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Executives

Lisa Elkin

Robert C. Paul - Chief Executive Officer and Director

Joseph Angileri - President and Chief Operating Officer

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

Larry Angeli - Former Vice President of Marketing & Healthcare Vertical

Analysts

Stewart Materne - Evercore Partners Inc., Research Division

Aaron Schwartz - Jefferies & Company, Inc., Research Division

Michael Latimore - Northland Capital Markets, Research Division

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Compuware (CPWR) Q4 2012 Earnings Call May 22, 2012 5:00 PM ET

Operator

Hello, and welcome to the Compuware Corporation Q4 and Year-End 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, Senior Vice President of Communications and Investor Relations for Compuware Corporation. Ms. Elkin, you may begin.

Lisa Elkin

Thank you very much, Carey, and good afternoon, ladies and gentlemen. With me this afternoon are Bob Paul, Chief Executive Officer; Joe Angileri, 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.

I will now turn the call over to Bob, who will provide a summary of the quarter's results. Joe will then highlight business unit operating results, followed by Laura who will close with key financial information. We will then open the call to your questions. Bob?

Robert C. Paul

Thanks, Lisa. I'm pleased to report that Compuware achieved strong results for both our fiscal year and fiscal fourth quarter 2012. For the year, we delivered an approximately 9% year-over-year increase in total revenues, our largest revenue increase in a dozen years. In Q4 alone, revenues increased almost 7% year-over-year to $266 million. With every one of our business units generating year-over-year revenue growth, we believe we have crossed a major threshold in our strategic transformation and have strong momentum propelling us in the fiscal year '13.

While we had some challenges predicting performance over the year, given the changes to our business model, and the integrations of our acquisitions, earnings for the year were $0.40 per share, this includes $3.1 million of severance expense last quarter. So for the quarter, earnings were $0.12 per share. That's inclusive of the severance.

For fiscal year '12, total company operating margin came in at 12.5% as we absorbed the financial impact of the dynaTrace acquisition. We recognize that we still have a great deal of progress to make in improving our margins. This is a top priority for the company, which I'll discuss more in detail later.

Overall, Compuware's positive macro results during a year of significant transition demonstrate that we've built the company for both near-term performance and long-term dominance. We are successfully executing on the updated 3-year strategic plan that we announced in December. This plan focuses us on enhancing shareholder value, maintaining market leadership and driving growth and profitability across each of our business units.

We are making progress in achieving the financial, operational and growth targets we set for ourselves as we continue to deliver differentiated solutions that optimize user experience. Thanks to the hard work of our team, we have returned Compuware to a growth story. In 2008, our high-growth businesses accounted for just 16% of total revenue. In fiscal year '12, we've boosted that to almost 40%. Our transition into Q1 sales has been strong and major new releases earlier this month, which I'll talk about shortly, bode well for the coming year. While Joe will discuss the specific operating results by business unit, I do want to note a few key strategic highlights across the organization.

The Compuware APM business performed well in Q4, reaching a more than 20% increase in total year-over-year revenues for the quarter. For the year, total revenues increased nearly 17%. We saw strong growth from Compuware APM license revenues in Q4 with license fees up nearly 30% year-over-year, and the momentum is continuing into the fiscal year.

For fiscal year '12, Compuware APM license fees increased almost 10%. The Compuware Gomez SaaS business achieves a nearly 13% year-over-year growth rate in fiscal year '12. Both of these percentages should continue to increase with our recently announced major product releases.

The spring release of Compuware APM brings tremendous innovation and value to our customers, more than any release in recent history. This release features several industry-leading firsts, including a deep transaction monitoring solution for dynamic cloud and big data environments, including Cassandra NoSQL and Hadoop. We have also dramatically increased time to value, with 0 configuration instrumentation, out-of-the-box analytics, dynamic baselining and, of course, iPv6 support for cloud, Web and mobile platforms.

Second, we released an integrated platform for Gomez and dynaTrace that delivers comprehensive user experience management for Web, mobile and streaming apps. We obtained the massive complexity at the edge of the cloud with real user monitoring, which is the only way to completely resolve the complexity and scalability issues in the mobile environment.

Third, we have combined network and application performance monitoring into a single platform to easily handle the most complex data centers. And finally, we've released new packaging and pricing schemes that easily scale for small and medium business environments and allow larger organizations to start small and then leverage their investment with simple expansions.

We have found that the market is ready for new approach to APM, and we have the most comprehensive offerings at both an individual and platform level to meet this need. As we grow, we remain very serious about margin expansion in this business. We're already beginning to run faster and leaner, even as we deliver more consistent results. We've gotten now to a great start this year and plan to retain this momentum. For the year, we expect to grow our APM business at 25% as we become the established leader in this space. Adding to this market momentum, our channels organization continues to focus selectively on market-dominant partners, allowing us to target our enablement efforts and develop tight sales integration points.

We continue to optimize our dynaTrace enterprise offerings for the Cisco environment, including extensions and support of Cisco's UCS platform. More than 400 Cisco UCS sales teams have been trained on this offering with a joint target list of over 150 customers. Our managed service provider Outreach also continues to pay dividends. The MSP business produced 80% year-over-year growth in fiscal year '12 as early successes continue to prove out our value proposition. In Q4, we broadened the geographic reach of this initiative, signing new deals with the likes of Dimension Data in APAC, Tiesto [ph] in Finland and the Baltics, and Accenture in Canada. We have also extended our relationship with BT beyond Europe into Latin America, Asia-Pac and North America.

This key PO part of our business allows us to expand both our market presence and our operating margins as we'll continue to emphasize this growth in the year ahead.

Compuware Covisint delivered a 34% increase in year-over-year revenues in fiscal year '12, driven by strength across our core automotive and health care verticals and additional growth in adjacent markets. Beyond the strong revenue growth, Covisint's focus on margin is working with more than 25-point swing from minus 13% in Q2 to a plus 12% contribution margin in Q4. This is a fast-growing profitable business and we continue to believe we can scale the top line while increasing contribution margins.

In Q4, Covisint signed 19 new health care system deals. These included significant implementations of the Covisint care coordination solution for accountable care initiatives. These organizations are early innovators in implementing the Health and Human Services ACO initiative. Covisint also drove Health and Human Services' meaningful use status of the AT&T Healthcare Communities Online solution.

Over the fiscal year, Covisint continued to grow in the rebounding automotive vertical as automakers invest in new mobile and online services for their customers. These organizations can easily use Covisint to digitally engage with their customers through new owner portals and connected vehicle initiatives. In other verticals, Covisint signed another, the third, of the super major energy companies, British Petroleum. Covisint's cloud-based platform enabled BP's external business partners to access critical applications and data to drive agile business and competitive advantage. We have little competition in early-stage market for cloud-based collaboration solutions.

We typically face off against system integrators or homegrown systems, both of which require substantial development and implementation efforts to even approach our baseline value proposition.

Our win rates are very high and we continue to believe that we are in the early innings of this large market opportunity. Given our current growth rates and market position, we expect Covisint to grow at least 38% in fiscal year '13. Nothing has changed regarding the plans for the Covisint IPO, which we continue to expect to occur in fiscal year '13 given present circumstances.

The Compuware Changepoint business unit is successfully leveraging its focus in the professional services automation space to deliver excellent results. For fiscal year '12, Changepoint increased total revenues by more than 20% to $48 million driven by growth with existing nameplates and 30 net new customers. The Changepoint team also continues to innovate through enhanced delivery models, as 15% of this year's software license billings was delivered by our SaaS model.

Compuware's Mainframe business had a strong year with a 15% year-over-year increase in software license fees and a slight growth in total revenues. Additionally, we're continuing to innovate for growth in the Mainframe as we drive the integration of dynaTrace and Strobe for the market's only end-to-end transaction and performance monitoring solution. We have also increased a number of registered users for the Compuware Workbench by 400% this year. Compuware Professional Services produced a healthy year-over-year revenue increase of nearly 8% in fiscal year '12. Contribution margins finished the full year around 16% with Q4 increasing almost a full percentage point above Q3. Driven by our focus on differentiated competencies, the team also realized a 5% increase in average billing rates for the year.

Compuware Uniface remains a strong profitability story. With continued innovation in multi-tenant cloud-based application development, Uniface drove nearly $47 million in revenue, at a more than 50% contribution margin in the fiscal year '12. Compuware's portfolio of growing business units has us well-positioned for fiscal year '13. With our profitable Professional Services, Uniface and Mainframe business units, we're creating strong cash flow to invest in our growth businesses. These investments have created market leadership positions and generate additional differentiation for APM Changepoint and Covisint solutions. Amplified by a strong focus on margin enhancement, we expect this strategy to deliver steady increases in both revenue and earnings. For the fiscal year ahead, we see both great opportunities and some challenges as we drive our transformation of Compuware into a growth company with expanded operating margins and lower costs. Our momentum already in Q1 for Compuware APM, Covisint and Changepoint has been strong. We expect that to continue throughout the fiscal year.

Although we are guiding Mainframe revenues down approximately 12%, we believe we have a few initiatives that will positively impact the second half of this year for the Mainframe business unit. We expect to see a higher number of Mainframe deals in Q3 and Q4, and new dynaTrace Strobe performance capabilities will also become available in this time frame and bolster second half of the year in Mainframe opportunities.

Additional pressures on first half margins include a higher tax rate impact, an additional $2 million to $3 million in severance fees we have already incurred this quarter, and obviously, continued investments in our growth solutions. Our full year expectations are for EPS to range from $0.45 to $0.49 and for revenue in the range of $1.07 billion to $1.08 billion. At the midpoint, this represents 18% EPS growth and about 7% revenue growth. Although we expect to set revenue and margin records for both APM, Covisint and Changepoint, these Q1-specific issues will create slightly larger than expected variance between first and second half of the year in EPS. For those modeling by quarter, we expect to Q1 through Q4 for EPS, respectively, to be at 10%, 20%, 30% and then 40%.

For our revenues, respectively, Q1 through Q4, the model that we have is 22% in Q1, 24%, 26% and 28%, respectively. I also want to address our approach to making the best use of cash to optimize shareholder return. First, we have purchased stock and we'll continue to do so. In fact, this week, we are implementing a 10b5 stock purchase program for which we are currently defining the parameters and will implement very quickly. The latest time frame on that -- the latest possible time frame on that would be next week.

Second, over the last 10 years, we have made 4 crucial acquisitions. The first one, Covisint, was acquired for about $7.5 million. Today as an independent SaaS company, they could have a market cap rate in the $700 million. Second, we acquired Gomez 3 years ago and have turned it into the world's largest global Web and mobile performance management SaaS platform at over 13% subscription base growth this past fiscal year. Third, dynaTrace was acquired 9 months ago and has far exceeded our expectations with 95% annualized growth rates. We acquired DocSite as a critical component of the Covisint health care platform that delivers quality of care and outcome-based reporting. This is a critical value proposition and differentiator in the emerging health care landscape. Finally, we have made substantial investments in R&D. These actions have assured our progression to not just a mainframe and services-focused company but a next-generation growth company. So this is an important year for us as we achieve 2 very important milestones.

First, our high-growth businesses will represent greater than 50% of all of our products and subscription revenue. Second, all of our business units will have a positive contribution margin. We believe it's going to be a great year and one in which we're already off to a strong start. Joe?

Joseph Angileri

Thanks, Bob. I'll provide a deeper look into the business unit results. The APM business had a strong fourth quarter, producing revenue of $80 million, up 21% year-over-year and up 11% sequentially. For the year, APM produced total revenues of $270.4 million, up approximately 17% year-over-year. APM software license fees for the quarter were $31.3 million, up 29% year-over-year and sequentially. For the year, software license fees were $85.5 million, up 10% year-over-year. APM subscription fees for the quarter were $19.6 million, up 3% year-over-year and up 1% sequentially. For the year, subscription fees were $76.2 million, up 13% year-over-year. For fiscal year '13, we're projecting APM total revenue growth of approximately 25%. APM operating expenses for the quarter were $86.1 million, up 25% year-over-year and up 5% sequentially, primarily due to commissions. For the year, APM operating expenses were $317.6 million, up 29% year-over-year. As a result, APM contribution margins for the quarter were negative 8% compared to negative 3% during the same period last year and a negative 14% last quarter. For the year, APM contribution margin was 17% negative compared to negative 6% last year.

Now the factors that impacted margin in fiscal year '12 included purchase accounting, severance cost and additional investment in R&D. We remain 100% committed to building on this sequential margin improvement and continuing our investment in product development such as our spring release. As Bob mentioned, it's our expectation that APM will show a positive contribution margin in fiscal year '13.

The Mainframe business unit had a solid quarter and year producing $26.4 million in software license fees for the quarter, up approximately 13% year-over-year and essentially flat sequentially. Overall for the quarter, Mainframe produced total revenues of $100.7 million, down 2% year-over-year and sequentially. For the year, Mainframe produced total revenues of $419.3 million, up 1% year-over-year and software license fees of $110.3 million, up 15% year-over-year. Now, as we said in December, for the fiscal year '13, we're projecting mainframe total revenue to decline approximately 12% year-over-year, with the potential for this decline to be tempered in the back half of the year as the dynaTrace Strobe integrations come to market.

Mainframe operating expenses for the quarter were $26.4 million, up 1% year-over-year and up 7% sequentially. For the year, operating expenses were $99.3 million, flat year-over-year. Now, Mainframe's contribution margin for the quarter remained strong at 74% compared to 75% during the same period last year and 76% last quarter. For the year, contribution margin was 76%, matching the overall contribution margin last year.

Now Covisint. The business unit had a strong quarter, producing total revenues of $21.4 million, up 24% year-over-year and up 15% sequentially. Covisint had a solid year as well, producing revenue of $73.7 million, up 34% year-over-year. For fiscal year '13, we're projecting Covisint's total revenue growth of approximately 38%. Covisint's operating expenses for the quarter were $18.8 million, up 11% year-over-year and up 9% sequentially. For the year, operating expenses were $72.7 million, up 43% year-over-year. Covisint's contribution margin for the quarter improved to 12% compared to 2% during the same period last year and 7% last quarter. For the year, contribution margin was 1% compared to 7% last year. Covisint had a terrific growth year and is poised to continue to show positive contribution margins in fiscal year '13.

The Professional Service business unit produced total revenues in the quarter of $36.5 million, down 5% year-over-year and up 2% sequentially. For the year, Professional Services continue to grow producing total revenues of $151.5 million, up 6% year-over-year. Professional Services operating expenses for the quarter were $32.1 million, up 3% year-over-year and up 1% sequentially. For the year, operating expenses were $127.2 million, up 7% year-over-year. Professional Services contribution margin for the quarter was 12% compared to 19% during the same period last year and 11% last quarter. For the year, contribution margin was 16%, just off the 17% margin last year. We expect to see improved margins from our Professional Services business as we provide greater focus on mobility, machine-to-machine applications and performance engineering.

Now Changepoint had an outstanding quarter and year. In Q4, the Changepoint business unit produced total revenues of $14.6 million, up 34% year-over-year and up 17% sequentially. For the year, Changepoint produced total revenues of $47.9 million, up 21% year-over-year. Changepoint software license fees for the quarter were $6.2 million, up 100% year-over-year and up 76% sequentially. For the year, software license fees were $13.8 million, up 50% year-over-year. Changepoint operating expenses for the quarter were $11 million, down 16% year-over-year and down 6% sequentially. For the year, operating expenses were $45 million, down 5% year-over-year. As a result, Changepoint contribution margin for the quarter was 24% compared to a negative 21% during the same period last year and 6% last quarter. For the year, the contribution margin was 6% compared to a negative 21% last year.

Finally, in Q4, the Uniface business unit produced total revenues of $12.9 million, down 8% year-over-year but up 15% sequentially. For the year, Uniface produced total revenues of $46.9 million, up 1% year-over-year. Uniface software license fees in the quarter were $4 million, down 16% year-over-year but up 59% sequentially. For the year, software license fees were $11.3 million, down 5% year-over-year. Uniface's operating expenses for the quarter were $6.1 million, up 4% year-over-year and up 22% sequentially. And for the year, Uniface's operating expenses were $21.7 million, up 8% year-over-year. As a result, Uniface's contribution margin for the quarter was 52% compared to 58% during the same period last year and 55% last quarter.

For the overall year, contribution margin was 54% compared to 57% last year. So coming off of a solid year of execution and growth for all of our business units, particularly in the fourth quarter, we're looking forward to a very strong fiscal '13 and beyond. Laura?

Laura L. Fournier

Thanks, Joe. Operating cash flow for the fourth quarter was approximately $106 million bringing us to approximately $180 million for the year. For fiscal '13, we expect operating cash flow to be approximately the same as it was this year. Q4 operating expenses were approximately $230 million, finishing the year at approximately $883 million, falling at the low level of our projected $880 million to $890 million range. Heading into fiscal year '13, we will continue to look for ways to improve productivity and eliminate unnecessary costs as we strive to reach our long-term margin goal.

With regard to stock buyback, in Q4, we've repurchased approximately 1.8 million shares for approximately $15.7 million. For the year, we repurchased 2.3 million shares for $19 million. And as we look ahead to fiscal year '13, as Bob mentioned, we will implement a 10b5 program in the coming week. This program will be supplemented by our discretionary stock repurchases, which we continue to do as business and market conditions allow.

In terms of our debt position, our long-term debt as of March 31 of this year stood at $45 million. As of today, the outstanding balance is $25 million.

Given the stock repurchase program and the timing of our cash flow from operations, we expect to carry a balance in the line of credit throughout fiscal year '13. Finally, our effective tax rate for Q4 was 26.1%, giving us an effective tax rate for the year of 31.1%. In FY '13, we anticipate our tax rate to be approximately 37% for the year. Overall, Q4 was a strong quarter and provides us with an excellent momentum heading into fiscal '13.

Lisa?

Lisa Elkin

Ladies and gentlemen, we will now be happy to take your questions.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question comes from Kirk Materne from Evercore Partners.

Stewart Materne - Evercore Partners Inc., Research Division

Maybe just a few quick questions and I'll get back in the queue. I guess first, Bob, can you talk a little bit, I guess, at Covisint we get a lot of questions on -- it sort of decelerated year-over-year a little bit in the back half of the year. I guess what gives you guys confidence around the guide for the next fiscal year? Is it just sort of the bookings you guys did in the fourth quarter? Could you just walk us through some of the math so we can feel confident in that outlook?

Robert C. Paul

Yes. No, a very fair question. We've had now a couple of strong quarters of progressing and solid bookings. So a couple of things are heating up. Obviously, they've gained some nice traction in the emerging markets, with the -- not only expanding on their existing energy customers, but signing another big one. And all these are multimillion dollar expansion projects. The connected vehicle programs and basically automotive companies looking to reach out to end consumers through various initiatives is showing a lot of growth with some big wins that will continue to expand. And then, great momentum in the health care space, and we don't even think this market is really, truly going to be formed properly for another 1.5 years until we get to fiscal year '14. So all this growth in the health care space that I alluded to is basically helping us cement an early leader position in what will be a very high-growth category. So the exact backlog and bookings has been strong. We're coming into the fiscal year with some great momentum on the Covisint side. And already in Q1, we've had some nice successes. And as you know, we don't report those right away. They end up being subscription revenue further down the route -- the road as these things get implemented. So we've taken a lot of guidance on this one because of the importance of this year, in particular to Covisint, and we think we're being sufficiently conservative and I certainly, looking at the parameters, believe that to be the case. And we're all going to be held accountable to beating those growth numbers.

Stewart Materne - Evercore Partners Inc., Research Division

Great. That's helpful. And then maybe just on APM, obviously, a good rebound sequentially for you guys. Can you just talk about some of the -- what's happened in that in terms of just either better execution around closing, new -- making -- hitting a broader swath of customers, I guess, what happened in the fourth quarter? And I guess you guys are putting out 25% growth for next year, what needs to happen to make sure that, that number also ends up being conservative in the rearview mirror.

Robert C. Paul

Yes. No, another-- great for a question. We had -- as you know, we had some organizational and execution issues in the first half in the last fiscal year. We did make some changes in the late September, October time frame. Those changes have now been in effect, but really, it takes a little while to get the momentum going. Q4 was nothing more than just the momentum of the focus, the new focus, go-to market strategies, the sales organization, much tighter value propositions, much more distinct selling programs, better training and just overall better sales execution. I believe, and the leadership team from the APM business unit believes, that to get to full stride, it's still going to take another couple of quarters, but we're getting there. And the competitive environment continues to swing very nicely in our direction. But the other thing that gives me -- so by the way, what do we need to do to get -- to continue and hit the numbers? More of the same. There's nothing dramatic, we don't need anything new in the products. We don't need – we've got the game plan set, the comp plans rolled out, all the training is done. With very little disruption to the sales organization, we actually went inside the regions this year, and the team showed a fantastic job in getting the sales organization ready on each of the different value propositions. The one thing -- what the question gives me an opportunity to mention is, we get dinged a little bit on this transformation and the amount of investments that we're making every once in a while. And the obvious nameplate acquisitions we've made are obviously part of that -- those investments. But big time last year, we made some very important investments that were competitive, either widening the gap, or leapfrogs, specifically in the area of mobile, specifically in the area of cloud, dynamic cloud, and web-based environments and also, in the data center RUM side, some very nice additions to the portfolio there, including right out-of-the-box, much easier to use value proposition. So combined with the existing momentum and the new value propositions that we've already rolled out, we think we're in good shape. We think we're in really good shape and it's just a matter of continuing the momentum now.

Operator

And now to the line of Aaron Schwartz of Jefferies.

Aaron Schwartz - Jefferies & Company, Inc., Research Division

The first question I had was on the cash flow guidance here. Given that the Mainframe business is expected to decline next year, can you just walk through some of the puts and takes to get you to that cash flow number next year?

Laura L. Fournier

The cash flow for next year is expected to be up about the same as our -- it's a function mainly of our Mainframe. We have -- we're projecting about a 12% decline there. But the increase in our Changepoint at APM and other business units revenues. So as that -- a lot is going to depend on what we do with Mainframe there, and what Mainframe deals come in. That's really the conservative side of that. The other is the continued investment, and the operating expenses is pretty static as we go through that year. So we really -- it's a sort of dependent on the revenue, primarily Mainframe.

Operator

And now to the line of Mike Latimore from Northland Capital.

Michael Latimore - Northland Capital Markets, Research Division

In this current quarter just completed, the March quarter, how did dynaTrace and Gomez on-prem perform relatively, relative to each other?

Robert C. Paul

They both had good quarters. DynaTrace had a stronger quarter, quite a bit stronger quarter. But we feel very good because of the training and everything else. We've seen a nice bump in pipeline and commit relative to the traditional data center RUM solutions. And so, what that tells me is that, if there was any confusion between the solutions, what problems we solve and who we solve them for has become a lot more clear and the importance of both of those assets as we go to market, are becoming clearer to our customers and to our sales guys -- our sales team. And they're just getting better at it. And I think they'll continue to get better at as we move forward. So both good, but dynaTrace, stronger.

Michael Latimore - Northland Capital Markets, Research Division

Great, got it. In terms of just kind of the sales training, so you are basically done with sort of training the whole sales force and delineating who's going to sell what at this point?

Robert C. Paul

Yes. We did the first pass of that, actually I should let Joe talk because he was actually the poor guy that went on an around-the-world trip over 3 weeks. But yes, that's all being completed. There is still some, I would say, polishing or enablement practices going on, but as far as solutions, go to market, territories, named accounts, all that, that was behind us within 2 weeks at the beginning of the fiscal year. So a lot of preparation went off for a very strong start and a nondisruptive start for the year.

Joseph Angileri

And that's for all of our businesses across the globe.

Robert C. Paul

Right. Not just APM, it was the whole organization.

Michael Latimore - Northland Capital Markets, Research Division

Okay, great. And how -- or what are you seeing in Europe? How is the environment in Europe as it relates to the APM business?

Robert C. Paul

They had a good year and they never actually experienced the slowdown that the rest of the company did in the first half, really. But we have tempered expectations given the larger political environment going on over there and the debt crisis and everything else. So whereas -- we're starting off strong in North America, Latin America looks good, Asia Pac rebounding nicely. We just want Europe to do more of the same, and so far so good. But we do have, in our model, we do have some tempered expectations.

Michael Latimore - Northland Capital Markets, Research Division

Great. Just last question, what tax rate are you looking for this fiscal year?

Robert C. Paul

37%.

Operator

[Operator Instructions] And now we'll go to the line of Derrick Wood from Susquehanna International Group.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

A question on Gomez. I mean, it looks like Gomez had low single-digit growth from the quarter. It sounds like, Bob, you're guiding to a double-digit growth for the year. So just kind of wondering, if you can help us -- what gives you confidence in that business accelerating? And maybe any color on what the bookings were in the quarter?

Robert C. Paul

Yes. I don't have specific bookings in front of me, and I'm not sure we typically give that out. But let me answer the bigger question. With that confusion that happened in the first half of the year, obviously, we had a well-oiled, I think, operating margin in the Gomez SaaS group before. And we went back to that in October and have bolstered that since. So I'm selling subscription, I've got the inside sales group focused on it, I've got the marketing programs focused on it, lead generation focused on it. It's a much higher-volume sales environment and we just needed a different engine speed, if you will, to really get back to the growth rates. So we've started to see momentum pick up. We started to see the competitive positioning get strengthened. The pipeline is getting much stronger and we are really buoyed by the fact that this last release basically -- it's like the upcoming political elections. There's 2 different ways of solving this problem and we think there's only one way that can really get you to the proper answer and is scalable, and we're the only team in town that has that way of doing it now. And so, with that very definitive differentiation moving forward, we think we're going to be in great shape with the focused execution. We're guiding not even to the growth rates that we had before last year, obviously we've got to pick back up from this year. So I think we've got it well in hand.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

Good. And I was just hoping to get an update on some of the changes that John has made in the APM division. Anything you like to call out with respect to account coverage or comp plans, and maybe an update on how we stand with sales capacity today?

Robert C. Paul

Wow. That could take a long time to answer. And John and Eric Fisher and the rest of the team have been not doing sort of a standalone, this is how we did it in dynaTrace, so this is how we're going to do it going forward, but they really have embraced the entire business model. And I can tell you, everything from the competitive positioning, the releases that we've just hand, the quota setting, how we are comped, the productivity of our sales and what that looks like this year, separating out the Gomez SaaS versus the dynaTrace on-premise solutions, it's all been, I would say, either finely tuned or redesigned. And they've done a great job working with existing Compuware people to sort of do best-in-breed engineering of the sales and go-to-market strategies. That -- all of that hard work started in October, November. We got ready for the fiscal year, did some rollouts in Q4 and went through the whole sort of resetting program in April. And I can tell you, the focus was on the customer value and no disruption in Q1. We wanted to come out of the gates fast. And from everything that I can see, they've accomplished both those missions. So it's -- John has been the leader in charge. He will be the first one to admit he's got a tremendous amount of help both from Compuware Corporate Resources and from the rest of the sales and marketing organization and we're just thrilled as to where we're at right now.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

With all that being said, I mean how do you feel about where your sales capacity is right now, and what you need to do to hit your growth targets for the year, if you need to hire, and how much?

Robert C. Paul

Yes. We actually have taken out what I would call poor sales capacity. So we -- our capacity was almost, I would say, a little bit over the top as we saw ourselves going into Q4. We did some -- we're not calling it restructuring, but basically severance costs. We took that in Q4, so that is inclusive in the $0.12, it would have been higher -- potentially higher. We also have done some additional actions in additional capacity this quarter already that equates to about $2 million to $3 million in severance costs and we're right now very pleased with where our sales capacity is at. So we don't need new hires to hit the numbers that we've established. And we're -- we've right-sized over the last quarter and a half to get to where we're at.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

Okay. If I can just -- get one more on there. On Changepoint, really strong quarter. Are you guys looking at that the business different? Sounds like it's part of one of your strategic growth businesses as you look forward. So what's driving that kind of renewed demand out of that business and what are you thinking in terms of growth rate for fiscal '13?

Robert C. Paul

Yes. I just think it's patience around the strategy. I mean, a couple of years ago, we got together with the Changepoint leadership team and said, "Okay, there's a broad category offering. But where do we really have capabilities in a subcategory that would differentiate us? And let's go focus, get trained, go after the accounts that really we could be different at." And it's just a whole very focused effort that has started to gain more and more traction. There's no hidden secrets here, right? The cycles of CASM model, we apply it across the board, sometimes it takes a little time for these things to pay off and Changepoint is paying off. And as expected, we're now starting to look at potentially adjacent categories where we can leverage our existing reference customer base to continue that growth. But it's just sticking with the strategy and getting through that process. And the team has done a great job of staying focused and hitting their stride. Now they're considered the leaders -- we're considered the leaders in professional services automation as a subcategory and we'll continue to expand into adjacent categories moving forward.

James Derrick Wood - Susquehanna Financial Group, LLLP, Research Division

And do you expect double-digit growth for the year, I would imagine?

Robert C. Paul

Yes, we do.

Operator

And now from the line of Mark Jordan, Noble Financial.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Question on the -- your thoughts relative to the IPO of Covisint. What is your longer-term plans for the balance of the ownership of that company once you've gone through an initial IPO? Are you going to maintain with Compuware or do you see -- have a strategy to distribute it to shareholders?

Robert C. Paul

Yes. We're going -- it's a tricky question. We're going to keep our options open for now. The intended short-term -- and obviously, we have been advised to stay pretty quiet on this as we're getting -- as we're moving closer and closer. But the reason that it's just not a complete IPO is because, as I stated before, the tremendous upside for Covisint is in the years ahead, it's in 2, 3, 4 years out from now. And that is because of the new markets that are being formed in the specific industry segments. So as we look at Covisint and you look at some of the -- I would say, the sketchy things that have happened in the public markets and companies like them, their stickiness is almost 100% and their expansion once in an account is almost guaranteed because of the type of business that it is. So it makes it very different. And the -- I would say, the barrier to entry to new competitors is also extremely high. So we want to make sure that we're -- for our shareholders, that we are retaining the upside value of Covisint in the years to come. But at the right time, the conditions change, growth changes. Right now we're leaving our options open and we'll make the best decision as it makes sense for shareholders moving forward.

Mark C. Jordan - Noble Financial Group, Inc., Research Division

Second question, if I may, relative to the operating expenses in APM. Were there any one-time expenses in APM this year on the operating expense side? And then secondly, do you have any guidance as to the overall growth rate of op expenses for APM in fiscal 2013?

Robert C. Paul

Yes. So we did have some one-time operational expenses. Obviously, outside of that, you've got the purchase accounting expenses, which has been an impact on the overall APM margins. We are -- we don't feel the need that we have to expand any capacity in expense in the APM business moving forward. And for the most part, our top line revenue growth will right-size the APM contribution margin this fiscal year. So as a balance for the year, right, we are tracking very closely their margin. We are seeing improvements on the ongoing operating margin and we don't feel that we -- we don't see the need for any expansion of those expenses moving forward. So as we get the top line growing as it is, it will naturally take care of the improved margins moving forward. I'm not sure if, Larry, you've got any other...

Larry Angeli

The only thing that I would add is that -- what Bob said is exactly right, with the exception of direct sales-related expenses, i.e. commissions. So you might...

Robert C. Paul

Right. So we had a -- we -- in order to take out the friction in the Q3, Q4, we had both Compuware and dynaTrace sales reps selling similar products. And in some cases, there were double comps that have now gone away as we've rationalized the organization in Q1. So we did have some increased sales commission expenses but that has disappeared moving into this fiscal year.

Operator

And now to the line of Kirk Materne from Evercore Partners.

Stewart Materne - Evercore Partners Inc., Research Division

Just a follow-up housekeeping question. I guess, Laura, do you have any idea what the purchase accounting impact was for fiscal '12 or even for the fourth quarter?

Robert C. Paul

It was -- I think it was, what, $20 million.

Stewart Materne - Evercore Partners Inc., Research Division

So it's $20 million for this year -- for the full year?

Laura L. Fournier

That would be Gomez and dynaTrace.

Robert C. Paul

Right.

Stewart Materne - Evercore Partners Inc., Research Division

Okay. For the full year. Great. And then the last question for you guys. Last quarter, you guys talked about sort of adjusting your forecasting model. I was just curious how things played out relative to some of the new, I guess, metrics you might put in place and do you feel better that the kind of information that you're getting in the CRM is the right quality, those kinds of things, heading into fiscal '13?

Robert C. Paul

Yes. So it's been an interesting education on the sales force side. We had -- we obviously had ended up with 2 instances of salesforce.com and different practices across multiple organizations which led to some challenges. And additional manual efforts that became challenging for us. It's been a very important task for us to get that rationalized. Most of that work has been done, the only remaining work that's required of sales force is just making sure that we've got the final right names and the right ore structures and testing that mechanism moving forward. But we're already using it for forecasting. We had a backup system this quarter in our first iterations of our forecast, and so it didn't hurt us. But we get to move away from all the manual efforts that we've been working on over this last -- the 1.5 months of this quarter and get back to an integrated and rationalized, not just automated sales force machine, but automated marketing and lead generation machine, and we've also now are in sort of full-scale mode. And with additional enhancements coming online of the whole customer, the customer service SaaS-based system. So we'll be full, sort of 360 here in the coming month or 2. But the sales force piece of it -- the forecasting piece of it, is just about complete as far as rationalization.

Operator

And ladies and gentlemen, we will now conclude the question-and-answer portion of today's conference call. I would now like to turn the conference back over to Lisa Elkin.

Lisa 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.

Operator

Thank you. And ladies and gentlemen, that does conclude our conference for this afternoon. Thank you for your participation and for using the AT&T Executive Teleconference service. You may now disconnect.

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