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Epicor Reports Third Quarter 2005 Earnings
Posts 19% Year-over-Year Organic License Fee Growth; Year-over-Year Organic Revenue Growth of 13% With Year-over-Year Adjusted EPS Growth of 29%; Issues Guidance for the Remainder of 2005 and Full Year 2006
IRVINE, CA, October 26, 2005 -- Epicor Software Corporation (Nasdaq: EPIC), a leading provider of enterprise software solutions, today reported its financial results for the third quarter 2005.
"We are pleased to report another quarter of excellent results and growth rates that significantly outpaced the industry," said George Klaus, chairman and CEO of Epicor. "We are continuing to execute in all areas of the business, and we have strong momentum entering our final quarter of the year driven by strong organic revenue growth and operating leverage in our business model. We added 159 new customers during the quarter."
"Looking ahead, we are raising our revenue guidance for the fourth quarter, and issuing a positive revenue and earnings outlook for 2006. This reflects the compelling competitive position of our products, increasing market demand and continued confidence in the execution capabilities of our management team."
"We just completed our worldwide customer conference, Perspectives 2005 where our theme was 'Innovate and Accelerate,' where we highlighted our latest technologies, products and services to a record 1,600 attendees. The feedback from the event was extremely positive and the interest and excitement generated was very high. We look forward to building on strength of our recent results and the momentum generated at Perspectives in the coming quarters."
Revenue Summary
Total revenues for the third quarter were $70.1 million, compared with $62.2 million in the prior year's quarter, representing a growth rate of 13%. License fees were $18.3 million for the third quarter compared to $15.3 million in the third quarter of 2004, up 19%. Consulting revenue for the third quarter of 2005 was $18.1 million compared with $15.8 million in the third quarter of 2004, up 15%. Maintenance and other revenue for the third quarter of 2005 was $33.7 million compared with $31.1 million in the third quarter of 2004, up 9%.
Total revenues for the nine months ended September 30, 2005 were $208.5 million compared with $154.2 million for the same period last year. License fees for the nine-month period ended 2005 were $54.0 million compared with $38.0 million for the same period last year. Consulting revenue for the nine-month period ended 2005 was $53.5 million compared with $40.8 million for the same period last year. Maintenance and other revenue for the nine-month period ended 2005 was $101.0 million compared with $75.4 million for the same period last year.
Income Summary
For the third quarter, the company reported GAAP net income of $9.0 million or $0.16 per diluted share compared with $6.3 million or $0.11 per diluted share in the prior year's period. For the third quarter of 2005, adjusted earnings were $12.3 million or $0.22 per diluted share compared with adjusted earnings of $9.5 million or $0.17 per diluted share in the same period last year, up 29%. Adjusted earnings exclude amortization of acquired intangible assets, stock-based compensation expense and restructuring charges, all net of tax and the non-cash income tax benefit.
GAAP net income for the nine months ended September 30, 2005 was $43.5 million or $0.77 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 $15.4 million or $0.29 per diluted share for the same period ended 2004. For the nine-month period, adjusted earnings, as described above, were $34.6 million or $0.61 per diluted share, compared to adjusted earnings of $23.6 million or $0.44 per diluted share for the same period 2004.
Balance Sheet Summary
The company's balance sheet at September 30, 2005 showed cash, cash equivalents and short term investments of $56.4 million. The company currently has $10 million outstanding against its $125 million credit line.
At quarter-end, net accounts receivable was $44.7 million and deferred revenues were $53.9 million. Day sales outstanding (DSO) was 59 up slightly due to seasonality from 54 in the second quarter 2005.
The company's deferred tax asset at September 30, 2005 was $38.2 million, unchanged from last quarter.
Fourth Quarter 2005 and Full Year 2006 Guidance
The company expects total revenues for the fourth quarter 2005 to be approximately $77 million. GAAP earnings per diluted share for the fourth quarter 2005 is expected to be $0.22 with adjusted earnings, as described above, per share of $0.28, in each case using a weighted average share count of 57 million shares.
The company raised revenue guidance for the year 2005 from $284 million to $286 million. The company re-iterates its previously 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 reiterated previously issued adjusted earnings guidance, as described above, of $0.90 per diluted share also using a weighted average share count of 57 million shares.
The company also provided its outlook for fiscal 2006. The company expects 2006 revenues to be approximately $314 million, up 10% from the 2005 expected results. The company expects GAAP earnings per diluted share to be $0.54 for 2006 with adjusted earnings per share, as described above, of $0.75, in each case using a weighted average share count of 58 million shares. Expected earnings results presume a book tax rate of approximately 39%. None of these expected results include contributions which may result from acquisitions.
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: Wednesday, October 26, 2005
Time: 2:00 p.m. PDT
Dial in: +1 (800) 361-0912 or outside the U.S. +1 (913) 981-5559
Conf ID: Epicor
On the call, George Klaus, chairman and CEO, Mark Duffell, president and COO and Michael Piraino, executive vice president and CFO will review third quarter 2005 earnings and the outlook for the remainder of 2005 and 2006. 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, restructuring charges and other, all net of tax and the non-cash income tax benefit. 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)
September 30, December 31,
2005 2004
ASSETS
Current assets:
Cash and cash equivalents $46,204 $53,711
Short term investments 10,176 --
Accounts receivable, net 44,652 55,296
Deferred income taxes 2,397 --
Prepaid expenses and other current assets 7,026 6,719
Total current assets 110,455 115,726
Property and equipment, net 7,078 7,045
Deferred income taxes 35,803 --
Intangible assets, net 40,245 45,080
Goodwill 87,048 83,492
Other assets 4,247 4,406
Total assets $284,876 $255,749
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $8,192 $10,437
Accrued expenses 39,133 47,776
Current portion of accrued
restructuring costs 2,630 3,287
Current portion of long-term debt 229 352
Deferred revenue 53,906 60,212
Total current liabilities 104,090 122,064
Long-term debt 14,801 30,264
Long-term portion of accrued
restructuring costs 1,669 2,462
Total long-term liabilities 16,470 32,726
Stockholders' equity:
Preferred stock -- 3,046
Common stock 55 53
Additional paid-in capital 336,138 308,264
Less: treasury stock at cost (9,063) (4,431)
Less: unamortized stock compensation
expense (2,365) (2,379)
Accumulated other comprehensive loss (1,186) (818)
Accumulated deficit (159,263) (202,776)
Net stockholders' equity 164,316 100,959
Total liabilities and stockholders' equity $284,876 $255,749
EPICOR SOFTWARE CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Revenues:
License fees $18,271 $15,295 $54,037 $37,990
Consulting 18,147 15,814 53,429 40,838
Maintenance 32,849 30,104 98,399 73,171
Other 868 967 2,617 2,161
Total revenues 70,135 62,180 208,482 154,160
Cost of revenues 25,140 22,111 75,293 56,705
Amortization of
intangible assets 2,850 2,655 8,444 4,655
Total cost of revenues 27,990 24,766 83,737 61,360
Gross profit 42,145 37,414 124,745 92,800
Operating expenses:
Sales and marketing 14,102 12,495 41,865 32,171
Software development 6,948 7,262 21,373 18,080
General and
administrative 10,282 10,551 30,692 22,931
Stock-based compensation
expense 692 654 1,889 1,964
Provision for doubtful
accounts 408 115 1,050 613
Restructuring charges
and other -- -- -- 1,901
Settlement of claim -- -- -- (284)
Total operating
expenses 32,432 31,077 96,869 77,376
Income from operations 9,713 6,337 27,876 15,424
Other income (expense), net 8 324 (749) 769
Income before income taxes 9,721 6,661 27,127 16,193
Provision for income taxes (736) (334) (2,139) (755)
Non-cash income tax benefit -- -- 18,613 --
Minority interest in
(income) loss of
consolidated subsidiary 2 (36) (88) (65)
Net income $8,987 $6,291 $43,513 $15,373
Net income per share
Basic $0.16 $0.12 $0.80 $0.31
Diluted $0.16 $0.11 $0.77 $0.29
Weighted average common
shares outstanding:
Basic 54,938 52,892 54,469 49,856
Diluted 56,500 56,227 56,572 53,574
EPICOR SOFTWARE CORPORATION
ADJUSTED EARNINGS RECONCILIATION
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2005 2004 2005 2004
Net income $8,987 $6,291 $43,513 $15,373
Add back, net of tax:
Amortization of
intangible assets 2,649 2,528 7,825 4,447
Stock based compensation
expense 692 654 1,889 1,964
Non-cash income tax benefit -- -- (18,613) --
Restructuring charges -- -- -- 1,816
Adjusted earnings $12,328 $9,473 $34,614 $23,600
Adjusted earnings per
diluted share $0.22 $0.17 $0.61 $0.44
Weighted average common
shares outstanding:
Diluted 56,500 56,227 56,572 53,574
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