About Dst Systems, Inc.

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.

Operations

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.

Geographic Reach

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 10%.

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.

Financial Performance

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 clients.

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.

Strategy

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 Paragon Group.

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 2007.

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.

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Dst Systems, Inc.

333 W 11th St
Kansas City, MO 64105-1773
Phone: 1 (816) 435-1000
Fax: 1 (816) 435-8618

Stats

  • Employer Type: Public
  • Stock Symbol: DST
  • Stock Exchange: NYSE
  • Chairman, President, and CEO: Stephen C. Hooley
  • Chairman, President, and CEO: Stephen C. Hooley
  • EVP and CIO: Maria A. Mann
  • 2016 Employees: 17,600

Major Office Locations

  • Kansas City, MO

Other Locations

  • El Dorado Hills, CA
  • Olathe, KS
  • Boston, MA
  • Baltimore, MD
  • Rockville, MD
  • Bridgeton, MO
  • Jefferson City, MO
  • Cohoes, NY
  • Harrisburg, PA
  • Bellevue, WA
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