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Executives

Robert Paul - President, Chief Operating Officer and Director

Lisa Elkin - Investor Relations

Laura Fournier - Chief Financial Officer, Chief Accounting Officer, Executive Vice President and Treasurer

Analysts

S. Kirk Materne - Evercore Partners Inc.

James Wood - Susquehanna Financial Group, LLLP

Ian Kell - Northland Securities Inc.

Gary Spivak - Noble Financial Group, Inc.

Compuware (CPWR) Q4 2011 Earnings Call May 24, 2011 5:00 PM ET

Operator

Hello and welcome to the Compuware Corporation Q4 and Year-End results. 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; and Laura Fournier, Executive 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. 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 growth drivers' outperformance is clear in '11, poised for continued acceleration in fiscal year '12. Compuware earned $0.48 per share in the fiscal year '11, $0.16 per share in Q4. Fiscal year '11 APM license and subscription fees skyrocket 91.7% year-over-year on a GAAP basis to $145.5 million. License and subscription fees up 34.1% on a pro forma basis. Fiscal year '11 Covisint revenues leaped 36% year-over-year to $55 million. Final Q4 results, APM license fees and subscriptions up 54%, Covisint revenue up 65.6%, Uniface license fees up 76.7%, Changepoint license fees up 14.3% year-over-year, Professional Services segment contribution margin over 15%.

Fiscal year '12 guidance predicts ongoing revenue growth, increased EPS and strong cash flow. Compuware Corporation, the technology performance company, today announced financial results for its fourth quarter and fiscal year ended March 31, 2011.

During the fiscal year ended March 31, 2011, Compuware increased its total revenues, software license fees, maintenance and subscription fees and professional services fees year-over-year. Maintenance and subscription fees were $487 million, up from $456.3 million in the previous year. Software license fees were $194.7 million compared to $194.5 million in the previous year. Professional Services fees were $247.2 million, up from $241.3 million in the previous year.

Fiscal year 2011 revenues were $928.9 million, up from $892.2 million in the previous year. GAAP net income was $107.4 million in fiscal year 2011 compared to $140.8 million GAAP and $93.7 million pro forma in fiscal year 2010. GAAP earnings per share were $0.48 in fiscal year '11 compared to $0.60 GAAP and $0.40 pro forma in fiscal year '10, based upon 226.1 million and 234.6 million shares outstanding, respectively.

Fiscal year 2010 net income and earnings per share benefited from a nonrecurring $52.4 million gain from the divestiture of certain product lines and $20.7 million in other income related to a legal settlement.

During the company's fourth quarter, software license fees were $55.7 million, up from $51.8 million in the fourth quarter last year. Maintenance and subscription fees were $124 million in the fourth quarter, up from $117.9 million in the fourth quarter last year. Revenue from Professional Services in the fourth quarter was $69.9 million, up from $60.3 million in the same quarter last year. During the fourth quarter, total revenues were $249.6 million, up from $230 million in the fourth quarter last year. Net income was $34.8 million compared to $37.4 million in the fourth quarter last year. Earnings per share were $0.16 compared to $0.16 last year, based upon 224.4 million and 228.7 million shares outstanding, respectively.

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

Robert Paul

Thanks, Lisa. With strong performances by our growth drivers leading the way, Compuware produced a positive fiscal year 2011. We met or exceeded our yearly guidance for EPS for growth in our APM business, for increased Covisint revenue and from improvements in Professional Service margins. In addition, both Uniface and Changepoint solutions showed increases in year-over-year license fees, while Professional Services returned to year-over-year revenue growth in Q4. In the year ahead, we expect accelerated growth by our APM and Covisint business units, as well as ongoing strong profitability and revenue growth from Professional Services, Uniface and Changepoint solutions. We also see a more positive mainframe environment in fiscal year '12.

We believe we will post an approximately 10% increase in total revenue in fiscal year '12. We will achieve this by accelerating our investments in APM and Covisint, complemented with continued operational improvements in the rest of our business units.

We are witnessing strong category growth and, therefore, extraordinary opportunities over the next few years in performance management and SaaS-based collaboration. To guarantee our leadership positions in both markets, it makes business sense to strike while the iron is hot. Our increased investments will have minimal impact on EPS for fiscal year '12, as there will be return on these investments during the fiscal year that will offset the expenses. The revenue growth from results in margin expansion from these investments will be dramatic in fiscal year '13 and '14.

On the APM side, these investments will include acceleration of the internationalized portal platform, acceleration of mobile performance solutions and development of predictive analytics engines. For Covisint, these investments will include a performance-based health information exchange solution, sales expansion into more geographies and new vertical industry initiatives.

Overall this year, we expect to produce approximately $1.02 billion in revenue and GAAP EPS of $0.53 to $0.57 per share, a year-over-year EPS increase of 10% to 19%. In Q1, we expect $0.05 to $0.07 in earnings per share, reflecting normal seasonality of our business.

Obviously, we feel confident about these businesses due to our great success last year. In fiscal year '11, we projected APM license growth of more than 20% and SaaS revenue was $65 million. We surpassed these goals by delivering more than 30% increase in license fees and subscription revenues of nearly $68 million. Building on that success, we expect an at least 35% increase in combined APM new license and subscription fees in fiscal year '12. Nearly half of our APM business will be SaaS-based. And with our integrated sales team, we expect to see improvement across all key sales metrics: pipeline, close ratios and sales repeals [ph].

We have staked out a differentiated solution in the market, and customers are responding. I recently spoke with a CIO of a large financial institution. He has more than 100 monitoring tools to keep his most important applications working, applications that quite literally cost millions of dollars per hour of downtime. What Compuware offers is enterprise, and any company that depends on web, mobile or enterprise applications is broad visibility, deep-dive analytics and the simplicity of one solution to do it all.

So this CIO can simplify their portfolio of tools and get the market's only capabilities for optimizing the performance of important applications from the data center, to the cloud, to the edge of the Internet on the user's mobile device. That's a compelling value proposition. And customers worldwide are absolutely demanding this capability to manage application performance from the end-user perspective.

In this new competitive landscape, Compuware has both the first-mover advantage and the most complete solution. We believe, and it's backed up by industry analysts, that the APM market space addressable by our solutions could be as much as $6 billion in the coming years and growing, and our long-term goal is to own 40% of this market. To achieve this goal, we will capitalize our competitive advantages to deliver rapid organic growth. We may also augment our capabilities and market share through acquisitions.

In the meantime, we continue to deliver market-changing APM releases. We recently completed our second integrated launch of Compuware Gomez, which followed our May 10 release of First Mile. Our rollout of First Mile to the retail vertical has produced a very positive market response, many new customers and a healthy pipeline of active opportunities. First Mile is designed to rapidly demonstrate our value proposition, opening accounts to our on-premise APM solutions. We are, therefore, focusing First Mile entirely on either greenfield or SaaS-only-based accounts. First Mile will drive material revenue contribution this fiscal year.

Trends in mobility, virtualization and cloud computing continue to benefit Compuware. Complexity in IT requires simplicity in solutions. It creates demand for our differentiated value proposition today, visibility across the entire application delivery chain that also sets us up for greater growth in the future. Long term, Compuware's visionary roadmap will not only provide visibility and deep-dive analytics, which remain critical, but we will also eliminate the overwhelming data smog that surrounds many APM tools. We are serving up the data that is most pertinent, actionable and important, saving people time and making them money. The value and simplicity we offer revolutionizes distributed APM, just as Compuware have [indiscernible], many years ago, revolutionized mainframe fault management.

Joining APM on a rapid growth path, Covisint continues to expand and mature its business. In fiscal year 2011, Covisint increased its year-over-year revenues nearly 36% to $55 million. Based on this growth rate, which we expect to accelerate in the year ahead, we believe a partial carve-out IPO for Covisint could happen sometime this fiscal year. Our threshold for executing this program will be $1 billion valuation.

The healthcare space continue to produce big wins for Covisint, and agreements in Vermont and Montana has shown us that the health information exchange market is evolving toward a strong focus on outcomes-based care. We are already leading the market with strong references of large healthcare systems becoming accountable care organizations. With a combination of our patient-quality reporting initiative capabilities and our secured collaboration platform, Covisint is firmly taking advantage of the rapid growth in this space.

PQRI payments or the patient quality reporting initiative are seasonal and provided a tailwind to Q4 results. Those incentives will go down in Q1, which will result in a modest sequential decrease in Q1 revenues for Covisint, though they will continue to increase on a year-over-year basis, as we will see the same bump next year.

By segment, Covisint is now 40% healthcare, 40% manufacturing and 20% emerging sectors. We are starting to see signs that the multienterprise collaboration is becoming a defined category, and we look forward to discussing nonvertical Fortune 50 deals this quarter -- next quarter. There are no guerilla competitors in any of Covisint's vertical markets. We're competing and winning against systems integrators or traditional tools that lack the flexibility, agility and pricing advantages of our cloud-based model. Based on these market conditions and our competitive differentiation, we believe Covisint will produce an over 40% increase in revenues this year.

In addition to these growth engines, partners remain a critical focus in fiscal year '12. Partner and distributor-owned or influenced transactions approached $50 million in fiscal year '11. This year, our target is over $100 million. We intend to achieve that goal by expanding our relationships with Tier 1 partners like Cisco and Accenture and by strong focus on the managed service provider space.

Compuware has entered into a first of its kind strategic OEM agreement with Cisco data center business unit. Through this agreement, we will standardize on the Cisco unified computing system platform for delivering Compuware Gomez solutions to customers. In turn, this will create new opportunities for us to engage with the Cisco team to identify new prospects and to enable partner-driven sales.

We have also entered a formal alliance with Accenture to resell Compuware products suites. This alliance produced several wins in the fiscal year '11, including our largest APM transaction. We expect this partnership will continue to produce large wins in fiscal year '12.

Our APM solutions offer compelling value propositions in the managed service providers. By helping MSPs deliver better services to their customers. We grew our MSP business by 30% in fiscal year '11 with partners like Verizon, British Telecom, Cable and Wireless and Atos Origin, and we'll continue to provide big opportunities for growth in the MSP space this year.

In the Mainframe Solutions area, we expect to soon close the 2 deals that slipped out of Q4. We plan to close the agreement with a large financial institution this quarter, and we believe we will complete our agreement with the federal government sometime in Q2. Beyond this deal, the federal budget dynamics are not impacting our business.

We feel more optimistic about the Mainframe business in fiscal year '12. This year's renewal pipeline for agreements of more than $500,000 is 17% larger than last year's, which presents strong opportunities for footprint expansion. We succeed in such renewal scenarios because we have strong relationships around the value of our products that we deliver.

This is a key focus for Mainframe Solutions business unit this year, maintaining and expanding our footprint by demonstrably proving our value. This is an extremely important market, and the competitors will continue to try to attack purchasing agents with cheap knock-offs. Compuware has been and is a recognized value and technology leader in this space. And with our ever-strengthening ability to represent customized return on investment information, we'll continue to win against less capable offers. Given these dynamics, we expect the total Mainframe revenues to be flat to low single-digit decline in the fiscal year '12.

Over the last 2 years, our Professional Services business has achieved a remarkable reinvention. We achieved our primary goal of services in fiscal year '11, a dramatically improved margin. Our focus on high-margin, high-value work has also resulted in our first return to quarterly revenue growth in services since fiscal 2001.

Leaving our staff supplementation of low margins to others, we bring highly skilled technicians to bear on some of our customers' most pressing technology problems. In the year ahead, we expect to produce Professional Services segment revenue growth between 5% and 10%. Our proven skill in mobile and cloud application development, driven to our mobile center of excellence and global delivery organization, will fuel this growth. We expect this increase in revenue and our continued focus on margin management will push our core Professional Services margins toward 20%.

We achieved great success last year, and the entire Compuware team has eagerly started to build on that success in fiscal year '12. With our new business unit structure, we're taking our competitive advantage in key markets and are racing to capitalize on them. This structure has empowered our lines of business to respond quickly to market conditions and competitive opportunities. This is a fast, efficient and entrepreneurial model that positions us for an outstanding year. The Compuware team is absolutely unified and energized around this goal, and we're working hard already to make it a reality. Laura?

Laura Fournier

Thanks, Bob. Fiscal year '11 was a very successful year for Compuware. It was a year in which we achieved great results, particularly in relation to our growth vehicles, while making measurable progress in the overall transformation of our company.

Operating cash flow for Q4 came in at a very strong $124.3 million, and we finished the year with a total of $160 million. As I mentioned on the precall, operating cash flow for the year was negatively impacted by lower accounts receivable collections primarily in the Mainframe segment. While operating cash flow for the year is lighter than we originally anticipated, we remain in a strong cash position with no outstanding debt.

As for operating expenses. For fiscal year '11, we had $779 million in total operating expenses. This is below our original guidance, as we effectively managed costs while still investing to support our growth. I did want to make one note about the total number of bottom expenses though on our Application Services, our Covisint segment. On our fact sheet, we do note that the margin is about 2.3%.

One thing that did affect that margin is we recorded a catch-up adjustment of about $1.9 million for compensation expense related to stock options. And without that adjustment, our Application Services margin would have been 11.2%. Just one little note there. But going forward in fiscal year '12, we will continue to practice disciplined expense management to optimize our operating margin, while being mindful of the necessary investments needed to drive our top line in fiscal year '12 and beyond.

Fiscal year '12 operating expenses are expected to be approximately $825 million to $840 million. As Bob mentioned earlier, we are accelerating our investments in the APM and Covisint business units to take advantage of the incredible market opportunities for these 2 segments. These investments will primarily be in the sales and technology groups.

And for fiscal year '12, we expect operating cash flow to be approximately $160 million to $175 million. This estimate again reflects the targeted investments in our business units. With regard to the stock buyback in Q4, we repurchased approximately 4 million shares for about $45 million. That brings our total repurchases for fiscal year '11 to approximately 17 million shares for nearly $161 million. Currently, we have approximately 219 million shares outstanding. In terms of future buyback activity, we will continue to evaluate business and economic conditions and buy back stock when it's fiscally prudent to do so.

Lastly, our effective tax rate for fiscal year '11 was approximately 31%, while the effective tax rate for the fourth quarter was approximately 11%. This artificially low rate in Q4 was primarily due to an increase in tax credits related to the U.S. research and experimentation tax credit, including the impact of retroactively reinstating the credit to January 1, 2010, and the settlement of R&D credits related to fiscal 2007 through fiscal 2009 tax periods with the Internal Revenue Service.

For fiscal year '12, we expect our effective tax rate to be approximately 34% for the entire year. This rate is below the normal expectation of 36% due to changes in the Michigan income tax that are expected to be final very soon. Assuming this legislation is passed, our effective tax rate for the first quarter will be less than 20%, as it will reflect the benefit of the Michigan tax changes. Subsequently, we expect our effective tax rate to return to 36% for quarters 2, 3 and 4.

Fiscal year '11 was an extremely solid year for Compuware, in which we witnessed robust growth in our APM and Covisint businesses, continued stability in our very important Mainframe maintenance base and resurgence in our Professional Services, Changepoint and Uniface businesses. In fiscal year '12, we will build on the successes as we strive to fulfill our substantial potential. 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 comes from the line of Kirk Materne with Evercore Partners.

S. Kirk Materne - Evercore Partners Inc.

I guess maybe my first question will be for Laura, just on the cash flow guidance for next year. Bob mentioned that Mainframe, the renewal portfolio, is going to a little bit better this year than -- or this current year than last year. I guess I'm just a little bit surprised with some of the growth in the Covisint and APM businesses, plus a little bit better Mainframe environment, that cash flow shouldn't be up a little bit or up a little bit more, perhaps year-over-year. I guess I'm just trying to get a sense on that sort of conservative number to start out with, as it runs up, or could you just sort of talk a little bit about that?

Laura Fournier

As you know, I'm always conservative, but -- and that is a conservative number. I don't want to mislead anyone. The expenses that we're talking about, increasing this year, I'm sort of hedging a little bit on that, because we do want to make the investments necessary to really drive the APM business at a faster rate, as well as Covisint. So if we're going to do that, I think we're going to see the returns in revenue on those areas towards the end of the year, but we may incur some of those expenses in the first 2 quarter. So just to be on the safe side, I think $160 million, $175 million is very safe. And we're certainly, as Mainframe is a strong year, we will probably see increases.

S. Kirk Materne - Evercore Partners Inc.

And then Bob, just around the APM business, in terms of I guess the investments on sales and marketing, are those I guess focused on any particular geography or region or sort of specialization? And could you just talk a little bit how the combined sales force is doing I guess year-to-date? I realize it's still, but do you have comments, I guess, since you've done kick-offs and things like that?

Robert Paul

Yes, the major investment areas in APM are at accelerating a platform where we serve up underlaying, very complex data in a simplified fashion, but on an internationalized portal, which will accelerate our opportunity to take advantage of emerging markets, especially in -- at the Asia-Pac region. Other areas and this is not just sales and marketing, right? There's a lot in development here. Also, we're seeing a pickup in mobile performance requirements, and that business is going well for us. And we want to take advantage of expected growth there, also, in that category. So we’re accelerating investments there. And then honestly, in our very strong initiative to simplify all the massive amounts of data out there, inside the data center and beyond, doing more in the predictive analytics area to really break open the differentiation. I would also want to point out one thing. Last Thursday, we had a pretty robust board meeting. And under direction of the Board and our Chairman, it was determined that the opportunity in front of us, given the category growth and our position and space, was something where we really wanted to maximize our opportunities. So as a result of the request, the specific request from the Board, we have decided to move a lot of these investments up earlier in this year, and even from next fiscal year into this year, to make sure that we are taking advantage of what right now is an extremely hot category, whether you look at it in our terms or general market conditions. So that creates the comments around the investment and the expense growth.

Operator

Our next question is from the line of Mike Latimore with Northland Capital Markets.

Ian Kell - Northland Securities Inc.

This is actually Ian in for Mike today. Just a couple of questions here. In the Mainframe maintenance renewals, what's the pricing environment like there? Is it stable, increasing, decreasing, any insight?

Robert Paul

Yes, I mean it's a little sporadic. We see some price pressures certainly on the Mainframe side. The work that we've done on the last couple of years in providing, I think, top-quality return on investment documents with our existing customers has allowed us to protect our pricing much more. And as we know, we had a slight dip in renewals last year that was expected. And we think that with the stuff that we've done on our -- the workbench area, making it much easier for the solutions to be used, especially with the aging workforce and Mainframe certainly not going anywhere. We made it much simpler and much more competitive in the Mainframe space. And then the automation that we're providing now and the investments that we're making in automation across our tools in the Mainframe space this year will continue on that theme. So I think we're feeling pretty good about protecting the value and, therefore, protecting the prices. But certainly, we will on occasion see some price pressures from some of the other competitors.

Ian Kell - Northland Securities Inc.

Sure, sure, all right. Is that -- I think you said, I was a little confused, about what you said, but I think you said 18% growth along those lines in sort of large renewal deals.

Robert Paul

Yes, our renewal, we look at our renewal opportunity numbers every year. And we have a 17% increase, overall, when you look at the total dollars and renewal opportunities in fiscal year '12 over fiscal year '11. And the number of -- the actual absolute number of deals is also significantly higher this year, which creates opportunities for us to obviously expand our footprint with these customers. So that's why we're referring to a healthier mainframe environment in fiscal year '12.

Ian Kell - Northland Securities Inc.

And then just on the APM side, obviously, you guys are guess highlighting mobile side heavily. It seems pretty natural. I was just wondering, at this point, how -- is there any way to look at how many mobile-monitoring customers you have on the Gomez side? Or are there sitting metrics you can get there in terms of penetration at this point?

Robert Paul

Yes, we track all that. Unfortunately, I don't have it at my fingertips, but we're seeing, believe that it or not, the numbers that we talked about are an improvement in data center where the traditional Vantage business is growing rapidly. Also, the Gomez web-based subscription numbers are growing rapidly, and the mobile performance numbers are growing rapidly. So across all 3 segments, we're seeing some nice uplift. We'll see if I can get those numbers out through Lisa later on, the specific mobile numbers.

Ian Kell - Northland Securities Inc.

Great. And then just finally for me on the First Mile, it sounds like that's going great for you guys here. I know you said it's going to be material in fiscal '12, but any chance we can get a little more detail on what materials means to you?

Robert Paul

Sure, why don't we tee that up for future conversations? I will tell you, as of right now, we have an initial target, go-to-market strategy, of the top 200 inside a given segment. Every single one of those accounts has been approached. We have 50, over 50 now, active dialogues going on, and I would say a little under 25 of those have turned into actual qualified pipeline activities, besides the deals that we've already closed. So it's a very focused target-market initiative for us. We're feeling very, very good about it. And as soon as we get what we think is a critical mass, we'll turn this over to the general sales force.

Ian Kell - Northland Securities Inc.

I see, and then where do you report that? Is that going to be inside of Vantage or Gomez?

Robert Paul

We now have rebranded all of our solutions under Compuware APM that we label under the Gomez franchise. So even all the Vantage stuff is now Gomez agent loads [ph] or Gomez, let's just go with that.

Operator

[Operator Instructions] Our next question from the line of Gary Spivak with Noble Financial Group.

Gary Spivak - Noble Financial Group, Inc.

First is a housekeeping, Bob, the $0.05 to $0.07 guidance for Q1, that includes the lower tax rate. Is that correct, 20%?

Robert Paul

Yes.

Laura Fournier

That's correct.

Gary Spivak - Noble Financial Group, Inc.

Okay, thank you. Also, I'm wondering if you'd be willing to give this metric on the Mainframe renewals. I know in the past, last year, you spoke, I think it was one of the biggest 15 mainframe deals were for renewal. Can you comment on how many of those top 15 deals are up for renewal in fiscal '12?

Robert Paul

Six.

Gary Spivak - Noble Financial Group, Inc.

Six, okay. And then on Covisint, obviously, healthcare did well. Any color on the energy or oil and gas sector?

Robert Paul

Yes, actually, there's good news there. So both of our big major customers have expanded the solution offerings, and now we're going after additional segments inside those 2 majors. And we have several active conversations going on right now with at least 3. The last time I checked, it was a couple of weeks ago, so at least 3 of the majors in that segment. So the 2 initial majors, the implementations have gotten very well. We've got a nice ROI that we're building upon. And because of the success, we're being taken into other areas of the business, not just upstream but downstream. I will also mention, there's a couple of comments I made on this in my formal remarks, but we're starting to see a trend in multienterprise collaboration, starting to move towards a more mature category. We're getting requests from some of the largest household brand-name companies to come in and solve problems outside of our traditional verticals. And while we're not sure if this is sort of early-traditional or early-adopter pool or if a category is really forming, becoming more mainstream, we're paying very, very close attention to that. Obviously, this will be all incremental to potential -- or the guidance and the business plan that we formed to date. And if we start to see an acceleration in the traditional nonvertical business, we'll let you know about it.

Gary Spivak - Noble Financial Group, Inc.

Great. And then finally, I just wanted to ask a question on the general competitive environment, in particular, on APM but in general of the Mainframe as well. I mean, we saw BMC acquiring Coradiant. Obviously, we haven't seen anything from that yet, but I'm curious what your comments are, and just in general, the APM market competitive landscape as well as Mainframe?

Robert Paul

Sure. I think the APM overall competitive landscape is heating up. And part of that is because, certainly, Forrester and Gartner and a number of others, IDC, a number of others have talked about the dramatic increase in requests that they're getting around performance management consolidation, not just in data center but across cloud virtualization mobile technologies. We thought this was going to happen a couple of years ago, which is why declared a major error [ph]. And sure enough, it's created a response. And there are 2 kind of responses that we're seeing in the field. Number one is certainly the kind of thing that we would expect to see from a larger player. So BMC, recognizing the opportunity for growth, has jumped in. We applaud that. We think it's a great move. I think it helps validate the technologies and solutions that are being offered there today. Coradiant offers up a -- quite a subset of what we deliver inside the data center, and I think it's healthy for the category, overall, and create more visibility for everybody in that space. We also are watching. In the web-based world, there are opportunities for smaller companies to grow rapidly. And while they don't present any kind of threat from a material revenue or earnings growth, they certainly do represent opportunities of new kinds of technologies to be introduced, and they go viral. While we haven't seen anything dramatic yet, we're certainly watching across the board, to see if any of those players become of interest to us. So that's that. I think you'll see a continued acceleration of APM, certainly, in the next 2 to 3 years and probably longer. And that's why we're sort of upping the game, both organically and with some potential acquisitions later on. In the Mainframe space, again, there's a lot of moving parts. We've got the zSeries that's been out. Certainly, the 34% growth in IBM announced numbers last quarter in MIPS is, on the surface, good news, but a lot of that MIPS is simply replacing existing MIPS on the floor. And so, you'll see how that goes. What we are seeing with the comeback of the economy, although very slow, there is some capacity being released now. And certainly, we continue to expect to take advantage of that in the coming quarters. Having said that, again, the concert of that, there are some small and medium businesses that are moving up to Mainframe, and I think most cloud-based initiatives, which represent new opportunities for us that will most likely not be mainframe-based. Some are, but most not, and so we'll see some pressure in the Mainframe side from that, also.

Operator

Our next question is from the line of Derrick Wood with Susquehanna.

James Wood - Susquehanna Financial Group, LLLP

I had a couple of questions for Laura, then a couple for Bob. Laura, could you give us the amortization of stock-based comp in the quarter and then any kind of guidance going forward?

Laura Fournier

For the quarter, it was $5.4 million and we can give you the breakdown after the meeting. I'm sure you want that. But keep in mind, in the Covisint number now, there was 1.9 -- or $1 million as well, so -- and they will have a number. Going forward, it will be about $350,000 a quarter for Covisint. I don't have the exact number for Compuware, but it should be right around $5.4 million to $6 million range for Q1.

James Wood - Susquehanna Financial Group, LLLP

And on the total cost side, with that annual assumption view, can you give us any sense for how -- is that build higher over the course of the year? Or do we see a step-up starting in Q1?

Laura Fournier

Right now, for the forecast for Q1, we are seeing a decent step-up, over $200 million of -- traditionally, from the forecast though, we usually come in a little lower. So I'm guessing around $205 million, we should see somewhere in there, depending on the ramp-up of expenses here.

James Wood - Susquehanna Financial Group, LLLP

Okay. And then on the -- you guys historically give new customers from Gomez. Do you have that number?

Laura Fournier

No, I don't.

Robert Paul

No, not in front of me. What we will do, however, is make that available very, very shortly after the -- unless I get a text message here pretty quickly -- shortly after the call. It is a very strong number. The subscription fees, we noticed that we're, by far, the largest growth in the space quarter-on-quarter and year-over-year of any of the players. And I just don't have the actual numbers, and we should have had that. That was my oversight. We'll make sure we get that out.

James Wood - Susquehanna Financial Group, LLLP

Well, I guess, it looks like the deferred maintenance revenue was pretty strong in the quarter. Do you book Gomez subscriptions on the balance sheet as well?

Laura Fournier

We do. We do book them there, but really the main increase in deferred revenue for the quarter is maintenance. Q4 is a very big billing month -- a billing quarter for our maintenance component, and that's what's really driving up that number.

James Wood - Susquehanna Financial Group, LLLP

And then a couple for you, Bob. So again, I guess you've talked about Mainframe a couple of times here. But you're talking about the Renewal portfolio being up 17%, yet you're guiding for revenues flat to down. Can you kind of reconcile the difference in the 2 comments?

Robert Paul

Yes, I mean a lot of our traditional revenues come in through just capacity increases, and so we're being conservative on that note. We also typically have about a 93% renewal. So there, you're going to see some degradation regardless -- for one reason or another. And we're trying to offset that with having a part, a percentage of our sales force now strictly going after competitive replacements. And the comp plan is associated with that, which is something new for us. So when you net it all out, it comes out to be about -- and given the Mainframe numbers overall, the category being fairly stagnant, we're thinking that it will be in that area.

James Wood - Susquehanna Financial Group, LLLP

That's helpful. And then you guys don't give much in terms of top line guidance on a quarterly basis. But since we're almost in June, can you give us any sort of sense across maybe your main segments, how the environment's tracking so far this quarter?

Robert Paul

Yes, I think we're doing pretty well, given the fact that we just, on April 1, restructured our whole sales organization. And we are all ready for it internally. We launched it. We had everybody together in the first week of April, and we're up and rolling. So although there's, as is always, right, most of the work is, typically, has to be done in the second half of the quarter, not the first. And obviously, we deal with a lot of seasonality in this business. Typically, our Q1 is usually the weakest. I think, overall, the sales folks are feeling pretty good about things.

James Wood - Susquehanna Financial Group, LLLP

That would lead me to my last question then, and it is around how you guys weigh out expense management versus investment in top line growth, and it certainly seems like you're leaning more towards investment in growth. But you do have $1 billion revenue business that could yield higher overall operating margins, and I think especially on the G&A side. So I was just curious what you're thinking and how you're weighing the two, between top line growth and margin expansion. And then if you could hit on it again, what you've done with the sales restructuring, what other restructuring you could do, perhaps, in the G&A side to drive margins higher.

Robert Paul

Yes, so we're seeing some efficiencies as a result of the business unit focus, but not a lot. We're mostly going to get those efficiencies and improved top line results. Faster agility, better development cycle times, releases are coming out more aligned with customer business prompts, all that kind of stuff. So on the expense side, we get overweight a little bit by the size of the Professional Services group and the supporting of that function. And so that's why traditionally, those numbers tend to build up on the G&A side. And then the way in which, and I'll let Laura comment, if she wants to, but the way in which we do the allocations obviously versus other companies might be a little bit different, leading towards a high G&A number. But overall, there's not much to do as far as restructuring goes moving forward. And the investments that we're seeing is really the bolster of what we think are time-critical opportunities in a rapid category growth segment that we intend on being the leaders in moving forward. And that's why we made the comments that we have.

Laura Fournier

I would agree, Bob, and Bob is right. The administrative and general number, we do not allocate out any facility costs, rent costs, any of that, to any of the business units, and it all gets collected there in A&G. And the Professional Services number really lends to the total expense number as well. So overall, I think that while we're seeing some increases there, it's very balanced. And we certainly have insisted [ph] positive return as well, as we go through the year.

Operator

And 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, we will adjourn the conference call. Thank you very much for your time and interest in Compuware, and we hope you have a great night. Thanks.

Operator

And ladies and gentlemen, today's conference call is being made available for replay, starting today at 7:00 p.m. in the Eastern Time zone. It will run for one week until May 31. You can access our service by dialing (800) 475-6701, or outside the U.S. at (320) 365-3844, and enter today's conference access code of 195564.

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