“I am pleased with our performance in the first quarter and the start we made to fiscal year 2014,” said CA Technologies Chief Executive Officer Mike Gregoire. “We did better than expected on the revenue line and were able to capitalize on organizational efficiencies, expense management and a tax benefit to drive earnings growth. Our cash flow from operations was down, but that was expected and we are confident in meeting our full year outlook in all areas.
REVENUE AND BOOKINGS
- During the quarter the Company saw a significant increase in its mainframe renewals, and demand for its mobile device management, Software-as-a-Service and Nimsoft monitoring solutions.
- The Company executed a total of 9 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $323 million. During the first quarter of fiscal year 2013, the Company executed a total of 4 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $61 million.
- The weighted average duration of subscription and maintenance bookings for the quarter was 3.10 years, compared with 2.79 years for the same period in fiscal year 2013.
EXPENSES AND MARGIN
- GAAP and non-GAAP EPS were positively affected by $0.41 and $0.14, respectively, from the reduction in the Company’s effective tax rate. The Company recognized a net discrete tax benefit of approximately $181 million in the first quarter of fiscal year 2014, primarily from the resolution of uncertain tax positions upon the completion of the examination of U.S. federal income tax returns for the fiscal years 2005, 2006 and 2007.
- GAAP operating expenses in the first quarter were adversely affected by approximately $120 million in costs associated with the rebalancing actions announced on May 7, 2013, resulting in a negative impact of $0.17 on GAAP EPS.
- GAAP and non-GAAP operating expenses were positively affected by lower personnel costs related to the rebalancing actions and other operational efficiencies.
- In the first quarter of fiscal year 2013, the Company closed a transaction that assigned the rights to certain intellectual property to a large technology company for $35 million. GAAP and non-GAAP EPS were positively affected by about $0.05 each from the transaction.
- GAAP and non-GAAP operating margins in the first quarter of fiscal year 2013 were positively affected by the intellectual property rights assignment by 3 percentage points each.
Starting in the first quarter of fiscal year 2014, the measure of segment expenses and segment profit was revised to treat all costs of internal software development as segment expense in the period the costs are incurred. As a result, the Company will add back capitalized internal software costs and exclude amortization of internally developed software costs previously capitalized from segment expenses. Segment expenses also exclude the effects of the Company’s fiscal year 2014 rebalancing plan. Prior period segment expenses and profit information has been revised to present segment profit and expenses on a consistent basis and is available in the 8-K filed today and in the Company’s supplemental financial package, both of which are available at www.ca.com/invest.
- Enterprise Solutions operating margin in the first quarter of fiscal year 2013 was positively affected by the intellectual property transaction mentioned above.
CASH FLOW FROM OPERATIONS
- Cash flow from operations in the first quarter was $11 million, compared with $183 million in the prior year. The decline year-over-year was due to a number of expected factors including higher cash taxes, payments related to the rebalancing actions and a reduction in capitalized software development. Cash flow from operations also was negatively affected by lower cash collections, including a decrease in single installment collections. The prior year period also included the positive impact from the intellectual property transaction.
- Cash, cash equivalents and investments at June 30, 2013 were $2.461 billion.
- With $1.285 billion in total debt outstanding and $138 million in notional pooling, the Company’s net cash, cash equivalents and investments position was $1.038 billion.
- In the first quarter of fiscal year 2014, the Company repurchased 2 million shares of stock for $53 million.
- The Company is currently authorized to repurchase an additional $452 million of common stock through fiscal year 2014.
- During the first quarter of fiscal year 2014, the Company distributed $114 million in dividends to shareholders.
- The Company’s outstanding share count at June 30, 2013 was 451 million.
OUTLOOK FOR FISCAL YEAR 2014
The Company reaffirmed the following outlook, which represents "forward-looking statements" (as defined below). It takes into account the change in business practice regarding internally developed software costs, the costs and payments associated with the rebalancing initiative announced on May 7, 2013 and the resolution of the U.S. tax matter mentioned above.
The Company expects the following:
- GAAP diluted earnings per share decreases in a range of minus 11 percent to minus 6 percent in constant currency. At June 30, 2013 exchange rates, this translates to GAAP reported diluted earnings per share of $1.81 to $1.91.
- Non-GAAP diluted earnings per share increases in a range of 16 percent to 20 percent in constant currency. At June 30, 2013 exchange rates, this translates to reported non-GAAP diluted earnings per share of $2.90 to $3.00.
- Cash flow from operations decreases in a range of minus 30 percent to minus 24 percent in constant currency. At June 30, 2013 exchange rates, this translates to reported cash flow from operations of $960 million to $1.04 billion.
- Total revenue outlook decreases in a range of minus 4 percent to minus 2 percent in constant currency. At June 30, 2013 exchange rates, this translates to reported revenue of $4.39 billion to $4.48 billion.
Outlook for cash flow from operations is being adversely affected by costs associated with the rebalancing of resources during the fiscal year, an increase in cash taxes, and an increase in operating cash outflows relating to product development and enhancements expense for fiscal year 2014. In fiscal year 2013, cash flow from operations did not reflect $165 million of capitalized software development costs that appeared as an investment activity in our Statement of Cash Flows.
This outlook also assumes no material acquisitions and a partial currency hedge of operating income. The Company continues to expect a full-year GAAP operating margin of 23 percent and non-GAAP operating margin of 36 percent. The Company expects a fiscal year 2014 GAAP and non-GAAP effective tax rate of approximately 14 percent.
The Company anticipates approximately 437 million shares outstanding at fiscal year 2014 year-end and weighted average diluted shares outstanding of approximately 446 million for the fiscal year.
This news release and the accompanying tables should be read in conjunction with additional content that is available on the Company’s website, including a supplemental financial package, as well as a conference call and webcast that the Company will host at 5 p.m. ET today to discuss its unaudited first quarter results. The webcast will be archived on the website. Individuals can access the webcast, as well as the press release and supplemental financial information at http://ca.com/invest or can listen to the call at 1-877-561-2748. The international participant number is 1-720-545-0044.