CA Q1 earnings beat the Street

Computer Associates returned to profitability in its most recent quarter, reporting on Wednesday better-than-expected results showing revenue and income gains over the same quarter last year.

Computer Associates returned to profitability in its most recent quarter, reporting on Wednesday better-than-expected results showing revenue and income gains over the same quarter last year.

Strong sales and internal cost-cutting helped the company get out of the red sooner than expected, chairman and CEO Sanjay Kumar said.

Revenue for the quarter ended June 30, the first of CA’s fiscal year, was S$813 million, up 6% from the year-earlier figure of $765 million. CA’s net income was $10 million, versus a $65 million loss in the year-earlier quarter. Net income per share was $0.02, or $0.14 on a pro forma basis, excluding acquisition-related amortization. On that pro forma basis, analysts had been expecting per-share earnings of $0.09, according to the consensus estimate complied by Thomson First Call.

CA has been pushing its customers to purchase its software through short-term subscription contracts rather than one-time licensing fees. The company’s average contact duration is now down to 2.85 years, and its backlog of contracted but not yet booked revenue totals $3.8 billion, CA said. Average deal size during the quarter was $200,00.

“We believe customers will not return to the buying patterns of years past,” Kumar said during a conference call with analysts. Customers are shifting towards purchasing in smaller pieces, and want to quickly see a return on their investment, he said.

Because of that ongoing shift, the company’s revenue from subscription fees grew from $314 million in last year’s first quarter to $449 million in the just-ended quarter. Non-subscription software fees, maintenance, financial and professional services revenue all dropped year-on-year.

CA hopes to reverse the downward trend of its services revenue with a new organization, CA Technology Services, formed in April. The group focuses exclusively on supporting CA’s own products. CA expects the current tight economic climate to last for the next several quarters, Kumar said. Sales in North America are picking up, and comprised 60% of CA’s revenue during the quarter, he said.

CA’s revenue from channel sales declined during the quarter, but should increase in coming months as changes made to CA’s channel strategy and structure take effect, executives said. CA’s aggressive pricing cost it some channel sales during the quarter, Kumar acknowledged, but he said the company will continue holding the line on prices.

“We will not do unnatural things simply for the sake of closing business,” he said. “If you look at some of our competitors, I think it’s obvious, without naming names, that we’re taking business from them.”