Compuware Corp (
reported second quarter fiscal 2014 earnings of 9 cents per
share, which beat the Zacks Consensus Estimate by 3 cents.
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Earnings (including stock-based compensation and related tax
effect) jumped 49.6% from the year-ago quarter and 31.8% from the
previous quarter. The strong earnings growth was primarily driven
by lower cost and improving margins.
Revenues increased 3.4% from the year-ago quarter but remained
almost flat sequentially at $228.1 million. However, revenues
missed the Zacks Consensus Estimate of $231.0 million.
The year-over-year growth was primarily driven by strong
performance from APM (up 12.4%), Covisint (up 19.4%),
professional services (up 6.3%) and Uniface (up 3.2%), which
offset weak growth in Mainframe (down 7.7%) and Changepoint (down
In the quarter, APM earned software license fees of $24.3
million, up 35.0% from the year-ago quarter. Management stated
that dynaTrace continues to be the fastest growing APM product in
the market, with revenues expected to cross $100.0 million this
dynaTrace continues to provide significant competition to the
products from companies such as
CA Technologies (
. 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 year-over-year decline
in the second quarter, management believes it is stabilizing and
has significant growth opportunities going forward. Mainframe
renewal rate remained strong in the low-to-mid 90% range.
Changepoint's year-over-year decline in sales was primarily
attributed to the postponement of some sizeable deals to the
third quarter. However, Compuware believes that the solid
pipeline of opportunities and steady increase in its
Software-as-a-Service (SaaS) offerings will boost the segment's
top-line growth going forward.
Regarding Professional services, the company remains cautious due
to macro-economic headwinds in the market. However, the strong
result in the Uniface segment driven by solid revenue growth in
Latin America and Asia is expected to offset weakness in Europe
During the quarter, Compuware completed the initial public
offering (IPO) of 7.36 million shares of its subsidiary Covisint
Corp. Management stated that it remains committed to the
distribution of the remaining 80.0% of its holdings to
shareholders within the next 6 to 12 months.
Operating expenses as a percentage of revenues declined 180 basis
points (bps) from the year-ago quarter and 230 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 and Changepoint's contribution margins were 8.8% and 3.3%
respectively in the quarter. Mainframe's contribution margin
improved 190 bps, while Uniface's contribution margin inched up
10 bps from the year-ago quarter. Professional services
contribution margin surged 320 bps from the year-ago quarter.
Operating margin (including stock based compensation expense)
improved 180 bps from the year-ago quarter and 230 bps from the
previous quarter due to lower-than-expected rise in operating
expenses. Net income margin increased 380 bps from the year-ago
quarter and 150 bps sequentially.
At the end of the second quarter of fiscal 2014, cash and cash
equivalents amounted to $50.4 million, down from $81.3 million in
the previous quarter. Long-term debt stood at $14.0 million
compared with $15.0 million in the previous quarter.
Compuware expects revenues in the range of $965.0 million to
$985.0 million (down from $1.004 billion to $1.012 billion).
However, management reiterated its non-GAAP earnings outlook,
which is expected to be in the range of 47 cents - 49 cents per
The company expects to save $40.0-$45.0 million in costs in
fiscal 2014. Management expects to save $80.0 to $100.0 million
in costs by fiscal 2016.
Compuware expects APM to grow 9.0% in the fiscal year instead of
15.0% projected earlier. However, revenues from Mainframe are
expected to decline 7% instead of 5.0% in fiscal 2014.
Compuware reported mixed second quarter results. Management also
provided lower 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
International Business Machines Corp (
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.
Currently, Compuware has a Zacks Rank #3 (Hold).