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BMC Exceeds Estimates

Zacks Equity Research

BMC Software Inc. (BMC) reported first quarter 2012 earnings per share of 59 cents, surpassing the Zacks Consensus Estimate of 57 cents.

Revenue

Reported revenue of $502.0 million increased 9.0% year over year. During the quarter, the company continued to leverage its technology leadership and capitalize on the growing customer demand for a highly advanced IT infrastructure. Moreover, the company’s cloud and software-as-a-service (SaaS) solutions gained further traction in the marketplace. The company’s mainframe business also performed well in the reported quarter.

License revenue was $189.5 million, up 10.7% from $171.2 million reported in the year-ago quarter. Maintenance revenue increased 4.3% to $264.6 million from $253.8 million in the year-ago quarter. Professional services revenue was $48.3 million in the reported quarter versus $35.9 million in the year-ago quarter.

Bookings

Total bookings surged 39.0% compared with the year-ago quarter, driven by strong MSM bookings. Total license bookings increased 43.0% year over year while ESM license bookings remained flat with the year-ago level. The quarter witnessed a single transaction valuing more than $3 million, as compared to four such transactions in the prior year quarter..

Operating Results

Operating income on a GAAP basis was $115.1 million, up 6.5% from $108.1 million in the year-ago quarter. Excluding special items like severance costs and amortization of intangible assets, but including stock-based compensation expense, non-GAAP operating income was $139.7 million in the reported quarter, up 6.0% year over year from $131.7 million in the prior-year quarter.

Net income on a GAAP basis was $95.7 million or 53 cents per share compared with $92.8 million or 50 cents in the year-ago quarter. Excluding special items such as amortization and severance costs, but including stock-based compensation expense, non-GAAP net income was $107.2 million or 59 cents per share compared with $95.6 million or 52 cents reported in the year-ago quarter.

Balance Sheet, Cash Flow & Share Repurchase

BMC Software generated $261.4 million in cash flow from operations in the reported quarter, down from $290.4 million in the previous quarter. The company exited the quarter with cash and investments of $1.61 billion, down from $1.69 billion in the prior quarter.

During the first quarter of 2012, the company repurchased 3.4 million shares for a total cost of $180.0 million. BMC currently has $450.0 million remaining under its existing share repurchase program. The company also spent $151.0 million related to the acquisitions of Coradiant, Aeroprise and the IMS assets for Neon Software.

Guidance

For fiscal 2012, BMC Software expects non-GAAP diluted earnings per share in the range of $3.25 to $3.35, which is 4 cents higher than the company’s previous expectations. At the midpoint, the guidance reflects a year-over-year increase of 10.0%. BMC expects cash flow from operations between $825.0 million and $875.0 million for fiscal 2012, which at the mid-point represents a year-over-year improvement of 11.0%.

Our Take

BMC Software Inc. is one of the leading software vendors and providers of system and service management solutions across the globe. BMC reported decent first quarter results. Moreover, the company provided a positive outlook for fiscal 2012. Acquisitions have expanded BMC’s product portfolio, further facilitating enhanced solutions offering.

Growth prospects in most of its business segments, strong position in the government vertical and robust cash generation abilities are other positives. However, we are a bit apprehensive about growing competition from big players such as International Business Machines Inc. (NYSE: IBM - News), Hewlett-Packard Company (NYSE: HPQ - News), EMC Corp. (NYSE: EMC - News) and CA Inc. (NasdaqGS: CA - News), which bundle hardware and software offerings.

The debt level also appears high. We, thus, maintain our Neutral recommendation on BMC shares.

The company holds a Zacks #2 Rank, implying a short-term Buy rating.  

BMC SOFTWARE INC (BMC): Read the Full Research ReportHEWLETT PACKARD CO (HPQ): Read the Full Research ReportCA INC (CA): Read the Full Research ReportINTERNATIONAL BUSINESS MACHS (IBM): Read the Full Research ReportE M C CORP MASS (EMC): Read the Full Research ReportZacks Investment Research