Original Source: FD (FAIR DISCLOSURE) WIRE
. Olivia Bellingham, Computer Associates International, Inc., VP . John Swainson, Computer Associates International, Inc., President
& CEO . Jeff Clarke, Computer Associates International, Inc., COO . Bob Davis, Computer Associates International, Inc., EVP & CFO
4Q05 revenue was $910m. FY05 revenue was $3.54b. Non-GAAP operating earnings for 4Q05 was $0.20 a share per diluted share. FY05 non-GAAP operating earnings was $0.82 per diluted share. For 1Q06, CA expects revenue of $910-930m reflecting growth of 6-8% over 1Q05. For FY06, CA anticipates revenue of $3.8-3.9b, reflecting growth of 7-10% over FY05. Q&A Focus: Mainframe business, guidance, & billings.
A. Key Data From Call 1. 4Q05 revenue = $910m. 2. FY05 revenue = $3.54b. 3. 4Q05 subscription revenue = $646m. 4. 4Q05 non-GAAP operating earnings = $0.20 per diluted share. 5. FY05 non-GAAP operating earnings = $0.82 per diluted share. 6. FY05, GAAP earnings from continuing operations = $0.02 per diluted share. 7. 4Q05 expenses = $838m.
8. FY05 cash flow from operations = $1.53b. 9. 4Q05 cash flow from operations = $738m. 10. 1Q06 expected revenue = $910-930m. 11. FY06 expected revenue = $3.8-3.9b.
S1. Opening Comments (J.S.) 1. Highlights: 1. CA reported solid financial results for both 4Q05 and FY05 during a time of transition for the Co. 2. Total revenue for 4Q05 and FY05 were in line with CA's updated guidance. 1. 4Q05 revenue was $910m, an increase of 7% over 4Q04. 2. FY05 revenue was $3.54b, an increase of 8% over FY04. 3. Non-GAAP operating EPS was at the high end of CA's updated guidance range for both 4Q05 and FY05. 1. Non-GAAP operating earnings for 4Q05 was $0.20 a share per diluted share, and an increase of 11% over 4Q04's $0.18. 2. FY05 non-GAAP operating earnings was $0.82 per diluted share, an increase of 34% over FY04.
4. GAAP earnings from continuing operations for 4Q05 was $0.03
per diluted share, vs. $0.05 per diluted share reported in
4Q04. 1. This exceeds CA's updated guidance of $0.01-0.02 per diluted share due to the finalization of certain favorable tax items in 4Q05. 5. For FY05, GAAP earnings from continuing operations was $0.02 per diluted share vs. a loss of $0.06 per diluted share reported in FY04. 2. Achievements: 1. Over the past year, CA has eliminated areas of uncertainty from the business.
2. CA has resolved the government investigations and is on its
way to putting accounting issues behind it. 1. Lee Richards has been appointed as CA's independent examiner. 2. He is working closely with CA to ensure that it meets all the regulations set out under its deferred prosecution agreement. 3. CA has made key management changes. 1. Since the beginning of the calendar year, CA has brought a number of seasoned executives on board, including: 1. Bob Davis, CA's EVP & CFO, who joined CA from Dell. 2. Mike Christenson, EVP of Strategy and Business Development, who joined CA following a 23-year career as an investment banker with Citigroup Global Markets. 3. Don Friedman, EVP & Chief Marketing Officer, who joined CA following three decades of senior marketing and management
roles at IBM. 4. Alan Nugent, former CTO of Novell, as the SVP & General Manager of CA's Enterprise Systems Management Group.
2. With the addition of former IBM executive, Bill McCracken and Ron Zambonini, the former CEO of Cognos, CA has expanded its Board of Directors to 12 members. 3. CA's Direction in FY06: 1. Over FY06, the entire team at CA is focusing on six priorities.
1. Creating strong customer partnerships. 2. Become the leader in enterprise systems management and security markets. 1. In mid-Aug., CA announced the acquisition of PestPatrol. 2. In Nov., CA completed its acquisition of Netegrity. 3. In April, CA announced its intent to acquire Concord Communications, Inc., a leading provider of network service management software for about $350m. 1. Pending shareholder and regulatory approval, this acquisition will extend CA's leadership in network management and enhance its ability to serve customers globally. 4. In FY06, CA will also have some exciting product launches in its Unicenter, BrightStor (Indiscernible).
3. Aligning CA to take advantage of new market opportunities. 1. The Co. has recently aligned its operations around five core business units. 1. Enterprise systems management, security, storage
management, business service optimization, and the CA products group. 2. Each business unit will be held accountable for growing
their business, gaining market share, and driving customer satisfaction, as well as developing product strategies and managing their investments accordingly. 4. Leverage its partners to expand its reach. 1. CA's goal is to increase revenue by adding more value for partners who do business with it. 2. Currently, indirect sales makes up less than 10% of CA's revenue. 3. Longer-term, CA believes that 30% from indirect is achievable. 4. To do this, the Co. recognizes that it must do a better job of working with global systems integrators,
value-added resellers, and other service providers to expand into new markets and better serve its customers' needs. 5. Specifically, CA has implemented a name-to-cap (Phonetic) structure to help it delineate the playing field between CA's sales force and its partners. 6. Direct sales force will focus its efforts on developing true partner relationships with the 18,000 named enterprise accounts, and the Co.'s partners will do the rest. 5. Improve the Co.'s financial systems and internal controls. 6. CA is focused on creating a performance-based culture that awards the achievement of goals, accountability, and innovation.
S2. Operational Review (J.C.) 1. Overview: 1. In FY05, CA met its EPS guidance for each of the four quarters. 2. At the beginning of FY05, CA projected billing and cash flow from operations to be flat-to-modestly up. 1. The Co. delivered on this commitment while still making substantial investments for growth. 3. FY05 is the eighth consecutive year that CA has generated in excess of $1b in cash flow from operations. 2. Capital Allocation Discipline:
1. CA makes investment decisions based on the ROIC metrics.
1. The Co. defines ROIC as adjusted cash flow from operations divided by total invested capital. 2. For FY05, CA's ROIC was 19%, well above its weighted avg. cost of capital of approx. 13%.
3. CA is reallocating its resources to meet its growth objectives.
4. On the productivity side, in 2Q05, CA made the difficult
decision to reduce head count in order to make CA a more efficient Co. 1. That restructuring is effectively complete.
2. CA reduced its workforce by approx. 800 employees, at a cost
of $28m, and will realize annual savings of around $70m. 5. CA is making substantial investments in the ERP system. 1. These investments are helping CA add controls in checks and balances to operational and financial systems. 6. The second potential use of cash is to return it to shareholders. 1. CA believes that share repurchases and dividends are an appropriate use of its free cash flow. 2. In full FY05, CA repurchased approx. 5.5m (Phonetic) shares for a total of $149m. 3. CA is committed to repurchasing up to $100m per qtr. in FY06 for an annual total of up to $400m. 4. The Co. recently announced an increase to its dividend policy, doubling the annual cash dividend distributed to shareholders from $0.08 per year to $0.16 a year, or from $46m to $92m. 7. A third use for excess cash is debt reduction.
1. In FY05, CA completed a $1b bond offering and put in place a $1b revolving credit facility to replace its $470m in undrawn revolving …