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Geac Announces Q3 Results and Acquires CRM Vendor

Written By: Predrag Jakovljevic
Published On: April 20 2000

Geac Announces Q3 Results and Acquires CRM Vendor
P.J. Jakovljevic - April 20th, 2000

Event Summary

In March, Geac Computer Corporation Limited announced its financial results for the third quarter and nine months ended January 31, 2000. Sales for the three months rose 32.5% to $281.9 million from $212.8 million the prior year (See Figure 1). Sales for the nine-month period grew 26.0% to $724.7 compared to $575.4 for the same period last year. The Company also announced plans to spin-off its inteRealty.com residential real estate B2B division.

Acquisitions made over the past nine months contributed $118 million to the increase in Geac's sales for the three months ended January 31, 2000. In particular, the acquisition of JBA Holdings, effective September 21, 1999, contributed over $100 million in sales to the quarter. For the nine months ended January 31, 2000, acquisitions contributed approximately $181 million to the Company's consolidated sales. For the third quarter, license and hardware sales increased 46% compared to the same three-month period last year. License and hardware sales comprised approximately 23% of the total sales for the quarter, with the balance made up of sales from recurring maintenance and service revenues. For the nine months ended January 31, 2000, consolidated sales were comprised of 23% license and hardware revenues and 77% maintenance and service revenues.

Net income for the third quarter was $0.9 million or $0.01 per fully diluted common share compared to $39.9 million or $0.61 per fully diluted common share last year. For the nine months ended January 31, 2000 net income was $58.9 million or $0.94 per fully diluted common share compared to $122.4 million or $1.88 per fully diluted common share the prior year.

Net income for the third quarter and nine months ended January 31, 2000 were impacted by charges related to the amortization of intangible assets acquired, particularly with the acquisition of JBA Holdings. Total amortization of intangible assets amounted to $38.1 million in the third quarter, including $30.4 million related to the acquisition of JBA, compared to $15.6 million last year. The prior year figure includes amortization of capitalized development costs.

In March, Geac also announced it had acquired RunTime, the Denmark-based e-Customer Relationship Management (eCRM) solutions provider to the apparel, footwear, and textile industries. RunTime has over 400 customers including Esprit, Betty Barclay, and Replay. RunTime's applications focus on the design and pre-production phases of the manufacturing process, customer relationship management, and sales force automation. The application has been tightly integrated with several leading ERP solutions, including System21 Style.

Bertrand Sciard, Managing Director of Geac Europe, stated: "RunTime has an extremely exciting and innovative set of products which have rapidly established a dominant position in their market. The solution is highly complementary to System21 Style. It has already been sold and is in joint production at several companies in Europe."

Douglas Bergeron, President and CEO of Geac, commented: "We are continuing our aggressive push into the ERP mid-market by acquiring a powerful eCRM solution. Our customers and prospects are looking for e-commerce CRM solutions that are proven and can be implemented immediately. RunTime is a very successful and profitable company that has been growing at over 30% per year. We are very proud to welcome them to Geac and see tremendous revenue synergies with our System21 business."

Michael Kildahl, CEO of RunTime added: "We see tremendous opportunities to sell our products across Geac's enormous customer base. Our employees and customers will benefit greatly as we enter into this new phase of company growth."

The joint System21 Style and RunTime solution will be marketed globally. Integration between the systems is achieved using System21's XML-based Application Integration Framework, and several customers are already experiencing the benefits of using the combined System21 Style and RunTime applications.

Henning Andersen, Director, Carli Gry A/S, commented: "We chose RunTime and System21 Style as the basis of our core systems because together they lead the market, therefore this acquisition bodes well for us. It will mean further development of both systems and greater integration between them. That leaves us in a powerful competitive position to further improve our operational performance."

Market Impact

There has long been a pressing need for this acquisition as we emphasized in our research note on Geac in March 2000 (see TEC Technology Note: "Geac: Mastering Growth by Acquisitions", March 6th, 2000). JBA's System 21 product has been losing ground to its competitors in the U.S. market during the last year. RunTime gives Geac a proven and solid CRM application in its industry, and without this acquisition, we believe that Gaec/JBA's business would have continued to hurt.

Geac has proven itself an adroit and disciplined acquirer of application software businesses. The latest announcement of its expedient incorporation of Clarus' former product line is the most recent example. Nonetheless, we expect the usual painstaking effort associated with merging companies. The mitigating factor, however, is the fact that JBA and RunTime had a marketing and development partnership. The technical problems are likely to arise with the future integration of the two products into a common interface and code base, which, we believe, Geac/JBA will have to undertake in order to continue to compete with the other top ERP vendors in the combined ERP and CRM space.

One reason for concern is whether this acquisition will result in CRM solutions for other JBA vertical industries like automotive and food & beverage. And what about the Geac's SmartEnterprise ERP product suite's CRM extension? The company will have to do a double take before deciding about any future acquisition since its profit has all but disappeared in the last quarter (see Figure 1). Another concern is the lack of significant licenses revenue growth despite a spate of recent acquisitions. Moreover, exceptionally low license revenue to service & maintenance revenue ratio of 23%/77%, compared to the industry benchmark of 38%/62% (Source TEC) may indicate sales and marketing execution problems as well as the product portfolio maturity and/or redundancy.

User Recommendations

We generally recommend including Geac in a long list of an enterprise application selection to mid-market and low end tier 1 companies (with $100M-$1B in revenue), based on a very deep understanding of customers' needs within the following industries: Library Systems; Construction Systems; Property Management Systems; Hospitality Systems; Public Safety Systems; Publishing Systems; Manufacturing & Distribution Systems; Real Estate Systems; Cash & Securities Reconciliation Solutions. Other industries might also benefit from evaluating the above-mentioned Geac point solution, bearing in mind inevitable integration issues with other systems in place.

We also generally recommend including JBA System 21 in a long list of an enterprise application selection to mid-market and low-end Tier 1 companies (with $50M-$1B in revenue), within the following industries: Automotive Components, Apparel & Footwear, Beverage, Food, and Electronics. However, until the most recent merger is consummated, any organization evaluating Geac/JBA should exercise moderate caution and consider existing functionality only.

 
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