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CA Technologies (CA)

Q3 2011 Earnings Call

January 25, 2011 5:00 pm ET

Executives

George Fischer - Executive Vice President of Worldwide Sales and Operations

David Dobson - Executive Vice President and Group Executive of Customer Solutions Group

Kelsey Doherty - Senior Vice President of Investor Relations

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

Nancy Cooper - Chief Financial Officer and Executive Vice President

Analysts

Philip Rueppel

S. Kirk Materne - Evercore Partners Inc.

Derek Bingham - Goldman Sachs Group Inc.

Katherine Egbert - Jefferies & Company, Inc.

Aaron Schwartz - MKM Partners LLC

John DiFucci - JP Morgan Chase & Co

Matthew Hedberg - RBC Capital Markets, LLC

Shaul Eyal - Oppenheimer & Co. Inc.

Philip Winslow - Crédit Suisse AG

Walter Pritchard - Citigroup Inc

Michael Turits - Raymond James & Associates

Gregg Moskowitz - Cowen and Company, LLC

Presentation

Operator

Well, good day, everyone, and welcome to the CA Technologies Third Quarter 2011 Earnings Conference Call. [Operator Instructions] 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 Third 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 Executive Vice President and Group Executive, Customer Solutions Group; and George Fischer, Executive Vice President and Group Executive, Worldwide Sales and Operations. Bill will open the call with an overview of the quarter, then Nancy will review our third quarter results and update full year guidance. Bill will return to conclude, and we will take your questions.

As a reminder, this conference call is being broadcast on Tuesday, January 25, 2011, 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 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, all non-GAAP operating measures are being reported excluding share-based compensation expense on an ongoing basis. Prior period non-GAAP metrics also reflect this change for comparative purposes. In addition, guidance provided this afternoon reflects the effect of ASC 260-10-45, which governs the allocation of net income between common stock equivalents and participating securities. This guidance became effective in 2009. For further information, please reference Footnote 9 and Table 5 in the press release.

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 investor.ca.com. Today's discussion will include forward-looking statements subject to risks and uncertainties and actual results could differ materially from those 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. So let me start with the highlights. CA Technologies delivered another strong quarter, thanks to continued focus on execution and a leading portfolio solutions to manage and secure IT infrastructures.

Year-over-year, revenue grew 5% in constant currency. Three points of this growth was organic, two points was acquired. This demonstrates our ability to introduce new products, acquire technologies and more importantly, effectively integrate them into our customer offerings. This is driving our growth today and establishing the base for growth in the future.

Non-GAAP operating margin was 34%, reflecting the effect of acquisitions that were closed during fiscal year 2010 and 2011. We reported a non-GAAP tax rate of 32%, the result of continued improvements in tax. Non-GAAP EPS was up 11% in constant currency.

Cash flow from operations increased 45% in constant currency and keeps us on track to meet full year expectations. And finally, while we saw a modest decline in bookings, current revenue backlog grew 4% in constant currency, a good indicator for me of our expected subscription and maintenance revenue growth, this year and beyond.

We feel very good about where we are, both from a strategic standpoint and relative to our financial objectives. This gives us the confidence to increase the low end of revenue guidance and both GAAP and non-GAAP earnings per share ranges, which we provided this afternoon.

Before I turn the call over to Nancy, let me update you on our performance against the strategic priorities I outlined at the beginning of this fiscal year. They are: increasing the number of freestanding sales with the introduction of new products; responding to customer demand in growth geographies and emerging enterprises; and continuing to align the organization to be more responsive to customer requirements and emerging trends.

On the first priority, freestanding sales. As we said last quarter, freestanding sales give us the opportunity to increase our share of the technology customer's wallet, through both cross-selling to current customers and the addition of new customers. Progress can be seen in the 50% constant currency increase, in software fees and other revenue. These are sales of application performance management, NetQoS and other perpetually licensed software closed outside a renewal. Success can also be seen in new product sales performance. Let me give you a little insight into the business booked during the quarter.

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