Hello, everyone. Alexei Gogolev here from JP Morgan software team, and I'm delighted to have Bill Stone, CEO of SS&C with us today. Welcome, Bill, and appreciate you being with us today. First of all, if I may, sort of start with the most recent dynamics that you've seen in your business. It would be great if you could maybe talk about what you're seeing in terms of your assets under administration. They've obviously improved for the first time in a few quarters, most recently, despite all the volatility that we see in the industry. Just maybe if you could talk about, in a bit more detail, about the inflows of hedge funds that you were seeing, as well as, some of the new client wins in the most recent quarter.
Yeah. Thanks, Alexei. Thanks, everybody, for maybe skipping your lunch, you know. Yeah, we had a good inflow quarter in the first quarter. Again, you know, we tend to be the fund administrator of choice for most of the platforms. So whether it's Point72 or Millennium or Baupost or Citadel or any number of others, we tend to be that platform. They gather a lot of assets, and that generally is what helps us. Plus, we tend to win the startups, which, you know, I'm always encouraging all of you to think about, you know, when you might wanna start up, and we can help you. You know, there hasn't been as many, and there hasn't been as bigger ones as has been in recent years.
That whole business is, has and continues to be strong. Our Global Investor and Distribution Services business, GIDS, has done pretty well in the first quarter. First time we've gotten it to grow since we acquired DST Systems in April of 2018. You know, we have made it very profitable. You know, I know you guys don't care that much about cash flow or profits, but I still do, you know. We're optimistic that we have that on the right trajectory. Our Black Diamond business, still strong. Geneva is didn't have as strong of a quarter in Q1, but often they have renewals. For those of you that are steeped in software, you're also probably steeped in something called ASC 606, which kind of distorts revenue.
You know, you have a big one-time pop when you have a renewal, and then it spreads the rest of the time. You know, we think that our business is pretty strong. We think that financially we're about where we like to be. We'll pay off debt, probably $500 million or so this year. We'll probably buy back $500 million in stock. You know, it might be we buy back $700 million in stock and pay down $300 million in debt or something like that. We'll probably buy a few more things before the end of the year.
I don't see anything of massive size on the horizon. The biggest ones may be $100 million in revenue, you know, which would still be relatively expensive because everything's relatively expensive. But, you know, we think we have some market-leading products and we're pretty optimistic about about the rest of 2023 and then 2024 and 2025.
Bill, just a lot of things you've mentioned, just building on some of those elements, do you feel like there is incremental improvements in the industry or it's more SS&C specific, that this performance that you saw and maybe in April and May as well?
Well, I think, you know, what's gonna happen through the rest of 2023 is that people are gonna have a flight to safety, right? Flight to quality. You know, they're gonna go to the JP Morgans, they're gonna come to the SS&Cs and be a little circumspect given what happened with Silicon Valley Bank and First Republic and Signature Bank, and some of the other mid-tier banks. I think, you know, I don't know where that's all gonna play out, but I think that we tend to be a beneficiary when there's a flight to the best administrators.
Now that you mention some of those banks, do you mind reminding us what was your exposure to regional banks and whether or not you're seeing some skittishness post of some of those volatilities in the banking market?
Yeah. I mean, we have some exposure, but not very big.
Okay.
You know, we have a number of mid-tier banks that are clients of ours, whether that's on our trust accounting system called InnoTrust or it's in Algorithmics, which is a pretty high-powered risk system. You know, we sell various pieces of software into a number of the regional banks, whether that's PNC or Truist or a number of others. You know, at least, knock on wood, now it looks like, you know, perhaps that's been contained. We'll see and we'll monitor it. You know, in general, those assets go somewhere and that's an opportunity for us wherever they go.
Right. Could you talk about some of that guidance that Patrick and yourself have provided for the year? It implies quite a bit of revenue acceleration in the second half. Could you elaborate on some of those large-scale deals that are expected to go live later this year?
Yeah. I mean, if you go back over the last couple of years in the press releases that we've sent out, you know, you'll see press releases on ICMA-RC, you'll see press releases on Nationwide Mutual Insurance Company, press releases on Santander, press releases on JP Morgan, and a number of others. All of those are going live now, and the revenue pickup is pretty substantial between being in conversion and then being live. There's a lot of revenue that's gonna flush in the second half, and also most of the price increases that we've put through in 2022 and 2023, you know, will start to fully flourish in Q3 and Q4.
Right. I wanted to ask about that as well. What are the price increases that you anticipate this year, and how are you feeling about, you know, the incremental improvement in your bargaining power considering this flight to quality that you mentioned?
Yeah. You know, I sit with a lot of our shareholders, and I sit with a lot of our customers, and, you know, when they're of both, right, large shareholder and large customer, you know, when they're a large shareholder, all they talk about is how you ought to raise prices. You know, when they're a large customer, they say, "For everybody except us." You know, you get in a catch-22, right? You know, we think we have successfully put through about $125 million in price increases, which, you know, is about 2%-2.5% and, you know, on the $5.5 billion revenue. We're disciplined, getting increasingly disciplined in doing that annually.
I think that, you know, if we can maintain the pace of innovation that we have over the last couple of years, I think, you know, we think we are running faster than our competitors, and we're already ahead. They're not catching us. I think the value of owning your own technology cannot be overemphasized. That's a real competitive advantage we have.
Bill, you touched upon your M&A strategy. If you could maybe double-click on that and discuss, has there been any changes in the strategy given the recent volatility that we've seen? Is there perhaps some more opportunity for someone like yourself, a company that generates so much cash, to take advantage and maybe get some more market share, some expertise in certain areas?
Well, I mean, you know what, our strategy for a long, long time, 20 years at least, has been methodically opportunistic. Methodically means look at everything, then opportunistic is that when we see something we like, is go get it.
Yeah.
You know, that's what we did with Blue Prism, which we're quite happy with. It also is a affirmation of what we think about, you know, AI and RPA and machine learning and natural language processing, is that we're not talking about it, we're doing it, you know. You know, some of the applications of these digital workers is unbelievable what they can do. What used to take us two people about two or three days to look at 1,000 LP statements before they went out to a couple of our clients' LPs, you put one digital worker on it takes three to four hours. You know, they don't get tired. They don't take any breaks. They work 24/7. They don't ever bitch. They never ask for a raise.
You know, it's just when it's something that has been designed and built purposefully to do certain tasks, it's amazing what they can do. You know, I think you have to be careful. You know, humans are still important. You know, we're not trying to have risks. We're not trying to take to get rid of our people. We just think we can grow and not add people. We might be able to grow, and then as we have some attrition, we might not have to replace people.
Right.
We're not really looking to have a smaller workforce or anything like that. We think that our scale, you know, we have 100 offices in 40 countries and 27,000 people. You know, with about 15,000-16,000 outside the U.S.
Just building on the M&A comment. Historically, I think your preference was always around increasing leverage if something attractive opportunistically came along. What is currently you feel like a comfortable level of leverage that you could use in order to buy something attractive? If that's not enough, would you consider using share capital, using shares to buy anything attractive?
Yeah, we would be willing to put on a couple more rounds of leverage. If we make $2 billion, EBITDA would be able to put $4 million or $4 billion more in debt, which gets you know, would've got you SimCorp, given what they, what they sold for. You know, nothing against SimCorp. SimCorp is a good company, but I wouldn't spend $4 billion.
Right. I was just gonna ask you about that. Like, have you looked at that deal? I mean, they've been around for sale for a while, so I'm sure you have at some stage. Recently, have you been offered this deal?
Well, we get, you know, we get offered to kick the tires on-
Of course.
- on almost everything. I mean, at least what I saw was they make $151 million, then you plan to pay $4 billion. You know, if you finance it at 7%, you know, I'm really good at arithmetic, I think that's $280 million. How do you pay for that with $151 million? You know, these Germans are really smart, they probably got that figured out. But that's not something we would make. You know, we like cash flow, we like earnings. You know, we like Blue Prism because, you know, when we bought them, they didn't have any earnings. They didn't have. When they left 2022, fourth quarter, they had about 25% earnings. By the end of this year, they'll have 35% earnings.
People say, "How do you do that?" We pay attention, you know. We're not trying to toss... Like, we're investing in Blue Prism. We're not afraid to spend money, but, you know, it's our shareholders' money. You know, we don't throw it away. I mean, do we really need Blue Prism TV? I don't think, I don't think Disney's worried, you know? You have to look at what you're spending money on and what's the return on the money. Again, not that we're always right.
We try all kinds of things, you know, but we think that Blue Prism, both internally at SS&C, you know, with us deploying 1,350 to 2,700 digital workers this year, and over the next three or four years deploying another 10,000-15,000, that's gonna save us a fortune, you know. How much? I don't know, $300 million? Something like that.
I think you were saying $50,000 for each digital worker, right?
Yeah. Even being conservative, we think that's conservative.
Yeah.
You know, we're optimistic about where we sit and what we're doing. You know, we've brought out a bunch of new software. You know, we had a press release that our Advent software group just brought out a whole bunch of new products and services and, you know, we have Aloha, we have SS&C Singularity, and we have a number of new things like GoCentral and, and Genesis, which is a new release of Genesis. You know, I just think that, you know, where we sit, we're innovating faster than our competitors and we think that will bode well for our financial statements and the returns for our shareholders.
I find it quite fascinating how you bring some of these companies to very high level of profitability like you did with Blue Prism. You mentioned very high focus. Could you elaborate a little bit on that? I mean, one of the elements that I think that we were discussing recently was, you know, low-hanging fruit at some of these firms, and one of those elements was hosting. You made me talk about, like, your view on that element of the expense.
Yeah. I mean, you know, we run our own data centers, large world-class data centers. You know, we host our applications. You know, that's a pretty big business for us. Our ability to, you know, move, you know, their technology into our data centers and run our application suite for that type of stuff has proven to be a pretty attractive for the acquisitions that we've done, but also for their customers.
When we bought Advent Software in 2015, you know, they gave all that away. They, you know, they had consultants that did this and other technology companies that did their hosting and, and all that. We went, "You know, we find this to be the lowest hanging fruit." You know that if you have competent data center managers and executives, you know, you can run those things and be able to, you know, literally pull one of those little things out of one thing and stick it into another one, and you just doubled capacity, which often means you double price. It took all of about, I don't know, on a bad day, maybe 10 minutes, and on a good day, maybe two minutes.
You know, I learned this a long time ago when I used to watch IBM come into us, and I'd watch them go, "You were here for like 20 minutes and you charged me double. What, what did you do?" You know, and they reach inside they have wire cutters and they clip a capacitor. All of a sudden you had access to twice as much, you know, storage, twice as much, co-compute power, and you got twice as big a bill. You know, what a great business that is. You know? Again, you know, we think doing, you know, very sophisticated performance and performance attribution or really understanding the E ITF 99-20 and whether or not you do retrospective or prospective discount cash flows for derivative mortgage-backed securities, we think is very complicated. Very complicated.
You know, as Wall Street comes out with increasingly complicated securities, you know, everybody's talking about private credit, private debt, you know? Man, that stuff is. You know, there's all kinds of triggers. There's all kinds of things that you have to have stored, that you have to know. If you don't, you do accruals, and then the cash comes in, and the cash isn't anywhere close to what the accrual is. You gotta go try to figure out, okay, so why is it off? You know what that's like to go back for six months and figure out where the... what happened? It's a pain in the neck, amongst other places, right? You have to go through this whole thing and it's like, well, you only got... I got 400 of them. 400.
Every night I was with the chief investment officer. He's yelling at me, and I'm smiling at him. He's yelling at me, and I'm trying to smile at him. He's yelling at me, and I start yelling at him. You know? He says, "We get these things from these PE guys, and it's all private credit." He goes, "You know, I don't know where to get the numbers. Your guys are supposed to find the numbers." I said, "That's about 300 pages, and you want us to find five numbers?" I said, "Do you think our accountants make as much money as you do? They do not. If you don't tell them where the numbers are that you want posted to your ledgers, you know..." Again, this is only one of those damn things, you know?
They got a couple hundred of them, you know. You know, you really have to build the right process, the right procedures, have the right technology, and then be very disciplined about it. You know, a lot of times people don't wanna be that disciplined. "It's close enough." Until it's not, you know? "Well, why'd you let us do that?" I'm not the fiduciary. You are. They don't wanna hear that, so I try not to say that. I try to fix it. I try to fix it and send them a bill like PricewaterhouseCoopers, but I'm not as good at it as they are, but I'm learning. You know, it's just the complexity that's going into the capital markets is not less, you know.
That's opportunity for us, but it's also hiring the right people, training the right people, being able to have ongoing training courses, ongoing education, you know. That's, that's real opportunity, but it's difficult.
Bill, if I may ask a few questions about the healthcare platform. I feel like the opportunity there is very significant. Firstly, I was wondering, when do you think we could expect the platform to be launched, whether, you know, you're seeing some better progress in that? Also, which phases of pharmacy claims does this cloud-based technology handle? You know, when do you think we could see this platform really show monetization and traction?
Yeah. We're scheduled to bring Humana onto that. They're one of our joint venture partners, 1/1/2024. We're out now showing a variety of our customers the platform. We're getting very positive feedback. It's not done yet. It's a large-scale system development, so it's not without risk, right? So far, the feedback has been pretty strong. This does the whole adjudication process, the checking of the, of the claim, you know, checking of the, of the prescription, you know, at the pharmacy. Right at the point of sale. Make sure that, you know, your insurance covers this, and here's the copay and all that kind of stuff. You know, right now we do $400 million of these things a year, and, you know, we're up 24/7. I don't think other than scheduled maintenance, we've been down in two years.
That's really important, you know, as you go to get a prescription filled that it works, right? You know, people get frustrated quick if it doesn't work. You know, we're bringing out the new platform that has a way better user interface, has all kinds of APIs, has all kinds of capabilities above and beyond what we have in our current platform, which is called RxNova. We looked at everything in the market, potentially buying everything in the market. I really like the healthcare business 'cause I think there's all kinds of money in it. It's also often being paid by third parties. You know, you get a little more flexibility, maybe a little less scrutiny, you know.
You know, we're with one of our partners, and they say they started this one business, and now they're up to, you know, over $1 billion in a year. You know what it's like to get $1 billion in revenue in a financial services software company? Very, very difficult. Impossible, maybe, right? You know, we look at... If you look at a prescription, it looks like a lot like a trade ticket. Number of shares, number of pills. Rx number, CUSIP number. Rx symbol, symbol. Doctor, trader. Y ou know, there's millions of them. You gotta collect them, you gotta account farm, you gotta collate them, you gotta slice up that data and deliver it back to the plan sponsors, the insurance companies, the employers, all the different constituents, regulators.
We look at it as a very similar business to our fund administration business. You know, everyone told us that we shouldn't go into fund administration and, you know, now 20 years later, we got $2.4 trillion, and it's about a billion-dollar revenue and, you know, close to $500 million in EBITDA business. We don't think healthcare should take that long.
Perfect. Bill, this wouldn't be a TMC Fireside Chat if I weren't to ask you about AI. I know you've been working on robotics automation for many years, so you have a lot of expertise. You also talked about digital workers just now. What are your thoughts about AI? How much of a tailwind can it be for your business and some of the routine projects that your employees are working on?
Well, you know, like I said, with the, you know, the statement processing that it can validate and other things that we're doing. We took, you know, and we just had a press release out about the New Mexico Medicaid program, that when they have a new infant in that program, it was taking between three and 30 days to get them enrolled. We have this bot we call Baby Bot. Now it takes 15 minutes. You know, so when you get those kinds of productivity increases, you realize that, whoa, you know, we better embrace this, and we better understand how we're gonna roll it out. We better figure out how we're gonna control it. We're gonna figure out how we have a moat around it, you know, so that the value proposition, you know, comes back to our shareholders. Right?
I mean, we're a public company. We're in business for our shareholders. We're trying to make money for our shareholders. We're not, you know, not that we don't wanna help the world, but you know, we're a for-profit place, you know. It's using those things in ways that improve our customers' capabilities, you know, really cements us in as a critical partner to them and then allows us to, you know, hire the best people, pay them very well, take care of our customers, and have great returns for our shareholders.
Bill, final question. you've always been very balanced with your capital allocation approach. It was always 50% debt repayment, 50% would go towards buybacks. Is there anything that you think could change in current environment, or do you feel like keeping this balanced approach is important for your shareholders?
I think, you know, one of the things that you're trying to do in this thing, and I think it's art more than it's science, and, you know, even meeting with some of our shareholders and debt holders, you know, yesterday and today is, you know, everybody likes SS&C to do deals because we cut a bunch of costs. We make a lot of money. You know. A lot of times we need to borrow money when we do that. You know, we like to keep our debt holders happy too, you know. They like to see you repay in advance. They get some pickup in their returns. You know, we look at that. You know, we also look at that, "Hey, we're gonna generate about $5 a share in cash.
Yeah.
Stock's trading at $55. I'm not sure exactly what that is, but I think it's about...
It's a nice return.
About 9.5%, right? We pay an $0.80 dividend, right? That, that $5 plus that $0.80 is $5.80... I'm so good at arithmetic. $5.80, you know, divided by 58 gives you a 10% return. You know, buying back shares from a CFA standpoint is a lot more accretive to us than paying down debt. There's, you know, a variety of different things that you wanna accomplish in your capital allocation process and we don't ascribe to any one algorithm.
Of course. Bill, this has been great. Thank you very much for joining us today. Hope to see you soon. Thank you.
Thanks a lot. Appreciate it.