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Epicor
18200 Von Karman, Suite 1000 Irvine, CA 92646
800-999-6995
http://www.epicor.com


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Epicor Reports Second Quarter 2005 Earnings
Strongest Second Quarter Revenues in Company's History; Year-Over-Year License Revenue Growth of 55% With Year-Over-Year Organic License Revenue Growth of 24%; Raises Revenue and Earnings Outlook for Remainder of 2005

IRVINE, Calif., July 19 -- Epicor Software Corporation (Nasdaq: EPIC), a leading provider of enterprise software solutions, today reported its financial results for the second quarter 2005.

"We are delighted to report solid results and growth rates exceeding our goals and representing the strongest second quarter revenues in our history," said George Klaus, chairman, CEO and president of Epicor. "Looking ahead to the second half of the year we are raising both our revenue and earnings guidance reflecting our continued confidence in strong execution plus demand for our products," Klaus said.

Revenue Summary

Total revenues for the second quarter were $71.0 million, compared with $48.6 million in the prior year's quarter, representing a growth rate of 46%. Revenues for the second quarter 2005 included $20.9 million for Scala Business Solutions. Total revenues included $3.0 million for Scala for the second quarter 2004 based on 12 days of contribution. Total revenue growth excluding the contribution from Scala, for both periods, was 10%. License revenues were $19.0 million for the second quarter compared to $12.2 million in the second quarter of 2004, up 55%. License revenues for the second quarter 2005 included $5.2 million for Scala and for the second quarter 2004 included $1.1 million for Scala. Total license revenue growth excluding the contribution from Scala for both periods was 24%.

Service revenues for the second quarter of 2005 were $51.2 million compared with $35.6 million in the second quarter of 2004, up 44%. Service revenues for the second quarter 2005 included $15.4 million for Scala and service revenues included $1.9 million from Scala for the second quarter 2004 based on the 12 days of contribution. Total service revenue growth excluding the contribution from Scala from both periods was up 6%.

Total revenues for the six months ended June 30, 2005 were $138.3 million compared with the six-month period ended 2004 at $92.0 million. License revenues for the six-month period were $35.8 million compared with $22.7 million in the prior year period. Service revenues for the six-month period were $100.8 million compared with $68.1 million for the same period 2004. Scala total revenues for the six-month period 2005 were $40.6 million. For the same period, Scala license revenues were $9.7 million and service revenues were $30.3 million. Going forward, the company will no longer report Scala revenues separately as the acquisition was completed one year ago on June 18, 2004.

Income Summary

For the second quarter, the company reported GAAP net income of $28.2 million or $0.50 per diluted share which includes a non-cash income tax benefit related to the release of a deferred tax valuation allowance of $18.6 million or $0.33 per diluted share, compared with $5.6 million or $0.11 per diluted share in the prior year's period. For the second quarter of 2005, adjusted earnings were $12.8 million or $0.23 per diluted share compared with adjusted earnings of $8.0 million or $0.15 per diluted share in the same period last year. Adjusted earnings exclude a non-cash income tax benefit related to the reversal of the valuation allowance, amortization of acquired intangible assets, stock-based compensation expense and restructuring charges, net of tax.

The company had established a deferred tax asset of $92.4 million as of December 31, 2004 and has been carrying a full valuation allowance against it. As previously disclosed, the company has been assessing its valuation allowance related to the deferred tax asset. Due to continued profitability, the company released the entire valuation allowance related to U.S. Federal operating losses of $38.2 million reflecting an increase in GAAP earnings for a non-cash income tax benefit of $18.6 million or $0.33 per diluted share. Approximately $19.6 million was credited directly to additional paid-in capital as it relates to previously exercised stock options. The remaining valuation allowance will continue to be evaluated over future quarters.

GAAP net income for the six months ended June 30, 2005 was $34.5 million or $0.61 per diluted share which includes a non-cash income tax benefit related to the release of a deferred tax valuation allowance of $18.6 million or $0.33 per diluted share, compared to net income of $9.1 million or $0.17 per diluted share for the same period ended 2004. For the six-month period, adjusted earnings, as described above, were $22.3 million or $0.39 per diluted share, compared to adjusted earnings of $14.2 million or $0.27 per diluted share for the same period 2004.

Balance Sheet Summary

The company's balance sheet at June 30, 2005 showed cash and cash equivalents of $55.9 million. As of the end of the June quarter, the company had $20 million outstanding on the credit line.

At quarter-end, net accounts receivable was $42.6 million and deferred revenues were $57.2 million. Day sales outstanding (DSO) was 54 down from 60 in the first quarter 2005.

As a result of the reversal of the valuation allowance as described above, the company's deferred tax asset at June 30, 2005 was $38.2 million.

2005 Guidance

The company expects total revenues for the third quarter 2005 to be approximately $70 million, flat to slightly down from those in the second quarter as is seasonally typical. GAAP earnings per diluted share for the third quarter 2005 is expected to be $0.16 with adjusted earnings, as described above, per share of $0.22, in each case using a weighted average share count of 57 million shares.

The company raised revenue guidance for the year 2005 from $276 million to $284 million. The company issued GAAP earnings guidance per diluted share of $0.99 using a weighted average of 57 million shares which includes $0.33 related to the non-cash income tax benefit associated with releasing a portion of the valuation allowance for deferred taxes. The company also raised adjusted earnings guidance, as described above, from $0.88 to $0.90 per diluted share also using a weighted average share count of 57 million shares.

Second Quarter 2005 Highlights
  • Revenue growth of 46% and organic revenue growth of 10% year-over-year
  • License revenue growth of 55% and organic license growth of 24% year-over-year
  • Adjusted EPS growth of 53% year-over-year
  • Added 185 new customers in the second quarter
  • Delivered over 47 releases in the second quarter across entire portfolio of product and solution suites
  • Awards and recognitions received during the second quarter include:
    • Finalist in the Best Multinational Company category in the 2005 International Business Awards
    • Named to 2005 VARBusiness VAR500 as well as the publication's special listing of the VAR500's 50 Fastest-Growing VARs
    • Named to Start magazine's "Hottest Companies of 2005" prestigious industry ranking for fourth consecutive year
    • Named one of the "Supply and Demand Chain Executive 100" for the second consecutive year
    • Winner of 2005 CRM Excellence Awards by Technology Marketing Corporation's (TMC®) Customer Interaction Solutions® magazine

The company will hold an investor and analyst conference call directly following the release after the close of market at 2:00 p.m. PDT.

     Date:     Tuesday, July 19, 2005
     Time:     2:00 p.m. PDT
     Dial in:  +1-800-289-0569 or outside the U.S. +1-913-981-5542
     Conf ID:  Epicor

On the call, the company will review second quarter 2005 earnings and the outlook for the remainder of 2005. 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 www.epicor.com/company/investor and will be archived for thirty days following the call on the company's Web site.

About Epicor Software Corporation

For 20 years, Epicor has been a recognized leader dedicated to providing integrated enterprise resource planning (ERP), customer relationship management (CRM) and supply chain management (SCM) software solutions to midmarket companies around the world. With the acquisition of Scala, Epicor became a global leader in the midmarket serving over 20,000 customers in 143 countries and supporting more than 30 languages. Epicor leverages innovative technologies like Web services in developing end-to-end, industry-specific solutions for manufacturing, distribution, enterprise service automation and hospitality that enable companies to drive efficiencies throughout business operations and build competitive advantage. With the scalability and flexibility to support long-term growth, Epicor's solutions are complemented by a full range of services, providing a single point of accountability to promote rapid return on investment and low total cost of ownership. Epicor's worldwide headquarters are located in Irvine, California with offices and affiliates around the world. For more information, visit the company's Web site at www.epicor.com.

Epicor and Scala are registered trademarks of Epicor Software Corporation and Scala Business Solutions N.V., respectively. All 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

Management of Epicor Software believes certain statements in this press release may constitute forward-looking statements with respect to the financial condition, results of operations, continued profitability and activities of Epicor. These forward-looking statements include statements regarding expected revenues, earnings and earnings per share, 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; 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 10Q report for the period ended March 31, 2005 at pages 38-46. 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.

This press release includes certain non-GAAP financial measures, including organic revenue growth, which excludes the revenue contribution of Scala, and adjusted net income and net income per diluted share amounts, which exclude the amortization of acquired intangible assets, stock-based compensation expense and restructuring charges and other, net of tax. These non-GAAP financial measures are not prepared in accordance with generally accepted accounting principles and may be different from non-GAAP financial measures used by other companies. Non-GAAP financial measures should not be considered as a substitute for measures of financial performance prepared in accordance with GAAP. The company's management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the performance of the company's business operations. These measures also facilitate management's internal comparisons to our historical operating results and to our competitors' operating results, operational forecasting and budgeting. Investors and potential investors are encouraged to review the reconciliation of the non-GAAP financial measures contained within this press release with their most directly comparable GAAP financial results.

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

                                                  June 30,     December 31,
                                                    2005          2004
    ASSETS
    Current assets:
      Cash and cash equivalents                   $55,851        $53,711
      Accounts receivable, net                     42,575         55,296
      Deferred income taxes                         2,397             --
      Prepaid expenses and other current assets     7,330          6,719
        Total current assets                      108,153        115,726

    Property and equipment, net                     7,096          7,045
    Deferred income taxes                          35,803             --
    Intangible assets, net                         43,247         45,080
    Goodwill                                       85,315         83,492
    Other assets                                    4,211          4,406
    Total assets                                 $283,825       $255,749

    LIABILITIES AND STOCKHOLDERS' EQUITY
    Current liabilities:
      Accounts payable                             $8,476        $10,437
      Accrued expenses                             37,320         47,776
      Current portion of accrued
       restructuring costs                          2,870          3,287
      Current portion of long-term debt               228            352
      Deferred revenue                             57,230         60,212
        Total current liabilities                 106,124        122,064

    Long-term debt                                 19,955         30,264
    Long-term portion of accrued
     restructuring costs                            1,857          2,462
        Total long-term liabilities                21,812         32,726

    Stockholders' equity:
      Preferred stock                               3,046          3,046
      Common stock                                     54             53
      Additional paid-in capital                  330,031        308,264
      Less: treasury stock at cost                 (7,576)        (4,431)
      Less: unamortized stock compensation
       expense                                     (1,182)        (2,379)
      Accumulated other comprehensive loss           (234)          (818)
      Accumulated deficit                        (168,250)      (202,776)
        Net stockholders' equity                  155,889        100,959
    Total liabilities and stockholders' equity   $283,825       $255,749



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

                                 Three Months Ended       Six Months Ended
                                      June 30,                June 30,
                                  2005        2004        2005        2004
    Revenues:
      License fees              $19,028     $12,247     $35,766     $22,695
      Consulting                 18,358      13,072      35,282      25,024
      Maintenance                32,815      22,510      65,550      43,067
      Other                         808         791       1,749       1,194
        Total revenues           71,009      48,620     138,347      91,980

    Cost of revenues             25,440      18,352      50,154      34,594
    Amortization of
     intangible assets            2,811       1,121       5,594       2,000
        Total cost of revenues   28,251      19,473      55,748      36,594

    Gross profit                 42,758      29,147      82,599      55,386

    Operating expenses:
      Sales and marketing        13,661       9,896      27,762      19,676
      Software development        7,035       5,058      14,425      10,818
      General and
       administrative            10,229       7,207      20,410      12,380
      Stock-based compensation
       expense                      591         654       1,197       1,309
      Provision for doubtful
       accounts                     273         283         642         499
      Restructuring charges
       and other                     --         685          --       1,901
      Settlement of claim            --        (284)         --        (284)
        Total operating
         expenses                31,789      23,499      64,436      46,299

    Income from operations       10,969       5,648      18,163       9,087
    Other income (expense), net    (324)        216        (757)        440

    Income before income
     taxes                       10,645       5,864      17,406       9,527
    Provision for income
     taxes                         (964)       (276)     (1,403)      (421)
    Non-cash income tax
     benefit                     18,613          --      18,613          --
    Minority interest in
     income of consolidated
     subsidiary                     (59)        (29)        (90)        (29)

    Net income                  $28,235      $5,559     $34,526      $9,077

    Net income per share
      Basic                       $0.52       $0.11       $0.64       $0.19
      Diluted                     $0.50       $0.11       $0.61       $0.17

    Weighted average common
     shares outstanding:
      Basic                      54,486      48,835      54,231      48,321
      Diluted                    56,592      52,564      56,419      52,143



                           EPICOR SOFTWARE CORPORATION
                         ADJUSTED EARNINGS RECONCILIATION
                     (in thousands, except per share amounts)
                                   (Unaudited)

                                 Three Months Ended       Six Months Ended
                                      June 30,                June 30,
                                  2005        2004        2005        2004

    Net income                  $28,235      $5,559     $34,526      $9,077

    Add back, net of tax:
      Amortization of
       intangible assets          2,577       1,068       5,141       1,912
      Stock based
       compensation expense         591         654       1,197       1,309
      Non-cash income tax
       benefit                  (18,613)         --     (18,613)         --
      Restructuring charges          --         685          --       1,901

    Adjusted earnings           $12,790      $7,966     $22,251     $14,199

    Adjusted earnings per
     diluted share                $0.23       $0.15       $0.39       $0.27

    Weighted average common
     shares outstanding:
      Diluted                    56,592      52,564      56,419      52,143
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