SS&C (SSNC)

Financial software provider SS&C Technologies (NASDAQ:SSNC) reported Q1 CY2025 results exceeding the market’s revenue expectations, with sales up 5.4% year on year to $1.51 billion. On the other hand, next quarter’s revenue guidance of $1.51 billion was less impressive, coming in 1.4% below analysts’ estimates. Its non-GAAP profit of $1.44 per share was 2.4% above analysts’ consensus estimates.

Company Overview

Founded in 1986 as a bridge between technology and financial services, SS&C Technologies (NASDAQ:SSNC) provides software and software-enabled services that help financial firms and healthcare organizations automate complex business processes.

A combination of increasing reliance on data and analytics across various industries and the desire for cost efficiency through outsourcing could mean that companies in this space gain. As functions such as payroll, HR, and credit risk assessment rely on more digitization, key players in the data & business process services industry could be increased demand. On the other hand, the sector faces headwinds from growing regulatory scrutiny on data privacy and security, with laws like GDPR and evolving U.S. regulations potentially limiting data collection and monetization strategies. Additionally, rising cyber threats pose risks to firms handling sensitive personal and financial information, creating outsized headline risk when things go wrong in this area.

In the financial services sector, SS&C competes with FIS, Broadridge Financial Solutions, and BlackRock's eFront in fund administration; Envestnet, Orion, and Addepar in wealth management; and SEI Investments in multiple segments. In healthcare, SS&C faces competition from Evernorth Express Scripts/Cigna, CVS Caremark, and UnitedHealth/OptumRx.

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but many enduring ones grow for years.

With $5.96 billion in revenue over the past 12 months, SS&C is one of the larger companies in the business services industry and benefits from a well-known brand that influences purchasing decisions. However, its scale is a double-edged sword because it’s harder to find incremental growth when you’ve penetrated most of the market. To expand meaningfully, SS&C likely needs to tweak its prices, innovate with new offerings, or enter new markets.

As you can see below, SS&C’s sales grew at a mediocre 4.9% compounded annual growth rate over the last five years. This shows it couldn’t generate demand in any major way and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within business services, a half-decade historical view may miss recent innovations or disruptive industry trends. SS&C’s annualized revenue growth of 5.5% over the last two years aligns with its five-year trend, suggesting its demand was stable.

This quarter, SS&C reported year-on-year revenue growth of 5.4%, and its $1.51 billion of revenue exceeded Wall Street’s estimates by 0.8%. Company management is currently guiding for a 3.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 5.1% over the next 12 months, similar to its two-year rate. This projection is above the sector average and indicates its newer products and services will help sustain its recent top-line performance.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

SS&C has been a well-oiled machine over the last five years. It demonstrated elite profitability for a business services business, boasting an average operating margin of 22.7%.

Analyzing the trend in its profitability, SS&C’s operating margin rose by 1.1 percentage points over the last five years, as its sales growth gave it operating leverage.

In Q1, SS&C generated an operating profit margin of 23.6%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

SS&C’s EPS grew at an unimpressive 7.1% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 4.9% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of SS&C’s earnings can give us a better understanding of its performance. As we mentioned earlier, SS&C’s operating margin was flat this quarter but expanded by 1.1 percentage points over the last five years. On top of that, its share count shrank by 4%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

In Q1, SS&C reported EPS at $1.44, up from $1.28 in the same quarter last year. This print beat analysts’ estimates by 2.4%. Over the next 12 months, Wall Street expects SS&C’s full-year EPS of $5.57 to grow 8.3%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

SS&C has shown terrific cash profitability, enabling it to reinvest, return capital to investors, and stay ahead of the competition while maintaining an ample cushion. The company’s free cash flow margin was among the best in the business services sector, averaging 20.7% over the last five years.

Taking a step back, we can see that SS&C’s margin dropped by 2.2 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity.

SS&C’s free cash flow clocked in at $259.5 million in Q1, equivalent to a 17.1% margin. This result was good as its margin was 8.5 percentage points higher than in the same quarter last year, but we wouldn’t put too much weight on the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

SS&C historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 6%, somewhat low compared to the best business services companies that consistently pump out 25%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, SS&C’s ROIC has stayed the same over the last few years. If the company wants to become an investable business, it must improve its returns by generating more profitable growth.

SS&C reported $515 million of cash and $7.03 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.32 billion of EBITDA over the last 12 months, we view SS&C’s 2.8× net-debt-to-EBITDA ratio as safe. We also see its $443.6 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

It was good to see SS&C narrowly top analysts’ revenue expectations this quarter. We were also happy its EPS outperformed Wall Street’s estimates. On the other hand, its revenue and EPS forecast for next quarter missed despite the company raising its full-year outlook. Overall, this was a softer quarter. The stock traded down 1.8% to $76 immediately following the results.

Updated: July 10, 2025 at 12:11 AM EDT

Before making an investment decision, investors should account for SS&C’s business fundamentals and valuation in addition to what happened in the latest quarter.

SS&C’s business quality ultimately falls short of our standards. To kick things off, its revenue growth was mediocre over the last five years, and analysts don’t see anything changing over the next 12 months. And while its powerful free cash flow generation enables it to stay ahead of the competition through consistent reinvestment of profits, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its cash profitability fell over the last five years.

SS&C’s P/E ratio based on the next 12 months is 13.8x. Beauty is in the eye of the beholder, but we don’t really see a big opportunity at the moment. We're pretty confident there are more exciting stocks to buy at the moment.

Wall Street analysts have a consensus one-year price target of $92.77 on the company (compared to the current share price of $81.97).