“We had a good quarter on many measures and continued to make solid progress against our long-term goals,” said Bill McCracken, chief executive officer, CA Technologies. “However, we are not done. We remain focused on continuing to execute on our strategy and making further operational enhancements including driving new product sales and increasing sales productivity.
“The $2.5 billion enhanced capital allocation program announced today is the culmination of significant work evaluating ways to optimize our balance sheet, while maintaining the financial flexibility needed to build our business and enhance our competitive positioning,” McCracken continued. “We believe we’re on a path to achieve a balanced approach to return even more cash to shareholders, while still investing in our future.”
REVENUE AND BOOKINGS
The Company received a final license payment in the third quarter of $39 million under a license agreement entered into in connection with a 2009 litigation settlement with a software company. The payment reflects the final amount owed, which was scheduled to be repaid in fiscal years 2013 and 2014. The company made the final payment at its discretion, without any discount or concession by CA Technologies.
During the third quarter, the Company saw demand for its virtualization and service automation products, security solutions including products from Arcot Systems, Interactive TKO (ITKO) products, mainframe solutions and professional services. About 8 percentage points of revenue growth in constant currency and as reported were driven by organic products, while about 2 percentage points in constant currency and as reported came from acquired products. About 63 percent of the Company’s revenue came from North America, while 37 percent came from international operations.
- Total revenue was $1.263 billion, up 10 percent in constant currency and as reported. The single license payment contributed 3 percentage points of revenue growth, all in North America.
- Total revenue backlog was $8.084 billion, up 2 percent in constant currency and as reported. The current portion of revenue backlog was $3.576 billion, up 2 percent in constant currency and 1 percent as reported.
- North America revenue was $791 million, up 15 percent in constant currency and as reported.
- International revenue was $472 million, up 3 percent in constant currency and as reported.
- Total bookings in the third quarter were $1.284 billion, up 2 percent in constant currency and 1 percent as reported. The single license payment contributed 3 percentage points of growth to bookings, all in North America.
- The Company renewed a total of 12 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $452 million. During the third quarter of fiscal year 2011, the Company renewed a total of 15 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $456 million.
- The weighted average duration of subscription and maintenance bookings for the quarter was 3.53 years, compared with 3.20 years for the same period in fiscal year 2011.
- North America bookings were $766 million, up 1 percent in constant currency and as reported.
- International bookings were $518 million, up 4 percent in constant currency and 2 percent as reported.
EXPENSES AND MARGIN
Year-over-year GAAP results:
- Operating expenses, before interest and income taxes, were $850 million, up 5 percent in constant currency and as reported.
- Operating income, before interest and income taxes, was $413 million, up 22 percent in constant currency and up 24 percent as reported.
- Operating margin was 33 percent, up 4 percentage points from the prior year period.
Year-over-year non-GAAP results, which exclude purchased software and other intangibles amortization, pre-fiscal year 2010 restructuring costs, and certain other gains and losses (including recoveries and certain costs associated with derivative litigation matters and share-based compensation expense), and which include gains and losses on hedges that mature within the quarter, but which exclude gains and losses on hedges that do not mature within the quarter:
- Operating expenses, before interest and income taxes, were $788 million, up 4 percent in constant currency and as reported.
- Operating income, before interest and income taxes, was $475 million, up 21 percent in constant currency and 23 percent as reported.
- Operating margin was 38 percent, up 4 percentage points from the prior year period.
Both GAAP and non-GAAP operating expense increases were primarily driven by costs associated with acquisitions and expenses resulting from increased Services engagements, and product development and enhancement costs.
For the third quarter of fiscal year 2012, the Company’s effective GAAP tax rate was 34.9 percent, compared with 39.1 percent in the prior year. The Company’s effective non-GAAP tax rate was 31.5 percent, compared with 31.7 percent in the prior year.
GAAP and non-GAAP EPS were favorably affected by about $0.05 per share by the single license payment. In addition, GAAP and non-GAAP EPS were positively affected by currency and a reduction in share count. The single license payment also had a positive impact of about 2 percentage points on both GAAP and non-GAAP margin.
Beginning in the first quarter of fiscal year 2012, CA Technologies began reporting segment results in three areas: Mainframe Solutions, Enterprise Solutions and Services.
- Mainframe Solutions revenue was $682 million, up 9 percent in constant currency and as reported. The single license payment contributed 6 percent points of growth to Mainframe Solutions revenue. Operating expense was $277 million and operating profit was $405 million. Operating margin was 59 percent, up from 54 percent a year ago.
- Enterprise Solutions revenue was $478 million, up 11 percent in constant currency and 12 percent as reported. Operating expense was $419 million and operating profit was $59 million. Operating margin was 12 percent, up from 9 percent a year ago.
- Services revenue was $103 million, up 16 percent in constant currency and 17 percent as reported. Operating expense was $92 million and operating profit was $11 million. Operating margin was 11 percent, up from 10 percent a year ago.
CASH FLOW FROM CONTINUING OPERATIONS
Cash flow from continuing operations in the third quarter was $396 million, including the $39 million single license payment, compared with $492 million in the prior year. Cash flow from operations reflected a decline in cash collections, including a reduction in single installment payments. The Company reiterated its fiscal year 2012 outlook for cash flow from operations.
- Cash, cash equivalents and marketable securities at Dec. 31, 2011 were $2.539 billion.
- With $1.309 billion in total debt outstanding and approximately $120 million in notional pooling, the Company’s net cash, cash equivalents and marketable securities position was $1.110 billion.
- In the third quarter, the Company repurchased approximately 9.6 million shares of stock, for $200 million and distributed $25 million in dividends.
- The Company’s outstanding share count at Dec. 31, 2011 was 480 million.
CAPITAL ALLOCATION PROGRAM
The Company announced that its Board of Directors has approved a capital allocation program that targets the return of up to $2.5 billion to CA Technologies shareholders through the fiscal year ending March 31, 2014.
The Company’s capital allocation program plans to return approximately 80 percent of expected cumulative free cash flow to shareholders through fiscal 2014. This includes a planned increase in the annual dividend from $0.20 to $1.00 per common share and the authorization to repurchase up to $1.5 billion in CA Technologies common stock, including $232 million remaining under the Company’s current share repurchase authorization. Approximately $500 million of the planned repurchase is expected to be an accelerated share repurchase pursuant to an agreement executed in the Company’s fiscal fourth quarter ending March 31, 2012.
For more information, see separate news release announced today.
During the third quarter:
- The Company held CA World, a user conference that had about 5,000 attendees including 135 sponsors and nearly 350 exhibitors, and announced key initiatives and 12 solutions centered on Business Service Innovation – a customer value proposition that helps support customers as they transition from simply managing IT to delivering critical business services.
- Infraserve, an Australian provider of Infrastructure-as-a-Service (IaaS) solutions, announced it is offering a new Platform as a Service (PaaS) solution powered by the CA AppLogic® turnkey cloud computing platform. ViaWest, one of the largest privately owned data center and managed services providers in North America, also announced it is using CA AppLogic and CA Process Automation as the backbone of its new Xen-based KINECTed™ Cloud – Innovator service.
- The Company was named one of the top two market share leaders in the worldwide cloud systems management software market* by IDC, a leading provider of global IT research and advice.
- CA Technologies announced CA Access Control for Virtual Environments, a new solution that extends its identity and access management (IAM) security expertise, and complements and protects VMware® virtual environments.
- The Company was ranked ninth out of 500 in Newsweek’s 2011 Green Rankings. Newsweek ranks the 500 largest publicly traded U.S. companies on their environmental footprint, management and disclosure.
OUTLOOK FOR FISCAL YEAR 2012
The Company updated its outlook for fiscal year 2012. The following guidance represents "forward-looking statements" (as defined below). Updated guidance includes the impact of the single license payment, which was not included in previous guidance.
The Company expects the following:
- Total revenue growth of 6 percent in constant currency, compared with the previous outlook of 5 percent to 6 percent. At Dec. 31, 2011 exchange rates, this translates to reported revenue of about $4.8 billion.
- GAAP diluted earnings per share growth raised to a range of 11 percent to 13 percent in constant currency, compared with the previous outlook of 6 percent to 9 percent. At Dec. 31, 2011 exchange rates, this translates to reported GAAP diluted earnings per share of $1.86 to $1.90.
- Non-GAAP diluted earnings per share growth raised to a range of 11 percent to 13 percent in constant currency, compared with the previous outlook of 7 percent to 10 percent. At Dec. 31, 2011 exchange rates, this translates to reported non-GAAP diluted earnings per share of $2.21 to $2.25.
- Cash flow from operations growth continues in a range of 3 percent to 5 percent in constant currency. At Dec. 31, 2011 exchange rates, this translates to reported cash flow from operations of $1.44 billion to $1.47 billion.
The Company expects a full-year GAAP operating margin of 29 percent and non-GAAP operating margin of 34 percent. The Company also expects a full-year GAAP and non-GAAP tax rate in a range of 31 to 32 percent. The Company anticipates 463 million shares outstanding at fiscal year 2012 year-end and weighted average diluted shares outstanding of 486 million for the fiscal year.
* IDC, Worldwide Cloud Systems Management Software 2011-2015 Forecast Update and 2010 Vendor Shares, Doc #231493, November 2011.