| · | Company Significantly Exceeds Guidance on Revenue and Non-GAAP Earnings per Share |
| · | Non-GAAP Earnings per Share Up 30 Percent Over Year-Ago Period |
| · | GAAP Operating Income Up 53 Percent Over Year-Ago Period |
| · | Total Revenue Up 9 Percent, Exceeding High End of Guidance Range |
| · | Cash Flow from Operations More than Triples in First Half of Fiscal 2008 |
| · | Bookings Up 8 Percent Over Year-Ago Period |
| · | Company Raises Guidance on Revenue, EPS and Cash Flow from Operations |
HOUSTON, November 6, 2007 -- BMC Software (NYSE: BMC) today announced that its fiscal 2008 second quarter net earnings on a GAAP basis were $78 million, or $0.39 per diluted share, compared to $58 million and $0.28 per diluted share in the year-ago quarter.
The Company’s non-GAAP net earnings for the fiscal second quarter, which exclude special items, were $96 million, or $0.48 per diluted share. The Company had previously provided guidance on non-GAAP net earnings in the range of $0.39-$0.44 per diluted share.
The second quarter of fiscal 2008 marks the tenth consecutive quarter in which BMC has met or exceeded its guidance on revenue and non-GAAP earnings per share. Included in the financial tables is a complete reconciliation between non-GAAP and GAAP results.
“This quarter offers more evidence that BMC Software has successfully transformed itself into an industry leader that is generating strong growth and excellent financial performance,” said Bob Beauchamp, BMC’s president and chief executive officer. “Our leadership in Business Service Management is driving strong top line performance as we win more and more deals against our key competitors. We expect to see the same impact from the recently announced BMC Service Automation, a key extension of BSM that offers customers more value than any other competitive offering on the market. We believe BMC has clear advantages in today’s market, and we have raised our guidance in key areas for the balance of the year to reflect that confidence.”
Steve Solcher, BMC’s chief financial officer, said: “Powered by continuing customer enthusiasm for our BSM offerings, BMC delivered another quarter of very good financial performance. We’ve executed strongly in virtually every metric, including bookings, revenues, non-GAAP operating expenses, non-GAAP earnings, and cash flow from operations. Our expense control has been excellent, and we continue to improve business processes to further enhance and streamline our business operations. Based on these results, it should be increasingly clear that we are well along in terms of building a company that’s capable of generating consistent, sustainable increases in shareholder value.”
In addition, the Company posted the following key results:
| · | Total bookings for the quarter totaled $341 million, up 8 percent compared to the year-ago period. Total bookings growth was balanced between license and maintenance bookings, both of which were up about 7 percent. Total bookings measures the value of contracts signed during the quarter, including both the amount recognized as revenue in the statement of operations and the amount that is recorded to deferred revenue on the balance sheet. Total bookings can be calculated by adding total revenue to the net change in the deferred revenue balance for the period. |
| · | Total bookings on a trailing 12-month basis were $1.8 billion, up 16 percent year over year, with a weighted contract length of 2.4 years versus 2.2 years in the year-ago period. |
| · | Total revenue for the second quarter was $421 million, a 9 percent increase over the year-ago period. License revenues were $151 million, an increase of 9 percent compared to the fiscal 2007 second quarter. |
| · | Non-GAAP operating expenses were essentially flat on a year-over-year basis for the quarter, providing BMC with significant operating leverage on incremental revenue growth. |
| · | In the fiscal second quarter, GAAP operating income was $91 million versus $60 million in the year-ago period, an increase of 53 percent. Non-GAAP operating income increased by 39 percent, from $86 million to $119 million. |
| · | Non-GAAP operating margin for the quarter was 28 percent compared to 22 percent in the year-ago period. |
| · | Fiscal 2008 cash flow from operations has more than tripled during the first half of the fiscal year, increasing from $83 million to $319 million. |
| · | The Company continues to maintain a strong balance sheet, ending the second quarter with a total of $1.7 billion in deferred revenue. |
| · | BMC deferred $64 million of license revenues, or 45 percent of license bookings, during the quarter. The Company also recognized $72 million of deferred license revenues from the balance sheet. BMC ended the quarter with $512 million in deferred license revenue. |
| · | Cash and marketable securities were $1.5 billion at the end of the quarter. |
During the second fiscal quarter, BMC continued its stock repurchase activities, spending $200 million to repurchase 6.7 million outstanding shares. As of September 30, 2007, the Company has slightly less than $1 billion remaining under the existing share repurchase authorization. BMC also continued to allocate capital to acquisitions, purchasing two companies -- RealOps in July 2007 and Emprisa Networks in October 2007 – that enhance the Company’s Business Service Management and Service Automation strategies.
Third Quarter and Fiscal 2008 Guidance
The Company now expects fiscal 2008 non-GAAP earnings per share to be in the range of $1.78 to $1.86 per share, assuming an effective tax rate of 30 percent and excluding an estimated $0.38 of special items related to expenses for amortization of intangible assets, in-process research and development, share-based compensation and restructuring activity.
The Company now expects fiscal 2008 revenue growth of more than 6 percent.
The Company now expects fiscal 2008 cash flow from operations to be between $525 million and $575 million, an increase of $25 million.
For the third quarter of fiscal 2008, the Company expects non-GAAP earnings per share in the range of $0.46 to $0.51 per share, assuming an effective tax rate of 30 percent and excluding an estimated $0.10 of special items related to expenses for amortization of intangible assets, in-process research and development, share-based compensation and restructuring activity. The Company expects third quarter fiscal 2008 revenue to be in the $430 million to $445 million range.
Conference Call
A conference call to discuss second quarter fiscal 2008 results is scheduled for today, November 6, 2007 at 4:00 pm Central Time. Those interested in participating may call (913) 312-0851 and use the pass code BMC. To access a replay of the conference call, that will be available for one week, dial (719) 457-0820 or (888) 203-1112 and use the pass code BMC. A live web cast of the conference call will be available on the company's website at www.bmc.com/investors. A replay of the web cast will be available within 24 hours and archived on the website.
Use of Non-GAAP Financial Measures
This press release and the accompanying tables include the following non-GAAP financial measures: (a) non-GAAP operating expenses, (b) non-GAAP operating income, (c) non-GAAP operating margin, (d) non-GAAP net earnings and (e) non-GAAP diluted net earnings per share. Each of these financial measures excludes the impact of certain items and therefore has not been calculated in accordance with U.S. generally accepted accounting principles, or GAAP. Each of these non-GAAP financial measures excludes restructuring charges, amortization of intangible assets, share-based compensation expenses and, for fiscal 2008, charges related to in-process research and development. Each of the adjustments is described in more detail below. This press release also contains a reconciliation of each of these non-GAAP measures to its most comparable GAAP financial measure.
We believe that these non-GAAP financial measures provide meaningful supplemental information regarding our operating results because they exclude amounts that BMC management and the Board of Directors do not consider part of operating results when assessing the performance of the organization and measuring the results of the Company’s performance. In addition, we have historically reported similar non-GAAP financial measures. We believe that inclusion of these non-GAAP financial measures provides consistency and comparability with past reports of financial results. BMC Management and the Board of Directors use these non-GAAP financial measures to evaluate the Company’s performance and for forecasting purposes, as well as the allocation of future capital investments, and they are key variables in determining management incentive compensation. Accordingly, we believe these non-GAAP financial measures are useful to investors in allowing for greater transparency of supplemental information used by management in its financial and operational decision-making.
While we believe that these non-GAAP financial measures provide useful supplemental information, there are limitations associated with the use of these non-GAAP financial measures. These non-GAAP financial measures are not prepared in accordance with GAAP, do not reflect a comprehensive system of accounting and may not be completely comparable to similarly titled measures of other companies due to potential differences in the exact method of calculation between companies. Items such as restructuring charges, amortization of intangible assets, in-process research and development, and share-based compensation expenses that are excluded from our non-GAAP financial measures can have a material impact on net earnings. As a result, these non-GAAP financial measures have limitations and should not be considered in isolation from, or as a substitute for, net earnings, cash flow from operations or other measures of performance prepared in accordance with GAAP. We compensate for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measure. Investors are encouraged to review the reconciliations of these non-GAAP financial measures to their most comparable GAAP financial measures that are included elsewhere in this press release.
The following discusses the reconciliations of our non-GAAP financial measures to the most comparable GAAP financial measures:
• Restructuring charges. Our non-GAAP financial measures exclude exit costs and related charges, primarily consisting of severance costs and lease abandonment costs, and any subsequent changes in estimates related to exit activities as they relate to our restructurings, which involved significant layoffs. Management and the Board of Directors believe it is useful in evaluating the Company’s and its management teams’ and business units’ performance during a particular time period to review the supplemental non-GAAP financial measures, which exclude restructuring costs, because our operational managers are evaluated based on the operating expenses exclusive of restructuring charges and including the restructuring charges would hinder investors’ ability to evaluate the performance of our management in the manner in which the Company’s management evaluates performance. Accordingly, management and the Board of Directors do not consider these costs for purposes of evaluating the performance of the business, and they exclude such costs when evaluating the performance of the Company, its business units and its management teams. Additionally, management uses the non-GAAP measures to assist in its determinations regarding the allocation of resources, such as capital investment, among the Company’s business units and as part of its forecasting and budgeting.
• Amortization of intangible assets. Our non-GAAP financial measures exclude costs associated with the amortization of intangible assets. Management and the Board of Directors believe it is useful in evaluating the Company’s and its management teams’ and business units’ performance during a particular time period to review the supplemental non-GAAP financial measures, which exclude amortization of intangible assets, because these costs are fixed at the time of an acquisition, are then amortized over a period of several years after the acquisition and generally cannot be changed or influenced by management after the acquisition. Accordingly, management and the Board of Directors do not consider these costs for purposes of evaluating the performance of the business during the applicable time period after the acquisition, and they exclude such costs when evaluating the performance of the Company, its business units and its management teams and when making decisions to allocate resources among the Company’s business units.
• Share-based compensation expenses. Our non-GAAP financial measures exclude the compensation expenses required to be recorded by FAS 123R for equity awards to employees and directors. Management and the Board of Directors believe it is useful in evaluating the Company’s and its management teams’ and business units’ performance during a particular time period to review the supplemental non-GAAP financial measures, which excludes expenses related to share-based compensation, because these costs are generally fixed at the time an award is granted, are then expensed over several years and generally cannot be changed or influenced by management once granted. Accordingly, our operational managers are evaluated based on the operating expenses exclusive of share-based compensation expenses and including such charges would hamper investors’ ability to evaluate the performance of our management in the manner in which the Company’s management evaluates performance. Additionally, we believe it is useful in measuring the Company’s performance to exclude expenses related to FAS 123R equity expense because it enables comparability with prior period information. Accordingly, management and the Board of Directors do not consider these costs for purposes of evaluating the performance of the business, and they exclude such costs when evaluating the performance of the Company, its business units and its management teams and when making decisions to allocate resources among the Company’s business units.
• Write-offs of in-process research and development. Our non-GAAP financial measures exclude write-offs of in-process research and development. This amount is the estimated fair value related to incomplete research and development projects from acquired companies which have no alternative future uses. Such amounts are required to be expensed by us as of the date of the respective acquisition. Because the costs are fixed at the time of acquisition and are not subject to management influence, management does not consider the costs in evaluating the performance of the Company and its business units nor when it allocates resources among the business units. We believe excluding these items is useful to investors because it facilitates comparisons to our historical operating results without being affected by our acquisition history and the results of other companies in our industry, which have their own unique acquisition histories.
About BMC Software
BMC Software is a leading global provider of enterprise management solutions that empower companies to automate their IT and prove its business value. Delivering Business Service Management and Service Automation, BMC solutions span enterprise systems, applications, databases and service management. For the four fiscal quarters ended September 30, 2007, BMC revenue was approximately $1.64 billion. For more information, visit www.bmc.com.
This news release contains both historical information and forward-looking information. Statements of plans, objectives, strategies and expectations for future operations and results, identified by words such as “believe,�� “anticipate,” “expect,” “estimate” and “guidance” are forward-looking statements. Numerous important factors affect BMC Software's operating results and could cause BMC Software's actual results to differ materially from the forecasts and estimates indicated by this press release or by any other forward-looking statements made by, or on behalf of, BMC Software, and there can be no assurance that future results will meet expectations, estimates or projections. These factors include, but are not limited to, the following: 1) the possibility that general economic conditions or uncertainty cause information technology spending to be reduced or purchasing decisions to be delayed; 2) competition in our markets can result in pricing pressures and competition for new customers as well as potential displacements of our existing customers; 3) the adoption rate for BSM may be slower than we expect and customers may not increase their purchases of our products if they do not adopt a BSM strategy; 4) a significant percentage of our license transactions are completed during the final weeks and days of each quarter, which creates a level of uncertainty as to whether revenue, license bookings and/or earnings will have met expectations until after the end of the quarter; 5) our operating costs and expenses are relatively fixed over the short term, so if we have a shortfall in revenue in any given quarter, our ability to off-set revenue shortfalls in the near-term is limited; 6) our effective tax rate is subject to quarterly fluctuation and any change in such tax rate could affect our earnings; and 7) the additional risks and important factors described in BMC Software's Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission. This filing is available on our website at www.bmc.com/investors. We undertake no obligation to update information contained in this release.
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