CA
$33.71
CA
$.52
1.57%
Earnings Details
2nd Quarter September 2017
Wednesday, October 25, 2017 4:07:00 PM
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Summary

CA Misses

CA (CA) reported 2nd Quarter September 2017 earnings of $0.57 per share on revenue of $1.0 billion. The consensus earnings estimate was $0.58 per share on revenue of $1.1 billion. The Earnings Whisper number was $0.60 per share. Revenue grew 1.6% on a year-over-year basis.

The company said it continues to expect fiscal 2018 non-GAAP earnings of $2.42 to $2.48 per share and now expects revenue of $4.22 billion to $4.25 billion. The company's previous guidance was revenue of $4.20 billion to $4.23 billion and the current consensus earnings estimate is $2.46 per share on revenue of $4.21 billion for the year ending March 31, 2018.

CA Inc is a provider of enterprise information technology (IT) software and solution. It develops and delivers software and services that help organizations manage and secure their IT infrastructures and deliver more flexible IT services.

Results
Reported Earnings
$0.57
Earnings Whisper
$0.60
Consensus Estimate
$0.58
Reported Revenue
$1.03 Bil
Revenue Estimate
$1.05 Bil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

CA Technologies Reports Second Quarter Fiscal Year 2018 Results

Second Quarter Revenue of $1,034 Million

--Second Quarter GAAP EPS of $0.44

--Second Quarter Non-GAAP EPS of $0.62

--Second Quarter Cash Flow From Operations of $37 Million

CA Technologies (CA) today 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
(dollars in millions, except share data)
Second Quarter FY18 vs. FY17
FY18
FY17
% Change
% Change
CC*
Revenue
$1,034
$1,018
2%
1%
GAAP Net Income
$184
$212
(13)%
(11)%
Non-GAAP Net Income*
$263
$283
(7)%
(6)%
GAAP Diluted EPS
$0.44
$0.50
(12)%
(10)%
Non-GAAP Diluted EPS*
$0.62
$0.67
(7)%
(6)%
Cash Flow provided by (used in) Operations
$37
($53)
170%
154%
* 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)
Second Quarter FY18 vs. FY17
FY18
% of
FY17
% of
%
%
Total
Total
Change
Change
CC*
North America Revenue
$692
67%
$690
68%
0%
0%
International Revenue
$342
33%
$328
32%
4%
2%
Total Revenue
$1,034
$1,018
2%
1%
North America Bookings
$477
66%
$479
66%
0%
0%
International Bookings
$243
34%
$250
34%
(3)%
(6)%
Total Bookings
$720
$729
(1)%
(2)%
Current Revenue Backlog
$3,163
$2,945
7%
6%
Total Revenue Backlog
$7,013
$6,858
2%
1%
*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
(dollars in millions)
Second Quarter FY18 vs. FY17
FY18
FY17
%
%
Change
Change
CC**
GAAP
Operating Expenses Before Interest and Income Taxes
$752
$698
8%
6%
Operating Income Before Interest and Income Taxes
$282
$320
(12)%
(10)%
Diluted EPS
$0.44
$0.50
(12)%
(10)%
Operating Margin
27%
31%
Effective Tax Rate
28.7%
30.7%
Non-GAAP*
Operating Expenses Before Interest and Income Taxes
$642
$608
6%
4%
Operating Income Before Interest and Income Taxes
$392
$410
(4)%
(4)%
Diluted EPS
$0.62
$0.67
(7)%
(6)%
Operating Margin
38%
40%
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 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. (1)

CA Technologies was named a Leader in The Forrester Wave(TM) Continuous Delivery and Release Automation, Q3 2017. (2)

CA Technologies was named a Leader in the IDC MarketScape: Worldwide Agile PPM 2017 Vendor Assessment.(3)

CA Technologies was named an Overall Leader in KuppingerCole’s Leadership Compass report: Identity as a Service: Single Sign-On in the Cloud. (4)

SEGMENT INFORMATION
(dollars in millions)
Second Quarter FY18 vs. FY17
Revenue
%
%
Operating Margin
Change
Change
CC*
FY18
FY17
FY18
FY17
Mainframe Solutions
$539
$550
(2)%
(3)%
65%
62%
Enterprise Solutions
$420
$393
7%
6%
10%
18%
Services
$75
$75
0%
0%
1%
3%
*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 installment 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 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 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 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 second 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 Application Release Automation, by
Colin Fletcher and Laurie F. Wurster, September 27, 2017
The Gartner Report(s) described herein, (the "Gartner Report(s)")
represent(s) research opinion or viewpoints published, as part of a
syndicated subscription service, by Gartner, Inc. ("Gartner"), and
are not representations of fact. Each Gartner Report speaks as of
its original publication date (and not as of the date of this
Quarterly Report) and the opinions expressed in the Gartner
Report(s) are subject to change without notice.
Gartner does not endorse any vendor, product or service depicted
in its research publications, and does not advise technology users
to select only those vendors with the highest ratings or other
designation. Gartner research publications consist of the opinions
of Gartner’s research organization and should not be construed as
statements of fact. Gartner disclaims all warranties, expressed or
implied, with respect to this research, including any warranties of
merchantability or fitness for a particular purpose.
(2)
Forrester Research, The Forrester Wave(TM): Continuous Delivery And
Release Automation, Q3 2017, by Stroud, Gardner, et al., August 30,
2017
(3)
IDC MarketScape: Worldwide Agile PPM 2017 Vendor Assessment -
Enabling Adaptive Planning for Emerging Markets, DevOps, and IoT,
July 2017, IDC #US40913616
About IDC MarketScape: IDC MarketScape vendor analysis model is
designed to provide an overview of the competitive fitness of ICT
(information and communications technology) suppliers in a given
market. The research methodology utilizes a rigorous scoring
methodology based on both qualitative and quantitative criteria that
results in a single graphical illustration of each vendor’s position
within a given market. IDC MarketScape provides a clear framework in
which the product and service offerings, capabilities and
strategies, and current and future market success factors of IT and
telecommunications vendors can be meaningfully compared. The
framework also provides technology buyers with a 360-degree
assessment of the strengths and weaknesses of current and
prospective vendors.
(4)
KuppingerCole Leadership Compass: Identity as a Service: Single
Sign-On to the Cloud (IDaaS SSO), June 2017

About CA Technologies

CA Technologies (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, net income, and diluted earnings per share exclude the following items: non-cash amortization of purchased software, internally developed software and other intangible assets; share-based compensation expense; charges relating to rebalancing initiatives that are large enough to require approval from the Company’s Board of Directors and certain other gains and losses, which include the gains and losses since inception of hedges that mature within the quarter, but exclude gains and losses of hedges that do not mature within the quarter. The effective tax rate on GAAP and non-GAAP income from operations is the Company’s provision for income taxes expressed as a percentage of pre-tax GAAP and non-GAAP income from operations, respectively. These tax rates are determined based on an estimated effective full year tax rate, with the effective tax rate for GAAP 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 Board-approved rebalancing initiative, restructuring and other payments. Non-GAAP free cash flow excludes purchases of property and equipment. The Company presents constant currency information to provide a framework for assessing how the Company’s underlying businesses performed excluding the effect of foreign currency rate fluctuations. To present this information, current and comparative prior period results for entities reporting in currencies other than U.S. dollars are converted into U.S. dollars at the exchange rate in effect on the last day of the Company’s prior fiscal year (i.e., March 31, 2017, March 31, 2016 and March 31, 2015, respectively). Constant currency excludes the impacts from the Company’s hedging program. The constant currency calculation for annualized subscription and maintenance bookings is calculated by dividing the subscription and maintenance bookings in constant currency by the weighted average subscription and maintenance duration in years. These non-GAAP financial measures may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for, or superior to, measures of financial performance prepared in accordance with GAAP. By excluding these items, non-GAAP financial measures facilitate management’s internal comparisons to the Company’s historical operating results and cash flows, to competitors’ operating results and cash flows, and to estimates made by securities analysts. Management uses these non-GAAP financial measures internally to evaluate its performance and they are key variables in determining management incentive compensation. The Company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency of supplemental information used by management in its financial and operational decision-making. In addition, the Company has historically reported similar non-GAAP financial measures to its investors and believes that the inclusion of comparative numbers provides consistency in its financial reporting. Investors are encouraged to review the reconciliation of the non-GAAP financial measures used in this news release to their most directly comparable GAAP financial measures, which are attached to this news release.

Cautionary Statement Regarding Forward-Looking 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 Software-as-a-Service offerings and refocus the Company’s professional services and education engagements on those engagements that are connected to new product sales, without affecting the Company’s financial performance to an extent greater than anticipated, and effectively managing the Company’s pricing and other go-to-market strategies, as well as improving the Company’s brand, technology and innovation awareness in the marketplace; the failure to innovate or adapt to technological changes and introduce new software products and services in a timely manner; competition in product and service offerings and pricing; the ability of the Company’s products to remain compatible with ever-changing operating environments, platforms or third party products; global economic factors or political events beyond the Company’s control and other business and legal risks associated with global operations; the failure to expand partner programs and sales of the Company’s solutions by the Company’s partners; the ability to retain and attract qualified professionals; general economic conditions and credit constraints, or unfavorable economic conditions in a particular region, business or industry sector; the ability to successfully integrate acquired companies and products into the Company’s existing business; risks associated with sales to government customers; breaches of the Company’s data center, network and software products, and the IT environments of the Company’s business partners and customers; the ability to adequately manage, evolve and protect the Company’s information systems, infrastructure and processes; the failure to renew license agreement transactions on a satisfactory basis; fluctuations in foreign exchange rates; changes in generally accepted accounting principles, which includes adoption of revenue recognition requirements under Accounting Standards Codification Topic 606; discovery of errors or omissions in the Company’s software products or documentation and potential product liability claims; the failure to protect the Company’s intellectual property rights and source code; access to software licensed from third parties; risks associated with the use of software from open source code sources; third-party claims of intellectual property infringement and/or royalty payments; fluctuations in the number, terms and duration of the Company’s license agreements, as well as the timing of orders from customers and partners; potential tax liabilities; changes in market conditions or the Company’s credit ratings; events or circumstances that would require the Company to record an impairment charge relating to the Company’s goodwill or capitalized software and other intangible assets balances; successful and secure outsourcing of various functions to third parties; and other factors described more fully in the Company’s other filings with the Securities and Exchange Commission. Should one or more of these risks or uncertainties occur, or should the Company’s assumptions prove incorrect, actual results may vary materially from the forward-looking information described herein as believed, planned, anticipated, expected, estimated, targeted or similarly identified. We do not intend to update these forward-looking statements, except as otherwise required by law. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof.

Copyright (C) 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
Six Months Ended
September 30,
September 30,
Revenue:
2017
2016
2017
2016
Subscription and maintenance
$
826
$
824
$ 1,643
$ 1,650
Professional services
75
75
150
152
Software fees and other
133
119
266
215
Total revenue
$ 1,034
$ 1,018
$ 2,059
$ 2,017
Expenses:
Costs of licensing and maintenance
$
73
$
66
$
144
$
134
Cost of professional services
74
73
147
148
Amortization of capitalized software costs
67
59
137
125
Selling and marketing
244
235
490
477
General and administrative
97
84
204
172
Product development and enhancements
161
136
319
284
Depreciation and amortization of other intangible assets
27
18
53
38
Other expenses, net
9
27
20
27
Total expenses before interest and income taxes
$
752
$
698
$ 1,514
$ 1,405
Income before interest and income taxes
$
282
$
320
$
545
$
612
Interest expense, net
24
14
49
29
Income before income taxes
$
258
$
306
$
496
$
583
Income tax expense
74
94
134
173
Net income
$
184
$
212
$
362
$
410
Basic income per common share
$
0.44
$
0.50
$
0.86
$
0.98
Basic weighted average shares used in computation
415
414
415
414
Diluted income per common share
$
0.44
$
0.50
$
0.86
$
0.98
Diluted weighted average shares used in computation
416
415
416
415
Table 2
CA Technologies
Condensed Consolidated Balance Sheets
(in millions)
September 30,
March 31,
2017
2017
(unaudited)
Cash and cash equivalents
$
2,822
$
2,771
Trade accounts receivable, net
457
764
Other current assets
178
198
Total current assets
$
3,457
$
3,733
Property and equipment, net
$
230
$
237
Goodwill
6,883
6,857
Capitalized software and other intangible assets, net
1,247
1,307
Deferred income taxes
336
327
Other noncurrent assets, net
160
149
Total assets
$ 12,313
$ 12,610
Current portion of long-term debt
$
268
$
18
Deferred revenue (billed or collected)
1,909
2,222
Other current liabilities
622
766
Total current liabilities
$
2,799
$
3,006
Long-term debt, net of current portion
$
2,517
$
2,773
Deferred income taxes
132
119
Deferred revenue (billed or collected)
708
794
Other noncurrent liabilities
222
229
Total liabilities
$
6,378
$
6,921
Common stock
$
59
$
59
Additional paid-in capital
3,687
3,702
Retained earnings
7,070
6,923
Accumulated other comprehensive loss
(351 )
(483 )
Treasury stock
(4,530 )
(4,512 )
Total stockholders’ equity
$
5,935
$
5,689
Total liabilities and stockholders’ equity
$ 12,313
$ 12,610
Table 3
CA Technologies
Condensed Consolidated Statements of Cash Flows
(unaudited)
(in millions)
Three Months Ended
September 30,
2017
2016
Operating activities:
Net income
$
184
$
212
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization
94
77
Deferred income taxes
(28 )
(14 )
Provision for bad debts
-
1
Share-based compensation expense
29
25
Other non-cash items
1
2
Foreign currency transaction losses
8
1
Changes in other operating assets and liabilities, net of effect of
acquisitions:
Decrease (increase) in trade accounts receivable
9
(17 )
Decrease in deferred revenue
(288 )
(317 )
Decrease in taxes payable, net
(2 )
(44 )
Increase in accounts payable, accrued expenses and other
16
11
Increase in accrued salaries, wages and commissions
21
18
Changes in other operating assets and liabilities, net
(7 )
(8 )
Net cash provided by (used in) operating activities
$
37
$
(53 )
Investing activities:
Acquisitions of businesses, net of cash acquired, and purchased
$
(9 )
$
-
software
Purchases of property and equipment
(10 )
(8 )
Other investing activities
(1 )
-
Net cash used in investing activities
$
(20 )
$
(8 )
Financing activities:
Dividends paid
$
(108 )
$
(107 )
Purchases of common stock
(90 )
(50 )
Notional pooling (repayments) borrowings, net
(13 )
7
Debt repayments
(4 )
-
Exercise of common stock options
4
12
Payments related to tax withholding for share-based compensation
(4 )
(4 )
Net cash used in financing activities
$
(215 )
$
(142 )
Effect of exchange rate changes on cash, cash equivalents and
$
48
$
12
restricted cash
Decrease in cash, cash equivalents and restricted cash
$
(150 )
$
(191 )
Cash, cash equivalents and restricted cash at beginning of period
$ 2,974
$ 2,777
Cash, cash equivalents and restricted cash at end of period
$ 2,824
$ 2,586
Table 4
CA Technologies
Operating Segments
(unaudited)
(dollars in millions)
Three Months Ended September 30, 2017
Six Months Ended September 30, 2017
Mainframe
Enterprise
Services (1)
Total
Mainframe
Enterprise
Services (1)
Total
Solutions (1)
Solutions (1)
Solutions (1)
Solutions (1)
Revenue (2)
$
539
$
420
$
75
$ 1,034
$ 1,075
$
834
$
150
$ 2,059
Expenses (3)
188
380
74
642
375
761
148
1,284
Segment profit
$
351
$
40
$
1
$
392
$
700
$
73
$
2
$
775
Segment operating margin
65 %
10 %
1 %
38 %
65 %
9 %
1 %
38 %
Segment profit
$
392
$
775
Less:
Purchased software amortization
58
116
Other intangibles amortization
10
20
Internally developed software products amortization
9
21
Share-based compensation expense
29
61
Other expenses, net (4)
4
12
Interest expense, net
24
49
Income before income taxes
$
258
$
496
Three Months Ended September 30, 2016
Six Months Ended September 30, 2016
Mainframe
Enterprise
Services (1)
Total
Mainframe
Enterprise
Services (1)
Total
Solutions (1)
Solutions (1)
Solutions (1)
Solutions (1)
Revenue (2)
$
550
$
393
$
75
$ 1,018
$ 1,101
$
764
$
152
$ 2,017
Expenses (3)
211
324
73
608
419
648
148
1,215
Segment profit
$
339
$
69
$
2
$
410
$
682
$
116
$
4
$
802
Segment operating margin
62 %
18 %
3 %
40 %
62 %
15 %
3 %
40 %
Segment profit
$
410
$
802
Less:
Purchased software amortization
38
81
Other intangibles amortization
4
9
Internally developed software products amortization
21
44
Share-based compensation expense
25
54
Other expenses, net (4)
2
2
Interest expense, net
14
29
Income before income taxes
$
306
$
583
(1)
The Company’s Mainframe Solutions and Enterprise Solutions segments
are comprised of its software business organized by the nature of
the Company’s software offerings and the platforms on which the
products operate. The Services segment is comprised of product
implementation, consulting, customer education and customer training
services, including those directly related to the Mainframe
Solutions and Enterprise Solutions software that the Company sells
to its customers.
(2)
The Company regularly enters into a single arrangement with a
customer that includes mainframe solutions, enterprise solutions and
services. The amount of contract revenue assigned to operating
segments is generally based on the manner in which the proposal is
made to the customer. The software product revenue assigned to the
Mainframe Solutions and Enterprise Solutions segments is based on
either: (1) a list price allocation method (which allocates a
discount in the total contract price to the individual products in
proportion to the list price of the products); (2) allocations
included within internal contract approval documents; or (3) the
value for individual software products as stated in the customer
contract. The price for the implementation, consulting, education
and training services is separately stated in the contract and these
amounts of contract revenue are assigned to the Services segment.
The contract value assigned to each operating segment is then
recognized in a manner consistent with the revenue recognition
policies the Company applies to the customer contract for purposes
of preparing the Consolidated Financial Statements.
(3)
Segment expenses include costs that are controllable by segment
managers (i.e., direct costs) and, in the case of the Mainframe
Solutions and Enterprise Solutions segments, an allocation of shared
and indirect costs (i.e., allocated costs). Segment-specific direct
costs include a portion of selling and marketing costs, licensing
and maintenance costs, product development costs and general and
administrative costs. Allocated segment costs primarily include
indirect and non-segment specific direct selling and marketing costs
and general and administrative costs that are not directly
attributable to a specific segment. The basis for allocating shared
and indirect costs between the Mainframe Solutions and Enterprise
Solutions segments is dependent on the nature of the cost being
allocated and is either in proportion to segment revenues or in
proportion to the related direct cost category. Expenses for the
Services segment consist of cost of professional services and other
direct costs included within selling and marketing and general and
administrative expenses. There are no allocated or indirect costs
for the Services segment.
(4)
Other expenses, net consists of costs associated with certain
foreign exchange derivative hedging gains and losses, and other
miscellaneous costs.
Table 5
CA Technologies
Constant Currency Summary
(unaudited)
(dollars in millions)
Three Months Ended September 30,
Six Months Ended September 30,
2017
2016
% Increase
% Increase
2017
2016
% Increase
% Increase
(Decrease)
(Decrease)
(Decrease)
(Decrease)
in $ US
in Constant
in $ US
in Constant
Currency (1)
Currency (1)
Bookings
$
720
$
729
(1 )%
(2 )%
$ 1,423
$ 2,082
(32 )%
(32 )%
Revenue:
North America
$
692
$
690
0 %
0 %
$ 1,382
$ 1,359
2 %
2 %
International
342
328
4 %
2 %
677
658
3 %
3 %
Total revenue
$ 1,034
$ 1,018
2 %
1 %
$ 2,059
$ 2,017
2 %
2 %
Revenue:
Subscription and maintenance
$
826
$
824
0 %
0 %
$ 1,643
$ 1,650
0 %
0 %
Professional services
75
75
0 %
0 %
150
152
(1 )%
(1 )%
Software fees and other
133
119
12 %
10 %
266
215
24 %
23 %
Total revenue
$ 1,034
$ 1,018
2 %
1 %
$ 2,059
$ 2,017
2 %
2 %
Segment Revenue:
Mainframe solutions
$
539
$
550
(2 )%
(3 )%
$ 1,075
$ 1,101
(2 )%
(2 )%
Enterprise solutions
420
393
7 %
6 %
834
764
9 %
9 %
Services
75
75
0 %
0 %
150
152
(1 )%
(1 )%
Total expenses before interest and income taxes:
Total GAAP
$
752
$
698
8 %
6 %
$ 1,514
$ 1,405
8 %
6 %
Total non-GAAP (2)
642
608
6 %
4 %
1,284
1,215
6 %
5 %
(1)
Constant currency information is presented to provide a framework
for assessing how the Company’s underlying businesses performed
excluding the effect of foreign currency rate fluctuations. To
present this information, current and comparative prior period
results for entities reporting in currencies other than U.S. dollars
are converted into U.S. dollars at the exchange rate in effect on
March 31, 2017, which was the last day of the prior fiscal year.
Constant currency excludes the impacts from the Company’s hedging
program.
(2)
Refer to Table 7 for a reconciliation of total expenses before
interest and income taxes to total non-GAAP operating expenses.
Certain non-material differences may arise versus actual from impact
of rounding.
Table 6
CA Technologies
Reconciliation of Select GAAP Measures to Non-GAAP Measures
(unaudited)
(dollars in millions)
Three Months Ended
Six Months Ended
September 30,
September 30,
2017
2016
2017
2016
GAAP net income
$ 184
$ 212
$ 362
$ 410
GAAP income tax expense
74
94
134
173
Interest expense, net
24
14
49
29
GAAP income before interest and income taxes
$ 282
$ 320
$ 545
$ 612
GAAP operating margin (% of revenue) (1)
27 %
31 %
26 %
30 %
Non-GAAP adjustments to expenses:
Costs of licensing and maintenance (2)
$
2
$
1
$
4
$
3
Cost of professional services (2)
-
1
1
2
Amortization of capitalized software costs (3)
67
59
137
125
Selling and marketing (2)
10
9
20
19
General and administrative (2)
11
8
23
19
Product development and enhancements (2)
6
6
13
11
Depreciation and amortization of other intangible assets (4)
10
4
20
9
Other expenses, net (5)
4
2
12
2
Total Non-GAAP adjustment to operating expenses
$ 110
$
90
$ 230
$ 190
Non-GAAP income before interest and income taxes
$ 392
$ 410
$ 775
$ 802
Non-GAAP operating margin (% of revenue) (6)
38 %
40 %
38 %
40 %
Interest expense, net
24
14
49
29
GAAP income tax expense
74
94
134
173
Non-GAAP adjustment to income tax expense (7)
31
19
73
48
Non-GAAP income tax expense
$ 105
$ 113
$ 207
$ 221
Non-GAAP net income
$ 263
$ 283
$ 519
$ 552
(1)
GAAP operating margin is calculated by dividing GAAP income before
interest and income taxes by total revenue (refer to Table 1 for
total revenue).
(2)
Non-GAAP adjustment consists of share-based compensation.
(3)
For the three month periods ending September 30, 2017 and 2016,
non-GAAP adjustment consists of $58 million and $38 million of
purchased software amortization and $9 million and $21 million of
internally developed software products amortization, respectively.
For the six month periods ending September 30, 2017 and 2016,
non-GAAP adjustment consists of $116 million and $81 million of
purchased software amortization and $21 million and $44 million of
internally developed software products amortization, respectively.
(4)
Non-GAAP adjustment consists of other intangibles amortization.
(5)
Non-GAAP adjustment consists gains and losses since inception of
hedges that mature within the quarter, but excludes gains and losses
of hedges that do not mature within the quarter.
(6)
Non-GAAP operating margin is calculated by dividing non-GAAP income
before interest and income taxes by total revenue (refer to Table 1
for total revenue).
(7)
The full year non-GAAP income tax expense is different from GAAP
income tax expense because of the difference in non-GAAP income
before income taxes. On an interim basis, this difference would also
include a difference in the impact of discrete and permanent items
where for GAAP purposes the effect is recorded in the period such
items arise, but for non-GAAP such items are recorded pro rata to
the fiscal year’s remaining reporting periods.
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
Six Months Ended
September 30,
September 30,
Operating Expenses
2017
2016
2017
2016
Total expenses before interest and income taxes
$
752
$
698
$ 1,514
$ 1,405
Non-GAAP operating adjustments:
Purchased software amortization
58
38
116
81
Other intangibles amortization
10
4
20
9
Internally developed software products amortization
9
21
21
44
Share-based compensation
29
25
61
54
Other expenses, net (1)
4
2
12
2
Total non-GAAP operating adjustment
$
110
$
90
$
230
$
190
Total non-GAAP operating expenses
$
642
$
608
$ 1,284
$ 1,215
Three Months Ended
Six Months Ended
September 30,
September 30,
Diluted EPS
2017
2016
2017
2016
GAAP diluted EPS
$
0.44
$
0.50
$
0.86
$
0.98
Non-GAAP adjustments:
Purchased software amortization
0.14
0.09
0.28
0.19
Other intangibles amortization
0.02
0.01
0.05
0.02
Internally developed software products amortization
0.02
0.05
0.05
0.10
Share-based compensation
0.07
0.06
0.14
0.13
Other expenses, net (1)
0.01
-
0.03
-
Tax effect of non-GAAP adjustments
(0.08 )
(0.06 )
(0.15 )
(0.13 )
Non-GAAP effective tax rate adjustments (2)
-
0.02
(0.03 )
0.02
Total non-GAAP adjustment
$
0.18
$
0.17
$
0.37
$
0.33
Non-GAAP diluted EPS
$
0.62
$
0.67
$
1.23
$
1.31
(1)
Other 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 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
Six Months Ended
September 30, 2017
September 30, 2017
GAAP
Non-GAAP
GAAP
Non-GAAP
Income before interest and income taxes (1)
$
282
$
392
$
545
$
775
Interest expense, net
24
24
49
49
Income before income taxes
$
258
$
368
$
496
$
726
Statutory tax rate
35 %
35 %
35 %
35 %
Tax at statutory rate
$
90
$
129
$
174
$
254
Adjustments for discrete and permanent items (2)
(16 )
(24 )
(40 )
(47 )
Total tax expense
$
74
$
105
$
134
$
207
Effective tax rate (3)
28.7 %
28.5 %
27.0 %
28.5 %
Three Months Ended
Six Months Ended
September 30, 2016
September 30, 2016
GAAP
Non-GAAP
GAAP
Non-GAAP
Income before interest and income taxes (1)
$
320
$
410
$
612
$
802
Interest expense, net
14
14
29
29
Income before income taxes
$
306
$
396
$
583
$
773
Statutory tax rate
35 %
35 %
35 %
35 %
Tax at statutory rate
$
107
$
139
$
204
$
271
Adjustments for discrete and permanent items (2)
(13 )
(26 )
(31 )
(50 )
Total tax expense
$
94
$
113
$
173
$
221
Effective tax rate (3)
30.7 %
28.5 %
29.7 %
28.6 %
(1)
Refer to Table 6 for a reconciliation of income before interest and
income taxes on a GAAP basis to income before interest and income
taxes on a non-GAAP basis.
(2)
The effective tax rate 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 is the Company’s
provision for income taxes expressed as a percentage of GAAP and
non-GAAP income 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
March 31, 2018
Projected GAAP diluted EPS range
$
1.70
to
$
1.76
Non-GAAP adjustments:
Purchased software amortization
0.55
0.55
Other intangibles amortization
0.10
0.10
Internally developed software products amortization
0.09
0.09
Share-based compensation
0.27
0.27
Tax effect of non-GAAP adjustments
(0.29)
(0.29)
Total non-GAAP adjustment
$
0.72
$
0.72
Projected non-GAAP diluted EPS range
$
2.42
to
$
2.48
Fiscal Year Ending
Projected Operating Margin
March 31, 2018
Projected GAAP operating margin range
26%
to
27%
Non-GAAP operating adjustments:
Purchased software amortization
5%
5%
Other intangibles amortization
1%
1%
Internally developed software products amortization
1%
1%
Share-based compensation
3%
3%
Total non-GAAP operating adjustment
10%
10%
Projected non-GAAP operating margin
36%
to
37%
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.

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CA Technologies
Darlan Monterisi, 646-826-6071
Corporate Communications
darlan.monterisi@ca.com
or
Jennifer DiClerico, 212-415-6997
Corporate Communications
jennifer.diclerico@ca.com
or
Traci Tsuchiguchi, 650-534-9814
Investor Relations
traci.tsuchiguchi@ca.com
or
Stefan Putyera, 631-342-4710
Investor Relations
stefan.putyera@ca.com