Compuware (CPWR) Earnings In Line, Revenues Miss Estimates

Compuware Corp. (CPWR) reported first quarter fiscal 2015 earnings of 3 cents per share, which were at par with the Zacks Consensus Estimate. Non-GAAP earnings (including stock based compensation) however declined 46.0% from the year-ago quarter.

Shares of Compuware were up 1.41% ($0.13) following the earnings release.

Revenues

Revenues decreased 2.9% from the year-ago quarter to $164.5 million in the reported quarter and missed the Zacks Consensus Estimate of $165.0 million by a whisker.

Segment-wise, APM increased 3.1% on a year-over-year basis to $77.4 million in the fourth quarter. Mainframe and Covisint, on the other hand, decreased 8.5% and 10.4% from the year-ago quarter to $65.5 million and $71.6 million, respectively in the reported quarter.

Management stated that dynaTrace continues to be the fastest growing APM product in the market. It provides significant competition to similar solutions from the likes of CA Technologies (CA) and Hewlett-Packard (HPQ).

With a win rate of greater than 70% against all competitors, new and old alike, it is expected that dynaTrace will continue to be Compuware’s flagship APM solution in fiscal year 2015 and beyond. Further, increased investment and go-to market strategies are expected to drive DCRUM and APMaaS growth going forward.

Compuware’s top-line also gained from robust performance of other APM products namely Gomez Performance Network and Data Center Real-User Monitoring solution.

Sourcewise, software license fees (16.2% of revenues) declined 15.2% on a year-over- year basis to $26.7 million in the first quarter. Maintenance fees (53.8% of revenues) and Service fees (5.3% of revenues) increased 1.5% and 9.7% on a year-over-year basis to $88.5 million and $8.4 million, respectively.

Subscription fees (11.8% of revenues) and Application Service fees (13.1% of revenues) declined 3.8% and 10.8% from the year ago quarter to 19.4 million and $21.6 million, respectively in the reported quarter.

All four geographic locations where the company operates namely, North America, EMEA, APAC and Latin America, experienced year-over-year bookings growth for the quarter.

In the quarter, Compuware introduced new capabilities to its Data Center Real-User Monitoring (:DCRUM) solution. During the quarter, the company formed a partnership with Emulex Corporation, a leader in network visibility, to announce the availability of the Endace Fusion Connector for Compuware APM’s DC Rum Solution.

The company is exploring the feasibility of separating its APM and Mainframe operations, which it believes would allow these very distinct businesses competing in diverse market categories to build on their leadership positions and thrive as independent entities.

Margins

Operating expenses as a percentage of revenues declined 150 basis points (bps) from the year-ago quarter to 66.9% in the reported quarter. Operating expenses exclude restructuring expenses, amortization of purchased software, and amortization of acquired intangible assets but include stock-based compensation.

The company reported an operating loss of $3.3 million in the first quarter compared to an operating profit of $3.0 million in the year-ago quarter.

Adjusted net income (excluding all one-time items but including stock based compensation) was $6.0 million or 3 cents per share compared to $10.9 million or 5 cents per share reported in the year-ago quarter.

Compuware Corporation - Earnings Surprise | FindTheBest

Balance Sheet

At the end of the first quarter of fiscal 2015, cash and cash equivalents amounted to $275.5 million, down from $300.1 million in the previous quarter. Long-term debt was nil in the reported quarter.

Outlook

For fiscal 2015, Compuware expects revenues in the range of $720.0 million to $735.0 million. The Zacks Consensus Estimate for the same is pegged at $764.0 million, which is much higher than the management guided range

Management reiterated its non-GAAP earnings outlook in the range of 41 cents - 45 cents per share. However, the Zacks Consensus Estimate for the same is pegged lower at 34 cents per share.

Management expects cash flow from operations to be in the range of $105.0 million to $110.0 million.

Although the Mainframe business reported a year-over-year decline in the fourth quarter, management believes it is stabilizing and has significant growth opportunities going forward.

Recommendation

Compuware reported decent fourth quarter results. The bottom line was in line with the Zacks Consensus Estimate while the top line missed the same. Management provided a lower revenue guidance. Compuware operates in an intensely competitive landscape and competes with the likes of International Business Machines Corp (IBM) with respect to one or more offerings.

Nevertheless, we believe that Compuware’s innovative product pipeline, initiatives to reduce costs and new program wins will boost profitability going forward. Moreover, the recent recognitions by analyst firms including Gartner and IDC for being a force to reckon with are a major positive.

Currently, Compuware has a Zacks Rank #3 (Hold).

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