Great. Hello, everyone. My name is Alexei Gogolev, Head of JPMorgan vertical software team. And today, I'm delighted to host a fireside chat with Founder and CEO of SS&C, Bill Stone. Bill, welcome.
First of all, if I may ask you to talk a little bit about the latest changes in the way you disclose on group some of your revenues and maybe elaborate a bit more on how you're thinking about strategically positioning some of these products together to better penetrate your customers?
Thanks, Alexei. Thanks for having me, and thanks, everybody, for coming. We did two things that where we moved our retirement business into the same business that global investor and distribution services were. They have a lot of common clients and the global investor and distribution services business has maybe 7,000 employees and retirement maybe has 1,500, so we thought about putting those 8,500 people together, we would be able to get some efficiencies, have development that would be more pointed and then go to market in a way that is broader and stronger.
Similarly, and also Nick Wright runs that business, and we're very pleased with his capabilities. We also moved our institutional investment management business into our Wealth and Investment Technologies business. So they, again, have a lot of overlapping clients as well as products. So things like PORTIA and CAMRA and HiPortfolios and Total Return and Geneva and APX and Moxy and a bunch of others. Those all serve similar things, but a fixed income manager is not going to be the same as an equity manager and one that uses the derivatives, this is not going to be the same as one that doesn't use derivatives.
So there's going to be purpose-built software and services around the various and sundry targets that those asset managers have. So those were the reasons was to really get a little tighter with our product and service base and then go to market with a stronger message and try to be able to grow faster than what we're growing right now. So that was pretty much why we did that. And so far, I mean, it's early, but we are pleased with the results.
And Bill, even after the consolidation of some of these assets, you still have a lot of moving parts, as you always say, it's hard to see them all moving in the right direction. But generally, the trajectory has been improving. I was wondering if you've seen anything that kind of surprised you on the upside or on the downside in the most recent quarter, like in terms of perhaps dynamics, the demand from your customers, those sorts of things?
Well, I mean I think in the most recent quarter, Intralinks was kind of a star, it was up 23%. It's already a $500 million or so business, annual revenue business, and it trades in excess of 50% EBITDA margins. So that was a very nice performance. And we've brought out a number of new features and functions in our Intralinks product set. So we're, I think, the largest provider of virtual data rooms, but M&A was not particularly strong in the first quarter, and it's really not particularly strong in the second quarter, but our transactions that Intralinks is managing for people who are large and complex and the data rooms are open longer. So people keep putting more information in there and that generally drives revenue for us.
We also had pretty good performance out of our fund administration businesses and in particular, private credit remains strong for us. And I think that our wealth -- primary wealth product is Black Diamond and it continues to grow in mid-teens. We have about 2,400 RIAs, and they represent about $3.3 trillion in assets. And then we're also combining things like we bought something called Innovest in 2022 -- and maybe 2021, 2022 and they have something called InnoTrust.
So we've married Black Diamond with InnoTrust so that the RIAs, as their clients get older and they start wanting to set trust up for their children or grandchildren or whomever, that RIA can continue to service that client. And otherwise, if they can't offer trust services, there's a good chance they lose the assets. So we think that will be a very good product area for us.
And generally, for a long time, SS&C has been perceived as a premium service provider, SaaS provider, what do you think is the most competitive advantage that you see for your business versus some of your competitors, both on the legacy side and also among some of those disruptors that have been appearing recently.
Yes. Again, I talk about some of the disruptors as kind of like [ Mats ] get away, but of course, they're there, and they're always going to be there, just like we were when I started. When I started, there were 2 major systems that were sold into the investment industry, in the life and property and casualty. The one was called [ Bond and Stock ] and the other one was called [ Stock and Bond ]. They were great marketers back then.
So now I think it's much more that our strength is the depth and breadth of our knowledge. So we probably have, I don't know, several thousand CPAs and chartered accountants and all kinds of CFAs and so we're experts in what we do. And so we were able to do things with like Blue Prism, where we bring so much expertise from a fundamental basis, and they bring so much expertise from a robotic process automation and artificial intelligence and natural language processing and machine learning that you get a really rapid response. So we've rolled out 2,000 or so light digital workers in our business alone, besides selling it out in around the world. So that's really improved our processes, reduce our errors and improved our customer satisfaction.
And Bill, for those that are less familiar with your business structure, could you elaborate a bit more on the importance of COGS components that you have owning your on network, our data centers. That obviously has an impact on gross margins that somewhat lower than those in the SaaS space that we cover, but at the same time, your EBITDA margins are among the highest in our universe. So how do you think about the importance of those components of your infrastructure?
Well, it's purpose-built, right? So we have our own data centers, they are world-class data centers as you go there, they're enormous. They're 100 feet underground. There's all kinds of security and then we have our own networks and our own compute. And so it is something where we have our own purpose-built private cloud. And that gives us a lot of strength as far as being able to secure it, manage it in such a way and not be such a target, right? We're not Microsoft, right? So they're not coming after us. We're not Amazon. They're not coming at us.
Bad actors around the world are going to come after both of those because there are such icons. We get to play under the radar for some of the largest institutions in the world, we do this far. And so we get audited by all of them and besides our own audits and our own SOC 2s and all that stuff, but I think what it does is it gives us control and it also -- I've always said that when I call Anthony Caiafa, who's our Chief Technology Officer, I don't have to. I call Amazon, I say, this is Bill, they said Bill who, Bill Gates, Bill Joy, Bill this, Bill that. I call Anthony Caiafa, he knows who Bill is. I'm in charge of his raise and his bonus and his equity awards. It's amazing, the kind of attention you get in that situation.
And the ability to move quickly in order to solve your clients' problems and our clients are biggest hedge funds in the world. They are the biggest banks, they're the biggest insurance companies. And some of those people have very short tempers. So you want to placate them as quickly as possible.
Absolutely. And obviously, Bill, I mean you have decades of experience in the industry, and it feels like the financial industry is always going through phases when often top management, they choose a lot of services to be in-house and then there's another phase when the big banks start to do more outsourcing. Do you feel like the complexity of financial products and growing regulatory pressure is pushing some of your customers to do more outsourcing these days?
Yes. I think that's kind of been a standard really for the last 20, 30 years, right? Things have gotten increasingly complex. The mathematics that you can get out of something like Excel and others allow people to build pretty sophisticated models and cash flow models and create different types of securities using different types of assets. So that gets to becoming quite sophisticated in its own right. But then you start tacking in that it's very difficult to recruit and retain personnel.
Like if you take accounting in most of the college programs, it's down 20%, 30%, 40%. People don't want to work that hard. I think the same thing has happened with analysts in the major investment banks. "What? Saturday? That's when I go to the spa." That isn't quite how it worked when, "Saturday, I'd love to be there Saturday, you want me Sunday too," so the world changes.
And you're in the midst of having the largest transfer of wealth in the history of mankind happening to where some of us, not one of the them, thinks they made it now and I give it to my kids and they act like they made it, but I think those things are around the world. And can you get the same work ethic that you got generation and generation there. Every generation thinks they worked harder than the one after them.
But I think in today's world, there's so many ways to make money now. How about, I think, I'll be an influencer. Maybe I'll wear a different hairdo every day and see if I [ get it ]. But I just think those kinds of things versus why don't you go build about 11 models on this potential IPO and come back to be, I'd like, about 01:00, that kind of stuff. It's what I grew up with. And I think that you're going to have to live in a different world to be successful in 2024.
And obviously throughout your history, you have various investors, some love your M&A activities, some don't. But in many cases, you've proven that a lot of acquisitions you've done have been quite successful. How do you feel about M&A at this point in time, how much appetite you have for sizable transactions. And are there any areas that you're more interested in at this point, maybe geographies or specific expertise you want to add?
Well, I mean, we still have a big appetite. But I mean when your interest rates are 2% or your interest rates are 7%, and you're the buyer, 2% is better, right? So we like the 2%. And we also -- we don't pay 10x revenue. That's just not our -- I mean we think we're brilliant, but we're not that brilliant.
When you set the thing up to where you have to be perfect to make money, you find out pretty quickly that you're not so perfect. So putting stress on an organization when you're doing a large-scale acquisition, then you priced it to where you have to have perfection, I don't think it's a very wise strategy.
So we like to move. We like to move fast. We are reasonably nimble. I think we started looking at Blue Prism, which we spent $1.7 billion, maybe a month, maybe 6 weeks before we bought it. If it was one of the major banks, and they were buying it, I think it'll be closer to 6 years than 6 weeks, right? So that's a big advantage we have. We can move a lot faster and that gives us a lot more capability and a more quick response time.
And in terms of your pricing power, we talked about your services being considered a premium product. How much pricing power do you feel you have at the moment? Maybe update us on where you see price increases contributing to top line this year?
Yes. I think last year, we got right close to 3% price across the board, and we would want to do a little better this year than we did last year, and then we would like to get a little more aggressive about it. People want their same team. They want their same processes.
They want more capabilities and all those things cost money. And so you need to be able to explain that to the client, and then you have to have some backbone so that, well, it's a 5% price increase and they look at your cross side, you know what, how about 4.5? 4? 3.5? I got to go back with something, you can't do that. You can't bake them, like bake them a while, but you can't bake them a lot. So it's really teaching and training how you do that and giving people confidence that you're selling them.
And then once you do that, I mean, Microsoft just watches at us and says it was $10 million last year, it's $12.5 million this year, let's see, that's 25%. Boy then we negotiate hard and get them down to 23.5%, I'm familiar with that. So it's, again, it's where are you in that pendulum, and then what can you maintain a great relationship with your clients and raise prices?
And one of the big strategic focuses for the business was to improve efficiency of your operation. You talked a lot about the so-called digital workers. Can you remind us some use cases for how you deploy that across the firm.
Yes. So we have -- as you know, we have most of the very large hedge funds or our clients. And so we have a couple of them where they are fanatics about the monthly statements they send out to their LPs. So we would put 2 or 3 people, and we would proofread them for 2 or 3 days, right? So that they were as perfect as humans could make them. But humans get tired. You look at the same statements, you have about 400 of them and about what do we say, maybe 75th one or maybe even 125th, but after that, it's like snoring, right? I'm not going to notice it. Alexei spelled with two es, not just one, right? So you're going to start making common mistakes that humans make. You put a digital workaround there.
One, it goes through all of them. It doesn't take any breaks, never b****** and 3, 4 hours later, he's looked at every 1 of those statements. He's also checked it for grammar and checked it for spelling and all those kinds of things and you just saved 5, 6 man days' worth of work and same thing with reconciliations.
I mean I think we have something like 7,000 hedge funds and $3 trillion in assets. And so that's a lot of reconciliations with probably almost every bank in the world that we have some interface with. And so now you can put digital workers on that and they can reconcile it for you, you might still have human reviews, but you have digital workers that can spot a break, can take a copy of the transaction, can create an e-mail, can send it to the counterparty, can get it back, and if it resolves a break, can process it versus how many times you would have to have a human in that process.
So there's a lot of those kinds of things that are very susceptible to digital workers. And then more so, as they get better, you can do more and more sophisticated things, but you really have to put your best people on it and they need to understand, right?
You can't build a digital worker that's got 70 IQ. That means you've got a 70 IQ digital worker. They don't reconcile [ minute ] as well. So it is something where you recognize that the amount of effort and quality you put in is what you get.
And in the past, you talked about some of the savings you're hoping to make, and we've already discussed that your margins -- EBITDA margin is quite high as it is. But what sort of opportunity do you see to further improve your profitability?
Well, we don't really go out and say, "well, hey, we have 26,681 workers and boy, we're using digital worker, we'll be able to lay off a bunch of you." You know, that's a bad strategy. So we don't ever say that. We say that what we're going to do is grow our revenues and not have to grow our workforce at nearly the same rate, so that hopefully, 3, 4, 5 years from now, we're not doing $5.7 billion, but we're doing $8.2 billion. And we still have 26,821 workers or whatever. It's much more of trying to be able to have avenues of growth, have ways in which to improve your process, have ways in which to improve customer satisfaction and do it with less headcount.
Absolutely. And another exciting part of your business, Blue Prism, that you acquired. Can you also talk about the application of Blue Prism, especially externally, like where do you see that division expanding into how it can help you gain more customer market share?
Yes. So we've used Blue Prism. So for the state of New Mexico for them to add a new person into their Medicaid enrollment in the state of New Mexico was taken between 3 and 30 days, and we put some digital workers in that work spot or workplace and now it takes 15 minutes. So that's a pretty big productivity enhancement. We're doing in the National Health Service in the U.K., and it was taking 20 minutes to answer the phone. Now it's down to 5 minutes. Maybe we can get it down to 2.5 minutes, and then maybe we get down to 1 minute. But from 20 to 5 is a pretty big improvement. So all those kinds of things, nobody likes to be left on hold. So we're trying to find things like that, that we can put digital workers on that again, they're there 24/7.
Right. That's a good segue to discuss your health care business and specifically DomaniRx. Can you remind us what's next -- what's the next phase in the development you've started to roll out the platform earlier this year. I think the next big milestone is June 1. So maybe talk a little bit about what to expect in the second half of the year.
Yes. So when we started on DomaniRx a couple of years ago, it's a big development. We -- I think we spent more than 1 million hours building this out, which is a very large development project. And we think we have a lot of feature and functionality that's not available in the marketplace, except at DomaniRx and it's at scale.
So when we first started off, we're going to do our drug discount card business and commercial accounts for health insurers. And the first one is going to be Humana. Humana sold their commercial business. So we just did our drug discount business first. We got about 80 million lives on DomaniRx and that we're processing hundreds of thousands of claims a week, not millions. And so it's been great reviews. And now we're going to start moving Humana's Medicaid and then Medicare business.
We hope to have that done in the fourth quarter of this year, and then we'll start looking to move [indiscernible], that our two joint venture partners and move them on to Domani. And then we think we can go out to major players that adjudicate and pay claims and really help them with -- a lot of them have latency issues. Technology is old, the more volume they put in it, the slower it gets when if you're standing in front of a pharmacist, with us, it's generally sub-second or 1 second response time.
You start getting to 8 seconds and 10 seconds and 12 seconds, people get furious. So you need to have a customer satisfaction process that allows you to move quickly when you're in front of a pharma assistant. It's no different than being in an ATM. You put your PIN number in there. And if it takes 5 minutes, it's like what's going on here. So that's been a big value to what our joint venture partners are telling us.
And the recent change health cyber-attacks, has that had any impact so far on demand to switch to DomaniRx?
Like most things is if people get frustrated. And when that happened, I think Change Healthcare was down 16 days, which means they couldn't pay any claims for 16 days. And like we had some clients that were using us and Change, and they basically weren't getting paid. And it's not like you're dealing with JPMorgan, you're dealing with these small co-pay companies that don't really have much capital [ and so ] legal.
They need that cash flow or they're out. So we stood up a bunch of them and probably have garnered somewhere in $30 million, $50 million in revenue, and we think that we are really getting a great reputation with both them and then also the drug manufacturers because they are the ones that push whether it's Ozempic or something else through their pipeline, that's a very -- can be a very lucrative business for us.
But in terms of potential impact on the overall business, clearly, and it's still a relatively small part at this point. But would you expect it to have more of an impact next year in terms of the growth trajectory?
I think so. And again, this $30 million came in at about 45 days. So it wasn't like it was -- we had a big program to go after this. We they were in crisis and we helped fix the crisis. And that's something where you get a pretty good chance to grow from there. So we're optimistic.
That's great. Maybe if we could get the mic and look at the questions in the room, if anyone has any questions, please raise your hand.
Just ask on Blue Prism and AI. How much is AI helping versus how much is it being more competitive and therefore, making it actually harder for that to take hold.
That's a good question. I would say that in general, we have found Blue Prism and now it's applications of AI in parts of its area to be pretty productive. But you're still constantly trying to manage it so that you're aware of where we're getting offtrack. So it's something they start seeing intelligence, and that means it's making some of its own decisions. And you've got to make sure that those decisions are compatible with what you set up as the objective to start with. So we're pretty good at that. We keep doing it and refining it and refining it. So we're optimistic.
And this morning, you announced another dividend. Could you maybe talk about your vision of capital allocation? I know you've always been very balanced in terms of, I guess, opportunistic in terms of how you allocate capital. But are you leaning towards a certain capital allocation strategy more these days than before?
No, I think we are looking still to give back to shareholders 65%, 70% of the cash flow through stock buybacks and dividends. And then maybe 30%, 35% in debt pay down. We like to keep all of our capital holders, whether they be equity holders or debt holders in good stead. In case we want to do a big acquisition or something, we need the credit guys to loan us a lot of money. We like that. And we also are trying to take advantage of what we think is a pretty good investment in our own stock.
And sort of more of an industry question about consolidation in the hedge fund space. It's been going on, obviously, for a while, but it feels like it's accelerated. The process has been more visible in the last couple of quarters. Have you seen any tailwind for your business? Like have your larger customers being consolidating more market share?
Well, I mean, the vast amount of money has gone into the big multi-strat funds, right, whether that's Millennium or Point72 or a number of the other ones, Baupost, Citadel, so it's the same time, right? I mean Henry Ellenbogen was at T. Rowe Price, and he spins out of T. Rowe Price and sets up Durable Capital, great client of ours. I think Henry is managing somewhere upwards of $20 billion. I think he's been at it for 4 years, maybe 4.5 years, so those kinds of things.
Bobby Jain, I think, is spinning out at Millennium. So we're deep in the prelaunch of his funds, Jain Global, I think it's called, and a number of other ones, right? And the more there's animal spirits out there, the more young ladies and young men should go out and start hedge funds, we can help you. No, I can't offer a capital, but I can do accounting.
And in terms of generally the competitive environment that you've seen across a number of segments, especially from some of the well-established players like Aladdin, BlackRock and PAM by State Street. Have you seen any incremental investments in technology, incremental aggressiveness in terms of pricing, how have those competitors performed versus historic dynamics?
Yes. I think Aladdin is still a big system that's got a lot of board power when it goes to sell. So -- and BlackRock's got $10 trillion of assets it manages or something. So they're definitely formidable. And then I think State Street's PAM is kind of getting -- State Street bought Charles River Development, and I think they're building out a product. And so I think we don't see PAM very often. The one you see in that space really is either Clearwater or SimCorp or one of those is more prominent.
Absolutely. Any more questions in the room? I had another one related to your kind of midterm targets. And obviously, as you mentioned, you're always considering M&A, it's never sort of good idea to buy anything expensive. But in terms of your organic growth, which investors seem to focus on lately, more than they used to, where do you see this business growing organically in sort of the normal state?
I mean I think they've been concentrating on it for about 15 years. So I think we're going to grow mid-single digits, and then hopefully, we'll get some acceleration from there. And then hopefully, mid- to high single digits and then see can we really start to -- we kind of rolled up the fund administration business when we got in it in 2002. And we probably did, I don't know, 15 acquisitions in that space.
And then other people came in and started overbidding what we would say. And so we started just concentrating on winning all the big platforms, and we were pretty successful with that. And I think we will continue to be pretty successful at that because we spent $500 million in cash on software development and that's more than some of these disruptors having revenue.
So we're not as nervous about where they're coming from and what expertise they bring to the table. So it's an expertise game, and you have pretty demanding clients, and it's staying on top of that is what's going to make you successful and you got to continue to focus and that's not always easy.
Because I mean growing mid-single digits or high single digits at your scale, and that's a lot of hundreds of millions of dollars especially considering that there's always going to be a certain level of churn involved. I think where do you feel which area of your business do you feel midterm or longer term has more opportunity to grow than maybe other segments?
Well, there's massive scale coming in wealth technology. So where we have Black Diamond and other products that we sell into the wealth sector. When you transfer all that money from generation to generation, the younger generation sometimes doesn't want to keep it where the older generation made it and gave it to them.
So there will be a lot of dislocation in the wealth industry, and we think we're very well positioned there. We think we continue to have the leading product in fund administration in Geneva. We have 40 of our competitors that buy software from us. We think that's a lot better than us buying software from them. So we think that's another pretty advantageous place to be. And then Intralinks has been a very pleasant surprise with its strength and we think it will continue to be successful, too.
Perfect. Thank you very much, Bill, for being with us today. I appreciate you coming to our conference.
Thanks. Okay, Alexei.
