Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Executives

Kelsey Doherty - Senior Vice President of Investor Relations

William E. McCracken - Chief Executive Officer, Director and Member of Compliance & Risk Committee

Richard J. Beckert - Chief Financial Officer and Executive Vice President

Analysts

Mark L. Moerdler - Sanford C. Bernstein & Co., LLC., Research Division

Aaron Schwartz - Jefferies & Company, Inc., Research Division

James Wesman

Abhey Lamba - Mizuho Securities USA Inc., Research Division

Shaul Eyal - Oppenheimer & Co. Inc., Research Division

Matthew L. Williams - Evercore Partners Inc., Research Division

John S. DiFucci - JP Morgan Chase & Co, Research Division

Sitikantha Panigrahi - Crédit Suisse AG, Research Division

CA Technologies (CA) Q2 2013 Earnings Call October 25, 2012 5:00 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the CA Technologies Second Quarter 2013 Earnings Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the call over to Kelsey Doherty. You may begin.

Kelsey Doherty

Thank you, and good afternoon, everyone. Welcome to CA Technologies' Second Quarter Fiscal Year 2013 Earnings Call. Joining me today are Bill McCracken, our Chief Executive Officer; and Rich Beckert, our Chief Financial Officer. These prepared comments were previously recorded. This conference call is being broadcast on Thursday, October 25, 2012, over the telephone and the Internet. Information shared in this call is effective as of today's date and will not be updated. All content is the property of CA Technologies and is protected by U.S. and international copyright law and may not be reproduced or transcribed in any way without the express written consent of CA Technologies. We consider your continued participation in this call as consent to our recording.

During this call, non-GAAP financial measures will be discussed. Reconciliations to the most directly comparable GAAP financial measures are included in our earnings release, which was filed on Form 8-K earlier today, as well as in our supplemental earnings materials, all of which are available on our website at ca.com/invest.

Today's discussion will include forward-looking statements subject to risks and uncertainties, and actual results could differ materially from these forward-looking statements. Please refer to our SEC filings for a detailed discussion of potential risks. Please note that our third quarter quiet period begins at the close of business on December 14, 2012.

Before I turn the call over, I'd like to highlight that, for modeling purposes, our year-over-year currency headwind on revenue guidance is expected to be roughly 2 points for the full year.

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

William E. McCracken

Thanks, Kelsey, and good afternoon, everyone. Thank you for joining us. I'd like to start this afternoon by providing some detail on CA Technologies' second quarter results and our revised annual and long-term guidance. I will then turn the call over to Rich for a more detailed review of the financials and updated guidance before we open the call for questions.

Let me start by saying that our second quarter was short of our objectives in several areas. Obviously, we are disappointed in our performance. Because we do not expect the macroeconomic environment to recover quickly and we therefore expect that our marketing transition will be elongated, we are lowering our guidance for the year. I will walk you through the quarter, what has changed in our outlook, what did not work well and some things that did work well.

Before I do that, let me turn to our expectations as we entered fiscal year '13. We knew the fiscal year '13 renewal portfolio would be down year-over-year. We also knew that we would be reorganizing the sales force, and we were sensitive that the economy might be a headwind this year. Having said that, there are 2 critical aspects of our business that are not performing to plan.

First, underlying our performance, new product and capacity sales did not come in as expected, particularly new sales outside of the renewal. New product and capacity sales were down approximately 25%.

Second, as we have outlined, our sales force reorganization has been slower to gain traction than we had expected. Clearly, I'm not satisfied with our sales execution and transition to segment marketing, which is a key to our future growth.

Finally, I would be remiss in not mentioning the weakening global economic outlook which has impacted our performance. In fact, we saw sales cycles elongate and deals slip out of the quarter. This trend exacerbated our efforts to sell to new customers under the segmented marketing model.

As we told you when we announced quarter 1, we are closely inspecting the pipeline and managing progression from a segmented view. This is new. This inspection improved the visibility into and quality of pipeline, but shifted the expected time of closing of some transactions to future quarters. All of this was exacerbated by the macroeconomic climate.

The result, as Rich will review in greater detail, is that we are reducing our full year expectations for revenue in constant currency growth to negative 3% to negative 1%. This results in updated cash flow guidance of negative 8% to negative 4% in constant currency.

However, we will continue our focus on cost and expense control through the second half of the year and expect our non-GAAP operating margin, which we raised last quarter, to be 36% for the full year. As a result, we are updating our outlook for non-GAAP EPS growth to 6% to 10% in constant currency.

Before addressing the plan for the balance of the year, let me place our second quarter results in perspective. First, there were headwinds that we knew we would have to contend with during the quarter. With the renewal portfolio down year-over-year and the mainframe portion down even more, we expected capacity sales to be down. This, coupled with an uneven macro environment where buyers are being cautious, resulted in capacity being down approximately 60%.

Based on our performance in the first quarter, we saw a trailing effect on cash flows, as our quarter 1 new product sales shortfall created a gap in billings that affected Q2.

Additionally, our renewal yield was in the high 80% range, a little bit lower than historical levels in this tough economic environment, but attributed to 2 transactions. The pipeline, while building, is building slower than we expected. This is the second quarter in a row North America has been down, and the impact of the economic political uncertainty in Europe was even greater than we expected. As a result, several core product lines declined, including our Application Performance Management and Infrastructure Management businesses.

At the same time, there are areas of the business which are performing, though off smaller bases. They include: Mainframe new product sales, which were up approximately 10% year-over-year; in Latin America, where we have been leveraging channels and partners for 2 years, we grew high teens; APJ, excluding Japan, where we also implemented a partner and segmentation program earlier, was up mid-teens. Both demonstrated that our segment marketing can produce improved results. Technology investments, such as ITKO and Nimsoft, delivered double-digit new product sales growth in the quarter; and our SaaS revenue grew by more than 30%.

Let me assure you that CA Technologies' competitive position is sound. I talk with customers and visit clients every week. And I remain confident that we are well positioned in the market, and our portfolio of products and solutions is compelling.

Because of our weak new product sales this year and the ongoing macroeconomic uncertainty, we see a dampening effect on revenue and cash flow growth next year. As a result, we are modifying our long-term guidance. We continue to believe the multi-year financial objectives that we previously shared are correct, but we now believe the time line to reach these objectives will extend beyond our original expectations.

We feel very comfortable with our ability to generate cash flow. We expect approximately $1.4 billion in cash flow from operations this year and can fund the dividend, share buyback and future investments in the company. The Board of Directors and I remain committed to delivering our $2.5 billion capital allocation plan. This includes the $1 per share annual dividend and share repurchase program we have put in place.

Now let me turn to our plan to improve execution in the second half. First, we are continuing to introduce new products to the portfolio. This past quarter, we launched Infrastructure Management 2.0 and Nimsoft Monitor 6, which together arm our sales force with what we believe is the most complete infrastructure management solutions in the market. We will continue to extend our Service Assurance strategy with: A new version of CA Executive Insight, which adds capacity planning data to a solution that provides managers with IT insight in a business context; expanded monitoring capabilities for mobile browsing in a new version of APM Cloud Monitor; and new integrations of APM with CA LISA from our ITKO acquisition, which will provide advanced performance analytics for better decisions in service virtualization and testing.

As I said in the first quarter, we are entering a period of increased product introductions. Second, we are focused on building our partner ecosystem. For example, our partnerships with the India-headquartered global systems integrators have driven an approximately 200% increase in related new contract value. And we added more than 20 new MSPs, a critical distribution channel to reach growth markets. We also recently announced a partnership with Citrix to provide additional management and monitoring capabilities on top of Citrix cloud and desktop virtualization solutions. Products include CA Nimsoft Monitor, CA Automation Suite and CA Server Automation.

Third, we are continuing to pay close attention to our expense profile to assure we deliver the 36% non-GAAP operating margin we outlook for the year. We know we have work to do to sell more new products. The full impact of market segmentation was not evident in Q2, and it is going to take longer than we originally expected to gain traction. Our market segmentation has put short-term pressure on our performance. We implemented this strategy because we believe it is the right thing to do for our business, and it will have long-term benefits for the future of CA Technologies.

With that, I will turn the call over to Rich to provide details of the quarter and guidance.

Richard J. Beckert

Thank you, Bill. Please note that all growth rates are year-over-year unless otherwise indicated. Total revenue for the quarter was $1.15 billion, flat in constant currency and down 4% as reported. This includes a $43 million headwind from foreign exchange.

In Mainframe Solutions, revenue was $619 million, down 2% in constant currency and 5% as reported. I want to remind you that we have an unfavorable mainframe revenue compare in the third quarter due to a $39 million single-license payment that occurred in Q3 last year.

Turning to Enterprise Solutions, revenue was $438 million, up 1% percent in constant currency and down 2% as reported. Services revenue was $95 million, up 3% in constant currency and down 1% as reported. New Services engagements, which are heavily dependent on new product sales, were down 15% year-over-year.

We now expect FY '13 renewal portfolio to be down closer to 10% as compared to FY '12, with Q3 down year-over-year and growth in the fourth quarter.

Looking at the revenue backlog, current revenue backlog was $3.5 billion, down 2% in constant currency and 3% as reported. Total revenue backlog was $7.5 billion, down 7% in constant currency and 8% as reported.

Backlog was affected by sales performance in the first half of the year. We also continue to see a headwind in backlog metrics, as contracts burn off the balance sheet in anticipation of an increase in our 2014 renewal portfolio.

From a non-GAAP perspective, non-GAAP operating income before interest and tax was $406 million, up 12% in constant currency and 7% as reported.

For the quarter, our non-GAAP operating margin was 35%. Operating margin for Mainframe Solutions was 60%. Operating margin for Enterprise Solutions was 6%. Finally, operating margin for Services was 6%.

Non-GAAP diluted earnings per share was $0.59, up 22% in constant currency and 16% as reported. This includes a year-over-year $0.02 headwind from currency.

For the second quarter, non-GAAP tax rate was 31% compared to 32% for the second quarter of fiscal 2012. Cash flow from continuing operations in the quarter was $89 million, down 50% in constant currency and 53% as reported. CFFO was affected by weaker new product sales; we have adjusted our full year outlook accordingly.

Single installment payments were $95 million in the second quarter compared to $100 million in the previous period. Total billings backlog of $4.5 billion was down 10% in constant currency and as reported. Billings backlog was affected by sales performance in the first half of the year.

We ended the quarter with approximately $790 million in net cash. During the quarter, we repurchased approximately 9.7 million shares for $250 million. We are authorized to repurchase an additional $654 million of common stock for fiscal 2014.

Moving to second quarter GAAP results. Second quarter GAAP operating margin was 29%. GAAP operating income before interest and tax was $337 million, up 12% in constant currency and 1% as reported. GAAP diluted earnings per share was $0.48, up 15% in constant currency and 2% as reported. Our effective GAAP tax rate for the second quarter of fiscal 2013 was 32% compared to 28% for the second quarter of fiscal 2012.

Now let me turn to fiscal 2013 guidance. As been our practice, guidance is based on exchange rate on the last day of the preceding quarter or for this quarter, September 30, 2012. This includes a partial hedge of operating income.

Before I review guidance, I would like to comment on this afternoon's update. Our adjustments take into account both our macro environment, which has elongated purchasing cycles, and our current view of pipeline progression for the second half of FY '13.

Updated guidance is the following: Total revenue is now expected to be negative 3% to negative 1% in constant currency. This translates to reported revenue of $4.58 billion to $4.67 billion. A point of this year-over-year decline in revenue is attributed to a $39 million single-license payment that occurred last year and will not reoccur.

Non-GAAP diluted earnings per share growth in constant currency is now expected to be in a range of 6% to 10%. This translates to reported non-GAAP diluted earnings per share of $2.36 to $2.44.

GAAP diluted earnings per share growth in constant currency is now expected to be in the range of 8% to 12%. This translates to reported GAAP diluted earnings per share of $1.99 to $2.07.

Cash flow from operations growth in constant currency is now expected to be in the range of negative 8% to negative 4%. This translates to reported cash flow from operations of $1.38 billion to $1.44 billion.

Guidance does not include the effect of any future material acquisitions. Underlying this guidance, we expect our GAAP and non-GAAP tax rate to come in closer to the high end of the 30% to 31% we provided at the outset of the year.

At the end of the year, we expect approximately 449 million shares outstanding and a weighted average diluted share count of approximately 458 million shares. We expect our non-GAAP operating margin to be 36% for fiscal year 2013.

Now, I'll turn the call back over to Bill.

William E. McCracken

Thanks, Rich. Before we close, I'd like to leave you with a few thoughts. Market segmentation is the right strategy for CA Technologies. Expanding beyond our core 1,000 customers by accessing new channels, leveraging new partnerships and improving our coverage model will drive growth and expand profitability.

At the outset of the fiscal year, the timing looked right to introduce these changes. With a lighter renewal portfolio, we hope to minimize the effect on our existing customer base. However, over the last 6 months, we have continued to be challenged selling outside the renewal, both to our existing customers, as well as potential new ones. Driving this amount of change in an unpredictable economy proved more difficult than we anticipated. Because of our transition to segment marketing and expectations that the macro will not recover significantly, we are not projecting a rebound in the second half of this fiscal year.

That being said, we understand the challenges we face. We have reset the time line of our expectations, but not our goals of profitability and acquiring new customers. We continue to focus carefully on all details of our sales execution and will continue that focus until we reach our objectives.

And now, Kelsey, back to you.

Kelsey Doherty

Thank you, Bill. As the operator is polling for questions, I would like to inform you that CA Technologies is presenting at the 2012 RBC Capital Markets' Software & Services Investor Day in New York City on Tuesday, November 13, and the Crédit Suisse Annual Technology Conference on Wednesday, November 28 in Phoenix, Arizona.

[Operator Instructions] Operator, please open the call for questions.

Question-and-Answer Session

Operator

[Operator Instructions] Okay, we'll go to the next question from Mark Moerdler of Sanford Bernstein.

Mark L. Moerdler - Sanford C. Bernstein & Co., LLC., Research Division

So 2 quick questions. Can you give a little more detail on exactly what affected the cash flow from continuing operations? Is it the deal mix? Is it the staffing mix, et cetera? And then the second question is, you discussed the 10 deals that were done -- 10 large license agreements with incremental contract value greater than $10 million and then a value of $232 million and then last year, a similar size, had a larger dollar. Is that the contract term that's affecting it or the license component of it?

Richard J. Beckert

Yes, on the second one, it's a little bit of both. So they were definitely longer in duration last year. This year is a shorter duration. If you look at the top, we're at about a 3.11. Last year's closer to 3.6 in duration, so that drove most of it. I think your first question was on how we came up with CFFO and the change in guidance. Is that correct, Mark?

Mark L. Moerdler - Sanford C. Bernstein & Co., LLC., Research Division

Yes.

Richard J. Beckert

Okay. So -- and I think this will be a reoccurring question maybe for some others. So let's start with -- what really we saw coming out of Q1, as we had said, was a slight decline in -- are transactions that were done outside of the renewal cycle. The deals that were done within the renewal cycle actually came in, in both first and second quarter, a rate under normal historical levels. And those impending events actually proved out to be the way we normally would see them. In Q2, what we saw was a slight difference, and that was a little bit of elongation in some of these transactions that were now going to happen later on in the year. That predominantly sits in the distributed or Enterprise Solutions segment. And that $150 million worth of perpetual licenses normally would have flowed to direct cash, as well as the revenue associated with it, for the licenses. And so what we thought was prudent, looking at the macro environment and the pressure the macro environment has on some of our geographies, and thought it was the right time to take that down.

Operator

Okay, we'll go to the next question from Aaron Schwartz of Jefferies.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Rich, on the renewal portfolio, it sounded like there was a slight downtick, if I heard that correctly. And I was just wondering if you could reconcile that. It seems to me that would be something that was pretty well scheduled, and I just don't know if that's just something -- just an overall sort of conservatism to the guidance or if there was something specific. Or maybe you could just walk through that if that was sort of -- I know it's pretty minor example, but it did seem like it was a very modest downtick there.

Richard J. Beckert

It's a good question. What we saw, Aaron, is as I said, the overall duration came in at 3.1, a little lighter than the 3.6 that was a year ago. Not that that's anything that's really that significant, but the second part of that, that we saw in the quarter, and I think is a general economic trend, is people who sometimes are at the top end of their capacity either from MIPS or they need incremental seats on the enterprise solutions side of the products would have maybe potentially gone a little bit early or the ones that are there would have extended to a larger transaction. What we're seeing is they're buying just enough for what they really want over a 3- or 4-year transaction. And although it's minor, it was enough that we thought it was the right thing to tweak it down. And if you recall from our last call, what we said is as we thought we had better highlights into that number, we would share it with you guys because we did give a single-digit range which wasn't as close as what we're really trying to be more and more transparent to.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Right, I understand that. It could have been 9, and now you're at 10, so maybe it is very minor. But I thought the deal tenure was -- the shorter duration there was more tied to just the fact you were doing sort of more of the perpetual deals that are just shorter in nature and that was a little more independent of some of the mainframe renewals.

Richard J. Beckert

It's a little of both. So remember, that's the case, as you said. And clearly in Q2, it's the case because what we currently have is a lighter portfolio in Q2. So the transactions that were done outside of the portfolio would have pulled that down. But even in the ELAs that we saw, some that maybe historically would have gone 4-year or a 5-year, they were being done closer to 3 to 4. So there was a slight detraction there.

Operator

The next question is from Michael Turits of Raymond James.

James Wesman

It's James Wesman sitting in for Michael. Just a question, some of your competitors have seen a September slowdown spend from their software customers. I was wondering, did you guys experience a similar effect this quarter.

William E. McCracken

No. As we said in some of the comments, Shane, I think -- you said Shane? The macroeconomic environment is having an impact. We've all talked about it in EMEA in the past. We saw it now in North America as well. This quarter was the second quarter where they were down from where they had been before. So we do see a slowing. And for us, it's actually an amplifying factor on our market segmentation piece as well. So as we're moving into the market segments, having that slowdown, having the decision cycle slowdown, people sometimes even canceling projects and moving them, we do see that impact. And we saw it in September, but we think -- our expectation is that that's going to continue through the back end of the year, and that's a large part of why we took our guidance where we did.

Richard J. Beckert

I think -- if I could just add to that. What we really saw was -- we have pretty good headlights now into our pipeline and our pipeline progression. Transactions that are not driven by an ELA with a specific renewal date, what we're seeing is a slight -- people being a little more cautious and taking a little longer, especially inside their own firms, maybe to either get budget approval in the case of the Government or in order for them to get higher levels of authorization to spend their capital dollars. So we thought it was the right time to make the decision to elongate our pipeline. So what would normally have been a certain cycle, depending on where they were in the cycle, we actually extended that out. And that really is what caused us to decide to take that extra -- both cash, which came with the perpetual licenses and the revenue.

Operator

The next question is from Abhey Lamba of Mizuho Securities.

Abhey Lamba - Mizuho Securities USA Inc., Research Division

Bill, can you discuss the reasons behind new product sales not taking off? Is it all sales execution and macro-related? Are there any competitive issues in terms of the products of the market you guys are competing in?

William E. McCracken

Let me add to the second part first. Competitive-wise, we're very strong positioned. In fact, one of the things I reviewed going through some of these comments were we've launched several products as we went through this quarter, and we are on the front end of a very strong new product announcement cycle. So we don't see competitive losses. So we feel strong on that. If you take a look at the new product sales, it varies by segment. If you look inside the existing accounts, probably the macro thing we talked about is probably the biggest factor. Decisions are slowing down. We don't see people making decisions without going up their change for approvals as they do it. So that does delay things. And in some cases, customers, because of their own demand cycles, are delaying projects or pushing projects out. It's not directly related with the new sales, but on the -- from a renewal point of view in the existing -- I think future agreements sometimes in the past have been brought forward. We're not getting as many requests on that. And some that are brought forward to us, we've rejected because we think it has too much impact on the future. So that would sort of put the existing in place. If you look at the new, as Rich mentioned, we're building the pipe as we go through the quarter. The quality of that pipe is better. You will recall, we said when we put that in place, it was a 2-year plan. We do have accelerators on though for our reps to close the new orders in the new enterprise segment as soon as they can, and we're moving that competitive accounts. And clearly, the macro cycle, because they're in many cases the same size as our existing accounts, the macro environment plays on that as well. And then finally, on the growth side, we're building that pipe, but we're also building the partnerships with our business partners. And so the productivity of that takes time. And then all 3 of those, as I mentioned, are being impacted and elongated with respect to how we implement the segmentation.

Richard J. Beckert

The only thing I would add to that, because when we looked at the transactions that did move out of Q1 into Q2, we won most of those transactions. They're the ones that went out of Q2 and now into October, we won most of those as well. So we have not seen a disproportionate number of transactions that were either lost to competition. What we saw was, more often than not, a delay by the customer to just put off the purchase.

Abhey Lamba - Mizuho Securities USA Inc., Research Division

Go it. And just quickly following up on that, given that you saw delays in September, how has the environment been in October? Are you seeing a continuation of the same trend? Or have you started seeing some improvement on that front?

Richard J. Beckert

No. It's exactly what I said. I mean I think we saw -- what we thought was just a single point in Q1 became 2, which is now aligned and a continuation into early part of October. I think we've all read similar things from different firms, and I think it all came into our -- we are very metrics-driven now with our pipeline. And depending on where we are in the cycle, we decided to elongate that as far as when we were calling that to be in. And so we think that's the prudent thing to do with an uncertain environment. With the government sales and a lot of other things, it's the right answer and the way Europe currently is. So we think we positioned ourselves well for the second half.

William E. McCracken

And we did see some of the transactions that we had originally thought might close in the second quarter, did move into October, and some of those did close. But that doesn't, in our opinion, change what the macroeconomic impact is for us going forward.

Operator

And the next question is from Shaul Eyal of Oppenheimer & Co.

Shaul Eyal - Oppenheimer & Co. Inc., Research Division

Two quick questions on my end. Bill, I know you mentioned on the kind of new Citrix-CA partnership. Can you kind of expand a little bit on that, kind of what's the scope or as to when we might be seeing some meaningful revenue contribution over the next couple of quarters? And then also, a word about your Identity and Access Management. I know you mentioned a couple of products that did perform well and kind of grew double digits. So just want to find out whether the IAM product is also included here.

William E. McCracken

Yes. So on the Citrix piece first, we think that's a great partnership. As you well know, Citrix is one of the leaders in the VDI area. And what they need to add to their customer system and management control piece is that we add to and for them. And so it gives them more competitors in the marketplace and it gives us opportunity in the marketplace, both in their accounts as well as in our accounts. So we just thought it was a very strong partnership. As you well know, one of the things that we bring uniquely to the marketplace is we work across all platforms. And so when you work in the marketplace, I think our customers and Citrix looks at it as an opportunity for them to expand their presence in the accounts. It's just a strong partnership for us. On the Identity and Access Management, that continues strong. Arcot was strong. But as we've said many times, quarter-to-quarter, security goes up and down. We had a strong quarter, I think it was the first quarter. It was down a little bit the second quarter and come back again in the third quarter. It's a longer sales cycle than it is with a lot of our products. But security, as I travel the world, there is nothing that I talk about more because of customers asking us questions, because of the implementation of the cloud, whether it's private or public or a combination of those, is that security piece. So it continues to be a very strong demand for us and we believe it will, primarily because of the cloud. And that was one of the things we did first, is move our security into the cloud.

Operator

And the next question is from Matt Williams of Evercore Partners.

Matthew L. Williams - Evercore Partners Inc., Research Division

Just looking for any incremental color you might be able to provide on trends in the Enterprise business. I know you highlighted in the prepared remarks that there were some declines in the APM business and the Infrastructure Management piece. And I was just curious as to any sort of other trends that you might be seeing within that Enterprise business.

William E. McCracken

Are you asking particularly with respect to the ES area or Mainframe and ES?

Matthew L. Williams - Evercore Partners Inc., Research Division

Just ES, primarily.

William E. McCracken

Okay. We think that when we look at our products across ES area, they were all essentially down. And they were because the revenue there was down because of the new product sales. So yes, we have seen a slowing in the APM market, and I think that has been a trend that frankly, on the on-premise side, has been slowing over time in the last couple of quarters. So we saw that continue through this quarter.

Rich, would you add anything to that?

Richard J. Beckert

I think the way I would answer that question, when there was a renewal that was due, so therefore there was an impending event, the customers acted in a very traditional -- their attach rates were the same as normal. The way they wanted to pay their cash was the same. I think what we did see, as Bill alluded to, in North America, which has been a growth engine for us, that was a little slower. We saw some transactions that required higher levels of signature, even -- almost back to a little bit of the '08 feel to it. But that being said, we had strong growth out of Nimsoft, we had strong growth out of ITKO. Our SaaS business grew well. So it was a little bit of a mix. But in general, clearly, it's not where we want it to be. In the Enterprise Solutions, we're looking for that business to continue to expand.

Matthew L. Williams - Evercore Partners Inc., Research Division

Great. That's helpful. And if I might, just a quick follow-up. I know you made some changes to the sales leadership in EMEA a couple of quarters ago. I'm just curious, I know it's a tough region right now, but are you pleased with sort of how the changes that you've put in place are progressing. Or is there still a fair amount of work to be done? Just some incremental color on EMEA would be helpful.

William E. McCracken

Yes, EMEA marketplace is a challenge, I think it is for everybody. It is for us as well too. The changes we've made have been the right changes. And we're seeing improvement, especially with respect to the relationships that have been built in the enterprise existing accounts, but also in identification of now the pipeline for the enterprise new. And if we look at the changes that you refer to, clearly, those have been the right changes and they are making a difference in the performance for us individually, but it is weighted down significantly by the macro environment over there.

Operator

And the next question is from John DiFucci of JPMorgan.

John S. DiFucci - JP Morgan Chase & Co, Research Division

Bill, in prepared remarks, you said you're closely inspecting the pipeline. And I just -- it seemed like you're doing something a little bit different than you've done in the past. I guess, what do you mean by that? And why should we be confident even with lower expectations you're going to be able to hit them?

William E. McCracken

That's a great question. We did mention at the end of last quarter that we put additional focus on that. The key piece of that though, frankly, is we're looking at the pipeline by segment now. And looking at it by segment, as you look at it in different ways by segment and you look at it and inspect for different things as to what the close time would be. So the pipeline clarity by segment is much better. It is building, and the quality of it is building. But also, as we look at it, especially when you think of it, for example, in the enterprise new or in some of the growth areas, some of the things that needed to be done for it to close are then identified. And as a result of that, where we may have had it setting in the second quarter or third quarter, we might now have it setting in our third or fourth quarter. So we've always inspected it before, but we're down to a level of detail now, the way we follow with that, with both Rich and George, primarily because of the segment orientation. And it does give us good confidence into what's building there. And the thing that has been, I guess, the amplifier on the delay really has been the macroeconomic environment because it lengthens the decision cycle, John.

John S. DiFucci - JP Morgan Chase & Co, Research Division

Okay. So Rich is also involved in this pipeline inspection?

Richard J. Beckert

Yes. George and I, together, do a deep dive of all 21 regions on a regular basis. It gets very up close and personal. And I think what we're seeing is a very structured way that we collectively go for and have the pipeline progress. And I think collectively as a team, we're coming up with much better metrics as to when deals should be viewed as 20%, 40%, 80%. And I think that all led into, John -- George and I saying, we think there's certain sections of certain geographies or certain product lines because they have longer sales cycles, like you heard. Security is a great example, right? When you win, you win big, but it's a longer cycle. So those kinds of things into a large new or into some of the growth markets I think has given us better insight. I think taking down the number, which I'm sure a lot of people said, "Well, your 2Q really wasn't that far off," it really is all about our trust in the pipeline going forward.

Operator

The next question is from Phil Winslow of Crédit Suisse.

Sitikantha Panigrahi - Crédit Suisse AG, Research Division

This is Siti Panigrahi for Phil Winslow. So could you comment on the trends in the Mainframe segment and your expectations going forward with the release of this new IBM mainframe?

William E. McCracken

Mainframe. Yes, I think a couple of things on the Mainframe side. So you heard on our prepared remarks that the new product sales in the Mainframe was up 10%. That's driven, frankly, by some of the investments we've been making now for the last 1 year, 1.5 years in our product set that we call the Chorus products and our tools that we provide in that area. And that's helping to improve our revenue in that area. We look at a 90% renewal rate as we do the renewals on those. And then I think the final piece of that is when you look at the capacity piece of Mainframe, it is largely driven by the customers' increased volumes or increased demand. There's been times in the past, for example, in the financial industry, which is important to us, where we've been the recipient benefits of large banks buying smaller banks. And then that load is transferred onto that, and that has pushed some of that capacity. I think what we're seeing now across probably all segments is that there appears to be a reduction of the demand that those people have. That reduction in demand is impressing them to put capacity on. So that is, I think, one of the key pieces that we see happening with respect to capacity. And then a final point would be that competitive win back. I think a lot of the new tools that we provide in the mainframe area, we are now winning in the mainframe marketplace, and that's adding to our revenue as well. So does that answer your question?

Richard J. Beckert

If I could just add one thing. I think what we see is a slowing down of the growth. It's not a statement that there's a lessening of demand. And that really is back on some of the financial institutions, I think, because of the pressures they're under. They're not going to put as much headroom out ahead of them. And so they're buying a little bit closer to what their base business is growing at. That's just something we'll cycle back through and catch it later. That was my point earlier when I said why we're more comfortable at the 10% than when before we said in the mid-single digits, is we're seeing just a little bit smaller in total transactions as they're being cautious, which I think in their case, it goes back again to the economy.

Operator

The next question is from John DiFucci of JPMorgan.

John S. DiFucci - JP Morgan Chase & Co, Research Division

I guess the third time's a charm. But I guess just one question. It's one that I get asked a lot, so I figured I can ask it publicly. I guess in this, with all due respect to Bill, who I know remains very active here. I'm just curious, you had publicly announced in June that you had begun a succession plan for the CEO position. I just wonder if you can give us any update at all on that.

William E. McCracken

Actually, John, it's probably good that you do ask it because I get asked that question a lot as well. We did announce that both the board and I are working on a succession plan. We have no new update to that. Obviously, when we have announcement with that, we will make that known. But in the meantime, what you and everybody else should know, we are full steam ahead on what we've just talked to you about today with respect to where we are and where we're going. We are on offense. We're staying on offense, and that will not vary as we move into the transition whenever that occurs.

So I think then, let me wrap. I think I would make 3 points. First, we believe that market segmentation is the right strategy for CA Technologies. It is expanding us outside our current base, and that's what's going to allow us to grow and to be even more profitable. We will continue our focus on cost and expense, as I mentioned in my prepared remarks. And we expect to deliver a 200 basis point increase in our non-GAAP operating margin this year.

And finally, we understand what we have to do to close out the balance of this year. And with a careful focus on all the details of the sales execution we talked about, the segmentation implementation, we're going to continue that focus until we've met those objectives. Folks, thanks for hooking up with us.

Operator

Ladies and gentlemen, this concludes today's program. You may now disconnect. Good day.

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

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

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

Source: CA Technologies Management Discusses Q2 2013 Results - Earnings Call Transcript
This Transcript
All Transcripts