Thought mainframes were a thing of the past? Enterprise software developer BMC (NYSE:BMC) is here to prove you wrong. Investors welcomed the company's 7% revenue growth and 85% surge in earnings by sending the stock up 4% in after-hours trading.
Bookings rose 19% compared to a year ago, which should provide a foundation for continued growth. But even more impressive was management's strong cost discipline. BMC grew its operating margin from 5% a year ago to 23% this quarter.
License bookings surged 55%, generating $165 million cash flow from operations, as the company completed contracts from major companies like Fortis and Banco Bradesco S.A. (NYSE:BBD). Keep in mind that the mainframe business can be erratic and the market is fairly mature, but management maintains their positive outlook for the future, meaning they aren't changing their long-term growth projections for the overall market yet.
BMC's key growth driver is its business service management segment, and the company believes its next big step is moving into advancing IT process automation. The company has already locked in some deals, such as the one with RealOps to run book automation solutions. BMC also won some strategic customers such as the U.S. Army, PG&E (NYSE:PCG), and a few other civilian government agencies.
The competition is intensifying from players like IBM (NYSE:IBM) and CA (NYSE:CA). But with Hewlett-Packard (NYSE:HPQ) still struggling to integrate its acquisition of Mercury Interactive, BMC still has a competitive lead in the industry.
With improving operating margins, cash flows, and bookings, BMC should continue its momentum into next year. But in the fast-moving tech world, things never stay the same for long. In order to remain a leader, BMC is going to need to continue implementing strategic acquisitions and relationships.
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Fool contributor Tom Taulli, author of The Complete M&A Handbook, does not own shares mentioned in this article. He is currently ranked 4,156 out of more than 60,000 players in CAPS. The Fool has a disclosure policy.
