SunGard Data Systems Inc. ("SunGard"), one of the world's leading software and technology services companies, today reported results for the first quarter ended March 31, 2014.
For the first quarter, revenue was $653 million, up 2% year over year. Currency had no material impact on reported revenue for the quarter compared to the prior year. For the first quarter, the Company had an operating loss of $289 million, which included a $339 million non-cash impairment charge of the SunGard trade name as a result of the split-off of the Availability Services business. Excluding this charge, operating income was $50 million and the operating income margin was 7.7%. Adjusted EBITDA was $145 million, up 13% year over year, and the adjusted EBITDA margin was 22.2%, up 2.1 points year over year. Adjusted EBITDA is defined in Note 1 attached to this release.
As previously announced, during the quarter, the Company completed the tax-free split-off of its Availability Services business, which had annual revenue of approximately $1.4 billion in 2013, and the sale of two small businesses within the Financial Systems segment with combined 2013 annual revenues of $48 million. These businesses are included in our financial results as discontinued operations. For historical information on continuing operations, see Note 2 attached to this release.
Russ Fradin, president and chief executive officer, commented, "We're pleased to have successfully completed the split-off of the Availability Services business on March 31st. This is a key milestone in the history of our Company and allows both businesses to focus on their respective strategies and opportunities. We're executing a strategy that is already gaining traction, as seen by our improving revenue trends, particularly in our treasury, asset management, and public sector solutions. We are on a clear path to deliver better solutions, continued growth and increased value."
Financial Systems ("FS") segment revenue was $600 million in the first quarter, up 2% year over year (up 1% year over year adjusting for currency) driven by growth in software and services. FS segment costs and expenses were $461 mi and expenses were $461 million, flat year over year. Investments in sales, marketing and development were offset by lower administrative expenses and higher software capitalization related to our new product development. In the quarter, we also benefited from a reduction in our vacation liability estimate as previously disclosed. Adjusted EBITDA for the period was $139 million, up 9% from the prior year, and the adjusted EBITDA margin was 23.2%, up 1.6 points from last year.
Notable deals in the quarter included the following:
SunGard's multi-asset solutions for derivatives and securities processing were selected by a leading bank in the Asia Pacific region. This same bank selected SunGard's Apex Collateral for their ECM solution.
SunGard's Wall Street Concepts was selected as the provider of Business Process Outsourcing services by one of the world's top 20 global banks for their tax processing solution.
SunGard's InvestOne was migrated from an in-house solution to an Application Service Provider arrangement by a U.S.-based asset management and investment planning firm.
SunGard's Valdi was renewed by a top market-maker to provide support for its U.S. and international trading.
SunGard's Monis and Front Arena were selected by one of the largest Japanese banks to provide a front-to-back, convertible bond market-making platform.
SunGard's treasury payments and messaging solutions were selected by a leading hand-held device manufacturer for improved cash and risk management.
SunGard's iWorks Compass policy administration solution was selected by a Thailand life insurance company as a single, standardized platform for their high net worth suite of products.
SunGard's Front Arena, VPM and Investier were selected by a new UK-based hedge fund as a basis for their trading, investment management, and fund accounting and reporting solutions.
SunGard's Investor's View and WealthStation were selected by a large asset management and retirement solutions firm to support its regulatory compliance, investment management and client acquisition/retention initiatives.
Public Sector and Education ("PS&E") segment revenue was $53 million in the first quarter, up 6% year over year. PS&E segment costs and expenses were $37 million, up 5% year over year, driven by a greater focus on sales capacity and professional services. Adjusted EBITDA was $16 million, up 9% year over year, and the adjusted EBITDA margin was 30.1%, up 0.9 points from last year. These results reflect strong demand for our public sector business as customers embrace our new solutions.
Notable deals in the quarter included the following:
SunGard Public Sector's ONESolution was selected by a county in California to provide enterprise-wide software solutions for finance, payroll and human resources.
SunGard K-12 Education's BusinessPLUS was selected by a large public school district in Kansas to help manage critical financial, procurement, payroll and personnel functions.
SunGard Public Sector's ONESolution was selected by a city in Ohio to provide public safety solutions for computer-aided emergency dispatch, records management and mobile computing.
SunGard K-12 Education's eSchoolPLUS was selected by a large public school district in Pennsylvania to help manage student data and support student achievement.
For the three months ended March 31, 2014, the continuing operations of the Company generated $86 million in cash flow from operations. Capital expenditures were $28 million, including increased capitalization of software as a result of new product investments. For historical information on 2013 cash flows, see Note 3 attached to this release.
During the first quarter, the Company used its cash flow and available cash to repay $319 million of debt. In addition, as a result of the split-off of the Availability Services business, on March 31, 2014 the Company prepaid approximately $1,005 million of term loans and retired approximately $389 million of its 7.375% notes due 2018.
At March 31, 2014, total debt was $4.7 billion and cash was $355 million. The Company's leverage ratio, as defined in its senior secured credit agreement, was 5.42x. 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.