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Executives

George Fischer - Executive Vice President of Worldwide Sales and Operations

David Dobson - Executive Vice President and Group Executive of Customer Solutions Group

Kelsey Doherty - Senior Vice President of Investor Relations

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

Nancy Cooper - Chief Financial Officer and Executive Vice President

Analysts

Philip Rueppel

S. Kirk Materne - Evercore Partners Inc.

Derek Bingham - Goldman Sachs Group Inc.

Matthew Hedberg - RBC Capital Markets, LLC

John DiFucci - JP Morgan Chase & Co

Shaul Eyal - Oppenheimer & Co. Inc.

Walter Pritchard - Citigroup Inc

Kevin Buttigieg - Collins Stewart LLC

Michael Turits - Raymond James & Associates, Inc.

Gregg Moskowitz - Cowen and Company, LLC

CA Technologies (CA) F4Q 2011 Earnings Call May 12, 2011 5:00 PM ET

Operator

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

Kelsey Doherty

Thank you, and good afternoon, everyone. Welcome to CA Technologies Fourth Quarter and Full Year 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 questions are David Dobson, our Executive Vice President and Group Executive, Customer Solutions Group; and George Fischer, Executive Vice President and Group Executive, Worldwide Sales and Operations.

Bill will open the call with an overview of the quarter and the year. Then Nancy will review our fourth quarter results and provide details of our full year fiscal 2012 guidance. Bill will return to conclude, and we will take your questions.

As a reminder, this conference call is being broadcast on Thursday, May 12, 2011 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 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, all non-GAAP operating measures are being reported excluding share-based compensation expense. Prior period non-GAAP metrics also reflect this change for comparative purposes.

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 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.

William McCracken

Thanks, Kelsey, and good afternoon to everyone. Thank you for joining us.

Before we begin, and as you may have read in the press release this afternoon, Nancy Cooper is retiring. I expect to announce her replacement very soon and she has agreed to stay in her role until I have announced her replacement. On behalf of the CA Technologies team, I thank Nancy for her continued service and her contributions.

And now, let me review our results and outlook. As we said at the beginning of the year, fiscal year 2011 was both a growth and investment year. These investments have driven strength and improvements in many areas. We set out to accomplish a great deal this year, and we did what we set out to do. We also had some challenges in some products and in EMEA. We are addressing them head-on, and are still making good overall progress as a company. And the guidance we are providing this afternoon shows that we expect fiscal year 2012 to be even stronger than 2011.

Our strategy is the right one, and it's working. That is focusing on mainframe, distributed, cloud and Software-as-a-Service solutions. Our vendor-agnostic approach is what customers tell me they need and are buying. No one else can claim the breadth of our solutions. We are investing in geographic expansion and in new account acquisition through business partners. Both are gaining traction. In fact, just last week, we announced a strategic initiative with VCE, the virtual computing environment company. In addition, CA Technologies was named by HP as a Strategic AllianceOne Partner. Our two companies will work together on expanding routes to market and joint development projects. More details will be made available in the coming weeks.

Last week, we also hosted more than 130 executives from 98 partner organizations worldwide at our Partner Summit in New York City. And what I'm hearing from our partners is they see a new level of commitment and focus on our mutual success. We have effectively integrated our acquisitions, and we are now investing in them to accelerate growth.

For example, during the fourth quarter, we invested an incremental $14 million or $0.02 of earnings per share. This included almost doubling the number of employees at Nimsoft and integrating new technologies. We combined Inteq service desk with Nimsoft monitoring, which has created the first integrated IT management-as-a-service solution called Nimsoft Unified Manager. We are also rationalizing our business, including this afternoon's announcement that we've reached an agreement to sell our Internet Security business to Updata Partners. These actions further focus our resources on areas of strategic importance to CA Technologies.

In addition, our focus on improving our management systems have given us the ability to address business opportunities more quickly than even a year ago. This improved execution ability translated into financial results in fiscal year 2011.

Let me summarize our full year results from continuing operations, all of which are within our guidance ranges. Revenue was $4.4 billion and grew 5% in constant currency and 5% as reported. Approximately half of this revenue growth was organic. We held full year non-GAAP operating margins flat, while we made significant investments in the business especially in the last quarter.

We grew our non-GAAP earnings per share to $1.92, up 13% in constant currency and 12% as reported. Cash flow was $1.4 billion, up 3% in constant currency and 3% as reported. Fiscal year 2011 cash flow benefited from lower year-over-year cash taxes, offset by investments related to our acquisitions.

Finally, total revenue backlog reached a record $8.8 billion, up 6% in constant currency and 8% as reported. Our current revenue backlog grew 5% in constant currency and 7% as reported.

We believe, as we stated all year, that current revenue backlog is a positive indicator of our future revenue growth and lays a foundation for fiscal 2012. In fact, our outlook for fiscal 2012 shows even greater revenue growth than last year.

We expect revenue to grow 6% to 8% in constant currency. We are committed to holding non-GAAP operating margins at 34%, while investing more in emerging enterprises and markets this year than last. We expect non-GAAP earnings per share to grow 6% to 10% in constant currency. Cash flow is expected to grow 3% to 5% in constant currency, reflecting investments in emerging enterprises and markets.

In addition, our board authorized an incremental $500 million share repurchase, bringing the total available for repurchase to approximately $700 million. We have also announced a 25% increase in our quarterly dividend rate. And finally, we are in the process of reorganizing our internal management reporting, and will change our segment disclosure in the first quarter of fiscal year 2012. This will provide better visibility to our business and the progress we are making against our strategy.

From a full year new product perspective, total new product sales and mainframe capacity increased in the low-single digits. I am confident we can do better. Within this, however, we grew our distributed new product portfolio more than 15% year-over-year. This was led by double-digit growth in new product sales of Service Assurance, including Nimsoft, Virtualization and Service Automation and Service Portfolio Management, while Identity and Access Management, including Arcot, grew high-single digits. These are the areas of our strategic focus for our company.

This growth in distributed new product sales was offset by mainframe new product and capacity sales, which were down approximately 25%. Mainframe performance is linked to the size and customer mix in our renewal portfolio, which fluctuates quarter-to-quarter and year-to-year. As you know, our renewals were back-end loaded in fiscal 2011. And in the fourth quarter, capacity grew 50% year-over-year, the highest amount in 15 quarters. We are also beginning to see success with our new competitive replacement program, which launched in the second quarter, closing over 15 replacements in the last 9 months of the year.

In fiscal year 2012, we are continuing to focus on delivering new innovation, strengthening our sales coverage model and making it even easier for customers to move to our full portfolio of solutions.

This afternoon, we are pleased to announce the addition of Peter Griffiths, who will be joining us at the end of May to lead our Technology and Development Group. Peter brings extensive software development and business management expertise from his roles at IBM, Cognos and Relational Matters. Peter will drive initiatives to enhance our product positioning and thought leadership in the technology community.

From a geographic perspective, full year North American revenue grew 7% year-over-year in constant currency, while EMEA's growth is not as strong as we would like. We knew that a turnaround in this region was going to be slow, but it is going slower than I expected, and I am not satisfied with that.

As we mentioned last quarter, we are investing in EMEA, changing the go-to-market model and building new channel relationships. These are long-term initiatives, and will take quarters, not months. I am convinced we have the right personnel in place and are focused on the right priorities, accelerating new product sales and accessing new accounts.

On the positive side, our fourth quarter renewal yield in EMEA was in line with other regions. However, the renewal portfolio was much lighter in fiscal '11 than the previous year and will be again next year. And we did not leverage newly acquired technologies as successfully as we did in other regions.

As I've said, we met the companywide growth targets we indicated at the beginning of the year in spite of the weakness in EMEA. And I am confident that the changes that we made last year were the right ones, and that they will work.

And now, let me turn the call over to Nancy to provide more detail.

Nancy Cooper

Thank you, Bill. As Bill mentioned, we announced an agreement to sell our Internet Security Business. This is reflected as discontinued operations in this afternoon's financial results. To help you understand the effect of our discontinued operations, a table is available at investor.ca.com for fiscal years 2011, 2010 and 2009. The incremental adjustments for the Internet Security Business full year fiscal 2011 are the following: revenue was reduced by $83 million; operating income decreased by $15 million; earnings per share decreased by $0.02; and cash flow decreased by $4 million. For the fourth quarter, revenue was reduced by $18 million, operating income decreased by $1 million and earnings per share and cash flow effects were not material.

Selling our Internet Security Business is the right thing to do to align our portfolio to our strategy. And we will continue to look for opportunities to rationalize and focus our resources.

Now let us turn to the fourth quarter results. Please note that all our growth rates are year-over-year, unless otherwise indicated, and all results are from continuing operations. During the quarter, we closed a 5-year renewal deal for approximately $500 million, with a large global IT outsourcer. Total new product sales and mainframe capacity grew low-double digits. Fourth quarter underperformance in EMEA and softness in Japan were offset by growth in each of our other regions.

Distributed new product sales grew mid-single digits. Driving this, Service Assurance, including Nimsoft, grew low-double digits. Virtualization and Service Automation new sales grew mid-double digits. Service Portfolio Management grew mid-teens, while Identity and Access Management, including Arcot, sales were flat. Mainframe capacity grew 50%, driven in part by two large public sector transactions.

As always, the size and timing of the underlying renewal portfolio fluctuates, but we do expect the new IBM mainframe to be a slow, steady tailwind as we cycle through these renewals. We experienced a double-digit decline in mainframe new product sales, which Bill discussed.

Excluding the large global IT outsourcer deal we closed in the fourth quarter, renewals were down approximately 15%, more than the 10% we had anticipated at the outset of fiscal 2011. This was primarily due to timing, including a large transaction of over $100 million, which we chose to close in the first quarter of fiscal year 2012 instead of the fourth quarter of fiscal 2011.

Given that we closed the large global IT outsourcer renewal in fiscal year 2011, we currently expect our fiscal 2012 renewal portfolio to be down approximately 20% year-over-year and down approximately 15% year-over-year in the first quarter. However, we do not focus on the year-over-year comparisons of bookings, as they are not indicative of the overall health of our business. We managed the aggregate renewal portfolio to optimize the renewal yield, which was in the low 90% range this quarter.

Even with the expected decrease in renewals, we are confident that this is the portfolio we need to achieve our fiscal year 2012 revenue guidance of 6% to 8% in constant currency. We do focus on current revenue backlog, which was $3.7 billion, up 5% in constant currency and 7% as reported. With our highly ratable model, this is another reason we are confident in our fiscal year 2012 revenue guidance.

Turning to revenue. Total revenue for the quarter was $1.1 billion, and grew 4% in constant currency and 5% as reported. This includes a positive foreign exchange impact of approximately $12 million. In constant currency, revenue grew 5% in North America, while international revenue grew 2%. Subscription and maintenance revenue was $970 million, up 2% in constant currency and 3% as reported. Revenue from professional services was $82 million, up 6% in constant currency and 9% as reported. Revenue from software fees and other was $76 million, up 30% in constant currency and 29% as reported.

Now let me turn to the remainder of the income statement, starting with our non-GAAP results. Please note that our fiscal year 2010 fourth quarter included $50 million in nonrecurring restructuring expense. Non-GAAP operating income before interest and taxes was $356 million, up 28% in constant currency and 26% as reported. For the quarter, our non-GAAP operating margin was 32% compared to 26% in fiscal 2010. Non-GAAP diluted earnings per share was $0.48, up 33% in constant currency and 30% as reported, including a $0.01 headwind from currency. Our effective non-GAAP tax rate for the fourth quarter of 2011 was 29% compared to 28% for the fiscal fourth quarter of 2010. Our full year effective non-GAAP tax rate was 32% compared to 34% last year. We continue to refine our tax structure, and are pleased with the progress we are making.

Turning to cash flow from operations in the quarter, which was $634 million, up 1% in constant currency and flat as reported. Cash flow was positively affected by a decrease of approximately $70 million in cash taxes. Single installment payments were $176 million in fiscal 2011 compared to $182 million in the fourth quarter of fiscal 2010. Total billings backlog of $5.2 billion was up 11% in constant currency and 14% as reported. DSOs were down year-over-year.

Turning to both fourth quarter and full year GAAP results. Fourth quarter GAAP operating margin was 27%. GAAP operating income was $299 million, up 29% in constant currency and 29% as reported, and GAAP earnings per diluted common share was $0.37, up 90% in constant currency and 95% as reported. Full year GAAP operating margin was 28%. Full year GAAP operating income was $1.3 billion, up 3% in constant currency and 2% as reported, while full year GAAP earnings per diluted common share was $1.60, up 12% in constant currency and 10% as reported. Our effective GAAP tax rate for the fourth quarter of 2011 was 35% compared to 54% for the fiscal fourth quarter of 2010. Our full year GAAP tax rate was 32% compared to 34% last year.

Now moving to the balance sheet. We ended the quarter with approximately $3.2 billion in cash, cash equivalents and marketable securities, and $1.6 billion of total debt, bringing our net cash position to over $1.6 billion. During the fourth fiscal quarter, we purchased approximately 2 million shares of stock for a total of $48 million. Between April 1 and May 6, we accelerated our program, purchasing an incremental 3 million shares of stock for a total of $68 million.

Turning to guidance. As been our practice, guidance is based upon March 31 exchange rates and includes a partial hedge of operating income. I would like to highlight that the large global IT outsourcer deal we signed in the fourth quarter renewed the last of our old-business-model contracts. As a result, we will report incremental revenue from the newly signed contract, but not incremental cash flow as we look at 2012.

Guidance is the following. Total revenue growth is expected to be in the range of 6% to 8% in constant currency. This translates to reported revenue of $4.8 billion to $4.9 billion. Non-GAAP diluted earnings per share growth in constant currency is expected to be in the range of 6% to 10%. This translates to reported non-GAAP diluted earnings per share of $2.12 to $2.19. GAAP diluted earnings per share growth in constant currency is expected to be in the range of 6% to 11%. This translates to reported GAAP diluted earnings per share of $1.79 to $1.86. Cash flow from operations is expected to grow at 3% to 5% in constant currency. This translates to reported cash flow from operations of $1.47 billion to $1.5 billion. Underlying this guidance, we expect our GAAP and non-GAAP tax rate to be 31% to 32% in the fiscal year, a flat to 1 point improvement over fiscal year 2011. At the end of the year, we expect approximately 492 million shares outstanding and a weighted average diluted share count of approximately 499 million shares.

Finally, we are committed to holding our non-GAAP operating margin at 34%, which is the combination of improving margins in our core businesses, while continuing to make significant investments in our emerging enterprise and emerging market businesses.

With that, I will turn the call back over to Bill.

William McCracken

Thanks, Nancy. And now, let me wrap up. First, I would like to thank our worldwide team for strong performance against the very tough objectives. We made the progress this year we projected, but there is more to do. We grew. We are guiding to grow more. We will continue to invest. We are going to return more cash to shareholders. We will provide better visibility starting with the first quarter. And we are going to continue to focus on execution.

Before I turn the call back to Kelsey, I would like to invite you to attend CA Technologies Investor Day at the Palace Hotel in New York City at 8 a.m. on Friday, July 29. We look forward to talking with you in more detail about our strategy, our solutions, our go-to-market, our segmented results and update on our long-term financial outlook.

And with that, Kelsey.

Kelsey Doherty

Thank you, Bill. As the operator is polling for questions, I would like to inform you that CA Technologies is presenting at the JP Morgan Technology, Media and Telecom Conference on Tuesday, May 17, and the Cowen and Company Technology, Media and Telecom Conference on Thursday, June 2. 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] We'll take our first question from Philip Rueppel from Wells Fargo Securities.

Philip Rueppel

I guess qualitatively, my question is really around the mainframe business, just trying to sort through the renewal book, the $50 million -- or the 50% increase in capacity. I assume that included some of the big IT services contract. But could you talk about the sort of the new product weakness there? Is that an anomaly? Is that something that's going to bounce around from quarter-to-quarter? Just give us some color around that overall business.

William McCracken

Okay, Phil, it's Bill. I'll give you some comments, then I'm going to ask David Dobson to comment as well. First point is, it did not include any of the contract that you mentioned, the $500 million contract. That was the old renewal portfolio. So it did not include that. We think we did see some pause at the beginning of the year in the mainframe, especially of the -- related to the capacity side. And I think the market did as well, and so, there were some slowing there. But as we came into the fourth quarter, we did see a significant uplift on that. However, even as we talk about that, one of the things you need to recall or remember is that while that capacity growth is growing off of maybe the zSeries introduction, it's buffered somewhat by our renewal portfolio. Let me stop there and turn it to David to cover a couple more things.

David Dobson

As Bill said, I'll pick up, just by indicating first and foremost, we continue to innovate around this platform. And we were very encouraged what we saw last September with the new platform announcement. And our investments continue to reinforce to us that this is a platform that will play an important role going forward. So with our Mainframe Software Manager, our first role of course, we are encouraged by our competitiveness in the marketplace. As Bill commented, our new product sales around the mainframe were and are impacted by the available renewal portfolio, which was lower in FY '11. And with that said, we saw strong capacity, which I think is encouraging. For what we're seeing, we saw some large transactions during the year. And importantly, we're starting to see momentum in our competitive win back program. We had 15 competitive replacements where we went in and replaced our competitors across the board with our mainframe technology. So I would tell you that we're confident in our competitive position on mainframe. We held pricing as we move into FY '12.

Nancy Cooper

Great. Phil, you have any other question?

Philip Rueppel

Yes. Just in terms of -- you mentioned that FY '12 will also be a year of investment leading to flattish margins. Are you anticipating significant M&A in that type of guidance? Last year, you had mentioned that you were targeting $300 million to $500 million in acquisitions. Should we kind of assume the same for next year?

Nancy Cooper

Yes, Phil. You should assume the same range, $300 million to $500 million. But fiscal year '12 doesn't include any future material M&A. In our guidance does show our balanced approach at driving topline growth while maintaining margins.

Operator

Now we'll hear from Shaul Eyal with Oppenheimer & Co.

Shaul Eyal - Oppenheimer & Co. Inc.

Quick question of my end. Bill, for you. Making some investments in emerging enterprises, some new geographies, at the same time, kind of maintaining 34% operating margin for fiscal '12. Can you shed some more color into those emerging enterprises on the one hand, and kind of what specific geographies you guys are focusing on?

William McCracken

Well, I'll comment a little bit, Shaul, and ask Nancy too as well. But the investments that we've been making are really designed to go after geographies as well as the midmarket accounts. And we're beginning now to see good traction with respect to those that contributed to our growth this past year that allowed us to get to the 5% revenue growth, which is what we target on the high side. And it's a major part of our outlook along with our revenue backlog, as we move into this year that pushes our growth in the 6% to 8% range. Nancy, can you add?

Nancy Cooper

Sure, Shaul, I think it goes with what I mentioned a couple of minutes before. We're really following our balanced approach of driving a top line while maintaining margins. And we're very encouraged with -- we have new leaders in Asia and Japan. And we've actually, really, I think, have done a very fine job of balancing our investments by investing more in those areas, and harvesting, so to speak, in other places, one of which you saw in our Internet Security Business. And we're very committed to do it in a balanced fashion to maintain the 34%.

Operator

Moving on, we'll hear from Raymond James' Michael Turits.

Michael Turits - Raymond James & Associates, Inc.

My question is about the impact of the outsourcer deal on both revenue and cash flow. So because the old-business model is going to new-business model, what's the impact of incremental impact on revenue of this and that $500 million over five years in bookings? It's just that I think that it's about $100 million incremental impact in revenue. And also, what's the incremental impact on cash? Well, I assume it was bringing in certain amount of cash flow per year. Is it now bringing in more or less cash flow than it was per year and by how much?

Nancy Cooper

Michael, I most applaud you on your accuracy. It's really -- it's about what you said, a couple of points of revenue growth, and actually, that cash flow, the anomaly of the old-business model, we were getting all the cash flow but we were not getting the revenue. So this is really the end of kind of the imbalance between revenue and cash. They're back in balance, but what was very encouraging about this deal is now we're having a deal with a much better opportunity of additional revenue in the future for new customers and new products.

Michael Turits - Raymond James & Associates, Inc.

Okay. So just to the -- just for clarification, so a couple of points of revenue growth, I'm assuming that's at $100 million a year incremental revenue. And then what -- in the international, what's the incremental impact on cash flow? Is it more or less cash flow per year than it was? By how much?

Nancy Cooper

Michael, I'd say it's really the same amount of cash flow, which is really a fine renewal.

Michael Turits - Raymond James & Associates, Inc.

Okay. So it's neutral to cash flow?

Nancy Cooper

Yes.

Michael Turits - Raymond James & Associates, Inc.

Did I use up my questions?

Nancy Cooper

No. One more Michael, go ahead.

Michael Turits - Raymond James & Associates, Inc.

It's hard to tell. And now -- then I guess, well, so what should I think of as the -- as both the cash flow looked a little bit light for this year relative to guidance. And then the cash flow growth is below the earnings growth for next year. So what's the reasons for both of those?

Nancy Cooper

Sure. Michael, think of it -- really there's three major points. Focus for year '11 and fiscal year '12 were really investment years. And so what you see is a buildup in disbursements as we really decide those areas, those you heard Bill mentioned, emerging markets and some emerging enterprises, were really quite great opportunities. Then you heard him mention what's going on in Nimsoft. And so that was -- that will continue in fiscal year '12, and we believe that's absolutely the right thing to do. The second, you saw in fiscal '11, improved cash taxes. We are quite encouraged by our ability to reduce our effective tax rate. This means over time, this will translate into lower cash taxes, but that will be delayed and it will be lumpy. As you saw in both fiscal year '11 and we'll see in fiscal year '12. We are encouraged in fiscal year '11, we were able to defer taxes, which is always a good thing. On fiscal year '12, we'll have a little bit more cashes -- cash taxes. But over the long term, we believe our cash taxes will be a very positive tailwind for CFFO [cash flow from operations] after fiscal year '12. And the last thing is a point, I think it was mentioned on the old-business model, that though we're getting more revenues, the cash stays about the same. To put all those three points together, and we believe we have very strong facts for the years going out, and that is why we're confident in increasing our commitment to share repurchase and dividends, which we announced today.

Kelsey Doherty

So Michael, you're still online [ph].

Nancy Cooper

And I want to make sure you wrote that.

Michael Turits - Raymond James & Associates, Inc.

Yes. I'm good. I will follow up later.

Nancy Cooper

Thanks, move on to next question please.

Operator

And now, we'll hear from John DiFucci with JPMorgan.

John DiFucci - JP Morgan Chase & Co

First of all, I just like to say Nancy, it's been a pleasure working with you. And I think it speaks for most of the people or everybody on the call that we truly wish you the best in your next endeavor.

Nancy Cooper

Thank you. That's so nice, John.

John DiFucci - JP Morgan Chase & Co

My question, it's good to hear the renewal yield, that's back to above 90%, and thanks for sharing that info, Nancy, on that large deal that closed at the beginning of this quarter. That helps understand some things too. But really, new business seems to be at really slowed momentum this quarter. And it's not -- it doesn't look like it's just the mainframe. I was wondering, George, if you could address sort of what's going, I mean, it looks like international, really, I mean obviously, has some issues, but is it all just that?

George Fischer

Yes. Sure. Well, we're -- obviously we're -- as Bill noted, some of the regions in EMEA did not execute the way that we wanted them. At the same time, we've experienced a significant new product growth through the quarter and through the year. So we're quite pleased with where the pipelines are going and where we executed it with the Service Assurance. We continue to be a category leader. As David mentioned, on the mainframe, we see capacity improving. We also see many competitive replacements. So in particular, the price points, the renewal yield, very solid, we'd put a lot of work into those, but in EMEA in particular, we've been making changes, as Bill noted, over the last year, we've made the right changes, and now we're adding resources to take advantage of new customer opportunities and this expansion of the channel.

William McCracken

And John, the international revenue, it was up about twice what the EMEA was. And so, those investments we've made there are paying off. And what we're seeing, too, worldwide, which is very encouraging for us, is a lot of this new technology is being installed in those geographies. And so, when you look at where the, what we call maybe the rest of the world is with EMEA out, just North America and the rest of the international, the growth that we had in revenue as well as the other measures that we look at were all beyond our guidance for the full year for the company. So it's really an affirmation of the fact that strategy is right and the customers are buying. So it's showing very strong.

John DiFucci - JP Morgan Chase & Co

Yes, but George, you said new product revenues were up. I mean, they were up -- I mean I think most of that being up was because you didn't have those products. Because when you bought these companies this year and you sold that this year -- I don't know, is that what most of what you're talking about? Just sort of like an inorganic growth or...

George Fischer

Well, I'm talking about 2 -- the technologies that are selling in the stand-alone environments, outside of the renewal inventory are getting traction and growing. In particular, another encouraging sign, the deal sizes are increasing. Also the average deal sizes in services for our Virtualization business were also increasing. So I'm getting traction with all the new products that we released last year and continue to see an expansion where we have, for example, what we've been doing with Arcot and our security products where those are increasing the pipelines and getting a lot of activities. So also, you see in AP [Asia Pacific], where we're getting Service Assurance traction with NetQoS and Wily, and those products where not too long ago, those were not familiar products to that region.

William McCracken

John, let me add a couple points. One is that with the renewal portfolio where it was, the new sales is what added in to where we got to with our growth at the 5% level. So the new sales are driving hard there. That's offset by the mainframe capacity piece because the first three quarters of last year were down, as we saw that pause there. Now that jumped up in the fourth quarter. But what it shows is, when you get into the numbers in detail, that in fact, the new products are selling, that's what pushed us to the 5% growth. It's also what's pushing us to the 8% -- 6% to 8% growth that we're talking about for this year. So the thing that's factoring it down is camouflaging how that growth is coming through is that mainframe capacity piece.

John DiFucci - JP Morgan Chase & Co

Okay. And if I could, Kelsey, because that was all one topic, even though -- I'm sorry there are couple of questions in there.

Kelsey Doherty

That's all right, go ahead, John.

William McCracken

That's all right, John.

John DiFucci - JP Morgan Chase & Co

Just -- because this is a question that get asked -- often asked, Bill. You say you're going to -- it's good to see you're increasing your share buybacks. You're increasing your dividend. I mean shareholders like to see that, but you're holding your non-GAAP operating margin in constant into next year. And you talked a lot about investing for growth, but you really haven't shown much, and it really hasn't helped your stock at all. And I know you don't just run the business just for the stock price. I mean, you're thinking about shareholders, but is there any serious consideration at CA to focusing more on efficiency than on growth? Well, because today, it seems like the balance is more towards the growth side. And I often, and I have asked you this personally before, but I don't think I have you address it publicly, why can't you do both? Why can't you increase the margins and grow next year?

William McCracken

Okay, John, there's a couple of things. You're on a very good and important point for us. This is one we spent a lot of time on ourselves, because it's the decisions we make on how we literally need to run this company taking it forward. There's about 2 points of margin that's tied up in the acquisitions piece last year and this year. So we're driving efficiencies in this business as we do that. The other thing is as we've increased these sales and new products, as you always see in new sales and new technologies entering, they commit at a little less margin. And so that works in and works through as you go in time. But I think we all expect and do see that those new sales do, in fact, affect the margin piece as we build this new technology. But that's one of the reasons why we really made the announcement. You mentioned the buyback and the dividend increases because we've got a great deal of confidence, we'd returned that to shareholders. But then the second thing that we announced there, I think, is very important. That's why we're going to do the segmentations, start it with first quarter. It's going to give you a better look inside of this company so that you can see what we're seeing, because I thought -- apparently, now you'll start seeing it in the first quarter.

Kelsey Doherty

Great, thanks. Next question, please.

Operator

And now we'll hear from Walter Pritchard with Citi.

Walter Pritchard - Citigroup Inc

I'm wondering, you talked about the guidance and achieving at or above the guidance. But one area I noticed, the operating cash flow for the year and for the quarter, it seems a little bit light to us. And -- so I think you raised that number midyear from $1.38 billion to $1.45 billion, up to $1.4 billion to $1.475 billion. And, I'm just wondering what was the source of the weakness there in the operating cash flow line?

Nancy Cooper

Well, I think you'd -- Walter, it's Nancy. If you need some -- really what Bill articulated in his remarks, which is basically performance in EMEA and performance in a couple of our mainframe, and then we did make the comment when I was talking about the renewal base in the fourth quarter, that one transaction we decided to move it up to the first quarter because we actually worked out a better arrangement for the customer and for us. And that was a decision that also moved out cash. So you can see, we're running this, really, for a longer-term basis of what are the right things to do with the yield on the renewal base being very important to us. And we're addressing the areas where we believe we have weakness and can improve.

Walter Pritchard - Citigroup Inc

Got it. Great. And Nancy, it's also been great working with you as well. And then, just a question, maybe for George or for David Dobson, just -- you talk about competitive displacements. And I guess I know your largest stand-alone independent mainframe competitor, BMC is, I think, doing pretty well in mainframe and there's not obvious share losses there. And I guess, we don't see all the players report their numbers separately, but I guess, if you could give just a little bit more color on where you're picking up share in the mainframe space?

David Dobson

Yes. Walter, it's David Dobson. We actually launched the, in the first half of last year, a competitive replacement program, and we saw 15 competitive replacements where we replaced competitors, not just one competitor but a few of our competitors across the board. And our view is that it's really just starting to gain traction now as we move into the market. And fundamentally, we think that's because of the competitive nature of our platform. We continue to invest in our new Mainframe Software Manager applications, our course rolls. We announced our DB2 roll towards the end of last year. And we've got two more rolls we're going to introduce into the marketplace in FY '12. And we're pretty confident that as those rolls do get into the marketplace in the second half of FY '12, we'll continue to pick up momentum. So we're seeing a success, a lot of it is driven by the available renewal platform -- the renewal portfolio. And -- but we will continue to be competitive in that space. We expect that we will grow at or above the market in FY '12.

Kelsey Doherty

Great. Thanks. Next question, please.

Operator

We'll open the floor up to Gregg Moskowitz with Cowen.

Gregg Moskowitz - Cowen and Company, LLC

Nancy, like John's and Walter's comments, this was your biggest renewal quarter since the mainframe price increase went into effect last July. I'm just wondering, anecdotally, how your discussions on pricing with customers have gone over the past few months?

Nancy Cooper

Sure. We're very encouraged by having a renewal yield in the low 90%. And that 5% price action, we see a couple of points of improvement coming out of that. As you know, many of our customers have contracted price protection, so it takes a couple of cycles, but we're very encouraged.

Gregg Moskowitz - Cowen and Company, LLC

Okay. And then just following on Michael's question earlier, about how much of an increase in cash taxes, Nancy, are you budgeting for fiscal '12? And then also, how much of your fiscal '12 revenue growth is coming from recent M&A?

Nancy Cooper

Our cash tax is basically -- we are able to defer payment out of fourth quarter, which you've heard about, $70 million we deferred out. So that's kind of an easy simple finding, a way of saying what thrown into next year. And you asked that please, Gregg, about guidance, about 2 points of our guidance comes from acquisition. Was that your question?

Gregg Moskowitz - Cowen and Company, LLC

It is.

Kelsey Doherty

Thanks, Gregg. Next question please.

Operator

And now, we'll hear from Matt Hedberg with RBC Capital Markets.

Matthew Hedberg - RBC Capital Markets, LLC

Nancy, you -- I believe you talked about linearity for overall renewals for the year, down 20%, and I believe you said down 15% in Q1. Can you kind of just talk to us about the linearity throughout the year? I mean should we expect a slow improvement throughout the year with another big ramp in Q4 or fiscal year '12?

Nancy Cooper

Sure, Matt. You've got to remember we have a very large global outsourcing deal in the fourth quarter of fiscal year '11. So you got to be mindful of that. And we just mentioned the first quarter is down 15%. So that is really the global outsourcer is a major factor. The other thing I'd ask you to think about is we did 5-or-more year renewals in fiscal year '08 and '09. So basically, we've changed the shape of our available renewal inventory and moved it out into more of the fiscal year '14-and-out timeframe. More than that, I have learned last year that I can't guide changed quarter, but we are managing these renewal portfolio to good transactions for our customers and appropriate yields, renewal yields for ourselves. And that will move renewal either in, because the customer wants it, or out, because it's better for us to negotiate that way. We are highly encouraged by our revenue backlog, which has a 6% growth and a 5% constant currency growth in the current portion.

Matthew Hedberg - RBC Capital Markets, LLC

That's great. And then people have been asking for new segment metrics for a while, Nancy. I guess I'm wondering is it going to be distributed mainframe revenue and then margins and maybe a license number? Can you kind of give us a sneak peak of what to expect?

Nancy Cooper

I'm not sure I could give a sneak peek, but I think there's some basics that you could probably guess.

Kelsey Doherty

Great, thanks. Next question, please.

Operator

And now we'll hear from Derek Bingham with Goldman Sachs.

Derek Bingham - Goldman Sachs Group Inc.

And Nancy, my thanks to you as well, and congratulations on outlasting the old-business model. You deserve a break, I think, after a job well done there. My question, one on the margins, I just want to make sure I heard it right. Is it correct that there's a couple of points of kind of residual dilution in FY '12 from M&A that you've already done?

Nancy Cooper

Yes, that's correct. The way to think about this, Derek, is we do carry a couple of points and from our acquisitions. And then, you heard, I think, on the call, we have made a conscious decision to invest in these emerging markets, emerging enterprise, and we're also developing new routes to market. So those are kind of the factors in it. And we're very encouraged that we have this opportunity for growth at balanced margin.

Derek Bingham - Goldman Sachs Group Inc.

Got it. And then my other one is just thinking about if you could give us a teaser on what you think the mix of mainframe versus distributed revenues are going to be by the time you kind of get through next year? I know it's kind of been gradually shifting towards that distributed portfolio. This year, could we see that kind of get to 50-50 or maybe even tip towards distributed?

Nancy Cooper

With the varying growth rates in those segments, that would be a fast tip, Derek. I would really ask you to wait for our first quarter where we're going to really call this out. And as you know, this has been a multiyear voyage in terms of getting the information so that we can talk about it. And we're really quite encouraged that we're going to be able to do that at the end of the first quarter.

Kelsey Doherty

Great. Next question, please.

Operator

We'll hear from Kirk Materne with Evercore Partners.

[Technical Difficulty]

S. Kirk Materne - Evercore Partners Inc.

I'll add my thanks to Nancy as well, and best of luck going forward. I guess my only question I had was, is there any change in terms of your outlook on M&A over the next 12 months versus, say, 12 months ago? You've obviously done a number of successful deals that added a lot in terms of new products to the portfolio. I guess with the increased buyback as well as the increased dividend yield, just any thoughts on sort of your view on M&A today versus maybe 12 months ago?

William McCracken

Okay. Kirk, good question, too, because that's one of the things that we focus on. And I think, when we look at what we were able to do last year and how that has really added the technology along with our current products that we've been able to get those integrated, it has allowed us to grow into new technology areas. The thing you should expect is a similar kind of approach, and that is our acquisitions are small tuck-in acquisitions. It adds to technology as we wanted. It also, frankly, makes the integration much simpler. And when you look at all that we did last year, we've got that where we wanted. You'd continue on with that to add content around, but it is a very manageable area for us to add significant technology as we drive forward. And Nancy, maybe you want to comment on some of the other points?

Nancy Cooper

Sure. So Kirk, we are -- we gave $300 million to $500 million. It's also very encouraging, we ended the year with $3.2 billion of cash. And you can see, we've guided in here the $300 million to $500 million and lots of cash. And we've already bought $68 million of shares between April 1 to May 6. So if we generate that much cash, you can just keep the results swing.

Kelsey Doherty

We'll move on. Kevin, you're the last one.

Operator

And we'll open Kevin Buttigieg's line from Collins Stewart.

Kevin Buttigieg - Collins Stewart LLC

Just back to growth and from new initiatives in the quarter, you mentioned that the distributed new products sales grew mid-single digits, double digits in a lot of newer product categories. So what -- well, I guess product categories were pulling growth down, and what was the reason behind that?

William McCracken

Well, actually, the single-digit growth was subsidiary Arcot pieces. The double-digit pieces, as you said, was Service Assurance, PPM [Privileged User Password Management] and others. And so the big thing that really levered on the thing is the point that I made with John DiFucci, and that's the mainframe capacity piece that pulls that down, because if -- what it did for the entire year, and then the EMEA impact. And I'll repeat it, because it's probably worth repeating. We take a look at what we now call for the rest of the world with EMEA out, and whether you look at PNCV [ph], new sales, even total bookings, which we don't look at that much because we look at revenue backlog. All of those measures are in double digit around the rest of the world with EMEA pulled out. So it demonstrates that, in fact, that the strategy is selling, and it's selling in a double-digit areas. So two things, mainframe and EMEA are the big pieces that make this a little bit harder to see. That's why, frankly, we're looking forward to the opportunity in July and at the end of the quarter to take you through the segmentation. It'll allow you to see better what's going on inside our company.

Kevin Buttigieg - Collins Stewart LLC

Well, just to clarify though, the script mentioned distributed new product sales grew mid-single digits. I understand what you're saying about the mainframe drag on new product sales. But you had specifically, unless I heard you wrong, or unless that's specifically applied to perhaps just the EMEA region but that's what really what I was referring to, the specific comment about distributed new product sales have been growing in the mid-single digits despite the double-digit growth in some of those newer product categories. Am I mistaken or...

William McCracken

Well, if I'm understanding you, Kevin -- I mean, we said that the Service Assurance, including themselves, grew in the low-double digits. The Virtualization Service Automation new sales grew in the mid-double digits and then the Service Portfolio Management grew mid-teens. And then the security and Arcot sales were up slightly in that timeframe. So when you average those all together, you'd get that number. But what it says is that the new stops that were stalling into this is driving this strong. But the average is what gives you the mid-single digit. Does that help, Kevin?

Kevin Buttigieg - Collins Stewart LLC

Yes, that's fine. Okay.

Kelsey Doherty

Great, thanks. That's our last question. Bill, would you like to wrap up?

William McCracken

Yes. I will just thank everybody. We're -- we were pleased with the year. We were able to do what we set out to do. And we're looking to do even stronger as we go into this year, so we look forward to getting with you at the end of next quarter, and particularly, look forward to seeing all of you on July 29. And thanks for hooking up with us.

Operator

Ladies and gentlemen, that does conclude your conference call for today. Again, thank you for your participation.

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