SS&C Technologies Holdings, Inc.
SS&C Technologies Holdings Inc (Form: 10-Q, Received: 05/01/2015 15:35:32)
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10-Q

 

 

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from                    to                    

Commission File Number 001-34675

 

 

SS&C TECHNOLOGIES HOLDINGS, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Delaware   71-0987913

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

80 Lamberton Road

Windsor, CT 06095

(Address of principal executive offices, including zip code)

860-298-4500

(Registrant’s telephone number, including area code)

 

 

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes   x     No   ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes   x     No   ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   x    Accelerated filer   ¨
Non-accelerated filer   ¨   (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes   ¨     No   x

There were 84,431,021 shares of the registrant’s common stock outstanding as of April 28, 2015.

 

 

 


Table of Contents

SS&C TECHNOLOGIES HOLDINGS, INC.

INDEX

 

     Page
Number
 

PART 1. FINANCIAL INFORMATION

  

Item 1. Financial Statements (unaudited)

  

Condensed Consolidated Balance Sheets at March 31, 2015 and December 31, 2014

     3   

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2015 and 2014

     4   

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014

     5   

Notes to Condensed Consolidated Financial Statements

     6   

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     11   

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     18   

Item 4. Controls and Procedures

     18   

PART II. OTHER INFORMATION

  

Item 1. Legal Proceedings

     19   

Item 6. Exhibits

     19   

SIGNATURE

     20   

EXHIBIT INDEX

     21   

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes”, “anticipates”, “plans”, “expects”, “estimates”, “projects”, “forecasts”, “may” and “should” and similar expressions are intended to identify forward-looking statements. The important factors discussed under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission on February 26, 2015, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. The Company does not undertake an obligation to update its forward-looking statements to reflect future events or circumstances.

 

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Table of Contents

PART I

 

Item 1. Financial Statements

SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(In thousands, except per share data) (Unaudited)

 

     March 31,
2015
    December 31,
2014
 

ASSETS

  

Current assets:

    

Cash

   $ 88,330      $ 109,577   

Accounts receivable, net of allowance for doubtful accounts of $2,544 and $2,241, respectively

     103,802        94,359   

Prepaid expenses and other current assets

     11,681        14,927   

Prepaid income taxes

     11,912        11,857   

Deferred income taxes

     2,627        2,975   

Restricted cash

     1,478        1,477   
  

 

 

   

 

 

 

Total current assets

  219,830      235,172   

Property, plant and equipment:

Land

  2,655      2,655   

Building and improvements

  28,405      28,521   

Equipment, furniture, and fixtures

  80,730      79,564   
  

 

 

   

 

 

 
  111,790      110,740   

Less: accumulated depreciation

  (58,980   (56,463
  

 

 

   

 

 

 

Net property, plant and equipment

  52,810      54,277   

Deferred income taxes

  1,298      1,135   

Goodwill

  1,541,768      1,573,227   

Intangible and other assets, net of accumulated amortization of $431,795 and $416,708, respectively

  391,033      421,511   
  

 

 

   

 

 

 

Total assets

$ 2,206,739    $ 2,285,322   
  

 

 

   

 

 

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

  

Current liabilities:

Current portion of long-term debt (Note 4)

$ 19,061    $ 20,470   

Accounts payable

  12,144      12,004   

Income taxes payable

  —        1,116   

Accrued employee compensation and benefits

  18,970      53,975   

Deferred taxes

  151      110   

Other accrued expenses

  37,462      30,666   

Deferred maintenance and other revenue

  80,729      73,254   
  

 

 

   

 

 

 

Total current liabilities

  168,517      191,595   

Long-term debt, net of current portion (Note 4)

  576,192      618,435   

Other long-term liabilities

  27,096      26,446   

Deferred income taxes

  97,169      102,176   
  

 

 

   

 

 

 

Total liabilities

  868,974      938,652   
  

 

 

   

 

 

 

Commitments and contingencies (Note 5)

Stockholders’ equity (Notes 2):

Common stock:

Class A non-voting common stock, $0.01 par value per share, 5,000 shares authorized; 2,704 shares issued and outstanding

  27      27   

Common stock, $0.01 par value per share, 200,000 shares and 100,000 shares authorized, respectively; 82,513 shares and 82,268 shares issued, respectively, and 81,727 shares and 81,482 shares outstanding, respectively, of which 16 and 17 are unvested, respectively

  825      822   

Additional paid-in capital

  976,449      964,845   

Accumulated other comprehensive income (loss)

  (51,340   (15,121

Retained earnings

  429,789      414,082   
  

 

 

   

 

 

 
  1,355,750      1,364,655   

Less: cost of common stock in treasury, 786 shares

  (17,985   (17,985
  

 

 

   

 

 

 

Total stockholders’ equity

  1,337,765      1,346,670   
  

 

 

   

 

 

 

Total liabilities and stockholders’ equity

$ 2,206,739    $ 2,285,322   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(In thousands, except per share data) (Unaudited)

 

     Three Months Ended
March 31,
 
     2015     2014  

Revenues:

    

Software-enabled services

   $ 153,567      $ 145,383   

Software licenses

     7,326        7,499   

Maintenance

     35,718        25,526   

Professional services

     9,124        7,402   
  

 

 

   

 

 

 

Total revenues

  205,735      185,810   

Cost of revenues:

Software-enabled services

  88,602      85,691   

Software licenses

  1,390      851   

Maintenance

  13,801      9,931   

Professional services

  8,514      5,026   
  

 

 

   

 

 

 

Total cost of revenues

  112,307      101,499   
  

 

 

   

 

 

 

Gross profit

  93,428      84,311   

Operating expenses:

Selling and marketing

  13,387      11,898   

Research and development

  19,608      13,587   

General and administrative

  17,300      11,801   
  

 

 

   

 

 

 

Total operating expenses

  50,295      37,286   
  

 

 

   

 

 

 

Operating income

  43,133      47,025   

Interest expense, net

  (5,600 )   (7,098 )

Other expense, net

  (1,507   (686 )
  

 

 

   

 

 

 

Income before income taxes

  36,026      39,241   

Provision for income taxes

  9,780      12,793   
  

 

 

   

 

 

 

Net income

$ 26,246    $ 26,448   
  

 

 

   

 

 

 

Basic earnings per share

$ 0.31    $ 0.32   
  

 

 

   

 

 

 

Basic weighted average number of common shares outstanding

  84,263      82,722   
  

 

 

   

 

 

 

Diluted earnings per share

$ 0.30    $ 0.30   
  

 

 

   

 

 

 

Diluted weighted average number of common and common equivalent shares outstanding

  88,456      86,901   
  

 

 

   

 

 

 

Net income

$ 26,246    $ 26,448   

Other comprehensive loss:

Foreign currency exchange translation adjustment

  (36,219 )   (6,306 )
  

 

 

   

 

 

 

Total comprehensive loss

  (36,219 )   (6,306 )
  

 

 

   

 

 

 

Comprehensive (loss) income

$ (9,973 ) $ 20,142   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

     Three Months Ended
March 31,
 
     2015     2014  

Cash flow from operating activities:

    

Net income

   $ 26,246      $ 26,448   

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

    

Depreciation and amortization

     25,996        24,936   

Amortization of loan origination costs

     1,435        1,520   

Income tax benefit related to exercise of stock options

     (2,839     (2,453 )

Deferred income taxes

     (2,131     (1,441 )

Stock-based compensation expense

     4,106        2,975   

Provision for doubtful accounts

     437        184   

Loss on sale or disposition of property and equipment

     209        53   

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

    

Accounts receivable

     (12,058     2,956   

Prepaid expenses and other assets

     4,744        1,165   

Income taxes prepaid and payable

     1,517        7,986   

Accounts payable

     (333     (1,765 )

Accrued expenses

     (25,283     (26,343 )

Deferred maintenance and other revenue

     9,121        2,333   
  

 

 

   

 

 

 

Net cash provided by operating activities

  31,167      38,554   
  

 

 

   

 

 

 

Cash flow from investing activities:

Additions to property and equipment

  (2,249   (2,758 )

Additions to capitalized software

  (928   (856 )

Net changes in restricted cash

  —        983   
  

 

 

   

 

 

 

Net cash used in investing activities

  (3,177   (2,631 )
  

 

 

   

 

 

 

Cash flow from financing activities:

Repayments of debt

  (44,000   (45,000 )

Income tax benefit related to exercise of stock options

  2,839      2,453   

Proceeds from exercise of stock options

  4,661      3,993   

Purchase of common stock for treasury

  —        (3,492

Dividends paid on common stock

  (10,539   —     

Payment of fees related to refinancing activities

  —        (512 )
  

 

 

   

 

 

 

Net cash used in financing activities

  (47,039   (42,558 )
  

 

 

   

 

 

 

Effect of exchange rate changes on cash

  (2,198   536   
  

 

 

   

 

 

 

Net decrease in cash

  (21,247   (6,099 )

Cash, beginning of period

  109,577      84,470   
  

 

 

   

 

 

 

Cash, end of period

$ 88,330    $ 78,371   
  

 

 

   

 

 

 

The accompanying notes are an integral part of these condensed consolidated financial statements.

 

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SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

1. Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These accounting principles were applied on a basis consistent with those of the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2014, filed with the Securities and Exchange Commission (the “SEC”) on February 26, 2015 (the “2014 Form 10-K”). In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments, except as noted elsewhere in the notes to the condensed consolidated financial statements) necessary for a fair statement of its financial position as of March 31, 2015, the results of its operations for the three months ended March 31, 2015 and 2014 and its cash flows for the three months ended March 31, 2015 and 2014. These statements do not include all of the information and footnotes required by GAAP for annual financial statements. The financial statements contained herein should be read in conjunction with the audited consolidated financial statements and footnotes as of and for the year ended December 31, 2014, which were included in the 2014 Form 10-K. The December 31, 2014 consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP for annual financial statements. The results of operations for the three months ended March 31, 2015 are not necessarily indicative of the expected results for any subsequent quarters or the full year.

Recent Accounting Pronouncements

In April 2015, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. This ASU more closely aligns the treatment of debt issuance costs with debt discounts and premiums and requires debt issuance costs be presented as a direct deduction from the carrying amount of the related debt. The amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. The Company is currently evaluating the potential impact of this ASU on its financial position, results of operations or cash flows.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern (“ASU 2014-15”). This ASU establishes specific guidance to an organization’s management on their responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern. The provisions of ASU 2014-15 are effective for interim and annual periods beginning after December 15, 2016. This ASU is not expected to have an impact on the Company’s financial position, results of operations or cash flows.

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”). The objective of ASU 2014-09 is to clarify the principles for recognizing revenue by removing inconsistencies and weaknesses in revenue requirements; providing a more robust framework for addressing revenue issues; improving comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets; and providing more useful information to users of financial statements through improved revenue disclosure requirements. In April 2015, the FASB voted to defer the effective date of the new revenue recognition standard by one year. As a result, the provisions of this ASU are now effective for interim and annual periods beginning after December 15, 2017. The Company is currently evaluating the impact of this standard on its financial position, results of operations and cash flows.

2. Equity and Stock-based Compensation

In March 2015, the Company’s stockholders approved an increase in the number of authorized shares of the Company’s common stock from 100,000,000 shares to 200,000,000 shares.

 

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SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

For stock options and restricted stock, the total amount of stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Comprehensive Income was as follows (in thousands):

 

     Three Months Ended
March 31,
 
Statements of Comprehensive Income Classification    2015      2014  

Cost of software-enabled services

   $ 1,605       $ 1,084   

Cost of maintenance

     102         91   

Cost of professional services

     165         117   
  

 

 

    

 

 

 

Total cost of revenues

  1,872      1,292   

Selling and marketing

  743      637   

Research and development

  450      310   

General and administrative

  1,041      736   
  

 

 

    

 

 

 

Total operating expenses

  2,234      1,683   
  

 

 

    

 

 

 

Total stock-based compensation expense

$ 4,106    $ 2,975   
  

 

 

    

 

 

 

A summary of stock option activity as of and for the three months ended March 31, 2015 is as follows:

 

     Shares of Common
Stock Underlying
Options
 

Outstanding at January 1, 2015

     11,720,648   

Granted

     15,450   

Cancelled/forfeited

     (46,367

Exercised

     (244,009
  

 

 

 

Outstanding at March 31, 2015

  11,445,722   
  

 

 

 

The Company recorded $2.8 million and $2.5 million of income tax benefits related to the exercise of stock options during the three months ended March 31, 2015 and 2014, respectively. These amounts were recorded entirely to Additional paid-in capital on the Company’s Condensed Consolidated Balance Sheets.

3. Earnings per Share

Earnings per share (“EPS”) is calculated in accordance with the relevant accounting standards. Basic EPS includes no dilution and is computed by dividing income available to the Company’s common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of stock options and restricted stock using the treasury stock method. Common equivalent shares are excluded from the computation of diluted earnings per share if the effect of including such common equivalent shares is anti-dilutive because their exercise prices together with other assumed proceeds exceed the average fair value of common stock for the period. The Company has two classes of common stock, each with identical participation rights to earnings and liquidation preferences, and therefore the calculation of EPS as described above is identical to the calculation under the two-class method.

The following table sets forth the weighted average common shares used in the computation of basic and diluted earnings per share (in thousands):

 

     Three Months Ended
March 31,
 
     2015      2014  

Weighted average common shares outstanding

     84,263         82,722   

Weighted average common stock equivalents – options and restricted shares

     4,193         4,179   
  

 

 

    

 

 

 

Weighted average common and common equivalent shares outstanding

  88,456      86,901   
  

 

 

    

 

 

 

 

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SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

Options to purchase 2,057,628 and 1,881,520 shares were outstanding at March 31, 2015 and 2014, respectively, but were not included in the computation of diluted earnings per share because the effect of including the options would be anti-dilutive.

In the first quarter of 2015, the Company’s Board of Directors declared and subsequently paid a quarterly cash dividend of $0.125 per share of common stock on March 16, 2015 to stockholders of record as of the close of business on March 2, 2015.

4. Debt

At March 31, 2015 and December 31, 2014, debt consisted of the following (in thousands):

 

     March 31,
2015
     December 31,
2014
 

Credit facility, weighted-average interest rate of 2.94% and 2.93%, respectively

   $ 601,000       $ 645,000   

Unamortized original issue discount

     (5,747      (6,095
  

 

 

    

 

 

 
  595,253      638,905   

Short-term borrowings and current portion of long-term debt

  (19,061   (20,470
  

 

 

    

 

 

 

Long-term debt

$ 576,192    $ 618,435   
  

 

 

    

 

 

 

Capitalized financing costs of $1.1 million and $1.2 million were amortized to interest expense in the three months ended March 31, 2015 and 2014, respectively. Additionally, the Company amortized to interest expense $0.3 million of the original issue discount in the three months ended March 31, 2015 and 2014. The unamortized balance of capitalized financing costs is included in intangible and other assets in the Company’s Condensed Consolidated Balance Sheet.

The estimated fair value of the Company’s credit facility, which is a Level 2 liability, was $599.9 million and $641.1 million at March 31, 2015 and December 31, 2014, respectively. These fair values were computed based on comparable quoted market prices.

5. Commitments and Contingencies

Millennium Actions

Several actions (the “Millennium Actions”) have been filed in various jurisdictions against the Company’s subsidiary, GlobeOp Financial Services S.A. (“GlobeOp”), alleging claims and damages with respect to a valuation agent services agreement performed by GlobeOp for the Millennium Global Emerging Credit Fund, L.P. and Millennium Global Emerging Credit Fund Ltd. (the “Millennium Funds”). These actions include (i) a putative class action in the U.S. District Court for the Southern District of New York (the “U.S. Class Action”) on behalf of a putative class of investors in the Millennium Funds filed in May 2012 asserting claims of $844 million (the alleged aggregate value of assets under management by the Millennium Funds at the funds’ peak valuation); (ii) an arbitration proceeding in the United Kingdom (the “UK Arbitration”) on behalf of Millennium Global Investments Ltd. and Millennium Asset Management Ltd., the Millennium Funds’ investment manager and administrative manager, respectively (together, the “Millennium Managers”), which commenced with a request for arbitration in July 2011, seeking an indemnity of $26.5 million for sums paid by way of settlement to the Millennium Funds in a separate arbitration to which GlobeOp was not a party, as well as an indemnity for any losses that may be incurred by the Millennium Managers in the U.S. Class Action; and (iii) a claim in the same UK Arbitration proceeding by the liquidators on behalf of the Millennium Global Emerging Credit Master Fund Ltd. (the “Master Fund”) against GlobeOp for damages alleged to be in excess of $160 million. These actions allege that GlobeOp breached its contractual obligations and/or negligently breached a duty of care in the performance of services for the Millennium Fund and that, inter alia , GlobeOp should have discovered and reported a fraudulent scheme perpetrated by the portfolio manager employed by the investment manager. The U.S. Class Action also asserts claims against SS&C identical to the claims against GlobeOp in that action. In the UK Arbitration, GlobeOp has asserted counterclaims against both the Millennium Managers and the Master Fund for indemnity, including in respect of the U.S. Class Action.

 

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SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

GlobeOp has secured insurance coverage that provides reimbursement of various litigation costs up to pre-determined limits. Since 2012, GlobeOp has been reimbursed for litigation costs under the applicable insurance policy.

In January 2014, GlobeOp, SS&C, the Millennium Managers and the plaintiff in the U.S. Class Action entered into a settlement agreement resolving all disputes and claims between and among the parties (including a separate mutual release between and among GlobeOp and SS&C, on the one hand, and the Millennium Managers on the other that covers claims asserted in the UK Arbitration). The settlement agreement was approved by the United States District Court for the Southern District of New York on July 7, 2014 and consummated in August 2014. Accordingly, the U.S. Class Action matter has been dismissed with prejudice and is now concluded. GlobeOp’s insurers funded the entirety of the settlement amount contemplated to be contributed by GlobeOp. The resolution of the U.S. Class Action does not affect the claims, counterclaims and/or defenses as between GlobeOp and the Master Fund that have been asserted in the UK Arbitration.

Hearings in the UK Arbitration were conducted in London in July and August 2013, September 2014 and December 2014, and the matter is currently pending before the arbitrator for decision. The Company cannot predict the outcome of the UK Arbitration. The Company believes that it has strong defenses and has vigorously contested the UK Arbitration (as described above, the U.S. Class Action has been concluded). The amount of any potential loss, if any at all, cannot be reasonably estimated at this time.

In addition to the foregoing legal proceedings, from time to time, the Company is subject to other legal proceedings and claims. In the opinion of the Company’s management, the Company is not involved in any other such litigation or proceedings with third parties that management believes would have a material adverse effect on the Company or its business.

6. Goodwill

The change in carrying value of goodwill as of and for the three months ended March 31, 2015 is as follows (in thousands):

 

Balance at December 31, 2014

$  1,573,227   

Adjustments to previous acquisitions

  137   

Effect of foreign currency translation

  (31,596
  

 

 

 

Balance at March 31, 2015

$ 1,541,768   
  

 

 

 

7. Income Taxes

The effective tax rate was 27% and 33% for the three months ended March 31, 2015 and 2014, respectively. The change for the three months ended March 31, 2015 was primarily due to the absence of the unfavorable impact of tax law changes enacted in New York that was recorded during the first quarter of 2014.

 

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SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

8. Acquisitions

The following unaudited pro forma condensed consolidated results of operations are provided for illustrative purposes only and assume that the acquisition of DST Global Solutions (“DSTGS”) occurred on January 1, 2013. There were no acquisitions during the three months ended March 31, 2015. This unaudited pro forma information (in thousands, except per share data) should not be relied upon as being indicative of the historical results that would have been obtained if the acquisition had actually occurred on that date, nor of the results that may be obtained in the future. The net assets and results of operations for this acquisition are included in the Company’s condensed consolidated financial statements as of and for the three months ended March 31, 2015.

 

     Three Months
Ended

March 31, 2014
 

Revenues

   $ 200,961   

Net income

   $ 23,866   

Basic earnings per share

   $ 0.29   

Basic weighted average number of common shares outstanding

     82,722   

Diluted earnings per share

   $ 0.27   

Diluted weighted average number of common and common equivalent shares outstanding

     86,901   

 

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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

This Management’s Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to provide readers of our condensed consolidated financial statements with the perspectives of management. It presents, in narrative form, information regarding our financial condition, results of operations, liquidity and certain other factors that may affect our future results. It should be read in conjunction with our 2014 Annual Report on Form 10-K and the condensed consolidated financial statements included in this Form 10-Q.

Results of Operations

Revenues

Our revenues consist primarily of software-enabled services and maintenance revenues, and, to a lesser degree, software license and professional services revenues. As a general matter, fluctuations in our software-enabled services revenues are attributable to the number of new software-enabled services clients as well as total assets under management in our clients’ portfolios and the number of outsourced transactions provided to our existing clients, while our software license and professional services revenues tend to fluctuate based on the number of new licensing clients. Maintenance revenues vary based on the rate by which we add or lose maintenance clients over time and, to a lesser extent, on the annual increases in maintenance fees, which are generally tied to the consumer price index.

The following table sets forth the percentage of our total revenues represented by each of the following sources of revenues for the periods indicated:

 

     Three Months Ended
March 31,
 
     2015     2014  

Revenues:

    

Software-enabled services

     75     78

Software licenses

     4        4   

Maintenance

     17        14   

Professional services

     4        4   
  

 

 

   

 

 

 

Total revenues

  100   100
  

 

 

   

 

 

 

The following table sets forth revenues (dollars in thousands) and percent change in revenues for the periods indicated:

 

     Three Months Ended
March 31,
     %
Change
 
     2015      2014     

Revenues:

        

Software-enabled services

   $ 153,567       $ 145,383         6

Software licenses

     7,326         7,499         (2

Maintenance

     35,718         25,526         40   

Professional services

     9,124         7,402         23   
  

 

 

    

 

 

    

Total revenues

$ 205,735    $ 185,810      11   
  

 

 

    

 

 

    

Three Months Ended March 31, 2015 versus 2014. Our revenues increased in the first quarter of 2015 as compared to the first quarter of 2014 primarily due to revenues related to DSTGS, which we acquired in the fourth quarter of 2014 and for which revenues increased $13.7 million, as well as a continued increase in demand for our fund administration services from alternative investment managers. These increases were partially offset by the unfavorable impact from foreign currency translation of $3.2 million, which resulted from the strength of the U.S. dollar relative to currencies such as the Canadian dollar, the Euro and the British pound. Maintenance revenues experienced a substantial increase due to revenues related to DSTGS, which contributed $10.5 million in 2015. These revenues reflect a reduction of $0.4 million related to the fair value adjustment of acquired deferred revenue related to DSTGS. Additionally, professional services revenues increased due to a rise in the number of product implementation projects.

 

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Cost of Revenues

Cost of software-enabled services revenues consists primarily of the cost related to personnel utilized in servicing our software-enabled services clients and amortization of intangible assets. Cost of software license revenues consists primarily of amortization of completed technology, royalties, third-party software, and the costs of product media, packaging and documentation. Cost of maintenance revenues consists primarily of technical client support, costs associated with the distribution of products and regulatory updates and amortization of intangible assets. Cost of professional services revenues consists primarily of the cost related to personnel utilized to provide implementation, conversion and training services to our software licensees, as well as system integration and custom programming consulting services.

The following table sets forth each of the following cost of revenues as a percentage of their respective revenue source for the periods indicated:

 

     Three Months Ended
March 31,
 
     2015     2014  

Cost of revenues:

    

Cost of software-enabled services

     58     59

Cost of software licenses

     19        11   

Cost of maintenance

     39        39   

Cost of professional services

     93        68   

Total cost of revenues

     55        55   

Gross margin percentage

     45        45   

The following table sets forth cost of revenues (dollars in thousands) and percent change in cost of revenues for the periods indicated:

 

     Three Months Ended
March 31,
     %
Change
 
     2015      2014     

Cost of revenues:

        

Cost of software-enabled services

   $ 88,602       $ 85,691         3

Cost of software licenses

     1,390         851         63   

Cost of maintenance

     13,801         9,931         39   

Cost of professional services

     8,514         5,026         69   
  

 

 

    

 

 

    

Total cost of revenues

$ 112,307    $ 101,499      11   
  

 

 

    

 

 

    

Three Months Ended March 31, 2015 versus 2014. Our total cost of revenues increased in the first quarter of 2015 primarily due to our acquisition of DSTGS, which added $5.9 million in costs and $2.0 million in costs related to the elimination of redundant positions, as well as an increase in cost of software-enabled services revenues to support the increased demand for our fund administration services from alternative investment managers. These increases were partially offset by the favorable impact from foreign currency translation of $2.5 million, which resulted from the strength of the U.S. dollar relative to currencies such as the Canadian dollar, the Euro and the British pound.

Operating Expenses

Selling and marketing expenses consist primarily of the personnel costs associated with the selling and marketing of our products, including salaries, commissions and travel and entertainment. Such expenses also include amortization of intangible assets, the cost of branch sales offices, trade shows and marketing and promotional materials. Research and development expenses consist primarily of personnel costs attributable to the enhancement of existing products and the development of new software products. General and administrative expenses consist primarily of personnel costs related to management, accounting and finance, information management, human resources and administration and associated overhead costs, as well as fees for professional services.

 

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The following table sets forth each of the following operating expenses as a percentage of our total revenues for the periods indicated:

 

     Three Months Ended
March 31,
 
     2015     2014  

Operating expenses:

    

Selling and marketing

     6     6

Research and development

     10        7   

General and administrative

     8        7   

Total operating expenses

     24        20   

The following table sets forth operating expenses (dollars in thousands) and percent change in operating expenses for the periods indicated:

 

     Three Months Ended
March 31,
     %
Change
 
     2015      2014     

Operating expenses:

        

Selling and marketing

   $ 13,387       $ 11,898         13

Research and development

     19,608         13,587         44   

General and administrative

     17,300         11,801         47   
  

 

 

    

 

 

    

Total operating expenses

$ 50,295    $ 37,286      35   
  

 

 

    

 

 

    

Three Months Ended March 31, 2015 versus 2014. The increase in total operating expenses in the first quarter of 2015 was primarily due to our acquisition of DSTGS, which added $7.6 million in costs and $2.6 million in costs related to the elimination of redundant positions, as well as an increase of $2.6 million in professional fees associated with our pending acquisition of Advent Software, Inc, or Advent, which are included as general and administrative expenses. These increases were partially offset by the favorable impact from foreign currency translation of $0.8 million, which resulted from the strength of the U.S. dollar relative to currencies such as the Canadian dollar, the Euro and the British pound.

Comparison of the Three Months Ended March 31, 2015 and 2014 for Interest, Taxes and Other

Interest expense, net. We had net interest expense of $5.6 million in 2015 compared to $7.1 million in 2014. The decrease in interest expense in 2015 reflects the lower average debt balance resulting from repayments of the credit facility and a decrease in average interest rates resulting from the 2014 repricing. These facilities are discussed further in “Liquidity and Capital Resources”.

Other expense, net. Other expense, net for 2015 and 2014 consists primarily of foreign currency transaction losses.

Provision for Income Taxes. The following table sets forth the provision for income taxes (dollars in thousands) and effective tax rates for the periods indicated:

 

     Three Months Ended
March 31,
 
     2015     2014  

Provision for income taxes

     9,780        12,793   

Effective tax rate

     27     33

Our March 31, 2015 and 2014 effective rates differ from the statutory rate primarily due to the effect of our foreign operations. The decrease in effective rate from 2014 to 2015 was primarily due to a one-time charge of $2.5 million related to a change in the apportionment method caused by tax law changes enacted in New York during the first quarter of 2014. Our effective tax rate includes the effect of operations outside the United States, which historically have been taxed at rates lower than the U.S. statutory rate. While we have income from multiple foreign sources, the majority of the Company’s non-U.S. operations are in Canada, India and the United Kingdom, where we anticipate the statutory rates to be approximately 26.5%, 34.0% and 20.3%, respectively, in 2015. The consolidated expected effective tax rate for the year ended December 31, 2015 is forecasted to be between 26% and 28%. A future proportionate change in the composition of income before income taxes from foreign and domestic tax jurisdictions could impact our periodic effective tax rate.

 

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Liquidity and Capital Resources

Our principal cash requirements are to finance the costs of our operations pending the billing and collection of client receivables, to fund payments with respect to our indebtedness, to invest in research and development and to acquire complementary businesses or assets. We expect our cash on hand and cash flows from operations to provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending for at least the next twelve months.

In February 2015, we entered into a definitive agreement with Advent wherein SS&C will acquire Advent for an enterprise value of approximately $2.7 billion in cash, equating to $44.25 per share plus assumption of debt. The closing, which is expected to occur in the second or third quarter of 2015, remains subject to clearances by relevant regulatory authorities and satisfaction of customary closing conditions. SS&C plans to fund the acquisition and refinancing of existing debt with $3.0 billion of debt financing, cash on hand and approximately $400 million of equity.

In the first quarter of 2015, our Board of Directors declared and subsequently paid a quarterly cash dividend of $0.125 per share of common stock on March 16, 2015 to stockholders of record as of the close of business on March 2, 2015.

Our cash and cash equivalents at March 31, 2015 were $88.3 million, a decrease of $21.3 million from $109.6 million at December 31, 2014. The decrease in cash is primarily due to cash used for repayments of debt, payment of dividends and capital expenditures. These decreases were partially offset by cash provided by operations as well as proceeds from stock option exercises and the related income tax benefits.

Net cash provided by operating activities was $31.2 million for the three months ended March 31, 2015. Cash provided by operating activities primarily resulted from net income of $26.2 million adjusted for non-cash items of $27.2 million, partially offset by changes in our working capital accounts (excluding the effect of acquisitions) totaling $22.2 million. The changes in our working capital accounts were driven by decreases in accrued expenses and accounts payable and an increase in accounts receivable, partially offset by an increase in deferred revenues, decrease in prepaid expenses and other assets and a change in income taxes prepaid and payable. The decrease in accrued expenses was primarily due to the payment of annual employee bonuses in the first quarter of 2015. The increase in accounts receivable was primarily due to revenue growth and the increase in days’ sales outstanding from 42 days at December 31, 2014 to 45 days at March 31, 2015. The increase in deferred revenues was primarily due to the collection of annual maintenance fees.

Investing activities used net cash of $3.2 million for the three months ended March 31, 2015, primarily related to $2.3 million in cash paid for capital expenditures and $0.9 million in cash paid for capitalized software.

Financing activities used net cash of $47.0 million for the three months ended March 31, 2015, representing $44.0 million in repayments of debt and $10.5 million related to the payment of our quarterly dividends. These payments were partially offset by proceeds of $4.7 million from stock option exercises and income tax windfall benefits of $2.8 million related to the exercise of stock options.

We have made a permanent reinvestment determination in certain non-U.S. operations that have historically generated positive operating cash flows. At March 31, 2015, we held approximately $69.2 million in cash and cash equivalents at non-U.S. subsidiaries where we had made such a determination and in turn no provision for U.S. income taxes had been made. At March 31, 2015, we held approximately $41.0 million in cash by subsidiaries of SS&C Technologies Holdings Europe S.A.R.L., or SS&C Sarl, the foreign borrower under our credit facility that will be used to facilitate debt servicing of SS&C Sarl. At March 31, 2015, we held approximately $22.8 million in cash at our Indian operations that if repatriated to our foreign debt holder would incur distribution taxes of approximately $3.9 million.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.

 

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Credit Facility

On March 14, 2012, in connection with our acquisition of GlobeOp, we entered into a credit agreement with SS&C and SS&C Sarl as the borrowers, which we refer to as the Credit Agreement. The Credit Agreement has four tranches of term loans: (i) a $0 term A-1 facility with a five and one-half year term for borrowings by SS&C, (ii) a $325.0 million term A-2 facility with a five and one-half year term for borrowings by SS&C Sarl, (iii) a $725.0 million term B-1 facility with a seven year term for borrowings by SS&C and (iv) a $75.0 million term B-2 facility with a seven year term for borrowings by SS&C Sarl. In addition, the Credit Agreement had a $142.0 million bridge loan facility, of which $31.6 million was immediately drawn, with a 364-day term available for borrowings by SS&C Sarl and has a revolving credit facility with a five and one-half year term available for borrowings by SS&C with $100.0 million in commitments. The revolving credit facility contains a $25.0 million letter of credit sub-facility and a $20.0 million swingline loan sub-facility. The bridge loan was repaid in July 2012 and is no longer available for borrowing.

The term loans and the revolving credit facility bear interest, at the election of the borrowers, at the base rate (as defined in the Credit Agreement) or LIBOR, plus the applicable interest rate margin for the revolving credit facility. The term A loans and the revolving credit facility initially bore interest at either LIBOR plus 2.75% or at the base rate plus 1.75%, and then will be subject to a step-down at any time SS&C’s consolidated net senior secured leverage ratio is less than 3.00 times, to 2.50% in the case of the LIBOR margin, and 1.50% in the case of the base rate margin. The term B loans initially bore interest at either LIBOR plus 4.00% or at base rate plus 3.00%, with LIBOR subject to a 1.00% floor. The initial proceeds of the borrowings under the Credit Agreement were used to satisfy a portion of the consideration required to fund our acquisition of GlobeOp and refinance amounts outstanding under SS&C’s prior senior credit facility.

In June 2013, we completed a repricing of our term B-1 loans and term B-2 loans, which replaced these loans with new term B-1 loans and term B-2 loans at the same outstanding principal balance, but at a different interest rate. The applicable interest rates have been reduced to either LIBOR plus 2.75% or the base rate plus 1.75%, and the LIBOR floor has been reduced from 1.00% to 0.75%, subject to a step-down at any time that the consolidated net senior secured leverage ratio is less than 2.75 times, to 2.50% in the case of the LIBOR margin, and 1.50% in the case of the base rate margin. The maturity date of the new loans remains June 8, 2019, and no changes were made to the financial covenants or scheduled amortization.

In February 2014, we completed a repricing of our term A loans, which replaced these loans with new term A loans at the same outstanding principal balance, but at a different interest rate. The applicable interest rates have been reduced to either LIBOR plus 2.0% or the base rate plus 1.0%. The maturity date of the new loans remains December 8, 2017, and no changes were made to the financial accounts or scheduled amortization.

In November 2014, we drew down on the revolving credit facility in the amount of $75.0 million to fund part of the purchase price of the acquisition of DSTGS.

As of March 31, 2015, there was $135.7 million in principal amount outstanding under the term A-2 facility, $353.7 million in principal amount outstanding under the term B-1 facility, $36.6 million in principal amount outstanding under the term B-2 facility and $75.0 million in principal amount outstanding under the revolving credit facility.

Holdings, SS&C and the material domestic subsidiaries of SS&C have pledged substantially all of their tangible and intangible assets to support the obligations of SS&C and SS&C Sarl under the Credit Agreement. In addition, SS&C Sarl has agreed, in certain circumstances, to cause subsidiaries in foreign jurisdictions to guarantee SS&C Sarl’s obligations and pledge substantially all of their assets to support the obligations of SS&C Sarl under the Credit Agreement.

Covenant Compliance

The Credit Agreement contains customary covenants limiting our ability and the ability of our subsidiaries to, among other things, pay dividends, incur debt or liens, redeem or repurchase equity, enter into transactions with affiliates, make investments, merge or consolidate with others or dispose of assets. In addition, the Credit Agreement contains a financial covenant requiring SS&C to maintain a consolidated net senior secured leverage ratio. As of March 31, 2015, we were in compliance with the financial and non-financial covenants.

The Credit Agreement contains various events of default (including failure to comply with the covenants contained in the Credit Agreement and related agreements) and upon an event of default, the lenders may, subject to various customary cure rights, require the immediate repayment of all amounts outstanding under the term loans, the bridge loans and the revolving credit facility and foreclose on the collateral.

Under the Credit Agreement, we are required to satisfy and maintain a specified financial ratio and other financial condition tests. As of March 31, 2015, we were in compliance with the financial ratios and other financial condition tests. Our continued ability to meet this financial ratio and these tests can be affected by events beyond our control, and we cannot assure you that we will continue to meet this ratio and these tests. A breach of any of these covenants could result in a default

 

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under the Credit Agreement. Upon the occurrence of any event of default under the Credit Agreement, the lenders could elect to declare all amounts outstanding under the Credit Agreement to be immediately due and payable and terminate all commitments to extend further credit.

Consolidated EBITDA is a non-GAAP financial measure used in key financial covenants contained in the Credit Agreement, which is a material facility supporting our capital structure and providing liquidity to our business. Consolidated EBITDA is defined as earnings before interest, taxes, depreciation and amortization (EBITDA), further adjusted to exclude unusual items and other adjustments permitted in calculating covenant compliance under the Credit Agreement. We believe that the inclusion of supplementary adjustments to EBITDA applied in presenting Consolidated EBITDA is appropriate to provide additional information to investors to demonstrate compliance with the specified financial ratio and other financial condition tests contained in the Credit Agreement.

Management uses Consolidated EBITDA to gauge the costs of our capital structure on a day-to-day basis when full financial statements are unavailable. Management further believes that providing this information allows our investors greater transparency and a better understanding of our ability to meet our debt service obligations and make capital expenditures.

Any breach of covenants in the Credit Agreement that are tied to ratios based on Consolidated EBITDA could result in a default under that agreement, in which case the lenders could elect to declare all amounts borrowed immediately due and payable and to terminate any commitments they have to provide further borrowings. Any default and subsequent acceleration of payments under the Credit Agreement would have a material adverse effect on our results of operations, financial position and cash flows. Additionally, under the Credit Agreement, our ability to engage in activities such as incurring additional indebtedness, making investments and paying dividends is also tied to ratios based on Consolidated EBITDA.

Consolidated EBITDA does not represent net income or cash flow from operations as those terms are defined by generally accepted accounting principles, or GAAP, and does not necessarily indicate whether cash flows will be sufficient to fund cash needs. Further, the Credit Agreement requires that Consolidated EBITDA be calculated for the most recent four fiscal quarters. As a result, the measure can be disproportionately affected by a particularly strong or weak quarter. Further, it may not be comparable to the measure for any subsequent four-quarter period or any complete fiscal year.

Consolidated EBITDA is not a recognized measurement under GAAP and investors should not consider Consolidated EBITDA as a substitute for measures of our financial performance and liquidity as determined in accordance with GAAP, such as net income, operating income or net cash provided by operating activities. Because other companies may calculate Consolidated EBITDA differently than we do, Consolidated EBITDA may not be comparable to similarly titled measures reported by other companies. Consolidated EBITDA has other limitations as an analytical tool, when compared to the use of net income, which is the most directly comparable GAAP financial measure, including:

 

    Consolidated EBITDA does not reflect the provision of income tax expense in our various jurisdictions;

 

    Consolidated EBITDA does not reflect the significant interest expense we incur as a result of our debt leverage;

 

    Consolidated EBITDA does not reflect any attribution of costs to our operations related to our investments and capital expenditures through depreciation and amortization charges;

 

    Consolidated EBITDA does not reflect the cost of compensation we provide to our employees in the form of stock option awards; and

 

    Consolidated EBITDA excludes expenses that we believe are unusual or non-recurring, but which others may believe are normal expenses for the operation of a business.

 

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The following is a reconciliation of net income to Consolidated EBITDA as defined in our senior credit facility.

 

     Three Months Ended
March 31,
     Twelve Months Ended
March 31,
 
     2015      2014      2015  
     (In thousands)  

Net income

   $ 26,246       $ 26,448       $ 130,925   

Interest expense, net

     5,600         7,098         23,974   

Income tax provision

     9,780         12,793         43,514   

Depreciation and amortization

     25,996         24,936         100,891   
  

 

 

    

 

 

    

 

 

 

EBITDA

  67,622      71,275      299,304   

Purchase accounting adjustments(1)

  397      (27   900   

Capital-based taxes

  —        6      —     

Unusual or non-recurring charges (gains) (2)

  9,092      2,014      11,954   

Acquired EBITDA and cost savings (3)

  1,767      —        21,325   

Stock-based compensation

  4,106      2,975      12,614   

Other(4)

  95      (49   459   
  

 

 

    

 

 

    

 

 

 

Consolidated EBITDA, as defined

$ 83,079    $ 76,194    $ 346,556   
  

 

 

    

 

 

    

 

 

 

 

(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 rent expense by the amount that would have been recognized if lease obligations were not adjusted to fair value at the date of acquisitions.
(2) Unusual or non-recurring charges include severance expenses, foreign currency gains and losses, proceeds from legal and other settlements and other one-time expenses, such as expenses associated with acquisitions, facilities and the sale of fixed assets.
(3) Acquired EBITDA and cost savings 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.
(4) Other includes the non-cash portion of straight-line rent expense.

Our covenant requirement for net senior secured leverage ratio and the actual ratio for the three months ended March 31, 2015 are as follows:

 

     Covenant
Requirement
     Actual
Ratio
 

Maximum consolidated net senior secured leverage to Consolidated EBITDA ratio (1)

     4.75x         1.48x   

 

(1) Calculated as the ratio of consolidated senior secured funded debt, net of cash and cash equivalents, to Consolidated EBITDA, as defined by the Credit Agreement, for the period of four consecutive fiscal quarters ended on the measurement date. Consolidated senior secured funded debt is comprised of indebtedness for borrowed money, notes, bonds or similar instruments, letters of credit, deferred purchase price obligations and capital lease obligations. This covenant is applied at the end of each quarter.

Recent Accounting Pronouncements

In April 2015, the FASB issued ASU No. 2015-03, “Simplifying the Presentation of Debt Issuance Costs”. This ASU more closely aligns the treatment of debt issuance costs with debt discounts and premiums and requires debt issuance costs be presented as a direct deduction from the carrying amount of the related debt. The amendments in this ASU are effective for financial statements issued for fiscal years beginning after December 15, 2015 and interim periods within those fiscal years. We are currently evaluating the potential impact of this ASU on our financial position, results of operations or cash flows.

In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern. This ASU establishes specific guidance to an organization’s management on their responsibility to evaluate whether there is substantial doubt about the organization’s ability to continue as a going concern. The provisions of ASU 2014-15 are effective for interim and annual periods beginning after December 15, 2016. This ASU is not expected to have an impact on our financial position, results of operations or cash flows.

 

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In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606), or ASU 2014-09. The objective of ASU 2014-09 is to clarify the principles for recognizing revenue by removing inconsistencies and weaknesses in revenue requirements; providing a more robust framework for addressing revenue issues; improving comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets; and providing more useful information to users of financial statements through improved revenue disclosure requirements. In April 2015, the FASB voted to defer the effective date of the new revenue recognition standard by one year. As a result, the provisions of this ASU are now effective for interim and annual periods beginning after December 15, 2017. We are currently evaluating the impact of this standard on our financial position, results of operations and cash flows.

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

We do not use derivative financial instruments for trading or speculative purposes. We have invested our available cash in short-term, highly liquid financial instruments, having initial maturities of three months or less. When necessary, we have borrowed to fund acquisitions.

At March 31, 2015, we had total variable interest rate debt of $601.0 million. As of March 31, 2015, a 1% increase in interest rates would result in an increase in interest expense of approximately $3.8 million per year.

During the three months ended March 31, 2015, approximately 32% of our revenues were from clients located outside the United States. A portion of the revenues from clients located outside the United States is denominated in foreign currencies, the majority being the Canadian dollar. While revenues and expenses of our foreign operations are primarily denominated in their respective local currencies, some subsidiaries do enter into certain transactions in currencies that are different from their local currency. These transactions consist primarily of cross-currency intercompany balances and trade receivables and payables. As a result of these transactions, we have exposure to changes in foreign currency exchange rates that result in foreign currency transaction gains and losses, which we report in other income (expense). These outstanding amounts were not material for the three months ended March 31, 2015. The amount of these balances can fluctuate in the future as we bill customers and buy products or services in currencies other than our functional currency, which could increase our exposure to foreign currency exchange rates. We continue to monitor our exposure to foreign exchange rates as a result of our acquisitions and changes in our operations. We do not enter into any market risk sensitive instruments for trading purposes.

The foregoing risk management discussion and the effect thereof are forward-looking statements. Actual results in the future may differ materially from these projected results due to actual developments in global financial markets. The analytical methods used by us to assess and minimize risk discussed above should not be considered projections of future events or losses.

 

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Our management, with the participation of our chief executive officer and chief financial officer (our principal executive officer and principal financial officer, respectively), evaluated the effectiveness of our disclosure controls and procedures as of March 31, 2015. The term “disclosure controls and procedures,” as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended, or Exchange Act, means controls and other procedures of a company that are designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by a company in the reports that it files or submits under the Exchange Act is accumulated and communicated to the company’s management, including its principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosure. Management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving their objectives, and management necessarily applies its judgment in evaluating the cost-benefit relationship of possible controls and procedures. Based on the evaluation of our disclosure controls and procedures as of March 31, 2015, our chief executive officer and chief financial officer concluded that, as of such date, our disclosure controls and procedures were effective at the reasonable assurance level.

Changes in Internal Control Over Financial Reporting

There have not been any changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the fiscal quarter ended March 31, 2015, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

The information regarding certain legal proceedings in which we are involved as set forth in Note 5 – Commitments and Contingencies of the Notes to Condensed Consolidated Financial Statements (Part I, Item 1 of this Quarterly Report on Form 10-Q) is incorporated by reference into this Item 1.

 

Item 6. Exhibits

The exhibits listed in the Exhibit Index immediately preceding such exhibits are filed as part of this Report.

 

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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

SS&C TECHNOLOGIES HOLDINGS, INC.
By: /s/ Patrick J. Pedonti
Patrick J. Pedonti
Senior Vice President and Chief Financial Officer
(Duly Authorized Officer, Principal Financial and Accounting Officer)

Date: May 1, 2015

 

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EXHIBIT INDEX

 

Exhibit
Number

  

Description of Exhibit

    3.1    Amended and Restated Certificate of Incorporation, dated March 30, 2015
  10.1    First Amended and Restated Employment Agreement, dated March 31, 2015, between SS&C Technologies Holdings, Inc. and William C. Stone is incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K, filed on April 1, 2015 ( (File No. 001-34675)
  31.1    Certifications of the Registrant’s Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  31.2    Certifications of the Registrant’s Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
  32       Certification of the Registrant’s Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (furnished and not filed for purposes of sections 11 or 12 of the Securities Act and section 18 of the Exchange Act)
101.INS    XBRL Instance Document.*
101.SCH    XBRL Taxonomy Extension Schema Document.*
101.CAL    XBRL Taxonomy Calculation Linkbase Document.*
101.LAB    XBRL Taxonomy Label Linkbase Document.*
101.PRE    XBRL Taxonomy Presentation Linkbase Document.*
101.DEF    XBRL Taxonomy Extension Definition Linkbase Document.*

 

* submitted electronically herewith

Attached as Exhibit 101 to this report are the following formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets at March 31, 2015 and December 31, 2014, (ii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2015 and 2014, (iii) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014 and (iv) Notes to Condensed Consolidated Financial Statements.

 

 

21

Exhibit 3.1

 

State of Delaware

Secretary of State

Division of Corporations

Delivered 11:17 AM 03/30/2015

FILED 10:46 AM 03/30/2015

SRV 150430293 - 4004678 FILE

CERTIFICATE OF AMENDMENT

OF

SS&C TECHNOLOGIES HOLDINGS, INC.

March 30, 2015

Pursuant to the provisions of § 242 of the

General Corporation Law of the State of Delaware

FIRST: The present name of the corporation is SS&C TECHNOLOGIES HOLDINGS, INC. (the “Corporation”). The date of filing of the original Restated Certificate of Incorporation of the Corporation with the Secretary of State of the State of Delaware was April 6, 2010.

SECOND: Article Fourth of the Restated Certificate of Incorporation of the Corporation is hereby amended and restated in its entirety as follows:

“FOURTH: The total number of shares of all classes of stock which the Corporation shall have authority to issue is 210,000,000 shares, consisting of (i) 200,000,000 shares of Common Stock, $0.01 par value per share (“Common Stock”), (ii) 5,000,000 shares of Class A Non-Voting Common Stock, $0.01 par value per share (“Class A Common Stock”), and (iii) 5,000,000 shares of Preferred Stock, $0.01 par value per share (“Preferred Stock”).”

THIRD: The foregoing amendment to the Restated Certificate of Incorporation of the Corporation has been duly adopted by the stockholders in accordance with the provisions of §242 of the General Corporation Law of the State of Delaware.

FOURTH: All other provisions of the Restated Certificate of Incorporation of the Corporation shall remain in full force and effect.

[ Signature Page Follows ]


IN WITNESS WHEREOF, the undersigned has executed this Certificate of Amendment as of the date first set forth above.

 

SS&C TECHNOLOGIES HOLDINGS, INC.
By: LOGO
Name: Paul G. Igoe
Title: Senior Vice President and General Counsel

Exhibit 31.1

CERTIFICATION

I, William C. Stone, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of SS&C Technologies Holdings, Inc.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 1, 2015 /s/ William C. Stone

William C. Stone

Chairman of the Board and Chief Executive Officer

(Principal Executive Officer)

Exhibit 31.2

CERTIFICATION

I, Patrick J. Pedonti, certify that:

 

  1. I have reviewed this quarterly report on Form 10-Q of SS&C Technologies Holdings, Inc.;

 

  2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

 

  3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

 

  4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

 

  a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

 

  b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

 

  c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

 

  d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

 

  5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

 

  a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

 

  b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

 

Date: May 1, 2015 /s/ Patrick J. Pedonti

Patrick J. Pedonti

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

Exhibit 32

CERTIFICATION PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of SS&C Technologies Holdings, Inc. (the “Company”) for the period ended March 31, 2015 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned officers of the Company hereby certify to their knowledge, pursuant to 18 U.S.C. Section 1350, that:

 

  (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

 

  (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

 

Date: May 1, 2015 By: /s/ William C. Stone

William C. Stone

Chairman of the Board and Chief Executive Officer

(Principal Executive Officer)

Date: May 1, 2015 By: /s/ Patrick J. Pedonti

Patrick J. Pedonti

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)