BMC Gets Optimized

BMC (NYSE: BMC), an enterprise software company, is continuing to see progress from its move into a new area in tech: BSM (business service management). No, it's not another mindless acronym. In fact, it looks like it has real growth potential.

In the fiscal third quarter, revenues increased 9%, to $412.9 million. Net income increased 31%, to $63.9 million, or $0.30 per share. Software license bookings increased 18%, which is particularly encouraging. After all, these revenues generally lead to ongoing maintenance and service fees.

In a sense, BMC is two companies. First, there's its software for mainframes. While it's a mature segment, it nonetheless produces nice cash flows.

Actually, it has been a good foundation for BMC's move into the BSM market. In other words, BMC has many years of experience dealing with complex information technology environments and certainly understands that customers want to find ways to bring about efficiencies.

Essentially, BSM software helps with things like computer down time, tracking IT assets, and allowing or preventing access to IT systems. Some of its recent customers include Micron Technology (NYSE: MU), Charles Schwab (Nasdaq: SCHW), and CNA Financial (NYSE: CNA).

Takeaway
No doubt, BMC's cost-cutting efforts are paying off. This has been the result of reductions in SG&A, as well as outsourcing of R&D to low-wage countries. In fact, operating margins are now at 17.9%, which is the highest point in the past five years.

Something else: BMC's competitors -- such as CA (NYSE: CA) and Hewlett-Packard (NYSE: HPQ) -- may be distracted by integrating acquisitions, according to William Peters, an analyst with Technology Business Research (TBR). According to an interview I had with him, Peters thinks the distraction could last at least two quarters, and as a result, it could mean more customer wins for BMC.

Going forward, BMC expects fiscal fourth-quarter revenues of $415 million to $435 million, with earnings of $0.36 to $0.40 per share.

BMC has a good combo for investors -- a strong product road map (which is getting more license revenues) and good cost management. Moreover, it looks like it has staying power. All in all, BMC's stock does look like a worthy idea for consideration.

For more Foolish reading:

• BMC: Soft on Growth
• BMC Means "Buy My Company"
• BMC at the Tipping Point?

Charles Schwab is a Stock Advisor recommendation.

Fool contributor Tom Taulli does not own shares mentioned in this article. He is currently ranked 1,623 out of 19,864 in Motley Fool CAPS. The Fool's disclosure policy never gets distracted.