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CA, Inc. (CA)

F1Q11 (Qtr End 06/30/10) Earnings Call

July 21, 2010 17:00 pm ET

Executives

Bill McCracken - CEO

Nancy Cooper - EVP & CFO

George Fischer - EVP & Group Executive, Worldwide Sales Operations

David Dobson - EVP & Group Executive, Customer Solutions Group

Analysts

Todd Raker - Deutsche Bank

Michael Turits - Raymond James

Gregg Moskowitz - Cowen

Kirk Materene - Rafferty Capital Markets

John DiFucci - JP Morgan

Matt Hedberg - RBC Capital Market

Philip Winslow - Credit Suisse

Katherine Egbert - Jefferies

Derek Bingham - Goldman Sachs

Israel Hernandez - Barclays Capital

Presentation

Operator

Good day everyone and welcome to the CA Technologys First Quarter 2011 Earnings Conference Call. Todays 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, maam.

Kelsey Doherty

Thank you and good afternoon everyone. Welcome to CA Technologys first quarter fiscal 2011 earnings call. Joining me today are Bill McCracken, our Chief Executive Officer and Nancy Cooper, our Chief Financial Officer.

Also on the call and available to answer questions are David Dobson, our new Executive Vice President and Group Executives, Customer Solutions Group and George Fischer, Executive Vice President and Group Executive, Worldwide Sales in Operations.

Bill will open the call with an overview of the quarter. Then, Nancy will review our first quarter results and update full year guidance. Bill will return with the discussion of its operational priorities and we will then take your questions. As a reminder, this conference call is being broadcast on Wednesday, July 21st, 2010 over the telephone and the Internet.

The information shared on this call is effective as of todays 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 expressed 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. Please note as we told on the last earnings call, all non-GAAP operating measures will be reported excluding share based compensation expense on an ongoing basis. Prior period non-GAAP metrics also reflect this change for comparative purposes.

Reconciliation to the most directly comparable GAAP financial metrics 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 were available on our website at investor.ca.com.

Todays 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.

Bill McCracken

Thanks Kelsey and good afternoon, everyone. Thank you for joining us. June 30th marked the end of my first full quarter as CEO of CA Technologies and I am pleased that we met our revenue, operating margin, earnings per share and cash flow plan for the quarter. During the quarter, we focused on execution to unlock value, accelerate growth and establish our company as the industry leader in I.T. management and security for virtualization and cloud.

We also continued to invest in our core strengths in managing and securing main frame and distributed environments. We are making progress and we believe we will meet our update of financial expectations for the full year.

During the first quarter, we re-aligned our organization to make our business even more customer-centric and focused, brought in new senior talents to complement our management team, divested non-strategic I.T. governors products from the portfolio.

Started the process and re-branded the company, began realizing value from our newly acquired technologies and announced more than 20 new products to more than 5,000 customers and attendees at our successful user conference CA World.

From a financial prospective, revenue grew 3% in constant currency which is right where we thought we would be. Operating margins were down as expected. This was a result of expenses related to CA World and acquisitions closed last fiscal year.

Non-GAAP EPS was down 1% in constant currency and finally cash flow was in line with our expectations although down for the quarter. This was primarily a result of a decrease in upfront single installment payments. We achieved these results even though our renewal portfolio was approximately half of what it was last year. Renewal yields were in the low 90% range. These results combined with continued growth in the current portion of the revenue backlog on a constant currency basis are why we are confident in our full year outlook.

However, we also realized there was more we can do especially when we look at new product sales performance during the quarter. We saw growth in the dollar value of stand alone sales of new products meaning sales not attached to renewal.

Year-over-year, stand alone sales were up more than 30% and contributed to the more than 50% constant currency growth in our software fees and other revenue line. This quarter, standalone deals improved our front revenue and underscored the value of our product portfolio. However, improvements in standalone sales were not enough to offset the negative impact, the lighter inventory renewals had on our ability to drive new product sales.

Quarters with lighter renewal inventories generally result in lower new production sales as renewals are an important opportunity to sell new products. As a result, new product sales excluding mainframe capacity were down mid teens year-over-year.

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