our own technology that we now own and put that through the organization.
Our estimate is that we have saved about 2,500 people, which is roughly 10% of our workforce, almost 10% of our workforce in terms of not having to add as we grew. What it has also done for our employees is it has made their jobs better because we are taking out the lowest level of processing, right? We are taking out the routine, the sort of in the trenches day-to-day type work and making their jobs a little more analytical, a little more client-focused and client-facing. It is a really good story, but we would also say that we are kind of just getting started, right? We have got margin opportunity and opportunity to keep deploying that technology for a long time.
I think for this year, it's about a 50 basis point improvement for the full year. That's kind of in the range of what we would expect annually.
Okay. You mentioned Blue Prism and deploying it internally. When you bought Blue Prism, it had about, if I'm remembering correctly, about half its clients were outside of financial services.
Yeah.
What have you been seeing with, you know, selling it outside of kind of your core market?
I think the mix today is very similar where financial services is obviously a big part of the client base. Depending on whether you do it based on number of clients or revenue, it's still a little less than half. The other half is everything other than financial services. That is still, you know, we've got lots of healthcare applications primarily because we have a little bit of a, you know, healthcare presence ourselves. We're in every kind of manufacturing company. We're really all across industry.
Demand is still strong?
Yeah. We're not seeing anything disproportionate in terms of the client base.
Who does Blue Prism really compete against?
It's a variety of things. There's homegrown automation technologies. There's some other robotic process vendors, Automation Anywhere, a couple other ones. I think some of the big tech players are getting into it. You know, more and more the trend is, you know, agentic AI and just taking advantage of some of the more recent AI-type technologies. That's, we think, a pretty exciting area for us.
Do you think your client's data is sufficient or is, I guess, strong enough to actually run some of the more modern AI solutions?
There are a couple of fundamental things that you have to have to build a solution that'll actually work, right? It'll be more than just a science experiment. One of them, particularly when you get really sophisticated and you talk about agents, is a deep understanding of the actual workflow that you're trying to process, right? That's not just one flavor of the workflow. It's the hundreds of thousands of different, which I think really is your question, right? You kind of need to know what happens when something deviates from the norm even a little bit, right? Because that's usually when most of these models break down.
The advantage that we have is while any one of our customers individually might not have the entire spectrum or the entire landscape of possible things that can happen, so the large data set that then trains the model, we do, right? Because one, we've got all those customers, but we also, in most cases, are large processors ourselves. We've got firsthand knowledge. Where software companies in general are learning from their customers, and we have that as well, we're also learning from ourselves. We're providing them with sophisticated models that ought to be able to do everything they have and then some. That way, when you get that errant piece of data that breaks the model, you know, the system's already learned.
As we think about you deploying, you know, Blue Prism and AI internally, how are clients looking to kind of share in those efficiencies? I'm getting to the sort of the pricing question as well.
Yeah. Look, we have, you know, maybe not specific to Blue Prism, but, and I'll come back to Blue Prism in a quick second, this is the age-old question, right? Which is as we get more efficient, do we get demands for some of that efficiency to be passed on? It's a pretty natural, you know, you would think that would be the case, except that's not the case. It never has been in our business going back 20, 25 years. You know, fund administration is a great example of that, which is as our products have become more sophisticated, our margin has improved, our technology is getting better, we're not getting a lot of demands for savings back. We get individual, but those are as driven by the unique circumstances of that particular fund or that particular client.
A big part of that is, for the most part, the things that we're providing are relatively cheap compared to their operating budgets and what they're spending money on. They're also extremely essential, right? This isn't, it's not commodity stuff. It's really high-value, expertise-driven technology that is mission-critical to them. They would just as soon work well and pay you a little bit more than, you know, try to fight your overpricing and have you be unhappy and create some potential disruption. That's been, we think that applies to all of these things.
I think for the most part, you know, the things that we're doing that essentially end up saving us money and making us more efficient, it's making their processes more efficient, more accurate, faster. They are getting a better product as we deploy digital workers and RPA and AI throughout our processes.
I'm going to switch gears again. You mentioned the Pathia acquisition.
Yeah.
Goes organic third quarter, I think.
End of Q3.
End of Q3. Could you remind us what that does? Could you kind of use that to talk about the current AI, M&A environment?
Sure.
Got AI on the brain.
Pathia provides class action services and in particular for investors. Funds, you know, whether that's hedge funds or traditional asset managers or really anybody that has a portfolio. The technology as well as the expertise is they scan your portfolio, try to figure out if you're entitled to potential class action money because some of those companies, you know, have some litigation against them or whatever the case may be that pays to the benefit of investors. They go and facilitate the process of getting you in that pool and, you know, shepherding that through the process and making sure you get paid. You know, they get paid as a result. That's the business. We think it's a natural adjacency in particular to our fund administration business, but really, you know, many of our businesses, our customers are investment organizations.
They run portfolios and many of them do not pay attention to this part. It is sort of a, you know, it is almost, it is free money, right? If you spend a little bit of time and you have some experts do it for you, you get something that you were not getting before. It has been a good acquisition for us. We are doing pretty well with it. The introductions and the cross-references that we have made with our fund administration business have been, you know, they have been really well received and we have signed up a large percentage of the clients that we have approached so far. That part we are really positive on.
I think the larger kind of the comment on the M&A market in general, look, we're seeing it doesn't have as much impact on Pathia directly because Pathia is much more on the, you know, what the companies are doing within the portfolios. We're seeing a little bit of a softening as it relates to that in Intralinks as Justine talked about. Even there, it does feel like, you know, there's some hope in terms of kind of what we would expect to see in Q3 and Q4.
What about SS&C acquisitions? What are you seeing in terms of targets?
Yeah. You know, I think that, you know, we obviously just put out a press release about our stock buyback that, you know, we announced it a quarter early and we upped it by 50%. That obviously indicates that, you know, we are still pretty bullish on our stock and directing capital towards buybacks. You know, in terms of the M&A market, you know, we still look at everything. If there is something, you know, that fits kind of our criteria and at the right valuation, something similar to Pathia, you know, perhaps a little bit bigger, perhaps a little bit smaller, you know, we would be interested in doing that and kind of building out our offering, you know, for the long term.
You know, it has to fit the financial profile that we're looking for, you know, growth accretive, ability to get to our corporate average margins and at a fair price. You know, we don't look to spend 30 times EBITDA for some of these companies.
Good to hear. Thank you very much.
Thank you.