MARKHAM, Ontario and SOUTHBOROUGH, Massachusetts - September 9, 2005 - Geac Computer Corporation Limited (TSX: GAC and NASDAQ: GEAC), a global enterprise software company dedicated to addressing the needs of CFOs, today announced results for its first quarter of fiscal year (FY) 2006, which ended July 31, 2005.
First Quarter and Other Financial Highlights
- Net cash provided from operating activities was $7.9 million for the first quarter ended July 31, 2005, compared to $2.2 million for the first quarter of the prior year.
- Software license revenue from internally developed new products increased to approximately 27% of total license revenue.
- Cash balance increased 65.5% to $192.1 million, up from $116.1million a year ago.
- Following the quarter, August software license revenue increased 61.9% compared to August of last year.
- Board of Directors commits to share repurchase program.
(except per share data)
|Q1 FY 2006||Q1 FY 2005|
|Support & Services Revenue||$86,931||$89,470|
|Diluted Earnings Per Share||$0.13||$0.15|
Geac reported revenue in the first quarter of FY 2006 that amounted to $103.7 million, a decrease of $3.1 million compared to $106.9 million in revenue in the first quarter of FY 2005. Software license revenue represented $13.0 million of the first quarter total, a 16.0% decrease over the same quarter last year when software license sales were $15.5 million. The Company's net earnings were $11.3 million during the first quarter of FY 2006, or $0.13 per diluted share, compared with $13.5 million, or $0.15 per diluted share in the first quarter of last year, a net earnings decrease of 16.4% and a diluted EPS decrease of 13.3%. The gross profit margin decreased to 61.6% of revenue from 64.9% in the first quarter of FY 2005.
Net cash provided by operating activities for the three months ended July 31, 2005 was $7.9 million compared to $2.2 million net cash provided by operating activities in the same period the previous year. Geac's cash position at the end of the first quarter of FY 2006 was $192.1 million, a 65.5% increase in the cash position of $116.1 million at the close of the first quarter of FY 2005. This substantial increase was the direct result of the Company's seven consecutive quarters of generating positive cash from operations.
Charles S. Jones, President and Chief Executive Officer of Geac said, "While our first quarter is traditionally a lower revenue quarter due to the seasonality of our business, license revenue was also adversely influenced by an apparent spillover into August. Traditionally our slowest month, August saw a material increase of 61.9% in new software license revenue compared to August of FY 2005, largely due to new license agreements of MPC, the Company's budgeting, financial planning and forecasting product suite. In addition we signed some significant
contracts in August that will contribute revenue to be recognized in future periods. The most notable of these contracts were in our ISA business segment of which one contract was in excess of $1 million and another in excess of $2 million."
"Geac remains focused on building opportunity for license growth, and we are winning larger deals with new customers, but often in a sales cycle that lasts longer than anticipated," continued Mr. Jones. "Our average transaction size in the EAS division increased in the first quarter of FY 2006 over the same quarter a year ago. In the last few quarters approximately 11% of the number of these deals were from new customers, and in the first quarter of FY 2006, the number of new customers as a percentage of total contracts signed in the quarter increased to 14.6%. Contracted sales of internally developed new products accounted for approximately 27% of software license revenue in the first quarter of FY 2006. Clearly, our product innovation and our commitment to extending the financial value chain with performance-driven capabilities are achieving results. We are particularly pleased to announce today the immediate availability of Geac MPC 7, a major new release of our flagship integrated performance management software suite."
Operating expenses were $47.9 million in the first quarter of FY 2006, compared to $48.8 million the first quarter of FY 2005. Contributing significantly to the Company's lower general and administrative expenses in the quarter was a $4.0 million settlement with an insurance carrier. We incurred approximately $1.5 million in legal fees and associated costs in prior periods in the litigation with the insurance carrier, which commenced in 2001. In addition, the Company's non-cash, stock-based compensation expense increased by $1.8 million to $2.9
million in the first quarter of FY 2006, a 164% increase, from $1.1 million in the first quarter of last year. This increase resulted from the impact of the fully funded, non-dilutive, restricted share units (RSUs) that had been granted to the management team and to certain key employees in FY 2005. Also, in the first quarter of FY 2006, the costs associated with the Company's ongoing compliance with corporate governance requirements, including Sarbanes-Oxley Section 404, increased by approximately $500,000 over the first quarter of FY 2005. We expect these stock-based compensation and compliance expenses to continue throughout FY 2006.
"As we previously disclosed, in recent quarters we deliberately increased our sales and marketing expenditures to execute focused initiatives designed to accelerate license revenue growth in key product areas, including Geac Performance Management," said Donna de Winter, Chief Financial Officer. "As a percentage of total revenue, sales and marketing expenses increased from 17.3% in the first quarter of FY 2005 to 18.9% in the first quarter of FY 2006. The increase was primarily due to personnel costs relating to changes in our sales force, an increase in stock-based compensation expense related to the granting of
RSUs to key sales management in the fourth quarter of FY 2005, and an increase in our investment in the training and education of sales and marketing personnel. The effect of these expenses on our margins is more pronounced this period as the first quarter is traditionally a lower revenue quarter. In addition, net earnings and diluted EPS were impacted by the expected increase in our effective tax rate of 36.5% in the first quarter ended July 31, 2005 compared to 33.1% in the first quarter ended July 31, 2004. We believe that under the current facts and circumstances that our effective tax rate for FY 2006 will be in the range of 22% to 27%."
Geac's System21, Anael, Runtime and Interealty divisions experienced growth in the quarter. System21, the largest of these divisions, had a total revenue increase of 3.5% over the first quarter of last year. Anael increased total revenue by approximately 7.0% in the first quarter of FY 2006 from the first quarter of FY 2005, and software license revenue was up 10.0% in the same period. With several large transactions closed in the first quarter of FY 2006, Interealty total
revenue increased nearly 10% over the same quarter a year ago. RunTime had the strongest growth, with a 113.7% increase in total revenue and a 342.6% increase in license revenue over the first quarter of FY 2005.
In August FY 2006, Geac increased new license revenue from $2.2 million in August of FY 2005 to $3.6 million in August of FY 2006, or 61.9%. Some significant contracts closed in the month included:
- For Geac Performance Management - Applebees, the largest casual dining restaurant chain in the U.S.; Bushnell Performance Optics, a global supplier of high quality sports optics; Clearwire Corporation, a provider of wireless, high-speed broadband Internet service; American Diabetes Association; and a leading regional bank in the Southeastern U.S.
- For Enterprise Server - a U.S. government law enforcement agency
- For Geac Public Safety - a leading ambulance services company
Today, Geac will formally announce the release of version 7 of MPC, the cornerstone of Geac's performance management offering, which helps organizations close the gap between the business strategy and budgeting processes by integrating both elements into one seamless application. The Company continues to focus product development efforts on meeting customers' requirements for highly functional, open and integrated performance management software, which allows them to extend their existing investments in platforms, applications and systems, as demonstrated by this announcement.
In the first quarter of FY 2006, Geac closed approximately 315 transactions Company-wide in the Enterprise Applications Systems (EAS) segment of the business. Nineteen of these deals each exceeded $150,000, and the average transaction size within this group was approximately $284,000, up from the average transaction size of approximately $257,000 in the first quarter FY 2005. Of the 315 contracts in the EAS segment, 46 contracts were with net new customers, reflecting an increase of the number of new customers as a percentage of total contracts.
Among the significant EAS deals of the quarter, Geac signed contracts with Hartford (Connecticut) Hospital; Scottish & Newcastle plc, an international brewing group; Agrokor / Konzum, the largest Croatian retail chain; GILDEMEISTER AG, a major machine tools manufacturer; Lorraine Tubes, a French subsidiary of Spanish CONDESA Group; Mac Mode GmbH & Co. KGaA, a German clothing manufacturer; a leading U.S. transportation company; a global healthcare products manufacturer; a provider of Direct Broadcast Satellite (DBS) television products and services; a major U.S. bank holding company; and an automotive systems manufacturer. One of these contracts in the first quarter was valued at $1.8 million.
Importantly, Geac was also awarded a contract of over $350,000 in the first quarter for MPC performance management software from a major U.S. financial services institution in the business of home mortgage lending. The sale is evidence of Geac's continued success in extending its position in the financial services industry.
In the Industry Specific Application (ISA) segment of the business, Geac Libraries announced in June that the County of Lambton in southwestern Ontario purchased Geac's Vubis Smart library automation system. Adoption of Vubis Smart by Lambton County Library Services continues a pattern of steady growth in North America for Vubis Smart, Geac's innovative, Web-based library management system. Essex Libraries Consortium, one of the United Kingdom's largest library services and a key BT customer went live with Geac's Vubis Smart in June. Geac's Commercial Systems Division (CSD) experienced a 22.4% increase in software license revenue in the first quarter of FY 2006 as compared to the first quarter of FY 2005. One of CSD's significant deals of the quarter, exceeding $130,000, was the sale of the AMSI product portfolio to a residential and commercial properties development company in Illinois.
"Geac remains focused in its transition on building opportunity throughout the business for software license growth. We continue to innovate, introduce new products and manage our operating expenses. We are winning larger deals with new customers, but often in a sales cycle that lasts longer than anticipated. We have continued to strengthen our balance sheet by increasing our cash balance and recently signed a new, five-year US$150 million revolving credit facility. In addition, as discussed in our letter to shareholders dated August 31, 2005, we continue to evaluate a broad range of strategic alternatives, including prudent acquisitions, changes to our capital structure and discussions with third parties who have expressed an interest in acquiring the Company. While there can be no assurance that these talks will result in a transaction, we pledge to you that your current Board of Directors will continue to consider all alternatives to enhance value for all Geac shareholders without jeopardizing the long term prospects of Geac. We recently terminated discussions with a business intelligence company due to unacceptable valuation expectations. As a result of the continuing challenges we face in completing a meaningful acquisition, and our strengthened balance sheet, we plan to actively repurchase up to $US 35 million of our common shares over the course of the next 12 months pursuant to the normal course issuer bid previously announced, subject to the terms of the bid, including TSX rules and applicable law. We reiterate our pledge to you that your current Board of Directors will continue to seek to create value for all Geac shareholders while continuing to invest in the business to ensure long-term success. We appreciate the support for Geac's Board and management team expressed by many of our shareholders over the past several weeks," concluded Mr. Jones.
To understand better this press release and for more in-depth analysis of these financial results and the risks related to our business, please see our Management Discussion and Analysis, which will be filed today with the Canadian Securities Administrators at www.sedar.com and the United States Securities and Exchange Commission at www.sec.gov. It will also be posted on our website at http://www.geac.com later today. In addition, a more detailed discussion of certain of the challenges we will continue to encounter in FY 2006 can be found in the "Going Forward" section of the Company's year-end letter to shareholders printed in Geac's FY 2005 Annual Report (available at www.geac.com).
Management will discuss the results announced on a conference call scheduled for later this morning, Friday, September 9, 2005, at 8:30am. Eastern Time.
Listeners may access the conference call at 416.405.9328 / 800.387.6216, or via webcast at http://www.investors.geac.com.
A replay of the conference call will be available from September 9, 2005 at approximately 4:00 p.m. Eastern Time until September 23, 2005 at 11:59 p.m. Eastern Time. The replay can be accessed at 416.695.5800 or 1.800.408.3053. The pass code for the replay is 3162314 followed by the number sign.
The conference call will be broadcast over Geac's web site at www.investors.geac.com. Attendees will need to log in at least 15 minutes prior to the call. The full text of this release, including financial statements can be found at http://www.geac.com/object/pr090905.html.
Geac (TSX: GAC, NASDAQ:GEAC) is a global enterprise software company that addresses the needs of the Chief Financial Officer. Geac's best-in-class technology products and services help organizations do more with less in an increasingly competitive environment, amidst growing regulatory pressure, and in response to other business issues confronting the CFO. Further information is available at http://www.geac.com or through e-mail at firstname.lastname@example.org.