Note to readers: As a result of the sale of the Interealty business on October 1, 2005, the results of the operations of Interealty have been reflected as discontinued operations and have not been included in Geac's results of continuing operations for the second quarter of fiscal year (FY) 2006 and comparative periods. Geac's net earnings for the second quarter of FY 2006, which include net earnings from discontinued operations, were $33.2 million, or $0.37 per diluted share. All references to dollars are to U.S. dollars unless otherwise noted.
Second Quarter Financial and Other Highlights
- Signed definitive agreement with Golden Gate Capital for the sale of
the Company for approximately $1.0 billion, or $11.10 per share in
cash.
- Software license revenue increased 26.1% over Q2 FY 2005, and a 46.2%
improvement over Q1 FY 2006.
- 24.1% of software license revenue in Q2 FY 2006 came from the sale of
new internally developed Geac products.
- Gross profit margin improved to 66.2% in Q2 FY 2006 from 62.4% in Q1
FY 2006 and from 65.2% in Q2 FY 2005.
- EPS of $0.37 per diluted share, a 117.6% increase over same quarter
last year (including the gain on sale of and net earnings from the
Interealty business).
- $226.5 million in cash on the balance sheet as of October 31, 2005.
- Number of contracts closed increased from 315 in Q1 FY 2006 to 340 in
Q2 FY 2006 in the Enterprise Applications Systems (EAS) business
segment.
- Increased average deal size of deals in excess of $150,000 to $294,000
from $284,000 in Q1 FY 2006 and from $266,000 in Q2 FY 2005.
- Sold Interealty business, a non-strategic business unit, for
approximately $36.3 million in cash.
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US$ thousands Q2 FY 2006 Q2 FY 2005
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Software License Revenue 18,866 14,962
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Support & Professional Services Revenue 81,810 83,036
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Hardware Revenue 2,511 2,476
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Total Revenue 103,187 100,474
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Net Earnings 33,186 15,204
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Net Earnings per Diluted Share
(not in thousands):
Continuing Operations $ 0.12 $ 0.17
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Discontinued Operations $ 0.25 $ -
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Total Diluted EPS $ 0.37 $ 0.17
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Geac reported revenue in the second quarter of FY 2006 of $103.2 million, an increase of $2.7 million compared to $100.5 million in revenue in the second quarter of FY 2005. Software license revenue totaled $18.9 million in the second quarter, a 26.1% increase over the same quarter last year when software license revenue totaled $15.0 million, and a 46.2% increase over license revenue in the first quarter of FY 2006, when software license revenue was $13.0 million. The Company's net earnings from continuing and discontinued operations were $33.2 million during the second quarter of FY 2006, or $0.37 per diluted share, compared with $15.2 million, or $0.17 per diluted share in the second quarter of FY 2005, a net earnings increase of 118.3% and a diluted EPS increase of 117.6%. This was comprised of $22.1 million, or $0.25 per diluted share, from discontinued operations (net of taxes), and $11.1 million, or $0.12 per diluted share, from continuing operations. In the second quarter of FY 2006, the gross profit margin increased to 66.2% of revenue from 65.2% in the second quarter of last year.
In the second quarter, Geac sold its Interealty business for $36.3 million, resulting in a $21.3 million after-tax gain in the second quarter of FY 2006. The sale of Interealty is an example of Geac's ability to turn around challenged businesses and achieve value for non-strategic assets.
Charles S. Jones, President and Chief Executive Officer said, "In the second quarter, we were most pleased to see particularly strong increases in our software license revenue with notable contributions from nearly all of our ERP and Performance Management product lines, which benefited not only from an increased number of deals, but also from an increase in the average size of contracts in excess of $150,000. New customers were responsible for approximately 24.2% of our software license sales in the quarter. Of equal importance, organic growth trends in some areas of our business continue, as internally developed new products designed to extend the value of existing solutions contributed 24% to our overall software license revenue in the second quarter. Among the larger contracts closed in the second quarter, we were able to finalize one transaction in excess of $1 million, representing some of the spillover to which we referred in the first quarter results discussion in September."
Mr. Jones continued, "Overall, our business continues to perform well in what has proven to be an increasingly competitive software market environment. We are extremely enthusiastic about the agreement we announced last month regarding the sale of Geac to Golden Gate Capital for approximately $1 billion pursuant to a plan of arrangement. This is expected to provide our many product families with the advantage of size and scale as our industry continues to consolidate. We believe Golden Gate's product integration strategy, commitment to support our existing product lines and available resources will provide a long-term future for our business and will benefit our customers and employees."
Operating expenses were $53.0 million in the second quarter of FY 2006, compared to $46.0 million the second quarter of FY 2005. Operating expenses were impacted most dramatically by an increase in net restructuring and other unusual items related to non-routine events in the second quarter. These included $2.5 million in proxy contest expenses and $1.7 million in write-offs related to the termination of the Wells Fargo Foothill credit facility. In addition, general and administrative costs increased in the quarter as compared to last year due to increased expenses of an aggregate $3.1 million related to stock-based compensation, Sarbanes-Oxley compliance and the pursuit of acquisitions.
