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CA Technologies Reports Second Quarter Fiscal Year 2018 Results

  • Reaffirming Full Year Guidance
  • Second Quarter Revenue of $1,034 Million
  • Second Quarter GAAP EPS of $0.44
  • Second Quarter Non-GAAP EPS of $0.62
  • Second Quarter Cash Flow From Operations of $37 Million

NEW YORK, October 25, 2017 - CA Technologies (NASDAQ:CA) today reported financial results for its second quarter fiscal 2018, which ended September 30, 2017.

Mike Gregoire, CA Technologies Chief Executive Officer, said:

“I am pleased with the healthy operating margin and strong cash flow from operations growth we delivered in our second fiscal quarter. Our products continue to earn positive recognition from third-party industry analysts, and I believe we are well positioned in important markets. At the same time, there are areas of our business where we still need to improve. We are taking steps to drive more consistent performance. Looking ahead, I am optimistic about our ability to deliver long-term growth and profitability at CA.”

FINANCIAL OVERVIEW

REVENUE AND BOOKINGS

  • Total revenue increased primarily due to an increase in software fees and other revenue. Our fourth quarter fiscal 2017 acquisitions of Automic Holding GmbH (Automic) and Veracode, Inc. (Veracode) contributed approximately 5 points of revenue growth for the quarter.
  • Total bookings decreased primarily due to a decline in renewal bookings. Excluding our Automic and Veracode acquisitions, total bookings decreased by a percentage in the low teens.
  • The Company executed a total of 9 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $175 million. During the second quarter of fiscal 2017, the Company executed a total of 11 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $209 million.
  • The weighted average duration of subscription and maintenance bookings for the quarter was 2.79 years, compared with 2.99 years for the same period in fiscal 2017.
     

EXPENSES, MARGIN AND EARNINGS PER SHARE

  • GAAP and non-GAAP operating expenses increased primarily due to costs from our Automic and Veracode acquisitions, which were mainly personnel-related, partially offset by decreases in non-acquisition-related costs, which included legal settlements and personnel-related, commission and promotion costs.
  • GAAP operating expenses were also affected by higher amortization expenses of purchased software and other intangible assets.
  • GAAP and non-GAAP EPS were negatively impacted by $0.03 from our acquisitions and $0.02 from an increase in interest expense.

SELECTED HIGHLIGHTS FROM THE QUARTER

  • CA Technologies (Automic) was named a Leader in the 2017 Gartner Magic Quadrant for Application Release Automation. (1)
  • CA Technologies was named a Leader in The Forrester Wave™ Continuous Delivery and Release Automation, Q3 2017. (2)
  • CA Technologies was named a Leader in the IDC MarketScape: Worldwide Agile PPM 2017 Vendor Assessment. (3)
  • CA Technologies was named an Overall Leader in KuppingerCole’s Leadership Compass report: Identity as a Service: Single Sign-On in the Cloud. (4)
     

SEGMENT INFORMATION

  • Mainframe Solutions revenue declined primarily due to insufficient revenue from prior period new sales to offset the decline in revenue contribution from renewals. Mainframe Solutions operating margin increased primarily due to lower expenses as a result of the Mainframe Solutions portion of the litigation settlement costs incurred in the second quarter of fiscal 2017.
  • Enterprise Solutions revenue increased due to revenue generated from our Automic and Veracode acquisitions which contributed approximately 12 points of revenue growth for the quarter. Enterprise Solutions operating margin decreased primarily due to costs associated with our Automic and Veracode acquisitions, which were mainly personnel-related.
  • Services revenue was consistent primarily due to professional services revenue generated from our Automic and Veracode acquisitions, offset by a decline in non-acquisition-related professional services engagements. Operating margin for Services was generally consistent compared with the year-ago period.
     

CASH FLOW FROM OPERATIONS

  • Cash flow provided by operations for the second quarter of fiscal 2018 was $37 million, versus cash flow used in operations of $53 million in the year-ago period. Cash flow from operations increased compared with the year-ago period due to an increase in cash collections from billings, which included higher single installment collections, and lower cash tax payments..
     

CAPITAL STRUCTURE

  • Cash and cash equivalents at September 30, 2017 were $2.822 billion.
  • With $2.785 billion in total debt outstanding and $137 million in notional pooling, the Company’s net debt position was $100 million.
  • Approximately 66% of the Company’s cash and cash equivalents were held by foreign subsidiaries outside the United States at September 30, 2017.
  • In the second quarter of fiscal 2018, the Company repurchased 2.8 million shares of its common stock for $90 million.
  • As of September 30, 2017, the Company was authorized to purchase $560 million of its common stock under its current stock repurchase program.
  • The Company distributed $108 million in dividends to stockholders during the second quarter of fiscal 2018.
  • The Company’s outstanding share count at September 30, 2017 was approximately 414 million.
     

OUTLOOK FOR FISCAL YEAR 2018

The Company reaffirmed its fiscal 2018 outlook as described below. This guidance assumes no material acquisitions, and contains "forward-looking statements" (as defined below).

The Company expects the following:*

  • Total revenue to increase approximately 5 percent as reported and approximately 4 percent in constant currency. Previous guidance was to increase approximately 4 percent as reported and in constant currency. At September 30, 2017 exchange rates, this translates to reported revenue of $4.22 billion to $4.25 billion.

  • Full-year GAAP operating margin between 26 percent and 27 percent. Full year non-GAAP operating margin between 36 percent and 37 percent. The Company also expects a full-year GAAP and non-GAAP effective tax rate of between 28 percent and 29 percent.

  • GAAP diluted earnings per share to decrease in a range of 8 percent to 5 percent as reported and in constant currency. At September 30, 2017 exchange rates, this translates to reported GAAP diluted earnings per share of $1.70 to $1.76.
     
  • Non-GAAP diluted earnings per share to decrease in a range of 2 percent to flat as reported and in constant currency. At September 30, 2017 exchange rates, this translates to reported non-GAAP diluted earnings per share of $2.42 to $2.48.

  • Approximately 412 million shares outstanding at fiscal 2018 year-end and weighted average diluted shares outstanding of approximately 415 million for fiscal 2018.

  • Cash flow to increase in a range of 2 percent to 6 percent as reported and flat to 4 percent in constant currency. Previous guidance was to increase in a range of 1 percent to 5 percent as reported and flat to 4 percent in constant currency. At September 30, 2017 exchange rates, this translates to reported cash flow from operations of $1.10 billion to $1.15 billion.

*In the outlook section, certain non-material differences between growth rates and translated dollar amounts may arise from impact of rounding.

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 conference call and webcast that the Company will host at 5:00 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 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 Magic Quadrant for Application Release Automation, by Colin Fletcher and Laurie F. Wurster, September 27, 2017

The Gartner Report(s) described herein, (the "Gartner Report(s)") represent(s) research opinion or viewpoints published, as part of a syndicated subscription service, by Gartner, Inc. ("Gartner"), and are not representations of fact. Each Gartner Report speaks as of its original publication date (and not as of the date of this Quarterly Report) and the opinions expressed in the Gartner Report(s) are subject to change without notice.

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.

(2) Forrester Research, The Forrester Wave™: Continuous Delivery And Release Automation, Q3 2017, by Stroud, Gardner, et al., August 30, 2017

(3) IDC MarketScape: Worldwide Agile PPM 2017 Vendor Assessment - Enabling Adaptive Planning for Emerging Markets, DevOps, and IoT, July 2017, IDC #US40913616

About IDC MarketScape: IDC MarketScape vendor analysis model is designed to provide an overview of the competitive fitness of ICT (information and communications technology) suppliers in a given market. The research methodology utilizes a rigorous scoring methodology based on both qualitative and quantitative criteria that results in a single graphical illustration of each vendor’s position within a given market. IDC MarketScape provides a clear framework in which the product and service offerings, capabilities and strategies, and current and future market success factors of IT and telecommunications vendors can be meaningfully compared. The framework also provides technology buyers with a 360-degree assessment of the strengths and weaknesses of current and prospective vendors.

(4) KuppingerCole Leadership Compass: Identity as a Service: Single Sign-On to the Cloud (IDaaS SSO), June 2017 

 

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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, include 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, net income, and diluted earnings per share exclude the following items: non-cash amortization of purchased software, internally developed software and other intangible assets; share-based compensation expense; charges relating to rebalancing initiatives that are large enough to require approval from the Company's Board of Directors and certain other gains and losses, which include 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. 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. These 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 in which 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. The non-GAAP effective tax rate is equal to the full year GAAP effective tax rate, therefore no adjustment is required on an annual basis. Non-GAAP adjusted cash flow from operations excludes payments associated with the Board-approved rebalancing initiative, restructuring and other payments. Non-GAAP free cash flow excludes purchases of property and equipment. The Company presents constant currency information to provide a framework for assessing how the Company's 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 U.S. dollars are converted into U.S. dollars at the exchange rate in effect on the last day of the Company's prior fiscal year (i.e., March 31, 2017, March 31, 2016 and March 31, 2015, respectively). 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 by the Company 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 forecasted 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 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 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 news release (such as statements containing the words "believes," "plans," "anticipates," "expects," "estimates," "targets" and similar expressions relating to the future) 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 business strategy by, among other things, ensuring that any new offerings address the needs of a rapidly changing market while not adversely affecting the demand for the Company’s traditional products or the Company’s profitability to an extent greater than anticipated, enabling the Company’s sales force to accelerate growth of sales to new customers and expand sales with existing customers, including sales outside of the Company’s renewal cycle and to a broadening set of purchasers outside of traditional information technology operations (with such growth and expansion at levels sufficient to offset any decline in revenue and/or sales in the Company’s Mainframe Solutions segment and in certain mature product lines in the Company’s Enterprise Solutions segment), effectively managing the strategic shift in the Company’s business model to develop more easily installed software, provide additional Software-as-a-Service offerings and refocus the Company’s professional services and education engagements on those engagements that are connected to new product sales, without affecting the Company’s financial performance to an extent greater than anticipated, and effectively managing the Company’s pricing and other go-to-market strategies, as well as improving the Company’s brand, technology and innovation awareness in the marketplace; the failure to innovate or adapt to technological changes and introduce new software products and services in a timely manner; competition in product and service offerings and pricing; the ability of the Company’s products to remain compatible with ever-changing operating environments, platforms or third party products; global economic factors or political events beyond the Company’s control and other business and legal risks associated with global operations; the failure to expand partner programs and sales of the Company’s solutions by the Company’s partners; the ability to retain and attract qualified professionals; general economic conditions and credit constraints, or unfavorable economic conditions in a particular region, business or industry sector; the ability to successfully integrate acquired companies and products into the Company’s existing business; risks associated with sales to government customers; breaches of the Company’s data center, network and software products, and the IT environments of the Company’s business partners and customers; the ability to adequately manage, evolve and protect the Company’s information systems, infrastructure and processes; the failure to renew license agreement transactions on a satisfactory basis; fluctuations in foreign exchange rates; changes in generally accepted accounting principles, which includes adoption of revenue recognition requirements under Accounting Standards Codification Topic 606; discovery of errors or omissions in the Company’s software products or documentation and potential product liability claims; the failure to protect the Company’s intellectual property rights and source code; access to software licensed from third parties; risks associated with the use of software from open source code sources; third-party claims of intellectual property infringement and/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 partners; potential tax liabilities; changes in market conditions or the Company’s credit ratings; events or circumstances that would require the Company to record an impairment charge relating to the Company’s goodwill or capitalized software and other intangible assets balances; successful and secure outsourcing of various functions to third parties; and other factors described more fully in the Company’s other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties occur, or should the Company’s assumptions prove incorrect, actual results may vary materially from the forward-looking information described herein as believed, planned, anticipated, expected, estimated, targeted or similarly identified. We do not intend to update these forward-looking statements, 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.

Copyright © 2017 CA, Inc. All Rights Reserved. All other trademarks, trade names, service marks, and logos referenced herein belong to their respective companies.

Press Contacts

Darlan Monterisi

CA Technologies
Phone: (646) 826-6071

Jennifer DiClerico

CA Technologies
Phone: (212) 415-6997

Traci Tsuchiguchi

CA Technologies
Phone: (650) 534-9814

Stefan Putyera

CA Technologies
Phone: (631) 342-4710

ABOUT CA TECHNOLOGIES

CA Technologies (NASDAQ: CA) creates software that fuels transformation for companies and enables them to seize the opportunities of the Application Economy. Software is at the heart of every business in every industry. From planning, to development, to management and security, CA is working with companies worldwide to change the way we live, transact, and communicate - across mobile, private and public cloud, distributed and mainframe environments. Learn more at www.ca.com.

LEGAL NOTICES

Copyright © 2017 CA, Inc. All Rights Reserved. All trademarks, trade names, service marks, and logos referenced herein belong to their respective companies.

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