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BMC Software Inc. reported first-quarter 2014 earnings per share of 58 cents, missing the Zacks Consensus Estimate of 59 cents. Although adjusted EPS has increased by 9 cents compared to the year ago quarter.

Revenues

Total revenue in the reported first quarter of 2014 was $483.6 million, down 4.1% from $504.4 million in the year-ago quarter. The downside in revenues can be attributed to a significant decline in License revenues and soft Professional Services revenues.

License revenues in the first quarter were $141.0 million, down 17.8% from the year-ago quarter. Maintenance revenues were $289.3 million, up 3.8% from the year-ago period. Professional Service revenues were $53.3 million, down 1.3% from the year-ago period.

Operating Results

The GAAP operating income was $69.7 million in the quarter, down 5.7% from $73.9 million in the year-ago quarter. Excluding special items like severance costs and amortization of intangible assets but including stock-based compensation expense, non-GAAP operating income was $115.2 million in the reported quarter, up 4.3% from $110.4 million in the prior-year quarter.

Net income on a GAAP basis was $52.5 million or 36 cents per share compared with $54.1 million or 33 cents per share in the year-ago quarter. Excluding special items such as amortization and severance costs but including stock-based compensation expense, non-GAAP net income was $83.9 million or 58 cents per share, compared with $79.6 million or 49 cents per share in the year-ago quarter.

Balance Sheet, Cash Flow & Share Repurchase

BMC Software generated $267.1 million cash flow from operation, down from $347.2 million in reported in the quarter. The company exited the quarter with cash and investments of $1.64 billion, up from $1.38 billion in the prior quarter.

BMC Applies For Privatization

BMC has already made a public announcement and is moving ahead with its privatization process, which we believe would be completed within the next couple of quarters. This is a prudent decision as this could help BMC to tap the considerable opportunity in cloud computing quickly and efficiently. This could in turn improve BMC’s competitive positioning versus cloud computing stalwarts such as Salesforce.com (CRM - Analyst Report), Oracle Corp. (ORCL - Analyst Report), SAP AG and Microsoft Corp. (MSFT - Analyst Report).

Our Take

BMC reported mixed first-quarter 2014 results, with earnings per share falling short of the Zacks Consensus Estimate although increasing year-over-year and revenues down from the year-ago quarter. The company showed a decent operating performance and has decent cash-generation ability. We remain wary about the conditions in Europe and competition from strong peers.

On the other hand, BMC has not been able to penetrate the cloud computing market in a big way although cloud computing is its forte.

The company’s decision to privatize is a decent step forward, which will help them to revamp and restructure its business model. This will help the company to capitalize on its core competency.

Currently, BMC has a Zacks Rank #3 (Hold).

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