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Compuware Corporation (NASDAQ:CPWR)

F2Q2011 (Qtr End 09/30/10) Earnings Conference Call

October 21, 2010 5 PM ET

Executives

Lisa Elkin - VP, Communications and IR

Bob Paul - President and COO

Laura Fournier - EVP, CFO and Treasurer

Analysts

Kirk Materne – Evercore Partners Inc.

Aaron Schwartz – MKM Partners

Mike Latimore – Northland Capital Markets

Gabe Lowy – Mizuho Securities

David Rudow – Thrivent Financial

Presentation

Operator

Hello, and welcome to the Compuware Corporation Second Quarter Results Teleconference. At the request of Compuware, this conference is being recorded for instant replay purposes.

At this time, I’d like to turn the conference over to Ms. Lisa Elkin, Vice President of Communications and Investor Relations for Compuware Corporation. Ms. Elkin, you may begin.

Lisa Elkin

Thank you very much, Doug, and good afternoon, ladies and gentlemen. With me this afternoon are Bob Paul, President and Chief Operating Officer; Laura Fournier, Executive Vice President and Chief Financial Officer; and Pat Stayer, Senior Vice President Worldwide Sales.

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 those 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. Bob and Laura will then provide details about the quarter and other Compuware business activities. We will then open the call to your questions.

Compuware earned $0.12 per share in Q2 as growth business has continued to soar. Non-mainframe solutions revenue up 53% year-over-year in Q2.

Q2 total revenue increase 3.6% year-over-year, total products revenue increases nearly 5% year-over-year to $167.6 million in Q2. Total APM revenue reaches $51.4 in Q2 up nearly 26% on a pro forma basis year-over-year.

Covisint revenues reached $12.2 million up 27% from Q2 last year.

Professional services segment contribution margins reaches 12.5%.

Compuware reports second quarter revenues of $225.9 million up 3.6% from $217.9 million in Q2 last year. Second quarter earnings per share were $0.12 based upon $224.4 million shares outstanding.

Second quarter net income was $26 million.

During the company’s second quarter, software license fees were $45.6 million.

Maintenance and subscription fees were $122 million in the second quarter up 11.2% from $109.7 million in the second quarter of last year.

Revenue from professional services in the second quarter was $58.3 million, compared to $58.1 million in the same quarter last year.

I would now like to turn the call over to Bob. Bob?

Bob Paul

Thanks, Lisa. Last quarter, the evolution of Compuware’s business into a next generation software and services provider started to become numerically clear. This quarter provides additional clarity around the business as we increase year-over-year total revenues as our growth engines delivered outstanding results and as we exceeded Wall Street consensus for EPS.

As one of our analyst noted this quarter, signs of the dust has settled will be a victory and we believe that dust has settled. The rapid growth our application performance management and secure collaboration businesses diversify the company’s revenue mix adding recurrent revenue and additional visibility while protecting Compuware from market fluctuations in our more mature businesses. This revenue shift to more distributed and subscription base revenue will continue for the foreseeable future.

Total APM revenues, which consist of our Vantage and Gomez solutions, are up 25.8% on a pro forma basis, from the year ago period to $51.4 million. Vantage license fees are up 48.1% and Gomez subscription fees up 29.6% on a pro forma basis year-over-year. This clearly places Gomez as the largest and fastest web performance management solution on the world.

This growth is simply based on a differentiated and disruptive solution and a rapidly growing that analyst have predicted will be worth over $18 billion annually by 2013. Here’s why – virtually, every strategic application being written today in the world is web-based. These applications deliver revenue growth, improve market share and increase brand awareness.

The C [ph] Suite simply can’t fly blind with applications of this importance and Compuware is the only company that can offer an integrated view of applications performance across the entire applications delivery chain from the enterprise to the internet and through the cloud.

Whether a CEO of a large health system is delivering mission critical apps to physicians to become an accountable care organization or a CEO at a global bank needs to protect transaction revenue and improve regional market share by making sure their online banking systems are working well in every city, executives know that poorly performing applications create crisis. So, effectively, all companies is starting to leverage cloud strategies and there are many, are in the dark without our solutions.

Just recently we extended our competitive lead with the introduction of a new or new APM releases. According to tech analyst, our recent first mile solution offering as the most significant solution launched in the APM space in the decade. This solution includes integrated components of Vantage and Gomez and installs easily in a single appliance and is remotely configured. It measures application performance anywhere in the web, all the way through to the data center on a single dashboard.

Not only is this value proposition more substantial than anything in the market, the solution delivers value in minutes compared to weeks or months, which believe is game changing.

In advance to the First Mile release, Gomez out of a 127 new customers in Q2, we also completed 211 customer growth orders for a total 338 net new booking orders. That is both of those members are best ever results for Gomez in the quarter.

Specific highlights include entirely new orders from the larger association in the world for people over 50, as well as one of the world’s largest automobile OEMs, expansion orders came from two of North America’s leading financial institutions to the world’s largest conglomerates and two of the largest internet players in world.

In Q3, we have lofty goals to build on this success and are already in the process of delivering many household named accounts as references for the Gomez First Mile solution. We’re also very pleased with the Vantage license members especially in North America, where we saw 117% increase in the Vantage license revenues.

With these differentiated APM solutions, we’re attacking a big market with a compelling problem where we have a competitive advantage. As you can see it in the results, total APM bookings for the quarter reached $47.8 million, up 22% on a pro forma basis from $39.4 million in the same quarter last year.

Another one of rapid growth business is Covisint delivered an excellent quarter with a 27% increase in revenues and a 43% increase in contribution margin. You can see the financial leverage of the SAS model is beginning to add significant velocity to the business.

In the healthcare space, Covisint recently made a strategic acquisition of a company called DocSite. DocSite adds significant competitive advantage in all of Covisint’s target healthcare markets. These are health systems, state governments and physician’s organizations. DocSite gives Covisint an advantage by positioning our users to improve healthcare outcomes meaning quality of care, which is a specific requirement to receive the $18 billion in federal high tech funding and many more billions in federally funded Medicaid reimbursement programs.

We aim to win four state health information exchanges this year and DocSite is already running two statewide initiatives around quality reporting. We’re well positioned in these states as well as a number of others, but very few final selections have been made so far this year.

The energy and manufacturing verticals also show strength this quarter for Covisint. In energy, we currently have a multimillion dollar collaboration of system in place for one of the seven oil super majors. We will shortly be announcing the second and we are in sales cycles with three others of the super majors. There is an immediate compliance needs here and only one with clear cut player in the space.

Covisint has also been selected as a platform for connective vehicle initiatives at one of the largest global automotive manufacturers. This initiative allows users to view diagnostics, vehicle status and send remote commands via smartphone or traditional browsers.

Covisint was also selected this quarter to be the platform of choice for the world’s second largest business travel company. This program will add 8 million users, spanning over 3,000 companies to the Covisint platform as a part of a multimillion dollar deal starting to earn revenue in Q3.

Building around growth business is Compuware continues to create an ecosystem of powerful partners and influences. We don’t over heightened [ph] potential partnerships, but have just gotten on with it. With real customers and revenue already helping with our growth.

Of particular note, Cisco has recently named Compuware the APM solution to UCS platform, Cisco’s next generation computing platform. Compuware continues to see uptick on the UCS platform in combination with our APM solution across our customers and especially with our managed service provider partners.

Our partnerships with Accenture, BT, Cable & Wireless and many others are growing rapidly and showing increasing pipeline, whether through performance practices, cloud initiatives or managed service providers, our differentiator operating in the APM space is being [inaudible] around the world as an integral part of a partners go-to-market offerings.

We also increased our partnerships in brick countries. We expect significant improvements in quarter on quarter in these geographies.

Finally, on the partnership front, last quarter, we completed joint offering with one of the world’s largest SAP consultancies that will roll out in Q3.

Our growth initiatives continue benefit from stability, of profitability and cash flow of our more mature lines of business. Our Mainframe solutions in particular continue to enjoy over 90% customer renewal rates in Q2 supported by a market leadership position based upon more in the 35 years of development and field installations.

This quarter was a difficult revenue compare from the mainframe business. As Q2 last year had a large purchase from a government agency. The increase in IBM shipped capacity last quarter, however, is a very positive sign for us. This for trench of the new Z Series went to the largest companies and there is usually a time lag between ship and when those MIPS come online as our customers have described to us.

About 70% of our mainframe contracts whereby we receive the benefit at the time of the contract renewal. As our typical contracts or three or five year terms, the impact to our financials will be seen over that timeframe, but we’ll start in Q3. As we progress to the next two quarters, we’ll be in a position to model more specifically the positive effect of the spastic [ph]. For this reason, we remain conservative for mainframe business.

The professional services business has performed well and in lying with our expectations with total revenue as increasing slightly and margins 1% of this point year-over-year. We’re very confident in the ability of this business to contribute to both of our competitive advantage and our bottom line. As revenues increase, our discipline around more consistent and differentiated offerings and adherence to our margin requirements puts this business in the sound position to succeed moving forward.

Finally, this quarter, Uniface and Changepoint, both showed year-over-year license growth around 35%. This rapid growth is further evidence that the right strategies are in place for each of these solutions in their respective markets. We expect continued expansion in both of these areas.

For the next quarter, we expect $0.14 to 0.16 in earnings per share on $240 to 260 million in total revenue for the year. We are reiterating our guidance of $0.48 to 0.56 per share in earnings and revenues of approximately $950 million. We’re very comfortable with these ranges and our ability to deliver on them.

Overall, obviously, I’m very pleased with the hard work of our employees to put us in this position. There’s been a lot of change over the last several years and we believe that we have everything we need today to continue accelerating our growth. Obviously, we still look forward to targeted opportunities in the M&A market that could provide tuck in solutions in accord areas.

What is important now is marrying now is marrying our revenue growth with margin expansion and that will be our exclusive focus moving forward. Laura?

Laura Fournier

Thanks, Bob. Highlighted by nearly 4% year-over-year top line growth, the second quarter was a positive follow-up to a strong Q1. We continue to build on our solid, quarterly performance and are pleased with our results, so far this fiscal year. We remain focus on our growth initiatives and our building momentum as we move in our traditionally strong third and fourth quarter periods.

As we focus on growth, we also continue to hold the line on expenses. If you recall, during our Q1 conference call, we say that we believe quarterly operating expenses would come in between a $195 to 200 million for each of the first two quarters.

Our actual for expenses for both Q1 and Q2 remain well below our plan at approximately $185 million. We had also previously given guidance that expenses for Q3 and Q4, but come in at about $210 million per quarter. We now believe Q3 and Q4 expenses will be approximately $195 to 200 million for each quarter.

Overall, our performances this quarter is a testament to managing expenses without sacrificing the investment needed to properly support our growth objectives. Enabling those investments in growth, we continue to retain an enviable, stable total maintenance phase. Increases in distributed maintenance are helping us set decreases in mainframe maintenance revenue. The decrease we see in the mainframe maintenance is primarily the byproduct of a soft market for new mainframe software sales.

As has been the case for some time now, our mainframe maintenance renewal rates though remain strong in the 90 plus percentage rate. This is the clearest indicator of the ongoing value customers received from our solutions.

The subscription component of the maintenance line, Gomez revenue was approximately $17.7 million representing and impressive 30 percent increase over the first quarter on a pro forma basis.

Our professional services business continues to make progress with revenue and margins trending higher. In Q2, our combined services contribution margins, which includes our Legacy services business, our product related services and Covisint was up over the first quarter increasing from 10.1% to 11.9%.

Operating cash flow for the first half of the year was approximately $13.4 million. Our goal of $225 million in operating cash flow for fiscal ‘11 remains obtainable if mainframe revenues regain some momentum. If mainframe revenue remains soft, it could put a strain on this goal, and push it closer to $200 million.

And regarding stock buyback, we repurchase approximately 5.5 million share or about $42.9 million. We now have approximately 218 million shares outstanding and we’ll continue to purchase shares as market and business conditions allow.

Our effective tax rate for the quarter was 37.7% and we now believe that Q3 and Q4 will be approximately 37% as well.

We are pleased with our results this quarter. Our performance in Q2 a period that has proven challenging in the past is yet another indicator that the company is on the right track. Our strategy is working and it’s being proven out each and every quarter. Our growth business has continued to perform roughly, our maintenance business remains stable and our services businesses have turned the corner and is now in the upswing.

Compuware truly is the technology performance company and organizations around the world are quickly coming to understand the unparalleled value we provide in insuring that their most important technologies, the ones that drive their businesses perform at their best.

The future is incredibly bright for Compuware and all its constituents, including employees, shareholders and of course, customers who are the true beneficiaries of our hard work and our groundbreaking innovation.

Lisa?

Lisa Elkin

Thank you very much, Laura. Ladies and gentlemen, we will now be happy to take your questions.

Question-and-Answer Session

Operator

(Operator Instructions) Our first question is from the line of Kirk Materne with Evercore Partners. Please, go ahead.

Kirk Materne – Evercore Partners Inc.

Yes, thanks very much. Bob, you talked a lot about just a lot of net new booking wins for you guys in Gomez in particular. And I was curious, when you guys look at the pipeline, you look at some of the new ordeals, I guess that are or I guess the renewal deals. Have you seen a pretty sharp uptick in terms of upsizing the size of deals that were signed when Gomez was standalone?

I guess I’m just trying to get a sense on the leverage and the increase in ASP that you’ve seen since you guys have brought Gomez in house.

Bob Paul

Yes. There’s been overall a gradual uptick, but a couple of much larger multimillion dollar deals that come into the fray just because of the promise of the expansion into a more web apps and solution that we’ve now launch.

What’s of interest however is not only we’re seeing the average size of the deals in Gomez go up, but also a fairly nice uptick in the average size of the Vantage license deals and these are a traditional Vantage contracts. But because of the – just the buzz and the knowledge that the Gomez solution can be sort of we can get benefit from the Gomez solution as a next phase of implementation, it’s leading to a much more substantial initial footprint with the Vantage license software.

So, on both sides, the Gomez side and the Vantage side, we’re seeing the average size deal improve.

Kirk Materne – Evercore Partners Inc.

Great. And then, can you give us maybe an update on where you all stand in terms of some of the bigger statewide deals that are coming out around healthcare information exchanges and how you see yourself positioned, I guess in some of the bigger ones that are going to be announced sort of the next down six to 12 months.

Bob Paul

Yes. So, there’s been a – as we talked about in our, right at the beginning of our fiscal year, back in the April-May timeframe, some of the funding has been delayed from the federal government to the States and so there is as you know state governments aren’t always moving as fast as we all would like. So, that has moved almost all the decisions into Q3 and potentially some more movement because of the lame duck governments in place because the elections in the Q4.

But nonetheless, we’re still seeing a – we’re a part of all the important selections going on. We’re getting down selected where there are evaluations and the other nice thing in between now and the final selections, we’re also winning some very nice, large health systems in those states that will start – you know, you’ll start to see in the revenue in Covisint in these next quarters, and those are sort of bell weathers or influences on those state decisions.

So, between us either being prime on the pursuits or our partners like AT&T and the AMA being prime, we’re in very good shape.

Kirk Materne – Evercore Partners Inc.

Great. I’ll let some others ask questions. Thanks very much.

Bob Paul

Thanks, Kirk.

Operator

(Operator Instructions) At this time, our next question is from Aaron Schwartz with MKM Partners.

Aaron Schwartz – MKM Partners

Good afternoon. I know you don’t want to get to ahead of yourselves with the mainframe business and activity, you know with the IBM release. But should we expect as you move through that a cycle that the maintenance part of your business pickup around that release or would you expect that to sort of be in the stable range?

Bob Paul

Yes, I think it would be in the stable range. There are a couple of things going on. We saw a 54% increase in MIPS shipped last quarter and about a quarter of those are what we call hybrid MIPS that really don’t apply to us. The rest are going to large institutions and again, about 70% of our contracts, we see the benefit of that at the time of renewal.

So, because our contracts are either one year, mostly three-year or five-year terms, we see the benefit of the time as renewal and obviously, those will be spread out over the next three years to five years. So, but that means that we have a very positive sense about the business. We see it being pretty stable.

If there are up ticks, obviously, we’ll get great benefit from that. But because of the tough macro mainframe conditions that have been in place so far, we prefer to remain conservative right now.

Aaron Schwartz – MKM Partners

Okay. It’s fair enough. If I switch gears to the APM business, obviously, you’ve been very active. Baron had a lot to talk about. With the First Mile release and sort of the combination to go as in your traditional Vantage products, do we expect any changes in terms of rev rack around the older perpetual or the traditional perpetual licensed deals. I mean is there any way that those can move rat hole in just for modeling purposes?

Bob Paul

Yes, not yet. The First Mile solutions, at least in the first quarter, will be absolutely incremental revenue from the traditional business that we’ve seen. So, it will mean that we’ll see increases on the subscription side for sure, but we’re also you know – the last quarter, we did 50.7% increase in Vantage and this quarter 48.6% increase in Vantage and we don’t see any end of that you know in the near-term. So, we’ll also see a commensurate buildup of the license fee revenues too.

Now, as we start to put more of our Vantage solutions into this platform and that will be based upon as customers accept this new way of thinking around APM. There could be a more significant shift to moving license – moving from license to subscriptions, but certainly not this next quarter and we’ll build – be able to give you a better update as we get in the Q4 and Q1 next year.

Aaron Schwartz – MKM Partners

Okay, great. And on the Gomez side, is there – can you keep update us on sort of the right down. Are you – you’re probably not fully through that, but are you – threw me some of that, the bigger parts of the deferred write down or in that business.

Bob Paul

Yes. I think we had 800.

Laura Fournier

800,000.

Bob Paul

800,000 in write down this quarter. Is that what …

Laura Fournier

This quarter will only be about between 100 and 200,000, so that’s really declining.

Aaron Schwartz – MKM Partners

I’m sorry, the next quarter would be or the Q3 would be 100 to 200?

Laura Fournier

Right.

Aaron Schwartz – MKM Partners

Okay. And then lastly for me, Laura, if I have my number straight here, I just want to confirm this. But it seems to deferred on the balance sheet and cash flow statements were pretty different and again, if I have my number right here. Is that all currency? It seems like a pretty big delta to be just currency.

Laura Fournier

The deferred, are you comparing it to this year to last year or what are you?

Aaron Schwartz – MKM Partners

No, just the quarter-over-quarter change on your balance sheet versus – yes, the cash flow statement.

Laura Fournier

Now, the currency was pretty minimal affect this quarter. The decline in the deferred – I should – is more related to maintenance rate. This is a slow billing month for our maintenance and that picks up again in Q3 and Q4. So, it really has very little to do with currency.

Aaron Schwartz – MKM Partners

Okay. Okay, terrific. Well, thanks for taking my questions.

Bob Paul

Thank you.

Operator

Our next question is from Mike Latimore with Northland Capital Markets. Please, go ahead.

Mike Latimore – Northland Capital Markets

Right, thank you. Nice quarter. Just on the Covisint business, as you think about the shape of that business over the next year or so. Is the percent of revenue from the healthcare were to [inaudible] with energy versus auto, has that percent changed much in your mind, if you look out? It sounds that you’re getting some good energy customers here.

Bob Paul

Yes, we weren’t expecting much and didn’t model much in the energy business. This is the really the first year out of the gates, so it’s a little bit surprising. But we had modeled healthcare to be almost even with the manufacturing or auto sector by the end of the fiscal year and we seem to be pretty close on pace of that. The energy stuff will obviously be incremental and start to take, obviously, percentages overall away from those numbers. But that’s a positive thing.

Mike Latimore – Northland Capital Markets

Right and then that’s – now, on the Vantage …

Bob Paul

The energy stuff is still a very small piece of the business, even though it’s multimillion dollars per year. But the potential of that business is very, very significant. Sorry.

Mike Latimore – Northland Capital Markets

Okay, great. And in the last quarter, I think you had a number of a fairly large of Vantage’s field that were cross-sell into the Gomez base. Does that occur again this quarter or were there other kind of channel sources prevented [ph]?

Bob Paul

No, there is some – I would say some medium-sized deals for the cross-selling, and the cross-selling really will start to pick up now that we have the integrated solution into the single appliance. And actually, right now, we’ve announced inside the organization that we have started to integrate the organizations together more formally and the sales teams, the sales leadership were actually working much better together because of the organization changes.

So, we’ll start to see an uptick in the cross-selling opportunities as we move forward now.

Mike Latimore – Northland Capital Markets

Great. And just last question on your First Mile release here. Can you talk a little bit about the distribution of that? Are you going to be using partners more and then, how do you see – when do you see expect to start seeing some material traction with that product?

Bob Paul

Yes. It’s a great question. So, one of the very, very powerful things about this solution, we use the term frictionless and if it’s easy for us to install and get value with our customers because it’s pre-packaged and remotely configured, it provides an amazing opportunity for us with managed service providers, partners and channels, not just in North America, but obviously in a lot of other geographies.

So, the first quarter here, we’re really focused on making sure that we have a whole bunch of references coming out of the gate and if there are any sort of things that we need to learn as a result to the initial larger implementations, we’ll learn them now and make sure that we’re getting those all fix and in place before we do a broad base offering to our channels and partner program.

So, this quarter, we’ll see direct sales almost exclusively of the First Mile, so we can control the referenceability. Once we have major, major references across multiple geographies, which we’re hoping to get completed this quarter, then we do a much larger offering to our channels program and it’s going to take us that long and to get them trained and ready to go anyway. So, you’ll see that uptick in Q4.

Mike Latimore – Northland Capital Markets

Great, right. Thanks a lot.

Operator

Our next question is from Gabe Lowy with Mizuho Securities. Please, go ahead.

Bob Paul

Hey, Gabe.

Gabe Lowy – Mizuho Securities

Thank you. Good afternoon. A couple of quarters – a couple of questions rather, you called out Cisco as the named APM solution. How does that agreement work and are you onboard? Is the software onboard their platform or is it more like a line item on the price list that the Cisco sales guys sell?

Bob Paul

Yes, it starts out with the latter. So, it’s a line item on the price list. But, yes, it’s being embedded. I don’t know the exact timing, if that’s already done. I think it’s already been tested and in place with a couple of customers.

But I don’t the general, if it’s being generally sold today, I’ll have to get back with you on that, Gabe. But it’s absolutely is an embedded part and we’ll be an embedded part of the UCS platform moving forward.

Gabe Lowy – Mizuho Securities

And are there any other similar type agreements that are in the works with other, let’s call them OEM type relationships?

Bob Paul

There are. Obviously, when we start to talk about appliances being shipped, it gives us some nice opportunities to form some very powerful relationships. We’re not going to talk about them directly today, but be rest assured that in the last earnings call I talked about our partner and OEM and channels-type relationships driving up to 25% of our revenue in fiscal year and we’re certainly not backing down from that and we’ve got some very nice global relationships that have been formed and all the necessary support services, training, portals, joint pricing agreements, sales alignment with these organizations already in place.

Gabe Lowy – Mizuho Securities

So, we hear about those as they get ready to hit the runway?

Bob Paul

Correct and I named a – not the OEM kind, but I named a few of the other S.I.’s in managed service providers already today. But, yes, as we get further along with some of the other device and really integrated platform manufacturers will be announcing those.

Gabe Lowy – Mizuho Securities

Right. I’d also be interested if your field guys are picking up any information about the IBM shipments on the new Z Series, what’s driving it, maybe what the intent of customers are to take the new product, any change in used cases. You know, like we’ve heard that IBM sales is marketing this as big honker of a server to spin up loads of V.M.’s off of.

Are you getting any input back from the field that would then give you any insights into how the business might come your way?

Bob Paul

Yes, we’re not getting any strategic change inputs, relative to moving companies off of servers back on the mainframes per se. we are – it is still very, very early days in spite of the increase on a year on year basis that we saw in capacity increases.

But we’re getting all different types of anecdotal stories from our customers. So, there are customers that are simply replacing the MIPS that they already have. There are some customers that may order a thousand MIPS, but only using a 100 of them right now in preparation to see how it goes and to make sure there are no disruptions to the business. But I have not heard anything specific relative to a strategic change in direction of the overall server versus mainframe argument.

Gabe Lowy – Mizuho Securities

Okay. And last quick one; are we in the beginning stages of a unified APM sales force?

Bob Paul

Yes. Now, let me characterize that just a little bit. So, we have brought this, to sales organization together under a single lead and – but the issue is this. The buying behavior of our customers is are still buying web performance solutions and they’re still buying data center performance management solutions, right and there are budgets in place and problems that have thought of it being solved in those two areas.

And so, we don’t anticipate having one person’s sell across the whole thing, across the whole delivery chain except in strategic accounts because we still can’t take our eye off the ball and the growth rates that we’re seeing in both Vantage and the Gomez side. But the leaderships of both organizations today, sales organizations today, are actually working right now on what fiscal year ‘12 looks like.

But we see increases in the sales staff on both the web performance side, the data center side and then a layer of strategic account people that will go in and solve sort of the larger holistic applications delivery chain problem.

Gabe Lowy – Mizuho Securities

Great. Thank you very much, continued success.

Bob Paul

Thank you.

Operator

Our next question is from David Rudow with Thrivent Financial.

David Rudow – Thrivent Financial

Good afternoon, everyone.

Bob Paul

Hey, David.

David Rudow – Thrivent Financial

Hey, the Cisco announcement is that new or is that an existing or an expanded relationship?

Bob Paul

We announced the relationship several months ago, but it’s matured a lot since then. We haven’t done a more recent formal announcement; it would just be an update of the original one.

David Rudow – Thrivent Financial

Okay. So, this – what you’re doing with them is what you signed on to a couple of months ago or it’s just moved along …

Bob Paul

Correct.

David Rudow – Thrivent Financial

And it’s further along in the process?

Bob Paul

Correct.

David Rudow – Thrivent Financial

Okay.

Bob Paul

And we felt it was important to highlight it because we’re getting real revenue and growth from this relationship and our style, David, that we like to talk about things after we’ve accomplished something rather than pre-hype. And so, it’s important that I think – you know, our sales force knows, the market knows that these are real solutions leaving real value and we’re having great conversations about what this whole UCS platform means to our target markets moving forward.

David Rudow – Thrivent Financial

And is it meaningful from just a deal – number of deals perspective?

Bob Paul

Meaningful as somewhat objective. But there are enough, where obviously it’s important to us and I would say they would become probably material in the coming quarters.

David Rudow – Thrivent Financial

Okay, okay.

Bob Paul

Is that fair?

David Rudow – Thrivent Financial

Yes. Yes, that’s fair. And then on the mainframe pricing, is it the same as IBM being any more aggressive with you guys relative to others that you know of?

Bob Paul

Nope, the same battle has been going on for a decade are still going on …

David Rudow – Thrivent Financial

Yes.

Bob Paul

With us in IBM and CA and primarily.

David Rudow – Thrivent Financial

Okay. And then Laura, on the buyback, can you update us on what’s left and is the plan to get the shares down to 200 million still?

Laura Fournier

The plan is still continues to get them down to 200 million or below and we have plenty of opportunities. The Board has given us the ability to get down to that $200 million level or 200 million share level.

David Rudow – Thrivent Financial

And is that to line of credits for debt?

Laura Fournier

We haven’t had to use debts so far and we have no plans at this point. But we will evaluate things as they go along. We are planning about $30 million right now per quarter.

David Rudow – Thrivent Financial

Okay, $30 million a quarter. Perfect. And Bob, back to APM again, should we expect or is there a possibility that we see similar deals with HP or Dell on their server side too?

Bob Paul

Dell is a definite possibility. I would probably say it might be a little more difficult with HP.

David Rudow – Thrivent Financial

Yes.

Bob Paul

Well, just because of some of their …

David Rudow – Thrivent Financial

Overlap.

Bob Paul

Some of the things that they compete with us on the data center side only. But the other thing that I forgot that I did not mentioned before is this – you know, we’re very busy as part of our normal business in divesting in further differentiated solutions and we have planned some additional capabilities, which we think are just as disruptive as the one we just draw a launch coming out in next calendar year.

And actually, this fiscal year, we’re going to start off with some things that we are very, very excited about and this will just add to the, sort of the gap that we’re starting to see and the buzz that we’re starting to feel in the marketplace.

David Rudow – Thrivent Financial

All right, great. Thank you very much for your time.

Operator

Ladies and gentlemen, we will now conclude the question and answer portion of today’s conference call. I’d like to turn the call back over to Lisa Elkin.

Lisa Elkin

Thank you. At this time, ladies and gentlemen, we will adjourn this conference call. Thank you very much for your time and interest Compuware, and we hope that you have a pleasant evening.

Operator

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