With net income down 36% and revenue only squeezing up by 2.4%, Compuware did not come out of Q3 with a smile on its face. The numbers were poor but the reasons were actually more concerning.
Poor sales execution, high costs, and deals taking longer to close than expected were cited as the main reasons for the outcome. Two of those things are – or should be – within Compuware’s control. It has taken remedial action and hired new managers in some areas, and is looking at its sales and processes, but it is not a happy house. Earlier this month it reduced earnings for the fiscal year ending in March and says it has to be more conservative in its forecasting.
Revenue of $253m generated net income of $21.6m. License fees were lower than the year ago quarter, maintenance was flat but subscription fees were up a respectable 12%.
There were two points of note within the results. Revenue from North America dropped 9.2% to $98m but International revenue rose 4.8% to $8.6m. Other vendors who reported for the same period over the last few days, such as CA Technologies and Symantec (see here and here), saw international revenue drop. We believe the decline in North American revenue is specific to Compuware and its sales problems.
The other notable aspect was that its mainframe segment, which covers areas such as application modernisation and is the largest part of its business by a long way, was down 10% to $103.1m. Software AG also suffered in this area (see Software AG dragged down by ETS business line). Interesting - this is an area we expect would do well in tough economic times. Either enterprises are making do with unchanged legacy systems or are going and investing in new systems. We’ll probably have a better idea at the end of the financial reporting season.