Executives
Joseph Doncheski - Vice President of Investor Relations
John Swainson - Chief Executive Officer
Nancy Cooper - Chief Financial Officer
Analysts
John DiFucci - JP Morgan
Sarah Friar - Goldman Sachs
Michael Turits - Raymond James
Phil Winslow - Credit Suisse
Richard Sherman - MKM Partners
Todd Raker - Deutsche Bank
Abhey Lamba - UBS
Katherine Egbert - Jefferies & Company
CA, Inc. (CA) F2Q09 Earnings Call October 29, 2008 4:15 PM ET
Operator
Good afternoon. My name is Ashley and I will be your conference operator today. At this time, I would like to welcome everyone to CA's Second Quarter Fiscal Year 2009 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers remarks there will be a question-and-answer session. (Operator Instructions). Thank you.
I would now like to turn the conference over to Ms. Joseph Doncheski, Vice President of Investor Relations. Please go ahead, sir.
Joseph Doncheski - Vice President of Investor Relations
Thank you and good afternoon everyone. Welcome to CA’s second quarter 2009 earnings call. I am Joseph Doncheski, Vice President of Investor Relations for CA. Joining me today are John Swainson, our Chief Executive Officer and Nancy Cooper, our Chief Financial Officer.
As a reminder this conference call is being broadcast on Wednesday, October 29, 2008 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 US and International Copyright Law and may not be reproduced, transcribed or produced in any way without the expressed written consent 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 file on Form 8-K earlier today and the supplemental information package. These documents 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 these forward-looking statements. Please refer to our SEC filings for a detailed discussion of potential risks.
With that, I’ll turn the call over to John Swainson.
John Swainson - Chief Executive Officer
Thanks Joe. Good afternoon and thank you for joining us. I’m going to start with a few comments on the current economic environment and our second quarter performance. Then I will turn it over to Nancy Cooper who will take you through the numbers before opining up for your questions. I will then return with some brief closing remarks.
I am pleased that CA had another solid quarter in what we can all agree is a challenging economic environment. We executed well, driving bookings and profit, cost improvements and cash flow. I am proud of the way our employees have risen to the occasion and kept to the task of serving our customers. We continue to improve our business operations on a daily basis.
Based on our first half performance and our outlook for the second half, we are increasing our guidance for GAAP and non-GAAP earnings per share, cash flow from operations, and bookings for our current fiscal year that ends on March 31, 2009. In addition, we're updating our revenue outlook to indicate that we anticipate that our full year total revenue growth will be at the lower end of our guidance. We also announced today that our Board of Directors has authorized the company to buy back up to $250 million of our common stock. This action demonstrates our confidence in CA's long term value and in our ability to build shareholder value.
As I said, we're operating in a challenging environment, but I believe we're well suited to navigate these current economic circumstances. Let me take a few minute to tell you why.
First off, our subscription business model is reliable. As all of you know, we come into each quarter with a substantial portion of our revenue already known. While this does not make us immune from current economic conditions, it does give us the ability to continue to make decisions with a long term outlook. Other advantage is that the majority of our customer contracts are long term, from three to five years, and that more than half of our revenue comes from our mainframe business which is based largely on capacity and maintenance. Mainframe relationships tend to be longer due to the maturity of the product line and the way our software is deeply embedded in our customers’ operations.
Like our mainframe products, our distributed products focus on helping customers increase efficiency, cut cost and mitigate risk. Always important, but even more so in an economic downturn. These three factors help provide stability to our renewal portfolio and help us capitalize on new selling opportunities.
During the quarter, we signed several large contracts including one with a large systems integrator and a number with financial services institutions. These large deals, which were renewals of our existing contracts, included additional mainframe capacity and the sale of new CA technology. They had very good economics for CA as well as for our customers. While these deals resulted in little short term impact in our second quarter results beyond the favorable impact on bookings but benefit from these contracts will be felt in future quarters as we have cemented on our relationships with these valuable customers for a number of years to come. I am pleased that we were able to make these renewals in the current economic environment particularly the ones in the banking industry, which I believe demonstrates the value we provided to customers in that sector.
Second, I believe that the role CA products play in the data center will be even more important as companies improve their IT operations to enable their business success. All of the advancements in IT; things like virtualization, cloud computing and software as a service add layers of complexity in an already complex system. It is managing that complexity where CA really excels. At no time will the performances of IT systems be more important than it is right now.
Thirdly, we have been working continually over the last three years on cost structure improvements and putting in place the business process changes that will improve our operations. Over this period, we have eliminated and shifted headcount, reduced our facilities footprint, and made substantial investments in internal systems and processes and in new products. These efforts have resulted in cost savings, which are reflected in our operating margin which has improved to about 30%. Equally important, we have used this discipline to ensure that we have resources available to invest in our business and capitalize on market opportunities. We are not done. We will continue to focus on cost structure efficiency improvements and are making the investments in product development and our sales force that will provide the solutions and relationships required to capture market share.
Finally, I know all of you are aware of our large footprint in the financial services industry, and about a third of our business comes from this sector, which we define as banks, insurance companies and brokerage firms. The majority of these arrangements are for the renewal of capacity and maintenance of our products, over periods ranging from three to five years.
We have assessed our deferred revenue portfolio and the near-term implications on revenue over the rest of our fiscal year. These are minor and can be strategically managed. Long-term, we may see some pricing pressure when these contracts renew over the next couple of years. As we have done in the past, due to the staggered nature of our renewals, we can and will mitigate these situations by selling increased capacity, new products and winning new customers.
To our benefit, we have relationships with virtually all of the large companies in financial services and have had the opportunity to demonstrate our value and expand our relationship over the years as the sector has consolidated. To some degree, financial industry consolidation is a trend that we are accustomed to and we believe that the mission critical data intensive transaction processing that’s done in this industry will continue to require CA software and that our software value will increase as consolidation continues and IT systems are integrated.
Generally as we have seen in the past, financial services consolidations, the underlying accounts, customers and service requirements don’t go away, they just move to a new company. There are still transactions that you need to be cautious regardless of the name on the door. Our value is ensuring that these transactions are done efficiently, cost effectively and securely.
Let me now take you through some second quarter highlights.
Total bookings were strong up 44% over the same period last year. Our booking strength was led, as I said, by the signing of a number of large deals. Several of these deals were five year renewals and that helped increase the average contract length. In this environment, we will gladly sign long term deals if they make economic sense for CA and our customers, particularly if they promote strong long term relationships. However, in general we still target contract lengths in the three year range.
We also saw considerable growth in new mainframe capacity and maintenance. Our mainframe business continues to perform well as more companies are adding capacity due to the momentum behind IBM’s release of the z10. Sales of infrastructure management solution based on our Enterprise IT Management strategy excelled in the quarter. In this area, we saw increased demand for our eHealth and SPECTRUM and service management offering. We also saw very strong demand for our application performance management solutions and our IT government solution.
Our revenue was up 4%. Non-GAAP earnings per share grew year-over-year at 28%, driven in part by our long term focus on business process improvement and expense management. And cash flow from operations was $218 million. These were the highlights. Let me now talk about the advances we have made in bringing industry leading technology solutions to the market and value to our customers.
As I told you on our June quarter earnings call, we planned a major products launch in October. And a few weeks ago we had that announcement which featured 10 new and upgraded products, including CA's data center automation manager, our exciting new offering that helps customers automate the dynamic provisioning of physical and virtual IT environments. This was our second major launch this year. And it featured CA developed products that help customers adapt to change, capitalize on new opportunities and control costs. The announcement represented the next step forward in our enterprise IT management strategy. And it focused on enabling customers to derive more business value from IT. You'll see even more of this at CA World in November. Without question, we're operating in a very competitive environment, but we are winning.
Let me provide you with just two examples. NETCOM, which is the network enterprise technology command is responsible for communications capabilities across the US Army. This organization, which calls itself the voice of the Army, turned to CA to standardize its infrastructure management tools. NETCOMs needs were clear. It needed to consolidate its IT infrastructure, standardize on a common solution and refresh its capabilities to fulfill current and future responsibility. Working together with the NETCOM IT team, we created an end-to-end management infrastructure using CAs Spectrum and E-Health solutions, to keep Army’s critical networks available and reliable and at the same time to reduce their operational costs considerably. I am very pleased with the progress we're making in the government sector. Several years ago, I made growing our sales in federal a business priority and we're seeing the results.
The second win I'd like to discuss is Intuit who are the premier provider of software for tax preparation in the United States. Intuit needed a solution to provide end-to-end monitoring of its IT infrastructure to ensure that its systems to ensure that its systems don't go down and they turned to CA, we provided them with our Wily application performance management solution which will ensure that all of Intuit's critical systems are operating efficiently during the 2008 tax filing system and beyond. With more than 68 million Americans filing tax returns using Intuit's Turbo Tax software, it's clear that a system outage would be catastrophic. The partnership between CA and Intuit will go a long way to making sure this doesn't happen.
Now let me turn it over to Nancy. Nancy?
Nancy Cooper - Chief Financial Officer
Thanks, John. Good afternoon everyone and thanks for joining us. I'll begin by reviewing our second quarter financials, update our outlook for fiscal 2009, and then comment on today's stock buyback announcement.
I'll begin with total bookings which increased 44% to 1.5 billion, compared to the year-ago period. The weighted average life of subscription and maintenance bookings was 4.14 years as compared to 2.97 years in the prior year period. When annualized, the year-over-year increase in subscription and maintenance bookings for the quarter was 11%, or 8% on a constant currency basis. North America and EMEA drove booking strength in the quarter. We saw continued momentum in our mainframe business from IBM's introduction of the z10 with bookings of mainframe capacity showing strong growth.
Likewise, we saw growth in new license sales in both our mainframe and distributed businesses. While this can fluctuate period to period, we are seeing traction in our ability to sell new licenses to new and existing customers. We believe the mix of our reliable, renewal business and the strength in our new license sales positions us to continue improving our bookings performance in the future. While we are pleased by the bookings performance in the quarter, it's important to note how bookings translate into revenue.
Revenue can be impacted by the composition of bookings, including terms of duration, mix, signing of renewals, and whether the license is upfront or ratable. Bookings from renewals may not translate to incremental revenue until later periods.
Total revenue in the quarter was $1.107 billion, up 4% from the prior year, or flat on a constant currency basis. Our continued focus on professional services profitability worldwide and APJs transition to an indirect model will continue to impact revenue over the next couple of quarters. Benefiting revenue in the second half and while revenue growth increases is a continued roll-off of our fiscal year '06 bookings which is being replaced by a stronger fiscal year '09 book of business. We enter any given quarter with over 80% of our revenue rolling off from the balance sheet. This highlights the resiliency and visibility of our subscription model, which is particularly valuable in the current economic climate. The ability to maintain but also grow our backlog in the current environment speaks to the sticky nature of our software and this revenue backlog grew 13% in the quarter, which bodes well for the growth in future fiscal years.
From a geographic perspective, North American revenue in the quarter was up 3% over the prior year and international revenue increased 4% or down 4% on a constant currency basis. Non-GAAP operating expenses for the quarter were 762 million down 70 million or 2% from the prior year or down approximately $60 million or about 8% when all impacts of currency are eliminated.
Non-GAAP operating income before interest and taxes for the quarter was 345 million up 20% from the prior year. Non-GAAP operating margin for the quarter was 31% a year-over-year increase of four percentage points. Non-GAAP operating margin excluding stock-based compensation was 2 points higher or 33%.
Our ongoing focus on optimizing our cost structure and driving further operating efficiencies continues to drive margin expansion. These initiatives have resulted in annualized savings of about $300 million. Since we are realizing the benefits faster than previously indicated, we now expect full year non-GAAP operating margins between 29 and 30% or 3 to 4 points higher than last year. Non-GAAP income for the quarter was $219 and non-GAAP EPS was $0.41 increasing 27 and 28% from the prior year respectively.
Now let’s turn to our GAAP results, which include purchase software, intangible amortization, restructuring and other expenses and gains and losses on hedges of operating income relating to future periods. Including these items total expenses before interest and taxes for the quarter was 777 million, down 6% from the prior year.
Now to finish up the income statement GAAP income for the quarter was 209 million or $0.39 per diluted common share increasing 53 and 50% from the prior year respectively.
Cash flow from operations in the quarter was 218 million a year-over-year increase of 25 million. Cash flow strength in the quarter was driven by a decrease in disbursement primarily related to payroll. We are also pleased that the cash collections were up slightly and in the current environment we were able to achieve a year-over-year decline in DSO. Cash collections from single and installments were flat in the quarter and down for the first half versus prior year periods. Also down as a percentage of total product bookings for both the quarter and the first half versus prior year periods.
Now completing the balance sheet, we ended the quarter with 2.4 billion in cash and cash equivalents and 2.2 billion of total debt bringing our net cash position to $161 million. Also given the uncertainty surrounding the current financial markets it is important to stress that our cash is invested conservatively. We are also mindful of our debt maturities in calendar year '09 and have the ability to redeem them with cash on hand.
Earlier I referenced the strength of our balance sheet. In our subscription model there are two foundations for future financial performance. The first of these is the revenue backlog which this quarter grew by 13% from the prior year and exceeded $7 billion in the quarter. This revenue backlog combined with billings backlog growth of 19% and total expected future cash collections growth of 13% gives me confident in CA's strengthening fundamentals. This is revenue and cash under contract for the future.
Now with that let's discuss our updated guidance for fiscal year 2009. We expect revenue growth to be at the lower end of guidance in constant currency at 2%. At current foreign currency exchange rates this translates to reported revenue of about 4.3 billion which reflects the recent strengthening of the US dollar.
Total booking growth increases to 10 to 15% from the previous guidance of mid to high single digits, primarily resulting from the longer duration in the first half. Non-GAAP EPS increases to a $1.48 to $1.55 from a $1.45 to $1.52 representing a 24 to 30% growth. GAAP EPS increases to $1.31 to $1.38 from a $1.28 to $1.35, representing 41 to 48% growth inclusive of approximately 30 million of restructuring charges. Both GAAP and non-GAAP EPS guidance factors in a currency adjustment of $0.08 in the second half of the year due to the strengthening dollar. And cash flow from operations increases to 1.15 billion to 1.2 billion from 1.15 billion to 1.8 billion, representing a 4 to 9% growth. This includes about 120 million in restructuring payments and relatively flat cash taxes.
Except as previously stated guidance reflects current foreign currency exchange rates, assumes no material acquisitions, and a partial hedge of our operating income. We continue to expect approximately 570 million actual shares outstanding and weighted average diluted share count of approximately 541 million shares and a full year tax rate on non-GAAP income of approximately 37%.
Finally, we announced today that our Board has authorized a new 250 million stock repurchase plan. This move is reflective of the Board’s continued confidence in CA's market opportunity and long term strategy. Our strong cash position and cash generating capability allows us to opportunistically repurchase shares at attractive levels with cash on hand. Current guidance does not reflect the impact of share repurchase. I feel good about our performance in the second quarter and the opportunities we see for the second half of the year.
And with that, let’s open up the call for questions.
Question-and-Answer Session
Operator
(Operator Instructions) Our first question comes from the line of John DiFucci with JP Morgan.
John DiFucci
Thank you. Nice job guys.
Nancy Cooper
Thank you.
John DiFucci
Nancy, your operating margin are pushing up against the low end, actually exceeding what I think your low end long-term goals have been. And I'm just curious, do you think that it's time to sort of think about that perhaps being a little higher? Correct me if I'm wrong, I'm actually on the road, your longer term goals were somewhere in the 30 to 34% range but it looks like you're sort of there already and it looks like potentially that could improve. Am I -- do you have any thoughts on that?
Nancy Cooper
Hey, John, we are really pleased. All the restructuring efforts we've done as a Company we feel are really paying off in improved cost performance. So we're delighted to be where we are and obviously we need to look at the guidance we gave almost a year ago.
John DiFucci
I know there's still some more on the restructuring plan. Should we assume there will be some over the next couple quarters or are you sort of cutting back on that at this point, waiting for other opportunities or?
Nancy Cooper
John, we guided to about 30 million of restructuring this year and we still have some facilities that we want to consolidate, so we will be continuing to pursue those, they are just taking a little longer than we thought and we feel that that will be the help on continuing to drive margin performance.
John DiFucci
Okay, great. And just to be clear on one point, your guidance given the share count you said that doesn't include any share buybacks or any meaningful share buybacks in this particular quarter?
Nancy Cooper
That’s correct because we are really looking opportunistically to do this and we are managing cash very carefully.
John DiFucci
Okay. Thank you, great. And just a quick question for John. John you mentioned you had a major product launch in October. And two of the things you talked about in the past, I guess shoring up your product portfolios both through your internal development but also through opportunistic acquisition and given what's happened to the market here to a lot of people's stocks it seems to be a lot of best-in-class products out there or smaller companies that look pretty attractive and just curious if you can just comment on that and, for instance, what you might look at? First of all, if you are looking and second, what you might be looking at in regards to perhaps size or even the kinds of companies?
John Swainson
Yes, thanks, John. We're always looking. And I think there's some truth in your comment that values are better now than we've seen in some time. However, let me remind you that our priority has been to develop software ourselves and an example of that is the Data Center Automation Manager product that we announced in early October and we believe will be very successful in the marketplace and will give people like OpsWare and Blade Logic a real run for their money. Now that being said, we will continue to look. We have announced one very small acquisition in the security space and I think you will likely see us do some tackling size acquisitions at some point in the future. And it will all be around our core Enterprise IT Management portfolio and they will all be small. As Nancy said about our guidance that can contemplate anything major, because frankly we are finding very good technology as you pointed in some small companies that perhaps have fewer choices not met before.
John DiFucci
Okay. Thanks a lot
John Swainson
Thank you.
Nancy Cooper
Thank you.
Operator
Our next question comes from the line of Sarah Friar with Goldman Sachs.
Sarah Friar
Good afternoon guys. Great quarter as well.
Nancy Cooper
Thank you.
Sarah Friar
Thanks. Good to see it. Better come back to the mainframe side, you have alluded a number of times that mainframe is being strong, but can you give us any sense of growth rates, are we back to actually seeing real growth in the mainframe when you ex out currency and all, kind of any sense for that would be right now?
John Swainson
I don’t yet have an exact number. We did have real growth in the mainframe after currency and normalizing for contract length. I think we don’t have a specific number, I would guess its in the low single-digits. Remember that our overall bookings was about 8% after you mange it, after you normalize it for currency and for contract length. So I think the mainframe will be in the low single-digits and our distributed portfolio is in the teens. That being said, we are very encouraged by what we are seeing. We are seeing good growth. We are seeing good capacity growth. And we are seeing kind of good resilience in the renewals. So we feel very good about, in fact that the cycle is continuing and customers are continuing to leave work loads on direct platform.
Sarah Friar
I mean, it is -- got that great stickiness. And then to that point on the macro side clearly every call was been on with mostly what some companies talking about dramatic slowdowns the last few weeks of September. Now with your model even if that happens, it has very well impact in the current quarter, but can you give us a sense generally what you saw in terms of the credit crisis or the general impact overhang, how its impacting customers willingness to spend, having you seen the old cycles elongate and how you think about that with regard kind of a quite a positive time on your guidance here?
John Swainson
Well I am very please by what we saw at the end of the quarter. We always target a number of deals to get done in a specific quarter, knowing that all has gone real close, I mean that’s just reality of the world. You always pick more to do when you need. We got about the same average done that we normally would get done and including some very large deals in the financial services industry. So, we are quite encouraged by what we saw there.
Sarah Friar
Got it. I mean just putting it side by side with some others in the space that really kind of had bad quarters, do you think its all for a share gain that’s going on after they are consolidating back to CA?
John Swainson
I would like to think so. I certainly think that we are seeing a trend towards customers wanting to do business with the smaller number of merging the capable vendors and CA is beneficiary of that.
Sarah Friar
Got it. And then just a final one, Nancy on the cost side, clearly it’s great to see the benefit of some of the cuts you have done in Asia for example. Coming through on the operating margin line, are there any other kind of bigger pieces that you still see to pick up out of your attention, or is it more incremental from here?
Nancy Cooper
Well, we still have more phases on the existing cost reductions we have done, the first one we have cost reductions really enable you to do more on that. The simplest one as we are going to rollout SAP in Europe that next year. We are looking at additional facilities that may make sense. So there are still more things CA can do.
Sarah Friar
Great. Okay, thanks a lot. And great quarter guys.
Nancy Cooper
Thank you.
John Swainson
Thank you.
Operator
Our next question comes from line of Michael Turits with Raymond James.
Michael Turits
Couple of questions. First of all, you did bring – not that it's such a shock in this environment, but you did bring the constant currency revenue growth down to 2% from 3% at the midpoint. Is that a function of what's been going on in Asia Pac with the move to indirect or what's that primarily a function of? And then I've got some others.
Nancy Cooper
It's -- what it really is is the two points I mentioned, which is we decided to have much greater discipline on our services business and as you see, our margin in services for the quarter is 11%, which is up 7 points from last year so we’ve gone very selective and we think that’s the right strategy, but it cuts back the revenue a little bit more than we thought. We also - we did decide to go to a different model in Asia. We thought the model we were on was inefficient and we feel the approach that we shifted to was a dramatic improvement in profitability and it did short term -- we decided to make that decision for the long term. Short term, it did impact revenue.
Michael Turits
And then can you walk through for us exactly how the impact of currency flowed through the EPS because you're going to have it looks like 3 or 4 points flip in terms of the currency impact from what you expected. You expected 3 points of tail wind, now it looks like it's going to be a headwind. And yet you've raised your EPS and exactly how does that flow through?
Nancy Cooper
Sure. Currency this year is really a tale of two stories. One is, first half we had a positive impact and we had a negative impact in the second half if I am using Monday’s exchange rates. To bridge this impact, if you think about through the first half we have $0.80 EPS and we're talking about that $0.80, if you just duplicate it in the second half would be reduced by $0.08 strictly for currency and there are other expenses we have that occur in the second half we've mentioned before such as commissions and CA World, but just sticking to currency, it has an 8 point impact. On the operating margin, this translates into about a 2 point hit. We have incorporated this hit into the guidance we just gave, so the increase in EPS is presuming that impact on currency. If I turn over to the revenue, currency introduces -- reduces the revenue to about 4.3 billion and that's also at Monday's rate and that's a reported growth of 1% for the full year. This continues to be a 2% growth on a constant currency basis, which is at the low end of our original guidance.
Michael Turits
How should we think -- obviously you're going to have less revenue. Should we think of expenses -- you've got some hedge when it comes to other income. Do you have some natural hedge or should we think of the currency hit to revenue, just coming against expenses that don't really get any benefit there?
Nancy Cooper
Well, the point I made on operating margin would have some impact by 2 points is what I was alluding to. We do have expense and revenue in the same location, so that's a very helpful fact. And earlier this year we decided to hedge, do a financial hedge of our operating income for about 60% of our foreign-based income so that is also a help this year.
Michael Turits
Okay. Great. Thanks very much, Nancy.
Nancy Cooper
Thank you.
Operator
Our next question comes from line of Phil Winslow with Credit Suisse.
Phil Winslow
Yeah. Most of my questions have been answered, but I just wanted to touch on your distributed business. Obviously your mainframe business remains strong but just, John, what trends do you see on the distributed front this quarter?
John Swainson
Thanks so much. We saw three areas perform very well for us, all in sort of the mid double-digits in terms of new license growth. Our application performance management business, the Wily family of products that helps people manage the performance, particularly of their online applications, this did very well for us. The network management part of our infrastructure management product line did very well for us. As did our service desk and service management family of products. All of these kind of grew at sort of mid-double-digit kind of growth. And our overall portfolio of distributed products kind of grew on average at double-digit growth rates. So those were the areas that were strongest. All of them I would characterize as having a kind of common theme. They all help people manage complexity. They all help people reduce the cost of labor in the IT operation and they all help people manage risk. So that's our basic value proposition. That's always been the value proposition of enterprise IT management and as I said earlier on the call, that value proposition is perhaps stronger now than it’s been in the past. Does that answer your question, Phil.
Phil Winslow
That’s perfect. Thanks a lot. Good quarter.
John Swainson
Thank you.
Nancy Cooper
Thank you.
Operator
Your next question comes from the line of Richard Sherman with MKM Partners.
Richard Sherman
Good afternoon. Couple of questions on some of the cost reductions here. What was the estimated impact of the offshore HCL savings this quarter?
Nancy Cooper
What HCL did is a couple things for us. It allowed us to make our development spending as variable, which was very helpful. We also acquired a great partner to work with and that has helped us rejuvenate the business and we're seeing good performance. So we feel very encouraged with the relationship.
Richard Sherman
I am not sure you’ve given any of the other products internally for revenue share offshore development type of relationship?
John Swainson
Rich, it’s John. The Internet security products are a little bit unique in that respect. They lent themselves well to this. HCL was looking for something that was a little bit stand-alone to work with us on and that -- the Internet security products met that test. So no, I don't have anything that's sort of the same as that. But we are, as you saw from our recent press activity, we are ramping up our development activity in India. We have a large development presence in China and a modest development presence in Eastern Europe. So we do have a good offshore presence, as well as obviously a large number of engineers here in the United States.
Richard Sherman
Thanks John. One last question in several parts. Looking at your cash balances here, let's exclude the 250 in repurchase, but as you're looking at your internal model what do you estimate your US cash balances would be at September 31, again, excluding the repurchase and then what type of -- when you say you're thinking about doing some small acquisitions, do you think of that in terms of total aggregate amount of money that you would allocate over a number of deals and how much might that pay?
Nancy Cooper
First your question about where our cash is. It's about two-thirds offshore, one-third in the US and we're working on ways to improve the amount in the US and you will see it improve over the next quarter. In terms of the amount allocated to acquisitions, we really -- John was articulating particularly in this market, they're going to become more attractively priced but the ones we're looking for are very tied to our strategy and tend to be small in nature.
Richard Sherman
Okay great. Thanks Nancy. Thank you John.
Nancy Cooper
Thank you.
John Swainson
Thank you.
Operator
Our next question comes from the line of Todd Raker with Deutsche Bank.
Todd Raker
Hey guys, nice quarter.
Nancy Cooper
Thanks.
Todd Raker
you guys look at your billing or I'm sorry your bookings growth for the year, and kind of guidance before this quarter mid-to high single digits, can you talk about how you were thinking about some of these larger transactions as part of that pipeline? Especially with the system integrator deal. Were these deals that were in that pipeline in that guidance or were these deals that were outside of that and got pulled forward or just kind of walk us through the mechanics of that.
Jeff Swainson
The deal we are referring to specifically was a 2009 deal that is to say it needed to be renewed in this fiscal year. We are not sure whether we will be doing in the first half or the second half, which is part of the nature of these things, they tend to be a little bit unpredictable and they are little bit lumpy. But we did anticipate that we would renew it at some point in time and we are very pleased to have done so.
Todd Raker
So is it fair to say if you look at kind of the bookings performance so far where you guys have been pleasantly surprised, is the willingness of customers to step up to longer term transactions than you originally expected?
Jeff Swainson
We've had a couple of cases where we've ended up doing longer term transactions. The one we were just talking about was one of them. It ended up being a five year deal. That's kind of typical for the systems integrators because they turn around and sign five to seven year deals with their customers so they're trying to balance obviously their -- balance their books, as it were. And we do see occasionally other customers who would like to do longer term deals. As I said earlier, our sort of general pattern, our general guidance to our sales organization is still three years, because we think that provides a good balance of visibility of the future versus surety for our customers. But if a customer comes along and wants or needs to do a five year deal and the economics are right, we will do it.
Todd Raker
Okay thanks guys. Great quarter.
Nancy Cooper
Thank you.
Operator
Our next question comes from the line of Abhey Lamba with UBS.
Abhey Lamba
Thank you. Good quarter guys. Just following-up on the last question, you're talking about deal sizes being, the contract length, sorry, if they're economical for five years you would go for them. Now your contract length has gone up for three quarters. How should we think about that going forward? Should it kind of go back towards three or should it stay here?
John Swainson
If you look at our contract length over the last six or eight quarters, you'll see that it does bounce around a bit. We anticipate it will go back towards three years in the second half of the year and that's the guidance -- our guidance is based on that assumption.
Abhey Lamba
Got you. And lastly, Nancy, how should we think about your constant currency revenue growth beyond 2009? Should it stay in that 2 to 4% range or can it accelerate from here?
Nancy Cooper
Well, we're not giving next year's guidance quite yet, but long-term guidance that we gave a year ago, December, said long-term we're looking to 6 to 8% constant currency growth and we'll update that in December, but that's still the number we believe is our long-term goal.
Abhey Lamba
Thank you.
Nancy Cooper
Thank you.
Operator
Our next question comes from the line of Katherine Egbert with Jefferies & Company.
Katherine Egbert
I have to admit to some continuing confusion on the FX. So you're guiding -- I'm sorry, your cash flow and your bookings up a bit but you're guiding revenue down a little bit so is there an FX impact on bookings and cash flow or is there something organic going on?
Nancy Cooper
Well, actually, Katherine, we're reconfirming guidance at the low end of our guidance range. So we're staying with the prior guidance we had. We're just saying some of the changes we made in services and in the decision in APJ had a greater impact on this year than when we set the guidance. So in the range, we're in the range at the low end of the range.
John Swainson
Constant currency.
Nancy Cooper
But that's a constant currency. When I shift over to reported, if you look at the currencies, the dollar has strengthened against major currencies by about 30% and it happened just recently. If that stays that way for the remainder of the year, the reported growth for full year, that's reported, will be 1% which correlates with the 2% constant currency growth.
Katherine Egbert
Okay. And that's all related to revenue. Is there any currency impact on bookings or cash flow, because those numbers are both going up?
Nancy Cooper
Yes. And we consider that in the guidance that we gave you and it's included in that.
Katherine Egbert
Okay. I got it.
Nancy Cooper
Okay.
Katherine Egbert
Got it. One other one. When you have customers and financial services merge, do they have to pay a fee to transfer that new contract or can they just take over that contract, pay it to the ELA, do they just take over the terms of that ELA and what if it's for a different product, can they just take that over have access to that or is there a cap on how much more they can buy?
John Swainson
Katherine, the short answer is it depends. Every case that you mentioned is true in some circumstance. And some will have to pay to relicense, some by the nature of their contract will be able to assume licenses. In general, they have to come back to us and get our approval, however, to do that assumption.
Katherine Egbert
Okay. We'll just leave it at that. Good job.
Nancy Cooper
Thank you.
Operator
And there are no further questions at this time. I will now turn the conference back over to CEO, John Swainson.
John Swainson
Thanks very much. Let me wrap up quickly, then. In conclusion, we're in a strong financial position. We have no net debt. We have strong cash flows, a reliable revenue stream and one of the strongest product portfolios in our history, built on our EITM strategy. Over the next couple -- over the past couple of years, we've taken significant actions to control our expenses, make business process and efficiency improvements and direct resources to market segments where we see the most opportunity. And we will continue to act in this disciplined way. I believe there will be significant opportunities in the short and long term for companies like CA to provide even more value to their customers as they look for ways to cut cost, be more efficient, mitigate risk and get the most out of their IT systems. Thank you very much.
Operator
And this concludes today's conference call. You may now disconnect.
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