01—Abstract
Summary
Summary of the 10-K filed March 1, 2019. Cited figures are marked; the original filing is the authoritative source.
SS&C Technologies Holdings, Inc. reported revenues of $3,421.1 milliona for the year ended December 31, 2018, up from $1,675.3 million in 2017, driven largely by the acquisitions of DST Systems, Inc. (April 2018), CACEIS North America, Eze Software and Intralinks Holdings, Inc. The company generated 97% of total revenues from contractually recurring revenues, with software-enabled services representing 81.8% of revenues in 2018.
Net income fell to $103.2 millionb from $328.9 million in 2017, and diluted EPS was $0.42 versus $1.55, with operating income of $429.1 million compared with $396.9 million. Transaction expenses of $97.8 million and a $43.3 million loss on extinguishment of debt weighed on results, and cost of revenues rose to 60.0% of revenues from 52.9%. The balance sheet changed substantially.
Total assets rose to $16,107.5 millionc from $5,539.5 million, and total indebtedness reached $8,347.3 million at December 31, 2018, including $8,319.1 million of variable-rate debt tied to LIBOR. The acquisitions were funded with about $8.7 billion of debt proceeds, including the Credit Agreement, and approximately $1.4 billion of net proceeds from a common stock offering. Operating cash flow was $640.1 million, compared with $471.8 million in 2017.
Cash dividends paid totaled $70.9 milliond, and a quarterly dividend of $0.10 per share was declared on February 12, 2019. The filing also discloses material risks, including the leverage from acquisition debt, cybersecurity exposure, and a pending ERISA class action and related individual and arbitration claims tied to DST's 401(k) plan.
Management states it does not believe any litigation would have a material adverse effect on the company. Stock-based compensation was $96.9 million, and the company reported that internal controls were effective as of December 31, 2018.
02—Key points
Key Highlights
- Revenue of $3,421.1 million in 2018, up from $1,675.3 million in 2017, reflecting the DST, Eze, Intralinks and CACEIS acquisitions
- Software-enabled services were 81.8% of 2018 revenues, and contractually recurring revenues were 97% of total revenues
- Net income declined to $103.2 million from $328.9 million; diluted EPS was $0.42 versus $1.55 in 2017
- Total indebtedness of $8,347.3 million at year-end 2018, with $8,319.1 million at variable LIBOR-based rates; estimated annual interest payments of approximately $401.0 million
- Acquisitions totaled approximately $8.7 billion since the beginning of 2016, funded with debt and a roughly $1.4 billion common stock offering in April 2018
- Operating cash flow of $640.1 million in 2018, versus $471.8 million in 2017
- Pending ERISA-related class action and individual claims against DST and its 401(k) plan committees; management does not expect a material adverse effect
03—One dollar
Follow one dollar
Of each $1.00 of revenue in FY2018, SS&C Technologies Holdings kept $0.03.
- Revenue$3.42B100.0%
- Cost of revenue−$2.05B60.0%
- Gross profit$1.37B40.0%
- Operating costs−$940.9M27.5%
- Operating income$429.1M12.5%
- Interest, other & tax−$325.9M9.5%
- Net income$103.2M3.0%
Where FY2018 revenue went
$3.42B- Cost of revenue: $2.05B, 60% of revenue
- Other operating costs: $622.7M, 18% of revenue
- Net income: $103.2M, 3.0% of revenue
- R&D: $318.2M, 9.3% of revenue
- Interest, other & tax: $325.9M, 9.5% of revenue
Kept 3.0% as net incomeNet income $103.2M · 3.0%
Full revenue history →04—Financials
Financial Highlights
Figures from 10-KFY2018filed March 1, 2019Financial Statements
FY2018 against FY2017
| Line item | FY2018FY2017 | Change |
|---|---|---|
| Revenue | $3.42B$1.68B | +104.2% |
| Cost of Revenue | $2.05B$886.40M | +131.4% |
| Gross Profit | $1.37B$788.90M | +73.7% |
| R&D Expenses | $318.20M$153.30M | +107.6% |
| Operating Expenses | $940.90M$392.00M | +140.0% |
| Operating Income | $429.10M$396.90M | +8.1% |
| Interest Expense | $280.10M$108.60M | +157.9% |
| Net Income | $103.20M$328.90M | −68.6% |
| EPS (Basic) | $0.44$1.60 | −72.5% |
| EPS (Diluted) | $0.42$1.55 | −72.9% |
| Shares Outstanding (Basic) | 232.50M204.90M | +13.5% |
| Shares Outstanding (Diluted) | 243.70M211.60M | +15.2% |
05—Questions
Frequently Asked Questions
Why did net income fall so sharply in 2018 despite higher revenue?
Net income was $103.2 million in 2018 versus $328.9 million in 2017. The filing attributes the decline to higher cost of revenues (60.0% of revenues versus 52.9%), $97.8 million of transaction expenses tied to the DST acquisition, $280.1 million of interest expense versus $108.6 million, a $43.3 million loss on extinguishment of debt, and a 2018 provision for income taxes of $21.9 million compared with a benefit of $46.2 million in 2017, which included an $88.0 million provisional benefit from the Tax Act.
How much debt does SS&C carry and how is it financed?
As of December 31, 2018, total indebtedness was $8,347.3 million, including $8,319.1 million in senior secured credit facilities at a weighted-average interest rate of 4.77%. The Credit Agreement includes Term B-1, B-3, B-4 and B-5 loans maturing in 2022 and 2025, plus a $250 million revolving facility with $242.4 million available at year-end. A 1% change in LIBOR would change annual interest expense by approximately $83.2 million.
What were the main acquisitions in 2018?
In 2018 SS&C acquired DST Systems, Inc. for approximately $5.1 billion in cash (April 16, 2018), CACEIS North America for approximately $20.0 million (June 1, 2018), Eze Software Group for approximately $1.45 billion (October 1, 2018), and Intralinks Holdings, Inc. for approximately $1.0 billion in cash plus 9.9 million shares of common stock (November 16, 2018). DST contributed $1.6 billion in revenues and $82.4 million of net income for the period it was owned in 2018.
What legal matters does the filing disclose?
A putative class action (Ferguson) was filed in September 2017 against DST, its compensation committee, the plan advisory committee and certain officers and directors, alleging ERISA fiduciary breaches. Related individual suits were filed in 2018, and about 278 individual arbitration demands had been made through February 22, 2019. A U.S. Department of Labor letter dated February 23, 2018 also raised fiduciary concerns. Management stated that it is not involved in any litigation expected to have a material adverse effect on the company.
What is the company's dividend and capital return policy?
SS&C paid quarterly cash dividends totaling $70.9 million in 2018, at $0.07 per share in the first two quarters and $0.08 per share in the third and fourth quarters. On February 12, 2019, the Board declared a quarterly dividend of $0.10 per share payable March 15, 2019. The filing also notes that the Credit Agreement restricts the company's ability to pay dividends and repurchase stock.
06—Continue