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CA Inc. (CA) reported third quarter 2012 adjusted earnings per share (EPS) of 60 cents, well ahead of the Zacks Consensus Estimate of 51 cents.

Revenue

Total revenue in the reported quarter came in at $1.26 billion, up 10.4% from $1.14 billion in the year-ago quarter. Around 8 percentage points of this growth was organic, while the remaining came from acquisitions. Moreover, the company also witnessed a $20.0 million upside in perpetual sales associated with Enterprise Solution products, including $10.0 million of products that were eligible for upfront recognition during the quarter.

Subscription and Maintenance revenue crept up 3.3% year over year to $1.00 billion. Professional Services revenue stood at $103.0 million, up 17.0% year over year. Software Fees and Other revenues shot up 87.8% to $154.0 million from $82.0 million a year ago.

North America generated revenues of $791.0 million, up 15.3% year over year while international revenue was $472 million, up 3.0% from the prior-year quarter.

Bookings

Total bookings in the third quarter were $1.284 billion, up 1.0% year over year.  One single license payment contributed 3 percentage points of growth in bookings in North America. Moreover, the company renewed a total of 12 license agreements, each valuing in excess of $10.0 million, for an aggregate contract value of $452.0 million.  

Operating Results

Income from continuing operation was $263.0 million, up 34.2% from $196.0 million in the year-ago quarter. Income from continuing operations increased as revenue growth exceeded the growth in operating expense. 

Net income on a GAAP basis in the reported quarter was 54 cents per share versus 38 cents per share in the year-ago quarter. Excluding special items, such as software amortization, intangible amortization, restructuring and other and hedging gains/losses, non-GAAP net income in the third quarter stood at 60 cents per share versus 44 cents in the prior-year quarter.

Balance Sheet and Cash Flow

CA Inc. generated cash flow from continuing operations of $396.0 million compared with $190.0 million in the year-ago quarter. Cash, cash equivalents and marketable securities were $2.539 billion versus $2.292 billion in the previous quarter.

Guidance

For fiscal 2012, the company expects total revenue of about $4.8 billion. GAAP diluted earnings per share growth is expected in the range of 11.0% to 13.0% in constant currency, compared with the previous outlook of 6.0% to 9.0%.  This translates to GAAP diluted earnings per share of $1.86 to $1.90.

Non-GAAP diluted earnings per share growth have been raised to a range of 11.0% to 13.0% in constant currency from the previous outlook of 7.0% to 10.0% for the full year.  This translates to reported non-GAAP diluted earnings per share of $2.21 to $2.25.

Cash flow from operations is expected to be in the range of $1.44 billion to $1.47 billion for fiscal 2012.

Conclusion

CA Inc. posted decent third quarter results exceeding the earnings estimates. Revenue also improved on a year-over-year basis. However, the product demand trend was moderate in the reported quarter. We believe that the company provided conservative fiscal 2012 guidance.

On the other hand, we are apprehensive about intense competition in the software & cloud computing space from big players such as IBM (IBM) and Hewlett-Packard Company (HPQ). In addition, its high debt balance, reduction in tech spending by government agencies and European exposure may pose some challenges going forward.

The company has Zacks #4 Rank, implying a Sell rating in the short term.

 
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