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, 2009. All results
should be considered preliminary pending the Company's filing of
its annual report on Form 10-K.
Total revenue for the 2009 fourth quarter was $111.9 million,
with GAAP net income of $6.7 million, or $0.11 per diluted share.
This compares to 2008 fourth quarter revenue of $121.9 million, and
GAAP net income of $1.5 million, or $0.03 per diluted share.
Non-GAAP(1) net income for the 2009 fourth quarter was $11.1
million, or $0.19 per diluted share, compared to non-GAAP net
income of $13.6 million, or $0.23 per diluted share in the 2008
fourth quarter.
2009 Fourth Quarter Revenue by Segment: 2009 fourth quarter
license revenue was $25.8 million, up 3% year-over-year when
compared to 2008 fourth quarter license revenue of $25.2 million,
and growing sequentially by 88% over 2009 third quarter license
revenue of $13.7 million. 2009 fourth quarter maintenance revenue
also grew year-over-year by 3% to $48.6 million when compared to
2008 fourth quarter maintenance revenue of $47.3 million.
Consulting revenue was $33.2 million in the 2009 fourth quarter,
down from 2008 fourth quarter consulting revenue of $38.1 million.
Hardware and other revenue for the 2009 fourth quarter was $4.4
million, down year-over-year when compared to hardware and other
revenue of $11.4 million in the prior year's fourth quarter.
Epicor Chairman, President and CEO George Klaus commented, "With
software license revenues increasing nearly 90 percent over the
third quarter and exceeding our year earlier comparable for the
first time in 2009, Epicor's fourth quarter was a very strong
finish to a respectable year. Epicor 9 is making a difference and
is enabling Epicor to increase market share across all of the
industries and geographies we address. We are confident we have
superior solutions for the markets we serve, and we have positioned
Epicor to close on the ever growing list of opportunities we are
creating. All revenue lines grew over the 2009 third quarter, with
the exception of hardware, and total gross margin hit a two-year
high of 51 percent, helping drive fourth quarter adjusted EBITDA
margin of 17.8 percent, at least three percentage points higher
than any other quarter this year. We generated more than $17
million in free cash flow(2) -- a total of approximately $47
million for the year -- which grew our cash balance to
approximately $107 million.
"We executed well throughout 2009 against our guidance," Klaus
said, "coming in at or above guidance on all key metrics. We are
encouraged by economic data points that may drive more IT spending
by our prospective customers, as well as initial signs of a return
to growth in many of the industries we address. These positive
metrics are being reflected in our pipelines, which continue to
strengthen over last year. We currently expect to experience modest
growth across all of our lines of business in 2010 -- excluding
hardware -- and we expect to drive an even higher rate of bottom
line improvement. We will continue to take a prudently conservative
approach to our financial expectations and we plan to continue to
build on our track record of executing to our guidance."
Business Outlook: For its 2010 first quarter, the Company said
it currently expects all revenue lines to be up from the first
quarter of 2009, with the exception of hardware. 2010 first quarter
total revenue is expected to be $98 to $100 million, with non-GAAP
earnings per diluted share(3) for the 2010 first quarter expected
to be $0.10 to $0.11.
Balance Sheet Summary: The Company's balance sheet at December
31, 2009, included cash and cash equivalents of $106.9 million. The
balance sheet benefited from free cash flow of $17.5 million during
the 2009 fourth quarter, which helped support $5 million in
discretionary pay downs on the Company's credit facility during the
quarter. The Company's total debt balance as of December 31, 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 $42.1 million) and $67.5 million of borrowings
under the Company's credit facility, currently priced at LIBOR plus
4.0%.
At the end of the 2009 fourth quarter, net accounts receivable
was approximately $90.0 million. The Company had solid cash
collections of approximately $116 million during the 2009 fourth
quarter. Days sales outstanding (DSOs) in the 2009 fourth quarter
were flat at 74, compared to 74 in the third quarter of 2009.
Deferred revenue at the end of the 2009 fourth quarter was $96.4
million.
The Company also said that W. Douglas Hajjar, 62, has joined the
Company's Board of Directors, where he formerly served from 1996 to
1999 as a director. His appointment expands Epicor's Board of
Directors to eight members. Hajjar will begin serving immediately
and will stand for election for a full one-year term at the
Company's 2010 Annual Meeting of Shareholders later this year.
Hajjar currently serves as Chairman of Blue Wave Wireless, a
telecommunications infrastructure company. From 1997 to 2007, he
served as Chairman of Wherify Wireless Inc., a leading developer of
wireless location products and services, which he co-founded in
1997. From 2000 to 2007, he was Chairman of Maui Innovative
Technologies, a company he co-founded to develop Top Secret weapon
systems for the military. From 1991 to 1997, Hajjar was Chairman of
Control Data Systems Inc. Previously, he served as vice-chairman of
Cadence Design Systems Inc., and was chairman and chief executive
officer of Valid Logic at the time of its acquisition by Cadence.
He also held executive positions in operations and finance at
Genrad and M/ACom. Hajjar earned his BSBA in accounting at Boston
College and served as an Army Intelligence Officer in Vietnam.
"Doug brings more than 30 years of extensive knowledge and
senior leadership experience in the technology industry and is an
excellent complement to our already strong Board," said Klaus. "He
is a welcome addition and we look forward to working with him."
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
December 31, 2009, the debt discount was $42.1 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
$3.3 million related to the convertible debt for the three months
ended December 31, 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, February 11, 2010
Time: 2:00 p.m. PT
Dial in: +1 (877) 852-6573 or outside the U.S. +1 (719) 325-4878
Conf ID: Epicor 2009 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 2009
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) Please see the reconciliations to GAAP measures provided at
the end of this press release.
(2) Free 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.
(3) The Company's 2010 first quarter non-GAAP earnings per
diluted share guidance excludes current expectations for first
quarter amortization of intangible assets of approximately $7.0
million, first quarter stock-based compensation expense of
approximately $4.0 million, approximately $2.1 million in non-cash
interest expense for the first quarter related to amortization of
debt discount and an expected charge of approximately $1.0 million
related to the currency devaluation by the Venezuelan government.
2010 first quarter non-GAAP earnings per share expectations assume
a weighted average share count of 59.5 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 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, 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 include deferred revenues from NSB that were
adjusted to fair value as required by purchase 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 in-process research and
development, the write-off of debt issuance fees, restructuring and
other, which include costs associated with workforce reductions,
and other charges. 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 write-off of debt issuance fees and 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 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)
December 31, December 31,
2009 2008
------------ ------------
(As Adjusted)
ASSETS
Current assets:
Cash and cash equivalents $ 106,861 $ 89,764
Accounts receivable, net 90,011 90,624
Deferred income taxes 11,572 8,627
Inventory, net 1,819 5,068
Prepaid expenses and other current assets 13,976 11,064
------------ ------------
Total current assets 224,239 205,147
Property and equipment, net 28,511 31,987
Deferred income taxes 21,867 24,038
Intangible assets, net 84,107 113,556
Goodwill 368,336 363,589
Other assets 10,990 14,061
------------ ------------
Total assets $ 738,050 $ 752,378
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 13,966 $ 13,913
Accrued expenses 46,754 45,177
Current portion of long-term debt 202 10,169
Current portion of accrued restructuring
costs 1,694 4,073
Current portion of deferred revenue 96,040 92,361
------------ ------------
Total current liabilities 158,656 165,693
------------ ------------
Long-term debt, less current portion 255,535 265,257
Accrued restructuring costs 4,423 5,412
Deferred revenue 392 319
Deferred income taxes and other income taxes 15,172 18,801
Other long-term liabilities 3,785 941
------------ ------------
Total long-term liabilities 279,307 290,730
------------ ------------
Stockholders' equity:
Common stock 63 61
Additional paid-in capital 422,460 414,149
Less: treasury stock at cost (20,670) (18,458)
Accumulated other comprehensive loss (4,825) (4,094)
Accumulated deficit (96,941) (95,703)
------------ ------------
Total stockholders' equity 300,087 295,955
------------ ------------
Total liabilities and stockholders' equity $ 738,050 $ 752,378
============ ============
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,
------------------ ------------------
2009 2008 2009 2008
-------- -------- -------- --------
(As (As
Adjusted) Adjusted)
Revenues:
License fees $ 25,785 $ 25,150 $ 70,235 $ 90,416
Consulting 33,165 38,110 128,413 152,153
Maintenance 48,569 47,316 190,943 192,308
Hardware and other 4,389 11,372 20,033 53,002
-------- -------- -------- --------
Total revenues 111,908 121,948 409,624 487,879
-------- -------- -------- --------
Cost of revenues 47,764 53,892 180,549 239,912
Amortization of intangible assets 7,100 8,383 30,772 32,896
-------- -------- -------- --------
Total cost of revenues 54,864 62,275 211,321 272,808
-------- -------- -------- --------
Gross profit 57,044 59,673 198,303 215,071
-------- -------- -------- --------
Operating expenses:
Sales and marketing 20,688 19,734 75,105 82,883
Software development 12,525 11,648 49,207 52,533
General and administrative 12,869 12,649 54,410 52,139
Write off of in-process research
and development - - - 200
Restructuring and other - 4,377 2,210 9,143
-------- -------- -------- --------
Total operating expenses 46,082 48,408 180,932 196,898
-------- -------- -------- --------
Income from operations 10,962 11,265 17,371 18,173
Interest expense (5,013) (5,625) (22,363) (22,522)
Interest and other income
(expense), net 570 (749) 411 303
-------- -------- -------- --------
Income (loss) before income taxes 6,519 4,891 (4,581) (4,046)
Provision (benefit) for income
taxes (195) 3,344 (3,343) (595)
-------- -------- -------- --------
Net income (loss) $ 6,714 $ 1,547 $ (1,238) $ (3,451)
======== ======== ======== ========
Net income (loss) per share:
Basic $ 0.12 $ 0.03 $ (0.02) $ (0.06)
Diluted $ 0.11 $ 0.03 $ (0.02) $ (0.06)
Weighted average common shares
outstanding:
Basic 58,112 58,553 57,889 58,351
Diluted 59,344 59,082 57,889 58,351
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,
------------------ ------------------
2009 2008 2009 2008
-------- -------- -------- --------
Income (loss) before income taxes $ 6,519 $ 4,891 $ (4,581) $ (4,046)
Add back:
Amortization of intangible
assets 7,100 8,383 30,772 32,896
Stock-based compensation expense 2,211 826 8,108 7,045
Amortization of long-term debt
discount 2,031 1,889 7,907 7,356
Restructuring and other - 4,377 2,210 9,143
Debt issuance fees write off - - 2,571 -
Deferred revenue fair value
adjustment - 1,304 432 7,717
In-process research and
development - - - 200
Other (380) - 179 1,610
-------- -------- -------- --------
Non-GAAP income before income taxes 17,481 21,670 47,598 61,921
Non-GAAP provision for income
taxes (1) (6,426) (8,115) (17,350) (22,621)
-------- -------- -------- --------
Non-GAAP net income $ 11,055 $ 13,555 $ 30,248 $ 39,300
======== ======== ======== ========
Non-GAAP net income per diluted
share $ 0.19 $ 0.23 $ 0.52 $ 0.67
======== ======== ======== ========
Weighted average common shares
outstanding:
Diluted 59,344 59,082 58,618 58,984
(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 TO ADJUSTED EBITDA RECONCILIATION
(dollars in thousands)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
-------------------- --------------------
2009 2008 2009 2008
--------- --------- --------- ---------
Total revenues $ 111,908 $ 121,948 $ 409,624 $ 487,879
========= ========= ========= =========
Net income (loss) $ 6,714 $ 1,547 $ (1,238) $ (3,451)
Provision (benefit) for
income taxes (195) 3,344 (3,343) (595)
Interest expense 5,013 5,625 22,363 22,522
Amortization of intangible
assets 7,100 8,383 30,772 32,896
Depreciation 1,906 2,057 7,926 8,214
Restructuring and other - 4,377 2,210 9,143
In-process research and
development - - - 200
Deferred revenue fair value
adjustment - 1,304 432 7,717
Interest and other (income)
expense, net (570) 749 (411) (303)
--------- --------- --------- ---------
Adjusted EBITDA $ 19,968 $ 27,386 $ 58,711 $ 76,343
========= ========= ========= =========
Adjusted EBITDA percent of
total revenues 17.8% 22.5% 14.3% 15.6%
========= ========= ========= =========
EPICOR SOFTWARE CORPORATION
PRELIMINARY FREE CASH FLOW RECONCILIATION
(in thousands)
(Unaudited)
Three Months Ended Year Ended
December 31, December 31,
------------------ ------------------
2009 2008 2009 2008
-------- -------- -------- --------
Net income (loss) $ 6,714 $ 1,547 $ (1,238) $ (3,451)
Provision (benefit) for income
taxes (195) 3,344 (3,343) (595)
Interest expense 5,013 5,625 22,363 22,522
Amortization of intangible assets 7,100 8,383 30,772 32,896
Depreciation 1,906 2,057 7,926 8,214
Restructuring and other - 4,377 2,210 9,143
In-process research and
development - - - 200
Deferred revenue fair value
adjustment - 1,304 432 7,717
Interest and other (income)
expense, net (570) 749 (411) (303)
-------- -------- -------- --------
Adjusted EBITDA $ 19,968 $ 27,386 $ 58,711 $ 76,343
======== ======== ======== ========
Adjusted EBITDA $ 19,968 $ 27,386 $ 58,711 $ 76,343
Non-cash stock-based compensation 2,211 826 8,108 7,045
Capital expenditures (1,591) (2,116) (4,093) (9,946)
Cash paid for taxes (305) (1,080) (2,455) (5,132)
Net interest (2,766) (3,360) (13,574) (11,655)
-------- -------- -------- --------
Free cash flow $ 17,517 $ 21,656 $ 46,697 $ 56,655
======== ======== ======== ========
Contact: Damon Wright Vice President Investor Relations Epicor
Software Corporation 949/585-4509 dswright@epicor.com
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