Pitney Bowes Group 1 Software

Press Release

Date:
Monday, January 28, 2002
Contact:
Mark Funston
Phone:
(301) 731-2300
Email:
mark_funston@g1.com

Group 1 Software Reports Third Quarter Results

Lanham, MD — Group 1 Software (Nasdaq: GSOF) today reported results for its third fiscal quarter ended December 31, 2001. Total revenues for the quarter were $22.0 million, in line with previously announced estimates. These revenues compared with $24.1 million for the prior year's third quarter. License revenues in both Group 1 operating segments were impacted substantially by weaker market conditions, directly the result of the current economic climate. Maintenance and service revenues increased by 9% to $14.1 million.

Net income available to common stockholders was $1.3 million compared with $2.4 million reported for the prior year's third quarter. Diluted earnings per share were $0.20 per share, slightly above the $0.16 to $0.18 range previously estimated. This compares with $0.34 per share the prior year. The decline in net income was attributable to the reduced revenue plus the $0.6 million ($0.09 per share) net impact from operating and interest expense associated with the acquisitions of assets of Vision-R Technologies, HotData, Inc. and TriSense Software, Ltd. The Company will hold a conference call at 4:30 p.m. EST today to discuss these results. Interested parties are invited to listen to the call, which will be broadcast via the Internet at www.g1.com or by dialing 888-939-6306.

Group 1's cash position continued to grow, with cash and short-term investments totaling $43.8 million at December 31, 2001, up from the $41.8 million reported on September 30, 2001.

Revenue for the quarter from the Enterprise Solutions division was $14.2 million compared to $15.6 million for the same quarter of the prior year. License fees for the division were $4.8 million in the third quarter compared with $7.1 million in the prior year's third quarter. The division saw delays in several large deals during the quarter. While the Company's Enterprise Data Quality solutions provide significant benefits for organizations' Customer Relationship Management (CRM) initiatives, current economic circumstances are extending the sales cycles for these sizeable deals.

Revenue from the DOC1 Customer Communications Management division was $7.8 million in the third quarter compared with $8.5 million in the prior year's third quarter. License fees in this segment were $3.1 million in the third quarter compared with $4.1 million in the prior year's third quarter. Latin American revenue fell substantially short of expectations due primarily to regional economic uncertainties - particularly in Argentina. Several sizable DOC1 deals that were expected to close were delayed as well, with many organizations reevaluating all their potential technology investments.

For the first nine months of the fiscal year, the Company reported revenues of $64.9 million compared with $66.3 million in the prior year. Net income available to common shareholders for the nine months was $2.3 million ($0.34 per share) compared with $5.2 million ($0.75 per share) the prior year. The decline in net income for the first nine months of the fiscal year includes a $1.8 million ($0.26 per share) negative impact from the three acquisitions.

“As we previously announced, the primary difference between the license fees we generated and what we expected was attributable to delays in commitments, not abandonment of projects nor losses to competition,” said Bob Bowen, CEO of Group 1 Software. “We intend to earn that delayed business, and we are no less optimistic about our prospects beyond the current economic downturn. Furthermore, we were able to demonstrate again the fundamental strength of Group 1 by our ability to generate solid profits and positive cash flow in this difficult economic climate. We are especially pleased with market acceptance and initial sales of our newest solutions, the Data Quality Connector for Siebel, and the newest members of the DOC1 suite: DOC1 Interactive, DOC1 Digital and DOC1 Archive.”

For the fourth quarter ending March 31, 2002, the company is projecting earnings per share in the range of $0.25 to $0.32 and revenue in the range of $23 million to $24 million. For the fiscal year ending March 31, 2002, revenue is now projected to be in the range of $88 million to $89 million. Earnings per share for fiscal 2002 are projected to be in the range of $0.59 to $0.66. For the 2003 fiscal year ending March 31, 2003, the Company projects revenue of just under $100 million, which represents a revenue growth rate of approximately 10% over fiscal 2002. Earnings per share are projected to be in the range of $0.70 to $0.75.

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Group 1 Software (Nasdaq: GSOF) is a leading provider of customer relationship management (CRM)-enabling software solutions for data quality, marketing automation, customer relationship communications and direct marketing applications. Group 1's software systems and services enable 2,500 customers worldwide to market smarter by helping them find, reach and keep customers. Founded in 1982 and headquartered in Lanham, Maryland, Group 1's solutions are utilized by leaders in the financial services, banking, retail, telecommunications, utilities, e-commerce, and insurance industries. The company's customer base includes such recognized names as AT&T, Charles Schwab, Entergy, GEICO, L.L. Bean, MCI WorldCom, Wal-Mart and Wells Fargo. For more information about Group 1, visit the company's Web site at http://www.g1.com.

Certain statements made herein that are not historical are forward-looking within the meaning of the Private Securities Litigation reform Act of 1995. Words like “anticipate”, “estimates”, “are no less optimistic”, “can lead to”, and “will protect” are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties. The financial projections offered today are based on the Company's current expectations. These projections are forward looking, and actual results may differ materially. These projections do not include the potential impact of any mergers, acquisitions, divestitures or other business combinations that may be completed in the future. Our current assumption concerning general economic activity is that we do not expect improvement during the first half of the coming fiscal year, but we do anticipate modest improving economic conditions and our guidance is structured accordingly. We recognize however, that the company's desirable movement toward larger size deals with its new products makes it more difficult to project revenue and earnings accurately. This is particularly true given the added uncertainties associated with the current business climate. Readers are cautioned not to place undue reliance on these forward-looking statements, which address the conditions as they are found on the date of this press release. The Company undertakes no obligation to release publicly the result of any revisions to these forward-looking statements that may be made to reflect events or circumstances that arise after the date of this press release or to reflect the occurrence of unanticipated events. For additional information regarding these and other risks and uncertainties associated with the company's business, reference is made to the company's reports filed from time to time with the Securities and Exchange Commission. Group 1 Software, and DOC1 are registered trademarks of Group 1 Software, Inc.

Additional Contact InformationDavid PeikinCorporate Communications ManagerGroup 1 Software301-918-0818pr@g1.comCharles MessmanMKR Group212-308-4557 cmessman@mkr-group.com

GROUP 1 SOFTWARE, INC.CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data) (Unaudited)

For the Three Month For the Nine Month Period Period Ended December 31, Ended December 31, 2001 2000 2001 2000 Revenue: Software license and related revenue $7,938 $11,188 $ 23,330 $ 27,924 Maintenance and services 14,095 12,948 41,595 38,408 Total revenue 22,033 24,136 64,925 66,332 Cost of revenue: Software license expense 2,839 2,596 8,304 8,615 Maintenance and service expense 4,686 4,631 15,897 13,431 Total cost of revenue 7,525 7,227 24,201 22,046

Gross profit 14,508 16,909 40,724 44,286

Operating expenses: Research and development 2,716 1,685 7,808 4,715 Sales and marketing 7,150 8,239 21,933 21,749 General and administrative 2,686 3,359 8,148 10,843 Total operating expenses 12,552 13,283 37,889 37,307 Income from operations 1,956 3,626 2,835 6,979

Non-operating income Interest income 323 688 1,300 1,838 Interest expense (95) (90) (254) (109) Other non-operating income (expense) 77 (104) (69) 208 Total non-operating income 305 494 977 1,937 Income from operations before provision for income taxes 2,261 4,120 3,812 8,916 Provision for income taxes 909 1,739 1,419 3,700 Net income 1,352 2,381 2,393 5,216 Preferred stock dividend requirements (14) (14) (42) (42) Net income available to common stockholders $1,338 $2,367 $2,351 $5,174

Basic earnings per share $ 0.21 $ 0.39 $ 0.38 $ 0.86

Diluted earnings per share $ 0.20 $ 0.34 $ 0.34 $ 0.75

Basic weighted average shares outstanding 6,254 6,091 6,199 6,029

Diluted weighted average shares outstanding 6,831 6,965 6,864 6,932

GROUP 1 SOFTWARE, INC.CONSOLIDATED BALANCE SHEETS (In thousands, except par value)

December 31, March 31, 2001 2001 (Unaudited) ASSETS Current assets: Cash and cash equivalents $32,747 $36,179 Short-term investments, available-for-sale 11,052 7,954 Trade and installment accounts receivable, less allowance of $2,183 and $2,197 14,207 23,658 Deferred income taxes 1,726 1,731 Prepaid expenses and other current assets 4,032 3,650

Total current assets 63,764 73,172

Installment accounts receivable, long-term 334 695 Property and equipment, net 6,386 5,592 Computer software, net 22,165 18,936 Goodwill 12,691 4,004 Other assets 48 226 Total assets $105,388 $102,625

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $1,298 $1,977 Current portion of note payable and capital lease obligation 2,937 74 Accrued expenses 3,979 5,819 Accrued compensation 3,879 6,549 Current deferred revenues 27,509 29,032 Total current liabilities 39,602 43,451 Note payable and capital lease obligations, net of current portion 3,089 14 Deferred revenues, long-term 255 544 Deferred income taxes 4,107 4,165

Total liabilities 47,053 48,174

Commitments and contingencies

Stockholders' equity: 6% cumulative convertible preferred stock $0.25 par value; 1,200 shares authorized; 48 shares issued and outstanding (aggregate involuntary liquidation preference $950) 916 916 Common stock $0.50 par value; 50,000 shares authorized; 6,884 and 6,654 shares issued and outstanding 3,442 3,327 Additional paid in capital 32,783 29,296 Retained earnings 26,884 24,533 Accumulated other comprehensive income (1,103) (1,286) Less treasury stock, 620 and 497 shares, at cost (4,587) (2,335) Total stockholders' equity 58,335 54,451 Total liabilities and stockholders' equity $105,388 $102,625