- 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
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
(dollars in millions, except share data)
Second Quarter FY18 vs. FY17 FY18
FY17 % Change
% Change
CC*
Revenue $1,034 $1,018 2% 1% GAAP
Net Income $184 $212 (13)% (11)%
Non-GAAP Net Income* $263 $283 (7)%
(6)% GAAP Diluted EPS $0.44 $0.50
(12)% (10)% Non-GAAP Diluted EPS* $0.62
$0.67 (7)% (6)% Cash Flow provided by (used
in) Operations $37 ($53) 170%
154% * Non-GAAP income, Non-GAAP earnings per share and CC or
Constant Currency are non-GAAP financial measures, as noted in
"Non-GAAP Financial Measures" 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 FY18 vs.
FY17 FY18
% ofTotal
FY17
% ofTotal
%Change
%Change CC*
North America Revenue $692 67% $690
68% 0% 0% International Revenue
$342 33% $328 32% 4% 2% Total
Revenue $1,034 $1,018
2% 1%
North America Bookings $477 66% $479
66% 0% 0% International Bookings
$243 34% $250 34% (3)% (6)%
Total Bookings $720 $729
(1)% (2)%
Current Revenue Backlog $3,163
$2,945 7% 6% Total Revenue Backlog
$7,013 $6,858
2% 1% *CC or Constant Currency is a non-GAAP
financial measure, as noted in "Non-GAAP Financial Measures" 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 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
(dollars in millions)
Second Quarter FY18 vs.
FY17
FY18
FY17
%
Change
%
Change
CC**
GAAP Operating Expenses Before Interest
and Income Taxes $752 $698 8% 6%
Operating Income Before Interest and Income Taxes
$282 $320 (12)% (10)% Diluted EPS
$0.44 $0.50 (12)% (10)% Operating
Margin 27% 31%
Effective Tax Rate 28.7% 30.7%
Non-GAAP*
Operating Expenses Before Interest and Income Taxes
$642 $608 6% 4% Operating Income Before
Interest and Income Taxes $392 $410
(4)% (4)% Diluted EPS $0.62 $0.67
(7)% (6)% Operating Margin 38%
40% Effective Tax Rate
28.5% 28.5% *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 "Non-GAAP Financial Measures" 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
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
(dollars in millions)
Second Quarter
FY18 vs. FY17 Revenue
%
Change
%
Change
CC*
Operating Margin FY18
FY17 FY18
FY17 Mainframe Solutions $539
$550 (2)% (3)% 65% 62%
Enterprise Solutions $420 $393
7% 6% 10% 18% Services
$75 $75 0% 0% 1%
3% *CC or Constant Currency is a non-GAAP financial measure, as
noted in "Non-GAAP Financial Measures" 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.
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
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, 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.
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:
2017
2016
2017
2016
Subscription and maintenance $ 826 $ 824 $ 1,643 $ 1,650
Professional services 75 75 150 152 Software fees and other
133 119 266 215
Total revenue $ 1,034 $
1,018 $ 2,059 $ 2,017
Expenses: Costs of licensing and
maintenance $ 73 $ 66 $ 144 $ 134 Cost of professional services 74
73 147 148 Amortization of capitalized software costs 67 59 137 125
Selling and marketing 244 235 490 477 General and administrative 97
84 204 172 Product development and enhancements 161 136 319 284
Depreciation and amortization of other intangible assets 27 18 53
38 Other expenses, net 9 27 20 27
Total expenses before interest and income taxes $ 752 $ 698
$ 1,514 $ 1,405
Income before interest and income taxes $
282 $ 320 $ 545 $ 612 Interest expense, net 24 14
49 29
Income before income taxes $ 258 $ 306 $
496 $ 583 Income tax expense 74 94 134
173
Net income $ 184 $ 212 $ 362 $ 410
Basic
income per common share $ 0.44 $ 0.50 $ 0.86 $ 0.98
Basic
weighted average shares used in computation 415 414 415 414
Diluted income per common share $ 0.44 $ 0.50 $ 0.86
$ 0.98
Diluted weighted average shares used in computation
416 415 416 415
Table 2 CA Technologies
Condensed Consolidated Balance Sheets (in millions)
September 30, March 31, 2017
2017 (unaudited) Cash and cash equivalents $ 2,822 $ 2,771 Trade
accounts receivable, net 457 764 Other current assets 178
198
Total current assets $ 3,457 $
3,733 Property and equipment, net $ 230 $ 237 Goodwill 6,883
6,857 Capitalized software and other intangible assets, net 1,247
1,307 Deferred income taxes 336 327 Other noncurrent assets, net
160 149
Total assets $ 12,313
$ 12,610 Current portion of long-term debt $
268 $ 18 Deferred revenue (billed or collected) 1,909 2,222 Other
current liabilities 622 766
Total
current liabilities $ 2,799 $ 3,006 Long-term debt, net
of current portion $ 2,517 $ 2,773 Deferred income taxes 132 119
Deferred revenue (billed or collected) 708 794 Other noncurrent
liabilities 222 229
Total
liabilities $ 6,378 $ 6,921 Common stock $
59 $ 59 Additional paid-in capital 3,687 3,702 Retained earnings
7,070 6,923 Accumulated other comprehensive loss (351 ) (483 )
Treasury stock (4,530 ) (4,512 )
Total
stockholders’ equity $ 5,935 $ 5,689
Total
liabilities and stockholders’ equity $ 12,313 $ 12,610
Table 3 CA Technologies
Condensed Consolidated Statements of Cash Flows (unaudited)
(in millions) Three Months Ended
September
30,
2017
2016
Operating activities: Net income $ 184 $ 212 Adjustments to
reconcile net income to net cash provided by operating activities:
Depreciation and amortization 94 77 Deferred income taxes (28 ) (14
) Provision for bad debts - 1 Share-based compensation expense 29
25 Other non-cash items 1 2 Foreign currency transaction losses 8 1
Changes in other operating assets and liabilities, net of effect of
acquisitions: Decrease (increase) in trade accounts receivable 9
(17 ) Decrease in deferred revenue (288 ) (317 ) Decrease in taxes
payable, net (2 ) (44 ) Increase in accounts payable, accrued
expenses and other 16 11 Increase in accrued salaries, wages and
commissions 21 18 Changes in other operating assets and
liabilities, net (7 ) (8 )
Net cash provided by
(used in) operating activities $ 37 $ (53 )
Investing
activities: Acquisitions of businesses, net of cash acquired,
and purchased software $ (9 ) $ - Purchases of property and
equipment (10 ) (8 ) Other investing activities (1 )
-
Net cash used in investing activities $ (20 ) $ (8
)
Financing activities: Dividends paid $ (108 ) $ (107 )
Purchases of common stock (90 ) (50 ) Notional pooling (repayments)
borrowings, net (13 ) 7 Debt repayments (4 ) - Exercise of common
stock options 4 12 Payments related to tax withholding for
share-based compensation (4 ) (4 )
Net cash used
in financing activities $ (215 ) $ (142 ) Effect of exchange
rate changes on cash, cash equivalents and restricted cash $ 48
$ 12
Decrease in cash, cash equivalents and
restricted cash $ (150 ) $ (191 )
Cash, cash equivalents and
restricted cash at beginning of period $ 2,974 $ 2,777
Cash, cash equivalents and restricted cash at end of
period $ 2,824 $ 2,586
Table
4 CA Technologies Operating Segments (unaudited)
(dollars in millions)
Three Months Ended September 30, 2017
Six Months Ended September 30, 2017
Mainframe
Solutions (1)
Enterprise
Solutions (1)
Services (1) Total
Mainframe
Solutions (1)
Enterprise
Solutions (1)
Services (1) Total Revenue (2) $ 539 $ 420 $ 75 $ 1,034 $
1,075 $ 834 $ 150 $ 2,059 Expenses (3) 188 380
74 642 375
761 148 1,284
Segment
profit $ 351 $ 40 $ 1 $ 392 $ 700
$ 73 $ 2 $ 775
Segment operating
margin 65 % 10 % 1 % 38 % 65 % 9 % 1 % 38 %
Segment
profit $ 392 $ 775
Less: Purchased software amortization
58 116 Other intangibles amortization 10 20 Internally developed
software products amortization 9 21 Share-based compensation
expense 29 61 Other expenses, net (4) 4 12 Interest expense, net
24 49
Income before income taxes
$ 258 $ 496 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 before income taxes
$ 306 $ 583 (1) The Company’s Mainframe
Solutions and Enterprise Solutions segments are comprised of its
software business organized by the nature of the Company’s software
offerings and the platforms on which the products operate. The
Services segment is comprised of product implementation,
consulting, customer education and customer training services,
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 assigned to the Mainframe Solutions and Enterprise
Solutions segments is 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
products); (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 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, 2017 2016
% Increase
(Decrease)
in $ US
% Increase
(Decrease)
in Constant
Currency (1)
2017 2016
% Increase
(Decrease)
in $ US
% Increase
(Decrease)
in Constant
Currency (1)
Bookings $ 720 $ 729 (1 )% (2 )% $ 1,423 $ 2,082 (32
)% (32 )%
Revenue: North America $ 692 $ 690 0 % 0 %
$ 1,382 $ 1,359 2 % 2 % International 342 328 4 % 2 %
677 658 3 % 3 % Total revenue $ 1,034 $ 1,018 2 % 1 %
$ 2,059 $ 2,017 2 % 2 %
Revenue: Subscription and
maintenance $ 826 $ 824 0 % 0 % $ 1,643 $ 1,650 0 % 0 %
Professional services 75 75 0 % 0 % 150 152 (1 )% (1 )% Software
fees and other 133 119 12 % 10 % 266
215 24 % 23 % Total revenue $ 1,034 $ 1,018 2 % 1 % $ 2,059 $ 2,017
2 % 2 %
Segment Revenue: Mainframe solutions $ 539 $
550 (2 )% (3 )% $ 1,075 $ 1,101 (2 )% (2 )% Enterprise solutions
420 393 7 % 6 % 834 764 9 % 9 % Services 75 75 0 % 0 % 150 152 (1
)% (1 )%
Total expenses before interest and income
taxes: Total GAAP $ 752 $ 698 8 % 6 % $ 1,514 $ 1,405 8 % 6 %
Total non-GAAP (2) 642 608 6 % 4 % 1,284 1,215 6 % 5 % (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, 2017, 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,
2017
2016
2017
2016
GAAP net income $ 184 $ 212 $ 362 $ 410 GAAP income tax expense 74
94 134 173 Interest expense, net 24 14
49 29 GAAP income before interest and
income taxes $ 282 $ 320 $ 545 $ 612
GAAP operating margin (% of revenue) (1) 27 % 31 % 26 % 30 %
Non-GAAP adjustments to expenses: Costs of licensing and
maintenance (2) $ 2 $ 1 $ 4 $ 3 Cost of professional services (2) -
1 1 2 Amortization of capitalized software costs (3) 67 59 137 125
Selling and marketing (2) 10 9 20 19 General and administrative (2)
11 8 23 19 Product development and enhancements (2) 6 6 13 11
Depreciation and amortization of other intangible assets (4) 10 4
20 9 Other expenses, net (5) 4 2
12 2 Total Non-GAAP adjustment to operating
expenses $ 110 $ 90 $ 230 $ 190
Non-GAAP income before interest and income taxes $ 392 $ 410 $ 775
$ 802 Non-GAAP operating margin (% of revenue) (6) 38 % 40 % 38 %
40 % Interest expense, net 24 14 49 29 GAAP income tax
expense 74 94 134 173 Non-GAAP adjustment to income tax expense (7)
31 19 73 48
Non-GAAP income tax expense $ 105 $ 113 $ 207
$ 221 Non-GAAP net income $ 263 $ 283 $ 519
$ 552 (1) GAAP operating margin is calculated
by dividing GAAP income 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, 2017 and 2016, non-GAAP
adjustment consists of $58 million and $38 million of purchased
software amortization and $9 million and $21 million of internally
developed software products amortization, respectively. For the six
month periods ending September 30, 2017 and 2016, non-GAAP
adjustment consists of $116 million and $81 million of purchased
software amortization and $21 million and $44 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 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 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
2017
2016
2017
2016
Total expenses before interest and income taxes $ 752 $ 698
$ 1,514 $ 1,405 Non-GAAP operating adjustments: Purchased
software amortization 58 38 116 81 Other intangibles amortization
10 4 20 9 Internally developed software products amortization 9 21
21 44 Share-based compensation 29 25 61 54 Other expenses, net (1)
4 2 12 2
Total non-GAAP operating adjustment $ 110 $ 90 $ 230
$ 190 Total non-GAAP operating expenses $ 642
$ 608 $ 1,284 $ 1,215 Three
Months Ended Six Months Ended
September
30,
September
30,
Diluted
EPS
2017
2016
2017
2016
GAAP diluted EPS $ 0.44 $ 0.50 $ 0.86 $ 0.98 Non-GAAP
adjustments: Purchased software amortization 0.14 0.09 0.28 0.19
Other intangibles amortization 0.02 0.01 0.05 0.02 Internally
developed software products amortization 0.02 0.05 0.05 0.10
Share-based compensation 0.07 0.06 0.14 0.13 Other expenses, net
(1) 0.01 - 0.03 - Tax effect of non-GAAP adjustments (0.08 ) (0.06
) (0.15 ) (0.13 ) Non-GAAP effective tax rate adjustments (2)
- 0.02 (0.03 ) 0.02
Total non-GAAP adjustment $ 0.18 $ 0.17 $ 0.37
$ 0.33 Non-GAAP diluted EPS $ 0.62 $
0.67 $ 1.23 $ 1.31 (1) Other expenses,
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 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,
2017
September 30,
2017
GAAP
Non-GAAP
GAAP
Non-GAAP
Income before interest and income taxes (1) $ 282 $ 392 $
545 $ 775 Interest expense, net 24 24
49 49 Income before income taxes $ 258
$ 368 $ 496 $ 726 Statutory tax rate 35 % 35 % 35 % 35 %
Tax at statutory rate $ 90 $ 129 $ 174 $ 254 Adjustments for
discrete and permanent items (2) (16 ) (24 )
(40 ) (47 ) Total tax expense $ 74 $ 105 $ 134 $ 207
Effective tax rate (3) 28.7 % 28.5 % 27.0 % 28.5 % Three
Months Ended Six Months Ended
September 30,
2016
September 30,
2016
GAAP
Non-GAAP
GAAP
Non-GAAP
Income before interest and income taxes (1) $ 320 $ 410 $
612 $ 802 Interest expense, net 14 14
29 29 Income 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 %
(1) Refer to Table 6 for a reconciliation of income before interest
and income taxes on a GAAP basis to income 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 is the Company's
provision for income taxes expressed as a percentage of GAAP and
non-GAAP income 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
March 31,
2018
Projected GAAP diluted EPS range $ 1.70 to $ 1.76
Non-GAAP adjustments: Purchased software amortization 0.55 0.55
Other intangibles amortization 0.10 0.10 Internally developed
software products amortization 0.09 0.09 Share-based compensation
0.27 0.27 Tax effect of non-GAAP adjustments (0.29)
(0.29) Total non-GAAP adjustment $ 0.72 $ 0.72 Projected
non-GAAP diluted EPS range $ 2.42 to $ 2.48 Fiscal
Year Ending
Projected Operating
Margin
March 31,
2018
Projected GAAP operating margin range 26% to 27%
Non-GAAP operating adjustments: Purchased software amortization 5%
5% Other intangibles amortization 1% 1% Internally developed
software products amortization 1% 1% Share-based compensation
3% 3% Total non-GAAP operating adjustment 10%
10% Projected non-GAAP operating margin 36% to
37% 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/20171025006333/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.comorStefan
Putyera, 631-342-4710Investor Relationsstefan.putyera@ca.com
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