SSA Sales Come in as Expected in Q1, Profits Squeezed by Acquisitions

SSA Global, one of the dominant providers of ERP software for midrange customers, recently released its financial results for its first quarter of fiscal 2006 ended October 31, 2005, and the company’s acquisition strategy has certainly helped bolster its top line. According to the company’s filings, SSA saw sales go up by 7 percent to $177.5 million in the quarter, with software license sales up 26 percent to $52 million. SSA’s acquisition of Epiphany closed on September 29 of that quarter, and that unit’s sales contributed $6.4 million in revenues and $2.4 million in software license sales in the quarter; without that Epiphany acquisition, SSA’s license sales grew by 21 percent and represented 29 percent of total sales, a gain of four points since this time in the prior fiscal year.

While SSA has indeed gone global with its acquisitions in the past several years, the company still got 49 percent of its sales from North America in the quarter, with 35 percent of its revenues coming from Europe/Middle East/Africa. The remaining 16 percent came from the combined Asia/Pacific and Latin American geographies. SSA Global said it booked 982 contracts in the quarter, with 58 of them coming from new customers who represented 8 percent of total software license sales in the quarter. Support sales in the quarter were down a smidgen to $85 million, and services revenue were up a smidgen to $40.5 million. SSA Global’s growth in the quarter came from software sales, which is a good sign. The company’s overall sales came in at the high end of Wall Street expectations.

While SSA Global’s acquisitions bolster revenues, the restructurings and costs associated with doing so many acquisitions have an up-front cost, which is reflected in the company’s net earnings. For the quarter, SSA Global had a net income of $1 million, down significantly from the $6.4 million in net earnings it reported in the year ago quarter. Operating profits in the fiscal first quarter of 2006 were $10.3 million, down from $13.7 million a year ago. SSA Global has $90 million in cash, and as the holidays were approaching (and just after the company published its financial results), SSA Global filed an S-1 with the Securities and Exchange Commission to sell up to 9 million shares and with the underwriters of the offering having the option of peddling another 1.35 million shares on the stock market. SSA’s shares are trading at around $18 a share as we go to press, which means this float could yield anywhere from $160 million to $190 million. That is a pretty big war chest to make more acquisitions.