SS&C Technologies Holdings, Inc.
SS&C Technologies Holdings Inc (Form: 10-Q, Received: 05/05/2017 14:01:00)

 

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 March 31, 2017

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

 

 

 

 

 

Emerging growth company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  

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 204,008,460 shares of the registrant’s common stock outstanding as of April 28, 2017.

 

 

 


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, 2017 and December 31, 2016

 

3

 

 

 

Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2017 and 2016

 

4

 

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016

 

5

 

 

 

Notes to Condensed Consolidated Financial Statements

 

6

 

 

 

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

 

17

 

 

 

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 6. Exhibits

 

27

 

 

 

SIGNATURE

 

28

 

 

 

EXHIBIT INDEX

 

29

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”, “assume”, “intend”, “will”, “continue”, “opportunity”, “predict”, “potential”, “future”, “guarantee”, “likely”, “target”, “indicate”, “would”, “could” 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, 2016, filed with the Securities and Exchange Commission on February 28, 2017, 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)

 

 

 

March 31,

 

 

December 31,

 

 

 

2017

 

 

2016

 

 

 

 

 

 

 

 

 

 

ASSETS

 

 

 

 

 

 

 

 

Current assets:

 

 

 

 

 

 

 

 

Cash and cash equivalents

 

$

108,842

 

 

$

117,558

 

Accounts receivable, net of allowance for doubtful accounts of $6,860 and $5,944,

   respectively

 

 

247,553

 

 

 

241,307

 

Prepaid expenses and other current assets

 

 

33,256

 

 

 

31,119

 

Prepaid income taxes

 

 

15,674

 

 

 

23,012

 

Restricted cash

 

 

2,071

 

 

 

2,116

 

Total current assets

 

 

407,396

 

 

 

415,112

 

Property, plant and equipment:

 

 

 

 

 

 

 

 

Land

 

 

2,655

 

 

 

2,655

 

Building and improvements

 

 

45,218

 

 

 

42,749

 

Equipment, furniture, and fixtures

 

 

125,657

 

 

 

120,011

 

 

 

 

173,530

 

 

 

165,415

 

Less: accumulated depreciation

 

 

(91,603

)

 

 

(85,020

)

Net property, plant and equipment

 

 

81,927

 

 

 

80,395

 

Deferred income taxes

 

 

2,342

 

 

 

2,410

 

Goodwill (Note 3)

 

 

3,659,631

 

 

 

3,652,733

 

Intangible and other assets, net of accumulated amortization of $784,547 and $730,234,

   respectively

 

 

1,507,787

 

 

 

1,556,321

 

Total assets

 

$

5,659,083

 

 

$

5,706,971

 

LIABILITIES AND STOCKHOLDERS’ EQUITY

 

 

 

 

 

 

 

 

Current liabilities:

 

 

 

 

 

 

 

 

Current portion of long-term debt (Note 2)

 

$

100,812

 

 

$

126,144

 

Accounts payable

 

 

23,642

 

 

 

16,490

 

Income taxes payable

 

 

 

 

 

3,473

 

Accrued employee compensation and benefits

 

 

42,060

 

 

 

104,118

 

Interest payable

 

 

7,420

 

 

 

21,470

 

Other accrued expenses

 

 

54,685

 

 

 

53,708

 

Deferred revenue

 

 

249,296

 

 

 

235,222

 

Total current liabilities

 

 

477,915

 

 

 

560,625

 

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

 

 

2,343,737

 

 

 

2,374,986

 

Other long-term liabilities

 

 

65,057

 

 

 

59,227

 

Deferred income taxes

 

 

443,300

 

 

 

453,555

 

Total liabilities

 

 

3,330,009

 

 

 

3,448,393

 

Commitments and contingencies (Note 8)

 

 

 

 

 

 

 

 

Stockholders’ equity (Note 5):

 

 

 

 

 

 

 

 

Preferred stock, $0.01 par value per share, 5,000,000 shares authorized; no shares issued

 

 

 

 

 

 

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

   no shares issued

 

 

 

 

 

 

Common stock, $0.01 par value per share, 400,000,000 shares authorized;  205,546,797 shares

   and 204,616,054 shares issued, respectively, and 203,973,458 shares and 203,042,715 shares

   outstanding, respectively, of which 7,938 and 11,252 are unvested, respectively

 

 

2,055

 

 

 

2,046

 

Additional paid-in capital

 

 

1,945,533

 

 

 

1,921,256

 

Accumulated other comprehensive loss

 

 

(128,294

)

 

 

(139,073

)

Retained earnings

 

 

527,780

 

 

 

492,349

 

 

 

 

2,347,074

 

 

 

2,276,578

 

Less: cost of common stock in treasury, 1,573,339 shares

 

 

(18,000

)

 

 

(18,000

)

Total stockholders’ equity

 

 

2,329,074

 

 

 

2,258,578

 

Total liabilities and stockholders’ equity

 

$

5,659,083

 

 

$

5,706,971

 

 

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,

 

 

 

2017

 

 

2016

 

Revenues:

 

 

 

 

 

 

 

 

Software-enabled services

 

$

276,452

 

 

$

205,647

 

Maintenance and term licenses

 

 

110,557

 

 

 

95,120

 

Total recurring revenues

 

 

387,009

 

 

 

300,767

 

Perpetual licenses

 

 

2,828

 

 

 

5,215

 

Professional services

 

 

17,862

 

 

 

18,149

 

Total non-recurring revenues

 

 

20,690

 

 

 

23,364

 

Total revenues

 

 

407,699

 

 

 

324,131

 

Cost of revenues:

 

 

 

 

 

 

 

 

Software-enabled services

 

 

154,006

 

 

 

113,728

 

Maintenance and term licenses

 

 

46,985

 

 

 

46,946

 

Total recurring cost of revenues

 

 

200,991

 

 

 

160,674

 

Perpetual licenses

 

 

565

 

 

 

498

 

Professional services

 

 

15,903

 

 

 

15,512

 

Total non-recurring cost of revenues

 

 

16,468

 

 

 

16,010

 

Total cost of revenues

 

 

217,459

 

 

 

176,684

 

Gross profit

 

 

190,240

 

 

 

147,447

 

Operating expenses:

 

 

 

 

 

 

 

 

Selling and marketing

 

 

30,242

 

 

 

29,861

 

Research and development

 

 

38,449

 

 

 

36,447

 

General and administrative

 

 

31,832

 

 

 

30,695

 

Total operating expenses

 

 

100,523

 

 

 

97,003

 

Operating income

 

 

89,717

 

 

 

50,444

 

Interest expense, net

 

 

(29,020

)

 

 

(33,089

)

Other expense, net

 

 

(71

)

 

 

(1,847

)

Loss on extinguishment of debt

 

 

(2,326

)

 

 

 

Income before income taxes

 

 

58,300

 

 

 

15,508

 

Provision for income taxes

 

 

10,153

 

 

 

8,503

 

Net income

 

$

48,147

 

 

$

7,005

 

 

 

 

 

 

 

 

 

 

Basic earnings per share

 

$

0.24

 

 

$

0.04

 

Diluted earnings per share

 

$

0.23

 

 

$

0.03

 

 

 

 

 

 

 

 

 

 

Basic weighted average number of common shares outstanding

 

 

203,376

 

 

 

197,520

 

Diluted weighted average number of common and common equivalent shares outstanding

 

 

209,704

 

 

 

204,262

 

 

 

 

 

 

 

 

 

 

Cash dividends declared and paid per common share

 

$

0.0625

 

 

$

0.0625

 

 

 

 

 

 

 

 

 

 

Net income

 

$

48,147

 

 

$

7,005

 

Other comprehensive income, net of tax:

 

 

 

 

 

 

 

 

Foreign currency exchange translation adjustment

 

 

10,779

 

 

 

9,321

 

Total comprehensive income, net of tax

 

 

10,779

 

 

 

9,321

 

Comprehensive income

 

$

58,926

 

 

$

16,326

 

 

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,

 

 

 

2017

 

 

2016

 

Cash flow from operating activities:

 

 

 

 

 

 

 

 

Net income

 

$

48,147

 

 

$

7,005

 

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

 

 

 

 

 

 

 

 

Depreciation and amortization

 

 

58,557

 

 

 

55,273

 

Stock-based compensation expense

 

 

10,900

 

 

 

15,347

 

Income tax benefit related to exercise of stock options

 

 

 

 

 

(8,174

)

Amortization and write-offs of loan origination costs

 

 

2,656

 

 

 

2,653

 

Loss on extinguishment of debt

 

 

963

 

 

 

 

Loss (gain) on sale or disposition of property and equipment

 

 

10

 

 

 

(2

)

Deferred income taxes

 

 

(7,295

)

 

 

(6,274

)

Provision for doubtful accounts

 

 

1,154

 

 

 

679

 

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

 

 

 

 

 

 

 

 

Accounts receivable

 

 

(7,087

)

 

 

(33,203

)

Prepaid expenses and other assets

 

 

(2,532

)

 

 

(1,221

)

Accounts payable

 

 

6,106

 

 

 

3,592

 

Accrued expenses

 

 

(72,908

)

 

 

(52,843

)

Income taxes prepaid and payable

 

 

5,077

 

 

 

10,526

 

Deferred revenue

 

 

12,777

 

 

 

25,260

 

Net cash provided by operating activities

 

 

56,525

 

 

 

18,618

 

Cash flow from investing activities:

 

 

 

 

 

 

 

 

Additions to property and equipment

 

 

(5,990

)

 

 

(2,808

)

Proceeds from sale of property and equipment

 

 

 

 

 

2

 

Cash paid for business acquisitions, net of cash acquired

 

 

1,805

 

 

 

(317,554

)

Additions to capitalized software

 

 

(3,277

)

 

 

(2,169

)

Net cash used in investing activities

 

 

(7,462

)

 

 

(322,529

)

Cash flow from financing activities:

 

 

 

 

 

 

 

 

Cash received from debt borrowings

 

 

45,000

 

 

 

 

Repayments of debt

 

 

(105,200

)

 

 

(29,825

)

Proceeds from exercise of stock options

 

 

14,017

 

 

 

7,629

 

Withholding taxes related to equity award net share settlement

 

 

(589

)

 

 

(1,559

)

Income tax benefit related to exercise of stock options

 

 

 

 

 

8,174

 

Dividends paid on common stock

 

 

(12,715

)

 

 

(12,353

)

Net cash used in financing activities

 

 

(59,487

)

 

 

(27,934

)

Effect of exchange rate changes on cash, cash equivalents and restricted cash

 

 

1,663

 

 

 

(488

)

Net decrease in cash, cash equivalents and restricted cash

 

 

(8,761

)

 

 

(332,333

)

Cash, cash equivalents and restricted cash, beginning of period

 

 

119,674

 

 

 

436,977

 

Cash, cash equivalents and restricted cash, end of period

 

$

110,913

 

 

$

104,644

 

 

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, 2016, filed with the Securities and Exchange Commission (the “SEC”) on February 28, 2017 (the “2016 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, 2017, the results of its operations for the three months ended March 31, 2017 and 2016 and its cash flows for the three months ended March 31, 2017 and 2016. Certain prior year balances have been reclassified to conform to the current year presentation. Such reclassifications did not affect total revenues, operating income or net income.  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, 2016, which were included in the 2016 Form 10-K. The December 31, 2016 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, 2017 are not necessarily indicative of the expected results for any subsequent quarters or the full year.  

Recently Adopted Accounting Pronouncements

In November 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2016-18, Statement of Cash Flows: Restricted Cash . This ASU provides guidance on the classification of restricted cash in the statement of cash flows. This ASU requires that restricted cash be included within cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. ASU 2016-18 is effective for the Company for its first quarter of fiscal 2018.  Early adoption is permitted and the guidance requires application using a retrospective method.  The Company has early adopted ASU 2016-18, which did not have a material impact on the Company’s financial position, results of operations or cash flows.  

In March 2016, the FASB issued ASU 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. ASU 2016-09 is effective for the Company for its first quarter of fiscal 2017.  The Company has applied this guidance prospectively as of January 1, 2017 and, accordingly, data for the three months ended March 31, 2016 will not be adjusted.  Effective January 1, 2017, excess tax benefits will be prospectively reported as an operating activity in the Company’s Condensed Consolidated Statements of Cash Flows.  As the Company has applied this guidance prospectively as of January 1, 2017, excess tax benefits for the three months ended March 31, 2016 will not be adjusted and continue to be reported in financing activities in the Condensed Consolidated Statements of Cash Flows.  As a result of the adoption, the Company recognized discrete tax benefits of $5.1 million in the provision for income taxes line of the Condensed Consolidated Statement of Comprehensive Income for the three months ended March 31, 2017 related to excess tax benefits upon vesting of a restricted-stock award or stock option exercise event relative to the deferred tax asset position established.  The Company has elected to account for forfeitures as they occur and there was no material effect recorded upon adoption of this change.  The Company has also excluded the excess tax benefits from the assumed proceeds available to repurchase shares in the computation of our diluted earnings per share for the three months ended March 31, 2017, which had the effect of increasing the weighted average common stock equivalents.  Prior to the adoption of ASU 2016-09, the Company included excess tax benefits is assessing whether common equivalent shares were dilutive in the Company’s calculations of weighted average dilutive shares under the treasury stock method.  Presentation requirements for cash flows related to employee taxes paid for withheld shares had no impact to all periods presented as such cash flows have historically been presented as financing activities.

Recent Accounting Pronouncements Not Yet Effective

In January 2017, the FASB issued ASU 2017-04, Goodwill and Other (Topic 350) – Simplifying the Test for Goodwill Impairment . ASU 2017-04 simplifies the subsequent measurement of goodwill by eliminating Step 2 of the goodwill impairment test. In computing the implied fair value of goodwill under Step 2, an entity had to perform procedures to determine the fair value at the impairment testing date of its assets and liabilities (including unrecognized assets and liabilities) following the procedure that would be required in determining the fair value of assets acquired and liabilities assumed in a business combination. As a result of ASU 2017-04, an entity should perform its goodwill impairment test by comparing the fair value of a reporting unit with its carrying

6


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

amount and then recogni ze an impairment charge, as necessary, for the amount by which the carrying amount exceeds the reporting unit’s fair value, not to exceed the total amount of goodwill allocated to that reporting unit. ASU 2017-04 is effective for fiscal years and interim p eriods within those years beginning after December 15, 2019, and early adoption is permitted for interim or annual goodwill impairment tests performed after January 1, 2017. The Company expects to adopt ASU 2017-04 for the Company’s goodwill impairment te sts in 2017.

In August 2016, the FASB issued 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 the Company for its first quarter of fiscal 2018 and the guidance requires application using a retrospective method.  The impact of the Company’s adoption of ASU 2016-15 to the Company’s Condensed Consolidated Financial Statements will be to change the presentation of debt prepayment or debt extinguishment costs as cash outflows for financing activities within the Company’s Condensed Consolidated Statement of Cash Flows.  This ASU is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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 the Company for its first quarter of fiscal 2020 and earlier adoption is permitted beginning in the first quarter of fiscal 2019. Application of the ASU is through a cumulative-effect adjustment to retained earnings as of the effective date.  The Company is currently evaluating the impact of the pending adoption of ASU 2016-13 on the Company’s Condensed Consolidated Financial Statements.  This ASU is not expected to have a material impact on the Company’s financial position, results of operations or cash flows.

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. Additional disclosures will be required to allow the user to assess the amount, timing and uncertainty of cash flows arising from leasing activities. A modified retrospective transition approach is required for leases existing at the time of adoption.  ASU 2016-02 is effective for the Company for its first quarter of fiscal 2019 and earlier adoption is permitted.  The impact of the Company’s adoption of ASU 2016-02 to the Company’s Condensed Consolidated Financial Statements will be to recognize the majority of the Company’s operating lease commitments as operating lease liabilities and right-of-use assets upon adoption, which will result in a material increase in the assets and liabilities recorded on the Company’s Condensed Consolidated Balance Sheet.  The Company is continuing its assessment, which may identify additional impacts this ASU will have on the Company’s Condensed Consolidated Financial Statements and related disclosures and internal controls over financial reporting.

In May 2014, the FASB issued ASU 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;   providing a more robust framework for addressing revenue issues; improving comparability of revenue recognition practices across entities, industries, jurisdictions and capital markets; and providing more useful information to users of financial statements through improved revenue disclosure requirements.   On August   12, 2015, the FASB issued ASU 2015-14, deferring the effective date by one year for ASU 2014-09.   ASU 2014-09 is effective for the Company for its first quarter of 2018, with early adoption permitted for annual periods beginning after December 15, 2016. The new   standard is required to be applied retrospectively to each prior reporting period presented or retrospectively with the cumulative effect of initially applying it   recognized at the date of initial application.

Subsequent to the issuance of ASU 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 ; ASU 2016-12,   Revenue from Contracts with Customers (Topic 606) – Narrow-Scope Improvements and Practical Expedients and ASU 2016-20, Revenue from Contracts with Customers (Topic 606) – Technical Corrections and Improvements to Topic 606 .   The amendments in these updates affect the guidance contained within ASU 2014-09.  

The new revenue standard is expected to change the revenue recognition practices for the Company’s perpetual and term software license arrangements.  More specifically, the Company does not expect that the license component of the Company’s term

7


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

license ar rangements will be recognized ratably over the contractual term.   The Company is continuing its assessment , which may identify additional impacts this ASU will have on the Company’s Condensed Consolidated Financial Statements and related disclosures and in ternal controls over financial reporting.    The Company intend s to adopt the new revenue standard effective January 1, 2018 using the modified retrospective approach .

 

Note 2—Debt

At March 31, 2017 and December 31, 2016, debt consisted of the following (in thousands):

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2017

 

 

December 31, 2016

 

Senior secured credit facilities, weighted-average interest rate

   of 3.17% and 3.94%, respectively

 

$

1,833,425

 

 

$

1,865,625

 

5.875% senior notes due 2023

 

 

600,000

 

 

 

600,000

 

Senior secured credit facilities revolving portion, weighted-

   average interest rate of 3.41% and 3.50%, respectively

 

 

66,000

 

 

 

94,000

 

Unamortized original issue discount and debt issuance costs

 

 

(54,876

)

 

 

(58,495

)

 

 

 

2,444,549

 

 

 

2,501,130

 

Less current portion of long-term debt

 

 

100,812

 

 

 

126,144

 

Long-term debt

 

$

2,343,737

 

 

$

2,374,986

 

 

On March 2, 2017, the Company entered into an amendment (the “Amendment”) to our senior secured credit agreement dated July 8, 2015. Pursuant to the Amendment, the highest (non-default) interest rate margin applicable to Term Loan A was reduced from LIBOR plus 2.75% to LIBOR plus 1.75%, and the highest (non-default) interest rate margin applicable to Term Loan B was reduced from LIBOR plus 3.25% to LIBOR plus 2.25%. The LIBOR “floor” was also amended for the Term Loan A and the Term Loan B to be 0%. Subject to certain exceptions, in the event the Company and/or its subsidiaries enters into a transaction within six months from the Amendment Effective Date, the effect of which is to lower the “effective yield” of all or a portion of either the Term Loan A or the Term Loan B, the Company will pay to the applicable lenders a 1% prepayment premium on the loans subject to such transaction.  No changes were made to the financial covenants, outstanding principal amounts or the scheduled amortization.

 

 The Amendment was evaluated in accordance with FASB Accounting Standards Codification 470-50, Debt-Modifications and Extinguishments , for debt modification and extinguishment accounting. The Company accounted for the debt re-pricing as a debt modification with respect to amounts that remained obligations of the same lender in the syndicate with minor changes in cash flows and as a debt extinguishment with respect to amounts that were obligations of lenders that exited the syndicate or remained in the syndicate but experienced a change in cash flows of greater than 10%. See  Loss on extinguishment of debt  section below.

 

Loss on extinguishment of debt. The Company recorded a $2.3 million loss on extinguishment of debt in the three months ended March 31, 2017 in connection with the Amendment. The loss on early extinguishment of debt includes the write-off of a portion of the unamortized capitalized financing fees related to the senior secured credit facility for amounts accounted for as a debt extinguishment, as well as new financing fees related to the senior secured credit facility for amounts accounted for as a debt modification.

 

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

 

 

 

March 31, 2017

 

 

December 31, 2016

 

 

 

Carrying

 

 

Fair

 

 

Carrying

 

 

Fair

 

 

 

Amount

 

 

Value

 

 

Amount

 

 

Value

 

Financial liabilities:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Senior secured credit facilities

 

$

1,833,425

 

 

$

1,840,616

 

 

$

1,865,625

 

 

$

1,887,043

 

5.875% senior notes due 2023

 

 

600,000

 

 

 

634,500

 

 

 

600,000

 

 

 

619,500

 

Senior secured credit facilities, revolving portion

 

 

66,000

 

 

 

65,885

 

 

 

94,000

 

 

 

93,883

 

 

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.

8


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

 

 

Note 3—Goodwill

The change in carrying value of goodwill as of and for the three months ended March 31, 2017 is as follows (in thousands):

 

Balance at December 31, 2016

 

$

3,652,733

 

Adjustments to prior acquisitions

 

 

(1,200

)

Effect of foreign currency translation

 

 

8,098

 

Balance at March 31, 2017

 

$

3,659,631

 

 

 

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 following table sets forth the computation of basic and diluted EPS (in thousands, except per share amounts):

 

 

 

For the Three Months Ended March 31,

 

 

 

2017

 

 

2016

 

Net income

 

 

48,147

 

 

 

7,005

 

 

 

 

 

 

 

 

 

 

Shares:

 

 

 

 

 

 

 

 

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

 

 

203,376

 

 

 

197,520

 

Weighted average common stock equivalents — options and restricted shares

 

 

6,328

 

 

 

6,742

 

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

 

 

209,704

 

 

 

204,262

 

 

 

 

 

 

 

 

 

 

Earnings per share - Basic

 

$

0.24

 

 

$

0.04

 

Earnings per share - Diluted

 

$

0.23

 

 

$

0.03

 

9


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

 

Weighted average stock options, SARs, RSUs and RSAs representing 14,455,614 and 13,807,238 shares were outstanding for the three months ended March 31, 2017 and 2016, respectively, but were not included in the computation of diluted EPS because the effect of including them would be anti-dilutive.  

Dividends . In 2017, the Company paid a quarterly cash dividend of $0.0625 per share of common stock on March 15, 2017, to stockholders of record as of the close of business on March 1, 2017 totaling $12.7 million.   In 2016, the Company paid a quarterly cash dividend of $0.0625 per share of common stock on March 15, 2016  to stockholders of record as of the close of business on March 7, 2016 totaling $12.4 million.

 

 

Note 5—Equity and Stock-based Compensation

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 months ended March 31, 2017 and 2016 was as follows (in thousands):

 

 

Three Months Ended March 31,

 

Consolidated Statements of Comprehensive Income Classification

 

2017

 

 

2016

 

Cost of software-enabled services

 

$

2,729

 

 

$

2,405

 

Cost of maintenance and term licenses

 

 

564

 

 

 

811

 

Cost of recurring revenues

 

 

3,293

 

 

 

3,216

 

Cost of professional services

 

 

542

 

 

 

644

 

Cost of non-recurring revenues

 

 

542

 

 

 

644

 

Total cost of revenues

 

 

3,835

 

 

 

3,860

 

Selling and marketing

 

 

2,673

 

 

 

3,585

 

Research and development

 

 

1,987

 

 

 

2,216

 

General and administrative

 

 

2,405

 

 

 

5,686

 

Total operating expenses

 

 

7,065

 

 

 

11,487

 

Total stock-based compensation expense

 

$

10,900

 

 

$

15,347

 

 

The following table summarizes stock option and SAR activity as of and for the three months ended March 31, 2017:

 

 

 

Shares

 

Outstanding at December 31, 2016

 

 

25,028,100

 

Granted

 

 

5,069,478

 

Cancelled/forfeited

 

 

(222,288

)

Exercised

 

 

(1,004,874

)

Outstanding at March 31, 2017

 

 

28,870,416

 

 

The following table summarizes RSU activity as of and for the three months ended March 31, 2017:

 

 

 

Shares

 

Outstanding at December 31, 2016

 

 

357,292

 

Granted

 

 

-

 

Cancelled/forfeited

 

 

(7,592

)

Vested

 

 

(9,820

)

Outstanding at March 31, 2017

 

 

339,880

 

 

 

 

Note 6—Income Taxes

The effective tax rate was 17% and 55% for the three months ended March 31, 2017 and 2016, respectively.  The change in the effective tax rate for the three months ended March 31, 2017 was primarily due to the recognition of windfall tax benefits from stock awards in the current quarter and the absence of the unfavorable impact of a change in state apportionment on our domestic deferred

10


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

tax liabilities as a result of the acquisition of Citigroup AIS in the first quarter of 2016 , partially offset by the unfavorable impact from an in crease in pre-tax income from domestic op erations taxed at a high statutory rate.

 

 

Note 7—Acquisitions

The following unaudited pro forma condensed consolidated results of operations are provided for illustrative purposes only and assume that the acquisitions of Conifer Financial Services LLC (“Conifer”), Wells Fargo's Global Fund Services business (“GFS”) and Citigroup’s Alternative Investor Services business occurred on January 1, 2015. This unaudited pro forma information (in thousands, except per share data) should not be relied upon as being indicative of the historical results that would have been obtained if the 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

 

Revenues

 

$

405,300

 

Net income

 

$

17,363

 

 

 

 

 

 

Basic EPS

 

$

0.09

 

Diluted EPS

 

$

0.09

 

 

 

 

 

 

Basic weighted average number of common shares outstanding

 

 

197,520

 

Diluted weighted average number of common and common equivalent shares outstanding

 

 

204,262

 

 

During the first quarter of 2017, the Company received cash purchase price adjustments totaling $1.8 million related to the acquisitions of Conifer and GFS.  This amount is reflected in “Cash paid for business acquisitions, net of cash acquired” for the three months ended March 31, 2017 on the Company’s Condensed Consolidated Statement of Cash Flows.

 

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 litigation or proceedings that 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 Amended Senior Secured Credit Agreement (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 Amended Senior Secured Credit Agreement. 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.  During the three months ended March 31, 2017, the Company added certain U.S. subsidiaries as Guarantors to the Senior Notes.  The condensed consolidating balance sheet as of December 31, 2016 below reflects the addition of these entities as Guarantor Subsidiaries.

11


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

Condensed consolidating financial information as of March 31, 2017 and December 31, 2016 and for the three months ended March 31, 2017 and 2016 are presented.  The c ondensed consolidating financial information of the Company and its subsidiaries are as follows (in thousands):

 

 

 

 

March 31, 2017

 

 

 

Parent

 

 

Guarantor Subsidiaries

 

 

Non-guarantor Subsidiaries

 

 

Consolidating and Eliminating Adjustments

 

 

Consolidated

 

Cash and cash equivalents

 

$

 

 

$

26,291

 

 

$

82,551

 

 

$

 

 

$

108,842

 

Accounts receivable, net

 

 

 

 

 

177,016

 

 

 

70,537

 

 

 

 

 

 

247,553

 

Prepaid expenses and other current assets

 

 

 

 

 

20,444

 

 

 

12,812

 

 

 

 

 

 

33,256

 

Prepaid income taxes

 

 

 

 

 

15,759

 

 

 

16

 

 

 

(101

)

 

 

15,674

 

Restricted cash

 

 

 

 

 

1,743

 

 

 

328

 

 

 

 

 

 

2,071

 

Net property, plant and equipment

 

 

 

 

 

44,839

 

 

 

37,088

 

 

 

 

 

 

81,927

 

Investment in subsidiaries

 

 

2,989,978

 

 

 

811,769

 

 

 

 

 

 

(3,801,747

)

 

 

 

Intercompany receivables

 

 

 

 

 

180,696

 

 

 

46,533

 

 

 

(227,229

)

 

 

 

Deferred income taxes, long-term

 

 

 

 

 

 

 

 

2,342

 

 

 

 

 

 

2,342

 

Goodwill, intangible and other assets, net

 

 

 

 

 

3,983,038

 

 

 

1,184,380

 

 

 

 

 

 

5,167,418

 

Total assets

 

$

2,989,978

 

 

$

5,261,595

 

 

$

1,436,587

 

 

$

(4,029,077

)

 

$

5,659,083

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Current portion of long-term debt

 

 

 

 

 

80,797

 

 

 

20,015

 

 

 

 

 

 

100,812

 

Accounts payable

 

 

 

 

 

17,875

 

 

 

5,767

 

 

 

 

 

 

23,642

 

Accrued expenses

 

 

7,344

 

 

 

57,451

 

 

 

39,370

 

 

 

 

 

 

104,165

 

Income taxes payable

 

 

 

 

 

 

 

 

101

 

 

 

(101

)

 

 

 

Deferred revenue

 

 

 

 

 

221,051

 

 

 

28,245

 

 

 

 

 

 

249,296

 

Long-term debt, net of current portion

 

 

600,000

 

 

 

1,415,163

 

 

 

328,574

 

 

 

 

 

 

2,343,737

 

Other long-term liabilities

 

 

 

 

 

33,066

 

 

 

31,991

 

 

 

 

 

 

65,057

 

Intercompany payables

 

 

53,560

 

 

 

46,533

 

 

 

127,136

 

 

 

(227,229

)

 

 

 

Deferred income taxes, long-term

 

 

 

 

 

399,681

 

 

 

43,619

 

 

 

 

 

 

443,300

 

Total liabilities

 

 

660,904

 

 

 

2,271,617

 

 

 

624,818

 

 

 

(227,330

)

 

 

3,330,009

 

Total stockholders’ equity

 

 

2,329,074

 

 

 

2,989,978

 

 

 

811,769

 

 

 

(3,801,747

)

 

 

2,329,074

 

Total liabilities and stockholders’ equity

 

$

2,989,978

 

 

$

5,261,595

 

 

$

1,436,587

 

 

$

(4,029,077

)

 

$

5,659,083

 

 

 

12


SS&C TECHNOLOGIES HOLDINGS, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – Continued

(Unaudited)

 

 

 

December 31, 2016

 

 

 

Parent

 

 

Guarantor Subsidiaries

 

 

Non-guarantor Subsidiaries

 

 

Consolidating and Eliminating Adjustments

 

 

Consolidated

 

Cash and cash equivalents

 

$

 

 

$

33,723

 

 

$

83,835

 

 

$

 

 

$

117,558

 

Accounts receivable, net

 

 

 

 

 

174,927

 

 

 

66,380

 

 

 

 

 

 

241,307

 

Prepaid expenses and other current assets

 

 

 

 

 

18,129

 

 

 

12,990

 

 

 

 

 

 

31,119

 

Prepaid income taxes

 

 

 

 

 

21,600

 

 

 

1,412

 

 

 

 

 

 

23,012