"I am pleased with our overall second quarter results," said Mike Gregoire, CA Technologies chief executive officer. "We over performed on both the top line and the bottom line, enabling us to increase our full year guidance for revenue and GAAP and non-GAAP earnings per share. This is clearly a beginning, but we still have work to do to get the aggregate portfolio growing.
"To drive growth at CA we are investing in our business. In the second half of the fiscal year we will increase our research and development spend and accelerate our investment in marketing, all within the expense guidance we outlined at the outset of the fiscal year,” Gregoire said. “This will enable us to continue to deliver disruptive new products like our recently announced Nimsoft Monitor Snap - a free, feature-rich monitoring solution that provides an entirely new customer experience - and the next generation of mainframe products. Accelerating innovation, delivering differentiated products and focusing our marketing is the path to getting CA on a growth trajectory.”
REVENUE AND BOOKINGS
- The increase in the Company's second quarter bookings was primarily due to higher Mainframe renewals, offset by a decrease in Mainframe and Enterprise Solutions new product sales and Services engagements.
- The Company executed a total of 12 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $320 million. During the second quarter of fiscal year 2013, the Company executed a total of 10 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $232 million.
- The weighted average duration of subscription and maintenance bookings for the quarter was 3.32 years, compared with 3.11 years for the same period in fiscal year 2013.
EXPENSES AND MARGIN
- GAAP and non-GAAP operating expenses were positively affected by lower personnel costs within selling and marketing, a decrease in commissions and other operational efficiencies.
- • GAAP and non-GAAP operating margins in the second quarter were positively affected by the decrease in personnel expenses. GAAP operating margin also was negatively affected by a decrease in software capitalization.
- Non-GAAP EPS was positively affected by $0.16 due to a lower effective tax rate. The Company recognized a net discrete tax benefit of approximately $179 million in the first half 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 fiscal years 2005, 2006 and 2007.
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 have been revised to present segment profit and expenses on a consistent basis.
The increase in Mainframe Solutions revenue was primarily due to an increase in new product and mainframe capacity sales in the first quarter of fiscal year 2014 while the increase in operating margin was primarily a result of a decrease in selling and marketing expenses.
- Enterprise Solutions revenue for the second quarter of fiscal 2014 decreased compared with the year-ago period primarily due to a decrease in new product sales in prior periods. Enterprise Solutions operating margin for the second quarter of fiscal 2014 increased compared with the year-ago period as a result of a decrease in selling and marketing expenses.
- The increase in Services revenue was primarily due to an increase in professional services engagements resulting from prior period bookings.
CASH FLOW FROM OPERATIONS
- Cash flow from operations in the second quarter was $87 million, compared with $89 million in the prior year. Cash was positively affected by increased cash collections and the receipt of a tax refund in connection with the resolution of the U.S. tax matter mentioned above, offset by a number of expected factors including higher cash taxes, payments related to the rebalancing actions announced on May 7, 2013 and a reduction in capitalized software development.
- Cash, cash equivalents and investments at September 30, 2013 were $2.799 billion.
- With $1.779 billion in total debt outstanding and $126 million in notional pooling, the Company’s net cash, cash equivalents and investments position was $894 million. In August 2013, the Company issued $250 million of 2.875% Senior Notes due August 2018 and $250 million of 4.500% Senior Notes due August 2023, for an aggregate principal amount of $500 million.
- In the second quarter of fiscal year 2014, the Company repurchased 5 million shares of stock for $145 million.
- The Company is currently authorized to repurchase an additional $307 million of common stock through fiscal year 2014.
- During the second quarter of fiscal year 2014, the Company distributed $114 million in dividends to shareholders.
- The Company’s outstanding share count at September 30, 2013 was 447 million.
OUTLOOK FOR FISCAL YEAR 2014
The Company updated 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 to decrease in a range of minus 7 percent to minus 4 percent in constant currency. Previous guidance was minus 11 percent to minus 6 percent in constant currency. At September 30, 2013 exchange rates, this translates to reported GAAP diluted earnings per share of $1.92 to $1.98.
- Non-GAAP diluted earnings per share to increase in a range of 17 percent to 20 percent in constant currency. Previous guidance was 16 percent to 20 percent in constant currency. At September 30, 2013 exchange rates, this translates to reported non-GAAP diluted earnings per share of $2.96 to $3.03.
- Cash flow from operations to decrease in a range of minus 30 percent to minus 24 percent in constant currency, unchanged from previous guidance. At September 30, 2013 exchange rates, this translates to reported cash flow from operations of $970 million to $1.05 billion.
- Total revenue to decrease in a range of minus 3 percent to minus 2 percent in constant currency. Previous guidance was a decrease of minus 4 percent to minus 2 percent. At September 30, 2013 exchange rates, this translates to reported revenue of $4.47 billion to $4.52 billion.
Outlook for cash flow from operations is being negatively 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 expects full-year GAAP operating margin of 24 percent, an increase of one point from previous guidance, 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 438 million shares outstanding at fiscal year 2014 year-end and weighted average diluted shares outstanding of approximately 447 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 second 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.