CA F2Q08 (Qtr End 9/30/07) Earnings Call Transcript

CA, Inc. (CA)

F2Q08 (Qtr End 9/30/07) Earnings Call

November 1, 2007 5:00 pm ET

Executives

Jessica Kourakos - VP of IR

John Swainson - Chief Executive Officer

Nancy Cooper - Chief Financial Officer

Analysts

Phil Winslow - Credit Suisse

John DiFucci - Bear Stearns

Sarah Friar - Goldman Sachs

Walter Pritchard - Cowen & Co.

Richard Sherman - MKM Partners

Brendan McCabe - CIBC World Markets

Jake Gimmini - Morgan Stanley

Presentation

Good evening everyone. My name is Jacob, and I will be your conference operator today. At this time, I would now like to welcome everyone to the CA Q2 Fiscal Year 2008 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question-and-answer session. (Operator Instructions) Thank you Ms. Kourakos, you may now proceed with your teleconference.

Jessica Kourakos

Thank you, and good afternoon, everyone. I am Jessica Kourakos, Vice President of Investor Relations for CA. Joining me today are John Swainson, our Chief Executive Officer and Nancy Cooper, our Chief Financial Officer. As a reminder, this conference call is being broadcast on Thursday, November 1^st, 2007 over the phone and the Internet to all interested parties.

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

During this call, non-GAAP financial measures will be discussed. Reconciliations to the most directly comparable GAAP financial measures are included in the earnings release which was filed on Form 8-K earlier today and the supplemental information package. In addition, we have posted a presentation to accompany this webcast. All of these documents are available on our website at investor.ca.com

Today's discussion may contain 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.

With that, I'll turn the call over to John Swainson.

John Swainson

Thanks, Jessica. Good afternoon, everyone, and thank you for joining us. I'm pleased to announce that CA has, by every measure, closed on a strong quarter and is on its way to finishing the year with solid top and bottom line performance.

To start, I'll begin today's call by sharing some highlights from the quarter. Then I'll focus on our progress towards building CA into a faster growing, highly profitable and highly competitive company. And then when I'm done, Nancy Cooper will go into the details of our second quarter and our outlook for the fiscal year, after which we'll open up the call for your questions.

Q2 marks CA's fourth consecutive quarter of solid performance. Revenue in the quarter was $1.067 billion, which showed an annual increase of 8%, or up 5% on a constant currency basis. Subscription revenue of $858 million grew 13% annually and almost 4% sequentially. Total bookings were up 46% to $1 billion in the quarter. Non-GAAP operating margin was up 400 basis points from last year to 27%. Non-GAAP EPS of $0.32 grew 23% year-over-year, and cash flow from operations was a $193 million, compared to $6 million in the prior year quarter.

All in all, these results mark a significant milestone in CA's transformation.

As we look forward to the second half of the fiscal year, our more streamlined sales organization and improved operating infrastructure allow us to better identify customer opportunities and gives us greater confidence in our ability to meet full year financial objectives.

And while our efficiency improvements continue to be very important goals at CA, our efforts can only go so far without great products and solutions. CA is at its core a technology company. It is has been my goal since the beginning of my tenure here to focus our efforts on building world class products.

I've had good experience with this kind of focused development effort in my time at IBM, and I know that we have the talent to do this here at CA.

Our progress in making better products and solutions is already getting noticed by our customers and competitors.

As many of you know, Enterprise IT Management, or EITM, is CA's unique technology approach that gives our customers the software to better govern, manage and secure their IT infrastructures.

It is, by far, the most comprehensive approach to our customers' IT complexity problems and allows us to position CA as a thought leader in the marketplace.

EITM is an important platform for us to sell new products and solutions to both existing and new customers and will be a key enabler for CA to increase its overall share of IT spending.

Here are a few words from Fujitsu Services on how they plan to use EITM to better serve their customers: And I quote: "Fujitsu needs to be able to help their customers manage complex IT environments that include both CA products as well as third party systems. For this, Fujitsu has chosen CA's EITM solutions for use with its direct customers and large global outsourcers. We believe EITM will allow our customers to more seamlessly oversee and control their increasingly complex IT environments and achieve a better ROI from their IT investments."

MetLife is another great example of how CA uses its product breadth to elevate its position among vendors, turning us into a more strategic partner for our customers. In the most recent quarter, MetLife added CA's Wily Introscope Application Performance Management product, significantly building upon its existing set of CA monitoring and management technologies.

In Q2, Wily continued to be a growth driver for CA and is another great cornerstone product to help us increase penetration into our existing accounts as well as win new customer engagements.

In the area of Data Center Automation, our R&D teams are busy building a new product for dynamic server provisioning. We will share more details about this product, code named McKinley, at our upcoming Analyst Day on December 17th in New York City.

The key takeaway here is that our internal development teams are already working hard to optimize our existing product portfolio and building new products to take advantage of the emerging opportunities in our markets.

We clearly have the product breadth our enterprise customers are looking for, and we are also focused on building organically and buying the best-of-breed solutions.

In the second quarter, CA's Clarity product again continued to lead the industry. Once again making it into Gartner's June 2007 Magic Quadrant for IT Project and Portfolio Management Applications. It was also voted the winner of the "Best Portfolio Analysis" and "Most Flexible and Configurable" categories at the Gartner June 2007 Project and Portfolio Management Summit. This marks the sixth consecutive Gartner PPM Summit at which CA Clarity has been recognized with more nominations and won more awards than any other vendor's product.

In addition to CA Clarity, you should expect us to add more anchor products to our portfolio that will help us improve our position with customers. Specifically, in the next few months, we expect to launch new offerings in Identity and Access Management and in Governance. Together with dynamic server provisioning, these products will build upon our already rich portfolio of EITM products and solutions and significantly improve CA's ability to meet and exceed customer expectations.

Now, let me touch on an area that you often asked me about, and that is the mainframe.

We are happy with the steady bookings performance in the quarter. In fact, given what we have seen in the financial services marketplace, we believe that the mainframe's centralized approach is the best environment for customers that need to deliver their applications at the highest levels of performance, security and reliability. This is especially true in industries that need to deliver processes that adhere to strict regulatory requirements.

In short, while there is more work to be done, this quarter's performance shows that CA's restructuring efforts and focus on execution have begun to show clear benefits to both the top and bottom line. The initial changes that we have made in our sales and financial processes are turning us into a more efficient and agile organization. And we believe that the next phase of our expense rationalization will get us to the operating margins that are more consistent with the leading companies of our size in the industry.

With that, I'll turn it over to Nancy to take you through the details of the quarter and of our financials.

Nancy Cooper

Thanks John and good afternoon everyone.

I'll begin by reviewing our second quarter financials and then address our restructuring efforts and, finally, provide an update to our outlook for fiscal 2008.

As John indicated, second quarter results reflect our fourth consecutive quarter of solid business performance. We've completed several important steps to substantially improve our processes and infrastructure and I'm encouraged by our improved execution heading into the second half of fiscal 2008.

I'll begin with bookings.

Second quarter total product and services bookings increased 46% to $1.007 billion. We were particularly pleased by the strength in our Enterprise Systems Management, our Business Service Optimization and our Security business units in this quarter.

Bookings growth was driven by a number of large contract renewals signed in the quarter. We signed 16 license agreements greater than $10 million, which aggregated to $334 million. This compares to six such contracts, aggregating to $113 million in the prior year period. These results are due to our more disciplined approach to enterprise renewals, and our successful efforts to reduce bookings seasonality throughout our fiscal year.

New deferred subscription value from our direct business, or more simply, new direct bookings in the second quarter, were $824 million, an increase of 65% over the prior year. The weighted average duration of new direct bookings was 3.17 years, compared to 2.98 years in the prior year period. When annualized, the year-over-year increase from new direct bookings was 56%.

As we discussed last quarter, our efforts to reduce bookings seasonality create a tougher compare for CA entering into the second half. Accordingly, while bookings are up 47% for the first half of the year, we expect total bookings growth for the year to be in the low double digits. We think having a less back-end loaded bookings year positions us better for negotiations over contract terms, and also allows us to focus more on building our bookings pipeline heading into our next fiscal year.

And we'll talk more about this at our Analyst Day event, but overall, we feel very good about our progress in this area.

Total revenue for the second quarter was $1.067 billion, up 8% from the prior year, or 5% on a constant currency basis. The increase in the second quarter total revenue was primarily driven by growth in subscription revenue, which increased 13% from the prior year period.

As expected, maintenance fell 27%, largely because it continues to be absorbed by our subscription business.

Together, subscription and maintenance revenue grew 8% and is probably a more meaningful way to look at our ratable revenue.

Revenue from professional services in the second quarter was $95 million, or up about 12% year-over-year.

The percentage of revenue recognized on an up-front basis, which we record within software fees and other revenue, was 3% in the quarter versus 2.7% in the prior year period. The increase was due in part to our decision in the quarter to align our 2-Tier channel sales with industry practice by discontinuing the offer of unspecified future products in those sales. This change resulted in the recognition of an additional $12 million of revenue in the current period.

From a geographic perspective, North American revenue in the second quarter was up 5% over the prior year and international revenue increased 5% on a constant currency basis.

I'd like to highlight EMEA specifically, since process and leadership improvements there led to a much improved quarterly performance in the region and helped bring EMEA more inline with North America bookings performance.

On a non-GAAP basis, operating expenses for the second quarter were $779 million compared to $756 million in the prior year period.

Currency negatively impacted operating expenses by roughly $20 million, or 2 percentage points.

Excluding the negative impact from currency, operating expenses would have been flat with last year's levels.

When removing expenses associated with Professional Services, which increases professional services activity picks up, operating expenses would have been down year-over-year.

Non-GAAP operating income was $288 million for the second quarter compared to $231 million in the prior year period. Non-GAAP operating margin for the second quarter was 27%, reflecting 400 basis points of improvement year-over-year. Net interest expense for the second quarter was $13 million.

Non-GAAP income was a $173 million for the second quarter, compared to $153 million in the prior year period, a 13% year-over-year increase. This translates into non-GAAP EPS of $0.32, compared to $0.26 in the prior year period, which is a 23% increase year-over-year on a per share basis.

Now let's turn to our GAAP expenses, which include purchased software, intangible amortization, restructuring and other.

Including these items, total expenses before interest and taxes were $823 million for the second quarter, down from $907 million in the prior year period. During the second quarter, we recorded restructuring and other expenses of $13 million, which is compared to $58 million in the prior year period.

As John mentioned in his remarks, restructuring is part of the many initiatives we have put in place to help us deliver higher operating performance.

Our next phase of initiatives should enable us to yield even better results and get us to operating margins that are more in line with our peers.

I'll go into more details on our efforts here at Analyst Day in December, but I am very excited about where we can take CA from here.

Now, to finish up the income statement, GAAP income from continuing operations was a $137 million in the second quarter, or $0.26 per diluted common share, which is compared to $54 million or $0.09 per share in the prior year period.

Cash flow from operations in the second quarter was a $193 million compared to $6 million in the prior year period. Strength in cash flow in the quarter was driven by an increase in collections of accounts receivables, including an increase in collections from single installment contracts of $31 million over the prior year, and a decrease in disbursements led by lower AP and payroll.

Turning to the balance sheet, we ended the quarter with $1.9 billion in cash and cash equivalents and $2.6 billion of total debt, bringing our net debt position to approximately $690 million. Total deferred subscription value balance as of the end of the second quarter was $5.8 billion, up 17% from last year's second quarter, reflecting the strength of our subscription business and the visibility into our future revenue stream.

Now I'd like to provide you with an update to our full year outlook.

While facing a difficult compare in the second half due to our strong finish last year, I am encouraged with our strong first half results, the improvements we have made to our sales execution engine, our controls over pricing and deal terms and our continued progress with our restructuring efforts.

Our updated guidance is as follows: Total revenue is expected to range from $4.15 billion to $4.2 billion, up from our prior guidance of $4.05 billion to $4.1 billion, but consistent with our prior guidance of 3% to 4% growth in constant currency.

Non-GAAP operating EPS guidance is now $1.06 to $1.10, up from our prior guidance of $0.94 to $1. This revenue and EPS guidance is updated for today's currency exchange rates and assumes no acquisitions.

We expect approximately 514 million actual shares outstanding, a weighted average diluted share count of approximately 542 million shares and non-GAAP tax rate of approximately 36%, which his up 1 point from our prior guidance.

We are also increasing our previous GAAP EPS guidance for the year to $0.87 to $0.91, which is up from $0.75 to $0.81. GAAP EPS assumes no acquisitions and includes roughly $35 million from previously-announced restructuring plans, consistent with our prior guidance.

Finally, we continue to expect cash flow from operations to reach $1.05 billion to $1.1 billion, including $470 million in cash tax disbursements versus $296 million in the prior year period.

Many of you have asked what the cash flow number would look like without taxes, given that tax payments have been, timing-wise, hard to predict. When we do that, cash flow would be in the range of $1.52 billion-$1.57 billion for fiscal year '08, and this represents an annual growth of 11%-15% compared to pre-tax cash flow last year of $1.36 billion.

And now, we will open it up for questions.

Question-and-Answer Session

Operator

Thank you, ma'am. (Operator Instructions). Our first question comes from the Phil Winslow, with Credit Suisse. Please go ahead, sir.

Phil Winslow - Credit Suisse

Hi, guys, great quarter.

John Swainson

Hi, Phil.

Nancy Cooper

Hi, Phil.

Phil Winslow - Credit Suisse

John, one of the beginner issues this year has been driving your new business, as opposed to just renewals, and you changed your sales force to a large degree, and as well as the compensation structure. Just wondering if you could give us a sense for how that's been trending. Just driving, I guess, deeper penetrations or existing accounts, also broadening that account base?

John Swainson

Phil, we are very pleased with the performance in multiple dimensions, including both, renewal and the selling of new software. As you correctly pointed out, we needed to broaden beyond simply selling software, when we had a renewal event, and we have been able to do that and while I think we have more to do in that area, our sales force has begun to really execute on the sale of software, as on a standalone basis, without necessarily having an [ELI] renewal in the process.

Phil Winslow - Credit Suisse

Great. And then Nancy, just from an expense perspective, you guys have been pretty consistent as far as keeping expenses pretty much on a control over the past several quarters here. What are, I guess, the opportunities that you see as far as whether it be continued expense reduction or just leverage and the model from just keeping on flat but they are actually growing bookings for M&M?

Nancy Cooper

Sure. Let me answer that in two parts. First, second half of the year, we had some variable expenses that are more back-end loaded, as you can imagine, commissions and a little bit on promotions, and our Professional Services always grow with the revenue, which will continue to grow for the rest of the year.

So there is that for the second half. In terms of additional opportunities, we still see a number of opportunities in this business for greater efficiencies. Some of which, we will be able to obtain this year, but there will be many more we can see going out into next year.

Phil Winslow - Credit Suisse

Great, thanks a lot.

Nancy Cooper

Good. Thank you.

Operator

Thank you, sir. Our next question comes from the line of John DiFucci with Bear Stearns.

John DiFucci - Bear Stearns

Thank you. Nancy, I am sorry, I wasn't quite sure if I heard you. Did you say what the upfront payments were for this quarter or any early collections or sales or receivables? And obviously, I am looking at the cash flow statement, and I am just curious seeing there also, there is provision for deferred income taxes that benefited by a $170 million, but at the same time you have decrease in taxes payable of $112 million. If you could just help us; as you pointed out, those are hard for us to model to..if you can help us to sort of reconcile that for this quarter anyway?

Nancy Cooper

Sure, John. No problem at all. I had mentioned that the single installment payments or just slightly above $31 million more than last year, so we're running about the same level. And in terms of your tax payment question, rightly pointed out, if you take the two tax items on the cash flow statements, they--not exactly, but kind of--offset each other. And then you will see the rest of the working capital was a help, and that's really because our collections experience was better this quarter than last year.

John DiFucci - Bear Stearns

Okay. And were there any early collections or sales receivable this quarter?

Nancy Cooper

Well, the single installment is what I was referring to would be that.

John DiFucci - Bear Stearns

Okay. And John a question for you, you mentioned the mainframe business, and as we know, it is heavily weighted towards the financial services vertical. And although a lot of that's probably, I guess, maintenance like where it keeps the lights running, it keeps the business going.

The financial services vertical. There are some concerns, especially for next year, for calendar 2008, when those budgets sort of kick in, given some of the issues with that vertical. Are you seeing anything not necessarily, it doesn't look like so anything at all last quarter. Just curious if you are seeing anything so far this quarter if you anticipate any issues starting in perhaps the March quarter?

John Swainson

It's really hard to predict that John. As you correctly pointed out, we didn't see any impact in the last quarter. Mind you, we didn't have any big renewals in financial services last quarter either. And we don't anticipate any this quarter. But, I mean, financial services is a big part of our business and you can't ever say that that they won't have an impact. Our software, as you correctly pointed out, is very maintenance like and it is very deeply wound into the core infrastructure of these businesses.

For most of them, this is not discretionary, and in fact, as you know for many of them it's viewed as a way of helping them reduce their cost and control risk. So, while none of us knows what the impact of this will truly be, we're quite optimistic that it will be minimum. None of us knows what the impact of this will truly be, we are quite optimistic that it will be minimum.

John DiFucci - Bear Stearns

Okay. And if I may, just one last one for Nancy, you have increased the guidance on the income statement, the EPS guidance but, you say, you are assuming the same growth as the previous guidance on a constant currency bases. So I was just curious, does this mean that the increase in revenue guidance was entirely due to more favorable currency assumptions, and does this have anything to do with why you are increasing EPS guidance but not cash flow guidance?

Nancy Cooper

Well, I think, you asked me three questions.

John DiFucci - Bear Stearns

Yeah, I am sorry about that.

Nancy Cooper

I will try to answer the one at a time. On the revenue, your point is correct, most of the changes related to currency. On the EPS, it's really about half currency, the rest is operational improvement little offset by a higher tax rate.

And on the cash flow, we are maintaining guidance, but you may remember, we came into this year with a strong headwind on billings, but you can see in our supplementary information. And we've made great progress against that and I am really very comfortable, reconfirming our guidance and I am also really that if you looked at the non-current portion of our billings, that's growing 15%.

John DiFucci - Bear Stearns

Okay, thanks. Nice quarter.

Nancy Cooper

Thank you

John Swainson

Thank you.

Operator

Thank you, sir. Our next question comes from Sarah Friar with Goldman Sachs.

Sarah Friar - Goldman Sachs

Good afternoon, guys. Nancy, just a couple of quick questions. It looks like contract lengths got a little longer again this quarter, and I'd like to understand just: (A) why that's happening, and then (B) what's going on the billings line. Are there any changes on the linearity of billings, in terms of going cash forward or anything like that that we should be aware of?

John Swainson

Sarah, let me answer the first part of that and I think, Nancy, can better answer the second.

Sarah Friar - Goldman Sachs

Sure.

John Swainson

We do see from time to time, contracts that are longer than three years, we did see one or two of those this year or this quarter and that did raise from slightly under three years to slightly over three years. But in general, our policy hasn't changed. We are continuing to strive for three years as being the best balance between customer and CA.

Nancy Cooper

And Sarah, maybe just let me add one other point, because we are getting much more confident in our centralized approach to pricing, if we have a strong pricing, lengths is actually better for us, because we have gotten the customer under a longer term at good pricing.

On your billings question, we are trying to reduce the seasonality of our business, because we think longer term for us that will be better. The billings is really a comment I just made earlier. We entered the year with a headwind on the billings. So, to the extent which we continue to have good bookings growth, which we heard, that will help us. So, hopefully that helped you.

Sarah Friar - Goldman Sachs

Yeah. That does a lot. And then just, John, maybe just a bigger picture question about your areas of greatest investment right now, what are kind of the one or two areas you are most excited about from a technology standpoint?

John Swainson

Well, security did very well in the past quarter, network management did extremely well. On the call, I mentioned our Wily family of Application Performance Management product that did extremely well. And our Clarity product for Project and Portfolio Management, that did well. So, we really had four product areas that performed very strongly, and that helped to drag a lot of the rest of the portfolio with it.

Sarah Friar - Goldman Sachs

Terrific. Thank you.

John Swainson

Thank you, Sarah.

Operator

Thank you, ma'am. Our next question comes from the line of Walter Pritchard with Cowen.

Walter Pritchard - Cowen & Co.

Hi. Couple of questions, Nancy, on the 16 deals that were over $10 million, could you tell us how many of those were expected to close or forecasted to close in the second half of the year?

Nancy Cooper

Walter, I can't give you that exact number, but let me give you some color on how we've changed the way we run the business. We are used to waiting for things to happen and now we are looking at each large contract we have with the relationship we have with the customer and trying to make sure there is a very well-planned event. So, I can assure that that is part of what's going on.

John Swainson

Yes. Let me give a little more insight into that Walter, if I may, it's John. We have roughly 300 large deals that we will renew this year. And at the beginning of the year, we sat and looked at the timing of those deals and concluded that we should try and schedule those renewals on as linear basis as possible, so as to ensure that we got as much time to work on them as we possible could and didn't jam them all up into the March quarter for example. So, well I can't answer the question exactly either. This was very deliberate on our part.

Walter Pritchard - Cowen & Co.

Got you. And then, you mentioned a couple times Nancy about operating margins more in line with peers, but you weren't any more specific. Could you maybe help us out in terms of understanding who you think your peers are. Is it just simply software companies that have similar revenue or would you point as to a more specific group than that?

Nancy Cooper

Well, I probably would take out the big guys like Microsoft and Oracle. But we've really looked at the rest of them and I am not going to give you a little teaser to come to Analyst Day in December, as we will do little more discussion of it there.

Walter Pritchard - Cowen & Co.

Okay. And just lastly, around operating expenses, could you help us maybe with a -- I don't something like exit rate for OpEx this year or a more normalized kind of where you think as you go through some additional restructuring, and some other things you alluded to kind of next couple of quarters OpEx run rate?

Nancy Cooper

Sure. Let me give you a level set. Last year, we ended the year with about a 20% operating margin. And we believe we'll end this year several points higher than that to give you some kind of flavor.

Walter Pritchard - Cowen & Co.

Okay, great. Thank you very much.

Nancy Cooper

Thank you.

Operator

Thank you, sir. Our next question comes from Richard Sherman with MKM Partners.

Richard Sherman - MKM Partners

Yes, hi. Good afternoon. I wanted to just may be talk a little about that network management fees, Concord and Aprisma technology, is that been mostly migrated now over the to the subscription line or do we still see that mainly in the software fees line?

John Swainson

I think I can say a 100% of that is on subscription.

Richard Sherman - MKM Partners

Okay.

John Swainson

I don't believe we have any now on perpetual model at all. In fact, I think, if I am remembering this correctly Richard, that was migrated over a year ago. So, all of the increase that you are seeing is subscription.

Richard Sherman - MKM Partners

Very good. And then over on Data Center Automation side, I guess there seems to be a lot of interest out there in dynamic and real-time server provisioning. Could you may be talk about where do you see sort of the market today and sort of where you are against that product cycle, if you are like you are ahead of the pack or you are playing little catch up there? I will take the question off-line. Thank you.

John Swainson

Okay. I was going to ask you to come to the Analyst Day, because we're going to spend a fair bit of time talking about that at Analyst Day.

Richard Sherman - MKM Partners

I will be there.

John Swainson

Fantastic.

Operator

There are no further questions in the queue at this time. (Operator Instructions). Our next question comes from Brendan McCabe with CIBC World Markets.

Brendan McCabe - CIBC World Markets

How are you doing guys?

John Swainson

Hi, Brendan.

Brendan McCabe - CIBC World Markets

Couple of quick ones. So, you talked a little bit about financial services, anyway you can give us some sort of idea about what percentage of bookings that roughly is?

John Swainson

I couldn't. I don't have it in front of me. I am sorry Brendan. It's our largest industry typically, but I don't know what it represented this quarter. We haven't done that break out yet.

Brendan McCabe - CIBC World Markets

Okay. And were there any verticals that were particularly strong than others during the quarter?

John Swainson

Again I don't have that break out yet by industry.

Brendan McCabe - CIBC World Markets

Okay. Then last question, you talked a lot about product innovation, if you look at R&D expenses rate on year-over-year basis, it looks like they are down a little bit. Should we expect R&D at some point to start to trend up?

John Swainson

No, we're quite comfortable at the current level of R & D expense.

Brendan McCabe - CIBC World Markets

Hey, great. Nice job.

Nancy Cooper

Thank you

Operator

Thank you, sir. Our next question is a follow-up question from Phil Winslow with Credit Suisse.

Phil Winslow with Credit Suisse

Hi guys, just wanted to ask one question about use of capital when you look over the next 12 or 18 months, when you do look at just your depreciation and your cash balance, when you think about sort of four acquisitions repayment of debt or repurchase of shares?

Nancy Cooper

Sure Phil, we will always be looking, I think, you heard John earlier mentioned we have a building by kind of thought process on development. So we are always be looking at things that fill out our strategy. So that's kind of like a priority in the capital allocation. But right now, I can't tell you we see anything large, it's the things that would be add on to what we are doing. And then after that, it's a classical capital allocation discussion of do we do dividends, do we paid down debts or do we do share repurchases? And we do that regularly and as we know more, we will let you know.

Phil Winslow with Credit Suisse

Perfect. Thanks a lot.

Nancy Cooper

Thank you.

Operator

(Operator Instructions) We do have a question from the line of [Jake Gimmini] with Morgan Stanley

Jake Gimmini - Morgan Stanley

Thanks for taking the question. I think, currently you've got about $750 million drawn under your revolver, and I think that revolver is only about a $1 billion, are you guys comfortable with that and having kind of like $250 million of capacity available there and also you have got some to 2008. So just kind of question about the liquidity and kind of addressing some of the neat-term maturities?

Nancy Cooper

Sure. Hey, Jake, you have got your facts right. I will now tell you what we were really encouraged about. In the early part of September, we were able to renew that line of credit at more favorable terms for a five-year period. So I think you should take that as a measure of, we have plenty of liquidity and we have an accordion feature on that. So, we are very comfortable with where we are.

Jake Gimmini - Morgan Stanley

Okay. And you don't see any reason to, like refinance that revolver or make it kind of more permanent financing?

Nancy Cooper

Well, we are looking at those considerations all the time and it's a function of credit markets and I just gave you an indication, we are being very well received in credit markets. But those are the kind of things you don't really pre-announce them. So I think I was trying to give you a little color.

Jake Gimmini - Morgan Stanley

Okay, thank you.

Operator

Thank you. We have no further questions at this time.

John Swainson

Great. Well, thank you, Jacob. And thanks all of you again for joining us. It's been said that nothing breeds success like success. And with this quarter, I think we've made another significant advance in transforming CA. This demonstrated that our customers are committing to our technology and to our vision of simplifying and unifying their IT environments. With an increasingly competitive product portfolio, a more aggressive and more well-equipped sales force, we are stronger, leaner company and we are taking aim to be a more competitive force in the industry.

I look forward to seeing all of you on the December 17th at our Analyst Day where we are going to give you some more insight into our strategic business and financial initiatives, and I thank you all very much for your continued interest in CA. Thank you.

Operator

Thank you, sir. That does now conclude today's conference call. Everyone, you may now disconnect.

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