REVENUE AND BOOKINGS
- Total revenue declined primarily as a result of a decrease in subscription and maintenance revenue, which was largely due to a decrease in Mainframe Solutions revenue and, to a lesser extent, a decrease in professional services revenue.
- Total bookings decreased primarily due to an expected year-over-year decrease in renewals from the timing of the renewal portfolio within subscription and maintenance bookings. This timing reflects the decrease in the value of contracts generally available for renewal compared with year-ago period. The decrease in subscription and maintenance bookings was partially offset by an increase in professional services bookings.
- The Company executed a total of 6 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $217 million. During the second quarter of fiscal 2014, 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.
- The weighted average duration of subscription and maintenance bookings for the quarter was 3.10 years, compared with 3.32 years for the same period in fiscal 2014.
EXPENSES AND MARGIN
- GAAP and non-GAAP second quarter operating expenses were generally consistent compared with the year-ago period. GAAP operating expenses included an impairment of $13 million relating to capitalized software and other intangible assets within the Enterprise Solutions segment. The Company expects a year-over-year increase in the third quarter of fiscal 2015 for selling and marketing expenses as a result of incremental expenses associated with CA World ‘14.
- GAAP EPS in the second quarter of fiscal 2015 was positively affected by $0.05, from a decrease in the Company's GAAP effective tax rate. The Company recognized a net discrete tax benefit of $19 million in the second quarter of fiscal 2015. This net discrete tax benefit was primarily as a result of the resolution of uncertain tax positions relating to U.S. and non-U.S. jurisdictions.
- Non-GAAP EPS in the second quarter of fiscal 2015 was negatively affected by $0.15 from an increase in the Company's non-GAAP effective tax rate. The Company recognized a net discrete tax benefit of approximately $181 million in the first quarter of fiscal 2014, which impacted the non-GAAP effective tax rate for the second quarter of fiscal 2014. This net discrete tax benefit was primarily as a result of the resolution of uncertain tax positions relating to U.S. and non-U.S. jurisdictions.
SELECTED HIGHLIGHTS FROM THE QUARTER
- Customer traction for CA Technologies innovations continued in the quarter.
- One of the world’s leading consumer entertainment companies chose CA APM solutions to monitor end-to-end performance of their on-line gaming platform.
- A French airline is now working with CA Service Virtualization to increase the speed and stability of application updates for their new mobile booking system.
- A large UK-based financial services integrator signed a multi-million dollar transaction to leverage CA's API Management solution to build a cloud based mobile platform that allows third party financial service offerings, such as mortgage and insurance products, to be provided to social consumers.
- Solutions leadership:
- CA Technologies has been placed in the leaders quadrant for its Data Center Infrastructure Management (DCIM) solution by Gartner in their “Magic Quadrant for Data Center Infrastructure Management Tools” report issued in September. (1)
- CA API solutions were named a “leader” by analyst firm Forrester in their report “The Forrester Wave™: API Management Solutions, Q3 2014” in a report issued in September. (2)
- Mainframe Solutions revenue decreased compared with the year-ago period primarily due to insufficient revenue from prior period new sales to offset the decline in revenue contribution from renewals. Operating margin was generally consistent compared with the year-ago period.
- Enterprise Solutions revenue decreased compared with the year-ago period primarily due to a decrease in revenue that is recognized on an up-front basis in the current period. This decline was primarily due to an increase in the percentage of our Enterprise Solutions new sales sold in connection with renewals compared with the year-ago period. In addition, within Enterprise Solutions, there was an unfavorable effect from the decrease in revenue from certain mature product lines, partially offset by an increase in revenue from recently acquired products and sales of newly developed technologies. Enterprise Solutions operating margin was generally consistent compared with the year-ago period.
- Services revenue decreased compared with the year-ago period primarily as a result of a decrease in the size and number of services engagements during the first quarter of fiscal 2015. Operating margin for our Services segment decreased compared with the year-ago period as a result of a number of factors, including the decrease in revenue and lower utilization rates for services personnel due to the decrease in the number of services engagements.
CASH FLOW FROM OPERATIONS
- Cash flow from operations for the second quarter of fiscal 2015 was $66 million, versus $73 million in the year ago period. Prior year cash flows included a tax refund of $70 million that positively affected cash flows from operations in the year-ago period. In the second quarter of fiscal 2015, there was an increase in cash collections, primarily attributable to higher single installment collections of $76 million.
- Cash, cash equivalents and investments at September 30, 2014 were $3.193 billion.
- With $1.763 billion in total debt outstanding and $139 million in notional pooling, the Company’s net cash, cash equivalents and investments position was $1.291 billion.
- The Company is currently authorized to purchase $950 million of its common stock under its current stock repurchase program.
- The Company distributed $111 million in dividends to shareholders.
- The Company’s outstanding share count at September 30, 2014 was 440 million.
OUTLOOK FOR FISCAL YEAR 2015
The Company updated its fiscal year 2015 outlook, which represents "forward-looking statements" (as defined below).
The Company expects the following:
- Total revenue to decrease in a range of minus 2 percent to minus 1 percent in constant currency, unchanged from previous guidance. At September 30, 2014 exchange rates, this translates to reported revenue of $4.27 billion to $4.33 billion.
- GAAP diluted earnings per share from continuing operations to decrease in a range of minus 12 percent to minus 8 percent in constant currency, unchanged from previous guidance. At September 30, 2014 exchange rates, this translates to reported GAAP diluted earnings per share of $1.73 to $1.80.
- Non-GAAP diluted earnings per share from continuing operations to decrease in a range of minus 20 percent to minus 18 percent in constant currency. Previous guidance was minus 21 to minus 19 percent in constant currency. At September 30, 2014 exchange rates, this translates to reported non-GAAP diluted earnings per share of $2.40 to $2.47.
- Cash flow from continuing operations to increase in a range of 5 percent to 12 percent in constant currency, unchanged from previous guidance. At September 30, 2014 exchange rates, this translates to reported cash flow from continuing operations of $1.01 billion to $1.08 billion.
This outlook assumes no material acquisitions and a partial currency hedge of operating income. The Company expects a full-year GAAP operating margin of 27 percent, a decrease of one point from previous guidance, and non-GAAP operating margin of 37 percent, unchanged from previous guidance. The Company also expects to return to a normalized full-year GAAP and non-GAAP effective tax rate of approximately 30 percent, which would have a negative impact on GAAP and non-GAAP diluted earnings per share from continuing operations of approximately $0.43 and $0.59, respectively.
The Company anticipates approximately 436 million shares outstanding at fiscal 2015 year-end and weighted average diluted shares outstanding of approximately 440 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 5:00 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.
(1) Gartner, Inc., “Magic Quadrant for Data Center Infrastructure Management Tools” by Jay E. Pultz, David J. Cappuccio, April Adams, Federico De Silva, Naveen Mishra, Henrique Cecci, Rakesh Kumar, September 22, 2014.
Gartner does not endorse any vendor, product or service depicted in its research publications, and does not advise technology users to select only those vendors with the highest ratings or other designation. Gartner research publications consist of the opinions of Gartner's research organization and should not be construed as statements of fact. Gartner disclaims all warranties, expressed or implied, with respect to this research, including any warranties of merchantability or fitness for a particular purpose.
(2) Forrester Research Inc., “The Forrester Wave™: API Management Solutions, Q3 2014, September 29, 2014.”
The Forrester Wave is copyrighted by Forrester Research, Inc. Forrester and Forrester Wave are trademarks of Forrester Research, Inc. The Forrester Wave is a graphical representation of Forrester's call on a market and is plotted using a detailed spreadsheet with exposed scores, weightings, and comments. Forrester does not endorse any vendor, product, or service depicted in the Forrester Wave. Information is based on best available resources. Opinions reflect judgment at the time and are subject to change.