Compuware Corporation Reports Fourth Quarter and Full Fiscal Year 2013 Results
Compuware Corporation Reports Fourth Quarter and Full Fiscal Year 2013 Results
- Non-GAAP EPS of 26 cents per share in FY '13, 5 cents per share in Q4, before charges for advisory fees, restructuring and goodwill impairment
- Total Q4 revenue is $239.9M, $944.5M for FY '13
- Compuware APM and Compuware Covisint total FY '13 revenues increase 11 percent and 23 percent year-over-year, respectively
- Identified $45M FY '14 G&A and Shared Services cost reductions; identified a minimum of $80M - $100M in total G&A and Shared Services cost reductions by end of FY '15
- Issues FY 2014 Outlook
Non-GAAP net income for the year was $57.3 million, or $0.26 per diluted share, compared to $88.4 million, or $0.40 per diluted share in fiscal 2012. As the result of restructuring charges, advisory fees and goodwill impairment associated with the company's margin-expansion initiatives and other company matters, fiscal 2013 results were negatively impacted. Consequently, GAAP net loss for the full fiscal year was $17.3 million, or $(0.08) per share, versus net income of $88.4 million, or $0.40 per diluted share in fiscal 2012.
Non-GAAP net income for the quarter was $10.8 million, or $0.05 per diluted share, compared to $27.1 million, or $0.12 per diluted share in the year-ago period. As the result of restructuring charges, advisory fees and goodwill impairment associated with the company's margin-expansion initiatives and other company matters, fourth quarter results were also negatively impacted. Consequently, GAAP net loss for the fourth quarter was $63.7 million, or $(0.30) per share, versus net income of $27.1 million, or $0.12 per diluted share in the year-ago period.
(Included in the financial tables is a reconciliation between non-GAAP and GAAP results.)
"While our fourth quarter results were a disappointment, as a large number of deals we had anticipated closing were pushed into the new fiscal year, we made great strides executing on our strategic initiatives to transform the company while positioning Compuware for improved profitability in 2014 and 2015," said Compuware CEO Bob Paul. "Additionally, we are making good on the shareholder value creative actions announced in January, as we have declared our first quarterly dividend, filed the S-1 registration statement with the SEC for the Covisint IPO and raised our cost-reduction expectations to $80-$100 million in the next two years.
"After further analysis, we now believe 60 percent of the deals that did not close in the fourth quarter will close in the first quarter of 2014 and the remaining will close by the end of the year. This reflects the strong demand we are seeing in the market for our APM and Mainframe for APM solutions. Going into 2014, we remain focused on rebalancing our portfolio with continued emphasis on our high-growth businesses, executing our cost reduction plan and driving better sales execution to position Compuware for value creation and sustained growth into the future."
Fiscal Year 2013 Results
During the fiscal year ended March 31, 2013:
- Total revenues were approximately $944.5 million, down approximately 6.5 percent from FY'12
- Software license fees were approximately $178.9 million, down approximately 19.0 percent from FY'12
- Maintenance fees were approximately $407.5 million, down approximately 4.7 percent from FY'12
- Subscription fees were approximately $82.4 million, up approximately 5.1 percent from FY'12
- Professional services revenues were approximately $185.0 million, down approximately 11.6 percent from FY'12
- Application services fees were approximately $90.7 million, up approximately 23.0 percent from FY'12
Fourth Quarter Fiscal Year 2013 Results
During the company's fourth quarter:
- Total revenues were approximately $239.9 million, down approximately 9.8 percent from Q4 last year
- Software license fees were approximately $48.4 million, down approximately 28.7 percent from Q4 last year
- Maintenance fees were approximately $100.0 million, down approximately 4.4 percent from Q4 last year
- Subscription fees were approximately $20.9 million, up approximately 3.2 percent from Q4 last year
- Professional services revenues were approximately $44.9 million, down approximately 13.4 percent from Q4 last year
- Application services fees were approximately $25.7 million, up approximately 20 percent from Q4 last year
Fiscal 2014 Expectations
The following outlook is driven by continued strength in the North American market for Compuware's growth businesses, stabilization of the European market and the continued focus on sales effectiveness and continued investment in technologies that will further differentiate Compuware solutions from the competition. Furthermore, growth in APM for Mainframe sales is expected to help offset any decline in sales of Compuware's traditional mainframe tools.
For fiscal 2014, Compuware expects the following:
- Total revenues of approximately $1.0 billion.
- GAAP earnings per share of $0.35 to $0.37 cents.
- Cash flow from operations of $150-$160 million.
- Cost reductions of $45 million.
Fourth Quarter Fiscal Year 2013 Highlights
During the fourth quarter, Compuware:
- Announced that ChinaCache, the leading solutions provider of Internet content and application delivery services in China, and Springer, a global scientific publisher, chose Compuware APM® to optimize application performance; and announced a partnership with Hortonworks, the leading vendor for open source Apache Hadoop distributions, to optimize Hadoop applications performance on the Hortonworks Data Platform.
- Entered into an agreement with Amdocs, the leading provider of customer experience systems and services, to be a supplier of APM for its production environments.
- Introduced Compuware APM AJAX Edition 4, the most advanced diagnostics tool enabling developers to diagnose performance issues across all browser versions in Internet Explorer and Firefox; and released Deep Transaction Management for PHP, the industry's only solution providing full visibility with deep code-level insight for automated problem resolution.
- Announced that Things Remembered, the nation's largest and most prominent retailer of personalized gifts, had a successful online holiday season in part as a result of the optimal performance of its website.
- Announced that analyst firm Ptak, Noel & Associates published a report praising the many benefits of Compuware APM for Mainframe.
- Launched Compuware Performance Pit Stop Service, a cost-effective and innovative service giving customers rapid access to Compuware APM experts to lower business and IT risk.
- Announced that Hyundai Motor America will use the Covisint platform to deliver a connected experience for consumers across web properties, mobile devices and within the vehicle.
- Launched Covisint Healthcare, a fully integrated healthcare solution enabling providers and payers to deliver better care and achieve increased revenues in today's outcomes-focused environment; and announced a new alliance with Milliman, Inc., a premier consulting and actuarial firm, that extends Covisint's population and risk management capabilities to help ACOs achieve their full potential.
- Released Covisint's "Direct" solution that enables secure, scalable point-to-point email-like messaging; and extended Covisint's Cloud Identity Services to make it easier, faster and more secure for organizations of all sizes to manage external identities and services.
- Enhanced Changepoint to deliver the next generation of business analytics, enhanced mobility and usability improvements in core areas.
- Announced a partnership with IBM to deliver IBM Business Analytics within Changepoint, providing businesses with growing, global services and IT organizations with access to advanced business analytics for smarter decision-making.
- Released enhancements to the Compuware Workbench, featuring faster and more efficient file and data management capabilities, as well as more robust debugging functionality, all designed to significantly boost developer productivity.
- Announced a partnership with EZLegacy, a leading provider of application understanding and measurement technology, that provides customers with cross-platform automated analysis and metrics throughout the application lifecycle.
Use of Non-GAAP Financial Measures
In an effort to provide investors with additional information regarding the Company's results as determined by U.S. generally accepted accounting principles (GAAP), the Company has also disclosed in this press release and the accompanying tables the following non-GAAP information: (a) non-GAAP operating income, (b) non-GAAP net earnings and (c) non-GAAP diluted earnings per share. Each of these financial measures excludes the impact of certain items and, therefore, has not been calculated in accordance with GAAP. These non-GAAP financial measures exclude share-based compensation expense; the amortization of intangible assets; a goodwill impairment charge; restructuring charges; advisory fees associated with certain shareholder actions; and the related tax impacts of these items. Each of the non-GAAP adjustments is described in more detail below. This press release also contains a reconciliation of each of these non-GAAP measures to its most comparable GAAP financial measure.
We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our operating results because they exclude amounts that management and the board of directors do not consider part of core operating results when assessing the performance of the organization. We believe that inclusion of these non-GAAP financial measures provides consistency and comparability with past reports of financial results and provides consistency in calculations by outside analysts reviewing our results. Accordingly, we believe these non-GAAP financial measures are useful to investors in allowing for greater transparency of supplemental information used by management.
While we believe that these non-GAAP financial measures provide useful supplemental information, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a comprehensive system of accounting and may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies. Items such as share-based compensation expense; the amortization of intangible assets; a goodwill impairment charge; restructuring charges; advisory fees associated with certain shareholder actions; and the related tax impacts of these items that are excluded from our non-GAAP financial measures can have a material impact on net earnings. As a result, these non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, net earnings, cash flow from operations or other measures of performance prepared in accordance with GAAP. We compensate for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reconciling the non-GAAP financial measures to their most comparable GAAP financial measure. Investors are encouraged to review the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures that are included elsewhere in this press release.
The following discusses the reconciling items from our non-GAAP financial measures to the most comparable GAAP financial measures:
Share-based compensation expense. Our non-GAAP financial measures exclude the compensation expenses required to be recorded by GAAP for equity awards to employees and directors. Management and the board of directors believe it is useful in evaluating corporate performance during a particular time period to review the supplemental non-GAAP financial measures, excluding expenses related to share-based compensation, because these costs are generally fixed at the time an award is granted, are then expensed over several years and generally cannot be changed or influenced by management once granted.
Amortization of intangible assets. Our non-GAAP financial measures exclude costs associated with the amortization of intangible assets. Management and the board of directors believe it is useful in evaluating corporate performance during a particular time period to review the supplemental non-GAAP financial measures, excluding amortization of intangible assets, because these costs are fixed at the time of an acquisition, are then amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition.
Goodwill impairment charge. Our non-GAAP financial measures exclude an impairment charge associated with a decline in the estimated fair value of our professional services business unit. Management and the board of directors believe it is useful in evaluating corporate performance during a particular time period to review the supplemental non-GAAP financial measures, excluding goodwill impairment to provide comparability and consistency with historical operating results.
Restructuring charges. Our non-GAAP financial measures exclude restructuring charges, and any subsequent changes in estimates, as they relate to our corporate restructuring and exit activities, including asset impairments resulting from a fourth quarter fiscal 2013 operational review. Management and the board of directors believe it is useful in evaluating corporate performance during a particular time period to review the supplemental non-GAAP financial measures, excluding restructuring charges, in order to provide comparability and consistency with historical operating results.
Advisory fees associated with certain shareholder actions. During the third quarter of fiscal 2013, the Company received an unsolicited, nonbinding offer to purchase the outstanding shares of the Company from a shareholder. The Company has incurred costs of approximately $3 million for unplanned consultant fees to review the offer, analyze the business and review additional requests for information from other interested parties. Management and the board of directors believe it is useful in evaluating corporate performance during a particular time period to review the supplemental non-GAAP financial measures, excluding such costs, in order to provide comparability and consistency with historical operating 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, 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 p.m. Eastern time (21:00 GMT). To join the conference call, interested parties in the United States should call 800-553-0358. For international access, the conference call number is +1-612-332-0228. No password is required.
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 287033. Additionally, investors can listen to the conference call via webcast by visiting the Compuware Corporation Investor Relations web site at http://www.compuware.com.
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|
|AS OF MARCH 31,|
|Cash and cash equivalents||$||89,873||$||99,180|
|Accounts receivable, net||424,587||455,427|
|Deferred tax asset, net||37,618||37,665|
|Income taxes refundable||4,951||14,807|
|Prepaid expenses and other current assets||36,210||34,279|
|Total current assets||593,239||641,358|
|PROPERTY AND EQUIPMENT, LESS ACCUMULATED|
|DEPRECIATION AND AMORTIZATION||302,492||321,991|
|CAPITALIZED SOFTWARE AND OTHER|
|INTANGIBLE ASSETS, NET||116,663||118,973|
|DEFERRED TAX ASSET, NET||31,754||40,672|
|LIABILITIES AND SHAREHOLDERS' EQUITY|
|Income taxes payable||14,507||3,919|
|Total current liabilities||555,080||586,972|
|LONG TERM DEBT||18,000||45,000|
|DEFERRED TAX LIABILITY, NET||63,650||82,161|
|Additional paid-in capital||713,580||685,904|
|Accumulated other comprehensive loss||(18,784||)||(10,550||)|
|Total shareholders' equity||998,226||1,049,937|
|TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY||$||1,973,282||$||2,167,538|
|COMPUWARE CORPORATION AND SUBSIDIARIES|
|CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS|
|(In Thousands, Except Per Share Data)|
|THREE MONTHS ENDED||TWELVE MONTHS ENDED|
|MARCH 31,||MARCH 31,|
|Software license fees||$||48,423||$||67,927||$||178,922||$||220,885|
|Professional services fees||44,856||51,781||185,011||209,184|
|Application services fees||25,713||21,429||90,694||73,731|
|Cost of software license fees||5,048||4,422||20,165||17,572|
|Cost of maintenance fees||8,431||9,763||35,084||38,670|
|Cost of subscription fees||8,304||7,477||31,127||29,669|
|Cost of professional services||41,633||46,129||163,713||182,625|
|Cost of application services||25,830||18,450||83,298||72,384|
|Technology development and support||26,125||26,262||105,800||104,968|
|Sales and marketing||67,321||76,265||251,925||273,520|
|Administrative and general||39,991||41,006||162,810||163,723|
|Total operating expenses||311,096||229,774||942,335||883,131|
|INCOME (LOSS) FROM OPERATIONS||(71,172||)||36,271||2,214||126,641|
|OTHER INCOME (EXPENSE), NET||(1,080||)||412||(1,170||)||1,633|
|INCOME (LOSS) BEFORE INCOME TAXES||(72,252||)||36,683||1,044||128,274|
|INCOME TAX PROVISION||(8,599||)||9,564||18,295||39,903|
|NET INCOME (LOSS)||$||(63,653||)||$||27,119||$||(17,251||)||$||88,371|
|DILUTED EPS COMPUTATION|
|Numerator: Net income (loss)||$||(63,653||)||$||27,119||$||(17,251||)||$||88,371|
|Weighted-average common shares outstanding||212,516||218,095||214,627||218,344|
|Dilutive effect of stock awards||-||3,660||-||4,034|