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CA Technologies (NASDAQ:CA)

Citi 2013 Global Technology Conference Call

September 4, 2013 11:15 a.m. ET

Executives

Michael Gregoire - Chief Executive Officer

Kelsey Turcotte - Senior Vice President, Investor Relations

Michael Bauer - Sr. Principal, Investor Relations

Analysts

Walter Pritchard - Citigroup

Walter Pritchard - Citigroup

I am Walter Pritchard, software analyst here at Citi and happy to have with us CA Technologies. We have Mike Gregoire who is the CEO. About eight months on the job now or so?

Michael Gregoire

Yes.

Walter Pritchard - Citigroup

And we have Kelsey Doherty and Michael Bauer from investor relations here keeping the tabs on both corners of the room. So I am going to spend some time going through some questions that we prepared and then we will leave ample time towards the end of the -- or the end of the time for you all to ask questions. Just go ahead and raise your hand and we will bring around the microphone.

So Mike thanks again for coming across street here to come see us. I guess you have been CEO now, as I mentioned, for about eight months. We would love to just get an update from you on what you came to CA to accomplish, sort of understanding this is not an eight month job, this is a longer term job than that. But where are you in that process of what you are trying to accomplish and the....?

Michael Gregoire

Sure. Obviously we are in the early days and when I came to CA the perception I had compared with reality is also in interesting mix. I can walk through a little bit of that but what attracted me to the company is, it has a great balance sheet, a lot of cash. The spend $600 million on R&D. They have got a fantastic distribution engine, a global scale. They have got great customers, almost 10,000 customers. And the thing that’s unique is the cloud. The cloud resets everybody back to zero. And so when you can take all of those assets and where it's appropriate, reposition it for a change in the whole technical infrastructure. And taking a look at this company, it did a great job of going from mainframe to distributed. And now companies are going from distributed to the cloud.

That inflexion point coupled with all those assets and repurposing them is a great opportunity for CA to get to the next phase of its corporate life cycle, and having the privilege and the opportunity to be able to do that was exciting.

Walter Pritchard - Citigroup

Got it. And so as you came aboard, I think there was a sales transition already underway. You mentioned there is the $600 million in R&D spend. Can you talk about your priorities in each of those two areas, sort of two main businesses of CA, making software and building software -- making software and selling software?

Michael Gregoire

That’s -- maybe, Walter, this analyst thing is not a good gig, you should be a CEO of a software company because that’s at the end of the day the two things you have to pay attention to. But they come in a pecking order. And I would put one thing wedged in between them, it is marketing. So what you build, how you market and how you sell. And if you don’t go in that order I think you drive some very odd behavior and you are not a building company that has the ability to last over a long period of time. If you are selling products that don’t exist, you are going to get frustrated customer relationships. If you build great but the sales force doesn’t understand how to sell them or the customers don’t understand what they do because you haven’t done a good job of marketing, that makes your sales expenses very high.

So coming into the company right after that I had a view that we were spending too much money on R&D and not yielding enough organic product. And the acquisitions that we were doing, we were not yielding the kind of results that we all expected. So taking a look at that organization and taking a look at that spend, I have spent almost nine months now with a heavy focus of my time on the products. What's going to make CA relevant in the future is helping customers move their workload and securing their workloads and their applications on to the platform that is most relevant to the problem they are trying to solve, whether that be the mainframe, distributed or the cloud.

From a marketing perspective, a lot of changes in our marketing department. The company was primarily focused on selling to about 500 customers. And when you are selling to 500 customers, the sophistication and the level of intensity that you need to market the company both on the brand, product marketing and lead generation, changes. As we start thinking about how customers buy and the evolution of moving from a mainframe company, distributed company to a cloud company, there is a big marketing story that needs to be told, coupled that that the portfolio is very broad. Helping customers understand where that portfolio fits and how it should be used, I think is important unto itself.

And then when you take a look at the cost of sales at CA, I think it's too high. And part of the reason is there is just no marketing support. We have a very expensive sales force that doesn’t -- hasn’t been using modern marketing techniques like a [indiscernible], for example, to manage lead generation. Our website is antiquated. If you take a look at a modern software company, the number one sales entity is the website. And for us, I wouldn’t say that our website was something that drew customers to want to buy software. And even if they did want to buy software, they wouldn’t be able to consummate a sale through our website. You would have to call once again one of these very expensive sales professionals.

So all that is work in progress and we have different portfolios that are moving faster than others based on the technology and how appropriate it is to move into that environment. But a big work in progress.

Walter Pritchard - Citigroup

Got it, got it. And I think one of the challenges that the company has faced historically has been sort of growth versus margin trade off, especially in the last five or six years. So what perspective do you bring to that trade off and how are you aligning the company to achieve the mix that you have decided is optimal.

Michael Gregoire

I don’t know any company in general that doesn’t have the tension between growth versus profitability. And you know we have that at CA, we have had that at previous companies I have been CEO at. And I think you have to have a balanced approach, you know what problem are you trying to solve. And the big thing I always look at is, be as efficient as you possibly can. Build your products as efficiently as you can and be thoughtful about the markets that those are going to be used in. You want to drive a product into the biggest TAM or total addressable market as possible.

Building a very sophisticated product for a very small market and declaring a victory is not what we are about. We want to build products that have wide use to a big market. And when that happens with a very efficient sales that we are going to get the kind of things we are looking for where we do have growth but we are managing the margin profile of the company. So I think we have to constantly look at that and have a very balanced approach.

When you do acquisitions, that’s usually where you get yourself into an awful lot of trouble on the margin profile and don’t have a very thoughtful view of how that acquisition didn’t work inside the context of your environment. And you want to be very thoughtful on the capital you spend, you want to be very thoughtful of the margin profile of that acquisition within the context of the portfolio. That’s another area that I think we have a new set of religion with respect those types of acquisitions and how they affect the margin profile both in the short, medium and long term.

Walter Pritchard - Citigroup

Got it. So if we look at this year for example, your margins are relatively flat. You are not looking for growth into really the second half. Can you talk about -- is this a company that can both grow and expand margins at the same time or is it literally one or the other in terms of the trade off that’s there.

Michael Gregoire

Well, we haven’t guided to the out years but I would--

Walter Pritchard - Citigroup

Thinking kind of philosophically.

Michael Gregoire

I would like to be in the situation where you can do both. And with a portfolio as large as ours, you are going to have some products in the portfolio that are definitely higher margin. And you are going to have some that you are investing so that they become the higher margins of the future. And repositioning the portfolio which we have spent a lot of time over the last nine months, is trying to get ourselves into horizon one, horizon two and horizon three, where the goal is to be able to grow the company and be able to consistently add a few basis points of margin.

We have done that this year. I think we have added about 80 basis points of margin because we had that one transaction in Q1 itself right down to the bottom line. So if you were to snap the chalk and compare it to last year, we are doing both. Growing and also paying attention to increasing the margin portfolio.

Walter Pritchard - Citigroup

Got it. And you mentioned 10,000 customers, 500 of those it sounds like they are really purchasing from you all the time. You have also expressed kind of a goal of coming down market a bit, getting into the market that’s not your traditional strength around heavy direct sales. Can you talk about what needs to be done to make that a more tangible growth driver for CA?

Michael Gregoire

Sure. Let me first talk about the market unto itself. CA is probably not the best equipped company to sell to a 20 person company. I mean that’s not the problem we are trying to solve. But there is a lot of $300 million to $2 billion companies that could really take advantage of CA technology. And we just don’t attack that market at all. We don’t focus on it, we don’t market to it and even if we were to go after that market, we would go after with a very heavy sales force which I don’t think would solve the problem we are just talking about, it's growth versus margin. There is a better of way of doing that. And most companies I think are important for a variety of reasons.

If you were to go back five years ago and take a look at a $300 million to $400 million company, and take a look at the technical sophistication of that company and compare it to snapping a chalk today, I mean that company is going to be a lot more technically sophisticated. One of the things I love about the cloud is it democratizes technology. Smaller companies can get great technology and we want to be part of that game. Second thing is, those small companies end up being much larger company. The company that I previously ran, Taleo, we had a very sophisticated back office data centers on a global basis. We were doing 80 million transactions a day. Never had a call from CA. And if I would have known what I know today, I would have been hiring headcount and building custom [indiscernible] software to manage that large complex infrastructure, when I could have bought it a fraction of the price, got into a maintenance stream where I was getting continuous innovation and lowered my operating cost.

And I just think of all of the cloud companies that are out there and I think of all of the companies that are truly taking advantage of that technology. They are going to need their applications monitored, they are going to need their infrastructure monitored, they are going to need security. Those are the three businesses that we are in. We are in that business in the mainframe, we are in distributed and we are in the cloud. And I think for us to not pay attention to that market would be more bigger stake for us and I think it's going to be an area where we can actually grow.

Walter Pritchard - Citigroup

Got it. So in the mid-market, can you talk about what you need to do first on the product side to -- obviously a product that Citigroup may consume and use with our 35,000 IT people, is going to be different than a product that a smaller company even if it's -- I am not talking about the 20 person shop but a $300 million company where the few IT people might use. Can you talk about what needs to be done on the product side to benefit there.

Michael Gregoire

Sure. Well, first of all there are a handful of products that fit that mold very well. Where they fit the complexity of the Citigroup as well as they fit a $300 million to $2 billion company. If you take a look at Nimsoft Monitor, great product, downloaded over the web, free trial, manage 1000 devices, up and running in an hour. And as you get more use, big surprise here, automatically it let's our CRM system know at the point where you are using the product to a level of sophistication then we would deploy a sales professional. I mean that is full life cycle model that is efficient, shows customer value and shows true buying intent. And we need to do that for as many products that fit that mold as possible. But Nimsoft Monitor is a great one that fits that. Nimsoft Service Desk is another cloud oriented product. Great user interface, Facebook like usability. You are not sending people to training courses. Open stack so that you can hit our open -- openly published API so you can start adding other applications into the service ecosphere. Great product.

On the Clarity. Clarity unto itself, enterprise application, cloud oriented and now runs well on an iPad. So a service professional or an executive can go look at a beautiful graphical user interface and understand what projects are behind, what projects are ahead. What infrastructure is working, what infrastructure is not working. Layer 7, a company that we bought. Once again skating towards the [indiscernible] humans using a browser to do transaction. Interesting, lot of volume. Machines talking to each other over an open network. We are talking of billions of transactions. Securing those transactions is going to be extraordinarily relevant and the more that we do that and understand the identity of a machine compared to the identity of a human, similar but different. Big market. That gets sold into whether you are a $200 million company or a $200 billion company, it's still an important thing. And the level of complexity in doing it is the same, it still have to be done.

So we have a very broad portfolio that’s moving into this environment and what we are trying to do is get the marketing and the sales engines to nab the product so that we can be as efficient as we possibly can.

Walter Pritchard - Citigroup

So it sounds like the message is on the product side, if I have enough that fits into that channel today that you can sell, that you are really limited by the number of products but you can address a big market.

Michael Gregoire

For sure. But you want to continue to evolve. We do three things, right. We monitor applications, we monitor infrastructure and we secure infrastructure and applications. But when you think of those three things and the number of permutations you can have on a global basis, it's a very big TAM but it's complex. And I think our mission is to try to make that complexity as simple as possible for the customer and we have to have products that are easy to use, easy to sell, easy to install, and the total cost of ownership has to be dramatically different than it has been over the last several years. For us and for everybody.

Walter Pritchard - Citigroup

Got it. And so as we talk about bringing those products down to that customer where the sales model has to be lighter weight and higher velocity. How far away through that process are you evolving the sales process to be able to properly address that market?

Michael Gregoire

I think we are in very early days. I think that -- you know we multiple models that run inside the company and I don’t think that that’s going to change. The issue is, using the same process to solve these different model of problems is extraordinarily expensive. It doesn’t mean it doesn’t work. It works, it's just very expensive. There are better ways of doing it. So we are always going to have ELAs, enterprise software license agreements. I am not arguing whether they are good or they are bad, but you are going to have those and you need a professional that understands the complexity of those contracts and the puts and takes of putting those together. We are always going to be selling to large customers in a renewal cycle.

As much as I would love to sell product when it's convenient for CA, we don’t get the luxury of doing that. We are going to have to sell to large customers, the professional procurement organizations in the context of an ELA. That’s the business model, you put it over here. The good news is, we are very good at that. We know how to do that. But trying to do that with a 200 store retail that has revenues of $600 million and they only operate in the United States, we could sell there for sure but the cost to sales are just too thigh. And I think that that eats upon your ability build good product because now the pressure to build product that’s easy to use, easy to install, easy to maintain becomes less. And I want that pressure on us to be able to build those types of product because I think that coupled with the large market is where the market is really going to be.

Walter Pritchard - Citigroup

Got it. And those areas that a matter of, specially you alluded to [indiscernible] and putting in some of these systems. Can you walk us through systems and people and what needs to happen to get to the point of you targeting that market effectively?

Michael Gregoire

At the highest level, think of a closed loop system. You know from the time you build the product to the time you market a product, to the time a customer first hears and touches your company and/or the product, that you deploy a sales professional, that you deploy a services organization to get the product installed, to the time to contract with that customer until renewal. Closing the loop with each product in each segment. And once again, the way we sell in North America doesn’t necessarily mean that’s the way we should be selling in Europe, which is not necessarily the way we should be selling in Latin America. And even in Latin America, the way we sell in Brazil shouldn’t necessarily be the same we in Chile or Venezuela or Colombia.

And I think we sometime over engineer things too much and we have to pay more attention to those local markets and the people that are in those local markets. Design less friction sales processes and also figure out what products work in which markets.

Walter Pritchard - Citigroup

Got it. Are you comfortable enough at this point that you think the mid-market will be in -- it sounds like it's not really an additive driver yet this year. Is it a driver next year or is it something that’s beyond fiscal '15, I guess, would be next year.

Michael Gregoire

I think you will start to see improvements in that. You know we added 430 or 460 net new clients last year. Now this is not even a metric that the company was truly paying attention to and we are starting to pay much more attention to it. For those of you that have paid attention to SaaS companies, net new customer acquisition is one of the most important metrics. And then the next metric is, is how much does it cost you to get that net new customer. These are things and new muscles that we are flexing and building muscle memory on. And they are important for our evolution and I think they are important to the financial story as well.

I think if you can get to customers with our portfolio and you can get there in efficient manner, I think you are going to start to see both margin improvement as well revenue upside.

Walter Pritchard - Citigroup

Got it, got it. Talking a bit about your -- the other end of the business with the large, the mainframe piece of it. You have -- we look pretty closely at all the forward looking metrics around bookings backlog, revenue backlog, and I won't go down the road of all the detailed questions on those metrics. But I think the high level point is, those metrics have been trending down for sometime but you talked about the renewals, the natural renewal cycle in your business, sort of seeing an uplift in the second half of this year, especially in Q4. Can you talk about the drivers, the profile of that and the duration of that renewal cycle in terms of an uplift for the business.

Michael Gregoire

I think you hit the main financial metrics right on. The renewal business and the renewal portfolio, 75% of our revenue comes off the balance sheet. So what that means is we are looking at all of the contracts that are going to renewal in a fiscal year. And if you take a look at our fiscal year, they are more backend loaded and we have disclosed we have one very large transaction that’s due to close in Q4, and we are progressing along with the work on all of those renewals and that one in particular. The mainframe business as a whole, taking it up a level. Now that’s a business that we said will be minus 1%, plus 1% growth. And that business unto itself is changing and I think we are the net beneficiary of it.

When you take a look at what's going on with Compuware and BMC, and you take a look at who is investing in the mainframe, this is an important part of our business, this is an important part of our story, it's an important part of our cash flow. It's important part of our customer relationships. So we have been investing in the mainframe. And if you take a look at products like Chorus, and especially the new release where it's managing DB2 through a graphical user interface, and the whole concept of that extracting the complexity of the mainframe and putting a nice easy to use graphic interface in front of it, that unto itself coupled with some of the changes that are happening in our marketplace I think makes us more relevant. And I think it takes some of the pressure off of these renewals.

The concept of why would you want to replace CA when they are investing in the mainframe, they are making it easier for my staff to be more productive. The products work very well. We have very high customer satisfaction. Very stable company. And they have got a committed statement of direction and roadmap on all the product lines. So I think it makes our renewal more sticky. I think it takes some of the pressure, not all the pressure, off of the renewal. And I think it just, once again, solidifies a very important pillar of our financial story.

Walter Pritchard - Citigroup

And so as it relates to -- you are alluding to basically a competitive landscape that’s easier than it was a few years ago. With the competitors having trouble as being taken [indiscernible], maybe you are de-investing. Should we expect to see in terms of renewal yields on those contracts, an improvement? Is that kind of the tangible impact?

Michael Gregoire

I think it's too early to tell. I think we have been pretty straight forward with our guidance on it and I would just stick with that. But I got to believe that we are better positioned today than we were a year ago.

Walter Pritchard - Citigroup

Okay. And can you talk about, I think one, the company has very much had the selling notion around selling new products into renewals. And that’s been, if you go back long before you were at CA that was really the process and I think a lot of the things we talked about earlier in the conversation here were around building kind of an off-cycle renewal -- or an off-cycle sales capability. Can you talk about what you are doing to ensure that you can execute on the on-cycle renewal process in selling some of these new product you talked about into the renewals.

Michael Gregoire

Sure. Instead of [indiscernible] I just take it up...

Walter Pritchard - Citigroup

Sure. I sometimes I am fairly focused here and....

Michael Gregoire

This kind of falls into the category of no good deed goes unpunished. You know company is massively successful with the business model where they have got this great customer franchise and they had a tilt to a buyers in field. And they would go buy interesting company, bring them into our distribution channel and be able to sell them. In today's day and age that model has kind of run out of gas. I think that if you don’t have a view on to what you are going to add to what you buy and just put into a sales channel, I think that there is not enough economics to make it worthwhile. So you have to add value.

So if you take a look at what we have been talking about, what we have implemented, is a definite focus on organic. Now organic could be a net new product that we build, like what we have done with Clarity in the iPad user interface. Or it could be significant altering a product with our own organic engineering and bringing at the context of a portfolio, like what we have done with Layer 7 or what we have done with some of the Nimsoft product. And I think if you do that and you have highly differentiated product, it gives you a better chance of selling that product outside of the renewal cycle.

Now you have no chance whatsoever going after that other market I talked about if you don’t have a highly differentiated product, easy to use, easy to install, easy to maintain and the total cost of ownership is lower. So it helps us in both of the markets. The flip side of that, Citigroup is a perfect example. The Citigroup procurement team, you know they are black box [ph] in procurement. They are going to -- they only want to buy in a renewal cycle because they think that that’s where they are going to get the most economic advantage. And even though a customer at Citigroup might want to buy one of our products, they are going to try to push that off until doing it for an enterprise deal for Citi on a global basis and try to get the dollar cost and volume average of that price.

So we are going to have that tension. It's never going to go away. We will get some opportunities to sell outside of renewal cycle, but the real advantage I think is having the highly differentiated product that makes that discussion happen. And in some instances we will get an opportunity to sell outside or renewal cycle. Make no mistake about it, it will be mezzanine deal and that procurement person is going to try to wrap that into the overall enterprise -- and I don’t have a problem with that under one condition, they have to implement the product. You know one of the things that I have been really focused on with our staff and no resistance by our staff, customers that buy product they have to implement, because especially in the ELAs, you are just creating the problem three years out.

If you just take product and there is no real intent of that customer to install it, they are just doing it to try the dollar cost average of their skews. When you come up for that renewal three years later, the products that they never implanted, they are going to want to take the list price of that product off and your negotiation is just that much more complex. So I would rather have that conversation right up front. I am more than happy to get creative with deals as long as you are willing to implement the products and I would want to see some tangible evidence that you have got a credible plan that you are going to put these products into production.

Walter Pritchard - Citigroup

I will pause here with my questions and if anybody has a question in the audience go ahead and raise your hand, we can bring along the microphone and, anything to ask to Mike. Up here is one, in the second row.

Question-and-Answer Session

Unidentified Speaker

Someone yesterday mentioned that in IT you go where the talent pool is. And so I was wondering how good is talent pool in Long Island and are you trying to expand outside of that?

Michael Gregoire

I am not sure I understood the question.

Walter Pritchard - Citigroup

You go where the talent is, okay.

Michael Gregoire

That’s absolutely a fact. And we went through a pretty significant restructure where we took 1200 people out and we rationalized and took 80 development locations down to 40. And we are definitely going to be where the talent is. Now there is lots of talent in Long Island. There is engineering talent there, there is a lot of back office talent. We have the majority of our financial team is in Long Island. A lot of our HR processing, a lot of our IT is in both India and Long Island. And I think that we want to track the best and the brightest of the company and we want to keep the best and the brightest in the company. And Long Island is a big part of our fabric and it's a great location for us. But we are also doing -- I am heading to India on Saturday. We have got 2400 people in India. We have got a huge presence in Silicon Valley. We just moved into our new offices in Santa Clara. Now we have over 500 people there. A lot of interesting cloud engineering going on in Santa Clara. We have a big development facility in Austin, Texas, which has become a great hub for us.

In Europe, in Eastern Europe, both in London and in Eastern Europe in Prague, we have a great job of development and that’s where a lot of the Chorus work on the mainframe is done, in Prague. So we are -- when I think about this, I am not as much interested in labor arbitrage as I am about getting the best and brightest minds to be part of our story and part of our company. And whether that’s engineering talent, financial [ph] talent and sales talent, we want to have the A plus players, as many A plus players in our company as possible. And we are willing to go to the geographies that have those types of people.

Walter Pritchard - Citigroup

Any other questions out there? So, Mike, just staying on that mainframes theme for a second. You know it seems like every couple of years there is an IBM. The three to four cycle that we are seeing. Can you talk about you did see some solid momentum in the last quarter in the mainframe market you talked about. You have seen IBM recently refresh the product. Can you talk about the health of that platform and how you think about adjusting [ph] that platform given growth in other platforms? Is that still a platform that you can view as a growth platform? You know the underlying hardware or how are you balancing new investment there?

Michael Gregoire

You know selfishly [ph] I am looking at it from CA's point of view, I am less concerned about IBM's health on...

Walter Pritchard - Citigroup

But they do ship the hardware and I think that does have some impact.

Michael Gregoire

It does, but the bigger thing is our renewal portfolio. I mean that’s the biggest impact in the short term. In the medium to long term, having that healthy hardware platform is extraordinarily important because as that platform moves to emerging economies, as you start seeing non-G7 nations want to do things like credit cards, insurance, big build manufacturing, those applications are written and exist on mainframes. They are not going to get rewritten. Now for example, when Citigroup goes to Poland, they are not going to rewrite their applications because they are in Poland, and Citibank goes to Brazil they are buying mainframes running on those platforms, our technology will go along with them.

So as you start seeing that platform proliferate into these new economies such as the BRIC nations as well as into different parts of Asia, I think that’s that going to be a tailwind for us out in the future years.

Walter Pritchard - Citigroup

You alluded to the restructuring that you have done early in the year, I read a point now where the majority of those restructuring efforts are substantially complete. What benefits do you expect to get from those efforts?

Michael Gregoire

Sure. We are three quarters of way through on the peoples side and we are on plan and hitting the budgetary targets of equipment front of ourselves. We are also on plan on the real estate and geographic location restructuring. That takes a little bit longer. And the whole purpose of that is re-skilling, going to your point, is the skill sets -- the market is changing, right. The focus here is moving distributed applications to the cloud where appropriate. And if we are 90% talent oriented on distributed and 10% on cloud, yet the world is spending 40% of their budgets on cloud and really haggling hard about the 60% that they have to spend on distributed. And if our talent profile isn’t in line with that than we are going to be in big trouble. So reducing that headcount just gives us the opportunity of headcount flat but getting the right skilled people into the company. And it's much broader than just engineering talent.

You know product management, product marketing, traditional field marketing. We market these products and these programs different than you would on a traditional mainframe application or a distributed application.

Walter Pritchard - Citigroup

Got it. And then competitively, you are seeing a pretty stagnant set of competitors in the distributed market. You know some people call it the big four, CA, BMC, IBM and HP. I am wondering if you look at the cloud kind of this cloud era of computing, who becomes the top efficient in that era. Is it the same companies as you saw on the last era or do you view there to be new set of competitors? And I think the one that we hear a lot of focus on is specifically VMware who is really out talking about sort of management being the driver of revenue for them for the next couple of years.

Michael Gregoire

You know I think that -- first to answer your question, we view all of them as competitors and we have to be thoughtful and mindful. Some of them can cause little nicks an cuts and some of them can cause more of a wound. But a nick and cut that’s not taken care of can end being more a wound. And so I think you have to have respect for all competitors and you have to be more focused on what do you bring into the market to your customers and be aware. But don’t forget that you control your environment. With respect to VMware, it's a very good company with a significant set of technology. But the thing I like about has happened, is they have our endorsed our strategy.

You know we have been saying since the beginning of time that it's the data center and application security and infrastructure are going to be heterogeneous. And it's just now that they have recognized that a one size fits all is just not going to happen. There is nowhere for you to grow. You will be good at a very finite market. In order for them to grow they have got to be in a heterogeneous market. Come on into our world, we have been at it for 30 years. It's complex. We have got 700 patents. We have got 700 patents under review. We have got a sales force that knows how to walk into a data center with distributed, cloud, mainframe. Whether it be in Linux, whether it be on antiquated version of Unix, whether it be a .Net, Azure. We have been managing and securing those environments for an awful long time. So we feel pretty confident that we have got the chops to be able to be the leading provider in that heterogeneous management space whether it be application security or infrastructure.

Walter Pritchard - Citigroup

Got it. We have a question here.

Unidentified Speaker

You mentioned cloud a number of times. It seems like a significant amount of innovation in the cloud space is based on open source. I was just wondering if you can maybe address the impact of open source and how you look at that as a software company.

Michael Gregoire

You know the whole open source movement, once again, you can look at these things as glass half empty or glass half full. I look at it as a glass half full. I mean for us in our own platform we have a platform in which we build our own cloud based application and we take significant advantage of open source software. Open source software still needs to be monitored and maintained as well. So the fact that is proliferating and making applications more readily available. And if you take a look a look at the number of applications that are being built, it's exponentially larger than it was four or five years ago. That’s all good news for us. So the idea is to be aware of it. Understand how it's being used. Take advantage of it ourselves but don’t forget that these open source stacks are being proliferated across a wide variety of platforms and they are generating net new applications.

I take a look at one of our customer's, DIRECTV, they use a number of open stack products but they are generated net new applications all day, every day that are going on to iPhones, iPads, Android devices. All those applications have to be tested before they go into production and when the go into production they still need to be monitored. And when you have a user base as big and as successful as DIRECTV, you are going to want to make sure that those applications stay up and running and you are able to predict the kind of volume that these applications were going to be able to use. Take a look at all the customers that are building these applications because there new store front is that handheld device. I think that’s net beneficial to a company that’s in the securing business, the infrastructure management business and the application business.

Walter Pritchard - Citigroup

So last question, I will wrap it up. You have the dollar a share dividend which is a nice yield for investors and I think was a welcome move about year and a half ago. Can you talk about your capital allocation strategy generally and specifically should be expect over time that that dividend increases. I know that this year it didn’t increase, I think most companies the [indiscernible] is that dividends do increase with profits. So how are you thinking about that specifically in the [indiscernible]?

Michael Gregoire

Sure. I mean once again one of the things that attracted me to the company was the softness [ph] of the capital allocation strategy. I think it's a very thoughtful approach and we are committed to looking at those types of programs. We haven’t given guidance past this year. We are committed to the dollar dividend and we are on the stock buyback. We are still -- we had $452 million that we said we would do this year and we have a 10-B51 program in place to try to enact that commitment. And so all systems are go with respect to what we have already promised and we are continuing to look at what's going to happen in the future but companies who start paying a dividend generally pay a dividend. And I believe that that’s a good use of our cash and we will continue to work the process going forward.

Walter Pritchard - Citigroup

Got it, great. Well, Mike, thanks very much for coming over here and thanks everybody for attending.

Michael Gregoire

Thank you. It's a pleasure.

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