Item 2.
|
Management’s Discussion and Analysis of Financial Condition and Results of Operations
|
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 2020 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 2020 Form 10-K. Our critical accounting policies are described in the 2020 Form 10-K and include:
|
•
|
Long-Lived Assets, Intangible Assets and Goodwill
|
|
•
|
Software Capitalization
|
|
•
|
Depreciation of Fixed Assets
|
|
•
|
Stock-based Compensation
|
18
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 Captricity in March 2020, Innovest in May 2020, Millennium in December 2020 and Capita in March 2021.
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,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Software-enabled services
|
|
|
84.0
|
%
|
|
|
83.0
|
%
|
|
|
84.3
|
%
|
|
|
83.7
|
%
|
License, maintenance and related
|
|
|
16.0
|
%
|
|
|
17.0
|
%
|
|
|
15.7
|
%
|
|
|
16.3
|
%
|
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:
|
|
Three Months Ended June 30,
|
|
|
Percent
Change from
Prior
Period
|
|
|
Six Months Ended June 30,
|
|
|
Percent
Change from
Prior
Period
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
Software-enabled services
|
|
$
|
1,057.1
|
|
|
$
|
945.0
|
|
|
|
11.9
|
%
|
|
$
|
2,100.5
|
|
|
$
|
1,934.5
|
|
|
|
8.6
|
%
|
License, maintenance and related
|
|
|
201.9
|
|
|
|
193.1
|
|
|
|
4.6
|
%
|
|
|
391.9
|
|
|
|
377.2
|
|
|
|
3.9
|
%
|
Total revenues
|
|
$
|
1,259.0
|
|
|
$
|
1,138.1
|
|
|
|
10.6
|
%
|
|
$
|
2,492.4
|
|
|
$
|
2,311.7
|
|
|
|
7.8
|
%
|
Three Months Ended June 30, 2021 and 2020. Our revenues increased $120.9 million, or 10.6%, primarily due to an increase of $76.8 million in organic revenues driven by strength in the SS&C GlobeOp fund administration, Black Diamond, Retirement Solutions, Global Investor and Distribution Solutions, ALPS Advisors, Healthcare and virtual data room services products. Our revenues also increased due to acquisitions, which contributed $17.8 million in revenues as well as the favorable impact from foreign currency translation of $26.3 million. Software-enabled services revenues increased $112.1 million, or 11.9%, primarily due to an increase in organic revenues of $72.7 million, and acquisitions, which added $17.8 million in revenues, as well as the favorable impact from foreign currency translation of $21.6 million. License, maintenance and related revenues increased $8.8 million, or 4.6%, due to an increase in organic revenues of $4.1 million and the favorable impact from foreign currency translation of $4.7 million.
Six Months Ended June 30, 2021 and 2020 Our revenues increased $180.7 million, or 7.8%, primarily due to an increase of $101.9 million in organic revenues driven by strength in the SS&C GlobeOp fund administration, Black Diamond, Retirement Solutions, Global Investor and Distribution Solutions, ALPS Advisors, Healthcare and virtual data room services products. Our revenues also increased due to acquisitions, which added $36.4 million in revenues, as well as the favorable impact from foreign currency translation of $42.4 million. Software-enabled services revenue increased $166.0 million, or 8.6%, primarily due to an increase in organic revenues of $94.9 million, and acquisitions, which added $36.4 million, as well as the favorable impact from foreign currency translation of $34.7 million. License, maintenance and related revenues increased $14.7 million, or 3.9%, due to an increase in organic revenues of $7.0 million and the favorable impact from foreign currency translation of $7.7 million.
19
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,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Cost of software-enabled services
|
|
|
55.1
|
%
|
|
|
58.2
|
%
|
|
|
56.1
|
%
|
|
|
58.6
|
%
|
Cost of license, maintenance and related
|
|
|
40.2
|
%
|
|
|
39.8
|
%
|
|
|
40.8
|
%
|
|
|
42.2
|
%
|
Total cost of revenues
|
|
|
52.7
|
%
|
|
|
55.1
|
%
|
|
|
53.7
|
%
|
|
|
55.9
|
%
|
Gross margin percentage
|
|
|
47.3
|
%
|
|
|
44.9
|
%
|
|
|
46.3
|
%
|
|
|
44.1
|
%
|
The following table sets forth cost of revenues (dollars in millions) and percent change in cost of revenues for the periods indicated:
|
|
Three Months Ended June 30,
|
|
|
Percent
Change from
Prior
Period
|
|
|
Six Months Ended June 30,
|
|
|
Percent
Change from
Prior
Period
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
Cost of software-enabled services
|
|
$
|
582.8
|
|
|
$
|
549.9
|
|
|
|
6.0
|
%
|
|
$
|
1,178.3
|
|
|
$
|
1,133.4
|
|
|
|
4.0
|
%
|
Cost of license, maintenance and related
|
|
|
81.2
|
|
|
|
76.9
|
|
|
|
5.6
|
%
|
|
|
160.0
|
|
|
|
159.0
|
|
|
|
0.6
|
%
|
Total cost of revenues
|
|
$
|
664.0
|
|
|
$
|
626.8
|
|
|
|
5.9
|
%
|
|
$
|
1,338.3
|
|
|
$
|
1,292.4
|
|
|
|
3.6
|
%
|
Three Months Ended June 30, 2021 and 2020. Our total cost of revenues increased by $37.2 million, or 5.9%, primarily due to the unfavorable impact from foreign currency translation of $16.4 million, as well as acquisitions, which added $12.6 million in costs. Total costs of revenue, excluding the impact of acquisitions and foreign currency translation, increased by $8.2 million to support organic revenue growth. Cost of software-enabled services revenues increased $32.9 million, or 6.0%, primarily due the unfavorable impact from foreign currency translation of $14.1 million, as well as acquisitions, which added $12.6 million in costs, and an increase in organic costs of $6.2 million. Cost of license, maintenance and related revenues increased $4.3 million, or 5.6%, primarily due to the unfavorable impact from foreign currency translation of $2.3 million and an increase in organic costs of $2.0 million.
Six Months Ended June 30, 2021 and 2020. Our total cost of revenues increased by $45.9 million, or 3.6%, primarily due to the unfavorable impact from foreign currency translation of $26.8 million, as well as acquisitions, which added $26.0 million in costs. Total costs of revenue, excluding the impact of acquisitions and foreign currency translation, decreased by $6.9 million, primarily due to a decrease in costs such as travel, entertainment, out-of-pocket expenses and depreciation and amortization. These decreases were partially offset by an increase in costs to support organic revenue growth and an increase in severance expense related to personnel reductions in connection with continued integration efforts within our recently acquired businesses. Cost of software-enabled services revenues increased $44.9 million, or 4.0%, primarily due to acquisitions, which added $25.8 million in costs, as well as the unfavorable impact from foreign currency translation of $22.8 million, partially offset by the decrease in organic cost of revenues of $3.7 million. Cost of license, maintenance and related revenues increased $1.0 million, or 0.6% primarily due to the unfavorable impact from foreign currency translation of $4.0 million, as well as acquisitions, which added $0.2 million, partially offset by the decrease in organic cost of license, maintenance and related revenues of $3.2 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.
20
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 June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Selling and marketing
|
|
|
7.8
|
%
|
|
|
7.4
|
%
|
|
|
7.5
|
%
|
|
|
7.6
|
%
|
Research and development
|
|
|
8.0
|
%
|
|
|
8.5
|
%
|
|
|
8.4
|
%
|
|
|
8.7
|
%
|
General and administrative
|
|
|
6.6
|
%
|
|
|
7.8
|
%
|
|
|
7.1
|
%
|
|
|
7.9
|
%
|
Total operating expenses
|
|
|
22.4
|
%
|
|
|
23.7
|
%
|
|
|
23.0
|
%
|
|
|
24.2
|
%
|
The following table sets forth operating expenses (dollars in millions) and percent change in operating expenses for the periods indicated:
|
|
Three Months Ended June 30,
|
|
|
Percent
Change from
Prior
Period
|
|
|
Six Months Ended June 30,
|
|
|
Percent
Change from
Prior
Period
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
|
2021
|
|
|
2020
|
|
|
|
|
|
Selling and marketing
|
|
$
|
97.7
|
|
|
$
|
84.3
|
|
|
|
15.9
|
%
|
|
$
|
189.7
|
|
|
$
|
175.7
|
|
|
|
8.0
|
%
|
Research and development
|
|
|
100.8
|
|
|
|
96.8
|
|
|
|
4.1
|
%
|
|
|
208.7
|
|
|
|
201.7
|
|
|
|
3.5
|
%
|
General and administrative
|
|
|
83.6
|
|
|
|
88.9
|
|
|
|
(6.0
|
)%
|
|
|
173.7
|
|
|
|
181.8
|
|
|
|
(4.5
|
)%
|
Total operating expenses
|
|
$
|
282.1
|
|
|
$
|
270.0
|
|
|
|
4.5
|
%
|
|
$
|
572.1
|
|
|
$
|
559.2
|
|
|
|
2.3
|
%
|
Three Months Ended June 30, 2021 and 2020. Operating expenses increased $12.1 million, or 4.5%, primarily due to the unfavorable impact from foreign currency translation of $8.2 million, as well as acquisitions, which added $2.8 million in expenses, and an increase in organic operating expenses of $1.1 million.
Six Months Ended June 30, 2021 and 2020. Operating expenses increased $12.9 million, or 2.3%, primarily due the unfavorable impact from foreign currency translation of $14.1 million, as well as acquisitions, which added $8.1 million in expenses. Total operating expenses, excluding the impact of acquisitions and foreign currency translation, decreased by $9.3 million primarily due to decreases in expenses such as travel and entertainment and amortization of intangible assets, partially offset by an increase in severance expense related to personnel reductions in connection with continued integration efforts within our recently acquired businesses.
Comparison of the Three and Six Months Ended June 30, 2021 and 2020 for Interest, Taxes and Other
Interest expense, net. We had net interest expense of $51.0 million and $102.4 million for the three and six months ended June 30, 2021, respectively compared to $60.5 million and $137.9 million for the three and six months ended June 30, 2020, respectively. The decrease in interest expense, net for 2021 as compared to 2020 relates primarily to lower average interest rates and lower average debt balances. These facilities are discussed further in “Liquidity and Capital Resources”.
Other income, net. We had other income, net of $6.5 million and $24.5 million for the three and six months ended June 30, 2021, respectively. During the three and six months ended June 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 translation gains and losses. We had other income, net of $19.0 million and $3.7 million for the three and six months ended June 30, 2020, respectively. During the three and six months ended June 30, 2020, other income, net included investment gains of $16.8 million and $5.5 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 $(0.4) million and $(0.1) million for the three and six months ended June 30, 2021, respectively, compared to $(1.0) million and $(0.3) million for the three and six months ended June 30, 2020, respectively.
(Loss) gain on extinguishment of debt. In the three and six months ended June 30, 2021, we made additional principal payments on our term loans prior to their scheduled maturity, which resulted in a loss on extinguishment of debt of $1.5 million and $1.8 million, respectively, due to the write-off of a portion of the unamortized capitalized financing fees and the unamortized original issue discount. We recorded a $2.6 million loss on extinguishment of debt in the six months ended June 30, 2020 primarily related to the amendment to our senior secured credit agreement. The loss on extinguishment of debt includes the write-off of a portion of the unamortized capitalized financing fees related to the senior secured credit agreement for amounts accounted for as a debt extinguishment, as well as new financing fees related to amounts accounted for as a debt modification.
21
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 June 30,
|
|
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
|
2020
|
|
Provision for income taxes
|
|
$
|
76.7
|
|
|
$
|
29.5
|
|
|
$
|
137.5
|
|
|
$
|
54.3
|
|
Effective tax rate
|
|
|
28.8
|
%
|
|
|
14.8
|
%
|
|
|
27.4
|
%
|
|
|
16.8
|
%
|
Our effective tax rates for the three and six months ended June 30, 2021 and 2020 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 awards. The change in the effective tax rate for the three months ended June 30, 2021 compared to the prior year was primarily due to recognition of tax expense related to a law change in the United Kingdom 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, 2021 compared to the prior year was primarily due to recognition of tax expense related to a law change in the United Kingdom, decreased recognition of windfall tax benefits from stock awards and a proportionate change in the composition of income before income taxes from foreign and domestic tax jurisdiction. In addition, the effective tax rate for the three and six months ended June 30, 2020 included recognition of a state tax benefit related to a law change. While we have income from multiple foreign sources, the majority of our non-U.S. operations are in the U.K. and India, where we anticipate the statutory tax rates to be 19.0% and, on a blended basis, approximately 31.0%, respectively, in 2021. 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. We continue to evaluate and take action, as necessary, to preserve adequate liquidity. This includes limiting discretionary spending across the organization and re-prioritizing our capital projects amid the COVID-19 pandemic.
During the six months ended June 30, 2021, we paid quarterly cash dividends of $0.16 per share of common stock for each quarter totaling $82.1 million in the aggregate. During the six months ended June 30, 2020, we paid quarterly cash dividends of $0.125 per share of common stock for each quarter totaling $64.0 million in the aggregate.
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 $2,921.3 million of client funds obligations at June 30, 2021.
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 cash provided by (used in):
|
|
2021
|
|
|
2020
|
|
|
Change From Prior Year
|
|
Operating activities
|
|
$
|
562.3
|
|
|
$
|
555.7
|
|
|
$
|
6.6
|
|
Investing activities
|
|
|
(17.9
|
)
|
|
|
(168.1
|
)
|
|
|
150.2
|
|
Financing activities
|
|
|
1,175.8
|
|
|
|
(1,221.1
|
)
|
|
|
2,396.9
|
|
Effect of exchange rate changes on cash, cash equivalents and restricted cash
|
|
|
(1.6
|
)
|
|
|
(5.4
|
)
|
|
|
3.8
|
|
Net increase (decrease) in cash, cash equivalents and restricted cash
|
|
$
|
1,718.6
|
|
|
$
|
(838.9
|
)
|
|
$
|
2,557.5
|
|
2021 versus 2020
Net cash provided by operating activities was $562.3 million for the six months ended June 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 a decrease 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
22
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 ended June 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 ended June 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.
2020 versus 2019
Our cash, cash equivalents and restricted cash and cash equivalents, including amounts held on behalf of clients, were $950.5 million at June 30, 2020, a decrease of $838.9 million from $1,789.4 million at December 31, 2019.
Net cash provided by operating activities was $555.7 million for the six months ended June 30, 2020. Cash provided by operating activities primarily resulted from net income of $268.7 million adjusted for non-cash items of $344.0 million, offset by changes in our working capital accounts (excluding the effect of acquisitions) totaling $57.0 million. The changes in our working capital accounts were driven by decreases in accrued expenses, a decrease in deferred revenues, an increase in prepaid expenses and other assets, an increase in accounts receivable and an increase in contract assets, partially offset by changes in income taxes prepaid and payable and an increase in accounts payable. The decrease in accrued expenses was primarily due to the payment of annual employee bonuses in the first quarter of 2020. The decrease in deferred revenue was primarily due to the recognition of revenue associated with a multi-year license agreement where we received payment in 2019 as well as the revenue associated with annual maintenance fees. The increase in accounts receivable was primarily due to an increase in days’ sales outstanding. The increase in contract assets was primarily due to new term license deals. The change in income taxes prepaid and payable is primarily driven by the timing of tax payments. The increase in prepaid expenses and other assets and the increase in accounts payable were primarily due to the timing of payments.
Investing activities used net cash of $168.1 million for the six months ended June 30, 2020, primarily related to $114.1 million in cash paid for business acquisitions (net of cash acquired), $40.8 million in investments in securities, $35.9 million in capitalized software development costs and $16.0 million in capital expenditures, partially offset by proceeds from sales and maturities of investments of $33.7 million and the collection of other non-current receivables of $5.0 million.
Financing activities used net cash of $1,221.1 million for the six months ended June 30, 2020, representing a net decrease in client funds obligations of $947.4 million, net repayments of debt of $257.3 million, $64.0 million in quarterly dividends paid, $27.9 million of purchases of common stock for treasury and $7.3 million in withholding taxes paid related to equity award net share settlements. These payments were partially offset by proceeds of $82.8 million from stock option exercises.
We have made a permanent reinvestment determination in certain non-U.S. operations that have historically generated positive operating cash flows. At June 30, 2021, we held approximately $141.8 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, or U.S. state income taxes had been made. At June 30, 2021, we held approximately $106.9 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.
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Senior Secured Credit Facilities
As of June 30, 2021, there was $1,451.5 million in principal amount outstanding under the Term B-3 Loan, $1,102.8 million in principal amount outstanding under the Term B-4 Loan and $1,750.2 million in principal amount outstanding under the Term B-5 Loan. In addition, the amended senior secured credit facility has a revolving credit facility with a five-year term available for borrowings by SS&C with $250 million in available commitments (“Revolving Credit Facility”), of which $246.2 million was available as of June 30, 2021. The Revolving Credit Facility also contains a $25 million letter of credit sub-facility, of which $3.8 million was utilized as of June 30, 2021.
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 on April 16, 2025. 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.
Our obligations under the Term Loans are guaranteed by (i) our existing and future U.S. wholly-owned restricted subsidiaries, in the case of the Term B-3 Loan, Term B-5 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.
The obligations of the U.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 the U.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.
Senior Notes
On March 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, by SS&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 on March 30 and September 30 of each year.
At any time prior to March 30, 2022, we may, at our option, redeem the Senior Notes, in whole or in part, at a price equal to 100% of the principal amount of the Senior Notes, plus an applicable “make-whole” premium, plus accrued and unpaid interest to the redemption date. At any time on or after March 30, 2022, we may redeem some or all of the Senior Notes, in whole or in part, at the redemption prices set forth in the indenture governing the Senior Notes plus accrued and unpaid interest to the redemption date. In addition, at any time on or before March 30, 2022, we may redeem up to 40% of the aggregate principal amount of the Senior Notes at a redemption price equal to 105.5% of the principal amount thereof, plus accrued and unpaid interest to the redemption date, with the net proceeds of one or more equity offerings.
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
24
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 June 30, 2021, there was $2,000.0 million in principal amount of Senior Notes outstanding.
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 $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:
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•
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Consolidated EBITDA does not reflect the significant interest expense we incur as a result of our debt leverage;
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|
•
|
Consolidated EBITDA does not reflect the provision of income tax expense in our various jurisdictions;
|
|
•
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Consolidated EBITDA does not reflect any attribution of costs to our operations related to our investments and capital expenditures through depreciation and amortization charges;
|
|
•
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Consolidated EBITDA does not reflect the cost of compensation we provide to our employees in the form of stock-based awards;
|
|
•
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Consolidated EBITDA does not reflect the equity in earnings of unconsolidated affiliates; and
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|
•
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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.
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25
The following is a reconciliation of net income to Consolidated EBITDA as defined in our amended senior secured credit facility.
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Three Months Ended June 30,
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|
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Six Months Ended June 30,
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|
|
Twelve Months Ended June 30,
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(in millions)
|
|
2021
|
|
|
2020
|
|
|
2021
|
|
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2020
|
|
|
2021
|
|
Net income
|
|
$
|
189.8
|
|
|
$
|
169.5
|
|
|
$
|
364.7
|
|
|
$
|
268.7
|
|
|
$
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721.2
|
|
Interest expense, net
|
|
|
51.0
|
|
|
|
60.5
|
|
|
|
102.4
|
|
|
|
137.9
|
|
|
|
210.5
|
|
Provision for income taxes
|
|
|
76.7
|
|
|
|
29.5
|
|
|
|
137.5
|
|
|
|
54.3
|
|
|
|
233.8
|
|
Depreciation and amortization
|
|
|
165.8
|
|
|
|
179.4
|
|
|
|
335.3
|
|
|
|
364.1
|
|
|
|
696.4
|
|
EBITDA
|
|
|
483.3
|
|
|
|
438.9
|
|
|
|
939.9
|
|
|
|
825.0
|
|
|
|
1,861.9
|
|
Stock-based compensation
|
|
|
27.7
|
|
|
|
22.1
|
|
|
|
55.5
|
|
|
|
44.6
|
|
|
|
98.7
|
|
Acquired EBITDA and cost savings (1)
|
|
|
—
|
|
|
|
0.5
|
|
|
|
1.3
|
|
|
|
2.3
|
|
|
|
2.8
|
|
Non-cash portion of straight-line rent expense
|
|
|
(0.5
|
)
|
|
|
(0.2
|
)
|
|
|
(0.7
|
)
|
|
|
(0.3
|
)
|
|
|
(0.6
|
)
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Loss (gain) on extinguishment of debt, net
|
|
|
1.5
|
|
|
|
(0.2
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)
|
|
|
1.8
|
|
|
|
2.6
|
|
|
|
3.3
|
|
Equity in earnings of unconsolidated affiliates, net
|
|
|
0.4
|
|
|
|
1.0
|
|
|
|
0.1
|
|
|
|
0.3
|
|
|
|
1.3
|
|
Purchase accounting adjustments (2)
|
|
|
1.6
|
|
|
|
1.8
|
|
|
|
3.2
|
|
|
|
3.6
|
|
|
|
6.5
|
|
ASC 606 adoption impact
|
|
|
0.2
|
|
|
|
0.7
|
|
|
|
0.4
|
|
|
|
2.9
|
|
|
|
2.6
|
|
Other (3)
|
|
|
(3.1
|
)
|
|
|
(15.7
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)
|
|
|
2.8
|
|
|
|
33.2
|
|
|
|
(28.6
|
)
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Consolidated EBITDA
|
|
$
|
511.1
|
|
|
$
|
448.9
|
|
|
$
|
1,004.3
|
|
|
$
|
914.2
|
|
|
$
|
1,947.9
|
|
________________________
(1)
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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.
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(2)
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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.
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(3)
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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.
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Our covenant requirement for consolidated net secured leverage ratio and the actual ratio as of June 30, 2021 are as follows:
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Covenant
Requirement
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|
Actual
Ratio
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Maximum consolidated net secured leverage to
Consolidated EBITDA ratio(1)
|
|
6.25x
|
|
2.09x
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________________________
(1)
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Calculated as the ratio of consolidated net secured funded indebtedness, net of cash and cash equivalents, 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.
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Recently Adopted Accounting Pronouncement
In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740). ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740 related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The standard also simplifies aspects of the accounting for franchise taxes and enacted changes in tax laws or rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. Certain amendments in this update must be applied on a prospective basis, certain amendments must be applied on a retrospective basis and certain amendments must be applied on a modified retrospective basis through a cumulative-effect adjustment to retained earnings as of the effective date. We adopted ASU 2019-12 effective January 1, 2021. The adoption of this standard did not have a material impact on our financial position, results of operations or cash flows.
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Recent Accounting Pronouncement Not Yet Effective
In March 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 U.S. GAAP if certain criteria are met to contracts, hedging relationships and other transactions that reference LIBOR or another reference rate expected to be discontinued. In January 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 through December 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.