Executives
Joseph Doncheski - VP of IR
John Swainson - CEO
Nancy Cooper - CFO
Analysts
John DiFucci - Bear Stearns
Sarah Friar - Goldman
Phil Winslow - Credit Suisse
Richard Sherman - MKM Partners
Eric Bukavansky - Jefferies & Company
Kirk Materne - Banc of America
Walter Pritchard - Cowen
Todd Raker - Deutsche Bank
Brendan McCabe - Oppenheimer
Jack Rothman - Pacific Crest
Tom Cowan - Royal Bank of Canada
Scott Zeller - Needham & Company
CA Inc.(CA) F3Q08 (Qtr End 12/31/07) Earnings Call January 31, 2008 5:00 PM ET
Operator
Good afternoon. My name is Chris and I will be your conference operator today. At this time I would now like to welcome everyone to the CA Third Quarter Fiscal Year 2008 Earnings Call. [Operator Instructions]. Thank you. Mr. Doncheski you may begin your conference, sir.
Joseph Doncheski
Thank you, and good afternoon, everyone. I am Joseph Doncheski, 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, January 31, 2008 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 expressed 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 a supplemental information package. In addition, we have posted a presentation to accompany this webcast. All of these documents are available at 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.
With that, I'll turn the call over to John Swainson.
John Swainson
Thanks, Joe. Good afternoon everyone, and thank you for joining us. I am pleased to announce another solid quarter for CA, our fifth in a row. Most importantly, we remain on course to finish the year with revenue and earnings per share exceeding the updated annual outlook we've provided to you at our Analysts Day in December.
I feel good about continued performance improvement, and I am particularly proud of our people for their efforts and accomplishment.
So let me begin today's call by talking about some of our third quarter highlights. Then I'll illustrate why we are succeeding in the marketplace with some examples of how our customers are using CA technology to make their use of IT more competitive and to drive their business success.
Finally, I'll talk a little bit about the current market environment and why I am confident that CA will continue its progress in becoming a faster growing, highly profitable, and highly competitive company focused on world-class products and solutions built on our EITM strategy.
When I am done, Nancy Cooper will go into the details of our third quarter and our updated outlook for the fiscal year. Then we'll open up the call for questions.
In Q3, we continued to build momentum, putting CA in a solid position for the final quarter of the fiscal year. Revenue in the quarter was $1.1 billion. Total bookings were $1.2 billion. Non-GAAP operating margin was 27%, non-GAAP EPS was $0.36 and cash flow from operations was $233 million.
CA has more streamlined sales organization, and improved infrastructure and business processes are enabling us to better identify and capture customer opportunities, which was evident in our third quarter performance.
Having a more focused and efficient organization is merely one part of the equation. It's essential to have world-class products to sell, and a compelling vision to help customers understand why CA should be their enterprise IT management vendor of choice.
As I've told you before, the EITM is CA's unique technology strategy that allows our customers to seamlessly govern, manage and secure their IT environment. EITM allows us to position CA as the leader in the enterprise IT management marketplace, and will be an important platform for us to sell new products and solutions both to new and existing customers alike, increasing CA's overall share of IT spending.
Let me give you a couple of customer examples from the most recent quarter. One of the largest deals we signed in the third quarter was Sallie Mae, the leading provider of student loans and administrator of college saving plans in the United States and a long time CA customer.
CA is working with Sallie Mae to further expand their IT service management strategy, and to help them with technology deployment through an extension of existing solutions including CA SiteMinder, Service Desk, and Clarity along with the introduction of several new products including CA CMDB, Wily Introscope, Customer Experience Manager and Service Catalog, Sallie Mae is using CA technology to address their business needs and to round out their overall governance portfolio.
Another important customer win in the third quarter was T-Mobile, a leading wireless provider. T-Mobile has decided to expand on its initial investments in CA's eHealth and SPECTRUM network performance management through their entire enterprise. With service availability being a top priority, CA's integrated offering enables T-Mobile to deliver world-class network performance and helps them reduce their customer churn in the highly competitive telecom wireless marketplace.
These are just two examples of the many partnerships with large global companies that CA's technology is helping govern, manage and secure.
Now, I'd like to share a few thoughts about our competitive position. First, as you know we have a large subscription base that generally renews over a three plus year cycle. These are long-term commitments from our customers and they continue to underpin the strength and stability of CA's business model.
Secondly, CA's product and services are used by customers as an essential part of their operations and are vital to their business success. Our products, by and large, do not fall in the category of being discretionary purchases, as a health customer’s managed costs provide a higher level of service and mitigate their risk.
Based on these factors, plus the ongoing focus that we've had for a long time on operation improvements, I believe CA is well positioned to compete effectively in the marketplace.
And with that, I'll turn it over to Nancy, who is going to take you through the details of the quarter and give you our updated outlook.
Nancy Cooper
Thanks, John and good afternoon everyone. I'll begin by reviewing our third quarter financials, then I'll provide our updated outlook for fiscal 2008. As John indicated, this marks the fifth consecutive quarter of solid results. As described to you at Analyst Day last month, CA is steadily improving its execution. We will continue this trend through the remainder of fiscal year 2008.
Beginning with bookings, third quarter total product and services bookings were $1.2 billion compared to $1.6 billion in the prior year, and as expected declined 21% on a year-over-year basis.
As a reminder, the strength in the prior year’s third quarter bookings performance resulted from three factors, the pent-up demand from the slow start in the first half of last year, the completion of the sales force realignment at the beginning of the last year’s third quarter, and the closing of six large contracts in that quarter, each of which was over $40 million.
Bookings are up 9% for the first nine months of this fiscal year from the prior year period, and we now expect total bookings growth for the full year to be in the mid-teens. During the quarter, we signed 16 license agreements greater than $10 million, which aggregated to $303 million, compared to 18 such contracts aggregating to $700 million in the prior year period.
This is reflected in the weighted average duration of new direct booking of 3.16 years, as compared to 3.74 years in the prior year period. When annualized the year-over-year decrease from new direct bookings was 9%.
On a year-to-date basis, annualized direct bookings increased 17% year-over-year. Total revenue in the third quarter was $1.1 billion, up 10% from the prior year, or 4% on a constant currency basis.
The increase in third quarter total revenue was primarily driven by growth in subscription revenue, which increased 16% from the prior year period. And, as expected, maintenance fell 26%, largely because it continues to be absorbed in our subscription business.
Together subscription and maintenance grew 11%, and this is a more meaningful way to look at our readable revenue.
Revenue from professional services in the third quarter was $92 million and down 1% year-over-year. From a geographic perspective, North American revenue in the third quarter was up 5% over the prior year and international revenue increased 17% or 4% on a constant currency basis.
This quarter, strength in Europe was evident, and solid bookings grow as the newly formed sales team continues to gain traction relative to last year.
On a non-GAAP basis operating expenses for the third quarter were $800 million, compared to $791 million in the prior year period. Currency negatively affected operating expenses by about $30 million, or 4 percentage points. Excluding the impact from currency, non-GAAP operating expenses would have been down 3% year-over-year.
As discussed at Analyst Day, we are taking more steps towards greater transparency at CA with the introduction of the cost of license and maintenance line item in our P&L. We feel that this change will help bring our P&L more in line with industry norm.
Non-GAAP operating income was $300 million for the third quarter, compared to $211 million in the prior year period. Non-GAAP operating margin for the third quarter was 27% reflecting a 6 percentage point improvement year-over-year.
Net interest expense for the third quarter was $10 million. Non-GAAP income was a $192 million for the third quarter compared to $133 million in the prior year period, a year-over-year increase of 44%. This translates into non GAAP EPS of $0.36, compared to $0.24 in the prior year period, which is a year-over-year per share increase of 50%.
Now let's turn to our GAAP expenses, which include purchase software, intangible amortization, restructuring and other. Including these items, total expenses before interest and taxes were $851 million for the third quarter down from $907 million in the prior-year period.
During the third quarter, we recorded restructuring and other expenses of $22 million, compared to $32 million in the prior year period.
Now, to finish up the income statement. GAAP income from continuing operations was $163 million in the third quarter, or $0.31 per diluted common share, which is compared to $52 million or $0.10 per share in the prior year. Cash flow from operations in the third quarter was $233 million, compared to $587 million in the prior-year period. A year-over-year decline was primarily attributable to lower collections from expected lower bookings.
Cash flow was also negatively affected by investment and working capital in the third quarter, mainly due to an increase in accounts receivable of approximately $170 million for the third quarter as compared to the prior year period, despite the lower bookings. The company anticipates recovering the majority of this investment in the fourth quarter of 2008.
Additionally, third quarter cash flow benefited from a refund due to an overpayment of current year cash taxes of $45 million.
Turning to the balance sheet, we ended the quarter with $2.1 billion in cash and cash equivalents and $2.6 billion total debt, bringing our net debt position to approximately $500 million.
Total deferred subscription value balance as of the end of the third quarter was almost $6 billion up 6% from last years third quarter was about a half from currency.
With that, I'd like to provide you with an update to our full year outlook. Total revenue is expected to range from $4.25 billion to $4.28 billion, up from our prior guidance of $4.15 billion to $4.2 billion at the high-end of our prior guidance of 3% to 4% growth in constant currency.
Non-GAAP operating EPS guidance is now $1.22 to $1.26, up from our prior guidance range of $1.06 to $1.10. This revenue and EPS guidance is updated for currency exchange rates and assumes no acquisitions.
We are also increasing our previous GAAP EPS guidance for the year from $0.99 to $1.03, up from $0.87 to $0.91. GAAP EPS assumes no acquisitions, and includes roughly $60 million from previously announced restructuring plans, as compared to our prior guidance of $35 million.
We expect cash taxes to be lower from the $470 million previously estimated for fiscal year 2008 by approximately $50 million while this is good news cash taxes, as we said before continue to be volatile and timing wise hard to predict.
In addition, as we managed the business for the long-term, we are maintaining our cash flow guidance of $1.05 billion to $1.1 billion. This cash flow guidance includes approximately $90 million to $100 million of restructuring payments as compared to our prior guidance of $84 million. We expect approximately 514 million actual shares outstanding.
A weighted average diluted share count of approximately 541 million shares and a full year tax rate on non-GAAP income of approximately 36%.
And now, let me turn this back to John.
John Swainson
Thank you, Nancy. As I said at the onset of this call, CA performed well in the third quarter. Our EITM strategy enables us to communicate CA's value proposition to customers in a clear and compelling way. And we are making progress in cross-selling and up-selling a broader portfolio of CA's products to both new and existing customers.
While the economy appears to be moving into an uncertain macroeconomic environment, I am very confident that CA's stable customer base and extremely sticky product portfolio will put us in an advantageous competitive position.
We will, of course, manage our business prudently. We have been focusing on controlling costs, improving margins and at the same time delivering innovative new products for a long time.
In the months ahead, you can expect to hear and see more from us then you have in recent years. We will be seeing you at conferences and on investor road shows, where we are going to expand upon CA's perspective on the enterprise IT management market place and our leadership role in that market.
With that let's open the lines up for questions.
Question-and-Answer Session
Operator
(Operator Instructions)
Operator
And your first question comes from the line of John DiFucci with Bear Stearns.
John DiFucci - Bear Stearns
Thank you. I have two questions. One for Nancy, one for John. Nancy, something you have maintain your cash flow guidance, you are excluding the cash tax that the refund or bringing down the cash taxes lower than the 475 by about 50 million and the slight increase in the restructuring cash charges.
It actually looks its coming down a little bit anyway, $34 to $44 million and that could just be rounding in these numbers, but that $50 million: is that something that you expect to have to pay? And I know it's hard for you, it's hard for us to try to look at this and try to model it, but just curious: are these, because you have been paying some pretty low taxes. I know you've been working on that too, so that's a good thing. But just wondering: is that $50 million number something you will see perhaps in the first quarter of next year?
Nancy Cooper
Sure. John, first of all, cash flow guidance, we are maintaining cash flow guidance and we don't do cash flow guidance by line item. So, the way to think about this is, we do have lower cash taxes. I did add the volatility point because we have proven that they can be unpredictable in terms of that, but we do believe we have improvement there. But I asked you to think about that we entered this year with this $250 million headwind.
We have really decided to run this company for the long-term and I am very encouraged if you look at our “to be collected” that is now up $100 million and we will end this year in the best position, I believe this company has been in a several years on cash flow.
John DiFucci - Bear Stearns
Okay, thank you and that make sense. Sec question is for John, John mainframes to heavily weighted to the financial services as we state the hardware is and so the software is too and its probably around half of our business, but I would expect that the mainframe business is more maintenance based, or at least maintenance like.
Can you give us any comments on what you're seeing out there in the environment? And: how you might be positioned to accommodate? If perhaps you're seeing any weakening? Or: it perhaps an even affordable rise especially in regards to mainframe business and the financial services?
John Swainson
Well, hi John. First of all speaking generally and not specifically about the financial services industry, we're actually seeing a strengthening in the mainframe business, I think we communicated this at Analyst Day and we believe that trends continues from what we can tell and I believe IBM has now announced that they plan to shift their next generation of hardware in mid-February, maybe late February, that typically is associated by an increase of demand.
And we are likely to be long-term beneficiaries from that increase, with the proviso of course that our contractual relationships tend to be over the long-term with these customers and therefore we won't see an immediate up turn but we are seeing, we are at the front of a cycle and we are seeing more interest in the mainframe as a platform.
I attribute this to two basic things; one is the mainframe is getting more cost competitive and price competitive with alternatives and secondly in an era of energy challenges shall we say the mainframe is proving to be a green platform on which to run large robust IT workloads. So, all of that being said, we actually think the mainframe is improving not diminishing.
Now, I can't be more specific than that about the environment in the financial services, I mean, except to say that there are mainframes at the backend of all of these big financial services companies and they tend to be the things that contain the mission critical transactional information that keeps these organizations running and we don't really anticipate that there is any change in that happening and maybe there maybe more of that happening overtime and not less.
John DiFucci - Bear Stearns
Okay, thanks. Just a quick follow-up to that because it's interesting, it's sound like you actually expect sort of an uptick or shift towards mainframes whereas in the past has been more of steady state and its..
John Swainson
That's correct.
John DiFucci - Bear Stearns
Okay. Thanks a lot.
John Swainson
Thank you.
Nancy Cooper
Thank you.
Operator
Your next question comes from the line of Sarah Friar with Goldman.
Sarah Friar - Goldman
Good afternoon guys. Nancy, can I just comeback to the cash flow when you talk about…
John Swainson
…is now open.
Sarah Friar - Goldman
Hello, can you hear me now. Nancy, can you hear me now? Hello. Operator, can you open the line, operator?
Operator
I can hear you Sarah.
John Swainson
I think may we should go on to the next one please, operator.
Operator
Okay, sir. And your next question comes from the line of Phil Winslow. Please go ahead, sir.
Phil Winslow - Credit Suisse
Just wonder: if you can comment on sales productivity? You guys have had some pretty significant step ups.
Operator
Mr. Winslow your line is now open.
Phil Winslow - Credit Suisse
Hi, guys. Can you hear me?
Nancy Cooper
Yes.
John Swainson
Yes.
Phil Winslow - Credit Suisse
You guys have seen significant increase in sales productivity and the first part of this fiscal year, I just wonder: if you could comment on what you saw during the December quarter? And I guess when you do look at the pipeline here for March: how do you feel about that? And then, just have one follow-up after that.
John Swainson
We are seeing improvement in our bookings rate. As Nancy indicated in her numbers and that's attributable to an improvement in the overall productivity of our sales force Phil. And we anticipate continuing improvement in the fourth quarter, as I think Nancy said, we anticipate ending the year at a higher bookings rate growth then we currently are seeing. I think 9% is our current rate of bookings growth and we anticipate that being in the mid-teens that I think is the best indicator I can give you of that fact that our sales force is continuing to improve and its performance.
Phil Winslow - Credit Suisse
Great, then also John, I wonder: if you can comment on just the mainframe, pricing environment? Just: what you saying out there, specially ahead of the launch of the new mainframe in late February?
John Swainson
Well, we have a long-term business model sure and we have our customers, as I said earlier committed to us over three plus year contracts, the nature of those commitments tend to extremely vital to their operation and we haven't seen any thing radically different from what we might have seen in past quarters.
Phil Winslow - Credit Suisse
Great, thanks guys.
Nancy Cooper
Thank you.
Operator
Your next question comes from the line of Sarah Friar with Goldman. Sarah your line is open. Once again, we do not have a response from the line of Sarah.
John Swainson
Let's go to the next one please.
Operator
Alright. Your next question comes from Richard Sherman with MKM Partners.
Richard Sherman - MKM Partners
Yes. Hi, good afternoon everyone. I just had some questions. It looks like the ongoing efforts to reduce costs are now starting to have their desired impact. Could you maybe talk a little bit about what do you see going ahead as we leave this calendar year and head into 2008? Are there additional type of efforts that are being made? And: how much more room did we see in terms of sales force efficiencies? Or: even more importantly on the product development side?
Nancy Cooper
Sure, Richard. We are in the middle of our '09 budget process and as part of any budget process we are working through additional efficiencies and yes there is more room to be obtained. We believe in many lines in the company. So, we feel really good about the progress we've made, which is we know how to do this and also we see more for next year. So, we are very encouraged.
John Swainson
I would add in terms of if I may. Richard, in terms of product development, I am pretty comfortable with our level of spend in the development side. I am working hard with the development leaders on the result of that spend, improving the productivity, improving innovation and improving the new products that we bring to the marketplace. So, I think what you are likely to see from us over time here is a consistent level of R&D expense, but more products coming out of that expense.
Richard Sherman - MKM Partners
Okay. Thank you, John. And then: may be some insights geographically of what you see overseas? Europe versus Asia; and those were my questions. Thank you.
Nancy Cooper
Sure. We were encouraged this quarter. Europe growing at constant dollar, grew at 17% which is about 4% in constant currency and as our team over there is really gaining traction in terms of their ability to close deals. And so we are quite encouraged with our international picture, which we showed you on Analysts Day that we thought was quite a nice upside for our company.
Joseph Doncheski
Next question please.
Operator
Your next question comes from the line of Katherine Egbert with Jefferies & Company.
Eric Bukavansky - Jefferies & Company
Guys, hear me.
John Swainson
Yeah.
Eric Bukavansky - Jefferies & Company
Hi this is [Eric Bukavansky] on the line for Katherine Egbert. I would like to follow-up on the point here maybe expand a little bit on the international sales growth. Could you guys provide a little color and maybe do some comparisons? I know you highlighted Europe, but you're looking out beyond let's say just the European region: Are there any other particular areas of strength? Or: areas of change that you guys particularly noticed in Q4?
John Swainson
Well, Nancy said Europe was strong for us in our financial Q3. We saw some strength in other parts of the world, but of course those were much smaller. India continues to be strong and some other places. We're pleased though with the improvement that we’ve seen in our European business. I think we’ve communicated to you guys before that that's been a long-term rebuilding process for us and we're now starting to see the result of that rebuilding.
Eric Bukavansky - Jefferies & Company
Okay, great. And then back again on the change in their cash tax as expect for this year, of that $50 million change: is that due more to kind of initiatives taken by you guys as a company to maybe shift around some structures here for the year? Or: is this kind of more of the change in essentially a tax code kind of shifting of the tax code that you guys maybe placing either internationally or in the U.S.?
Nancy Cooper
It's actually much simpler than that. When we reviewed the tax as we paid in the first quarter we'd over paid them and so we got a refund in this quarter and that it's all there is. The truth basically (inaudible) same year.
Eric Bukavansky - Jefferies & Company
Okay, great. Well thank you very much.
Joseph Doncheski
Next question, operator?
Operator
Your next question comes from the line of Kirk Materne with Banc of America.
Kirk Materne - Banc of America
Can you hear me.?
John Swainson
Hi Kirk.
Nancy Cooper
Hi Kirk.
Kirk Materne - Banc of America
Hi guy, hi. Just two questions one for Nancy, one for John. I guess first for Nancy. I forget, I was hoping you can just go over the implied margins for the fourth quarter there is implications that margins should decelerate. Could you just remind me: is that something that happened seasonally that your some expenses come in? Just so I can put that in perspective.
Nancy Cooper
Sure in the fourth quarter we typically repaid commissions on bookings and our fourth quarter bookings tend to be our largest. So it's simply that variable costs tend to hit the fourth quarter the most and you get little stuff like FICA and whatever. But we are really planning encourage for the last time we talked to you. Obviously, with this quarter's results, we view the full year results are going to be in the more the middle 20s and that's going to be up from 20% last year. So we are quite encouraged with that operational performance, as John mentioned earlier.
Kirk Materne - Banc of America
Okay, great. That's helpful and then John given the broader macro economy and what we've seen in the market recently. You guys have been so much quite from M&A perspective for a little while now on a larger scale. I guess once seeing some of your targets, maybe you have been more rational about say multiples or prices that they are willing to start negotiations at or/and: should we expect you guys to be opportunistic if these market continues?
John Swainson
Obviously I need to be quite careful in answering that question, Kirk. Look our strategy is as it was before. We will look for opportunities to build and buy new technology. Our long-term strategic model has acquisitions in it and clearly we are looking and watching carefully at what these economic trends lead to and we will act accordingly and hopefully act rationally.
Kirk Materne - Banc of America
Okay. And maybe just to clarify that over the last 90 days or some like that you haven't seen a dramatic shift and say the economic is behind buying versus building. Is that fair?
John Swainson
Build and buy continues to be a view and it’s in that order. Our development organization is one that we are very proud of and one that we are continuing to work on enhancing as I said earlier. At the same time we know that we will have to make some acquisitions over time and we are watching companies carefully.
Kirk Materne - Banc of America
Great! Thanks very much.
Nancy Cooper
Thank you.
Operator
Your next question comes from the line of Walter Pritchard with Cowen.
Walter Pritchard - Cowen
Can you hear me?
John Swainson
Yes.
Nancy Cooper
Hi Walter.
Walter Pritchard - Cowen
Okay, great sorry. So two questions, the first one just wondering: Nancy, you guys have raised EPS guidance now twice in the last two quarters and cash flow guidance hasn't come up. I guess just trying to understand: the root of the disconnection there between the two? I guess I'll expect them to move more together as you move the earnings guidance up.
Nancy Cooper
Sure Walter. We are encouraged on the EPS going up because we think that bodes very well for the future. But it goes back to looking at when we entered the year we had this headwind on collections being down $250 million year-to-year. So that really is what's kind of driving this and also the perspective of it. We really are looking at managing this business for the long term. So we've done better expense management. We have our amounts to be collected up a $100 million, and I know I am reiterating, but I am really confident that we're exiting this year in the best position this company has been in a long time.
Walter Pritchard - Cowen
Got you. And then you did provide, I think it was last quarter a number that you called cash flow from operations ex-taxes or it was --
Nancy Cooper
Sure.
Walter Pritchard - Cowen
When you try to net it out and you talked about 1.52 to 1.57: is that a number you would update for us just so we can kind of see through all the tax and restructuring stuff going on here?
Nancy Cooper
Sure. I would say -- we are still saying, if you took taxes it's somewhere between a 7% and 10% cash flow growth.
Walter Pritchard - Cowen
Okay. And then just last question around perpetual revenue: You talked a bit about this at the Analysts Day and it doesn't sound like we saw any impact in the quarter from maybe sway back to some perpetual revenue given you said subscription was the source of the upside, but: could you just update us on where that's stands? And: how far that may go, over what sort of timeframe.
Nancy Cooper
Sure Walter. What we are really wanting to highlight is John mentioned earlier, we are getting our development group, is increasingly focusing on innovative product development, and that may require a little more perpetual type product. But if you look at the FAQs in the quarter, 3% of the revenue was perpetual.
Walter Pritchard - Cowen
Yes.
Nancy Cooper
So we are talking about if we double that to 6 that still will be a major kind of increase and not substantial of the company.
Walter Pritchard - Cowen
Okay. Great! Thanks a lot.
Nancy Cooper
Thank you.
Operator
Your next question comes from the line of Todd Raker with Deutsche Bank.
John Swainson
Todd?
Todd Raker - Deutsche Bank
I had a question on last quarter, I think, there were quite a few large deals versus this quarter. So, just wanted to see: how your pipeline looks going into Q4?
Nancy Cooper
Sure. The pipeline going to fourth quarter looks really good that's why we feel so confident of raising our year-to-date actual growth in bookings of 9% to saying we believe the year will end in the mid-teens. Fourth quarter is always strong for us and you heard from John we're seeing our customers increasingly interested, the mainframe is better than we thought. So, we're very encouraged how we're going into this or are we here in the middle of the fourth quarter.
Todd Raker - Deutsche Bank
Okay. And just on like: would you give some insight into which sector those deals are in?
Nancy Cooper
Could you repeat that question, it was a little hard to hear, if you would?
Todd Raker - Deutsche Bank
I guess: if you can just give some insight into the sectors and like where some of the bigger deals are?
John Swainson
Sure. They were really across the Board, we did have strength in financial services, we continue to see strength in our government business; we saw strength in the technology industry that is we are selling to other hi-tech companies. So, we're seeing broad strength across all the verticals that we sell into.
Joseph Doncheski
Next question please.
Operator
Your next question comes from the line of Brendan McCabe with Oppenheimer.
Brendan McCabe - Oppenheimer
Hi guys, Brendan McCabe, can you hear me?
John Swainson
Yeah.
Brendan McCabe - Oppenheimer
Excellent. So, my question is kind of just around EITM and you mentioned Sallie Mae and there were previous customer and then they added on some products and you kind of tacked up to this EITM, just trying to get a feel for: how actively do you guys go pitch this kind of grand plan? Or: is it more just get some products in the door? Different foot in the door and then kind of expand the footprint from there? If you could touch on that it will be great.
John Swainson
Well, the whole purpose of having an overall strategy like EITM is to give your sales force a context into which to have -- with which to have a conversation. We do business with 4000 of the largest IT users in the world and many of them not all, but many of them have some CA products installed.
Our objective clearly is to get them to use more of the products they have and to find ways to get them to use products that they don't have. And part of the way we do that is by providing them with a strategic view of where we are going as a company, what problems we are trying to solve and making sure that we are relevant to the kinds of businesses that they are, the kinds of business problems they have.
And EITM has proven to be very useful for that. Now, we don't sell EITM but we sell our products for security, identity and access management we sell products for global monitoring, application performance monitoring, project and portfolio management things like that, network management, the products well sell address a very clear needs of these customers have, but they need to know how they fit together and they need to know where they fit in a strategic plan and that's where the EITM help us do.
Brendan McCabe - Oppenheimer
Thank you.
Joseph Doncheski
Operator, next question please.
Operator
Your next question comes from the line of [Jack Rothman] with Pacific Crest.
Jack Rothman - Pacific Crest
Can you guys hear me?
Joseph Doncheski
Yeah, Hi Jack.
Jack Rothman - Pacific Crest
I just wanted to follow on the back of that last question looking at your customers and your kind of overall enterprise IT management strategy. What percentage of your customer base would you say has more than 50% of your product said actually deployed?
John Swainson
Well, it's a slightly difficult question to answer because we have hundreds of products that we have acquired overtime we sell the bulk of what we saw in new license revenue fits into six categories and I sort of tripped them off very quickly a few minutes ago.
And we have anywhere from 400 to a 1000 customers per category for each of those. So, you can see that there is lots of wide space out there. We have lots of opportunity to go and sell into. There are some product categories like project and portfolio management and which we estimate more than half of our customer base has no solution installed at all or has a manual solution installed.
And obviously it's easiest to sell into a place where you are displacing effectively no product or no competitor. In other cases, look, we have the best of the product in that category, so for an example an application performance management our widely application performance management products are by far the best products in that category and we have got them installed today in 500 or 600 customers and our goal is to get them installed in all 4,000.
And there is, as you can see lots of opportunity for cross selling and up selling. It's not by any means of saturated marketplace.
John Swainson
Okay, that's fair. And one other question back to the mainframe market. You guys have discussed kind of a flat and modestly up market and with IBM launching the new platform here in February is your, I think, you mentioned 1% growth at your Analyst Day, I am just wondering: if you are still sticking with that kind of 1% growth number?
John Swainson
For now yeah, I think, we are. I think will remains to be seen, we don't know details yet. And remember that our model tends to be this long-term model where we will see customers increase their commitment level to the platform but overtime and as that happens they will increase their contractual commitment with us.
John Swainson
Okay. Thank you.
Operator
Your next question comes from the line of Tom Cowan with Royal Bank of Canada.
Tom Cowan - Royal Bank of Canada
Good afternoon. Can you hear me?
Nancy Cooper
Hello, Tom.
Tom Cowan - Royal Bank of Canada
Can you talk about what you are doing to improve cash flow? The earnings are already starting to move. I assume there is something happening behind the scenes that eventually will show up in cash flow as well. So: can you just walk through some of the initiatives you might be taking to drive cash flow in the same direction as the earnings line?
Nancy Cooper
Sure. So, Tom, these things when you get our supplemental look at the “to be collected” and you'll see to be collected is up a $100 million. So, as we keep managing our business very carefully and we build up you'll see our deferred subscription revenue is up 6%. We are starting to build up a business, so that's the top line.
And then, we have a 27% operating margin this quarter that is really starting to manage our operating expenses in a much more. We are looking for greater efficiency and we believe there is more room there.
We are looking at managing our cash taxes more tightly going forward. So, you take all three of those dimensions and you are setting the foundation for long-term improving cash flow.
Tom Cowan - Royal Bank of Canada
And just on the expense side, I think, we've picked up some hint of, I guess, geographical relocation or resources and such, I mean: are those…. is that an example of some of the things you are doing to drive the expense structure on a cash basis?
Nancy Cooper
Sure. You'll have noticed, or may have heard in Asia, we've announced a lot of streamlining of our organization and we feel that that will provide greater efficiencies. That's one point. You heard we mentioned earlier the European sales team is getting greater traction. We're looking at more creative things to won ourselves efficiently and one of those was our alliance, not alliance, our relationship with a outsourcer for development Asia and I'll let John if you want to add, so we're looking at a lot of different things that will improve the way we run our company.
Tom Cowan - Royal Bank of Canada
And on the top line, you mentioned collectible, so: is there something shifting in your average contract links or contract terms that would help us understand why you are getting out there?
Nancy Cooper
Really, we have a 9% growth in our bookings year-to-date, we're looking at a mid-teen growth in bookings for the year that's going to translate into improving billings which become collections, that's probably the most fundamental thing to look for.
Tom Cowan - Royal Bank of Canada
Okay. And that growth in bookings though it's not driven by any kind of meaningful shift in your average contract length, is it?
John Swainson
No.
Nancy Cooper
Well, no, actually the contract length has shortened this quarter. The other part that we would be happy to spend some more time, we entered this year, as I said the top line is important on collections, we entered this year with the decline year-to-year on the amount to be collected. So, we're kind of coming out of a whole this year and at the same time building the business up for the future.
Tom Cowan - Royal Bank of Canada
Okay, thank you very much.
Nancy Cooper
You're welcome.
Joseph Doncheski
Operator, next question please.
Operator
Your next question comes from the line of Scott Zeller with Needham & Company.
Scott Zeller - Needham & Company
Hi, can you hear me?
Joseph Doncheski
Yes sir.
Scott Zeller - Needham & Company
Great, for those customers you've identified to do with your renewal team for those people who you've gone to proactively to try and get some to renewal early. Could you tell me what the effect has been on the general concern about IT budgets have those people that you proactively gone after stubborn where receptance about early renewals or has there IT changed?
John Swainson
Well, let me correct what I think is a misperception. We typically do not go after our customers for early renewals. We have a very discipline process in at which in the beginning of the year, we look for the renewals that are scheduled to begun in that year. We lay them out as evenly as we possible we can. This is not an exact science, but we clearly trying to have a roughly equal number in terms of work load and effort associated with them and we go after them.
Now, we do get customers, who come to us from time-to-time because of unusual things that have happened in their business maybe a merger or maybe increase in demand sometimes they blow through their caps but typically what we do is we try and to do this in a discipline way where we are renewing people one or two quarters that most ahead of when their contract expiry date would be.
So, I don't have answer your question completely but we were trying to improve the seasonality of our business which in turn improves our ability to be more disciplined about these renewals and that discipline we think is translating into a higher renewal rate and better yield from the deals themselves.
Scott Zeller - Needham & Company
So, it sounds at least in most cases. The renewal would have been within the year and there's not really…
John Swainson
A vast majority of the cases the renewals within six months, in some cases the renewal is in the quarter but you will understand that most customers don't necessarily want to go up right to the edge of the renewal date.
Scott Zeller - Needham & Company
Was there a significant amount of bookings of customers, who were considered truly early renewals more than a year in advance of the expiration?
John Swainson
The only in the case is that I indicated to you earlier it's a small amount I don't have it in front of me and its in those cases, where our customers for example has blown through the capacity of their agreement and is in a position, where they have to renew.
Scott Zeller - Needham & Company
So: not a material bookings number?
John Swainson
All number.
Scott Zeller - Needham & Company
Okay. Thank you very much.
Nancy Cooper
Thank you.
Joseph Doncheski
Operator we will take our last question please.
Operator
Your final question comes from the line of John DiFucci with Bear Stearns.
John DiFucci - Bear Stearns
Hi, thanks. I just had a quick follow-up for Nancy. I think there was little bit of confusion at the Analyst Day, when you talked about your long-term cash flow in earnings call and I just thought it might be a good idea in the public forum here it is: if you can just clarify that for everybody here tonight?
Nancy Cooper
Sure John. The question that came up at Analyst Day, the long-term guidance we gave was for EPS be 20% to 25% and cash flow would have a growth rate long-term of 7 to 10. I ask you all to kind of think about it this way, today if you look at the mid point of our full guidance, we are going to have EPS growth around or above slightly above 40% and we are going to have flat cash flow growth.
The long-term guidance I hope you've heard on this call, that we are doing many things to improve collections starting from now going forward and our cash expenses are coming down. So, we've got all the right indicators going, the start points the 40% and the zero and I had asked you to write on a piece of paper that last year's EPS was $0.88 and cash flow was of $1 billion.
And you have somewhat the law of large numbers and small numbers. That's going on and you have convergence going from 40% to zero to our long-term guidance. And we know that that's not the simplest thing, but we've actually written it down here. We can show you the math and if you did it you'd see that that's what happened. The most important thing is it reflects convergence.
John DiFucci - Bear Stearns
Okay. So, just a one last comment: In three to five years, we should be expecting to see the 25% earnings growth and that 7% to 10% cash flow growth during that period -- in that period at some point?
Nancy Cooper
In three years. Yes.
John DiFucci - Bear Stearns
Okay. Thanks so much.
Nancy Cooper
Thank you, John.
John Swainson
Well, then thanks again to all of you. We are encouraged by the results that we have taught to you about today. We are optimistic about the future of this company and we are very proud of the people in the company for all they have achieved over the last three years and we are looking forward to continuing on the success that you have seen from us on this call. Thanks very much.
Operator
And that concludes today's conference call. You may disconnect at this time.
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