CA Technologies Reports Second Quarter Fiscal Year 2013 Results - CA Technologies
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CA Technologies Reports Second Quarter Fiscal Year 2013 Results


  • Revenue $1.152 Billion, Flat in Constant Currency and Down 4 Percent as Reported
  • GAAP EPS $0.48, Up 15 Percent in Constant Currency and 2 Percent as Reported
  • Non-GAAP EPS $0.59, Up 22 Percent in Constant Currency and 16 Percent as Reported
  • Cash Flow from Continuing Operations $89 Million, Down 50 Percent in Constant Currency and 53 Percent as Reported
  • Updates Outlook for Full Fiscal Year 2013

ISLANDIA, N.Y., October 25, 2012 – CA Technologies (NASDAQ:CA) today reported financial results for its second quarter of fiscal year 2013, ended September 30, 2012.

FINANCIAL OVERVIEW

EXECUTIVE COMMENTARY

“While we had anticipated that several areas of our business would be down in the second quarter, our new product and capacity sales fell short of our expectations,” said Bill McCracken, chief executive officer, CA Technologies.  “Our performance was also affected by the weakening global economy, which elongated sales cycles. Despite this difficult environment, we were able to meet our expectations for margin through disciplined expense management.

“We will continue to implement our customer market segmentation model, introduce new products and solutions throughout the second half, and build out our partner network.  We also will manage carefully our expenses to drive healthy operating margins for the full year,” said McCracken.

REVENUE AND BOOKINGS

About 63 percent of the Company’s revenue came from North America, while 37 percent came from International operations.

Revenue year-over-year:

  • Total revenue was $1.152 billion, flat in constant currency and down 4 percent as reported.
  • Total revenue backlog was $7.460 billion, down 7 percent in constant currency and 8 percent as reported.  The current portion of revenue backlog was $3.453 billion, down 2 percent in constant currency and 3 percent as reported.  The Company continues to see a drop in backlog as contracts come off the balance sheet prior to an expected increase in the fiscal year 2014 renewal portfolio.
  • North America revenue was $730 million, flat in constant currency and down 1 percent as reported.
  • International revenue was $422 million, flat in constant currency and down 9 percent as reported.

Bookings year-over-year:

  • Total bookings in the second quarter were $837 million, down 13 percent in constant currency and 14 percent as reported, due in part to lower Enterprise Solutions new product sales, mainframe capacity sales and renewals.
  • The Company renewed a total of 10 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $232 million.  During the second quarter of fiscal year 2012, the Company renewed a total of 10 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $321 million.
  • The weighted average duration of subscription and maintenance bookings for the quarter was 3.11 years, compared with 3.59 years for the same period in fiscal year 2012.
  • North America bookings were $500 million, down 25 percent in constant currency and as reported. 
  • International bookings were $337 million, up 14 percent in constant currency and 9 percent as reported. 

EXPENSES AND MARGIN

Year-over-year GAAP results:

  • Operating expenses, before interest and income taxes, were $815 million, down 5 percent in constant currency and 6 percent as reported.
  • Operating income, before interest and income taxes, was $337 million, up 12 percent in constant currency and 1 percent as reported.
  • Operating margin was 29 percent, up 1 percentage point from the prior year period.

Year-over-year non-GAAP results exclude purchased software and other intangibles amortization, share-based compensation, and certain other gains and losses.  The results also include gains and losses on hedges that mature within the quarter, but exclude gains and losses of hedges that do not mature within the quarter.

  • Operating expenses, before interest and income taxes, were $746 million, down 6 percent in constant currency and 9 percent as reported.
  • Operating income, before interest and income taxes, was $406 million, up 12 percent in constant currency and 7 percent as reported.
  • Operating margin was 35 percent, up 3 percentage points from the prior year period.

For the second quarter of fiscal year 2013, the Company’s effective GAAP tax rate was 32.1 percent, compared with 27.8 percent in the prior year period.  The Company’s effective non-GAAP tax rate was 30.8 percent, compared with 31.5 percent in the prior year period. 

GAAP and non-GAAP earnings per share in the second quarter of fiscal year 2012 were adversely affected by $44 million in costs, or about $0.06 per share, associated with a workforce reduction.  GAAP and non-GAAP operating margin in last year’s second quarter also were adversely affected by 3 percentage points each by the workforce reduction.

SEGMENT INFORMATION

  • Mainframe Solutions revenue was $619 million, down 2 percent in constant currency and 5 percent as reported.  Operating expense was $247 million and operating profit was $372 million.  Operating margin was 60 percent, up from 53 percent a year ago. There was a negative 3 percentage point operating margin impact in the prior period associated with the above-mentioned workforce reduction.
  • Enterprise Solutions revenue was $438 million, up 1 percent in constant currency and down 2 percent as reported.  Operating expense was $410 million and operating profit was $28 million.  Operating margin was 6 percent, flat from a year ago. There also was a negative 4 percentage point operating margin impact in the prior period associated with the workforce reduction.
  • Services revenue was $95 million, up 3 percent in constant currency and down 1 percent as reported.  Operating expense was $89 million and operating profit was $6 million.  Operating margin was 6 percent, up from 4 percent a year ago.

CASH FLOW FROM CONTINUING OPERATIONS

Cash flow from continuing operations in the second quarter was $89 million, compared with $190 million in the prior year.  The decrease was primarily due to a decrease in cash collections as a result of lower billings.

CAPITAL STRUCTURE

  • Cash, cash equivalents and investments at Sept. 30, 2012 were $2.248 billion.
  • With $1.294 billion in total debt outstanding and a borrowing position of $164 million on the Company’s notional pooling arrangement, the Company’s net cash, cash equivalents and investments were $790 million.
  • During the quarter, the Company repurchased 9.7 million shares in the market for approximately $250 million.
  • The Company is currently authorized to repurchase an additional $654 million of common stock through fiscal year 2014.
  • The Company’s outstanding share count at Sept. 30, 2012 was 454 million.
  • During the quarter, the Company distributed $116 million in dividends.

BUSINESS HIGHLIGHTS

During the second quarter the Company:

  • Announced it has been named the market share leader in the worldwide cloud systems management software market by IDC, a leading IT market research and advisory firm***;
  • Introduced a new version of CA Infrastructure Management (CA IM), the cornerstone of the Company’s converged infrastructure management solution that enables a superior and differentiated customer experience;  
  • Announced it has been named as a component of the Dow Jones Sustainability Indexes (DJSI) World Index and North America Index for the second consecutive year: and,
  • Introduced an enhanced CA Nimsoft Monitor with advanced network flow analysis, enabling customers to visualize their IP traffic in ways that can assist them in optimizing application service levels.

***IDC, Worldwide Cloud Systems Management Software 2011 Vendor Shares: Market Moves Beyond Self-Service, Doc #236556 August 2012.

OUTLOOK FOR FISCAL YEAR 2013

The Company updated its revenue and GAAP and non-GAAP earnings per share from continuing operations and cash flow from continuing operations guidance for fiscal year 2013.  The following guidance consists of "forward-looking statements" (as defined below).
The Company expects the following:

  • Total revenue growth in a range of negative 3 percent to negative 1 percent in constant currency.  At Sept. 30, 2012 exchange rates, this translates to reported revenue of $4.58 billion to $4.67 billion.  Previously, revenue growth guidance was 1 percent to 2 percent in constant currency.  
  • GAAP diluted earnings per share from continuing operations growth in constant currency in a range of 8 percent to 12 percent.  At Sept. 30, 2012 exchange rates, this translates to GAAP reported diluted earnings per share of $1.99 to $2.07.  Previously, GAAP diluted earnings per share from continuing operations growth in constant currency was in a range of 12 percent to 14 percent.
  • Non-GAAP diluted earnings per share from continuing operations growth in constant currency in a range of 6 percent to 10 percent.  At Sept. 30, 2012 exchange  rates, this translates to reported non-GAAP diluted earnings per share of $2.36 to $2.44.  Previously, non-GAAP diluted earnings per share from continuing operations growth in constant currency was in a range of 10 percent to 12 percent.
  • Cash flow from continuing operations growth in a range of negative 8 percent to negative 4 percent in constant currency.  At Sept. 30, 2012 exchange rates, this translates to reported cash flow from continuing operations of $1.38 billion to $1.44 billion.  Previously, cash flow from continuing operations growth was in a range of 4 percent to 6 percent in constant currency.

This outlook also assumes no material acquisitions and a partial currency hedge of operating income.  The Company expects a full-year GAAP operating margin of 30 percent, down from the previously stated 31 percent and continues to expect a non-GAAP operating margin of 36 percent.  The Company also continues to expect an effective full-year GAAP and non-GAAP tax rate to come in closer to the high-end of the 30 to 31 percent provided at the outset of the fiscal year.

The Company anticipates approximately 449 million shares outstanding at fiscal year 2013 year-end and weighted average diluted shares outstanding of approximately 458 million for the fiscal year.

The Company also said it is modifying its long-term guidance. While the multi-year guidance previously provided is the proper set of long-term financial objectives for CA Technologies, the Company now expects the timeline to achieve these objectives will be extended beyond its original expectations.

Webcast

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 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 this press release and supplemental financial information, at http://ca.com/invest or listen to the call at 1-877-561-2748.  The international participant number is 1-720-545-0044.

Non-GAAP Financial Measures

This news release, the accompanying tables and the additional content that is available on the Company's website, including a supplemental financial package, includes certain financial measures that exclude the impact of certain items and therefore have not been calculated in accordance with U.S. generally accepted accounting principles (GAAP).  Non-GAAP metrics for operating expenses, operating income, operating margin, income from continuing operations and diluted earnings per share exclude the following items: non-cash amortization of purchased software and other intangibles, share-based compensation, fiscal year 2007 restructuring costs and certain other gains and losses, which includes the gains and losses since inception of hedges that mature within the quarter, but exclude gains and losses of hedges that do not mature within the quarter.  In fiscal year 2011, non-GAAP income also excludes recoveries and certain costs associated with derivative litigation matters.  The effective tax rate on GAAP and non-GAAP income from operations is the Company's provision for income taxes expressed as a percentage of pre-tax GAAP and non-GAAP income from continuing operations, respectively.  Such tax rates are determined based on an estimated effective full year tax rate, with the effective tax rate for GAAP generally including the impact of discrete items in the period such items arise and the effective tax rate for non-GAAP generally allocating the impact of discrete items pro rata to the fiscal year's remaining reporting periods.  Adjusted cash flow from operations excludes restructuring and other payments.  Free cash flow excludes purchases of property, equipment and capitalized software development costs.  We present constant currency information to provide a framework for assessing how our underlying businesses performed excluding the effect of foreign currency rate fluctuations.  To present this information, current and comparative prior period results for entities reporting in currencies other than US dollars are converted into US dollars at the exchange rate in effect on March 31, 2012, which was the last day of our prior fiscal year.  Constant currency excludes the impacts from the Company's hedging program.  The constant currency calculation for annualized subscription and maintenance bookings is calculated by dividing the subscription and maintenance bookings in constant currency by the weighted average subscription and maintenance duration in years.  These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies.  Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP.  By excluding these items, non-GAAP financial measures facilitate management's internal comparisons to the Company's historical operating results and cash flows, to competitors' operating results and cash flows, and to estimates made by securities analysts.  Management uses these non-GAAP financial measures internally to evaluate its performance and they are key variables in determining management incentive compensation.  The Company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency of supplemental information used by management in its financial and operational decision-making.  In addition, the Company has historically reported similar non-GAAP financial measures to its investors and believes that the inclusion of comparative numbers provides consistency in its financial reporting.  Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this news release to their most directly comparable GAAP financial measures, which are attached to this news release.

Cautionary Statement Regarding Forward-Looking Statements

The declaration and payment of future dividends is subject to the determination of the Company's Board of Directors, in its sole discretion, after considering various factors, including the Company's financial condition, historical and forecast operating results, and available cash flow, as well as any applicable laws and contractual covenants and any other relevant factors.  The Company's practice regarding payment of dividends may be modified at any time and from time to time.

Repurchases under the Company's stock repurchase program are expected to be made with cash on hand and may be made from time to time, subject to market conditions and other factors, in the open market, through solicited or unsolicited privately negotiated transactions or otherwise.  The program, which is authorized through the fiscal year ending March 31, 2014, does not obligate the Company to acquire any particular amount of common stock, and it may be modified or suspended at any time at the Company's discretion.

Certain statements in this communication (such as statements containing the words "believes," "plans," "anticipates," "expects," "estimates," "targets" and similar expressions) constitute "forward-looking statements" that are based upon the beliefs of, and assumptions made by, the Company's management, as well as information currently available to management.  These forward-looking statements reflect the Company's current views with respect to future events and are subject to certain risks, uncertainties, and assumptions.  A number of important factors could cause actual results or events to differ materially from those indicated by such forward-looking statements, including: the ability to achieve success in the Company's strategy by, among other things, effectively rebalancing the Company's sales force to increase penetration in growth markets and with large enterprises that have not historically been significant customers, enabling the sales force to sell new products, improving the Company's brand in the marketplace and ensuring the Company's set of cloud computing, Software-as-a-Service and other new offerings address the needs of a rapidly changing market, while not adversely affecting the demand for the Company's traditional products or its profitability; global economic factors or political events beyond the Company's control; general economic conditions and credit constraints, or unfavorable economic conditions in a particular region, industry or business sector; the failure to adapt to technological changes and introduce new software products and services in a timely manner; competition in product and service offerings and pricing; the failure to expand partner programs; the ability to retain and attract adequate qualified personnel; the ability to integrate acquired companies and products into existing businesses; the ability to adequately manage and evolve financial reporting and managerial systems and processes; the ability of the Company's products to remain compatible with ever-changing operating environments; breaches of the Company's software products and the Company's and customers' data centers and IT environments; discovery of errors in the Company's software and potential product liability claims; the failure to protect the Company's intellectual property rights and source code; risks associated with sales to government customers; access to software licensed from third parties; risks associated with the use of software from open source code sources; access to third-party code and specifications for the development of code; third-party claims of intellectual property infringement or royalty payments; fluctuations in the number, terms and duration of the Company's license agreements as well as the timing of orders from customers and channel partners; the failure to renew large license transactions on a satisfactory basis; changes in market conditions or the Company's credit ratings; fluctuations in foreign currencies; the failure to effectively execute the Company's workforce reductions; successful outsourcing of various functions to third parties; events or circumstances that would require us to record a goodwill impairment charge; potential tax liabilities; acquisition opportunities that may or may not arise; and other factors described more fully in the Company's filings with the Securities and Exchange Commission.  Should one or more of these risks or uncertainties occur, or should our assumptions prove incorrect, actual results may vary materially from those described herein as believed, planned, anticipated, expected, estimated, targeted or similarly expressed in a forward-looking manner.  The Company assumes no obligation to update the information in this communication, except as otherwise required by law.  Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

 

ABOUT CA TECHNOLOGIES

CA Technologies (NASDAQ: CA) provides IT management solutions that help customers manage and secure complex IT environments to support agile business services. Organizations leverage CA Technologies software and SaaS solutions to accelerate innovation, transform infrastructure and secure data and identities, from the data center to the cloud. Learn more about CA Technologies at www.ca.com.

LEGAL NOTICES

Copyright © 2012 CA, Inc. All Rights Reserved. All trademarks, trade names, service marks, and logos referenced herein belong to their respective companies.

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