CA Technologies' (CA) CEO Mike Gregoire on Q3 2016 Results - Earnings Call Transcript

| About: CA Inc. (CA)

CA Technologies (NASDAQ:CA)

Q3 2016 Results Earnings Conference Call

January 26, 2016 05:00 PM ET

Executives

Traci Tsuchiguchi - VP, Investor Relations

Mike Gregoire - CEO

Rich Beckert - CFO

Analysts

John DiFucci - Jefferies

Sterling Auty - JPMorgan

Raimo Lenschow - Barclays

Siti Panigrahi - Credit Suisse

James Wesman - Raymond James

Walter Pritchard - Citigroup

Matt Hedberg - RBC Capital Markets

Ken Sena - Evercore ISI

Abhey Lamba - Mizuho Securities

Greg McDowell - JMP Securities

Operator

Good day, ladies and gentlemen, and welcome to the CA Technologies Third Quarter 2016 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session, and instructions will follow at that time. [Operator Instructions] As a reminder, this conference call is being recorded.

I'd now like to turn the conference over to Traci Tsuchiguchi, Vice President of Investor Relations. You may begin.

Traci Tsuchiguchi

Thank you, and good afternoon, everyone. Welcome to CA Technologies third quarter fiscal year 2016 earnings call. Joining me today are Mike Gregoire, our Chief Executive Officer; and Rich Beckert, our Chief Financial Officer. Mike and Rich will offer some prepared remarks and then we will open the call up for a Q&A session.

These prepared comments were previously recorded and this conference call is being broadcast on Tuesday, January 26th 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 express 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. Reconciliations to the most directly comparable GAAP financial measures are included in our 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 ca.com/invest. 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. Please note that our fourth quarter and fiscal year­end quiet period begins at the close of business on March 15, 2016. Let me remind you that all comparisons are year-over-year in constant currency unless otherwise indicated.

So, with that, let me turn the call over to Mike.

Mike Gregoire

Good afternoon. And thank you for joining us. I am pleased to report that both Enterprise Solutions and Mainframe new sales performed better than expected in the third quarter. Both revenue and new sales outperformed expectations, with strong new sales growth for the second consecutive quarter. Total new sales were up just over 10% year-over-year following an exceptionally strong second quarter.

Enterprise Solutions new sales increased in the high single digits year-over-year. Mainframe new sales increased in the mid teens year-over-year. It marks the third consecutive quarter of Enterprise Solutions new sales growth and the second consecutive quarter of Mainframe new sales growth. This is a reflection of our on­going efforts to improve product competitiveness as well as sales effectiveness and consistency.

Relative to our expectations, third quarter results benefitted from the combination of very strong performance from recent acquisitions, a higher level of renewal bookings growth that came at a healthy attach rate, and better than expected sales execution.

Looking to our fourth quarter and into the next fiscal year, I am encouraged by the progress we are making in our sales and product execution. I believe we are well positioned to achieve our FY '16 and medium term guidance. As conveyed in November, we expect our upcoming FY '17 to be the year CA crosses into sustained, albeit initially modest revenue growth. Our improved confidence in the business is reflected in the accelerated share repurchase, which essentially completed the previous $1 billion share repurchase authorization, the additional $750 million share repurchase authorization and our intent to increase the dividend in FY '17, subject to quarterly Board approval.

We remain committed to our three-pronged capital allocation strategy of returning capital to shareholders with an ongoing share repurchase program and one of the highest dividend payouts in the industry while continuing to invest in our future growth. Importantly, we are investing in innovation that matters. From containers and data analytics to big data, Open Source, and Agile, we are making investments to ensure that CA solutions are meaningful and compelling and can drive growth for years to come. In some cases, this investment will result in net new products and in other cases it will result in meaningful feature enhancements to existing product suites that will make CA solutions even more competitive in the marketplace.

Many of you experienced this in November at CA World, which was a banner event. It was a tremendous opportunity for customers, partners, media and analysts to see the full breadth and power of the CA brand and portfolio. The pendulum is swinging towards the desire to reduce complexity and consolidate around full suite solutions suppliers with global service. Consequently, customers increasingly find CA more attractive than point product vendors.

All of the key CA World metrics were up year-over-year, including overall attendance, customer engagement, pipeline generation, and broad visibility across both traditional and social media outlets. More specifically, the number of customer accounts represented at CA World increased in the mid-20s and our social media presence nearly doubled year-over-year. These improvements reflect the increasing engagement of CA's traditional Platinum customers as well as the broadening impact the Named and Partner business is having on our ability to address growth opportunities.

At CA World, we launched four net new, organically developed products and dozens of new releases and product enhancements. CA's organic engineering engine continues to improve and drive innovation. We also demonstrated a number of innovation sneak-peeks showcasing products currently in development. These innovations extend CA's ability to enable customers to embrace and benefit from the rapidly emerging application economy. They represent CA's platform agnostic strategy of enabling customers to develop, manage, and secure increasingly complex IT environments. Regardless of whether the app resides in the cloud or on a mainframe or whether it’s on-demand or on-prem.

As the time between major waves of innovation continues to compress, it is increasingly critical for global enterprises to be more agile. Agile is the way they develop and Agile is the way they think about their business models and strategy. The accelerating frequency and amplitude of the waves of innovation provide game changing opportunities for those with vision and the ability to execute. Agile is not just a prop or methodology that CA is evangelizing and selling.

It is a discipline and modus operandi that we are broadly embracing internally. We've already migrated 85% of CA's projects to the CA Agile Central platform, with the balance expected to be completed by the end of this fiscal year. I fully expect this will accelerate our pace of internal innovation and product development and result in more high quality, relevant products.

Leading enterprises all around the world are architecting their digital transformations. One of our customers, General Electric, aspires to be the leader in the industrial Internet and expects to be a Top 10 software company by 2020. Tangible proof that every company is becoming a software company. The momentum driving change with some of the most storied companies in the world is palpable. The opportunities for CA to help customers embrace the application economy are seemingly endless.

Now, I'd like to highlight a few areas within Enterprise Solutions in which we are seeing very good progress. In the Agile Management pillar, formerly Management Cloud, I am very happy to report that Rally continues to exceed our expectations. Seat expansions within the large enterprise customers and improvement in seat retention positively impacted performance. Customer seat count retention, or what CA refers to as renewals, is the best it's been since before Rally went public in early 2013. This is indicative of our customer's view of CA Agile Central as a strategic partner and trusted advisor, rather than just a software tool.

It highlights the success of our land-and-expand strategy as initial deployments within enterprises grow exponentially. In the quarter, Barclays, which had been using Rally within just one of its North American divisions, executed a large upgrade to more broadly embrace Agile across its North American and European operations. Thousands of additional seats were signed in this competitive win. Another notable win was with a regional local exchange carrier that upgraded to thousands of seats to standardize on CA Agile Central across the enterprise.

Also within the Agile Management pillar, I'm pleased to note that ITBM, or IT Business Management, increased new sales for the third consecutive quarter. Within ITBM, CA Project & Portfolio Management SaaS again grew new sales, marking its third consecutive quarter of robust year-over-year growth. In the quarter, CA was recognized as a Leader in the Gartner Magic Quadrant for Integrated IT Portfolio Analysis Applications. In Q3, we had a major win with an American multinational conglomerate. This win was the result of a very competitive campaign involving CA Project & Portfolio Management SaaS. We are seeing consolidation in the market as customers gravitate towards stable and proven vendors with the size and scale to support large enterprise deployments.

Moving to DevOps, API Management continues to be a bright spot, consistently posting strong growth rates. The third quarter marked the seventh consecutive quarter of double digit or better year-over-year new sales growth. The opportunity here is vast and we are typically addressing whitespace or replacing homegrown solutions. We launched three new products and enhancements at CA World. CA Live API Creator lets customers rapidly create API connectors from database sources, like Mongo DB and Oracle SQL databases. What used to take developers three to four weeks to create an API can now be done in fewer than five clicks.

CA Mobile App Services provides core backend services for building end-to-end enterprise mobile applications. And, CA API Management SaaS enables customers to combine the convenience of Cloud SaaS with enterprise level security. Demand for CA API Management is expansive. The business unit acquired more than 50 new customers in Q3. New customers to CA API Management included one of the largest insurance companies in the world as well as a financial services technology company. The former is standardizing multiple divisions on CA API Management and the latter is standardizing on CA API Management enterprise wide.

While initial deployments are exciting, major capacity expansions are proof points of our successful land and expand strategy. Notable capacity expansion deals include a win with a leading global payments company. This customer is deploying CA API Management as the standard for a variety of application projects. And, due to CA's strong mobile and authentication use cases, a major U.S. airline is employing CA API Management to build its B2B environment and dotcom property.

Our security business had an outstanding third quarter, with new sales up over 45% year-over-ear. The acquisition of Xceedium, which has provided a tremendous lift to our Privileged Access Management product portfolio, is driving considerable momentum in our Security group and has far exceeded our expectations. In the quarter, we executed one of the largest deals for the Security group in recent history, led by Privileged Access Management. We closed a competitive win at a federal agency which is extending from a single use case to an expansion throughout their entire environment. The streamlined capabilities of CA Privileged Access Management is enabling this customer to leverage its existing Public Key Infrastructure, smartcard and strong authentication solution of privileged user controls and auditing.

Another highlight was the competitive win with an iconic American multinational mass media conglomerate. CA Privileged Access Manager was chosen to protect the brand and its intellectual property. It needed a standards based solution that could easily integrate with a broad set of applications and systems. CA offered a comprehensive solution that allows the customer to secure their on-premise and SaaS based applications and systems to ensure it can effectively control privileged users. Now the brand and its IP are protected against both internal and external threats.

In the quarter, we announced the new release of CA Identity Suite. New features include, an application launch pad so that users can access any web application on the go; easy streamlined access; direct account entitlement management; and integrated advanced authentication. As one of our large customers, Florida Blue Cross and Blue Shield recently highlighted, CA makes identity management easy so that any employee can understand it. We help our customers manage and govern the access of its employees, which is critical to improving productivity, maintaining security, and protecting data.

I am pleased that what we are working on from a product perspective is beginning to bear fruit and our value proposition and messaging is resonating with customers. Our performance this quarter is evidence that the transformation into a modern sales organization is demonstrating increasingly consistent, solid performance. For the third consecutive quarter, our combined Named and Growth sales teams delivered healthy growth. And, in the third quarter, our pipeline conversion rates and win rates improved, our sales cycles shortened and our average deal size increased. I am pleased with the team's consistently improving efficiency and continued focus on accelerating velocity.

Overall, I am very pleased with our third quarter performance which reflects the consistent improvement in our execution. We feel that we are near an inflection point in the business. That said, we know there is still work to be done to grow at a rate that is representative of CA's true potential.

With that, I will turn the call over to Rich to review our third quarter financials and full year guidance. Thank you.

Rich Beckert

Thank you, Mike. Before we get started with the quarter review, let me remind you that all comparisons are year-over-year and in constant currency unless otherwise indicated. This afternoon I'm going to focus my comments on the key business drivers and performance indicators for the quarter. The balance of our financial details can be found in our supplemental and press release.

The year-over-year strength in the dollar continues to be a headwind to both our results and our guidance. Our Q3 total revenue was $1.034 and was down 1%. Enterprise Solutions increased 3%, Mainframe Solutions decreased 2% and Services decreased 4%. Q3 renewals were up approximately 30% in constant currency and in the low 20s as reported. The higher level of renewal bookings was driven by earlier than expected closing of some renewal transactions originally expected outside of Q3, as well as an increase in the average duration. Importantly, attach rates to these renewals were healthy.

Renewal yield for the quarter was in the mid-80s. The lower than historical average renewal yield was a result of a large North American financial services customer transitioning to an application that requires fewer of our products to support. This transition was expected and previously factored into our fiscal year and medium-term guidance and expectations related to our Mainframe business. Excluding this transaction, our renewal yield was in the low-90s.

We expect fiscal 2016 renewals to be up approximately 30% year-over-year as compared to fiscal 2015, and up in the mid 20s range as reported. Excluding the large system integrator renewal that occurred in the second quarter, we now expect fiscal 2016 renewals to be up mid-to high-single digits, and flat to up low-single digits, as reported. Q3 total new product and capacity sales were up just over 10% in constant currency and up mid-single digits as reported.

The year-over-year increase was due to very strong performance from recent acquisitions, a higher level of renewal bookings growth with a healthy attach rate as well as solid sales execution also had a positive effect. The outperformance in Q3 relative to our expectations have smoothed that lumpiness we had expected between Q3 and Q4 due to movement in the renewal portfolio.

The Rally acquisition continues to perform well, with seat expansions within large enterprises and improvements in seat retention positively impacting performance. Total paid seats under contract at the end of Q3 increased in the high 20% range year-over-year. We define a paid seat as a seat with a subscription or support contract. As a reminder, we plan to phase out this metric as paid seat growth is not expected to be an accurate proxy for expected revenue growth as we penetrate our large Platinum accounts.

Acquisitions contributed approximately 10 points to total new sales growth in the quarter, as reported and just above 10% in constant currency. Excluding acquisitions, for the first nine months of FY '16, total new sales were up low-teens in constant currency and up mid-single digits as reported.

Turning to geographies, new sales were strong in North America and EMEA, driven by stronger than expected performance from acquisitions and the timing of renewals. However, new sales were down in APJ and Latin America due to smaller renewal portfolios. Within our segments, Q3 mainframe new sales including new product and capacity was up in the mid-teens year-over-year and up high single digits as reported. Overall, we continue to expect our Mainframe revenue to be down in the low-single digits over the medium term, which we believe is in-line with the Mainframe market.

Q3 Enterprise Solutions' new product sales were up in the high single digits in constant currency, and up low single digits as reported. Acquisitions contributed mid-teens growth in the quarter in both constant currency and as reported. Excluding acquisitions, for the first nine months of FY '16, ES new sales were up mid-single digits in constant currency and down low-single digits as reported.

Services revenue decreased 4% in constant currency and 9% as reported. Over the long-term, we expect Services revenue to decline as we design our products to be easier to install and as we leverage partners.

Total revenue backlog improved to up 5% in constant currency, or up 2% as reported. Current revenue backlog declined 2% in constant currency, or down 5% as reported. As many of you know, current revenue backlog is impacted by the timing of deals in our renewal portfolio. As contracts move closer towards their renewals, revenue backlog declines. Current revenue backlog will likely grow when we demonstrate multiple quarters of new sales growth, while maintaining a low 90s renewal yield.

While the timing of some deals shifted from FY '17 into Q3 driven largely by customer requests, we continue to expect FY '17 to be a solid renewal year. We believe our customer's desire for MIPS capacity ahead of renewal expiration is a positive reflection on the strength of the current Mainframe cycle.

Q3 non-GAAP operating margin was 38% and GAAP operating margin was 28%. Segment operating margins in the quarter were 61% for Mainframe Solutions, 12% for Enterprise Solutions, and 6% for Services. Our Q3 non-GAAP tax rate was 29% and our GAAP tax rate was 21%. Q3 non-GAAP diluted earnings per share was $0.63, up 1% year-over-year, and includes a $0.02 benefit from the accelerated share repurchase in the quarter. Q3 GAAP diluted earnings per share was $0.52, up 18%, including a $0.02 benefit from the accelerated share repurchase in the quarter.

Our Q3 CFFO was $332 million, up 18% year-over-year, or up 6% as reported. CFFO improved year-over-year due primarily to a decrease in vendor disbursements and payroll, partially offset by the decrease in cash collections due to an unfavorable effect on foreign exchange. Single installment cash payments were $125 million and up year-over-year but down for the first nine months of the fiscal year.

We ended Q3 with approximately $250 million in net cash. During the third quarter, we repurchased 22 million shares for approximately $590 million, as we accelerated and essentially completed our $1 billion share repurchase authorization. The Board of Directors authorized an additional $750 million share repurchase program, which we expect to begin to execute in FY '17. In Q3, we paid $105 million in dividends. We also announced a plan to increase the annual dividend from $1.00 to $1.02 in fiscal year 2017. Our balance sheet is strong and we remain committed to maintaining our investment grade rating.

Now, turning to guidance. Guidance is based on exchange rates on the last day of the preceding quarter, which was December 31, 2015. The guidance also assumes no new material acquisitions. We expect currency to have a negative impact to our full-year fiscal 2016 revenue of approximately 5 points, at December 31st rates. For the year, the increased mix of ratable relative to up-front we experienced in the first half of the year has created a headwind to our reported revenue. We continue to expect total revenue to be towards the low-end of our guidance of down 1% to flat, in constant currency. This translates to reported revenue of around $3.99 to $4.03 billion. Please note that the negative impact of foreign currency on our reported revenue outlook is approximately $200 million.

The movement of some transactions from Q4 into Q3 has the effect of moderating our Q4 expectations, which we expect to weigh on metrics including new sales, reported revenue, bookings, operating margin and EPS in Q4. We expect full year GAAP operating margin of 28%, and full year non-GAAP operating margin of 38%, consistent with our prior expectations. Similar to our expectations for revenue, we believe operating margin will be negatively impacted by a higher mix of ratable revenue rather than up-front deals in the first half of the year. Keep in mind that our fiscal Q4 operating margins are likely to be the weakest of the year due to the seasonality of operating expenses.

Underlying this guidance, we expect our GAAP and non-GAAP tax rate to be between 28% and 29%, consistent with our prior expectations. Non-GAAP diluted earnings per share is expected to grow between 4% to 7%. This translates to reported non-GAAP diluted earnings per share of $2.39 to $2.45. The negative impact of foreign currency on earnings per share is around $0.23. GAAP diluted earnings per share is expected to grow 8% to 13%. This translates to a reported GAAP diluted earnings per share of $1.74 to $1.80. The diluted earnings per share estimate includes the impact of the accelerated share repurchase, which has a positive impact of approximately $0.03 and $0.04 to GAAP and non-GAAP earnings per share, respectively.

At the end of the fiscal year, we expect approximately 412 million shares outstanding, and a weighted average diluted share count of approximately 427 million shares. Cash flow from operations is expected to increase 2% to 7% in constant currency, consistent with our prior expectations. This translates to reported cash flow from operations of $970 million to $1.02 billion.

And now we will take your questions

Question-and-Answer Session

Operator

[Operator instruction]. Our first question comes from John DiFucci with Jefferies. Your line is now open. John your line is now open.

John DiFucci

Thank you. I just have a couple of quick questions. I think it sound pretty good here but I guess just when I look at some of the numbers and that’s where I just start to wonder a little. And Rich it's really more a mite around the Mainframe. So I see like new sales being up in the mid-teens year-over-year at high single digits on a reported basis and mid-teens in constant currency. But you still expect revenue to decline in low single-digits over the medium term. So can you help us just sort of understand that, because I think that and for a lot of investors think Mainframe's still relevant for you. They would love to see that, it can be relatively stable, but if the new business is up, do you still expect a decline over the medium term? That must mean that the renewals and I don’t know maybe this quarter for Mainframe is an anomaly, certainly as you pointed that out. But it's maybe this quarter and quarters like that even like three year ago you had a similar issue. But it may have big effect because I would think that -- or first of all would Mainframe deal a little more stable. And I only hear that new sales are up and that's I think the second quarter in a row it was up pretty good. And to hear that the revenue is going to go down in the medium term it seems to be some of a disconnect or is it really just about the renewals? I am sorry for the long winded question.

Rich Beckert

This is Rich. So the quarter actually remains a little differently than what we expected back last quarter and it's in a better way. So two pieces of that were better, acquisitions clearly in total improved and the second part is the Mainframe that you described. Those deals that were due to be renewed in Q4 and a couple of deals that were in the first half of next year, customers are now getting our contracts in line with the MIPS they had purchased through IBM over the last year or two. And you can see in the last quarter that they just announced. They had another good quarter of MIPS growth. So we do expect that to come in over in the length of these deals over the next three years as we talked about back in the event. The second part is that the renewals we have done need to be in that around 90% range. This quarter we anticipated that particular standard to take off the Mainframe and put it in a non-Mainframe product set. We knew that they will be working on that for a few years. And so that was anticipated in both this year's guidance and on medium term guidance. And as you said that happens from time-to-time. It's a single digit kind of percentage where that happens, so we have that planned out over and we can see that coming because it takes years for people that migrate away when they choose to do so. As far as the total MIPS growth over the quarter that it was very healthy as you said and that is a positive for us over time. We need MIPS that will be growing in plus 25% in order for us to have flat growth. So this is really in line with what we have anticipated, just a few quarters ahead, so this will smooth out, that is really in Q4.

John DiFucci

Okay. And if I might just ask sort of a related question. And you had -- so in Q3 just overall renewals were up 30% constant currency, low 20% reported. And new business was up 10%, a little more than 10% constant currency mid-single reported. I guess when I look at that and I --and correct me if I am wrong but I think a lot of your new business is still connected to renewals. So I know you have been putting a lot of effort into trying to disconnect or not necessarily disconnect it but sign more new business outside the renewals cycle and also sign with new customers. So in order for you to grow that new business, sort of have to grow like at over time anyway faster or better than the renewals, is that the right way to think about it? And I'm sorry go ahead.

Rich Beckert

So, the way the quarter performed from the ES side of the house is exactly what we had said last quarter, we had anticipated being down low single digits and so that part of the portfolio will behave in that manner. What you really saw picking, volumes in Mainframe as you described, so the renewals in the -- the Q4 renewals that we did tend to be higher percentage of Mainframe customer driven. And then our overall new sales growth as you said just happened because of a very strong performance by both Rally and Xceedium. Xceedium had its largest transaction ever in the quarter and that was anticipated that closed in Q4. So having that close in Q3, helped the revenue and keeps us on track for the full year.

Operator

Thank you. Our next question comes from Sterling Auty of JPMorgan. Your line is now open.

Sterling Auty

I want to kind of follow on the Mainframe line of questions because that is the most popular question that we still get which is okay, maybe characterize for us this Mainframe cycle, the growth in that? Where you're seeing customers still putting those workloads and growing those workloads in terms of MIPS capacity versus those that are still starting to migrate off to more virtualized and other types of approaches? And how does that weigh on revenue versus what you might be able to do on the pricing side and benefitting from those that are -- they are growing their MIPS capacity?

Rich Beckert

There's a large number of financial institutions that absolutely are growing their Mainframe capacity and many times you see someone using a mobile application to check immediate --checking the counter -- the stock or anything else that's driving a huge amount of back end MIPS. They could be priced differently because they tend to be cheaper the way those MIPS are deployed but it has a strong growth for the Mainframe business. If you ask of us for in the hybrid model where IBM came out with their IBM's Mainframe and the ability to use Linux, we also have products that do that. We announced on at CA World so you'll see us putting on the Mainframe MIPS versus Linux and that will continue to keep that cost to that hardware and everything attached to it, very competitive in the market place. When you then asked, the last question who's really coming off, it's similar to what I said to John, we don't see a lot of large customers dropping their Mainframe. In fact we are seeing their capacity pick up. Tends to be very-very low end, a single application on our older Mainframe. So, that's really that where we see that business and we haven't really seen that change much over the last couple of years. We check that as you can imagine every quarter and we haven't seen any negative trends there.

Sterling Auty

So, does that change at all your outlook so when you talk about fiscal '17 having a modest low single digit growth? What does the Mainframe side need to contribute for you to hit those goals?

Rich Beckert

As we've said in November, we still think it's going to be low single digit decline. We think that's in line with the marketplace, that's more about price compression than it's about customers leaving the platform.

Operator

Thank you. [Operator Instructions] Our next question comes from Raimo Lenschow of Barclays. Your line is now open.

Raimo Lenschow

So, I have one question, Mike, can you talk -- and you talked in the prepared remarks already about some of the product areas that are doing better. Can you talk a little bit about the situation on the distribution side of the business or how strategic accounts fared as Named accounts this quarter and what are you seeing there?

Mike Gregoire

Can you just repeat that Raimo you cut out just a little bit?

Raimo Lenschow

So, I was trying to find out on the distribution side of the business how happy were you with the performance on the Named accounts and the Strategic accounts, especially on the Named accounts there was a lot of focus, you have kind of improved in here.

Mike Gregoire

Yes, I was very pleased with it this quarter, it was up over 10% and this is our ability to get through net new customers that we don't have a very material relationship with. The customer account was definitely up quarter-over-quarter as well and the kinds of customers that we're getting relationships with were quite impressive as well.

Operator

Thank you. Our next question comes from Phil Winslow of Credit Suisse. Your line is now open.

Siti Panigrahi

Hi guys, this is Siti Panigrahi for Phil. Just wondering in terms of geographic [indiscernible] could you give some color what you're seeing outside of the U.S.?

Mike Gregoire

Can you repeat the question I believe you asked how did we do outside the U.S.?

Siti Panigrahi

Yes.

Mike Gregoire

We did very well in Europe as we did in the United States and as I said in my prepared remarks we were down slightly in Asia and Latin America, those were both driven by just what the portfolio was to be renewed in the quarter.

Operator

Thank you. Our next question comes from Michael Turits with Raymond James. Your line is now open.

James Wesman

Hey guys good afternoon. It's James Wesman sitting in for Michael. Rich can you -- given the renewals that you guys had closed in fiscal third quarter earlier than expected, can you talk about what the renewal portfolio looks like for fiscal '17 and if it should still be up year-over-year over fiscal '16?

Mike Gregoire

We believe it will still be up in mid single-digits, when you back out the large system integrator for the rest of the year and it will still be up next year. We will give very detailed what we believe '17 is when we close out the year because we want to make sure that we don't continue to update it for any other transactions that might be at fiscal '17 or on the fiscal '16. But if you recall going back to what we talked about in November, we have three years of solid renewal portfolio. So we're anticipating that that will allow us to continue to see very strong renewals over the next three years.

James Wesman

Got it. Just to make sure, I understood what you said, for fiscal '17, even given the early renewals you still expect the renewal portfolio to be up year-over-year in '17?

Mike Gregoire

Correct.

Operator

Our next question comes from Walter Pritchard of Citigroup. Your line is now open.

Walter Pritchard

Hi, thanks. Rich, on the cash flow, you didn't sort of provide any commentary about next year's cash flow, I think you indicated that it could be up slightly with the November event. Does the sort of pull forward in the renewal or the business that you saw from '17 to '16 here, change it all, kind of how you are thinking about cash flow next year? I'm just wondering, if that dynamic was meaningful enough to kind of have a bigger impact such as that?

Rich Beckert

I think what it does is it just takes pressure off of that. As you can imagine, you can see that we continue to have our total billings backlog grew -- grew pretty healthy and we grew 2% just in what we build. So, that better positions us Walter, but I'd say, it didn't necessarily have a major meaningful change year-over-year. As we said, it should over time attract a little bit better than the revenue growth as that grows. So, we still see that growing in that low single digit range.

Walter Pritchard

Thank you.

Operator

Our next question comes from Matt Hedberg of RBC Capital Markets. Your line is now open.

Matt Hedberg

Thanks for taking my questions, guys. Rich, what if anything can you tell us about the mix of ratable revenue as you look into next year? Should some of the trends that we're seeing now continue and should we expect to maybe correlate even more so?

Rich Beckert

The two things that will drive the ratable revenue, is one the product set. So an example, any of the SaaS products around that continues to be a bigger piece of the portfolio in PPM. That will all be viewed in a ratable nature. The other thing is the products that are to be renewed, so a Mainframe in this particular quarter as an example had a lot of ratable nature to it. Xceedium which is the other new acquisition though had a lot of standalone transactions as did our growth area which you heard, Mike talk about the Named accounts that grew 10%. So those tend to be more standalone transactions, will that mix change over time, yes. We saw change in the first half of the year where more things went ratable, but this quarter it kind of went back to more of the traditional mix and I think the quarter that we are currently in seems to be shaping up to be more than traditional mix. But as the product set becomes more ratable in nature, clearly there will be less revenue than will be taken up front. So, I think that -- to net that out you will have certain products that are going to drive that, as we grow with our SaaS products. But our portfolio will definitely drive certain products to grow ratable, an example, all of Mainframe and lot of our traditional ES products.

Operator

Thank you. Our next question comes from Kirk Materne of Evercore ISI. Your line is now open.

Ken Sena

Hi, it's actually Ken filling in on for Kirk. Congrats on the quarter. One question, you put up a good margin close to 38%, you're looking for the same for the full year. Could you give us some framework to think about where future margin leverage might come from?

Mike Gregoire

This is Mike. I think, you will see our margin leverage comments, we start to generate more net new sales and higher revenue but we're still investing in a lot of our products. We think a margin in the high 30s is a good place for our company to be, provided we're paying very good dividend, we have a great share buyback program. When you take a look at all of those metrics together, we think that's the best balance between investing in the company, providing value to shareholders and also investing for the long-term viability of our company.

Operator

Thank you. Our next question comes from Abhey Lamba from Mizuho Securities. Your line is now open.

Abhey Lamba

Thank you. Mike, can you talk a little bit about your confidence in growing revenues in fiscal '17 as the current revenue backlog is still declining? And as we look at it qualitatively you've got headwinds from some early renewals that moved from fiscal '17 to the current year, but I'm sure there are some tailwinds that you've seen. If you can share those that will be helpful?

Mike Gregoire

Sure, I'll comment on a part of it, and I will let Rich weigh in as well. First of all, when you just take a look at the math, our 2017 and 2018 renewal portfolio are very strong. So we've got an awful lot to work with that's already is pretty much booked business. We really understand how to close those types of transactions. We continue to see -- get high renewal yields in the low and mid 90s and we don't see that changing. So that's a good basis point to start from. And then secondly, we've been building a much, much better increasing portfolio of products. When you take a look at the competitive wins we've been getting over the last three quarters, take a look at what's being built organically in our labs and the improvement we have had with respect to organic engineering, I think that that's a confidence factor. And then lastly is, we are seeing a bit of a tipping point happen in the market where customers are really starting to get aggravated with the integration of big parts of their infrastructure being done on dirt nickel and they are looking for suites. And when you take a look at how we go to market and the buckets of products we have, we are a suite player and to the extent that we can get rid of all the engineering in and around the integration of multiple products, I think that's a net wind at our back. And I see this mostly right now in security. When we are selling a security product, we usually start to offer it as a tactical sale. And as soon as that sales start moving up the executive ladder and gets to a CSO or gets to a CFO or CEO they don’t want to talk about a tactical solution. They want talk about how are you going to protect my company and how can we think about this more holistically. We got a great quarter with Xceedium and Xceedium is a great opportunity for us to have in that conversation. It's not lost on anybody, that most of the hacks that have happened over the last year and half have happened by a Privileged Identity getting compromised. There is a tactical reach out right now by just about every corporation to solve that particular problem. But it seems we start having that conversation and you bring it up to an executive level, they expand it into how we are protecting the identities for our whole corporation. There is only a handful of companies in the world that can do that, usually a couple that can do that at scale if they were very well positioned for those kinds of the competitive bids.

Rich Beckert

The only thing I would add is that when you asked about the current revenue backlog, some of that will be driven by -- since we do have a strong portfolio next year, as those items start to come off, meaning like a Q4 of next year no longer is in current. It has an artificial downward pressure on it. That's probably worth a couple of points. So we are feeling pretty good about where we are. You can see this whole revenue backlog and as Mike just described, we have some new products that are going to give us a tailwind.

Operator

Thank you. Our next question comes from Greg McDowell of JMP Securities. Your line is now open.

Greg McDowell

A lot of macro headlines have people worried and I was just wondering, if you are seeing any change in customer behavior in the first month of this year? And then maybe if you could just comment on maybe how your FY '17 commentary takes into account the potential economic headwinds? Thank you very much.

Mike Gregoire

Sure. With respect to macro we haven’t seen any change in customer sentiments for the problems we are trying to solve. As you think about just about every single company, they are trying to be part of the application economy, so they are building applications. And through building applications they are going to be using things like route and CA Agile Management. They are going to be using testing tools that we have. They are going to be using Service Virtualization. They're going to want to instrument those applications and make sure that the hardware that they deploy them on has enough capacity and if that hardware is something in the comps you going to be notified about it. And obviously they are going to want to be secured. So being in the right spot as everyone thinks towards the macro how am I going to improve. The way that they are going to improve is by getting involved in the application economy. Now there is an also a lot of macro territory on the sheets. China's definitely been on the minds of just about everybody and how do you think people are going to solve their issues in China and China as they move into a consumer oriented economy from an export economy they are going to want to have all the things that you would expect that a G20 nation have. They are going to want to have credit cards, they are going to want to have insurance, they are going to want to have cars, they are going to want to have electronic devices. All of that commerce is going to be built on the application economy as well. So I feel like we are very well positioned strategically in macro in order to make that happen. And that is, we haven't put out our FY '17 guidance yet, we will feel that out when we finish off the year, but we will take that all into consideration. But what I see right now is a bit of a blip and a little bit of a correction. The stuff that is getting corrected, I think everybody probably saw that it probably should get corrected. When you have a company like ours that makes money, you have a company like ours that has great customer service, we see a company like ours invest a $1 billion in real R&D. That’s the kind of stability that I think customers are going to want to pay attention to.

Rich Beckert

I think I would add to make a comment. We did see -- Brazil has had its troubles, it had strong quarter, but we know the last couple of quarters were not as big in China. So some of the pressure that Mike just described in China didn't -- were a little bit inflated from that as well as Russia. So we performed very well again in Europe and North America. A lot of what we did over the last 18 months to get our Named and growth accounts moving is really starting to pay dividend. And as Mike has said earlier that we saw that segment grow 10% and that's the third quarter in row that had significant growth. So I think we are in position where we have a lot of white space if you will in the Fortune 5000. We were traditionally, four years ago very concentrated in our Fortune 500. So that gives us a lot more insulation if you will from economic downturn in certain industries.

Operator

Thank you and this does conclude our question-and-answer session. I would now like to turn the call back to Mike Gregoire, CEO, for any further remarks.

Mike Gregoire

Great. First of all thank you for joining us late this afternoon and your interest in CA. I'd like to leave with the following key takeaways. First of all we are very pleased with our performance in Q3, which definitely exceeded our expectations. Our recent acquisitions are performing very well and we had a strong quarter in Mainframe. And finally, we continue to invest in innovation that matters, which will drive growth for CA for many years ahead.

Thank you and have a great evening.

Operator

Ladies and gentlemen, thank you for participating in today's conference. This concludes today's program. You may all disconnect. Everyone, have a great day.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!