SS&C Technologies Holdings Inc

NASDAQ:SSNC

Earnings Call Analysis

SS&C's Q4 Futures and Growth Outlook

SS&C Technologies concluded Q3 with a robust $447.6 million in cash and a significant gross debt of $6.9 billion. Looking ahead, they anticipate Q4 adjusted organic growth between 1.8% to 4.8%, aiming for a yearly range of 2.1% to 2.9%. Revenue projections for Q4 span between $1,370 to $1,410 million, while adjusted net income is expected to range from $305 to $327 million. The full-year forecast estimates revenue to be between $5,463.5 to $5,503.5 million and adjusted net income between $1,159.9 to $1,181.9 million, with a projected cash flow from operations between $1,180 to $1,230 million.

Positive Earnings and Future Prospects Despite Market Skittishness

The company reported positive results amid prevailing market concerns. Although there was a dip in license revenue, the management remains hopeful for a rebound in the upcoming quarter, emphasizing a conservative approach in their estimates. They also report over 5% recurring revenue growth in Q3, showcasing the robustness of the fund administration and other recurring business sectors.

Marginal Growth and the Benefits of Automation

Management conveyed confidence in the company's ability to increase margins, not finding it particularly difficult. They highlighted Blue Prism's positive impact on productivity and its expected above 30% fourth-quarter margins. Additionally, they underscored the ability to effectively manage businesses, drive high EBITDA, rapidly pay down debt, and buy back stock as factors contributing to bullish sentiment.

Cautious Acquisitions Strategy

The company expressed interest in the Australian, Canadian, United States, and certain UK markets. They indicated they might deploy around $100 million in acquisitions within the next three to six months but do not currently have deals poised to close within that range, indicating a strategic and cautious approach to M&A.

Expanding Clientele and Service Offerings

The company's client base is growing, with the current year on track to add approximately 1.5 times more new clients compared to the previous year. They are also expanding service offerings beyond just new hedge funds with increased fixed income, derivative, and operational workflows which have been met with much acceptance. These enhancements illustrate an increasing market presence and robust sales performance.

Positioning for Health Care Market Growth

SS&C Technologies sees the health care segment as a significant growth opportunity, especially with DomaniRx, an entity expected to cover tens of millions of lives starting in Q1 2024. Improving client relationships and exploring growth prospects both within and outside of DomaniRx were highlighted as the keys to stabilizing their health care operations.

Real Estate Investments and Future Conversions

While the company faces challenges with illiquid real estate investments, especially in urban centers, it manages to keep cash flow reasonably neutral. They are actively working to wind down these assets and anticipate gradual improvements. Alongside that, a significant drug discount card business conversion scheduled for the first quarter of 2024 is set to diversify their portfolio further.

Earnings Call Transcript 2023-Q3

[Operator]

Good afternoon, ladies and gentlemen, and welcome to the SS&C Technologies Q3 2023 Earnings Conference Call. [Operator Instructions], and please be advised that this call is being recorded. [Operator Instructions]

Now at this time, I would like to turn the call over to Ms. Justine Stone, Head of Investor Relations. Please go ahead, ma'am.

[Justine Stone, executive]

Welcome, and thank you for joining us for our Q3 2023 earnings call. I'm Justine Stone, Investor Relations for SS&C Technologies. With me today is Bill Stone, Chairman and Chief Executive Officer; Rahul Kanwar, President and Chief Operating Officer; and Brian Schell, our Chief Financial Officer.

Before we get started, we need to review the safe harbor statement. Please note that various remarks we make today about future expectations, plans and prospects, including the financial outlook we provide, constitute forward-looking statements for the purposes of the safe harbor provisions under the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those indicated by these forward-looking statements as a result of various important factors, including those discussed in the Risk Factors section of our most recent annual report on Form 10-K, which is on file with the SEC and can also be accessed on our website. These forward-looking statements represent our expectations only as of today, October 25, 2023. While the company may elect to update these forward-looking statements, it specifically disclaims any obligation to do so.

During today's call, we will be referring to certain non-GAAP financial measures. A reconciliation of these non-GAAP financial measures to comparable GAAP financial measures is included in today's earnings release, which is located in the Investor Relations section of our website at www.ssctech.com. I will now turn the call over to Bill.

[Bill Stone, executive]

Thanks, Justine, and thanks, everyone, for joining. Let's all welcome Brian to his first SS&C earnings call. He's been with us for 2 months and has found his bearings. We're excited about his ideas and intellect he brings to the organization, and I encourage all of you to get to know him.

Results for the third quarter are record adjusted revenue of $1,366.7 million, up 3.4%, and adjusted diluted earnings per share of $1.17. We also achieved our second highest adjusted consolidated EBITDA in our history at $533.9 million. Our EBITDA margin was 39.1%, a 230 basis point increase from Q2 '23. Our third quarter adjusted organic revenue was up 2.3% driven by strength in our alternatives particularly Private Markets, Intralinks, Retirement and Blue Prism. Our recurring revenue growth, which will mix the license and professional service revenue streams, was up over 5%, which we think is an indicator of our underlying businesses' strength. Financial services retention rate for Q3 2023 was 97.3%, the highest level in SS&C history.

SS&C generated cash from operating activities of $826.7 million for the 9 months ended September 30, up 8.1% over the same period last year. In Q3 2023, we bought back 1.7 million shares for $96.9 million at an average price of $55.82. We also raised our common stock quarterly dividend 20% to $0.24 per share, delivering $156.6 million in total cash returned to shareholders in the quarter and $501.9 million year-to-date. SS&C paid down $54.7 million in debt in Q3 2023, bringing our net leverage ratio to 3.18x consolidated EBITDA attributable to SS&C. In the near term, we believe SS&C's common stock is undervalued, and we expect to maintain a higher level of stock repurchases versus debt pay down.

We've made a lot of progress within the firm-wide Blue Prism digital worker deployment. We have a 2,000 full-time equivalent head count savings year-to-date, which is 7% of our January 1, 2023 employee base. Conservatively at $50,000 per FTE, this is $100 million in run rate savings. So far, the biggest successes have been within our large outsourcing businesses, GIDS and alternative fund services. One example is a GIDS client asked us to run a campaign to contact over 20,000 customers to clear their small cash balances. We programmed 25 Blue Prism digital workers to perform the follow-on processing, saving about $140,000 on contractors that would have been required to process the responses manually.

Within alternatives, operational functions such as manual statement downloads, reconciliation and break investigation and resolution, investor statement and contract notes and loan closing and compliance have benefited from digital workers. We believe we have just begun to reap the benefits from this initiative.

I'll now turn the call over to Rahul to discuss the quarter in more detail.

[Rahul Kanwar, executive]

Thanks, Bill. Our core businesses continue to grow nicely, with alternatives, Intralinks and Retirement accelerating from last quarter.

Our alternatives business grew 8.4% in the quarter boosted by the strength of our Private Markets business. We signed a very significant private credit client in Q3 and see opportunities to sustain and accelerate growth for the foreseeable future.

Intralinks also accelerated in the quarter, growing over 10% despite M&A deal volume remaining low. The growth can be attributed to increase in contract values, longer due diligence time lines and more large deals won. We've released new tools to help us drive these large deals and contract values. [ DocuAI ] uses generative artificial intelligence to proactively deliver document summaries, suggested document classification, document translation and identify potential risks. Intralinks DealVault, a cloud-based storage solution designed for streamlined access to archives and efficient deal data management, recently launched and has attracted interest from corporate clients.

In Q3, the largest new Black Diamond sale to date was closed. This client chose the Black Diamond platform to power their newly launched wealth management business created through the acquisition of multiple RIAs and broker-dealers.

We continue to invest in R&D and support our customers. We've won 4 awards from WatersTechnology, including Best Buy-side Order Management System, Best Execution Management System, Best Portfolio Management System and Best Accounting Provider. SS&C Blue Prism was also recognized by Gartner as a leader in the 2023 Magic Quadrant for Robotic Process Automation for the fifth year in a row. We believe these recognitions are indicative of our market-centric approach to R&D.

I'll join Bill and the rest of our management team in welcoming Brian to SS&C. And now I'll turn the call over to him to run through the financials.

[Brian Schell, executive]

Thanks, Rahul, and thank you, Bill, for those kind remarks. I'd like to start by saying I'm excited to be part of the SS&C leadership team and looking forward to help build on the strength of SS&C today with the ultimate goal of delivering long-term shareholder value.

As noted in our press release, our Q3 2023 GAAP results reflect revenues of $1,365.9 million, net income of $156 million and diluted earnings per share of $0.61. And as Bill noted earlier in the call, our adjusted revenues were $1,366.7 million, up 3.4%; adjusted operating income increased 6.4%; and adjusted diluted EPS was $1.17, a 1.7% increase over Q3 2022. Adjusted revenue increased $44.7 million or 3.4% over Q3 2022. Our acquisitions contributed $2.4 million or approximately 20 basis points. Foreign exchange had a favorable impact of $13.2 million or 1%. As a result, adjusted organic revenue growth on a constant currency basis was 2.3%.

Adjusted operating income for the third quarter of 2023 was $517.4 million, an increase of $31.3 million or 6.4% in the third quarter of 2022. Adjusted operating margins were 37.9% in the third quarter of 2023 as compared to 36.8% in the third quarter of 2022. The 110 basis point margin expansion reflects the positive impact of both revenue growth and disciplined expense management.

While our cost structure has been impacted by general inflation, higher personnel costs and increased professional fees compared to 2022, our core expenses only increased 30 basis points or $2.6 million, excluding acquisitions and on a constant currency basis. Acquisitions added $2 million in expenses and foreign currency increased costs by $8.4 million. And note that our expenses calculated on a similar basis is down $28.6 million or 3.3% sequentially.

Adjusted consolidated EBITDA attributable to SS&C, defined in Note 3 in the earnings release, was $533.9 million or 39.1% of adjusted revenue, an increase of $32.2 million or 6.4% from Q3 last year. The 39.1% EBITDA margin reflects both a sequential and year-over-year improvement of 230 and 110 basis points, respectively.

Net interest expense for the third quarter of '23 was $117.3 million, an increase of $35.1 million from Q3 '22. The Q3 '23 net interest expense excludes $3.4 million of noncash amortized financing costs and OID. The average interest rate in the quarter for the amended credit facility, including the senior notes, was 6.87% compared to 4.55% in the third quarter of '22.

Adjusted net income, as defined in Note 4 in the earnings release, was $295.9 million and adjusted diluted EPS was $1.17. The effective tax rate used for adjusted net income was 26%. Share repurchases of $1.7 million drove the diluted share count down to 253.9 million from 255 million in Q2.

SS&C ended the third quarter with $447.6 million in cash and cash equivalents and $6.9 billion in gross debt. SS&C's net debt, as defined in our credit agreement, which excludes cash and cash equivalents of $106.1 million held at DomaniRx, LLC, was $6.6 billion as of September 30. Our LTM consolidated EBITDA used for covenant compliance was $2,063.8 million as of September 2023. Based on net debt of approximately $6.6 billion, our total leverage ratio was 3.18x. Our secured leverage ratio was 2.21x as of September 30.

As we look forward to the fourth quarter and establishing our guidance, note that we will continue to focus on client service and assume that our retention rates will continue to be in the range of our most recent results. We will continue to manage our expenses with a cost disciplined approach by controlling and aligning variable expenses to ensure efficiency; increasing productivity to improve our operating margins to leverage our scale; and effectively investing in the business, in marketing, sales and R&D, to take advantage of future growth opportunities.

Specifically, we have assumed adjusted organic growth for Q4 in the range of 1.8% to 4.8%, resulting in adjusted organic growth for the year in the range of 2.1% to 2.9%. FX rates will be at current levels; interest rates to remain flat through the end of the year compared to the ending rate in the third quarter; GAAP tax rate of approximately 26% on an adjusted basis, which is unchanged from prior guidance; capital expenditures to remain at 3.9% to 4.1% of revenues, which is unchanged from prior guidance; and a more weighted emphasis to share repurchases similar to what we did in Q3.

For the fourth quarter of 2023, we expect revenue to be in the range of $1, 370 million to $1, 410 million; adjusted net income in the range of $305 million to $327 million; interest expense, excluding amortization of deferred financing costs and original issue discount, in the range of $116 million to $119 million; diluted shares in the range of 252 million to 254 million; and adjusted diluted EPS in the range of $1.21 to $1.29.

For the full year 2023, we expect revenue to be in the range of $5,463.5 million to $5,503.5 million; adjusted net income in the range of $1,159.9 million to $1,181.9 million; diluted shares in the range of 254.5 million to 255 million; adjusted diluted EPS in the range of $4.55 to $4.64; and cash from operating activities to be in the range of $1,180 million to $1,230 million.

Now I'd like to turn it back over to Bill for final comments.

[Bill Stone, executive]

Thanks, Brian. Earlier this week, we hosted nearly 1,000 clients and prospects at our SS&C Deliver conference in Weston, Texas. Delivering the future was the theme of the conference with a big emphasis on the power of AI and robotics process automation. We showcased over 40 solutions across the key market segments we serve, and initial feedback has been positive.

I'll now open it up for questions.

[Operator]

[Operator Instructions] We'll go first this afternoon to Dan Perlin at RBC Capital Markets.

[Daniel Perlin, analyst]

I just had a question on the revenue retention rates. As we kind of went back and looked at them, I mean I know it's a modest uptick, it's actually pretty reasonable. But it looks like to be maybe the highest level we've certainly seen back to 2019, maybe ever, quite frankly. So can you just talk about some of the metrics that are driving that and how that might play into your banking as we go into next year around organic growth? I have a follow-up.

[Bill Stone, executive]

Dan, I think the retention rates really reflects the concentration we put on customer service and making sure that we run these customer satisfaction calls every month, and we keep track of them and we're really putting a tremendous amount of emphasis. And we also believe that the ability for us to cross-sell and upsell into our current client base is much stronger than we may have looked at it before. And so I think the renewed emphasis on that and our customer relationship management programs is starting to pay off.

[Daniel Perlin, analyst]

On that same vein, Bill, could you talk a little bit about the deal pipeline and conversion cycles you're seeing? I know Rahul called out specifically wins within private markets, which has obviously been very strong, and then obviously with Black Diamond. I'm just wondering how things are kind of setting up, how those conversations are going today. And are you feeling better about conversion cycles as we sit here now or pretty much the same as maybe you had, I don't know, 6, 9 months ago?

[Bill Stone, executive]

Yes, I would say that I think our pipeline in our fund administration businesses is over $400 million. So that's a lot of revenue. Now you got to close it, right, and then you got to get them live, and so it's not just a walk in the park. But it does indicate kind of the lead we have in a number of our areas. Intralinks is seeing ticks up in their lead generation and our ability to close on additional M&A that's happened in that marketplace. And I think Private Markets looks like it's going to remain strong through the end of the year. And we were a little light on license revenue, but 606 and renewals is always a kind of a crapshoot. And I think that Q3 was particularly soft, but that ought to rebound a little bit in Q4 and also in '24.

[Operator]

We'll go next now to Peter Heckmann at D.A. Davidson.

[Peter Heckmann, analyst]

I wanted to follow up on a couple of pieces. You noted that it's a little bit light on software revenue. I assume that was primarily the legacy software businesses. Just trying to clarify if there was a particularly tough comparison there. And I know you don't do it in your filings, but if you could quantify roughly the amount of software license revenue in the quarter, that would be helpful.

[Rahul Kanwar, executive]

I think the difference in what we expected versus where we ended up from a software license revenue was in the order of magnitude of about $20 million to $25 million in the quarter.

[Peter Heckmann, analyst]

Okay. But it doesn't feel that it was concentrated within the legacy software businesses.

[Rahul Kanwar, executive]

Yes, that's right, primarily institutional and investment management business and some impact in Advent as well.

[Peter Heckmann, analyst]

Okay. And then just on the retirement side, 15% up in the quarter, a sequential acceleration. I'm sorry if I missed it, but does that reflect the go-live of some of the large clients in the conversion pipeline?

[Rahul Kanwar, executive]

Yes, it does. We're continuing to make progress. As you know, we did win a few large deals. I want to say about 18 to 24 months ago that we've been working hard on implementing. And where we are right now is we have one of them fully live and another one is scheduled to go live in early 2024, and you're starting to see really the revenue benefit of that happening.

[Operator]

We'll go next now to Andrew Schmidt at Citi.

[Andrew Schmidt, analyst]

Welcome, Brian. Brian, maybe I can put you on the spot for a second. I know it's a little bit early but talk about just initial observations and maybe some early priorities you have as you hit the ground here, that would be helpful.

[Brian Schell, executive]

Yes. No, thanks for the question. And I would say the priorities that we have are continuing to try and build on the momentum here, as I said in my opening comments. I think that one of the things the finance group and our leadership is looking to do is continue to enhance some of the tools that the leaders at the front lines are actually using with respect to the contracts to help make better decisions, more timely decisions, what they're looking at around pricing, what they're looking around implementing investment and expenses to drive future revenue growth, I think, has been important. I think the team has always been focused on looking at expenses and trying to make sure that the expense level and spend, the variable and fixed adjusts in accordance with, I'll call it, revenue outlook. Revenue growth is obviously very important but so is making sure that we have an appropriate margin that we're bringing to our shareholders.

So I would say it's a continuation along those lines. I think we'll continue to try and drive some incremental metrics to get increasing visibility, again, to continue to help understand what's driving the business and the strength that we see in it that sometimes may be masked by the aggregate numbers and some of those trends. And we'll continue to try and highlight those. And lastly, I would say on the capital allocation piece, again, putting that in perspective of how we view and how we're going to maybe be a little bit more proactive around what we're doing with respect to that cash flow, I think we've indicated, like I said, a more heavier lean and allocation towards share buyback and continuing to be transparent about where we think we're going to put the capital to work.

[Andrew Schmidt, analyst]

Got it. Appreciate that, Brian. Very helpful. And then if I could pick up on the margin comment. The implied fourth quarter margin, a pretty good progress there. It looks like it's, if my math is right, up at least 200 bps year-over-year. As we look ahead, can you talk about an opportunity for maybe above-trend margin expansion just given all the opportunities you have in front of you, whether it's due to the workers, cost efficiency, obviously, some top line scale, hopefully, anything around that would be helpful.

[Bill Stone, executive]

Yes, Eric, I think that as we said on a number of these calls, driving our margins up we don't find to be particularly difficult. We have great clients, we have great people and we continually look at productivity enhancements. And Blue Prism has been a great addition to that not only in us deploying 1,700 or 1,600 digital workers by the end of this year and then also having also allowed us to grow and not add FTEs into our workforce. So we're pretty excited about that opportunity. And even as a business itself, we have some talented people running that business, and they have driven margins from a little bit negative when we acquired them in the second quarter of '22 to probably in the fourth quarter at above 30% margins at Blue Prism, which is kind of a hallmark of SS&C, that we manage our businesses. We drive high EBITDA. We pay down debt quickly. We're buying back stock. We're pretty bullish. Wall Street is not particularly bullish, but we're pretty bullish.

[Operator]

The next now to Alex Kramm at UBS.

[Alex Kramm, analyst]

Just wanted to go and look at the fourth quarter organic growth guidance. If my memory serves me right, I think last quarter, the cadence that was implied was something more in the mid-single digits for the fourth quarter. So little bit of, I guess, downdraft in your expectation here by 1.5 points or so. So can you just maybe help us understand what has changed in the last 3 months relative to prior expectations and what the swing factors could be still into year-end?

[Bill Stone, executive]

Yes, Alex, I think primarily, the swings are -- there's a lot of stuff going on in the world, right? And just like the license businesses, people get skittish about major capital allocations. And so that was a little soft in Q3, and we're hoping it rebounds in Q4, but we're not trying to stick our neck out on license revenue. Like we said at the beginning, our recurring revenue growth in the third quarter was over 5%, so that's primarily all of our fund administration businesses and other recurring revenue businesses. And so we got maybe a little conservative here in Q4, but we're trying to give you our best guess and then we're trying to go out and continue to build the business.

[Alex Kramm, analyst]

Fair enough. And then maybe just more specifically, I don't think the GIDS business has come up, but obviously, that's a very sizable business for you and an area of pain in the last few years. But it seems to really be stable here in this 3% or so range. Do you feel pretty good about the outlook there and continue in this kind of environment at that range? Or is there still the ability to maybe even accelerate that into maybe something more in the mid-single digits? Or is that business just too mature and maybe the end markets are too tough that you're happy with what you're seeing? .

[Rahul Kanwar, executive]

I think that, one, we're happy with the progress, right? At the same time, we do believe there's more opportunity. If you kind of think about the end markets, the end markets include wealth managers in Europe, wealth managers in Australia. We're selling a comprehensive array of services and software. And as we think through our pipeline, that gives businesses some of the biggest deals that we have as a company. So we're, I think, reasonably optimistic that we can accelerate the growth rate from where we are currently.

[Bill Stone, executive]

And I would just add a little bit, Alex, that we're a technology company, right? So we need to make these products better. And we compete against big, gigantic financial institutions that you guys are very familiar with. And we think our ability to out-innovate, our ability to deliver more product, our ability to have more intuitive systems, it is one of our greatest strengths. And some of my kids, as you're well aware, is in a pretty mature business. But at the same time, if we can continue to innovate, then when we go up against our competitors, there's really -- they don't have a chance. And I think that's our real opportunity, and that's why we've stuck with the knitting. And that's what we're doing both in GIDS, that's what we're going to do with DomaniRx. That's what we're doing across everything we're doing. That's why we remain reasonably bullish.

[Operator]

We'll go next now to Ella Smith at JPMorgan.

[Eleanor Smith, analyst]

This is Ella Smith on for Alexei Gogolev from JPMorgan. So my first question is for you, Bill, surrounding M&A. Are you seeing anything for sale in the market? And if you were to pursue a tuck-in acquisition in the next 6 to 12 months, what products or businesses do you think could enhance or complement SS&C's existing offerings?

[Bill Stone, executive]

Well, we're constantly in the marketplace, and it all depends on what's for sale, at what price and can we sell our stuff to their client base, and can we take what we buy and sell it into our client base. So I would imagine, just like Iris that we did here a couple of months ago, and we have a few other small tuck-ins that we'll probably do, we really like the Australian market. We really like the Canadian market as well as the U.S. market. And there are some things that we like in the U.K. that we think are pretty interesting. So I think we might deploy $100 million in the next 3 to 6 months on acquisitions. But we don't have anything right now that we would be closing on in that range. So we like M&A. We think we're good at it. We think we can drive margins and give the people a good place to work, but you got to get them at the right price and you got to be disciplined about it. And so that's how we operate.

[Eleanor Smith, analyst]

Great. And I think this next question will be for Rahul or whoever wants to take it. But you've alluded to this, retirement did quite well in the third quarter, growing 15%, much higher than in the first and second quarters. I was hoping you could speak more to what's driving the growth there?

[Rahul Kanwar, executive]

I think it's primarily we've been working on a number of large deals and bringing them live. And as they come live, we see our revenue tick up. There was some backlog on that revenue that kind of showed up in the quarter, which we were happy to see. And we do think that we have some more opportunity to have these kinds of step changes in 2024 as well.

[Operator]

[Operator Instructions] We go next now to James Faucette at Morgan Stanley.

[James Faucette, analyst]

Just a quick question on Eze. It was great to see the press release on Eze Eclipse earlier today. Any sense as to how the new client figure of 60 compares to last year that you can share with us or maybe what a more normalized hedge fund formation market might look like? Just trying to get a sense on what growth trajectory and potential is for Eze, especially on Eze Eclipse?

[Rahul Kanwar, executive]

I think there's kind of a little bit 2 things going on in that business. But I think as it relates to Eclipse, the number of new clients we have this year is maybe 1.5x what we had in kind of a similar period last year. So we are accelerating. We're seeing kind of a lot of acceptance, and it's not just new hedge funds, right? It also is we continue to add fixed income workflows, derivative workflows, other operational workflows. And so the kinds of organizations that this kind of suite of software and services, whether that's Eze or Eclipse, appeal to, they keep getting bigger. So our markets are expanding and our sales progress is -- we're making progress there. There is a little bit of an impact of the kind of market volatility and equity volumes and things like that, which shows up in the numbers. But underlying that, sales performance is very strong.

[James Faucette, analyst]

Got it. And then I think in the last couple of years, pricing has been an issue across the industry. How should we think about like what the contribution of price has been to the growth this year or at least your outlook for this year? And how should we anticipate that as a contributor for next year?

[Brian Schell, executive]

Yes. As we look at this and we kind of factored this in, and again, this is kind of a mix relative to the flows, inflows and outflows, I think we've kind of talked about the, I'll call it, $130 million to $150 million range. Again, sometimes it's hard to disaggregate to a single factor, and that kind of builds over time, right, and that could, call it, accelerate into 4Q to have incrementally more versus the third quarter. So we're seeing nice price increases. We're building in more and more contracts. And a lot of them already having this in here for CPI adjustments or automatic adjustments so they kick in. So we're seeing adoption. We're seeing it going in place. It's not a contributor to incremental revenue growth. So I would expect to see more of that on a go-forward basis.

[Rahul Kanwar, executive]

Yes. And maybe I'd just add on the back of that, we're still -- what you're seeing in price, the numbers Brian just talked about, really still only represents, in a given year, maybe 1/3 to half of our client base, right? So as we get more automatic on these escalators, and there are still conversations that we need to have in '24, we do expect that will continue to help us.

[Bill Stone, executive]

And James, we also will continue to innovate. That allows our clients, when we do raise prices, to feel good about what we're spending their money on, right? So if you look at our R&D spend, it goes up every quarter. It goes up every year. This year, we'll spend close to $500 million. And that's besides spending like $1.7 billion on Blue Prism or what we spent on Iris or what we spent on other things, but that gives our clients a more robust offering across all the different segments we serve.

[Operator]

We'll go next now to Surinder Thind at Jefferies.

[Surinder Thind, analyst]

Bill, just one big picture question here, just in terms of how are you thinking about just automation technologies in general, such as RPA here, and maybe the grander scheme of productivity enhancements. And I guess what I'm getting at is, obviously, there's a lot of hype around generative AI. So is there complementary stuff here? Is there competition here between the newer technologies or different technologies? How should we think about the market opportunity?

[Bill Stone, executive]

Well, I think the whole key to this kind of a business is how efficient can you be, right? Let's not glamor here, right? You need to be in balance, right? You need to be in balance. Some of our customers do millions of trades a day, right? What they want us to do is make sure we process them, balance them, get you ready to trade the next day, right? And so that's a big part of what we do, and it's a big part of how we're using the new technologies to allow us to spot problems before it becomes a crisis and to be able to always be there for our clients. And like when COVID hit and things like that, we had all kinds of clients coming to us, right? Because we stood up. We kept processing all through that stuff. And people learned that, wow, they don't really have fail-over. They don't really have the infrastructure that we have and what we've spent to have it. And so I think some of those kinds of things are what these new technologies are allowing you to do somewhat easier, somewhat faster.

But then you got to be careful. You have to still be in balance. You have to still be able to reconcile. You have to still be able to understand what that means, right? The humans have to be in charge. Otherwise, you start looking at this technology and decide it's always right. And it's not always right. So it's important to have the right controls, the right processes, the right procedures as you add sophisticated technology that artificial intelligence stuff and stuff like that can sometimes be a little bit too artificial. So I think it's important for us to stay awake and put in the proper processes and controls to make sure that our customers are served well.

[Surinder Thind, analyst]

That's helpful. And then just kind of turning to the health care business here. Just as we kind of look over the next year in DomaniRx and the investments that you've made, just any kind of an update there in terms of progress, how we should be thinking about the cadence. And then obviously, just in terms of just understanding near-term dynamics, it looks like the health care business has started to stabilize in its current format. So just any color there, please.

[Bill Stone, executive]

Well, I think it is stabilizing. I think we've done a good job. We have really improved our relationships with our clients. We have some big opportunities even outside of DomaniRx, and we have huge opportunities with DomaniRx. We're on schedule to put upwards tens of millions of lives under DomaniRx in the first quarter of '24, and we're poised to do that. So we're optimistic, and we think health care is an excellent segment to be in with a lot of opportunity and similar aging technology where our innovation capabilities and technology capabilities will be very well received.

[Surinder Thind, analyst]

Got it. And then just in terms of as you think about the investments you made, like does health care operate relatively independently as everybody else within the organization? Or how should we think about that business in terms of, what I would call, the amount of investment that's going on there and your ability to kind of leverage internal resources?

[Bill Stone, executive]

Well, again, remember, most of these health care organizations also have insurance backgrounds in them. And so a big singularity client is Aetna, CVS and Cigna and we're also pitching other big health care and insurance organizations like Anthem. And so we think that the health and wealth process is also pretty important. And as you have an aging population, all of us that are working might have a relative or someone that gets ill or something and you need to be able to take care of them and really understanding the provider networks and being able to add value to all of our clients across all of our segments, I think it's symbiotic. And that's something that we've stayed with and we've made the investment. Yes, we took a couple of whacks on the chin, but hey, you don't get anywhere unless you -- as one of our great clients said to me once, you got to have perseverance to get through these large system developments.

[Rahul Kanwar, executive]

And just to add to kind of the second part of that, there is a fair amount of overlap internally on the compute that we're using in the data centers and operational processes. So the businesses are helping each other.

[Operator]

We'll take a follow-up question now from Peter Heckmann at D.A. Davidson.

[Peter Heckmann, analyst]

I apologize if I missed it. Did you provide an updated target date for the first big conversion on Domani?

[Bill Stone, executive]

Yes. We're going to convert -- we have a big drug discount card business that we're going to convert beginning in the first quarter of '24, and that's tens of millions of lives.

[Peter Heckmann, analyst]

Okay. And then just in regards to some of the carryover investments from DST. Can you just remind us what's left in the unconsolidated affiliates and as well some of the investments? I think I would have expected that investment number to be falling a little bit and moving into the cash column but still have a number of fairly illiquid investments in that category.

[Brian Schell, executive]

Yes, there's still more there. I would say the most illiquid is a lot of real estate that we are continuing to market and take a look at. That's a tough market right now, and particularly in some of the properties with respect to office buildings located in downtown centers. There's still some investments that are actually yielding positive results, but we're not pulling those into earnings on an active basis, even though it is a positive number. So I would say there's still a bit of balance sheet hang that we are doing a reasonably good job of keeping cash flow neutral. But is it quite covering everything that's out there, maybe not, but it's getting close. So we are winding it down. Those real estate assets are probably going to take some time that are still sitting out there.

[Operator]

And gentlemen, it appears we have no further questions this afternoon. Mr. Stone, I'd like to turn things back to you, sir, for any closing comments.

[Bill Stone, executive]

Well, again, we appreciate all of you being on. We appreciate the questions we got, and we appreciate where we stand, and we look forward to talking to you after the end of the year. Thanks.

[Operator]

Thank you, Mr. Stone. Ladies and gentlemen, that will conclude the SS&C Technologies Q3 2023 Earnings Call. Again, I would like to thank you all so much for joining us and wish you all a great day. Goodbye.