CA F3Q07 (Qtr End 12/31/06) Earnings Call Transcript

TRANSCRIPT SPONSOR

CA, Inc. (CA)
F3Q07 Earnings Call
February 1, 2007 5:00 pm ET

Executives

Julie Cunningham - VP of IR
John Swainson - CEO
Nancy Cooper - CFO

Analysts

Sarah Friar - Goldman Sachs
John DiFucci - Bear Stearns
Walter Pritchard - Cowen & Company
Kirk Materne - Banc of America Securities
Bob Stimson - WR Hambrecht
Kevin Buttigieg - A. G. Edwards

Presentation

Operator

Good evening, my name is Alicia and I'll be your conference operator. At this time I would like to welcome everyone to the CA Third Quarter Fiscal Year 2007 Earnings Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks there will be a question-and-answer session. (Operator Instructions) Thank you. Ms. Cunningham, you may begin your conference.

Julie Cunningham

Thank you operator and good afternoon everyone. I am Julie Cunningham, the newest addition to CA's IR. Joining me are John Swainson, our Chief Executive Officer and Nancy Cooper, our Chief Financial Officer.

As a reminder this conference call is being broadcast on Thursday, February 01, 2007 over the phone and the Internet to all interested parties. The information shared in this call is effective as of today's date and will not be updated. All content is the property of CA and is protected by U.S. and International copyright laws and may not be reproduced, transcribed or produced in any way without the express 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 on the supplemental financial information package, both of which are available on our website at investor.ca.com.

Today's discussion may contain forward-looking statements and actual results could differ materially. Please refer to our SEC filings for a detailed discussion of potential risks. And now I would like to introduce John Swainson.

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John Swainson

Good afternoon, and thank you for joining us on our third quarter earnings call. In a few minutes you'll hear from Nancy Cooper who will discuss the detailed financials and then we will open up for questions, but first I would like to cover the highlights of this quarter.

Overall we delivered a solid quarter with total revenue, GAAP EPS and non-GAAP EPS at or above our expectations. Bookings and cash flow for operations in the quarter are on track for the full year even though both exceeded our third quarter expectations. During the last quarter's conference call I told you that we would continue to focus on three things. First, realigning our sales force for maximum efficiency and productivity, second reducing cost and third implementing new business systems and processes. And I am pleased that we have progressed in each of these three areas. The core elements of the sales force realignment are in place in North America and obviously are operating and will be completed in EMEA this spring.

We are continuing to refine the sales model to better align it with our customers requirements, and we believe that as we do that we will drive new product sales and we saw evidence of it as we gain traction this quarter. Our restructuring efforts are also well underway and Nancy will take you through that in some detail and we’re continuing the improvements in our business systems and processes. Our third quarter results demonstrate our ongoing focus on executions and we made considerable progress in achieving our second half plan.

Turning to our third quarter results, the increase in total bookings of 65% was driven by strength in contract renewals and in the sale of new products. New direct product bookings which we define as new license sales and additional distributed licenses grew approximately 50% year-over-year. I believe these strong bookings are a result of a strong product portfolio that appeals to an unmet set of customers' needs and benefits also from the realignment of our sales force that we implemented in the last quarter.

I am also pleased that we saw some large contract renewals in the quarter as customers recommitted to CA products for the long-term. Our direct sales force took advantage of a healthy enterprise software spending environment to accelerate solution sales. I am particularly gratified that we saw strength coming from our Unicenter family of Enterprise Systems Management offerings as well as the Wily Introscope and Clarity quality products.

Our Business Services Optimization and Security businesses demonstrated strong year-over-year growth as well. Growth of new product bookings in our Storage business continues to be below our expectations, which we attribute to a slower than anticipated growth in the indirect channel. We're not satisfied with how our indirect channel is currently positioned and we're taking steps to ensure that we capitalize on the opportunities in this important business area. In October, we strengthened our management team to invigorate indirect sales and we expect to see real improvements.

Cash flow from operations in the third quarter was driven by a growth in bookings and associated billings as well as better accounts receivable collections. As you know, I spend a lot of time with customers and what I consistently hear is that they want technology partners that will help them manage their complex IT environments, deep and lasting relationships with fewer and more capable suppliers and IT environments that reflect in support of their business priorities. This is the fundamental business proposition that CA is uniquely positioned to provide through our Enterprise IT Management solutions. We're developing, integrating and aligning our products under the EITM banner and establishing ourselves as a leader in helping customers manage and secure their complex heterogeneous IT environment. For all these reasons, we feel good about the progress we've made this quarter relative to the first half of the year and about our future business prospects. Of course there is much to do in our multi-year transformation and we will remain focused on the execution of that.

Now let me turn the call over to Nancy and I will return for questions and final comments.

Nancy Cooper

Thanks John. I will start by reviewing our third quarter financials and then provide an update on our restructuring and share repurchase program as well as the full year outlook. Total revenue in the third quarter was $1.002 billion up 4% from the prior year or 1% on a constant currency basis. Aside from these currency effects the increase in revenue was primarily driven by growth in Subscription revenue. The increase was partially offset by declines in revenue from Software fees, as well as lower revenue from Maintenance and Financing fees. Revenue from Professional Services increased 11% over the prior year period.

Third quarter Subscription revenue was $773 million up 8% from the prior year or 5% in constant currencies. Subscription revenue accounted for 77% of total revenue in the quarter compared to 74% in the prior year period. From a geographic perspective North American revenue was up 4% over the prior year while International revenue was up 3%. On a constant currency basis International revenue declined 3% compared to the prior year. As you know, revenue is a lagging indicator for our business since we are on a ratable model.

During the quarter we divested our remaining interest in our Korean joint venture, which represented approximately $6 million in revenue and expenses per quarter. This is now being treated as a discontinued operation and we have removed the associated results for each of the income statement periods presented.

On a non-GAAP basis operating expenses were $791 million compared to $775 million in the prior year period. On a constant currency basis operating expenses were slightly lower year-over-year, despite an increase in headcount due to acquisitions and an increase in the cost of services inline with revenue growth. This lower expense level reflects our progress on our expense management initiatives.

Net interest expense for the third quarter increased to $25 million compared to $12 million in the prior year period. The increase was related to our lower average cash balance during the quarter, as well as higher borrowings under our credit facility associated with our recent $1 billion tender offer.

Non-GAAP income was $133 million for the third quarter or $0.24 per diluted common share compared to $146 million or $0.24 per diluted common share in the prior year period. On a GAAP basis total operating expenses were $907 million, down slightly from the $910 million in the prior year period. The current period includes restructuring and other costs of $32 million and acquisition amortization of $84 million. GAAP income from continuing operations was $52 million for the third quarter or $0.10 per diluted common share compared to $0.09 in the prior year period.

Third quarter bookings for total products and services increased 65% to $1.55 billion in the quarter. As John mentioned, this increase is attributed in part to growth in sales of new products and services and improved management of contract renewals. In addition, we were successfully in closing some very large contracts in the third quarter on good business terms, some of which we had anticipated closing in the fourth quarter.

We renewed six license agreements valued in excess of $40 million during the third quarter for an aggregate value of approximately $472 million. One contract was valued at over $100 million. This compares to the prior year period where we had two contracts over $40 million for an aggregate value of $108 million. The average contract lengths grew to 3.7 years compared to 3.5 years during the prior period due to an improved process and greater discipline in evaluating the financial implications of executing longer contracts.

Direct product bookings increased 82% to $1.33 billion and indirect bookings grew 5% to $86 million. As a reminder, bookings tend to fluctuate on a quarterly basis. For fiscal 2007 year-to-date total bookings of $2.8 billion grew 28% compared to the prior year period. Third quarter cash flow from operations was $587 million, compared to $422 million in the prior year period. This increase in cash flow is almost entirely driven by an improvement in cash collections of approximately $167 million.

Cash collections in the quarter were positively impacted by higher bookings and associated billings and a year-over-year increase in contract payments made in a single installment of approximately $120 million, which helped achieve a 15 day sequential improvement in day sales outstanding over the second quarter. These single installment payments typically arise when a customer elects to pay upfront, when a customer obtains financing or when CA obtains financing at attractive rates.

After adjusting for restructuring payments, cash flow from operations was $614 million, which is 42% up from the prior period. Year-to-date cash flow from operations are $547 million versus $814 million in the prior year period.

Now, turning to the balance sheet. We ended the quarter with a $180 million in cash and equivalents and $2.6 billion of total debt, which brings our net debt position to $743 million. During the quarter we recorded restructuring and other expense of $32 million, of which $14 million was related to severance cost and $15 million to facilities.

Now let me close with our current business outlook. After six months at CA, I see us making step-by-step progress in improving our operational executions. We continue to see a healthy demand environment and lots of opportunity for CA products and solutions. We are on track to exceed our full year guidance for total revenue of $3.9 billion, as a result of increased subscription revenue and favorable currency. Discontinued operations, is not included in this number.

We expect non-GAAP operating EPS for the full year to be in the range of $0.83 to $0.86, up from our previous guidance of $0.83. For the full year, we currently expect total bookings and services to grow in the 12% to 15% range. Given the strength of bookings in the third quarter, we expect a decrease in total fourth quarter bookings on a year-over-year basis.

Now let me provide some additional color. In the fourth quarter, we continue to expect year-over-year growth from new direct product bookings. With respect to our portfolio of existing contracts, some of the renewals we had planned for the fourth quarter ended up being done in the third quarter. As a result, the bookings that resulted from renewals will be lower in the fourth quarter than the same period last year. However, for the full year, we expect total bookings to be up 12% to 15%.

We expect full year cash flow from operations to be in the $900 million to $1 billion range, consistent with our previous guidance, versus the third quarter our fourth quarter cash flow will be affected by higher commissions, higher tax payments of approximately $200 million, and no further improvements in accounts receivable collections. In addition, we are working hard to accelerate our transformation, and as a result some of our restructuring payments for the full-year may be approximately $10 million higher than our previous plan of $70 million. And we anticipate an average diluted share count of approximately 570 million shares, a full year GAAP tax rate of 26%, and a full year non-GAAP tax rate of approximately 32%.

I would like to reiterate that we remain committed to an overall capital allocation strategy that achieved balance between returning excess cash to our stockholders and making investments in our business. As we discussed on our last earning calls, we are continuing to evaluate CA's ongoing performance as well as market conditions before making a decision on the implementation of additional share repurchases.

And now I will turn the call back to John for his closing remarks.

John Swainson

Thanks Nancy. Before opening up the lines for Q&A, let me provide you with a few thoughts on where we stand in our business. As I said during the second quarter conference call, we've put in place a recovery plan for the second-half of the fiscal year. And I am pleased to report that we are ahead of that plan at the end of this quarter.

Going forward, we are committed to execution and continue to focus on managing our business as a new product business as well as a portfolio of contracts, fostering better relationships with our customers to meet their IT management and security requirements, and restructuring and realigning with the company to increase CA's efficiency, growth, and value. We look forward to updating you on our progress after we complete fiscal 2007.

And with that, I'll open up the lines for Q&A.

Question-and-Answer Session

Operator

(Operator Instructions). Your first question comes from Sarah Friar.

Sarah Friar - Goldman Sachs

Good afternoon guys. Congratulations on a good quarter. John could you talk a little bit more in more depth about the restructuring efforts, particularly around the sales force, and how much do you think this quarter with the sales force now kicking off in terms of -- this is what it is going to look like going forward or is there still a lot of movement of people to be done on the direct side, and then if you think about indirect channel?

John Swainson

Thank you, Sarah. As I said in the remarks, we are essentially complete in the United States and Canada and Latin America. We are well underway in Europe. We've completed our restructuring in the UK and Germany. We still have some work to do in some other countries. I have also said, we are not at all satisfied with the results we're getting in the indirect channel, and we have a new management team in place, both worldwide, in the US and Europe, and they are continuing to dig into what we can do to improve the results there. I think we saw particularly in United States, the results of that restructuring kicking in and we -- as I said, we're very favorably impressed and surprised by the sales forces' ability to close contracts, both large and small. We focused on the large contracts in the previous remarks, but what we didn’t focus on is almost 600, and that is the U.S. number, 600 smaller deals that were done during the fourth quarter period, which to me is even more encouraging. Sorry I said fourth, I meant third.

Sarah Friar - Goldman Sachs

Yeah. Okay, that’s great here. And then Nancy just for you and it was actually for all of you. As the ERP system goes live here in the U.S., I think on April, what are some of the changes we might expect or particularly given that one of your larger competitors had a big issue with their ERP system? Is there anything to be concerned about there are you effectively trialing it as we speak?

Nancy Cooper

Sure Sarah. First, let me just kind of walk through where we are in implementing ERP. In April of 2006 we actually implemented it in the United States for financial systems, so that’s live and we have been working it now two quarters. Recently, as recently as the end of October, we implemented it for our Services business in the United States. That was a little more difficult both from a process and a systems point of view and luckily we were able to put in some manual processes, so that we were able to close the quarter adequately. We do have more work to do there. It's not surprising kind of experience when you implement major process and system changes. We will be implementing rolling out SAP in the rest of world starting next year, but this is kind of we go step-by-step on this thing.

Sarah Friar - Goldman Sachs

Got it. One final very quick one for you, on stock repurchase, because I know the question will come up again. What's your take at this stage given that you just had a very nice cash flow quarter. I know one of your gating factors, just wanted to make sure that you had that cash flow and not do anything that wasn’t in the best interest for the company?

Nancy Cooper

Sure. I don’t think it's terribly dissimilar from what we said in the prior quarter. We really wanted to see the second half of this year performing the way we wanted it to, so we are very encouraged. But, we still have the remainder of the year to complete and we said we would always finish the remainder of the year and then look market conditions. So, I don’t believe anything is changed, but obviously this quarter is encouraging.

Sarah Friar - Goldman Sachs

Great, thanks a lot.

Nancy Cooper

Thank you.

Operator

Your next question comes from John DiFucci.

John DiFucci - Bear Stearns

Thank you, and congrats on some pretty significantly improvement this quarter and thank you for the transparency you're giving us here. The bookings looked strong just about anyway you look at it, even if you annualize it or you backup the big deals. But Nancy and John why -- Nancy you talked about the upfront cash payments and why they tend to happen. But why was there such a big increase in this particular quarter in upfront payments versus a year ago or versus what you normally see. And what should we expect going forward?

Nancy Cooper

Well, you know what John it is I probably have talked with longer than I have been around. We look at these, transaction-by-transaction and really evaluate them on the merits of each and individual one. So, if a customer is going they will have to pay upfront and there is either -- they are running, they have budget room or they have some kind of business situation that makes sense for them, that can happen. We had some of those in the quarter. If a customers wants to obtain financing and it's done at the appropriate type of terms and conditions, of course we would entertain that. And CA when we get a situation where we can obtain favorable rates to where -- how we can finance our self, that makes logical sense to us if we can obtain it that way. So, there isn't like one set reason how we do this. It's very transaction-by-transaction and we had some very large transactions this quarter.

John DiFucci - Bear Stearns

Do you anticipate that to continue into the next quarter in regards to the amount that's collected upfront?

Nancy Cooper

Because we do this on transaction-by-transaction, it's a little hard for me to forecast on that basis, because we really are doing it one at a time whether they make sense. And done at the right, attractive discount rate whether we get that cash now or later, it's really indifferent.

John DiFucci - Bear Stearns

Okay. Thanks a lot and congrats. It looks like a strong period.

Nancy Cooper

Thanks John.

John Swainson

Thanks John.

Operator

Your next question comes from Walter Pritchard

Walter Pritchard - Cowen & Company

Hi, it's Walter Pritchard from Cowen. I am just wondering Nancy, you talked about I think on last quarter's call and you [mentioned] quarter in meetings about the $200 million sort of cost cutting goal. Just wanted to see if that was still a number we should be working with?

Nancy Cooper

Well, let me -- first, couple of points on that. One the 200 is a number going into fiscal year '09 and Walter I think we may have talked about it. The 200, we have a lot of different elements in our business. The 200 is addressing some base expenses that we feel on a competitive either or we may need some more work. But, when you look at our total expense -- cost and expense profile. There are going to be elements in there like commissions and your cost to your professional services, which will grow with your business as your revenue grows and as we put in a large ERP implementation your amortization is going to grow. So, you're going to see 200 reduction on the base, but you are going to see other elements of cost and expense that will grow. So, it's really going to be a netting of those two factors. Does that help you Walter?

Walter Pritchard - Cowen & Company

It does, great. Then just John around the mainframe market, any comments in terms of -- has it been fairly consistent what you've seen in the last couple of quarters. I guess I could draw one conclusion, one way in terms of longer-term deals that maybe you are thinking that pricing could deteriorate and you try to go longer. Just wanted to see if that at all had any entered into the thought in terms of the longer-term deals?

John Swainson

No. In fact, we saw Walter some very good mainframe business this quarter, and in fact our mainframe business saw significantly higher rate of signings than we've seen in previous quarters. We try and look at this on a trailing 12 month basis because we think that annualizes a lot of the swings and on that basis our mainframe business is up a couple of percent over the last 12 months. And that contrasts if you recall with last year on a full year basis it was down 1%. So, we are quite encouraged. Now we do -- we entered into these long-term contracts for a variety of reasons; one of them is to ensure that we have our customers committed and particularly on some of the technologies, it's very important that we have long-term commitments from them. I wouldn’t say that we do that as a matter of general principle, but it’s a little like Nancy's comments on the last answer. We look at this on a case-by-case and very much of business case basis. So, we don’t have a policy of doing that and our mainframe business overall is doing a little better than we've had expected quite honestly. I think you recall in the past, I have sort of given you a range of minus 1 to plus 1 as our kind of expectation of how that business would grow. So at plus 2% we are reasonably pleased.

Walter Pritchard - Cowen & Company

And I guess just as a quick follow-up to that John. Are you thinking about revising that range, given the performance you still think in that range as operating this is maybe just kind of an out wire at this point?

John Swainson

I think our current guidance to you plus to minus 1 is probably a good long-term goal for that business.

Walter Pritchard - Cowen & Company

Okay. Thank you very much.

John Swainson

Sure.

Operator

Your next question comes from Kirk Materne.

Kirk Materne - Banc of America Securities

Yeah, thanks very much. John maybe just on a few of the bigger deals as looking maybe for a little bit more color on them. When you went into the discussions with a few of these customers, did the scope increase through the pace of the deal? And I was wondering if it did, especially when some of these bigger ones, was it based on capacity being taken up, are they taking on more capacity or was that actually some up sell of additional products that was driving say the deal higher than maybe where you originally thought it would come out at?

John Swainson

Kirk, it was both. If I look at the [flock] 15 deals or so. We actually saw our run rate grow in those deals, now some were up and some were down and some were sideways, but the aggregate run rate grew by 11% over the top. I am just trying to add this up and the total is about 15 -- 25, I am sorry -- over the top 25 deals. So that's very positive. Again when you look into the specifics of the deals, some you find have a large new capacity element to them, some you find are just the straight renewals and others and this is the kind obviously we like the best have a combination of capacity and time renewals and significant additional new business. And I am very pleased that the new business content on average has also gone up fair dramatically. And that’s I think what contributes to the 11% annualized billing growth across these top 25 deals.

Kirk Materne - Banc of America Securities

Okay, and then just looking across your product portfolio right now. Do you feel pretty comfortable where you all are positioned, do you feel like you are covering enough of the -- sort of the win diagram or you want to play relative to some of your peers?

John Swainson

Yeah, the win diagram for us is called Enterprise IT management. And it's the four categories that I talk about storage, systems management, security, and business services optimization. Three of the four of those where up in significant double digits, and in particular Enterprise Systems Management on a bookings basis, was up over 100%. This is our core Unicenter business. It’s the business that you all have been asking us about for really the last year in terms of when did we expect to see the growth kick in. I have been sitting here saying to you soon. Well, it kicked-in in the third quarter and so we're very gratified to see that. Our Business Services Optimization business, which includes our Clarity business, our Wily business, our Service Desk business, our new CMDB business, that was also up by very large double-digits. Our Security business was up by large double-digits, driven by strength particularly in our Identity and Access Management business. Our Storage business was not up, and the rate of decline was not as bad as it has been but we still have work to do in that particular business. And that’s a business that's very depended on the channels, which is why my earlier comments about the importance of rebuilding our channels is so, very, very important for us going forward.

Kirk Materne - Banc of America Securities

I got it. Thanks very much for the call. Congrats on the Q.

John Swainson

Thank you.

Operator

Your next question comes from Bob Stimson.

Bob Stimson - WR Hambrecht

Hi Nancy, hi John, how are you tonight?

John Swainson

Good. Thank you.

Nancy Cooper

Great, thanks Bob

Bob Stimson - WR Hambrecht

Hey, a quick question. We saw one of the competitors and we have seen in some other companies out there, kind of talk about some of the maintenance renegotiations, in terms of how people are basically looking to pay for that. I am wondering if it -- since you guys kind of changed your model and kind of it was always on an annualized payments stream, you kind of doubled that is why. Are you seeing anything in the renewal process or how people want to pay you on a monthly, quarterly or annually basis at all?

John Swainson

Not really. We have customers who pay us on all three of those basis, our standard terms are really quarterly. We have put a lot more discipline into our renewal process and I attribute at least some of the success in this quarter to that improved discipline. We are getting better at selling the value of our portfolio, we are getting better at communicating that to our customers, and as it clearly is shown up in some of this.

Bob Stimson - WR Hambrecht

And then in terms of storage management, I know I think another competitor had a little bit of trouble in Storage too. Can you talk about the timeframe of when you expect that business chart maybe showing more of an upward trend? Are we still kind of in the flat year-over-year period for storage management or is there something that you see that will actually get that business turned around a little bit, what would be the timeframe for that?

John Swainson

Well, I am optimistic about it. I have just completed a review with each of my business unit General Managers and they have a recovery plan that will lead to positive growth in storage for the year, obviously that means they have to have strong fourth quarter and I am optimistic that that will be so. But, there is no promises' in any of these things and I am going to have to keep working on this. This is an area that we're spending a lot of time. We’ve made some significant acquisitions in this space in the last 12 months to strengthen our portfolio, the most recent of which was XOsoft and we're starting to see that kick in and we're very optimistic that we will see the positive results from that this year.

Bob Stimson - WR Hambrecht

Great, thank you very much and again good quarter.

John Swainson

Thank you.

Nancy Cooper

Thank you.

Operator

Your final question comes from Kevin Buttigieg

Kevin Buttigieg - A. G. Edwards

Thank you. Nancy, you talked earlier about a 12% to 15% growth in bookings in fiscal year 2006 and obviously that’s been marked by a lot of ups and downs in the first-half of the year compared to this quarter, and then these larger transactions that are little bit longer term in length. Then, of course, you've also had acquisitions as part of that mix. Longer-term, not necessarily fiscal year 2008, but longer-term what do you think about in terms of what the bookings growth for Computer Associates could be on an organic basis?

Nancy Cooper

Thanks Kevin. We are in the middle of our process of kind of assessing what next year will be. So, it would be a little premature for us to really go out that far. I think John was articulating we're really quiet encouraged by reception we're seeing on ESM, on Business Services Optimization and on our Security business lines. We are remedying some of the areas we felt we had wide spaces on our Storage. So if anything -- we -- I really need to complete the work, but we feel highly encouraged with how we are being positioned.

Kevin Buttigieg - A. G. Edwards

Okay, and then you mentioned earlier that you’ve felt positive about the -- some of the longer term nature of some of the larger deals that you -- it sounded like you had reached some sort of comfort level. And I was just wondering if could clarify your commentary about that?

Nancy Cooper

Well, I think it comes down to -- we have these lager deals and the point that John also alluded to that -- when we looked at our top 25 deals and we realized that on an annualized basis they went up on the renewal and we are beginning this process of centralizing our discipline around how we do that. So, if you take we're centralizing our discipline, we are having the rates go up and we're improving the product line, all of those are encouraging factors for us.

John Swainson

And if we get -- one doesn’t want to talk about lock-ins when it comes to customers, but if I can lock-in a customer for five or six years on some key products at an increasing yield rate, I am sure interested in doing that.

Kevin Buttigieg - A. G. Edwards

Okay. so without a discount involved in the added years?

John Swainson

That's right, and this 11% as I said was across all 25 and somewhere up, down and sideways, but the average is -- on an annualized basis they renewed an 111% and that's very encouraging.

Kevin Buttigieg - A. G. Edwards

Now, in the past one of the sort of issues though had been when it came to early renewals of longer term transaction and having that had a negative effect on subscription revenues than in ensuing periods. Have you put processes in place to control that and in early renewals, I assume we're not a big portion of the bookings that you would experience this quarter?

John Swainson

There was some early renewals, we've put a lot of process and a lot of discipline in place so that when we do an early renewal, we only do it for the right business reasons. And one of the right business reasons is that it doesn’t erode our financials. So, yeah, I think we've gotten a lot more comfortable with the processes that we have in place -- the business processes we have in place around the early renewals. We'll continue to do early renewals when we see an opportunity to sell more products, or to protect ourselves from a competitive threat or perhaps in some cases, the customer drives us to that, because they are doing a data center consolidation or some other transaction. So, we see both internal reasons for doing it as well as external ones and we will evaluate those on a case-by-case basis. The only renewal process now comes up to the headquarters location and Nancy and Mike Christenson, our COO, both renew those.

Kevin Buttigieg - A. G. Edwards

Okay. Thank you.

John Swainson

Thank you. I would like to thank Kevin. I would like to thank all of you for joining us. I would like to remind you that our CA World conference is coming up in April and we would love to see you there. We run a very -- some of you have been there in the past. We run a very good track for the financial analyst community out there and I am encouraged and hoping that you will be there. I would encourage you and hope that you do come to that in Las Vegas in April. Thanks very much.

Nancy Cooper

Thank you.

Operator

This concludes today's conference call. You may now disconnect.

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