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CA Technologies (CA)

Q3 2013 Earnings Call

January 22, 2013 5:00 pm ET

Executives

Kelsey Doherty - Senior Vice President of Investor Relations

Michael Gregoire - Chief Executive Officer

Richard J. Beckert - Chief Financial Officer and Executive Vice President

Analysts

John S. DiFucci - JP Morgan Chase & Co, Research Division

Michael Turits - Raymond James & Associates, Inc., Research Division

Walter H. Pritchard - Citigroup Inc, Research Division

Abhey Lamba - Mizuho Securities USA Inc., Research Division

Gregg Moskowitz - Cowen and Company, LLC, Research Division

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Matthew L. Williams - Evercore Partners Inc., Research Division

Kevin M. Buttigieg - Longbow Research LLC

Presentation

Operator

Good day, ladies and gentlemen and welcome to the CA Technologies Third Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference is being recorded. Now, I'll turn the conference over to Kelsey Doherty, SVP of Investor Relations. Please begin.

Kelsey Doherty

Thank you, and good afternoon, everyone. Welcome to CA Technologies Third Quarter Fiscal Year 2013 Earnings Call. Joining me today are Mike Gregoire, our Chief Executive Officer; and Rich Beckert, our Chief Financial Officer. Welcome to the team, Mike. Mike and Rich will offer some prepared remarks and then we will open up the call for a Q&A session. These prepared comments were previously recorded and this conference call is being broadcast on Tuesday, January 22, 2013 over the telephone and the Internet. 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 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 our 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 ca.com/invest.

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. Please note that our fourth quarter Quiet Period begins at the close of business on March 15, 2013.

Before I turn the call over, I'd like to highlight that for modeling purposes, our year-over-year currency headwind on revenue guidance is expected to be roughly 2 points for the full year.

So with that, let me turn the call over to Mike.

Michael Gregoire

Thanks, Kelsey, and good afternoon, everyone. This is the beginning of my third week as CEO of CA Technologies and it's great to be here. While our plan this afternoon is to have Rich take you through the highlights and the financial details of our December quarter, I thought I'd spend a few minutes talking about why I decided to come to CA Technologies and some of my early observations.

When I evaluated taking the CEO position of CA, I analyzed whether CA had the business fundamentals necessary to be a successful company. My conclusion and the driving force of why I accepted the CEO position was that CA had 3 core business fundamentals that provide the company with a clear advantage.

First, addressable market. The total addressable market is large enough and growing fast enough to support our aspirations. It is clear that the value in the IT market is moving up the stack to management automation and security. When I look at CA and the size of the market it currently serves, as well as the changes to the technical landscape going forward, I think we have an opportunity to be the leader in a market that industry analysts expect to be more than $75 billion. Second, intellectual property. CA knows more about managing heterogeneous IT environments, applications, data and identities than any other company. We have more than 6,000 engineers on a global basis with more than $600 million invested per year in organic innovation. This, when pointed in the right direction, is a formidable, competitive differentiator. We have more than 700 patents and close to another 800 under review. By the way, much of this IP is focused on where the market is going and is of the utmost relevance. And we have key positions in markets like Mainframe; Application and Network Performance management; Identity and Access Management; Project and Portfolio and Service Management, as well as Service Virtualization.

Third, distribution. To get all of that technology to market, CA has a global distribution network that is difficult to replicate and I believe can be a big differentiator for the company. CA has relationships with the largest companies in the world. With the right focus on innovation and new markets, we can really increase our growth trajectory in our Enterprise Solutions business.

This brings me to 3 early observations. First, we need to accelerate our innovation curve. The markets we play in are moving very quickly. We must differentiate in everything we do. If we do not differentiate, we will become commoditized and we will not be able to grow. Profitable growth in carefully chosen markets is a clear priority for us.

Second, I believe there's room for improvement in our cost of sales, our cadence for getting things done and the intensity in which we go after our objectives. We have a strong competency in selling large, complex enterprise deals but we do not move the needle quickly enough in some of the new product offerings. We need to ensure that we use our full go-to-market capabilities efficiently to gain significant market share in the key new technology domains. This is not as much about how we interface with the customer but how we interface internally before we reach a customer. We need to be crisp in product management, product marketing and services to make sure our offerings are compelling.

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