Q1 2006 BMC Software Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day, everyone and welcome to today's BMC Software fiscal year 2006 first quarter earnings 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.

BOB BEAUCHAMP, PRESIDENT & CEO, BMC SOFTWARE, INC.: Thank you, operator, and thank you all for joining us today. 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. I'll 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 in BMC's operating results are described in today's earnings press release, the financial presentation available on our website at BMC.com/investors, and in our SEC filings.

During my opening remarks, I will discuss our first-quarter performance, our BSM strategy, and our margin improvements. After that I will turn the call over to our CFO, George Harrington who will provide additional financial details. I will then update our outlook for the September quarter and fiscal 2006 before we open the call to questions.

Let me start by saying that this was a solid quarter resulting in non-GAAP EPS of $0.20 a share, $0.07 above our guidance and consensus estimates. Revenue grew across all business lines and we experienced continued demand for BMC's business service management solutions. Margins grew substantially, this was due in part to ongoing cost and expense management, as well as the immediate impact from the Company's restructuring activities. Cash flow from operations and our balance sheet remained strong and we were active in repurchasing shares. Our purchases during the first quarter roughly equalled our total for all of last year.

Recapping our financial performance, non-GAAP EPS was up 39% on a year-over-year basis. Revenues were up 7% over last year and $10 million above consensus estimates. This includes a 17% increase in Service Management business, and a 5% increase in our Mainframe business. Our PATROL product line is showing signs of stabilization reflecting the impact of the introduction of BMC Performance Manager, the next generation of our PATROL product. Operating margin reached 12%, up 4 percentage points from the 8% reported last year. This is a significant advance towards our long-term goal of 20%. Cash flow from operating margins was strong at $95 million which reflect the impact of 29 million in restructuring related outflows.

On our balance sheet, we achieved record balances of 1.3 billion in cash and marketable securities and a record 1.6 billion in deferred revenue. These quarterly results reflect the gradual transformation of BMC's operating strategy which we believe is improving our competitive position. We have been ahead of the market in anticipating changing demand and competition. We delivered these solid results in a competitive environment while implementing a major restructuring, redeploying our sales force, and realigning our resources to focus on growth areas.

As I commented in our fourth-quarter earnings call, we have four key initiatives for fiscal 2006. Growing Business Service Management, rolling out the next generation of PATROL, BMC Performance Manager, improving profitability and actively repurchasing shares. Let me take a few moments to update you on the progress we have made in each of these goals.

Let me start with Business Service Management. Where we are gaining traction and customer adoption continues to grow. When we announced our BSM strategy more than two years ago, we were the only major enterprise management vendor even talking about Business Service Management. Since then a number of our traditional competitors have entered the BSM market with their own offerings. Despite their activity, our success in competitive wins and displacements indicates that we have maintained the leadership position in delivering the solutions IT requires for successful BSM implementations. We find that customers choose our BSM solutions to manage their most critical business services. Our focus on BSM has improved our competitive position and will continue to strengthen as we deliver additional BSM solutions to the marketplace.

During the quarter we made significant progress with BSM, products and solutions, including the introduction of the BMC Performance Manager Portal. The BMC Identity Management suite, and the BMC Atrium configuration management database. In our last earnings call, we noted our June release of the BMC Performance Manager Portal. This release is the first in a series of deliverables over the course of the year that will dramatically reshape the PATROL product line. BMC Performance Manager will combine the benefits of both agent-based and agent-less technology and provides a highly flexible upgrade path for existing PATROL users as they implement BSM solutions. This approach means that no customers must give up functionality or face a hard migration to get the benefits of BMC Performance Manager.

In our last call, we also noted the Q1 announcement of the BMC Identity Management suite. We expect to ship this new integrated offering in phases over the next several quarters, this will integrate our Identity Management products into a powerful new suite with specific capabilities focused on the audit and compliance task our customers frequently cite as a top BSM priority. We also saw significant acceleration of activity with the BMC Atrium Configuration Management Database or the atrium CMDB. The BMC Atrium CMDB is innovative, patent-pending, core BSM technology that delivers a single consolidated working model of an enterprise IT environment. It is central to multiple BSM routes to value and it's currently the most requested topic in the briefing, customer briefings, and partner training sessions.

The activity we are seeing here is exciting stuff. For instance, since February, more than 500 customers and partners have downloaded the BMC Atrium CMDB, this …