CA Q4 2010 Earnings Call Transcript

CA Q4 2010 Earnings Call Transcript
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Q4 2010 Earnings Call

May 13, 2010 5:00 pm ET


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

Kelsey Doherty -

George Fischer - Executive Vice President of Global Sales, Client Services and Marketing

Nancy Cooper - Chief Financial Officer and Executive Vice President


Scott Zeller - Needham & Company, LLC

Matthew Hedberg - RBC Capital Markets Corporation

Michael Turits - Raymond James & Associates

Derek Bingham - Goldman Sachs Group Inc.

Philip Winslow - Crédit Suisse

Abhey Lamba - UBS

Katherine Egbert - Jefferies & Company, Inc.

John DiFucci - JP Morgan Chase & Co

Kirk Materne - Banc of America Securities



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Good day, everyone, and welcome to the CA Incorporated Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] At this time, I'd like to turn the conference over to Kelsey Doherty, Vice President of Investor Relations. Please go ahead.

Kelsey Doherty

Thank you, and good afternoon, everyone. Welcome to CA's fourth quarter and full year fiscal 2010 earnings call. Joining me today are Bill McCracken, our Chief Executive Officer; and Nancy Cooper, our Chief Financial Officer. Also on the call and available to answer questions is George Fischer, Executive Vice President, Global Sales and Marketing.

Bill will open the call with an overview of the fourth quarter and provide some product highlights. Then, Nancy will review the full year, provide details on our quarterly performance and give us full year 2011 guidance. Bill will open the call with an overview of the fourth quarter and provides some product highlights. Then, Nancy will review the full year, provide details on our quarterly performance and give fiscal year 2011 guidance. Bill will return with a few closing comments and we will take your questions.

As a reminder, this conference call is being broadcast on Thursday, May 13, 2010, over the telephone and the Internet. The information shared in this call is effective as of today's date and will not be updated. All content is a property of CA and is protected by U.S. and International Copyright Law and may not be reproduced or transcribed 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, as well as in our supplemental earnings materials, all of which are available on our website at

Today's discussion will include forward-looking statements subject to risks and uncertainties, and actual results could differ materially from those forward-looking statements. Please refer to our SEC filings for a detailed discussion of potential risks. So with that, let me turn the call over to Bill.

William McCracken

Thanks, Kelsey, and good afternoon, everyone. Thank you for joining us. As many of you know, I am just entering my fourth month in the CEO role, and it has been very busy. I have traveled extensively to Asia, Europe and across the U.S., meeting with our team and spending time with customers, talking to them about CA, our solutions and our strategic vision.

I remain more convinced than ever that the direction we have chose to take this company is the right one. While I will get into our strategy and vision, I first want to talk about our fourth quarter performance. I want you to understand how I view our results, and there are few puts and takes unique to the fourth quarter that I would like to highlight.

So let me start with revenue. Revenue of $1.1 billion was up 3% in constant currency and 7% as reported. North American revenue was $670 million, up 6% in constant currency and 7% as reported. International revenue was $433 million, down 3% in constant currency and up 6% as reported.

Weaker performance in EMEA earlier in fiscal 2010 contributed to this quarter's constant currency decrease in international revenue. As you know, revenue is a lagging indicator in CA's business model. To address our execution challenges in EMEA, we made some changes in the fall, appointing new leadership and bringing on new sales talent. I am encouraged that the fourth quarter sales of new software, excluding capacity, were the strongest we have seen in EMEA and more than a quarters. However, this story is not over, and we can do better.

We continued to upgrade talent in that region and refine our approach. Over time, I know we can increase the revenue contribution from our international markets. EMEA will be an important part of that evolution.

I want to note that we expect the lagging impact from EMEA week sales in the first half of fiscal 2010 to affect revenue in the first quarter of fiscal 2011. With first quarter revenue growth expected to be the trough for fiscal year 2011. The guidance Nancy will provide later indicates that we also expect revenue to accelerate in the back half of fiscal 2011.

Now let me turn to the operating expenses. Non-GAAP operating expenses were $846 million, up 9% on a constant-currency basis, and up 17% as reported. Non-GAAP operating margin was 23%, down from our low 30% range. The biggest driver of this non-GAAP expense increase was the $50 million restructuring we announced in early April. This equates to $0.06 per share in the quarter. This restructuring was necessary to reposition the company's operational capabilities to pursue our growth strategy, including virtualization management and cloud computing. Step like this allow us to invest in new products, new talent, new channels or to do so while preserving profitability.

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