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