EXHIBIT 99.2
COMPUWARE
Host: Lisa Elkin
April 18, 2007/5:00 p.m. EDT
Page 1
COMPUWARE
April 18, 2007
5:00 p.m. EDT
Moderator Hello and welcome to the Compuware Corporation Teleconference.
At the request of Compuware, this conference is being recorded
for instant replay purposes. At this time I would like to turn
the conference over to Miss Lisa Elkin, Vice President of
Communications and Investor Relations for Compuware
Corporation. Miss Elkin, you may begin.
L. Elkin Thank you very much, Gloria, and good afternoon, ladies and
gentlemen. With me this afternoon are Peter Karmanos, Chairman
and Chief Executive Officer; Laura Fournier, Senior 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.
For those of you who do not have a copy, I will begin by
summarizing the press release. Pete will then provide details
about the quarter and other
COMPUWARE
Host: Lisa Elkin
April 18, 2007/5:00 p.m. EDT
Page 2
Compuware business matters. We will then open the call to your
questions.
Compuware Corporation announces preliminary financial results.
Compuware posts strong year-over-year increase in distributor
products revenue, achieves year-over-year growth in total
revenue and EPS. Compuware today announced preliminary results
for its fourth quarter and fiscal year ended March 31, 2007.
Compuware expects earnings per share of approximately $0.17
for the fourth quarter and $0.42 for the fiscal year.
Cash flow from operations for the quarter and the fiscal year
will be approximately $110 million and $204 million
respectively. Compuware estimates fourth quarter revenue to be
approximately $313 million, based on software license revenue
of approximately $73 million, software maintenance revenue of
approximately $118 million and professional services revenue
of approximately $122 million.
I would now like to turn the call over to Pete.
P. Karmanos Thanks, Lisa. Compuware has just concluded a solid fourth
quarter. The company delivered quarterly and annual increases
in revenue for distributed products, maintenance and
professional services. Compuware also held the line in its
mainframe business, closing some significant long-term deals
during the quarter.
In fact, in fiscal 2007, we actually generated an increase in
year-over-year revenue for the first time in seven years. Yet
the strong product sales activity during the fourth quarter is
not reflected in the license revenue number. In fact, at $73
million, it might appear to be just the opposite. However, as
Compuware's software transactions continue to increase in
complexity, the traditional metric of software license fees
only shows you part of the story. Allow me to give you an
example.
At the end of the fourth quarter, Compuware signed a large
software deal with a well-known financial services company.
This deal totaled nearly $16 million in license fees and
maintenance for five years, a significant commitment in
today's environment. However, none of the revenue associated
with this deal can be recognized in the fourth quarter. Let me
say that again. None of the revenue associated with this deal
was recognized in the fourth quarter. Due to certain licensing
terms we had in
COMPUWARE
Host: Lisa Elkin
April 18, 2007/5:00 p.m. EDT
Page 3
the contract, the license fees will be recognized ratably,
along with maintenance, over the next five years.
As Compuware continues to emphasize solution selling,
long-term and nuanced deals of this nature are becoming more
and more common, it is more likely that the increasing numbers
of software transactions will be recognized ratably over the
maintenance term. This is nothing new to anybody that's
followed this business, but the fact of the matter is, we try
to predict what the license fees are from quarter to quarter.
It becomes very difficult in the last week, if your auditors
decided because you had a specific word or sentence in the
contract, that you can't recognize it this quarter, we're
going to recognize it ratably. It makes a significant
difference in your ability to forecast. It makes absolutely no
difference to the company revenue-wise over that term.
Since Compuware software revenue becomes more ratable and
because maintenance is every bit as important as license fees
and a lot more profitable, we believe investors should
evaluate the company's total product commitments for any
period. We provided this total product sales figure in today's
press release. Compuware's total product sales figure contains
all business closed during the period, whether booked as
license fees or maintenance revenue, deferred license fees or
deferred maintenance.
By including all these sales metrics, this number provides the
investment community with a much clearer gauge of the amount
of software sales activity in a given period. It also
facilitates fairer historical comparisons. The value to
Compuware and to its investors of closing a multi-year
mainframe maintenance deal is just as great as the value of
closing a new distributed products deal.
For the year, Compuware generated total product commitments of
approximately $701 million, up slightly from the previous
year. For the fourth quarter, the company delivered total
product sales of about
$225 million, down less than 2% from the same quarter previous
year. Given the current environment, I believe the total
product sales figure offers our investors another metric for
evaluating Compuware's software business. We will continue to
provide this information going forward.
I am pleased with the level of activity in the software
business this quarter. I'm also happy to report the company
exceeded quarterly and annual
COMPUWARE
Host: Lisa Elkin
April 18, 2007/5:00 p.m. EDT
Page 4
expectations for EPS and again delivered strong operating cash
flow. I look forward to providing you with more detail on the
achievements of the quarter and the bright prospects that we
all have for fiscal '08 on our May 15th conference call.
I'm now happy to answer any questions you might have about
these preliminary results. Please keep in mind, and our
accounting people have warned me several times, the company
has not yet completed its annual audit, so I have limited
specifics to share at this time. Lisa?
L. Elkin Thank you very much, Pete. Ladies and gentlemen, we will now
be happy to take your questions.
Moderator And we have a question from Aaron Schwartz with J.P. Morgan.
Please go ahead.
A. Schwartz Good afternoon. I had a question on the distributed business.
And I was wondering if you could help us out in terms of the
recognition issues that you spoke about. Is that primarily on
the mainframe side, or were there any atypical deals on the
distributed side that caused higher deferral rates in the
quarter?
P. Karmanos There are some deals on the distributed side, but it's mainly
in the mainframe area that we get into those situations.
A. Schwartz Okay. And then the $225 million in the product commitments or
bookings in the quarter, could you just talk about where that
came in versus your expectations, as that seems a better
metric to look at as you see different default rates quarter
to quarter?
P. Karmanos Our expectations, I think, are a number greater than that. We
should have done about $230 million to $232 million, but it
was still a solid performance. The shocker to me was the
financial services deal with the $16 million. Even though we
counted in that total products thing, it still makes your new
license number look more anemic than it should.
A. Schwartz Understood. And I was also wondering if you had any comment on
the quarterly results on a geographic basis, particularly how
Europe held up after your Q3.
COMPUWARE
Host: Lisa Elkin
April 18, 2007/5:00 p.m. EDT
Page 5
P. Karmanos No, we're just the opposite of what .... North America was
fine and dandy and our European revenue was where we had a
miss if we had a miss.
A. Schwartz In terms of the earnings, the $0.17, to reconcile that back,
was there any settlement income from IBM recognized in the
quarter?
P. Karmanos Laura, go ahead.
L. Fournier There was about $10 million that will be included in other
income.
A. Schwartz And then you also had the $12 million on top of that from
ForeSees, is that correct?
L. Fournier Yes.
A. Schwartz And then on the cash flow, I was wondering if you could help
me out with the tax adjustment. Was that a benefit to your
cash flow in the quarter for a full $12 million or can you
help me out with that?
L. Fournier That would have been non-cash flow item at this point because
we haven't settled anything in dollars yet.
A. Schwartz So that is not included at all in the $200 million, roughly,
in the press release.
L. Fournier The $200 million is operating cash flow.
A. Schwartz Understood. And then lastly, I was wondering if you could
comment now, a few weeks into the new fiscal year, in terms of
planning or timing or scope of the restructuring activities
that you spoke about on your last call.
P. Karmanos We're moving along. When we talk about next year, we can talk
about where we think the expenses will end up along with the
revenue and why we think we're going to do that kind of EPS
that we're going to announce.
A. Schwartz Okay. And the last question for me, I was wondering if you
could tell us about how much stock you purchased in the
quarter.
P. Karmanos Go ahead, Laura.
COMPUWARE
Host: Lisa Elkin
April 18, 2007/5:00 p.m. EDT
Page 6
L. Fournier During the fourth quarter, we purchased 30.5 million shares
for $278,000,738. Year-to-date, it was about 82 million shares
at $683.9 million.
A. Schwartz Okay, great. Thanks for taking my questions.
L. Fournier Thank you.
Moderator And we have a question from the line of Kirk Materne with Banc
of America. Please go ahead.
K. Materne Thanks. Pete, just a quick follow-up on just the restructuring
question. Are the plans for that in place already and you're
just not ready to share that with the investment community, or
are you still going through some of the details around that?
P. Karmanos We're still going through some of the details and I guess I
could talk about it, but I would rather do that in May when we
have the audit in and all the annual plan totally firmed up.
K. Materne Okay, so we should expect to get more details on that on the
May 15th call.
P. Karmanos You will get more detail than you desire.
K. Materne Okay, that's great. And, Laura, sorry, just a housekeeping on
after the buyback, what share count should we be thinking
about for this quarter? Do you have that handy?
L. Fournier I don't know that I have that right here, but it should be
around 320 million. I'll double-check that and let you know.
K. Materne And then just on the service business, I guess that revenue
line seems to be in line with at least our expectations.
What's the margin doing there, the trends around that? Did you
see any sort of improvement in the gross margin on the service
revenue side?
P. Karmanos We really can't, Kirk. We think it's been improving, but we're
in the middle of doing the audit and we prefer to firm up
those kind of details on our May 15th call.
COMPUWARE
Host: Lisa Elkin
April 18, 2007/5:00 p.m. EDT
Page 7
K. Materne Okay. And then just last question, any sort of changes since
the fiscal year ended around management on the sales side or
anything like that? Or is there any? It seems like you felt
pretty comfortable with the pace of business in the quarter,
so do you feel pretty comfortable heading in the New Year at
least with the executive team?
P. Karmanos How am I supposed to answer that question, Kirk?
K. Materne I guess you can answer in May, if you want.
P. Karmanos Yes, I feel we still have some sales execution problems, and
we're working very, very hard on those.
K. Materne Okay. That's about it for me, thanks.
P. Karmanos You're welcome.
Moderator And there are no further questions at this time. We will now
conclude the question and answer portion of today's conference
call.
L. Elkin At this time, ladies and gentlemen, we will adjourn this
conference call. Thank you very much for your time and
interest in Compuware and we hope you have a pleasant evening.
Moderator Ladies and gentlemen, this conference will be available for
replay after 8:30 p.m. today through April 25th. You may
access the AT&T Teleconference Replay System at any time by
dialing 1-800-475-6701 and entering the access code 871498.
International participants may dial 320-365-3844. That does
conclude our conference for today. Thank you for your
participation. You may now disconnect.