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CA, Inc. (CA)

F2Q10 (Qtr End 09/30/09) Earnings Call

October 22, 2009, 4:30 pm ET


Kelsey Doherty - SVP of IR

John Swainson - CEO

Nancy Cooper - EVP and CFO

Mike Christenson - President and COO

George Fischer - EVP of Global Sales and Marketing


Phil Winslow - Credit Suisse

Michael Turits - Raymond James

John DiFucci - JPMorgan

Katherine Egbert - Jeffries

Abhey Lamba - ISI

Todd Raker - Deutsche Bank

Sarah Friar - Goldman Sachs

Richard Sherman - MKM Partners

Scott Zeller - Needham and Company



Good day, everyone and welcome to the CA second quarter 2010 earnings results conference call. Today's call is being recorded. At this time, I'd like to turn the conference over to Kelsey Doherty, Senior Vice President of Investor Relations. Please go ahead.

Kelsey Doherty

Thank you, and good afternoon, everyone. Welcome to CA's second quarter 2010 earnings call. I am Kelsey Doherty Senior Vice President of Investor Relations for CA. Joining me today are John Swainson, our Chief Executive Officer and Nancy Cooper, our Chief Financial Officer. Also in the room and available to answer your questions are Mike Christenson, President and Chief Operating Officer and George Fischer, Executive Vice President Global Sales and Marketing.

John will open this afternoon's call with a high level review of the quarter and a strategic discussion. Nancy will provide more detail regarding second quarter results and than provide updated guidance. We will then open the call for questions before John returns with some closing comments.

As a reminder, this conference call is being broadcast on Thursday October 22nd, 2009 over the phone and the Internet to all interested parties. The information shared in this call is effective as of today's date and will not be updated. All content is the property of CA and is protected by U.S. and international copyright law and may not be reproduced, transcribed, or produced in any way without the expressed written concept of CA. We consider your continued participation in this call as consent to our recording.

During this call, non-GAAP financial measures will be discussed. Reconciliations to the most directly comparable GAAP financial measures are included in the earnings release which was filed on Form 8-K earlier today as well as in our supplemental earnings materials, all of which are available on our website at

Today's discussion will include forward-looking statements subject to risks and uncertainties and actual results could differ materially from these forward-looking statements. Please refer to our SEC filings for detailed discussion of potential risks.

And with that, I'll turn the call over to John Swainson. John?

John Swainson

Thanks, Kelsey. Good afternoon and thank you for joining us. Overall we're pleased with our second quarter performance and comfortable with where we are positioned for the remainder of our fiscal year. In the second quarter we grew both our top and bottomline on constant currency basis. We continued to control expenses and drive efficiencies, increasing GAAP operating margin by two percentage points and non-GAAP operating margin by three percentage points. And we continued to make investments in people and technology that will drive our business long term. While bookings were down, this was not a surprise to us and Nancy will give you more details in a few minutes.

For the six months, CA's performance was very good. Revenue grew 2% in constant currency; non-GAAP operating margin improved three percentage points and GAAP operating margin improved two percentage points including our first half investments in research and development and sales talent to drive future business; Non-GAAP earnings per share was up 11% in constant currency; cash flow from operations was very strong, up 62% in constant currency; our net cash position was $1.1 billion at the end of September, providing CA with a great deal of financial flexibility and we repurchased $50 million in our own stock during the quarter. We plan to continue the program in the current quarter.

Now let me talk about why we're so confident about our ability to execute in the second half. Over the past month I've been traveling in North America, Latin America and Europe and I've talked to more than 200 customers. The tone of these conversations is changing. While CIOs is still cautious, they are starting to think differently about how they spend their IT budgets.

For the past year, the only new projects that were being funded were those that had immediate or near immediate business impact. Sales cycles became longer and the level of approval required was substantial. With some encouraging signs in the economy, CIOs are more willing to consider new technology projects that will reduce complexity, better align IT with business priorities and automate their IT environments to drive greater efficiencies.

I get lot of questions about cloud computing and virtualization and what benefits they can bring. CIOs have started to look to the future. As I've said in past calls, cloud computing is quickly becoming the technology industry's new paradigm and CA is committed to making the investments both organically and through acquisitions to be a leader in this area.

While cloud computing has many benefits, it also adds considerable complexity and security issues to the enterprise. Whether you are operating an external cloud through a managed service provider, running an internal cloud or in some cases doing both, no amount of economic benefit can offset the business impact of losing critical data or degrading the customer experience.

So an example of the kind of acquisition that we're doing to augment our cloud management capability is the recently announced definitive agreement to acquire NetQoS, a leading provider of network performance management and service delivery solutions. NetQoS's technology enables companies to understand how they were using network bandwidth at an application level and then set priorities to insure that the most important tasks are performed with priority.

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