SS&C Technologies Holdings, Inc.
SS&C Technologies Holdings Inc (Form: 10-K, Received: 02/29/2016 06:54:26)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-K

 

x

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

For the fiscal year ended December 31, 2015

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)

Securities registered pursuant to Section 12(b) of the Act:

 

Title of Each Class

 

Name of Each Exchange on Which Registered

Common Stock, $0.01 par value per share

 

The NASDAQ Global Select Market

 

Securities registered pursuant to Section 12(g) of the Act: None

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes   x     No   o

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes   o     No   x

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   o

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   o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

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

o

Non-accelerated filer

o

(Do not check if a smaller reporting company)

Smaller reporting company

o

 

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

As of June 30, 2015, the aggregate market value of the registrant’s common stock held by non-affiliates was $5,089,406,938 based on the closing sale price per share of the registrant’s common stock on The NASDAQ Global Select Market on such date.

There were 98,754,373 shares of the registrant’s common stock outstanding as of February 24, 2016.

 

DOCUMENTS INCORPORATED BY REFERENCE:

Part III of this annual report on Form 10-K incorporates by reference certain information from the registrant’s definitive proxy statement for the 2016 annual meeting of stockholders, which the registrant intends to file pursuant to Regulation 14A with the Securities and Exchange Commission not later than 120 days after the registrant’s fiscal year end of December 31, 2015. With the exception of the sections of the definitive proxy statement specifically incorporated herein by reference, the definitive proxy statement is not deemed to be filed as part of this annual report on Form 10-K.

 

 

 

 


SS&C TECHNOLOGIES HOLDINGS, INC.

ANNUAL REPORT ON FORM 10-K

For the Fiscal Year Ended December 31, 2015

TABLE OF CONTENTS

 

 

 

Page

PART I

 

Item 1.

Business

4

Item 1A.

Risk Factors

16

Item 1B.

Unresolved Staff Comments

27

Item 2.

Properties

27

Item 3.

Legal Proceedings

27

Item 4.

Mine Safety Disclosures

27

 

 

PART II

 

Item 5.

Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

28

Item 6.

Selected Financial Data

30

Item 7.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

31

Item 7A.

Quantitative and Qualitative Disclosures about Market Risk

44

Item 8.

Financial Statements and Supplementary Data

44

Item 9.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

44

Item 9A.

Controls and Procedures

44

Item 9B.

Other Information

45

 

 

PART III

 

Item 10.

Directors, Executive Officers and Corporate Governance

46

Item 11.

Executive Compensation

46

Item 12.

Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

46

Item 13.

Certain Relationships and Related Transactions, and Director Independence

46

Item 14.

Principal Accountant Fees and Services

46

 

 

PART IV

 

Item 15.

Exhibits and Financial Statement Schedules

47

Signatures

48

Consolidated Financial Statements

F-2

Exhibit Index

F-29

 

 

2


FORWARD-LOOKING INFORMATION

This annual report contains forward-looking statements within the meaning of the U.S. federal securities laws. All statements contained herein that are not statements of historical fact are forward-looking statements, including, without limitation, statements regarding future financial performance, funding requirements and liquidity; management’s plans and strategies for future operations, including statements relating to anticipated operating performance, cost reductions, competitive strengths or market position, acquisitions and related synergies; growth, declines and other trends in markets we sell into; the anticipated impact of adopting new accounting pronouncements; the anticipated outcome of outstanding claims, legal proceedings, tax audits and other contingent liabilities; foreign currency exchange rates and fluctuations in those rates; general economic conditions; assumptions underlying any of the foregoing; and any other statements that address events or developments that we intend or believe will or may occur in the future. 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, although not all forward-looking statements are accompanied by such words. Forward-looking statements are not guarantees of future performance and actual results may differ materially from those envisaged by such forward-looking statements. The factors discussed under “Item 1A. Risk Factors”, 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. You should not place undue reliance on any such forward-looking statements. Forward-looking statements speak only as of the date of the report, document, press release, webcast, call or other communication in which they are made. We expressly disclaim any obligation to update our forward-looking statements, whether as a result of new information, future events or circumstances, or otherwise, except as required by law.

The following are some of our registered trademarks and/or service marks in the United States and/or in other countries: ADVENT, ADVENT CORPORATE ACTIONS, ADVENT CUSTODIAL DATA, ADVENT ONDEMAND, ADVENT PORTFOLIO EXCHANGE, ADVENT REVENUE CENTER, ADVISORWARE, AXYS, BENEFIX, BLACK DIAMOND, DBC, DEAL MACROS, DEAL WORKSHEETS, FIXLINK, FUNDRUNNER, GENEVA, GLOBEOP, GLOBEOP HEDGE FUND INDEX, GOPRICING, GOREC, GORISK, MARGINMAN, MAXIMIS, MOXY, ORDER, PACER, PAGES, PIVOT, PORTIA, PORTPRO, PRO-JECT, RECON, SKYLINE, SYNCOVA, SYLVAN, TAMALE, TAMALE RMS, TRADETHRU, TRADEWARE, and ZOOLOGIC. SS&C Technologies, Inc. and/or its subsidiaries in the United States and/or in other countries have trademark or service mark rights to certain other names and marks referred to in this annual report.

SS&C Technologies Holdings, Inc., or “SS&C Holdings,” is our top-level holding company. SS&C Technologies, Inc., or “SS&C,” is our primary operating company and a wholly-owned subsidiary of SS&C Technologies Holdings, Inc. “We,” “us,” “our” and the “Company” mean SS&C Technologies Holdings, Inc. and its consolidated subsidiaries, including SS&C.

Unless context otherwise requires, references to our “common stock” includes both shares of our common stock and shares of our Class A non-voting common stock.

 

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PAR T I

ITEM 1.

BUSINESS

Overview

We are a leading provider of mission-critical, sophisticated software products and software-enabled services that allow financial services providers to automate complex business processes and effectively manage their information processing requirements. Our portfolio of software products and rapidly deployable software-enabled services allows our clients to automate and integrate front-office functions such as trading and modeling, middle-office functions such as portfolio management and reporting, and back-office functions such as accounting, performance measurement, reconciliation, reporting, processing and clearing. Our solutions enable our clients to focus on core operations, better monitor and manage investment performance and risk, improve operating efficiency and reduce operating costs. We provide our solutions globally to more than 10,000 clients, principally within the institutional asset and wealth management, alternative investment management, financial advisory and financial institutions vertical markets. In addition, our clients include commercial lenders, real estate investment trusts (REITs), corporate treasury groups, insurance and pension funds, municipal finance groups and real estate property managers.

We provide the global financial services industry with a broad range of software-enabled services, which consist of software-enabled outsourcing services and subscription-based on-demand software that are managed and hosted at our facilities, and specialized software products, which are deployed at our clients’ facilities. Our software-enabled services, which combine the strengths of our proprietary software with our domain expertise, enable our clients to contract with us to provide many of their mission-critical and complex business processes. For example, we utilize our software to offer comprehensive fund administration services for alternative investment managers, including fund manager services, transfer agency services, funds-of-funds services, tax processing and accounting. We offer clients the flexibility to choose from multiple software delivery options, including on-premise applications and hosted, multi-tenant or dedicated applications. Additionally, we provide certain clients with targeted, blended solutions based on a combination of our various software and software-enabled services. We believe that our software-enabled services provide superior client support and an attractive alternative to clients that do not wish to install, manage and maintain complicated financial software.

Our business model is characterized by substantial contractually recurring revenues, high operating margins and significant cash flow. We generate revenues primarily through our high-value software-enabled services, which are typically sold on a long-term subscription basis and integrated into our clients’ business processes. Our software-enabled services are generally provided under non-cancelable contracts with initial terms of one to five years that require monthly or quarterly payments and are subject to automatic annual renewal at the end of the initial term unless terminated by either party. We also generate revenues by licensing our software to clients through either perpetual or term licenses and by selling maintenance services. Maintenance services are generally provided under annually renewable contracts. As a consequence, a significant portion of our revenues consists of subscription payments and maintenance fees and is contractually recurring in nature. Our pricing typically scales as a function of our clients’ assets under management, the complexity of asset classes managed, the volume of transactions, and the level of service the client requires.

Our contractually recurring revenue model helps us minimize the fluctuations in revenues and cash flows typically associated with up-front, perpetual software license revenues and enhances our ability to manage costs. Our contractually recurring revenues, which include as our software-enabled services and maintenance and term licenses revenues, represented 92% of total revenues in the year ended December 31, 2015. We have experienced average revenue retention rates in each of the last five years of greater than 90% on our software-enabled services and maintenance and term licenses contracts for our core enterprise products. We believe that the high value-added nature of our products and services has enabled us to maintain our high revenue retention rates and significant operating margins.

We generated revenues of $1,000.3 million for the year ended December 31, 2015 as compared to revenues of $767.9 million for the year ended December 31, 2014. In 2015, we generated 74% of our revenues from clients in North America and 26% from clients outside North America. Our revenues are highly diversified, with our largest client in 2015 accounting for less than 5% of our revenues. Additional financial information, including geographic information, is available in our consolidated financial statements and Note 13 to our consolidated financial statements.

Our Industry

We serve a number of vertical markets within the financial services industry, including alternative investment funds, investment management firms, insurance companies, registered investment advisors (RIAs), wealth managers, banks and brokerage firms. We believe that financial services providers will increasingly turn to information technology, or IT, solutions, provided by an independent vendor, as a result of economic challenges and heightened regulatory requirements. Financial service firms are in a search for more risk-averse business strategies and simplified regulatory compliance. As a result, we believe the financial services industry will continue to increase its investments in IT solutions in 2016.

4


Market Trends

The demand for our products and services comes from a number of distinct sources: new hedge fund and private equity fund formation, new business lines and combinations of business lines at existing clients, replacement of legacy and competitor systems and expansion of our existing client relationships. Underlying these demand drivers are several industry trends, including:

 

Asset Classes and Securities Products Growing in Volume and Complexity. Investment professionals must increasingly track and invest in numerous asset classes that are far more complex than traditional equity and debt instruments. These assets require more sophisticated systems to automate functions such as trading and modeling, portfolio management, accounting, performance measurement, reconciliation, reporting, processing and clearing. Manual tracking of orders and other transactions is not effective for these assets. In addition, as the business knowledge requirements increase, financial services firms see increasing value in outsourcing the management of these assets to firms such as SS&C that offer software-enabled services.

 

Regulatory changes. Our clients must comply with rules, regulations, directives, and standards from governmental and self-regulating organizations. Even years after the enactment of Dodd-Frank, Form PF, AIFMD, FATCA, EMIR and other local reforms, many of the rules are still being defined. We expect regulatory changes to increase the complexity of compliance and the demand for our products and services and motivate clients to develop systems infrastructure and research management processes to comply with regulatory requirements.

 

Technological paradigm shift . We have recently seen an increased demand for software delivery options, including cloud-based services, social collaboration and information access through mobile devices. Cloud solutions allow firms to use a broader range of capabilities without incurring implementation or maintenance costs, with software that can be upgraded with limited disruption to a company’s current operations. Accessibility and demands for collaboration is also a key driver of cloud adoption. Mobility is increasingly relevant for the investment management industry and therefore we believe clients have increased expectations of anytime, anywhere access to portfolio and client data, as well as the ability to communicate and collaborate.

 

Increased demands for transparency, efficiency, and risk management . Firms continue to focus on operational risk, resulting from discoveries of fraud and mismanagement during the 2008-2012 U.S. financial crisis and concerns regarding transparency and counterparty exposure. This continued focus has led investment management firms to strive to provide investment data accurately, institutionalize investment operations, and automate their investment process. On the wealth management and advisory sides of our business, we have seen further evolution of the relationship between the end client and a firm, with investors demanding transparency and a customized client experience. We expect that wealth managers will need to become familiar with their clients’ preferences for account access and communication and cater to them. Finally, both institutional and individual investors, faced with increasingly competitive low-fee and automated options, are pushing investment managers for greater efficiencies and lower fees.

Competitive Strengths

The following are our core strengths that we believe enable us to differentiate ourselves in the markets we serve:

Enhanced capability through software ownership.

We use our proprietary software products and infrastructure to provide our software-enabled services, strengthening our overall operating margins and providing a competitive advantage. Because we primarily use our own proprietary software in the execution of our software-enabled services and generally own and control our products’ source code, we can quickly identify and deploy product improvements and respond to client feedback, enhancing the competitiveness of our software and software-enabled service offerings. This continuous feedback process provides us with a significant advantage over many of our competitors, specifically those software competitors that do not provide a comparable model and therefore do not have the same level of hands-on experience with their products.

Global industry leader with strong market position focused on software and software-enabled services for the financial industry.

We are a global business providing a broad portfolio of over 90 software products and software-enabled services and have 80 offices worldwide. As of December 31, 2015, we had 5,335 development, service and support professionals with significant expertise across the industries that we serve and a deep working knowledge of our clients’ businesses. We provide highly flexible, scalable and cost-effective solutions that enable our clients to track complex securities, better employ sophisticated investment strategies, scale efficiently and meet evolving regulatory requirements. We believe our product and service offerings position us as a leader within the specific verticals of the financial services software and services market in which we compete. Our products and services allow our clients to automate and integrate their front-office, middle-office and back-office functions, thus enabling straight-through processing that increases productivity and reduces costs.

5


Trusted provider to our highly diversified and growing client base.

By providing mission-critical, reliable software products and services for 30 years, we have become a trusted provider to the financial services industry. We have developed a large and growing installed base within multiple segments of the financial services industry. Our clients include some of the largest and most well-recognized firms in the financial services industry. We believe that our high-quality products and superior services have led to long-term client relationships, some of which date from our earliest days of operations. Our strong client relationships, coupled with the fact that many of our current clients use our products for a relatively small portion of their total funds and investment vehicles under management, provide us with a significant opportunity to sell additional solutions to our existing clients and drive future revenue growth at lower cost.

Independent fund administration services.

The third-party service providers that participate in the alternative investment market include fund managers, auditors, fund administrators, attorneys, custodians and prime brokers. Each provider performs a valuable function with the intention of providing transparency of the fund’s assets and the valuation of those assets. Conflicts of interest may arise when the above parties attempt to provide more than one of these services. The industry is increasingly recognizing these conflicts and, as a result, seeking independent fund administrators such as SS&C.

Experienced management team with strong integrating and operating track record.

We were founded in 1986 by William C. Stone, who has served as our Chairman and Chief Executive Officer since our inception. Our senior management team has a track record of operational excellence and an average of more than 20 years of experience in the software and financial services industries, and a proven ability to acquire and integrate complementary businesses, as demonstrated by the 43 businesses we have acquired since 1995 . By leveraging our domain expertise and knowledge, we have developed, and continue to improve, our mission-critical software products and services to enable our clients to overcome the complexities inherent in their businesses. Our management team is highly committed to our long-term success, and our Chief Executive Officer is highly invested in our long-term potential, as evidenced by his beneficial ownership of 16.8% of our equity as of February 24, 2015 .

Business Strategies

Our strategy is to continue to deliver compelling solutions and value propositions to our customers in the software and software-enabled services market. The following are key elements to our strategy for achieving this objective:

Build upon and extend our leadership position in software and software-enabled services in the financial industry.

Since our founding in 1986, we have focused on building substantial financial services domain expertise through close working relationships with our clients. We have developed a deep knowledge base that enables us to respond to our clients’ most complex financial, accounting, actuarial, tax and regulatory needs. We intend to maintain and enhance our technological leadership by using our domain expertise to build valuable new software-enabled services and solutions, continuing to invest in internal development and opportunistically acquiring products and services that address the highly specialized needs of the financial services industry.

Our internal product development team works closely with marketing and client service personnel to ensure that product evolution reflects developments in the marketplace and trends in client requirements. In addition, we intend to continue to develop our products in a cost-effective manner by leveraging common components across product families. We believe that we enjoy a competitive advantage because we can address the investment and financial management needs of high-end clients by providing industry-tested products and services, including cloud-based services and related mobility platforms that meet global market demands and enable our clients to automate and integrate their front-, middle- and back-office functions for improved productivity, reduced manual intervention and bottom-line savings. SS&C’s products for niche market players in the financial services industry to the largest institutions in the world. Furthermore, our client base of 10,000 clients represents a fraction of the total number of financial services providers globally. We believe there is opportunity to grow our client base over time as our products become more widely adopted. We believe we also have an opportunity to capitalize on the increasing adoption of outsourcing mission-critical operations by financial services providers as they continue to replace inadequate legacy solutions and custom in-house solutions that are inflexible and costly to maintain Our software-enabled services revenues increased from $552.6 million for the year ended December 31, 2013 to $670.2 million for the year ended December 31, 2015, representing a compound annual growth rate of 10.1%.

Capitalize on longer-term secular growth trends.

With our global footprint and best-in-class product offerings, we aim to capture a significant share of the IT spend of alternative asset, institutional asset and wealth managers through leveraging the deeply embedded service offering we provide and outdistancing

6


the competition. We expect regulatory changes to increase the compl exity of compliance and the demand for our products and services, as well as motivate clients to develop infrastructure and research management processes to mitigate regulatory exposure. We plan to benefit from the growing software spend in the increasingl y complex and more highly regulated financial services landscape.

Continue to capitalize on acquisitions of complementary businesses and technologies.

We intend to continue to employ a highly disciplined and focused acquisition strategy to broaden and enhance our product and service offerings, expand our intellectual property portfolio, add new clients and supplement our internal development efforts. We believe our acquisitions have been an extension of our research and development effort that has enabled us to purchase proven products and remove the uncertainties associated with software development projects. We will seek to opportunistically acquire, at reasonable valuations, businesses, products and technologies in our existing or complementary vertical markets that will enable us to better satisfy our clients’ rigorous and evolving needs. We have a proven ability to integrate complementary businesses as demonstrated by the 43 businesses we have acquired since 1995. Our experienced senior management team leads a rigorous evaluation of our targets to ensure that they satisfy our product or service needs and will successfully integrate with our business while meeting our targeted financial goals. As a result, our acquisitions have contributed marketable products or services that have added to our revenues. Through the broad reach of our direct sales force and our large installed client base, we believe we can market these acquired products and services to a large number of prospective clients. Additionally, we have been able to improve the operational performance and profitability of our acquired businesses, creating significant value for our stockholders.

Strengthen our international presence.

We believe that there is a significant market opportunity to provide software and services to financial services providers outside North America. In the year ended December 31, 2015, we generated 26% of our revenues from clients outside North America. We are building our international operations in order to increase our sales outside North America. We plan to continue to expand our international market presence by leveraging our existing software products and software-enabled services. For example, we believe that the rapidly growing alternative investment management market in Europe presents a compelling growth opportunity.

Increase profitability through margin expansion.

We have a proven track record of increasing operating margins both organically and inorganically. We expect to continue to improve margins through cost reductions, operating efficiencies, and realization of cost synergies. We also expect to drive increased margins through delivering innovative end-to-end solutions that provide significant value to customers and warrant premium pricing. We have significant scale with best-in-class solutions and software-enabled services across the delivery spectrum, which we believe, combined with a diversified service offering and client base, drives stable revenues and increased operating leverage. Our operating flexibility allows us to scale our costs based on client demands. Additionally, our low capital expenditure and working capital requirements further drive strong cash flow conversions.

Our Acquisitions

As mentioned above, we intend to continue to employ a highly disciplined and focused acquisition strategy. Our past acquisitions have enabled us to expand our product and service offerings into new markets or client bases within the financial services industry. The addition of new products and services has also enabled us to market other products and services to acquired client bases. We believe our acquisitions have been an extension of our research and development effort and have enabled us add to our product and service offerings without incurring the uncertainties sometimes associated with software development projects.

Since 1995, we have acquired 43 businesses within our industry. These acquisitions have contributed marketable products and services, which have added to our revenues and earnings. We have generally been able to improve the operating performance and profitability of our acquired businesses. We seek to reduce the costs of the acquired businesses by consolidating sales and marketing efforts and by eliminating redundant administrative tasks and research and development expenses. In many cases, we have also been able to increase revenues generated by acquired products and services by leveraging our existing products and services, larger sales capabilities and client base.

We generally seek to acquire companies that satisfy our financial metrics, including expected return on investment. Through our acquisitions, we seek companies that:

 

provide complementary products or services in the financial services industry;

 

possess proven technology and an established client base that will provide a source of ongoing revenue and to whom we may be able to sell existing products and services;

 

expand our intellectual property portfolio to complement our business;

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address a highly specialized problem or a market niche in the financial services industry;

 

expand our global reach into strategic geographic markets; and

 

have solutions that lend themselves to being delivered as software-enabled services.

We believe, based on our experience, that there are numerous solution providers addressing highly particularized financial services needs or providing specialized services that would meet our disciplined acquisition criteria.

Acquisitions are discussed further in Liquidity and Capital Resources and in Note 11 to our consolidated financial statements, including our agreement to acquire Citigroup’s Alternative Investor Services business. The following table provides a list of the most substantial acquisitions we have made since 1995 (in thousands):

 

Acquisition Date

 

Acquired Business

 

Contract Purchase

Price

 

 

Acquired Capabilities, Products and Services

February 2005

 

EisnerFast

 

$

25,300

 

 

Expanded fund administration services to the hedge fund and private equity markets

April 2005

 

Financial Models Company

 

$

159,000

 

 

Expanded front-, middle- and back-office products and services to the investment management industry including Pacer, Pages, Recon and Sylvan products

October 2005

 

Open Information Systems

 

$

24,000

 

 

Entered money market, custody and security lending market with Global Debt Manager, Information Manager and Money Market Manager products

November 2009

 

TheNextRound

 

$

21,000

 

 

Expanded private equity client base with TNR Solution product

December 2009

 

Tradeware

 

$

22,500

 

 

Expanded electronic trading offering in broker/dealer market

December 2010

 

TimeShareWare

 

$

30,500

 

 

Added shared ownership property management platform to real estate offering

May 2012

 

Thomson Reuters’ PORTIA Business

 

$

170,000

 

 

Added portfolio management software and outsourcing services for institutional managers

June 2012

 

GlobeOp Financial Services S.A.

 

$

834,400

 

 

Expanded fund administration services in hedge fund and other asset management sectors

November 2014

 

DST Global Solutions

 

$

95,000

 

 

Added investment management software and services

July 2015

 

Advent Software, Inc.

 

$

2,600,000

 

 

Expanded global investment management software and services

September 2015

 

Varden Technologies

 

$

25,000

 

 

Added cloud-based client and advisor communication solutions for investment firms

November 2015

 

Primatics Financial

 

$

116,000

 

 

Added cloud-based integrated risk, compliance and finance solution for the banking industry

 

Products and Services

Our products and services allow professionals in the financial services industry to automate complex business processes within financial services providers and are instrumental in helping our clients manage significant information processing requirements. Our solutions enable our clients to focus on core operations, better monitor and manage investment performance and risk, improve operating efficiency and reduce operating costs. Our portfolio of over 90 products and software-enabled services allows our clients to automate and integrate front-office functions such as trading and modeling, middle-office functions such as portfolio management and reporting, and back-office functions such as accounting, performance measurement, reconciliation, reporting, processing and clearing.

Portfolio management/accounting

Our products and services for portfolio management span most of our vertical markets and offer our clients a wide range of investment management solutions. Some of our portfolio management products include:

Advent Portfolio Exchange. APX is a comprehensive portfolio management solution for asset managers and wealth managers worldwide which integrates the front-office functions of prospecting, marketing, customer relationship management and internal business management with the back office operations of portfolio accounting, performance measurement and reporting. It allows firms to manage both high-net-worth and institutional clients through a comprehensive range of capabilities, including customized reporting, automated report packaging, and performance analytics. APX can be deployed locally as well as the cloud.

AdvisorWare. AdvisorWare software supports hedge funds, funds-of-funds and family offices with sophisticated global investment, trading and management concerns, and/or complex financial, tax, partnership and allocation reporting requirements. It

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delivers comprehensive multicurrency investment management, financial reporting, performance fee calculations, net asset value calculations, contact manageme nt and partnership accounting in a straight-through processing environment.

Axys. Axys is a turnkey portfolio management and reporting system for small to mid-size investment management organizations. Axys provides investment professionals with broad portfolio accounting functionality on a variety of investment instruments, including equities, fixed income, mutual funds and cash. By using Axys, clients have a timely decision support tool with immediate access to portfolio holdings, asset allocation, realized and unrealized gains and losses, actual and projected income and other data including performance measurement and flexible reporting.

CAMRA. CAMRA (Complete Asset Management, Reporting and Accounting) software supports the integrated management of asset portfolios by investment professionals operating across a wide range of institutional investment entities. CAMRA is a multi-user, integrated solution tailored to support the entire portfolio management function and includes features to execute, account for and report on all typical securities transactions.

Geneva. Geneva is a global portfolio management platform designed to meet the real-time needs of global asset managers, hedge funds, prime brokers, fund administrators, private equity firms and family offices worldwide. Geneva integrates all phases of the investment management process – portfolio management, reconciliation and light trade capture and risk capabilities. Its “main memory” database offers more accurate and flexible reporting, and eliminates batch processing and time-consuming error corrections. Geneva enables firms to grow into new markets, deliver greater operational efficiencies, enhance investor service, process high trade volumes across multiple securities, improve compliance and security, and lower operating costs and risks.

Debt & Derivatives. Debt & Derivatives is a comprehensive financial application software package designed to process and analyze all activities relating to derivative and debt portfolios, including pricing, valuation and risk analysis, derivative processing, accounting, management reporting and regulatory reporting. Debt & Derivatives delivers real-time transaction processing to treasury and investment professionals, including traders, operations staff, accountants and auditors.

Global Wealth Platform. A web-based service, Global Wealth Platform combines our core asset management product functions with an innovative, easy-to-use interface. Global Wealth Platform provides an integrated suite with key components — modeling, trading, portfolio accounting, client communications and other mission critical workflows — as an on-demand, software-enabled service.

HiPortfolio. HiPortfolio® is an investment accounting and asset servicing solution. It provides full life cycle processing including comprehensive investment and fund accounting capabilities, flexible transaction processing from order capture to post-trade activity, and proven support for middle- and back-office operations.

MAXIMIS. MAXIMIS is a real-time intranet-enabled portfolio management solution for insurance companies, pension funds and institutional asset managers. Its key product functions include portfolio analysis, investment management, trade processing, cash processing, multi-currency accounting, regulatory reporting, operations and analysis and management reporting.

Pacer. Pacer is a portfolio management and accounting system designed to manage diversified global portfolios and meet the unique management and accounting needs of all business streams, from institutional and pension management, to separately managed accounts, private client portfolios, mutual funds and unit trusts.

Pages. Pages is a client communication system that generates unique individual client statements and slide presentations for print, electronic or face-to-face meetings. Pages helps enhance customer services by producing client statements that automatically assemble data from portfolio management, customer relationship management, performance measurement and other investment systems.

PORTIA. PORTIA is a comprehensive middle-to-back-office software solution designed to streamline the operations of global investment managers. PORTIA’s functionality supports a broad range of global asset types, fixed income analytics & analysis, multi-currency transaction processing, corporate actions and presentation-quality reporting implemented with flexible deployment options. Built on an open architecture, PORTIA enables real-time integration with other systems, applications, data providers and counterparties to run operations more efficiently and effectively.

Recon. Recon is a transaction, position and cash reconciliation system that streamlines reconciliation by identifying exceptions and providing effective workflow tools to resolve issues faster, thereby reducing operational risk. Recon automatically reconciles transactions, holdings and cash from multiple sources.

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SS&C Anova. SS&C Anova acts as a central data hub, consolidating and aggregating critical holding, position and transaction data in near real time.  Its robust performance an d attribution engine provides a detailed breakdown of the sources of risk and return from portfolio holdings, enabling clients to understand and react to their portfolio performance.

Sylvan. Sylvan is a performance measurement, attribution and composite management platform that is designed to streamline the calculation and reporting of performance measurement requirements.

TNR Solution. TNR Solution is a software product for private equity, hedge funds, funds of hedge funds and family offices. Built around Microsoft’s .NET platform, the product gives end users the flexibility to manage all aspects of their operations from contact management, fund raising, investor relations, fund, portfolio and deal management, general ledger and reporting.

Total Return. Total Return is a portfolio management and partnership accounting system directed toward the hedge fund and family office markets. It is a multi-currency system, designed to provide financial and tax accounting and reporting for businesses with high transaction volumes.

Trading/treasury operations

Our comprehensive real-time trading systems offer a wide range of trade order management solutions that support both buy-side and sell-side trading. Our full-service trade processing systems deliver comprehensive processing for global treasury and derivative operations. Solutions are available to clients either through a license or as a software-enabled service. Some of our trading and treasury operations products include:

Antares. Antares is a comprehensive, real-time, event-driven trading and profit and loss reporting system designed to integrate trade modeling with trade order management. Antares enables clients to trade and report fixed-income, equities, foreign exchange, futures, options, repos and many other instruments across different asset classes. Antares also offers an add-on option of integrating Heatmaps’ data visualization technology to browse and navigate holdings information.

Global Debt Manager (GDM). Global Debt Manager (GDM) is a suite of industry-leading solutions, seamlessly integrated under a common core with single-sign on. GDM enables Global Banks and Securities Firms to streamline Global Registrar and Transfer and Paying Agency Operations, providing a full range of Corporate Trust Support, encompassing Money Market Issuance, Long-Term Debt and Common Depository, with multi-currency and local market support world-wide. All products are built on the same core architecture for easy integration through a single point of entry and all are 100% web based.

MarginMan. MarginMan delivers collateralized trading software to the foreign exchange marketplace. MarginMan supports collateralized foreign exchange trading, precious metals trading and over-the-counter foreign exchange options trading.

MarketLook Information System (MLIS). MLIS allows traders anywhere in the world access to market color and size directly from traders on the trading floor of the New York Stock Exchange.

Moxy. Moxy automates and streamlines the portfolio construction, trading and order management process for the investment management community. Moxy also provides internet-ready electronic order routing based on the industry standard FIX messaging protocol so that users can route trades electronically to any FIX-compliant broker, crossing networks, and various dark pools of liquidity that supports the internet or other TCP/IP connections. Trades are executed, processed, settled and accounted for without manual intervention.

TradeThru. TradeThru is a web-based treasury and derivatives operations service that supports multiple asset classes and provides multi-bank, multi-entity and multi-currency integration of front-, middle- and back-office trade functions for financial institutions. TradeThru is available either through a license or as a software-enabled service. The system delivers automated front- to back-office functions throughout the lifecycle of a trade, from deal capture to settlement, risk management, accounting and reporting. TradeThru also provides data to other external systems, such as middle-office analytic and risk management systems and general ledgers. TradeThru provides one common instrument database, counterparty database, audit trail and end-of-day runs.

Client Reporting

Pages. Pages is a powerful client communications solution for investment managers, insurance companies, and banks that generate distinctive client statements and slide presentations for print, electronic or face-to-face meetings. Features include desktop publishing-quality statements, personalized and multilingual capabilities, automated processes and a simplified workflow, and complex business logic, including "if-then-else" capabilities to handle one-off situations or other special cases.

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eReportal. eReportal is a comprehensive, end-to-end solution for designing, producing and distributing both online and printed client communications content for the financial services industry. eReportal is a strategic platform that unifies and leverages the data, workflow, and presentation content across the firm. Key reporting areas that that eReportal focuses on includes client reports, pitchbooks, presentations, and statements, regulatory, compliance and audit reporting, and internal/investment reporting.

Financial modeling

We offer several powerful analytical software and financial modeling applications for the insurance industry. We also provide analytical software and services to the municipal finance groups market. Some of our financial modeling products include:

DBC Product Suite. We provide analytical software and services to municipal finance groups. Our suite of DBC products addresses a broad spectrum of municipal finance concerns, including general bond structures, revenue bonds, housing bonds, student loans and insured revenue bonds and securitizations.

Global Markets Risk. Global Markets Risk provides a comprehensive view of risk across all asset classes for banks, hedge funds, asset managers, insurance companies and pension funds. Risk Analytics is designed for risk managers who need better tracking, managing and reporting of value-at-risk and ex-ante risk measures across all asset classes.

Loan management/accounting

Our loan management/accounting products include:

Precision LM. Precision LM is a single database application that provides comprehensive commercial loan management from initial request to final disposition. It is a fully integrated system that supports both loan origination and servicing, and offers a single point of entry that increases efficiency by eliminating redundant data, reducing errors and lowering maintenance and operating costs. Precision LM offers a centralized loan portfolio that maintains a detailed loan history and audit trail from inception and generate comprehensive loan portfolio reporting from a single database, giving the client ability to proactively measure and mitigate risk through the integrated portfolio analytics. Precision LM is fully integrated with CMBS, including complete CMBS pooling, servicing, advances, recoveries and CMSA reporting.

Evolv. Evolv automates processes, enables compliance with changing regulations, and accurate data analysis that is aimed to improve real-time decision-making. Evolv eliminates the manual processes and spreadsheets by automating all of the loan accounting functions (data, calculations, processes, workflows and reporting) that are not being addressed by core banking systems.

Property management

Some of our property management products include:

SKYLINE. SKYLINE is a comprehensive property management system that integrates all aspects of real estate property management, from prospect management to lease administration, work order management, accounting and reporting. By providing a single-source view of all real estate holdings, SKYLINE functions as an integrated lease administration system, a historical property/portfolio knowledge base and a robust accounting and financial reporting system, enabling users to track each property managed, including data on specific units and tenants.

TimeShareWare. TimeShareWare Enterprise incorporates a Service Oriented Architecture (SOA) and provides the tools, structure, and performance needed to accommodate management of complex and demanding resort operations, including sales and marketing, management, contract processing, loan servicing and property management.

Money market processing

Our money market processing products include:

Global Debt Manager. Global Debt Manager is a robust browser-based application for corporate and municipal bond accounting. Fully integrated with Money Market Manager (M3), Global Debt Manager offers processing for conventional and structured debt within a secure and flexible platform.

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Software-enabled services

Some of our software-enabled services include:

Black Diamond. Black Diamond offers independent advisors and wealth managers a cloud-based portfolio management platform with aggregation, customizable reporting and rebalancing, and daily reconciliation features. As a cloud-based product offering, advisors can access Black Diamond’s customizable portfolio management and reporting online from anywhere, anytime without the need to maintain costly technology infrastructures. Black Diamond also provides outsourced daily reconciliation and data management services so firms can focus their efforts on servicing clients and growing their business rather than managing complex back office functions.

Evare. Evare is a leader in financial data acquisition, transformation and delivery services. Global managed services connect our clients and their counterparties using each firm’s preferred method of connectivity, custom data formats, and industry standards. All parties utilize their existing systems and protocols without having to upgrade or install software.

e-Investor. SS&C’s e-Investor provides an end-to-end investor transaction processing platform designed to automate the delivery, completion, submission, and tracking of all investor transactions. When coupled with SS&C’s e-Fulfillment, the solution can deliver targeted marketing material and subscription documents through a secure web interface to potential investors, with detailed activity tracking. Once delivered, the prospect (or financial advisor) can complete the subscription document online, leveraging e-Investor’s extensive and flexible data validation and dependency rules.

GoTrade+. GoTrade+ automates trade capture as trades occur over a real-time web-based portal that displays life cycle status, documents, valuations, exposures, collateral and cash positions. It enables clients to trade with confidence in the knowledge that the most complex trades are followed through by a highly experienced and expert team.

GoRisk. A cross-asset and cross strategy application, GoRisk allows portfolio and risk managers to monitor risk analytics across their trading strategies. GoRisk provides key risk analytics across funds-of-funds and managed account platforms.

SS&C Advent OnDemand. SS&C Advent OnDemand is the SaaS delivery of SS&C Advent’s suite of asset management solutions, which are hosted either by Advent or a third party and are offered with or without data management services. Data management services include full account aggregation, daily portfolio reconciliation, corporate actions processing and reference data management.

SS&C Direct. We provide comprehensive software-enabled services through our SS&C Direct operating unit for portfolio accounting, reporting and analysis functions. Since 1997, SS&C Direct has offered ASP, business process outsourcing (BPO) and blended outsourcing services to institutional asset managers, insurance companies, hedge funds and financial institutions. The SS&C Direct service includes full BPO investment accounting and operations services, the hosting of a company’s application software, automated workflow integration and quality control mechanisms, and extensive interface and connectivity services to custodian banks, data service providers, depositories, and other external entities.

SS&C GlobeOp. We provide comprehensive on- and offshore fund administration services to hedge fund and other alternative investment managers using our proprietary software products. SS&C GlobeOp offers fund manager services, transfer agency services, funds-of-funds services, tax processing, compliance services and accounting processing. SS&C GlobeOp supports all fund types and investment strategies. Market segments served include hedge funds, funds-of-funds and private equity firms.

SSCNet. SSCNet is a global trade network linking investment managers, broker-dealers, clearing agencies, custodians and interested parties. SSCNet’s real-time trade matching utility and delivery instruction database facilitate integration of front-, middle- and back-office functions, reducing operational risk and costs.

SVC. SVC is a single source for securities data that consolidates data from leading global sources to provide clients with the convenience of one customized data feed. SVC provides clients with seamless, timely and accurate data for pricing, corporate actions, dividends, interest payments, foreign exchange rates and security master for global financial instruments.

FIXLink. FIXLink is a FIX network for IOIs, trades, orders, and allocations, providing a reliable broker-neutral and platform-neutral FIX connectivity service to broker-dealers and institutions.

Professional services

We offer a range of professional services to assist clients. Professional services consist of consulting and implementation services, including the initial installation of systems, conversion of historical data and ongoing training and support. Our in-house consulting teams work closely with the client to ensure the smooth transition and operation of our systems. Our consulting teams have

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a broad range of experience in the financial services industry and include certified public accountants, chartered financial analysts, mathematicians and IT professionals from the asset management, real estate, investment, insurance, hedge fund, municipal finance and banking industries. We believe our commitment to professional services facilita tes the adoption of our software products across our target markets. For the year ended December 31, 2015, revenues from professional services represented 5% of total revenues.

Product support

We believe a close and active service and support relationship is important to enhancing client satisfaction and furnishes an important source of information regarding evolving client issues. We provide our larger clients with a dedicated client support team whose primary responsibility is to answer questions and provide solutions to address ongoing needs. Direct telephone support is provided during extended business hours, and additional hours are available during peak periods. Approximately every two weeks, we distribute our software and services eBriefings , which are industry-specific newsletters available for key geographic regions around the world. We supplement our service and support activities with comprehensive training. Training options include regularly hosted classroom and online instruction, Zoologic Learning Academy , and online client seminars, or “webinars,” that address current, often technical, issues in the financial services industry.

We periodically make maintenance releases of licensed software available to our clients, as well as regulatory updates (generally during the fourth quarter, on a when and if available basis), to meet industry reporting obligations and other processing requirements.

Clients

We have over 10,000 clients globally in the financial services industry that require a full range of information management and analysis, accounting, actuarial, reporting and compliance software on a timely and flexible basis. Our clients include multinational banks, retail banks and credit unions, hedge funds, funds of funds and family offices, institutional asset managers, insurance companies and pension funds, municipal finance groups, brokers/dealers, financial exchanges, commercial lenders, real estate lenders and property managers. Our clients include many of the largest and most well-recognized firms in the financial services industry. During the year ended December 31, 2015, our top 10 clients represented approximately 14% of total revenues, with no single client accounting for more than 5% of total revenues.

Sales and Marketing

We believe a direct sales organization is essential to the successful implementation of our business strategy, given the complexity and importance of the operations and information managed by our products, the extensive regulatory and reporting requirements of each industry, and the unique dynamics of each vertical market. Our dedicated direct sales and support personnel are located in various sales offices worldwide and routinely undergo product and sales training. We also use telemarketing to support sales of our real estate property management products and work through alliance partners that sell our software-enabled services to their correspondent banking clients.

Our marketing personnel have extensive experience in marketing to the financial services industry and are responsible for identifying market trends, evaluating and developing marketing opportunities, generating client leads and providing sales support. Our marketing activities focus on cost-effective means of reaching current and potential clients, including:

 

content-rich, periodic software and services  eBriefings  targeted at clients and prospects in each of our vertical and geographic markets,

 

regular product-focused webinars,

 

seminars and symposiums,

 

trade shows and conferences, and

 

e-marketing campaigns.

This strategy achieves lower marketing costs, more direct contacts with actual and potential clients, increased marketing leads, distribution of more up-to-date marketing information and an improved ability to measure marketing initiatives.

The marketing department also supports the sales force with appropriate and relevant materials, including brochures and fact sheets, for use during the sales process.

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Product Development and Engineering

We believe we must introduce new products and offer product innovation on a regular basis to maintain our competitive advantage. To meet these goals, we use multidisciplinary teams of highly trained personnel and leverage this expertise across all product lines. We have invested heavily in developing a comprehensive product analysis process to ensure a high degree of product functionality and quality. Maintaining and improving the integrity, quality and functionality of existing products is the responsibility of individual product managers. Product engineering management efforts focus on enterprise-wide strategies, implementing best-practice technology regimens, maximizing resources and mapping out an integration plan for our entire umbrella of products as well as third-party products. For the years ended December 31, 2013, 2014 and 2015, our research and development expenses were $53.9 million, $57.3 million and $110.4 million, respectively. In addition, we have made significant investments in intellectual property through our acquisitions.

Our research and development engineers work closely with our marketing and support personnel to ensure that product evolution reflects developments in the marketplace and trends in client requirements. We have generally issued a major release of our core products during the second or third quarter of each fiscal year, which includes both functional and technical enhancements. We also provide an annual release in the fourth quarter to reflect evolving regulatory changes in time to meet clients’ year-end reporting requirements.

Competition

The market for financial services software and services is competitive, rapidly evolving and highly sensitive to new product introductions and marketing efforts by industry participants, although high conversion costs can create barriers to adoption of new products or technologies. The market is fragmented and served by both large-scale firms with broad offerings as well as firms that target only local markets or specific types of clients. We also face competition from information systems developed and serviced internally by the IT departments of large financial services firms. We believe that we generally compete effectively as to the factors identified for each market below, although some of our existing competitors and potential competitors have substantially greater financial, technical, distribution and marketing resources than we have and may offer products with different functions or features that are more attractive to potential customers than our offerings.

Alternative Investments: In our alternative investments market, we compete with multiple vendors that may be categorized into two groups, the first consisting of independent specialized administration providers, which are generally smaller than us, and the second including prime brokerage and other firms offering fund administration services. Major competitors in this market include CITCO Group and State Street Bank. The key competitive factors in marketing software and services to the alternative investment industry are the need for independent fund administration, features and adaptability of the software, level and quality of customer support, level of software development expertise and total cost of ownership. Our strengths in this market are our expertise, our independence, our transparency, and our ability to deliver functionality by multiple methods and our technology, including the ownership of our own software.

Asset Management: In our asset management market, we compete with a variety of other vendors depending on client characteristics such as size, type, location, computing environment and functionality requirements. Competitors in this market range from larger providers of integrated portfolio management systems and outsourcing services, such as BNY Mellon Financial (Eagle Investment Systems), to smaller providers of specialized applications and technologies such as StatPro, Charles River Development and others. We also compete with internal processing and information technology departments of our clients and prospective clients. The key competitive factors in marketing asset management solutions are the reliability, accuracy, timeliness and reporting of processed information to internal and external customers, features and adaptability of the software, level and quality of customer support, level of software development expertise and return on investment. Our strengths in this market are our technology, our ability to deliver functionality by multiple delivery methods and our ability to provide cost-effective solutions for clients.

Insurance and Pension Funds: In our insurance and pension funds market, we compete with a variety of vendors depending on client characteristics such as size, type, location, computing environment and functionality requirements. Competitors in this market range from large providers of portfolio management systems, such as State Street Bank (Princeton Financial Systems) and SunGard, to smaller providers of specialized applications and services.

We also compete with outsourcers, as well as the internal processing and information technology departments of our clients and prospective clients. The key competitive factors in marketing insurance and pension plan systems are the accuracy, timeliness and reporting of processed information provided to internal and external clients, features and adaptability of the software, level and quality of customer support, economies of scale and return on investment. Our strengths in this market are our years of experience, our top-tier clients, our ability to provide solutions by multiple delivery methods, our cost-effective and customizable solutions and our expertise.

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Financial Advisor: We define the advisory market as advisory firms and registered investment advisors (RIAs). We compete with a variety of vendors, which are generally smal ler firms focused solely on the advisory market. Our competitors include Envestnet, Orion, Addepar, and SEI’s wealth management platform. Our strengths in this market are our premier platforms with flexible and on-demand delivery models, and our 90+ compli mentary products and services.

Real Estate Property Management: In our real estate property management market, we compete with numerous software vendors consisting of smaller specialized real estate property management solution providers and larger property management software vendors with more dedicated resources than our real estate property management business, such as Yardi Systems. The key competitive factors in marketing property management and timeshare systems are the features and adaptability of the software, level of quality and customer support, degree of responsiveness and overall net cost. Our strengths in this market are the quality of our software and our reputation with our clients.

Financial Institutions: In our financial institutions market, there are multiple software and services vendors that are either smaller providers of specialized applications and technologies or larger providers of enterprise systems, such as SunGard and Misys. We also compete with outsourcers as well as the internal processing and information technology departments of our clients and prospective clients. The key competitive factors in marketing financial institution software and services include accuracy and timeliness of processed information provided to clients, features and adaptability of the software, level and quality of customer support, level of software development expertise, total cost of ownership and return on investment. Our strengths in this market are our flexible technology platform and our ability to provide integrated solutions for our clients.

Commercial Lending: In our commercial lending market, we compete with a variety of other vendors depending on client characteristics such as size, type, location and functional requirements. Competitors in this market range from large competitors whose principal businesses are not in the loan management business, such as PNC Financial Services (Midland Loan Services), to smaller providers of specialized applications and technologies. The key competitive factors in marketing commercial lending solutions are the accuracy, timeliness and reporting of processed information provided to customers, level of software development expertise, level and quality of customer support and features and adaptability of the software. Our strength in this market is our ability to provide both broadly diversified and customizable solutions to our clients.

Financial Markets: In our financial markets, our competition falls into two categories — the internal development organizations within financial enterprises and specialized financial vendors. The key competitive factors in marketing financial markets technology solutions are a proven track record of delivering high quality solutions, level of responsiveness and overall net cost. Our strengths in this market are a successful track record of delivering solutions and our reputation with our clients.

Proprietary Rights

We rely on a combination of trade secret, copyright, trademark and patent law, nondisclosure agreements and technical measures to protect our proprietary technology. We have registered trademarks for many of our products and will continue to evaluate the registration of additional trademarks as appropriate. We generally enter into confidentiality and/or license agreements with our employees, distributors, clients and potential clients. We seek to protect our software, documentation and other written materials under trade secret and copyright laws, which afford limited protection. These efforts may be insufficient to prevent third parties from asserting intellectual property rights in our technology. Furthermore, it may be possible for unauthorized third parties to copy portions of our products or to reverse engineer or otherwise obtain and use proprietary information, and third parties may assert ownership rights in our proprietary technology. For additional risks relating to our proprietary technology, please see “Risk Factors — Risks “Relating to Our Business” — If we are unable to protect our proprietary technology and other confidential information, our success and our ability to compete will be subject to various risks, such as third-party infringement claims, unauthorized use of our technology, disclosure of our proprietary information or inability to license technology from third parties.

Rapid technological change characterizes the software development industry. We believe factors such as the technological and creative skills of our personnel, new product developments, frequent product enhancements, name recognition and reliable service and support are more important to establishing and maintaining a leadership position than legal protections of our technology.

Employees

As of December 31, 2015, we had 6,089 full-time employees, consisting of:

 

1,118 employees in research and development;

 

3,890 employees in consulting and services;

 

334 employees in sales and marketing;

 

327 employees in client support; and

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420 employees in finance and administration.

As of December 31, 2015, 3,225 of our employees were in our international operations. No employee is covered by any collective bargaining agreement. We believe that we have good relations with our employees.

Additional Information

We were incorporated in Delaware in July 2005, as the successor to a corporation originally formed in Connecticut in March 1986. Our principal executive offices are located at 80 Lamberton Road, Windsor, Connecticut 06095, and the telephone number of our principal executive offices is (860) 298-4500.

Our website address is www.ssctech.com. We make available, free of charge, on our website our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments thereto that we have filed or furnished with the Securities and Exchange Commission, as soon as reasonably practicable after we electronically file them with the Securities and Exchange Commission. We are not, however, including the information contained on our website, or information that may be accessed through links on our website, as part of, or incorporating such information by reference into, this annual report on Form 10-K.

 

 

ITEM 1A.

RISK FACTORS

You should carefully consider the following risk factors, in addition to other information included in this annual report on Form 10-K and the other reports we submit to the Securities and Exchange Commission. If any of the following risks occur, it could materially affect our business, operating results, cash flows and financial condition and possibly lead to a decline in our stock price. The risks and uncertainties described below are those that we have identified as material, but are not the only risks and uncertainties facing us. Our business is also subject to general risks and uncertainties that affect many other companies. Additional risks and uncertainties not currently known to us or that we currently believe are not material may also impair our business, operating results, cash flows and financial condition.

Risks Relating to Our Business

Our business is greatly affected by changes in the state of the general economy and the financial markets, and uncertainty in the general economy or the financial services industry could disproportionately affect the demand for our products and services.

In recent years, the global economy has experienced a significant recession, severe disruptions in the credit markets, increased uncertainty about economic, political and market conditions, and periods of heightened volatility in a variety of financial and other markets, including commodity prices and currency rates, all of which have had at times a material and adverse effect on the financial markets and the activity levels of our clients. While the United States economy may technically have come out of the recession, the recovery is fragile and may not be sustainable for any specific period of time, and the economy could slip back into an even more significant recession. Our clients include a range of organizations in the financial services industry whose success is linked to the health of the economy generally and of the financial markets specifically. Unfavorable or uncertain economic conditions, economic instability or economic downturns could: (i) cause our clients or prospective clients to cancel, reduce or delay planned expenditures for our products and services; (ii) impair our clients’ ability to pay for products they have purchased; or (iii) cause our clients to process fewer transactions through our software-enabled services, renegotiate their contracts with us, move their IT solutions in-house, switch to lower-priced solutions offered by our competitors or exit the industry. Fluctuations in the value of assets under our clients’ management could also adversely affect our revenues because pricing in many of our agreements is adjusted based on assets under management. We cannot predict the occurrence, timing or duration of any economic downturn, generally, or in the markets in which our businesses operate. Turbulence in the U.S. and international markets, renewed concern about the strength and sustainability of a recovery and prolonged declines in business consumer spending could materially adversely affect our business and financial statements, and the liquidity and financial condition of our clients.

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We may not achieve the anticipated benefits from our acquisitions and may face difficulties in integrating our acquisitions.

We have acquired and intend in the future to acquire companies, products or technologies that we believe could complement or expand our business, augment our market coverage, enhance our technical capabilities or otherwise offer growth opportunities. However, acquisitions could subject us to contingent or unknown liabilities, and we may have to incur debt or severance liabilities or write off investments, infrastructure costs or other assets. Our success is also dependent on our ability to complete the integration of the operations of acquired businesses in an efficient and effective manner, which may be difficult to accomplish in the rapidly changing financial services software and services industry. We may not realize the benefits we anticipate from acquisitions, such as lower costs, increased revenues, synergies and growth opportunities, or we may realize such benefits more slowly than anticipated, due to our inability to:

 

combine operations, facilities and differing firm cultures;

 

maintain employee morale or retain the clients or employees of acquired entities;

 

generate market demand for new products and services;

 

coordinate geographically dispersed operations and successfully adapt to the complexities of international operations, including compliance with laws, rules and regulations in multiple jurisdictions;

 

integrate the technical teams of acquired companies with our engineering organization; or

 

incorporate acquired technologies, products and services into our current and future product and service lines.

The process of integrating the operations of acquired companies could disrupt our ongoing operations, divert management from day-to-day responsibilities, increase our expenses and harm our business or financial statements. Acquisitions may also place a significant strain on our administrative, operational, financial and other resources. In addition, certain of our acquisitions have generated disputes with stockholders or management of acquired companies that have required the expenditure of our resources to address or have led to litigation; any such disputes may reduce the value we hope to realize from our acquisitions, either by increasing our costs of the acquisition, reducing our opportunities to realize revenues from the acquisition or imposing litigation costs or adverse judgments on us. Acquisitions may also expose us to litigation from our stockholders arising out of the acquisition, which, even if unsuccessful, could be costly to defend and serve as a distraction to management.

Consolidations and failures in the financial services industry could adversely affect us by causing a decline in demand for our products and services.

If banks and financial services firms fail or consolidate, there could be a decline in demand for our products and services. Failures, mergers and consolidations of banks and financial institutions reduce the number of our clients and potential clients, which could adversely affect our revenues even if these events do not reduce the aggregate activities of the consolidated entities. Further, if our clients fail and/or merge with or are acquired by other entities that are not our clients, or that use fewer of our products and services, they may discontinue or reduce their use of our products and services. It is also possible that the larger financial institutions resulting from mergers or consolidations would have greater leverage in negotiating terms with us. In addition, these larger financial institutions could decide to perform in-house some or all of the services that we currently provide or could provide or to consolidate their processing on a non-SS&C system. The resulting decline in demand for our products and services could have a material adverse effect on our business and financial statements.

Our business has become increasingly focused on the hedge fund industry, and we are subject to the variations and fluctuations of that industry.

As a result of our acquisitions of Advent in July 2015 and GlobeOp Financial Services S.A., or GlobeOp, in May 2012, a higher percentage of our clients are hedge funds or funds of hedge funds. These clients and our business relating to them are affected by trends, developments and risks associated with the global hedge fund industry. The market environment for hedge funds involves risk and has suffered significant turmoil in recent years, including as a result of substantial changes in global economies, stock market declines, credit crises, failures of financial institutions, government bail-out plans and new regulatory initiatives. Even in the absence of such disruptions to the global economy, the global hedge fund industry is subject to fluctuations in assets under management that are impossible to predict or anticipate. These risks could significantly and adversely affect some or all of our clients, which could adversely affect our business and financial statements. In addition, market forces have negatively impacted liquidity for many of the financial instruments in which hedge fund clients trade, which, in turn, could negatively impact our ability to access independent pricing sources for valuing those instruments.

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If we are unable to retain and attract clients, our revenues and net income would remain stagnant or declin e.

If we are unable to keep existing clients satisfied, sell additional products and services to existing clients or attract new clients, then our revenues and net income would remain stagnant or decline. A variety of factors could affect our ability to successfully retain and attract clients, including:

 

the level of demand for our products and services;

 

the level of client spending for information technology;

 

the level of competition from internal client solutions and from other vendors;

 

the quality of our client service and the performance of our products;

 

our ability to update our products and services and develop new products and services needed by clients;

 

our ability to understand the organization and processes of our clients; and

 

our ability to integrate and manage acquired businesses.

We face significant competition with respect to our products and services, which may result in price reductions, reduced gross margins or loss of market share.

The market for financial services software and services is competitive, rapidly evolving and highly sensitive to new product and service introductions and marketing efforts by industry participants. The market is also highly fragmented and served by numerous firms that target only local markets or specific client types. We also face competition from information systems developed and serviced internally by the IT departments of financial services firms.

Some of our current and potential competitors may have significantly greater financial, technical, distribution and marketing resources, generate higher revenues and have greater name recognition. Our current or potential competitors may develop products comparable or superior to those developed by us, or adapt more quickly to new technologies, evolving industry trends or changing client or regulatory requirements. It is also possible that our competitors may enter into alliances with each other or other third parties, and through such alliances, acquire increased market share. Increased competition may result in price reductions, reduced gross margins and loss of market share. Accordingly, our business may not grow as expected and may decline.

Our role as a fund administrator has in the past, and may in the future, expose us to claims and litigation from clients, their investors, regulators or other third parties.

As a service provider, we have been, and may in the future be, subject to claims and lawsuits from investors, regulators, liquidators, other third parties and our clients, some of which pursue high-risk investment strategies and all of which are subject to substantial market risk, in the event that the underlying fund suffers investment losses, becomes insolvent, files for bankruptcy or otherwise becomes defunct. Even if we are not ultimately found to be liable, defending such claims or lawsuits could be time-consuming, divert management resources, harm our reputation and cause us to incur significant expenses. These claims or lawsuits could have an adverse effect on our business and financial statements.

Catastrophic events may adversely affect our business.

A war, terrorist attack, natural disaster, pandemic or other catastrophe may adversely affect our business. A catastrophic event could have a direct negative impact on us or an indirect impact on us by, for example, affecting our clients, the financial markets or the overall economy and reducing our ability to provide, our clients’ ability to use, and the demand for, our products and services. The potential for a direct effect on our business operations is due primarily to our significant investment in infrastructure. Although we maintain redundant facilities and have contingency plans in place to protect against both man-made and natural threats, it is impossible to fully anticipate and protect against all potential catastrophes. A computer virus, security breach, criminal act, military action, power or communication failure, flood, severe storm or the like could lead to service interruptions and data losses for clients, disruptions to our operations, or damage to important facilities. In addition, such an event may cause clients to cancel their agreements with us for our products or services. Any of these events could adversely affect our business and financial statements.

Our software-enabled services may be subject to disruptions or failures that could adversely affect our reputation and our business.

Our software-enabled services maintain and process confidential data on behalf of our clients, some of which is critical to their business operations. For example, our trading systems maintain account and trading information for our clients and their customers. Our internal technology infrastructure on which our software-enabled services depend may be subject to disruptions or may otherwise fail to operate properly or become disabled or damaged as a result of a number of factors, including events that are wholly or partially

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beyond our control and that could adversely affect our ability to process transactions, provide services or otherwise appropriately cond uct our business activities. Such events include information technology attacks or failures, threats to physical security, sudden increases in transaction volumes, electrical or telecommunications outages, damaging weather or other acts of nature, or emplo yee or contractor error or malfeasance. In particular, cybersecurity threats have become prevalent in our industry as well as for many firms that process information. Cybersecurity threats are evolving and include, but are not limited to, malicious softwar e, attempts to gain unauthorized access to data, information security breaches or employee or contractor error or malfeasance and other electronic security breaches that could lead to disruptions in systems, unauthorized release or destruction of our or ou r clients’ or other parties’ confidential or otherwise protected information and corruption of data. In the last few years there have been many successful advanced pervasive threats that have damaged several prominent companies in spite of strong informati on security measures, and we expect that the risks associated with cyber-attacks and the costs of preventing such attacks will continue to increase in the future. We and our clients are regularly the target of attempted cyber-attacks, including denial-of-s ervice attacks, and we must continuously monitor and develop our systems to protect our technology infrastructure and data from misappropriation or corruption. Although we expend significant resources and oversight efforts in an attempt to ensure that we m aintain appropriate safeguards with respect to cyber-attacks, there is no guarantee that our systems and procedures are adequate to protect against all security breaches.

If our software-enabled services are disrupted or fail for any reason, or if our systems or facilities are infiltrated or damaged by unauthorized persons, we and our clients could experience data loss, financial loss, harm to their reputation and significant business interruption. If that happens, we may be exposed to significant liability, our reputation may be harmed, our clients may be dissatisfied and we may lose business. Given the unpredictability of the timing, nature and scope of such failures or disruptions, we could potentially experience significant costs and exposures, including production downtimes, operational delays, other detrimental impacts on our operations or ability to provide services to our customers, the compromising of confidential or otherwise protected information, misappropriation, destruction or corruption of data, security breaches, other manipulation or improper use of our systems or networks, financial losses from remedial actions, loss of business, potential liability, regulatory inquiries, enforcements, actions and fines and/or damage to our reputation, any of which could have a material adverse effect on our business and financial statements.

If third party service providers on which we rely, or other third parties with which we do business or which facilitate our business activities, suffer disruptions to their information technology systems, our business could be harmed.

In providing our software-enabled services to our customers, we depend upon information technology infrastructure that is primarily managed by our firm, but we also depend on third party service providers to provide some of the information technology infrastructure on which we rely. Although we seek to ensure that appropriate security and other standards are maintained by these third parties, these third parties are also subject to the risks discussed in the preceding risk factor, and there is no guarantee that they will maintain systems and procedures sufficient to protect against system failures and security breaches, including as a result of cyber-attacks.

In addition, the third parties with which we do business or which facilitate our business activities, including financial intermediaries, are susceptible to the risks described in the preceding risk factor (including regarding the third parties with which they are similarly interconnected), and our or their business operations and activities may therefore be adversely affected, perhaps materially, by failures, terminations, errors or malfeasance by, or attacks or constraints on, one or more financial, technology or infrastructure institutions or intermediaries with whom they are interconnected or conduct business.

We have substantial operations and a significant number of employees in India and we are therefore subject to regulatory, economic and political uncertainties in India.

We currently have approximately 1,800 employees located in India. The economy of India may differ favorably or unfavorably from the United States economy and our business may be adversely affected by the general economic conditions and economic and fiscal policy in India, including changes in exchange rates and controls, interest rates and taxation policies. In particular, in recent years, India’s government has adopted policies that are designed to promote foreign investment, including significant tax incentives, relaxation of regulatory restrictions, liberalized import and export duties and preferential rules on foreign investment and repatriations. These policies may not continue. In addition, we are subject to risks relating to social stability, political, economic or diplomatic developments affecting India in the future.

India faces major challenges in the years ahead sustaining the economic growth that it has experienced over the past several years. These challenges include the need for substantial infrastructure development and improving access to healthcare and education. Our ability to recruit, train and retain qualified employees and develop and operate our facilities in India could be adversely affected if India does not successfully meet these challenges.

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We expect that our operating results, including our profit margins and profitability, may fluctuate over time.

Historically, our revenues, profit margins and other operating results have fluctuated from period to period and over time primarily due to the timing, size and nature of our license and service transactions. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion on fluctuations in revenues, profit margins and other operating results. Additional factors that may lead to such fluctuation include:

 

the timing of the introduction and the market acceptance of new products, product enhancements or services by us or our competitors;

 

the lengthy and often unpredictable sales cycles of large client engagements;

 

the amount and timing of our operating costs and other expenses;

 

the financial health of our clients;

 

changes in the volume of assets under our clients’ management;

 

cancellations of maintenance and/or software-enabled services arrangements by our clients;

 

changes in local, national and international regulatory requirements;

 

acquisitions during the relevant period;

 

implementation of our licensing contracts and software-enabled services arrangements;

 

changes in economic and financial market conditions; and

 

changes in the types of products and services we provide.

We are dependent on our senior management and their continued performance and productivity.

We are dependent on the continued efforts of the members of our senior management. The loss of any of the members of our senior management may cause a significant disruption in our business, jeopardize existing customer relationships, impair our compliance efforts as a public company, and have a material adverse effect on our business objectives. We do not maintain key man life insurance policies for any senior officer or manager.

If we cannot attract, train and retain qualified employees, we may not be able to provide adequate technical expertise and customer service to our clients.

We believe that our success is due in part to our ability to attract, train and retain highly skilled employees. Competition for qualified personnel in the software and hedge fund industries is intense, and we have, at times, found it difficult to attract and retain skilled personnel for our operations. Our failure to attract and retain a sufficient number of highly skilled employees could prevent us from developing and servicing our products at the same levels as our competitors; therefore, we may lose potential clients and suffer a decline in revenues.

If we are unable to protect our proprietary technology and other confidential information, our success and our ability to compete will be subject to various risks, such as third-party infringement claims, unauthorized use of our technology, disclosure of our proprietary information or inability to license technology from third parties.

Our success and ability to compete depends in part upon our ability to protect our proprietary technology and other confidential information. We rely on a combination of patent, trade secret, copyright and trademark law, nondisclosure agreements, license agreements and technical measures to protect our proprietary technology and other confidential information. We have registered trademarks for some of our products and will continue to evaluate the registration of additional trademarks as appropriate. We generally enter into confidentiality agreements with our employees, distributors, clients and potential clients.  However, these efforts may be insufficient to prevent those parties or others from misappropriating or asserting rights in our intellectual property, confidential information or other technology and our proprietary technology and confidential information may be subject to embezzlement, theft, or other similar illegal behavior by our employees or third parties.  Furthermore, it may be possible for unauthorized third parties to copy portions of our products or to reverse engineer or otherwise obtain and use our proprietary information.  Additionally, if there was a disclosure of confidential or proprietary information, or if a third party were to gain unauthorized access to the confidential information we possess, we could suffer a loss of revenues, we could experience an adverse impact on our competitive position, our relationships with our clients and our reputation could be harmed.

Existing patent and copyright laws afford only limited protection. Third parties may develop substantially equivalent or superseding proprietary technology or may offer equivalent products in competition with our products, thereby substantially reducing the value of our proprietary rights. A number of third parties hold patents and other intellectual property rights with application in the

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financial services f ield. Consequently, we are subject to the risk that such third parties will claim that our products infringe their intellectual property rights, including their patent rights. Such claims, if successful, could result in expensive and time-consuming litigat ion and impair our intellectual property rights.

We incorporate open source software into a limited number of our software products. We monitor our use of open source software in an effort to avoid subjecting our products to unfavorable conditions or conditions we do not intend. Although we believe that we have complied with our obligations under the applicable licenses for open source software that we use, there is little or no legal precedent governing the interpretation of many of the terms of certain of these licenses. As a result, the potential impact of these terms is uncertain and may result in unanticipated obligations or restrictions regarding those of our products, technologies or solutions affected.

We have acquired and may acquire important technology rights through our acquisitions and have often incorporated and may incorporate features of these technologies across many of our products and services. As a result, we are subject to the above risks and the additional risk that the seller of the technology rights may not have appropriately protected the intellectual property rights we acquired. Indemnification and other rights under applicable acquisition documents are limited in term and scope and therefore provide us with only limited protection.

In addition, we rely on third-party software in providing some of our products and services. If we lose our licenses to use such software or if such licenses are found to infringe upon the rights of others, we will need to seek alternative means of obtaining the licensed software to continue to provide our products or services. Our inability to replace such software, or to replace such software in a timely manner, could significantly disrupt our business and our ability to deliver products and services to our clients, and adversely affect our financial results.

We could become subject to litigation regarding intellectual property rights or other confidential or proprietary information, which could seriously harm our business and require us to incur significant costs.

In recent years, there has been a high incidence of litigation in the United States involving patents and other intellectual property rights. We are from time to time a party to litigation to enforce our intellectual property rights or to protect our confidential or proprietary information, or as a result of an allegation that we infringe a third party’s intellectual property rights, including patents, trademarks and copyrights. From time to time, we have received notices claiming our technology may infringe third-party intellectual property rights or otherwise threatening to assert intellectual property rights. These claims and any resulting lawsuit, if successful, could subject us to significant liability for damages and invalidation of our proprietary rights. These lawsuits, regardless of their success, could be time-consuming and expensive to resolve, adversely affect our revenues, profitability and prospects, and divert management time and attention. These claims and threats could also cause us to undertake to re-engineer our products or services or obtain a license of third-party technologies on unfavorable terms.

We may be unable to adapt to rapidly changing technology and evolving industry standards and regulatory requirements.

Rapidly changing technology, evolving industry standards and regulatory requirements and new product and service introductions characterize the market for our products and services. Our future success will depend in part upon our ability to enhance our existing products and services and to develop and introduce new products and services to keep pace with such changes and developments and to meet changing client needs. The process of developing our software products is complex and is expected to become increasingly complex and expensive in the future due to the introduction of new platforms, operating systems and technologies. Current areas of significant technological change include mobility, cloud-based computing and the processing and analyzing of large amounts of data. Our ability to keep up with technology and business and regulatory changes is subject to a number of risks, including that:

 

we may find it difficult or costly to update our services and software and to develop new products and services quickly enough to meet our clients’ needs;

 

we may find it difficult or costly to make some features of our software work effectively and securely over the Internet or with new or changed operating systems;

 

we may find it difficult or costly to update our software and services to keep pace with business, evolving industry standards, regulatory requirements and other developments in the industries in which our clients operate; and

 

we may be exposed to liability for security breaches that allow unauthorized persons to gain access to confidential information stored on our computers or transmitted over our network.

Our failure to enhance our existing products and services and to develop and introduce new products and services to promptly address the needs of our clients and a changing marketplace could adversely affect our business and financial statements.

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Undetected software design defects, errors or failures, or employee errors, may result in defects, delays, loss of our clients’ data, litigation against us and harm to our reputat ion and business.

Our software products are highly complex and sophisticated and could contain design defects or software errors that are difficult to detect and correct. Errors or bugs in our software may affect the ability of our products to work with other hardware or software products, delay the development or release of new products or new versions of products, result in the loss of client data, damage our reputation, affect market acceptance of our products or result in the rejection of our products by the market, cause loss of revenues, divert development resources, increase product liability and warranty claims, and increase service and support costs. We cannot be certain that, despite testing by us and our clients, errors will not be found in new products or new versions of products. Moreover, our clients engage in complex trading activities and this complexity increases the likelihood that our employees may make errors. Employee errors, poor employee performance or misconduct may be difficult to detect and deter. These product defects or errors in the product operations, or employee errors, poor performance or misconduct, could cause damages to our clients for which they may assert claims or lawsuits against us. The cost of defending such a lawsuit, regardless of its merit, could be substantial and could divert management’s attention and result in reputational harm. In addition, if our business liability insurance coverage proves inadequate with respect to a claim or future coverage is unavailable on acceptable terms or at all, we may be liable for payment of substantial damages. Any or all of these potential consequences could have an adverse impact on our business and financial statements.

Because our platform could be used to collect and store personal information of our customers’ employees or customers, privacy concerns could result in additional cost and liability to us or inhibit use of our platform.

Personal privacy has become a significant issue in the United States and in many other countries where we offer our solutions or may offer them in the future. The regulatory framework for privacy issues worldwide is currently evolving, is not uniform and is likely to remain uncertain for the foreseeable future. Many federal, state and foreign government bodies and agencies have adopted or are considering adopting laws and regulations regarding the collection, use, disclosure, control, security and deletion of personal information. In the United States, these include, without limitation, laws and regulations promulgated by states, as well as rules and regulations promulgated under the authority of the Federal Trade Commission and federal financial regulatory bodies. Internationally, most of the jurisdictions in which we operate have established their own data security and privacy legal frameworks, many of which are broader in scope, more restrictive and impose greater obligations on us and our customers. Many of these obligations are updated frequently and require ongoing monitoring. In addition to government regulation, privacy advocacy and industry groups may propose new and different self-regulatory standards that either legally or contractually apply to us.

As a result of uncertainty regarding the interpretation and application of privacy and data protection-related laws, regulations, and self-regulatory requirements, it is possible that these laws, regulations, and requirements may be interpreted and applied in a manner that is inconsistent with our existing data handling practices or the technological features of our solutions. If so, in addition to the possibility of fines, lawsuits and other claims, we could be required to fundamentally change our business activities and practices or modify our solutions, which could have an adverse effect on our business. Any inability to adequately address privacy or data protection-related concerns, even if unfounded, or comply with applicable privacy or data protection-related laws, regulations and policies, could result in additional cost and liability to us, damage our reputation, inhibit sales and harm our business. Furthermore, the costs of compliance with, and other burdens imposed by, the laws, regulations, standards and policies that are applicable to the businesses of our customers may limit the use and adoption of, and reduce the overall demand for, our solutions. Also, privacy concerns, whether valid or not valid, may inhibit market adoption of our solutions, particularly in foreign countries.

Our business is subject to evolving regulations and increased scrutiny from regulators.

Our business is subject to evolving and increasing regulation, and our relationships with our clients may subject us to increased scrutiny from a number of regulators, including the Bermuda Monetary Authority (BMA), British Virgin Islands Financial Services Commission (BVIFSC), Centrale Bank van Curacao en Sint Maarten, Commodity Futures Trading Commission (CFTC), Federal Trade Commission (FTC), Cayman Islands Monetary Authority (CIMA), Commission de Surveillance du Secteur Financier (CSSF), Financial Industry Regulatory Authority (FINRA), Financial Conduct Authority (FCA), Central Bank of Ireland (CBI), National Futures Association (NFA), Ontario Securities Commission (OSC), the Securities and Exchange Commission (SEC), Securities Commission of the Bahamas (SCB), U.S. Treasury Department and other government entities that regulate the financial services, hedge fund and hedge fund services industry in the United States, the United Kingdom and the other jurisdictions in which we operate. These regulations may limit or curtail our activities, including activities that might be profitable, and changes to existing regulations may affect our ability to continue to offer our existing products and services, or to offer products and services we may wish to offer in the future. As a result of the changes in the global economy and the turmoil in global financial markets in recent years, the risk of additional government regulation has increased.

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The European Union’s Alternative Investment Fund Ma nagers Directive (AIFMD) and the United States’ Dodd-Frank Wall Street Reform and Consumer Protection Act, among other initiatives, pose significant changes to the regulatory environment in which we and our clients operate. The impact of these regulatory c hanges remains uncertain. If we fail to comply with any applicable laws, rules or regulations, we may be subject to censure, fines or other sanctions, including revocation of our licenses and/or registrations with various regulatory agencies, criminal pena lties and civil lawsuits.

The U.S. Foreign Corrupt Practices Act and anti-bribery laws in other jurisdictions, including the U.K. Bribery Act, generally prohibit companies and their intermediaries from making improper payments for the purpose of obtaining or retaining business or other commercial advantage. While our policies mandate compliance with these anti-bribery laws, reckless or other inappropriate acts committed by our affiliates, employees or agents that violate anti-bribery laws could result in severe criminal or civil sanctions.

A failure to comply with these laws, rules or regulations, or allegations of such noncompliance, could adversely affect our business, reputation and financial statements.

Additional tax expense or additional tax exposures could affect our future profitability.

We are subject to income taxes in the United States and various international jurisdictions. Changes in tax laws and regulations, as well as changes in related interpretations and other tax guidance could materially impact our tax receivables and liabilities and our deferred tax assets and deferred tax liabilities. Additionally, in the ordinary course of business we are subject to examinations by various authorities, including tax authorities. In addition to ongoing investigations, there could be additional investigations launched in the future by governmental authorities in various jurisdictions, and existing investigations could be expanded. The global and diverse nature of our operations means that these risks will continue to exist and additional investigations, proceedings and contingencies will arise from time to time. Our business and financial statements may be affected by the outcome of investigations, proceedings and other contingencies that cannot be predicted with certainty.

A substantial portion of our revenues are derived, and a substantial portion of our operations are conducted, outside the United States.

For the years ended December 31, 2013, 2014 and 2015, international revenues accounted for 35%, 33% and 32%, respectively, of our total revenues. We sell certain of our products, such as MarginMan and Pacer, primarily outside the United States. Our international business is subject to a variety of risks, including:

 

potential changes in a specific country’s or region’s political or economic climate;

 

the need to comply with a variety of local regulations and laws, U.S. export controls, the U.S. Foreign Corrupt Practices Act and the UK Bribery Act;

 

fluctuations in foreign currency exchange rates;

 

application of discriminatory fiscal policies;

 

potential changes in tax laws and the interpretation of such laws; and

 

potential difficulty enforcing third-party contractual obligations and intellectual property rights.

Such factors could adversely affect our business and financial statements.

We are exposed to fluctuations in currency exchange rates that could negatively impact our operating results and financial condition.

Because a significant portion of our business is conducted outside the United States and significant revenues are generated outside the United States, we face exposure to adverse movements in foreign currency exchange rates. Fluctuations in currencies relative to currencies in which our earnings are generated also make it more difficult to perform period-to-period comparisons of our reported results of operations. Because our consolidated financial statements are reported in U.S. dollars, translation of sales or earnings generated in other currencies into U.S. dollars can result in a significant increase or decrease in the reported amount of those sales or earnings. In addition, we incur currency transaction risk whenever we enter into either a purchase or a sales transaction using a currency other than the local currency of the transacting entity. Given the volatility of exchange rates, we cannot be assured we will be able to effectively manage our currency translation or transaction risk, and significant changes in the value of foreign currencies relative to the U.S. dollar could adversely affect our financial statements. See “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for further discussion on the foreign currency translation impact on operating results and financial condition.

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We do not currently engage in hedging activities. Changes in economic or political conditions globally and in any of the countries in which we operate could result in exchange rate movements, new currency or exchange controls or other restrictions being imposed on our operations.

A material weakness in our internal controls could have a material adverse effect on us.

Effective internal controls are necessary for us to provide reasonable assurance with respect to our financial reports and to effectively prevent fraud. If we cannot do so, our reputation and operating results could be harmed.  A material weakness in our internal control over financial reporting could adversely impact our ability to provide timely and accurate financial information. Even effective internal controls can provide only reasonable assurance with respect to the preparation and fair presentation of financial statements. In addition, controls can be circumvented by individual acts of some persons, by collusion of two or more people, or by management override of the controls. Over time, controls may become inadequate because changes in conditions or deterioration in the degree of compliance with policies or procedures may occur. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.  If we are unable to report financial information timely and accurately or to maintain effective disclosure controls and procedures, our stock price could be negatively impacted and we could be subject to, among other things, regulatory or enforcement actions by the SEC, which could have a material adverse effect on our business and financial statements.

Risks Relating to Our Indebtedness

Our substantial indebtedness could adversely affect our financial health and operations.

We currently have a substantial amount of indebtedness. As of December 31, 2015, we had total indebtedness of $2,820.0 million and additional available borrowings of $150.0 million under our revolving credit facility. To fund our acquisition of Advent and to refinance our existing indebtedness and Advent’s existing indebtedness, we incurred substantial indebtedness under a senior secured credit facility and senior unsecured notes. This indebtedness could have adverse consequences. For example, it may:

 

require us to dedicate a substantial portion of our cash flow from operations to payments on our indebtedness, thereby reducing the availability of our cash flow to fund acquisitions, working capital, capital expenditures, research and development efforts and other general corporate purposes;

 

increase our vulnerability to and limit our flexibility in planning for, or reacting to, change in our business and the industry in which we operate;

 

restrict our ability to make certain distributions with respect to our capital stock due to restricted payment and other financial covenants in our credit facilities and other financing agreements;

 

expose us to the risk of increased interest rates as borrowings under our senior credit facility are subject to variable rates of interest;

 

place us at a competitive disadvantage compared to our competitors that have less debt; and

 

limit our ability to borrow additional funds.

In addition, the agreement governing our senior credit facility contains financial and other restrictive covenants that limit our ability to engage in activities that may be in our long-term best interests. Our failure to comply with those covenants could result in an event of default which, if not cured or waived, could result in the acceleration of all of our debts.

To service our indebtedness, we require a significant amount of cash. Our ability to generate cash depends on many factors beyond our control.

We are currently obligated to make periodic interest payments on our senior credit facility and senior notes of approximately $124.0 million annually. In connection with the Advent acquisition, debt interest payments increased substantially. Our ability to make payments on and to refinance our indebtedness and to fund planned capital expenditures will depend on our ability to generate cash in the future. This, to a certain extent, is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond our control.

If our business fails to generate sufficient cash flow from operations and future borrowings are not available to us, we may not be able to pay our indebtedness or fund our other liquidity needs. We may need to refinance all or a portion of our indebtedness on or before maturity. We may not be able to refinance any of our indebtedness on commercially reasonable terms or at all. If we cannot service our indebtedness, we may have to take actions such as selling assets, seeking additional equity or reducing or delaying capital expenditures, strategic acquisitions, investments and joint ventures. We may not be able to effect such actions, if necessary, on commercially reasonable terms or at all.

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Restrictive covenants in the agreements governing our indebtedness may restrict our ability to pursue our b usiness strategies.

The agreements governing our senior credit facility and senior notes will limit our ability, among other things, to:

 

incur additional indebtedness;

 

make certain investments;

 

sell assets, including capital stock of certain subsidiaries;

 

declare or pay dividends, repurchase or redeem stock or make other distributions to stockholders;

 

consolidate, merge, liquidate or dissolve;

 

enter into transactions with our affiliates; and

 

incur liens.

In addition, the agreement governing our senior credit facility also requires us to maintain compliance with specified leverage ratios. Our ability to comply with these provisions may be affected by events beyond our control, and these provisions could limit our ability to plan for or react to market conditions, meet capital needs or otherwise conduct our business activities and plans.

Our inability to comply with any of these provisions could result in a default under one or more of the agreements governing our indebtedness. If such a default occurs under one such agreement, the creditors under another debt agreement may elect to declare all borrowings outstanding, together with accrued interest and other fees, to be immediately due and payable. In addition, the lenders under our senior credit facility would have the right to terminate any commitments they have to provide further borrowings.

If we are unable to repay outstanding borrowings when due, the lenders under our senior credit facility also have the right to proceed against the collateral, including our available cash and substantially all of our domestic assets and the assets of our domestic subsidiaries, granted to them to secure the indebtedness under that facility. If the indebtedness under our senior credit facility were to be accelerated, we cannot assure you that our assets would be sufficient to repay in full that indebtedness and our other indebtedness.

Risks Relating to Ownership of Our Common Stock

If equity research analysts do not publish or cease publishing research or reports about our business or if they issue unfavorable commentary or downgrade our common stock, the price and trading volume of our common stock could decline.

The trading market for our common stock is influenced by the research and reports that equity research analysts publish about us and our business. We do not control these analysts. The price of our stock or trading volume in our stock could decline if one or more equity analysts downgrade our stock or if those analysts issue other unfavorable commentary or cease publishing regular reports about us or our business.

The market price of our common stock may be volatile, which could result in substantial losses for investors in our common stock.

Shares of our common stock were sold in our initial public offering, or IPO, at a price of $15.00 per share on March 31, 2010, and in the six intervening years our common stock has traded as high as $77.19 and as low as $13.27. An active, liquid and orderly market for our common stock may not be sustained, which could depress the trading price of our common stock. In addition, the market price of our common stock may fluctuate significantly. Some of the factors that may cause the market price of our common stock to fluctuate include:

 

fluctuations in our quarterly financial results or the quarterly financial results of companies perceived to be similar to us;

 

changes in estimates of our financial results or recommendations by securities analysts;

 

failure of any of our products to achieve or maintain market acceptance;

 

changes in market valuations of similar companies;

 

success of competitive products;

 

changes in our capital structure, such as future issuances of securities or the incurrence of additional debt;

 

announcements by us or our competitors of significant products, contracts, acquisitions or strategic alliances;

 

regulatory developments in any of our markets;

 

litigation involving our company, our general industry or both;

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additions or departures of key pe rsonnel;

 

investors’ general perception of us; and

 

changes in general economic, industry and market conditions.

In addition, if the market for technology stocks, financial services stocks or the stock market in general experiences a loss of investor confidence, the trading price of our common stock could decline for reasons unrelated to our business, financial condition or results of operations. If any of the foregoing occurs, it could cause our stock price to fall and may expose us to class action lawsuits that, even if unsuccessful, could be costly to defend and a distraction to management.

William C. Stone, our Chairman of the Board and Chief Executive Officer, exerts significant control over our company.

As of February 24, 2016, William C. Stone, our Chairman of the Board and Chief Executive Officer, beneficially owned approximately 16.8% of the outstanding shares of our common stock. We are party to a stockholders’ agreement with Mr. Stone, pursuant to which Mr. Stone has the right to nominate two members of our board of directors, one of which will be Mr. Stone for so long as he is our Chief Executive Officer. As a result, Mr. Stone has significant influence over our policy and affairs and matters requiring stockholder approval.

SS&C Holdings is a holding company with no operations or assets of its own and its ability to pay dividends is limited or otherwise restricted.

SS&C Holdings has no direct operations and no significant assets other than the stock of SS&C. The ability of SS&C Holdings to pay dividends is limited by its status as a holding company and by the terms of the agreement governing our senior credit facility. See “Risk factors — Risks relating to our indebtedness — Restrictive covenants in the agreement governing our senior credit facility may restrict our ability to pursue our business strategies.” Moreover, none of the subsidiaries of SS&C Holdings is obligated to make funds available to SS&C Holdings for the payment of dividends or otherwise. In addition, Delaware law imposes requirements that may restrict the ability of our subsidiaries, including SS&C, to pay dividends to SS&C Holdings. These limitations could reduce our attractiveness to investors.

Our management has broad discretion in the use of our existing cash resources and may not use such funds effectively.

Our management has broad discretion in the application of our cash resources. Accordingly, our stockholders will have to rely upon the judgment of our management with respect to our existing cash resources, with only limited information concerning management’s specific intentions. Our management may spend our cash resources in ways that our stockholders may not desire or that may not yield a favorable return. The failure by our management to apply these funds effectively could harm our business.

Provisions in our certificate of incorporation and bylaws might discourage, delay or prevent a change of control of our company or changes in our management and, therefore, depress the trading price of our common stock.

Provisions of our certificate of incorporation and bylaws and Delaware law may discourage, delay or prevent a merger, acquisition or other change in control that stockholders may consider favorable, including transactions in which stockholders might otherwise receive a premium for their shares of our common stock. These provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. These provisions include:

 

limitations on the removal of directors;

 

a classified board of directors so that not all members of our board are elected at one time;

 

advance notice requirements for stockholder proposals and nominations;

 

the inability of stockholders to call special meetings;

 

the ability of our board of directors to make, alter or repeal our bylaws;

 

the ability of our board of directors to designate the terms of and issue new series of preferred stock without stockholder approval, which could be used to institute a rights plan, or a poison pill, that would work to dilute the stock ownership of a potential hostile acquirer, likely preventing acquisitions that have not been approved by our board of directors; and

 

a prohibition on stockholders from acting by written consent.

The existence of the foregoing provisions and anti-takeover measures could limit the price that investors might be willing to pay in the future for shares of our common stock. They could also deter potential acquirers of our company, thereby reducing the likelihood that our stockholders could receive a premium for their shares of common stock in an acquisition.

26


 

 

ITEM 1B.

UNRESOLVED STAFF COMMENTS

None.

ITEM  2.

PROPERTIES

We lease our corporate offices, which consist of approximately 93,500 square feet of office space located in 80 Lamberton Road, Windsor, CT 06095. In 2013, we extended the lease term through October 2022. We utilize facilities and offices in thirty-eight other locations in the United States and have offices in North America, Europe, Asia, Australia and Africa. We lease all of our facilities and offices except for our offices in Yorktown, New York, and Harrison, New York, which we own. We believe that our facilities are in good condition and generally suitable to meet our needs for the foreseeable future; however, we will continue to seek additional space as needed to satisfy our growth.

ITEM  3.

LEGAL PROCEEDINGS

Millennium Actions

Several actions (the “Millennium Actions”) were filed in various jurisdictions against the Company’s subsidiaries, GlobeOp Financial Services Ltd and GlobeOp Financial Services LLC (“GlobeOp”), alleging claims and damages with respect to a valuation agent services agreement performed by GlobeOp for the Millennium Global Emerging Credit Fund, Ltd. and Millennium Global Emerging Credit Master Fund Ltd.  All substantive claims related to the Millennium Actions have been settled or resolved in favor of GlobeOp.  The only remaining issue involves the allocation of attorneys’ fees and costs in an arbitration proceeding that was conducted in the United Kingdom, which issue is currently pending before the arbitration tribunal.

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.

ITEM 4.

MINE SAFETY DISCLOSURES

Not applicable.

 

 

27


PAR T II

ITEM 5.

MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock trades on The NASDAQ Global Select Market under the symbol “SSNC”. The following table sets forth, for the periods indicated, the high and low sales prices of our common stock as reported by The NASDAQ Global Select Market:

 

 

 

High

 

 

Low

 

2015

 

 

 

 

 

 

 

 

Fourth quarter

 

$

77.19

 

 

$

65.40

 

Third quarter

 

$

75.50

 

 

$

61.52

 

Second quarter

 

$

65.19

 

 

$

55.67

 

First quarter

 

$

64.99

 

 

$

52.21

 

 

 

 

 

 

 

 

 

 

 

 

High

 

 

Low

 

2014

 

 

 

 

 

 

 

 

Fourth quarter

 

$

59.76

 

 

$

41.67

 

Third quarter

 

$

46.58

 

 

$

41.51

 

Second quarter

 

$

46.22

 

 

$

35.47

 

First quarter

 

$

46.61

 

 

$

37.17

 

 

On February 24, 2016, the closing price reported on The NASDAQ Global Select Market of our common stock was $58.44 per share. As of February 24, 2016, we had approximately 16 holders of record of our common stock.

There is no established public trading market for shares of our Class A non-voting common stock. As of February 24, 2016, William C. Stone, our Chairman and Chief Executive Officer, was the only holder of record of our Class A non-voting common stock. Each share of Class A non-voting common stock automatically converts into one share of our common stock upon (i) the expiration, with respect to a holder of Class A non-voting common stock, of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, or the HSR Act, such that such holder could acquire shares of common stock issuable upon conversion of such holder’s shares of Class A non-voting common stock in compliance with the HSR Act, (ii) any other event, the occurrence of which results in the ability of a holder of Class A non-voting Common Stock to acquire the shares of common stock issuable upon conversion of the Class A non-voting common stock pursuant in compliance with the HSR Act or (iii) the sale of such share of Class A non-voting common stock to a person or entity (x) that would not be required to make a filing under the HSR Act to acquire an equal number of shares of common stock or (y) for which the waiting period under the HSR Act applicable to such person acquiring an equal number of shares of common stock has expired.

In 2015, we paid quarterly cash dividends of $0.125 per share of common stock on March 16, 2015, June 15, 2015, September 15, 2015 and December 15, 2015, to stockholders of record as of the close of business on March 2, 2015, June 1, 2015, September 1, 2015 and December 1, 2015, respectively, totaling $45.5 million. Our ability to pay dividends is limited by our status as a holding company and by the terms of the agreement governing our senior credit facility, insofar as we may seek to pay dividends out of funds made available to us by our subsidiaries, because our debt instruments directly or indirectly impose certain limitations on our subsidiaries’ ability to pay dividends or make loans to us. Any future determination as to the declaration and payment of dividends will be at the discretion of our Board of Directors and will depend on then-existing conditions, including our financial condition, operating results, contractual restrictions, capital requirements, current and anticipated cash needs, plans for expansion, and other factors our Board of Directors may deem relevant.

Our equity plan information required by this item is incorporated by reference to the information in Part III, Item 12 of this annual report on Form 10-K.

28


Performance graph

This performance graph shall not be deemed “soliciting material” or to be “filed” with the Securities and Exchange Commission for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or the Exchange Act, or otherwise subject to the liabilities under that Section, and shall not be deemed to be incorporated by reference into any filing of SS&C Technologies Holdings, Inc. under the Exchange Act.

The following graph shows a comparison from December 31, 2010 through December 31, 2015 of cumulative total return for our common stock, the NASDAQ Composite Index and the NASDAQ Computer and Data Processing Index. Such returns are based on historical results and are not intended to suggest future performance. Data for the NASDAQ Composite Index and the NASDAQ Computer and Data Processing Index assume reinvestment of dividends.

COMPARISON OF CUMULATIVE TOTAL RETURN*

Among SS&C Technologies Holdings, Inc., the NASDAQ Composite Index

And the NASDAQ Computer and Data Processing Index

*

$100 invested in stock on 12/31/2010. Return calculations of indices assume the reinvestment of dividends.

 

 

 

12/31/2010

 

 

12/31/2011

 

 

12/31/2012

 

 

12/31/2013

 

 

12/31/2014

 

 

12/31/2015

 

SS&C Technologies Holdings, Inc.

 

 

100

 

 

 

88

 

 

 

113

 

 

 

216

 

 

 

286

 

 

 

336

 

NASDAQ Composite-Total Returns

 

 

100

 

 

 

99

 

 

 

116

 

 

 

163

 

 

 

187

 

 

 

200

 

NASDAQ Computer & Data Processing Index

 

 

100

 

 

 

97

 

 

 

110

 

 

 

159

 

 

 

170

 

 

 

223

 

 

 

29


ITEM 6.

SELECTED FINANCIAL DATA

The five-year selected financial data set forth below should be read in conjunction with our consolidated financial statements and related notes and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing elsewhere in this annual report on Form 10-K.

 

 

 

2015(5)

 

 

2014(4)

 

 

2013(3)

 

 

2012(2)

 

 

2011(1)

 

 

 

(In thousands, except per share data)

 

STATEMENT OF COMPREHENSIVE INCOME

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues

 

$

1,000,285

 

 

$

767,861

 

 

$

712,702

 

 

$

551,842

 

 

$

370,828

 

Operating income

 

 

164,738

 

 

 

200,372

 

 

 

182,968

 

 

 

123,216

 

 

 

93,777

 

Net income

 

 

42,862

 

 

 

131,127

 

 

 

117,895

 

 

 

45,820

 

 

 

51,021

 

Earnings per share

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

$

0.47

 

 

$

1.57

 

 

$

1.45

 

 

$

0.59

 

 

$

0.67

 

Diluted

 

$

0.45

 

 

$

1.50

 

 

$

1.38

 

 

$

0.55

 

 

$

0.63

 

Weighted average shares outstanding

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic

 

 

91,098

 

 

 

83,314

 

 

 

81,195

 

 

 

78,321

 

 

 

76,482

 

Diluted

 

 

95,448

 

 

 

87,331

 

 

 

85,616

 

 

 

82,888

 

 

 

80,709

 

Cash dividends declared per share

 

$

0.50

 

 

$

0.125

 

 

 

 

 

 

 

 

 

 

BALANCE SHEET

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

5,802,242

 

 

$

2,266,155

 

 

$

2,275,324

 

 

$

2,362,905

 

 

$

1,207,608

 

Total long-term debt, including current portion

 

 

2,751,351

 

 

 

619,738

 

 

 

774,507

 

 

 

1,012,138

 

 

 

100,000

 

Stockholders’ equity

 

 

2,105,446

 

 

 

1,346,670

 

 

 

1,231,708

 

 

 

1,075,503

 

 

 

980,103

 

 

(1)

On March 10, 2011, we acquired all of the outstanding stock of BenefitsXML, Inc. On September 8, 2011, we acquired all of the outstanding stock of BDO Simpson Xavier Fund Administration Services Limited, a division of BDO.

(2)

On May 9, 2012, we acquired the assets and business associated with Thomson Reuter’s PORTIA Business. In the second quarter of 2012, we acquired of all of the outstanding stock of GlobeOp Financial Services, S.A. On September 27, 2012, we acquired the assets and business of Gravity Financial.

(3)

On October 1, 2013, we acquired all of the outstanding stock of Prime Management Limited. See Note 11 to our consolidated financial statements.

(4)

On November 30, 2014, we acquired all of the outstanding stock of DST Global Solutions Ltd. and the assets and business of DST Global Solutions LLC, together DSTGS, subsidiaries of DST Systems, Inc. See Note 11 to our consolidated financial statements.

(5)

On July 8, 2015, we acquired all of the outstanding stock of Advent Software, Inc. On September 1, 2015, we acquired the assets and business of Varden Technologies. On November 16, 2015, we acquired all of the outstanding stock of Primatics Financial. See Note 11 to our consolidated financial statements.

 

 

30


ITEM 7.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Business. We are a leading provider of mission-critical, sophisticated software products and software-enabled services that allow financial services providers to automate complex business processes and effectively manage their information processing requirements. Our portfolio of software products and rapidly deployable software-enabled services allows our clients to automate and integrate front-office functions such as trading and modeling, middle-office functions such as portfolio management and reporting, and back-office functions such as accounting, performance measurement, reconciliation, reporting, processing and clearing. Our solutions enable our clients to focus on core operations, better monitor and manage investment performance and risk, improve operating efficiency and reduce operating costs. We provide our solutions globally to more than   10,000   clients, principally within the institutional asset   and wealth   management, alternative investment management, financial advisory   and financial institutions vertical markets. In addition, our clients include commercial lenders,   real estate investment trusts (REITs),   corporate treasury groups, insurance and pension funds, municipal finance groups and real estate property managers.

Acquisitions . To supplement our growth, we evaluate and execute acquisitions that provide complementary products or services, add proven technology and an established client base, expand our intellectual property portfolio or address a highly specialized problem or a market niche. Since the beginning of 2013, we have spent approximately $2.8 billion to acquire five businesses in the financial services software industry, using a combination of cash and debt financing (as discussed in Notes 6 and 11 to our consolidated financial statements).

The following table lists the businesses we have acquired since January 1, 2013:

 

Acquired Business

 

Acquisition Date

 

Acquired Capabilities, Products and Services

Primatics Financial

 

November 2015

 

Added cloud-based integrated risk, compliance and finance solution in the banking industry

Varden Technologies

 

September 2015

 

Added cloud-based client and advisor communication solutions for investment firms

Advent Software, Inc.

 

July 2015

 

Expanded global investment management software and services

DST Global Solutions

 

November 2014

 

Added investment management software and services

Prime Management Limited

 

October 2013

 

Expanded fund administration services in the insurance linked securities market

 

The discussion in this Part II, Item 7 of this Annual Report on Form 10-K includes the operations of the business listed in the table above for the respective time periods each was owned by SS&C.

In August 2015, we announced the acquisition of Citigroup’s Alternative Investor Services business, or Pending Citi Acquisition, which includes Hedge Fund Services and Private Equity Fund Services, for $425 million, subject to certain adjustments. The transaction, which is subject to approvals by relevant regulatory authorities and other customary closing conditions, is expected to close in the first quarter of 2016 (as discussed in Liquidity and Capital Resources and Note 11 to our consolidated financial statements).

Revenues. Our contractually recurring revenues, which includes our maintenance and term licenses revenues and software-enabled services revenues, were $916.6 million in 2015, compared to $708.1 million and $665.5 million in 2014 and 2013, respectively. In both 2015 and 2014, contractually recurring revenues represented 92% of total revenues, compared to 93% in 2013. We believe our high level of contractually recurring revenues provides us with the ability to better manage our costs and capital investments. Our revenues from sales outside the United States were $318.0 million in 2015, compared to $253.1 million and $246.0 million in 2014 and 2013, respectively.

As we have expanded our business, we have focused on increasing our contractually recurring revenues. Since 2013, we have seen increased demand in the financial services industry for our software-enabled services from existing and new customers. We have taken a number of steps to support that demand, such as automating our software-enabled services delivery methods, expanded our service offerings and providing our employees with sales incentives. We have also acquired businesses that offer software-enabled services or have a large base of term license or maintenance clients. Our software-enabled services revenues increased from $552.6 million in 2013 to $670.2 million in 2015. Our maintenance and term licenses revenues increased from $112.9 million in 2013 to $246.4 million in 2015. Maintenance customer retention rates have continued to be in excess of 90% for our core enterprise products, and we have maintained both pricing levels for new contracts and annual price increases for existing contracts. To support the growth in our software-enabled services revenues and maintain our level of customer service, we have added personnel, expanded our facilities and invested in information technology. These investments and automation improvements in our software-enabled services have served to improve gross margins.

31


Liquidity. In connection with the acquisition of Advent in the third quarter of 2015, we entered into a new credit agreement, or Credit Agreement, and issued $600 million aggregate principal amount of 5.875% Senior Notes due 2023, or Senior Notes, each of which is described in Contractual Obligations , to fund a portion of the purchase price, refinance amounts outstanding under our p rior credit facility, Prior Facility, and raise cash for the Pending Citi Acquisition.

We generated $230.6 million in cash from operating activities in 2015, compared to $252.5 million and $208.3 million in 2014 and 2013, respectively. In 2015, we used our operating cash flow, $3.1 billion in proceeds received from debt financing, $717.8 million in proceeds from common stock issuance and existing cash to acquire Advent, Varden Technologies and Primatics Financial, repay $903.4 million of debt, pay $45.5 million in dividends and invest in capital expenditures in our business. The cash from operating activities was affected by $66.4 million of costs related to the financing and acquisition of Advent.

Results of Operations

Revenues

We derive our revenue from two sources: recurring revenues and, to a lesser degree, non-recurring revenues. Recurring revenues consist of software-enabled services and maintenance and term licenses. 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. Maintenance revenues vary based on customer retention, the number of perpetual licenses and on the annual increases in fees, which are generally tied to the consumer price index, while term license revenues vary based on the rate by which we add or lose clients over time. Non-recurring revenues consist of professional services and perpetual license fees and tend to fluctuate based on the number of new licensing clients and demand for consulting services. See Reclassifications in Note 2 to our Consolidated Financial Statements for discussion of the change in revenue presentation compared to prior periods.

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

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Software-enabled services

 

 

67

%

 

 

77

%

 

 

77

%

Maintenance and term licenses

 

 

25

 

 

 

15

 

 

 

16

 

Total recurring revenues

 

 

92

 

 

 

92

 

 

 

93

 

Perpetual licenses

 

 

3

 

 

 

4

 

 

 

3

 

Professional services

 

 

5

 

 

 

4

 

 

 

4

 

Total non-recurring revenues

 

 

8

 

 

 

8

 

 

 

7

 

Total revenues

 

 

100

%

 

 

100

%

 

 

100

%

 

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

 

 

 

Year Ended December 31,

 

 

Percent

Change from

Prior

Period

 

 

 

2015

 

 

2014

 

 

2013

 

 

2015

 

 

2014

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software-enabled services

 

$

670,170

 

 

$

592,528

 

 

$

552,565

 

 

 

13

%

 

 

7

%

Maintenance and term licenses

 

 

246,422

 

 

 

115,609

 

 

 

112,889

 

 

 

113

 

 

 

2

 

Total recurring revenues

 

 

916,592

 

 

 

708,137

 

 

 

665,454

 

 

 

29

 

 

 

6

 

Perpetual licenses

 

 

31,467

 

 

 

26,328

 

 

 

19,207

 

 

 

20

 

 

 

37

 

Professional services

 

 

52,226

 

 

 

33,396

 

 

 

28,041

 

 

 

56

 

 

 

19

 

Total non-recurring revenues

 

 

83,693

 

 

 

59,724

 

 

 

47,248

 

 

 

40

 

 

 

26

 

Total revenues

 

$

1,000,285

 

 

$

767,861

 

 

$

712,702

 

 

 

30

 

 

 

8

 

 

Fiscal 2015 versus Fiscal 2014 . Our revenues increased primarily due to revenues related to our acquisitions of Primatics in the fourth quarter of 2015, Varden and Advent in the third quarter of 2015 and DSTGS in the fourth quarter of 2014, 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 $13.9 million, which resulted from the strength of the

32


U.S. dollar relative to curren cies such as the Canadian dollar, the Euro and the British pound. Maintenance and term licenses revenues and software-enabled services revenues experienced increases due to the acquisitions, which contributed revenues of $131.7 million and $59.9 million, r espectively, in 2015. These amounts reflect reductions of $49.8 million in maintenance and term license revenues and software-enabled services related to the fair value adjustment of acquired deferred revenue for these acquisitions. Professional services r evenues and perpetual license revenues experienced increases due to the acquisitions, which contributed revenues of $20.8 million and $8.7 million, respectively, in 2015. Professional services revenues reflect a reduction of $6.4 million related to the fai r value adjustment of acquired deferred revenue related to Advent.

Fiscal 2014 versus Fiscal 2013 . Our revenues increased in 2014 as compared to 2013 primarily due to a continued increase in demand for our fund administration services from alternative investment managers as well as revenues related to our acquisitions of DSTGS and Prime Management Limited, or Prime, for which revenues increased $13.8 million. 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 and the Australian dollar. Our perpetual licenses revenues increased primarily due to the impact of a significant perpetual license in the period and increased demand for our Institutional software products. Additionally, professional services revenues increased due to a rise in the number of product implementation projects in 2014.

Cost of Revenues

Cost of recurring revenues consists primarily of costs related to personnel utilized in servicing our software-enabled services and maintenance contracts and amortization of intangible assets. Cost of non-recurring 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 and amortization of intangible assets.

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

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

Cost of software-enabled services

 

 

56

%

 

 

58

%

 

 

58

%

Cost of maintenance and term licenses

 

 

46

 

 

 

36

 

 

 

37

 

Total cost of recurring revenues

 

 

53

 

 

 

54

 

 

 

55

 

Cost of perpetual licenses

 

 

10

 

 

 

13

 

 

 

27

 

Cost of professional services

 

 

80

 

 

 

69

 

 

 

70

 

Total cost of non-recurring revenues

 

 

54

 

 

 

45

 

 

 

53

 

Total cost of revenues

 

 

53

 

 

 

53

 

 

 

55

 

Gross margin percentage

 

 

47

 

 

 

47

 

 

 

45

 

 

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

 

 

 

Year Ended December 31,

 

 

Percent

Change from

Prior

Period

 

 

 

2015

 

 

2014

 

 

2013

 

 

2015

 

 

2014

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cost of software-enabled services

 

$

373,394

 

 

$

342,625

 

 

$

322,719

 

 

 

9

%

 

 

6

%

Cost of maintenance and term licenses

 

 

113,865

 

 

 

41,424

 

 

 

41,215

 

 

 

175

 

 

 

1

 

Total cost of recurring revenues

 

 

487,259

 

 

 

384,049

 

 

 

363,934

 

 

 

27

 

 

 

6

 

Cost of perpetual licenses

 

 

3,116

 

 

 

3,531

 

 

 

5,133

 

 

 

(12

)

 

 

(31

)

Cost of professional services

 

 

41,975

 

 

 

23,151

 

 

 

19,733

 

 

 

81

 

 

 

17

 

Total cost of non-recurring revenues

 

 

45,091

 

 

 

26,682

 

 

 

24,866

 

 

 

69

 

 

 

7

 

Total cost of revenues

 

$

532,350

 

 

$

410,731

 

 

$

388,800

 

 

 

30

 

 

 

6

 

 

Fiscal 2015 versus Fiscal 2014 . Our total cost of revenues increased primarily due to our acquisitions of Primatics, Varden, Advent and DSTGS, which added costs of $113.2 million. Included in those costs are charges of $2.9 million in 2015 related to the elimination of redundant positions within the acquired businesses and an increase in stock-based compensation expense of $2.6

33


million. These increases were partially offset by the favorable impact from foreign currency translation of $10.8 million, which resulted from the strength of the U.S. dollar relative to currencies such as the Canadian dollar, the Euro and the Brit ish pound.

Fiscal 2014 versus Fiscal 2013 . Our total gross margins increased in 2014 primarily due to cost reduction synergies with respect to the businesses acquired since 2012. Our total cost of revenues increased in 2014 primarily as a result of an increase in cost of software-enabled services revenues to support the increased demand for our fund administration services for alternative investment managers, as well as a result of costs associated with acquired businesses. The decrease in cost of perpetual licenses was primarily due to a decrease in amortization expense due to the accelerated amortization methods utilized for our intangible assets.

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.

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

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

9

%

 

 

6

%

 

 

6

%

Research and development

 

 

11

 

 

 

7

 

 

 

8

 

General and administrative

 

 

10

 

 

 

7

 

 

 

6

 

Total operating expenses

 

 

30

 

 

 

20

 

 

 

20

 

 

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

 

 

 

Year Ended December 31,

 

 

Percent Change

from Prior

Period

 

 

 

2015

 

 

2014

 

 

2013

 

 

2015

 

 

2014

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

$

94,950

 

 

$

48,592

 

 

$

41,885

 

 

 

95

%

 

 

16

%

Research and development

 

 

110,415

 

 

 

57,287

 

 

 

53,862

 

 

 

93

 

 

 

6

 

General and administrative

 

 

97,832

 

 

 

50,879

 

 

 

45,187

 

 

 

92

 

 

 

13

 

Total operating expenses

 

$

303,197

 

 

$

156,758

 

 

$

140,934

 

 

 

93

 

 

 

11

 

 

Fiscal 2015 versus 2014 . The increase in total operating expenses in 2015 was primarily due to our acquisitions of Primatics, Advent, Varden and DSTGS, which added expenses of $127.2 million in the period. Included in those costs are charges of $19.8 million related to the elimination of redundant positions within the acquired businesses and an increase in stock-based compensation expense of $25.2 million. (See Note 10 to our Consolidated Financial Statements for further discussion of stock-based compensation.) Included in general and administrative expenses in 2015 are professional fees of $13.5 million associated with our acquisition of Advent. These increases were partially offset by the favorable impact from foreign currency translation of $4.3 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.

Fiscal 2014 versus 2013 . The increase in total operating expenses in 2014 was primarily due an increase in selling and marketing expenses increased as we expanded the size of our sales force. Additionally, general and administrative expenses as a result of legal expenses related to an IP infringement lawsuit, which was settled during the second quarter of 2014, costs related to DSTGS and Prime and expenses associated with office consolidations.

Comparison of Fiscal 2015, 2014 and 2013 for Interest, Taxes and Other

Interest income . We had interest income of $2.0 million in 2015 compared to $1.7 million in 2014 and $1.1 million in 2013. The increase in interest income in 2015 and 2014 resulted from higher average cash balances.

34


Interest expense . We had interest expense of $79.3 million in 2015 compared to $27.2 million in 2014 and $42.4 million in 2013. The increase in interest expense in 2015 reflect s incremental borrowings under the Credit Agreement and Senior Notes in connection with our acquisition of Advent during the third quarter of 2015, which resulted in a higher debt balance. The decrease in interest expense in 2014 reflects the lower average debt balance resulting from repayments of the credit facility and a decrease in average interest rates resulting from the 2013 and 2014 repricings.

Other income, net . Other income, net for 2015, 2014 and 2013 consisted primarily of foreign currency transaction gains.

Loss on extinguishment of debt . We recorded a $ 30.4  million   loss on extinguishment of debt in   2015 in connection with the repayment and termination of our Prior Facility.  The loss on early extinguishment of debt includes the write-off of a portion of the unamortized capitalized financing   costs and the unamortized original issue discounts related to the Prior Facility for amounts accounted for as a debt extinguishment, as well as a portion of the financing costs related to the Credit Agreement for amounts accounted for as a debt modification.

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:

 

 

 

Year Ended December 31,

 

 

 

2015

 

 

2014

 

 

2013

 

Provision for income taxes

 

$

17,980

 

 

$

46,527

 

 

$

27,292

 

Effective tax rate

 

 

30

%

 

 

26

%

 

 

19

%

 

Our 2015, 2014 and 2013 effective tax rates differ from the statutory rate primarily due to the effect of our foreign operations. The increase in rate from 2014 to 2015 was primarily due to nondeductible transaction costs and taxes incurred on a one time repatriation of foreign earnings, partially offset by the beneficial impact of an enacted rate change in the United Kingdom and a reduction in domestic income before taxes. The increase in effective rate from 2013 to 2014 was primarily due to an increase in domestic earnings from the prior year, the unfavorable impact of enacted tax law changes in New York, a decrease in benefits from research and development credits, and the absence of favorable items recorded in 2013, most notably the release of an uncertain tax position, and an enacted tax law change in the United Kingdom, partially offset by a decrease in expense attributable to deferred taxes recorded on foreign unremitted earnings.  We had $580.5 million of deferred tax liabilities and $73.1 million of deferred tax assets at December 31, 2015.

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 our non-U.S. operations are in Canada, India and the United Kingdom, where the statutory rates were 26.5%, 34.6% and 20.3%, respectively, in 2015, 26.5%, 34.0% and 21.5%, respectively, in 2014, and 26.5%, 34.0% and 23.3%, respectively, in 2013.  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.

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, cash flows from operations, and cash available under the Credit Agreement to provide sufficient liquidity to fund our current obligations, projected working capital requirements, fund the Pending Citi Acquisition, and capital spending for at least the next twelve months.

In July 2015, we purchased all of the outstanding stock of Advent for approximately $2.6 billion in cash, equating to $44.25 per share plus the costs, fees and expenses associated with the transaction. We funded the acquisition and refinancing of existing debt with $3.1 billion of debt financing, cash on hand and approximately $400.0 million of proceeds from the issuance and sale of our common stock in June 2015.

In 2015, we paid quarterly cash dividends of $0.125 per share of common stock on March 16, 2015, June 15, 2015, September 15, 2015 and December 15, 2015 to stockholders of record as of the close of business on March 2, 2015, June 1, 2015, September 1, 2015 and December 1, 2015, respectively, totaling $45.5 million.

Our cash and cash equivalents at December 31, 2015 were $434.2 million, an increase of $324.6 million from $109.6 million at December 31, 2014. The increase in cash is primarily due to proceeds received from our borrowings and common stock offering as well as cash provided by operations, proceeds from stock option exercises and the related income tax benefits. These increases were

35


partially offset by cash used for acquisitions, repayments of debt, payment of dividends and capital expenditures. See Notes 4, 6 and 11 to our consolida ted financial statements for further discussion of equity, debt and acquisitions, respectively.

Net cash provided by operating activities was $230.6 million in 2015. Cash provided by operating activities primarily resulted from net income of $42.9 million adjusted for non-cash items of $135.7 million and changes in our working capital accounts (excluding the effect of acquisitions) totaling $52.0 million. The changes in our working capital accounts were driven by an increase in deferred revenues and accrued expenses and a change in income taxes prepaid and payable. These changes were partially offset by increases in accounts receivable and prepaid expenses and other assets and a decrease in accounts payable. The increase in deferred revenues was primarily due to an increase in term license contracts as a result of our acquisition of Advent. In total, cash provided by operating activities was negatively affected by payments totaling $66.4 million related to the financing and Advent acquisition, as well as $4.2 million in payments related to the elimination of redundant positions with the acquired businesses. The increase in accounts receivable was primarily due to an increase in revenue and an increase in days’ sales outstanding to 47 days at December 31, 2015 from 42 days at December 31, 2014. The majority of Advent’s term license clients are billed on an annual cycle, rather than monthly, resulting in a slightly longer collection cycle and corresponding increase in days’ sales outstanding.

Investing activities used net cash of $2,748.3 million in 2015, primarily related to cash paid of $2,723.1 million for the acquisitions of Advent, Varden and Primatics in the third and fourth quarters of 2015, $13.6 million in capital expenditures, $7.9 million for the working capital adjustment associated with the acquisition of DSTGS and $4.3 million in capitalized software.

Financing activities provided net cash of $2,847.1 million in 2015, representing net cash of $3,068.1 million received from debt borrowings, net proceeds of $717.8 million from common stock issuance, $30.1 million from stock option exercises and related income tax windfall benefits of $33.0 million. These proceeds were partially offset by repayments of debt totaling $903.4 million, the payment of $46.0 million in fees related to refinancing activities, $45.5 million in quarterly dividends and $7.0 million in withholding taxes related to equity award net share settlements. Repayments of debt excludes $1.6 million related to the repayment of original issue discount associated with the Prior Facility, which is reflected as an outflow from operating cash flow.

In August 2015, we announced the Pending Citi Acquisition for $425 million, subject to certain adjustments. The transaction, which is subject to approvals by relevant regulatory authorities and other customary closing conditions, is expected to close in the first quarter of 2016 (as discussed in Note 11 to our consolidated financial statements).

We have made a permanent reinvestment determination in certain non-U.S. operations that have historically generated positive operating cash flows. At December 31, 2015, we held approximately $68.9 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 December 31, 2015, we held approximately $40.0 million in cash that was available to our foreign borrowers under our credit facility and will be used to facilitate debt servicing of those entities. At December 31, 2015, we held approximately $27.7 million in cash at our Indian operations that if repatriated to our foreign debt holder would incur distribution taxes of approximately $4.7 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.

36


Contractual Obligations

The following table summarizes our contractual obligations as of December 31, 2015 that require us to make future cash payments (in thousands):

 

 

 

Payments Due by Period

 

Contractual Obligations and

Other Commitments

 

Total

 

 

Less

than

1 Year