Computer
Associates Q1
| Computer
Associates Q1
|
| (FOOL
CONFERENCE
CALL
SYNOPSIS)* By Debora Tidwell (MF Debit) Computer Associates <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CA)") else Response.Write("(NYSE: CA)") end if %> UNION CITY, Ca., July 17, 1996/FOOLWIRE/ --- Computer Associates released Q1 1997 earnings today. Revenue was $792 million, up 37%. Earnings were $0.32 per share, up 39%, and beat analyst estimates of $0.28 per share. [Note: All of these numbers are split-adjusted (the company's stock split yesterday 3-for-2).]
The company indicated that the quarter was "In a word it was fantastic. We really had an outstanding quarter, as an organization, around the world." They indicated that this was true in all product areas and in all sectors and that they are not seeing the weakness or pressures people are talking about. They also emphasized that they think it is important for people to understand that their fortunes are not locked to instant hardware sales. CA is selling software for HP computers sold two years ago, not for computers sold yesterday or computers that will be bought next week. That, in fact, is a rare occurrence. CA's customers are typically people who have put hardware products in place and got them going and are now looking for the kind of infrastructure management software that CA is able to provide. Where they tend to be closer to the hardware cycles is in some of the higher-end NT platforms because NT is so new. Mid-range sales were up 50% year-to-year. The mainframe business continued to grow at approximately 36% quarter-over-quarter.
With regard to the recent stock market weakness in the tech stocks, the company indicated that they will aggressively buy back stock, especially at the current levels. They think the stock prices we are seeing today are completely irrational. They said that there is nothing wrong with CA's business or most of the businesses they are familiar with. They think some of the prices are bordering on hysteria and are ridiculous. They see business as very, very strong and indicated that if you talk to corporate CIOs (Chief Information Officers) they are still planning to spend money at the levels they were planning last October, November, December, or the beginning of the year. Some of those budgets go from 15-20%, and some are planning to spend 30% more. All CIOs are looking to save money, but people have to understand what that means. What they want to do is -- if they are spending $1 million with a vendor for the last five years for X number of products, they would rather spend $950,000 and they still would like to spend $3-4 million buying new stuff. They all have a budget to buy new stuff. Information technology (IT) is, increasingly, a competitive weapon for these companies and CA thinks that it is going to be an area where they will continue spending. CA does not see the slowdown that people are talking about.
They said that they couldn't find anything on the P&L or the Balance Sheet that they could find to spend any time worrying about. Product revenue is up 50%, maintenance revenue is up 5%. They are still seeing massive MIPs increases and site consolidation going on. Pre-tax margins were essentially equal to last quarter but operating margin improved 2% quarter over quarter if you exclude the interest expense. SG&A improved 5% as a percentage of revenue quarter over quarter. South America was strong, and Europe turned in 38% growth despite some negative currency impact with the dollar strengthening against many European currencies.
On the balance sheet, they are paying off debt and receivables dropped both as a function of collections and just a lower revenue for the quarter. Cash remained over $200 million. Receivables were down $58 million for the quarter, the "current" was down $195 million. Trailing 12-months revenue went up $215 million. The cash from operations was $127 million. They repaid $95 million on the line and still have $1.3 billion of debt outstanding. They have facilities available of over $1 billion of unused financing. They will probably also generate close to $1 billion in cash this year. Their headcount is still under 9,000 worldwide, which is under budget and they are looking to hire, particularly in the US.
The company's Board of Directors extended CA's 1992 share repurchase program for up to 75 million shares (post-split), an addition of 18.75 million shares. They believe that, given current levels, it is a very good investment for the company and, given some of the cash flow numbers and how they are doing in terms of the debt paydown from the Legent acquisition, they are happy to be in a position to embark on a good repurchase program.
Business was strong across all sectors and across all geographies. The much-discussed restructuring of CA's sales force went very well. In North America alone, the new Emerald sales organization which had just been formed in mid-April in North America closed over 40 significant deals. The pipeline was very strong for this group, they had less than 60 days to get going, and they produced meaningful results.
Demand for the CA UniCenter product was at what the company characterized as "record levels" and ahead of expectations in the quarter. Demand is so strong that they recently pulled an additional 120-125 technical people from non-field responsibilities in the prior quarter into the field starting this quarter to satisfy some of the technical demand for what is happening with UniCenter. Their single biggest problem with UniCenter is sales people and having technical resources to put up proof-of-concepts and trials. They are also doing the same thing in Europe and South America, which has been an exceptionally strong market for them in the last 18 months and very strong the past quarter.
In the quarter they announced early availability of UniCenter TNG to customer test sites with a supporting cast of very impressive partners. Since then, they have come out with a number of announcements, for example, with Cheyenne for new storage management. They will have additional significant announcements related to UniCenter TNG between now and their CA World UniConference coming up in the third week in August. They have a number of things planned to round out their end-to-end enterprise management strategy -- which includes systems, database, applications, network management, etc. -- with some very significant partners, and some with CA alone.
They continue to get some good competitive wins with Ingres. Their biggest issue there is mindshare, but they are making strides in that area and think they are doing the right things in where they are going with that marketplace.
Jasmine is progressing well and they will have some serious announcements for Jasmine and the release of a subsequent version of the Jasmine SDK, internally named SDK II, at CA World. They are doing that in cooperation with Fujitsu and have made significant technical inroads in where they are with that development project.
They also announced some big competitive wins in the quarter -- companies like First Data, GE Capital, Coca-Cola, etc. -- some very competitive wins. Some of these were strengthening of existing partnerships and some were brand new. CA views it as an indication that their strategy of having a strong installed base with good service and support for them on the mainframe side and extending that with client/server products that tie back to the platforms is continuing to pay good dividends for the company.
Whereas year over year growth was significant, they believe they will still have good growth going forward given that they have completed their Digital transaction -- purchasing PolyCenter and associated assets from Digital. They completed that last quarter and it is now under the CA umbrella. They have announced direction and strategy for those products which includes bringing the Digital VMS, Alpha, UNIX, and Alpha NT platforms under the CA UniCenter umbrella as full participants which gives CA another base to go after. In addition, it also gives CA a number of professional services people, since they are really not in that business, to help service, install, and implement CA UniCenter and to give them tremendous reference-selling capabilities. That is good because they are seeing very good NT growth in the marketplace -- like Intel mentioned in their call last night, CA is seeing very nice growth and good demand in terms of what is happening in the marketplace for the high-end Intel servers.
CA's Independent Business Units have got their organizations together, built pipelines, some of them have closed significant deals. They are moving in the right direction and CA expects good results from them going forward.
As far as an outlook and where they are -- CA said that business was very strong. Their focus continues to be the same -- continue the expansion on two fronts, the traditional CA customer (mid-range & mainframe products) and the new customer they are going after with the Emerald organization. They will continue to push more product into the channel and round out their offerings with partners. With UniCenter they are getting more and more resellers up to speed with some announcements that some resellers came on board in the quarter.
* A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event. | |
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