Compuware Management Discusses Q1 2013 Results - Earnings Call Transcript

Compuware (CPWR)

Q1 2013 Earnings Call

July 24, 2012 5:00 pm ET

Executives

Lisa Elkin

Robert C. Paul - Chief Executive Officer and Director

Joseph Angileri - President and Chief Operating Officer

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

Analysts

Stewart Materne - Evercore Partners Inc., Research Division

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

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

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

Michael Latimore - Northland Capital Markets, Research Division

Jeremy Kahan

Presentation

Operator

Hello, and welcome to the Compuware Corporation First Quarter Earnings Release Teleconference. 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 Corporation. Ms. Elkin, you may begin.

Lisa Elkin

Thank you very much, Tom, 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. Showered by strong growth in our APM and Covisint business units, along with a continued focus on the bottom line, Compuware produced a solid first quarter, with $0.05 in EPS and $226 million in revenue. We've established a solid platform for achieving our full year guidance. However, strictly due to expected currency headwinds, we are revising EPS down to $0.02 -- to $0.43 to $0.47 and revenue to the $1.04 billion to $1.05 billion range. To make these goals, we will maintain disciplined execution with a focus on margin attainment in each of our business units as revenues ramp over the course of the year, particularly in the second half. The Compuware APM business unit delivered 28% year-over-year increase in total revenues in Q1, with strong results across every product category. We landed 197 new APM customers this quarter, more than half from the enterprise side of the business. License revenue increased more than 95% from last year, driven by dynaTrace revenue and by renewed momentum from our DC RUM solution. SaaS revenues grew more than 6%, a number we expect to trend higher in the coming quarters toward 20% long-term. Our success in Compuware APM is driven by 2 primary factors: significant product differentiation that meets the needs of modern APM; and increased organizational focus.

The Compuware APM spring relieves a number of key pains our customers feel with the market's traditional approaches to APM. Our customers don't have 6 months to deploy nor do they have the staff to manually configure software every time they change infrastructure. They demand flexibility, agility and visibility across an entirely new environment for delivering modern applications. None of the traditional vendors in this space can meet these requirements, and our momentum and increasing win rates show that Compuware can.

With numerous industry firsts, the spring release has solidified our position as the unquestioned leader in this market category. We've extended our DC RUM offering, so our customers can overcome the math and complexity of the edge of the Internet, which is being driven by web, mobile and streaming apps. This is an entry-level requirement for modern APM. Simultaneously, our customers tell us that DC RUM is now much easier to implement and dashboard, resulting in more rapid time to value. And more than half of our wins in this category is all legacy solutions from the traditional systems management companies. We broadened dynaTrace to provide deep transaction monitoring for dynamic cloud and Big Data environments like Cassandra NoSQL and Hadoop Map/Reduce. The new autopopulating dashboards and smart analytics meet major challenges for operations team and provide clear differentiation against the niche competitions. Our new Gomez SaaS portal offers elite forwarding usability and our IPv6 support clearly differentiates us from the competition. Expect additional market leadership through specific Gomez offerings for the cloud and Big Data trends soon.

Finally, by converging network and application performance probes into a single platform, we're investing where the market is going. A simplified, broad convergence of application and network performance management.

Our spring releases were extremely significant, and believe it or not, we have just as compelling introductions coming out in the fall, creating even broader competitive gap and strengthening our next-generation APM platform. Our targeted sales approach introduced last October has provided clarity for our buyers, our separate sales teams are working very well and we still have the ability to capitalize on cross-selling opportunities where we see synergies. For example, this quarter, about half of our Q1 dynaTrace revenues came from DC RUM customers. Having said that, our cross-selling has really only just begun, as we are less than 10% cross-penetrated through our existing customer base.

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