Computer Associates reports Q2 fiscal year 2003 results

Computer Associates International, Inc today announced results for its second fiscal quarter ended 30 September 2002. Highlights of the second quarter included the following:

* Total revenue was $772 million, up 5% over the prior year and in line with previous guidance;
* GAAP loss per share was $(0.09);
* Operating EPS was $0.04, exceeding the consensus of analysts` estimates of $0.02 per operating share;
* $202 million in cash generated from operations;
* New deferred subscription revenue was $394 million, or $141 million on an annualised basis - exceeding last year`s second quarter annualised amount by 14%;
* Company demonstrates the strength of business model and broad product portfolio in challenging environment; and
* Fiscal year 2003 revenue reaffirmed, and operating EPS guidance increased to $0.14 to $0.16.

"In the second quarter, Computer Associates continued to execute well in an extremely challenging technology environment," said CA President and CEO Sanjay Kumar.

"Customers are buying, but they continue to purchase technology on an `as-needed` basis, and they are seeking greater returns on their investments. Our subscription licence model is meeting these requirements head on, giving customers the ability to purchase our highly integrated and platform-neutral software products in a simpler, more flexible manner."

Total revenue for the second quarter of fiscal 2003 was $772 million, a 5% increase over the revenue generated in the second quarter of fiscal year 2002. Excluding the revenue contribution from the company`s interBiz unit, which was sold in April 2002, total revenue increased by approximately 9%. Net loss for the second quarter was $(52) million, or $(0.09) per diluted share, compared to the net loss of $(291) million, or $(0.50) per diluted share, reported in the comparable prior year period. The company`s adoption of SFAS 142 on 1 April 2002 eliminated the amortisation of goodwill and certain other intangible assets beginning in this fiscal year. Had the company not amortised goodwill and certain other intangible assets in the prior year`s second quarter, the net loss in that period would have been $(177) million, or $(0.31) per diluted share.

On a fully diluted operating basis (excluding all acquisition-related amortization), the company earned $0.04 per share in the second quarter, compared to a loss of $(0.16) per share in last year`s second quarter, exceeding both the company`s guidance and the consensus of analysts` estimates of $0.02 per share, as compiled by Thomson First Call.

During the second quarter, the company recorded new deferred subscription revenue of $394 million - with an average contract duration of approximately 2.8 years. This equates to second quarter annualised deferred subscription revenue - which is the average amount that the company will collect from its customers and record as revenue from contracts signed in this quarter - of approximately $141 million, representing a 20% increase over the first quarter of fiscal 2003 and a 14% increase over last year`s second quarter amount. At 30 September 2002, the company`s aggregate deferred subscription revenue balance - the value of customers` contractual commitments that have been deferred and which will provide a stream of revenue in future periods - totalled approximately $3.3 billion.

"In the second quarter, we made progress in leveraging our broad product portfolio to cross-sell and up-sell our product solutions to our installed base of enterprise customers," said Kumar. "Separately, the fact that our new deferred subscription revenue increased in the quarter - when many other technology vendors` software revenues are holding at similar levels or declining - confirms our belief that we are taking market share from the competition.

"We continue to focus on signing customer contracts that seek to maximise annual revenues and cash flows to the Company, over contractual periods generally of up to three years," continued Kumar. "As an example of the increased predictability of our business model, in the second quarter, more than 44% of our total revenue was generated from subscription licence fees, compared with 26% last year. While we are pleased with CA`s performance during the period, including our effective management of costs across the entire company, our results reflect continued challenges to our professional services business, which has been pressured by further reductions of spending for consultant services by IT managers."

At 30 September 2002, cash and marketable securities totalled $776 million. During the second quarter, the company generated $202 million in cash from operations, compared to $164 million for the comparable period last year, and redeemed $134 million in debt during the period. The company has repaid $694 million in debt during the first six months of this fiscal year. "Computer Associates continues to generate strong and consistent cash flows from our core operations," said Kumar. "For the sixth fiscal year in a row, we are on track to generate more than $1 billion in cash from operations."

As it enters the second half of its fiscal year, the company indicated that it is well positioned to meet the challenges of a difficult operating environment. The company still expects revenue for the fiscal year ending 31 March 2003 to be in the range of $3.1 billion to $3.2 billion. As a result of an acceleration of cost savings, diluted operating earnings, originally anticipated to be in the range of $0.10 to $0.13 per share for the fiscal year 2003, are now expected to be $0.14 to $0.16 per share. The company expects third-quarter revenue to be in the range of $770 million to $790 million. Diluted operating earnings in the third quarter are expected to be $0.04 to $0.05 per share, slightly higher than previously anticipated.

During the second quarter of fiscal 2003, Computer Associates reported the following operational highlights:

* Geographic. Excluding the impact of the interBiz unit divestiture, North American revenues increased 4% compared to last year and international revenues increased 19%. The increase in international revenue was primarily attributable to an improvement in contract bookings in Europe and Asia.

* Business focus areas. The company continued to see opportunities for growth in Enterprise Management (Unicenter), Security (eTrust) and Storage (BrightStor), and, to a lesser extent, new technologies like Linux, wireless and Web services. The company also saw strength in its CleverPath portal and business intelligence product line, although working off a much smaller base of customers.

* Key business developments

* eTrust Security Command Center Unveiled. CA`s single console/portal for administering virtually all security operations across the enterprise, including the administration of identity, threat and access management, was introduced in September and is expected to be available for delivery to customers by the end of fiscal 2003.

* New Storage Products Announced. CA announced the general availability of BrightStor Portal, which provides users with consolidated access to their diverse storage resources, storage management applications and critical information about their distributed storage operations. The BrightStor ARCserve Backup Version 9.0, which brings superior data protection to the distributed Intel-architecture server market, will be debuted on 28 October, after a partner event to be hosted on 24 October.

* New Enterprise-class Linux Management Solutions Introduced. CA expanded its portfolio of more than 50 distributed and mainframe solutions that enable customers to manage, secure, preserve and integrate Linux implementations across their heterogeneous enterprises.

"We are very encouraged that our continued investments in technology and innovation are becoming more visible. Near-term releases of our state-of-the-art products will help drive growth in our business into the future. Combined with our extremely focused branding and marketing efforts, we are very excited about the opportunities ahead of us," Kumar concluded.

The company will host a webcast at http://ca.com/media/q2_fy2003/ today at 5pm EDT to discuss its second quarter and YTD results.