- Quarterly revenue increases 10 percent over 2003 to $850 million
- Total revenue for 2004 increases 8 percent over 2003 to $3.28 billion
- GAAP quarterly earnings from continuing operations: $0.05 per share
- GAAP full-year loss from continuing operations is $0.06 per share
- GAAP net EPS: $0.15 for quarter; $0.04 for full fiscal year
- Operating (non-GAAP) EPS: $0.18 for quarter; $0.61 for the year
- Cash from continuing operations: $588 million for quarter; $1.28 billion for full year
Guidance for 2005:
- Q1 revenue: $865 to $885 million
- Q1 EPS: GAAP $0.05 to $0.07; operating $0.17 to $0.19
- Full year revenue: $3.5 to $3.7 billion
- Full year EPS: GAAP $0.28 to $0.33; operating $0.73 to $0.78
- 2005 guidance reflects new channel business model, stock option expensing, expanded investments
Nieuwegein, May 28, 2004 ‹ Computer Associates International, Inc. (NYSE: CA), the world's largest management software company, announced financial results for its fourth quarter and fiscal year ended March 31, 2004, and provided revenue and earnings per share guidance for the first quarter and fiscal year 2005. CA had previously announced preliminary results for the fourth quarter and fiscal year 2004 on May 6, 2004.
"It is apparent from our results that CA is continuing to advance its leadership position in the rapidly expanding management software market," said Kenneth Cron, CA's interim chief executive officer. "Despite a number of distractions during the quarter, our employees have remained focused on providing the broadest and most innovative software suite in the industry to meet customers' demand for infrastructure, security and storage management capabilities.
"I am most proud that customer satisfaction continued to make improvements in fiscal 2004, as confirmed by CA's annual customer survey," continued Cron. "This improved satisfaction ‹ the fourth consecutive year of such positive feedback ‹ was a driver of CA's solid results across all product lines and geographies, particularly in Europe. Customers continue to deploy more of our solutions as they realize the value of integrated management software that allows them to address the complexities and inefficiencies in their IT systems."
Jeff Clarke, CA's chief operating officer and chief financial officer, said CA experienced growth in nearly every performance metric in the fourth quarter.
"Total revenue increased 10 percent over last year's fourth quarter, and new deferred subscription revenue, often referred to as "contract bookings," increased 33 percent to $836 million in the period. As contract bookings represent what we expect to collect from our customers over the life of the applicable software licenses, it is an important indicator of the fundamental strength of our business. Assisted by the strong contract bookings reflected in the fourth quarter, we closed fiscal 2004 with a deferred subscription revenue balance of approximately $4.3 billion."
Financial Overview
Total revenue for the fourth quarter of fiscal year 2004 was $850 million. The improvement over the similar period last year was driven primarily by an increase in subscription revenue associated with the stronger contract bookings and the ongoing transition to the Company's current business model. For the fiscal year 2004, CA reported revenue of $3.28 billion, an 8 percent increase from the $3.03 billion in revenue recorded for fiscal year 2003.
CA's revenue related to its distribution and OEM partners, referred to as the "channel" or indirect sales business, experienced a 14 percent increase in contract bookings in the quarter compared to last year. However, a higher mix of maintenance-inclusive arrangements contributed to a 9 percent decline in Software Fees and Other Revenue for the quarter compared to last year. The Company said its continued effort to improve the channel business through enhanced partnerships and related programs is making progress. As announced recently, the Company has named Executive Vice President Gary Quinn, who previously oversaw European and Latin American direct sales, along with the channel business, to focus solely on the channel business.
"As we said at the start of the 2005 fiscal year, we see the indirect business as a significant growth opportunity for CA," Clarke said. "We are devoting considerable resources ‹ in both the personnel and financial areas ‹ to maximize our efforts in this market."
Commissions and royalties increased approximately $20 million in the quarter compared to the fourth quarter of fiscal 2003 due to strong contract bookings in the fourth quarter of fiscal 2004. The Company experienced an improvement of approximately $29 million for the quarter related to the provision for doubtful accounts compared to the prior year quarter associated with the continued reduction in old business model accounts receivable.
The Company also recorded a $10 million charge in the fiscal fourth quarter associated with the pending government investigation. This charge is based on an initial offer the Company made to the government in connection with recent settlement discussions associated with the previously disclosed Department of Justice and SEC investigation. The Company cannot predict the timing or outcome of the government investigation or the amount of any fine or penalty, which may be significant, that may be imposed.
Income from continuing operations on a GAAP basis for the fourth quarter was $29 million, or $0.05 per diluted share, compared to a loss of $106 million, or $0.18 per diluted share, reported in the similar period last year. For the full year, loss from continuing operations on a GAAP basis was $36 million, or $0.06 per diluted share compared to a loss of $270 million, or $0.47 per share in fiscal year 2003. Fourth quarter GAAP earnings reflected the net of tax, $60 million gain from the sale of ACCPAC and the $10 million investigation charge. Full year GAAP earnings also reflected the $60 million gain from the sale of ACCPAC, the $10 million investigation charge, a $33 million, net of tax, credit to the provision for doubtful accounts, as well as a $105 million, net of tax, shareholder litigation settlement charge recorded in the second quarter of the 2004 fiscal year.
On a fully diluted operating basis (excluding all acquisition-related amortization, the previously disclosed shareholder litigation settlement charge, and the government investigation charge), the Company earned $0.18 per share in the fourth quarter of fiscal year 2004, compared to $0.08 per share in the fourth quarter of fiscal year 2003, and $0.61 per share for the full fiscal year compared to $0.18 per share last fiscal year. Operating earnings per share is a non-GAAP financial measure as noted in the discussion of non-GAAP results below. A reconciliation of GAAP income from continuing operations to non-GAAP operating income is included in the tables following this press release.
Capital Structure
For the full fiscal year, CA generated approximately $1.28 billion in cash from continuing operations compared to $1.31 billion last year. It was the seventh consecutive year CA has generated more than a billion dollars in cash from continuing operations. In the fourth quarter, operating cash flow was $588 million, up slightly from the $574 million reported in the same period last year. The balance of cash and marketable securities at March 31, 2004 was approximately $1.9 billion, up $550 million from December 31, 2003. With $2.3 billion in debt outstanding, the Company has a net debt position of just under $400 million ‹ the Company's lowest net debt level in more than eight years. CA has no bank debt drawn under its current credit facility and its next scheduled debt repayment is April 2005.
Product Areas
"CA's leadership in management software, and the positioning of our products as enabling complete, integrated and open environments, is yielding benefits for our customers and the Company," Clarke said. "In the fourth quarter, we saw continued strength and increased market share in the Enterprise Management and Security Management markets ‹ two important segments of the substantial addressable management software market.
"In the quarter, our Enterprise Management business unit posted 34 percent year-over-year contract bookings growth, and our Security business unit posted an even more impressive increase of 46 percent versus the prior year. For the full fiscal year, Enterprise Management contract bookings grew approximately 20 percent, and Security grew approximately 30 percent versus fiscal 2003," he said.
Outlook for Fiscal Year 2005
"The CA management team is encouraged by signs of continued increases in technology spending, a trend evidenced by the increase in our average contract size over last year's fourth quarter," Cron said. "Accordingly, we believe that it is appropriate to make even greater investments back into our business, so we will remain competitive and increase our market share. However, we also continue to run our business under the assumption that customers will require immediate value for every dollar they spend, and our outlook for fiscal 2005 reflects such conservatism."
The following guidance (CA's initial guidance for this period) is based on current expectations and represents "forward looking statements" (as defined below):
For the first quarter ending June 30, 2004:
- Revenue in the range of $865 million to $885 million
- GAAP earnings per share in the range of $0.05 to $0.07
- Diluted operating (non-GAAP) earnings per share in the range of $0.17 to $0.19
For the full fiscal year 2005:
- Revenue in the range of $3.5 billion to $3.7 billion
- GAAP earnings per share in the range of $0.28 to $0.33
- Diluted operating (non-GAAP) earnings per share in the range of $0.73 to $0.78
"Three factors should be considered with respect to our fiscal year 2005 guidance: the decision to provide channel partners with much of the same flexibility and product offerings as in our direct business, necessitating accounting for a majority of the channel revenue on a subscription basis; the full year impact of expensing stock-based compensation; and, significant investments we are committing to build our businesses," Clarke said.
"The accounting for channel revenue on a subscription, or ratable, basis is expected to have the effect of decreasing fiscal 2005 revenue by approximately $125 million, with an associated impact on earnings of approximately $0.13 per share. We expect to implement this change effective with our second fiscal quarter. The expensing of stock options is expected to decrease both GAAP and operating earnings per share by approximately $0.01 for the first quarter and $0.04 for the full year. Additionally, we expect to make significant investments in fiscal 2005 not only in our channel business, but also in expanding the Asia/Pacific region and in further building our industry-leading security management software business, where we see significant opportunity for growth.
"CA's channel business provided a small portion of our total revenue in fiscal year 2004," Clarke said. "As CA's channel business grows, and our partners increasingly sell integrated solutions, our FlexSelect licensing model will become even more important to this business. This is the opportune time to make a change for our partners and this will also make the recording of CA's channel revenue consistent with our overall business model," Clarke said.
CA expects to file its audited annual report on Form 10-K prior to the required filing date of June 14, 2004. The Company also expects to file at that time amended quarterly reports on Form 10-Q with the accompanying independent auditors' review reports. The quarterly reports will reflect a revenue reduction associated with the previously announced and now finalized corrections to revenue of $3 million, $5 million and $7 million for the first, second, and third quarters of fiscal year 2004, respectively.
Non-GAAP Financial Measures
This press release includes financial measures for net income and related per share amounts that exclude certain charges and therefore have not been calculated in accordance with U.S. generally accepted accounting principles (GAAP). Non-GAAP "operating" net income and earnings per share exclude non-cash amortization of acquired technology and other intangibles, the class-action and derivative litigation settlement charge, the government investigation charge and the applicable tax effects of these items. 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 non-cash acquisition related charges, the litigation settlement charge, and the government investigation charge, these non-GAAP financial measures facilitate management's internal comparisons to the Company's historical operating results, comparisons to competitors' operating results, and to estimates made by securities analysts. Management uses these non-GAAP financial measures internally to evaluate its performance and is a key variable in determining management incentive compensation. The Company believes these non-GAAP financial measures are useful to investors in allowing for greater transparency to 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 press release to their most directly comparable GAAP financial measure as provided with the financial statements attached to this press release.
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