SunGard, one of the world's leading software and technology services companies, today reported results for the second quarter ended June 30, 2013. For the second quarter, revenue was $1.0 billion, down 4% year over year.
Currency had no material impact on reported revenue for the quarter compared to the prior year. Operating income was $111 million in the quarter, up 5% year over year, driven by a 5% decline in total costs and expenses, and the operating margin was 10.7%, up 0.9 points year over year. Adjusted EBITDA was $298 million, up slightly year over year, and the adjusted EBITDA margin was 29.0%, up 1.3 points year over year. Adjusted EBITDA is defined in Note 1 attached to this release.
Year to date, revenue was $2.0 billion, down 4% year over year (down 3% adjusting for currency). Operating income was $167 million, up 6% year over year, driven by a 4% decline in total costs and expenses, and operating margin was 8.2%. Adjusted EBITDA was $534 million, down 1% year over year, and adjusted EBITDA margin was 26.4%, up 0.6 points year over year.
Russ Fradin, president and chief executive officer, commented, "During the quarter, our ongoing efforts to drive operational excellence and disciplined cost management resulted in improved margins and cash flow. SunGard is continuing its transformation as we build a more focused, effective and efficient organization. We're investing in key products, services and markets to generate sustainable growth, and we're pleased that our clients are reacting so positively to our new strategies and offerings. We're determined to execute our long-term strategy to improve future growth in both revenue and profit, and create greater value for our clients."
During the second quarter, the Company revised its estimate of its vacation liability, resulting in a $10 million reduction in cost and expense in the quarter. The impact of this change is expected to be negligible for the full year. In addition, the Company recorded a $9 million benefit in its income tax provision associated with the treatment of certain lease reserves.
Financial Systems ("FS") revenue was $632 million in the second quarter, down 6% year over year (also down 6% adjusting for currency). License fees were $56 million, a decrease of $17 million or 23%, on a tough comparison to our strong performance in the second quarter of 2012. Year to date, FS revenue was $1.2 billion, down 4% year over year (also down 4% adjusting for currency). For the same period, license fees were $80 million, a decrease of $13 million or 15%, compared to prior year.
Notable deals in the quarter included the following:
• One of the world's largest investment companies renewed SunGard's InvestOne to support its global asset servicing business by processing, monitoring and measuring its global investment data.
• One of the world's top 10 global banks selected SunGard's Stream RIMS to support its fixed income post-trade processing, helping to further expand its geographic footprint, increase volumes, lower total cost of ownership and enhance customer service.
• One of the world's largest banks renewed its managed services agreement with SunGard to support the software, infrastructure and management of its implementation of SunGard's Intellimatch Operational Control platform, which helps reduce risk and costs across the bank's IT operations.
• A leading US retail broker and market maker renewed and extended SunGard's Valdi to support its entire trading workflow with a comprehensive trading platform that includes order management, trade execution and trading compliance delivered as a service.
• One of the largest states in the US selected SunGard to provide onsite technical and application services to help manage its existing SunGard Energy solutions for power operations and water management.
• One of the world's largest shipping operators selected SunGard to help expand its implementation of SunGard's AvantGard Payments solution across its operations, with the goal of further streamlining global payment flow and providing a consolidated view of payments.
Availability Services ("AS") revenue was $344 million in the second quarter, down 2% year over year (down 1% adjusting for currency). Year to date, AS revenue was $689 million, down 2% year over year (also down 2% adjusting for currency).
Notable deals in the quarter included the following:
• A leading electronics design company selected SunGard for cloud-based recovery services and the Managed Recovery Program.
• A leading provider of software and payment solutions for the fitness industry expanded its relationship with SunGard by selecting us for managed mainframe hosting and services, the Managed Recovery Program and consulting services for mainframe data migration.
• A global shoe retailer selected SunGard to provide a private cloud hosting infrastructure as well as managed services for its e-commerce platform.
Public Sector and Education revenue was $52 million in the second quarter, up 2% year over year. Year to date, revenue was $102 million, flat year over year.
Notable deals in the quarter included the following:
• A city in California selected SunGard Public Sector's ONESolution for computer-aided emergency dispatch and records management.
• One of the largest school districts in Connecticut selected SunGard K-12 Education's eFinancePLUS to help with financial and human resources management.
Financial Position
For the six months ended June 30, 2013, the continuing operations of the Company generated $306 million in cash flow from operations, up $83 million year over year, and invested $101 million in capital expenditures, down 12%, or $14 million, from the prior year. In addition, the Company used its first half cash flow and available cash to repay $159 million of debt.
At June 30, 2013, total debt was $6.5 billion and cash was $538 million. The Company's leverage ratio as defined in its senior secured credit agreement was 4.70x, down from 4.75x at the end of 2012.