BMC Software (BMC)

Q3 2011 Earnings Call

February 02, 2011 5:00 pm ET

Executives

Derrick Vializ - Vice President of Investor Relations

Stephen Solcher - Chief Financial Officer and Senior Vice President

Robert Beauchamp - Chairman, Chief Executive Officer and President

Analysts

Derek Bingham - Goldman Sachs Group Inc.

Yun Kim - Gleacher & Company, Inc.

Matthew Hedberg - RBC Capital Markets, LLC

Aaron Schwartz - MKM Partners LLC

James Wood - Susquehanna Financial Group, LLLP

Philip Winslow - Crédit Suisse AG

Walter Pritchard - Citigroup Inc

Tim Klasell - Stifel, Nicolaus & Co., Inc.

Israel Hernandez - Barclays Capital

Michael Turits - Raymond James & Associates

Gregg Moskowitz - Cowen and Company, LLC

Presentation

Operator

Good day, everyone. Welcome to today's BMC Software Third Quarter Fiscal Year 2011 Earnings Results Conference Call. At this time, for opening remarks, I'd like to turn things over to Mr. Derrick Vializ. Please go ahead, Derrick.

Derrick Vializ

Good afternoon, everyone. I'm Derrick Vializ, Vice President of Investor Relations, and I would like to thank you for joining us today. During our call, Bob Beauchamp, our Chairman and CEO, will provide an overview of the third quarter performance of our company and business units and update you on recent initiatives. After that, Steve Solcher, our CFO, will provide additional financial and operational details. Bob will then provide an update on our expectations for fiscal 2011 before we open the call to questions.

These prepared comments were previously recorded. This call is being webcast and a complete record of the call will be made and posted to our website. In addition to today's earnings press release, we have posted a presentation, which we will refer to at various times during the call. Both of these documents are available on our Investor Relations website at investors.bmc.com.

Before we continue, I would like to remind you that statements in this discussion, including statements made during the question-and-answer session, regarding BMC's future financial and operating results, the development of and demand for BMC's products, BMC's operating strategies, acquisitions and other statements that are not statements of historical fact are considered forward-looking statements.

These statements are subject to numerous important factors, risks and uncertainties, which could cause actual results to differ from the results implied by these or any other forward-looking statements. Cautionary statements relative to these forward-looking statements and BMC's operating results are described in today's earnings press release and in our annual report on Form 10-K. All of these documents are available on our website. These forward-looking statements are made as of today based on certain expectations, and we undertake no obligation to update these forward-looking statements.

I would also like to point out that the company's use of non-GAAP financial measures is explained in today's earnings press release, and a full reconciliation between non-GAAP measures and the corresponding GAAP measures is provided in the tables accompanying the press release and in our GAAP to non-GAAP reconciliations found on our website at investors.bmc.com.

At this time, I'll turn the call over to Bob.

Robert Beauchamp

Thank you, Derrick. Good afternoon, and thank you for joining us on today's call.

I'm pleased to report that BMC Software delivered a strong fiscal third quarter. We generated solid results across our key financial metrics, including total bookings, license bookings, revenue and cash flow from operations. We also enhanced our technology leadership, launching new products and solutions that position us more strongly than ever to capture the growing demand for cloud computing.

With our strong bookings performance and with the visibility we have to our fiscal fourth quarter, we're raising our fiscal year 2011 expectations for certain key metrics, including total bookings and ESM license bookings and cash flow from operations.

Let's look more closely at our fiscal 2011 third quarter results compared to the year-ago period. Total bookings grew 10% to a company record of $594 million. License bookings grew 19% to $295 million. Revenue was up 6% to a company record of $540 million. Cash flow from operations increased 117% to $180 million. Non-GAAP diluted EPS increased 4% to $0.79 per diluted share. And our balance sheet remains strong with $1.6 billion in cash and investments and $1.8 billion in deferred revenue.

That's a snapshot of our all financial performance. But let me turn next to provide a brief overview of our ESM and MSM business units during the third quarter.

Our ESM business generated solid growth, with ESM license bookings increasing 8% to a company record of $163 million, off a challenging compare to the year-ago period. On a trailing 12-month basis ESM license bookings have increased 15% year-over-year, in line with our longer-term objective of mid-teens growth.

We were pleased that performance was balanced across the product lines, with exceptionally strong performance in our automation products. We were also excited to see strong growth from EMEA and Asia-Pacific.

We also seeing a positive impact from our efforts to strengthen our ESM sales organization. During the quarter, the average number of productive sales reps increased from the prior year. And we are on track to achieve a 20% increase in the average productive sales headcount in fiscal 2011 as compared to fiscal 2010.

Our execution regarding our BSM platform continues to trend higher, as evidenced by our continued ability to win large, multiproduct platform deals. During the third quarter, we had 30 ESM transactions with over $1 million in license bookings, up 11% from a year ago. More than 75% of these transactions were multiproduct license transactions. Major ESM wins during the third quarter included the United States Army, Capgemini, CSC, BBVA, the Federal Bureau of Investigation, Cisco Services, MetLife and BMW, to name a few.

In addition to the impressive growth in the number of large deals, we also saw our average selling price continue to increase. Our MSM business also performed very well in the quarter with strength in new product sales and increased capacity upgrades.

During the quarter, we expanded our relationships with existing customers with 65 new product placements. Some key MSM mainframe wins included Banco Bradesco, Bitmarck, Crédit Suisse, Deutsche Bank, Kaiser Foundation Hospitals, National Australia Bank and WellPoint. In the quarter, we also saw strong double-digit growth in the annual run rate spend for our top 15 MSM deals, with 13 of the 15 transactions resulting in an increase in spend with BMC.

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