) reported third-quarter fiscal 2014 earnings of 15 cents per
share, which beat the Zacks Consensus Estimate by 3 cents.
Non-GAAP earnings (including stock based compensation) grew 25.0%
from the year-ago quarter. The strong year-over-year growth was
primarily driven by lower cost and improving margins. Moreover,
in the third quarter, the company added more than 300 net new
customers, which is a clear indicator of strong market share
Revenues decreased 2.9% from the year-ago quarter but increased
10.0% on a sequential basis to $250.5 million. However, revenues
missed the Zacks Consensus Estimate of $257.0 million.
The year-over-year improvement was primarily driven by strong
performance at segments like APM (up 11.2%), Covisint (up 1.1%),
Professional services (up 4.3%) and Changepoint (up 4.2%), which
offset tepid growth at the Uniface (down10.8%) and Mainframe
(down 18.8%) segments.
Management stated that dynaTrace is continuously gaining market
traction as an APM product. The product continues to provide
significant competition to solutions from the likes of
Compuware's top-line growth also gained from robust performance
of other APM products, namely, Gomez Performance Network and Data
Center Real-User Monitoring solution.
Although the Mainframe business reported a year-over-year decline
in the third quarter, management believes it is stabilizing and
has significant growth opportunities going forward.
Regarding Professional services, Compuware remains cautious due
to macroeconomic headwinds in the market.
Operating expenses as a percentage of revenues declined 230 basis
points (bps) from the year-ago quarter and 850 bps from the
previous quarter. Operating expenses exclude restructuring
expenses, amortization of purchased software, and amortization of
acquired intangible assets but include stock-based compensation.
APM's and Changepoint's contribution margins were 20.0% and 3.3%
respectively in the quarter. Mainframe's contribution margin was
a healthy 76.0% while Uniface's contribution margin went down 720
bps from the year-ago quarter. Professional services contribution
margin rose 300 bps from the year-ago quarter.
Non-GAAP operating margin improved 230 bps from the year-ago
quarter to 17.7% due to lower-than-expected rise in operating
expenses. Net income margin went up 440 bps from the year-earlier
quarter to 13.7%.
At the end of the third quarter of fiscal 2014, cash and cash
equivalents amounted to $108.9 million, up from $50.4 million in
the previous quarter. There was no long-term debt at the end of
For fiscal 2014, Compuware expects revenues in the range of
$915.0-$925.0 million. However, management reiterated its
non-GAAP earnings outlook, which is expected to be in the 47-49
cents per share range. However, the Zacks Consensus estimate for
fiscal 2014 stands at $0.38 per share, which happens to be lower
than the mid-point of the management guidance range.
Management expects to increase the cost saving target to
$110.0-$120.0 million from the previous target of $80.0-$100.0
million, to be achieved in fiscal 2015. Compuware expects APM to
grow 9.0% in the fiscal year.
Compuware reported mixed third-quarter results. Management also
slashed its revenue guidance primarily due to sluggish IT
spending and challenges in Europe. Compuware operates in an
intensely competitive landscape and competes with the likes of
) with respect to one or more offerings.
Nevertheless, we believe that Compuware's innovative product
pipeline, initiatives to reduce costs and new program wins will
boost profitability going forward. Recently, Compuware is
concentrating more on cost rationalization methods such as
divesting some of its low profit churning businesses like
Changepoint, Uniface and Professional Services segments in an
attempt to enhance profitability.
Currently, Compuware carries a Zacks Rank #3 (Hold).
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