Mike Gregoire, CA Technologies Chief Executive Officer, said:
In the first quarter of 2016, we achieved a strong 41 percent non-GAAP operating margin.* We continued to make progress in achieving our long-term goals. While our overall first-quarter total revenue and new sales declined year-over-year, I am quite encouraged by the positive trend over the past three quarters in enterprise solutions new sales growth rates. This was achieved mainly from our Named and Growth accounts, which is proof that our strategy is beginning to show impact.
"We have enhanced our internal development capabilities with the acquisition of Rally Software, which closed earlier this month. We will continue to focus on organic innovation but make strategic acquisitions when they make sense. Rally adds to our portfolio an award-winning, cloud-based agile development platform. Along with Rally's transformation consultants and coaches, this positions CA to become an industry leader in the fast growing Agile Application Lifecycle Management market.
"Continuing our focus on product innovation, we today named industry veteran Ayman Sayed, former senior vice president of the Network Operating Systems Group at Cisco, as our chief product officer. Ayman is a visionary technologist who has a demonstrated track record of innovating at scale using modern platforms and Agile methodologies. Last month, we also named Xbox co-founder and Microsoft veteran Otto Berkes as CA's Chief Technology Officer. I am confident that the partnership between Ayman and Otto will accelerate our ability to bring meaningful products to market.
"Looking at the rest of fiscal 2016, we will continue to focus on execution, invest in key growth areas and push to deliver long-term value for our shareholders."
*.GAAP operating margin was 31 percent.
REVENUE AND BOOKINGS
- Total revenue declined primarily as a result of an unfavorable foreign exchange effect of $65 million and, to a lesser extent, a decrease in subscription and maintenance revenue.
- Total bookings were lower primarily due to an unfavorable foreign exchange effect and, to a lesser extent, a decrease in renewals in our Mainframe Solutions business.
- 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 $214 million. During the first quarter of fiscal 2015, the Company executed a total of 8 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $330 million.
- The weighted average duration of subscription and maintenance bookings for the quarter was 3.45 years, compared with 3.60 years for the same period in fiscal 2015.
EXPENSES AND MARGIN
- GAAP and non-GAAP first quarter operating expenses were favorably affected by foreign exchange and lower personnel-related expenses.
SELECTED HIGHLIGHTS FROM THE QUARTER
- Customer traction for CA Technologies innovations continued in the quarter.
- CA Project and Portfolio Management (CA PPM) high profile wins included a competitive replacement with Delta Air Lines, which is leveraging CA’s solution to automate the vast number of complex business process across a multitude of different internal organizations.
- CA Secure Cloud, CA’s identity and access management solution for managed service providers, has been integrated into telecommunications giant BT’s new managed identity service supporting cloud, on-premise and hybrid IT systems.
- A financial institution in the Europe, Middle East and Africa region selected CA Capacity Manager to ensure that the sizing and capacity of its IT infrastructure matches the evolving business demands in a cost-effective and timely manner.
- A large financial services provider based in the United Kingdom selected CA Advanced Authentication solution to enable a simplified and secure user experience and mitigate security performance risk driving customer experience.
- Solutions leadership:
- CA enhanced its internal development capabilities by acquiring Rally Software Development Corp. (Rally), a leading provider of Agile development software and services. The deal closed earlier this month and complements our organic innovation strategy.
- CA announced the integration of its CA Release Automation solution with the Docker platform and the newest release of its CA PPM solution.
- CA was designated a “Leader” in the Gartner Magic Quadrant for IT Project and Portfolio Management Software Applications, Worldwide (1).
- CA was positioned in the Leaders Quadrant of the Gartner Magic Quadrant for Application Services Governance for its API Management product (2).
- Mainframe Solutions revenue was lower primarily due to an unfavorable foreign exchange effect of $38 million and, to a lesser extent, insufficient revenue from prior period new sales. Operating margin was similar to a year ago.
- Enterprise Solutions revenue decreased due to an unfavorable foreign exchange effect of $22 million and a decrease in the percentage of Enterprise Solutions product sales recognized on an up-front basis. Enterprise Solutions operating margin increased primarily as a result of lower personnel-related costs and other expenses.
- Services revenue decreased primarily due to an unfavorable foreign exchange effect of $5 million and, to a lesser extent, a decline in fiscal 2015 professional services engagements. Operating margin for professional services increased primarily due to a decrease in personnel-related costs as a result of our prior period severance actions.
CASH FLOW FROM OPERATIONS
- Cash flow from operations for the first quarter of fiscal 2016 was $188 million, versus $166 million in the year ago period. Cash flow from operations increased compared with the year-ago period primarily due to lower vendor disbursements and payroll costs, and lower income tax payments partially offset by a decline in cash collections.
- Cash flow was negatively affected by foreign exchange. Excluding currency effects, collections would have been positive.
- Cash, cash equivalents and investments at June 30, 2015 were $2.816 billion.
- With $1.258 billion in total debt outstanding and $139 million in notional pooling, the Company’s net cash, cash equivalents and investments position was $1.419 billion.
- In the first quarter of fiscal 2016, the Company repurchased 1.7 million shares of common stock for $50 million.
- As of June 30, 2015, the Company is currently authorized to purchase $735 million of its common stock under its current stock repurchase program.
- Effective July 1, 2015, the Company entered into an agreement to repurchase $50 million of its common stock to be delivered in September 2015.
- The Company distributed $110 million in dividends to shareholders.
- The Company’s outstanding share count at June 30, 2015 was 437 million.
- The Company today named industry veteran Ayman Sayed as chief product officer. Sayed most recently served as senior vice president of the Network Operating Systems Technology Group at Cisco, where he led the development of networking operating software on which nearly every Cisco networking product runs.
- The Company has hired Xbox co-founder and Microsoft Corporation veteran Otto Berkes as chief technology officer. Berkes most recently served as the chief technology officer at HBO, where was responsible for the development of HBO GO®, as well as all of the company’s technology efforts including media production, internal business systems and technology operations.
OUTLOOK FOR FISCAL YEAR 2016
The Company updated its fiscal 2016 outlook for revenue, GAAP and non-GAAP diluted earnings per share from continuing operations, full-year GAAP and non-GAAP operating margin. This guidance includes the acquisition of Rally, which closed earlier this month, and assumes no incremental material acquisitions. The following outlook contains "forward-looking statements" (as defined below).
The Company expects the following:
- Total revenue to change in a range of minus 1 percent to flat in constant currency. Previous guidance was to decrease 2 percent in constant currency. At June 30, 2015 exchange rates, this translates to reported revenue of $4.04 billion to $4.11 billion.
- GAAP diluted earnings per share from continuing operations to increase in a range of 6 percent to 10 percent in constant currency. Previous guidance was to increase in a range of 12 percent to 17 percent in constant currency. At June 30, 2015 exchange rates, this translates to reported GAAP diluted earnings per share from continuing operations of $1.72 to $1.80.
- Non-GAAP diluted earnings per share from continuing operations to increase in a range of 2 percent to 5 percent in constant currency, unchanged from previous guidance. At June 30, 2015 exchange rates, this translates to reported non-GAAP diluted earnings per share from continuing operations of $2.37 to $2.44.
- Cash flow from continuing operations to increase in the range of 2 percent to 7 percent in constant currency, unchanged from previous guidance. At June 30, 2015 exchange rates, this translates to reported cash flow from continuing operations of $0.98 billion to $1.03 billion.
The Company expects a full-year GAAP operating margin of 28 percent and non-GAAP operating margin of 38 percent, which translates to a 2-point decrease and 1-point decrease from previous guidance, respectively.
The Company also expects a full-year GAAP and non-GAAP effective tax rate of between 28 percent and 29 percent, unchanged from previous guidance.
The Company anticipates approximately 432 million shares outstanding at fiscal 2016 year-end and weighted average diluted shares outstanding of approximately 436 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 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.
(1) Gartner, Inc., “Magic Quadrant for IT Project and Portfolio Management Software Applications, Worldwide,” Daniel B. Stang, Robert A. Handler, Teresa Jones, May 20, 2015
(2) Gartner, Inc. "Magic Quadrant for Application Services Governance," Paolo Malinverno April 9, 2015.
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.