SunGard Announces Third Quarter 2012 Results

SunGard Announces Third Quarter 2012 Results

WAYNE, Pa.--(BUSINESS WIRE)-- SunGard, one of the world's leading software and technology services companies, today reported results for the third quarter ended September 30, 2012. For the third quarter, revenue was $1.04 billion, down 6% year over year (down 4% adjusting for currency). Excluding one of our financial systems businesses, a broker/dealer, and adjusting for currency, revenue was down 3% year over year.

For the third quarter, the Company reported an operating loss of $279 million, including a $385 million non-cash write-down of goodwill in the Availability Services business which represents approximately 8% of our total goodwill balance, compared to operating income of $63 million in the third quarter of 2011 which had no such write-down of goodwill. Adjusted operating income, which excludes the goodwill impairment, the amortization of acquisition-related intangible assets, and other expenses, was $216 million in the third quarter, down 1% year over year. Adjusted EBITDA was $298 million in the quarter, also down 1% year over year. The adjusted operating income margin and the adjusted EBITDA margin both improved over the prior year by 1.0 point and 1.3 points, respectively, primarily due to lower costs and expenses. Adjusted EBITDA and adjusted operating income are defined in Notes 1 and 2 in the Notes attached to this release.

Russ Fradin, president and chief executive officer, commented, "We continue to generate strong cash flow and are focused on the right initiatives for achieving long-term sustainable growth and margin improvement. While weakness in professional services revenue resulted in disappointing revenue for the quarter, license fees remained relatively robust. We're also encouraged by the significant new deals we signed in the quarter, a strong pipeline and ongoing improvements in cost control. The success of our recent pricing of $1 billion in new senior subordinated notes is also a testament to the strength of our recurring revenue model and the hard work and dedication of our team."

Financial Systems revenue was $640 million in the third quarter, down 6% year over year (down 4% adjusting for currency). Excluding the broker/dealer business and adjusting for currency, revenue decreased 3%. Software license fees were $43 million in the quarter, an increase of $4 million or 12% compared to the third quarter of 2011.

Notable deals in the quarter included the following:

• One of the world's leading capital markets investment banks selected SunGard's post-trade securities suite, including SunGard's Stream Phase3, to help provide clearing, settlement and technology solutions to its financial services customers.

• The investment banking and capital markets arm of one of the largest financial services firms in the US selected SunGard's Valdi trading solution suite to gain a consolidated view of trading across global markets, with comprehensive access to positions and risk management for multiple asset and instrument classes.

• One of the largest regional banks in North America selected SunGard's AddVantage to help support its asset management and trust accounting.

• A leading US life insurance company selected SunGard's iWorks and SunGard Global Services to provide managed services to support a number of core insurance processing applications.

• One of the world's leading banks selected SunGard's InTrader to provide an integrated solution for bank treasury & portfolio management.

Availability Services revenue was $345 million in the third quarter, down 5% year over year (down 4% adjusting for currency). The decline in revenue was primarily driven by North American recovery services, partially offset by North American managed services.

Notable deals in the quarter included the following:

• A large North American healthcare services organization selected SunGard for managed services, advanced recovery services and our Managed Recovery Program.

• A global leader in labeling and packaging solutions selected SunGard for disaster recovery services, including our Managed Recovery Program.

• A leading SaaS provider selected SunGard to help extend its IT infrastructure through Enterprise Cloud Services.

Other revenue, comprised of our Public Sector and K-12 Education businesses, was $50 million in the third quarter, down 3% year over year. Software license fees were $2 million in the quarter, unchanged compared to the third quarter of 2011.

Notable deals in the quarter included the following:

• A county in Florida selected SunGard Public Sector to provide solutions for computer-aided emergency services dispatch, records management, mobile computing, and finance and human resources management.

• A state department of education selected SunGard K-12 Education's PerformancePLUS to help support performance tracking, assessment building and learning plan development.

For the nine months ended September 30, 2012, revenue was $3.13 billion, down 5% year over year (down 3% adjusting for currency). Excluding the broker/dealer business and adjusting for currency, revenue decreased 2%. Year to date, the Company reported an operating loss of $122 million, including the $385 million non-cash write-down of goodwill, compared to operating income of $190 million for the nine months ended September 30, 2011 which had no such write-down of goodwill. Year to date, adjusted operating income was $590 million, down 1% year over year, and adjusted EBITDA was $837 million, up $1 million year over year. The adjusted operating income margin and the adjusted EBITDA margin both improved over the first nine months of 2011 by 0.8 points and 1.3 points, respectively.

Financial Position

For the nine months ended September 30, 2012, the continuing operations of the Company generated $426 million in cash flow from operations, an increase of $64 million year over year, invested $173 million in capital expenditures and spent $10 million on acquisitions net of acquired cash. During the third quarter, the Company completed a small divestiture which was classified as a discontinued operation. In addition, the Company also paid $104 million in taxes related to the sale of its Higher Education business. The Company expects to pay the remaining taxes related to the sale during the fourth quarter.

At September 30, 2012, total debt outstanding was $6.1 billion and cash was $752 million. In addition, the Company's leverage ratio as defined in its senior secured credit agreement was 4.23x, down from 4.96x at December 31, 2011, principally reflecting debt reduction of $1.7 billion during 2012.

On October 18, 2012, the Company successfully priced $1 billion of new 6.625% Senior Subordinated Notes due 2019. This transaction is scheduled to close on November 1, 2012. The Company plans to use the proceeds from this offering to repurchase or redeem all of its existing 10.25% Senior Subordinated Notes due 2015. As a result of this transaction, the Company expects to save approximately $36 million in annualized interest expense.

This press release shall not constitute an offer to sell or the solicitation of an offer to buy, nor shall there be any sale of the notes, in any jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of any such jurisdiction.

Conference Call & Webcast

SunGard will host a conference call and live web broadcast to discuss third quarter 2012 results today at 4:15 p.m. (Eastern Time). The dial-in number for the conference call is 706-902-1370, and the conference ID number is 54994508. You may also listen to the call at www.investorcalendar.com by clicking on the "audio" icon for SunGard. An audio replay will be available two hours after the call ends through midnight on November 13, 2012. To listen to the replay, please dial 1-855-859-2056 or 404-537-3406 and enter the conference ID number 54994508. A replay will also be available two hours after the call ends through midnight on November 13, 2012 at www.investorcalendar.com.

About SunGard

SunGard is one of the world's leading software and technology services companies. SunGard has more than 17,000 employees and serves approximately 25,000 customers in more than 70 countries. SunGard provides software and processing solutions for financial services, education and the public sector. SunGard also provides disaster recovery services, managed IT services, information availability consulting services and business continuity management software. With annual revenue of about $4.5 billion, SunGard is the largest privately held software and services company and is ranked 480 on the Fortune 500. For more information, please visit www.sungard.com.

Trademark Information: SunGard, the SunGard logo, AddVantage, InTrader, iWorks, PeformancePLUS, Stream Phase3, Valdi, are trademarks or registered trademarks of SunGard Data Systems Inc. or its subsidiaries in the U.S. and other countries. All other trade names are trademarks or registered trademarks of their respective holders.

SunGard's "Safe Harbor" Statement under Private Securities Litigation Reform Act of 1995

Statements in this release other than historical facts constitute forward-looking statements. You can identify forward-looking statements because they contain words such as "believes," "expects," "may," "will," "would," "should," "seeks," "approximately," "intends," "plans," "estimates," or "anticipates" or similar expressions which concern our strategy, plans or intentions. All statements we make relating to estimated and projected earnings, margins, costs, expenditures, cash flows, growth rates, financial results and pro forma estimates are forward-looking statements. In addition, we, through our senior management, from time to time make forward-looking public statements concerning our expected future operations and performance and other developments. All of these forward-looking statements are subject to risks and uncertainties that may change at any time, and, therefore, our actual results may differ materially from those we expected. We derive most of our forward-looking statements from our operating budgets and forecasts, which are based upon many detailed assumptions. While we believe that our assumptions are reasonable, we caution that it is very difficult to predict the impact of known factors, and, of course, it is impossible for us to anticipate all factors that could affect our actual results. Some of the factors that we believe could affect our results include: general economic and market conditions; the overall condition of the financial services industry, including the effect of any further consolidation among financial services firms; our high degree of leverage; the effect of war, terrorism, natural disasters or catastrophic events; the effect of disruptions to our systems and infrastructure; the timing and magnitude of software sales; the timing and scope of technological advances; customers taking their information availability solutions in-house; the trend in information availability toward solutions utilizing more dedicated resources; the market and credit risks associated with broker/dealer operations; the ability to retain and attract customers and key personnel; risks relating to the foreign countries where we transact business; the integration and performance of acquired businesses; the ability to obtain patent protection and avoid patent-related liabilities in the context of a rapidly developing legal framework for software and business-method patents; a material weakness in our internal controls; and unanticipated changes in our tax provision or the adoption of new tax legislation. The factors described in this paragraph and other factors that may affect our business or future financial results are discussed in our periodic filings with the U.S. Securities and Exchange Commission, copies of which may be obtained from us without charge. We assume no obligation to update any written or oral forward-looking statement made by us or on our behalf as a result of new information, future events or other factors.