Compuware Corporation F4Q08 (Qtr End 03/31/08) Earnings Call Transcript

May.15.08 | About: Compuware Corporation (CPWR)

Compuware Corporation (NASDAQ:CPWR)

F4Q08 Earnings Call

May 15, 2008 5:00 pm ET

Executives

Lisa Elkins – Vice President of Communications and Investor Relations

Peter Karmanos, Jr. - Chairman and Chief Executive Officer

Robert C. Paul - President and Chief Operating Officer

Laura L. Fournier – Executive Vice President and Chief Financial Officer

Analysts

Ajaykumar Kasargod – Piper Jaffray

Kirk Materne – Banc of America Securities

Aaron M. Schwartz, CFA – JP Morgan

David Rizzo - Trident Financial Corp.

Operator

Welcome to the Compuware Corporation’s fourth quarter earnings and year-end results teleconference. (Operator Instructions) At this time I would like to turn the conference over to Lisa Elkins, Vice President of Communications and Investor Relations for Compuware Corporation.

Lisa Elkins

With me this afternoon are Peter Karmanos, Jr., Chairman and CEO; Bob Paul, President and Chief Operating Officer; Laura Fournier, Executive Vice President and Chief Financial Officer; and Jason Vines, Senior Vice President and Chief Communications 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 risk 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. Pete, Bob, and Laura will then provide details about the quarter and other [inaudible] business activities. We will then open the call to your questions.

Compuware Closes Year of Growth on High Note; Officially Launches Compuware 2.0.

Q4 Results Feature 38 % year-over-year increase in software license fees, 7% year-over-year increase in maintenance. Compuware Corporation today announced final financial results for its fourth quarter and fiscal year ended March 31, 2008.

During the fiscal year ended March 31, 2008, revenues were $1.23 billion, up from $1.21 billion in the previous fiscal year. Net income before restructuring charges and capitalized software impairment was $164.6 million compared to $158.1 million in fiscal 2007.

Earnings per share diluted computation before restructuring charges and capitalized software impairment were $0.57, an increase of 27 %, from $0.45 in fiscal 2007, based upon 287.6 million and 351 million shares outstanding, respectively.

On a GAAP basis, net income was $134.4 million and earnings per share were $0.47 in fiscal 2008. During fiscal 2008, software license fees were $297.5 million, up from $283.4 million in fiscal 2007. Maintenance revenue was $476.4 million in fiscal 2008, compared to $457.6 million in fiscal 2007. Professional services fees for fiscal 2008 were $455.7 million, compared to $472.0 million in fiscal 2007.

Compuware reports fourth quarter net income before restructuring charges of $63.1 million on revenues of $338.9 million. On a GAAP basis, net income was $61.2 million in Q4. Earnings per share diluted computation were $0.23 based upon 268.7 million shares outstanding.

During the company's fourth quarter, software license fees were $100.8 million, an increase of 38%, from $73.2 million in the same quarter last year. Maintenance fees were $126.3 million during the quarter, an increase of more than 7%, from $117.7 million in the same quarter last year. Fourth quarter revenue from professional services was $111.8 million, compared to $122.1 million in the same quarter last year.

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

Peter Karmanos, Jr.

Compuware put together a spectacular Q4 to cap off a strong fiscal year. We worked very hard and brought our shareholders a second straight year of revenue growth and a fourth consecutive year of earnings growth.

The efforts we have made to improve process to reduce expense and to realign our sales teams have really started to pay dividends. With this year’s more than 21% growth in EPS, before restructuring to $0.57. We now have increased our EPS more than 338% in the past four fiscal years. This is a remarkable achievement and next year we are going to build on it. We’re going to capitalize on Compuware’s tremendous base of knowledge, experience, and talent to take the market by storm.

For fiscal year 2009 Compuware expects to bring our shareholders a 5%-10% increase in revenue. We also expect EPS growth of 20% to 30% for the fiscal year. These expectations demonstrate the strength and dynamic potential of our business. We are unlocking Compuware’s value by improving our sales and execution and by streamlining our strategic support organizations.

The business is really taking flight. We’re going to seriously improve the slope of our revenue and trend lines and hopefully make the business soar. Everything we need to realize our potential is in play. We have people and products that provide identifiable and measurable economic value to our customers. This means we can sell effectively around the world in both good economies and struggling economies.

In high performing economies Compuware’s sales teams engage in solution and value-based selling and focus on the ability of our people and products to help increase revenues or improve performance. In tougher economies buying decisions face additional hurdles, obviously. By focusing the abilities of our people and our products to provide rapid return on investment, our sales teams will continue to execute.

We are supporting these efforts by implementing our plans selectively and meaningfully invest in the lines of business where we can be the best in the world. To this process we are building on our incredible arsenal of assets, more experience than almost anybody else in the business, a global presence, great technology, and talented people.

We have been around for thirty-five years and we have learned a lot in that time. Our experience has taught us to create great relationships with customers, then work closely with them to save money and actually get things done. That is what value is all about and that is actually our bottom line.

In the coming year we are going to build on our heritage and commitment to value and we are going to deliver an utterly outstanding fiscal 2009. I can’t wait to share the results with you.

Robert C. Paul

Compuware had a very positive quarter. We are encouraged by the momentum we have built. Posting 38% growth in license revenue and 49% growth in total product commitments, the truest indicator of our software-related activity in the quarter, is remarkable. Those numbers speak for themselves but only represent half of the story for Q4.

Since we have a lot to discuss today, I am going to briefly touch on the key highlights on the quarter before delving a little into the substantial changes we have made, and continue to make, across the company as part of Compuware 2.0.

In Q4 mainframe sales led the way, growing 40% quarter-over-quarter and nearly 80% year-over-year. Who said the mainframe’s dead? A great deal of our mainframe success this quarter can be attributed to our premium license and win-back programs. These programs, in conjunction with a new dialogue we are having around value-based solutions, are clearly resonating with our mainframe customers.

On the distributor side we remain encouraged by the continued success of our key growth driver solutions. Vantage license sales were up 21% year-over-year and 17% quarter-over-quarter. Changepoint license sales for the year were up more than 25%. Covisint continues to see growth, especially in the healthcare vertical where year-over-year revenue growth was 117%, demand for secure and rapid [inaudible] of sensitive data across disparate systems end users continue to grow at a rapid pace. For the quarter Covisint revenue came in at $9.6 million.

The progress towards the Covisint IPO continues. Although we won’t be in a position to file this summer, we will most likely, due to poor external market conditions, especially for softwares- and service-type companies, delay the filing until we see more favorable conditions return. Again, Q4 was a tremendous quarter for us and something we will build on.

So tomorrow we officially launch Compuware 2.0, which is, as Pete mentioned on the call last quarter, a fundamental transformation of our business. I won’t get into all the details right now, but I do want to spend a little time talking about 2.0 and how it’s driving our business forward.

In its very simplest form 2.0 is a recommitment to deliver economic value to our target customers. We’ve analyzed all our products, solutions, and services in terms of value creation, competitive differentiation, and category [inaudible]. We then designed our fiscal year plan to optimize our growth and align our resources in supporting of delivering this plan.

This work has impacted our sales organization, marketing, business development, partner channels, recruiting and trading, and our technology and development group. All of our go-to-market strategies, including our packaging and pricing, have been impacted. This degree of focus not only improves our ability to deliver consistent results in future quarters, but it should also position us as a global leader in several market segments. This means break-out growth potential in future years.

So when it comes to growth potential at Compuware, Vantage remains at the top of the list. Vantage is perfectly positioned to be best-in-class in the IT service management marketplace. We will accelerate our first move over to Vantage in this market and will capitalize on some of the solution’s extraordinary capabilities by reinvesting in these capabilities to further distance ourselves from the competition.

Changepoint continues to represent a tremendous growth opportunity as well. The numbers this past year, 25% growth, proves that out. Therefore, we’re investing in the Changepoint platform, both in the solution itself and the more effective integration with some of our other solutions to drive maximum value to the customer.

Our quality and testing applications also represent a very strong revenue component. We are working on further strengthening our positions in these quality and testing categories.

Our mainframe solutions continue to be an important component of our overall business strategy, so we’re investing there to make sure that we maintain continued, competitive differentiation and we are offering simplified bundling of our mainframe products and services that make sense to our customers.

And we know for certain that all these solutions I just mentioned require professional services to truly maximize the economic value we deliver to our customers. Our strategy is based upon delivering whole solutions in which technical talent, along with technology, and best practices is a key component.

The importance of our services organization has never been more apparent that it is today. So going forward we will be able to simplify the value creation for our customers by bundling services with our products. This will be done through our solutions delivery group around the world.

Additionally, we will continue to pursue large services project around emerging core competencies or on application life cycle management that should also position us as best in class. These types of services obviously drive higher billing rates and margins.

Speaking of our services businesses, you may have seen in our recent press release announcing that GM named Compuware as its 2007 Supplier of the Year, calling Compuware among the best of the best. We have a tremendous relationship with GM, we expect to grow our business significantly with them and companies like them over the next few years.

Compuware 2.0 also includes changes to how we solve our solutions. Among other projects, we’ve completed our global roll out of Salesforce.com and we’re now one of the largest users of this tool in the world. Through this tool we will review sales data on a weekly basis to determine how we are progressing toward meeting our goals; we will be able to react quickly as an organization to any changing market conditions. As you can see, we really have a lot of cool stuff going on.

So what’s next? What we’ve done so far is essentially complete Phase 1 of 2.0. The great news is that all of that work is behind us and we have already begun work on Phase 2. Phase 2 includes the development of our detailed three-year strategy plan and will be completed by the end of October. This will include a clear articulation of who we are and exactly where we’re going. It will also lay the ground work for exactly how we achieve break-out growth. I look forward to updating you on the progress on future calls.

I would like to close by saying that we look at Q4 not simply as the end of our fiscal year, but rather as a beginning of a new era at Compuware. Building on our tremendous history, the company is focused, energized and ready to make IT rock around the world like never before.

Laura L. Fournier

Thanks, Bob. Q4 was a terrific quarter across the board. Operating cash flow was strong, license revenue growth was outstanding, and our total product commitments were off the chart. As I’ve mentioned before, total product commitments represent all successful software sales activity that occurs in the quarter.

Think of it this way: when we close a product transaction, the entire amount has to go to either the income statements as license or maintenance revenue, or to the balance sheet as deferred revenue. Our private commitment number represents the total sales amount. If you look at this past quarter, both deferred license and deferred maintenance were up over the year-ago period.

So what it much as shows you is that for Q4 not only did we recognize substantially more license and maintenance revenue compared to Q4 a year ago, but we also deferred more license and maintenance revenue as well. From this you get an exact picture of just how strong the fourth quarter actually was, as total product commitment jumped 49% to $314.2 million from $210.5 million compared to last Q4.

In the fourth quarter operating cash flow came in at $126.7 million and we finished fiscal year 2008 with an operating cash flow of $234.7 million. The majority of this increase over our projected $200 million was due to stronger sales activity. For fiscal year 2009 we anticipate operating cash flow to come in at approximately $250 million.

During the quarter Compuware purchased 12.8 million shares of Compuware stock for approximately $103 million. The company currently has approximately $729.4 million remaining under the current authorization for future buy-backs and we absolutely remain committed to buying back stock.

To give you some perspective on just how committed we’ve been to repurchasing our stock, consider this. At our peak in June of 2005 our total shares outstanding were approximately 389 million, and today we are at 262 million. We have reduced our total shares outstanding by 146 million through our buy-back program, and that is significant.

Let’s turn to the income statement now. In terms of expenses, during fiscal year 2008 we cut operating costs by approximately $100 million on an annualized basis. As we move forward we remain committed to our cost containment program and our ultimate goal of $200 million. Just one note for Q4, when you look at the income from operations, we increased that this year by 115% year-over-year. This year we did $68 million after restructuring, $71.5 million before the restructuring costs. Before restructuring costs that would have been an increase of 125%. Income from operations for Q4 was outstanding.

When you drop to the bottom line and look at net income, it appears that we declined. But keep in mind that last year, during the fourth quarter, we took, based on our settlement with the IRS at that time, we took a positive hit to our income taxes and so we have a swing of $33 million in our tax line. So while the bottom line doesn’t reflect all of the activities all for Q4, look at the income from operations.

So all in all, we finished fiscal year 2008 on a very positive note and everyone here is very optimistic about Compuware’s future. This really is an exciting time at Compuware. The transformation we are going through as a company is real, and tangible, and the energy is contagious. We are convinced that Compuware 2.0 is just the start to many great things to come.

Thank you and I will now turn the call over to Lisa.

Lisa Elkins

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Ajay Kasargod - Piper Jaffray.

Ajaykumar Kasargod – Piper Jaffray

Could you talk to us just a little bit about the strength in mainframe that you’re experience in commitments?

Peter Karmanos, Jr.

I believe that our strategy around premium licenses is working. We are improving our relationships greatly with all of our existing mainframe customers and we’re out of the capacity game in the sense that we are trying to somehow predict what that will be and we’re being straight-forward with our customers in making sure that we fix their cost more.

Ajaykumar Kasargod – Piper Jaffray

One thing I know, Pete, is that you have talked about, in the past, being more focused on longer-term relationships, especially in the mainframe business, with customers. Sounds like that is playing through very well in terms of sales and commitments. How does that impact longer-term sales opportunities for your sale force in the mainframe business?

Peter Karmanos, Jr.

We have solutions that we can go back to all of our existing customers and using our software and our services be able to achieve even more value from the products they already have by providing these solutions, such as data privacy or mix-management, among a few.

Ajaykumar Kasargod – Piper Jaffray

When you look at overall product commitments looking into 2009, which are very strong, could you just describe to us what’s going on, what exactly what are these product commitments for, what has really caused the biggest jump?

Peter Karmanos, Jr.

We have several different areas. It’s not one thing. As we grow, our presence in those products that we are the best in the world at, such as Vantage and Changepoint, we’re going to see significant new license growth. We gave some estimates that we are going to grow between 5% to 10%. We naturally want to try to colorate that, but we have a lot of really good things to sell people.

Operator

Your next question comes from Kirk Materne - Banc of America.

Kirk Materne – Banc of America Securities

Pete, when you talk about 5% to 10% revenue growth for 2009, how should I view that in relation to product commitments? Is that about the rate you’re expecting commitments to come in, so if we have a larger level of deferrals, is that still what you’re thinking about in terms of overall product commitments, or could that actually run a bit ahead of what your revenue expectations are?

Peter Karmanos, Jr.

That should run ahead of what we’re predicting for our GAAP revenue growth. We have 5% to 10%, the reason we have that kind of range is that we don’t know how much of it is, from time to time, is going to be ratable and how much we can have now. So you could conceivably see us grow our revenue 5% to 10%, see product commitments grow as much as 20%.

The overall effort here that we have is trying to smooth out our quarters. And we are very focused on making sure that we make each quarter and we don’t have these bumps that we’ve had in the past.

We’ve grown EPS in this company 338% and we’re not getting the benefit of that because we’ve had so many ups and downs and we’re very focused on making sure we make each one of our quarters. And if business is stronger because we’re deferring a lot of revenue, we just want to make people aware of that.

Kirk Materne – Banc of America Securities

Obviously you are expecting earnings to grow faster than overall revenue. Will we consider operating margins for next year; did you have a ballpark in mind in terms as what you would like to see operating margins expand by on an annual basis? Is it 100 to 200 basis points? I know you’re going to get some leverage on the bottom line with your stock buy-back as well, but just so I have a ballpark from a modeling standpoint. I wondered if you had an estimate around that.

Peter Karmanos, Jr.

I would put in at 2 basis points, 2.5.

Kirk Materne – Banc of America Securities

On the premium licenses, clearly you have had some success there. In terms of just how much success you’ve had, where do you stand in terms, or have there been a handful of deals, dozens of deals? Where do you stand in terms of the overall opportunity of that?

Peter Karmanos, Jr.

It’s just been a handful of deals out of a huge market that we’ve already filled. We have an awful lot of room there.

Operator

Your next question comes from Aaron M. Schwartz, CFA – JP Morgan.

Aaron M. Schwartz, CFA – JP Morgan

I wanted to revisit the deferral of the license revenue. I’m wondering if you could help us out in terms of what you’re recognizing, if I look at license revenue, what percentage recognized from the product commitments and what’s coming in in the quarter. I’m just trying to understand, given the strength in product commitments, how much visibility do you have into the out-year license growth.

Laura L. Fournier

Well, for this quarter we took in $28 million out of the existing commitments and we put back in $35 million for the future, for the license part. As far as how many years that would go out, it really varies, but most of it is in the next 12 to 24 months.

Aaron M. Schwartz, CFA – JP Morgan

The product commitment was obviously extremely strong and I’m just trying to get a feel for it, but are you seeing a trend in longer-term maintenance contracts as these deals come up, or is this truly solely product activity that has just been a product of what you’ve done on the sales and development side?

Laura L. Fournier

It’s true product activity. It goes across both distributive and mainframe. Obviously mainframe was very strong this quarter. We did see multi-year maintenance builds. We had an increase in overall maintenance billing. It was just a very strong quarter across the board, with mainframe leading the pack.

Aaron M. Schwartz, CFA – JP Morgan

You talked a little bit about bundling the services and product sales together, if I heard you correctly, and I’m just wondering, why that wouldn’t further defer some of your license growth. I see you have to recognize anything that’s bundled with services ratably over the service’s term.

Laura L. Fournier

Not necessarily, it depends on the terms of the deal.

Peter Karmanos, Jr.

It’s an important point. It depends how we structure the deals, but we’re not looking at, if we do a Vantage deal and half of it is licenses and half of it is services, we still will be able to, depending on the commitment we made, we will be able to take the license fee up front. And of course, the services would be ratable, as they always have been. It’s really important to understand that. And we are building a significant growth in that kind of services revenue.

Aaron M. Schwartz, CFA – JP Morgan

And then on the cost side, you spoke about the $100 million coming off. I know we can’t really see that on the P&L due to some non-cash components or some restructuring, but is there any way you can help us with what you’re looking at into fiscal 2009? You talked about some reinvestment in some areas, but what we should look for in terms of the cost reductions on the P&L netting out maybe some of the non-cash issues?

Laura L. Fournier

It’s difficult to say exactly what it is. We have an internal goal that’s very aggressive and we’re going to continue to work towards that. It’s in the tens of millions of dollars range.

Aaron M. Schwartz, CFA – JP Morgan

But costs on the P&L should be down in 2009 from 2008?

Laura L. Fournier

It depends on what costs you look at. For professional service, which would include Covisint, you’re probably going to see an increase in those. It really depends on how the year goes forward.

Peter Karmanos, Jr.

The more successful we are, the more sales costs are going to be annualized for our sales force. We want to accelerate our growth. And so that will deflect from the overall cost savings.

Aaron M. Schwartz, CFA – JP Morgan

So if we look at the margin next year, would you say the leverage is going to be more a function of revenue growth or cost reduction?

Peter Karmanos, Jr.

Hopefully, revenue growth, but the cost reductions will be in there adding to that leverage.

Aaron M. Schwartz, CFA – JP Morgan

The accounts receivables balance is very strong in the quarter here. Is there anything there that would limit you from collecting that under normal terms? It seems like with the strength there that cash flow would be above the $250 million you talked to.

Laura L. Fournier

As you all well know, I’m very conservative about that cash flow number, but there is absolutely no problems in any of the collectability of any of our receivables. It’s a very strong collections’ history.

Operator

Your next question comes from David Rizzo - Trident Financial.

David Rizzo - Trident Financial Corp

Can you clarify the margin expansion you expect to see in FY2009? Is it 2% to 2.5%?

Peter Karmanos, Jr.

Somewhere around there, yes.

David Rizzo - Trident Financial Corp

Can you give us an update on the IBM relationship? If there is one even?

Peter Karmanos, Jr.

I’ve been talking with Bob Moffett and we’re trying to figure out what we can do, but nothing in our new plan hopes for anything special because of the settlement with IBM. We’ve mitigated our plan even more than that and we don’t have any of that in there. We don’t have any of the price cost decreases in our plan, when I gave you those numbers.

We don’t have any maintenance growth that we think we will achieve from eliminating or cutting our cancellation rate. And we don’t have anything for price increases that we think we may be able to achieve through the year. So, the risk of the plan has been mitigated and we certainly don’t have any IBM risk in that plan.

David Rizzo - Trident Financial Corp

With the focus on Vantage and Changepoint and the mainframe, what happens to the other products? How do you go about maintaining the best thing on those product lines?

Robert C. Paul

We just have an understanding that that are some greater areas for growth than others. But in mature market places you can optimize revenue and P&L without necessarily having to do vast amounts of investments and technology. Some of it is how you package it, how you price it. Some of it is through how you’re partnering to deliver additional value.

So we think we’ve really put together a plan that gives us the best possible output in fiscal year 2009 by really broadening the gap between us and our competitors in some of the key areas that we think are important issues to CIOs and line of business executives.

We’re not avoiding or eliminating other products, but by making sure that we have the right go-to-market strategies on those areas where we’re competing in, quite frankly, very mature or commodity-based markets.

David Rizzo - Trident Financial Corp

And on premium licenses, what percent of the customer base on the mainframe side do you think is eligible or will take advantage of the new premium license contracts?

Robert C. Paul

That’s a tough one. Realistically, we’re only a little over one quarter into this thing and although we’re aggressively talking and having conversations and the type of dialogue we’re having with these mainframe customers is a lot different from the types of conversations we’ve had in the past, but it’s too early to put any percentages on customer base at this point.

Peter Karmanos, Jr.

When Bob said one quarter he meant one calendar quarter.

Robert C. Paul

We’re just touching the tip of the iceberg.

David Rizzo - Trident Financial Corp

And then, with these deals, what are customers’ reactions when you go in there with this type of a deal, and are deals upsided from what you originally thought they were when you go about talking to them and showing them the value?

Robert C. Paul

There is a consistency and the first one is it gives them pause to stop and think and look at the financials around it. Certainly if they see themselves in growth mode with some increase in capacity over future years, they do out the math pretty quickly and they want to move very fast. With others it’s just because where they’re at in the technology life cycle, they’re very interested but they want to defer the decision for a quarter or two.

So we’re seeing a little bit of that across the board but in every single case it provides an opportunity for a very important discussion that we’re having with our mainframe customers and quite frankly, that also allows us to expand that discussion to the distributor arena, too.

David Rizzo - Trident Financial Corp

The sales cycles on these deals, are they the same as they have been in a normal renewal? Are they quicker or longer?

Robert C. Paul

At the beginning they were a little longer. And as we got better at explaining it, better at creating scripts, better at figuring out the math associated with it, we were a lot more responsive and were able to shorten the sales cycle quite a bit. So right now there is really no difference between the length of a premium license deal and a regular renewal.

David Rizzo - Trident Financial Corp

And an update on the sales headcount, where are you at and where do you think you will be? Are you at capacity or do you have higher quests out there?

Robert C. Paul

We are increasing our sales headcount. I don’t have the actual numbers. We’re going to have to get that back out. But there is an increase in headcount and in some cases a reallocation of sales headcount based upon the fiscal year and our plan and strategy I referred to before.

So that still is going on and we’ve put a lot of emphasis on, before the quarter started, about understanding where we needed people. But a very aggressive program around hiring, training, recruiting, etc. Almost all our sales force has been entirely trained on the new strategies, the bundling, the packaging, the pricing, so we’re off to a great start in Q1.

David Rizzo - Trident Financial Corp

Covisint revenues in the quarter, did you disclose those?

Robert C. Paul

Yes. Covisint was $9.6 million.

Operator

Your next question is a follow-up from Kirk Materne - Banc of America.

Kirk Materne – Banc of America Securities

Laura, what should we be assuming for a tax rate in 2009?

Laura L. Fournier

35%.

Kirk Materne – Banc of America Securities

I know you don’t have a whole lot of history, but could you give us in terms of visibility what the CRM system in place over the last six weeks or so, as you go through your weekly meetings, the comfort level you have around the information that you’re getting back through that system.

Robert C. Paul

You’re talking about the Customer Relationships Management system. You gave us pause there because we actually have a type of person called a CRM, in our organization.

It’s taken off in some geographies a lot faster than others but everybody’s on. We had a little bit of a, not a delay in roll out, but how you assess the status or milestone of the sales cycle. So we had to go back in the first 30 days and do some education.

But the numbers, we still have the existing forecasting methodology and processes in place so we’ve got a backstop. But the numbers that we’re seeing are actually very close to what the existing processes would have given us in the first place.

So we’re very hopeful this is going to be a great indicator to move forward, not just for identifying slow performance so we can get in there and maybe do some better training, but just as important reacting to any competitive threats, changing market conditions, what have you. So right now it is global. Everybody’s on it. And it’s providing valuable information.

Operator

Your last question is a follow-up from Aaron Schwartz - JP Morgan.

Aaron M. Schwartz, CFA – JP Morgan

The 20% to 30% earning growth for next year, does that include or not include a Q4 settlement from IBM?

Laura L. Fournier

Right now that would not include any settlement from IBM.

Operator

We will now conclude the Q&A portion of today’s call.

Lisa Elkins

Thank you very much. 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.

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