Executives
Joseph Doncheski – Vice President, Investor Relations
John A.C. Swainson – Chief Executive Officer & Director
Nancy E. Cooper – Chief Financial Officer & Executive Vice President
Analysts
Sarah Friar – Goldman Sachs
John DiFucci – JP Morgan
Philip Winslow – Credit Suisse
Walter Pritchard – Cowen & Company
Richard Sherman – MKM Partners
Kirk Materne – Banc of America Securities
Todd Raker – Deutsche Bank Securities
Katherine Egbert – Jefferies & Co.
CA, Inc. (CA) F1Q09 Earnings Call July 31, 2008 5:00 PM ET
Operator
Welcome to the CA first quarter fiscal year 2009 financial results conference call. (Operator Instructions) At this time it is my pleasure to turn the call over to Joseph Doncheski, Vice President of Investor Relations.
Joseph Doncheski
Welcome to CA’s first quarter 2009 earnings call. 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 Thursday, July 31st, 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 US 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 file on Form 8-K earlier today and the supplemental information package. These documents are available on our website at www.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 A.C. Swainson
I am pleased to report that the first quarter of fiscal year 2009 was a very good one for CA in which we built on the momentum we established and sustained in the fiscal year of 2008. This was our seventh consecutive quarter of solid performance and I’m proud of how our team executed. I’m confident we will continue to execute throughout the fiscal year and in CA’s relevance in the marketplace and that’s why today we’re re-affirming our outlook for fiscal year 2009.
Let me take you through the highlights. Total bookings were strong up 15% over the same period last year. Our booking strength was led by significant growth in new license sales to new and existing customers including related maintenance and new mainframe capacity. As we’ve said increasing the depth of our engagement with our existing customer base while winning entirely new engagements has been a prime focus for us and we’re seeing the results of these efforts. To that point sales of security and infrastructure management solutions excelled during the quarter. In the security space we saw strong demand for our identify and access management solutions while in the infrastructure area we saw increased demand for our network systems management offerings, eHealth and SPECTRUM. We also saw significant traction in the mainframe database tools market. The success of these products was driven by our people who are committed to our customers and enthusiastic about the value that our products provide. They’re born competitors and so our ability to win customers in head-to-head competition is a real source of pride for them and for all of us.
Our revenue was up 6% which was flat in constant currency terms but was in line with our expectations for the quarter. Non-GAAP earnings per share growth year-over-year was 38% driven in part by our long term focus on business process improvements and expense management. Cash flow from operations was $54 million which was our best performance in a first quarter in three years. Those are the highlights and Nancy is going to go deeper into the numbers in a few moments but first let me put this performance in some context.
Our results are a clear illustration that CA has innovative products that are operationally critical to our customers’ success, that we have a sound reliable financial model and that we have strong relationships with our customers which we are able to nurture and grow quarter after quarter and year after year. These three advantages are the bedrock of CA’s success. As we continue to deliver value to them our customers have come to view CA as a true IT partner. Our focus for the rest of the year will continue to be on execution of this model. Of course we’ll continue to develop and sell industry leading products based on our enterprise IT management strategy. We’ll also continue to implement process improvements and manage expenses aggressively and of course we’ll work on continuing to strengthen and grow our relationships with new and existing customers.
Let me talk a bit about what we’re offering our customer. Today CA has the strongest and most comprehensive product portfolio in its history. It’s a portfolio designed to help customers govern, manage and secure their complex IT environment. The quality of that portfolio is being recognized by the industry’s leading analyst firms. For example, CA was named the leader in data center automation solutions in The Forrester Wave Data Center Automation Research Report that was released just this last April. CA is identified by Gardner as the worldwide market leading vendor in asset management and job scheduling based on total software revenue. This recognition which is contained in a report released in June marks the sixth consecutive year that CA has been ranked as the worldwide overall market leader in IT asset management.
Gardner also identifies CA as the market share leader in user provisioning in 2007 and the market leader in web access management with nearly a third of the market. CA’s clarity project and portfolio management product is sought in the leader’s quadrant of Gardner’s Magic Quadrant for that category.
With more than $500,000,000 dedicated annually to research and development we’re continuing to innovate and deliver the solutions that help make our customers’ IT systems a competitive advantage for them. Last June we announced eight new and updated solutions which included products to enable customers to more easily manage compliance and risk from a central location across mainframe and distributed computing environment. This launch spoke to business value and was a huge success. One press article proclaimed that CA had staged a software comeback. I’d like to say that we simply our game to the next level but I’ll accept the compliment anyway.
Another area where we’re very focused is virtualization. This is more than a buzzword for us it’s something that we believe will have a significant impact on our industry. One of the highlights of our June launch was a rollout of the new version of our Advanced Systems Management product. This product increases our Unicenter Network Systems Management product’s capability to enable customers to expand their management and virtual environment. Industry analysts from Enterprise Management Associates earlier this year put us in the first team for virtual systems management citing our innovation, support for heterogeneous environments and our highly capable solutions along with a high customer satisfaction rating.
You’ll hear a lot more from us in this space over the coming months as we’re going to follow up with a major launch in October where we plan to include our new data center automation offering. In this launch we will further demonstrate CA’s ability to address our customers’ most pressing challenges and enable them to effectively map their IT resources to their business priorities. This coming November we’re going to make some additional product announcements in CA World which as you know is our big user conference this year being held in Las Vegas.
I want to also take a few minutes to talk about the mainframe software business. We experienced a very solid growth in the first quarter in this business and I attribute it to two factors. First we established a stand-alone mainframe business unit last year when we saw significant opportunities coming our way as customers began to re-commit to that platform and began voicing their need for the kinds of mainframe products and services that CA provides. Given our strong position in this marketplace we determined that a specific mainframe strategy with even more focus and dedicated resources would enable us to capture more than our share of the coming opportunity. The second is the rollout by IBM of its z10 Enterprise platform last February has created a lot of excitement in the marketplace and I must tell you that CA was one of the only ISEs to provide day one support. Now given the routable nature of our business model we expect to see the benefits from this new platform growing in the coming quarters and years.
Without question we operate in a very competitive environment and one that is getting more competitive every day but we’re winning in this marketplace and I wanted to give you a couple of examples. The first is a recent win with the US Department of Veterans’ Affairs. We partnered with Merlin International and together were selected by the VA to provide CA’s identity and access management solution to the VA. By deploying identity and access management enterprise wide the VA will be able to provide secure delivery and access to web based applications which in turn will increase veterans’ access to benefit and healthcare information as well as providing the VA with better regulatory compliance and allow them to collaborate better with other government agencies and overall just enhance the security of their offering. Now anyone who has participated in a government procurement process will know that these are extensive and competitive processes and that’s why we’re so pleased that our partnership with Merlin has resulted in a successful bid for CA’s identity and access management security products.
The second example demonstrates how we’re working with our customers to solve their problems. As a long time user of CA’s database management solutions for DB2 the Lowe’s Companies who as you know are the second largest home improvement retailer in the world turned to CA when they needed to replace a home grown solution for optimizing the application development life cycle and maximizing resource usage of its important DB2 environment. CA’s solutions provided the capabilities they were looking for especially the critical support for DB2 Version 8. The CA team worked closely with Lowe’s to understand their needs and added features to help Lowe’s optimize its database environment, reduce resource consumption and prevent unwanted changes from affecting production application.
Finally I’ve been talking with you over the last couple of years about the steps we are taking to transform CA and I’m pleased these efforts are now bearing fruit. Our unwavering focus on process improvement and expense control has led to significant efficiency and cost benefits. These improvements are not one time occurrences, they’re the result of a great deal of work that began with us taking a hard look at what our customers needed to be successful and then deciding on how we built an efficient operating infrastructure to meet those needs.
As I’ve also said in the past we’re taking a much more disciplined approach in our customer engagement. As we help our customers meet their business challenges we’re ensuring that we receive fair value for our products and services. The litmus tests for any deal is that it makes complete sense for our customers and for us and that’s our definition of a successful partnership.
With that I’m going to turn it over to Nancy for a more extensive look at our Q1 results. We’ll then open it up for questions and then I’ll come back to wrap up.
Nancy E. Cooper
Now let’s go into the details of the quarter. Total bookings were $1.03 billion in the quarter an increase of 15% from $895 million in the prior year. We have modified our bookings disclosure to include all committed maintenance contracts which we feel is a more relevant measure of our committed future revenue generating activities. Strength in bookings was driven by continued sales execution in AMEA and North America and we are also encouraged by the strength in new license sales consisting of both new products and related maintenance as well as new mainframe capacity. Although not disclosed in our financial statements and subject to discretion we estimate about one-third of our bookings in the quarter were new license sales. We will continue to build on this momentum.
The weighted average life of subscription and maintenance bookings in the quarter were 3.37 years as compared to 2.95 years in the prior year. When annualized a year-over-year increase in annualized subscription and maintenance bookings for the quarter was 5%. Total revenue in the quarter was $1.087 billion up 6% from the prior year or flat on a constant currency basis and in line with our expectations. Looking forward as we replace fiscal year 06 bookings with fiscal year 09 bookings which reflect improved pricing discipline and increasing new product sales we expect to see accelerating revenue growth trends in the second half. Together subscription and maintenance revenue grew 6% for the quarter.
From a geographic perspective North American revenue in the quarter was up 3% over the prior year and international revenue increased 10% or down 2% on a constant currency basis. Non-GAAP operating expenses for the quarter were $745 million down 3% from the prior year or down 7% on a constant currency basis. Non-GAAP operating income before interest and taxes for the quarter was $342 million up 34% from the prior year. Non-GAAP operating margin for the quarter was 31% reflecting a six percentage point improvement year-over-year. Non-GAAP operating margin excluding stock-based compensation was 34% reflecting a seven percentage point improvement year-over-year.
Our growth in operating margins is a reflection of process improvements that have improved our efficiency and the results yielded from restructuring and other cost saving initiatives which to date includes ones you’ve heard us previously discuss such as shared services in finance, facilities consolidation, indirect model in APJ and newer ones of rationalization of customer support and improving services utilization. All of these contribute to improving margins. Non-GAAP income for the quarter increased 35% to $214 million compared to $159 million in the prior year and this translates to non-GAAP EPS for the quarter of $0.40 compared to $0.29 in the prior year a year-over-year increase of 38%.
Now let’s turn to our GAAP results which include purchase software and tangible amortization, restructuring and other expenses and gains and losses on hedges of operating income relating to future periods. Including these items total expenses before interest and taxes are $779 million for the quarter which is down 4% from the prior year. During the quarter restructuring and other expenses were $4 million the majority of which was related to facilities. Now to finish up the income statement GAAP income for the quarter was $200 million or $0.37 per diluted common share which compares to $129 million or $0.24 per diluted common share in the prior year period. Cash flow from operations in the quarter was $54 million compared to a loss of $13 million in the prior year period a year-over-year increase of $67 million. When adjusted for $23 million duplicate customer payments received at the end of the quarter and returned in the second quarter cash flow from operations was $31 million up $44 million from the prior year and was our strongest first quarter cash flow in three years.
As you know CFFO historically has been low in first quarter which includes cash payments related to commissions and bonuses from the prior fiscal year. Completing the balance sheet we ended the quarter with $2.4 billion in cash and cash equivalents and $2.2 billion of total debt bringing our net cash position to $181 million. Furthermore we are encouraged by the continued strengthening of our balance sheet with our expected future cash collections, total revenue backlog and total billings backlog up 6%, 12% and 14% respectively on a year-over-year basis. What’s important about this is that while we are showing good period results the company is building a strong base for growth in the future.
With that I’d like to reiterate our guidance for fiscal year 2009. Total bookings growth in the mid to high single digits. Total revenue growth of 2% to 4% in constant currency or $4.5 billion to $4.6 billion when translated at today’s foreign currency exchange rate representing 5% to 7% reported growth. Non-GAAP EPS of $1.45 to $1.52 which represents 22% to 28% growth. GAAP EPS of $1.28 to $1.35 which represents 38% to 45% growth inclusive of approximately $30 million of restructuring charges and cash flow from operations of $1.15 billion to $1.18 billion which represents 4% to 7% growth. This includes about $120 million in restructuring payments and relatively flat cash taxes. Except as previously stated guidance reflects current foreign currency exchange rates, assumes no acquisitions and a partial hedge of our operating income.
We continue to expect approximately 517 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 37%. CA’s start to the fiscal year 2009 marks the seventh quarter of solid execution and I am pleased with our consistent performance. Given the predictable nature of our balance sheet and continued growth in our backlog we are confident about our execution in the coming year.
With that we’ll open the call up for questions.
Question-And-Answer Session
Operator
(Operator Instructions) Our first question comes from Sarah Friar – Goldman Sachs.
Sarah Friar – Goldman Sachs
Nancy the 31% operating margin that you hit this quarter, if I look at your guidance you’re telling us that you think the margin comes back down a little bit from there. Why wouldn’t that 31% be sustainable just based on the cost reductions that you’ve already put through the organization?
Nancy E. Cooper
Sarah, that’s because we have a number of expenses that are really variable with revenue the largest of which is our commission structure which is always back end loaded and will impact that. We also in the fourth quarter of the year as we mention to people we have FICA that kicks in our fourth quarter so we have expenses that will kick in. That said we are very encouraged with the 31%.
Sarah Friar – Goldman Sachs
Secondarily I’m going to ask about buy back because now you’re finally back in a reasonable net cash position. I know you have the debt coming up at the end of 2009 and I know the credit markets are not that friendly these days, again why wouldn’t you come out given where the stock is trading and do some more buy back? You said that for July is your low point of cash generation and now you get into a seasonally stronger part of the year.
Nancy E. Cooper
Sarah, talking about where we are right now we are July, the lowest cash point of the year and credit markets, I’m not sure you read, credit markets are really not very open right now.
Sarah Friar – Goldman Sachs
Right I understand but still you have cash and you’re in a net cash position, why not at least come back and do some $100 million, $150 million just something to show willing given where the stock is trading at?
Nancy E. Cooper
All I can assure you with is it’s a topic we discuss with regularity but for the points I just mentioned before that we are in our lowest cash position and we are in probably one of the more challenging credit markets that I’ve seen in my career. We believe this is the decision that’s correct for this quarter.
Operator
Your next question comes from John DiFucci – JP Morgan.
John DiFucci – JP Morgan
Nancy, on the operating margins forget a second about the non-GAAP margins but even the GAAP margins were 28% which was pretty impressive because you don’t take all that other stuff out and this quarter you had pretty low restructuring costs, something you’ve been doing for a while and some have been asking about it for a while, I think it was something like only $4 million this quarter. It does look like your efforts in operations are starting to pay off in the expenses and that is evident not only from the non-GAAP but from the GAAP expenses year-over-year. I’m just curious going forward on restructuring what you expect to see?
Nancy E. Cooper
John, what we did is when we re-confirmed our guidance we re-confirmed that we do believe we’ll have some more restructuring this year and in contrast the fourth quarter we believe has moved into the second and those things are largely, we’ve done a lot of restructuring. The last part that you do is the facilities and they need all the people to have moved out to be able to take the charge. That slid a little bit on us but that’s why we’re still holding with 30% for year and then we’ll look at it but we really believe we have a lot of restructuring behind us.
John DiFucci – JP Morgan
So 30% for the year and we should expect to see most of the balance of that next quarter. Just a follow up, I’m just curious. I was looking at the supplemental information and I think it’s a little different than you usually put out, I’m just curious can you give us what the single installment payments were for this quarter?
Nancy E. Cooper
John, they were $60 million and you can see that that was substantially below the same period last year.
Operator
Your next question comes from Philip Winslow – Credit Suisse.
Philip Winslow – Credit Suisse
I just wanted to dig in a little bit on the margin side and where you could see margins trending to with volume turn obviously a very good number this quarter. One of your competitors, BMC, suggested they’re mainframe business was going to a 50% margin, they’re distributed still in the single digits so when you do look at your business how does that compare to where BMC is and also just to the first point of how do you see these trending longer term?
Nancy E. Cooper
I think our margins are quite a bit better than BMC’s but in terms of what I look at internally because I focus internally we’re encouraged with the performance that we’ve had year-to-date and what’s really encouraging for us is I don’t believe we’ve completed all the things we can do to improve margins going forward. For instance this quarter we installed our first [Iperian] application which will give us more productivity. We continue to work on how we’re contracting our sales contracts and there’s additional efficiency we’ll have in there. Our tech sales productivity is improving, our sales productivity is improving so we’re quite encouraged that we’re doing the right things and they will yield benefit for the company.
Philip Winslow – Credit Suisse
Also you gave a new metric, new bookings, you said it was about a third of total bookings were new license, I was wondering if you could give us a sense of that looked like in the year ago quarter and the what the growth expectation there would be?
Nancy E. Cooper
Sure, let me probably I’ll shortcut it for all of you and give you what we essentially did and we mentioned in the call is we’re trying to get great consistency around the world and how we report our bookings and make sure we have all the bookings that turn into revenue and when we went through that what we found is we hadn’t in all cases included the one year maintenance contracts and so what we’ve done is adjust our bookings to have that complete definition and to help all of you out there let me give you the numbers that would be the delta between what you’d had previously and what you’re seeing in our supplemental. If I say in the quarter the increase for the one year maintenance included in the 1030 is about $70 million, for fiscal year 2008 the total for the year was $187 million and it came in the following fashion, $61 million first quarter, $34 million second, $41 million third and $51 million in the fourth and in fiscal year 07 the total for the year was $266 million and again by quarter it was $91 million, $51 million, $58 million, $53 million, $64 million.
Operator
Your next question comes from Walter Pritchard – Cowen & Company.
Walter Pritchard – Cowen & Company
Just one question and one follow up, you mentioned that the contract length went up from about just under 3 to about 3.3 or 3.4, just wondering I think you guys don’t pay salespeople for deals over three years, I’m just wondering why we’re seeing the contract length extend in that fashion?
John A.C. Swainson
As Nancy mentioned we are getting much more confident and comfortable in our ability to manage price in some of these long term deals and there are cases, there are not very many, but there are cases where we get customers who want to come and lock in their technology commitment for four and sometimes five years and we’ve had, not in this quarter I don’t think, but we’ve had actually cases in prior quarters where they’ve even locked in for longer than that. So this is a reflection of our confidence in our ability to manage price, particularly in the out years, and the belief that when we do that we can continue to sell new technology to that customer without the occasion or event of a contract renewal to drive that. So that’s what’s driving it. We haven’t changed our policy. We actually have always had an option to pay people on extended contracts. It’s not automotive, it’s not in their sales competition plan but we can potentially do that and we have done it in the past and we’ll likely continue to do it on a limited basis in the future.
Walter Pritchard – Cowen & Company
Nancy just as a follow up I think Phil Winslow was trying to ask the NCV number for the year ago period, not the adjusted bookings number. I’m just wondering, I think you said it was a third this year in the quarter and I’m wondering if you can just give that to us for the year ago period?
Nancy E. Cooper
Sure. My team here just told me the same thing so I’m sorry Phil. It was about the same amount last year, about a third of the total bookings.
Operator
Our next question comes from Richard Sherman – MKM Partners.
Richard Sherman – MKM Partners
The question is a question I ask often, overseas and particularly in Asia, that still represents some pretty big markets that have good potential for you. Any updates on that side? Then maybe talk about how currency impacted expenses on the product development line?
John A.C. Swainson
Asia is not a modelific geography for us. We have two big businesses in Asia, one in Japan and one in Australia and then we have a couple of growth businesses particularly in India and Korea and then we have frankly businesses that we elected to restructure, notably in greater China and Southeast Asia. The restructuring is in the first quarter, I mean it’s going as we expected. The business in India is going very strongly and we’re very encouraged by the growth there that we’re seeing particularly in new license sales. The Australia business is doing okay and the Japan business is doing okay and frankly could do better. So, we still have the effects of our restructuring impacting us to a certain degree in Asia Pacific. We agree with you that this represents an incremental opportunity for us that we are working very hard to realize. Nancy do you want to talk about – I think the question was the impact of foreign exchange on development? We do development off shore in India, China and to a limited degree in Europe.
Nancy E. Cooper
Rick, I believe development was impacted about the same way that overall op ex was impacted, about 4% by currency.
Operator
Our next question comes from Kirk Materne – Banc of America Securities.
Kirk Materne – Banc of America Securities
John, you noted in your prepared remarks that you all are feeling pretty upbeat about the opportunities for the mainframe now that the z10 is out. Just two quick questions around that, number one obviously you all already have a number of long term mainframe deals with your customers so with the z10 out now are they coming back early to explore contract renewals with you to get on the new machines or do you think that’s going to be sort of just played out in a normal fashion in terms of how the contracts are coming up? Then the second point around that, given the macro environment, are these customers that are re-upping on the z10, I guess for lack of a better way of saying it, are they really adding capacity or is the opportunity for you all to really add new products around that sale in terms of upping your sort of revenue yield per customer?
John A.C. Swainson
Let me answer the second one first and then I’ll back in to your first question. The answer to your second one is yes, we are seeing both capacity increases and we are seeing an opportunity to sell new licenses and the opportunity to sell new licenses is driven by competitive replacements against some of our favorite competitors as well as opportunities as customers are in fact looking to add new applications in to a mainframe environment, they need tools to make sure they effectively manage those environments. So, we are very encouraged by this trend. Now, as I said to you before, our quarterly impact from either a positive or negative mainframe shipment from IBM is very limited because as you know, these contracts are three year contracts and we tend to contract for the future capacity. That being said, we are seeing customers who are indicating to us that they expect more capacity than they had previously expected on their mainframes and so we saw very positive booking growth for both new licenses and capacity in the prior quarter in the high single digit range. So, we believe that trend is likely to continue and is what led to my remarks in the earlier part of the call.
Operator
Our next question comes from Todd Raker – Deutsche Bank Securities.
Todd Raker – Deutsche Bank Securities
If you look more broadly in the software space we’re starting to see an interesting dynamic where ORACLE is taking price points up on their install based pretty substantially. Given your stickiness with your customer base, what’s the opportunity longer term to start to take price points higher for the installed base?
John A.C. Swainson
We have done a limited amount of pricing upwards in the last year after not really changing prices for a while. We actually prefer to think that there’s more opportunity for us by promoting the value of our products and building demand and also frankly by being more disciplined in terms of the way we manage the renewal process. So, rather than playing with list prices or playing with renewal prices, we’re just getting better at the way we operate in that environment and that we attribute a good deal of our past success to and we think will lead to more success as well.
Todd Raker – Deutsche Bank Securities
As a follow up on that, competitively what have you guys seen from a price perspective on the installed base in the mainframe space?
John A.C. Swainson
It’s hard to answer that question. We do not see a lot of competitive price pressure. We probably saw more in the past than we do now. That being said, customers are obviously very sensitive to questions of price but as we get better at articulating value and delivering value and delivering support some of those things are mitigated.
Operator
Our next question comes from Katherine Egbert – Jefferies & Co.
Katherine Egbert – Jefferies & Co.
A couple of things, first can you just comment on the financial services area since you have such a great installed based there? Just what you’re seeing in terms of spending?
John A.C. Swainson
Katherine, people ask me this question all the time and we don’t see any material difference in the financial services industry from this quarter to last quarter. You’re right financial services is a very important industry for us and we expect it will continue to be and financial services customers are amongst our most important customers. They are also amongst our heaviest users of technology and many of them have multiple and some of them have hundreds of CA products. So, there’s a very high degree of reliance shall we say on CA technology for them to operate their businesses effectively. Now, the good news is that while the financial services customers continue to be good customers of CA, we’re seeing growth in other areas. We saw very positive growth in government in this last quarter and we alluded on the call to the Veterans Affairs but, we had a number of other very significant wins particularly new license wins in the government area. So, we have a number of industries that provide us with a good strong foundation here.
Katherine Egbert – Jefferies & Co.
Then a similar thing John, you know you’ve done a lot of M&A over the years but you really haven’t done much recently. It’s a buyer’s market right? Why not, is this something that you’re still contemplating?
John A.C. Swainson
Well, you know we always look at what’s available in the marketplace. We build and buy technology, we’ll continue to do that. The fact that we haven’t done anything recently is an indication I think, of some unrealistic pricing expectations on the part of the sellers but, that doesn’t mean that we aren’t still looking.
Operator
Our next question comes from John DiFucci – JP Morgan.
John DiFucci – JP Morgan
Just a question, sort of a macro question, you had said that international revenue was down 2% on a constant currency basis and I was just curious if you could comment a little bit more on that? Perhaps which regions showed relative strength or weakness and was there any execution issues that had an effect there that you thought?
Nancy E. Cooper
John, think of it in two pieces, I mentioned earlier that we changed the APJ model over indirect model and part of this is in that transition you get this impact and we believe it’s the right thing to have done for the company. It dramatically improved our margins and we believe it set up the basis for future better growth at a profitable rate. The second thing was we did a similar very disciplined approach on our services business and if you’ll see there that was actually a negative growth and a lot of that impact was international. The flip side of it is that focusing services on doing profitable business you can see reflected in our first quarter and again, we feel that we’ve gotten the business in the right place to grow it going forward.
John DiFucci – JP Morgan
Were there any particular reasons though, we were hearing from other sources that perhaps places like the UK may be weakening or have been weakening for a while versus other areas and EMEA but are you seeing anything like that?
Nancy E. Cooper
No. And the things that I just indicated to you , they were part of our plan that we knew we were going to execute this year so everything I’m telling you is really kind of according to the plan that we put in place.
Operator
At this time there are no further questions.
John A.C. Swainson
Let me summarize what we talked about today. First of all, we had a very good quarter and it was the seventh consecutive solid quarter for CA. We carried the momentum that we had built in fiscal 08 in to the new fiscal year and continued to drive bookings growth which was highlighted by the strength that we talked about today in new product sales. Our first quarter cash flow was the best its been in three years. We introduced a number of new and innovative products. Our mainframe business strategy is working well. We continue to improve business processes and manage our expenses to drive the operating margin you saw and the strong profit growth and we reaffirmed our full year outlook. So, what’s ahead? While, as I said, it’s all about execution. We’ll build on our success in expanding and strengthening our portfolio with more product launches in October and [inaudible] in November. We’ll also continue to improve our business processes and manage expenses with a relentless focus on driving efficiency and operating margin improvements and we’ll continue to build partnerships with our customers both new and existing to grow both revenue and bookings.
Thank you all very much, it was great talking to you.
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