BMC Software Inc. ( BMC - Analyst Report ) reported fiscal second quarter 2013 earnings per share of 71 cents, inching past the Zacks Consensus Estimate of 70 cents.

Revenue

Total revenue in the reported quarter was $548.2 million, down 1.5% from $556.7 million in the year-ago quarter.

The company registered a massive growth in ESM wins during the quarter and witnessed $1 million in license bookings, registering a growth of 26% year-over-year. In this segment, the company won new customers such as China Construction Bank, Credit Agricole, JDA, Swiss PostFinance and Tata Motors.

License revenue in the second quarter was $209.2 million, down 8.9% from the year-ago quarter. This apart, the ESM license revenue was $129 million, down 12%, while MSM license revenue dropped 4% year on year to $80 million.

Maintenance revenue in the second quarter was $285.4 million, an increase of 5.5% compared with the year-ago period. Moreover, ESM maintenance revenue was $162 million, up 11.0%. MSM maintenance revenue was $124.0 million, down 1.0%, compared to the second quarter of fiscal 2012.

Professional services revenue, which is included in the ESM business unit, decreased 5.1% year on year to $53.6 million.

Bookings

Cloud-related license bookings in first half of fiscal 2013 jumped almost 30.0% over fiscal 2012 first half.

Operating Results

Operating income was $138.0 million, down 14.3% from $161.0 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 $161.5 million in the reported quarter, down 12.9% from $185.6 million in the prior-year quarter.

Net income on a GAAP basis was $97.8 million or 61 cents compared with $114.7 million or 65 cents 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 71 cents per share compared with 69 cents in the year-ago quarter.

Balance Sheet, Cash Flow & Share Repurchase

BMC Software generated $66.5 million in cash flow from operations in the reported quarter versus $219.6 million in the previous quarter. The company exited the quarter with cash and investments of $1.44 billion, down from $1.60 billion in the prior quarter.

During the reported quarter, BMC repurchased 4.8 million shares, spending $200 million. The company has been authorized to repurchase shares worth $1.0 billion during the current quarter.

Guidance

For fiscal 2013, BMC expects non-GAAP diluted earnings per share in the range of $3.49 to $3.59 per share. On an average, this would represent a 9.0% increase over fiscal 2012.

Summary

BMC reported better-than-expected third quarter 2013 results, with EPS beating the Zacks Consensus Estimate, although revenue declined marginally. However, the company witnessed substantial cloud bookings. Most of its business segments grew, but cash position deteriorated compared to the previous quarter.

We are a bit apprehensive about the bleak business conditions in Europe. Moreover, growing competition from big players such as IBM Corp. ( IBM - Analyst Report ) , Hewlett-Packard Company ( HPQ - Analyst Report ) ), EMC Corp. ( EMC - Analyst Report ) and CA Technologies ( CA - Analyst Report ) ) will pose a challenge for the company.

We have a Neutral recommendation on BMC over the long term. Currently, BMC has a Zacks #3 Rank, which implies a Hold rating on a short-term basis.