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CA, Inc (NASDAQ:CA)

F2Q11 (Qtr End 9/30/10) Earnings Call

October 21, 2010 05:00 p.m. ET

Executives

Kelsey Doherty - SVP, IR

Bill McCracken - CEO

Nancy Cooper - EVP & CFO

George Fischer - EVP, Worldwide Sales and Operations

David Dobson - EVP & Group Executive, Customer Solutions Group

Analysts

Gregg Moskowitz - Cowen

Philip Rueppel - Wells Fargo

Shaul Eyal - Oppenheimer & Co

John DiFucci - JPMorgan

Michael Turits - Raymond James

Brian Thackray - Deutsche Bank

Matt Hedberg - RBC Capital Markets

Derek Bingham - Goldman Sachs

Operator

Good day everyone and welcome to the CA Technologies Second Quarter 2011 Earnings Conference Call. Today's call is being recorded. At this time I would like to turn the call over to Ms. Kelsey Doherty, Senior Vice President of Investor Relations. Please go ahead.

Kelsey Doherty

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

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

Bill will open the call with an overview of the quarter. Then, Nancy will review our second quarter results and affirm full year guidance. Bill will return to conclude and then we will take your questions. As a reminder, this conference call is being broadcast on Thursday, October 21st, 2010 over the telephone and the Internet.

The information shared on this call is effective as of today's date and will not be updated. All content is the property of CA Technologies and is protected by U.S. and International Copyright Law and may not be reproduced or transcribed in any way without the expressed written consent of CA Technologies. We consider your continued participation in this call as consent to our recording.

During this call, non-GAAP financial measures will be discussed. Please note as we told you on the last earnings call, all non-GAAP operating measures will be reported excluding share based compensation expense on an ongoing basis. Prior period non-GAAP metrics also reflect this change for comparative purposes. In addition, guidance provided this afternoon reflects the affect of AFC 260-10-45 which became effective in 2009.

For further information please reference footnote six and table five in the press release.

Reconciliations to the both 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 these forward-looking statements. Please refer to our SEC filings for a detailed discussion of potential risks. So with that, let me turn the call over to Bill.

Bill McCracken

Thanks Kelsey and good afternoon to everyone and thanks for joining us. I am pleased to announce that CA Technologies had grown at second quarter. These results demonstrate that we are making progress. Our strategy to manage and secure physical, virtual and cloud environments is the right strategy and the changes we made to our organization and our focus on rigorous execution are beginning to pay off.

Year-over-year revenue grew 5% in constant currency and which is at the high end of our revenue expectations. Non-GAAP operating margin was 35% reflecting the planned delusion from acquisitions they were closed during fiscal 2010. Even with these investments non-GAAP EPS was up 10% in constant currency.

Cash flow from operations was up 11% in constant currency and amid our expectations. And finally both current and total revenue backlog grew, a good indicator for me of our future revenue growth.

Let me give you a little insight about our sales performance within the business book during the quarter. Total new product sales and capacity grew at high single digits year-over-year. Within this, our distributed products delivered the strongest new sales performance in 10 quarters. Even more satisfying is the breadth of demand across our portfolio.

Project and portfolio management and identity and access management, both grew new sales of products double digits with service insurance tripling year-over-year. It was a record quarter for security, specifically identity and access management.

We were also pleased that we were able to achieve this new sales growth, despite a significant decrease in mainframe capacity sales. This was due to the nature and mix of our renewed portfolio in the quarter which was weighted toward distributed.

Finally, given the lumpy timing of our renewals, I look to our renewal yield to judge the health of our portfolio. Our renewal yield this quarter was in the low 90's consistent with previous quarters.

As we have said over the past few quarters the renewal portfolio increases in the second half of fiscal 2011 compared to the first half and we expect momentum in mainframe to build as well. This combined with our strong first half performance gives us confidence in our ability to achieve our full year outlook which we are re affirming this afternoon.

At the end of last quarters earnings call I highlighted our operational priorities. They continue to be. Increasing the number of free standing stales with new products, responding to customer demand in both geographies and emerging enterprises and continuing to alight the organization to be more responsive to customers needs and emerging trends.

I believe these priorities will help us unlock the value of CA Technologies. And while we are not yet done we did make very good progress against these objectives during the quarter.

Let me first address free standing sales. We look at this in terms of how we engage our customers. Are we becoming less dependant on our renewal cycle as a compelling event to sell new products to our customers. Free standing sales give us the opportunity to increase our share abroad through both cross selling the current customers and the addition of new customers.

Our success can be seen in our progress in new product sales and we expanded our foot print with 100 new major market accounts this quarter. Another proved point is our success with emerging technologies like virtualization management which are driving purchases across the portfolio.

For example, the U.S. army made a significant investment across project and portfolio management, service assurance and virtualization management and automation solutions.

Rooms to go versus virtualization management integrated with infrastructure management and customers like Logicalis are already using our virtualization management and automation technology to deliver one of the first Cisco UCS Hybrid hosted and on site cloud services. Our second operational priority is responding to customer demand in both geographies and emerging enterprises, companies with revenue from $300 million to $2 billion.

Nimsoft has accelerated our ability to access both of these markets through new channels. including more than 350 managed service providers. We added 37 new Nimsoft customers this quarter including Netflix, Talis and SunGard.

In addition, Nimsoft recently announced full support for Vblog monitoring and assigned ACADIA the virtual computing environment company formed by Cisco, EMC and VMware.

Last quarter I had mentioned that we have increased our investment in growth geographies which for us also include Japan and Australia and recently we brought new management talent into several key roles. While we do not expect these investments or have a material impact this fiscal year. We are encouraged by resource in countries like Mexico and Japan which were significantly during the quarter.

And we expanded our footprint in more than 100 emerging market accounts this quarter. On the third priority, we continue to align the organization to be more responsive to customer needs and emerging trends. Much of this initial heavy lifting was done at the beginning of the July when we created customer solutions group or CSG.

We are already seeing the CSG organization help to improve our execution and we expect overtime that will further enhance our competitive position and our ability to respond to the needs of our customers and changes in the market.

It also helps us drive results from both the assets we have developed and acquired. While we continue to focus on sales of acquired technologies like Nimsoft and NetQoS. We also leverage acquisitions to further our internal development. For example NetQoS technology is included in our new CA virtual assurance product as well as the new CA service assurance suite.

Another good example of driving value out of acquisitions of 3Tera, there are now more than 80 companies using CA's 3Tera AppLogic to one of the 400 grids on 4 continents.

Either as Direct CA Technologies customers or as customers of managed service providers and finally this quarter we announced three acquisitions which enhanced our ability to help customers manage and secure virtualized and cloud environments.

First, for 4Base, a virtualization and a cloud infrastructure consulting firm, with experience in more than 300 engagements, 4Base helps customers like Toyota Motorcredit Corporation accelerate their virtualization transformation.

Second, Hyperformix, expected to close shortly is capacity management software for physical, virtual and cloud infrastructures. Hyperformix will help our customers solve a critical virtualization managed need capacity planning and finally our cost systems which is a leader in providing advancing authentication and broad dimension solutions.

Today Arcot has approximately 120 million identifies already verified using this technology. Before I turn the call over to Nancy, I would like to thank our global teams for their execution and hard work in meeting our customers evolving needs. Nancy?

Nancy Cooper

Thank you Bill. To start with please note that all growth rates are year-over-year unless otherwise indicated. Now to the quarter, growth in both the current and the total portion of our revenue backlog is a good indicator of our future revenue growth and continues to be reason we remain confident in our full year revenue expectation. Total revenue backlog at the end of the quarter was 7.8 billion up 2% both in constant currency and as reported with the current portion growing 3% on both a constant currency and as reported basis.

Contract duration was 3.5 years. Total revenue for the quarter was 1.11 billion and grew 5% in constant currency and 4% as reported. This includes a negative foreign exchange impact of approximately $15 million. In constant currency robust growth in North America of 8% was partially offset by international performance where revenue grew 2%.

Approximately one half of our revenue growth in constant currency was organic while the other half was from acquired technologies. Subscription and maintenance revenue was $961 million, up 1% in constant currency and down 1% as reported.

Revenue from software fees and other was $70 million, up 150% in both constant currency and as reported. Revenue from professional services was $79 million, up 13% in both constant currency and as reported.

Now I'd like to turn to the remainder of the income statement starting with our non-GAAP results. Operating expenses were $721 million, up 8% on a constant currency basis and 7% as reported. This increase in expenses was primarily driven by acquisitions closed during fiscal year 2010, offset by a one time $10 million benefit from the sale of an equity interest.

Operating income before interest and taxes was $398 million, flat over the prior period on a constant currency basis and down 1% as reported. As I mentioned, we had a one time $10 million benefit from the sale of an equity interest during the quarter. This translated to a 1 percentage point benefit to both GAAP and non-GAAP operating margins and a $0.01 benefit to both GAAP and non-GAAP EPS.

For the quarter, our non-GAAP operating margin was 3%, a decrease of 2 percentage points, reflecting dilution from the previously mentioned acquisitions. Non-GAAP diluted earnings per share was $0.49, up 10% in constant currency and 9% as reported. Our non-GAAP tax rate for the quarter was 34%.

Turning to GAAP results, GAAP operating margin was 28%. GAAP operating income was $307 million, down 2% in constant currency and down 9% as reported while earnings per diluted common share was $0.43, up 14% in constant currency and up 5% as reported.

On effective GAAP tax rate for the second quarter was 25%. Cash flow from operations in the quarter was $130 million, up 11% in constant currency compared to $120 million in the prior year period. Second quarter cash flow from operations was affected by a year-over-year increase in single installment payments which was $124 million in the second quarter, compared to $64 million in the prior year period.

Total billings backlog of $4.7 billion was up 6% in both constant currency and as reported. DSOs were slightly down. Looking at our balance sheet CA Technologies ended the quarter with approximately 2.5 billion in cash and cash equivalents and 1.6 billion of total debt bringing our net cash position to 958 million.

During the second quarter we purchased approximately 5 million shares of stock for a total 96 million. This leaves approximately 365 million and a remaining approval and we continue to be in the market.

With that I would like to reaffirm guidance for fiscal year 2011. We expect the renewed portfolio to increase in the back half of the year compared to the first half and we also expect that this will drive our mix of new business to a more radical model.

We continue to provide guidance for growth rates on a constant currency basis which we believe best illustrates the operational performance of the company. Dollar changes for all metric expect earnings per share reflect currency fluctuation only.

While the constant currency growth rates are both GAAP and non-GAAP earnings per share have not changed. The dollar range is provided this afternoon have increased to reflect year-to-date performance, the reduce share count and the currency fluctuation.

As a reminder it is being our practice to provide guidance based upon exchange rates on the last tapped of the previous quarter, in this case September 30 and guidance includes a partial hedge of operating income.

Guidance is as follows, total revenue growth is expected to be in the range of 3 to 5% in constant currency. This translates to reported revenue of 4.45 to 4.55 billion. The range on non-GAAP operating and margin is expected to be 34 to 35%. We expect our GAAP and non-GAAP tax rate to range between 33 and 34%.

Both GAAP and non-GAAP earnings per share on the low and the high end of the range have increased by $0.03. Growth in non-GAAP diluted earnings per share is expected to be in the range of 7 to 14% in constant currency. This translates to reported non-GAAP diluted earnings per share of a $1.85 to a $1.97.

Growth in GAAP diluted earnings per share is expected to be in the range of 5 to 13% in constant currency. This translates to reported GAAP diluted earnings per share of a $1.55 to a $1.66 and cash flow from operations is expected to grow at 2 to 7% in constant currency.

This translates to reported cash flow from operations of 1.4 to 1.475 billion. This includes approximately 50 million in restructuring cash payments. These payments will reduce cash flow by 3% and is one of the reasons why our non-GAAP earnings per share and cash flow from operations growth differ in fiscal 2011.

Guidance does not include the affect of any future material acquisitions. For the full year we expect approximately 506 million actual shares outstanding and a weighted average diluted share count of approximately 508 million shares. This does not include the effect of any future stock repurchases.

And with that I'd like to turn the call over to Bill to conclude. Bill?

Bill McCracken

Thanks Nancy. I have been fortunate to visit many of our customers around the world recently. Each CIO I speak with has told me that the IT landscape is changing dramatically and with unprecedented speed. There is no doubt this change is driven by the evolution from physical to virtual environments and ultimately to the cloud. That is the foundation of our strategy. It is what we do, manage and secure IT in physical, virtual and cloud environments.

Now as I told you last quarter, our priority remains execution. This quarter demonstrated that we are executing on our strategy and execution will continue to be our primary goal.

And now let me turn it back to Kelsey and we look forward to your questions.

Kelsey Doherty

Thank you Bill. As the operation is pulling for questions, I would like to inform you that CA Technologies is presenting at the Wells Fargo 2010 Technology Media and telecom conference on November 9th in New York, Oppenheimer's U.S. Equity Investor conference on November 18th in London, the Credit Suisse 2010 Technology Conference in Phoenix, Arizona on December 1st, the Barclays Technology Conference on December 8th in San Francisco and the Lazard Capital Markets Cloud Computing Investor Forum on December 9th in New York.

In addition George Fischer will be hosting a CA Technologies customer panel on November 11th in New York City. Please contact CA Technology Investor Relations if you are interested in attending. In the interest of time, please limit yourself to two questions. Operator, please open the call for questions.

Question-and-Answer Session

Operator

(Operator Instructions). Our first question comes from Phil Winslow with Credit Suisse. Please go ahead.

Unidentified Analyst

Oh hi, this is (inaudible) for Phil Winslow. Thanks for taking my question. Okay, my question is with idea of new release, could we get your product on this new mainframe release and how you see this affecting your business and also if you can….

Kelsey Doherty

I apologize. This is Kelsey. It is very difficult to understand you. I don't know if you are on a headset or…

Unidentified Analyst

Okay, can you hear me?

Kelsey Doherty

Perfect. Thank you.

Unidentified Analyst

Okay. So this (inaudible) for Phil Winslow. What I was asking is could we get your thoughts on the new mainframe release and how you see this affecting your business and also if you could upon the pricing environment, especially versus IBM?

George Fischer

Hey, good evening. Hey, it's George Fischer. How are you tonight? Yeah I think as you know our mainframe growth is linked to our longer term contracts. So it's not directly linked to the announcements but we're very pleased to see the excitement on the platform that's out there. There's a lot of tension going on right now. Also you might know that the [Z] capabilities for cross platform processing are really well aligned with our products and we've got many examples. We're managing mainframe and distributed work load. So it's very good for us and we anticipate the excitement to add value to our efforts because of our lead in ISP mainframe software. You had a follow-up question?

Unidentified Analyst

Yeah, I was also just asking about the pricing, how do you see IBM and is there a shift occurring over the past year?

Bill McCracken

You are still a little muffled, if you could repeat that question it will help us a lot. Thanks.

Unidentified Analyst

Okay so basically I was asking if you see any kind of competition in on the pricing pressure from IBM and is that a share shift going on over the year.

Bill McCracken

You know as the market has always been competitive. I think to our advantage because of the breadth of our products and the focus we have had as you know we have released our Mainframe 2.0 platform. We have over 300 customers now that have implemented that. We are in a condition where our customers are seeing a lot of value in the platform of course it's competitive but we continue to do very well in the Mainframe space and understand the pricing very well and are well positioned for that.

Kelsey Doherty

Next question please.

Operator

Yes ma'am. Our next question comes from Gregg Moskowitz with Cowen. Please go ahead.

Gregg Moskowitz - Cowen

Okay hi. Good afternoon guys and very nice job on the quarter. You have been very transparent about the fact that the amount of business up for renewal was about 25% below your earlier level in the September quarter and yet you still managed to grow subscription bookings slightly year-over-year which is pretty impressive. Was there any significantly amount of early renewal activity or was that consistent with historical levels?

Bill McCracken

As you know we just -- it's really hard to call exactly when things are going to close but it was inline with what we taught the renewal portfolio was. At customer preference we do get some things that goes forward but it was pretty much in line with what we had anticipated for the quarter. Nancy can you give some more color?

Nancy Cooper

The difference Greg was we had a really wonderful distributed new sales business across our entire portfolio which was we felt very good. In terms of the renewal as you know the stated timing of these renewals varied and sometimes it's difficult to predict that with precision.

What happened we had some customer preferences that's preferred to do their renewal a little earlier than we thought and we were very pleased that we got a large army contract in the quarter and as you can imagine that's hard to predict when it will happen.

Greg, do you have follow-up question Greg.

Gregg Moskowitz - Cowen

I do and I guess one is a clarification and the question I guess I just wanted to clarify if and I understand obviously it is hard to pinpoint which is relative to your comment Nancy last quarter about the amount of business up for renewal and in the second half being double digits higher versus the prior period and then my question is or my follow-up question is on the distributed business to your points Bill, when I look at CA it is a big entity and years passed and it has been little bit resistant to change but obviously there is kind of lot that has been done differently now and just kind of wondering if you could elaborate on and if you think the changes been put in place have staying power particularly when it comes to the CSG and generating more distributed business specifically in the areas that you mentioned. Thanks.

Bill McCracken

Yeah Greg, I mean the thing we are concentrating on is new product sales and new product sales and the new areas of the market that we think is where we are taking our strategy. So, we think we are at the right place now and the customers are confirming that too us in that they are buying across our portfolio with things like the security and assurance that is being used to transition into the virtual and the flat environment. So we are getting very good response on that one of the things that I mentioned was the triple digit growth in the service assurance as an example. Let me turn back to Nancy for some additional details. Nancy?

Nancy Cooper

Sure Gregg. Let me go back to your renewal question. The renewal base does increase in the second half of the year and I continue to say the same as I've said before that in total renewal portfolio is about down 10% for the entire year. Now that's only a comment on the renewal portfolio. It doesn't include any comment on new products or services. Great, next question please.

Operator

Yes Ma'am. Our next question is from Philip Rueppel with Wells Fargo. Please go ahead.

Philip Rueppel - Wells Fargo

Oh great. Thank you very much. A question about the new product business. Are you starting to strong cross sell opportunities there or is it still kind of selling back into your installed base.

Bill McCracken

Well as we said, we had good organic growth and good acquisition growth on both half and half is what we had which frankly pleased us very much. George, give us some additional info.

George Fischer

Yeah, I'm seeing a very healthy interest with existing customers and new customers are willing to start new projects. They're beginning to invest heavily in their IT infrastructure. So we saw double digit growth in portfolio and project management and security. In fact service insurance tripled year-over-year. So as Bill mentioned in the open, it was well over 100 new logos. So we're getting a lot of new customers both in the new segments that as we mentioned Nimsoft is going after very strongly but also in the enterprise space we're getting good penetration. In fact six of our service assurance wins were in the end replacements for our competitors. So we're doing quite well competitively, both in existing and new. David maybe you can comment on it as well.

David Dobson

Well thanks Bill and this David Dobson. Just one quick comment to your question about the overall portfolio. As George commented, as we bring in technologies and products like NetQoS. We've been very focused on integrating that into our service assurance portfolio. And what you're seeing is both meeting and exceeding our expectations for how the acquired technologies are doing but its having a multiplier affect on the on the overall service assurance portfolio. So we're seeing good growth of our organically developed products. So that's been our focus and I think you'll see that coming through in the quarter results.

Kelsey Doherty

Hey Phil, do you have a follow-up question?

Philip Rueppel - Wells Fargo

Yeah, one follow-up would be just in an area of distributed. It's not been acquisition related. The IIM business, it sounded like you had a record quarter there. Was that just a function of what was coming up for renewal or is there anything changed in that marketplace that's allowing you to gain share?

Bill McCracken

Well that really comes back to where we were, which is a good question because it is the security piece which as I think the industry expected becomes a very important precursor to moving in the virtual and moving in the cloud and I think that's -- so its new product sales and its new logos in new customers. So it is strong from a sell point of view and it is leading us to where we want to come. David, comment some more as well.

David Dobson

Well just as you said, building on that, what we're seeing Phil is we're seeing across our service trends portfolio, our service management and security, these are all very important foundational elements for our customers as they go from on premise to building private to ultimately public clouds and it really is a conformation of the strategic play we called and we're executing it and seeing customers respond to it.

George Fischer

And we -- Phil, hi. It's George Fischer. We also -- we had one of the largest security deals ever in the public sector this quarter. Also as you know Arcot is driving a tremendous amount of interest which really helps us in the Sidewinder business. So identity management and access control, very healthy and it's also an indication the IT economy that continues to awaken and enterprise security is very important and it's found a pickup.

Kelsey Doherty

Okay. Thank you. Next question please.

Operator

Our next question comes from Shaul Eyal with Oppenheimer & Co. Please go ahead.

Shaul Eyal - Oppenheimer & Co

Thank you operator and good afternoon everybody, two quick questions and my end. Nancy, just kind of really starting with the housekeeping, the DSO. Is that just issue of collection, timing of collection.

Nancy Cooper

What I viewed is an improved performance year-over-year, so we were very pleased with that.

Shaul Eyal - Oppenheimer & Co

I want to go back to maybe sort of question on the when did the access management, I don't know if you guys going to be maybe breakdown the various kind of perks out there can you provide us with some more color on how much the IAM business kind of grew this quarter?

Bill McCracken

While the security vision as we said set a record a quarter for us and Nancy do we have the actual growth on the security protocol? Maybe 1% is what is doing the quarter and now is sort of one of the largest, and largest amount of security we had in any quarter.

Nancy Cooper

So do you have a follow-up? Okay thank you very much. Move to next question please.

Operator

Our next question comes from John DiFucci with JPMorgan.

John DiFucci - JPMorgan

Thank you. I just have a follow up from Greg's question, it sounds that the bookings are really strong this quarter especially as we pointed out he said that the renewal portfolio is going to be down 25% this quarter year-over-year. I guess the question is does this tamper your expectations for the second half realizing that we expect a bigger renewal to occur in the second half. But how much of that was part of that or was it largely incremental business this quarter?

Nancy Cooper

Our expectation for the year is the same down 10%; we are very encouraged that second half of the year has a much larger renewal portfolio. So the year has stated the same, you might have a small change from second to third but not meaningfully different and we are reconfirming guidance.

John DiFucci - JPMorgan

Okay so I guess a small change in the sort of out performance this quarter on the booking side is can we take that mean that it was largely incremental versus just a movement?

Nancy Cooper

On the army one was definitely good news for us and highly unpredictable when that you can imagine with the government contract.

Bill McCracken

Yeah so John as you know it's hard to forgot when those are come in and come in nicely but those say the portfolio responded as we expected and for the full year we are the minus 10% as we said and so therefore that's we also reconfirming our guidance for the year.

Nancy Cooper

Okay John does that answer your question?

John DiFucci - JPMorgan

Not really, just and I am sorry I just want to get a gage because this does sound like you had some software fees and others are pretty strong and it seems to me that this quarters bookings were actually stronger than even if this deal with the army came in a little earlier perhaps that maybe this quarter was still stronger than you expected it to be and that's actually I want to hear that, that's true or not actually true or is it just more of a timing issue?

Nancy Cooper

So let me try it first because I answered Greg the first time John and that my first comments were they are very strong distributed performance we had which was across the entire portfolio but a significant reason why the quarter was as good as it was and that we were trying to give you some color by saying it's a best distributed quarter we've had in 10 quarters. We doubled our IIM business. We tripled our service assurance business. So we've had really fine performance and I'll turn it over to my colleague to give a few additional comments.

Bill McCracken

John, let me jump in. I might ask George then to comment a little bit just to make sure we are answering your question but just had a strong distributive business. We had good new product sales and Nancy just mentioned and we have mentioned we brought in the business on each piece of our business. So each of the pieces performed as we expected, especially on the renewal side but we also had very good new sales. So that we hit the high side of the revenue growth of what we looked at in the quarter and that still places us where we expect to be coming through the second half of the year for the full year. So it doesn't impact that as we've said it in the past. George, you may comment.

George Fischer

Yeah. Hey John. How are you doing? First of all we had a good yield in the 90's on the renewal portfolio but there was -- everything worked to plan there and we're pleased to see that. As Nancy mentioned we had major opportunity with the U.S army that was a lot of new product and a renewal for service assurance products and virtualization. So it was outsized and very good. And in addition we had strength all around the globe on the entire assurance line, particularly what we're doing with NetQoS and Wily. So, very good drivers on that. And again when you combine that and in the same quarter you have a very, very strong security move, it makes for a solid performance for distributed. So we couple that with good yields, good growth in our core distributed, it makes for those type of license sales.

Kelsey Doherty

Great. Next question please.

Operator

Yes Ma'am. Our next question comes from Michael Turits with Raymond James. Please go ahead.

Michael Turits - Raymond James

Hey guys. Two questions. First on mainframe, just you may have answered already, my apologies; but just you mentioned that capacity of renewals were down. Was that down year-over-year or was it worse than last quarter and then secondly maybe you could just revisit what's going on with the pricing and competition there and whether or not you're getting any boost from the enterprise launch.

Bill McCracken

So Mike, let me make a comment to start on the capacity piece. I'm going to ask David then to comment a little bit on and then on the pricing thing I want to flip it over to George to finish your question there. On the capacity piece, the renewed portfolio was down. That affects the overall number there as we said and then it was skewed toward distributed. So the mainframe capacity is associated with that. So that comes in based upon what the portfolio was and how it renewed. David?

David Dobson

Yeah hi Michael David Dobson. As I think we've commented on earlier, it was down -- it was planned to be down based on the renewal portfolio and we're pretty comfortable with IBM's new announcement of the platform and what they're doing with capacity. Going forward we think based on how we invest in the platform and our competitive position, we think it's pretty positive for us as we go into the other quarters. So with our mainframe 2.0 platforms now has over 300 customers installed to that and of course we announced the first product we announced in December this quarter of course which is really a new paradigm, we're optimistic as we go forward.

George Fischer

Yeah. And just on the pricing I see pricing very competitive as its been for many quarters and that's an environment that we've been positioned, where we built out software rationalization practices, all sorts of new products particularly around Mainframe 2.0, so we drive more value into the existing users, as you know that product is part of maintenance. So, we are showing the value of the clients and we are being very competitive and I expect that the capacity will continue to accelerate through the second half of the portfolio but I don't see any unusual pricing at this point it's very competitive.

It's priced the value at the market and we have to continue to do what we are doing to maintain that value and of course we are.

Kelsey Doherty

Thanks. Next question please.

Operator

Yes ma'am. Our next question comes from Todd Raker with Deutsche Bank. Please go ahead.

Brian Thackray - Deutsche Bank

Hi guys its Brian Thackray for Todd, a good quarter. I think growth rates improved in just about every metric. One area where it didn't was short term backlog growth, grew 3% which is still positive but a bit below where it has been. I guess it was a little bit surprising given it's the strong booking performance. I just want to understand that a little bit further, is that contract length I will say that ticked up and was a contract length increase, is that more of a product mix issue or are customers more willing to extend on contract terms.

Bill McCracken

Todd, one year on is important one as you recall when we were talking the last time I am going to ask Nancy jump in here too as well. But the thing I look at all the time is the revenue backlog and the bookings none the while is important is not what I track to see the health of our business as we're going forward because those numbers move in independently. So, if you would Nancy, give them some of the details behind that.

Nancy Cooper

Sure, Brian, it's Nancy, the sequential decline and is only the reflection of the large renewal portfolio we are going to have in the second quarter. That really is a refill of the backlog. So that's your answer to question one and on the other the duration is back to normal which is why I didn't do anything compare to the prior year, 3.5 is within the range of what we've always done and so that's where it is. Do you have a follow-up question Brian?

Brian Thackray - Deutsche Bank

Just a few graphical, North America bit strong on the revenue growth side than international. Just can comment on any trends you are seeing there that stand out to you?

Bill McCracken

I will make the initial comment ask George to make some comments as well but North America is just very strong. We had 8% growth so that came very strong and the international piece for us grew too. We have said in the past we made significant changes in EMEA it's improving but that is a long term improvement that w are talking about here. It's quarters not weeks and so that continues to improve and we got earlier signs of that things happening there. But that's going to be stretched out overtime to unbalance; it's coming in nicely and George if you might comment beyond that.

George Fischer

Sure. The investments when we made in the emerging markets are continuing to bare a fruit, we got excellent growth in Latin American and you continue to see growth in India and across some of the fast growing markets so we're pleased with that. As Bill said EMEA execution is a work in progress. We have been working on, we have had really good success and recruiting new sales leadership and we are continuing top-grade the talent there and you also you heard Bill speak about significant wins, logics. Also we've had a great win; we had the largest service assurance, competitive replacement in Germany. We replaced IBM steadily. So I am starting to see pipeline growth and some encouraging movement in EMEA and again just to end on North America had an outstanding performance, good growth across all geographies and lead by a very strong public sector showing that it wasn't just the army deal that was the several large transactions that contributed. So that's where it rounds up.

Kelsey Doherty

Great. Thank you. Next question please.

Operator

Our next question comes from Matt Hedberg with RBC Capital Markets.

Matt Hedberg - RBC Capital Markets

Thanks guy. Nice question. My first question is either for Bill or George. Obviously you guys have been making large strides in the heterogeneous data center management including virtualization management and I guess did you guys go on talking to customers who have standardized their Hypervisor with VMware. What has been the customer feedback initially when you tell them that you want to be the vendor of choice on managing a virtual environment?

Bill McCracken

Great question Matt. I'll tell you. That is one that has given us the right input as we've gone around. Let me make two points. First is that six months ago, nine months ago, we were selling this technology to our customers. I have been on four continents the last six weeks and as I talked to CIOs, they're asking for this technology there. That would be point one. It has clearly shifted. And the second part of the question, what is it, Matt, I'm sorry.

Matt Hedberg - RBC Capital Markets

Well I guess just, when you're going into some of these vendors and they've essentially standardized on VMware.

Bill McCracken

Ah, yes, thanks. I got it. Yes, which is the second piece that we talk about with them. When you ask and think about management software, what we've done is manage IT environments for three and a half decades. We have the experience; we have the products that manage in that environment. What we're doing is moving that experience, that capability into the new operating platform which is a virtual environment. So I think when they step back and look at that, they recognize and realize that what we do is that and we're moving it into operating platform. Let me ask George to comment as well.

George Fischer

We're getting a lot of good traction on the message. You can see the change in the last 12 months and then with our launch at CA world. We got an opportunity to widen it. So it's clear that CIOs are responding to cloud and virtualization but the here and now virtualization is automation, service assurance and security and we're delivering those foundational requirements today. But our virtualization management pipelines are growing and its pretty obvious, its need to manage virtual stalls real and its driving a lot of interest in the products that are coming out. So and it's also obvious to us that there are many vendors with various virtualization platforms that are going to need support and David's teams are committed to building out those features. So it's very much increasing and very interesting.

Kelsey Doherty

Matt, any follow-up?

Matt Hedberg - RBC Capital Markets

Last one for David. In Bill prepared remarks you talked obviously about the CSG organization showing, helping improve execution. Can you give us a few examples of some of the benefits of the structure?

David Dobson

Well, yeah sure Matt. In fact one of the questions earlier on the call was a comment about reluctance to change and that's fundamentally -- it highly puts the CSG in place as we're very market and customer focused and we're responding to the requirements that customers have as they move from their existing legacy environments into virtualized and then ultimately into the cloud.

So you are seeing that through our strategy and we're executing that very well. I think the acquisitions we've done have developed and filled in our portfolio. My team working at (inaudible) development is focused on integrating those technologies and acquisitions into our portfolio and we're delivering that now to the marketplace with our virtualization portfolio, our automation portfolio. We are seeing that in the results. So as George commented on and Bill commented on we're seeing in the second quarter results the customer response to the breadth and overall competitiveness of our portfolio. So that's primarily what we're focused on and then the only comment on what we're doing inside our development organization. Our journey is now looking across all of our products and businesses and we are starting to leverage technologies across multiple parts of our portfolio and I think we are just starting to see the benefit of that and I am very encouraged with some of the things we are doing around, user interface, leveraging the NetQoS technology, starting to leverage AppLogic or the 3Tera technology.

So it's very much part of the execution plan of focus and I think you are starting to see the benefit of that in the second quarter.

Kelsey Doherty

Great, thanks a lot. Next question please.

Operator

Our next question comes from Derek Bingham with Goldman Sachs.

Derek Bingham - Goldman Sachs

Hey everybody, Nancy I was wanted to ask you on margins if you could just give us an update on your kind of longer term view on expansion. You had a pretty good bit of M&A this year that masked that a little bit but just thinking about how the balance that you want us try going forward between how aggressive you want to remain with M&A versus what do you think you can do with margin?

Nancy Cooper

Let me ask you a question Derek, what time frame are you talking about? This year? Next year? It's not quite clear to me.

Derek Bingham - Goldman Sachs

I guess the next year; it's probably the focus of the question but even a bit beyond that.

Nancy Cooper

You know I will not give next years guidance right now on the call but we did mention that the acquisition we had done prior to this call had a $0.06 dilutive impact on our business case and obviously as we leveraged some acquisition that number will improve. So we are encouraged. Long term guidance which is not next year we have been indicating we believe that will be in access of 34 to 36%. So we think there is leverage in all. Do you have follow-up?

Derek Bingham - Goldman Sachs

Yeah just the buy back pace, I would be curious to hear if you could give us any thoughts on what your expectation is going forward relative to the 100 million or so you did in September.

Nancy Cooper

Sure. So we are encouraged, we announced this guidance that we doubled the share repurchase authorization to 500 million and we have got a 135 million share so we have had 365 million remaining under the authorization and will continue to offset solution and buy opportunistically. Hey we've time for one more question

Kelsey Doherty

Great. And we have time for one more question.

Operator

And our last question comes from Walter Pritchard with Citigroup.

Unidentified Analyst

(inaudible) for Walter. Just a question on the free standing sales. Given a lot of the emphasis that you guys are placing on a DC kind of an upper limit or bound on free standing sales as a percentage of revenue or is there some balance that you strike with free standing sales versus the tradition business.

Bill McCracken

Well it's here truly new product sales is what we're talking about because we have announced the suites of products that go into the new areas that we are going after is virtualization management and cloud. So our focus is growing those new product sales. It's in the growth jar for us. It's in the growth accounts for us.

Nimsoft is a major participant in that this quarter as we said they go out at that market from 300 million to 2 billion. They got 37 new accounts this quarter, they are working through 350 MSPs and then it also works into our standard business as well too. So it's really new product sales that we are driving for.

Kelsey Doherty

Great. Thank you. Great, thank you Bill would you like to conclude?

Bill McCracken

Yeah we appreciate comments that we have got and the questions. We were pleased with the quarter, we think we see signs that are execution on our strategy is making an impact on our business and we're looking forward to what we said one thing as we go forward, executing this strategy. We think it will take us to where we said we want to go. Thanks a lot.

Kelsey Doherty

Great. Thank you very much.

Operator

And this concludes today's conference. Thank you for your participation.

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