- Third Quarter Results Consistent
With Company Expectations
- Third Quarter Revenue of $1,007
Million
- Third Quarter GAAP EPS of
$0.50
- Third Quarter Non-GAAP EPS of
$0.63
- Third Quarter Cash Flow From
Continuing Operations of $517 Million
CA Technologies (NASDAQ:CA) today reported financial results for
its third quarter fiscal 2017, which ended December 31,
2016.
Mike Gregoire, CA Technologies Chief Executive Officer,
said:
“I am pleased with the strong growth in cash flow from
operations as well as the healthy operating margin and earnings per
share we delivered in the third quarter. On a constant currency
basis, our revenue in the quarter came in as expected. The cadence
and quality of our product releases is improving and we are making
progress across a number of strategic imperatives, but we still
have work to do to achieve the level of sustainable growth we are
targeting.”
FINANCIAL OVERVIEW
(dollars in millions, except share
data)
Third Quarter FY17 vs. FY16 FY17
FY16 % Change % Change CC*
Revenue $1,007 $1,034 (3)% (2)% GAAP Income
from Continuing Operations $208 $219 (5)% (9)%
Non-GAAP Income from Continuing Operations* $263 $268
(2)% (3)% GAAP Diluted EPS from Continuing Operations $0.50
$0.52 (4)% (8)% Non-GAAP Diluted EPS from
Continuing Operations* $0.63 $0.63 0% (2)%
Cash Flow provided by Continuing Operations $517 $332
56% 57%
* 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
FY17 vs. FY16 FY17 % ofTotal
FY16 % ofTotal
%Change %Change CC* North
America Revenue $674 67% $702 68% (4)%
(4)% International Revenue $333 33% $332
32% 0% 1% Total Revenue $1,007
$1,034 (3)% (2)%
North America Bookings $809 64% $727
59% 11% 11% International Bookings $449 36%
$515 41% (13)% (12)% Total Bookings
$1,258 $1,242 1%
2%
Current Revenue Backlog $2,994
$3,030 (1)% 0% Total Revenue
Backlog $7,005 $6,800
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.
- Total revenue decreased due to
decline in subscription and maintenance revenue, professional
services revenue and software fees and other revenue.
- Total bookings increased primarily due
to an increase in enterprise solutions renewals, partially offset
by decreases in mainframe solutions renewals and enterprise
solutions new product sales.
- 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.
During the third quarter of fiscal 2016, the Company executed a
total of 18 license agreements with incremental contract values in
excess of $10 million each, for an aggregate contract value of $593
million.
- The weighted average duration of
subscription and maintenance bookings for the quarter was 3.32
years, compared with 3.76 years for the same period in fiscal
2016.
EXPENSES, MARGIN AND EARNINGS PER
SHARE
(dollars in millions)
Third Quarter
FY17 vs. FY16 FY17 FY16
%Change %Change CC**
GAAP Operating Expenses Before Interest and Income
Taxes $699 $741 (6)% (4)% Operating Income
Before Interest and Income Taxes $308 $293 5%
2% Diluted EPS from Continuing Operations $0.50 $0.52
(4)% (8)% Operating Margin 31% 28%
Effective Tax Rate 28.8% 21.2%
Non-GAAP* Operating Expenses Before Interest
and Income Taxes $623 $644 (3)% (2)% Operating
Income Before Interest and Income Taxes $384 $390
(2)% (2)% Diluted EPS from Continuing Operations $0.63
$0.63 0% (2)% Operating Margin 38% 38%
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
decreased primarily due to favorable foreign exchange and a decline
in legal settlement expense included within other (gains) expenses,
net, and a decrease in commission expense as a result of the
decline in total new product sales, partially offset by an increase
in personnel-related costs as a result of severance actions during
the third quarter of fiscal 2017.
- GAAP operating expenses were also
affected by lower amortization expenses of capitalized software and
other intangible assets.
- GAAP EPS was negatively impacted by
$0.05 from an increase in GAAP effective tax rate partially offset
by a $0.03 impact from improvement in GAAP operating margin
primarily due to an overall decrease in GAAP operating
expenses.
SELECTED HIGHLIGHTS FROM THE QUARTER
- At CA World last November, the Company
announced a series of new solutions across its Agile, DevOps,
Security and Mainframe portfolios, which included:
* A new identity-as-a-service solution to
address identity and access management (IAM) needs for both
on-premises and cloud-based applications.
* New DevOps capabilities with intelligent
analytics and integrations for cloud services and virtual
networks.
* Predictive analytics capabilities with
machine learning for the mainframe.
* Enhancements to its leading SaaS solution
purpose-built to scale agile practices.
- CA Technologies added new cloud-enabled
automation and orchestration capabilities across its portfolio and
increased its reach into the European market with the acquisition
of Automic Holding GmbH (Automic), a leader in business automation
software. The deal, valued at approximately 600 million euros net
of cash and cash equivalents acquired, closed earlier this month
and complements the company's organic innovation.
- CA Technologies was positioned highest
in the Gartner Leader’s Quadrant for Ability to Execute within the
Full Life Cycle API Management Magic Quadrant. (1)
- CA Technologies has been named a leader
in the Gartner Integrated IT Portfolio Analysis Applications Magic
Quadrant for the fifth consecutive year.(2)
- CA Technologies has been named a leader
in The Forrester Wave: API Management Solutions, Q4
2016.(3)
SEGMENT INFORMATION
(dollars in millions)
Third Quarter
FY17 vs. FY16 Revenue %Change
%Change CC* Operating
Margin FY17 FY16
FY17 FY16 Mainframe Solutions $546 $554
(1)% (1)% 61% 61% Enterprise Solutions
$389 $398 (2)% (2)% 14% 12%
Services $72 $82 (12)% (12)% -4%
6%
*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.
- Enterprise Solutions revenue declined
primarily due to a decrease in revenue recognized on an upfront
basis. Enterprise Solutions operating margin increased primarily
due to an overall decrease in operating expenses.
- Services revenue decreased primarily
due to a decline in professional services engagements from prior
periods. This decline in professional services engagements is a
result of several factors including the Company's products being
easier to install and manage, an increase in the use of partners
for services engagements and the completion of non-strategic
projects during previous periods. Operating margin for Services
decreased primarily due to the overall decline in professional
services revenue and an increase in personnel-related costs as a
result of severance actions during the third quarter of fiscal
2017.
CASH FLOW FROM OPERATIONS
- Cash flow from operations for the third
quarter of fiscal 2017 was $517 million, versus $332 million in the
year-ago period. Cash flow from operations increased compared
with the year-ago period primarily due to an increase in cash
collections, mainly from higher single installment collections, a
decrease in vendor disbursements and payroll, and a decrease in
other disbursements.
CAPITAL STRUCTURE
- Cash and cash equivalents at
December 31, 2016 were $2.828 billion.
- With $1.950 billion in total debt
outstanding and $139 million in notional pooling, the Company’s net
cash position was $739 million.
- Approximately 79% of the Company’s cash
and cash equivalents were held by foreign subsidiaries outside the
United States at December 31, 2016.
- As of December 31, 2016, the
Company was authorized to purchase $650 million of its common stock
under its current stock repurchase program.
- The Company distributed $107 million in
dividends to shareholders during the third quarter of fiscal
2017.
- The Company’s outstanding share count
at December 31, 2016 was 413 million.
OUTLOOK FOR FISCAL YEAR 2017
The Company has updated its fiscal 2017 outlook. This guidance
includes the acquisition of Automic, assumes no further material
acquisitions, and contains "forward-looking statements" (as defined
below).
The Company expects the following:*
- Total revenue to be flat as reported
and to increase in a range of flat to plus 1 percent in constant
currency. Previous guidance was to increase in a range of flat to
plus 1 percent as reported and in constant currency. At
December 31, 2016 exchange rates, this translates to reported
revenue of $4.01 billion to $4.03 billion.
- GAAP diluted earnings per share from
continuing operations to increase in a range of 1 percent to 4
percent as reported and flat to 2 percent in constant currency.
Previous guidance was to increase in a range of 6 percent to 8
percent as reported and 2 percent to 5 percent in constant
currency. At December 31, 2016 exchange rates, this translates
to reported GAAP diluted earnings per share from continuing
operations of $1.80 to $1.85.
- Non-GAAP diluted earnings per share
from continuing operations to be in a range of flat to plus 2
percent as reported and minus 2 percent to flat in constant
currency. Previous guidance was to increase in a range of 2 percent
to 5 percent as reported and 1 percent to 3 percent in constant
currency. At December 31, 2016 exchange rates, this translates
to reported non-GAAP diluted earnings per share from continuing
operations of $2.42 to $2.47.
- Cash flow from continuing operations to
change in a range of minus 5 percent to minus 1 percent as reported
and minus 3 percent to plus 1 percent in constant currency.
Previous guidance was to change in a range of minus 3 percent to
plus 1 percent as reported and in constant currency. At
December 31, 2016 exchange rates, this translates to reported
cash flow from continuing operations of $0.99 billion to $1.03
billion.
The Company expects a full-year GAAP operating margin of 28
percent and a full year non-GAAP operating margin of 37 percent,
which translates to a 1-point decrease from previous guidance for
both GAAP and non-GAAP operating margins.
The Company also expects a full-year GAAP and non-GAAP effective
tax rate of between 28 percent and 29 percent, unchanged from
previous guidance.
The Company anticipates approximately 413 million shares
outstanding at fiscal 2017 year-end and weighted average diluted
shares outstanding of approximately 415 million for the fiscal
year.
*In the outlook section, certain non-material differences
between growth rates and translated dollar amounts may arise from
impact of rounding.
Webcast
This news release and the accompanying tables should be read in
conjunction with additional content that is available on the
Company’s website, including a supplemental financial package, as
well as a conference call and webcast that the Company will host at
5:00 p.m. ET today to discuss its unaudited 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 Full Life Cycle
API Management, Paolo Malinverno and Mark O’Neill, October 27,
2016.
(2)
Gartner Magic Quadrant for Integrated IT
Portfolio Analysis Applications, Daniel Stang and Stefan Van Der
Zijden, November 22, 2016.
(1)(2)
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.
(3)
The Forrester Wave™: API Management
Solutions, Q4 2016, by Randy Heffner with Christopher Mines and
Amanda LeClair, November 14, 2016.
About CA Technologies
CA Technologies (NASDAQ: CA) creates software that fuels
transformation for companies and enables them to seize the
opportunities of the Application Economy. Software is at the heart
of every business in every industry. From planning, to development,
to management and security, CA is working with companies worldwide
to change the way we live, transact, and communicate - across
mobile, private and public cloud, distributed and mainframe
environments. Learn more at www.ca.com.
Follow CA Technologies
- Twitter
- Social Media
Page
- Press
Releases
- Blogs
Non-GAAP Financial Measures
This news release, the accompanying tables and the additional
content that is available on the Company's website, including a
supplemental financial package, include certain financial measures
that exclude the impact of certain items and therefore have not
been calculated in accordance with U.S. generally accepted
accounting principles (GAAP). Non-GAAP metrics for operating
expenses, operating income, operating margin, income from
continuing operations and diluted earnings per share exclude the
following items: non-cash amortization of purchased software,
internally developed software and other intangible assets;
share-based compensation expense; charges relating to rebalancing
initiatives that are large enough to require approval from the
Company's Board of Directors and certain other gains and losses,
which include the gains and losses since inception of hedges that
mature within the quarter, but exclude gains and losses of hedges
that do not mature within the quarter. The effective tax rate on
GAAP and non-GAAP income from operations is the Company's provision
for income taxes expressed as a percentage of pre-tax GAAP and
non-GAAP income from continuing operations, respectively. These tax
rates are determined based on an estimated effective full year tax
rate, with the effective tax rate for GAAP generally including the
impact of discrete items in the period in which such items arise
and the effective tax rate for non-GAAP generally allocating the
impact of discrete items pro rata to the fiscal year's remaining
reporting periods. The non-GAAP effective tax rate is equal to the
full year GAAP effective tax rate, therefore no adjustment is
required on an annual basis. Non-GAAP adjusted cash flow from
operations excludes payments associated with the fiscal 2014
Board-approved rebalancing initiative as described above and
restructuring and other payments. Non-GAAP free cash flow excludes
purchases of property and equipment. The Company presents constant
currency information to provide a framework for assessing how the
Company's underlying businesses performed excluding the effect of
foreign currency rate fluctuations. To present this information,
current and comparative prior period results for entities reporting
in currencies other than U.S. dollars are converted into U.S.
dollars at the exchange rate in effect on the last day of the
Company's prior fiscal year (i.e., March 31, 2016, March 31, 2015
and March 31, 2014, respectively). Constant currency excludes the
impacts from the Company's hedging program. The constant currency
calculation for annualized subscription and maintenance bookings is
calculated by dividing the subscription and maintenance bookings in
constant currency by the weighted average subscription and
maintenance duration in years. These non-GAAP financial measures
may be different from non-GAAP financial measures used by other
companies. Non-GAAP financial measures should not be considered as
a substitute for, or superior to, measures of financial performance
prepared in accordance with GAAP. By excluding these items,
non-GAAP financial measures facilitate management's internal
comparisons to the Company's historical operating results and cash
flows, to competitors' operating results and cash flows, and to
estimates made by securities analysts. Management uses these
non-GAAP financial measures internally to evaluate its performance
and they are key variables in determining management incentive
compensation. The Company believes these non-GAAP financial
measures are useful to investors in allowing for greater
transparency of supplemental information used by management in its
financial and operational decision-making. In addition, the Company
has historically reported similar non-GAAP financial measures to
its investors and believes that the inclusion of comparative
numbers provides consistency in its financial reporting. Investors
are encouraged to review the reconciliation of the non-GAAP
financial measures used in this news release to their most directly
comparable GAAP financial measures, which are attached to this news
release.
Cautionary Statement Regarding Forward-Looking
Statements
The declaration and payment of future dividends by the Company
is subject to the determination of the Company’s Board of
Directors, in its sole discretion, after considering various
factors, including the Company’s financial condition, historical
and forecasted operating results, and available cash flow, as well
as any applicable laws and contractual covenants and any other
relevant factors. The Company’s practice regarding payment of
dividends may be modified at any time and from time to time.
Repurchases under the Company’s stock repurchase program may be
made from time to time, subject to market conditions and other
factors, in the open market, through solicited or unsolicited
privately negotiated transactions or otherwise. The program does
not obligate the Company to acquire any particular amount of common
stock, and it may be modified or suspended at any time at the
Company’s discretion.
Certain statements in this news release (such as statements
containing the words "believes," "plans," "anticipates," "expects,"
"estimates," "targets" and similar expressions relating to the
future) constitute "forward-looking statements" that are based upon
the beliefs of, and assumptions made by, the Company's management,
as well as information currently available to management. These
forward-looking statements reflect the Company's current views with
respect to future events and are subject to certain risks,
uncertainties, and assumptions. A number of important factors could
cause actual results or events to differ materially from those
indicated by such forward-looking statements, including: the
ability to achieve success in the Company’s business strategy by,
among other things, ensuring that any new offerings address the
needs of a rapidly changing market while not adversely affecting
the demand for the Company’s traditional products or the Company’s
profitability to an extent greater than anticipated, enabling the
Company’s sales force to accelerate growth of sales to new
customers and expand sales with existing customers, including sales
outside of the Company’s renewal cycle and to a broadening set of
purchasers outside of traditional information technology operations
(with such growth and expansion at levels sufficient to offset any
decline in revenue and/or sales in the Company’s Mainframe
Solutions segment and in certain mature product lines in the
Company’s Enterprise Solutions segment), effectively managing the
strategic shift in the Company’s business model to develop more
easily installed software, provide additional SaaS offerings and
refocus the Company’s professional services and education
engagements on those engagements that are connected to new product
sales, without affecting the Company’s financial performance to an
extent greater than anticipated, and effectively managing the
Company’s pricing and other go-to-market strategies, as well as
improving the Company’s brand, technology and innovation awareness
in the marketplace; the failure to innovate or adapt to
technological changes and introduce new software products and
services in a timely manner; competition in product and service
offerings and pricing; the ability of the Company’s products to
remain compatible with ever-changing operating environments,
platforms or third party products; global economic factors or
political events beyond the Company’s control and other business
and legal risks associated with non-U.S. operations; the failure to
expand partner programs and sales of the Company’s solutions by the
Company’s partners; the ability to retain and attract qualified
professionals; general economic conditions and credit constraints,
or unfavorable economic conditions in a particular region, business
or industry sector; the ability to successfully integrate acquired
companies and products into the Company’s existing business; risks
associated with sales to government customers; breaches of the
Company’s data center, network, as well as the Company’s software
products, and the IT environments of the Company’s vendors and
customers; the ability to adequately manage, evolve and protect the
Company’s information systems, infrastructure and processes; the
failure to renew license transactions on a satisfactory basis;
fluctuations in foreign exchange rates; discovery of errors or
omissions in the Company’s software products or documentation and
potential product liability claims; the failure to protect the
Company’s intellectual property rights and source code; access to
software licensed from third parties; risks associated with the use
of software from open source code sources; third-party claims of
intellectual property infringement or royalty payments;
fluctuations in the number, terms and duration of the Company’s
license agreements, as well as the timing of orders from customers
and channel partners; events or circumstances that would require
the Company to record an impairment charge relating to the
Company’s goodwill or capitalized software and other intangible
assets balances; potential tax liabilities; changes in market
conditions or the Company’s credit ratings; changes in generally
accepted accounting principles; the failure to effectively execute
the Company’s workforce reductions, workforce rebalancing and
facilities consolidations; successful and secure outsourcing of
various functions to third parties; and other factors described
more fully in the Company’s other filings with the Securities and
Exchange Commission. Should one or more of these risks or
uncertainties occur, or should the Company’s assumptions prove
incorrect, actual results may vary materially from the
forward-looking information described herein as believed, planned,
anticipated, expected, estimated, targeted or similarly identified.
We do not intend to update these forward-looking statements, except
as otherwise required by law. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak
only as of the date hereof.
Copyright © 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 Nine Months Ended
December
31,
December
31,
Revenue:
2016
2015
2016
2015
Subscription and maintenance $ 817 $ 828 $ 2,467 $ 2,496
Professional services 72 82 224 244 Software fees and other
118 124 333 276
Total revenue $ 1,007 $
1,034 $ 3,024 $ 3,016
Expenses: Costs of licensing and
maintenance $ 68 $ 73 $ 202 $ 209 Cost of professional services 74
75 222 224 Amortization of capitalized software costs 57 65 182 192
Selling and marketing 270 277 747 751 General and administrative 85
90 257 279 Product development and enhancements 144 133 428 420
Depreciation and amortization of other intangible assets 18 27 56
83 Other (gains) expenses, net (17) 1 10
2
Total expenses before interest and income taxes $
699 $ 741 $ 2,104 $ 2,160
Income from continuing operations
before interest and income taxes $ 308 $ 293 $ 920 $ 856
Interest expense, net 16 15 45 36
Income from continuing operations before income taxes $ 292
$ 278 $ 875 $ 820 Income tax expense 84 59 257
222
Income from continuing operations $ 208 $ 219 $
618 $ 598 Income from discontinued operations, net of income taxes
$ - $ 4 $ - $ 11
Net income $ 208 $ 223 $ 618 $ 609
Basic income per common share: Income from continuing
operations $ 0.50 $ 0.52 $ 1.48 $ 1.37 Income from discontinued
operations - 0.01 - 0.03
Net
income $ 0.50 $ 0.53 $ 1.48 $ 1.40
Basic weighted average
shares used in computation 413 420 414 431
Diluted
income per common share: Income from continuing operations $
0.50 $ 0.52 $ 1.47 $ 1.37 Income from discontinued operations
- 0.01 - 0.03
Net income $ 0.50
$ 0.53 $ 1.47 $ 1.40
Diluted weighted average shares used in
computation 414 421 415 432
Table 2 CA
Technologies Condensed Consolidated Balance Sheets (in
millions) December 31, March 31, 2016 2016
(unaudited) Cash and cash equivalents $ 2,828 $ 2,812 Trade
accounts receivable, net 555 625 Other current assets 136
124
Total current assets $ 3,519 $ 3,561
Property and equipment, net $ 219 $ 242 Goodwill 6,118 6,086
Capitalized software and other intangible assets, net 627 795
Deferred income taxes 426 407 Other noncurrent assets, net
113 113
Total assets $ 11,022 $ 11,204 Current
portion of long-term debt $ 4 $ 6 Deferred revenue (billed or
collected) 1,917 2,197 Other current liabilities 698
691
Total current liabilities $ 2,619 $ 2,894
Long-term debt, net of current portion $ 1,946 $ 1,947 Deferred
income taxes 8 3 Deferred revenue (billed or collected) 651 737
Other noncurrent liabilities 222 245
Total
liabilities $ 5,446 $ 5,826 Common stock $ 59 $ 59
Additional paid-in capital 3,678 3,664 Retained earnings 6,872
6,575 Accumulated other comprehensive loss (518) (416) Treasury
stock (4,515) (4,504)
Total stockholders’
equity $ 5,576 $ 5,378
Total liabilities and stockholders’
equity $ 11,022 $ 11,204
Table 3 CA Technologies
Condensed Consolidated Statements of Cash Flows (unaudited)
(in millions) Three Months Ended
December
31,
2016
2015
Operating activities from continuing operations: Net income
$ 208 $ 223 Income from discontinued operations -
(4 ) Income from continuing operations $ 208 $ 219
Adjustments to reconcile income from
continuing operations to net cash provided by operating
activities:
Depreciation and amortization 75 92 Deferred income taxes (9 ) (25
) Provision for bad debts 1 (1 ) Share-based compensation expense
26 25 Other non-cash items 1 1 Foreign currency transaction gains
(4 ) (1 ) Changes in other operating assets and liabilities, net of
effect of acquisitions: Increase in trade accounts receivable (119
) (181 ) Increase in deferred revenue 230 143 Increase in taxes
payable, net 61 51 Decrease in accounts payable, accrued expenses
and other (6 ) (41 ) Increase in accrued salaries, wages and
commissions 35 23 Changes in other operating assets and liabilities
18 27
Net cash provided by operating
activities - continuing operations $ 517 $ 332
Investing activities from continuing operations:
Acquisitions of businesses, net of cash acquired, and purchased
software $ (47 ) $ (1 ) Purchases of property and equipment (14 )
(11 ) Other investing activities (1 ) -
Net
cash used in investing activities - continuing operations $ (62
) $ (12 )
Financing activities from continuing operations:
Dividends paid $ (107 ) $ (105 ) Purchases of common stock - (590 )
Notional pooling borrowings, net 15 10 Debt (repayments)
borrowings, net (1 ) 298 Debt issuance costs - (1 ) Exercise of
common stock options - 1 Other financing activities -
(5 )
Net cash used in financing activities - continuing
operations $ (93 ) $ (392 ) Effect of exchange rate changes on
cash $ (119 ) $ (37 )
Net change in cash and cash equivalents -
continuing operations $ 243 $ (109 ) Cash provided by operating
activities - discontinued operations $ - $ 4
Net
effect of discontinued operations on cash and cash equivalents
$ - $ 4
Increase (decrease) in cash and cash
equivalents $ 243 $ (105 )
Cash and cash equivalents at
beginning of period $ 2,585 $ 2,458
Cash and
cash equivalents at end of period $ 2,828 $ 2,353
Table 4 CA Technologies Operating Segments
(unaudited) (dollars in millions)
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 (loss) $ 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 from continuing operations before income taxes $ 292
$ 875 Three Months Ended
December 31, 2015 Nine Months Ended December 31, 2015
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total
MainframeSolutions (1)
EnterpriseSolutions (1)
Services (1) Total Revenue (2) $ 554 $ 398 $ 82 $ 1,034 $
1,668 $ 1,104 $ 244 $ 3,016 Expenses (3) 218 349
77 644 641 996 227 1,864
Segment profit $ 336 $ 49 $ 5 $ 390 $ 1,027 $ 108 $ 17 $
1,152
Segment operating margin 61% 12% 6% 38% 62% 10% 7% 38%
Segment profit $ 390 $ 1,152
Less: Purchased
software amortization 39 106 Other intangibles amortization 11 36
Internally developed software products amortization 26 86
Share-based compensation expense 25 70 Other gains, net (4) (4) (2)
Interest expense, net 15 36
Income from continuing
operations before income taxes $ 278 $ 820 (1) The
Company’s Mainframe Solutions and Enterprise Solutions segments
comprise its software business organized by the nature of the
Company’s software offerings and the platform on which the products
operate. The Services segment comprises product implementation,
consulting, customer education and customer training, including
those directly related to the Mainframe Solutions and Enterprise
Solutions software that the Company sells to its customers.
(2) The Company regularly enters into a single arrangement with a
customer that includes mainframe solutions, enterprise solutions
and services. The amount of contract revenue assigned to operating
segments is generally based on the manner in which the proposal is
made to the customer. The software product revenue is assigned to
the Mainframe Solutions and Enterprise Solutions segments based on
either: (1) a list price allocation method (which allocates a
discount in the total contract price to the individual products in
proportion to the list price of the product); (2) allocations
included within internal contract approval documents; or (3) the
value for individual software products as stated in the customer
contract. The price for the implementation, consulting, education
and training services is separately stated in the contract and
these amounts of contract revenue are assigned to the Services
segment. The contract value assigned to each operating segment is
then recognized in a manner consistent with the revenue recognition
policies the Company applies to the customer contract for purposes
of preparing the Consolidated Financial Statements. (3)
Segment expenses include costs that are controllable by segment
managers (i.e., direct costs) and, in the case of the Mainframe
Solutions and Enterprise Solutions segments, an allocation of
shared and indirect costs (i.e., allocated costs). Segment-specific
direct costs include a portion of selling and marketing costs,
licensing and maintenance costs, product development costs and
general and administrative costs. Allocated segment costs primarily
include indirect and non-segment specific direct selling and
marketing costs and general and administrative costs that are not
directly attributable to a specific segment. The basis for
allocating shared and indirect costs between the Mainframe
Solutions and Enterprise Solutions segments is dependent on the
nature of the cost being allocated and is either in proportion to
segment revenues or in proportion to the related direct cost
category. Expenses for the Services segment consist of cost of
professional services and other direct costs included within
selling and marketing and general and administrative expenses.
There are no allocated or indirect costs for the Services segment.
(4) Other gains, 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, 2016
2015 % Increase
(Decrease)
in $ US
% Increase(Decrease)in ConstantCurrency
(1)
2016 2015 % Increase
(Decrease)
in $ US
% Increase(Decrease)in ConstantCurrency
(1)
Bookings $ 1,258 $ 1,242 1% 2% $ 3,340 $ 3,287 2% 2%
Revenue: North America $ 674 $ 702 (4)% (4)% $ 2,033
$ 2,031 0% 0% International 333 332 0% 1% 991
985 1% 2% Total revenue $ 1,007 $ 1,034 (3)% (2)% $ 3,024 $
3,016 0% 1%
Revenue: Subscription and maintenance $
817 $ 828 (1)% (1)% $ 2,467 $ 2,496 (1)% (1)% Professional services
72 82 (12)% (12)% 224 244 (8)% (8)% Software fees and other
118 124 (5)% (6)% 333 276 21% 21% Total
revenue $ 1,007 $ 1,034 (3)% (2)% $ 3,024 $ 3,016 0% 1%
Segment Revenue: Mainframe solutions $ 546 $ 554 (1)% (1)% $
1,647 $ 1,668 (1)% (1)% Enterprise solutions 389 398 (2)% (2)%
1,153 1,104 4% 5% Services 72 82 (12)% (12)% 224 244 (8)% (8)%
Total expenses before interest and income taxes:
Total GAAP $ 699 $ 741 (6)% (4)% $ 2,104 $ 2,160 (3)% (1)% Total
non-GAAP (2) 623 644 (3)% (2)% 1,838 1,864 (1)% 0% (1)
Constant currency information is presented to provide a framework
for assessing how the Company's underlying businesses performed
excluding the effect of foreign currency rate fluctuations. To
present this information, current and comparative prior period
results for entities reporting in currencies other than U.S.
dollars are converted into U.S. dollars at the exchange rate in
effect on March 31, 2016, which was the last day of the prior
fiscal year. Constant currency excludes the impacts from the
Company's hedging program. (2) Refer to Table 7 for a
reconciliation of total expenses before interest and income taxes
to total non-GAAP operating expenses. Certain non-material
differences may arise versus actual from impact of rounding.
Table 6 CA Technologies Reconciliation of Select
GAAP Measures to Non-GAAP Measures (unaudited) (dollars in
millions) Three Months Ended
Nine Months Ended
December
31,
December
31,
2016
2015
2016
2015
GAAP net income $ 208 $ 223 $ 618 $ 609 GAAP income from
discontinued operations, net of income taxes - (4)
- (11) GAAP income from continuing operations $ 208 $
219 $ 618 $ 598 GAAP income tax expense 84 59 257 222 Interest
expense, net 16 15 45 36 GAAP income
from continuing operations before interest and income taxes $ 308 $
293 $ 920 $ 856 GAAP operating margin (% of revenue) (1) 31% 28%
30% 28% Non-GAAP adjustments to expenses: Costs of licensing
and maintenance (2) $ 2 $ 2 $ 5 $ 5 Cost of professional services
(2) 1 1 3 3 Amortization of capitalized software costs (3) 57 65
182 192 Selling and marketing (2) 9 9 28 25 General and
administrative (2) 8 9 27 25 Product development and enhancements
(2) 6 4 17 12 Depreciation and amortization of other intangible
assets (4) 4 11 13 36 Other gains, net (5) (11) (4)
(9) (2) Total Non-GAAP adjustment to operating
expenses $ 76 $ 97 $ 266 $ 296 Non-GAAP income from continuing
operations before interest and income taxes $ 384 $ 390 $ 1,186 $
1,152 Non-GAAP operating margin (% of revenue) (6) 38% 38% 39% 38%
Interest expense, net 16 15 45 36 GAAP income tax expense 84
59 257 222 Non-GAAP adjustment to income tax expense (7) 21
48 69 96 Non-GAAP income tax expense $ 105 $
107 $ 326 $ 318 Non-GAAP income from continuing operations $ 263 $
268 $ 815 $ 798 (1) GAAP operating margin is calculated by
dividing GAAP income from continuing operations before interest and
income taxes by total revenue (refer to Table 1 for total revenue).
(2) Non-GAAP adjustment consists of share-based
compensation. (3) For the three month periods ending
December 31, 2016 and 2015, non-GAAP adjustment consists of $39
million and $39 million of purchased software amortization and $18
million and $26 million of internally developed software products
amortization, respectively. For the nine month periods ending
December 31, 2016 and 2015, non-GAAP adjustment consists of $120
million and $106 million of purchased software amortization and $62
million and $86 million of internally developed software products
amortization, respectively. (4) Non-GAAP adjustment consists
of other intangibles amortization. (5) Non-GAAP adjustment
consists gains and losses since inception of hedges that mature
within the quarter, but excludes gains and losses of hedges that do
not mature within the quarter. (6) Non-GAAP operating margin
is calculated by dividing non-GAAP income from continuing
operations before interest and income taxes by total revenue (refer
to Table 1 for total revenue). (7) The full year non-GAAP
income tax expense is different from GAAP income tax expense
because of the difference in non-GAAP income from continuing
operations before income taxes. On an interim basis, this
difference would also include a difference in the impact of
discrete and permanent items where for GAAP purposes the effect is
recorded in the period such items arise, but for non-GAAP such
items are recorded pro rata to the fiscal year's remaining
reporting periods. Refer to the discussion of non-GAAP
financial measures included in the accompanying press release for
additional information. Certain non-material differences may
arise versus actual from impact of rounding.
Table 7 CA
Technologies Reconciliation of GAAP to Non-GAAP
Operating Expenses and Diluted Earnings per Share
(unaudited) (in millions, except per share amounts)
Three Months Ended Nine Months Ended
December
31,
December
31,
Operating
Expenses
2016
2015
2016
2015
Total expenses before interest and income taxes $ 699 $ 741
$ 2,104 $ 2,160 Non-GAAP operating adjustments: Purchased
software amortization 39 39 120 106 Other intangibles amortization
4 11 13 36 Internally developed software products amortization 18
26 62 86 Share-based compensation 26 25 80 70 Other gains, net (1)
(11) (4) (9) (2) Total non-GAAP
operating adjustment $ 76 $ 97 $ 266 $ 296 Total non-GAAP
operating expenses $ 623 $ 644 $ 1,838 $ 1,864 Three
Months Ended Nine Months Ended
December
31,
December
31,
Diluted EPS from
Continuing Operations
2016
2015
2016
2015
GAAP diluted EPS from continuing operations $ 0.50 $ 0.52 $
1.47 $ 1.37 Non-GAAP adjustments: Purchased software
amortization 0.09 0.09 0.29 0.24 Other intangibles amortization
0.01 0.03 0.03 0.08 Internally developed software products
amortization 0.04 0.06 0.15 0.20 Share-based compensation 0.06 0.06
0.19 0.16 Other (gains) expenses, net (1) (0.02) (0.01) (0.02) -
Tax effect of non-GAAP adjustments (0.05) (0.05) (0.19) (0.18)
Non-GAAP effective tax rate adjustments (2) - (0.07)
0.02 (0.04) Total non-GAAP adjustment $ 0.13 $ 0.11 $
0.47 $ 0.46 Non-GAAP diluted EPS from continuing operations
$ 0.63 $ 0.63 $ 1.94 $ 1.83 (1) Other (gains) 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 from continuing operations before
income taxes, and includes a difference in the impact of discrete
and permanent items where for GAAP purposes the effect is recorded
in the period such items arise but for non-GAAP purposes such items
are recorded pro rata to the fiscal year's remaining reporting
periods. Refer to the discussion of non-GAAP financial
measures included in the accompanying press release for additional
information. Certain non-material differences may arise
versus actual from impact of rounding.
Table 8 CA
Technologies Effective Tax Rate Reconciliation GAAP
and Non-GAAP (unaudited) (dollars in millions)
Three Months Ended Nine Months Ended
December 31,
2016
December 31,
2016
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income
taxes (1) $ 308 $ 384 $ 920 $ 1,186 Interest expense, net 16
16 45 45 Income from continuing operations
before income taxes $ 292 $ 368 $ 875 $ 1,141 Statutory tax
rate 35% 35% 35% 35% 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 (3) 28.8% 28.5% 29.4% 28.6%
Three Months Ended Nine Months Ended
December 31,
2015
December 31,
2015
GAAP
Non-GAAP
GAAP
Non-GAAP
Income from continuing operations before interest and income
taxes (1) $ 293 $ 390 $ 856 $ 1,152 Interest expense, net 15
15 36 36 Income from continuing operations
before income taxes $ 278 $ 375 $ 820 $ 1,116 Statutory tax
rate 35% 35% 35% 35% Tax at statutory rate $ 97 $ 131 $ 287
$ 391 Adjustments for discrete and permanent items (2) (38)
(24) (65) (73) Total tax expense $ 59 $ 107 $
222 $ 318 Effective tax rate (3) 21.2% 28.5% 27.1% 28.5% (1)
Refer to Table 6 for a reconciliation of income from
continuing operations before interest and income taxes on a GAAP
basis to income from continuing operations before interest and
income taxes on a non-GAAP basis. (2) The effective tax rate
for GAAP generally includes the impact of discrete and permanent
items in the period such items arise, whereas the effective tax
rate for non-GAAP generally allocates the impact of such items pro
rata to the fiscal year's remaining reporting periods. (3)
The effective tax rate on GAAP and non-GAAP income from continuing
operations is the Company's provision for income taxes expressed as
a percentage of GAAP and non-GAAP income from continuing operations
before income taxes, respectively. The non-GAAP effective tax rate
is equal to the full year GAAP effective tax rate. On an interim
basis, the effective tax rates are determined based on an estimated
effective full year tax rate after the adjustments for the impacts
of certain discrete items (such as changes in tax rates,
reconciliations of tax returns to tax provisions and resolutions of
tax contingencies). Refer to the discussion of non-GAAP
financial measures included in the accompanying press release for
additional information. Certain non-material differences may
arise versus actual from impact of rounding.
Table 9 CA
Technologies Reconciliation of Projected GAAP Metrics to
Projected Non-GAAP Metrics (unaudited) Fiscal
Year Ending
Projected Diluted
EPS from Continuing Operations
March 31,
2017
Projected GAAP diluted EPS from continuing operations range
$ 1.80 to $ 1.85 Non-GAAP adjustments: Purchased software
amortization 0.40 0.40 Other intangibles amortization 0.03 0.03
Internally developed software products amortization 0.19 0.19
Share-based compensation 0.25 0.24 Tax effect of non-GAAP
adjustments (0.25) (0.24) Total non-GAAP adjustment $
0.62 $ 0.62 Projected non-GAAP diluted EPS from continuing
operations range $ 2.42 to $ 2.47 Fiscal Year Ending
Projected Operating
Margin
March 31,
2017
Projected GAAP operating margin 28% Non-GAAP
operating adjustments: Purchased software amortization 4% Other
intangibles amortization 0% Internally developed software products
amortization 2% Share-based compensation 3% Total non-GAAP
operating adjustment 9% Projected non-GAAP operating margin
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/20170124006461/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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