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 third quarter ended September 30, 2009. All results
should be considered preliminary pending the Company’s filing of
its quarterly report on Form 10-Q.
Total revenue for the 2009 third quarter was $98.6 million, with
GAAP net income of $0.4 million, or $0.01 per diluted share. This
compares to 2008 third quarter revenue of $135.8 million, and GAAP
net income of $2.7 million, or $0.05 per diluted share.
Non-GAAP1 net income for the 2009 third quarter was $7.8
million, or $0.13 per diluted share, compared to non-GAAP net
income of $11.4 million, or $0.19 per diluted share in the 2008
third quarter.
Epicor Chairman, President and CEO George Klaus commented, “We
continued to do an excellent job executing to – or above – our
publicly stated financial objectives in the face of challenging
economic conditions. Non-GAAP earnings per share exceeded the top
end of our guidance by 30 percent, and total revenues were above
the mid-point of our previously provided expectations in what has
always been a seasonably slower quarter for Epicor.
“Epicor’s executive team did an exceptional job of managing the
areas under Epicor’s control. Prudent expense management, coupled
with delivering on our commitment to continue to improve consulting
margins, helped lead to adjusted EBITDA margins of approximately 15
percent, the highest to-date for the 2009 year and up one
percentage point over the 2009 second quarter. Maintenance revenues
grew sequentially in the third quarter,” Klaus said, “an
affirmation of our expectations that the second quarter was the
bottom for maintenance revenue this year, which helped to drive
cash flow from operations of approximately $17.0 million and free
cash flow2 of $10.8 million during the third quarter. Our strong
cash generating capabilities enabled us to pay down our credit
facility by another $6.5 million during the quarter, while
increasing our cash balances by nearly $10.0 million to $95.5
million. Our software pipelines have strengthened meaningfully, we
are seeing good uptake for Epicor 9, our retail markets are showing
signs of improvement and, as reflected in our financial guidance,
we expect to have a strong fourth quarter, which we believe bodes
well for growth in 2010.”
Business Outlook: Due to the uncertainty and limited
visibility in the global economy, IT spending and exchange rate
fluctuations, the Company will continue to provide forward looking
guidance one quarter at a time.
2009 fourth quarter total revenue is expected to be $104 to $106
million, with non-GAAP earnings per diluted share3 for the 2009
fourth quarter expected to be $0.13 to $0.15.
Balance Sheet Summary: The Company’s balance sheet at
September 30, 2009, included cash and cash equivalents of $95.5
million. The balance sheet benefited from cash flow from operations
of approximately $17.0 million and free cash flow of $10.8 million
during the 2009 third quarter, which helped support approximately
$6.5 million in pay downs on the Company’s credit facility during
the quarter. The Company’s total debt balance as of September 30,
2009, consists primarily of the $230 million obligation to holders
of the Company’s 2.375% senior convertible notes (less the debt
discount described below of $44.2 million) and $72.5 million of
borrowings under the Company’s credit facility, currently priced at
LIBOR plus 4.0%.
At the end of the 2009 third quarter, net accounts receivable
was approximately $78.9 million. The Company had solid cash
collections of approximately $110.0 million during the 2009 third
quarter. Days sales outstanding (DSOs) in the 2009 third quarter
were down to 74, compared to 78 in the second quarter of 2009.
Deferred revenue at the end of the 2009 third quarter was $90.1
million.
Effective January 1, 2009, the Company adopted new accounting
guidance related to the accounting for convertible debt instruments
that may be settled in cash upon conversion, and retroactively
applied this change to all periods presented herein. This standard
requires the Company to change the previous accounting method for
its $230 million convertible notes. Accordingly, the Company
recorded a $61.8 million debt discount as Additional Paid in
Capital, as of the notes’ issuance date of May 15, 2007. At
September 30, 2009, the debt discount was $44.2 million.
The Company is amortizing the debt discount through the date at
which the Company can begin to redeem the notes, which is May 15,
2014. The Company recognized interest expense of $3.4 million and
$3.2 million related to the convertible debt for the three months
ended September 30, 2009 and 2008, respectively, of which $1.4
million is a cash expense in each period.
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.
When: Thursday, October 29, 2009 Time: 2:00
p.m. PT Dial in: +1 (888) 516-2377 or outside the U.S. +1 (719)
325-2306 Conf ID: Epicor 2009 Third 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 2009
third 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.
1Please see the reconciliations to GAAP measures provided at the
end of this press release.
2Free cash flow is a non-GAAP measure. The Company calculates
free cash flow as adjusted EBITDA, plus stock-based compensation,
less capital expenditures, cash paid for income taxes and net
interest. Please refer to the table below for a complete
reconciliation.
3The Company’s 2009 fourth quarter non-GAAP earnings per diluted
share guidance excludes current expectations for fourth quarter
amortization of intangible assets of approximately $7.1 million,
fourth quarter stock-based compensation expense of approximately
$1.8 million and approximately $2.0 million in non-cash interest
expense for the fourth quarter related to amortization of debt
discount. 2009 fourth quarter non-GAAP earnings per share
expectations assume a weighted average share count of 60.8 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) and enterprise retail software solutions that
enable companies to drive increased efficiency and improve
profitability. Founded in 1984, Epicor celebrates 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, 2008 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, 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 2008 and 2009 used by the
Company are defined 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 in-process research and development, the write off of
debt issuance fees, loss on settlement of option contracts to hedge
foreign currency risk on the purchase price of NSB, loss on
interest rate swaps and restructuring and other non-recurring
expenses, which includes costs associated with workforce
reductions. The non-GAAP financial measures for 2009 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
costs associated with the in-process research and development
charge, the loss on settlement of option contracts to hedge foreign
currency risk on the purchase price of NSB, debt issuance fees and
the amortization of long-term debt discount from the Company’s May
2007 convertible note offering, loss on interest rate swaps as well
as restructuring and other charges, which included costs associated
with the integration of NSB into Epicor and costs associated with
workforce reductions, 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 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.
EPICOR SOFTWARE CORPORATION PRELIMINARY CONDENSED
CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
September 30, December 31, 2009
2008 (As Adjusted) ASSETS Current assets: Cash and cash
equivalents $ 95,481 $ 89,764 Accounts receivable, net 78,947
90,624 Deferred income taxes 8,995 8,627 Inventory, net 2,849 5,068
Prepaid expenses and other current assets 13,637
11,064 Total current assets 199,909 205,147 Property and
equipment, net 28,805 31,987 Deferred income taxes 41,718 42,858
Intangible assets, net 91,214 113,556 Goodwill 368,132 363,589
Other assets 11,772 14,061 Total assets $ 741,550 $
771,198 LIABILITIES AND STOCKHOLDERS’ EQUITY Current
liabilities: Accounts payable $ 12,746 $ 13,913 Accrued expenses
40,048 45,177 Current portion of long-term debt 197 10,169 Current
portion of accrued restructuring costs 2,156 4,073 Current portion
of deferred revenue 89,873 92,361 Total current
liabilities 145,020 165,693 Long-term debt,
less current portion 258,539 265,257 Accrued restructuring costs
4,558 5,412 Deferred revenue 222 319 Deferred income taxes and
other income taxes 36,304 37,621 Other long-term liabilities
3,778 941 Total long-term liabilities 303,401
309,550 Stockholders’ equity: Common stock 63 61 Additional
paid-in capital 419,633 414,149 Less: treasury stock at cost
(19,476) (18,458) Accumulated other comprehensive loss (3,434)
(4,094) Accumulated deficit (103,657) (95,703) Total
stockholders’ equity 293,129 295,955 Total
liabilities and stockholders’ equity $ 741,550 $ 771,198
EPICOR SOFTWARE
CORPORATION
PRELIMINARY CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share
amounts)
(Unaudited)
Three Months Ended Nine Months
Ended September 30, September 30, 2009
2008 2009 2008 (As Adjusted) (As Adjusted)
Revenues: License fees $ 13,740 $ 22,405 $ 44,451 $ 65,266
Consulting 31,735 41,616 95,247 114,043 Maintenance 48,168 50,126
142,374 144,992 Hardware and other 4,933 21,615
15,643 41,630 Total revenues 98,576
135,762 297,715 365,931 Cost of revenues
42,593 68,180 132,784 186,020 Amortization of intangible assets
7,045 8,513 23,672 24,513 Total cost of
revenues 49,638 76,693 156,456 210,533
Gross profit 48,938 59,069 141,259
155,398 Operating expenses: Sales and marketing
18,176 20,519 54,417 63,149 Software development 11,844 13,561
36,682 40,885 General and administrative 13,317 13,982 41,541
39,490 Write off of in-process research and development - - - 200
Restructuring and other 1,003 594 2,210
4,766 Total operating expenses 44,340 48,656
134,850 148,490 Income from operations 4,598 10,413
6,409 6,908 Interest expense (6,481) (6,264) (17,351) (16,897)
Interest and other income (expense), net 73 (773)
(159) 1,052 Income (loss) before income taxes
(1,810) 3,376 (11,101) (8,937) Provision (benefit) for income taxes
(2,166) 628 (3,147) (3,940) Net income
(loss) $ 356 $ 2,748 $ (7,954) $ (4,997) Net income
(loss) per share: Basic $ 0.01 $ 0.05 $ (0.13) $ (0.09) Diluted $
0.01 $ 0.05 $ (0.13) $ (0.09) Weighted average common shares
outstanding: Basic 59,691 58,779 59,391 58,377 Diluted 60,305
59,186 59,391 58,377
EPICOR SOFTWARE CORPORATION
PRELIMINARY NON-GAAP NET INCOME RECONCILIATION
(in thousands, except per share
amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, 2009
2008 2009 2008 Income (loss)
before income taxes $ (1,810) $ 3,376 $ (11,101) $ (8,937)
Add back: Amortization of intangible assets 7,045 8,513 23,672
24,513 Stock-based compensation expense 1,835 1,824 5,897 6,219
Amortization of long-term debt discount 1,994 1,855 5,876 5,466
Debt issuance fees write off 1,647 - 2,571 - Loss on foreign
currency option contract - - - 1,610 Loss on interest rate swap
contract 559 - 559 - Deferred revenue fair value adjustment - 1,977
432 6,413 Restructuring and other 1,003 594 2,210 4,766 In-process
research and development - - - 200
Non-GAAP income before income taxes 12,273 18,139 30,116
40,250 Non-GAAP provision for income taxes 1 (4,465)
(6,731) (10,924) (14,507) Non-GAAP net income
$ 7,808 $ 11,408 $ 19,192 $ 25,743 Non-GAAP net income per
diluted share $ 0.13 $ 0.19 $ 0.32 $ 0.44 Weighted average
common shares outstanding: Diluted 60,305 59,186 59,953 59,045
1 The Company utilized a 38% tax rate for the calculation of
the Non-GAAP provision for income taxes
for comparison purposes with other
periods.
EPICOR SOFTWARE CORPORATION PRELIMINARY NET INCOME TO
ADJUSTED EBITDA RECONCILIATION
(dollars in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, 2009
2008 2009 2008 Total revenues $
98,576 $ 135,762 $ 297,715 $ 365,931 Net income (loss) $ 356
$ 2,748 $ (7,954) $ (4,997) Provision (benefit) for income taxes
(2,166) 628 (3,147) (3,940) Interest expense 6,481 6,264 17,351
16,897 Amortization of intangible assets 7,045 8,513 23,672 24,513
Depreciation 1,901 2,244 6,020 6,158 Restructuring and other 1,003
594 2,210 4,766 In-process research and development - - - 200
Deferred revenue fair value adjustment - 1,977 432 6,413 Interest
and other (income) expense, net (73) 773 159
( 1,052) Adjusted EBITDA $ 14,547 $ 23,741 $ 38,743 $ 48,958
Adjusted EBITDA percent of total revenues 14.8%
17.5% 13.0% 13.4%
EPICOR SOFTWARE
CORPORATION PRELIMINARY FREE CASH FLOW RECONCILIATION
(dollars in thousands)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30, 2009
2008 2009 2008 Net income (loss)
$ 356 $ 2,748 $ (7,954) $ (4,997) Provision (benefit) for income
taxes (2,166) 628 (3,147) (3,940) Interest expense 6,481 6,264
17,351 16,897 Amortization of intangible assets 7,045 8,513 23,672
24,513 Depreciation 1,901 2,244 6,020 6,158 Restructuring and other
1,003 594 2,210 4,766 In-process research and development - - - 200
Deferred revenue fair value adjustment - 1,977 432 6,413 Interest
and other (income) expense, net (73) 773 159
(1,052) Adjusted EBITDA $ 14,547 $ 23,741 $ 38,743 $ 48,958
Adjusted EBITDA $ 14,547 $ 23,741 $ 38,743 $ 48,958 Non-cash
stock-based compensation 1,835 1,824 5,897 6,219 Capital
expenditures (463) (2,215) (2,502) (7,830) Cash paid for taxes
(848) (771) (2,760) (4,052) Net interest (4,321)
(3,766) (10,808) (8,296) Free cash flow $ 10,750 $
18,813 $ 28,570 $ 34,999
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