Mike Gregoire, CA Technologies Chief Executive Officer, said:
"Overall third quarter results provide further evidence that the strategy we put in place and our focus on rigorous execution continue to pay off. Although we saw a decline in third quarter sales, we are on track for the full year.
"At CA World this past November, we showcased our unique strength in serving customers in the Application Economy. The event highlighted the full breadth and leadership of our solutions, as well as our vision of the future, to thousands of customers and partners, many of whom experienced CA’s expanded portfolio for the first time.
"Looking ahead, while we do not expect fiscal 2016 total revenue to grow in constant currency, we believe we are on track to achieving our medium-term goals."
REVENUE AND BOOKINGS
- Total revenue declined primarily as a result of a decrease in subscription and maintenance revenue. There was an unfavorable foreign exchange effect of $28 million during the third quarter of fiscal 2015.
- The Company's third quarter total bookings were negatively affected by a year-over-year decrease in renewals due to the timing of the renewal portfolio within subscription and maintenance bookings. This timing reflects the lower value of contracts generally available for renewal compared with year-ago period.
- In addition, there was a tough year-over-year comparison from a four-year contract renewal with a large systems integrator for more than $300 million in the year-ago period.
- The Company executed a total of 18 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $394 million. During the third quarter of fiscal 2014, the Company executed a total of 17 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $874 million.
- The weighted average duration of subscription and maintenance bookings for the quarter was 3.29 years, compared with 3.68 years for the same period in fiscal 2014.
EXPENSES AND MARGIN
- GAAP and non-GAAP third quarter operating expenses were lower compared with the third quarter of fiscal 2014 primarily as a result of the favorable effect of foreign exchange, offset by the costs associated with CA World '14. In addition, GAAP operating expenses were also positively affected by a decrease in depreciation and amortization of other intangible assets and capitalized software costs.
- Non-GAAP EPS in the third quarter of fiscal 2015 was negatively affected by $0.10 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 third 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
- At CA World, the Company announced:
- New and expanded API management solutions that accelerate mobile and web application delivery, improve customer engagements with frictionless access, and open new revenue channels and opportunities.
- New DevOps solutions and enhancements that further unify IT development and operations teams to drive faster and more effective development, deployment and management of high-quality applications.
- The Management Cloud - a broad portfolio of easy-to-use CA applications, delivered from the cloud, that enable customers to make the right portfolio decisions, deliver exceptional service experience and empower the modern, mobile workforce.
- Technology alliance with Samsung that expands CA Mobile API Gateway integration with Samsung KNOX offers end-to-end app security, controlling access to the app and API.
- Customer traction for CA Technologies innovations continued in the quarter.
- Solutions leadership:
- CA Technologies has been positioned by Gartner, Inc. in the Leaders quadrant of the “Magic Quadrant for Integrated IT Portfolio Analysis Applications” for the third year in a row. (1)
- Mainframe Solutions revenue was lower compared with the year-ago period primarily due to an unfavorable foreign exchange effect and, to a lesser extent, insufficient revenue from prior period new sales. Operating margin declined primarily as a result of lower revenue and an increase in costs associated with CA World '14.
- Enterprise Solutions revenue decreased compared with the year-ago period primarily due to an unfavorable foreign exchange effect. Enterprise Solutions operating margin increased compared with the year-ago period primarily as a result of lower commissions and personnel-related expenses, partially offset by an increase in costs associated with CA World 2014.
- Services revenue decreased compared with the year-ago period primarily as a result of a decrease in the size and number of services engagements as well as an unfavorable foreign exchange effect. Operating margin was better as a result of a reduction in personnel-related costs.
CASH FLOW FROM OPERATIONS
- Cash flow from operations for the third quarter of fiscal 2015 was $313 million, versus $419 million in the year ago period. Cash flow from operations decreased compared with the year-ago period primarily due to smaller cash collections, partially offset by lower income tax payments. In addition, there was a favorable effect of lower cash payments associated with the Company’s fiscal 2014 rebalancing plan.
- Cash, cash equivalents and investments at December 31, 2014 were $2.683 billion.
- With $1.26 billion in total debt outstanding and $138 million in notional pooling, the Company’s net cash, cash equivalents and investments position was $1.285 billion.
- In the third quarter of fiscal 2015, the Company repurchased 2.6 million shares of common stock for $75 million.
- As of December 31, 2014, the Company is currently authorized to purchase $875 million of its common stock under its current stock repurchase program.
- Effective January 2, 2015, the Company entered into an agreement to repurchase $75 million of its common stock to be delivered in March 2015.
- The Company distributed $111 million in dividends to shareholders.
- The Company’s outstanding share count at December 31, 2014 was 438 million.
OUTLOOK FOR FISCAL YEAR 2015
The Company updated its fiscal year 2015 outlook for GAAP and non-GAAP EPS. The following outlook contains "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 December 31, 2014 exchange rates, this translates to reported revenue of $4.26 billion to $4.30 billion.
- GAAP diluted earnings per share from continuing operations to be in the range of minus 7 percent to minus 4 percent in constant currency. Previous guidance was in the range of minus 12 percent to minus 8 percent in constant currency. At December 31, 2014 exchange rates, this translates to reported GAAP diluted earnings per share of $1.76 to $1.83.
- Non-GAAP diluted earnings per share from continuing operations to be in the range of minus 17 percent to minus 14 percent in constant currency. Previous guidance was in the range of minus 20 percent to minus 18 percent in constant currency. At December 31, 2014 exchange rates, this translates to reported non-GAAP diluted earnings per share of $2.45 to $2.52.
- Cash flow from continuing operations to increase in the range of 5 percent to 12 percent in constant currency, unchanged from previous guidance. At December 31, 2014 exchange rates, this translates to reported cash flow from continuing operations of $1.00 billion to $1.07 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 and non-GAAP operating margin of 37 percent, unchanged from previous guidance. The Company expects a full-year GAAP and non-GAAP effective tax rate of approximately 28 percent, a reduction from the previously expected full-year GAAP and non-GAAP effective tax rate, which was approximately 30 percent. When compared with fiscal year 2014, the full-year GAAP and non-GAAP effective tax rate of approximately 28 percent has a negative impact on GAAP and non-GAAP diluted earnings per share from continuing operations of approximately $0.38 and $0.53, 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.