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TheStreet Open House

Compuware Corporation Reports Third 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 is the technology performance company, and we exist solely to help our customers optimize the performance of their most important and innovative technologies—those that drive their businesses forward. Today, more than 7,100 companies, including many of the world’s largest organizations, depend on Compuware and our new-generation approach to performance management to do just that . 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 800-553-0349. For international access, the conference call number is +1-612-332-7516. 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 312917.

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 DECEMBER 31,
ASSETS
2013     2012
CURRENT ASSETS:
Cash and cash equivalents $ 108,897 $ 64,884
Accounts receivable, net 466,669 449,964
Deferred tax asset, net 42,859 38,669
Income taxes refundable 9,552 3,693
Prepaid expenses and other current assets   33,600   32,377
Total current assets 661,577 589,587
 
PROPERTY AND EQUIPMENT, LESS ACCUMULATED
DEPRECIATION AND AMORTIZATION 292,872 314,404
 
CAPITALIZED SOFTWARE AND OTHER
INTANGIBLE ASSETS, NET 109,648 119,041
 
ACCOUNTS RECEIVABLE 181,636 190,613
DEFERRED TAX ASSET, NET 29,289 36,254
GOODWILL 735,411 799,823
OTHER ASSETS   26,675   35,202
 
TOTAL ASSETS $ 2,037,108 $ 2,084,924
 
LIABILITIES AND SHAREHOLDERS' EQUITY
 
CURRENT LIABILITIES:
Accounts payable $ 25,610 $ 13,509
Accrued expenses 113,061 98,171
Income taxes payable 8,737 14,883
Deferred revenue   408,505   413,446
Total current liabilities 555,913 540,009
 
LONG TERM DEBT - 70,000
 
DEFERRED REVENUE 304,721 311,036
 
ACCRUED EXPENSES 15,549 29,139
 
DEFERRED TAX LIABILITY, NET   64,666   84,648
Total liabilities   940,849   1,034,832
 
SHAREHOLDERS' EQUITY:
Common stock 2,178 2,121
Additional paid-in capital 812,342 692,133
Retained earnings 265,099 368,445
Accumulated other comprehensive loss   (4,213)   (12,607)
Total Compuware shareholders' equity 1,075,406 1,050,092
Non-controlling interest   20,853   -
Total shareholders' equity   1,096,259   1,050,092
 
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 2,037,108 $ 2,084,924
 
COMPUWARE CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In Thousands, Except Per Share Data)
 
 
    THREE MONTHS ENDED     NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
       
2013 2012 2013 2012
REVENUES:
Software license fees $ 56,694 $ 64,831 $ 127,810 $ 130,499
Maintenance fees 101,600 102,341 300,628 307,487
Subscription fees 21,733 20,793 63,169 61,503
Professional services fees 46,378 46,049 141,790 140,155
Application services fees   24,109   23,852   72,735   64,981
Total revenues   250,514   257,866   706,132   704,625
 
OPERATING EXPENSES:
Cost of software license fees 5,366 5,388 16,404 15,117
Cost of maintenance fees 7,670 8,639 23,615 26,653
Cost of subscription fees 8,430 7,603 25,233 22,823
Cost of professional services 38,278 39,694 116,237 122,080
Cost of application services 28,618 20,758 86,568 57,468
Technology development and support 22,516 25,629 73,176 79,675
Sales and marketing 65,670 65,773 178,613 184,604
Administrative and general 40,325 44,733 113,646 122,819
Restructuring costs   3,737   -   9,082   -
Total operating expenses   220,610   218,217   642,574   631,239
 
INCOME FROM OPERATIONS 29,904 39,649 63,558 73,386
 
OTHER INCOME, NET   2,960   (55)   3,347   (90)
 
INCOME BEFORE INCOME TAXES 32,864 39,594 66,905 73,296
 
INCOME TAX PROVISION   8,874   14,254   17,762   26,894
 
NET INCOME 23,990 25,340 49,143 46,402
 
Less: Net income (loss) attributable to the
non-controlling interest in Covisint Corporation   (1,032)   -   (2,186)   -
 
NET INCOME ATTRIBUTABLE TO COMPUWARE CORP $ 25,022 $ 25,340 $ 51,329 $ 46,402
 
DILUTED EPS COMPUTATION
Numerator: Net income $ 25,022 $ 25,340 $ 51,329 $ 46,402
Denominator:
Weighted-average common shares outstanding 216,856 212,836 215,146 215,318
Dilutive effect of stock awards   4,705   4,036   5,530   4,153
Total shares   221,561   216,872   220,676   219,471
Diluted EPS $ 0.11 $ 0.12 $ 0.23 $ 0.21
 
COMPUWARE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
 
    NINE MONTHS ENDED
DECEMBER 31,
2013     2012
CASH FLOWS PROVIDED BY OPERATING ACTIVITIES:
Net income $ 49,143 $ 46,402
Adjustments to reconcile net income to cash provided
by operations:
Depreciation and amortization 48,294 49,358
Stock award compensation 32,526 20,663
Deferred income taxes (4,484) 6,172
Other (5,396) 552
Net change in assets and liabilities, net of effects from
currency fluctuations:
Accounts receivable (40,679) 17,140
Prepaid expenses and other assets 7,066 4,608
Accounts payable and accrued expenses 3,438 (24,868)
Deferred revenue (18,161) (91,181)
Income taxes   (12,503)   20,122
Net cash provided by operating activities   59,244   48,968
 
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchase of:
Property and equipment (11,518) (18,241)
Capitalized software (18,879) (24,817)
Other   (275)   (1,400)
Net cash used in investing activities   (30,672)   (44,458)
 
CASH FLOWS USED IN FINANCING ACTIVITIES:
Proceeds from borrowings 51,000 142,800
Payments on borrowings (69,000) (117,800)
Net proceeds from exercise of stock awards including excess tax benefits 30,285 11,965
Employee contribution to common stock purchase plans 1,812 2,046
Repurchase of common stock (8,903) (76,366)
Dividends (80,808) -
IPO proceeds 68,448 -
Other   (1,397)   -
Net cash used in financing activities   (8,563)   (37,355)
 
EFFECT OF EXCHANGE RATE CHANGES ON CASH   (985)   (1,451)
 
NET CHANGE IN CASH AND CASH EQUIVALENTS 19,024 (34,296)
 
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD   89,873   99,180
 
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 108,897 $ 64,884
 
COMPUWARE CORPORATION AND SUBSIDIARIES
OPERATIONAL HIGHLIGHTS
(Dollar Amounts In Thousands)
           
QUARTER
ENDED
DEC 31, YR - YR
2013 2012 % Chg
Total Product Software Revenue by Geography
North America $ 98,541 $ 106,211 (7.2 %)
International 81,486 81,754 (0.3 %)
 
Deferred License Fees
Current $ 16,497 $ 19,451 (15.2 %)
Long-term 8,762 10,276 (14.7 %)
 
Deferred Maintenance
Current $ 311,907 $ 310,450 0.5 %
Long-Term 273,763 269,275 1.7 %
 
Deferred Subscription
Current $ 43,401 $ 48,315 (10.2 %)
Long-Term 6,336 8,333 (24.0 %)
 
Deferred Professional Services $ 23,049 $ 22,322 3.3 %
 
Deferred Application Services $ 29,511 $ 36,060 (18.2 %)
 
 
 
Other:
Total Company Headcount 4,357 4,579 (4.8 %)
 
Total DSO (Billed) 89.5 83.9
Total DSO 167.7 157.0
 
 
 
Stock-based compensation expense
 
Cost of maintenance fees $ - $ 164 (100.0 %)
Cost of subscription fees (54 ) (47 ) 14.9 %
Cost of professional services 67 65 3.1 %
Cost of application services 3,765 396 850.8 %
Technology development and support (27 ) 468 (105.8 %)
Sales and marketing 1,152 1,328 (13.3 %)
Administrative and general 1,861 3,110 (40.2 %)
Restructuring costs   450     -   N/A
 
Total stock-based compensation expense before income taxes $ 7,214   $ 5,484   31.5 %
 
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
 
December 31, 2013
 
Software license fees $ 39,761 $ 3,019 $ 11,436 $ 2,478 - - - $ 56,694
Maintenance fees 26,094 4,139 63,616 7,751 - - - 101,600
Subscription fees 20,982 751 - - - - - 21,733
Professional services fees 7,767 3,165 41 1,061 $ 34,644 - $ (300 ) 46,378
Application services fees   -     -     -     -     -   $ 24,109     -     24,109  
Total revenues 94,604 11,074 75,093 11,290 34,644 24,109 (300 ) 250,514
 
Total operating expenses   76,127     10,704     18,196     5,499     28,457     29,322     52,305     220,610  
 
Income (loss) from operations $ 18,477   $ 370   $ 56,897   $ 5,791   $ 6,187   $ (5,213 ) $ (52,605 ) $ 29,904  
Contribution margin % 19.5 % 3.3 % 75.8 % 51.3 % 17.9 % (21.6 %) 11.9 %
 
Operating expenses include:
Stock awards compensation $ 740 $ 3 $ 190 $ 5 $ 61 $ 3,766 $ 2,449 $ 7,214
Amortization of purchased software $ 1,894 $ - $ - $ - $ - $ 94 $ - $ 1,988
Amortization of other acquired intangible assets

$

1,728 $ - $ - $ - $ - $ 77 $ - $ 1,805
 
 
December 31, 2012
 
Software license fees $ 33,938 $ 2,684 $ 24,743 $ 3,466 - - - $ 64,831
Maintenance fees 23,369 4,139 67,048 7,785 - - - 102,341
Subscription fees 20,130 663 - - - - - 20,793
Professional services fees 7,624 3,137 673 1,413 $ 33,202 - - 46,049
Application services fees   -     -     -     -     -   $ 23,852     -     23,852  
Total revenues 85,061 10,623 92,464 12,664 33,202 23,852 - 257,866
 
Operating expenses   76,773     10,951     24,727     5,254     28,264     21,664  

 

50,584     218,217  
 
Income (loss) from operations

$

8,288  

$

(328 )

$

67,737  

$

7,410  

$

4,938  

$

2,188  

$

(50,584 )

$

39,649  
Contribution margin % 9.7 % (3.1 %) 73.3 % 58.5 % 14.9 % 9.2 % 15.4 %
 
Operating expenses include:
Stock awards compensation $ 680 $ 12 $ 606 $ 6 $ 45 $ 396 $ 3,739 $ 5,484
Amortization of purchased software $ 2,272 $ - $ - $ - $ - $ 148 $ - $ 2,420
Amortization of other acquired intangible assets $ 1,758 $ - $ - $ - $ - $ 113 $ - $ 1,871
 
COMPUWARE CORPORATION AND SUBSIDIARIES
BUSINESS UNIT RESULTS OF OPERATIONS
(In Thousands)
               
Covisint Unallocated
Professional Application Expenses
Nine Months Ended: APM Changepoint Mainframe Uniface Services Services & Eliminations Total
 
December 31, 2013
 
Software license fees $ 86,028 $ 6,173 $ 29,503 $ 6,106 - - - $ 127,810
Maintenance fees 74,192 12,513 191,499 22,424 - - - 300,628
Subscription fees 61,045 2,124 - - - - - 63,169
Professional services fees 22,165 9,936 141 3,171 $ 107,643 - (1,266 ) 141,790
Application services fees   -     -     -     -     -   $ 72,735     -     72,735  
Total revenues 243,430 30,746 221,143 31,701 107,643 72,735 (1,266 ) 706,132
 
Total operating expenses   218,930     29,845     54,696     15,363     88,007     89,107     146,626     642,574  
 
Income (loss) from operations $ 24,500   $ 901   $ 166,447   $ 16,338   $ 19,636   $ (16,372 ) $ (147,892 ) $ 63,558  
Contribution margin % 10.1 % 2.9 % 75.3 % 51.5 % 18.2 % (22.5 %) 9.0 %
 
Operating expenses include:
Stock awards compensation $ 5,360 $ 9 $ 409 $ 16 $ 196 $ 14,271 $ 12,265 $ 32,526
Amortization of purchased software $ 6,467 $ - $ - $ - $ - $ 282 $ - $ 6,749
Amortization of other acquired intangible assets $ 5,128 $ - $ - $ - $ - $ 272 $ - $ 5,400
 
December 31, 2012
 
Software license fees $ 74,237 $ 5,545 $ 43,566 $ 7,151 - - - $ 130,499
Maintenance fees 66,544 12,321 205,972 22,650 - - - 307,487
Subscription fees 59,526 1,977 - - - - - 61,503
Professional services fees 23,003 9,898 1,640 3,684 $ 101,930 - - 140,155
Application services fees   -     -     -     -     -   $ 64,981     -     64,981  
Total revenues 223,310 29,741 251,178 33,485 101,930 64,981 - 704,625
 
Operating expenses   226,928     31,392     67,856     15,279     85,322     59,731   $ 144,731     631,239  
 
Income (loss) from operations $ (3,618 ) $ (1,651 ) $ 183,322   $ 18,206   $ 16,608   $ 5,250   $ (144,731 ) $ 73,386  
Contribution margin % (1.6 %) (5.6 %) 73.0 % 54.4 % 16.3 % 8.1 % 10.4 %
 
Operating expenses include:
Stock awards compensation $ 3,834 $ 42 $ 2,118 $ 42 $ 160 $ 1,105 $ 13,362 $ 20,663
Amortization of purchased software $ 6,755 $ - $ - $ - $ - $ 444 $ - $ 7,199
Amortization of other acquired intangible assets $ 5,435 $ - $ - $ - $ - $ 338 $ - $ 5,773
 
COMPUWARE CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP
(In Thousands, Except Per Share Data)
           
 
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
2013 2012 2013 2012
 
NET INCOME $ 25,022 $ 25,340 $ 51,329 $ 46,402
 
STOCK COMPENSATION (EXCL. RESTRUCTURING & IMPACT OF NON-CONTROLLING INTEREST) 6,021 5,484 27,652 20,663
AMORTIZATION OF PURCHASED SOFTWARE,(EXCL. IMPACT OF NON-CONTROLLING INTEREST) 1,970 2,420 6,729 7,199
AMORTIZATION OF ACQUIRED INTANGIBLES (EXCL. IMPACT OF NON-CONTROLLING INTEREST) 1,789 1,871 5,383 5,773
RESTRUCTURING EXPENSES (EXCL. IMPACT OF NON-CONTROLLING INTEREST) 3,681 - 9,026 -
ADVISORY FEES 7,305 146 10,438 146
               
TOTAL ADJUSTMENTS 20,766 9,921 59,228 33,781
INCOME TAX EFFECT OF ADJUSTMENTS (7,745) (3,002) (21,652) (10,533)
               
NON-GAAP NET INCOME $ 38,043 $ 32,259 $ 88,905 $ 69,650
                             
 
DILUTED EARNINGS PER SHARE - GAAP $ 0.11 $ 0.12 $ 0.23 $ 0.21
 
STOCK COMPENSATION (EXCL. RESTRUCTURING & IMPACT OF NON-CONTROLLING INTEREST) 0.03 0.03 0.13 0.09
AMORTIZATION OF PURCHASED SOFTWARE,(EXCL. IMPACT OF NON-CONTROLLING INTEREST) 0.01 0.01 0.03 0.03
AMORTIZATION OF ACQUIRED INTANGIBLES (EXCL. IMPACT OF NON-CONTROLLING INTEREST) 0.01 0.01 0.02 0.03
RESTRUCTURING EXPENSES (EXCL. IMPACT OF NON-CONTROLLING INTEREST) 0.02 - 0.04 -
ADVISORY FEES 0.03 - 0.05 -
               
TOTAL ADJUSTMENTS 0.09 0.05 0.27 0.15
INCOME TAX EFFECT OF ADJUSTMENTS (0.03) (0.01) (0.10) (0.05)
               
NON-GAAP DILUTED EPS $ 0.17 $ 0.15 $ 0.40 $ 0.32
 
DILUTED SHARES OUTSTANDING   221,561   216,872   220,676   219,471
 
COMPUWARE CORPORATION
RECONCILIATION OF GAAP TO NON-GAAP
(In Millions)
                     
 
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, VARIANCE % DECEMBER 31, VARIANCE %
2013 2012 2013 2012
 
OPERATING EXPENSES (GAAP) $ 220.6 $ 218.2 1.1 % $ 642.6 $ 631.2 1.8 %
 
Less:
Advisory fees 7.3 0.1 10.4 0.1
Restructuring expenses 3.7 - 9.1 -
Stock compensation related to Covisint IPO performance options 3.4 - 13.0
               
NON-GAAP OPERATING EXPENSES $ 206.2 $ 218.1 -5.5 % $ 610.1 $ 631.1 -3.3 %
 

Source:Compuware

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