SS&C TECHNOLOGIES HOLDINGS, INC. This Management's Discussion and Analysis of Financial Condition and Results of Operations, or MD&A, is intended to provide readers of our Condensed Consolidated Financial Statements with the perspectives of management. It presents, in narrative form, information regarding our financial condition, results of operations, liquidity and certain other factors that may affect our future results. It should be read in conjunction with our 2021 Form 10-K and the Condensed Consolidated Financial Statements included in this Form 10-Q. We use the term organic to refer to the businesses and operations that are included in the comparable prior year period on a constant currency basis. Organic excludes the impact of any business which we acquired for the time period which would impact the comparable prior year period. The impacts of COVID-19 and related economic conditions on our results are uncertain and, in many respects, outside our control. While we have experienced some client delays in committing to services and products, to date we have experienced no direct material negative effects on our business and results of operations as a result of the COVID-19 pandemic. The situation remains dynamic and subject to rapid and possibly material change, which ultimately could result in material negative effects on our business and results of operations. We will continue to evaluate the nature and extent of the potential impacts to our business, consolidated results of operations, liquidity and capital resources.
Critical Accounting Policies
Certain of our accounting policies require the application of significant judgment by our management, and such judgments are reflected in the amounts reported in our Condensed Consolidated Financial Statements. In applying these policies, our management uses its judgment to determine the appropriate assumptions to be used in the determination of estimates. Those estimates are based on our historical experience, terms of existing contracts, management's observation of trends in the industry, information provided by our clients and information available from other outside sources, as appropriate. Actual results may differ significantly from the estimates contained in our Condensed Consolidated Financial Statements. There have been no material changes to our critical accounting estimates and assumptions or the judgments affecting the application of those estimates and assumptions since the filing of our 2021 Form 10-K. Our critical accounting policies are described in the 2021 Form 10-K and include: • Investments • Long-Lived Assets, Intangible Assets andGoodwill • Software Capitalization • Acquisition Accounting • Revenue Recognition • Stock-based Compensation • Income Taxes Results of Operations Revenues We derive our revenues from two sources: software-enabled services revenues and license, maintenance and related revenues. As a general matter, fluctuations in our software-enabled services revenues are attributable to the number of new software-enabled services clients as well as total assets under management in our clients' portfolios and the number of outsourced transactions provided to our existing clients. Software-enabled services revenues also fluctuate as a result of reimbursements received for "out-of-pocket" expenses, such as postage and telecommunications charges, which are recorded as revenues on an accrual basis. Because these additional revenues are offset by the reimbursable expenses incurred, there is no impact on gross profit, operating income and net income, however the reimbursements billed and expenses incurred can lead to fluctuations in revenues, cost of revenues and gross margin percentage each period. License, maintenance and related revenues consist primarily of term and perpetual license fees, maintenance fees and professional services. Maintenance revenues vary based on customer retention and on the annual increases in fees, which are generally tied to the consumer price index. License and professional services revenues tend to fluctuate based on the number of new licensing clients, the timing and terms of contract renewals and demand for consulting services. Our results of operations below include the results of our recent acquisitions from the date which they were acquired, including Capita inMarch 2021 , Blue Prism and Hubwise inMarch 2022 , MineralWare inMay 2022 and O'Shares inJune 2022 . 21 --------------------------------------------------------------------------------
The following table sets forth the percentage of our total revenues represented by each of the following sources of revenues for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Software-enabled services 80.6 % 84.0 % 82.2 % 84.3 %
License, maintenance and related 19.4 % 16.0 % 17.8 % 15.7 %
Total revenues 100.0 % 100.0 % 100.0 % 100.0 %
The following table sets forth revenues (dollars in millions) and percent change in revenues for the periods indicated:
Percent Percent
Change from Change from
Prior Prior
Three Months Ended June 30, Period Six Months Ended June 30, Period
2022 2021 2022 2021
Software-enabled services
1.3 %$ 2,155.9 $ 2,100.5 2.6 % License, maintenance and related 258.0 201.9 27.8 % 467.8 391.9 19.4 % Total revenues$ 1,328.7 $ 1,259.0 5.5 %$ 2,623.7 $ 2,492.4 5.3 % Three Months EndedJune 30, 2022 and 2021. Our revenues increased$69.7 million , or 5.5%, primarily due to revenues associated with our acquisitions of Blue Prism and Hubwise inMarch 2022 , MineralWare inMay 2022 and O'Shares inJune 2022 , which contributed$65.6 million in revenues. An increase in organic revenues of$27.9 million driven by strength in the SS&C GlobeOp fund administration, Eze,Geneva and virtual data room services businesses was partially offset by the unfavorable impact from foreign currency translation of$23.8 million . Software-enabled services revenues increased$13.6 million , or 1.3%, primarily due to an increase in organic revenues of$25.3 million , and acquisitions, which added$7.1 million in revenues, partially offset by the unfavorable impact from foreign currency translation of$18.8 million . License, maintenance and related revenues increased$56.1 million , or 27.8%, primarily due to acquisitions, which added$58.5 million in revenues and an increase in organic revenues of$2.6 million , partially offset by the unfavorable impact from foreign currency translation of$5.0 million . Six Months EndedJune 30, 2022 and 2021. Our revenues increased$131.3 million , or 5.3%, due to revenues associated with our acquisitions of Blue Prism and Hubwise inMarch 2022 , MineralWare inMay 2022 , O'Shares inJune 2022 and Capita inMarch 2021 , which contributed$83.0 million in revenues and an increase in organic revenues of$80.7 million driven by strength in the SS&C GlobeOp fund administration, Eze, Black Diamond,Geneva and virtual data room services businesses. Those increases were partially offset by the unfavorable impact from foreign currency translation of$32.4 million . Software-enabled services revenues increased$55.4 million , or 2.6%, primarily due to an increase in organic revenues of$66.2 million , and acquisitions, which added$14.5 million in revenues, partially offset by the unfavorable impact from foreign currency translation of$25.3 million . License, maintenance and related revenues increased$75.9 million , or 19.4%, primarily due to acquisitions, which added$68.5 million in revenues and an increase in organic revenues of$14.5 million , partially offset by the unfavorable impact from foreign currency translation of$7.1 million . Cost of Revenues Cost of software-enabled services revenues consists primarily of costs related to personnel utilized in providing our software-enabled services and amortization of intangible assets. Cost of license, maintenance and other related revenues consists primarily of the costs related to personnel utilized in servicing our maintenance contracts and to provide implementation, conversion and training services to our software licensees, as well as system integration and custom programming consulting services and amortization of intangible assets.
The following tables set forth each of the following cost of revenues as a percentage of their respective revenue source for the periods indicated:
Three Months Ended June 30, Six Months Ended June 30,
2022 2021 2022 2021
Cost of software-enabled services 57.0 % 55.1 % 55.9 % 56.1 %
Cost of license, maintenance and related 36.5 % 40.2 % 37.2 % 40.8 %
Total cost of revenues 53.0 % 52.7 % 52.6 % 53.7 %
Gross margin percentage 47.0 % 47.3 % 47.4 % 46.3 %
22--------------------------------------------------------------------------------
The following table sets forth cost of revenues (dollars in millions) and percent change in cost of revenues for the periods indicated:
Percent Percent
Change from Change from
Prior Prior
Three Months Ended June 30, Period Six Months Ended June 30, Period
2022 2021 2022 2021
Cost of software-enabled
services $ 610.3 $ 582.8 4.7 % $ 1,205.8 $ 1,178.3 2.3 %
Cost of license, maintenance
and related 94.1 81.2 15.9 % 173.8 160.0 8.6 %
Total cost of revenues $ 704.4 $ 664.0 6.1 % $ 1,379.6 $ 1,338.3 3.1 %
Three Months Ended June 30, 2022 and 2021. Our total cost of revenues increased
by $40.4 million , or 6.1%, primarily due to an increase of $37.9 million in
organic costs and acquisitions, which added $17.8 million in costs. These
increases were partially offset by the favorable impact from foreign currency
translation which decreased costs by $15.3 million . Organic cost increases are
primarily due to personnel costs, including the impact of wage inflation,
stock-based compensation and recruiting costs. Cost of software-enabled services
revenues increased $27.5 million , or 4.7%, primarily due to an increase of $37.0
million in organic costs and acquisitions, which added $3.8 million in costs.
These costs were partially offset by the favorable impact from foreign currency
translation which decreased costs by $13.3 million . Cost of license, maintenance
and related revenues increased $12.9 million , or 15.9%, primarily due to
acquisitions, which added $14.0 million in costs, as well as an increase in
organic costs of $0.9 million , partially offset by the favorable impact from
foreign currency translation of $2.0 million .
Six Months Ended June 30, 2022 and 2021. Our total cost of revenues increased by
$41.3 million , or 3.1%, primarily due to an increase of $35.0 million in organic
costs and acquisitions, which added $27.1 million in costs. These costs were
partially offset by the favorable impact from foreign currency translation which
decreased costs by $20.8 million . Organic cost increases are primarily due to
personnel costs, including the impact of wage inflation, stock-based
compensation and recruiting costs. Cost of software-enabled services revenues
increased $27.5 million , or 2.3%, primarily due to an increase of $35.5 million
in organic costs, and acquisitions, which added $9.7 million in costs. These
increases were partially offset by the favorable impact from foreign currency
translation, which decreased costs by $17.7 million . Cost of license,
maintenance and related revenues increased $13.8 million , or 8.6%, primarily due
to acquisitions, which added $17.4 million in costs, partially offset by the
favorable impact from foreign currency translation of $3.1 million and a
decrease in organic costs of $0.5 million .
Operating Expenses
Selling and marketing expenses consist primarily of the personnel costs associated with the selling and marketing of our products, including salaries, commissions and travel and entertainment. Such expenses also include amortization of intangible assets, the cost of branch sales offices, trade shows and marketing and promotional materials. Research and development expenses consist primarily of personnel costs attributable to the enhancement of existing products and the development of new software products. General and administrative expenses consist primarily of personnel costs related to management, accounting and finance, information management, human resources and administration and associated overhead costs, as well as fees for professional services.
The following table sets forth the percentage of our total revenues represented by each of the following operating expenses for the periods indicated:
Three Months Ended June 30 ,
Six Months Ended
2022 2021 2022 2021
Selling and marketing 10.5 % 7.8 % 9.5 % 7.6 %
Research and development 8.9 % 8.0 % 8.5 % 8.4 %
General and administrative 9.1 % 6.6 % 8.9 % 7.0 %
Total operating expenses 28.5 % 22.4 % 26.9 % 23.0 %
23--------------------------------------------------------------------------------
The following table sets forth operating expenses (dollars in millions) and percent change in operating expenses for the periods indicated:
Percent Percent
Change from Change from
Prior Prior
Three Months Ended June 30, Period Six Months Ended June 30, Period
2022 2021 2022 2021
Selling and marketing $ 139.3 $ 97.7 42.6 % $ 250.2 $ 189.7 31.9 %
Research and development 118.4 100.8 17.5 % 224.2 208.7 7.4 %
General and administrative 121.0 83.6 44.7 % 232.3 173.7 33.7 %
Total operating expenses $ 378.7 $ 282.1 34.2 % $ 706.7 $ 572.1 23.5 %
Three Months Ended June 30, 2022 and 2021. Operating expenses increased $96.6
million , or 34.2%, primarily due to our acquisitions, which added expenses of
$55.6 million , and an increase of $49.2 million in organic operating expenses.
These increases were partially offset by the favorable impact from foreign
currency translation which decreased expenses by $8.2 million . Total operating
expenses, excluding the impact of acquisitions and foreign currency translation,
primarily increased due to an increase in personnel-related costs, including the
impact of wage inflation, stock-based compensation and travel-related expenses,
information technology related expenses and professional fees.
Six Months Ended June 30, 2022 and 2021. Operating expenses increased $134.6
million , or 23.5%, primarily due our acquisitions, which added expenses of $78.9
million and an increase of $67.5 million in organic operating expenses. These
increases were partially offset by the favorable impact from foreign currency
translation which decreased expenses by $11.8 million . Total operating expenses,
excluding the impact of acquisitions and foreign currency translation, primarily
increased due to an increase in personnel-related costs, including the impact of
wage inflation, stock-based compensation and travel-related expenses and
information technology related expenses.
Comparison of the Three and Six Months Ended
Interest expense, net. We had net interest expense of$67.7 million and$117.0 million for the three and six months endedJune 30, 2022 , respectively, compared to$51.0 million and$102.4 million for the three and six months endedJune 30, 2021 , respectively. The increase in interest expense, net for 2022 as compared to 2021, is due to higher average interest rate on debt and higher average debt balances. Our total debt balance as ofJune 30, 2022 was higher compared to the prior year due to us entering into the Incremental Joinder in conjunction with the acquisition of Blue Prism onMarch 22, 2022 . These facilities are discussed further in "Liquidity and Capital Resources". Other (expense) income, net. We had other expense, net of$20.4 million and$29.4 million for the three and six months endedJune 30, 2022 , respectively, compared to other income, net of$6.5 million and$24.5 million for the three and six months endedJune 30, 2021 , respectively. For the three and six months endedJune 30, 2022 , other expense, net consisted primarily of foreign currency translation losses of$12.2 million and$21.9 million , respectively, and investment losses due to mark-to-market adjustments of$8.4 million and$12.2 million , respectively. For the three and six months endedJune 30, 2021 , other income, net included investment gains of$3.6 million and$17.3 million , respectively, and dividend income of$0.4 million and$8.9 million , respectively. The remaining portion of other income, net consisted primarily of foreign currency transaction gains and losses. Equity in earnings of unconsolidated affiliates, net. We had equity in earnings of unconsolidated affiliates, net of$1.1 million and$2.4 million for the three and six months endedJune 30, 2022 , respectively, compared to$(0.4) million and$(0.1) million in the three and six months endedJune 30, 2021 , respectively.
Provision for income taxes. The following table sets forth the provision for income taxes (dollars in millions) and effective tax rates for the periods indicated:
Three Months Ended June 30 ,
Six Months Ended
2022 2021 2022 2021
Provision for income taxes $ 45.2 $ 76.7 $ 108.7 $ 137.5
Effective tax rate 29.1 % 28.8 % 27.9 % 27.4 %
Our effective tax rates for the three and six months ended June 30, 2022 and
2021 differ from the statutory rate of 21.0% primarily due to the composition of
income before income taxes from foreign and domestic tax jurisdictions, foreign
income that is being taxed in the U.S. offset by foreign tax credits that are
being limited and the recognition of windfall tax benefits from stock
24
--------------------------------------------------------------------------------
awards. The change in the effective tax rate for the three months ended June 30,
2022 compared to the prior year was primarily due to a decrease in recognition
of windfall tax benefits from stock awards in the current year, an increase in
valuation allowances on deferred tax assets in the current year and a
proportionate change in the composition of income before income taxes from
foreign and domestic tax jurisdictions. The change in the effective tax rate for
the six months ended June 30, 2022 compared to the prior year was primarily due
to a decrease in recognition of windfall tax benefits from stock awards in the
current year, an increase in valuation allowances on deferred tax assets in the
current year and a proportionate change in the composition of income taxes from
foreign and domestic tax jurisdictions. In addition, the effective tax rate for
the three and six months ended June 30, 2021 included tax expense related to a
law change in the United Kingdom . While we have income from multiple foreign
sources, the majority of our non-U.S. operations are in the United Kingdom and
India , where we anticipate the statutory tax rates to be 19.0% and, on a blended
basis, approximately 29.0%, respectively, in 2022. A future change in the
composition of income before income taxes from foreign and domestic tax
jurisdictions could impact our periodic effective tax rate.
Liquidity and Capital Resources
Our principal cash requirements are to finance the costs of our operations pending the billing and collection of client receivables, to fund payments with respect to our indebtedness, to invest in research and development, to acquire complementary businesses or assets, to repurchase shares of our common stock and to pay dividends on our common stock. We expect our cash on hand, cash flows from operations and cash available under our Credit Agreement to provide sufficient liquidity to fund our current obligations, projected working capital requirements and capital spending for at least the next twelve months. During the six months endedJune 30, 2022 , we paid a quarterly cash dividend of$0.20 per share of common stock totaling$102.4 million in the aggregate. During the six months endedJune 30, 2021 , we paid a quarterly cash dividend of$0.16 per share of common stock totaling$82.1 million . Client funds obligations include our transfer agency client balances invested overnight as well as our contractual obligations to remit funds to satisfy client pharmacy claim obligations and are recorded on the Condensed Consolidated Balance Sheet when incurred, generally after a claim has been processed by us. Our contractual obligations to remit funds to satisfy client obligations are primarily sourced by funds held on behalf of clients. We had$1,620.3 million of client funds obligations atJune 30, 2022 .
Cash flows from operating, investing and financing activities, as reflected in our Condensed Consolidated Statements of Cash Flows, are summarized in the following table (in millions):
Six Months Ended June 30,
Net cash, cash equivalents and restricted Change From
cash (used in) provided by: 2022 2021 Prior Year
Operating activities $ 447.5 $ 562.3 $ (114.8 )
Investing activities (1,673.6 ) (17.9 ) (1,655.7 )
Financing activities 69.2 1,175.8 (1,106.6 )
Effect of exchange rate changes on cash,
cash equivalents and restricted cash (21.7 ) (1.6 ) (20.1 )
Net (decrease) increase in cash, cash
equivalents and restricted cash $ (1,178.6 ) $ 1,718.6 $ (2,897.2 )
2022 versus 2021
Net cash provided by operating activities was $447.5 million for the six months
ended June 30, 2022 . Cash provided by operating activities primarily resulted
from net income of $281.6 million adjusted for non-cash items of $376.3 million ,
partially offset by changes in our working capital accounts (excluding the
effect of acquisitions) totaling $210.4 million . The changes in our working
capital accounts were driven by decreases in accrued expenses and deferred
revenue and an increase in accounts receivable, partially offset by a decrease
in prepaid expenses. Cash provided by operating activities was negatively
affected by approximately $68.0 million of transaction costs related to the Blue
Prism acquisition. The decrease in accrued expenses was primarily due to the
payment of annual employee bonuses in the first quarter of 2022 and the payment
of transaction costs related to the Blue Prism acquisition that were recorded as
liabilities at the time of acquisition.
Investing activities used net cash of $1,673.6 million for the six months ended
June 30, 2022 , primarily related to $1,597.1 million paid for business
acquisitions, net of cash acquired, $63.3 million in capitalized software
development costs, $22.6 million in capital expenditures and seed capital
investments of $10.0 million , partially offset by proceeds from the sale of
property of $8.7 million , proceeds from sales and maturities of investments of
$5.6 million and collection of other non-current receivables of $5.1 million .
Financing activities provided net cash of $69.2 million for the six months ended
June 30, 2022 , primarily representing net borrowings of $1,349.2 million and
proceeds of $58.3 million from stock option exercises. These proceeds were
partially offset by a
25
--------------------------------------------------------------------------------
net decrease in client funds obligations of $1,052.0 million , $170.9 million of
purchases of common stock for treasury, $102.4 million in quarterly dividends
paid, $12.4 million of deferred financing fees payments and $0.6 million in
withholding taxes paid related to equity award net share settlements.
2021 versus 2020
Our cash, cash equivalents and restricted cash and cash equivalents, including amounts held on behalf of clients, were$3,056.5 million atJune 30, 2021 , an increase of$1,718.6 million from$1,337.9 million atDecember 31, 2020 . Net cash provided by operating activities was$562.3 million for the six months endedJune 30, 2021 . Cash provided by operating activities primarily resulted from net income of$364.7 million adjusted for non-cash items of$346.4 million , partially offset by changes in our working capital accounts (excluding the effect of acquisitions) totaling$148.8 million . The changes in our working capital accounts were driven by decreases in accrued expenses, an increase in accounts receivable, an increase in prepaid expenses and other assets, a decrease in deferred revenue, an increase in contract assets and a decrease in accounts payable, partially offset by changes in income taxes prepaid and payable. The decrease in accrued expenses was primarily due to the payment of annual employee bonuses in the first quarter of 2021. The increase in accounts receivable was primarily due to an increase in days' sales outstanding. The increase in prepaid expenses and other assets was primarily due to the timing of payments. The decrease in deferred revenue was primarily due to the recognition of revenue associated with multi-year license agreements where we received payment in 2020 as well as the revenue associated with annual maintenance fees. The change in income taxes prepaid and payable is primarily driven by the timing of tax payments. Investing activities used net cash of$17.9 million for the six months endedJune 30, 2021 , primarily related to$42.1 million in capitalized software development costs,$17.6 million in capital expenditures and$10.0 million in investments in securities, partially offset by proceeds from sales and maturities of investments of$38.9 million , net cash acquired for business acquisitions of$7.3 million and the collection of other non-current receivables of$5.6 million . Financing activities provided net cash of$1,175.8 million for the six months endedJune 30, 2021 , primarily representing a net increase in client funds obligations of$1,682.7 million and proceeds of$88.9 million from stock option exercises. These proceeds were partially offset by$325.0 million of purchases of common stock for treasury, net repayments of debt of$183.1 million ,$82.1 million in quarterly dividends paid and$5.6 million in withholding taxes paid related to equity award net share settlements. We have made a permanent reinvestment determination in certain non-U.S. operations that have historically generated positive operating cash flows. AtJune 30, 2022 , we held approximately$207.0 million in cash and cash equivalents at non-U.S. subsidiaries where we had made such a determination and in turn, no provision for foreign withholding, foreign local, orU.S. state income taxes had been made. AtJune 30, 2022 , we held approximately$128.6 million in cash that was available to our foreign borrowers under our senior secured credit facility and will be used to facilitate debt servicing of those entities.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to investors.
Senior Secured Credit Facilities
As ofJune 30, 2022 , there was$1,237.4 million in principal amount outstanding under the Term B-3 Loan,$1,004.5 million in principal amount outstanding under the Term B-4 Loan,$1,710.8 million in principal amount outstanding under the Term B-5 Loan,$576.0 million in principal amount outstanding under the Term B-6 Loan and$821.8 million in principal amount outstanding under the Term B-7 Loan. In addition, the amended senior secured credit facility has a revolving credit facility with a five-year term available for borrowings bySS&C with$250 million in available commitments ("Revolving Credit Facility"), of which$247.5 million was available as ofJune 30, 2022 . The Revolving Credit Facility also contains a$25 million letter of credit sub-facility, of which$2.5 million was utilized as ofJune 30, 2022 . We are required to make scheduled quarterly payments of 0.25% of the original principal amount of the Term B-3 Loan, Term B-4 Loan and Term B-5 Loan, with the balance due and payable onApril 16, 2025 . We are required to make scheduled quarterly payments of 0.25% of the original principal amount of the Term B-6 Loan and Term B-7 Loan commencing with the fiscal quarter endingSeptember 30, 2022 , with the balance due and payable onMarch 22, 2029 . No amortization is required under the Revolving Credit Facility. We may also, from time to time in our sole discretion, purchase, redeem, or retire our existing term loans, through tender offers, in privately negotiated or open market transactions, or otherwise. 26 -------------------------------------------------------------------------------- Our obligations under the Term Loans are guaranteed by (i) our existing and futureU.S. wholly-owned restricted subsidiaries, in the case of the Term B-3 Loan, Term B-5 Loan, Term B-6 Loan and the Revolving Credit Facility and (ii) our existing and future wholly-owned restricted subsidiaries, in the case of the Term B-4 Loan and Term B-7 Loan. The obligations of theU.S. loan parties under the amended senior secured credit facility are secured by substantially all of the assets of such persons (subject to customary exceptions and limitations), including a pledge of all of the capital stock of substantially all of theU.S. wholly-owned restricted subsidiaries of such persons (with customary exceptions and limitations) and 65% of the capital stock of certain foreign restricted subsidiaries of such persons (with customary exceptions and limitations). All obligations of the non-U.S. loan parties under the amended senior secured credit facility are secured by substantially all of our and the other guarantors' assets (subject to customary exceptions and limitations), including a pledge of all of the capital stock of substantially all of our wholly-owned restricted subsidiaries (with customary exceptions and limitations). The amended senior secured credit facility includes negative covenants that, among other things and subject to certain thresholds and exceptions, limit our ability and the ability of our restricted subsidiaries to incur debt or liens, make investments (including in the form of loans and acquisitions), merge, liquidate or dissolve, sell property and assets, including capital stock of our subsidiaries, pay dividends on our capital stock or redeem, repurchase or retire our capital stock, alter the business we conduct, amend, prepay, redeem or purchase subordinated debt, or engage in transactions with our affiliates. The amended senior secured credit facility also contains customary representations and warranties, affirmative covenants and events of default, subject to customary thresholds and exceptions. In addition, the amended senior secured credit facility contains a financial covenant for the benefit of the Revolving Credit Facility requiring us to maintain a minimum consolidated net secured leverage ratio. In addition, under the amended senior secured credit facility, certain defaults under agreements governing other material indebtedness could result in an event of default under the amended senior secured credit facility, in which case the lenders could elect to accelerate payments under the amended senior secured credit facility and terminate any commitments they have to provide future borrowings. As ofJune 30, 2022 , we were in compliance with all financial and non-financial covenants.
Senior Notes
OnMarch 28, 2019 , we issued$2,000.0 million aggregate principal amount of 5.5% Senior Notes due 2027 ("Senior Notes"), the proceeds of which were used to repay a portion of the outstanding Term B-3 Loan under our existing senior secured credit facilities. The Senior Notes are guaranteed, jointly and severally, bySS&C Holdings and all of its existing and future domestic restricted subsidiaries that guarantee our existing senior secured credit facilities or certain other indebtedness. The Senior Notes are unsecured senior obligations that are equal in right of payment to all of our existing and future senior unsecured indebtedness. Interest on the Senior Notes is payable onMarch 30 andSeptember 30 of each year. At any time and from time to time, we may, at our option, redeem some or all of the Senior Notes, in whole or in part, at the redemption prices set forth in the following table, expressed as a percentage of the principal amount, plus accrued and unpaid interest to the redemption date: Redemption Date Price On or afterMarch 30, 2022 104.125 % On or afterMarch 30, 2023 102.750 % On or afterMarch 30, 2024 101.375 %March 30, 2025 and thereafter 100.000 %
We may also, from time to time in our sole discretion, purchase, redeem, or retire any outstanding Senior Notes, through tender offers, in privately negotiated or open market transactions, or otherwise.
The indenture governing the Senior Notes contains a number of covenants that restrict, subject to certain thresholds and exceptions, our ability and the ability of our domestic restricted subsidiaries to incur debt or liens, make certain investments, pay dividends, dispose of certain assets, or enter into transactions with its affiliates. Any event of default under the amended senior secured credit facility that leads to an acceleration of those amounts due also results in a default under the indenture governing the Senior Notes.
As of
Covenant Compliance
Under the Revolving Credit Facility portion of the amended senior secured credit
facility, we are required to satisfy and maintain a specified financial ratio at
the end of each fiscal quarter if the sum of (i) outstanding amount of all loans
under the Revolving Credit Facility and (ii) all non-cash collateralized letters
of credit issued under the Revolving Credit Facility in excess of
27
--------------------------------------------------------------------------------
$20 million is equal to or greater than 30% of the total commitments under the
Revolving Credit Facility. Our ability to meet this financial ratio can be
affected by events beyond our control, and we cannot assure you that we will
meet this ratio. Any breach of this covenant could result in an event of default
under the amended senior secured credit facility. Upon the occurrence of any
event of default under the amended senior secured credit facility, the lenders
could elect to declare all amounts outstanding under the amended senior secured
credit facility to be immediately due and payable and terminate all commitments
to extend further credit. Any default and subsequent acceleration of payments
under the amended senior secured credit facility would have a material adverse
effect on our results of operations, financial position and cash flows.
Additionally, under the amended senior secured credit facility, our ability to
engage in activities such as incurring additional indebtedness, making
investments and paying dividends is also tied to baskets and ratios based on
Consolidated EBITDA.
Consolidated EBITDA is a non-GAAP financial measure used in key financial
covenants contained in the amended senior secured credit facility, which is the
material facility supporting our capital structure and providing liquidity to
our business. Consolidated EBITDA is defined as earnings before interest, taxes,
depreciation and amortization ("EBITDA"), further adjusted to exclude unusual
items and other adjustments permitted in calculating covenant compliance under
the amended senior secured credit facility. We believe that the inclusion of
supplementary adjustments to EBITDA applied in presenting Consolidated EBITDA is
appropriate to provide additional information to investors to demonstrate
compliance with the specified financial ratio and other financial condition
tests contained in the amended senior secured credit facility.
Management uses Consolidated EBITDA to gauge the costs of our capital structure
on a day-to-day basis when full financial statements are unavailable. Management
further believes that providing this information allows our investors greater
transparency and a better understanding of our ability to meet our debt service
obligations and make capital expenditures.
Consolidated EBITDA does not represent net income or cash flow from operations
as those terms are defined by generally accepted accounting principles, or GAAP,
and does not necessarily indicate whether cash flows will be sufficient to fund
cash needs. Further, the amended senior secured credit facility requires that
Consolidated EBITDA be calculated for the most recent four fiscal quarters. As a
result, the measure can be disproportionately affected by a particularly strong
or weak quarter. Further, it may not be comparable to the measure for any
subsequent four-quarter period or any complete fiscal year.
Consolidated EBITDA is not a recognized measurement under GAAP and investors
should not consider Consolidated EBITDA as a substitute for measures of our
financial performance and liquidity as determined in accordance with GAAP, such
as net income, operating income or net cash provided by operating activities.
Because other companies may calculate Consolidated EBITDA differently than we
do, Consolidated EBITDA may not be comparable to similarly titled measures
reported by other companies. Consolidated EBITDA has other limitations as an
analytical tool, when compared to the use of net income, which is the most
directly comparable GAAP financial measure, including:
•
Consolidated EBITDA does not reflect the significant interest expense we incur as a result of our debt leverage;
•
Consolidated EBITDA does not reflect the provision of income tax expense in our various jurisdictions;
•
Consolidated EBITDA does not reflect any attribution of costs to our operations related to our investments and capital expenditures through depreciation and amortization charges;
•
Consolidated EBITDA does not reflect the cost of compensation we provide to our employees in the form of stock-based awards;
•
Consolidated EBITDA does not reflect the equity in earnings of unconsolidated affiliates; and
•
Consolidated EBITDA excludes expenses and income that are permitted to be excluded per the terms of our amended senior secured credit facility, but which others may believe are normal expenses for the operation of a business.
28
--------------------------------------------------------------------------------
The following is a reconciliation of net income to Consolidated EBITDA
attributable to SS&C common stockholders as defined in our amended senior
secured credit facility.
Twelve
Months Ended
Three Months Ended June 30, Six Months Ended June 30, June 30,
(in millions) 2022 2021 2022 2021 2022
Net income $ 110.3 $ 189.8 $ 281.6 $ 364.7 $ 717.5
Interest expense, net 67.7 51.0 117.0 102.4 216.1
Provision for income taxes 45.2 76.7 108.7 137.5 207.6
Depreciation and amortization 164.0 165.8 329.6 335.3 661.7
EBITDA 387.2 483.3 836.9 939.9 1,802.9
Stock-based compensation 46.0 27.7 85.9 55.5 144.3
Acquired EBITDA and cost savings
(1) 5.2 - (1.2 ) 1.3 (1.9 )
Non-cash portion of straight-line
rent expense (0.3 ) (0.5 ) (0.9 ) (0.7 ) (2.1 )
Loss on extinguishment of debt 3.1 1.5 3.1 1.8 12.3
Equity in earnings of
unconsolidated affiliates, net (1.1 ) 0.4 (2.4 ) 0.1 (27.9 )
Purchase accounting adjustments (2) 2.0 1.6 4.9 3.2 8.0
ASC 606 adoption impact (0.4 ) 0.2 (0.8 ) 0.4 (0.2 )
Other (3) 34.7 (3.1 ) 59.5 2.8 112.5
Consolidated EBITDA $ 476.4 $ 511.1 $ 985.0 $ 1,004.3 $ 2,047.9
Consolidated EBITDA attributable to
noncontrolling interest (4) (0.4 ) - (0.3 ) - (2.3 )
Consolidated EBITDA attributable to
SS&C common stockholders $ 476.0 $ 511.1 ________________________
(1)
Acquired EBITDA reflects the EBITDA impact of significant businesses that were acquired during the period as if the acquisition occurred at the beginning of the period, as well as cost savings enacted in connection with acquisitions. (2) Purchase accounting adjustments include (a) an adjustment to increase revenues by the amount that would have been recognized if deferred revenue were not adjusted to fair value at the date of acquisitions, (b) an adjustment to increase personnel and commissions expense by the amount that would have been recognized if prepaid commissions and deferred personnel costs were not adjusted to fair value at the date of the acquisitions and (c) an adjustment to increase or decrease rent expense by the amount that would have been recognized if lease obligations were not adjusted to fair value at the date of acquisitions. (3) Other includes expenses and income that are permitted to be excluded per the terms of our amended senior secured credit facility from Consolidated EBITDA, a financial measure used in calculating our covenant compliance. These include expenses and income related to foreign currency transactions, investment gains and losses, facilities and workforce restructuring, legal settlements, business combinations and other items. (4) Consolidated EBITDA attributable to noncontrolling interest represents Consolidated EBITDA based on the ownership interest retained by the noncontrolling parties of DomaniRx.
Our covenant requirement for consolidated net secured leverage ratio and the
actual ratio as of
Covenant Actual
Requirement Ratio
Maximum consolidated net secured leverage to
Consolidated EBITDA ratio(1) 6.25x 2.48
_____________________________________________________
(1)
Calculated as the ratio of consolidated net secured funded indebtedness, net of cash and cash equivalents, excluding$148.3 million of cash and cash equivalents held at DomaniRx, to Consolidated EBITDA, as defined by the amended senior secured credit facility, for the period of four consecutive fiscal quarters ended on the measurement date. Consolidated net secured funded indebtedness is comprised of indebtedness for borrowed money, letters of credit, deferred purchase price obligations and capital lease obligations, all of which is secured by liens on our property.
Recently Adopted Accounting Pronouncement
InOctober 2021 , the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities From Contracts with Customers. ASU 2021-08 requires companies to apply ASC 606 to recognize and measure contract assets and contract liabilities from contracts with customers acquired in a business combination on the acquisition date. Generally, this new guidance with result in an acquirer recognizing contract assets and contract liabilities at the same amounts recorded by the acquiree. Under current GAAP, we have historically recognized contract assets and contract liabilities acquired in a business combination at fair value. ASU 2021-08 is effective for fiscal years beginning afterDecember 15, 2022 , and interim periods 29 -------------------------------------------------------------------------------- within those fiscal years. Early adoption is permitted, including adoption in an interim period. ASU 2021-08 should be applied prospectively to business combinations that occur after the effective date. We adopted ASU 2021-08 as ofJanuary 1, 2022 on a prospective basis. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.
Recent Accounting Pronouncement Not Yet Effective
InMarch 2020 , the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. ASU 2020-04 provides optional expedients and exceptions for applying GAAP if certain criteria are met to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued. InJanuary 2021 , the FASB issued Update 2021-01, Reference Rate Reform (Topic 848): Scope. The update provides additional optional guidance on the transition from LIBOR to include derivative instruments that use an interest rate for margining, discounting or contract price alignment. The standard will ease, if warranted, the requirements for accounting for the future effects of the rate reform. An entity may elect to apply the amendments prospectively to contract modifications made on or beforeDecember 31, 2022 . A substantial portion of our indebtedness bears interest at variable interest rates, primarily based on USD-LIBOR. We continue to monitor the impact the discontinuance of LIBOR or another reference rate will have on our contracts, hedging relationships and other transactions. We are currently assessing the impact of this standard on our financial condition and results of operations.
© Edgar Online, source
