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CA (NASDAQ:CA)

Q4 2010 Earnings Call

May 13, 2010 5:00 pm ET

Executives

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

Kelsey Doherty -

George Fischer - Executive Vice President of Global Sales, Client Services and Marketing

Nancy Cooper - Chief Financial Officer and Executive Vice President

Analysts

Scott Zeller - Needham & Company, LLC

Matthew Hedberg - RBC Capital Markets Corporation

Michael Turits - Raymond James & Associates

Derek Bingham - Goldman Sachs Group Inc.

Philip Winslow - Crédit Suisse

Abhey Lamba - UBS

Katherine Egbert - Jefferies & Company, Inc.

John DiFucci - JP Morgan Chase & Co

Kirk Materne - Banc of America Securities

Operator

Good day, everyone, and welcome to the CA Incorporated Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] At this time, I'd like to turn the conference over to Kelsey Doherty, Vice President of Investor Relations. Please go ahead.

Kelsey Doherty

Thank you, and good afternoon, everyone. Welcome to CA's fourth quarter and full year fiscal 2010 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 is George Fischer, Executive Vice President, Global Sales and Marketing.

Bill will open the call with an overview of the fourth quarter and provide some product highlights. Then, Nancy will review the full year, provide details on our quarterly performance and give us full year 2011 guidance. Bill will open the call with an overview of the fourth quarter and provides some product highlights. Then, Nancy will review the full year, provide details on our quarterly performance and give fiscal year 2011 guidance. Bill will return with a few closing comments and we will take your questions.

As a reminder, this conference call is being broadcast on Thursday, May 13, 2010, 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 a property of CA 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. 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 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, everyone. Thank you for joining us. As many of you know, I am just entering my fourth month in the CEO role, and it has been very busy. I have traveled extensively to Asia, Europe and across the U.S., meeting with our team and spending time with customers, talking to them about CA, our solutions and our strategic vision.

I remain more convinced than ever that the direction we have chose to take this company is the right one. While I will get into our strategy and vision, I first want to talk about our fourth quarter performance. I want you to understand how I view our results, and there are few puts and takes unique to the fourth quarter that I would like to highlight.

So let me start with revenue. Revenue of $1.1 billion was up 3% in constant currency and 7% as reported. North American revenue was $670 million, up 6% in constant currency and 7% as reported. International revenue was $433 million, down 3% in constant currency and up 6% as reported.

Weaker performance in EMEA earlier in fiscal 2010 contributed to this quarter's constant currency decrease in international revenue. As you know, revenue is a lagging indicator in CA's business model. To address our execution challenges in EMEA, we made some changes in the fall, appointing new leadership and bringing on new sales talent. I am encouraged that the fourth quarter sales of new software, excluding capacity, were the strongest we have seen in EMEA and more than a quarters. However, this story is not over, and we can do better.

We continued to upgrade talent in that region and refine our approach. Over time, I know we can increase the revenue contribution from our international markets. EMEA will be an important part of that evolution.

I want to note that we expect the lagging impact from EMEA week sales in the first half of fiscal 2010 to affect revenue in the first quarter of fiscal 2011. With first quarter revenue growth expected to be the trough for fiscal year 2011. The guidance Nancy will provide later indicates that we also expect revenue to accelerate in the back half of fiscal 2011.

Now let me turn to the operating expenses. Non-GAAP operating expenses were $846 million, up 9% on a constant-currency basis, and up 17% as reported. Non-GAAP operating margin was 23%, down from our low 30% range. The biggest driver of this non-GAAP expense increase was the $50 million restructuring we announced in early April. This equates to $0.06 per share in the quarter. This restructuring was necessary to reposition the company's operational capabilities to pursue our growth strategy, including virtualization management and cloud computing. Step like this allow us to invest in new products, new talent, new channels or to do so while preserving profitability.

The next largest driver of expense was sales and marketing. Some of this increase was commissions due to year-over-year growth in new license sales and incentives to promote the sales of our new technologies. A piece of this investment was in people. We were hiring into year end. To grow, we are going to have to change the DNA of this organization as it relates to new channels to market, and we have accomplished some of that through bringing talented people to CA, both through acquisition and recruiting.

I would like to talk about our tax rate for a minute, one of the puts and takes I referenced before. We improved our tax rate. Our non-GAAP rate for the quarter was 28% and 34% for the full year. We continued to refine our tax structure, and we believe we are on a path aligned with industry norms, which is in the lower 30% range. So for the fourth quarter, this yield an $0.08 year-over-year benefit to non-GAAP earnings per share. Given all the progress we have made in our strategy, we are pleased with these overall results.

Non-GAAP diluted earnings per share of $0.34 for the quarter was up 13% in constant currency and 10% as reported. On a GAAP basis, our operating margin was 21%, and our diluted earnings per share were $0.19, up 54% in constant currency and 46% as reported.

And finally, cash flow. Cash flow from operations was $636 million, a slight decrease year-over-year due to the timing of a single installment payments. We ended the year with $1.4 billion in cash flow from operations, which place us at the high end of our expected range.

Now I would like to turn to the business that was closed in the fourth quarter, which will drive future revenue and profit. As we indicated in January, contract renewals in the back half of fiscal 2010 were roughly evenly split between the third and fourth quarter. For the quarter, total bookings were down 4% in constant currency and 1% as reported, reflecting lumpiness in our renewed portfolio, a difficult compare in Latin America and ongoing weakness in our Internet Security business unit.

Sales of new software, including capacity, were low-single digits. Although there were bright spots in our performance, obviously, I am not satisfied with those results and believe we can accelerate that growth and here's why. First, our foundation, the Mainframe, a market that is forecasted to grow at just over 1% compounded annually through 2013, exceeded our expectations in fiscal 2010. While the large portion of our Mainframe business is maintenance, new Mainframe product sales are essential to growth. Excluding capacity, these were up more than 20% in fiscal 2010.

We are number one or number two in every significant Mainframe management product category in which we compete. We are winning because of our strong commitment to the platform, which focuses on innovation and a continuing and expanded role for the Mainframe. We call this Mainframe 2.0.

Then there is the growth part of our portfolio, which features market growth rates at range from the high-single digits to more than 20% compounded annually over the next few years. These markets are where we are focusing our investment and we are seeing progress. The first of these growth businesses are Identity and Access Management business reported on another quarter of record new product sales.

During the fourth quarter, we saw strong sales of both our flagship SiteMinder product and CA Access Control. We added more than 45 new Identity Access Management customers. Some of these were existing customers. Some were completely new.

Here is what is behind our strong results. We talked to customers everyday who want to take advantage of the cloud but have concerns about security. Our Identity and Access Management portfolio enables them to confidently move forward with adoption. CA SiteMinder authenticates and federates users to cloud-based applications and CA Identity Manager provisions users to cloud applications such as salesforce.com. Our next growth business is Service Management and Assurance, CA's monitoring and performance management technology.

In the fourth quarter, Service Assurance, which includes application performance management, eHealth and Spectrum, grew new product sales low double digits year-over-year, excluding NetQoS. Including NetQoS, Service Assurance sales grew more than 25% year-over-year. In its first full quarter with CA, NetQoS new product sales accelerated sequentially and more than doubled year-over-year.

And finally, our Cloud portfolio. We closed the acquisition of three tier on March 25. Three tier's app logic allows CA customers to provision, deploy and scale both public and private cloud services. Customers range from large telcos offering cloud-computing services to e-commerce applications such as jewelry.com. We plan to extend support of three tier to both VMware ESX and Microsoft Hyper-V in the back half of this fiscal year. And on March 17, we closed the acquisition of Nimsoft, IT management solutions, particularly suited for emerging markets and emerging enterprises. Nimsoft new product sales grew more than 75% year-over-year with more than half of that business completed after the close of the acquisition.

We also introduced Nimsoft On Demand, our new Software-as-a-Service unified monitoring solution. In a few weeks since it was launched, more than 100 customers have requested trials of Nimsoft On Demand. We believe infrastructure management as a service will be an important software delivery model for CA.

With a successful fiscal year 2010 behind us, we now turn our attention to 2011 and beyond. The technology market is at an inflection point. Recognized by our customers and industry analyst, creating what I believe as a significant opportunity. I also believe CA is well positioned to capitalize on this evolution. Our customers want to leverage emerging technologies, while also getting the most of their existing investments.

This convergence of requirements is well suited for CA. Customers wants CA's platform independence. Our heterogeneous approach, let's them choose any combination of hardware vendors right for their needs. They want CA's decades of experience and expertise across multiple platforms, from mainframe, to physical, to virtual and cloud. They want CA's global presence with 24-hour support. They can call on us anytime of the day or night to solve problems if and when they arise. And they want technologies to help them keep pace with business demands.

We will continue to invest in our products and solutions, driving for market leadership in the key markets that underlie our strategy: Mainframe, Service Assurance, Identity Access Management, Virtualization and Cloud. We feel good about our strategic direction, and we believe 2011 will be a good step towards achieving our longer-term financial objectives of high single-digit revenue growth.

As you may have read in the press release this afternoon, Mike Christenson is leaving CA effective May 31. I will not be replacing Mike in the COO role. He leaves the company on a solid operational footing, with many of his accomplishments over the last five years having become the fabric of how we run our business today. On behalf of all of us at CA, I would like to thank Mike for his many contributions to CA and wish him well.

With that, let me now turn the call over to Nancy, who will provide details on the fourth quarter and full year results.

Nancy Cooper

Thank you. As Bill mentioned, we had a solid fourth quarter and close to fiscal year 2010, which I will discuss in a moment. Our results reflect the hard work of our global team, a focus on implementing our strategy and continued operational execution. Bill took you through the fourth quarter results. Let me put these in the context of our financial performance for the full year.

Revenue was $4.35 billion, up 3% in constant currency and 2% as reported. Non-GAAP operating expense was $3 billion, up 2% in constant currency and as reported. This is good performance in light of the fact that it includes our fiscal year 2010 restructuring and other investments to pursue our growth strategy.

Non-GAAP operating margin was 31%. This would have been 34%, excluding stock-based compensation, both include one percentage point from restructuring and were flat with last year. Non-GAAP diluted earnings per share were $1.62, up 8% in constant currency and 5% as reported. This include $0.06 per share in restructuring and a $0.04 headwind from currency, and it also reflects an approximate $0.07 per share benefit from our improvement in our approach to Texas as we continue to work to align our profile with industry norms.

And finally, cash flow from operations was $1.4 billion, up 19% in constant currency and 12% as reported. Four points of growth in cash flow improvements resulted from reduced restructuring payments in fiscal 2010 versus fiscal 2009.

On a GAAP basis, our operating margin also improved three percentage points to 29%, and our diluted EPS was $1.47, up 19% in constant currency and 14% as reported.

I am also pleased to announce that we completed our stock repurchase authorization and CA's Board of Directors approved a new stock repurchase program for $500 million, which we announced this afternoon.

Let me now provide some details on fourth quarter performance, which reflects our business as we enter 2011. As we have said, our revenue backlog is the best means of determining future revenue estimates. Total revenue backlog at the end of the quarter was $8.2 billion, a new record of 8% in constant currency and 11% as reported. Both the current and non-current portions of backlog grew on a constant currency and as reported basis, with that current portion growing 4% on a constant-currency basis and 7% as reported year-over-year.

Nimsoft contributed approximately $40 million to revenue backlog in the fourth quarter. As a reminder, Nimsoft primarily sells software on a subscription basis. So let me give you some color behind this revenue backlog.

Our Renewal portfolio is comprised of contracts with various durations, often making year-over-year bookings comparisons less meaningful than at other companies who do not use a subscription model. But to understand our growth dynamics, we will focus on yields on renewals and new product sales. And in the fourth quarter, our renewal yield, essentially a same-store sales metric that indicates the underlying pricing on the Renewal portfolio, was just under 90% for the quarter. This slight sequential decrease in renewal yield was driven by three data center consolidations resulting from our customers, mergers and acquisitions. Without those three deals, renewal yield would have been more than 90%. For the full year, this renewal yield was in the low 90% range, an improvement over the past several years.

Next, new software sales. In percentage terms, fourth quarter new software sales, including capacity, grew low-single digits year-over-year, both in constant currency and as reported. Our distributed new software sales grew high-single digits led by two areas: Service Management and Assurance; and Identity and Access Management. We want to see even more growth out of these businesses, which are significant to our strategy.

After an exceptionally strong third quarter, sales of new Mainframe products, excluding capacity, were down slightly year-over-year. But for the full year, sales on new Mainframe products were up over 20% and validate our investments in the Mainframe. Mainframe capacity was flat year-over-year, reflecting the mix of business in our Renewal portfolio.

And finally, the dollar value of new stand-alone software sales increased more than 20% year-over-year. Bill gave you many of the details on our fourth quarter results, so I have just a few additional things to cover.

Total revenue for the quarter was $1.1 billion and grew year-over-year 3% in constant currency and 7% as reported. This includes a positive foreign exchange impact of approximately $37 million year-over-year. We did see a slight sequential decline in total revenue, which is primarily attributable to currency.

Subscription and maintenance revenue was $968 million, up year-over-year 2% in constant currency and 6% as reported. Revenue from professional services was $76 million, down 13% in constant currency and 10% as reported. While revenue improvements in services will be a lagging indicator, new engagements accelerated in the back half of the year. A dollar value of new services contracts grew sequentially and more than 30% year-over-year in the fourth quarter.

Revenue from software fees and other was $59 million, up 50% in constant currency and 55% as reported. This growth includes $11 million in revenue from NetQoS. Please note that the revenue contribution from Nimsoft was not material due to a subscription pricing model.

On the income statement for the quarter, non-GAAP operating income before interest and taxes was $257 million, down 14% on a constant-currency basis and 18% as reported. As Bill mentioned, our non-GAAP operating margin was 23%. Excluding the three percentage points of stock-based compensation expense, our non-GAAP operating margin was 26%. This was negatively affected by five percentage points due to restructuring.

Turning to GAAP results for the quarter. GAAP operating income was $232 million, up 33% in constant currency and 29% as reported. Our effective GAAP tax rate for the fourth quarter was 54% due to the effect of discrete items in the quarter. Our full year GAAP tax rate was 34%. From a GAAP perspective, this yielded a $0.02 year-over-year benefit to EPS in the fourth quarter and a $0.06 year-over-year benefit to full year EPS.

Now for cash flow from operations. Cash flow from operations in the quarter was $636 million, compared to $648 million in the fourth quarter of fiscal 2009. This was down 4% in constant currency and 2% as reported. Fourth quarter cash flow from operations was affected by a year-over-year decrease in single installment payments, which were $182 million in fiscal 2010, compared to $244 million in the fourth quarter of fiscal 2009. Year-over-year total billings backlog of $4.6 billion was up 13% in constant currency and 16% as reported. DSOs were up slightly year-over-year.

Now I'd like to turn to our review of our balance sheet. CA ended the quarter with approximately $2.5 billion in cash and cash equivalents and $1.5 billion of total debt, bringing our net cash position to approximately $1 billion. During the quarter, we close the acquisition of Nimsoft for approximately $350 million, and this was funded through offshore cash.

As I mentioned, between January and April, we purchased approximately 6.7 million shares of stock for a total of $156 million. This completes our $250 million stock repurchase authorization, which was announced in October of 2008.

Now I will turn to fiscal year 2011's guidance. Please note that all non-GAAP operating measures will be reported, excluding stock-based compensation expense on an ongoing basis. Guidance provided this afternoon reflects that change. In addition, guidance presented in this afternoon includes approximately $0.06 of dilution from the acquisitions closed during fiscal year 2010.

Let me remind you, as has been our practice, guidance is based upon March 31 exchange rates and includes a partial hedge of operating income. Guidance for fiscal year 2011 reflects our decision to invest in the company, and at the same time, to continue improvement in financial performance.

Guidance is as follows. Total revenue growth is expected to be in the range of 3% to 5% in constant currency. At March 31 exchange rates, this translates to reported revenue of $4.5 billion to $4.6 billion. The range on non-GAAP operating margins, excluding stock-based compensation expense, is expected to be 34% to 35%, which is flat to up to one percentage point from fiscal year 2010. We continue to expect our GAAP and non-GAAP tax rate to range between 33% and 34% in this fiscal year, flat to a one-point improvement over fiscal year 2010.

Non-GAAP diluted earnings per share growth, excluding stock-based compensation expense in constant currency, is expected to be in the range of 7% to 12%. At March 31 exchange rates, this translates to reported non-GAAP diluted earnings per share of $1.87 to $1.95. Fiscal year 2010 non-GAAP diluted earnings per share was $1.74, excluding stock-based compensation expense.

GAAP diluted earnings per share growth in constant currency is expected to be in the range of 5% to 11%. At March 31 exchange rates, this translates to reported diluted earnings per share of $1.56 to $1.64. And cash flow from operations is expected to grow at 2% to 7% in constant currency. At March 31 exchange rates, this translates to reported cash flow from operations of $1.4 billion to $1.475 billion. This includes approximately $50 million in restructuring cost, which will reduce cash flow by 3% and is why our non-GAAP earnings per share and cash flow from operations growth differ in fiscal 2011.

For the full year, we expect approximately 513 million actual shares outstanding and a weighted-average diluted share count of approximately 514 million shares. This does not include the effect of any future stock repurchases. Guidance does not include the effect of any future material acquisitions.

Before I close today's remarks, I would like to give you a little additional color on the first quarter. First, as Bill mentioned, we expect revenue to accelerate as we move through the year. As a result, we expect the first quarter revenue growth will be the trough for the year. Second, fiscal year 2010 first quarter included approximately $400 million in managed service provider contracts, which will not recur in the first quarter of fiscal 2011. Third, first quarter results will include approximately $0.02 of expenses related to CA World, our user conference.

In addition, last year's first quarter cash flow from operations included a single installment payment of more than $100 million, which we do not expect to recur this year. And finally, please note that from a full year perspective, our renewal portfolio in fiscal 2011 is weighted towards the back half of the year.

We talked with you in March about our longer-term objectives of revenue growth in the high-single digits, protecting and expanding profitability and double-digit cash flow growth. Fiscal year 2011 guidance is the first step in that direction. It reflects strategic investments made to position CA as a market leader, accelerating growth in our strategic product areas, which translates into growing revenue over the year in a gradually improving business environment. I look forward to seeing many of you at CA World next week and we'll now turn the call over to Bill.

William McCracken

Thanks, Nancy. Before I turn the call back to Kelsey for questions, I would like to make a few closing comments.

We have set the company on a course for market leadership. We have a great asset in Mainframe that we are nurturing and that will help fund our future. We are investing in growth markets, where we have established market leadership, such as Identity and Access Management and Service Assurance. And are committed to establishing leadership in high-growth, next-generation technologies, such as virtualization and cloud.

We are focusing on gaining new customers. The more than 14,000 emerging enterprises with revenue from $300 million to $2 billion, a market that we have not reached in the past and we'll now serve through our acquisition of Nimsoft and investments in the channel.

We are investing in emerging markets, countries with growth rates well above our currently established market. And we will be offering some of our management solutions in a Software-as-a-Service delivery model that is easy to use.

I am working very closely with the teams to ensure operational discipline around these initiatives removing any obstacles that prevent our growth. As I have said, we will measure our success through growth, both at the top of the P&L in revenue and at the bottom in earnings per share, as well as cash flow.

In a few days, we will kick off CA World in Las Vegas. It is our premier user conference and we expect about 5,000 customers to attend. For those of you who plan to be there, I assure you, you will come away with a clear understanding of why I am so confident that CA is a company that help customers get the most out of their data processing centers, whether internal systems, in the cloud or combination of both. So with that, I will turn it back to Kelsey, and we look forward to your questions.

Kelsey Doherty

Thank you, Bill. As the operator is polling for questions, I would like to inform you that CA will be hosting an Investor track at CA World next Monday, May 17. Portions of this event will be webcast. For details, please consult our Investor Relations website at investor.ca.com.

In addition, CA is presenting at the Morgan Stanley Cloud Computing Symposium on May 25, the Cowen and Company's 38th Annual Technology Media and Telecom Conference on June 2, the UBS Global Technology and Services Conference on June 8 and the RBC Technology Media Communications Conference on June 9, all in New York City. Operator, please open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from Michael Turits with Raymond James.

Michael Turits - Raymond James & Associates

Couple questions on the revenue guidance. First off, I don't know how much you were thinking you'll be getting from acquisitions, so how much of that is inorganic? I don't know, my first thought was maybe a point. If that's the case regarding basically the same kind of growth rate as you did in fiscal '10 when you would think that you suddenly starting to see acceleration off of a relatively weak year. So first question and I do have a follow up is why the acceleration given you expect to be a stronger renewals in the back half?

Nancy Cooper

Sure, Michael. It's Nancy. First of all, we are encouraged. If you look at our revenue backlog, it's in a new level of $8.2 billion, so that is encouraging to us. And you are correct, the acquisitions do add to the revenue growth of 3% to 5% is a point up from our prior year guidance. We have a recovering Services business, which actually decelerated our revenues, so we are encouraged, but this is the level we feel encouraged at right now. I think we've talked about in the last couple of calls that we've had items in Europe that we needed to address, and we changed the management teams. And then when you change the management team, our revenue model is a lagging model. But we have the impact of that EMEA still coming through, and you heard Bill mentioned that in his commentary. So you kind of have to take the combination of services gradually recovering, EMEA gradually recovering, positive effects from the acquisition, which made us comfortable feeling 3% to 5% was the appropriate level.

Operator

And our next question will come from John DiFucci with JPMorgan.

John DiFucci - JP Morgan Chase & Co

George, just looking out across software in this quarter and most of the names have reported before you. We saw sort of less than normal seasonality for a lot of names out there. And I'm just curious from what you're seeing in the market, I guess are you seeing -- the December quarter seemed like sort of a normal seasonality, the March quarter seems like a little less than that, and I'm just curious, what are you seeing? And did you see any difference as the quarter progressed? Was this a normal linearity quarter, or did it get better or worse as it progressed?

George Fischer

Well, what I'm seeing across the board, particularly in the key areas that we're noted, the pipelines are accelerating. I saw some broad-based recovery of the IT economy, Brazil, India, EMEA, we had some very strong orders, so I'm seeing an acceleration in pipelines in most of the areas. So for my perspective, we're looking at a much more normal environment in terms of seasonality. On the Services side, we saw an increase in the number of transactions and also an increase in the size of the transactions, which you tell me that people are willing to move ahead with larger and broader projects.

John DiFucci - JP Morgan Chase & Co

But when I listen to that, George and Nancy, to sort of follow up to Mike's question, you would expect your anticipation of this year to be a little bit better. And Mike was talking about revenue, I'll talk a little bit about cash flow. For fiscal '11, your guidance, it's low relative to your long-term goals of mid- to high-teens growth. I understand you have the restructuring this year of $50 million that'll hit cash flow, but I believe most of that is personnel expenses. And if you sort of to do some back-of-the-envelope calculations, you should more than make up for that I would think, that $50 million in savings on personnel even if you just got half the savings this year or so, so I'm not sure. Listen, their cash flow growth is a good thing, and that's what you're saying. And at the same time, 2% to 7% is different from the mid to high teens and it's actually materially different. So if you could comment on that, please?

Nancy Cooper

Sure, John. The reason on both fiscal year '10 and fiscal year '11 guidance I called out restructuring is I wanted to show the impact of those kind of flow at different times and your P&L hit takes place, so it really is important to kind of factor that in. I mean, the other thing you have is you noticed in the call, we mentioned commissions were higher in the fourth quarter and is part of why we landed at the 162, the cash effect of that hits next year and is actually another two points. So you put the two points plus the three points, you get a five-point impact, and you can see that then your cash flow is aligned with your earnings growth.

John DiFucci - JP Morgan Chase & Co

Yes, but that happens every year, right? I mean, it's your fiscal fourth quarter, so you pay that in the first quarter the following year. And again, I think the restructuring, you're going to incur this as far as the cash expense had to do with -- mostly had to do with personnel cuts, so you won't be paying those people going forward. It just seems...

Nancy Cooper

John, you just cleared up your question for me, thank you. The base thing about the restructuring was a restructuring was a reinvestment in the business. So the people that we removed from the business were actually reinvesting, and we started that in the fourth quarter. And we're actually going to end up slightly ahead of where we were last year in the first quarter by about 100% or so ahead. So what we did to do the strategy, a restructuring was really critical to accelerate our adoption of the strategy, because we have a skill mismatch, and so we are ending up with more people but they're the right people to develop the strategy.

William McCracken

So let me comment, this is Bill, a little bit too. Nancy is getting on the right point, too, and I think answers your question. But as we said, we started last year investing in where we're going. That's why we drove the restructuring we did. We want to rebalance the skills that we had on to the new places we're going: virtualization management, cloud, security in the cloud. And as we move into this year, we're continuing to add the skills we want. We'll continue that through the year and increase it as we go through the year. And there's another piece, it's very, very, important. You may recall this when we talk before, and that is we're going after emerging geographies and we're going after, additionally, the emerging enterprises, the 14,000 accounts that's between 300 million and 2 billion. And the Nimsoft acquisition we made was for two reasons: one, for the technology; and two, for the channel of delivery primarily through NSPs. One of the primary reason, I mentioned this once before, one of the primary reasons we did that, and Gary Read, the CEO there, want to come with us is, he couldn't fund going after the demand that was actually out there. We can. We are. We're developing that channel, we're investing heavily in that channel, we're increasing our investment in international markets by 28% this year, so we're going after the strategy that we defined for you. And what we're going to do and we're investing in that, and it's going to turn it back to us as we go through the year, because that revenue growth does accelerate as we go through the year. Did that helps, John?

John DiFucci - JP Morgan Chase & Co

It does help and I'm sorry, just I have to follow-up to that. I mean, if I heard you right, you said you're going to -- and I understand all that, and you're investing for the future and all that. But it just seems like you should start to see some benefit to that if you're getting the right people. Like, for instance, if I heard you right, Bill, you said that you're going to extend support of 3Tera of VMware ESX by the second half of this year. I mean, it's just if you were going to try to create an infrastructure to support cloud computing, I don't see how you can't -- I mean, wouldn't that be your number one priority? And have everybody get that done like as soon as possible? I mean, if you're not supporting VMware, how can you even call yourself a cloud computing company at least using 3Tera?

William McCracken

John, a couple of things. First of all, you know the model that we're on as far as revenue and closing transactions. And so when we're closing them out the increasing rate as we go through the year, revenue for us is a lagging indicator. So if we say it's growing as you go into the back end of the year, you can pay us forward that into the following year then and understand what that means. Now on the 3Tera, we're already in the market with that on a platform that was a part of it, and you will see in here, as everyone will, when it come to CA World next week, that in fact, we are introducing significant capability into the marketplace, and you'll see a demonstration of what our strategy is and delivery of those products, and so that's one of the reasons I've said in the back end. What I've said on the introductory part is that you will see that we're starting to deliver on that. And yes, we're going to push hard on the additional platforms. That's one of the things we bring to the marketplace. And you can trust that we'll be on it, but I gave you a range of where it's going to be. It's a reasonable range and we'll continue to push it. So I think when you walk away from where we already are with cloud capability, virtualization capability and walk away from next week at the CA World, I think you understand that we've got all of the resources driving at it.

Operator

[Operator Instructions] We'll take our next question from Phil Winslow with Crédit Suisse.

Philip Winslow - Crédit Suisse

Just a question on the Mainframe side, just curious what you're thinking as far as pricing goes, or what are you're seeing as far as pricing goes this quarter and the past couple of quarters? And obviously, with the release of the IBM Mainframe coming later this year, any sort of changes that you're expecting to the environment, or any unique features that you believe are going to be part of Mainframe launch?

Nancy Cooper

Sure, Phil. On the Mainframe, we're really encouraged from the reception we've received on Mainframe 2.0. We feel we've added terrific value to what we've offered our customers. And because of that, we just recently announced a 5% increase in their maintenance price, and we feel that will be well received for the future functionality we've provided. And in addition, we provided our Mainframe customers, what you saw, a 20% growth year-over-year in new capabilities to run their Mainframe business. And we're seeing an uplift in the Mainframe workload that maybe George, can you give him some color.

George Fischer

This is George. Often we're asked to correlate up the IBM shipments with our capacity. It's not directly correlated, but what it does do is there's a big move for more workload to be driven in the IBM platform. So we have a number of announcements at CA World that are accretive both to our DB2 products and the entire Mainframe line. Very, very bullish on those pipelines. As Bill said in his remarks, we had two quarters of very good new license growth on the Mainframe. We're also seeing quite a bit of capacity being driven by the move to the cloud, and we still see customers looking to increase capacity through this year. So we're bullish. We're looking forward to the IBM announcements as they come out. It drives a lot of workload to the platform, and that's good for CA.

Operator

We'll hear our next question from Katherine Egbert from Jefferies.

Katherine Egbert - Jefferies & Company, Inc.

My question is on both the revenue backlog and then bookings. So the revenue backlog has been going up and that's been the trend. But the bookings are still down 5% or 6% with or without currency effect year-over-year. It feels like you're doing better mainly because of the increasing renewal yield, not so much because of new deals. Can you comment on that?

Nancy Cooper

Sure. So Katherine, one of the things we've really point people to is the revenue backlog is the best indicator of us building our business. And that's why we hit a new record level of $8.2 billion, and it grew both on the current and the non-current portion. It grew 4% constant currency on the current portion. So that really is the main indicator for us, because when you look at bookings, you're comparing one set of renewals to another set of renewal. And the most important thing for CA is to have a disciplined approach to established renewal schedules. And when we renew a product, make sure it's renewed at an appropriate renewal yield. That, along with selling new products, is how you're seeing that revenue backlog starting to grow. And that, we feel, is much more indicative or much more a better indicator of a leading indicator and strictly a bookings renewal.

Katherine Egbert - Jefferies & Company, Inc.

And can you just help what sustainable as far as a renewal yield? Is 90% the right number to be using?

Nancy Cooper

Actually, we feel very encouraged. Couple years ago, we were at 70%, we're up to 90% and we'll always try to derive it a little bit higher in the 90%.

Operator

We will take our next question from Abhey Lamba with ISI.

Abhey Lamba - UBS

Nancy, can you nurse some words the amount of option expense included in next year's guidance? And also, what is the little bit about your hedging activities and how should we should think about movement of currency and its impact on your guidance? Which elements are hedged and which elements are more exposed?

Nancy Cooper

Could you just, Abhey, just clarify your first question a little bit more?

Abhey Lamba - UBS

The amount of option expense included in your guidance, the stock option expense?

Nancy Cooper

Stock options. Well, we are excluding it now from non-GAAP pro forma, what you will have is you'll see we added $1.62 became $1.74, so it's a $0.12 impact. And in the guidance we gave you for next year, of the $1.87 to $1.95 (sic) [$1.96], it's $0.12 and it comes in evenly by quarters. Does that answer your question?

Abhey Lamba - UBS

Yes, that does. And how about the impact of hedging on your guidance?

Nancy Cooper

Sure. On hedging, we hedged the majority of our cash flow and that's what we feel is important to hedge, and we hedged it at the beginning of the year. If you're asking the impact on currency, we thought it was very important to call out. We did currency as of March 31, because that is the practice we've been using here, because that's our year end and how we start the next year. It's even more important right now because I'll tell you, if you'd ask me that question four days ago, I would've told you it's a $0.02 headwind. If you asked me that question two days ago, I'd tell you it's a $0.04 headwind, and I expect us to have quite a bit of variability and not all currencies moving in the direction. So we've thought about that carefully and decided what's best to keep it at March 31, because we think currencies could go in a variety of directions this year.

Operator

Our next question will come from Derek Bingham from Goldman Sachs.

Derek Bingham - Goldman Sachs Group Inc.

I want to make sure I was clear on the maintenance pricing increase. That was 5% for all Mainframe products?

Nancy Cooper

Yes. We announced it and it's effective July 1.

Derek Bingham - Goldman Sachs Group Inc.

And then can you just remind me how that compares to your pace of maintenance price increases in the past? When have you done those historically?

Nancy Cooper

Sure. So three years ago, we did a 6% increase. Two years ago, we did a 3% increase. During the downturn, we did nothing. And so now this will be the next, it is 5%.

Operator

Your next question is from Matt Hedberg with RBC Capital Markets.

Matthew Hedberg - RBC Capital Markets Corporation

Nancy, could you talk a little bit about Q4 close rates? I guess, specifically on a year-over-year basis? And then are your assumptions for '11, are they for consistent close rates?

Nancy Cooper

Would you, Matt, kindly define what you're calling a close rates, so I answer those question?

Matthew Hedberg - RBC Capital Markets Corporation

Looking at your pipeline business, you obviously make certain assumptions on which deals are closing or scheduled to close. Are those more or less conservative than they kind of exited Q4?

George Fischer

It's George Fischer. We were very pleased with the close rates across the line. As I said, we had very good surgeon pipeline across our strong new license sales areas. Bill addressed all of our workaround assurance, service assurance and service management were very strong, so we had a high close rate. We also had one of the best security quarters ever. So we added 45 new clients for enterprise under new management which was very, very strong. So we had good pipelines, we had good close rates. On the portfolio side, we also had a very successful. Basically, the entire inventory went very smoothly and we closed successfully. And we're looking forward to continued expansion and pipeline, but also a good portfolio year.

Matthew Hedberg - RBC Capital Markets Corporation

Real quickly on the acquisitions you guys have done, can you give us a status update? Obviously, you guys have put us some good organic numbers in the Q4 quarter, Nimsoft had a good quarter. Can you talk about the integration efforts ahead of schedule at this point, and maybe how much left is to do there in terms of integration?

George Fischer

I just want to comment on the NetQoS. That's worked out great for us, because along with why our application management product Wily and NetQoS pretty much put us in the dominant position in the marketplace for recovering network reliant applications, so it was very, very powerful, also, obviously, for revenue and new customers. So it's a great technology boost for us and it covers a broad spectrum. So you couple that with what's going on with Spectrum, our network manager, we closed some of the largest transactions ever for that technology. So those integrations both on our story and also direct integrations was great. On the Nimsoft side, we're very pleased the technology continues to prove to be, in some cases, even better than we thought it was before we purchased the asset. It has incredible customer response for quality, ease of use and the business model. So it's covering all the bases for us and it's actually igniting more infrastructure business. As you know, we have a continuing solution from Nimsoft all the way up to application management. So we're very encouraged about how well these acquisitions are integrating into our markets and also into the story.

William McCracken

Matt, this is Bill. Let me comment on that, too. We've talked about this a different times and I've talked about it with a lot of you in the past, too. We're really pleased with the acquisitions we've done. The performance of NetQoS like George said was great this quarter. Nimsoft is new, but the transition is very good, and the close rate that they had during the quarter was record-setting for them. But if you just take a look at all the acquisitions we've done over the last five, six months, they're all designed to be part of the strategy we were talking about. And when I was talking to John earlier in the call here, each of those is specifically oriented toward the cloud and to a virtualization management. And they address each of the pieces and combined with the capability we already had is delivering new capability into the marketplace. And so we're very pleased with the way they have fit into our company and with the way they allow us to grow as we go through the year.

Operator

We'll hear next from Kirk Materne Rafferty Capital Markets.

Kirk Materne - Banc of America Securities

Can you just give me some ideas about how, I guess, the sales kickoffs gone? I guess to George, did you guys do any sort of territory changes, are quotas in place? I assume all the sales force is ready to go in the CA World next week with their quotas and territories set.

George Fischer

We had a very good fast start. For the fourth year in a row, we issued to pay plans and quotas the very first week of our year, which we're proud of. So no operational issues in fact. We think it's a big competitive advantage of ours. We pay commissions on time and have a stable territories. Also, very much improved over the last four years on the continuity of account coverage, which is a great yield for us. In addition, we held a series of regional kickoffs around the globe that we're very successful in terms of training, getting us ready for this year. As you know, we have an opportunity to talk about a lot of the new solutions and offerings that we have we're bringing to market, so that was a great opportunity. Obviously, with a new strategy and some enhanced products that shows people are very excited about bringing that to market. We also had a very successful recruiting campaign in our fourth quarter, so we had a lot of new sales people. The good news on that for us, many of them are experienced hires, so they ramp very quickly and our ramp rates our going quickly. And as you know, this weekend, we have our CA World. It is the best that we've had in several years, and we're launching a series of solutions there. So we're very bullish on the fast start that we have so far, and obviously, we're also very pleased that the IT economy is waking up and people are much more receptive. The other thing that's very positive for us, we're getting a lot of technical traction, we're winning a higher level of trials, POCs and head-to-head competition. So that's leading to a good fight and obviously, a very good close rate. So we expect to have a nice jump off CA World too with the new products.

Kirk Materne - Banc of America Securities

Maybe one follow up for Nancy. So when you look at the back-end loaded nature of this year, is it fair for us to look at the model as we exit this year, either from a backlog growth standpoint or from a revenue growth standpoint is sort of the benchmark you'd like to be running at for the full year and fiscal 2012?

Nancy Cooper

Sure. We're going to have accelerating revenue growth all year, and that should bode well for the next year. Absolutely.

Operator

We'll hear our next question from Michael Turits with Raymond James.

Michael Turits - Raymond James & Associates

I don't know if anybody address it, but with Christensen leaving, any discussion of where you'll push into these two?

William McCracken

I'm sorry, the last part of that, I heard you said with Mike Christensen's leaving, I didn't hear the last part of the question.

Michael Turits - Raymond James & Associates

Sure. What happens to his reports? What do you do with what he was covering?

William McCracken

George has worldwide sales and support and service that he runs completely, and the operational day-to-day pieces I take on and that is frankly what I do as what I've done all my careers the operations side. So that's why after he made that decision, we decided not to replace him, because I pick up the operations piece, George runs the worldwide sales and marketing for us and that will continue as it was before.

Michael Turits - Raymond James & Associates

Did you just say how much of that 3% to 5% constant currency growth was inorganic for next year?

Nancy Cooper

I didn't say, but it is around a point.

Operator

The last question will come from Scott Zeller with Needham & Company.

Scott Zeller - Needham & Company, LLC

Back to the earlier questions about acceleration for this year. Could you give us some more color around the bookings that you have teed up for the year, and specifically around deal size in contract to opportunity size? Is there a difference this year in what you're looking at versus what we saw last year when there were some quite sizable deals?

Nancy Cooper

Yes. So Scott, it's really important with our model on revenue the things about bookings in the following manner: we sell new product sale. That's part of our bookings. For selling those, you heard George talked about the pipeline. We have services, we expect that to be recovering over this year. And then, our renewal portfolio is a very managed portfolio of days closure coming up for renewal. So what we're doing is we manage those for their expected dates. And while we try to make sure we optimize the best economic value on those renewal. So they're back-end loaded this year. That's why I mentioned their renewal portfolio get managed that way, and that should improve. The beginning of the year has its impact from EMEA, the back-end part of the year has much better portfolio of new products to sell, which you heard George and Bill talk through, a recovering Services business that will take off in the second half and then the EMEA team has been dramatically changed, and we're very encouraged by what we see.

Michael Turits - Raymond James & Associates

So let me just sort of wrap here a little bit, because I think what Nancy is just taken for Scott is an important flow of what happens. That's why we look so much at revenue backlog, because that's really where we look and manage the company from. It's a best indicator for us when you have new sales and service to that. And then when you add to that the acquisitions we've made, the way they're being incorporated into what we do, the improvement we felt coming through the second half of the year in EMEA, the improvement we saw coming through the second half of the year on the Services side, it all points to that continuing growth as we go through next year. And we're very pleased with where we sit. And we think we're right in the heart of where the industry is going, and we think we'll be a leader going into that. So thanks to all of you for joining us today, and we look forward talking to you again.

Operator

Once again, ladies and gentlemen, this does conclude today's conference call. We thank you for your participation.

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Source: CA Q4 2010 Earnings Call Transcript

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