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Compuware Earnings Beat (Reduced) Street Estimates

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Compuware headquarters in downtown Detroit

Compuware headquarters in downtown Detroit

DETROIT — The software and IT services provider Compuware Corp. (Nasdaq: CPWR) Tuesday reported net income of $25.3 million or 12 cents a share in the third fiscal quarter ended Dec. 31, up from $21.6 million or 10 cents in the same quarter a year ago.

But the company’s managers refused to discuss a recent $11-a-share buyback offer in a conference call with investors, analysts and journalists after the earnings announcement.

The earnings total was a penny above a reduced Wall Street estimate of 11 cents a share, according to WallStreetCheatSheet.com. Three months ago, the Web site said, the earnings estimate was 14 cents.

Revenue for the quarter was $257.9 million, up from $253.1 million a year earlier.

Revenue bright spots included application performance management revenue, which rose 18 percent to $85.1 million. Revenue for the quarter at Covisint, the company’s secure collaboration and communication service, rose 28 percent from a year earlier to $23.9 million in the quarter.

“Our results reflect the progress we are making in our business transformation, as our two growth businesses experienced year-over-year revenue growth and margin improvement,” Compuware CEO Bob Paul said in a statement. “We have stabilized the mainframe business and continue to generate significant revenue and cash flow to fund investments and innovation in our growth businesses. Mainframe revenue grew 17 percent quarter-over-quarter, and we expect our new Compuware APM for mainframe offering to meaningfully contribute to our mainframe earnings going forward. At the same time, we continued to extend our competitive advantages beyond Mainframe into higher-growth, market-leading capabilities.”

Paul noted that more than 40 percent of Compuware revenue now come from those higher-growth businesses, not its legacy mainframe software business.

Paul added that Compuware’s board of directors is “in the process of carefully reviewing” an $11-a-share proposal from New York City-based Elliott Management Corp. He indicated the board will meet later this week to conclude its review and plans to respond very shortly to the proposal.

Compuware stock rose 6 cents a share or 0.5 percent during regular trading Tuesday to $11.06 a share. In after-hours trading it rose 29 cents or 2.6 percent to $11.35 a share, well above the Elliott offer.

In a conference call with investors and journalists Tuesday evening, Paul noted that “we are gaining momentum in the transformation of our company that was started several yaers ago to drive profitable growth and deliver value to shareholders by moving more momentum to higher growth market leading capabilities… Today, more than 40 percent of our total revenues comes from these higher growth businesses, which is a dramatic improvement over prior years. Next fiscal year we will easily surpass the 50 percent mark. Ws a result we are currently a leader in growth market sectors with a narrowed and defined focus on select categories where we can continue to exert leadership and leverage our competitive advantages.”

Paul also said Compuware addressed a sales execution glitch in its Europe-Middle East-Africa region from the prior quarter, producing a 58 percent increase in revenue from a year earlier.

CFO Laura Fournier reported operating cash flow of $32.6 million for the quarter and $49 million for the nine months, after buying back 3.3 million shares or $30 million worth of its own stock in the quarter and 8.2 million shares or $76 million for the nine months.

Speaking broadly of the company’s performance, Paul said: “While this quarter’s results are encouraging, we are intently focused on accelerating the pace to more aggressively drive both revenue growth and enhanced efficiencies going forward to generate increased value for our shareholders.”

As to Elliott’s offer, he said: “Our board is in the process of carefully reviewing their proposal. They will be meeting later this week and plan to respond very shortly. We will therefore not be addressing questions regarding Elliott’s proposal during this Q&A.”

Most questions from analysts in the Q&A dealt with details of the company’s improved performance, attempting to ascertain whether the quarter’s improved momentum can be sustained.

A replay of the conference call is available at http://investor.compuware.com/events.cfm.

Compuware noted that during the company’s third quarter, software license fees were $64.8 million, up from $57.1 million a year earlier; maintenance fees were $102.3 million, down from $106.8 million a year earlier; subscription fees were $20.8 million, up from $19.9 million a year earlier; professional services fees were $46.0 million, down from $50.6 million a year earlier; and application services fees were $23.9 million, up from $18.6 million a year earlier.

For the nine months, software license fees were $130.5 million, down from $153 million a year earlier; maintenance fees were $307.5 million, down from $322.9 million a year earlier; subscription fees were $61.5 million, up from $58.2 million a year earlier; professional services fees were $140.2 million, down from $157.4 million a year earlier; and application services fees were $65 million, up from $52.3 million a year earlier.

Total revenue for the nine months was $704.6 million, down from $743.7 million a year earlier. Net income for the nine months was $46.4 million or 21 cents a share, down from $61.3 million or 28 cents a year in the same nine months a year earlier.

More at www.compuware.com.

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