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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good day, everyone, and welcome to today's BMC Software fourth quarter fiscal 2003 results conference call. Today's call is being recorded. At this time for opening remarks and introductions, I would like to turn the call over to Mr. Bob Beauchamp, President and Chief Executive Officer. Please go ahead, sir.
ROBERT E BEAUCHAMP, PRESIDENT & CHIEF EXECUTIVE OFFICER, BMC SOFTWARE: Thank you, operator, and thank you all for joining us today. Before we continue, I will like to remind you that statements in this discussion regarding BMC's future financial and operating results, the development of and demand for BMC's products, BMC's operating strategies and other statements that are not statements of historical fact are considered forward-looking statements. I remind you also that numerous important factors, risks, and uncertainties affect BMC's operating results and 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 SEC filings, particularly our quarterly and annual reports. I would encourage each and every one of you to review these carefully and to take them seriously. During my opening remarks, I will cover the following four areas: First, I will discuss our second quarter financial results in the macro environment. Second, I will discuss additional second quarter highlights. Third, I will provide an update on Remedy. Fourth, I will provide an update on our Business Service Management, or BSM strategy.
After I address these areas, I will turn the call over to our Chief Financial Officer, John Cox, who will provide additional financial details and provide an update on the restructuring effort that we announced in July. I'll then provide an outlook for the third quarter and fiscal 2004 before we open the call to questions. Let me begin by thanking all the BMC employees for their tremendous efforts this past quarter. Our employees did a great job of remaining focused on serving the needs of our customers and on delivering the industry's leading technologies. This is a great accomplishment in light of the restructuring efforts that occurred during the quarter.
BMC's second quarter earnings per share excluding special items were 10 cents, which exceeded the 4 to 6-cent range that we provided you in July and it's 5 cents higher than the current analyst consent estimate of 5 cents. The second quarter diluted loss per share on a GAAP basis was 6 cents. Included in the financial tables of today's press release is a reconciliation of results excluding special items to GAAP results. Total revenues for the second quarter were $333.8m, which is up 15% compared to this same quarter last year and is up $23.9m, or 8% compared to the first quarter. Excluding the impact of Remedy, total revenues were $273.5m which is down 6% compared to the same quarter last year and is up 7% compared to the first quarter.
From a macro perspective, it appears that the global IT spending environment is stabilizing, and although IT budgets may not be increasing, companies are more willing to spend their allocated IT dollars. We saw improvements in closure rates after a couple of quarters of declining closure rates. That being said, the environment remains competitive. Our North American business showed the most improvement in closure rates and performance relative to the first quarter. In particular, our federal business again had a solid quarter with strong year-over-year growth rates. Latin America exceeded its plan for the quarter.
We did not see sequential improvement in Europe in the September quarter. Of our four regions in Europe, the southern region in the United Kingdom continued to outperform the northern region in Germany. However, Germany did show significant improvement relative to the first quarter. The results in Asia continue to be mixed with the region overall, falling short of its goal as Japan continues to be disappointing. Next I would like to provide several additional highlights of the second quarter. From a product line perspective, our PATROL business had a strong quarter with 9% year-over-year license revenue growth, which is the first time PATROL grew license revenues year over year in ten quarters. All major geographies recorded year-over-year PATROL license revenue growth in the second quarter.
Within PATROL we're seeing the positive effects of our new Windows products that were introduced earlier this year as our PATROL for Windows business had a strong double digit growth. Our agentless monitoring product, PATROL Express, continues to gain momentum in the market and had strong sequential growth compared to first quarter. Our PATROL Application Management products had a strong quarter as our solutions for Siebel, SAP, WebSphere and Web-logic each had strong double digit growth in license revenues compared to last year. Our PATROL for UNIX business I'm happy to say appears to have stabilized in the quarter. Our Distributed Systems Database products also had a strong quarter led by our Smart DBA suite of products. Licensed revenues for this product line grew 7% year over year and 24% compared to the first quarter.
Although down on a year-over-year basis, our mainframe business showed improvement compared to the first quarter. From a sales perspective, our increased investment in our North American inside sales division and our channel business continues to prove beneficial as both areas exceeded their targets in the second quarter. Our inside sales model allows us to attract many new customers each quarter and to pursue a larger number of smaller opportunities within our installed base. Our increased focus on our channel business has resulted in double-digit license revenue growth compared to last year, excluding Remedy. Our channel business in the second quarter, excluding Remedy, represented 24% of our licensed revenues compared to 19% a year ago.
Including Remedy, which is over 50% indirect, our channel business currently represents 30% of our license revenues. Remedy has proven to be a great acquisition for BMC Software, its customers and the shareholders of this company. The Remedy business is outperforming our revenue and earnings expectations quarter after quarter and has been a significant contributor to our bottom line. In the second quarter, our Remedy business grew by double digits compared to the first quarter and achieved 35% operating margins excluding special items. Our Business Service Management strategy that we launched in April empowers our customers to manage their IT elements and services from a business perspective in a consistent, comprehensive, and integrated fashion.
The feedback we have received from customers, partners, and industry analysts has been very positive and supports our view that we have the most complete vision and comprehensive solutions suite in the enterprise management market today. …