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Epicor Software 8-K 2011
Press Release

Exhibit 99.1

LOGO

News Release

FOR IMMEDIATE RELEASE

 

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

Epicor® Reports 2010 Fourth Quarter Results

Third Strongest Software Revenue Quarter in Company’s History

Helps Drive 17% Annual Organic Software Revenue Growth

IRVINE, Calif., February 9, 2011 — 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 flow1 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

 

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Epicor Reports Q4 2010 Results

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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-GAAP2 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

 

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Epicor Reports Q4 2010 Results

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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 share3 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

 

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Epicor Reports Q4 2010 Results

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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.

1Free 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.”

2Please 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

 

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Epicor Reports Q4 2010 Results

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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 –

 

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Epicor Reports Q4 2010 Results

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EPICOR SOFTWARE CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands)

 

     December 31,
2010
    December 31,
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   
                

 

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Epicor Reports Q4 2010 Results

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EPICOR SOFTWARE CORPORATION

PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended
December 31,
    Year Ended
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   

 

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Epicor Reports Q4 2010 Results

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EPICOR SOFTWARE CORPORATION

PRELIMINARY NON-GAAP NET INCOME RECONCILIATION

(in thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended
December 31,
    Year Ended
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.

 

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Epicor Reports Q4 2010 Results

Page 9

 

EPICOR SOFTWARE CORPORATION

PRELIMINARY NET INCOME (LOSS) TO ADJUSTED EBITDA RECONCILIATION

(dollars in thousands)

(Unaudited)

 

     Three Months Ended
December 31,
    Year Ended
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
                                

 

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Epicor Reports Q4 2010 Results

Page 10

 

EPICOR SOFTWARE CORPORATION

PRELIMINARY FREE CASH FLOW RECONCILIATION

(in thousands)

(Unaudited)

 

     Three Months Ended
December 31,
    Year Ended
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   
                                

 

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