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Compuware (CPWR)

Q3 2013 Earnings Call

January 22, 2013 5:00 pm ET


Lisa Elkin

Robert C. Paul - Chief Executive Officer and Director

Joseph R. Angileri - President and Chief Operating Officer

Laura L. Fournier - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Treasurer


Stewart Materne - Evercore Partners Inc., Research Division

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

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division



Hello, and welcome to the Compuware Corporation Third Quarter Results Conference Call. At the request of Compuware, this conference is being recorded for instant replay purposes.

At this time, I'd like to turn the conference over to Ms. Lisa Elkin, Senior Vice President of Communications and Investor Relations for Compuware. Ms. Elkin, you may begin.

Lisa Elkin

Thank you very much, Doug, and good afternoon, ladies and gentlemen.

With me this afternoon are Bob Paul, Chief Executive Officer; Joe Angileri, President and Chief Operating Officer; and Laura Fournier, Executive Vice President and Chief Financial Officer.

Certain statements made during this conference call that are not historical facts, including those regarding the company's future plans, objectives and expected performance, are forward-looking statements within the meaning of the federal securities laws. These forward-looking statements represent our outlook only as of the date of this conference call. While we believe any forward-looking statements we have made are reasonable, actual results could differ materially since the statements are based on our current expectations and are subject to risks and uncertainties. These risks and uncertainties are discussed in the company's reports filed with the Securities and Exchange Commission. You should refer to and consider these factors when relying on such forward-looking information.

The company does not undertake and expressly disclaims any obligation to update or alter its forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law.

I will now turn the call over to Bob, who will provide a summary of the quarter's results. Joe will then highlight business unit operating results, followed by Laura, who will discuss key financial information. We will then open the call to your questions. Bob?

Robert C. Paul

Thank you, Lisa, and good afternoon, all. We delivered strong results for the third quarter of 2013 with earnings increasing to $0.12 per share compared to $0.10 in the third quarter of 2012. This $0.12 includes approximately $0.01 also of EPS related to certain one-time charges.

In terms of revenue, we generated $257.9 million in third quarter 2013 revenues, an increase of 2% year-over-year. We are pleased to report that our growth businesses, in particular, delivered revenue growth year-over-year, with Covisint growing 28% and APM growing 18% year-over-year. The strength of our growth businesses and more consistent execution are driving these results and positioning us for strong performance going forward.

Today, I want to start by highlighting the progress we are making in our transition towards higher growth areas before discussing the performance of each business. Joe and Laura will review the operating metrics and financials.

As most of you know, we are gaining momentum in the transformation of our company. That was started several years ago to drive profitable growth and deliver value to shareholders by moving more momentum to higher growth, market-leading capabilities. The last few years have been about investment and innovation and it is beginning to pay off. Today, more than 40% of our total revenues come from these higher growth businesses, which is a dramatic improvement over the prior years. Next fiscal year, we will easily surpass the 50% mark.

As a result, we are currently a leader in growth market sectors with a narrowed and defined focus on select categories, where we can continue to exert leadership and leverage our competitive advantages. We have a highly differentiated competitive position, which was further strengthened by successful acquisitions and is driving market share gains in APM. And we are an emerging leader in the fast-growing cloud computing and SaaS categories. While we have had some post acquisition operational challenges, we have confronted those issues head on and are seeing strong results. My charge is to continue to drive accelerated improvements in margins through both revenue growth, as well as cost-cutting initiatives.

Our APM business helped drive our strong performance this quarter. The business delivered 18% year-over-year growth and almost 27% compared to the second quarter. This was driven by the strength of the enterprise licensing business, which was almost up 40% year-over-year and 89% sequentially. APM had an $8 million positive contribution margin this quarter, representing an $18 million increase year-over-year.

DynaTrace is performing well, beyond our expectations, and the Gomez SaaS business was up 4%. While this is a modest growth for Gomez, this is an area of intense focus by our leadership team and you should expect improvement in coming quarters.

This quarter we witnessed the replacement of legacy vendors at an accelerated pace. And our momentum in winning new business continued with significant customer additions. We are not only taking market share away from the large systems management companies, we are bidding the smaller players with our integrated solution offerings. These types of solutions, which require simple setup, deliver rapid return on investment and enhance the entire application delivery chain are driving the redefinition of how our customers approach APM.

Our customers on the broader marketplace continue to express enthusiasm regarding our Compuware APM solutions, as well as our APM innovations, which include outage tracker, outage analyzer, new Big Data solutions, a new mobile web kit and a new native mobile ADK, not to mention APM for Mainframe, which I'll review later in the discussion. All these new offerings provide greater differentiation, more value and access to new markets.

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