SS&C Technologies Holdings, Inc.

SS&C Technologies Reports Record Revenue for Q2 2017

Q2 GAAP revenue $411.0 million, up 10.2 percent, Fully Diluted GAAP Earnings Per Share $0.24, up 71.4 percent

Adjusted revenue $414.1 million, up 7.7 percent, Adjusted Diluted Earnings Per Share $0.46, up 17.9 percent

WINDSOR, Conn., July 27, 2017 /CNW/ -- SS&C Technologies Holdings, Inc. (NASDAQ: SSNC), a global provider of investment and financial software-enabled services and software, today announced its financial results for the second quarter ended June 30, 2017

SS&C Technologies (PRNewsFoto/SS&C Technologies)

GAAP Results

SS&C reported GAAP revenue of $411.0 million for the second quarter of 2017, up 10.2 percent compared to $373.1 million in the second quarter of 2016. GAAP operating income for the second quarter of 2017 was $90.0 million, or 21.9 percent of GAAP revenue compared to $66.0 million, or 17.7 percent of GAAP revenue in 2016's second quarter, representing a 36.3 percent increase.  

GAAP net income for the second quarter of 2017 was $51.2 million, up 81.3 percent compared to $28.2 million in 2016's second quarter. On a fully diluted GAAP basis, earnings per share in the second quarter of 2017 were $0.24 per share, up 71.4 percent compared to $0.14 per share on a fully diluted GAAP basis in the second quarter of 2016.

Adjusted Non-GAAP Results (defined in Notes 1-4 below)

Adjusted revenue was $414.1 million for the second quarter of 2017, up 7.7 percent compared to $384.4 million in the second quarter of 2016. Adjusted operating income for the second quarter of 2017 was $157.3 million, or 38.0 percent of adjusted revenue compared to $140.5 million, or 36.6 percent of adjusted revenue in 2016's second quarter, representing a 12.0 percent increase.

Adjusted net income for the second quarter of 2017 was $96.2 million, up 21.1 percent compared to $79.4 million in 2016's second quarter. Adjusted diluted earnings per share in the second quarter of 2017 were $0.46 per share, up 17.9 percent compared to $0.39 per share in the second quarter of 2016.

Highlights:

"Q2 2017 marks our 21st straight quarter of revenue growth, growing adjusted revenue 7.7 percent, and, in the first six months we generated $193.8 million in cash flow up 39.1 percent," says Bill Stone, Chairman and Chief Executive Officer of SS&C Technologies. "SS&C's continuous investment in our 8,200 strong workforce and a relentless focus on customer service, delivers a superior customer experience.  We have become one of the world's largest financial technology companies and our investments have strengthened our competitive advantage. We have been honored to receive numerous industry awards for technology and service over the past several years, and this quarter SS&C was named to Forbes' America's Best Midsized Employers.

Looking forward we will continue to explore opportunities to reinvent the way we capture, process and deliver investment information.  The various consumers of our output rely on us to stay abreast of new financial instruments, tax and financial reporting requirements, and changing investment strategies.  SS&C's clients understand our commitment and, during Q2 we spent over $39 million in research and development."

Annual Run Rate Basis

Annual Run Rate Basis (ARRB) recurring revenue, defined as adjusted recurring revenue on an annualized basis, was $1,549.7 million based on adjusted recurring revenue $387.4 million for the second quarter of 2017. This represents an increase of 8.8 percent from $356.1 million and $1,424.3 million run-rate in the same period in 2016 and an increase of 0.1 percent from $387.2 million for the first quarter of 2017, an annual run rate of $1,548.9 million. We believe ARRB of our recurring revenue is a good indicator of visibility into future revenue.

Operating Cash Flow

SS&C generated net cash from operating activities of $193.8 million for the six months ended June 30, 2017, compared to $139.3 million for the same period in 2016, representing a 39.1 percent increase.  SS&C ended the quarter with $90.4 million in cash and cash equivalents and $2,351.2 million in gross debt, for a net debt balance of $2,260.8 millionSS&C's leverage ratio as defined in our credit agreement stood at 3.45 times consolidated EBITDA as of June 30, 2017.

Guidance

     

Q3 2017

 

FY 2017

 
 

Adjusted Revenue ($M)

 

$420.0 - $428.0

 

$1,669.0 - $1,689.0

 
 

Adjusted Net Income ($M)

 

$103.5 - $108.0

 

$403.0 - $413.0

 
 

Cash from Operating Activities ($M)

 

-

 

$485.0  - $500.0

 
 

Capital Expenditures (% of revenue)

 

-

 

2.8% - 3.2%

 
 

Diluted Shares (M)

 

212.4 - 213.0

 

211.3 - 212.1

 
 

Effective Income Tax Rate (%)

 

28%

 

28%

 
             

SS&C does not provide reconciliations of guidance for Adjusted Revenues and Adjusted Net Income to comparable GAAP measures, in reliance on the unreasonable efforts exception provided under Item 10(e)(1)(i)(B) of Regulation S-K.  SS&C is unable, without unreasonable efforts, to forecast certain items required to develop meaningful comparable GAAP financial measures. These items include acquisition transactions and integration, foreign exchange rate changes, as well as other non-cash and other adjustments as defined under the Company's Credit agreement, that are difficult to predict in advance in order to include in a GAAP estimate.

Non-GAAP Financial Measures

Adjusted revenue, adjusted operating income, adjusted consolidated EBITDA, adjusted net income and adjusted diluted earnings per share are non-GAAP measures. See the accompanying notes to the attached Condensed Consolidated Financial Information for the reconciliations and definitions for each of these non-GAAP measures and the reasons our management believes these measures provide useful information to investors regarding our financial condition and results of operations.

Earnings Call and Press Release

SS&C's Q2 2017 earnings call will take place at 5:00 p.m. eastern time today, July 27, 2017. The call will discuss Q2 2017 results and our guidance and business outlook. Interested parties may dial 877-312-8798 (US and Canada) or 253-237-1193 (International), and request the "SS&C Technologies Second Quarter 2017 Conference Call"; conference ID #3714534. A replay will be available after 8:00 p.m. eastern time on July 27, 2017, until midnight on August 3, 2017. The dial-in number is 855-859-2056 (US and Canada) or 404-537-3406 (International); access code #51260091 The call will also be available for replay on SS&C's website after July 27, 2017; access: http://investor.ssctech.com/results.cfm.

Certain information contained in this press release relating to, among other things, our financial guidance for the third quarter and full year of 2017 constitute forward-looking statements for purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Without limiting the foregoing, the words "believes", "anticipates", "plans", "expects", "estimates", "projects", "forecasts", "may", "assume", "anticipates", "intend", "will", "continue", "opportunity", "predict", "potential", "future", "guarantee", "likely", "target", "indicate", "would", "could" and "should" and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements are accompanied by such words. Such statements reflect management's best judgment based on factors currently known but are subject to risks and uncertainties, which could cause actual results to differ materially from those anticipated. Such risks and uncertainties include, but are not limited to, the state of the economy and the financial services industry, the Company's ability to finalize large client contracts, fluctuations in customer demand for the Company's products and services, intensity of competition from application vendors, delays in product development, the Company's ability to control expenses, terrorist activities, exposure to litigation, the Company's ability to integrate acquired businesses, the effect of the acquisitions on customer demand for the Company's products and services, the market price of the Company's stock prevailing from time to time, the Company's cash flow from operations, general economic conditions, and those risks discussed in the "Risk Factors" section of the Company's most recent Annual Report on Form 10-K, which is on file with the Securities and Exchange Commission and can also be accessed on our website. The Company cautions investors that it may not update any or all of the foregoing forward-looking statements.

About SS&C Technologies

SS&C is a global provider of investment and financial software-enabled services and software focused exclusively on the global financial services industry. Founded in 1986, SS&C has its headquarters in Windsor, Connecticut and offices around the world. Some 11,000 financial services organizations, from the world's largest institutions to local firms, manage and account for their investments using SS&C's products and services. These clients in the aggregate manage over $44 trillion in assets.

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SS&C Technologies Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Operations

(in thousands, except per share data)

(unaudited)

 
   

Three Months Ended June 30,

   

Six Months Ended June 30,

 
   

2017

   

2016

   

2017

   

2016

 

Revenues:

                               

Software-enabled services

 

$

272,518

   

$

244,672

   

$

548,970

   

$

450,319

 

Maintenance and term licenses

   

113,614

     

103,392

     

224,171

     

198,512

 

Total recurring revenues

   

386,132

     

348,064

     

773,141

     

648,831

 

Perpetual licenses

   

3,822

     

5,039

     

6,650

     

10,254

 

Professional services

   

21,026

     

19,974

     

38,888

     

38,123

 

Total non-recurring revenues

   

24,848

     

25,013

     

45,538

     

48,377

 

Total revenues

   

410,980

     

373,077

     

818,679

     

697,208

 

Cost of revenues:

                               

Software-enabled services

   

158,888

     

146,243

     

312,894

     

259,971

 

Maintenance and term licenses

   

47,280

     

46,460

     

94,265

     

93,406

 

Total recurring cost of revenues

   

206,168

     

192,703

     

407,159

     

353,377

 

Perpetual licenses

   

650

     

643

     

1,215

     

1,141

 

Professional services

   

16,874

     

17,133

     

32,777

     

32,645

 

Total non-recurring cost of revenues

   

17,524

     

17,776

     

33,992

     

33,786

 

Total cost of revenues

   

223,692

     

210,479

     

441,151

     

387,163

 

Gross profit

   

187,288

     

162,598

     

377,528

     

310,045

 

Operating expenses:

                               

Selling and marketing

   

30,121

     

28,535

     

60,363

     

58,396

 

Research and development

   

39,079

     

40,827

     

77,528

     

77,274

 

General and administrative

   

28,103

     

27,199

     

59,935

     

57,894

 

Total operating expenses

   

97,303

     

96,561

     

197,826

     

193,564

 

Operating income

   

89,985

     

66,037

     

179,702

     

116,481

 

Interest expense, net

   

(26,295)

     

(32,846)

     

(55,315)

     

(65,935)

 

Other (expense) income, net

   

(1,197)

     

12

     

(1,268)

     

(1,835)

 

Loss on extinguishment of debt

   

     

     

(2,326)

     

 

Income before income taxes

   

62,493

     

33,203

     

120,793

     

48,711

 

Provision for income taxes

   

11,342

     

4,982

     

21,495

     

13,485

 

Net income

 

$

51,151

   

$

28,221

   

$

99,298

   

$

35,226

 
                                 

Basic earnings per share

 

$

0.25

   

$

0.14

   

$

0.49

   

$

0.18

 

Diluted earnings per share

 

$

0.24

   

$

0.14

   

$

0.47

   

$

0.17

 
                                 

Basic weighted average number of common shares outstanding

   

204,550

     

198,765

     

203,966

     

198,143

 

Diluted weighted average number of common and common equivalent shares outstanding

   

211,299

     

204,916

     

210,478

     

204,596

 
                                 

Cash dividends declared and paid per common share

 

$

0.0625

   

$

0.0625

   

$

0.1250

   

$

0.1250

 
                                 

Net income

 

$

51,151

   

$

28,221

   

$

99,298

   

$

35,226

 

Other comprehensive income (loss), net of tax:

                               

Foreign currency exchange translation adjustment

   

20,966

     

(26,793)

     

31,745

     

(17,472)

 

Total comprehensive income (loss), net of tax

   

20,966

     

(26,793)

     

31,745

     

(17,472)

 

Comprehensive income

 

$

72,117

   

$

1,428

   

$

131,043

   

$

17,754

 
 

See Notes to Condensed Consolidated Financial Information.

 

SS&C Technologies Holdings, Inc. and Subsidiaries

Condensed Consolidated Balance Sheets

(in thousands)

(unaudited)

 
   

June 30,

   

December 31,

 
   

2017

   

2016

 

ASSETS

               

Current assets:

               

Cash and cash equivalents

 

$

90,370

   

$

117,558

 

Accounts receivable, net

   

235,811

     

241,307

 

Prepaid expenses and other current assets

   

32,875

     

31,119

 

Prepaid income taxes

   

18,032

     

23,012

 

Restricted cash

   

1,880

     

2,116

 

Total current assets

   

378,968

     

415,112

 

Property, plant and equipment, net

   

100,908

     

80,395

 

Deferred income taxes

   

2,136

     

2,410

 

Goodwill

   

3,676,586

     

3,652,733

 

Intangible and other assets, net

   

1,459,803

     

1,556,321

 

Total assets

 

$

5,618,401

   

$

5,706,971

 

LIABILITIES AND STOCKHOLDERS' EQUITY

               

Current liabilities:

               

Current portion of long-term debt

 

$

37,183

   

$

126,144

 

Accounts payable

   

32,668

     

16,490

 

Income taxes payable

   

     

3,473

 

Accrued employee compensation and benefits

   

60,846

     

104,118

 

Interest payable

   

16,156

     

21,470

 

Other accrued expenses

   

43,044

     

53,708

 

Deferred revenue

   

234,077

     

235,222

 

Total current liabilities

   

423,974

     

560,625

 

Long-term debt, net of current portion

   

2,261,791

     

2,374,986

 

Other long-term liabilities

   

81,770

     

59,227

 

Deferred income taxes

   

432,688

     

453,555

 

Total liabilities

   

3,200,223

     

3,448,393

 

Total stockholders' equity

   

2,418,178

     

2,258,578

 

Total liabilities and stockholders' equity

 

$

5,618,401

   

$

5,706,971

 
 

See Notes to Condensed Consolidated Financial Information.

 

SS&C Technologies Holdings, Inc. and Subsidiaries

Condensed Consolidated Statements of Cash Flows

(in thousands)

(unaudited)

 
   

Six Months Ended June 30,

 
   

2017

   

2016

 

Cash flow from operating activities:

               

Net income

 

$

99,298

   

$

35,226

 

Adjustments to reconcile net income to net cash provided by operating activities:

               

Depreciation and amortization

   

117,213

     

113,440

 

Stock-based compensation expense

   

21,278

     

27,913

 

Income tax benefit related to exercise of stock options

   

     

(23,760)

 

Amortization and write-offs of loan origination costs

   

5,281

     

5,312

 

Loss on extinguishment of debt

   

963

     

 

Loss on sale or disposition of property and equipment

   

12

     

150

 

Deferred income taxes

   

(14,970)

     

(24,056)

 

Provision for doubtful accounts

   

3,218

     

1,257

 

Changes in operating assets and liabilities, excluding effects from acquisitions:

               

Accounts receivable

   

3,411

     

(13,458)

 

Prepaid expenses and other assets

   

(1,326)

     

(1,516)

 

Accounts payable

   

14,895

     

7,870

 

Accrued expenses

   

(54,543)

     

(25,851)

 

Income taxes prepaid and payable

   

2,562

     

23,757

 

Deferred revenue

   

(3,471)

     

13,052

 

Net cash provided by operating activities

   

193,821

     

139,336

 

Cash flow from investing activities:

               

Additions to property and equipment

   

(19,368)

     

(13,593)

 

Proceeds from sale of property and equipment

   

1

     

43

 

Cash paid for business acquisitions, net of cash acquired

   

1,805

     

(317,554)

 

Additions to capitalized software

   

(5,636)

     

(3,306)

 

Purchase of long-term investment

   

     

(1,000)

 

Net cash used in investing activities

   

(23,198)

     

(335,410)

 

Cash flow from financing activities:

               

Cash received from debt borrowings

   

45,000

     

 

Repayments of debt

   

(253,400)

     

(155,325)

 

Proceeds from exercise of stock options

   

35,855

     

19,212

 

Withholding taxes related to equity award net share settlement

   

(3,057)

     

(4,615)

 

Income tax benefit related to exercise of stock options

   

     

23,760

 

Purchase of common stock for treasury

   

     

(11)

 

Payment of fees related to refinancing activities

   

     

(222)

 

Dividends paid on common stock

   

(25,521)

     

(24,790)

 

Net cash used in financing activities

   

(201,123)

     

(141,991)

 

Effect of exchange rate changes on cash, cash equivalents and restricted cash

   

3,076

     

(872)

 

Net decrease in cash, cash equivalents and restricted cash

   

(27,424)

     

(338,937)

 

Cash, cash equivalents and restricted cash, beginning of period

   

119,674

     

436,977

 

Cash, cash equivalents and restricted cash, end of period

 

$

92,250

   

$

98,040

 
 

See Notes to Condensed Consolidated Financial Information.

 

SS&C Technologies Holdings, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Information

Note 1. Reconciliation of Revenues to Adjusted Revenues

Adjusted revenues represents revenues adjusted for one-time purchase accounting adjustments to fair value deferred revenue acquired in business combinations. Adjusted revenues are presented because we use this measure to evaluate performance of our business against prior periods and believe it is a useful indicator of the underlying performance of the Company. Adjusted revenues are not a recognized term under generally accepted accounting principles (GAAP). Adjusted revenues does not represent revenues, as that term is defined under GAAP, and should not be considered as an alternative to revenues as an indicator of our operating performance. Adjusted revenues as presented herein is not necessarily comparable to similarly titled measures. Below is a reconciliation between adjusted revenues and revenues, the GAAP measure we believe to be most directly comparable to adjusted revenues. 

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 

(in thousands)

 

2017

   

2016

   

2017

   

2016

 

Revenues

 

$

410,980

   

$

373,077

   

$

818,679

   

$

697,208

 

Purchase accounting adjustments to deferred revenue

   

3,107

     

11,335

     

4,927

     

30,318

 

Adjusted revenues

 

$

414,087

   

$

384,412

   

$

823,606

   

$

727,526

 

 

The following is a breakdown of recurring and non-recurring revenues and adjusted recurring and non-recurring revenues.

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 

(in thousands)

 

2017

   

2016

   

2017

   

2016

 

Software-enabled services

 

$

272,518

   

$

244,672

   

$

548,970

   

$

450,319

 

Maintenance and term licenses

   

113,614

     

103,392

     

224,171

     

198,512

 

Total recurring revenues

   

386,132

     

348,064

     

773,141

     

648,831

 

Perpetual licenses

   

3,822

     

5,039

     

6,650

     

10,254

 

Professional services

   

21,026

     

19,974

     

38,888

     

38,123

 

Total non-recurring revenues

   

24,848

     

25,013

     

45,538

     

48,377

 

Total revenues

 

$

410,980

   

$

373,077

   

$

818,679

   

$

697,208

 
                                 

Software-enabled services

 

$

272,518

   

$

244,763

   

$

548,970

   

$

450,549

 

Maintenance and term licenses

   

114,916

     

111,324

     

225,679

     

221,274

 

Total adjusted recurring revenues

   

387,434

     

356,087

     

774,649

     

671,823

 

Perpetual licenses

   

3,822

     

5,039

     

6,650

     

10,254

 

Professional services

   

22,831

     

23,286

     

42,307

     

45,449

 

Total adjusted non-recurring revenues

   

26,653

     

28,325

     

48,957

     

55,703

 

Total adjusted revenues

 

$

414,087

   

$

384,412

   

$

823,606

   

$

727,526

 

 

Note 2. Reconciliation of Operating Income to Adjusted Operating Income

Adjusted operating income represents operating income adjusted for amortization of intangible assets, stock-based compensation, purchase accounting adjustments for deferred revenue and related costs and other expenses. Adjusted operating income is presented because we use this measure to evaluate performance of our business and believe it is a useful indicator of the underlying performance of the Company.  Adjusted operating income is not a recognized term under GAAP.  Adjusted operating income does not represent operating income, as that term is defined under GAAP, and should not be considered as an alternative to operating income as an indicator of our operating performance. Adjusted operating income as presented herein is not necessarily comparable to similarly titled measures.  The following is a reconciliation between adjusted operating income and operating income, the GAAP measure we believe to be most directly comparable to adjusted operating income.

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 

(in thousands)

 

2017

   

2016

   

2017

   

2016

 

Operating income

 

$

89,985

   

$

66,037

   

$

179,702

   

$

116,481

 

Amortization of intangible assets

   

52,742

     

51,995

     

105,150

     

101,675

 

Stock-based compensation

   

10,378

     

12,566

     

21,278

     

27,913

 

Capital-based taxes

   

375

     

     

750

     

472

 

Purchase accounting adjustments (1)

   

2,653

     

8,630

     

3,005

     

24,258

 

Other (2)

   

1,212

     

1,301

     

2,896

     

4,919

 

Adjusted operating income

 

$

157,345

   

$

140,529

   

$

312,781

   

$

275,718

 

 

(1)

Purchase accounting adjustments include (a) an adjustment to increase revenues by the amount that would have been recognized if deferred revenue were not adjusted to fair value at the date of acquisitions and (b) an adjustment to increase personnel and commissions expense by the amount that would have been recognized if prepaid commissions and deferred personnel costs were not adjusted to fair value at the date of the acquisitions.

(2)

Other includes expenses and income that are permitted to be excluded per the terms of our Credit Agreement from Consolidated EBITDA, a financial measure used in calculating our covenant compliance. These include expenses and income related to currency transactions, facilities and workforce restructuring, legal settlements and business combinations, among other infrequently occurring transactions.

 

Note 3. Reconciliation of Net Income to EBITDA, Consolidated EBITDA and Adjusted Consolidated EBITDA

EBITDA represents net income before interest expense, income taxes, depreciation and amortization. Consolidated EBITDA, defined under our Credit Agreement entered into in July 2015, as amended,  is used in calculating covenant compliance, and is EBITDA adjusted for certain items. Consolidated EBITDA is calculated by subtracting from or adding to EBITDA items of income or expense described below. Adjusted consolidated EBITDA is calculated by subtracting acquired EBITDA from consolidated EBITDA. EBITDA, consolidated EBITDA and adjusted consolidated EBITDA are presented because we use these measures to evaluate performance of our business and believe them to be useful indicators of an entity's debt capacity and its ability to service debt. EBITDA, consolidated EBITDA and adjusted consolidated EBITDA are not recognized terms under GAAP and should not be considered in isolation or as alternatives to operating income, net income or cash flows from operating activities as indicators of our operating performance. The following is a reconciliation of EBITDA, consolidated EBITDA and adjusted consolidated EBITDA to net income.

 

   

Three Months Ended
June 30,

   

Six Months Ended
June 30,

   

Twelve
Months Ended
June 30,

 

(in thousands)

 

2017

   

2016

   

2017

   

2016

   

2017

 

Net income

 

$

51,151

   

$

28,221

   

$

99,298

   

$

35,226

   

$

195,068

 

Interest expense, net

   

26,295

     

32,846

     

55,315

     

65,935

     

117,834

 

Provision for income tax

   

11,342

     

4,982

     

21,495

     

13,485

     

40,630

 

Depreciation and amortization

   

58,656

     

58,167

     

117,213

     

113,440

     

232,456

 

EBITDA

   

147,444

     

124,216

     

293,321

     

228,086

     

585,988

 

Stock-based compensation

   

10,378

     

12,566

     

21,278

     

27,913

     

43,929

 

Capital-based taxes

   

375

     

     

750

     

472

     

1,760

 

Acquired EBITDA and cost savings (1)

   

81

     

1,046

     

889

     

5,814

     

6,274

 

Non-cash portion of straight-line rent expense

   

478

     

769

     

546

     

1,553

     

1,191

 

Loss on extinguishment of debt

   

     

     

2,326

     

     

2,326

 

Purchase accounting adjustments (2)

   

2,653

     

8,630

     

3,005

     

24,258

     

10,366

 

Other (3)

   

2,409

     

1,289

     

4,164

     

6,754

     

3,301

 

Consolidated EBITDA

 

$

163,818

   

$

148,516

   

$

326,279

   

$

294,850

   

$

655,135

 

Less:  acquired EBITDA

   

(81)

     

(1,046)

     

(889)

     

(5,814)

     

(6,274)

 

Adjusted Consolidated EBITDA

 

$

163,737

   

$

147,470

   

$

325,390

   

$

289,036

   

$

648,861

 
   

(1)

Acquired EBITDA reflects the EBITDA impact of significant businesses that were acquired during the period as if the acquisition occurred at the beginning of the period, as well as cost savings enacted in connection with acquisitions.

(2)

Purchase accounting adjustments include (a) an adjustment to increase revenues by the amount that would have been recognized if deferred revenue were not adjusted to fair value at the date of acquisitions and (b) an adjustment to increase personnel and commissions expense by the amount that would have been recognized if prepaid commissions and deferred personnel costs were not adjusted to fair value at the date of the acquisitions.

(3)

Other includes expenses and income that are permitted to be excluded per the terms of our Credit Agreement from Consolidated EBITDA, a financial measure used in calculating our covenant compliance. These include expenses and income related to currency transactions, facilities and workforce restructuring, legal settlements and business combinations, among other infrequently occurring transactions.

 

Note 4. Reconciliation of Net Income to Adjusted Net Income and Diluted Earnings Per Share to Adjusted Diluted Earnings Per Share

Adjusted net income and adjusted diluted earnings per share represent net income and earnings per share before amortization of intangible assets and deferred financing costs, stock-based compensation, capital-based taxes and other unusual and non-recurring items. Adjusted net income and adjusted diluted earnings per share are not recognized terms under GAAP, do not represent net income or diluted earnings per share, as those terms are defined under GAAP, and should not be considered as alternatives to net income or diluted earnings per share as indicators of our operating performance. Adjusted net income and adjusted diluted earnings per share are important to management and investors because they represent our operational performance exclusive of the effects of amortization of intangible assets and deferred financing costs, stock-based compensation, capital-based taxes, other unusual and non-recurring items, purchase accounting adjustments, and loss on extinguishment of debt that are not operational in nature or comparable to those of our competitors. The following is a reconciliation between adjusted net income and adjusted diluted earnings per share and net income and diluted earnings per share.

 

   

Three Months Ended June 30,

   

Six Months Ended June 30,

 

(in thousands, except per share data)

 

2017

   

2016

   

2017

   

2016

 

GAAP - Net income

 

$

51,151

   

$

28,221

   

$

99,298

   

$

35,226

 

Plus: Amortization of intangible assets

   

52,742

     

51,995

     

105,150

     

101,675

 

Plus: Amortization of deferred financing costs and original issue discount

   

2,625

     

2,659

     

5,281

     

5,312

 

Plus: Stock-based compensation

   

10,378

     

12,566

     

21,278

     

27,913

 

Plus: Capital-based taxes

   

375

     

     

750

     

472

 

Plus: Loss on extinguishment of debt

   

     

     

2,326

     

 

Plus: Purchase accounting adjustments (1)

   

2,653

     

8,630

     

3,005

     

24,258

 

Plus: Other (2)

   

2,409

     

1,289

     

4,164

     

6,754

 

Income tax effect (3)

   

(26,087)

     

(25,914)

     

(52,074)

     

(46,742)

 

Adjusted net income

 

$

96,246

   

$

79,446

   

$

189,178

   

$

154,868

 

Adjusted diluted earnings per share

 

$

0.46

   

$

0.39

   

$

0.90

   

$

0.76

 

GAAP diluted earnings per share

 

$

0.24

   

$

0.14

   

$

0.47

   

$

0.17

 

Diluted weighted-average shares outstanding

   

211,299

     

204,916

     

210,478

     

204,596

 
   

(1)

Purchase accounting adjustments include (a) an adjustment to increase revenues by the amount that would have been recognized if deferred revenue were not adjusted to fair value at the date of acquisitions and (b) an adjustment to increase personnel and commissions expense by the amount that would have been recognized if prepaid commissions and deferred personnel costs were not adjusted to fair value at the date of the acquisitions.

(2)

Other includes expenses and income that are permitted to be excluded per the terms of our Credit Agreement from Consolidated EBITDA, a financial measure used in calculating our covenant compliance. These include expenses and income related to currency transactions, facilities and workforce restructuring, legal settlements and business combinations, among other infrequently occurring transactions.

(3)

An estimated normalized effective tax rate of 28% has been used to adjust the provision for income taxes for the purpose of computing adjusted net income.

 

 

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SOURCE SS&C

 

 

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