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BMC Software Inc. reported fourth-quarter 2013 earnings per share of 72 cents, missing the Zacks Consensus Estimate of 74 cents.

Revenue

Total revenue in the reported quarter was $568.6 million, up 0.7% from $564.7 million in the year-ago quarter. The upside in revenues can be attributed to a meaningful increase in Maintenance revenues that was almost totally offset by the decline in License and professional services revenues.

Moreover, BMC witnessed a meaningful increase in the SaaS business, and witnessed an increase in its customer base by about 80.0% during fiscal year 2013. The company, at present, boasts more than 600 active SaaS customers. This apart, in fiscal 2013, the company witnessed a decent increase in its cloud-related license bookings, which increased double-digits on a year-over-year basis to $100 million.

License revenues in the third quarter were $225.4 million, down 3.5% from the year-ago quarter. Maintenance revenues were $286.1 million, up 4.8% from the year-ago period. Professional Service revenues were $57.1 million, down 1.7% from the year-ago period.

Operating Results

The GAAP operating income was $105.8 million in the quarter, down 0.2% from $106.0 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 $152.5 million in the reported quarter, up 4.8% from $145.5 million in the prior-year quarter.

Net income on a GAAP basis was $72.7 million or 50 cents per share compared with $70.7 million or 43 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 $105.3 or 72 cents per share, compared with $98.5 million or 60 cents per share in the year-ago quarter.

Balance Sheet, Cash Flow & Share Repurchase

BMC Software generated $347.2 million in cash flow from operations in the reported quarter, compared with $212.9 million in the year-ago quarter. The company exited the quarter with cash and investments of $1.51 billion, up from $1.18 billion in the prior quarter.

BMC Applies For Privatization

BMC has also made a public announcement to go private. The main reason to opt for privatization is the slow growth rate that the company has been experiencing over the last several quarters. Bain Capital and Golden Gate Capital together offered to pay a sum of about $6.9 billion to buy BMC.

We believe that the company has taken a prudent decision, by opting for privatization as this could help BMC take some difficult decisions to tap the considerable opportunity in cloud computing more 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).

On the other hand, companies such as Harwood Feffer LLP and Rigrodsky & Long, P.A. announced in separate statements that they were investigating any legal claims against BMC. These investigations are being conducted to determine whether the board of directors has carried out its necessary duties before privatization, providing proper disclosure of benefits and costs, and offering full and fair consideration for the company’s shareholders. These investigations may delay the process of privatization for BMC.

Our Take

BMC reported mixed fourth-quarter 2013 results, with earnings per share falling short of the Zacks Consensus Estimate but revenues up marginally. The company also witnessed a decent increase in its customer base and cloud computing bookings. We remain wary about the conditions in Europe and competition from strong peers.

Moreover, BMC has not been able to penetrate the cloud computing market as expected. We also extend a word of caution because of the softness in high-value orders, which indicates a weak demand trend.

The company needs to revamp and restructure its business model. Therefore, its decision to go private makes sense at this juncture. We also consider it a positive for share prices that have remained buoyant since news of its possible buyout first started going round.

BMC has a Zacks Rank #3 (Hold).

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