This summary is based on the third quarter fiscal 2008 earnings call conducted by BMC Software Inc. (BMC: chart) on February 7, 2008.

President, Chief Executive Officer, Director: Robert E. Beauchamp
Chief Financial Officer, Senior Vice President: Stephen B. Solcher
Investor Relations: Derrick Vializ

Key Investors Issues

- Earnings per share increased to 45 cents from 30 cents in the prior year.
- Quarterly revenue was $459 million versus $412.9 million in last year.
- The firm is raising its guidance for fiscal 2008 and expects non-GAAP EPS to be in the range of $1.90 to $1.94.

Third Quarter Fiscal 2008 Financial Highlights

In the third quarter, non-GAAP operating income increased by 37% to $140 million.

Non-GAAP operating margin increased 5 percentage points from a year ago to 30%. Non-GAAP net earnings for the third quarter were $112 million, an increase of 31% over fiscal 2007. Non-GAAP diluted EPS for the period was 57 cents, up 39% compared to the year-ago period. This reflects a non-GAAP effective tax rate for the quarter of 29%. These non-GAAP results reflect diluted shares outstanding in the third quarter of $198 million versus $210 million in the year-ago period.

GAAP operating income in the third quarter was $107 million compared to $74 million in the year-ago period. GAAP net income and fully diluted EPS were $89 million and 45 cents compared to $64 million and 30 cents in the third quarter of fiscal 2007.

Total revenue for the quarter was $459 million, an 11% increase compared to fiscal 2007 third quarter.

The company has now seen acceleration in revenue growth over the last four quarters.

- License revenue was $182 million, an increase of 17% compared to a year ago. This strong increase in license revenue resulted from license bookings growth in a lower ratable rate in comparison to the prior year. During the quarter, the percentage of license bookings that was deferred was 49%. This is a decline of five percentage points from the prior year.
- Maintenance revenue in the third quarter of 2008 was $246 million, an increase of 6% compared to a year ago and a $5 million increase on a sequential basis.
- Professional services revenue was $31 million in the third quarter, up 27% compared to $25 million in the year-ago period.
- From a geographic perspective, total revenue growth was reported in all major regions with the U.S. increasing 10% and international increasing 13%.

Total bookings were $452 million, up 4% compared to the year-ago period.

Total bookings on a trailing 12-month basis were $1.8 billion, up 14% compared to the year-ago period. The weighted average contract length for total bookings on a trailing 12-month basis was 2.3 years, which was comparable to the year-ago period. On an annualized basis, trailing 12-month bookings were $770 million, up 11% compared to the year-ago period. This marks the eighth consecutive quarter in which the firm has achieved annualized bookings growth on a trailing 12-month basis.

For the BSM business unit, license bookings are the best measure of performance. Total BSM license bookings were $117 million in the third quarter, up 8% over the year-ago period. Within the BSM business unit, license bookings of the core BSM product group were up 11% in the third quarter in comparison to a year ago. This is the seventh consecutive quarter of double-digit growth in the core BSM license bookings. Core BSM license bookings were particularly strong in North America, offsetting under-performance in Europe.

The firm believes that its MSM business unit is best evaluated on the basis of total and annualized bookings over the trailing 12 months. In the third quarter, total MSM bookings on a trailing 12 month basis were $769 million with an average contract length of 3.1 years. In the year-ago period, total MSM bookings were $660 million, with an average contract length of three years. Normalizing for contract length, total annualized MSM bookings for the trailing 12 months were $247 million, a 12% increase compared to a year ago. This is a lumpy business in which bookings can vary quarter to quarter. The firm remains pleased with the solid performance in trends that it has seen in its MSM business over the last calendar year. The full year expectation for the business has improved once again. The firm now expects MSM annualized bookings to be up compared to fiscal 2007.

The management continues to be very pleased with its ability to control operating expenses.

Non-GAAP operating expenses were $319 million, up 3% from the prior year but were down slightly after adjusting for the negative impact of currency movements. There are a few key drivers underlying the firm’s ability to hold down costs that should continue to trend well for it going forward. These have included continuing the expansion into low cost locations, eliminating redundancies in systems and applications, re-engineering core processes. For example, as a result of its efforts to standardize, simplify, and automate order services in its Houston and Amsterdam processing centers, nearly all of its support orders and more than half of its license orders are now processed electronically. As a result, the firm has seen efficiency gains of 25%. The company expects to see improvement in other key functional areas beyond fiscal 2008, as a result of ongoing initiatives to control costs and improve the scalability of its business model.

Total deferred license revenue at the end of the third quarter was $542 million, up $30 million or 6% sequentially.

During the quarter, the firm deferred $104 million of license revenue or 49% of license bookings and recognized $74 million of deferred license revenue from the balance sheet.
Total deferred revenue at the end of the third quarter was $1.7 billion, flat sequentially.

- Software development cost on the balance sheet were $113 million as the firm capitalized $17 million and amortized $16 million during the quarter.
- Cash and marketable securities at December 31st were $1.4 billion.
- For the quarter, cash flow from operations was $65 million, a decrease of $48 million from the year-ago period. This decrease was principally due to higher cash taxes and DSOs reverting back to historical norms.
- During the quarter, BMC Software repurchased 5.5 million shares for an aggregate value of $186 million and now has slightly under $785 million remaining in its stock repurchase program.