CA Technologies Reports Fourth Quarter and Full Fiscal Year 2014 Results
(ENP Newswire Via Acquire Media NewsEdge) ENP Newswire - 16 May 2014
Release date- 15052014 - NEW YORK - CA Technologies (NASDAQ: CA) today reported financial results for its fourth quarter and full fiscal year 2014, ended March 31, 2014.
Note: All financial results have been adjusted to reflect the classification of the Company's ERwin Data Modeling Business as a discontinued operation as announced in Form 8-K filed on March 13, 2014.
Mike Gregoire, CA Technologies Chief Executive Officer, made the following comments:
'We concluded a year of significant transformation and strategic progress on our journey to build CA for growth and market leadership. We have successfully executed our rebalancing program, consolidated development resources in key hubs, shifted innovation investment to new growth markets, and renewed our focus on building and delivering excellent, differentiated solutions to our customers.
'Against this backdrop of activity, our continued focus on financial and operational execution resulted in a margin increase to 37 percent* and the attainment of all financial guidance measures for fiscal year 2014.
'As we look toward fiscal year 2015, we will remain laser-focused on driving execution, innovation and speed across the organization. Revenue is still not where we would like it to be, and we will not be satisfied until we are driving meaningful growth for our company and our shareholders. All 12,700 people across the Company are focused on the work ahead to position CA to win.'
*Reference is to non-GAAP operating margin
REVENUE AND BOOKINGS
The decrease in revenue was primarily attributable to a decrease in Enterprise Solutions new product sales in both the current and prior fiscal years.
The Company executed a total of 16 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $456 million. During the fourth quarter of fiscal 2013, the Company executed a total of 20 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $744 million, which included one contract of more than $200 million with a U.S. government agency.
The weighted average duration of subscription and maintenance bookings for the quarter was 3.15 years, compared with 3.78 years for the same period in fiscal 2013.
The decrease in revenue was primarily attributable to a decrease in fiscal 2014 and prior period Enterprise Solutions new product sales.
The increase in the Company's full year bookings was primarily due to a year-over-year increase in renewals within subscription and maintenance bookings. This was partially offset by a decrease in total new product and Mainframe Solutions capacity sales.
The Company executed a total of 54 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $1.973 billion. During fiscal 2013, the Company executed a total of 52 license agreements with incremental contract values in excess of $10 million each, for an aggregate contract value of $1.514 billion.
The weighted average duration of subscription and maintenance bookings for fiscal 2014 was 3.35 years, compared with 3.27 years for fiscal 2013.
EXPENSES AND MARGIN
GAAP operating income was negatively affected by $38 million, or $0.08 per diluted share, as a result of a decrease in the amount of capitalized software development costs. In addition, GAAP operating income was negatively affected by $37 million, or $0.07 per diluted share, as a result of costs associated with the Company's fiscal 2014 rebalancing plan (the Fiscal 2014 Plan).
This negative effect was partially offset by an impairment of $55 million, or $0.11 per diluted share, related to purchased software products recognized in the fourth quarter of fiscal 2013.
The decline in non-GAAP operating income was driven by an increase in external consulting and promotional expenses, and was partially offset by lower personnel costs.
GAAP EPS was negatively affected by $0.13 due to a higher effective tax rate. Non-GAAP EPS was positively affected by $0.03 due to a lower effective tax rate.
GAAP operating income was negatively affected by $171 million, or $0.27 per diluted share, as a result of expenses associated with the Fiscal 2014 Plan. In addition, GAAP operating income was negatively affected by $128 million, or $0.20 per diluted share, as a result of a decrease in the amount of capitalized software development costs.
Fiscal 2013 GAAP earnings included an impairment of $55 million, or $0.09 per diluted share, related to purchased software products recognized in the fourth quarter of fiscal 2013.
GAAP and non-GAAP operating expenses were positively affected by lower personnel costs, primarily within selling and marketing.
GAAP and non-GAAP EPS were positively affected by $0.31 and $0.48, respectively, due to a lower effective tax rate. The Company recognized a net benefit of approximately $168 million in fiscal 2014, primarily from the resolution of uncertain tax positions relating to U.S. and non-U.S. jurisdictions.
Starting in the first quarter of fiscal 2014, the measure of segment expenses and segment profit was revised to treat all costs of internal software development as segment expense in the period the costs are incurred. As a result, the Company will add back capitalized internal software costs and exclude amortization of internally developed software costs previously capitalized from segment expenses. Segment expenses also exclude the effects of the Fiscal 2014 Plan. Prior period segment expenses and profit information have been revised to present segment profit and expenses on a consistent basis.
The decrease in Enterprise Solutions revenue and operating margin was primarily due to lower new product sales in both the current and prior fiscal year.
The decrease in Services revenue was primarily due to a decrease in engagements relating to customer education and government agencies.
Enterprise Solutions revenue decreased compared with the year-ago period primarily due to a decrease in new product sales in both the current and prior fiscal year.
CASH FLOW FROM OPERATIONS
Cash flow from continuing operations in the fourth quarter was $483 million, compared with $565 million in the prior year. The decrease year-over-year was due to a decrease in cash collections from single installment payments of $90 million, payments related to the Fiscal 2014 Plan and a reduction in capitalized software development costs.
For the full year, cash flow from continuing operations was $997 million, compared with $1.390 billion in the prior year. The decrease year-over-year was due to a decrease in cash collections and a number of expected factors including higher cash taxes, payments related to the Fiscal 2014 Plan and a reduction in capitalized software development costs. The decrease in cash collections was primarily due to a decrease in cash collections from single installment payments of $170 million.
Cash, cash equivalents and investments at March 31, 2014 were $3.252 billion.
With $1.766 billion in total debt outstanding and $139 million in notional pooling, the Company's net cash, cash equivalents and investments position was $1.347 billion.
In the fourth quarter of fiscal 2014, the Company repurchased more than 5 million shares of stock for $167 million. For fiscal 2014, the Company repurchased 16 million shares of stock for $505 million.
At March 31, 2014, the Company has completed the purchases of its common stock under its stock repurchase program that was authorized in January 2012.
During the fourth quarter of fiscal 2014, the Company distributed $112 million in dividends to shareholders. For fiscal 2014, the Company distributed $453 million in dividends to shareholders.
The Company's outstanding share count at March 31, 2014 was 439 million.
NEW AUTHORIZED SHARE REPURCHASE PROGRAM
On May 14, 2014, the Company's Board of Directors approved a stock repurchase program that authorized the Company to acquire up to $1 billion of CA common stock. The Company expects to complete the program in approximately three years. The Company expects to fund the program with available cash on hand and repurchase shares on the open market, through solicited or unsolicited privately negotiated transactions or otherwise, from time to time, based on market conditions and other factors.
OUTLOOK FOR FISCAL 2015
The following outlook for fiscal 2015 contains 'forward-looking statements' (as defined below).
The Company expects the following:
Total revenue to decrease in a range of minus 2 percent to minus 1 percent in constant currency. At March 31, 2014 exchange rates, this translates to reported revenue of $4.43 billion to $4.49 billion.
GAAP diluted earnings per share from continuing operations to decrease in a range of minus 12 percent to minus 8 percent in constant currency. At March 31, 2014 exchange rates, this translates to reported GAAP diluted earnings per share of $1.79 to $1.86.
Non-GAAP diluted earnings per share from continuing operations to decrease in a range of minus 21 percent to minus 19 percent in constant currency. At March 31, 2014 exchange rates, this translates to reported non-GAAP diluted earnings per share of $2.45 to $2.52.
Cash flow from continuing operations to increase in a range of 5 percent to 12 percent in constant currency. At March 31, 2014 exchange rates, this translates to reported cash flow from continuing operations of $1.06 billion to $1.13 billion.
This outlook assumes no material acquisitions and a partial currency hedge of operating income. The Company expects a full-year GAAP operating margin of 28 percent and non-GAAP operating margin of 37 percent. The Company also expects to return to a normalized full-year GAAP and non-GAAP effective tax rate of about 30 percent, which results in a negative impact to GAAP and non-GAAP diluted earnings per share from continuing operations of approximately $0.42 and $0.58, respectively.
The Company anticipates approximately 436 million shares outstanding at fiscal 2015 year-end and weighted average diluted shares outstanding of approximately 442 million for the fiscal year.
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 live webcast that the Company will host at 8:30 a.m. ET today to discuss its unaudited fourth quarter and full fiscal year 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.
About CA Technologies
CA Technologies (NASDAQ: CA) provides IT management solutions that help customers manage and secure complex IT environments to support agile business services. Organizations leverage CA Technologies software and SaaS solutions to accelerate innovation, transform infrastructure and secure data and identities, from the data center to the cloud. Learn more about CA Technologies at www.ca.com.
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 and other intangibles, share-based compensation, fiscal 2007 restructuring costs, recoveries and certain costs associated with derivative litigation matters 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 will expense costs for internally developed software where development efforts commenced in the first quarter of fiscal 2014 and afterwards. As a result, product development and enhancement expenses are expected to increase in future periods as the amount capitalized for internally developed software costs decreases. Due to this change, the Company will also add back capitalized internal software costs and exclude the amortization of internal software costs from these non-GAAP metrics. Also beginning in the first quarter of fiscal 2014, the Company will exclude charges relating to rebalancing initiatives that are large enough to require approval from the Company's Board of Directors. 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. Adjusted cash flow from operations excludes payments associated with the fiscal 2014 Board-approved rebalancing initiative as described above, capitalized software development costs as described above, and restructuring and other payments. Free cash flow excludes purchases of property and equipment and capitalized software development costs. 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, 2014, March 31, 2013, March 31, 2012 and March 31, 2011, 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 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 forecast 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 are expected to be made with cash on hand and 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 communication (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 strategy by, among other things, effectively managing the Company's sales force to enable the Company to maintain and enhance its strong relationships in its traditional customer base and to increase penetration and accelerate growth in customer segments and geographic regions where the Company currently may not have a strong presence or the Company has underserved, enabling the sales force to sell new products, improving the Company's brand, technology and innovation awareness in the marketplace and ensuring the Company's set of cloud computing, application development and IT operations (DevOps), Software-as-a-Service, mobile device management and other new offerings address the needs of a rapidly changing market, while not adversely affecting the demand for the Company's traditional products or its profitability; global economic factors or political events beyond the Company's control; general economic conditions and credit constraints, or unfavorable economic conditions in a particular region, industry or business sector; the failure to innovate and/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 failure to expand partner programs; the ability to retain and attract adequate qualified personnel; the ability of the Company's products to remain compatible with ever-changing operating environments, platforms or third party products; the ability to successfully integrate acquired companies and products into the Company's existing business; the ability to adequately manage, evolve and protect the Company's information systems, infrastructure and processes; 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 vendors and customers; 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; 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; 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; the failure to renew large license transactions on a satisfactory basis; potential tax liabilities; changes in market conditions or the Company's credit ratings; fluctuations in foreign currencies; 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 those described herein as believed, planned, anticipated, expected, estimated, targeted or similarly expressed in a forward-looking manner. The Company assumes no obligation to update the information in this communication, 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 2014 CA, Inc. All Rights Reserved. All other trademarks, trade names, service marks, and logos referenced herein belong to their respective companies.
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