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FOOL CONFERENCE CALL SYNOPSIS*
BMC Software, Inc. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NASDAQ: BMCS)") else Response.Write("(NASDAQ: BMCS)") end if %> UNION CITY, Ca., October 27, 1996/FOOLWIRE/ --- BMC Software reported their Q2 1997 results on October 24th. Business around the world in all parts of their businesses was extremely strong. License revenues in North America were over $55 million for a 76% increase over the prior year period. International revenue was over $26 million or a 49% increase over a year ago. That yielded total license revenue increases of 66%. On the maintenance side, they saw a slight uptick in maintenance to about 14% increase. They think they have reached a point where their focus on maintenance is starting to produce results. So maintenance compared to the June quarter was actually up 1%. So, combining everything, license revenue up 66% and maintenance revenue up 14% yields a 43% increase in total revenues. GOOD EXPENSE CONTROL. On the expense side, expenses were up 48% year over year. If you look at the June quarter, those expenses tend to be flat sequentially over the prior quarter, so they continue to grow the business while continuing to have very good expense control. INCOME STATEMENT HIGHLIGHTS. Going down the other income categories, operating income was up 36%. Net income after taxes was up 34%. And earnings per share was up 32% to $0.66 per share compared to $0.50 a year ago. That beat analyst estimates of $0.62 per share by $0.04 per share. The company indicated that, from an income statement standpoint, BMC has one of the strongest income statements being delivered in their industry for the September quarter. BALANCE SHEET HIGHLIGHTS. In the June quarter, the DSOs had come down to an unusually low level. What they failed to predict was that they would drop even further in the September quarter and DSOs are at 42 days for Q2. The company views this as an anomaly and thinks that over the next several quarters this will tend to move back into the high 60-day or low 70-day range where they traditionally are. They came in a little lower on the software capitalization rate than expected. Software capitalization rate for the second quarter was 10% and they have been guiding toward a slightly higher number in the mid-teens and there may be an opportunity for them to reach that as they close out the year. Cash and attended investments reached an all-time high of over $405 million. Deferred revenue shot up substantially compared to last year, up to $203 million, which is predominantly maintenance revenue. LARGER DEALS. This is, however, an indicator of the strength of their business. This particular quarter was characterized by fewer deals over $1 million, but deals that were very, very large. So, while in the past they have enjoyed a large number of over $1 million transactions, this quarter would have been in number somewhat less, but in dollars a move toward fewer but larger transactions. SHIFT IN CUSTOMER BUYING PATTERNS TO SUPPORT CLIENT/SERVER ENTERPRISE MANAGEMENT. If you break those apart, what they are seeing is customers buying new products (from the customer's viewpoint) in IMS, DB2, and open systems. So they are getting a different mix of products than they have but then they are also, in the mainframe area, expecting very, very large capacity growth so they are buying, on the mainframe side, a great deal of capacity relative to what they have installed today. And that expectation would be very consistent from the anticipated MIPS growth that, for example, IBM talks about. So, the good news is that BMC is seeing customers remix their products and are buying, for them, a lot of brand new product titles that they didn't own before and they are betting that their mainframe capacity is going to grow, as it has this year, at unprecedented rates in the future and they are betting on BMC across the enterprise. The largest deal they did had a large IMF component, a big DB2 component and a big open systems component. They think that they enterprise story is being very well received. DEAL STRUCTURES OFFER OPPORTUNITY FOR ADD-ON REVENUES. The way they have structured their deals and the basic underpinnings which are MIPS growth with annual checkups and their strong R&D push for more products, it gives them an opportunity to do a large transaction and then come back in a 12, 24, or 36 month time frame and do a larger deal. And, the largest transactions that they have done to-date have been preceeded in 18-24 month timeframes by substantial 7 and 8-digit deals. As they do these deals, they get the customer confidence and customer buy-in and then they are able to expand those out to include broader parts of the customer's business, incremental products, and more future capacity. STRONG OPEN SYSTEMS GROWTH. Their database license business was up 55% representing 36% of their total. Combined with their open systems business, their database business and open systems business made up 86% of total license revenue to-date. Where they used to rely almost exclusively on revenue from their database business, the open systems business was a large contributor to the the growth in the health of the company. THE COMPANY ANNOUNCED A 2-FOR-1 STOCK SPLIT which will take the form of a stock dividend and will be effective in November. STANDARDS COMMITTEE. BMC was part of the WEBEM initiative with Cisco, Compaq, Microsoft, and Intel. Two years ago BMC wasn't a player in the open systems or the Internet business. Now they are part of the 5 companies that are setting the standards for managing enterprises over the Web. The Patrol MetaSuite of products have been rebranded and repositioned as Patrol products and Patrol DB products. Those are now receiving a lot of attention and market success. They also introduced their first Patrol product for the Web which is WEBEM compliant. They actually introduced two products that are WEBEM compliant in the Internet area. So, not only are they part of the committee setting a standard, they were the first to deliver against that. Their entire strategy, be it mainframe or open systems, Research and Development continues to deliver products and needed products across the market. They continue to march down the path of open systems breadth and open systems depth. Their work with SAP is starting to deliver results. Resellers such as KPMG or Unify continue to produce results. They think that by the time they finish the year, they will deliver $40-45 million of revenue to the company that didn't exist a year ago. FORECASTS STAY THE SAME. The company is not changing their internal forecasts for the second half of the year. They think expenses will move up pretty good over the next couple of quarters but they anticipate that that will be coupled with an increase in the revenues. It is their plan in the second two quarters to have a slight expansion of margins compared to Q1 and Q2 so they arrive at the year end at their more traditional pre-tax margins of about 40%. "YEAR 2000" SOLUTIONS STRATEGY. The company was asked if they planned to get into the "Year 2000" business of software fixes. They indicated that they aren't and that they feel there is a lot of hype around the issue. They also said that they plan to focus on long-term sustainable business and that the big problem with the "Year 2000" business is that it dries up and goes away in the year 2001. So, long-term, they think their shareholders will be very grateful that they chose not to focus on it. The company was asked if they saw the potential for losing sales because customers were redirecting expenditures to buy "Year 2000" products and they said that a number of their competitors are selling and hyping their "Year 2000" products and that, if you look at the quarterly results it doesn't seem to have made any difference. Customers still have to run a business and that is what BMC sells products to do. THE SMARTBATCH PROJECT with IBM is on track. IBM is going through their testing and is going to some of their early customers shortly and will be doing their early customer tests. They currently are on schedule to begin shipping the product in January or February to the actual end users. So that one is moving as advertised, on plan. THE BMC PATROL AGENT PROJECT WITH INTEL. On the Intel front, that project is also going well. BMC is part of the special interest group that Intel has established for the standards for managing the I/O of the processors. BMC is working with the group and co-chair the group with Intel. The current plan is that the BMC product (BMC Patrol Agent) will be shipping on the Intel Pentium Pros in either June or July and they ship the code to Intel in the next few months. They think that will have a huge market influence but they won't get any revenue in the near term. HEWLETT-PACKARD. Their relationship with Hewlett-Packard is going extremely well. They have a relationship with Hewlett-Packard on several fronts. The technology front related to their system management products is going extremely well. They are looking for ways to extend and expand that relationship. Their Professional Services Organization remarkets Patrol and they have begun to see significant transactions come out of the PSO organizatio where they didn't even know they were engaged. COMPUTER ASSOCIATES. With Computer Associates, the relationship varies by geography. In many cases they will team with CA to provide a more full solution. In other instances a particular CA team will attempt to provide a solution without BMC. But they think they have a certain amount of cooperation that works at the field level with CA. SAP CUSTOMERS. On the SAP side, they have a helluva time servicing the market and that is why they teamed up with KPMG that has a very large SAP practice and they sell Patrol through them. * A Fool conference call synopsis represents an effort to highlight the salient points of a conference call and should not be taken as an authoritative accounting or transcription of the entire event.
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