Note: All financial results have been adjusted to reflect the classification of the Company’s Internet Security Business, which was divested in the first quarter, as a discontinued operation.
* Non-GAAP income and earnings per share are non-GAAP financial measures, as noted in the discussion of non-GAAP results below. A reconciliation of non-GAAP financial measures to their comparable GAAP financial measures is included in the tables following this news release.
**CC: Constant Currency
“We had a solid start to fiscal year 2012,” said Bill McCracken, chief executive officer of CA Technologies. “First quarter results show improved operational efficiencies, which were reflected in non-GAAP operating margin improvements- and double-digit growth in non-GAAP earnings per share.
“We continued to build our product and services portfolio with the acquisition of Base Technologies, a privately-held consulting firm focused on the management of IT assets, and our agreement to acquire Interactive TKO, a leading provider of service simulation solutions for developing applications in composite and cloud environments,” McCracken said. “We also delivered on our commitment to return cash to shareholders, repurchasing $150 million in common stock during the quarter and distributing $25 million in dividends, an increase of 25 percent.
“Our customers tell us IT has become the primary vehicle they use to adapt their business to changing market demands and become more competitive. This evolution is being driven by virtualization, cloud implementation and SaaS applications, allowing business models to change in days and weeks, instead of months and years. While these technologies increase flexibility, they can also introduce significant management complexity,” McCracken continued.”Eighteen months ago we called this evolution and built our strategy around it. We believe our years of experience and core strength in traditional IT management and security, combined with our significant investments in the portfolio, will position us as the standard in the IT industry.”
REVENUE AND BOOKINGS
During the first quarter, the Company saw healthy demand for its service assurance, identity and access management, Nimsoft and mainframe products. Just over 2 percentage points of revenue growth in constant currency and 7 percentage points as reported were driven by organic products, while just under 2 percentage points in constant currency and 2 percentage points as reported came from the products and services from the acquisitions of Base Technologies, Hyperformix, Inc. and Arcot Systems, Inc. About 62 percent of the Company’s revenue came from North America, while 38 percent came from International operations.
- Total revenue was $1.163 billion, up 4 percent in constant currency and 9 percent as reported.
- Total revenue backlog was $8.511 billion, up 6 percent in constant currency and 11 percent as reported. The current portion of revenue backlog was $3.702 billion, up 4 percent in constant currency and 10 percent as reported.
- North America revenue was $716 million, up 9 percent in constant currency and as reported.
- International revenue was $447 million, down 2 percent in constant currency and up 8 percent as reported.
Bookings year-over year:
- Total bookings in the first quarter were $865 million, up 11 percent in constant currency and 18 percent as reported.
- The Company signed a total of 8 license agreements with contract values in excess of $10 million each, for an aggregate contract value of $255 million. During the first quarter of fiscal year 2011, the Company signed a total of 6 license agreements with contract values in excess of $10 million each, for an aggregate contract value of $188 million.
- The weighted average duration of subscription and maintenance bookings for the quarter was 3.28 years, compared with 2.92 years for the same period in fiscal year 2011.
- North America bookings were $534 million, up 17 percent in constant currency and 19 percent as reported.
- International bookings were $331 million, up 2 percent in constant currency and 17 percent as reported.
EXPENSES AND MARGIN
Year-over-year GAAP results:
- Operating expenses, before interest and income taxes, were $821 million, up 3 percent in constant currency and 10 percent as reported.
- Operating income, before interest and income taxes, was $342 million, up 8 percent in constant currency and 7 percent as reported.
- Operating margin was 29 percent, down 1 percentage point.
Year-over-year non-GAAP results, which exclude purchased software and 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 $746 million, down 1 percent in constant currency and up 6 percent as reported.
- Operating income, before interest and income taxes, was $417 million, up 15 percent in constant currency and as reported.
- Operating margin was 36 percent, up 2 percentage points from the prior year period.
For the first quarter of fiscal year 2012, the Company’s effective GAAP tax rate was 31.5 percent, compared to 28.2 percent in the prior year. The Company’s effective non-GAAP tax rate was 31.6 percent, down from 33.6 percent in the prior year.
For the first time, in the first quarter of fiscal year 2012, CA Technologies is reporting segment results in three areas: Mainframe Solutions, Enterprise Solutions and Services.
- Mainframe Solutions revenue was $646 million, up 1 percent in constant currency and 5 percent as reported. Operating expense was $276 million and operating profit was $370 million. Operating margin was 57 percent, up from 54 percent a year ago.
- Enterprise Solutions revenue was $427 million, up 9 percent in constant currency and 14 percent as reported. Operating expense was $382 million and operating profit was $45 million. Operating margin was 11 percent, up from 7 percent a year ago.
- Services revenue was $90 million, up 9 percent in constant currency and 15 percent as reported. Operating expense was $88 million and operating profit was $2 million. Operating margin was 2 percent, down from 5 percent a year ago.
CASH FLOW FROM CONTINUING OPERATIONS
Cash flow from continuing operations in the first quarter was $143 million, compared to $122 million in the prior year. Cash flow was unfavorably affected by an increase of $111 million in cash paid for income taxes, compared to the prior year period. In addition, cash flow was favorably affected by improved customer collections of $150 million including the early receipt of one payment of approximately $22 million scheduled for the second quarter of fiscal year 2012.
- Cash, cash equivalents and marketable securities at June 30, 2011, were $2.950 billion.
- With $1.307 billion in total debt outstanding, the Company’s net cash, cash equivalents and marketable securities position was $1.643 billion.
- In the first quarter, the Company repurchased approximately 6.4 million shares of stock, for a total of $150 million and distributed $25 million in dividends.
- The Company’s outstanding share count at June 30, 2011 was 499 million.
During the first quarter the Company announced:
- The acquisition of Base Technologies, a privately-held consulting firm focused on the management of IT assets, with leading practices in virtualization management, mainframe technology, security and managed IT infrastructure.
- The appointment of Rohit Kapoor of ExlService Holdings Inc. (NASDAQ: EXLS) to its Board of Directors.
- The appointment of Richard Beckert as chief financial officer.
- The hiring Peter Griffiths as executive vice president of its Technology and Development Group.
- The formation with VCE, the Virtual Computing Environment Company, of a global strategic alliance to deliver integrated private cloud solutions for VCE’s Vblock™ Infrastructure Platforms that help customers increase agility, reduce risk and lower costs.
- A definitive agreement to acquire privately-held Interactive TKO, Inc. (ITKO), a leading provider of service simulation solutions for developing applications in composite and cloud environments, for $330 million in an all-cash transaction.
- The divestiture of its Internet Security Business to Updata Partners.
ALIGNING COST STRUCTURE AND RESOURCES TO STRATEGY
The Company announced it would incur a GAAP and non-GAAP charge of approximately $35 million to $45 million in the second quarter in connection with a reduction of up to 500 jobs. This action is a continuation of the work the company has been doing to optimize its business by reallocating resources from non-strategic areas to growth technologies and regions, and divesting non-strategic areas of the business.
OUTLOOK FOR FISCAL YEAR 2012
The Company reaffirmed its outlook for fiscal year 2012 for revenue, non-GAAP EPS and cash flow from operations, and updated GAAP EPS for the effect of the planned acquisition of Interactive TKO. The following guidance represents "forward-looking statements" (as defined below).
The Company expects the following:
- Total revenue growth in a range of 6 percent to 8 percent in constant currency. At June 30, 2011 exchange rates, this translates to reported revenue of $4.9 billion to $5.0 billion.
- GAAP diluted earnings per share growth in constant currency in a range of 5 percent to 9 percent, adjusted from the previous range of 6 percent of 11 percent. At June 30, 2011 exchange rates, this translates to reported diluted earnings per share of $1.79 to $1.86.
- Non-GAAP diluted earnings per share growth in constant currency in a range of 6 percent to 10 percent. At June 30, 2011 exchange rates, this translates to reported non-GAAP diluted earnings per share of $2.14 to $2.21.
- Cash flow from operations growth in a range of 3 percent to 5 percent in constant currency. At June 30, 2011 exchange rates, this translates to reported cash flow from operations of $1.48 billion to $1.51 billion.
This outlook includes the impact of the planned acquisition of Interactive TKO, the charge of between $35 million and $45 million, a partial currency hedge of operating income and an update to reflect our expectations for share count. The Company also expects a full-year GAAP and non-GAAP tax rate in a range of 31 to 32 percent. The Company anticipates approximately 489 million shares outstanding at fiscal year 2012 year-end and weighted average diluted shares outstanding of approximately 497 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 webcast that the Company will host at 5 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 this press release and supplemental financial information, at http://ca.com/invest or listen to the call at 1-877-548-7913. The international participant number is 1-719-325-4793.
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 operations and diluted earnings per share exclude the following items: non-cash amortization of purchased software and other intangibles, share-based compensation, pre-fiscal year 2010 restructuring and certain other gains and losses, which includes recoveries and certain costs associated with derivative litigation matters and 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. Prior to fiscal year 2011, non-GAAP income also excludes the interest on convertible bonds. 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 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 income generally allocating the impact of discrete items pro rata to the fiscal year’s remaining reporting periods. Non-GAAP adjusted cash flow excludes pre-fiscal 2010 restructuring and other payments. Free cash flow excludes capital expenditures. 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, 2011, 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
Certain statements in this communication (such as statements containing the words "believes," "plans," "anticipates," "expects," "estimates" 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, increasing sales in new and emerging enterprises and markets, 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; failure to expand partner programs; the ability to adequately manage and evolve financial reporting and managerial systems and processes; the ability to integrate acquired companies and products into existing businesses; competition in product and service offerings and pricing; the ability to retain and attract qualified key personnel; the ability to adapt to rapid technological and market changes; the ability of the Company’s products to remain compatible with ever-changing operating environments; access to software licensed from third parties; use of software from open source code sources; discovery of errors in the Company's software and potential product liability claims; significant amounts of debt and possible future credit rating changes; the failure to protect the Company's intellectual property rights and source code; fluctuations in the number, terms and duration of our license agreements as well as the timing of orders from customers and channel partners; reliance upon large transactions with customers; risks associated with sales to government customers; breaches of the Company’s software products and the Company’s and customers’ data centers and IT environments; third-party claims of intellectual property infringement or royalty payments; fluctuations in foreign currencies; failure to effectively execute the Company’s workforce reductions; successful outsourcing of various functions to third parties; potential tax liabilities; and other factors described more fully in the Company's filings with the Securities and Exchange Commission. 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.