BMC Software Management Discusses Q1 2013 Results - Earnings Call Transcript

BMC Software (BMC)

Q1 2013 Earnings Call

July 31, 2012 5:00 pm ET

Executives

Derrick Vializ - Vice President of Investor Relations

Robert E. Beauchamp - Chairman, Chief Executive Officer and President

Stephen B. Solcher - Chief Financial officer and Senior Vice President

Analysts

Philip Winslow - Crédit Suisse AG, Research Division

Stewart Materne - Evercore Partners Inc., Research Division

Walter H. Pritchard - Citigroup Inc, Research Division

Abhey Lamba - Mizuho Securities USA Inc., Research Division

Michael Turits - Raymond James & Associates, Inc., Research Division

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

Gregg Moskowitz - Cowen and Company, LLC, Research Division

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

Presentation

Operator

Good day, everyone, and welcome to today's BMC Software First Quarter Fiscal Year 2013 Earning Results Conference. Today's call is being recorded.

At this time for opening remarks, I'd like to turn things over to Mr. Derrick Vializ. Please go ahead, sir.

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, Chairman and CEO, will provide an overview of the first quarter fiscal 2013 performance of both 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 discuss and provide an update for our expectations for fiscal 2013 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'd like to remind you that the statements in this discussion, including statements made during the question-and-answer session regarding BMC's future financial and operating results, particularly statements and views regarding fiscal 2013, 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 at investors.bmc.com.

Now, I'll turn the call over to Bob.

Robert E. Beauchamp

Good afternoon, everyone. Our first quarter performance was mixed. There were a number of positive aspects in the quarter. Our MSM business generated solid results in terms of total bookings margins and operating income.

In our ESM business, we continue to win more cloud Software-as-a-Service and multidisciplined projects. Our data center automation and professional services areas also generated solid growth. We did, however, encounter some adverse headwinds during the quarter that impacted our performance, resulting in disappointing ESM license bookings and other key metrics.

There were 2 external economic headwinds in particular to call out. The first relates to the change in foreign currency rates since our last earnings call. While we expected an adverse impact from a stronger dollar, the actual impact was roughly twice what we had anticipated in the quarter. We had expected, for example, that FX would negatively affect revenue growth by about 1%. The actual impact was 2%.

The same is true for the impact of FX on license bookings. We had anticipated that FX impact on ESM license bookings would be 2% in dollar terms. The actual negative FX impact was 5%.

The second macro factor that worked against us in the first quarter was the weakening economic environment. We expect these 2 macro headwinds to persist throughout the remainder of the year. In particular, we are cautious about the impact from the continuing economic uncertainty in Europe. As a result, I will accordingly be updating our expectations later in my prepared remarks.

In addition to these external factors, we were also affected during the quarter by our own ESM sales transition issues that we've discussed before. I'll go into this in more detail in a few minutes, but it's important to note up front that we are now at our planned ESM sales capacity. This represents a significant and positive change in the dynamics of our sales force as we now shift our full attention to the improvement of sales productivity. We should see productivity improve during fiscal 2013 and beyond as our recent new hires gain experience and reach increased traditional productivity levels.

With that overview, let me turn to discuss our 2 business units in more detail, beginning with ESM. ESM license bookings in the first quarter declined 12% compared to last year, as reported, and declined 6% on a constant currency basis. Despite this performance, we continued to see positive trends and strong growth in a number of our key strategic growth areas. This includes continued strong momentum in our cloud and SaaS businesses, improved trends in sales attrition and sales capacity and the positive impact of the Numara business.

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