CA Technologies Reports Second Quarter Fiscal Year 2018 Results

CA Technologies reported financial results for its second quarter fiscal 2018, which ended September 30, 2017.

Mike Gregoire, CA Technologies Chief Executive Officer, said:

"I am pleased with the healthy operating margin and strong cash flow from operations growth we delivered in our second fiscal quarter.  Our products continue to earn positive recognition from third-party industry analysts, and I believe we are well positioned in important markets.  At the same time, there are areas of our business where we still need to improve.  We are taking steps to drive more consistent performance.  Looking ahead, I am optimistic about our ability to deliver long-term growth and profitability at CA.”

FINANCIAL OVERVIEW

* 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

*CC or Constant Currency is a non-GAAP financial measure, as noted in "Non-GAAP Financial Measures" below. A reconciliation of non-GAAP financial measures to their comparable GAAP financial measures is included in the tables following this news release.

• Total revenue increased primarily due to an increase in software fees and other revenue. Our fourth quarter fiscal 2017 acquisitions of Automic Holding GmbH (Automic) and Veracode, Inc. (Veracode) contributed approximately 5 points of revenue growth for the quarter.
•  Total bookings decreased primarily due to a decline in renewal bookings. Excluding our Automic and Veracode acquisitions, total bookings decreased by a percentage in the low teens.
• The Company executed a total of 9 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $175 million. During the second quarter of fiscal 2017, the Company executed a total of 11 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $209 million.
• The weighted average duration of subscription and maintenance bookings for the quarter was 2.79 years, compared with 2.99 years for the same period in fiscal 2017.

EXPENSES, MARGIN AND EARNINGS PER SHARE

*A reconciliation of non-GAAP financial measures to their comparable GAAP financial measures is included in the tables following this news release. Year-over-year non-GAAP results exclude purchased software and other intangibles amortization, share-based compensation, amortization of internal software costs, Board approved workforce rebalancing initiatives and certain other gains and losses.  The results also include gains and losses on hedges that mature within the quarter but exclude gains and losses on hedges that do not mature within the quarter.

**CC or Constant Currency is a non-GAAP financial measure, as noted in "Non-GAAP Financial Measures" below. A reconciliation of non-GAAP financial measures to their comparable GAAP financial measures is included in the tables following this news release.

• GAAP and non-GAAP operating expenses increased primarily due to costs from our Automic and Veracode acquisitions, which were mainly personnel-related, partially offset by decreases in non-acquisition-related costs, which included legal settlements and personnel-related, commission and promotion costs.
•        GAAP operating expenses were also affected by higher amortization expenses of purchased software and other intangible assets.
•        GAAP and non-GAAP EPS were negatively impacted by $0.03 from our acquisitions and $0.02 from an increase in interest expense.

SELECTED HIGHLIGHTS FROM THE QUARTER

•        CA Technologies (Automic) was named a Leader in the 2017 Gartner Magic Quadrant for Application Release Automation.
•        CA Technologies was named a Leader in The Forrester Wave™ Continuous Delivery and Release Automation, Q3 2017.
• CA Technologies was named a Leader in the IDC MarketScape: Worldwide Agile PPM 2017 Vendor Assessment.
•        CA Technologies was named an Overall Leader in KuppingerCole’s Leadership Compass report: Identity as a Service: Single Sign-On in the Cloud.

SEGMENT INFORMATION

*CC or Constant Currency is a non-GAAP financial measure, as noted in "Non-GAAP Financial Measures" below. A reconciliation of non-GAAP financial measures to their comparable GAAP financial measures is included in the tables following this news release.

• Mainframe Solutions revenue declined primarily due to insufficient revenue from prior period new sales to offset the decline in revenue contribution from renewals. Mainframe Solutions operating margin increased primarily due to lower expenses as a result of the Mainframe Solutions portion of the litigation settlement costs incurred in the second quarter of fiscal 2017.
•        Enterprise Solutions revenue increased due to revenue generated from our Automic and Veracode acquisitions which contributed approximately 12 points of revenue growth for the quarter. Enterprise Solutions operating margin decreased primarily due to costs associated with our Automic and Veracode acquisitions, which were mainly personnel-related.
•        Services revenue was consistent primarily due to professional services revenue generated from our Automic and Veracode acquisitions, offset by a decline in non-acquisition-related professional services engagements. Operating margin for Services was generally consistent compared with the year-ago period.

CASH FLOW FROM OPERATIONS

•        Cash flow provided by operations for the second quarter of fiscal 2018 was $37 million, versus cash flow used in operations of $53 million in the year-ago period. Cash flow from operations increased compared with the year-ago period due to an increase in cash collections from Billings, which included higher single instalment collections, and lower cash tax payments.

CAPITAL STRUCTURE

•        Cash and cash equivalents at September 30, 2017, were $2.822 billion.
•        With $2.785 billion in total debt outstanding and $137 million in notional pooling, the Company’s net debt position was $100 million.
•        Approximately 66% of the Company’s cash and cash equivalents were held by foreign subsidiaries outside the United States at September 30, 2017.
•        In the second quarter of fiscal 2018, the Company repurchased 2.8 million shares of its common stock for $90 million.
•        As of September 30, 2017, the Company was authorized to purchase $560 million of its common stock under its current stock repurchase program.
•        The Company distributed $108 million in dividends to stockholders during the second quarter of fiscal 2018.
•        The Company’s outstanding share count at September 30, 2017 was approximately 414 million.

Outlook For The fiscal year 2018

The Company reaffirmed its fiscal 2018 outlook as described below. This guidance assumes no material acquisitions and contains "forward-looking statements" (as defined below).

The Company expects the following:*

• Total revenue to increase approximately 5 percent as reported and approximately 4 percent in constant currency. Previous guidance was to increase approximately 4 percent as reported and in constant currency.  At September 30, 2017, exchange rates, this translates to reported revenue of $4.22 billion to $4.25 billion.
• Full-year GAAP operating margin between 26 percent and 27 percent.  Full year non-GAAP operating margin between 36 percent and 37 percent. The Company also expects a full-year GAAP and a non-GAAP effective tax rate of between 28 percent and 29 percent.
•  GAAP diluted earnings per share to decrease in a range of 8 percent to 5 percent as reported and in constant currency. At September 30, 2017, exchange rates, this translates to reported GAAP diluted earnings per share of $1.70 to $1.76.
• Non-GAAP diluted earnings per share to decrease in a range of 2 percent to flat as reported and in constant currency. At September 30, 2017, exchange rates, this translates to reported non-GAAP diluted earnings per share of $2.42 to $2.48.
• Approximately 412 million shares outstanding at fiscal 2018 year-end and weighted average diluted shares outstanding of approximately 415 million for fiscal 2018.
• Cash flow to increase in a range of 2 percent to 6 percent as reported and flat to 4 percent in constant currency. Previous guidance was to increase in a range of 1 percent to 5 percent as reported and flat to 4 percent in constant currency. At September 30, 2017 exchange rates, this translates to reported cash flow from operations of $1.10 billion to $1.15 billion.

*In the outlook section, certain non-material differences between growth rates and translated dollar amounts may arise from the impact of rounding.