Financial firms and health institutions focus on making clients
wealthy and healthy, respectively. So, they might be wise to turn
to DST Systems to handle their information processing tasks. The
company provides information processing software and services to
the mutual fund, insurance, retirement, and healthcare industries.
The company's financial services segment offers software and
systems used to handle a wide range of tasks including shareowner
recordkeeping, investment management, and business process
management. Among the healthcare offerings are claims adjudication
and benefit and care management. DST makes most of its sales to
customers in the US.
DST Systems' Financial Services business produces about
three-quarters of revenue. The segment supports direct and
intermediary sales of mutual funds, alternative investments,
securities brokerage accounts, and retirement plans. Its software
also handles reports to investors for confirmations, statements and
tax forms, web access, and electronic delivery of documents.
Systems include TA 2000 and TRAC. The company offers its AWD
workflow software to clients and licenses it to third parties.
The Healthcare Services segment, which provides medical and
pharmacy claims administration, generates about a fourth of sales.
The segment provides healthcare organizations with pharmacy and
healthcare administration software, and health outcomes
optimization services. Specific tasks handled by DST software
include claims adjudication, benefit management, care management,
and business intelligence.
DST operates its own data centers that provide secure
infrastructure for its products and services.
The company in 2016 divested its customer communications
segment, which had accounted for about half of sales.
The US is DST Systems' largest market, accounting for about 90%
of sales. The UK is its largest international market with about 5%
of sales. The company also has customers in Australia, Canada, and
several other geographic markets.
Sales and Marketing
DST Systems markets its products directly and through
subsidiaries, joint venture affiliates, and strategic alliances.
The Financial Services business works in some areas through joint
ventures with State Street Corp. In the US, the companies work
through Boston Financial Data Services and through International
Financial Data Services overseas.
DST's five largest customers overall account for more than 20%
of its operating revenues. The healthcare business is the more
heavily concentrated with its five largest customers generating
more than 50% of revenue, including nearly 20% from one customer.
Financial Services' five largest customers supply almost 30% of
operating revenue with the largest customer generating about
Primary customers for Financial Services are mutual funds and
fund managers. The main healthcare customers are managed care
organizations, preferred provider organizations, third-party
administrators, dental, vision, and behavioral health
organizations. The company also works with government sponsored
programs such as the Health Insurance Exchanges that operate under
the Patient Protection and Affordable Care Act, Medicare Advantage,
Medicare Part D, and Medicaid.
While DST Systems' revenue increased incrementally for several
years, its profit slumped at the same time - until 2016.
The divestment of DST's North American Customer Communications
business had a considerable impact on the company's revenue. In
2015 revenue was $2.8 billion, which included the unit's sales.
Restated 2015 revenue, reflecting the absence of the unit's
revenue, was $1.5 billion.
In 2016, DST's revenue was $1.6 billion, about a 6% increase
from the restated $1.5 billion of 2015. It was a 45% drop from the
$2.8 billion figure.
Financial Services' operating revenue increased about 3% in 2016
from 2015. Businesses acquired in 2105 and 2016 contributed more
than $30 million revenue in operations and services associated with
the company's international wealth management business. Gains also
came from the conversion of about 10 million subaccounts associated
with a new client.
In Healthcare Services, revenue rose about 13% in 2016 from
additional medical claims processing clients, organic growth, and
the expansion of high-value services offered to existing
Net income rose about 20% to about $427 million in 2016 from
$358 million in 2015. The main difference was the gain on the sale
of the customer communications business.
Cash from operating activities was about $190 million in 2016,
compared to $220 million in 2015. The 2016 cash flow was affected
by cash used for changes in operating assets and liabilities,
accrued compensation and benefits, and timing of tax payments.
DST Systems is banking on its wealth and health businesses. The
company divested a big chunk of revenue in 2016 when it sold the
North American Customer Communications business to Broadridge
Financial Solutions Inc. for more than $400 million. For DST, the
unit, which provided print and digital communications, content
management, postal services, and fulfillment, didn't fit with its
focus on financial and healthcare services. DST followed that deal
with the 2017 sale of its UK Customer Communications business to
At the same time, DST has acquired companies that bolster its
focus areas, particularly Financial Services.
DST has significant exposure to federal healthcare systems in
the US. The company is taking a wait-and-see position on changes
that might be made by the federal government.
The company is working to make its internal workings more
efficient by a multi-year information technology transformation
initiative. Besides reducing operating costs, the new system is
intended to increase security, improve infrastructure, implement
automation, and allow use of emerging technologies as well as
improve performance of existing technologies. The company has spent
almost $400 million in 2014, 2015, and 2016 on software
development, maintenance, and enhancement.
Mergers and Acquisitions
DST Systems has been active on the acquisition front to
complement its product line and expand into new geographic areas.
DST has balanced its acquisition strategy by purchasing technology
providers and service providers, with an emphasis on business
process outsourcing concerns and consulting firms.
In 2016 DST bought Kaufman Rossin Fund Services , a provider of
administration services to the investment community, for $95
million. This acquisition provides DST with products for the
alternative investment market.
In 2015 DST acquired Wealth Management Systems, a provider of
retirement plan rollover technology, content, communications, and
practice management, for $64 million. DST sells Wealth Management
products through DST Retirement Solutions.
Also in 2015 DST's wholly-owned subsidiary ALPS bought Red Rocks
Capital, a private equity, for about $65 million. Red Rocks adds
expertise and experience in alternative investments to ALPS and
DST. ALPS and Red Rocks have had business engagements since
In a third 2015 deal DST acquired kasina, a strategic advisory
firm to the asset management industry. DST hopes to combine its
analytics and sales reporting tools with kasina's understanding of
challenges that face asset managers and insurers to uncover new
revenue opportunities for the financial industry.