SS&C Technologies Posts An Operating Loss And Its Stock Continues To Fall

SS&C Technologies, the portfolio management systems company with some 250 client firms, reported 1996 financial results of $26 million in revenues, an increase of 40 per cent over the previous year. Net income was $473,000, a 50 per cent increase.

However, these numbers are deceptive, according to an analysis by Waters. A truer picture of SS&C's financial health is in the operating income, which is before interest revenue (or expense) and tax expenses (or credits).

According to the public company's income statement, SS&C posted an operating loss of $224,000 last year. When 1995's one-time charge of $7.9 million for R&D is added back to 1995's $7.4 million operating loss, the company earned about $500,000. So a more accurate portrait of the company profitability for 1996 shows operating profits plunged 145 per cent.

Meanwhile, the reasons net income increased 50 per cent are mainly two: 1) 1996 showed $973,000 in interest income (compared to $24,000 in 1995), largely due to the fact that in May 1996 SS&C raised about $70 million in an initial public offering (the evidence is on the top line of the balance sheet, which shows cash of $51.7 million in 1996 versus $1.6 million 1995; and 2) a huge $3 million tax credit in 1995.

By adding back the tax credit and charge from 1995 and the interest income in 1996 from the IPO, a more accurate net number is calculated, revealing a net loss of $1.75 million, down from a net profit of $4 million in 1995, a decline of 144 per cent--the same as its operating loss.

CEO BILL STONE

Still, William Stone, SS&C's chairman and chief executive officer, boasts about SS&C's revenue growth of 40 per cent. "If you compare us with Princeton or Advent or anybody else, I don't think they've got that kind of growth rate." But while SS&C's top line grew 40 per cent, it's bottom sank because operating costs jumped an average of 51 per cent.

Stone rebuts that saying the company invested heavily in Finesse, a financial risk analysis tool. Yet the income statement shows R&D expenses increased only 23 per cent, less than the revenue gain. But selling and marketing, and general and administrative, expenses climbed 64 per cent and 79 per cent, respectively, well above revenue growth.

Even so, Stone says he's optimistic. "We have an opportunity to build a very large company and we believe that we're well positioned to take advantage of the growing trends and financial assets of global [money managers]."

MARKETS REVEAL TRUTHS

The stock market evidently disagrees.

SS&C's stock was offered at $19 a share and immediately began a steady descent. It's now about $5 a share. According to Securities Data Corp., SS&C Technologies was ranked among the 20 worst performing IPO's in 1996.

SS&C's stock offering was co-managed by Alex. Brown & Sons and Hambrecht & Quist, who, as investment bankers, have a fiduciary responsibility to get the highest price for their client, experts say.

But even Kenneth Burke, an analyst with Hambrecht & Quist who follows SS&C, writes as follows: "The company's turnaround remains, to an extent, a work in process. SS&C has yet to see the full benefit of the successful introduction of new products, the success of its efforts to penetrate new international markets or the improved productivity of the domestic sales organization."