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Compuware Corporation Reports Second Quarter, Fiscal Year 2014 Results

Provision for income taxes on above pre-tax non-GAAP adjustments. Our non-GAAP financial measures exclude the tax impact of the above pre-tax non-GAAP adjustments. This amount is calculated using the tax rates of each country to which these pre-tax non-GAAP adjustments relate. Management excludes the non-GAAP adjustments on a net-of-tax basis in evaluating our performance. Therefore, we exclude the tax impact of these charges when presenting non-GAAP financial measures.

Compuware Corporation

Compuware Corporation, the technology performance company, provides software, experts and best practices to ensure technology works well and delivers value. Compuware solutions make the world’s most important technologies perform at their best for leading organizations worldwide, including 46 of the top 50 Fortune 500 companies and 12 of the top 20 most visited U.S. web sites. Learn more at: http://www.compuware.com.

Conference Call Information

Compuware will today hold a conference call to discuss these results at 5:30 p.m. Eastern time (21:00 GMT). To join the conference call, interested parties in the United States should call 800-228-8974. For international access, the conference call number is +1-612-332-0636. No password is required. Additionally, investors can listen to the conference call via webcast by visiting the Compuware Corporation Investor Relations web site. A conference call presentation is also available on the site.

A conference call replay will also be available. The United States replay number will be 800-475-6701, and the international replay number will be +1-320-365-3844. The replay passcode will be 303716.

Certain statements in this release 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 release. 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. Readers are cautioned to 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.

COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In Thousands)
   
AS OF SEPTEMBER 30,
ASSETS
2013 2012
CURRENT ASSETS:
Cash and cash equivalents $ 50,372 $ 63,516
Accounts receivable, net 381,892 365,143
Offering proceeds receivable 68,448
Deferred tax asset, net 42,837 39,413
Income taxes refundable 4,628 9,930
Prepaid expenses and other current assets   33,365     31,884  
Total current assets 581,542 509,886
 
 
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 295,264 319,472
 
CAPITALIZED SOFTWARE AND OTHER
INTANGIBLE ASSETS, NET 111,162 117,395
 
ACCOUNTS RECEIVABLE 191,208 199,574
DEFERRED TAX ASSET, NET 30,351 37,973
GOODWILL 732,265 794,989
OTHER ASSETS   28,688     35,789  
 
TOTAL ASSETS $ 1,970,480   $ 2,015,078  
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
CURRENT LIABILITIES:
Accounts payable $ 16,894 $ 17,296
Accrued expenses 92,969 82,389
Income taxes payable 18,266 5,490
Deferred revenue   387,878     399,103  
Total current liabilities 516,007 504,278
 
LONG TERM DEBT 14,000 59,300
 
DEFERRED REVENUE 285,119 300,695
 
ACCRUED EXPENSES 18,274 24,726
 
DEFERRED TAX LIABILITY, NET   52,769     84,193  
Total liabilities   886,169     973,192  
 
SHAREHOLDERS' EQUITY:
Common stock 2,157 2,148
Additional paid-in capital 799,647 693,556
Retained earnings 268,937 362,648
Accumulated other comprehensive loss   (7,539 )   (16,466 )
Total Compuware shareholders' equity 1,063,202 1,041,886
Non-controlling interest   21,109     -  
Total shareholders' equity   1,084,311     1,041,886  
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 1,970,480   $ 2,015,078  
COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
       
 
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
 
2013 2012 2013 2012
REVENUES:
Software license fees $ 35,710 $ 31,674 $ 71,116 $ 65,668
Maintenance fees 100,500 102,197 199,028 205,146
Subscription fees 20,651 20,231 41,436 40,710
Professional services fees 46,716 45,954 95,412 94,106
Application services fees   24,525     20,542     48,626     41,129  
Total revenues   228,102     220,598     455,618     446,759  
 
OPERATING EXPENSES:
Cost of software license fees 5,632 4,904 11,038 9,729
Cost of maintenance fees 7,724 9,068 15,945 18,014
Cost of subscription fees 8,656 7,827 16,803 15,220
Cost of professional services 37,610 40,085 77,959 82,386
Cost of application services 33,689 18,989 57,950 36,710
Technology development and support 24,125 27,549 50,660 54,046
Sales and marketing 53,450 56,641 112,943 118,831
Administrative and general 35,093 38,361 73,321 78,086
Restructuring costs   233     -     5,345     -  
Total operating expenses   206,212     203,424     421,964     413,022  
 
INCOME FROM OPERATIONS 21,890 17,174 33,654 33,737
 
OTHER INCOME, NET   185     (87 )   387     (35 )
 
INCOME BEFORE INCOME TAXES 22,075 17,087 34,041 33,702
 
INCOME TAX PROVISION   6,889     6,493     8,888     12,640  
 
NET INCOME 15,186 10,594 25,153 21,062
 
Less: Net income (loss) attributable to the
non-controlling interest in Covisint Corporation   (1,154 )   -     (1,154 )   -  
 
NET INCOME ATTRIBUTABLE TO COMPUWARE CORP $ 16,340   $ 10,594   $ 26,307   $ 21,062  
 
DILUTED EPS COMPUTATION
Numerator: Net income $ 16,340   $ 10,594   $ 26,307   $ 21,062  
Denominator:
Weighted-average common shares outstanding 214,926 215,633 214,287 216,566
Dilutive effect of stock awards   5,503     4,337     5,720     4,142  
Total shares   220,429     219,970     220,007     220,708  
Diluted EPS $ 0.07   $ 0.05   $ 0.12   $ 0.10  
COMPUWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
   
SIX MONTHS ENDED
SEPTEMBER 30,
2013 2012
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 25,153 $ 21,062
Adjustments to reconcile net income to cash provided
by operations:
Depreciation and amortization 32,501 31,126
Stock award compensation 25,312 15,179
Deferred income taxes (16,450 ) 4,812
Other 42 269
Net change in assets and liabilities, net of effects from
currency fluctuations:
Accounts receivable 33,366 90,397
Prepaid expenses and other assets 5,640 4,535
Accounts payable and accrued expenses (24,180 ) (41,426 )
Deferred revenue (58,934 ) (114,452 )
Income taxes   4,634     4,820  
Net cash provided by operating activities   27,084     16,322  
 
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of:
Property and equipment (5,953 ) (12,977 )
Capitalized software (11,649 ) (15,583 )
Other   (275 )   (1,400 )
Net cash used in investing activities   (17,877 )   (29,960 )
 
CASH FLOWS USED IN FINANCING ACTIVITIES:
Proceeds from borrowings 37,500 87,300
Payments on borrowings (41,500 ) (73,000 )
Net proceeds from exercise of stock awards including excess tax benefits 15,333 8,676
Employee contribution to common stock purchase plans 1,235 1,427
Repurchase of common stock (6,415 ) (44,828 )
Dividends (53,629 ) -
Other   (608 )   -  
Net cash used in financing activities   (48,084 )   (20,425 )
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (624 )   (1,601 )
 
NET CHANGE IN CASH AND CASH EQUIVALENTS (39,501 ) (35,664 )
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   89,873     99,180  
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 50,372   $ 63,516  
COMPUWARE CORPORATION AND SUBSIDIARIES
OPERATIONAL HIGHLIGHTS
(Dollar Amounts In Thousands)
     
QUARTER
ENDED
SEP 30, YR - YR
2013 2012 % Chg
Total Product Software Revenue by Geography
North America $ 90,358 $ 88,809 1.7 %
International 66,503 65,293 1.9 %
 
Deferred License Fees
Current $ 15,263 $ 17,747 (14.0 %)
Long-term 9,426 8,774 7.4 %
 
Deferred Maintenance
Current $ 294,910 $ 299,037 (1.4 %)
Long-Term 251,137 257,798 (2.6 %)
 
Deferred Subscription
Current $ 41,358 $ 46,602 (11.3 %)
Long-Term 7,042 10,549 (33.2 %)
 
Deferred Professional Services $ 22,358 $ 22,190 0.8 %
 
Deferred Application Services $ 31,503 $ 37,101 (15.1 %)
 
 
Other:
Total Company Headcount 4,338 4,567 (5.0 %)
 
Total DSO (Billed) 66.0 64.9
Total DSO 150.7 148.9
 
 
Stock-based compensation expense
 
Cost of maintenance fees $ 170 $ 235 (27.7 %)
Cost of subscription fees 1 18 (94.4 %)
Cost of professional services 93 68 36.8 %
Cost of application services 10,020 387 2489.1 %
Technology development and support 530 730 (27.4 %)
Sales and marketing 808 1,403 (42.4 %)
Administrative and general   3,253   4,049 (19.7 %)
 
Total stock-based compensation expense before income taxes $ 14,875 $ 6,890 115.9 %
COMPUWARE CORPORATION AND SUBSIDIARIES
BUSINESS UNIT RESULTS OF OPERATIONS
(In Thousands)
                 
Covisint Unallocated
Professional Application Expenses
Quarter Ended: APM Changepoint Mainframe Uniface Services Services & Eliminations Total
 
September 30, 2013
 
Software license fees $ 24,256 $ 958 $ 8,335 $ 2,161 - - - $ 35,710
Maintenance fees 24,394 4,247 64,425 7,434 - - - 100,500
Subscription fees 19,931 720 - - - - - 20,651
Professional services fees 6,796 3,202 31 986 $ 36,013 - $ (312 ) 46,716
Application services fees   -     -     -     -     -   $ 24,525     -     24,525  
Total revenues 75,377 9,127 72,791 10,581 36,013 24,525 (312 ) 228,102
 
Total operating expenses   68,757     8,827     17,324     4,694     28,918     34,362     43,330     206,212  
 
Income (loss) from operations $ 6,620   $ 300   $ 55,467   $ 5,887   $ 7,095   $ (9,837 ) $ (43,642 ) $ 21,890  
Contribution margin % 8.8 % 3.3 % 76.2 % 55.6 % 19.7 % (40.1 %) 9.6 %
 
Operating expenses include:
Stock awards compensation $ 1,796 $ 4 $ (315 ) $ 5 $ 72 $ 10,020 $ 3,293 $ 14,875
Amortization of purchased software $ 2,296 $ - $ - $ - $ - $ 94 $ - $ 2,390
Amortization of other acquired intangible assets $ 1,707 $ - $ - $ - $ - $ 96 $ - $ 1,803
 
 
September 30, 2012
 
Software license fees $ 17,942 $ 2,068 $ 9,773 $ 1,891 - - - $ 31,674
Maintenance fees 22,410 4,052 68,378 7,357 - - - 102,197
Subscription fees 19,544 687 - - - - - 20,231
Professional services fees 7,184 3,317 674 1,095 $ 33,684 - - 45,954
Application services fees   -     -     -     -     -   $ 20,542     -     20,542  
Total revenues 67,080 10,124 78,825 10,343 33,684 20,542 - 220,598
 
Operating expenses   74,059     10,752     20,284     4,606     28,138     20,051   $ 45,534     203,424  
 
Income (loss) from operations   (6,979 )   (628 )   58,541     5,737     5,546     491     (45,534 )   17,174  
Contribution margin % (10.4 %) (6.2 %) 74.3 % 55.5 % 16.5 % 2.4 % 7.8 %
 
Operating expenses include:
Stock awards compensation $ 1,651 $ 15 $ 550 $ 10 $ 42 $ 387 $ 4,235 $ 6,890
Amortization of purchased software $ 2,224 $ - $ - $ - $ - $ 148 $ - $ 2,372
Amortization of other acquired intangible assets $ 1,826 $ - $ - $ - $ - $ 113 $ - $ 1,939
COMPUWARE CORPORATION AND SUBSIDIARIES
BUSINESS UNIT RESULTS OF OPERATIONS
(In Thousands)
                 
Covisint Unallocated
Professional Application Expenses
Six Months Ended: APM Changepoint Mainframe Uniface Services Services & Eliminations Total
 
September 30, 2013
 
Software license fees $ 46,267 $ 3,154 $ 18,067 $ 3,628 - - - $ 71,116
Maintenance fees 48,098 8,374 127,883 14,673 - - - 199,028
Subscription fees 40,063 1,373 - - - - - 41,436
Professional services fees 14,398 6,771 100 2,110 $ 72,999 - (966 ) 95,412
Application services fees   -     -     -     -     -   $ 48,626     -     48,626  
Total revenues 148,826 19,672 146,050 20,411 72,999 48,626 (966 ) 455,618
 
Total operating expenses   142,803     19,141     36,500     9,864     59,550     59,785     94,321     421,964  
 
Income (loss) from operations $ 6,023   $ 531   $ 109,550   $ 10,547   $ 13,449   $ (11,159 ) $ (95,287 ) $ 33,654  
Contribution margin % 4.0 % 2.7 % 75.0 % 51.7 % 18.4 % (22.9 %) 7.4 %
 
Operating expenses include:
Stock awards compensation $ 4,619 $ 7 $ 219 $ 10 $ 136 $ 10,506 $ 9,815 $ 25,312
Amortization of purchased software $ 4,573 $ - $ - $ - $ - $ 188 $ - $ 4,761
Amortization of other acquired intangible assets $ 3,400 $ - $ - $ - $ - $ 195 $ - $ 3,595
 
September 30, 2012
 
Software license fees $ 40,299 $ 2,861 $ 18,823 $ 3,685 - - - $ 65,668
Maintenance fees 43,175 8,182 138,924 14,865 - - - 205,146
Subscription fees 39,396 1,314 - - - - - 40,710
Professional services fees 15,379 6,761 967 2,271 $ 68,728 - - 94,106
Application services fees   -     -     -     -     -   $ 41,129     -     41,129  
Total revenues 138,249 19,118 158,714 20,821 68,728 41,129 - 446,759
 
Operating expenses   150,155     20,441     43,129     10,025     57,058     38,067   $ 94,147     413,022  
 
Income (loss) from operations $ (11,906 ) $ (1,323 ) $ 115,585   $ 10,796   $ 11,670   $ 3,062   $ (94,147 ) $ 33,737  
Contribution margin % (8.6 %) (6.9 %) 72.8 % 51.9 % 17.0 % 7.4 % 7.6 %
 
Operating expenses include:
Stock awards compensation $ 3,155 $ 30 $ 1,511 $ 37 $ 115 $ 709 $ 9,622 $ 15,179
Amortization of purchased software $ 4,483 $ - $ - $ - $ - $ 296 $ - $ 4,779
Amortization of other acquired intangible assets $ 3,677 $ - $ - $ - $ - $ 225 $ - $ 3,902
COMPUWARE CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP
(In Thousands, Except Per Share Data)
       
 
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
2013 2012 2013 2012
 
NET INCOME $ 16,340   $ 10,594   $ 26,307   $ 21,062  
 
STOCK COMPENSATION (EXCLUDING RESTRUCTURING

STOCK COMPENSATION) NET OF NON-CONTROLLING INTEREST

12,985 6,890 21,631 15,179
AMORTIZATION OF PURCHASED SOFTWARE,

NET OF NON-CONTROLLING INTEREST

2,389 2,372 4,759 4,779
AMORTIZATION OF ACQUIRED INTANGIBLES,

NET OF NON-CONTROLLING INTEREST

1,801 1,939 3,594 3,902
RESTRUCTURING EXPENSES 233 - 5,345
ADVISORY FEES 1,977 - 3,133
               
TOTAL ADJUSTMENTS 19,385 11,201 38,462 23,860
INCOME TAX EFFECT OF ADJUSTMENTS (7,280 ) (3,489 ) (13,907 ) (7,531 )
               
NON-GAAP NET INCOME $ 28,445   $ 18,306   $ 50,862   $ 37,391  
                             
 
DILUTED EARNINGS PER SHARE - GAAP $ 0.07   $ 0.05   $ 0.12   $ 0.10  
 
STOCK COMPENSATION (EXCLUDING RESTRUCTURING

STOCK COMPENSATION) NET OF NON-CONTROLLING INTEREST

0.06 0.03 0.10 0.07
AMORTIZATION OF PURCHASED SOFTWARE,

NET OF NON-CONTROLLING INTEREST

0.01 0.01 0.02 0.02
AMORTIZATION OF ACQUIRED INTANGIBLES,

NET OF NON-CONTROLLING INTEREST

0.01 0.01 0.02 0.02
RESTRUCTURING EXPENSES 0.00 - 0.02
ADVISORY FEES 0.01 - 0.01
               
TOTAL ADJUSTMENTS 0.09 0.05 0.17 0.11
INCOME TAX EFFECT OF ADJUSTMENTS (0.03 ) (0.02 ) (0.06 ) (0.04 )
               
NON-GAAP DILUTED EPS $ 0.13   $ 0.08   $ 0.23   $ 0.17  
 
DILUTED SHARES OUTSTANDING   220,429     219,970     220,007     220,708  

Source:Compuware

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