SS&C(SSNC) - 2022 Q2 - Quarterly Report

PART 1. FINANCIAL INFORMATION Item 1. Financial Statements (unaudited) Unaudited financial statements for Q2 2022 show increased assets and revenues, but decreased net income and operating cash flow due to acquisitions Condensed Consolidated Balance Sheets Total assets increased to $17.50 billion by June 30, 2022, driven by goodwill from acquisitions, while liabilities rose due to increased long-term debt Condensed Consolidated Balance Sheet Highlights (in millions) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Total Assets | $17,500.3 | $17,333.0 | | Cash and cash equivalents | $438.3 | $564.0 | | Goodwill | $8,866.8 | $8,045.5 | | Intangible and other assets, net | $4,358.1 | $3,805.3 | | Total Liabilities | $11,386.1 | $11,109.8 | | Long-term debt, net of current portion | $7,234.5 | $5,901.5 | | Total Stockholders' Equity | $6,112.1 | $6,223.2 | Condensed Consolidated Statements of Comprehensive Income Q2 2022 total revenues grew to $1.33 billion, but operating income and net income declined significantly year-over-year Q2 and Six Months Performance Comparison (in millions, except EPS) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $1,328.7 | $1,259.0 | $2,623.7 | $2,492.4 | | Gross Profit | $624.3 | $595.0 | $1,244.1 | $1,154.1 | | Operating Income | $245.6 | $312.9 | $537.4 | $582.0 | | Net Income Attributable to SS&C | $110.6 | $189.8 | $282.7 | $364.7 | | Diluted EPS | $0.42 | $0.71 | $1.06 | $1.36 | Condensed Consolidated Statements of Cash Flows Operating cash flow decreased, while investing activities saw a $1.67 billion outflow primarily due to business acquisitions Cash Flow Summary for Six Months Ended June 30 (in millions) | Cash Flow Activity | 2022 | 2021 | | :--- | :--- | :--- | | Net cash provided by operating activities | $447.5 | $562.3 | | Net cash used in investing activities | $(1,673.6) | $(17.9) | | Net cash provided by financing activities | $69.2 | $1,175.8 | | Net (decrease) increase in cash | $(1,178.6) | $1,718.6 | - Cash paid for business acquisitions, net of cash acquired, was $1,597.1 million for the first six months of 2022, compared to a net cash inflow of $7.3 million in the same period of 2021[11] Notes to Condensed Consolidated Financial Statements Notes detail accounting policies, significant acquisitions like Blue Prism for $1.6 billion, and ongoing legal proceedings related to DST ERISA matters - The company adopted ASU 2021-08 for business combinations as of January 1, 2022, which changes the accounting for contract assets and liabilities from acquired contracts[17] - On March 16, 2022, the company acquired Blue Prism Group plc for approximately $1.6 billion in cash, a leader in enterprise robotics process automation[32] - The company is involved in multiple legal proceedings related to the DST 401(k) Profit Sharing Plan, alleging breaches of fiduciary duties under ERISA. An accrued liability of $43.4 million was recorded in Q3 2021[69][71] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses Q2 2022 revenue growth driven by acquisitions, increased operating expenses, and strong liquidity despite significant acquisition-related cash outflows - Q2 2022 revenue increased by $69.7 million (5.5%), with acquisitions contributing $65.6 million and organic growth adding $27.9 million, offset by a $23.8 million negative impact from foreign currency translation[85] - Operating expenses for Q2 2022 rose by $96.6 million (34.2%), driven by $55.6 million from acquisitions and a $49.2 million increase in organic expenses related to personnel, travel, and IT[94] Consolidated EBITDA Reconciliation (in millions) | Metric | Twelve Months Ended June 30, 2022 | | :--- | :--- | | Net income | $717.5 | | EBITDA | $1,802.9 | | Consolidated EBITDA | $2,047.9 | | Consolidated EBITDA attributable to SS&C common stockholders | $2,045.6 | - The company was in compliance with its debt covenants as of June 30, 2022, with a maximum consolidated net secured leverage ratio of 2.48, well below the requirement of 6.25x[132] Results of Operations Q2 2022 total revenues increased 5.5% to $1.33 billion due to acquisitions and organic growth, but operating income declined due to surging expenses Revenue Growth Analysis (Q2 2022 vs Q2 2021) | Revenue Stream | 2022 (in millions) | 2021 (in millions) | % Change | | :--- | :--- | :--- | :--- | | Software-enabled services | $1,070.7 | $1,057.1 | 1.3% | | License, maintenance and related | $258.0 | $201.9 | 27.8% | | Total revenues | $1,328.7 | $1,259.0 | 5.5% | - The increase in License, maintenance and related revenues was primarily due to acquisitions, which added $58.5 million[85] - Interest expense increased in Q2 and H1 2022 compared to 2021 due to higher average interest rates and higher average debt balances following the Blue Prism acquisition financing[96] Liquidity and Capital Resources Liquidity is supported by operating cash flow and credit facilities, despite $1.6 billion in acquisition-related cash outflows and significant debt financing Cash Flow Summary - Six Months Ended June 30 (in millions) | Activity | 2022 | 2021 | | :--- | :--- | :--- | | Operating activities | $447.5 | $562.3 | | Investing activities | $(1,673.6) | $(17.9) | | Financing activities | $69.2 | $1,175.8 | - In March 2022, the company entered into an Incremental Joinder to its credit agreement, adding a $650.0 million Term B-6 Loan and an $880.0 million Term B-7 Loan to finance the Blue Prism acquisition[48] - In July 2022, the Board authorized a new stock repurchase program for up to $1 billion of common stock. During the first six months of 2022, the company repurchased 2.3 million shares for $170.9 million[52] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company faces market risks from interest rate fluctuations, equity price changes, and foreign currency exposure, particularly with the British pound - A 100 basis point increase in interest rates would increase annual interest expense by approximately $53.5 million due to the company's $5.35 billion in variable rate debt[139] - The company has $61.4 million in investments subject to equity price risk; a 10% change in fair value would impact net income by approximately $4.6 million, net of tax[140] - About 29% of revenues for the first six months of 2022 came from outside the U.S., creating exposure to foreign currency exchange rate risk, particularly with the British pound[141] Item 4. Controls and Procedures Management concluded that disclosure controls and procedures were effective as of June 30, 2022, with no material changes to internal control over financial reporting - The CEO and CFO concluded that as of June 30, 2022, the company's disclosure controls and procedures were effective at the reasonable assurance level[143] - No changes occurred during the fiscal quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[144] PART II. OTHER INFORMATION Item 1. Legal Proceedings Information on legal proceedings, including ongoing DST ERISA matters, is incorporated by reference from Note 14 of the financial statements - Information regarding significant legal proceedings, particularly the DST ERISA matters, is detailed in Note 14 of the Condensed Consolidated Financial Statements and is incorporated by reference[147] - Management believes that the final outcome of other legal proceedings arising from the normal course of business will not have a material adverse effect on the company's consolidated financial condition, operations, or cash flows[148] Item 1A. Risk Factors No material changes have occurred to the risk factors previously disclosed in the 2021 Annual Report on Form 10-K - As of the filing date of this report, no material changes have been made to the risk factors disclosed in the 2021 Annual Report on Form 10-K[149] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company did not repurchase any common stock during the second quarter of 2022 - There were no repurchases of the company's common stock in the second quarter of 2022[150] Item 6. Exhibits This section lists exhibits filed with the Quarterly Report, including CEO and CFO certifications and Inline XBRL data files - The exhibits filed with this report include certifications from the CEO and CFO under Sections 302 and 906 of the Sarbanes-Oxley Act[154] - The filing includes various Inline XBRL documents for interactive data purposes[154]