Geac Awakens On Its Deathbed - Part 1: Event Summary

Part 1: Event Summary
P.J. Jakovljevic - October 16, 2001

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.

Revenue 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 1).

Figure 1.

Geac 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).

Geac's 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.

"Our 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."

Mr. 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."

Subsequent 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 economical site.

Market Impact 

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 (see Will 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.

In 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.

Figure 2.

This 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.