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BMC Software Inc. (NASDAQ:BMC) is scheduled to announce its fourth quarter 2012 results on May 9, 2012 and we do not see much variation in the analysts’ estimates at this point.

Third Quarter Overview

The company reported third quarter 2012 earnings per share of 79 cents, surpassing the Zacks Consensus Estimate of 70 cents.

Total revenue in the reported quarter was $548.2 million, up 1.5% year over year. The company witnessed mixed results across different revenue segments. However, cloud management and Software-as-a-Service (SaaS) initiatives continued to grow, adding to the customer base.

License revenue in the third quarter was $225.0 million, down 4.1% year over year. ESM license revenue declined 10.0% year over year to $134.0 million. MSM license revenue increased 7.0% to $91.0 million from the year-ago quarter.

Maintenance revenue for the third quarter was $807.4 million, up 5.5% year over year. Professional services revenue for the quarter was $50.9 million, up 10.7% year over year.

Operating income on a GAAP basis was $161.8 million, up 16.1% from $139.4 million in the year-ago quarter. Excluding special items such as severance costs and amortization of intangible assets, but including stock-based compensation expense, non-GAAP operating income was $181.6 million in the reported quarter, up 11.9% from $162.2 million in the prior-year quarter.

BMC Software generated $164.3 million in cash flow from operations in the reported quarter versus $161.7 million in the previous quarter. The company exited the quarter with cash and investments of $1.36 billion, down from $1.46 billion in the prior quarter.

For fiscal 2012, the company expects non-GAAP diluted earnings per share in the range of $3.26 to $3.34 per share. The guidance includes 4 cents of dilution related to the pending acquisition of Numara Software but excludes an estimated 90 to 95 cents per share in non-GAAP adjustments.

Agreement of Analysts

Out of the six analysts providing estimates for the fourth quarter, none revised their estimates over the last 30 days. While none of the analysts revised their fiscal 2012 and 2013 estimates over the last 30 days, estimates have moved down over the last 90 days.

The lack of change in estimates primarily reflects the absence of any major catalysts over the last 30 days. Consequently, the analysts are also maintaining their outlook for the fourth quarter of 2012.

Analysts believe that competition from Service Now in the SaaS space prevails but BMC has managed to combat the market share cannibalization by Service Now. Moreover, the analysts believe that BMC’s own SaaS-based ITSM offering in partnership with Salesforce.com – RemedyForce – is gaining traction rapidly, and hosting partners expecting strong gains and additional investment in capacity for outsourced versions will likely be disappointed.

Moreover, analysts also believe that the acquisition of Numara is a strategic fit given the company’s increasing priority of both SaaS-based sales and the ITSM mid-market. Numara is completely an on-premise product. However, the analysts also believe that higher mid-market sales and channel organization will bolster the salesforce.com-based mid-market/SaaS sales capability that RemedyForce currently relies on.

The company has a 50:50 ratio in domestic and international revenue. This implies that currency could have an impact of 50 bps to 100 bps over the next few quarters.

Moreover, the analysts also believe that lower expenditure from different government and private customers may weigh down the overall business volumes of the company. The current economic turmoil may also affect the business going forward.

Magnitude of Estimate Revisions

The magnitude of revisions is also minimal, since the company reported its third quarter results. Overall, estimates for the upcoming quarter have remained unchanged at 66 cents over the last 90 days. Again, estimates for fiscal 2012 and 2013 have gone down by 1 cent and 2 cents respectively, over the last 90 days.

Recommendation

BMC reported modest third quarter results and the acquisition of Numara makes good business sense. But the company may witness a negative currency impact on total revenue and bookings.

This apart, the BMC version of SaaS-based ITSM offering gaining traction is not obvious as per industry experts. Moreover, no real growth in deal activity and low business prospects in the European region are factors working against it.

Moreover, we are a bit apprehensive about the growing competition from big players such as International Business Machines Inc. (NYSE:IBM), Hewlett-Packard Company (NYSE:HPQ), EMC Corp. (NYSE:EMC) and CA Inc. (NASDAQ:CA), which bundle hardware and software offerings.

BMC currently holds a Zacks #3 Rank, which implies a short-term Hold rating.

Source: BMC Software Earnings Preview

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