SOURCE: Epicor Software Corporation

Epicor Software Corporation

February 09, 2011 16:32 ET

Epicor® Reports 2010 Fourth Quarter Results

Third Strongest Software Revenue Quarter in Company's History Helps Drive 17% Annual Organic Software Revenue Growth

IRVINE, CA--(Marketwire - February 9, 2011) - Epicor Software Corporation (NASDAQ: EPIC), a leading provider of enterprise business software solutions for the midmarket and divisions of Global 1000 companies, today reported financial results for its fourth quarter ended December 31, 2010. All results should be considered preliminary pending the Company's filing of its Annual Report on Form 10-K.

Epicor chairman, president and CEO George Klaus commented, "The 2010 fourth quarter was the third highest software license revenue quarter in Epicor's history, marking a solid finish to a year during which we organically grew software license revenues 17%, while adding more than 560 new name customers and driving free cash flow(1) in excess of $51 million.

"We believe the overall spending environment is improving and we are experiencing increasing demand throughout the world for our software solutions," Klaus said. "Our strong software pipelines held up throughout the quarter, even though some larger opportunities did not close at the end of Q4 as anticipated. The improving economic climate coupled with the expanded capabilities of Epicor 9 and our retail products, is leading to ever larger organizations looking to implement our solutions," he said. "As more large opportunities are added to our pipelines, we are faced with the dual task of trying to maximize the profitability of these transactions, while also managing the reality that these much larger companies will dictate the pace of the sales and closing process.

"In Q4," Klaus continued, "we experienced the benefit of these larger opportunities as the software average selling price for our top 10 wins was up sequentially by more than 10% over Q3, exceeding $500,000 dollars in software revenue alone. Additionally, our software license gross margins improved to the highest level in five quarters even though some large revenue opportunities slipped into 2011 as a few customers extended their expected closing process into 2011. These larger opportunities were not lost and some merely require finalizing negotiations. In fact, we have had a strong start to Q1 and have already closed some of these larger opportunities.

"As indicated by our 2011 first quarter guidance," Klaus concluded, "we are entering 2011 with strong momentum and we expect a strong quarter with software license revenues growing in excess of 20% over last year's first quarter."

Total revenue for the 2010 fourth quarter grew approximately 5% to $117.2 million, when compared to 2009 fourth quarter revenue of $111.9 million. 2010 fourth quarter GAAP net income was $4.4 million, or $0.07 per diluted share, compared to GAAP net income of $6.7 million, or $0.11 per diluted share in the 2009 fourth quarter. 2010 fourth quarter GAAP net income includes the impact of $1.6 million in restructuring and other charges related primarily to costs associated with the December 2010 acquisition of Spectrum Human Resource Systems Corporation (Spectrum), as well as workforce reductions and facilities adjustments due to an extension of expected vacancy periods. 2010 fourth quarter operations include a benefit of approximately $2.4 million to consulting cost of goods and $1.3 million dollars to research and development expense related to Epicor obtaining certification primarily for its 2009 operations under a program in the Province of Quebec, Canada designed to issue cash credits to encourage development of IT businesses in Quebec.

Non-GAAP(2) net income for the 2010 fourth quarter was $11.4 million, or $0.19 per diluted share, compared to non-GAAP net income of $11.1 million, or $0.19 per diluted share in the 2009 fourth quarter.

2010 Fourth Quarter Revenue by Segment: 2010 fourth quarter license revenue was $26.4 million, up 2% when compared to 2009 fourth quarter license revenue of $25.8 million. Consulting revenue grew 8% to $35.7 million in the 2010 fourth quarter, versus 2009 fourth quarter consulting revenue of $33.2 million. 2010 fourth quarter maintenance revenue was up 2% to $49.7 million when compared to 2009 fourth quarter maintenance revenue of $48.6 million. Hardware and other revenue for the 2010 fourth quarter was $5.5 million, up 24% when compared to hardware and other revenue of $4.4 million in the prior year's fourth quarter.

Balance Sheet Summary: The Company's balance sheet at December 31, 2010, after accounting for the acquisition of Spectrum, included cash and cash equivalents of $103.1 million. The balance sheet benefited from free cash flow of $15.6 million during the 2010 fourth quarter, which also enabled the Company to make a discretionary $10.0 million payment to reduce the outstanding balance on its credit facility during the 2010 fourth quarter. The Company's total outstanding debt as of December 31, 2010, consists primarily of $230 million in aggregate principal amount of the Company's 2.375% senior convertible notes (less a debt discount of $33.6 million) and $47.5 million in aggregate principal amount under the Company's credit facility, currently bearing an interest rate of approximately 5%.

Following the close of the 2010 fourth quarter, the Company made an additional discretionary $12.5 million payment to reduce the outstanding balance on its credit facility.

At the end of the 2010 fourth quarter, net accounts receivable was approximately $92.6 million. The Company had cash collections of approximately $131.0 million during the 2010 fourth quarter. Days sales outstanding (DSOs) in the 2010 fourth quarter were 73, down from 77 in the third quarter of 2010. Total deferred revenue at the end of the 2010 fourth quarter was $98.0 million.

Business Outlook: For Epicor's 2011 first quarter, total non-GAAP revenue is expected to be $110 to $113 million. Software license revenue for the 2011 first quarter is expected to be up more than 20% from the first quarter of 2010. The Company's recent acquisition of Spectrum is expected to contribute approximately $2.5 to $3.0 million in total revenue to Epicor's 2011 first quarter, approximately $200,000 to $300,000 of which is expected to be software license revenue. 2011 first quarter non-GAAP revenue expectations include approximately $600,000 in deferred revenue fair value adjustments recorded in the Spectrum acquisition. Non-GAAP earnings per diluted share(3) for the 2011 first quarter is expected to be $0.13 to $0.15. The Spectrum acquisition is not expected to have a meaningful impact on 2011 first quarter non-GAAP earnings per share.

Earnings Conference Call
The Company will hold an investor and analyst conference call today at 5:00 p.m. Eastern Time/2:00 p.m. Pacific Time.

What: Epicor 2010 Fourth Quarter Earnings Conference Call
When: Wednesday, February 9, 2011
Time: 2:00 p.m. PT
Dial in: 1-888-428-9498
Conf ID: Epicor 2010 Fourth Quarter Earnings Call
Webcast: http://ir.epicor.com

On the call, chairman, president and CEO George Klaus and executive vice president and CFO Michael Pietrini will review 2010 fourth quarter earnings. Investors and analysts are invited to participate on the call. Please dial in approximately ten minutes prior to start time. A live audio-only webcast of the call will be made available to the public on the Company's Web site at http://ir.epicor.com and will be archived for thirty days following the call on the Company's Web site.

(1) Free cash flow is a non-GAAP measure. The Company calculates free cash flow as adjusted EBITDA (also a non-GAAP measure), plus stock-based compensation, less capital expenditures, cash paid for income taxes and net interest. Please refer to the reconciliation of adjusted EBITDA and free cash flow, as well as the information provided below under the heading "Non-GAAP Financial Measures."

(2) Please see the reconciliations to GAAP measures provided at the end of this press release as well as the information provided below under the heading "Non-GAAP Financial Measures."

(3) The Company's 2011 first quarter non-GAAP earnings per diluted share guidance excludes current expectations for first quarter amortization of intangible assets of approximately $6.0 million, first quarter stock-based compensation expense of approximately $4.3 million and approximately $2.2 million in non-cash interest expense for the first quarter related to amortization of debt discount. 2011 first quarter non-GAAP earnings per share expectations assume a weighted average share count of 61.4 million shares.


About Epicor Software Corporation
Epicor Software is a global leader delivering business software solutions to the manufacturing, distribution, retail, hospitality and services industries. With 20,000 customers in over 150 countries, Epicor provides integrated enterprise resource planning (ERP), customer relationship management (CRM), supply chain management (SCM), human capital management (HCM) and enterprise retail software solutions that enable companies to drive increased efficiency and improve profitability. Founded in 1984, Epicor takes pride in more than 25 years of technology innovation delivering business solutions that provide the scalability and flexibility businesses need to build competitive advantage. Epicor provides a comprehensive range of services with a single point of accountability that promotes rapid return on investment and low total cost of ownership, whether operating business on a local, regional or global scale. The Company's worldwide headquarters are located in Irvine, California with offices and affiliates around the world. For more information, visit www.epicor.com.

Epicor is a registered trademark of Epicor Software Corporation. Other trademarks referenced are the property of their respective owners. The product and service offerings depicted in this document are produced by Epicor Software Corporation.

Forward-Looking Statements
This press release contains certain statements which constitute forward-looking statements under the Private Securities Litigation Reform Act of 1995. These forward-looking statements include statements regarding expected revenues (including growth rates), earnings and earnings per share (including on a non-GAAP basis), non-GAAP free cash flow, the Company's products, market share, business model, sales pipelines and opportunities, competitive advantage and other statements that are not historical fact. These forward-looking statements are based on currently available competitive, financial and economic data together with management's views and assumptions regarding future events and business performance as of the time the statements are made and are subject to risks and uncertainties. Actual results may differ materially from those expressed or implied in the forward-looking statements.

Such risks and uncertainties include, but are not limited to, changes in the demand for enterprise resource planning products, particularly in light of competitive offerings; the timely availability and market acceptance of new products and upgrades, including Epicor 9; the impact of competitive products and pricing; the discovery of undetected software errors; changes in the financial condition of Epicor's major commercial customers and Epicor's future ability to continue to develop and expand its product and service offerings to address emerging business demand and technological trends; and other factors discussed in Epicor's annual report on Form 10-K for the year ended December 31, 2009 and other reports Epicor files with the SEC. As a result of these factors the business or prospects expected by the Company as part of this announcement may not occur. Epicor undertakes no obligation to revise or update publicly any forward-looking statements.

Non-GAAP Financial Measures
This press release contains non-GAAP financial measures. In evaluating the Company's performance, management uses certain non-GAAP financial measures to supplement consolidated financial statements prepared under GAAP.

Non-GAAP Earnings Measure. The Company uses non-GAAP earnings measures, non-GAAP net income, adjusted EBITDA, EBITDA margins and free cash flow in this press release. Management believes these non-GAAP measures help indicate the Company's baseline performance before gains, losses or charges that are considered by management to be outside on-going operating results. Accordingly, management uses these non-GAAP measures to gain a better understanding of the Company's comparative operating performance from period-to-period and as a basis for planning and forecasting future periods. Management believes these non-GAAP measures, when read in conjunction with the Company's GAAP financials, provides useful information to investors by offering:

--  the ability to make more meaningful period-to-period comparisons of the
    Company's on-going operating results;
--  the ability to better identify trends in the Company's underlying
    business and perform related trend analysis;
--  a better understanding of how management plans and measures the
    Company's underlying business; and,
--  an easier way to compare the Company's most recent results of
    operations against investor and analyst financial models.

The non-GAAP financial measures for 2009 and 2010 used by the Company are defined to include deferred revenues from NSB that were adjusted to fair value as required by acquisition accounting in accordance with GAAP reporting, and to exclude amortization of intangible assets, stock-based compensation expense, amortization of long-term debt discount from the Company's May 2007 convertible note offering, the write-off of debt issuance fees, a Venezuela currency devaluation, and restructuring and other, which include costs associated with workforce reductions, adjustments due to an extension of expected vacancy periods and acquisition and other related charges. The non-GAAP financial measures for 2009 and 2010 used by the Company are also defined to reflect income taxes at a 38% tax rate.

Management believes that the expense associated with the amortization of acquisition-related intangible assets is appropriate to be excluded because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives and exclusion of the amortization expense allows comparisons of operating results that are consistent over time for both the Company's newly acquired and long-held businesses. Management also believes that the exclusion of stock-based compensation allows for more accurate comparisons of our operating results to our peer companies because of varying available valuation methodologies, subjective assumptions and the variety of award types which effect the calculations of stock-based compensation. Management believes it is appropriate to exclude the Venezuela currency devaluation charge, the write-off of debt issuance fees, the amortization of long-term debt discount from the Company's May 2007 convertible note offering, as well as restructuring and other charges, which included costs associated with the integration of Spectrum into Epicor, costs associated with workforce reductions and adjustments due to an extension of expected vacancy periods, because these charges are not related to the Company's ongoing business operations and it allows for more accurate comparisons of our operating results to our peer companies. Finally, management believes that using a 38% tax rate is appropriate because it allows comparisons of our operating results that are more consistent with prior periods presented, as well as more accurate comparisons of our operating results to our peer companies.

General. These non-GAAP measures have limitations, however, because they do not include all items of income and expense that impact the Company's operations. Management compensates for these limitations by also considering the Company's GAAP results. The non-GAAP financial measures the Company uses are not prepared in accordance with, and should not be considered an alternative to, measurements required by GAAP, such as operating income, net income and net income per share, and should not be considered measures of the Company's liquidity. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. In addition, these non-GAAP financial measures may not be comparable to similar measures reported by other companies.


- TABLES FOLLOW -

                        EPICOR SOFTWARE CORPORATION
            PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS
                              (in thousands)



                                                December 31,  December 31,
                                                    2010          2009
                                                ------------  ------------
                                                (Unaudited)
ASSETS
Current assets:
  Cash and cash equivalents                     $    103,076  $    106,861
  Short-term investments                                 419             -
  Accounts receivable, net                            92,622        90,011
  Deferred income taxes                               13,755        11,572
  Inventory, net                                       2,014         1,819
  Prepaid expenses and other current assets           21,911        13,976
                                                ------------  ------------
Total current assets                                 233,797       224,239

Property and equipment, net                           28,492        28,511
Deferred income taxes                                 26,970        21,867
Intangible assets, net                                65,206        84,107
Goodwill                                             377,894       368,336
Other assets                                           9,316        10,990
                                                ------------  ------------
Total assets                                    $    741,675  $    738,050
                                                ============  ============

LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
  Accounts payable                              $     14,775  $     13,966
  Accrued expenses                                    48,044        46,754
  Current portion of long-term debt                      258           202
  Current portion of accrued restructuring costs       2,212         1,694
  Current portion of deferred revenue                 97,650        96,040
                                                ------------  ------------
Total current liabilities                            162,939       158,656
                                                ------------  ------------

Long-term debt, less current portion                 243,934       255,535
Accrued restructuring costs                            4,971         4,423
Deferred revenue                                         394           392
Deferred income taxes and other income taxes          16,588        15,172
Other long-term liabilities                            3,278         3,785
                                                ------------  ------------
Total long-term liabilities                          269,165       279,307
                                                ------------  ------------

Stockholders' equity:
  Common stock                                            66            63
  Additional paid-in capital                         441,990       422,460
  Less: treasury stock at cost                       (24,373)      (20,670)
  Accumulated other comprehensive loss                (5,138)       (4,825)
  Accumulated deficit                               (102,974)      (96,941)
                                                ------------  ------------
Total stockholders' equity                           309,571       300,087
                                                ------------  ------------
Total liabilities and stockholders' equity      $    741,675  $    738,050
                                                ============  ============






                        EPICOR SOFTWARE CORPORATION
        PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except per share amounts)
                                (Unaudited)


                                    Three Months Ended      Year Ended
                                       December 31,        December 31,
                                    ------------------  ------------------
                                      2010      2009      2010      2009
                                    --------  --------  --------  --------
Revenues:
  License fees                      $ 26,388  $ 25,785  $ 81,992  $ 70,235
  Consulting                          35,683    33,165   137,649   128,413
  Maintenance                         49,692    48,569   193,694   190,943
  Hardware and other                   5,450     4,389    26,948    20,033
                                    --------  --------  --------  --------
Total revenues                       117,213   111,908   440,283   409,624
                                    --------  --------  --------  --------

Cost of revenues                      50,553    47,764   200,490   180,549
Amortization of intangible assets      6,670     7,100    27,825    30,772
                                    --------  --------  --------  --------
    Total cost of revenues            57,223    54,864   228,315   211,321
                                    --------  --------  --------  --------

Gross profit                          59,990    57,044   211,968   198,303
                                    --------  --------  --------  --------

Operating expenses:
  Sales and marketing                 27,062    20,688    90,450    75,105
  Software development                12,348    12,525    52,475    49,207
  General and administrative          12,085    12,869    49,819    54,410
  Restructuring and other              1,552         -     5,092     2,210
                                    --------  --------  --------  --------
Total operating expenses              53,047    46,082   197,836   180,932
                                    --------  --------  --------  --------

Income from operations                 6,943    10,962    14,132    17,371
Interest expense                      (5,021)   (5,013)  (20,020)  (22,363)
Interest and other income
 (expense), net                          185       570      (893)      411
                                    --------  --------  --------  --------

Income (loss) before income taxes      2,107     6,519    (6,781)   (4,581)
Income tax provision (benefit)        (2,310)     (195)     (748)   (3,343)
                                    --------  --------  --------  --------
Net income (loss)                   $  4,417  $  6,714  $ (6,033) $ (1,238)
                                    ========  ========  ========  ========


Net income (loss) per share:
    Basic                           $   0.07  $   0.12  $  (0.10) $  (0.02)
    Diluted                         $   0.07  $   0.11  $  (0.10) $  (0.02)

Weighted average common shares
 outstanding:
    Basic                             59,158    58,112    58,977    57,889
    Diluted                           61,235    59,344    58,977    57,889





                        EPICOR SOFTWARE CORPORATION
              PRELIMINARY NON-GAAP NET INCOME RECONCILIATION
                 (in thousands, except per share amounts)
                                (Unaudited)


                                    Three Months Ended      Year Ended
                                       December 31,        December 31,
                                    ------------------  ------------------
                                      2010      2009      2010      2009
                                    --------  --------  --------  --------

Income (loss) before income taxes   $  2,107  $  6,519  $ (6,781) $ (4,581)

Add back:
  Amortization of intangible assets    6,670     7,100    27,825    30,772
  Stock-based compensation expense     5,146     2,211    18,328     8,108
  Amortization of long-term debt
   discount                            2,182     2,031     8,498     7,907
  Restructuring and other              1,552         -     5,092     2,210
  Venezuela currency devaluation           -         -     1,315         -
  Debt issuance fees write off             -         -         -     2,571
  Deferred revenue fair value
   adjustment                              -         -         -       432
  Other                                 (134)     (380)     (369)      179
                                    --------  --------  --------  --------

Non-GAAP income before income taxes   17,523    17,481    53,908    47,598
Non-GAAP provision for income
 taxes (1)                            (6,081)   (6,426)  (18,582)  (17,350)
                                    --------  --------  --------  --------

Non-GAAP net income                 $ 11,442  $ 11,055  $ 35,326  $ 30,248
                                    ========  ========  ========  ========

Non-GAAP net income per diluted
 share                              $   0.19  $   0.19  $   0.59  $   0.52
                                    ========  ========  ========  ========

Weighted average common shares
 outstanding:
    Diluted                           61,235    59,344    59,970    58,618


(1) The Company utilizes a 38% tax rate for the calculation of the non-GAAP
    provision for income taxes for comparison purposes with other periods.
    The non-GAAP effective income tax rates reflected above differ from 38%
    due to certain non-deductible non-GAAP add backs.





                        EPICOR SOFTWARE CORPORATION
      PRELIMINARY NET INCOME (LOSS) TO ADJUSTED EBITDA RECONCILIATION
                          (dollars in thousands)
                                (Unaudited)


                                 Three Months Ended        Year Ended
                                    December 31,          December 31,
                                --------------------  --------------------
                                  2010       2009       2010       2009
                                ---------  ---------  ---------  ---------

Total revenues                  $ 117,213  $ 111,908  $ 440,283  $ 409,624
                                =========  =========  =========  =========

Net income (loss)               $   4,417  $   6,714  $  (6,033) $  (1,238)
  Income tax provision
   (benefit)                       (2,310)      (195)      (748)    (3,343)
  Interest expense                  5,021      5,013     20,020     22,363
  Amortization of intangible
   assets                           6,670      7,100     27,825     30,772
  Depreciation                      1,869      1,906      7,356      7,926
  Restructuring and other           1,552          -      5,092      2,210
  Venezuela currency devaluation        -          -      1,315          -
  Deferred revenue fair value
   adjustment                           -          -          -        432
  Interest and other (income)
   expense, net                      (185)      (570)      (422)      (411)
                                ---------  ---------  ---------  ---------
Adjusted EBITDA                 $  17,034  $  19,968  $  54,405  $  58,711
                                =========  =========  =========  =========

Adjusted EBITDA percent of
 total revenues                      14.5%      17.8%      12.4%      14.3%
                                =========  =========  =========  =========






                        EPICOR SOFTWARE CORPORATION
                PRELIMINARY FREE CASH FLOW RECONCILIATION
                              (in thousands)
                                (Unaudited)


                                    Three Months Ended      Year Ended
                                       December 31,        December 31,
                                    ------------------  ------------------
                                      2010      2009      2010      2009
                                    --------  --------  --------  --------

Net income (loss)                   $  4,417  $  6,714  $ (6,033) $ (1,238)
  Income tax provision (benefit)      (2,310)     (195)     (748)   (3,343)
  Interest expense                     5,021     5,013    20,020    22,363
  Amortization of intangible assets    6,670     7,100    27,825    30,772
  Depreciation                         1,869     1,906     7,356     7,926
  Restructuring and other              1,552         -     5,092     2,210
  Venezuela currency devaluation           -         -     1,315         -
  Deferred revenue fair value
   adjustment                              -         -         -       432
  Interest and other (income)
   expense, net                         (185)     (570)     (422)     (411)
                                    --------  --------  --------  --------
Adjusted EBITDA                     $ 17,034  $ 19,968  $ 54,405  $ 58,711
                                    ========  ========  ========  ========

Adjusted EBITDA                     $ 17,034  $ 19,968  $ 54,405  $ 58,711
  Non-cash stock-based compensation    5,146     2,211    18,328     8,108
  Capital expenditures                (3,176)   (1,591)   (7,042)   (4,093)
  Cash paid for taxes                   (751)     (548)   (3,643)   (2,455)
  Net interest                        (2,675)   (2,766)  (10,906)  (13,574)
                                    --------  --------  --------  --------
Free cash flow                      $ 15,578  $ 17,274  $ 51,142  $ 46,697
                                    ========  ========  ========  ========

Contact Information

  • Contact:
    Damon Wright
    Vice President Investor Relations
    Epicor Software Corporation
    949/585-4509
    dswright@epicor.com