SS&C Technologies Holdings, Inc.
SS&C Technologies Holdings Inc (Form: 10-Q, Received: 08/05/2016 16:45:09)

 

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 June 30, 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 201,137,804 shares of the registrant’s common stock outstanding as of August 3, 2016.

 

 

 

 


SS&C TECHNOLOGIES HOLDINGS, INC.

INDEX

 

 

 

Page
Number

 

 

 

PART 1. FINANCIAL INFORMATION

 

 

 

 

 

Item 1. Financial Statements (unaudited)

 

3

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2016 and December 31, 2015

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three and six months ended June 30, 2016 and 2015

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 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

 

18

 

 

 

Item 3. Quantitative and Qualitative Disclosures About Market Risk

 

26

 

 

 

Item 4. Controls and Procedures

 

27

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1. Legal Proceedings

 

27

 

 

 

Item 2. Recent Sales of Unregistered Securities and Use of Proceeds

 

27

 

 

 

Item 6. Exhibits

 

28

 

 

 

SIGNATURE

 

29

 

 

 

EXHIBIT INDEX

 

30

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.

Explanatory Note

On June 24, 2016, SS&C Holdings Technologies, Inc. completed a two-for-one stock split, effective in the form of a stock dividend. All share and per share amounts (other than for the Company’s Class A non-voting common stock) have been retroactively restated for all periods presented to reflect the stock split.

 

 

 

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)

 

 

 

June 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

95,222

 

 

$

434,159

 

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

 

 

239,428

 

 

 

169,951

 

Prepaid expenses and other current assets

 

 

32,598

 

 

 

27,511

 

Prepaid income taxes

 

 

39,319

 

 

 

40,627

 

Restricted cash

 

 

2,818

 

 

 

2,818

 

Total current assets

 

 

409,385

 

 

 

675,066

 

Property, plant and equipment:

 

 

 

 

 

 

 

 

Land

 

 

2,655

 

 

 

2,655

 

Building and improvements

 

 

37,042

 

 

 

37,855

 

Equipment, furniture, and fixtures

 

 

112,436

 

 

 

97,274

 

 

 

 

152,133

 

 

 

137,784

 

Less: accumulated depreciation

 

 

(82,576

)

 

 

(70,641

)

Net property, plant and equipment

 

 

69,557

 

 

 

67,143

 

Deferred income taxes

 

 

2,018

 

 

 

2,199

 

Goodwill (Note 3)

 

 

3,636,495

 

 

 

3,549,212

 

Intangible and other assets, net of accumulated amortization of $634,518 and $536,929, respectively

 

 

1,571,384

 

 

 

1,508,622

 

Total assets

 

$

5,688,839

 

 

$

5,802,242

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt (Note 2)

 

$

30,878

 

 

$

32,281

 

Accounts payable

 

 

20,033

 

 

 

11,957

 

Income taxes payable

 

 

 

 

 

1,428

 

Accrued employee compensation and benefits

 

 

55,836

 

 

 

83,894

 

Interest payable

 

 

22,386

 

 

 

28,903

 

Other accrued expenses

 

 

45,964

 

 

 

36,231

 

Deferred revenue

 

 

238,785

 

 

 

222,024

 

Total current liabilities

 

 

413,882

 

 

 

416,718

 

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

 

 

2,569,971

 

 

 

2,719,070

 

Other long-term liabilities

 

 

61,915

 

 

 

51,434

 

Deferred income taxes

 

 

478,641

 

 

 

509,574

 

Total liabilities

 

 

3,524,409

 

 

 

3,696,796

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity (Note 5):

 

 

 

 

 

 

 

 

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, 400,000,000 shares authorized;  201,849,586 shares

   and 193,104,452 shares issued, respectively, and 200,276,386 shares and 191,531,574 shares

   outstanding, respectively, of which 17,876 and 24,876 are unvested, respectively

 

 

2,018

 

 

 

1,932

 

Additional paid-in capital

 

 

1,859,124

 

 

 

1,793,149

 

Accumulated other comprehensive loss

 

 

(100,642

)

 

 

(83,170

)

Retained earnings

 

 

421,926

 

 

 

411,493

 

 

 

 

2,182,426

 

 

 

2,123,431

 

Less: cost of common stock in treasury, 1,573,200 and 1,572,878 shares, respectively

 

 

(17,996

)

 

 

(17,985

)

Total stockholders’ equity

 

 

2,164,430

 

 

 

2,105,446

 

Total liabilities and stockholders’ equity

 

$

5,688,839

 

 

$

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 June 30,

 

 

Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software-enabled services

 

$

244,672

 

 

$

150,123

 

 

$

450,319

 

 

$

303,690

 

Maintenance and term licenses

 

 

103,392

 

 

 

38,978

 

 

 

198,512

 

 

 

78,952

 

Total recurring revenues

 

 

348,064

 

 

 

189,101

 

 

 

648,831

 

 

 

382,642

 

Perpetual licenses

 

 

5,039

 

 

 

12,948

 

 

 

10,254

 

 

 

16,018

 

Professional services

 

 

19,974

 

 

 

10,719

 

 

 

38,123

 

 

 

19,843

 

Total non-recurring revenues

 

 

25,013

 

 

 

23,667

 

 

 

48,377

 

 

 

35,861

 

Total revenues

 

 

373,077

 

 

 

212,768

 

 

 

697,208

 

 

 

418,503

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software-enabled services

 

 

146,243

 

 

 

88,548

 

 

 

259,971

 

 

 

177,150

 

Maintenance and term licenses

 

 

46,460

 

 

 

12,338

 

 

 

93,406

 

 

 

26,505

 

Total recurring cost of revenues

 

 

192,703

 

 

 

100,886

 

 

 

353,377

 

 

 

203,655

 

Perpetual licenses

 

 

643

 

 

 

1,021

 

 

 

1,141

 

 

 

2,045

 

Professional services

 

 

17,133

 

 

 

7,596

 

 

 

32,645

 

 

 

16,110

 

Total non-recurring cost of revenues

 

 

17,776

 

 

 

8,617

 

 

 

33,786

 

 

 

18,155

 

Total cost of revenues

 

 

210,479

 

 

 

109,503

 

 

 

387,163

 

 

 

221,810

 

Gross profit

 

 

162,598

 

 

 

103,265

 

 

 

310,045

 

 

 

196,693

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

28,535

 

 

 

13,931

 

 

 

58,396

 

 

 

27,318

 

Research and development

 

 

40,827

 

 

 

17,520

 

 

 

77,274

 

 

 

37,128

 

General and administrative

 

 

27,199

 

 

 

13,463

 

 

 

57,894

 

 

 

30,763

 

Total operating expenses

 

 

96,561

 

 

 

44,914

 

 

 

193,564

 

 

 

95,209

 

Operating income

 

 

66,037

 

 

 

58,351

 

 

 

116,481

 

 

 

101,484

 

Interest expense, net

 

 

(32,846

)

 

 

(5,419

)

 

 

(65,935

)

 

 

(11,019

)

Other income (expense), net

 

 

12

 

 

 

(164

)

 

 

(1,835

)

 

 

(1,671

)

Income before income taxes

 

 

33,203

 

 

 

52,768

 

 

 

48,711

 

 

 

88,794

 

Provision for income taxes

 

 

4,982

 

 

 

13,640

 

 

 

13,485

 

 

 

23,420

 

Net income

 

$

28,221

 

 

$

39,128

 

 

$

35,226

 

 

$

65,374

 

Basic earnings per share

 

$

0.14

 

 

$

0.23

 

 

$

0.18

 

 

$

0.39

 

Basic weighted average number of common shares

   outstanding

 

 

198,765

 

 

 

170,810

 

 

 

198,143

 

 

 

169,674

 

Diluted earnings per share

 

$

0.14

 

 

$

0.22

 

 

$

0.17

 

 

$

0.37

 

Diluted weighted average number of common and common

   equivalent shares outstanding

 

 

204,916

 

 

 

179,104

 

 

 

204,596

 

 

 

177,974

 

Net income

 

$

28,221

 

 

$

39,128

 

 

$

35,226

 

 

$

65,374

 

Other comprehensive (loss) income, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency exchange translation adjustment

 

 

(26,793

)

 

 

22,808

 

 

 

(17,472

)

 

 

(13,411

)

Total comprehensive (loss) income, net of tax

 

 

(26,793

)

 

 

22,808

 

 

 

(17,472

)

 

 

(13,411

)

Comprehensive income

 

$

1,428

 

 

$

61,936

 

 

$

17,754

 

 

$

51,963

 

 

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)

 

 

 

For the Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

35,226

 

 

$

65,374

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

113,440

 

 

 

52,103

 

Stock-based compensation expense

 

 

27,913

 

 

 

8,314

 

Income tax benefit related to exercise of stock options

 

 

(23,760

)

 

 

(5,065

)

Amortization and write-offs of loan origination costs

 

 

5,312

 

 

 

2,874

 

Loss on sale or disposition of property and equipment

 

 

150

 

 

 

209

 

Deferred income taxes

 

 

(24,056

)

 

 

(7,395

)

Provision for doubtful accounts

 

 

1,257

 

 

 

299

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(13,458

)

 

 

(1,804

)

Prepaid expenses and other assets

 

 

(1,516

)

 

 

2,488

 

Accounts payable

 

 

7,870

 

 

 

(2,405

)

Accrued expenses

 

 

(25,851

)

 

 

(20,186

)

Income taxes prepaid and payable

 

 

23,757

 

 

 

11,064

 

Deferred revenue

 

 

13,052

 

 

 

(5,148

)

Net cash provided by operating activities

 

 

139,336

 

 

 

100,722

 

Cash flow from investing activities:

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(13,593

)

 

 

(5,750

)

Proceeds from sale of property and equipment

 

 

43

 

 

 

 

Cash paid for business acquisitions, net of cash acquired

 

 

(317,554

)

 

 

(7,863

)

Additions to capitalized software

 

 

(3,306

)

 

 

(1,792

)

Purchase of long-term investment

 

 

(1,000

)

 

 

 

Net cash used in investing activities

 

 

(335,410

)

 

 

(15,405

)

 

 

 

 

 

 

 

 

 

Cash flow from financing activities:

 

 

 

 

 

 

 

 

Repayments of debt

 

 

(155,325

)

 

 

(174,000

)

Proceeds from exercise of stock options

 

 

19,212

 

 

 

8,735

 

Withholding taxes related to equity award net share settlement

 

 

(4,615

)

 

 

 

Income tax benefit related to exercise of stock options

 

 

23,760

 

 

 

5,065

 

Proceeds from common stock issuance, net

 

 

 

 

 

717,866

 

Purchase of common stock for treasury

 

 

(11

)

 

 

 

Payment of fees related to refinancing activities

 

 

(222

)

 

 

 

Dividends paid on common stock

 

 

(24,790

)

 

 

(21,101

)

Net cash (used in) provided by financing activities

 

 

(141,991

)

 

 

536,565

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(872

)

 

 

(1,651

)

Net (decrease) increase in cash and cash equivalents

 

 

(338,937

)

 

 

620,231

 

Cash and cash equivalents, beginning of period

 

 

434,159

 

 

 

109,577

 

Cash and cash equivalents, end of period

 

$

95,222

 

 

$

729,808

 

 

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 June 30, 2016, the results of its operations for the three and six months ended June 30, 2016 and 2015 and its cash flows for the six months ended June 30, 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 and six months ended June 30, 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 Condensed 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 $3.1 million and $7.4 million from “Software licenses” to “Maintenance and term licenses” for the three and six months ended June 30, 2015, respectively. 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 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 entitie s, industries, jurisdictions and capital markets; and providing more useful information to users of financial statements through improved revenue disclosure 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 June 30, 2016 and December 31, 2015, debt consisted of the following (in thousands):

 

 

 

June 30, 2016

 

 

December 31, 2015

 

Senior secured credit facilities, weighted-average interest rate

   of 3.91% and 3.94%, respectively

 

$

2,064,675

 

 

$

2,220,000

 

5.875% senior notes due 2023

 

 

600,000

 

 

 

600,000

 

Unamortized original issue discount and debt issuance costs

 

 

(63,826

)

 

 

(68,649

)

 

 

 

2,600,849

 

 

 

2,751,351

 

Less current portion of long-term debt

 

 

30,878

 

 

 

32,281

 

Long-term debt

 

$

2,569,971

 

 

$

2,719,070

 

 

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

 

 

 

June 30, 2016

 

 

December 31, 2015

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured credit facilities

 

$

2,064,675

 

 

$

2,059,770

 

 

$

2,220,000

 

 

$

2,202,105

 

5.875% senior notes due 2023

 

 

600,000

 

 

 

613,500

 

 

 

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 six months ended June 30, 2016 is as follows (in thousands):

 

Balance at December 31, 2015

 

$

3,549,212

 

2016 acquisitions

 

 

99,494

 

Adjustments to prior acquisitions

 

 

(398

)

Effect of foreign currency translation

 

 

(11,813

)

Balance at June 30, 2016

 

$

3,636,495

 

 

 

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 net 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 calculation of EPS as describ ed 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 June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Weighted average common shares outstanding — used in

   calculation of basic EPS

 

 

198,765

 

 

 

170,810

 

 

 

198,143

 

 

 

169,674

 

Weighted average common stock equivalents — options and

   restricted shares

 

 

6,151

 

 

 

8,294

 

 

 

6,453

 

 

 

8,300

 

Weighted average common and common equivalent shares

   outstanding — used in calculation of diluted EPS

 

 

204,916

 

 

 

179,104

 

 

 

204,596

 

 

 

177,974

 

 

Weighted average stock options, SARs, RSUs and RSAs representing 7,304,581 and 4,122,738 shares were outstanding for the three months ended June 30, 2016 and 2015, respectively, and weighted average stock options, SARs, RSUs and RSAs representing 7,075,350 and 4,119,018 for the six months ended June 30, 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 the Company’s 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 $0.0625 per share of common stock on March 15, 2016 and June 15, 2016 to stockholders of record as of the close of business on March 7, 2016 and June 1, 2016, respectively, totaling $24.8 million.

 

 

8


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

Note 5— Equity and Stock-based Compensation

On May 25, 2016, the Company’s Board of Directors approved a two-for-one stock split to be effected in the form of a stock dividend.  The record date for the stock split was June 7, 2016 and the payment date was June 24, 2016. All share and per share amounts (other than for the Company’s Class A non-voting common stock) have been retroactively restated for all periods presented to reflect the stock split.  

At the Company’s annual meeting of shareholders held on May 25, 2016, the Company’s shareholders approved the Company’s Amended and Restated 2014 Stock Incentive Plan (the “Amended 2014 Plan”). The primary changes to the Amended 2014 Plan are to (i) increase the shares available for equity awards by 24 million shares and (ii) add flexibility to use this plan as the Company’s only equity plan by authorizing the issuance of full-value awards (that is, restricted stock and restricted stock units) and expanding the class of participants to include non-employee directors. Following the approval of the 2014 Amended Plan, the Company will no longer make grants under the Company’s 2008 Stock Incentive Plan or the Company’s 2006 Equity Incentive Plan.

Total stock options, SARs, RSUs and RSAs . The amount of stock-based compensation expense recognized in the Company’s Condensed Consolidated Statements of Comprehensive Income for three and six months ended June 30, 2016 and 2015 was as follows (in thousands):

 

 

 

Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

Statement of Comprehensive Income Classification

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Cost of software-enabled services

 

$

2,779

 

 

$

1,525

 

 

$

5,184

 

 

$

3,129

 

Cost of maintenance and term licenses

 

 

700

 

 

 

101

 

 

 

1,511

 

 

 

202

 

Cost of recurring revenues

 

 

3,479

 

 

 

1,626

 

 

 

6,695

 

 

 

3,331

 

Cost of professional services

 

 

599

 

 

 

159

 

 

 

1,243

 

 

 

325

 

Cost of non-recurring revenues

 

 

599

 

 

 

159

 

 

 

1,243

 

 

 

325

 

Total cost of revenues

 

 

4,078

 

 

 

1,785

 

 

 

7,938

 

 

 

3,656

 

Selling and marketing

 

 

2,860

 

 

 

745

 

 

 

6,445

 

 

 

1,488

 

Research and development

 

 

2,182

 

 

 

444

 

 

 

4,398

 

 

 

894

 

General and administrative

 

 

3,446

 

 

 

1,234

 

 

 

9,132

 

 

 

2,276

 

Total operating expenses

 

 

8,488

 

 

 

2,423

 

 

 

19,975

 

 

 

4,658

 

Total stock-based compensation expense

 

$

12,566

 

 

$

4,208

 

 

$

27,913

 

 

$

8,314

 

 

The following table summarizes stock option and SAR activity as of and for the six months ended June 30, 2016:

 

 

 

Shares

 

Outstanding at December 31, 2015

 

 

30,278,364

 

Granted

 

 

1,440,300

 

Cancelled/forfeited

 

 

(912,816

)

Exercised

 

 

(3,171,668

)

Outstanding at June 30, 2016

 

 

27,634,180

 

 

The following table summarizes RSU activity as of and for the six months ended June 30, 2016:

 

 

 

Shares

 

Outstanding at December 31, 2015

 

 

957,452

 

Granted

 

 

-

 

Cancelled/forfeited

 

 

(55,498

)

Vested

 

 

(419,702

)

Outstanding at June 30, 2016

 

 

482,252

 

 

The Company recorded $23.8 million and $5.1 million of income tax benefits related to the exercise of stock options during the six months ended June 30, 2016 and 2015, respectively. These amounts were recorded entirely to Additional paid-in capital on the Company’s Condensed Consolidated Balance Sheets.

 

 

9


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

Note 6—Income Taxes

The effective tax rate was 15% and 26% for the three months ended June 30, 2016 and 2015, respectively, and the effective tax rate was 28% and 26% for the six months ended June 30, 2016 and 2015, respectively.  The change in rate for the three months ended June 30, 2016 was primarily due to a decrease in pre-tax income from domestic operations taxed at a high statutory rate.  The change for the six months ended June 30, 2016 was primarily due to the unfavorable impact of a change in state apportionment on the Company’s domestic deferred tax liabilities as a result of the acquisition of Citigroup AIS during the first quarter, 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 condensed 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.

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

 

 

 

Citigroup AIS

 

Accounts receivable

 

$

57,789

 

Fixed assets

 

 

92

 

Other assets

 

 

1,856

 

Acquired client relationships and contracts

 

 

124,600

 

Completed technology

 

 

44,600

 

Goodwill

 

 

99,494

 

Deferred revenue

 

 

(3,910

)

Other liabilities assumed

 

 

(6,563

)

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 $65.1 million from Citigroup AIS from its acquisition date through June 30, 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.

 

 

10


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

 

 

For the Three Months Ended June 30,

 

 

For the Six Months Ended June 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues

 

$

381,246

 

 

$

392,392

 

 

$

764,155

 

 

$

777,016

 

Net income

 

$

34,756

 

 

$

3,942

 

 

$

53,995

 

 

$

854

 

Basic earnings per share

 

$

0.17

 

 

$

0.02

 

 

$

0.27

 

 

$

0.01

 

Basic weighted average number of common shares

   outstanding

 

 

198,765

 

 

 

170,810

 

 

 

198,143

 

 

 

169,674

 

Diluted earnings per share

 

$

0.17

 

 

$

0.02

 

 

$

0.26

 

 

$

0.00

 

Diluted weighted average number of common and common

   equivalent shares outstanding

 

 

204,916

 

 

 

179,104

 

 

 

204,596

 

 

 

177,974

 

 

 

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 claims related to the Millennium Actions have been settled or resolved in favor of GlobeOp and the litigation is concluded.

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.

 

 

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.

11


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

Conde nsed consolidating financial information as of June 30, 2016 and December 31, 2015 and for the three and six months ended June 30, 2016 and 2015  are presented.  The condensed consolidating financial information of the Company and its subsidiaries are as fo llows (in thousands):

 

 

 

June 30, 2016

 

 

 

Parent

 

 

Guarantor Subsidiaries

 

 

Non-guarantor Subsidiaries

 

 

Consolidating and Eliminating Adjustments

 

 

Consolidated

 

Cash and cash equivalents

 

$

 

 

$

24,753

 

 

$

70,469

 

 

$

 

 

$

95,222

 

Accounts receivable, net

 

 

 

 

 

176,884

 

 

 

62,544

 

 

 

 

 

 

239,428

 

Prepaid expenses and other current assets

 

 

 

 

 

21,254

 

 

 

11,344

 

 

 

 

 

 

32,598

 

Prepaid income taxes

 

 

 

 

 

41,256

 

 

 

 

 

 

(1,937

)

 

 

39,319

 

Restricted cash

 

 

 

 

 

2,490

 

 

 

328

 

 

 

 

 

 

2,818

 

Net property, plant and equipment

 

 

 

 

 

30,704

 

 

 

38,853

 

 

 

 

 

 

69,557

 

Investment in subsidiaries

 

 

2,798,897

 

 

 

764,004

 

 

 

 

 

 

(3,562,901

)

 

 

 

Intercompany receivables