SunGard Data Systems Inc. ("SunGard" or the "Company"), one of the world's leading software and technology services companies, today reported results for the second quarter ended June 30, 2014. For the second quarter, revenue was $673 million, flat year over year (down 1% adjusting for currency).
Operating income was $77 million in the quarter, down 16% year over year, driven by a 3% increase in total costs and expenses, and the operating margin was 11.4%, down 2.2 points year over year. Adjusted EBITDA was $159 million, down 12% year over year, and the adjusted EBITDA margin was 23.7%, down 3.3 points year over year. Excluding the $10 million reduction in costs and expense in the prior year quarter from the change to the Company's vacation liability estimate, Adjusted EBITDA declined 7% year over year and the EBITDA margin declined 1.8 points. Adjusted EBITDA is defined in Note 1 attached to this release.
Year to date, revenue was $1.3 billion, up 1% year over year (flat adjusting for currency). Year to date, the Company incurred an operating loss of $212 million, which includes a $339 million impairment charge. Excluding this charge, operating income was $127 million, down 6% year over year, driven by a 2% increase in total costs and expenses, and operating margin was 9.5%. Adjusted EBITDA was $304 million, down 2% year over year, and adjusted EBITDA margin was 23%, down 0.7 points year over year. See Notes 2 and 3 attached to this release for historical financial information which presents the results of Availability Services in discontinued operations.
Russ Fradin, president and chief executive officer, commented, "Our second quarter results reflect some encouraging trends and the investments we're making in sales capacity, new product development and the infrastructure to support faster services growth. On the revenue front, we're pleased with the growth in our recurring revenue base as well as the increase in professional services revenue over the past several quarters. We were, however, disappointed in the relatively low level of software license fees, largely due to the timing of renewals which tend to vary from quarter to quarter. Overall, the market continues to be receptive to our new product introduction to vary from quarter to introduction to vary from quarter to quarter. Overall, the market continues to be receptive to our new product introductions and our expanded managed services offerings, as evidenced by the trend towards higher recurring revenue. I'm confident we're making the right investments to deliver long-term growth and create greater value for our clients."
Financial Systems ("FS") segment revenue was $618 million in the second quarter, flat year over year (down 1% year over year adjusting for currency) as growth in services was offset by a decline in software license fees, largely tied to the timing of customer renewals. FS segment costs and expenses were $464 million, up 4% year over year. Excluding the $10 million reduction in costs and expense in the prior year quarter from the change to our vacation liability estimate, FS costs and expenses increased 2% year over year. Investments were made in sales, development and infrastructure to support our improving recurring revenue base. Adjusted EBITDA for the period was $154 million, down 12% from the prior year, and the Adjusted EBITDA margin was 24.9%, down 3.3 points from last year. Excluding the change to our vacation liability estimate in the prior year quarter, Adjusted EBITDA declined 7% year over year and the EBITDA margin declined 1.7 points.
Year to date, FS revenue was $1.2 billion, up 1% year over year (flat adjusting for currency). For the same period, adjusted EBITDA was $293 million, a decrease of 3%, compared to the prior year, and the adjusted EBITDA margin was 24.1%, down 0.9 points from last year.
Notable deals in the quarter included the following:
- SunGard's Front Arena was selected by one of Germany's oldest private banks in a ten-year deal as a cross-asset, front-to-back sell-side solution to support its capital markets business
- SunGard's Front Arena was also selected by a major buy-side US-based diversified financial institution and insurance provider to manage complex derivative portfolios.
- SunGard's Apex Securities Finance was chosen by a major Canadian bank for a five-year deal to support its repo trading and global equity finance business.
- SunGard's Omni was selected by a leading provider of investment services in Saudi Arabia for a five-year deal enabling them to deliver recordkeeping services for the thrift savings plans of their institutional clients.
- SunGard's Quantum Treasury solution, including hosting / infrastructure services and managed connectivity, was selected by one of the world's largest medical equipment companies.
- SunGard's Aligne solution for commodity trading and risk management, gas operations and settlements was chosen by a leading European gas trading company.
- SunGard's WealthStation and Investor'sView were chosen by a large US financial services firm in a five-year deal to help grow its advisory and investment management business, as well as complement its use of SunGard's AddVantage trust accounting system.
- SunGard's Valdi was selected by a leading US regional bank to help enable better compliance with regulatory requirements and greater efficiency in client transaction processing.
Public Sector and Education ("PS&E") segment revenue was $55 million in the second quarter, up 6% year over year. PS&E segment costs and expenses were $38 million, up 9% year over year, driven by recent new product offerings and the related new services growth. Adjusted EBITDA was $17 million, up 1% year over year, and the adjusted EBITDA margin was 31.3%, down 1.7 points from last year. These results reflect continued strong demand for our public sector solutions.
Year to date, PS&E revenue was $108 million, up 6% year over year. For the same period, adjusted EBITDA was $33 million, an increase of 5%, compared to the prior year, and the adjusted EBITDA margin was 30.7%, down 0.4 points from last year.
Notable deals in the quarter included the following:
- SunGard Public Sector's ONESolution was selected by a county in California and a county in Kansas to provide enterprise-wide software solutions for finance, payroll and human resources.
- SunGard K-12 Education's BusinessPLUS was chosen by a major intermediate school district in Michigan to help manage critical financial, procurement, payroll and personnel functions for six school districts.
- SunGard Public Sector's ONESolution was chosen by a public agency that oversees much of the regional transportation infrastructure in the New York metropolitan area to provide public safety solutions for computer-aided emergency dispatch and mobile computing.
- SunGard K-12 Education's eFinancePLUS software was selected by the department of education of a southern US state to help manage its critical financial, procurement, payroll and personnel functions in 247 districts.
For the six months ended June 30, 2014, the continuing operations of the Company generated $86 million in cash flow from operations. Capital expenditures were $58 million, including increased capitalization of software as a result of new product investments.
At June 30, 2014, total debt was $4.7 billion and cash was $314 million. The Company's leverage ratio, as defined in its senior secured credit agreement, was 5.64x. The leverage ratio is calculated using adjusted EBITDA as defined in Note 4 attached to this release. See Note 5 attached to this release for supplemental information on debt.
Full figures available here.