SunGard Q3 profits rise

Currency had no material impact on reported revenue for the quarter compared to the prior year. Operating income was $122 million and the operating margin was 11.9% in the quarter, compared to an operating loss of $279 million in the third quarter of 2012. Third quarter 2012 included a $385 million non-cash goodwill impairment charge. Excluding this charge, operating income increased 16% year over year. This was driven by a 3% decline in total costs and expenses. Adjusted EBITDA was $306 million, up 3% year over year, and the adjusted EBITDA margin was 29.7%, up 1.1 points year over year. Adjusted EBITDA is defined in Note 1 attached to this release.

Year to date, revenue was $3.1 billion, down 3% year over year (down 2% adjusting for currency). Operating income was $289 million and the operating margin was 9.5%, compared to an operating loss of $122 million last year. Excluding the goodwill impairment charge mentioned above, operating income increased 10% year over year. This was driven by a 4% decline in total costs and expenses. Adjusted EBITDA was $839 million, flat year over year, and the adjusted EBITDA margin was 27.5%, up 0.8 points year over year.

Russ Fradin, president and chief executive officer, commented, "We remain focused on improving our growth profile. Many of our solutions are seeing strong demand around the world, including our treasury, risk and compliance, and public sector solutions. We've instilled disciplined management processes and are realigning our investments for growth, resulting in improved margins, stronger cash flows and reduced debt levels. We are confident that our strategies are taking hold and we are encouraged by SunGard's opportunities."

Financial Systems ("FS") revenue was $635 million in the third quarter, down 1% year over year (also down 1% adjusting for currency). During the quarter, FS recognized $11.5 million of revenue related to the sale of a customeelated to the sale of a customer bankruptcy claim. Excluding this sale, FS revenue declined 2% year to year, principally driven by a decline in professional services. Partially offsetting this was growth in software license fees of 23%, or $10 million, to $53 million. Adjusted EBITDA for the period was $194 million, up 14% from the prior year, and the adjusted EBITDA margin was 30.5%, up 3.9 points from last year. Year to date, FS revenue was $1.9 billion, down 3% year over year (also down 3% adjusting for currency). For the same period, license fees were $132 million, a decrease of $4 million year over year. Adjusted EBITDA was $502 million, up 6% from the prior year, and the adjusted EBITDA margin was 26.9%, up 2.3 points from last year.

Notable deals in the quarter included the following:

• SunGard's Stream Clearvision was selected by a global agency broker and clearing firm to support its global derivatives clearing business.
• SunGard's Front Arena was renewed by one of Denmark's largest banks to support cross-asset trading, OTC derivatives operations, and enterprise risk management.
• SunGard's AvantGard solution was selected by one of the world's foremost technology companies for treasury and cash management services with additional hosting and managed services.
• SGN Funds was renewed by one of the world's largest asset management firms to support its trust and employee benefits customers.
• SunGard's Stream Transfer Agency was selected by one of the largest U.S. banks as part of a renewed and expanded commitment to help transform the bank's corporate trust operations and consolidate multiple debt and equity processing systems.

Availability Services ("AS") revenue was $340 million in the third quarter, down 2% year over year (down 1% adjusting for currency), reflecting customer attrition and incremental investments in new service offerings. Adjusted EBITDA was $108 million, down 11% from the prior year, and the adjusted EBITDA margin was 31.6%, down 3.2 points from last year. Year to date, AS revenue was $1.0 billion, down 2% year over year (also down 2% adjusting for currency), and adjusted EBITDA was $325 million, down 7% from the prior year, and the adjusted EBITDA margin was 31.5%, down 1.9 points from last year.

Notable deals in the quarter included the following:

• SunGard was selected by one of the largest U.S. insurance companies to provide a complete disaster recovery solution, including hot site recovery services, advanced recovery services with co-location, and the Managed Recovery Program.
• A leading supplier of aerospace and energy generation components selected SunGard to help modernize and consolidate its disaster recovery program with Managed Vaulting services and Recover2Cloud for Vaulting.
• A leading U.K. e-commerce logistics and delivery company expanded its relationship with SunGard to include consulting and cloud hosting services.

Public Sector and Education revenue was $53 million in the third quarter, up 6% year over year, reflecting strong demand for newly introduced software solutions. Adjusted EBITDA was $16 million, up 10% year over year, and the adjusted EBITDA margin was 31.4%, up 1 point from last year. Year to date, revenue was $155 million, an increase of 2% year over year, and adjusted EBITDA was $48 million, up 3% from the prior year, and the adjusted EBITDA margin was 31.2%, up 0.2 points from last year.

Notable deals in the quarter included the following:

• SunGard Public Sector's ONESolution was selected by a city in Texas to provide public safety solutions for computer-aided emergency dispatch, records management and mobile computing.
• SunGard K-12 Education's eSchoolPLUS and PerformancePLUS were selected by one of the largest public school districts in Pennsylvania to help manage student data and support student achievement and for tracking student performance and building local benchmark assessments.

Financial Position

For the nine months ended September 30, 2013, the continuing operations of the Company generated $569 million in cash flow from operations, up $143 million year over year, and invested $160 million in capital expenditures, down $13 million from the prior year. In addition, year to date the Company used its cash flow and available cash to repay $218 million of debt.

At September 30, 2013, total debt was $6.4 billion and cash was $689 million. The Company's leverage ratio, as defined in its senior secured credit agreement, was 4.50x, down from 4.75x at the end of 2012. The leverage ratio is calculated using adjusted EBITDA as defined in Note 2 attached to this release.

Full tables available here.