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BMC Software (NASDAQ:BMC)

Q4 2011 Earnings Call

May 04, 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

Matthew Williams - Evercore Partners Inc.

Derek Bingham - Goldman Sachs Group Inc.

Aaron Schwartz - MKM Partners LLC

Matthew Hedberg - RBC Capital Markets, LLC

James Wood - Susquehanna Financial Group, LLLP

Philip Winslow - Crédit Suisse AG

Walter Pritchard - Citigroup Inc

Kevin Buttigieg - Collins Stewart LLC

Michael Turits - Raymond James & Associates, Inc.

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

Israel Hernandez - Barclays Capital

Gregg Moskowitz - Cowen and Company, LLC

Operator

Good day, everyone, and welcome to today's BMC Software Fourth Quarter Fiscal Year 2011 Earnings Results Conference. Today's program is being recorded. At this time, 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'd like to thank you for joining us today. During our call, Bob Beauchamp, our Chairman and CEO, will provide an overview of both the fourth quarter and full fiscal 2011 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 discuss our expectations for fiscal 2012 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've 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 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, and thanks to all of you for joining us this afternoon. As you've seen from our earnings release, fiscal 2011 was another year of strong improvements in bookings, revenue, cash flow and earnings. Total bookings rose 13%. License bookings were up 20%, ESM license bookings were up 21%, MSM total bookings were up 4%, revenue grew 8%, GAAP diluted EPS rose 15%, non-GAAP operating income increased 9%, non-GAAP diluted EPS was up 12% and operating cash flow was up 20%.

I'm proud to say that for the year, we delivered on or exceeded our expectations for total company bookings, ESM license bookings, MSM total bookings, revenue, operating cash flow and non-GAAP diluted EPS. And in fact, we generated record levels of performance in each of these metrics. These strong results underscore the success of our strategy over the last several years to make disciplined investments that enhance our market leadership and enable us to accelerate top line growth.

As part of this strategy, we strengthened our sales force, increased internal R&D efforts related to cloud and other major technology trends, selectively acquired complementary technologies in rapidly growing market segments and bolstered our strategic partnerships. These initiatives are clearly paying off, and we expect to reap additional benefits in 2012 and beyond.

Let me turn next to our fourth quarter performance, which enabled us to end fiscal '11 on a very strong note. Total bookings for the quarter were up 21%, license bookings rose 16%, revenue increased 14%, non-GAAP operating income was up 23% and non-GAAP diluted EPS was up 20%. For both the full year and the fourth quarter, we continued to see very good performance across both of our business units, all key product lines and all major geographies.

ESM license bookings were up 21% for the year and 18% for the fourth quarter. Our ESM growth reflects, in part, our success in strengthening our ESM sales organization. We met our fiscal 2011 goal to achieve a 20% increase in the average productive sales headcount compared to the prior year. I'm also pleased that we saw a significant decline in attrition rates in our ESM sales organization during the fiscal 2011 compared to a year ago, and we're expecting further declines in attrition rates in fiscal 2012. That's one reason we continue to win a greater number of larger, multi-discipline platform deals.

The number of ESM license transactions over $1 million increased 36% for the year and 55% for the quarter. This dynamic is also creating opportunities for our professional services team, which we increasingly capitalized on during fiscal 2011. Professional services revenue rose 51% for the quarter and 37% for the full year. The number of midsized deals, which demonstrates how we are increasing our footprint, also increased. Transactions between $500,000 and $1 million were up 10% and 6% for the year and quarter, respectively. Key wins during the quarter include Harris Corporation, Unisys and FINRA, the U.S. Financial Industry Regulatory Authority. These were all multi-discipline platform wins.

Our MSM business continues to perform very well, with strong double-digit growth in the annual spend rate of our top 15 MSM transactions in Q4. The growth was broad-based, with 13 of the top 15 customers increasing their annual spend with MSM. In fact, the growth in the annual spend rate of MSM's top 15 transactions was strong for the full fiscal year.

Over the year, we grew the spend rate on our top 15 MSM transactions each quarter in the mid-teens. We also saw continued strength in new product sales and growth in capacity upgrades. The increase in annual spend rate for these larger transactions reflects our success in managing and expanding our relationships with MSM's customers. Some of this is due to our increased focus and our success on winning competitive replacements, as well as expanding our customers' use of products that help drive efficiency in their IT operations.

During the quarter, we added 122 new product placements in our existing installed base. And over the course of fiscal 2011, we added a total of over 350 new product placements to existing customers. Some key mainframe customer wins in Q4 included Bank of America and Nationwide Insurance.

As you know, workload automation, which includes our BMC Control-M product line, is about 1/3 of our MSM business. We continue to see strength in this business with Control-M bookings growth in the mid-single digits during fiscal 2011. Over the past year, we added 88 new BMC Control-M customers and expanded our existing relationships with 195 new product placements. This includes 33 new customers and 66 new product placements in the fourth quarter. Some key workload automation wins in the fourth quarter included the Social Security Administration and the Internal Revenue Service. So that's a snapshot of our business unit performance in the quarter and the year.

Now let's talk about the dynamics of our market. One of the most important solutions IT can offer is to develop a flexible infrastructure, one that provides the right type and level of services at the right cost. In fact, it's interesting to note that in a recent Gartner webinar titled "Reimagining IT: The 2011 CIO Agenda," that Mark MacDonald delivered on March 16, global CIOs were asked what their top 3 strategies were for 2011. Number one on that list for the first time was developing and managing a flexible IT infrastructure. In one year's time, it jumped from eighth on the list to the #1 spot. The reasons for this are clear. In a competitive global business environment, IT needs to be structured, managed, staffed and deployed as a service, a service that business managers can leverage to achieve their goals and objectives.

That's exactly what BMC does. BMC is in the business of building agile, flexible IT infrastructures. We allow IT to offer a service platform that enables enterprises to align and manage their technology resources more quickly, efficiently and productively. Furthermore, with our platform, the underlying resources to deliver the services can be dynamically brokered, further driving down the total cost of their services. The evolution and growth of cloud computing is one very visible manifestation of the drive for a more flexible IT infrastructure. As you know, clouds offer a way to significantly increase flexibility while containing or even reducing costs. And as you also know, BMC helps to build and manage clouds for enterprises, governments and service providers.

Our leadership in building and managing practical and robust private, public and hybrid clouds is evident in the growing number of cloud-related deals that we've won. Over the course of fiscal 2011, we had nearly 50 cloud solution wins. These wins include global Fortune 2000 companies, such as AXA and Pfizer, as well as many of the world's largest telcos and service providers. Our continuing success in the marketplace reflects the strong commitment we're making to enhance our technology leadership and product capabilities.

During the past year, we introduced a new Cloud Lifecycle Management solution as well as new BMC Control-M self-service solutions. Both of these products were developed by our in-house R&D teams, and they are two of the most successful products launched in our company's recent history. We're very happy with the success of our organic R&D innovation, and it will remain a key focus for us as it provides us with a clear competitive advantage.

Another competitive advantage is our ability to acquire and integrate complementary technologies. After the close of the fourth quarter, we announced the purchase of Coradiant. This deal represents a major step forward and makes us a clear leader in next-generation applications performance management. Coradiant provides us with state-of-the-art end-user experience monitoring for enterprise, SaaS and cloud-based applications.

During fiscal year 2011, we acquired 2 businesses that support our technology strategy. The first, GridApp Systems, focuses on automating database provisioning across operating systems. The second, the software business of Neptuny, extended BMC's existing leadership in physical and virtual capacity management. These 2 transactions, like others that we have made recently, are performing very well.

While our success in helping customers build and manage cloud demonstrates one important way we're helping drive a more flexible infrastructure, it's equally important to remember that there are other ways. This includes our Software-as-a-Service offerings. Remedy OnDemand enables customers to access our full ITIL-based industry leading suite of service desk offerings. Our RemedyForce offering, which is marketed and sold by both salesforce.com and directly by BMC, is a powerful, easy-to-use solution for customers looking for a service desk that's built natively on top of the salesforce platform, Force.com.

You'll remember that just one year ago back in fiscal 2010, fourth quarter, we launched our initial SaaS offering. In the past year, we have generated nearly 100 SaaS wins from both Remedy OnDemand and RemedyForce offerings. 34 of these wins were in the fourth quarter alone, demonstrating accelerating momentum on both offerings. New SaaS wins in the quarter include Source Buyer and the Texas Department of State Health Services.

Our partner ecosystem continues to expand and deliver value to our customers and our shareholders. The strategic alliance with Cisco on their Integrated Cloud Delivery Platform is an example of our partner strategy at work. This alliance is focused on enabling service providers to develop flexible infrastructure and cloud offerings for their customers. BMC technology is at the heart of this platform, and we're very pleased with its reception in the marketplace.

There are other examples of how we're working to enable enterprises to develop a more flexible infrastructure. Our broad portfolio and heterogeneous approach to IT management naturally aligns us with the global partner community ranging from Accenture to CSC to Dell to Wipro. Just today, we announced an expanded partnership with Red Hat to deliver a joint offering coupling Red Hat's virtualization and cloud platform with BMC's Cloud Lifecycle Management suite. These alliances create powerful, practical, complete offerings for our customers, and they enable our partners to offer managed services to their customers to build clouds for their own use and to resell our professional services and technology. Our focus here and across the board is enabling our customers to optimize their IT investments by leveraging new ways of doing business, virtualization, cloud computing, Software-as-a-Service, mobility and other technologies that increase the speed, responsiveness, efficiency and productivity of their business.

As we move through fiscal 2012, the demand from enterprises for a more flexible IT infrastructure remains strong. We're seeing it across geographic regions and industry segments. We're also seeing it across larger and smaller enterprises. We believe this demand will fundamentally transform IT management in the years ahead.

As I have noted, we're very well positioned amidst this change to capture the market opportunities that lie ahead. From a financial standpoint, we have a healthy, growing stream of bookings, revenue, cash flow and earnings, as well as a very strong balance sheet. From a technology standpoint, we have the highest performance and best integrated portfolio of IT management solutions. We're making smart investments in both internal development and external acquisitions to maintain and grow our competitive edge. From a sales and marketing standpoint, we have a strong and growing footprint that enables us to reach an increasing number of customers around the world. And from a management standpoint, we have a clearly defined strategy for success and the commitment and expertise required to execute on it.

All of these factors make us quite optimistic about fiscal 2012, which we enter with great momentum. As we move forward, I believe we will look back on the year we just closed as a pivotal year, a year when the company transitioned from being a strong, moderate-growth company to one characterized by sustained, accelerating growth, led by a solid ESM engine capable of delivering ongoing double-digit growth.

I'll have more to say on our expectations for fiscal 2012 in a few minutes. But first, Steve Solcher will provide you with a more detailed financial review.

Stephen Solcher

Thank you, Bob. I would like to start by adding to Bob's comments about our performance for the year. First, as you know, we met or exceeded our fiscal 2011 expectations in terms of total bookings, ESM license bookings, MSM total bookings, revenues, non-GAAP diluted earnings per share and cash flow from operations. In fact, each of these reached record levels in fiscal 2011. We also had strong double-digit growth for the year in total bookings, ESM license bookings, non-GAAP diluted earnings per share and cash flow from operations.

Second, during fiscal 2011, we demonstrated our ability to grow earnings and cash flow from operations, while at the same time making the investments in internal development, sales and services necessary to maintain and build our competitive advantage. These investments reflect our view that there are substantial market opportunities ahead and our desire to ensure that we are properly positioned to capture them.

With that, let me review our financial results for the fourth quarter and the full fiscal year in more detail. Non-GAAP operating income increased 23% from $161 million to $197 million in the fourth quarter compared to a year-ago period. Our fourth quarter non-GAAP operating margin was 35%, up 2 points from the year-ago quarter. For the full year, we achieved non-GAAP operating income of $733 million, an increase of 9% over the prior year. Non-GAAP operating margin for fiscal 2011 was 35%, the same as in fiscal year 2010. Please refer to Slide 5 for our selected non-GAAP financial information, which includes segment operating margin of our ESM and MSM business units.

ESM's non-GAAP operating income in the fourth quarter increased to $67 million, up 32% from the year-ago period. ESM's non-GAAP operating margin increased year-over-year by 2 percentage points to 19%. For the full fiscal year, ESM's non-GAAP operating income increased by 17% to $280 million. ESM's non-GAAP operating margin increased by 1 percentage point in fiscal year 2011 to 22%. As we've noted, we plan to continue to make investments in our ESM business as we look to expand our growth opportunities while continuing to deliver increased earnings.

MSM's non-GAAP operating income in the fourth quarter was $130 million, up 18% from the year-ago period, and its non-GAAP operating margin increased 5 percentage points to 61%. For the full year, MSM's non-GAAP operating income was $453 million, up 4%, and its non-GAAP operating margin was 58%, up 1 percentage point compared to the year ago. We remain focused on maintaining strong operating margins within our MSM business unit.

Our non-GAAP net earnings for the fourth quarter were $141 million, up 17% from the fourth quarter of fiscal 2010. Non-GAAP diluted EPS for the quarter was $0.78, which reflects a non-GAAP effective tax rate for the quarter of 29%. For the quarter, our non-GAAP effective tax rate was higher than previous quarters and was higher than our full year expectation due to the change in the geographic mix of profits. This higher-than-expected non-GAAP tax rate in the fourth quarter negatively impacted our non-GAAP results by $0.05 in the quarter.

For fiscal 2011, non-GAAP net earnings were $546 million, an increase of 10% compared to $496 million in fiscal 2010. Non-GAAP diluted earnings per share for the year was a company record at $2.99, up 12% compared to the prior year. This reflects a non-GAAP effective tax rate for fiscal 2011 of 25%. These non-GAAP results reflect diluted shares outstanding for both the fourth quarter and the full fiscal year of 182 million versus 186 million and 187 million in the respective year-ago periods.

GAAP operating income in the fourth quarter was $142 million compared to $116 million in the year-ago period. GAAP net income and diluted earnings per share were $123 million and $0.67 compared to $119 million and $0.64 in the fourth quarter of fiscal 2010, respectively. GAAP operating income in fiscal 2011 was $533 million compared with $506 million in fiscal 2010. GAAP net income and diluted earnings per share for the fiscal year were $456 million and $2.50 per diluted share versus $406 million and $2.17 per diluted share in 2010. Fourth quarter and full fiscal year GAAP net earnings were positively impacted by a net income tax benefit of $25 million and $57 million, respectively, in connection with tax authority settlements related to prior year's tax matters. These tax benefits were excluded from our non-GAAP results.

Turning now to bookings. Total bookings for the fourth quarter were $708 million, representing an increase of 21% compared to the year-ago period. On a constant-currency basis, fourth quarter bookings increased 18%. Total bookings for fiscal 2011 were a company record $2.2 billion, up $251 million or 13% as reported and on a constant currency basis compared to fiscal 2010. The weighted average contract length for total bookings on a trailing 12-month basis was 2.17 years, up 2% from 2.12 years in the year-ago period. After normalizing for contract length, trailing 12-month annualized bookings for the fourth quarter were $1 billion, up 10% from the year-ago period. Please refer to Slide 7 in our presentation.

Now let me turn to the performance of each of our business units. Total ESM license bookings were $162 million in the fourth quarter, up 18% from the year-ago period. For fiscal 2011, total ESM license bookings were $571 million, up 21% from fiscal 2010. Our performance was balanced across each of our product disciplines with growth and license bookings ranging from 15% to 35%.

Turning to the MSM business unit. We believe MSM is best evaluated on the basis of total and annualized bookings over the trailing 12 months. Total MSM bookings for fiscal 2011 increased 4% to $843 million and had an average contract length of 2.9 years. After normalizing for contract length, total annualized MSM bookings for the trailing 12 months were $290 million, up 4%.

Turning to revenue. Total revenue for the quarter was $562 million, a 14% increase on both a reported and constant currency basis compared to the fourth quarter of fiscal 2010. ESM and MSM total revenue for the quarter increased 18% and 9%, respectively, compared to the fourth quarter of fiscal 2010. Total revenue for the year was a company record at $2.1 billion, increasing 8% on a reported and constant currency basis. ESM and MSM total revenue for the year increased 12% and 2%, respectively, compared to fiscal 2010. License revenue in the fourth quarter was $251 million, up 24% from a year ago. ESM license revenue was $158 million, up 27%, while MSM license revenue was $93 million, up 20% from last year. For fiscal 2011, license revenue rose 14% to $865 million.

For the fourth quarter, maintenance revenue was $259 million, an increase of 1% compared to a year ago. ESM maintenance revenue was $138 million, up 1%, and MSM maintenance revenue was $121 million, up 2% compared to the fourth quarter of fiscal 2010. For fiscal 2011, maintenance revenue was flat at $1 billion.

Professional Services revenue, which is included in the ESM segment, grew 51% from the year-ago period to $53 million in the fourth quarter. Professional Services revenue in fiscal 2011 increased by 37% to $177 million. The growth in our Professional Services business underscores our involvement in new cloud initiatives and the opportunity for continued license bookings growth, as enterprises move from proof-of-concept to fully deployed cloud solutions in their data centers.

Moving next to operating expenses. Non-GAAP operating expenses in the fourth quarter were $365 million, up 10% from the year-ago period. The fourth quarter sequential increase in non-GAAP operating expenses reflects our typical seasonality. Non-GAAP operating expenses for the year were up 8% from the previous year.

Looking at our business units, ESM non-GAAP operating expenses for the fourth quarter were $282 million compared to $245 million in the year-ago quarter. MSM non-GAAP operating expenses were $83 million compared to $85 million in the year-ago quarter. For fiscal 2011, ESM non-GAAP operating expenses were $1 billion compared to $902 million in fiscal 2010. MSM non-GAAP operating expenses were $334 million compared to $335 million in the previous year. Other income in the fourth quarter was $2 million, up 5% from the year-ago quarter. For the full fiscal year, other income was a loss of approximately $2 million, the same as in fiscal 2010.

Now turning to the balance sheet. Total deferred license revenue at the end of the fourth quarter was a company record $686 million, up 4% sequentially and 10% year-over-year. During the quarter, we deferred $128 million of license revenue or 46% of license bookings and recorded $104 million of deferred license revenue from the balance sheet. Total deferred revenue increased by $146 million sequentially to $2 billion. The current portion of deferred revenue now stands at 53%.

Our software development costs as of March 31 were $194 million as we capitalized $29 million and amortized $21 million during the quarter. For the fiscal year, we capitalized $123 million of software development costs and amortized $75 million. We expect gross capitalized software development costs to remain flat for fiscal 2012, while we expect the amortization of such costs to increase by approximately $20 million. These estimates are incorporated into our 2012 expectations.

Cash and investments at March 31 totaled $1.8 billion, an increase of $156 million sequentially. Our net cash position was $1.4 billion at March 31, 2011. For the quarter, cash flow from operations was $290 million. For fiscal 2011, cash flow from operations was a company record $765 million, up 20% from the prior year.

During the fourth quarter, we repurchased 2.9 million shares of our stock for a total cost of $140 million. For fiscal 2011, we repurchased 10.6 million shares at a cost of $439 million. We have 631 million remaining in our current share repurchase program as of March 31.

Let me summarize by saying that fiscal 2011 was a year of significant achievement for BMC. We achieved record levels of bookings, revenues, non-GAAP earnings and cash flow from operations. We enhanced our technology leadership and product portfolio through both internal development and selected strategic acquisitions. We strengthened our sales force, partnerships and alliances to reach more customers in more ways. All of these factors position us well in fiscal 2012.

With that, I'll turn the call back over to Bob for his concluding remarks and expectations for fiscal 2012.

Robert Beauchamp

Thank you, Steve. As we've noted, fiscal 2012 is shaping up to be another year in which we expect to significantly increase shareholder value by driving increases in bookings, revenue, earnings and cash flow from operations. All the key factors are in place. The global economy is showing signs of improvement. Customer demand for agile, flexible IT infrastructures is strong, and we enjoy a leading position in our markets.

To capitalize on our recent success and to continue to position us well for the future, we are continuing to make strategic investments in growth opportunities. These key strategic investment areas include cloud, SaaS, Professional Services, alliances and partnerships as well as strategic acquisitions. In terms of what this means for our financial results, we expect non-GAAP diluted earnings per share in the range of $3.21 to $3.31 per share. At the midpoint, this would represent a 9% increase over last year. This includes approximately $0.02 dilution related to Coradiant. This range excludes an estimated $0.92 to $0.97 per share for non-GAAP adjustments, including expenses related to the amortization of intangible assets, stock-based compensation and severance, exit costs and related charges.

The assumptions underlying our full year fiscal 2012 expectations include: total bookings growth in the low double digits; ESM license bookings growth in the low 20s; MSM total bookings growth in the mid-single digits; revenue growth in the high single digits to low double digits; operating margin staying the same with the prior year, which reflects the dilution related to the acquisition of Coradiant, the impact from net capitalized software development costs, the fact that ESM continues to represent a higher proportion of our business and our investment in key strategic areas, a slight increase in the license bookings ratable rate, currency impact at today's rates and other income, weighted shares outstanding and a non-GAAP tax rate at levels similar to fiscal 2011.

We expect full year fiscal 2012 cash flow from operations to be between $825 million and $875 million, which represents an 11% improvement at the midpoint.

With that, we will now turn the call over to questions. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] We'll go first to Philip Winslow with Crédit Suisse.

Philip Winslow - Crédit Suisse AG

I just want to focus back on the ESM side here. Clearly, you're showing great metrics in terms of just license bookings growth and just deal size. Bob, when you're talking to customers really from a competitive standpoint view, what are they saying to you? And why do you think you're getting sort of this growth in deal size and just sort of penetration of products? And then, Steve, just on the operating cash flow side and obviously solidly above where consensus is for fiscal '12, what's giving you the confidence to put that cash flow number out there?

Robert Beauchamp

Sure. So first on the deal side, I'll give you just one example of it. The average cloud deal, so we've been selling true cloud architecture, our CLM product line is part of that, for about 3 quarters now. And between Q3 and Q4, the ASPs for that business doubled. We're seeing people come back to the well. As you know, when cloud first goes in some of these large enterprises, it's done. It's almost like proof-of-concept. They want to stand up just enough to prove it can work. And then the way that the contract is structured or the way the customers' intentions are designed is to come back to us as this thing begins to scale and buy more capacity and we see more revenue. So for instance, one of our largest deals this quarter, a deal with a -- that we name by name, which is a large global systems integrator and outsourcer who's setting up a cloud for U.S. Federal, came back -- our first cloud transaction with them was in Q2. They came back this quarter. We had an 8-figure transaction for cloud that included our Cloud Lifecycle Manager that was on top of the VCE architecture that -- it was obviously a large deal. So we're starting to see cloud deals go from proof-of-concepts to production. We're seeing our ASPs in some our SaaS offerings going up. We've had a number of 6-figure transactions on RemedyForce, as an example, begin to go up. And as you heard in the prepared remarks, the number of $1 million transaction is going up as customers basically standardize on our whole BSM concept and say, "We're going to go with this idea of really managing IT-as-a-service." And so kind of the vision is paying off, cloud accelerated it. And our sales -- and really I've got to take my hat off to our sales organization, our sales organization in the last year has been really focused in training, heavily training on building that pipeline and telling the story. And now that's really starting to come in for us.

Stephen Solcher

So Phil, let me jump in and just give you my comments about the confidence of cash flow. And it really is derived from the outlook that we have in calendar bookings. One piece of it is in the fourth quarter, we just posted $708 million which was a company record in bookings. That cash flow or the collection of those bookings are going to come in, in the Q1 and maybe a little bit in the Q2. But it's really having visibility, some visibility into our bookings stream which we guided low double-digit for the company. We got a little bit of visibility on MSM, which we believe that is going to have another strong single-digit year, and that really has to do with our outlook and renewals in that business. So I would kind of sum it up by, the confidence is really driven by past experience in what we've been able to achieve but also looking at what we've done here in the quarter and then what -- our outlook for the future.

Operator

We'll go next to Walter Pritchard with Citi.

Walter Pritchard - Citigroup Inc

Steve, I was wondering if you could give us a little bit of color on the quarter-over-quarter decline in maintenance revenue. I think last quarter, you mentioned that you thought that the trend in December of up would continue.

Stephen Solcher

Yes, quarter-to-quarter, although it went down slightly, it is not that dramatic of a change. And the way I look at the balance, the inflection point happened in Q2. And what we're really watching frankly, Walter, is to see sequential growth, year-over-year improvement in the growth rates. So if you go back to Q2 where we had a decline in the overall growth rate, we actually showed Q3 being flat, and then Q4, we grew 1%. And for next year, we're looking for accelerating growth throughout the fiscal year. So I think it really has to more do with a trailing view. And we're now to a point now where all the license bookings that we've generated in the past are going to start paying off with accelerating growth.

Walter Pritchard - Citigroup Inc

And maybe just a follow-up for you and for Bob. Bob mentioned the dilutive impact of Coradiant on earnings. I'm just wondering if you could maybe talk a bit about the impact on revenue. And then also, you entered last year with a significant amount of latent sales capacity, and that helped drive pretty impressive ESM numbers this year. And I'm wondering if you could help us understand sort of how you're thinking about it from a sales capacity perspective vis-à-vis where you were last year.

Robert Beauchamp

So maybe, why don't I take that part first, sales capacity, and then Steve answer the other question second. So on sales capacity, we're going to run basically the same play we ran last year. We will add high teens. It may not quite get to 20% right now. I think it's closer to 18%, 19% in terms of productive heads we plan on growing. One of the things that -- one of the advantages we have this year and I mentioned it in my comments, is that our attrition is well under control. Q4 was the lowest it's been in 2 years. It's well inside of our target ranges and what we hoped it would be. In some geographies, it's actually so low, we're taking a look at that. So with the attrition rates under control and with the fact that we do plan on continuing to invest and add more sales capacity, with the fact that those sales people -- because of the big turnover we had a couple of years ago, you have sales people who are now a year or 2, some cases 3 years into the territories being trained. You're really starting to get into some better productivity assumptions around sales people who are really beginning to hit their stride. So we'll have a more mature, better-educated, longer-tenured sales force. We have attrition under control and we're going to be adding heads, and we've also got our training programs pretty well lined up. So I guess that would answer the question hopefully on sales. And Steve, I'll hand it to you.

Stephen Solcher

Yes, on the Coradiant acquisition, let me just give you a couple of numbers that I think will help you model out, and that is the impact of total bookings is about 1.5 point help, ESM license bookings is about a 4 point help and revenue in the aggregate, which includes the deferred write-down that we picked up in this acquisition, is about 1 point of help. And then as Bob said in the prepared remarks, we're looking at about $0.02 dilution that will occur earlier in the year. And probably by the end of, what I would say, the end of our fourth quarter, we will be back being accretive in that acquisition.

Operator

Moving next to Matthew Hedberg with RBC Capital Markets.

Matthew Hedberg - RBC Capital Markets, LLC

Fantastic quarter and guide. Obviously, the MSM business had a great quarter as well. Fantastic numbers there. And I guess I'm wondering, we've asked for the past couple of quarters for the impact of the IBM z. Have you guys seen that, or do you anticipate much of an impact there? Or is that sort of -- will that kind of go unnoticed to the Street?

Robert Beauchamp

It's hard to tell. I mean, I think there definitely were more transactions that we know that helped us that were -- the new processor was part of it. We did see continued strength in new capacity. We saw -- our renewals were in excess of -- in the 90s again, so we had very strong renewals. You heard that as we're signing up our largest transactions, on average, they're signing up for double-digit increase in annual spend so not -- this is a healthy growth in the business. But we also had record new product sales. So if you remember about a year ago, we really were starting to talk about the fact we were investing in a new product sales team in MSM, and we were a little worried in the first part of last year when it wasn't quite happening and we said, "Hang in there." Well, that group really delivered some strong numbers. So we're happy about that as well. I think in general, the new box, as always, it's kind of like the tide rising. It's good for our business. It's just difficult to correlate it to any particular quarter. It's just good for business.

Matthew Hedberg - RBC Capital Markets, LLC

That's great. And then one quick follow-up for Steve. Service margins had a nice rebound this quarter, and I know you kind of talked last quarter about kind of how to think about next year. I guess, were the margins better than you anticipated this quarter? Does it change your outlook in the next year?

Stephen Solcher

A little bit better, and it doesn't really change our outlook, which is that we expect our services business next year to be slightly profitable. And I think there's some upside into that viewpoint. But at least for now, we're just cautiously optimistic that we can produce a profit. We've taken it from a $4.5 million loss in fiscal year '10 to about a $2.5 million loss in fiscal year '11, the year that we just finished, and we're hoping to actually produce profit next year.

Robert Beauchamp

.

One of the points I'd make on that, though, is that some of the reasons we've been spending money there for the last year, I think are going to pay off well in the long term. We've been investing in best practices, methodologies, playbooks, et cetera. I'll give you an example. Some of the very first cloud deals we did, particularly the very first ones, were fairly rough. I mean, we were having to feel our way through helping the customer set up the architecture, implementing the software. We were Version 1, if that, of our software. We're now at Version 2 of our Cloud Lifecycle Manager. So we just did a deal this last quarter that was in 90 days from selling the cloud solution to the customer to standing the cloud up into production. And part of that is because the money we've been spending on tightening up our methodologies and our training programs. So some of the investments we've been making there is going to come home and help continue to make us more profitable in the years ahead. We still have more work to do there, though.

Operator

Going on to Gregg Moskowitz with Cowen and Company.

Gregg Moskowitz - Cowen and Company, LLC

Steve, your bookings were obviously very strong in the quarter, but the license deferral percentage went down quite a bit. Just wondering if there was anything that drove that. And secondly, in terms of the guidance for the ratable percentage should be up slightly in fiscal '12. Would you expect it to be less than the 51% to 52% level in fiscal '10 or about the same?

Stephen Solcher

So I didn't hear the second part of the question. I think I did, but let me just start with the first. The deferral rate for us came in at slightly below where we were expecting not only for the quarter and the year. But it's important to really highlight that the dollar amount that was deferred in the quarter, $25 million, is still a substantial number. And for the year, we deferred $62 million of license versus $13 million the year before, and that creates a headwind to us which impacts margins. Going forward, we're looking for a slight increase in that deferral rate, which will also, as we grow our license bookings, will cause the absolute dollar deferral to be even greater in next fiscal year. So some of the questions that we get is around the margin. This is a natural headwind to the margin as we continue to net defer license bookings.

Gregg Moskowitz - Cowen and Company, LLC

Right, exactly. And then just a follow-up to Walter's question. I know you added 20% more reps in fiscal '11, but where do things stand with regard to sales productivity for us for last year's hires at this point?

Robert Beauchamp

Yes, it was in the single digits, mid-single digits and as early as the tenure, when you add that many people, and then you have to divide them into the average, that's, I think, quite good. Because the productivity really is directly correlated to time on territory, time on customer. And so to have productivity gain and be adding the people at the same time, I was quite pleased with.

Operator

And from Barclays Capital, we'll go next to Israel Hernandez.

Israel Hernandez - Barclays Capital

Bob, with respect to the Cloud Lifecycle Management business, can you maybe talk about some of the trends that you're seeing there? Who are you bumping up with competitively? Why are you winning? And what type of momentum in terms of large deal flow do you see in over the next few quarters?

Robert Beauchamp

Okay. First thing I would tell you is that we just finished our sales training event in Florida where -- I was there and we had intense training on our entire worldwide ESM sales force on Cloud Lifecycle Manager, with simulations, with demos, with -- I mean, so we now have all hands on deck on CLM, and that -- and CLM 2.0 just now really starting to hit the Street. And Cloud Lifecycle Manager 2.0 is a powerful new product. I'm telling you, it's one of the most exciting products I've seen since I've been with the company, and we'd be happy to give -- set up demonstrations for some of you if you'd like to see what I'm talking about. And that's what this group's been trained on. So I think the energy and the excitement in the sales force going forward is very strong. In terms of who we're bumping heads with, it's the usual suspects on -- we come at it in kind of -- we break it down into multiple sectors. First, we go after the telcos and the service providers. In that marketplace, those are big fish, and that is -- Cisco certainly is still helping us in these large telcos. We're doing very well against the competition. I don't know that we've lost a large telco that I can think of or service provider yet. We're winning those. There's probably one I don't know about that we've lost, but I don't know it. And so we're very strong there. We will compete with IBM. We'll compete, and they come in with kind of their blue-washing where they come in with an army of people and say, "Don't worry about how it works. Just hire us and we'll make it work." We compete with Hewlett-Packard, of course, who has many of the components. We don't see CA much in the larger deals. We see CA when we do see them more targeting SMB kind of mid-market service providers and those sort of things with one of their acquisitions. And that's the only place we see them in the space. VMware, we were asked about, and we really don't so much compete with VMware. The answer hasn't changed on that in a number of quarters. They have certain things that they do for their environment, but we deliver a complete management environment. You look at the Red Hat announcement today. That's really a good example of the differentiation. We're integrating into their virtualization with our management environment, so customers can get a very fast deployed managed environment. So there's some fuzz around VMware, but really it's the vast majority of the revenue we're driving, is sitting on top of their platforms in the cloud space. And as I mentioned, that big 8-figure transaction was sitting on top of the VCE platform just this quarter. So at present, they're not a material competitor in almost any respect. But it's the usual suspects. Did I answer your question?

Israel Hernandez - Barclays Capital

Yes, that was great.

Operator

And Michael Turits of Raymond James has our next question.

Michael Turits - Raymond James & Associates, Inc.

A couple of questions. First, on the cloud deals. You did somewhere around 20 or 20-plus deals last quarter. And can you give us some sense of how many you did this quarter? Is that same level, more or less? And how did that stand in terms of how much license bookings it represented?

Robert Beauchamp

Well, it depends on the -- so if you want to do apples-to-apples there, you remember we had 0 cloud deals just 9 months ago. We'll have about 50 for the whole year. But one of the things I noticed in this last quarter is the size. As I mentioned, the ASPs doubled. We're also getting Phase 2. And so, kind of the rush on the very -- to get the PLCs out occurred in the first few quarters. We're now moving into kind of a different phase where it's more production, larger deals, and the size of the customers, I mean, big multinational financial services company, global pharma company that just standardized on us. So there's some really nice cloud transactions there. And as I just mentioned, we just came out of our sales training event where every sales rep is trained, fired up and ready to go to market. So I think you'll see and we already have seen a really nice pipeline. I think you'll see both the transaction volume but more importantly, the dollar volume of that continued to grow nicely. Second part of your question, Michael, was what?

Michael Turits - Raymond James & Associates, Inc.

That was the main thing.

Robert Beauchamp

Okay.

Michael Turits - Raymond James & Associates, Inc.

I mean, are you quantifying how much of the -- what cloud is representing...

Robert Beauchamp

One thing I'd mention because when we talk about the word cloud, it means so many different things to so many different people, so let me expand the definition a little bit. In general, when we talk about Cloud Lifecycle Manager, we're talking about helping a customer set up their own cloud environment. But certainly, our SaaS products, by anybody's definition, would count as cloud technology and cloud revenue. And we were, a year ago, we had our very first customer, one year ago. We have now 100 customers on SaaS. Both RemedyForce and Remedy OnDemand are both growing very nicely. It's a very nice mix. We are beating the competition large and small, head-to-head. The win rates are really going up very nicely now. It appears to us to be well north of 50% of the time. And again, considering the fact that our products, we're just ramping up, I'm very pleased with that. We've got a lot of focus, dedicated focus. Our friends at Salesforce are very focused on it right now. I've been the meeting fairly often with the General Manager of the RemedyForce business unit over at Salesforce, and we've just closed multiple 6-figure transactions with help from our friends at Salesforce. So that's really starting to ramp, and I expect that the quantity of transactions around RemedyForce to continue to go very rapidly. Remedy OnDemand will be probably less volume but larger transactions, particularly into the Remedy installed base. So that's also not included in what we were calling cloud revenue, but I think you could easily call it that.

Michael Turits - Raymond James & Associates, Inc.

And just a housekeeping question. How much FX tailwind are you going to get in next year? How much FX tailwind is embedded in your revenue guidance and bookings, for that matter?

Stephen Solcher

So Michael, on the total bookings number, we're looking at about 2.5 points on revenue, about 1.5 to 1.75. And for earnings per share, we're looking at about 1 point. Actually hurt is, we actually defer revenue on the balance sheet. We don't get the full pickup of the weakening of the dollar where we would typically pick up 100% of that on our expense base immediately. And a slight help to cash flow but not significant.

Operator

We'll go next to Derek Bingham with Goldman Sachs.

Derek Bingham - Goldman Sachs Group Inc.

First question is, I was wondering if you could, Steve, give a little bit of color on the op margin outlook for the kind of 2 components separately, for ESM versus MSM in terms of what you expect the dynamics to be individually.

Stephen Solcher

For MSM next year, we're looking at it to be roughly flat, and for ESM, we're looking at about 100 basis points improvement, and that's with Coradiant dilution in that number. It's also with -- taken into impact in both businesses that they're going into a headwind against what we would call the net software cap, and then both businesses having a higher deferral rate.

Derek Bingham - Goldman Sachs Group Inc.

Okay, great. And then you kind of reaccelerated your buyback pace. Could you comment on the kind of pace that you expect over the next few quarters?

Stephen Solcher

My view now is that we will have similar trends that we've seen in the past, and that is anywhere from $75 million in a quarter up to $150 million. My current expectation is, is that we will buy back more shares than we did in fiscal year '11, so something north of $440 million. But I don't want to give you an exact number. We have $631 million left in our buyback authorization, so that will tell you the height without any reauthorization.

Derek Bingham - Goldman Sachs Group Inc.

Okay, great. And then the last one, if you could give a sense, just curious, which between the Remedy OnDemand and the RemedyForce you expect to be a larger contributor to bookings this year?

Stephen Solcher

Remedy OnDemand dollar-wise will be the greater of the two. But the real upside is, as RemedyForce takes off, as we were saying earlier today, I think it's an exponential change.

Robert Beauchamp

And that would be upside to our plan to the guidance we just gave. But I can tell you the early indicators, there's a lot of energy, a lot of excitement. We just came out with our fall release for RemedyForce that adds some of the most requested features. And we just met here in Houston with some of the top executives at Salesforce and are driving joint dashboards and pipeline reviews. We're really working together well on it. So I'm excited to see what happens with that. We're winning some deals with companies I've never heard of before that are turning into 6-figure transactions. It's very, very nice.

Operator

We'll hear now from Kevin Buttigieg with Collins Stewart.

Kevin Buttigieg - Collins Stewart LLC

A question on Coradiant. Steve, your guidance suggests about a $90 million positive impact to license bookings next year in ESM, which is pretty healthy contribution. Was that business at that run rate previously? Or do you expect synergies to be helping drive that?

Stephen Solcher

It's not $90 million. Maybe you misheard me. I said it was a 4 point help to this year's numbers. So it's roughly about -- I mean the dollar amount's roughly about $20 million.

Kevin Buttigieg - Collins Stewart LLC

Okay, okay, okay. I'll check that.

Stephen Solcher

I'll take the $90 million though.

Kevin Buttigieg - Collins Stewart LLC

And then I guess just a question for Bob on that. How do you handle root cause analysis and problem resolution with Coradiant? Do you have a tool in your portfolio now that you would use? Would you maintain Coradiant's partnerships to do that?

Robert Beauchamp

Well, so it's a -- I'm going to give you a high-level answer that is my understanding and it really kind of depends on exactly what we're talking about on a technical basis. But fundamentally, yes, we do. We have -- we already today. I mean, if you think about our Service Assurance business, which by the way, our Service Assurance business to those who've known, like you, who've been following us for years, and you talk about the PATROL business and go back in time, that business was in decline for a long time. This last year, we grew -- how much, Steve? What was our Service Assurance business?

Stephen Solcher

21%.

Robert Beauchamp

21% and in Q4 -- well, just call it 21% for the year. And so that business is where we do root cause analysis. One of the things we're working on for our sales force is to very rapidly be able to see the performance problem and then drill down and give the customer's root cause. And that was one of the main reasons we picked it up. As to whether some of their partners in their ecosystem do something, some component we don't do, I can't tell you. I'm not close enough to it to tell you. But if they do, I mean, I'm sure we'll keep those partnerships going very healthy. But I do know that one of the reasons we acquired it was to pick it up. By the way, a couple of their biggest customers were a sales force who wants to know how their customers' experience is, and Akamai. So you're talking about a company that some are very -- some real Web 2.0 leading-edge companies were using to do Application Performance Management. It's now part of the BMC product family.

Operator

We'll go now to Derrick Wood with Susquehanna Financial Group.

James Wood - Susquehanna Financial Group, LLLP

I guess just kind of a follow-up to that on Coradiant. Could you give us what the revenue figure was last year and what maybe the growth rate was in their business?

Stephen Solcher

Revenue last year was somewhere around the $20 million range, and again this year, it's roughly about the same number, but that includes the deferred write-down. Think about a number that's in the 20% range in growth is what we're targeting.

James Wood - Susquehanna Financial Group, LLLP

Okay. And are you -- how do you plan to go to market with that? I mean, are you going to keep the sales force separate? I imagine over time, you'll be training your core sales force. When would you imagine that happening?

Robert Beauchamp

Yes, we will keep their sales people. And in fact, we've got headcount allocated to add more sales people specialization around it. We will be training and have already begun. In fact, we began the training of our sales force on it in earnest some time ago. And they -- that's already been rolled into our sales collateral. We're already beginning to offer that to our customers. And in fact, one of our large accounts that we just recently won in the meeting with a customer about a week before we closed Coradiant was talking to us about Coradiant and said, "You guys really ought to go buy this company because it fits so beautifully into your story and your message." And so our sales rep didn't know we were negotiating, sent an e-mail up saying, "I don't know who Coradiant is, but my customer just said we should buy them." So that story was told in front of our sales force. We got a lot of energy around it. This plugs straight in to our traditional sales model. The sales reps will eat it up. This is right down the alley for them. By the way, if you look at our last 8 acquisitions in the last 3.5 years or so since really the automation acquisitions, you're looking at a growth rate that is on average north of 50%. So we don't have any acquisitions that are underperforming. They're all doing very well. They run very nicely and the products we've delivered like CLM in the last few years are also growing very nicely. So we're approaching an ESM between 1/3 and 50% of our license growth, our products that we've had less than 3.5 years.

James Wood - Susquehanna Financial Group, LLLP

Okay, and I imagine Coradiant will eventually be kind of brought in and integrated into the CLM platform?

Robert Beauchamp

I don't know. I don't know. I don't know the details of exactly how that'll be brought in. I think it will certainly be part of the cloud story, it'll be part of the way that we sell. As to whether it's actually -- CLM is really a product. I mean, it's a product. You get the object, and it is CLM. It is no longer a set of BMC products cobbled together. It is actually a product you buy and install, and it does -- it's got all this functionality integrated. As to whether it's in there or not, off the top of my head, I don't know.

Operator

We'll go next to Aaron Schwartz with MKM Partners.

Aaron Schwartz - MKM Partners LLC

I just had a real quick follow-up question on the license bookings deferral rate. Can you just walk through sort of why that tick-down this quarter and this year, and sort of why you expect that to reverse next year? Is it just a product mix shift or something to do with sort of how the contracts gets structured and what comes to renewal? I'm just wondering sort of what drives that.

Stephen Solcher

This year, it's primarily the latter, and that is, we offer customers the variety to either sign up for a perpetual license or a time-based license. And what happened in this quarter was that the mix shift more toward a perpetual model versus a time-based licensing model. Next year, as we look out, and this is primarily on the MSM side, we have lots of renewals that are time-based renewals. So our expectation is, as those customers renew those same time-based licenses. So it's really nothing that we're doing internally. It is customer-driven. And until that customer signs a contract, we're typically going with our best estimate at the time and trying to determine what the deferral rate. The rate though, again, as I said earlier, I would not focus on the percentage. I would focus on the dollar amount that is being deferred. We deferred this year $62 million, again, versus $13 million, and our deferral rate went down 3 percentage points.

Aaron Schwartz - MKM Partners LLC

Got it. Okay. And then switching gears a little bit on the MSM business, the actual -- the operating expense number came down here year-on-year and sequentially. It wasn't a lot. But was there anything behind that? And do you expect -- you gave some commentary on the margin, but given the bookings strength in the quarter, I was a little surprised that costs came down.

Stephen Solcher

The primary reason in that case is, is just software cap is probably the biggest driver of that. We deferred a little bit more in that business, and it moves around on a quarter-by-quarter basis. But for the most part, I mean, they've roughly been somewhere in the low 80%. We had a slight spike in Q3. But if you just look at the operating expense on a non-GAAP basis for the last fiscal year, it's somewhere in the low 80s in just about every quarter.

Operator

We'll go next to Matt Williams with Evercore Partners.

Matthew Williams - Evercore Partners Inc.

It's Matt in for Kirk. Just had a question in terms of the ESM license bookings growth. Given that the comps are fairly tough in 1Q and 2Q, is it kind of fair to assume that the bookings growth for ESM will probably be a little bit more back-end loaded for fiscal year '12?

Robert Beauchamp

Is that a license bookings statement? Or is that just a total bookings in general?

Matthew Williams - Evercore Partners Inc.

Yes, yes, on the ESM license bookings size.

Stephen Solcher

I'm looking now -- I wouldn't overly weight it. This is a business that is more reflective of a growing company where we're looking at sequential improvement in license bookings in just about every quarter. I'm looking at growth rates that are probably in the second half better than in the first half. But in the aggregate, I wouldn't overly weight the second half of the year for license bookings for ESM.

Operator

We'll go to Tim Klasell with Stifel, Nicolaus.

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

Just a quick question on the Performance Assurance. We're hearing from some of the other players in the space that business has really picked up. Is it the Web 2.0 guys that you see are coming into this market and becoming big customers? Or maybe you can help us understand the resurgence in this space.

Robert Beauchamp

You're talking about like the APM thing that we just bought?

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

Yes, and you mentioned some strength with PATROL and some of your longer-standing products.

Robert Beauchamp

Okay. Well, I think in general, a lot of the old APM products and products like Mercury or others that were designed kind of for a different architecture really don't scale, don't move to this new environment. And we a little bit missed out on that phase as a company and made the decision to wait. But we saw what was coming with new Web architectures and kind of Web 2.0 architectures, and kind of waited until we found what we thought would kind of be the big winner in that space and this new architecture. And so that's how we moved into that space. I think, in general, I don't know that I can tell you anything you don't already know that the amount of SaaS applications that are going to be deployed is shooting up, the amount of cloud in general is shooting up. And APM, Application Performance Management, that can see through the cloud and can really give you what that customer's real experience is, not a synthetic transaction, which by the way can be fooled, but a real report on how your customers are actually seeing the performance of those applications is absolutely critical. So I think everyone recognizes that, that's deploying these new generation apps and is asking for that capability. But they want more than that. They need to seek -- they need to integrate things like our capacity planning tools into that. So that as you're watching performance, you can begin to see the performance is beginning to degrade, you can model what happens if the transaction volume increases 10% or 20% and you can model different scenarios, and this is where like our Neptuny acquisition comes in. And you can begin to say, "We're going to have -- we're going to forecast our performance problem for this if we don't take action." Then BMC's automation tools can kick in and actually take the action necessary to remediate in advance of the performance problem. So we're really giving the customers the ability to see the problem, to forecast a problem before it occurs, see it if it does occur, take the action that's necessary to fix it or to keep it from occurring and do all that in concept of this new architectural design. It may be cloud or may be traditional. And there's a lot of excitement, a lot of energy around that.

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

Okay. That's very helpful. And then just one quick follow-on, on government vertical. How is that project [ph] pipeline feeling? Are you seeing any changes out there that you can share with us?

Robert Beauchamp

Yes. I just got back from Washington D.C. I was in D.C. on Friday talking about some really nice transactions -- well, some nice ideas. I mean, I shouldn't call them transactions, some nice opportunities that we're working of quite some size. I think it's important to recognize that even though we've had really nice growth in Federal for quite some time, it's still only maybe 10% of our business in ESM. And so that's Part 1. Part 2 is that we've got some deals we're working this fiscal year that I just visited with a customer that looked very much on track to occur. In fact in some cases, in one case, I think the deal just got larger when I was there on Friday, that will happen this BMC fiscal year. And I also visited with some, as I mentioned, some very high-level buyers on some transactions that will work that probably would be more like next fiscal year. But that would be, if they happen, will be some of the larger deals that we've ever worked on. So I feel good about our Federal business. I think it'll be a little lumpy, a little more chaotic due to the federal funding issues that they had. But so far, I cannot identify loss of revenue due to any of that.

All right. Well, listen, I want to thank all of you for dialing in, thank all of you for your trust in BMC. And we'd be -- look forward to answering any questions you may have. I want to thank the BMC employees for really transforming us, as I've said earlier, from kind of a moderate-growth company to what is now really turning into a growth company, with every major product line and every major geography hitting at once. And it's going to be an exciting year ahead. And we look forward to working it with all of you. Thank you.

Operator

That concludes today's conference. Thank you, all, for joining us.

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