Acquisition Will Deliver Speed and Security
from App Development to Production, Bridges CA Security Business
with its Broad DevOps Portfolio
CA Technologies (NASDAQ:CA) today announced it has signed a
definitive agreement to acquire Veracode, a leader in securing web,
mobile and third-party applications across the software development
lifecycle, for approximately $614 million in cash. The transaction
is expected to close in the first quarter of fiscal year 2018, and
is subject to customary closing conditions, including regulatory
approvals.
The combination of CA’s portfolio with privately-held Veracode
will establish CA Technologies as a leader in the Secure DevOps
market through the automation and scaling of application security
testing (AST) to develop and deploy applications faster with fewer
defects. With Veracode, CA Technologies bridges its Security
business with its broad DevOps portfolio and adds to its growing
SaaS business. Veracode extends CA’s go-to-market strategy into
midsize enterprise customers while CA accelerates Veracode’s global
reach into larger enterprise customers.
“Security testing is growing faster than any other security
market, as AST solutions adapt to new development methodologies and
increased application complexity. Security and risk management
leaders must integrate AST into their application security
programs.”* Increased deployment of web and cloud-based business
applications has further propelled the market growth. “By 2019,
more than 50 percent of enterprise DevOps initiatives will have
incorporated application security testing for custom code, up from
less than 10% in 2016.”**
“Software is at the heart of every company’s digital
transformation. Therefore, it’s increasingly important for them to
integrate security at the start of their development processes, so
they can respond to market opportunities in a secure manner,” said
Ayman Sayed, President and Chief Product Officer, CA Technologies.
“This acquisition will unify CA’s Security and DevOps portfolios
with a SaaS-based platform that seamlessly integrates security into
the software development process. Looking holistically at our
portfolio, now with Veracode and Automic, we have accelerated the
growth profile of our broad set of solutions. We now expect that
the size of our growing solutions within our Enterprise Solutions
portfolio will eclipse the more mature part of the Enterprise
Solutions portfolio in FY19.”
The ability to deliver Identity and Access Management, DevOps
tools and automation capabilities with SaaS-based application
security, allows CA to offer enterprises of all sizes a faster
time-to-value from their software investments.
Digital transformation requires an integrated and agile approach
to security. Code-vulnerability risk is mitigated and time spent
identifying and fixing security issues in production is reduced
when security testing is shifted earlier into the application
development process. According to data from the National Institute
of Standards and Technology, “it's 30x more expensive to fix a
vulnerability during post-production than during the design,
requirement identification and architecture stage.”
Named a leader in the Gartner Magic Quadrant for Application
Security Testing***, Veracode’s solution enables automated,
on-demand application security testing starting at the earliest
phases of the development lifecycle to improve testing speed,
address security concerns in production, and eliminate risk. In
addition to dynamic application testing, the SaaS-based application
security testing software and solutions also perform static testing
to detect potential vulnerabilities in custom code, third party
applications and open-source components.
“We provide over 1400 small and large enterprise customers the
security they need to confidently innovate with the web and mobile
applications they build, buy and assemble, as well as the
components they integrate into their environments,” said Bob
Brennan, CEO, Veracode. “By joining forces with CA Technologies, we
will continue to better address growing security concerns, and
enable them to accelerate delivery of secure software applications
that can create new business value.”
Founded in 2006, Veracode has offices in Burlington, MA and
London and has over 500 employees worldwide.
Expected Financial Impact
Assuming the transaction closes in early April, CA Technologies
preliminary expectation is that the acquisition will:
- Add two to three percentage points of
revenue, both as reported and in constant currency. As a result,
fiscal year 2018 total revenue is expected to increase in the range
of 1 percent to 3 percent as reported, or 2 percent to 4 percent in
constant currency. At December 31, 2016 exchange rates, this
translates to reported revenue of $4.06 billion to $4.14
billion.
- Impact GAAP and non-GAAP total company
operating margins, such that fiscal year 2018 GAAP operating
margins are expected to be in the range of 26 percent to 27 percent
and non-GAAP operating margins are expected to be approximately 36
percent.
- Have a modestly adverse impact on GAAP
and non-GAAP diluted earnings per share, and cash flow from
operations, both as reported and in constant currency in fiscal
year 2018 and fiscal year 2019.
- Be accretive to net income in fiscal
year 2020.
The combination of acquisition-related expenses and purchase
accounting adjustments, in addition to the structurally lower
margin profile of the SaaS business model, is expected to impact
CA’s fiscal year 2018 and fiscal year 2019 results.
*Gartner, Gartner, Inc., “Magic Quadrant for Application
Security Testing,” Dionisio Zumerle, Ayal Tirosh, February 28,
2017.**Gartner, DevSecOps: How to Seamlessly Integrate Security
Into DevOps, Neil MacDonald and Ian Head, September 30,
2016.***Gartner, Gartner, Inc., “Magic Quadrant for Application
Security Testing,” Dionisio Zumerle, Ayal Tirosh, February 28,
2017.
Gartner Disclaimer
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.
Please see below for information regarding non-GAAP financial
measures, the cautionary statement regarding forward-looking
statements, and the reconciliation of projected GAAP metrics to
projected non-GAAP metrics.
Non-GAAP Financial Measures
This news release includes 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 CA’s (hereinafter,
the “Company”) 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 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). Constant currency excludes the impacts from
the Company’s hedging program. 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.
Cautionary Statement Regarding Forward-Looking
Statements
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 consummate the Veracode acquisition; the risk that the
conditions to the closing of the Veracode acquisition, including
regulatory approvals, are not satisfied; potential adverse
reactions or changes to customer, supplier, partner or employee
relationships, including those resulting from the announcement or
completion of the Veracode acquisition; uncertainties as to the
timing of the Veracode acquisition; uncertainty of the expected
financial performance of the Company following completion of the
proposed Veracode acquisition; the ability to successfully
integrate Veracode’s operations and employees in a timely manner;
the ability to realize anticipated synergies, cost savings and
operational efficiencies from the Veracode acquisition; 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 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.
The Company does 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.
Table 1
CA Technologies Reconciliation of Projected GAAP Metrics
to Projected Non-GAAP Metrics (unaudited)
Fiscal Year Ending
Projected Operating
Margin
March 31,
2018
Projected GAAP operating margin 26% to 27% Non-GAAP
operating adjustments: Purchased software amortization 6% 5% Other
intangibles amortization 0% 0% Internally developed software
products amortization 1% 1% Share-based compensation 3% 3% Total
non-GAAP operating adjustment 10% to 9% Projected
non-GAAP operating margin 36% to 36%
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.
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Copyright © 2017 CA, Inc. All Rights Reserved. All trademarks,
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their respective companies.
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version on businesswire.com: http://www.businesswire.com/news/home/20170306006315/en/
PressCA TechnologiesLeanne Agurkis, 407-620 2136Solutions
PRLeanne.agurkis@ca.comorCA TechnologiesRita O’Brien,
631-342-6687Corporate Communicationsrita.obrien@ca.comorCA
TechnologiesTraci Tsuchiguchi, 650-534-9814Vice President, Investor
Relationstraci.tsuchiguchi@ca.comorCA TechnologiesStefan Putyera,
631-342-4710Senior Principal, Investor
RelationsStefan.putyera@ca.com
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