SS&C Technologies Holdings, Inc.
SS&C Technologies Holdings Inc (Form: 10-Q, Received: 05/09/2016 18:15:09)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q 

 

x

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

For the quarterly period ended March 31, 2016

o

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

For the transition period from        to        

Commission File Number 001-34675

 

SS&C TECHNOLOGIES HOLDINGS, INC.

(Exact name of Registrant as specified in its charter) 

 

 

Delaware

 

71-0987913

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

80 Lamberton Road

Windsor, CT 06095

(Address of principal executive offices, including zip code)

860-298-4500

(Registrant’s telephone number, including area code)

 

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

There were 99,107,712 shares of the registrant’s common stock outstanding as of May 6, 2016.

 

 

 

 


SS&C TECHNOLOGIES HOLDINGS, INC.

INDEX

 

 

 

Page
Number

 

 

 

PART 1. FINANCIAL INFORMATION

 

 

 

 

 

Item 1. Financial Statements (unaudited)

 

3

 

 

 

Condensed Consolidated Balance Sheets at March 31, 2016 and December 31, 2015

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

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

 

15

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

23

 

 

 

Item 4. Controls and Procedures

 

23

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1. Legal Proceedings

 

24

 

 

 

Item 6. Exhibits

 

24

 

 

 

SIGNATURE

 

25

 

 

 

EXHIBIT INDEX

 

26

This Quarterly Report on Form 10-Q may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. For this purpose, any statements contained herein that are not statements of historical fact may be deemed to be forward-looking statements. Without limiting the foregoing, the words “believes”, “anticipates”, “plans”, “expects”, “estimates”, “projects”, “forecasts”, “may” and “should” and similar expressions are intended to identify forward-looking statements. The important factors discussed under the caption “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission on February 29, 2016, among others, could cause actual results to differ materially from those indicated by forward-looking statements made herein and presented elsewhere by management from time to time. The Company does not undertake an obligation to update its forward-looking statements to reflect future events or circumstances.

 

 

2


PART I

 

 

Item 1.

Financial Statements

SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

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

 

 

 

March 31,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

101,826

 

 

$

434,159

 

Accounts receivable, net of allowance for doubtful accounts of $3,613 and $2,957, respectively

 

 

262,753

 

 

 

169,951

 

Prepaid expenses and other current assets

 

 

32,444

 

 

 

27,511

 

Prepaid income taxes

 

 

36,848

 

 

 

40,627

 

Restricted cash

 

 

2,818

 

 

 

2,818

 

Total current assets

 

 

436,689

 

 

 

675,066

 

Property, plant and equipment:

 

 

 

 

 

 

 

 

Land

 

 

2,655

 

 

 

2,655

 

Building and improvements

 

 

36,845

 

 

 

37,855

 

Equipment, furniture, and fixtures

 

 

106,645

 

 

 

97,274

 

 

 

 

146,145

 

 

 

137,784

 

Less: accumulated depreciation

 

 

(76,934

)

 

 

(70,641

)

Net property, plant and equipment

 

 

69,211

 

 

 

67,143

 

Deferred income taxes

 

 

1,860

 

 

 

2,199

 

Goodwill (Note 3)

 

 

3,655,005

 

 

 

3,549,212

 

Intangible and other assets, net of accumulated amortization of $587,963 and $536,929, respectively

 

 

1,627,947

 

 

 

1,508,622

 

Total assets

 

$

5,790,712

 

 

$

5,802,242

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt (Note 2)

 

$

32,062

 

 

$

32,281

 

Accounts payable

 

 

20,014

 

 

 

11,957

 

Income taxes payable

 

 

 

 

 

1,428

 

Accrued employee compensation and benefits

 

 

38,575

 

 

 

83,894

 

Interest payable

 

 

19,048

 

 

 

28,903

 

Other accrued expenses

 

 

40,894

 

 

 

36,231

 

Deferred revenue

 

 

251,741

 

 

 

222,024

 

Total current liabilities

 

 

402,334

 

 

 

416,718

 

Long-term debt, net of current portion (Note 2)

 

 

2,691,960

 

 

 

2,719,070

 

Other long-term liabilities

 

 

58,653

 

 

 

51,434

 

Deferred income taxes

 

 

498,839

 

 

 

509,574

 

Total liabilities

 

 

3,651,786

 

 

 

3,696,796

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity (Note 4):

 

 

 

 

 

 

 

 

Common stock:

 

 

 

 

 

 

 

 

Class A non-voting common stock, $0.01 par value per share, 5,000,000 shares authorized;

   0 and 2,703,846 shares issued and outstanding, respectively

 

 

 

 

 

27

 

Common stock, $0.01 par value per share, 200,000,000 shares authorized;  99,852,851 shares

   and 96,552,226 shares issued, respectively, and 99,066,412 shares and 95,765,787 shares

   outstanding, respectively, of which 10,875 and 12,438 are unvested, respectively

 

 

999

 

 

 

966

 

Additional paid-in capital

 

 

1,823,620

 

 

 

1,794,115

 

Accumulated other comprehensive income

 

 

(73,849

)

 

 

(83,170

)

Retained earnings

 

 

406,141

 

 

 

411,493

 

 

 

 

2,156,911

 

 

 

2,123,431

 

Less: cost of common stock in treasury, 786,439 shares

 

 

(17,985

)

 

 

(17,985

)

Total stockholders’ equity

 

 

2,138,926

 

 

 

2,105,446

 

Total liabilities and stockholders’ equity

 

$

5,790,712

 

 

$

5,802,242

 

 

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

 

 

3


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

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

 

 

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

Software-enabled services

 

$

205,647

 

 

$

153,567

 

Maintenance and term licenses

 

 

95,120

 

 

 

39,974

 

Total recurring revenues

 

 

300,767

 

 

 

193,541

 

Perpetual licenses

 

 

5,215

 

 

 

3,070

 

Professional services

 

 

18,149

 

 

 

9,124

 

Total non-recurring revenues

 

 

23,364

 

 

 

12,194

 

Total revenues

 

 

324,131

 

 

 

205,735

 

Cost of revenues:

 

 

 

 

 

 

 

 

Software-enabled services

 

 

113,728

 

 

 

88,602

 

Maintenance and term licenses

 

 

46,946

 

 

 

14,167

 

Total recurring cost of revenues

 

 

160,674

 

 

 

102,769

 

Perpetual licenses

 

 

498

 

 

 

1,024

 

Professional services

 

 

15,512

 

 

 

8,514

 

Total non-recurring cost of revenues

 

 

16,010

 

 

 

9,538

 

Total cost of revenues

 

 

176,684

 

 

 

112,307

 

Gross profit

 

 

147,447

 

 

 

93,428

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling and marketing

 

 

29,861

 

 

 

13,387

 

Research and development

 

 

36,447

 

 

 

19,608

 

General and administrative

 

 

30,695

 

 

 

17,300

 

Total operating expenses

 

 

97,003

 

 

 

50,295

 

Operating income

 

 

50,444

 

 

 

43,133

 

Interest expense, net

 

 

(33,089

)

 

 

(5,600

)

Other expense, net

 

 

(1,847

)

 

 

(1,507

)

Income before income taxes

 

 

15,508

 

 

 

36,026

 

Provision for income taxes

 

 

8,503

 

 

 

9,780

 

Net income

 

$

7,005

 

 

$

26,246

 

Basic earnings per share

 

$

0.07

 

 

$

0.31

 

Basic weighted average number of common shares

   outstanding

 

 

98,760

 

 

 

84,263

 

Diluted earnings per share

 

$

0.07

 

 

$

0.30

 

Diluted weighted average number of common and common

   equivalent shares outstanding

 

 

102,131

 

 

 

88,456

 

Net income

 

$

7,005

 

 

$

26,246

 

Other comprehensive income (loss), net of tax:

 

 

 

 

 

 

 

 

Foreign currency exchange translation adjustment

 

 

9,321

 

 

 

(36,219

)

Total comprehensive income (loss), net of tax

 

 

9,321

 

 

 

(36,219

)

Comprehensive income (loss)

 

$

16,326

 

 

$

(9,973

)

 

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

 

 

4


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands) (Unaudited)

 

 

 

Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

7,005

 

 

$

26,246

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

55,273

 

 

 

25,996

 

Stock-based compensation expense

 

 

15,347

 

 

 

4,106

 

Income tax benefit related to exercise of stock options

 

 

(8,174

)

 

 

(2,839

)

Amortization and write-offs of loan origination costs

 

 

2,653

 

 

 

1,435

 

(Gain) loss on sale or disposition of property and equipment

 

 

(2

)

 

 

209

 

Deferred income taxes

 

 

(6,274

)

 

 

(2,131

)

Provision for doubtful accounts

 

 

679

 

 

 

437

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(33,203

)

 

 

(12,058

)

Prepaid expenses and other assets

 

 

(1,221

)

 

 

4,744

 

Accounts payable

 

 

3,592

 

 

 

(333

)

Accrued expenses

 

 

(52,843

)

 

 

(25,283

)

Income taxes prepaid and payable

 

 

10,526

 

 

 

1,517

 

Deferred revenue

 

 

25,260

 

 

 

9,121

 

Net cash provided by operating activities

 

 

18,618

 

 

 

31,167

 

Cash flow from investing activities:

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(2,808

)

 

 

(2,249

)

Proceeds from sale of property and equipment

 

 

2

 

 

 

 

Cash paid for business acquisitions, net of cash acquired

 

 

(317,554

)

 

 

 

Additions to capitalized software

 

 

(2,169

)

 

 

(928

)

Net cash used in investing activities

 

 

(322,529

)

 

 

(3,177

)

Cash flow from financing activities:

 

 

 

 

 

 

 

 

Repayments of debt

 

 

(29,825

)

 

 

(44,000

)

Proceeds from exercise of stock options

 

 

7,629

 

 

 

4,661

 

Withholding taxes related to equity award net share settlement

 

 

(1,559

)

 

 

 

Income tax benefit related to exercise of stock options

 

 

8,174

 

 

 

2,839

 

Dividends paid on common stock

 

 

(12,353

)

 

 

(10,539

)

Net cash used in financing activities

 

 

(27,934

)

 

 

(47,039

)

Effect of exchange rate changes on cash and cash equivalents

 

 

(488

)

 

 

(2,198

)

Net decrease in cash and cash equivalents

 

 

(332,333

)

 

 

(21,247

)

Cash and cash equivalents, beginning of period

 

 

434,159

 

 

 

109,577

 

Cash and cash equivalents, end of period

 

$

101,826

 

 

$

88,330

 

 

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

 

 

 

5


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

 

 

Note 1—Basis of Presentation

The accompanying financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). These accounting principles were applied on a basis consistent with those of the audited consolidated financial statements contained in the Company’s Annual Report on Form 10-K for the year ended December 31, 2015, filed with the Securities and Exchange Commission (the “SEC”) on February 29, 2016 (the “2015 Form 10-K”). In the opinion of the Company, the accompanying unaudited condensed consolidated financial statements contain all adjustments (consisting of only normal recurring adjustments, except as noted elsewhere in the notes to the condensed consolidated financial statements) necessary for a fair statement of its financial position as of March 31, 2016, the results of its operations for the three months ended March 31, 2016 and 2015 and its cash flows for the three months ended March 31, 2016 and 2015. These statements do not include all of the information and footnotes required by GAAP for annual financial statements. The financial statements contained herein should be read in conjunction with the audited consolidated financial statements and footnotes as of and for the year ended December 31, 2015, which were included in the 2015 Form 10-K. The December 31, 2015 consolidated balance sheet data were derived from audited financial statements but do not include all disclosures required by GAAP for annual financial statements. The results of operations for the three months ended March 31, 2016 are not necessarily indicative of the expected results for any subsequent quarters or the full year.

Reclassifications

In connection with the acquisition of Advent and the related increase in term license revenues, the Company condensed its presentation of revenues on its Consolidated Statements of Comprehensive Income to illustrate its two types of revenue streams: recurring revenues and non-recurring revenues. Recurring revenues consist of software-enabled services and maintenance and term licenses. Non-recurring revenues consist of professional services and perpetual licenses.

The Company’s prior presentation required that revenues from term license agreements be allocated between license revenue and maintenance revenue, with the license portion being reported together with revenue from perpetual license agreements as “Software licenses”, and the maintenance portion being reported together with maintenance revenue related to perpetual licenses as “Maintenance”. The Company reclassified $4.3 million from “Software licenses” to “Maintenance and term licenses” for the three months ended March 31, 2015. In connection with the reclassification of revenues, the Company reclassified the related costs of revenues, which were immaterial. The revised presentation better illustrates the nature of the Company’s revenues and costs of revenues by indicating the recurring nature of the license portion of revenue from maintenance and term license agreements. The Company has not changed its accounting methods for revenue recognition.

Recent Accounting Pronouncements

In March 2016, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2016-09, Compensation – Stock Compensation (Topic 718) : Improvements to Employee Share-Based Payment Accounting . This ASU is intended to simplify several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The provisions of this ASU are effective for years beginning after December 15, 2016. Early application is permitted. The Company is currently evaluating the impact of this ASU.

In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This ASU would require lessees to recognize the following for all leases (with the exception of short-term leases) at the commencement date; (i) a lease liability, which is a lessee’s obligation to make lease payments arising from a lease, measured on a discounted basis; and (ii) a right-of-use asset, which is an asset that represents the lessee’s right to use, or control the use of, a specified asset for the lease term. Lessor accounting is largely unchanged under the amendments of this ASU. The provisions of this ASU are effective for years beginning after December 15, 2018. The Company is currently evaluating the impact of this ASU.

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

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). The objective of ASU 2014-09 is to clarify the principles for recognizing revenue by removing inconsistencies and weaknesses in revenue requirements;

6


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

providing a more robust framework for addressing revenue issues; improving comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets; and providing more useful information to users of financial statements through improved revenue disclos ure requirements. On August 12, 2015, the FASB issued ASU No. 2015-14, deferring the effective date by one year for ASU No. 2014-09. The provisions of ASU No. 2014-09 will be effective for interim and annual periods beginning after December 15, 2017, with early adoption permitted for annual periods beginning after December 15, 2016. The Company is currently evaluating the impact of this standard on its financial position, results of operations and cash flows.

 

 

Note 2—Debt

At March 31, 2016 and December 31, 2015, debt consisted of the following (in thousands):

 

 

 

March 31,

2016

 

 

December 31, 2015

 

Senior secured credit facilities, weighted-average interest rate

   of 3.92% and 3.94%, respectively

 

$

2,190,175

 

 

$

2,220,000

 

5.875% senior notes due 2023

 

 

600,000

 

 

 

600,000

 

Unamortized original issue discount and debt issuance costs

 

 

(66,153

)

 

 

(68,649

)

 

 

 

2,724,022

 

 

 

2,751,351

 

Less current portion of long-term debt

 

 

32,062

 

 

 

32,281

 

Long-term debt

 

$

2,691,960

 

 

$

2,719,070

 

 

Fair value of debt. The carrying amounts and fair values of financial instruments are as follows (in thousands):

 

 

 

March 31, 2016

 

 

December 31, 2015

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured credit facilities

 

$

2,190,175

 

 

$

2,188,959

 

 

$

2,220,000

 

 

$

2,202,105

 

5.875% senior notes due 2023

 

 

600,000

 

 

 

621,000

 

 

 

600,000

 

 

 

616,500

 

 

The above fair values, which are Level 2 liabilities, were computed based on comparable quoted market prices. The fair values of cash, accounts receivable, net, short-term borrowings, and accounts payable approximate the carrying amounts due to the short-term maturities of these instruments.

 

 

Note 3—Goodwill

The change in carrying value of goodwill as of and for the three months ended March 31, 2016 is as follows (in thousands):

 

Balance at December 31, 2015

 

$

3,549,212

 

2016 acquisitions

 

 

98,356

 

Adjustments to prior acquisitions

 

 

(404

)

Effect of foreign currency translation

 

 

7,841

 

Balance at March 31, 2016

 

$

3,655,005

 

 

 

Note 4—Earnings per Share

Earnings per share (“EPS”) is calculated in accordance with the relevant standards. Basic EPS includes no dilution and is computed by dividing income available to the Company’s common stockholders by the weighted average number of common shares outstanding during the period. Diluted EPS is computed by dividing net income by the weighted average number of common and common equivalent shares outstanding during the period. Common equivalent shares consist of stock options, stock appreciation rights (“SARs”), restricted stock units (“RSUs”) and restricted stock awards (“RSAs”) using the treasury stock method. Common equivalent shares are excluded from the computation of diluted earnings per share if the effect of including such common equivalent shares is anti-dilutive because their total assumed proceeds exceed the average fair value of common stock for the period. The

7


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

Company has two classes of common stock, each with identical participation rights to earnings and liquidation preferences, and therefore the calc ulation of EPS as described above is identical to the calculation under the two-class method.

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

 

 

 

For the Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Weighted average common shares outstanding — used in calculation of basic EPS

 

 

98,760

 

 

 

84,263

 

Weighted average common stock equivalents — options and restricted shares

 

 

3,371

 

 

 

4,193

 

Weighted average common and common equivalent shares outstanding — used in calculation of diluted EPS

 

 

102,131

 

 

 

88,456

 

 

Weighted average stock options, SARs, RSUs and RSAs representing 6,903,619 and 2,057,628 shares were outstanding for the three months ended March 31, 2016 and 2015, respectively, but were not included in the computation of diluted EPS because the effect of including them would be anti-dilutive.

Conversion of Class A Common Stock . On March 30, 2016, William C. Stone converted 2,703,846 shares of Class A non-voting stock into 2,703,846 shares of common stock. Each share of Class A non-voting common stock converted automatically into one share of our common stock upon the expiration of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Dividends . In 2016, the Company paid a quarterly cash dividend of $0.125 per share of common stock on March 15, 2016 to stockholders of record as of the close of business on March 7, 2016, respectively, totaling $12.4 million.

 

 

Note 5—Stock-based Compensation

Total stock options, SARs, RSUs and RSAs . The amount of stock-based compensation expense recognized in the Company’s Consolidated Statements of Comprehensive Income for three months ended March 31, 2016 and 2015 was as follows (in thousands):

 

 

 

Three Months Ended March 31,

 

Statement of Comprehensive Income Classification

 

2016

 

 

2015

 

Cost of software-enabled services

 

$

2,405

 

 

$

1,605

 

Cost of maintenance and term licenses

 

 

811

 

 

 

101

 

Cost of recurring revenues

 

 

3,216

 

 

 

1,706

 

Cost of professional services

 

 

644

 

 

 

165

 

Cost of non-recurring revenues

 

 

644

 

 

 

165

 

Total cost of revenues

 

 

3,860

 

 

 

1,871

 

Selling and marketing

 

 

3,585

 

 

 

743

 

Research and development

 

 

2,216

 

 

 

450

 

General and administrative

 

 

5,686

 

 

 

1,042

 

Total operating expenses

 

 

11,487

 

 

 

2,235

 

Total stock-based compensation expense

 

$

15,347

 

 

$

4,106

 

8


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

 

The following table summarizes stock option and SAR activity as of and for the three months ended March 31, 2016:

 

 

 

Shares

 

Outstanding at December 31, 2015

 

 

15,139,182

 

Granted

 

 

10,500

 

Cancelled/forfeited

 

 

(251,718

)

Exercised

 

 

(600,508

)

Outstanding at March 31, 2016

 

 

14,297,456

 

 

The following table summarizes RSU activity as of and for the three months ended March 31, 2016:

 

 

 

Shares

 

Outstanding at December 31, 2015

 

 

478,726

 

Granted

 

 

-

 

Cancelled/forfeited

 

 

(22,105

)

Vested

 

 

(62,770

)

Outstanding at March 31, 2016

 

 

393,851

 

 

The Company recorded $8.2 million and $2.8 million of income tax benefits related to the exercise of stock options during the three months ended March 31, 2016 and 2015, respectively. These amounts were recorded entirely to Additional paid-in capital on the Company’s Condensed Consolidated Balance Sheets.

 

 

Note 6—Income Taxes

The effective tax rate was 55% and 27% for the three months ended March 31, 2016 and 2015, respectively.  The change for the three months ended March 31, 2016 was primarily due to the unfavorable impact of a change in state apportionment on our domestic deferred tax liabilities as a result of the acquisition of Citigroup AIS, partially offset by the benefit received from a decrease in pre-tax income from domestic operations taxed at a high statutory rate.

 

 

Note 7—Acquisitions

Citigroup’s Alternative Investor Services

On March 11, 2016, the Company purchased the assets of Citigroup’s Alternative Investor Services business, which includes Hedge Fund Services and Private Equity Fund Services (“Citigroup AIS”), for approximately $321.0 million, plus the costs of effecting the transaction and the assumption of certain liabilities. Citigroup AIS is a leading provider of hedge fund and private equity fund administration services.

The net assets and results of operations of Citigroup AIS have been included in the Company’s consolidated financial statements from March 11, 2016. The fair value of the intangible assets, consisting of customer relationships and completed technology, was determined using the income approach. Specifically, the excess earnings method was utilized for the customer relationships, and the cost savings method was utilized for the completed technology. The customer relationships are amortized each year based on the ratio that the projected cash flows for the intangible assets bear to the total of current and expected future cash flows for the intangible assets. Completed technology is amortized based on a straight-line basis. The customer relationships are amortized over an estimated life of approximately thirteen years and completed technology is amortized over an estimated life of approximately four years, in each case the estimated lives of the assets. The remainder of the purchase price was allocated to goodwill and is tax deductible.

9


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

The following summarizes the preliminary allocation of the purchase price for the acquisition of Citigroup AIS (in thousand s):

 

 

 

Citigroup AIS

 

Accounts receivable

 

$

59,181

 

Fixed assets

 

 

294

 

Other assets

 

 

1,856

 

Acquired client relationships and contracts

 

 

127,300

 

Completed technology

 

 

41,200

 

Goodwill

 

 

98,356

 

Deferred revenue

 

 

(3,920

)

Other liabilities assumed

 

 

(6,309

)

Consideration paid, net of cash acquired

 

$

317,958

 

 

 

The fair value of acquired accounts receivable balances for Citigroup AIS approximates the contractual amounts due from acquired customers, except for approximately $1.7 million of contractual amounts that are not expected to be collected as of the acquisition date and that were also reserved by Citigroup AIS.

The Company reported revenues totaling $11.6 million from Citigroup AIS from its acquisition date through March 31, 2016.

The following unaudited pro forma condensed consolidated results of operations are provided for illustrative purposes only and assume that the acquisition of Citigroup AIS occurred on January 1, 2015 and acquisitions of Primatics Financial, Varden Technologies and Advent Software, Inc. occurred on January 1, 2014. This unaudited pro forma information (in thousands, except per share data) should not be relied upon as being indicative of the historical results that would have been obtained if the acquisitions had actually occurred on that date, nor of the results that may be obtained in the future.

 

 

 

For the Three Months Ended March 31,

 

 

 

2016

 

 

2015

 

Revenues

 

$

382,909

 

 

$

384,624

 

Net income (loss)

 

$

19,305

 

 

$

(3,001

)

Basic earnings (loss) per share

 

$

0.20

 

 

$

(0.04

)

Basic weighted average number of common shares

   outstanding

 

 

98,760

 

 

 

84,263

 

Diluted earnings (loss) per share

 

$

0.19

 

 

$

(0.04

)

Diluted weighted average number of common and common

   equivalent shares outstanding

 

 

102,131

 

 

 

84,263

 

 

 

Note 8—Commitments and Contingencies

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 parties have resolved the only remaining issue – allocation of attorneys' fees and costs in the arbitration proceeding that was conducted in the United Kingdom – and expect the arbitration to be formally closed soon.

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.

 

 

10


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

Note 9—Supplemental Guarantor Financial Statements

On July 8, 2015, the Company issued $600.0 million aggregate principal amount of 5.875% Senior Notes due 2023 (the “Senior Notes”). The Senior Notes are jointly and severally and fully and unconditionally guaranteed, in each case subject to certain customary release provisions, by substantially all wholly-owned domestic subsidiaries of the Company that guarantee the Company’s Senior Secured Credit Facilities (collectively “Guarantors”). All of the Guarantors are 100% owned by the Company. All other subsidiaries of the Company, either direct or indirect, do not guarantee the Senior Notes (“Non-Guarantors”). The Guarantors also unconditionally guarantee the Senior Secured Credit Facilities. There are no significant restrictions on the ability of the Company or any of the subsidiaries that are Guarantors to obtain funds from its subsidiaries by dividend or loan.

Condensed consolidating financial information as of March 31, 2016 and December 31, 2015 and for the three months ended March 31, 2016 and 2015 are presented.  The condensed consolidating financial information of the Company and its subsidiaries are as follows (in thousands):

 

 

 

March 31, 2016

 

 

 

Parent

 

 

Guarantor Subsidiaries

 

 

Non-guarantor Subsidiaries

 

 

Consolidating and Eliminating Adjustments

 

 

Consolidated

 

Cash and cash equivalents

 

$

 

 

$

34,047

 

 

$

67,779

 

 

$

 

 

$

101,826

 

Accounts receivable, net

 

 

 

 

 

194,872

 

 

 

67,881

 

 

 

 

 

 

262,753

 

Prepaid expenses and other current assets

 

 

 

 

 

20,093

 

 

 

12,351

 

 

 

 

 

 

32,444

 

Prepaid income taxes

 

 

 

 

 

37,770

 

 

 

 

 

 

(922

)

 

 

36,848

 

Restricted cash

 

 

 

 

 

2,490

 

 

 

328

 

 

 

 

 

 

2,818

 

Net property, plant and equipment

 

 

 

 

 

30,057

 

 

 

39,154

 

 

 

 

 

 

69,211

 

Investment in subsidiaries

 

 

2,764,580

 

 

 

766,702

 

 

 

-

 

 

 

(3,531,282

)

 

 

 

Intercompany receivables

 

 

 

 

 

134,481

 

 

 

38,420

 

 

 

(172,901

)

 

 

 

Deferred income taxes, long-term

 

 

 

 

 

 

 

 

1,860

 

 

 

 

 

 

1,860

 

Goodwill, intangible and other assets, net

 

 

 

 

 

4,001,339

 

 

 

1,281,613

 

 

 

 

 

 

5,282,952

 

Total assets

 

$

2,764,580

 

 

$

5,221,851

 

 

$

1,509,386

 

 

$

(3,705,105

)

 

$

5,790,712

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

 

 

 

 

17,085

 

 

 

14,977

 

 

 

 

 

 

32,062

 

Accounts payable

 

 

 

 

 

8,879

 

 

 

11,135

 

 

 

 

 

 

20,014

 

Accrued expenses

 

 

7,344

 

 

 

60,724

 

 

 

30,449

 

 

 

 

 

 

98,517

 

Income taxes payable

 

 

 

 

 

 

 

 

922

 

 

 

(922

)

 

 

 

Deferred revenue

 

 

 

 

 

225,552

 

 

 

26,189

 

 

 

 

 

 

251,741

 

Long-term debt, net of current portion

 

 

600,000

 

 

 

1,628,473

 

 

 

463,487

 

 

 

 

 

 

2,691,960

 

Other long-term liabilities

 

 

 

 

 

37,277

 

 

 

21,376

 

 

 

 

 

 

58,653

 

Intercompany payables

 

 

18,310

 

 

 

38,420

 

 

 

116,171

 

 

 

(172,901

)

 

 

 

Deferred income taxes, long-term

 

 

 

 

 

440,861

 

 

 

57,978

 

 

 

 

 

 

498,839

 

Total liabilities

 

 

625,654

 

 

 

2,457,271

 

 

 

742,684

 

 

 

(173,823

)

 

 

3,651,786

 

Total stockholders’ equity

 

 

2,138,926

 

 

 

2,764,580

 

 

 

766,702

 

 

 

(3,531,282

)

 

 

2,138,926

 

Total liabilities and stockholders’ equity

 

$

2,764,580

 

 

$

5,221,851

 

 

$

1,509,386

 

 

$

(3,705,105

)

 

$

5,790,712

 

 

11


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

 

 

December 31, 2015

 

 

 

Parent

 

 

Guarantor Subsidiaries

 

 

Non-guarantor Subsidiaries

 

 

Consolidating and Eliminating Adjustments

 

 

Consolidated

 

Cash and cash equivalents

 

$

 

 

$

360,583

 

 

$

73,576

 

 

$

 

 

$

434,159

 

Accounts receivable, net

 

 

 

 

 

127,446

 

 

 

42,505

 

 

 

 

 

 

169,951

 

Prepaid expenses and other current assets

 

 

 

 

 

15,920

 

 

 

11,591

 

 

 

 

 

 

27,511

 

Prepaid income taxes

 

 

 

 

 

38,155

 

 

 

2,472

 

 

 

 

 

 

40,627

 

Restricted cash

 

 

 

 

 

2,490

 

 

 

328

 

 

 

 

 

 

2,818

 

Net property, plant and equipment

 

 

 

 

 

31,940

 

 

 

35,203

 

 

 

 

 

 

67,143

 

Investment in subsidiaries

 

 

2,722,452

 

 

 

654,278

 

 

 

 

 

 

(3,376,730

)

 

 

 

Intercompany receivables

 

 

 

 

 

100,992

 

 

 

34,220

 

 

 

(135,212

)

 

 

 

Deferred income taxes, long-term

 

 

 

 

 

 

 

 

2,199

 

 

 

 

 

 

2,199

 

Goodwill, intangible and other assets, net