Pitney Bowes Group 1 Software

Press Release

Date:
Wednesday, October 30, 2002
Contact:
Mark Funston
Phone:
(301) 731-2300
Email:
mark_funston@g1.com

Group 1 Software Reports Record Second Quarter Results

EPS Doubles to $0.28 Per Share; Revenue up 12% to $25.0 MillionCompany Raises Guidance for Remainder of Fiscal Year

Lanham, MD — Group 1 Software (Nasdaq: GSOF) today reported results for its second fiscal quarter ended September 30, 2002. The Company reported record second quarter revenue of $25.0 million compared with $22.3 million in the prior year's second quarter. Net income available to common stockholders, also a record, was $2.0 million, up from $0.9 million in the prior year's second quarter. Diluted earnings per share doubled to $0.28 per share compared with $0.14 per share the prior year.

Total revenue for the quarter from Enterprise Solutions software and services increased 21% to $16.9 million from $14.0 million in the prior year's second quarter. Total revenue from DOC1 Customer Communications Management software and services was $8.1 million compared with the particularly strong $8.3 million in the prior year's second quarter.

License fee revenue for the Company increased 38% to $11.3 million from $8.2 million in the same quarter of the prior year. License fees in the Enterprise Solutions division were up 75% to $7.8 million from $4.5 million in the prior year. License fees in the DOC1 division were $3.5 million, down slightly from the record second quarter license fees of $3.7 million in the prior year.

For the first six months of the fiscal year, the Company reported revenue of $48.4 million, a 12% increase from $43.1 million the prior year. Net income available to common stockholders for the six months nearly tripled, from $1.0 million to $2.9 million.

Group 1's cash position grew even stronger in the quarter. Cash and short-term investments totaled $52.9 million ($7.52 per diluted share) at September 30, 2002 compared with $51.6 million at June 30, 2002 and $47.6 million at March 31, 2002.

“I am very pleased with our second quarter results, particularly in light of the continued soft economy and the challenging information technology spending environment,” said Group 1's CEO, Bob Bowen. “Within the Enterprise Solutions division, we saw increased market acceptance of our new data quality offerings, the Data Quality Connector for Siebel and our DataSight solution. The Data Quality Connector provides address validation and duplicate record consolidation within Siebel's customer relationship management system. DataSight offers enterprise-wide correction, validation, and enhancement of customer, prospect and supplier data. In the DOC1 division, we continued to see strong interest in our DOC1 suite and, most notably, our newest solution, DOC1 Archive. Despite the very tight spending climate in certain natural vertical markets for DOC1 products, customers are recognizing the compelling business proposition of the fully integrated DOC1 suite. DOC1 offers end-to-end control of the document lifecycle, from content design, generation, and presentment to payment, archive and retrieval.”

“Our strong cash position and cash flow have provided us the opportunity to acquire excellent technology and create very attractive integrated product offerings in both of our core business segments,” concluded Bowen. “We continue to look for opportunities to expand our business through both internal development and acquisition of technology and talent.”

“We are obviously pleased to see a return to record results,” added Mark Funston, Group 1's CFO. “Information technology selling remains very competitive and challenging. We do feel confident, however, in raising our revenue and profit guidance for the balance of the fiscal year to be in line with our first half results. Therefore, we are raising our revenue guidance from 10% over the prior year to the 11% to 12% range. We are also increasing our EPS guidance for the balance of the fiscal year to a range of 28% to 30% growth over the prior fiscal year.”

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 800-374-0565.

Group 1 Software (Nasdaq: GSOF) is a leading provider of software solutions for data quality, marketing automation, customer communications management and direct marketing applications. Group 1's software systems and services enable over 2,000 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, Wal-Mart and Wells Fargo. For more information about Group 1, visit the company's Web site at http://www.g1.com.

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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 “continue to look” and “feel confident” are intended to identify forward-looking statements. These forward-looking statements involve known and unknown risks and uncertainties. Readers are cautioned not to place undue reliance of 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 and DataSight is a trademark of Group 1 Software, Inc.

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

For the Three Month For the Six Month Period Period Ended September 30, Ended September 30, 2002 2001 2002 2001 Revenue: Software license and related revenue $11,329 $8,232 $21,206 $15,392 Maintenance and services 13,691 14,062 27,193 27,749

Total revenue 25,020 22,294 48,399 43,141

Cost of revenue: Software license expense 3,763 2,950 7,834 5,465 Maintenance and service expense 4,105 5,359 8,379 11,460 Total cost of revenue 7,868 8,309 16,213 16,925

Gross profit 17,152 13,985 32,186 26,216

Operating expenses: Research and development 2,812 2,691 5,554 5,092 Sales and marketing 7,738 7,386 15,248 14,783 General and administrative 3,539 2,686 6,869 5,462 Total operating expenses 14,089 12,763 27,671 25,337

Income from operations 3,063 1,222 4,515 879

Non-operating income Interest income 322 441 603 977 Interest expense (61) (94) (192) (159) Other non-operating income (expense) (146) (162) (191) (146) Total non-operating income 115 185 220 672 Income before provision for income taxes 3,178 1,407 4,735 1,551

Provision for income taxes 1,207 452 1,791 510

Net income 1,971 955 2,944 1,041

Preferred stock dividend requirements (14) (14) (28) (28)

Net income available to common stockholders $1,957 $941 $2,916 $1,013

Basic earnings per share $0.31 $0.15 $0.46 $0.16

Diluted earnings per share $0.28 $0.14 $0.42 $0.15

Basic weighted average shares outstanding 6,387 6,242 6,348 6,209

Diluted weighted average shares outstanding 7,039 6,934 7,024 6,924

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

September 30, March 31, 2002 2002 (Unaudited)

ASSETS Current assets: Cash and cash equivalents $ 28,263 $ 22,936 Short-term investments, available-for-sale 24,634 24,669 Trade and installment accounts receivable, less allowance of $2,222 and $2,058 18,991 17,551 Deferred income taxes 1,744 1,718 Prepaid expenses and other current assets 3,230 3,219

Total current assets 76,862 70,093

Installment accounts receivable, long-term 168 263 Property and equipment, net 5,048 5,797 Computer software, net 22,957 22,873 Goodwill 12,713 12,686 Other assets 174 167

Total assets $ 117,922 $ 111,879

LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Accounts payable $ 1,579 $ 1,198 Current portion of note payable and capital lease obligation 3,302 3,496 Accrued expenses 6,262 5,857 Accrued compensation 5,735 3,732 Current deferred revenues 29,035 28,833

Total current liabilities 45,913 43,116

Notes payable, net of current portion 722 3,630 Deferred revenues, long-term 256 197 Deferred income taxes 4,503 4,534

Total liabilities 51,394 51,477

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; 7,150 and 6,918 shares issued and outstanding 3,575 3,459 Additional paid in capital 34,781 33,079 Retained earnings 31,819 28,903 Accumulated other comprehensive income 50 (1,368) Less treasury stock, 622 and 620 shares, at cost (4,613) (4,587)

Total stockholders' equity 66,528 60,402

Total liabilities and stockholders' equity $ 117,922 $ 111,879