- Solid Second Quarter
Performance
- Second Quarter Revenue of $1,018
Million
- Second Quarter GAAP EPS of
$0.50
- Second Quarter Non-GAAP EPS of
$0.67
- Second Quarter Cash Flow Used in
Continuing Operations of $58 Million
CA Technologies (NASDAQ:CA) today reported financial results for
its second quarter fiscal 2017, which ended September 30,
2016.
Mike Gregoire, CA Technologies Chief Executive Officer,
said:
“CA delivered solid second quarter results. We reported another
quarter of revenue growth with strong margins and earnings, and we
are making progress across a number of our key initiatives. Our
product development and innovation engines are beginning to gain
momentum, and we’re pleased with our improving customer experience
metrics. At the same time, we recognize we still have work ahead of
us. We continue to manage the business with thoughtful discipline,
and I remain confident that we are moving the company in the right
direction.
“At CA World next month we will welcome thousands of our
customers and partners from around the globe. We look forward to
demonstrating the transformational power of software, and the
critical role it plays in driving today's new business models and
strategies.”
FINANCIAL OVERVIEW
(dollars in millions, except share data)
Second Quarter FY17 vs. FY16 FY17
FY16 % Change %
Change CC* Revenue $1,018 $1,005 1%
2% GAAP Income from Continuing Operations $212
$172 23% 24% Non-GAAP Income
from Continuing Operations* $283 $247
15% 13% GAAP Diluted EPS from Continuing Operations
$0.50 $0.39 28% 31%
Non-GAAP Diluted EPS from Continuing Operations* $0.67
$0.56 20% 18% Cash Flow (used
in) provided by Continuing Operations ($58)
$43 (235)% (239)%
* Non-GAAP income, Non-GAAP earnings per share and CC or
Constant Currency 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.
REVENUE AND BOOKINGS
(dollars in millions)
Second Quarter
FY17 vs. FY16 FY17 % ofTotal
FY16 % ofTotal
%Change
%Change CC* North America Revenue $690
68% $677 67% 2%
2% International Revenue $328 32%
$328 33% 0%
1% Total Revenue $1,018 $1,005
1% 2%
North America
Bookings $479 66% $1,173
85% (59)% (59)% International Bookings
$250 34% $210 15%
19% 18% Total Bookings $729
$1,383
(47)% (47)%
Current Revenue Backlog $2,945
$3,006 (2)%
(2)% Total Revenue Backlog $6,858
$6,614 4%
4%
*CC or Constant Currency is a non-GAAP financial measure, 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.
- Total revenue increased as a
result of an increase in software fees and other revenue, partially
offset by decreases in professional services revenue and
subscription and maintenance revenue. The increase in software fees
and other revenue was primarily due to an increase in sales of
enterprise solutions products recognized on an upfront basis and an
increase in SaaS revenue, primarily from CA Agile Central products
(acquired from Rally Software Development Corp. (Rally)).
- Total bookings decreased primarily due
to a renewal with a large system integrator in excess of $500
million that occurred during the second quarter of fiscal 2016 and,
to a lesser extent, a decrease in mainframe renewals.
- 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.
During the second quarter of fiscal 2016, 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 $887
million, including the aforementioned large system integrator
transaction.
- The weighted average duration of
subscription and maintenance bookings for the quarter was 2.99
years, compared with 4.46 years for the same period in fiscal
2016.
EXPENSES, MARGIN AND EARNINGS PER SHARE
(dollars in millions)
Second Quarter
FY17 vs. FY16 FY17 FY16
%Change
%Change CC** GAAP
Operating Expenses Before Interest and Income Taxes $698
$746 (6)% (6)% Operating Income
Before Interest and Income Taxes $320 $259
24% 25% Diluted EPS from Continuing Operations
$0.50 $0.39 28% 31%
Operating Margin 31% 26%
Effective Tax Rate 30.7% 30.4%
Non-GAAP* Operating Expenses Before Interest and
Income Taxes $608 $648 (6)%
(5)% Operating Income Before Interest and Income Taxes $410
$357 15% 13% Diluted EPS
from Continuing Operations $0.67 $0.56
20% 18% Operating Margin 40% 36%
Effective Tax Rate 28.5%
28.4%
*A reconciliation of non-GAAP financial measures to their
comparable GAAP financial measures is included in the tables
following this news release. Year-over-year non-GAAP results
exclude purchased software and other intangibles amortization,
share-based compensation, amortization of internal software costs,
Board approved workforce rebalancing initiatives 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
on hedges that do not mature within the quarter.
**CC or Constant Currency is a non-GAAP financial measure, 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.
- GAAP and non-GAAP operating expenses
decreased primarily due to decreases in personnel-related costs as
a result of lower headcount and transaction costs associated with
the fiscal 2016 acquisitions of Rally and Xceedium, Inc. (Xceedium)
that occurred during the second quarter of fiscal 2016, partially
offset by an increase in legal settlement expense related to a
litigation matter reflected in other expenses, net. This increase
in legal settlement expense is attributable to the
Company entering into an agreement-in-principle to settle the
previously disclosed litigation brought against the Company by the
Department of Justice (DOJ) and an individual plaintiff relating to
certain claims under the Company’s General Services Administration
(GSA) schedule contract with the government. The settlement, which
is for $45 million and admits no wrongdoing, is subject to the
negotiation and execution of a definitive settlement agreement, and
approval by the United States District Court.
- GAAP operating expenses were also
affected by lower amortization expenses of capitalized software and
other intangible assets.
- GAAP EPS was positively impacted by
$0.10 from an improvement in GAAP operating margin primarily due to
an overall decrease in GAAP operating expenses.
- Non-GAAP EPS was positively impacted by
$0.07 from an improvement in non-GAAP operating margin primarily
due to an overall decrease in non-GAAP operating expenses.
SELECTED HIGHLIGHTS FROM THE QUARTER
- CA Technologies has been positioned by
Gartner, Inc. in the Leaders quadrant of its inaugural “Magic
Quadrant for Application Release Automation.” (1)
- CA Technologies was named a Leader in
the “The Forrester Wave™: Application Performance Management, Q3
2016.” (2)
- CA Technologies extended its DevOps
portfolio with the acquisition of BlazeMeter, a leader in open
source-based continuous application performance testing. BlazeMeter
will seamlessly integrate with CA’s Continuous Delivery solutions
to further improve testing efficiency and accelerate the deployment
of applications. The deal closed earlier this month.
SEGMENT INFORMATION
(dollars in millions)
Second Quarter
FY17 vs. FY16 Revenue
%Change %Change
CC* Operating Margin FY17
FY16
FY17 FY16 Mainframe Solutions $550
$554 (1)% (1)%
62% 62% Enterprise Solutions $393
$368 7% 8% 18%
3% Services $75 $83
(10)% (9)% 3% 5%
*CC or Constant Currency is a non-GAAP financial measure, 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.
- Mainframe Solutions revenue declined
primarily due to insufficient revenue from prior period new sales
to offset the decline in revenue contribution from renewals.
- Enterprise Solutions revenue increased
primarily due to an increase in software fees and other revenue as
described above. Operating margin increased primarily due to the
transaction costs associated with the fiscal 2016 acquisitions of
Rally and Xceedium that occurred during the second quarter of
fiscal 2016.
- Services revenue decreased primarily
due to a decline in professional services engagements from prior
periods. This decline in professional services engagements is a
result of several factors including our products being easier to
install and manage, an increase in the use of partners for services
engagements and the completion of non-strategic projects during
previous periods. Operating margin decreased primarily due to the
overall decline in professional services revenue.
CASH FLOW FROM OPERATIONS
- Cash flow used in operations for the
second quarter of fiscal 2017 was $58 million, versus cash flow
provided by operations of $43 million in the year-ago
period. Cash flow from operations decreased compared with the
year-ago period primarily due to a decrease in cash collections, as
a result of lower single installment collections, and an increase
in income tax payments, partially offset by a decrease in vendor
disbursements and payroll.
CAPITAL STRUCTURE
- Cash and cash equivalents at
September 30, 2016 were $2.585 billion.
- With $1.95 billion in total debt
outstanding and $139 million in notional pooling, the Company’s net
cash position was $496 million.
- In the second quarter of fiscal 2017,
the Company repurchased 1.5 million shares of common stock for $50
million.
- As of September 30, 2016, the
Company is currently authorized to purchase $650 million of its
common stock under its current stock repurchase program.
- The Company distributed $107 million in
dividends to shareholders.
- The Company’s outstanding share count
at September 30, 2016 was 413 million.
OUTLOOK FOR FISCAL YEAR 2017
The Company updated its fiscal 2017 outlook for cash flow from
continuing operations. This guidance update reflects the
anticipated settlement of legal matters related to the
agreement-in-principle for the GSA litigation described above. The
following outlook contains "forward-looking statements" (as defined
below) and assumes no material acquisitions.
The Company expects the following:*
- Total revenue to increase in a range of
flat to plus 1 percent as reported and in constant currency,
unchanged from previous guidance. At September 30, 2016
exchange rates, this translates to reported revenue of $4.03
billion to $4.07 billion.
- GAAP diluted earnings per share from
continuing operations to increase in a range of 6 percent to 8
percent as reported and 2 percent to 5 percent in constant
currency, unchanged from previous guidance. At September 30,
2016 exchange rates, this translates to reported GAAP diluted
earnings per share from continuing operations of $1.88 to
$1.93.
- Non-GAAP diluted earnings per share
from continuing operations to increase in a range of 2 percent to 5
percent as reported and 1 percent to 3 percent in constant
currency, unchanged from previous guidance. At September 30,
2016 exchange rates, this translates to reported non-GAAP diluted
earnings per share from continuing operations of $2.49 to
$2.54.
- Cash flow from continuing operations to
change in a range of minus 3 percent to plus 1 percent as reported
and in constant currency. At September 30, 2016 exchange
rates, this translates to reported cash flow from continuing
operations of $1.01 billion to $1.05 billion. Previous guidance was
to increase in a range of 2 percent to 6 percent as reported and 1
percent to 5 percent in constant currency.
The Company expects a full-year GAAP operating margin of 29
percent and non-GAAP operating margin of 38 percent, unchanged from
previous guidance.
The Company also expects a full-year GAAP and non-GAAP effective
tax rate of between 28 percent and 29 percent, unchanged from
previous guidance.
The Company anticipates approximately 411 million shares
outstanding at fiscal 2017 year-end and weighted average diluted
shares outstanding of approximately 414 million for the fiscal
year.
*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, Inc., “Magic Quadrant for Application Release
Automation,” Colin Fletcher, David Paul Williams, Laurie F.
Wurster, August 1, 2016.
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, Inc., “The Forrester Wave™:
Application Performance Management, Q3 2016,” September 22, 2016
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.
Follow CA Technologies
- Twitter
- Social Media Page
- Press Releases
- Blogs
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, income from
continuing operations 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 continuing 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 fiscal 2014
Board-approved rebalancing initiative as described above and
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, 2016, March 31, 2015
and March 31, 2014, 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 SaaS 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 non-U.S. 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, as well as the Company’s software
products, and the IT environments of the Company’s vendors and
customers; the ability to adequately manage, evolve and protect the
Company’s information systems, infrastructure and processes; the
failure to renew license transactions on a satisfactory basis;
fluctuations in foreign exchange rates; 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 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; 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; potential tax liabilities; changes in market
conditions or the Company’s credit ratings; changes in generally
accepted accounting principles; the failure to effectively execute
the Company’s workforce reductions, workforce rebalancing and
facilities consolidations; 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 © 2016 CA, Inc. All Rights Reserved. All other
trademarks, trade names, service marks, and logos referenced herein
belong to their respective companies.
Table 1 CA Technologies Consolidated Statements of
Operations (unaudited) (in millions, except per share amounts)
Three Months Ended Six Months Ended
September
30,
September
30,
Revenue:
2016
2015
2016
2015
Subscription and maintenance $ 824 $ 832 $ 1,650 $ 1,668
Professional services 75 83 152 162 Software fees and other
119 90 215 152
Total revenue $ 1,018 $
1,005 $ 2,017 $ 1,982
Expenses: Costs of licensing and
maintenance $ 66 $ 70 $ 134 $ 136 Cost of professional services 73
78 148 149 Amortization of capitalized software costs 59 67 125 127
Selling and marketing 235 248 477 474 General and administrative 84
99 172 189 Product development and enhancements 136 151 284 287
Depreciation and amortization of other intangible assets 18 29 38
56 Other expenses, net 27 4 27 1
Total expenses before interest and income taxes $ 698 $ 746
$ 1,405 $ 1,419
Income from continuing operations before
interest and income taxes $ 320 $ 259 $ 612 $ 563 Interest
expense, net 14 12 29 21
Income from
continuing operations before income taxes $ 306 $ 247 $ 583 $
542 Income tax expense 94 75 173 163
Income from continuing operations $ 212 $ 172 $ 410 $ 379
Income from discontinued operations, net of income taxes $ - $ 2 $
- $ 7
Net income $ 212 $ 174 $ 410 $ 386
Basic
income per common share: Income from continuing operations $
0.50 $ 0.39 $ 0.98 $ 0.86 Income from discontinued operations
- - - 0.02
Net income $ 0.50 $
0.39 $ 0.98 $ 0.88
Basic weighted average shares used in
computation 414 436 414 436
Diluted income per common
share: Income from continuing operations $ 0.50 $ 0.39 $ 0.98 $
0.86 Income from discontinued operations - - -
0.02
Net income $ 0.50 $ 0.39 $ 0.98 $ 0.88
Diluted weighted average shares used in computation 415 437
415 437
Table 2 CA Technologies Condensed Consolidated
Balance Sheets (in millions)
September 30, March 31,
2016
2016
(unaudited) Cash and cash equivalents $ 2,585 $ 2,812 Trade
accounts receivable, net 445 625 Other current assets 148
124
Total current assets $ 3,178 $ 3,561
Property and equipment, net $ 222 $ 242 Goodwill 6,083 6,086
Capitalized software and other intangible assets, net 662 795
Deferred income taxes 422 407 Other noncurrent assets, net
120 113
Total assets $ 10,687 $ 11,204 Current
portion of long-term debt $ 4 $ 6 Deferred revenue (billed or
collected) 1,790 2,197 Other current liabilities 614
691
Total current liabilities $ 2,408 $ 2,894
Long-term debt, net of current portion $ 1,946 $ 1,947 Deferred
income taxes 3 3 Deferred revenue (billed or collected) 580 737
Other noncurrent liabilities 221 245
Total
liabilities $ 5,158 $ 5,826 Common stock $ 59 $ 59
Additional paid-in capital 3,652 3,664 Retained earnings 6,771
6,575 Accumulated other comprehensive loss (435) (416) Treasury
stock (4,518) (4,504)
Total stockholders’
equity $ 5,529 $ 5,378
Total liabilities and stockholders’
equity $ 10,687 $ 11,204
Table 3 CA
Technologies Condensed Consolidated Statements of Cash
Flows (unaudited) (in millions)
Three Months Ended
September
30,
2016
2015
Operating activities from continuing operations: Net income
$ 212 $ 174 Income from discontinued operations - (2)
Income from continuing operations $ 212 $ 172 Adjustments to
reconcile income from continuing operations to net cash provided by
operating activities: Depreciation and amortization 77 96 Deferred
income taxes (14) (18) Provision for bad debts 1 - Share-based
compensation expense 25 23 Other non-cash items 2 - Foreign
currency transaction losses 1 3 Changes in other operating assets
and liabilities, net of effect of acquisitions: (Increase) decrease
in trade accounts receivable (17) 3 Decrease in deferred revenue
(317) (257) Decrease in taxes payable, net (45) (25) Increase in
accounts payable, accrued expenses and other 11 24 Increase in
accrued salaries, wages and commissions 18 17 Changes in other
operating assets and liabilities (12) 5
Net cash
(used in) provided by operating activities - continuing
operations $ (58) $ 43
Investing activities from continuing
operations: Acquisitions of businesses, net of cash acquired,
and purchased software $ - $ (610) Purchases of property and
equipment (8) (10) Proceeds from sale of short-term investments
- 48
Net cash used in investing activities -
continuing operations $ (8) $ (572)
Financing activities
from continuing operations: Dividends paid $ (107) $ (110)
Purchases of common stock (50) (65) Notional pooling borrowings,
net 7 13 Debt borrowings, net - 399 Debt issuance costs - (3)
Exercise of common stock options 13 - Other financing activities
- 5
Net cash (used in) provided by financing
activities - continuing operations $ (137) $ 239 Effect of
exchange rate changes on cash $ 12 $ (70)
Net change in cash and
cash equivalents - continuing operations $ (191) $ (360) Cash
provided by operating activities - discontinued operations $ - $ 2
Net effect of discontinued operations on cash and cash
equivalents $ - $ 2
Decrease increase in cash and cash
equivalents $ (191) $ (358)
Cash and cash equivalents at
beginning of period $ 2,776 $ 2,816
Cash and cash
equivalents at end of period $ 2,585 $ 2,458
Table 4 CA Technologies Operating
Segments (unaudited) (dollars in millions)
Three Months Ended
September 30, 2016 Six Months Ended September 30, 2016
Mainframe
Solutions (1)
Enterprise
Solutions (1)
Services
(1)
Total
Mainframe
Solutions (1)
Enterprise
Solutions (1)
Services
(1)
Total
Revenue (2) $ 550 $ 393 $ 75 $ 1,018 $ 1,101 $ 764 $ 152 $
2,017 Expenses (3) 211 324 73 608
419 648 148 1,215
Segment profit
$ 339 $ 69 $ 2 $ 410 $ 682 $ 116 $ 4 $ 802
Segment operating
margin 62% 18% 3% 40% 62% 15% 3% 40%
Segment
profit $ 410 $ 802
Less: Purchased software amortization
38 81 Other intangibles amortization 4 9 Internally developed
software products amortization 21 44 Share-based compensation
expense 25 54 Other expenses, net (4) 2 2 Interest expense, net
14 29
Income from continuing operations before
income taxes $ 306 $ 583 Three Months
Ended September 30, 2015 Six Months Ended September 30, 2015
Mainframe
Solutions (1)
Enterprise
Solutions (1)
Services
(1)
Total
Mainframe
Solutions (1)
Enterprise
Solutions (1)
Services
(1)
Total
Revenue (2) $ 554 $ 368 $ 83 $ 1,005 $ 1,114 $ 706 $ 162 $
1,982 Expenses (3) 212 357 79 648
423 647 150 1,220
Segment profit
$ 342 $ 11 $ 4 $ 357 $ 691 $ 59 $ 12 $ 762
Segment operating
margin 62% 3% 5% 36% 62% 8% 7% 38%
Segment profit
$ 357 $ 762
Less: Purchased software amortization 39 67
Other intangibles amortization 14 25 Internally developed software
products amortization 28 60 Share-based compensation expense 23 45
Other (gains) expenses, net (4) (6) 2 Interest expense, net
12 21
Income from continuing operations before income
taxes $ 247 $ 542 (1) The Company’s Mainframe
Solutions and Enterprise Solutions segments comprise its software
business organized by the nature of the Company’s software
offerings and the platform on which the products operate. The
Services segment comprises product implementation, consulting,
customer education and customer training, including those directly
related to the Mainframe Solutions and Enterprise Solutions
software that the Company sells to its customers. (2) The
Company regularly enters into a single arrangement with a customer
that includes mainframe solutions, enterprise solutions and
services. The amount of contract revenue assigned to operating
segments is generally based on the manner in which the proposal is
made to the customer. The software product revenue is assigned to
the Mainframe Solutions and Enterprise Solutions segments based on
either: (1) a list price allocation method (which allocates a
discount in the total contract price to the individual products in
proportion to the list price of the product); (2) allocations
included within internal contract approval documents; or (3) the
value for individual software products as stated in the customer
contract. The price for the implementation, consulting, education
and training services is separately stated in the contract and
these amounts of contract revenue are assigned to the Services
segment. The contract value assigned to each operating segment is
then recognized in a manner consistent with the revenue recognition
policies the Company applies to the customer contract for purposes
of preparing the Consolidated Financial Statements. (3)
Segment expenses include costs that are controllable by segment
managers (i.e., direct costs) and, in the case of the Mainframe
Solutions and Enterprise Solutions segments, an allocation of
shared and indirect costs (i.e., allocated costs). Segment-specific
direct costs include a portion of selling and marketing costs,
licensing and maintenance costs, product development costs and
general and administrative costs. Allocated segment costs primarily
include indirect and non-segment specific direct selling and
marketing costs and general and administrative costs that are not
directly attributable to a specific segment. The basis for
allocating shared and indirect costs between the Mainframe
Solutions and Enterprise Solutions segments is dependent on the
nature of the cost being allocated and is either in proportion to
segment revenues or in proportion to the related direct cost
category. Expenses for the Services segment consist of cost of
professional services and other direct costs included within
selling and marketing and general and administrative expenses.
There are no allocated or indirect costs for the Services segment.
(4) Other (gains) expenses, net consists of costs associated
with certain foreign exchange derivative hedging gains and losses,
and other miscellaneous costs.
Table 5 CA
Technologies Constant Currency Summary (unaudited)
(dollars in millions)
Three Months Ended September 30,
Six Months Ended September 30,
2016
2015
% Increase
(Decrease)
in $ US
% Increase
(Decrease) in Constant
Currency (1)
2016
2015
% Increase
(Decrease)
in $ US
% Increase
(Decrease) in Constant
Currency (1)
Bookings $ 729 $ 1,383 (47)% (47)% $ 2,082 $ 2,045 2%
2%
Revenue: North America $ 690 $ 677 2% 2% $ 1,359 $
1,329 2% 2% International 328 328 0% 1% 658
653 1% 2% Total revenue $ 1,018 $ 1,005 1% 2% $ 2,017 $
1,982 2% 2%
Revenue: Subscription and maintenance $
824 $ 832 (1)% (1)% $ 1,650 $ 1,668 (1)% (1)% Professional services
75 83 (10)% (9)% 152 162 (6)% (6)% Software fees and other
119 90 32% 34% 215 152 41% 43% Total revenue $
1,018 $ 1,005 1% 2% $ 2,017 $ 1,982 2% 2%
Segment
Revenue: Mainframe solutions $ 550 $ 554 (1)% (1)% $ 1,101 $
1,114 (1)% (1)% Enterprise solutions 393 368 7% 8% 764 706 8% 9%
Services 75 83 (10)% (9)% 152 162 (6)% (6)%
Total expenses before interest and
income taxes:
Total non-GAAP (2) $ 608 $ 648 (6)% (5)% $ 1,215 $ 1,220 0% 1%
Total GAAP 698 746 (6)% (6)% 1,405 1,419 (1)% 0% (1)
Constant currency information is presented 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 March 31, 2016, which was the last day of the prior
fiscal year. Constant currency excludes the impacts from the
Company's hedging program. (2) Refer to Table 7 for a
reconciliation of total expenses before interest and income taxes
to total non-GAAP operating expenses. Certain non-material
differences may arise versus actual from impact of rounding.
Table 6 CA Technologies Reconciliation of
Select GAAP Measures to Non-GAAP Measures (unaudited) (dollars
in millions) Three
Months Ended Six Months Ended
September
30,
September
30,
2016
2015
2016
2015
GAAP net income $ 212 $ 174 $ 410 $ 386 GAAP income from
discontinued operations, net of income taxes - (2)
- (7) GAAP income from continuing operations $ 212 $
172 $ 410 $ 379 GAAP income tax expense 94 75 173 163 Interest
expense, net 14 12 29 21 GAAP income
from continuing operations before interest and income taxes $ 320 $
259 $ 612 $ 563 GAAP operating margin (% of revenue) (1) 31% 26%
30% 28% Non-GAAP adjustments to expenses: Costs of licensing
and maintenance (2) $ 1 $ 1 $ 3 $ 3 Cost of professional services
(2) 1 1 2 2 Amortization of capitalized software costs (3) 59 67
125 127 Selling and marketing (2) 9 8 19 16 General and
administrative (2) 8 9 19 16 Product development and enhancements
(2) 6 4 11 8 Depreciation and amortization of other intangible
assets (4) 4 14 9 25 Other expenses (gains), net (5) 2
(6) 2 2 Total Non-GAAP adjustment to operating
expenses $ 90 $ 98 $ 190 $ 199 Non-GAAP income from continuing
operations before interest and income taxes $ 410 $ 357 $ 802 $ 762
Non-GAAP operating margin (% of revenue) (6) 40% 36% 40% 38%
Interest expense, net 14 12 29 21 GAAP income tax expense 94 75 173
163 Non-GAAP adjustment to income tax expense (7) 19
23 48 48 Non-GAAP income tax expense $ 113 $ 98 $ 221
$ 211 Non-GAAP income from continuing operations $ 283 $ 247 $ 552
$ 530 (1) GAAP operating margin is calculated by
dividing GAAP income from continuing operations before interest and
income taxes by total revenue (refer to Table 1 for total revenue).
(2) Non-GAAP adjustment consists of share-based
compensation. (3) For the three month periods ending
September 30, 2016 and 2015, non-GAAP adjustment consists of $38
million and $39 million of purchased software amortization and $21
million and $28 million of internally developed software products
amortization, respectively. For the six month periods ending
September 30, 2016 and 2015, non-GAAP adjustment consists of $81
million and $67 million of purchased software amortization and $44
million and $60 million of internally developed software products
amortization, respectively. (4) Non-GAAP adjustment consists
of other intangibles amortization. (5) Non-GAAP adjustment
consists gains and losses since inception of hedges that mature
within the quarter, but excludes gains and losses of hedges that do
not mature within the quarter. (6) Non-GAAP operating margin
is calculated by dividing non-GAAP income from continuing
operations before interest and income taxes by total revenue (refer
to Table 1 for total revenue). (7) The full year non-GAAP
income tax expense is different from GAAP income tax expense
because of the difference in non-GAAP income from continuing
operations before income taxes. On an interim basis, this
difference would also include a difference in the impact of
discrete and permanent items where for GAAP purposes the effect is
recorded in the period such items arise, but for non-GAAP such
items are recorded pro rata to the fiscal year's remaining
reporting periods. Refer to the discussion of non-GAAP
financial measures included in the accompanying press release for
additional information. Certain non-material differences may
arise versus actual from impact of rounding.
Table 7
CA Technologies Reconciliation of GAAP to Non-GAAP
Operating Expenses and Diluted Earnings per Share
(unaudited) (in millions, except per share amounts)
Three Months Ended
Six Months Ended
September
30,
September
30,
Operating
Expenses
2016
2015
2016
2015
Total expenses before interest and income taxes $ 698 $ 746
$ 1,405 $ 1,419 Non-GAAP operating adjustments: Purchased
software amortization 38 39 81 67 Other intangibles amortization 4
14 9 25 Internally developed software products amortization 21 28
44 60 Share-based compensation 25 23 54 45 Other expenses (gains),
net (1) 2 (6) 2 2 Total non-GAAP
operating adjustment $ 90 $ 98 $ 190 $ 199 Total non-GAAP
operating expenses $ 608 $ 648 $ 1,215 $ 1,220 Three
Months Ended Six Months Ended
September
30,
September
30,
Diluted EPS from
Continuing Operations
2016
2015
2016
2015
GAAP diluted EPS from continuing operations $ 0.50 $ 0.39 $
0.98 $ 0.86 Non-GAAP adjustments: Purchased software
amortization 0.09 0.09 0.19 0.15 Other intangibles amortization
0.01 0.03 0.02 0.06 Internally developed software products
amortization 0.05 0.06 0.10 0.13 Share-based compensation 0.06 0.05
0.13 0.10 Other expenses (gains), net (1) - (0.01) - 0.01 Tax
effect of non-GAAP adjustments (0.06) (0.07) (0.13) (0.14) Non-GAAP
effective tax rate adjustments (2) 0.02 0.02
0.02 0.03 Total non-GAAP adjustment $ 0.17 $ 0.17 $ 0.33 $
0.34 Non-GAAP diluted EPS from continuing operations $ 0.67
$ 0.56 $ 1.31 $ 1.20 (1) Other expenses (gains), net
consists of costs associated with certain foreign exchange
derivative hedging gains and losses, and other miscellaneous costs.
(2) 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. On an interim basis, the difference in non-GAAP
income tax expense and GAAP income tax expense relates to the
difference in non-GAAP income from continuing operations before
income taxes, and includes a difference in the impact of discrete
and permanent items where for GAAP purposes the effect is recorded
in the period such items arise but for non-GAAP purposes such items
are recorded pro rata to the fiscal year's remaining reporting
periods. Refer to the discussion of non-GAAP financial
measures included in the accompanying press release for additional
information. Certain non-material differences may arise
versus actual from impact of rounding.
Table 8
CA Technologies Effective Tax Rate Reconciliation
GAAP and Non-GAAP (unaudited) (dollars in millions)
Three Months Ended Six Months Ended
September 30,
2016
September 30,
2016
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income
taxes (1) $ 320 $ 410 $ 612 $ 802 Interest expense, net 14
14 29 29 Income from continuing operations
before income taxes $ 306 $ 396 $ 583 $ 773 Statutory tax
rate 35% 35% 35% 35% Tax at statutory rate $ 107 $ 139 $ 204
$ 271 Adjustments for discrete and permanent items (2) (13)
(26) (31) (50) Total tax expense $ 94 $ 113 $
173 $ 221 Effective tax rate (3) 30.7% 28.5% 29.7% 28.6%
Three Months Ended Six Months Ended
September 30,
2015
September 30,
2015
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income
taxes (1) $ 259 $ 357 $ 563 $ 762 Interest expense, net 12
12 21 21 Income from continuing operations
before income taxes $ 247 $ 345 $ 542 $ 741 Statutory tax
rate 35% 35% 35% 35% Tax at statutory rate $ 86 $ 121 $ 190
$ 259 Adjustments for discrete and permanent items (2) (11)
(23) (27) (48) Total tax expense $ 75 $ 98 $
163 $ 211 Effective tax rate (3) 30.4% 28.4% 30.1% 28.5%
(1) Refer to Table 6 for a reconciliation of income
from continuing operations before interest and income taxes on a
GAAP basis to income from continuing operations before interest and
income taxes on a non-GAAP basis. (2) The effective tax rate
for GAAP generally includes the impact of discrete and permanent
items in the period such items arise, whereas the effective tax
rate for non-GAAP generally allocates the impact of such items pro
rata to the fiscal year's remaining reporting periods. (3)
The effective tax rate on GAAP and non-GAAP income from continuing
operations is the Company's provision for income taxes expressed as
a percentage of GAAP and non-GAAP income from continuing operations
before income taxes, respectively. The non-GAAP effective tax rate
is equal to the full year GAAP effective tax rate. On an interim
basis, the effective tax rates are determined based on an estimated
effective full year tax rate after the adjustments for the impacts
of certain discrete items (such as changes in tax rates,
reconciliations of tax returns to tax provisions and resolutions of
tax contingencies). Refer to the discussion of non-GAAP
financial measures included in the accompanying press release for
additional information. Certain non-material differences may
arise versus actual from impact of rounding.
Table 9 CA Technologies
Reconciliation of Projected GAAP Metrics to Projected Non-GAAP
Metrics (unaudited) Fiscal Year Ending
Projected Diluted
EPS from Continuing Operations
March 31,
2017
Projected GAAP diluted EPS from continuing operations range
$ 1.88 to $ 1.93 Non-GAAP adjustments: Purchased software
amortization 0.37 0.37 Other intangibles amortization 0.03 0.03
Internally developed software products amortization 0.19 0.19
Share-based compensation 0.26 0.26 Tax effect of non-GAAP
adjustments (0.24) (0.24) Total non-GAAP adjustment $
0.61 $ 0.61 Projected non-GAAP diluted EPS from continuing
operations range $ 2.49 to $ 2.54 Fiscal Year Ending
Projected Operating
Margin
March 31,
2017
Projected GAAP operating margin 29% Non-GAAP
operating adjustments: Purchased software amortization 4% Other
intangibles amortization 0% Internally developed software products
amortization 2% Share-based compensation 3% Total non-GAAP
operating adjustment 9% Projected non-GAAP operating margin
38% Refer to the discussion of non-GAAP financial measures included
in the accompanying press release for additional information.
Certain non-material differences may arise versus actual from
impact of rounding.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20161027006825/en/
CA TechnologiesDarlan Monterisi, 646-826-6071Corporate
Communicationsdarlan.monterisi@ca.comorJennifer DiClerico,
212-415-6997Corporate Communicationsjennifer.diclerico@ca.comorTraci Tsuchiguchi,
650-534-9814Investor Relationstraci.tsuchiguchi@ca.comorRobert Lung,
212-415-6908Investor Relationsrobert.lung@ca.com
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