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.