French-US business intelligence software maker Business Objects posted lower than expected net profits in its third quarter, something the company had forewarned earlier this month when it announced it was being acquired by SAP for $6.8bn.
Third-quarter earnings fell 68% to $6.4m, or 7 cents per share, in the quarter, in line with revised estimates the firm issued two weeks ago. In the same quarter a year ago profits stood at $19.6m, or 21 cents per share.
Revenue for the quarter was up 19% to $369m, with over 1,100 new customer added worldwide. But license revenue, a key indicator of organic growth, crawled up only 6% to $139m in the quarter. Services revenue was up a healthy 29% to $230m
In the quarter Business Objects also wrapped up its acquisitions of Cartesis and Inxight Software which collectively added around $21m to revenue in the quarter.
Adjusted earnings for the third quarter were down from 41 cents to 39 cents per share in the quarter, which was a penny below analyst expectations of 40 cents per share on revenue of $373m.
Business Objects, which maintains dual headquarters in Paris, France and San Jose, California, said the drop in profits was a result of a shortfall in license revenues and in part to the short-term dilutive impact from recent acquisitions. The later includes a $1m charge relating to net restructuring costs.
Business Objects promptly withdrew its fourth-quarter earnings outlook, citing uncertainty over the impact of its pending deal with SAP on customer buying behavior, its impact on Business Objects’ expenses and the timing of the closing of the offer lessened fourth-quarter predictability.
On October 7 Business Objects agreed to be acquired by German business applications firm SAP for $6.8bn (4.8bn Euros). At the same time Business Objects
Due to the combination of the actual third quarter results being less than previous guidance and the potential impact of the pending transaction on the fourth-quarter results, investors should no longer rely upon the guidance statements we issued on July 25, 2007, Business Objects said in a statement yesterday.
Business Objects had warned investors that its third-quarter non-GAAP profit would range from 36 cents to 39 cents per share, below analyst estimates.
Business Objects CEO John Schwarz admitted the company had been distracted by the merger and acquisition activity but pointed to double-digit year-over-year revenue growth across all regions. Americas revenue was up 13% while EMEA and Asia Pacific grew 29% and 16% respectively.
The third quarter license revenues were below our expectations, primarily due to deal deferrals in certain sectors, Schwarz said.
In a separate announcement SAP said it expects to generate around $464m (around 300m Euros) in synergies as a result of the Business Objects merger.
SAP made the announcement in a filing with US regulators.
The economic advantages expected as a result of the combination, in a preliminary analysis, which would amount to between $427-456m (300-320m Euros), would come partly from the acceleration of revenues of the combined organization and partly from cost synergies, SAP said in the filing.
It added that the cost synergies would not be significant compared to the combined cost base of the two groups, which amount approximately to 10 billion euros.
The deal is expected to close on January 1, 2008 subject to anti-trust clearance. SAP also disclosed that the deal includes a clause for Business Objects to pay it a break fee of $122.6m (86m Euros) should the takeover fall through for certain reasons.