SSNC - SS&C Technologies Produces Flagging Performance

Summary

• SS&C Technologies Holdings, Inc. reported its Q3 2022 financial results on October 27, 2022, missing revenue and earnings estimates.
• The firm provides software solutions for financial and healthcare companies worldwide.
• SS&C Technologies Holdings has produced only tepid revenue growth and earnings have been dropping.
• I'm on Hold for SS&C Technologies Holdings, Inc. until we see improved results.

A Quick Take On SS&C Technologies

SS&C Technologies Holdings, Inc. ( SSNC ) reported its Q3 2022 financial results on October 27, 2022, missing revenue and EPS estimates.

The company provides a range of software solutions for financial services firms and healthcare companies worldwide.

Organic revenue growth has been tepid for the last several quarters and earnings have trended lower.

I’m on Hold for SSNC stock for the near term.

SS&C Technologies Overview

Windsor, Connecticut-based SS&C Technologies was founded in 1986 to provide automation software for a variety of institutional financial and healthcare system processes.

The firm is headed by founder, Chairman and Chief Executive Officer Bill Stone, who was previously a Senior Management Consultant at KPMG and Vice President and Advest.

The company’s primary offerings include:

• GlobeOp

• Singularity

• Global Wealth Platform

• Sightline

• Vision FI

• Risk & Compliance

• Chorus

• Learning Institute

• Real Asset Services

• Blue Sky Administration

• Others.

The company acquires customers through its direct sales and marketing efforts as well as through partner referrals.

SS&C Technologies Holdings, Inc. has offices in the Americas, Europe and Asia.

SS&C’s Market & Competition

According to a 2019 market research report by Grand View Research, the global wealth management software market is forecasted to reach $5.8 billion by 2025.

This represents a strong CAGR (Compound Annual Growth Rate) of 15.3% from 2019 through 2025.

The main drivers for this expected growth include an increasing need for digital automation tools and improved engagement by providing "omnichannel access and an open architecture."

Major industry participants include:

• Fiserv

• Temenos

• Fidelity National Information Services

• Profile Software

• SEI Investments

• Comarch SA

• Objectway S.p.A.

• Dorsum.

The company also operates in healthcare software solutions markets which are multi-billion dollar markets.

SSNC’s Recent Financial Performance

• Total revenue by quarter has proceeded according to the following trajectory:

• Gross profit margin by quarter has trended lower in recent quarters:

• Selling, G&A expenses as a percentage of total revenue by quarter have risen recently, as the chart shows below:

• Operating income by quarter has varied per the following chart:

• Earnings per share (Diluted) have trended lower in recent quarters:

(All data in the above charts is GAAP.)

In the past 12 months, SS&C Technologies Holdings, Inc.’s stock price has fallen 24.6% vs. the Nasdaq 100-Index’s (NDX) drop of around 18.3%, as the chart below indicates:

Valuation And Other Metrics For SS&C Technologies

Below is a table of relevant capitalization and valuation figures for the company:

(Source - Seeking Alpha.)

As a reference, a relevant partial public comparable would be Fiserv ( FISV ); shown below is a comparison of their primary valuation metrics:

(Source - Seeking Alpha.)

Commentary On SS&C Technologies

In its last earnings call ( Source - Seeking Alpha ), covering Q3 2022’s results, management highlighted "revenue headwinds from the weaker economic backdrop and negative foreign exchange."

The firm is using cash flow to pay down debt and buy back shares, having bought 6 million shares in 2022 through the end of the third quarter.

Management closed the Tier1 Financial acquisition to integrate it with its existing CRM offering. The company wants to create a "financial-services-focused CRM" platform.

As to its financial results, revenue rose by 4.4% year-over-year. Foreign exchange headwinds negatively impacted its revenue growth by 2.6%.

Since the end of Q3, the U.S. dollar has weakened somewhat, so these forex headwinds may abate in subsequent quarters.

Gross profit margin has been trending lower, while SG&A as a percentage of revenue has been trending higher.

Not surprisingly, earnings have been falling in recent quarters.

For the balance sheet , the firm finished the quarter with $401.9 million in cash and cash equivalents and $7.24 billion in total debt.

Over the trailing twelve months, free cash flow was $1.18 billion, of which capital expenditures accounted for $73.6 million. The company paid $124.6 million in stock-based compensation ("SBC") in the last four quarters.

Looking ahead, management expects to see adjusted organic revenue growth of 3.1% at the midpoint of the range and adjusted net income (ex-stock-based compensation et al) of $296.4 million at the midpoint.

Regarding valuation, the market is valuing SS&C Technologies Holdings, Inc. at slightly lower multiples than competitor Fiserv, so the stock appears proportionately valued.

A potential upside catalyst to SS&C Technologies Holdings, Inc. stock could include a "short and shallow" macroeconomic downturn that would benefit the company's financial software products.

However, my base case is that SS&C Technologies Holdings, Inc. stock will perform in line with market peers in the coming quarters.

While my hope is that economic conditions improve, my belief is that we could be in for a significant period of sluggish growth, if at all.

So, I’m on Hold for SS&C Technologies Holdings, Inc. until we gain better insight into the stock's ability to outperform its peers during a potential slowdown.

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