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CA Technologies (CA)

Q1 2012 Earnings Call

July 20, 2011 5:00 pm ET


William McCracken - Chief Executive Officer, Director and Member of Compliance & Risk Committee

Kelsey Doherty - Senior Vice President of Investor Relations

Richard Beckert - Chief Financial Officer and Executive Vice President


Philip Rueppel

Scott Zeller - Needham & Company, LLC

John DiFucci - JP Morgan Chase & Co

Philip Winslow - Crédit Suisse AG

Walter Pritchard - Citigroup Inc

Kevin Buttigieg - Collins Stewart LLC

Michael Turits - Raymond James & Associates, Inc.

Israel Hernandez - Barclays Capital

Kirk Materne - Banc of America Securities

Gregg Moskowitz - Cowen and Company, LLC



Good day, everyone, and welcome to the CA Technologies First Quarter 2012 Earnings Conference Call. Today's call is being recorded. At this time, I would like to turn the call over to Kelsey Doherty, Senior Vice President of Investor Relations. Please go ahead, ma'am.

Kelsey Doherty

Thank you and good afternoon, everyone. Welcome to CA Technologies' First Quarter Fiscal 2012 Earnings Call. Joining me today are Bill McCracken, our Chief Executive Officer; and Rich Beckert, our Chief Financial Officer. Bill will open the call with an overview of the quarter. Then Rich will review our first quarter results and our full year fiscal 2012 guidance. Bill will return to conclude, and we will take your questions.

As a reminder, this conference call is being broadcast on Wednesday, July 20, 2011, over the telephone and the Internet. The information shared on this call is effective as of today's date and will not be updated. All content is the property of CA Technologies and is protected by U.S. and international copyright law, and may not be reproduced or transcribed in any way without the express written consent of CA Technologies. 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 a detailed discussion of potential risks. So with that, let me turn the call over to Bill.

William McCracken

Thanks, Kelsey, and good afternoon to everyone. Thank you for joining us. Our customers tell us IT has become the primary vehicle that they use to adapt their business to changing market demands and become more competitive. This evolution is being driven by virtualization, cloud implementation and SaaS applications, allowing business models to change in days and weeks instead of months and years. While these technologies increase flexibility, they can also introduce significant management complexity. 18 months ago, we called this evolution and built our strategy around it when many others were asking the question is it real? Now, 18 months later, it's clear. It's real. And the rate and pace of adoption is exceeding industry estimates. We believe our years of experience and core strength in traditional IT management and security, combined with significant investments in our portfolio, will position us as the standard in the industry.

Now let me turn our progress against this strategy with our Quarter 1 results. Our first quarter showed operational improvements, reflected in revenue growth, a 2-point year-over-year improvement in our non-GAAP operating margin and double-digit growth in non-GAAP earnings per share. However, we did not get as fast a start on the year from a revenue perspective as I had expected, particularly outside the Americas. For the quarter's results from continuing operations, revenue grew 4% in constant currency, more than half of which was organic. While we remain comfortable with our full year guidance of 6% to 8% revenue growth in constant currency, we had expected better top line performance in the first quarter. We continued to see good revenue growth in North America, up 9% in constant currency. This was offset by our international region, which was down 2% in constant currency. EMEA remains our execution challenge, and cost the company approximately 1 point of revenue growth during the quarter.

Performance in EMEA continues to vary widely by country, and the sales force continues to use the ELA renewal event to sell new products. We have been successful at selling outside the renewal cycle in North America and that is how we have consistently achieved mid to high single digit revenue growth each of the last 7 quarters. We have not yet accomplished that in EMEA. We will change this. Successfully selling outside the renewal cycle in EMEA will be driven by several things. The most important of which are moving additional people with a track record of execution to the region, accelerating the introduction of new products from our acquisitions, adding new sales incentives, and changing the leadership. As a result, I recently made the decision to replace our EMEA general manager. We believe this new executive has the knowledge and experience to unlock the value of our operations in that region.

The balance of our first quarter results were good. Non-GAAP operating margin was 36%, a 2-point improvement over last year's first quarter. We are carefully managing our cost structure and focusing the portfolio on strategic priorities. Non-GAAP EPS was up 23% in constant currency, driven by operational improvements, a lower year-over-year tax rate and reduced share count. Cash flow was slightly up in constant currency, which keeps us on track to accomplish our full year outlook. This total was affected by $111 million year-over-year increase in cash taxes, which included a significant tax payment during the quarter.

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