- Total Revenue Up Year-Over-Year,
Strongest Revenue Growth in Six Years
- Third Quarter Revenue of $1,093
Million
- Third Quarter GAAP EPS of $(0.23),
Including $(0.77) Impact of US Tax Reform
- Third Quarter Non-GAAP EPS of
$0.75
- Third Quarter Cash Flow From
Operations of $315 Million
CA Technologies (NASDAQ:CA) today reported financial results for
its third quarter fiscal 2018, which ended December 31,
2017.
Mike Gregoire, CA Technologies Chief Executive Officer,
said:
"I am pleased to report strong fiscal third quarter results.
Total revenue growth accelerated from the prior quarter and was up
9% year-over year.
"Importantly, during the quarter we announced the most extensive
list of new offerings and significant product enhancements in
recent company history at CA World. Across our portfolio, we are
positioning CA as the preeminent partner for customers to build a
Modern Software Factory that enables them to be agile, adapt more
quickly to market disruption and customer demand, and deliver
better and more secure business outcomes.
"I am confident with the strategic direction of the company and
believe that we are on track to achieve long-term sustainable
growth."
FINANCIAL OVERVIEW
(dollars in millions, except share
data)
Third Quarter FY18 vs. FY17 FY18
FY17 % Change % Change CC*
Revenue $1,093 $1,007 9% 7% GAAP Net (Loss)
Income ($93) $208 (145)% (145)% Non-GAAP Net
Income* $314 $263 19% 17% GAAP Diluted EPS
($0.23) $0.50 (146)% (146)% Non-GAAP Diluted
EPS* $0.75 $0.63 19% 16% Cash Flow provided by
Operations $315 $517 (39)% (41)%
* 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)
Third Quarter
FY18 vs. FY17 FY18 % ofTotal
FY17 % ofTotal
%Change
%ChangeCC*
North America Revenue $717 66% $674 67%
6% 6% International Revenue $376 34% $333
33% 13% 8% Total Revenue $1,093
$1,007 9% 7%
North America Bookings $718 64% $809
64% (11)% (11)% International Bookings $410
36% $449 36% (9)% (14)% Total Bookings
$1,128 $1,258 (10)%
(12)%
Current Revenue Backlog $3,245
$2,994 8% 5% Total
Revenue Backlog $7,055 $7,005
1% (2)% *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 6.5 points
of revenue growth for the quarter.
- Total bookings decreased primarily due
to a decline in renewal bookings.
- The Company executed a total of 13
license agreements with incremental contract values in excess of
$10 million each, for an aggregate contract value of $367 million.
During the third quarter of fiscal 2017, the Company executed a
total of 21 license agreements with incremental contract values in
excess of $10 million each, for an aggregate contract value of $577
million.
- The weighted average duration of
subscription and maintenance bookings for the quarter was 2.94
years, compared with 3.32 years for the same period in fiscal
2017.
EXPENSES, MARGIN AND EARNINGS PER
SHARE
(dollars in millions)
Third Quarter
FY18 vs. FY17 FY18 FY17
%Change
%ChangeCC**
GAAP Operating Expenses Before Interest and Income
Taxes $786 $699 12% 9% Operating Income Before
Interest and Income Taxes $307 $308 0% 1%
Diluted EPS ($0.23) $0.50 (146)% (146)%
Operating Margin 28% 31%
Effective Tax Rate 133.0% 28.8%
Non-GAAP* Operating Expenses Before Interest and
Income Taxes $683 $623 10% 7% Operating Income
Before Interest and Income Taxes $410 $384 7%
6% Diluted EPS $0.75 $0.63 19% 16% Operating
Margin 38% 38% Effective Tax
Rate 18.4% 28.5%
*Refer to the discussion of Non-GAAP financial measures included in
this news release and the reconciliation of non-GAAP financial
measures to their comparable GAAP financial measures included in
the tables following this news release. **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.
- GAAP operating expenses were also
affected by higher amortization expenses of purchased software from
our Automic and Veracode acquisitions.
- GAAP income tax expense included a $318
million tax charge relating to the US Tax Cuts and Jobs Act,
enacted on December 22, 2017 (“US Tax Reform”). This tax charge was
comprised of $220 million related to the deemed US repatriation of
earnings held by non-US subsidiaries, which is payable over eight
years, and $98 million related to the re-measurement of deferred
tax assets and liabilities for the change in income tax rates. GAAP
EPS was negatively impacted by $0.77 from the US Tax Reform
adjustment. Non-GAAP income tax expense excluded the aforementioned
tax charge relating to US Tax Reform. Non-GAAP EPS was positively
impacted by $0.09 from a decrease in the non-GAAP effective tax
rate, which is comprised of $0.05 related to a reduction in the
statutory tax rate as a result of US Tax Reform and $0.04 related
to other net discrete tax benefits realized.
SELECTED HIGHLIGHTS FROM THE QUARTER
- At CA World last November, the Company
announced its most extensive list of products in recent company
history, with more than 20 new offerings and enhancements designed
to help customers leverage agile practices, intelligent automation,
data insights and end-to-end security for better and faster
business outcomes.
* New offerings supporting business agility
and modern architectures include:
- CA Microgateway, a
lighter-weight, faster and easier to deploy API Gateway solution,
suitable for microservices environments.
- CA Continuous Delivery Director
SaaS, helping companies more quickly define, build, test and
deploy applications into production.
- CA BlazeMeter API Test, a
light-weight SaaS-based API testing tool providing a simple way to
quickly import, create and run API unit and functional tests.
* New offerings leveraging intelligent
automation and data analytics include:
- CA Digital Experience Insights,
a SaaS-based digital experience monitoring and “cross-tier”
analytics solution that combines and correlates app, infrastructure
and user experience monitoring.
- CA Automic One Automation
Platform, a unified suite of products running on a single,
common platform designed to deliver intelligent automation to the
enterprise.
- CA Dynamic Capacity
Intelligence, helping to reduce mainframe costs and better meet
service level agreements through automated dynamic capacity
optimization.
* New offerings enabling end-to-end
security:
- CA Trusted Access Manager for Z,
delivering privileged access management to the mainframe to help
prevent insider threats and enhance enterprise data privacy.
- CA Veracode Greenlight, helping
developers produce vulnerability-free code with instant feedback on
security defects.
- CA Technologies was named a Leader for
the fifth consecutive year in the 2017 Gartner Magic Quadrant for
Integrated IT Portfolio Analysis Applications for CA Project &
Portfolio Management (CA PPM).1
- CA Technologies was named an overall
market leader in KuppingerCole’s 2017 Leadership Compass for
Identity Provisioning. The report cites tight integration with
other CA security products and modernized, leading-edge UI as
notable strengths of CA’s solution.2
- Veracode, Inc., a leader in securing
the world’s software and acquired by CA Technologies, was named a
Leader in The Forrester Wave™: Static Application Security Testing,
Q4 2017 report by Forrester Research.3
SEGMENT INFORMATION
(dollars in millions)
Third Quarter
FY18 vs. FY17 Revenue
%Change
%ChangeCC*
Operating Margin FY18 FY17
FY18 FY17 Mainframe
Solutions $552 $546 1% 0% 64%
61% Enterprise Solutions $461 $389 19% 16%
11% 14% Services $80 $72
11% 9% 3% -4% *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 increased
due to a favorable foreign exchange effect. Mainframe Solutions
operating margin increased primarily due to a decrease in corporate
overhead costs.
- Enterprise Solutions revenue increased
primarily due to revenue generated from our Automic and Veracode
acquisitions which contributed approximately 16 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 increased primarily
due to professional services revenue generated from our Automic and
Veracode acquisitions. Operating margin for Services increased
primarily due to a decrease in personnel-related costs as a result
of severance actions during the third quarter of fiscal 2017 and,
to a lesser extent, higher margins from services associated with
our Automic and Veracode acquisitions.
CASH FLOW FROM OPERATIONS
- Cash flow provided by operations for
the third quarter of fiscal 2018 was $315 million, versus $517
million in the year-ago period. Cash flow from operations
decreased compared with the year-ago period due to a decrease in
cash collections from billings attributable to lower single
installment collections and an increase in vendor disbursements and
payroll.
CAPITAL STRUCTURE
- Cash and cash equivalents at
December 31, 2017 were $2.971 billion.
- With $2.787 billion in total debt
outstanding and $139 million in notional pooling, the Company’s net
cash position was $45 million.
- Approximately 66% of the Company’s cash
and cash equivalents were held by foreign subsidiaries outside the
United States at December 31, 2017.
- In the third quarter of fiscal 2018,
the Company repurchased 1.6 million shares of its common stock for
$53 million.
- As of December 31, 2017, the
Company was authorized to purchase $507 million of its common stock
under its current stock repurchase program.
- The Company distributed $106 million in
dividends to stockholders during the third quarter of fiscal
2018.
- The Company’s outstanding share count
at December 31, 2017 was approximately 412 million.
OUTLOOK FOR FISCAL YEAR 2018
The Company updated 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. At December 31, 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 effective tax rate of between 55 percent and 58 percent and
non-GAAP effective tax rate of approximately 25 percent. The change
to the full-year GAAP effective tax rate primarily relates to US
Tax Reform. The change to the non-GAAP effective tax rate primarily
relates to the reduction in the statutory tax rate as a result of
US Tax Reform and other net discrete tax benefits realized.
Previous guidance was 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 46 percent to 41 percent as reported and in
constant currency. The change to the GAAP diluted earnings per
share outlook primarily relates to the change to the full-year GAAP
effective tax rate, as described above. Previous guidance was to
decrease in a range of 8 percent to 5 percent as reported and in
constant currency. At December 31, 2017 exchange rates, this
translates to reported GAAP diluted earnings per share of $1.00 to
$1.10.
- Non-GAAP diluted earnings per share to
increase in a range of 2 percent to 5 percent as reported and in
constant currency. The change to the non-GAAP diluted earnings per
share outlook primarily relates to the change to the non-GAAP
effective tax rate, as described above. Previous guidance was to
decrease in a range of 2 percent to flat as reported and in
constant currency. At December 31, 2017 exchange rates, this
translates to reported non-GAAP diluted earnings per share of $2.54
to $2.60.
- 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. At December 31, 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 third 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 Integrated IT Portfolio
Analysis Applications, by Daniel B. Stang and Stefan Van Der
Zijden, November 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 KuppingerCole Leadership Compass: Identity
Provisioning, November 2017
3 Forrester Research, The Forrester Wave™: Static
Application Security Testing, Q4 2017, by Amy DeMartine et al.,
December 12, 2017
About CA TechnologiesCA 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 MeasuresThis 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 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 typically equal to the full year GAAP effective tax
rate, therefore no adjustment is required on an annual basis.
However, to minimize certain distortions that otherwise would have
resulted from applying this methodology to the significant
non-recurring impact on the Company’s tax expense from enactment of
the US Tax Reform in the third quarter of fiscal 2018, such impact
was recorded as a discrete item in the third quarter of fiscal 2018
only for purposes of the GAAP effective tax rate, but excluded from
the non-GAAP effective tax rate, which is anticipated to also yield
different full-year effective tax rates for the Company’s GAAP and
non-GAAP results in fiscal 2018. Non-GAAP diluted earnings per
share also excludes the impact of the US Tax Reform. 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
StatementsThe 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 © 2018 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 Nine Months Ended
December
31,
December
31,
Revenue:
2017
2016
2017
2016
Subscription and maintenance $ 843 $ 817 $ 2,486 $ 2,467
Professional services 80 72 230 224 Software fees and other
170 118 436 333
Total revenue $ 1,093 $
1,007 $ 3,152 $ 3,024
Expenses: Costs of licensing and
maintenance $ 79 $ 68 $ 223 $ 202 Cost of professional services 76
74 223 222 Amortization of capitalized software costs 68 57 205 182
Selling and marketing 288 270 778 747 General and administrative 95
85 299 257 Product development and enhancements 157 144 476 428
Depreciation and amortization of other intangible assets 26 18 79
56 Other (gains) expenses, net (3) (17) 17
10
Total expenses before interest and income taxes $
786 $ 699 $ 2,300 $ 2,104
Income before interest and income
taxes $ 307 $ 308 $ 852 $ 920 Interest expense, net 25
16 74 45
Income before income taxes $
282 $ 292 $ 778 $ 875 Income tax expense 375 84
509 257
Net (loss) income $ (93) $ 208 $ 269 $
618
Basic (loss) income per common share $ (0.23) $
0.50 $ 0.64 $ 1.48
Basic weighted average shares used in
computation 413 413 414 414
Diluted (loss) income per
common share $ (0.23) $ 0.50 $ 0.64 $ 1.47
Diluted weighted
average shares used in computation 413 414 415 415
Table 2 CA
Technologies Condensed Consolidated Balance Sheets (in
millions) December 31, March 31, 2017 2017 (unaudited) Cash
and cash equivalents $ 2,971 $ 2,771 Trade accounts receivable, net
719 764 Other current assets 136 198
Total current
assets $ 3,826 $ 3,733 Property and equipment, net $ 230
$ 237 Goodwill 6,799 6,857 Capitalized software and other
intangible assets, net 1,176 1,307 Deferred income taxes 346 327
Other noncurrent assets, net 156 149
Total
assets $ 12,533 $ 12,610 Current portion of long-term
debt $ 269 $ 18 Deferred revenue (billed or collected) 2,095 2,222
Other current liabilities 726 766
Total current
liabilities $ 3,090 $ 3,006 Long-term debt, net of
current portion $ 2,518 $ 2,773 Deferred income taxes 118 119
Deferred revenue (billed or collected) 655 794 Other noncurrent
liabilities 429 229
Total liabilities $ 6,810
$ 6,921 Common stock $ 59 $ 59 Additional paid-in capital
3,715 3,702 Retained earnings 6,871 6,923 Accumulated other
comprehensive loss (342) (483) Treasury stock (4,580)
(4,512)
Total stockholders’ equity $ 5,723 $ 5,689
Total
liabilities and stockholders’ equity $ 12,533 $ 12,610
Table 3 CA
Technologies Condensed Consolidated Statements of Cash
Flows (unaudited) (in millions) Three Months Ended
December
31,
2017
2016
Operating activities: Net (loss) income $ (93) $ 208
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization 94 75 Deferred
income taxes 64 (9) Provision for bad debts (1) 1 Share-based
compensation expense 28 26 Other non-cash items 1 1 Foreign
currency transaction gains (6) (4) Changes in other operating
assets and liabilities, net of effect of acquisitions: Increase in
trade accounts receivable (259) (119) Increase in deferred revenue
126 230 Increase in taxes payable, net 278 61 Increase (decrease)
in accounts payable, accrued expenses and other 9 (6) Increase in
accrued salaries, wages and commissions 37 35 Changes in other
operating assets and liabilities, net 37 18
Net
cash provided by operating activities $ 315 $ 517
Investing
activities: Acquisitions of businesses, net of cash acquired,
and purchased software $ - $ (47) Purchases of property and
equipment (12) (14) Other investing activities (1)
(1)
Net cash used in investing activities $ (13) $ (62)
Financing activities: Dividends paid $ (106) $ (107)
Purchases of common stock (53) - Notional pooling borrowings, net -
15 Debt repayments (5) (1)
Net cash used in
financing activities $ (164) $ (93) Effect of exchange rate
changes on cash, cash equivalents and restricted cash $ 12 $ (119)
Increase in cash, cash equivalents and restricted cash $ 150
$ 243
Cash, cash equivalents and restricted cash at beginning of
period $ 2,824 $ 2,586
Cash, cash equivalents and restricted
cash at end of period $ 2,974 $ 2,829
Table 4 CA Technologies Operating
Segments (unaudited) (dollars in millions) Three Months
Ended December 31, 2017 Nine Months Ended December 31, 2017
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total Revenue (2) $ 552 $ 461 $ 80 $ 1,093 $
1,627 $ 1,295 $ 230 $ 3,152 Expenses (3) 197 408
78 683 572 1,169 226
1,967
Segment profit $ 355 $ 53 $ 2 $ 410 $ 1,055 $ 126 $ 4
$ 1,185
Segment operating margin 64% 11% 3% 38% 65% 10% 2%
38%
Segment profit $ 410 $ 1,185
Less:
Purchased software amortization 60 176 Other intangibles
amortization 11 31 Internally developed software products
amortization 8 29 Share-based compensation expense 28 89 Other
(gains) expenses, net (4) (4) 8 Interest expense, net 25
74
Income before income taxes $ 282 $ 778
Three Months Ended December 31, 2016
Nine Months Ended December 31, 2016
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total Revenue (2) $ 546 $ 389 $ 72 $ 1,007 $
1,647 $ 1,153 $ 224 $ 3,024 Expenses (3) 215 333
75 623 634 981 223 1,838
Segment profit $ 331 $ 56 $ (3) $ 384 $ 1,013 $ 172 $ 1 $
1,186
Segment operating margin 61% 14% -4% 38% 62% 15% 0%
39%
Segment profit $ 384 $ 1,186
Less:
Purchased software amortization 39 120 Other intangibles
amortization 4 13 Internally developed software products
amortization 18 62 Share-based compensation expense 26 80 Other
gains, net (4) (11) (9) Interest expense, net 16 45
Income before income taxes $ 292 $ 875 (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 December 31, Nine Months Ended December 31, 2017 2016
% Increase(Decrease)in $ US
% Increase(Decrease)in ConstantCurrency
(1)
2017 2016
% Increase(Decrease)in $ US
% Increase(Decrease)in ConstantCurrency
(1)
Bookings $ 1,128 $ 1,258 (10)% (12)% $ 2,551 $ 3,340
(24)% (24)%
Revenue: North America $ 717 $ 674 6% 6%
$ 2,099 $ 2,033 3% 3% International 376 333 13% 8%
1,053 991 6% 5% Total revenue $ 1,093 $ 1,007 9% 7% $
3,152 $ 3,024 4% 4%
Revenue: Subscription and
maintenance $ 843 $ 817 3% 1% $ 2,486 $ 2,467 1% 0% Professional
services 80 72 11% 9% 230 224 3% 2% Software fees and other
170 118 44% 43% 436 333 31% 30% Total revenue
$ 1,093 $ 1,007 9% 7% $ 3,152 $ 3,024 4% 4%
Segment
Revenue: Mainframe solutions $ 552 $ 546 1% 0% $ 1,627 $ 1,647
(1)% (2)% Enterprise solutions 461 389 19% 16% 1,295 1,153 12% 12%
Services 80 72 11% 9% 230 224 3% 2%
Total expenses before
interest and income taxes: Total GAAP $ 786 $ 699 12% 9% $
2,300 $ 2,104 9% 7% Total non-GAAP (2) 683 623 10% 7% 1,967 1,838
7% 6% (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 Nine Months Ended
December
31,
December
31,
2017
2016
2017
2016
GAAP net (loss) income $ (93) $ 208 $ 269 $ 618 GAAP income tax
expense 375 84 509 257 Interest expense, net 25 16
74 45 GAAP income before interest and income taxes $
307 $ 308 $ 852 $ 920 GAAP operating margin (% of revenue) (1) 28%
31% 27% 30% Non-GAAP adjustments to expenses: Costs of
licensing and maintenance (2) $ 1 $ 2 $ 5 $ 5 Cost of professional
services (2) 1 1 2 3 Amortization of capitalized software costs (3)
68 57 205 182 Selling and marketing (2) 9 9 29 28 General and
administrative (2) 10 8 33 27 Product development and enhancements
(2) 7 6 20 17 Depreciation and amortization of other intangible
assets (4) 11 4 31 13 Other expenses, net (5) (4)
(11) 8 (9) Total Non-GAAP adjustment to operating
expenses $ 103 $ 76 $ 333 $ 266 Non-GAAP income before interest and
income taxes $ 410 $ 384 $ 1,185 $ 1,186 Non-GAAP operating margin
(% of revenue) (6) 38% 38% 38% 39% Interest expense, net 25
16 74 45 GAAP income tax expense 375 84 509 257 Non-GAAP adjustment
to income tax expense (7) 14 21 87 69 Non-GAAP adjustment US Tax
Reform (8) (318) - (318) - Non-GAAP
income tax expense $ 71 $ 105 $ 278 $ 326 Non-GAAP net income $ 314
$ 263 $ 833 $ 815 (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 December 31, 2017 and 2016, non-GAAP
adjustment consists of $60 million and $39 million of purchased
software amortization and $8 million and $18 million of internally
developed software products amortization, respectively. For the
nine month periods ending December 31, 2017 and 2016, non-GAAP
adjustment consists of $176 million and $120 million of purchased
software amortization and $29 million and $62 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. (8) The Company’s
tax expense from enactment of the US Tax Reform in the third
quarter of fiscal 2018 was recorded as a discrete item in the third
quarter of fiscal 2018 only for purposes of the GAAP income tax
expense, and was excluded from the non-GAAP income tax expense.
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 Nine Months Ended
December
31,
December
31,
Operating
Expenses
2017
2016
2017
2016
Total expenses before interest and income taxes $ 786 $ 699
$ 2,300 $ 2,104 Non-GAAP operating adjustments: Purchased
software amortization 60 39 176 120 Other intangibles amortization
11 4 31 13 Internally developed software products amortization 8 18
29 62 Share-based compensation 28 26 89 80 Other (gains) expenses,
net (1) (4) (11) 8 (9) Total non-GAAP
operating adjustment $ 103 $ 76 $ 333 $ 266 Total non-GAAP
operating expenses $ 683 $ 623 $ 1,967 $ 1,838 Three
Months Ended Nine Months Ended
December
31,
December
31,
Diluted
EPS
2017
2016
2017
2016
GAAP diluted EPS $ (0.23) $ 0.50 $ 0.64 $ 1.47
Non-GAAP adjustments: Purchased software amortization 0.14 0.09
0.42 0.29 Other intangibles amortization 0.02 0.01 0.07 0.03
Internally developed software products amortization 0.02 0.04 0.07
0.15 Share-based compensation 0.07 0.06 0.21 0.19 Other expenses,
net (1) (0.01) (0.02) 0.02 (0.02) Tax effect of non-GAAP
adjustments (0.05) (0.05) (0.20) (0.19) Non-GAAP effective tax rate
adjustments (2) 0.79 - 0.75 0.02 Total
non-GAAP adjustment $ 0.98 $ 0.13 $ 1.34 $ 0.47 Non-GAAP
diluted EPS $ 0.75 $ 0.63 $ 1.98 $ 1.94 (1) Other expenses,
net consists of costs associated with certain foreign exchange
derivative hedging gains and losses, and other miscellaneous costs.
(2) 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
including the impact of discrete items in the period in which such
items arise and the effective tax rate for non-GAAP allocating the
impact of discrete items pro rata to the fiscal year's remaining
reporting periods. The non-GAAP effective tax rate is typically
equal to the full year GAAP effective tax rate, therefore no
adjustment is required on an annual basis. However, to minimize
certain distortions that otherwise would have resulted from
applying this methodology to the significant non-recurring impact
on the Company’s tax expense from enactment of the US Tax Reform in
the third quarter of fiscal 2018, such impact was recorded as a
discrete item in the third quarter of fiscal 2018 only for purposes
of the GAAP effective tax rate, but excluded from the non-GAAP
effective tax rate, which is anticipated to also yield different
full-year effective tax rates for the Company’s GAAP and non-GAAP
results in fiscal 2018. 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 Nine Months Ended
December 31,
2017
December 31,
2017
GAAP
Non-GAAP
GAAP
Non-GAAP
Income before interest and income taxes (1) $ 307 $ 410 $
852 $ 1,185 Interest expense, net 25 25 74
74 Income before income taxes $ 282 $ 385 $ 778 $ 1,111
Statutory tax rate 31.55% 31.55% 31.55% 31.55% Tax at
statutory rate $ 89 $ 121 $ 245 $ 351 Adjustments for discrete and
permanent items (2) 286 268 264 245 US Tax Reform Adjustment (2)
- (318) - (318) Total tax expense $ 375
$ 71 $ 509 $ 278 Effective tax rate (2) 132.98% 18.44%
65.42% 25.02% Three Months Ended Nine Months Ended
December 31,
2016
December 31,
2016
GAAP
Non-GAAP
GAAP
Non-GAAP
Income before interest and income taxes (1) $ 308 $ 384 $
920 $ 1,186 Interest expense, net 16 16 45
45 Income before income taxes $ 292 $ 368 $ 875 $ 1,141
Statutory tax rate 35.00% 35.00% 35.00% 35.00% Tax at
statutory rate $ 102 $ 129 $ 306 $ 399 Adjustments for discrete and
permanent items (2) (18) (24) (49) (73)
Total tax expense $ 84 $ 105 $ 257 $ 326 Effective tax rate
(2) 28.77% 28.53% 29.37% 28.57% (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 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 including the impact of discrete items in the period
in which such items arise and the effective tax rate for non-GAAP
allocating the impact of discrete items pro rata to the fiscal
year's remaining reporting periods. The non-GAAP effective tax rate
is typically equal to the full year GAAP effective tax rate,
therefore no adjustment is required on an annual basis. However, to
minimize certain distortions that otherwise would have resulted
from applying this methodology to the significant non-recurring
impact on the Company’s tax expense from enactment of the US Tax
Reform in the third quarter of fiscal 2018, such impact was
recorded as a discrete item in the third quarter of fiscal 2018
only for purposes of the GAAP effective tax rate, but excluded from
the non-GAAP effective tax rate, which is anticipated to also yield
different full-year effective tax rates for the Company’s GAAP and
non-GAAP results in fiscal 2018. 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 $ 1.00 to $ 1.10
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 (0.25) (0.25) Non-GAAP
effective tax rate adjustments (1) 0.78 0.74 Total
non-GAAP adjustment $ 1.54 $ 1.50 Projected non-GAAP diluted
EPS range $ 2.54 to $ 2.60 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% Fiscal Year Ending
Projected Effective
Tax Rate
March 31,
2018
Projected GAAP effective tax rate (1) 58% to 55% US Tax
Reform Adjustment (1) (33)% (30)% Projected non-GAAP
effective tax rate (1) 25% 25% (1) 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 including the impact of
discrete items in the period in which such items arise and the
effective tax rate for non-GAAP allocating the impact of discrete
items pro rata to the fiscal year's remaining reporting periods.
The non-GAAP effective tax rate is typically equal to the full year
GAAP effective tax rate, therefore no adjustment is required on an
annual basis. However, to minimize certain distortions that
otherwise would have resulted from applying this methodology to the
significant non-recurring impact on the Company’s tax expense from
enactment of the US Tax Reform in the third quarter of fiscal 2018,
such impact was recorded as a discrete item in the third quarter of
fiscal 2018 only for purposes of the GAAP effective tax rate, but
excluded from the non-GAAP effective tax rate, which is anticipated
to also yield different full-year effective tax rates for the
Company’s GAAP and non-GAAP results in fiscal 2018. 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/20180130006361/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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