SS&C Technologies Holdings, Inc.
SS&C Technologies Holdings Inc (Form: 10-Q, Received: 11/07/2016 17:35:03)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549 

 

FORM 10-Q 

 

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

For the quarterly period ended September 30, 2016

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       No  

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

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

 

Large accelerated filer

 

  

Accelerated filer

 

 

 

 

 

Non-accelerated filer

 

  (Do not check if a smaller reporting company)

  

Smaller reporting company

 

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

There were 202,815,308 shares of the registrant’s common stock outstanding as of November 2, 2016.

 

 

 


SS&C TECHNOLOGIES HOLDINGS, INC.

INDEX

 

 

 

Page
Number

 

 

 

PART 1. FINANCIAL INFORMATION

 

 

 

 

 

Item 1. Financial Statements (unaudited)

 

3

 

 

 

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

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income (Loss) for the three and nine months ended September 30, 2016 and 2015

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the nine months ended September 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

 

27

 

 

 

Item 4. Controls and Procedures

 

27

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1. Legal Proceedings

 

28

 

 

 

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

 

28

 

 

 

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 Technologies Holdings, 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)

 

 

 

September 30,

 

 

December 31,

 

 

 

2016

 

 

2015

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

101,800

 

 

$

434,159

 

Accounts receivable, net of allowance for doubtful accounts of $5,315 and $2,957, respectively

 

 

237,495

 

 

 

169,951

 

Prepaid expenses and other current assets

 

 

32,720

 

 

 

27,511

 

Prepaid income taxes

 

 

39,776

 

 

 

40,627

 

Restricted cash

 

 

2,116

 

 

 

2,818

 

Total current assets

 

 

413,907

 

 

 

675,066

 

Property, plant and equipment:

 

 

 

 

 

 

 

 

Land

 

 

2,655

 

 

 

2,655

 

Building and improvements

 

 

37,539

 

 

 

37,855

 

Equipment, furniture, and fixtures

 

 

112,909

 

 

 

97,274

 

 

 

 

153,103

 

 

 

137,784

 

Less: accumulated depreciation

 

 

(81,975

)

 

 

(70,641

)

Net property, plant and equipment

 

 

71,128

 

 

 

67,143

 

Deferred income taxes

 

 

2,071

 

 

 

2,199

 

Goodwill (Note 3)

 

 

3,616,060

 

 

 

3,549,212

 

Intangible and other assets, net of accumulated amortization of $683,690 and $536,929, respectively

 

 

1,519,294

 

 

 

1,508,622

 

Total assets

 

$

5,622,460

 

 

$

5,802,242

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt (Note 2)

 

$

29,813

 

 

$

32,281

 

Accounts payable

 

 

16,480

 

 

 

11,957

 

Income taxes payable

 

 

 

 

 

1,428

 

Accrued employee compensation and benefits

 

 

74,006

 

 

 

83,894

 

Interest payable

 

 

13,259

 

 

 

28,903

 

Other accrued expenses

 

 

50,979

 

 

 

36,231

 

Deferred revenue

 

 

231,285

 

 

 

222,024

 

Total current liabilities

 

 

415,822

 

 

 

416,718

 

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

 

 

2,460,457

 

 

 

2,719,070

 

Other long-term liabilities

 

 

61,968

 

 

 

51,434

 

Deferred income taxes

 

 

459,025

 

 

 

509,574

 

Total liabilities

 

 

3,397,272

 

 

 

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;  204,356,540 shares

   and 193,104,452 shares issued, respectively, and 202,783,271 shares and 191,531,574 shares

   outstanding, respectively, of which 14,564 and 24,876 are unvested, respectively

 

 

2,043

 

 

 

1,932

 

Additional paid-in capital

 

 

1,905,834

 

 

 

1,793,149

 

Accumulated other comprehensive loss

 

 

(112,702

)

 

 

(83,170

)

Retained earnings

 

 

448,011

 

 

 

411,493

 

 

 

 

2,243,186

 

 

 

2,123,431

 

Less: cost of common stock in treasury, 1,573,269 and 1,572,878 shares, respectively

 

 

(17,998

)

 

 

(17,985

)

Total stockholders’ equity

 

 

2,225,188

 

 

 

2,105,446

 

Total liabilities and stockholders’ equity

 

$

5,622,460

 

 

$

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 (LOSS)

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

 

 

 

 

 

Three Months Ended September 30,

 

 

Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software-enabled services

 

$

248,772

 

 

$

180,744

 

 

$

699,091

 

 

$

484,434

 

Maintenance and term licenses

 

 

106,925

 

 

 

80,097

 

 

 

305,437

 

 

 

159,049

 

Total recurring revenues

 

 

355,697

 

 

 

260,841

 

 

 

1,004,528

 

 

 

643,483

 

Perpetual licenses

 

 

4,389

 

 

 

6,508

 

 

 

14,643

 

 

 

22,526

 

Professional services

 

 

23,218

 

 

 

13,545

 

 

 

61,341

 

 

 

33,388

 

Total non-recurring revenues

 

 

27,607

 

 

 

20,053

 

 

 

75,984

 

 

 

55,914

 

Total revenues

 

 

383,304

 

 

 

280,894

 

 

 

1,080,512

 

 

 

699,397

 

Cost of revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software-enabled services

 

 

143,074

 

 

 

96,151

 

 

 

403,045

 

 

 

273,301

 

Maintenance and term licenses

 

 

45,458

 

 

 

43,391

 

 

 

138,864

 

 

 

69,896

 

Total recurring cost of revenues

 

 

188,532

 

 

 

139,542

 

 

 

541,909

 

 

 

343,197

 

Perpetual licenses

 

 

608

 

 

 

1,036

 

 

 

1,749

 

 

 

3,081

 

Professional services

 

 

18,887

 

 

 

11,286

 

 

 

51,532

 

 

 

27,396

 

Total non-recurring cost of revenues

 

 

19,495

 

 

 

12,322

 

 

 

53,281

 

 

 

30,477

 

Total cost of revenues

 

 

208,027

 

 

 

151,864

 

 

 

595,190

 

 

 

373,674

 

Gross profit

 

 

175,277

 

 

 

129,030

 

 

 

485,322

 

 

 

325,723

 

Operating expenses:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Selling and marketing

 

 

27,328

 

 

 

37,082

 

 

 

85,724

 

 

 

64,400

 

Research and development

 

 

37,701

 

 

 

37,389

 

 

 

114,975

 

 

 

74,517

 

General and administrative

 

 

33,345

 

 

 

39,607

 

 

 

91,239

 

 

 

70,370

 

Total operating expenses

 

 

98,374

 

 

 

114,078

 

 

 

291,938

 

 

 

209,287

 

Operating income

 

 

76,903

 

 

 

14,952

 

 

 

193,384

 

 

 

116,436

 

Interest expense, net

 

 

(31,648

)

 

 

(32,645

)

 

 

(97,583

)

 

 

(43,664

)

Other income, net

 

 

2,655

 

 

 

6,953

 

 

 

820

 

 

 

5,282

 

Loss on extinguishment of debt

 

 

 

 

 

(30,417

)

 

 

 

 

 

(30,417

)

Income (loss) before income taxes

 

 

47,910

 

 

 

(41,157

)

 

 

96,621

 

 

 

47,637

 

Provision (benefit) for income taxes

 

 

9,163

 

 

 

(6,547

)

 

 

22,648

 

 

 

16,873

 

Net income (loss)

 

$

38,747

 

 

$

(34,610

)

 

$

73,973

 

 

$

30,764

 

Basic earnings (loss) per share

 

$

0.19

 

 

$

(0.18

)

 

$

0.37

 

 

$

0.17

 

Basic weighted average number of common shares

   outstanding

 

 

201,782

 

 

 

193,706

 

 

 

199,365

 

 

 

177,772

 

Diluted earnings (loss) per share

 

$

0.19

 

 

$

(0.18

)

 

$

0.36

 

 

$

0.16

 

Diluted weighted average number of common and common

   equivalent shares outstanding

 

 

206,635

 

 

 

193,706

 

 

 

205,334

 

 

 

186,470

 

Net income (loss)

 

$

38,747

 

 

$

(34,610

)

 

$

73,973

 

 

$

30,764

 

Other comprehensive loss, net of tax:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Foreign currency exchange translation adjustment

 

 

(12,060

)

 

 

(38,005

)

 

 

(29,532

)

 

 

(51,416

)

Total comprehensive loss, net of tax

 

 

(12,060

)

 

 

(38,005

)

 

 

(29,532

)

 

 

(51,416

)

Comprehensive income (loss)

 

$

26,687

 

 

$

(72,615

)

 

$

44,441

 

 

$

(20,652

)

 

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 Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

73,973

 

 

$

30,764

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

170,910

 

 

 

100,840

 

Stock-based compensation expense

 

 

40,402

 

 

 

31,435

 

Income tax benefit related to exercise of stock options

 

 

(44,975

)

 

 

(11,141

)

Amortization and write-offs of loan origination costs

 

 

7,994

 

 

 

5,473

 

Loss on extinguishment of debt

 

 

 

 

 

3,954

 

Loss on sale or disposition of property and equipment

 

 

159

 

 

 

339

 

Deferred income taxes

 

 

(39,712

)

 

 

(27,030

)

Provision for doubtful accounts

 

 

2,684

 

 

 

601

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(14,603

)

 

 

(5,234

)

Prepaid expenses and other assets

 

 

(2,595

)

 

 

(5,109

)

Accounts payable

 

 

2,610

 

 

 

(1,755

)

Accrued expenses

 

 

(18,429

)

 

 

(28,437

)

Income taxes prepaid and payable

 

 

44,840

 

 

 

(1,125

)

Deferred revenue

 

 

13,758

 

 

 

26,992

 

Net cash provided by operating activities

 

 

237,016

 

 

 

120,567

 

Cash flow from investing activities:

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(18,870

)

 

 

(9,462

)

Proceeds from sale of property and equipment

 

 

69

 

 

 

56

 

Cash paid for business acquisitions, net of cash acquired

 

 

(309,432

)

 

 

(2,614,785

)

Additions to capitalized software

 

 

(6,137

)

 

 

(3,370

)

Purchase of long-term investment

 

 

(1,000

)

 

 

 

Net changes in restricted cash

 

 

700

 

 

 

 

Net cash used in investing activities

 

 

(334,670

)

 

 

(2,627,561

)

Cash flow from financing activities:

 

 

 

 

 

 

 

 

Cash received from debt borrowings, net of original issue discount

 

 

 

 

 

3,068,075

 

Repayments of debt

 

 

(268,550

)

 

 

(823,448

)

Proceeds from exercise of stock options

 

 

34,767

 

 

 

10,618

 

Withholding taxes related to equity award net share settlement

 

 

(7,051

)

 

 

 

Income tax benefit related to exercise of stock options

 

 

44,975

 

 

 

11,141

 

Proceeds from common stock issuance, net

 

 

 

 

 

717,802

 

Purchase of common stock for treasury

 

 

(13

)

 

 

 

Payment of fees related to refinancing activities

 

 

(503

)

 

 

(45,781

)

Dividends paid on common stock

 

 

(37,452

)

 

 

(33,216

)

Net cash (used in) provided by financing activities

 

 

(233,827

)

 

 

2,905,191

 

Effect of exchange rate changes on cash and cash equivalents

 

 

(878

)

 

 

(3,964

)

Net (decrease) increase in cash and cash equivalents

 

 

(332,359

)

 

 

394,233

 

Cash and cash equivalents, beginning of period

 

 

434,159

 

 

 

109,577

 

Cash and cash equivalents, end of period

 

$

101,800

 

 

$

503,810

 

 

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 September 30, 2016, the results of its operations for the three and nine months ended September 30, 2016 and 2015 and its cash flows for the nine months ended September 30, 2016 and 2015. These statements do not include all of the information and footnotes required by GAAP for annual financial statements. The condensed consolidated 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 nine months ended September 30, 2016 are not necessarily indicative of the expected results for any subsequent quarters or the full year.

Reclassifications

The Company’s prior presentation of revenues on its Condensed Consolidated Statements of Comprehensive Income (Loss) displayed total recurring and total non-recurring revenues.  The Company’s current presentation is expanded to illustrate the components of each type of revenue stream.  These amounts were previously disclosed in footnote 5 of the Company’s Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2015.

Recent Accounting Pronouncements

In August 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-15, Classification of Certain Cash Receipts and Cash Payments . ASU 2016-15 addresses how certain cash receipts and cash payments are presented and classified in the statement of cash flows under Topic 230, Statement of Cash flow, and other Topics. ASU 2016-15 is effective for annual reporting periods, and interim periods therein, beginning after December 15, 2017. The Company is currently evaluating the impact of this ASU.

In June 2016, the FASB issued ASU 2016-13, Measurement of Credit Losses on Financial Instruments . ASU 2016-13 requires companies to measure credit losses utilizing a methodology that reflects expected credit losses and requires a consideration of a broader range of reasonable and supportable information to inform credit loss estimates. ASU 2016-13 is effective for fiscal years beginning after December 15, 2019, including those interim periods within those fiscal years. This ASU is not expected to have an impact on the Company’s financial position, results of operations or cash flows.

In March 2016, the FASB issued 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, jurisd ictions 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 new standard is required to be applied re trospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it recognized at the date of initial application. We have not yet selected a transition method nor have we determined the impact of t he new standard on our consolidated condensed financial statements. The Company is currently evaluating the impact of this standard on its financial position, results of operations and cash flows.

Subsequent to the issuance of ASU No. 2014-09, the FASB has issued the following updates: ASU 2016-08, Revenue from Contracts with Customers (Topic 606) - Principal versus Agent Considerations (Reporting Revenue Gross versus Net) ; ASU 2016-10, Revenue from Contracts with Customers (Topic 606) - Identifying Performance Obligations and Licensing ; and ASU 2016-12, Revenue from Contracts with Customers (Topic 606) - Narrow-Scope Improvements and Practical Expedients. The amendments in these updates affect the guidance contained within ASU 2014-09.

 

 

 

Note 2—Debt

At September 30, 2016 and December 31, 2015, debt consisted of the following (in thousands):

 

 

 

September 30, 2016

 

 

December 31, 2015

 

Senior secured credit facilities, weighted-average interest rate

   of 3.91% and 3.94%, respectively

 

$

1,951,450

 

 

$

2,220,000

 

5.875% senior notes due 2023

 

 

600,000

 

 

 

600,000

 

Unamortized original issue discount and debt issuance costs

 

 

(61,180

)

 

 

(68,649

)

 

 

 

2,490,270

 

 

 

2,751,351

 

Less current portion of long-term debt

 

 

29,813

 

 

 

32,281

 

Long-term debt

 

$

2,460,457

 

 

$

2,719,070

 

 

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

 

 

 

September 30, 2016

 

 

December 31, 2015

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured credit facilities

 

$

1,951,450

 

 

$

1,963,242

 

 

$

2,220,000

 

 

$

2,202,105

 

5.875% senior notes due 2023

 

 

600,000

 

 

 

631,500

 

 

 

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 nine months ended September 30, 2016 is as follows (in thousands):

 

Balance at December 31, 2015

 

$

3,549,212

 

2016 acquisitions

 

 

91,533

 

Adjustments to prior acquisitions

 

 

(4,720

)

Effect of foreign currency translation

 

 

(19,965

)

Balance at September 30, 2016

 

$

3,616,060

 

 

 

7


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

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

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

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

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

 

 

201,782

 

 

 

193,706

 

 

 

199,365

 

 

 

177,772

 

Weighted average common stock equivalents — options and restricted shares

 

 

4,853

 

 

 

 

 

 

5,969

 

 

 

8,698

 

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

 

 

206,635

 

 

 

193,706

 

 

 

205,334

 

 

 

186,470

 

 

Weighted average stock options, SARs, RSUs and RSAs representing 10,702,466 and 28,806,708 shares were outstanding for the three months ended September 30, 2016 and 2015, respectively, and weighted average stock options, SARs, RSUs and RSAs representing 14,094,402 and 6,219,720 for the nine months ended September 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.  No dilutive securities were included in the diluted EPS calculation for the three months ended September 30, 2015 due to the Company’s reported net loss for the quarter.

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, June 15, 2016 and September 15, 2016 to stockholders of record as of the close of business on March 7, 2016, June 1, 2016, and September 1, 2016, respectively, totaling $37.5 million.   In 2015, the Company paid quarterly cash dividends of $0.0625 per share of common stock on March 16, 2015, June 15, 2015 and September 15, 2015 to stockholders of record as of the close of business on March 2, 2015, June 1, 2015 and September 1, 2015, respectively, totaling $33.2 million.

 

 

8


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

Note 5— Equity and Stock-bas ed 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 (Loss) for three and nine months ended September 30, 2016 was as follows (in thousands):

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

Condensed Consolidated Statements of Comprehensive Income (Loss) Classification

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Cost of software-enabled services

 

$

2,732

 

 

$

1,846

 

 

$

7,916

 

 

$

4,976

 

Cost of maintenance and term licenses

 

 

605

 

 

 

589

 

 

 

2,116

 

 

 

791

 

Cost of recurring revenues

 

 

3,337

 

 

 

2,435

 

 

 

10,032

 

 

 

5,767

 

Cost of professional services

 

 

493

 

 

 

530

 

 

 

1,736

 

 

 

855

 

Cost of non-recurring revenues

 

 

493

 

 

 

530

 

 

 

1,736

 

 

 

855

 

Total cost of revenues

 

 

3,830

 

 

 

2,965

 

 

 

11,768

 

 

 

6,622

 

Selling and marketing

 

 

2,521

 

 

 

9,936

 

 

 

8,966

 

 

 

11,423

 

Research and development

 

 

2,004

 

 

 

5,464

 

 

 

6,402

 

 

 

6,359

 

General and administrative

 

 

4,134

 

 

 

4,756

 

 

 

13,266

 

 

 

7,031

 

Total operating expenses

 

 

8,659

 

 

 

20,156

 

 

 

28,634

 

 

 

24,813

 

Total stock-based compensation expense

 

$

12,489

 

 

$

23,121

 

 

$

40,402

 

 

$

31,435

 

 

 

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

 

 

 

Shares

 

Outstanding at December 31, 2015

 

 

30,278,364

 

Granted

 

 

1,454,300

 

Cancelled/forfeited

 

 

(1,391,958

)

Exercised

 

 

(5,762,429

)

Outstanding at September 30, 2016

 

 

24,578,277

 

 

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

 

 

 

Shares

 

Outstanding at December 31, 2015

 

 

957,452

 

Granted

 

 

-

 

Cancelled/forfeited

 

 

(67,266

)

Vested

 

 

(501,906

)

Outstanding at September 30, 2016

 

 

388,280

 

 

The Company recorded $45.0 million and $11.1 million of income tax benefits related to the exercise of stock options during the nine months ended September 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 19% and 16% for the three months ended September 30, 2016 and 2015, respectively, and the effective tax rate was 23% and 35% for the nine months ended September 30, 2016 and 2015, respectively.  The change in the effective tax rate for the three months ended September 30, 2016 was primarily due to an increase in pre-tax income from domestic operations taxed at a high statutory rate compared to the prior year, partially offset by the absence of the unfavorable impact of nondeductible transaction costs and repatriation of foreign earnings in the prior year.  The change in the effective tax rate for the nine months ended September 30, 2016 was primarily due to the absence of the unfavorable impact of nondeductible transaction costs and repatriation of foreign earnings in the prior year, partially offset by an increase in pre-tax income from domestic operations taxed at a high statutory rate and 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.

 

 

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 $310.2 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

 

$

58,479

 

Fixed assets

 

 

103

 

Other assets

 

 

1,985

 

Acquired client relationships and contracts

 

 

124,600

 

Completed technology

 

 

44,600

 

Goodwill

 

 

91,533

 

Deferred revenue

 

 

(3,910

)

Other liabilities assumed

 

 

(7,229

)

Consideration paid, net of cash acquired

 

$

310,161

 

 

The consideration paid, net of cash acquired for Citigroup AIS includes a working capital adjustment of $7.9 million, which was received during the third quarter of 2016. This amount is reflected in “Cash paid for business acquisitions, net of cash acquired” for the nine months ended September 30, 2016 on the Company’s Condensed Consolidated Statement of Cash Flows.

 

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.

10


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

The Company reported revenues totaling $ 118.6 million from Citigroup AIS from its acquisition date through September 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.

 

 

 

 

For the Three Months Ended September 30,

 

 

For the Nine Months Ended September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

Revenues

 

$

391,865

 

 

$

384,312

 

 

$

1,158,376

 

 

$

1,160,828

 

Net income

 

$

45,510

 

 

$

14,281

 

 

$

101,393

 

 

$

14,791

 

Basic earnings per share

 

$

0.23

 

 

$

0.07

 

 

$

0.51

 

 

$

0.08

 

Basic weighted average number of common shares outstanding

 

 

201,782

 

 

 

193,706

 

 

 

199,365

 

 

 

177,772

 

Diluted earnings per share

 

$

0.22

 

 

$

0.07

 

 

$

0.49

 

 

$

0.08

 

Diluted weighted average number of common and common equivalent shares outstanding

 

 

206,635

 

 

 

202,624

 

 

 

205,334

 

 

 

186,470

 

 

Pending acquisitions

On September 14, 2016, the Company announced the acquisition of Wells Fargo Global Fund Services ("GFS"), a leading provider of comprehensive administration, middle-office, operations and cash/collateral management services to alternative investment managers.  The transaction is subject to approvals by relevant regulatory authorities and other customary closing conditions. The transaction is expected to close in the fourth quarter of 2016.

 

Note 8—Commitments and Contingencies

From time to time, the Company is subject to 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)

 

Condensed consolidati ng financial information as of September 30, 2016 and December 31, 2015 and for the three and nine months ended September 30, 2016  are presented.  The condensed consolidating financial information of the Company and its subsidiaries are as follows (in thou sands):

 

 

 

September 30, 2016

 

 

 

Parent

 

 

Guarantor Subsidiaries

 

 

Non-guarantor Subsidiaries

 

 

Consolidating and Eliminating Adjustments

 

 

Consolidated

 

Cash and cash equivalents

 

$

 

 

$

23,423

 

 

$

78,377

 

 

$

 

 

$

101,800

 

Accounts receivable, net

 

 

 

 

 

174,082

 

 

 

63,413

 

 

 

 

 

 

237,495

 

Prepaid expenses and other current assets

 

 

 

 

 

21,486

 

 

 

11,234

 

 

 

 

 

 

32,720

 

Prepaid income taxes

 

 

 

 

 

42,909

 

 

 

 

 

 

(3,133

)

 

 

39,776

 

Restricted cash

 

 

 

 

 

1,788

 

 

 

328