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Compuware (CPWR)

Q2 2013 Earnings Call

October 23, 2012 5:00 pm ET

Executives

Lisa Elkin

Robert C. Paul - Chief Executive Officer and Director

Joseph R. Angileri - President and Chief Operating Officer

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

Analysts

Stewart Materne - Evercore Partners Inc., Research Division

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

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

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Michael Latimore - Northland Capital Markets, Research Division

Presentation

Operator

Hello, and welcome to the Compuware Corporation Second Quarter Results Teleconference. By 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 Communication and Investor Relations for Compuware Corporation. Ms. Elkin, you may begin.

Lisa Elkin

Thank you very much, Carrie, 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 close with key financial information. We will then open the call to your questions. Bob?

Robert C. Paul

Thanks, Lisa. We're pleased that we met our guidance -- EPS guidance for Q2. However, there were both positives and negatives for the quarter. At the macro level, the growth drivers are doing well and positioned for continued strength moving forward. We did have some significant challenges in Europe. We're also challenged with a lackluster mainframe market. And as discussed earlier, this year represents a smaller number of mainframe renewal opportunities.

I will provide some color on these issues, and Joe and Laura will review the operating metrics and financials.

Our APM business had some significant bright spots and one specific headwind. Our Gomez SaaS bookings growth was 16% year-over-year. This is evidence that we are fixing the prior operational challenges we had with this segment, and all of our predictive measures show a strong pipeline moving forward.

Next, we achieved a 63% growth year-over-year in APM North American on-premise bookings. Additionally, sales cycles for APM solutions are beginning to shorten. We now see an increasing number of deals, opening and closing in the same quarter. Unfortunately, we had some very disappointing results in EMEA. This was both execution-related and delayed decisions in a tough market backdrop.

We've made leadership changes and are making sure that the successful programs we put in place in other parts of the world are followed with more discipline in Europe. Although the EMEA issue cannot be fixed within 1 quarter, I expect consistent improvements moving forward.

A couple of other comments on APM. I just returned from our first-ever global APM user conference, Perform. We saw incredible enthusiasm from our customers and prospects for Compuware APM. In particular, there's eager anticipation for our recently introduced APM innovations, including mobile streaming and web capabilities in Gomez to handle all performance management challenges at the edge of the application delivery chain. This is where a lot of the complexity challenges are impacting performance.

Next, mainframe APM. We are introducing a "first of its kind" visibility into mainframe performance, which I'll discuss more in a minute. Collective intelligence to give our customers competitive advantage based on our 8 million Gomez measurements per day, this capability measures cloud environments all over the world and allows customers to correlate their own application degradation to external cloud influences. And finally, Big Data functionality and pricing that will extend our lead in this booming market. We allow our customers to track the performance of their Big Data projects through supporting Hadoop and Cassandra environments.

Also, the feedback we received is that customers are beginning to think differently about the application performance challenge. Today's application delivery chain demands a new generation approach to APM, one that offers a single dashboard spanning virtual and cloud environments, cloud and mobile networks inside and outside of the data center, all from the user's perspective. Our customers need simple setup, rapid return on investment and answers more than they need, another piece of tooling that simply proliferates data smog. We are convinced that we're delivering solutions where the market is going, proactive, easy answers.

We expect our APM business to follow its usual seasonality trends with strength in Q3 and Q4, overcoming a normally soft Q2. Our rep productivity, which we measure on a dollars per rep basis is on target in North America and Asia Pac. That means double the productivity from this time last year. However, given the dramatic shortfall we experienced in Europe this quarter, we now expect our APM growth rate for the year to be closer to 16% year-over-year.

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