Geac Awakens On Its Deathbed
1: Event Summary
On September 5, Geac Computer Corporation Limited (TSE: GAC), a
struggling Canadian supplier of enterprise management software, announced
that net income from continuing operations of Can$17.2 million in Q1 2002,
compared to a net loss from continuing operations of Can$43.2 million
during the first quarter of the previous year. The results are attributable
to various initiatives to restore profitability undertaken since last
October, including restructuring, divestitures and facility rationalization.
Earnings before interest, taxes, depreciation and amortization (EBITDA),
and discontinued operations rose nearly five-fold to Can$33.8 million,
from Can$5.8 million in Q1 2001.
in the first quarter ended July 31, 2001 was Can$179.6 million, which
is an 18.3% decline compared to Can$212.5 million last year (See Figure
believes its recurring revenue stream from its maintenance and support
contracts reduces the Company's exposure to current market conditions.
Maintenance and professional services accounted for $145.0 million, or
approximately 81% of first quarter revenues, which is significantly higher
than the industry benchmark of 67% (Source: TEC).
balance sheet strengthened considerably during the quarter, as the company
had approximately Can$34 million in cash at the end of August. A successful
Can$20 million equity offering, combined with solid first quarter cash
flow, resulted in a significant reduction in bank indebtedness since year-end
and compared to the same time last year. Also, Geac has announced an additional
offering of 6 million shares valued at Can$27M to CIBC World Markets.
Since mid-December, the Company has reduced its bank debt by approximately
$95.1 million while funding restructuring initiatives. Subsequent to the
quarter end the Company has entered into a financing commitment for a
new, secured $30 million revolving credit line from Ableco Finance LLC
to fund operations and management's growth strategies going forward.
first quarter results are a clear validation that this board and management
team have returned Geac to strong profitability," commented John Caldwell,
President and CEO. "Through our focused restructuring efforts and a renewed
emphasis on our customers, all of our business segments were profitable
in the quarter. Over the coming months, we will focus on achieving our
stated objectives to increase customer satisfaction, produce satisfactory
results and further strengthen the balance sheet. We expect to implement
strategies to expand revenue through partnerships and highly related acquisitions
in the early part of calendar 2002."
Paul Birch, COO and CFO added "We are particularly pleased that our JBA
operations contributed to profits in the quarter, after a significant
loss last year. With positive cash flow and a leaner, more cost-efficient
organization with current staffing level 30% lower than this time last
year, Geac's profitability has been firmly restored. The Company is now
better positioned to execute its strategies to enhance shareholder value."
to the end of the quarter, Geac sold its Publishing systems business,
a division of the Industry Specific Applications Segment, for $1.5 million
in cash, a move consistent with Geac's commitment to divest unprofitable
businesses (see Geac
Decomposes To Survive). Moreover, headcount is down 30% from last
year to 3350, and the company plans to move its headquarters to a more
Geac is on the comeback trail under new management or owners - a common
dj vu amongst once high-flying and almost deceased mid-market ERP vendors
V8 Help SSA GT Regain Lost Ground?, Epicor
Shows Resilience When It Needs It The Most, Baan
Achieves A Speedy Recovery Despite The Tough Times, and Is
Ross Systems Up To A Hat Trick?). While one may object that returning
to profits by merely trimming fat and milking revenue from the existing
client base should not be worth writing about, positive results in today's
business climate are more than simply psychologically important Although
many can also cast a skeptical eye on the above vendors' marketing rhetoric,
where ambitious product strategies seem to fly far ahead of their outdated
products given limited resources; the fact is many vendors seem to have
reached rock-bottom and not all have survived.
Geac's particular case, one should wait and see whether the company will
fall in the same trap again. Its unbridled acquisition strategy in a number
of unrelated, diverse fields and in the face of the overall weakness of
the ERP market during 1999/2000 resulted in dismal organic growth, a disconcerted
user base, and disastrous results (See Figure 2). Sticking to its thrifty
strategy (acquire, cut administrative expenses and generate service revenue)
instead of taking decisive action to breathe fresh air into its arsenal
of products, also backfired on Geac and relegated it in the back seat
of the enterprise applications market.
concludes Part 1 of an Event Note on how Geac is seems to be recovering.
Part 2 discusses Geac's Revitalization Plan and makes User Recommendations.