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BMC Software Inc. (BMC) reported third quarter 2012 earnings per share of 79 cents, surpassing the Zacks Consensus Estimate of 70 cents.

Revenue

Total revenue in the reported quarter was $548.2 million, up 1.5% year over year. The company witnessed mixed results across different revenue segments. However, cloud management and Software-as-a-Service (SaaS) initiatives continued to grow, adding to the customer base.

License revenue in the third quarter was $225.0 million, down 4.1% year over year. ESM license revenue declined 10.0% year over year to $134.0 million. MSM license revenue increased 7.0% to $91.0 million from the year-ago quarter.

Maintenance revenue for the third quarter was $807.4 million, up 5.5% year over year. Professional services revenue for the quarter was $50.9 million, up 10.7% year over year.

Bookings

Total booking for the quarter was down 12.0% year over year while ESM license bookings in the quarter decreased 23.0% year over year. During the reported quarter, the company executed 22 ESM license transactions totaling more than $1 million.

Operating Results

Operating income on a GAAP basis was $161.8 million, up 16.1% from $139.4 million in the year-ago quarter. Excluding special items such as severance costs and amortization of intangible assets, but including stock-based compensation expense, non-GAAP operating income was $181.6 million in the reported quarter, up 11.9% from $162.2 million in the prior-year quarter. The company witnessed a substantial reduction in R&D expenses, while General & Administrative expenses also dipped.

Net income on a GAAP basis was $156.9 million or 93 cents per share compared with $143.2 million or 79 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 79 cents per share compared with 69 cents in the year-ago quarter.

Balance Sheet, Cash Flow & Share Repurchase

BMC Software generated $164.3 million in cash flow from operations in the reported quarter versus $161.7 million in the previous quarter. The company exited the quarter with cash and investments of $1.36 billion, down from $1.46 billion in the prior quarter.

During the third quarter, BMC repurchased 6.3 million shares for a total cost of $225.0 million. At the end of the quarter, BMC had $1.0 billion remaining under its current share repurchase program.

Guidance

For fiscal 2012, the company expects non-GAAP diluted earnings per share in the range of $3.26 to $3.34 per share. This is inclusive of 4 cents of dilution related to the pending acquisition of Numara Software and excludes an estimated 90 to 95 cents per share in non-GAAP adjustments, including expenses related to the amortization of intangible assets, stock-based compensation and severance, exit costs and related charges.

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 a decent third quarter but it provided modest guidance for fiscal 2012. This apart, the company witnessed a substantial reduction in total bookings.

The company witnessed growth in most of its business segments and decent cash flow. However, we are a bit apprehensive about the bleak business conditions in Europe. This apart, growing competition from big players such as International Business Machines Inc. (IBM), Hewlett-Packard Company (HPQ), EMC Corp. (EMC) and CA Inc. (CA), will pose challenges to the company.

The company holds a Zacks #4 Rank, implying a short-term Sell rating.

 
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