Company Raises Guidance for 2006 Full-Year Revenue and Non-GAAP EPS
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"I am very pleased with our second quarter results, which exceeded our expectations for total revenue, non-GAAP EPS and cash flow from operations," said George Klaus, chairman and CEO of Epicor. "This strong performance was driven by operating excellence throughout every market we address and across all of our product and services offerings. License revenue growth was strong, supported by continued robust customer migrations to Epicor Vantage 8.0 plus the addition of 179 new customers during the quarter. We are very excited about the market's overwhelming support and adoption of Epicor's Vantage Web services-based manufacturing suite and we are seeing the opportunity to drive additional revenues from migrations. In addition, the integration of CRS Retail Systems continues to exceed our expectations with solid revenue growth and the addition of several important new customers."
"We entered the second half of 2006 with a very healthy pipeline and we continue to see strong demand for our products and services from both new and existing customers in the Americas and abroad. This strong customer demand, supported by a growing pipeline and the operating momentum from our better-than-expected second quarter results, makes us confident in our ability to drive strong performance during the remainder of the year. As a result of our strong second quarter and the favorable customer climate we are experiencing, we are increasing our full year 2006 consolidated revenue guidance to $378 to $383 million, and increasing non-GAAP EPS guidance to $0.71 to $0.72 per diluted share."
Operating Summary
Total revenues for the second quarter grew 40.2% to a record $99.5 million, compared with $71.0 million in the prior year's quarter. Excluding stronger than expected total revenue contributions of $22.0 million from CRS Retail Systems Inc., which was acquired on December 6, 2005, total revenues increased 9.1% to $77.5 million. Second quarter license fees were up 30.6% to $24.0 million, compared to $18.4 million in the second quarter of 2005. Excluding contributions by CRS of $3.3 million, license fees increased 12.6% to $20.7 million. Consulting revenue for the second quarter of 2006 grew 48.5% to $27.3 million, compared with $18.4 million in the second quarter of 2005. Excluding CRS consulting revenues of $5.6 million, consulting revenue increased 18.2% to $21.7 million. Maintenance revenue for the second quarter of 2006 grew 12.1% to $37.5 million, compared with $33.5 million in the second quarter of 2005. Excluding contributions from CRS of $3.0 million, maintenance revenue grew 3.1% to $34.5 million. Hardware and other revenue for the second quarter of 2006 grew to $10.7 million from $0.8 million in the second quarter last year. Excluding contributions from CRS of $10.2 million, hardware and other revenue was $0.6 million.
For the second quarter, the Company reported GAAP net income of $7.1 million or $0.12 per diluted share, compared with $29.6 million, or $0.52 per diluted share, in the prior year's period, which included the positive impact of $0.35 per diluted share related to a non-cash income tax benefit due to the release of a deferred tax valuation allowance. In the second quarter of 2006 non-GAAP earnings were $11.2 million, or $0.20 per diluted share, compared with non-GAAP earnings of $12.9 million, or $0.23 per diluted share, in the same period last year. For comparative purposes, second quarter 2005 fully taxed non-GAAP EPS was $0.16 per diluted share. Non-GAAP earnings per share growth when fully taxed numbers are compared was 25%. Non-GAAP earnings exclude amortization of intangible assets and stock-based compensation expense, each net of tax and the non-cash income tax benefit.
Balance Sheet Summary
The Company's balance sheet at June 30, 2006 included cash and cash equivalents of $64.5 million, which was bolstered by approximately $19 million in cash flow from operations during the quarter. The Company's total debt balance as of June 30, 2006 was $117.0, which includes a $100 million term loan and $16.7 million drawn on its $100 million revolving credit facility. Subsequent to June 30, 2006, a $6.7 million payment was made, reducing the current outstanding balance to $110.3 million.
At quarter-end, net accounts receivable was $68.3 million. Days sales outstanding (DSOs) decreased to 62, down from 70 in the first quarter 2006, driven by strong collections. Working capital increased by $7.0 million to $36.9 million at the end of the second quarter of 2006 from $29.9 million at the end of the first quarter of 2006.
Third Quarter and Full-Year 2006 Guidance
The Company expects total revenues for the third quarter to be approximately $93 million. GAAP earnings per diluted share for the third quarter 2006 is expected to be $0.09 with non-GAAP earnings, as described above, of $0.17 per diluted share, in each case using a weighted average share count of approximately 57 million shares.
The Company is increasing its 2006 full-year guidance. Total revenues for the 2006 year are expected to be in the range of $378 to $383 million, an increase of approximately $6 million from prior full-year estimates. Non-GAAP earnings for 2006 are expected to be in the range of $41 to $42 million. Non-GAAP earnings per diluted share are expected to be in the range of $0.71 to $0.72, an increase from prior estimates of $0.69 to $0.70. Full-year non-GAAP earnings per share expectations assume a weighted average share count of 58 million shares. Expected earnings results presume an effective tax rate of approximately 38.0%. As a benchmark, 2005 fully taxed non-GAAP earnings per diluted share were $0.57.
Conference Call Information
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, July 26, 2006
Time: 2:00 p.m. PDT
Dial in: +1 (800) 289-0529 or outside the U.S. +1 (913) 981-5523
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 second quarter 2006 earnings and the outlook for the remainder of 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
Epicor is a global leader dedicated to providing integrated enterprise resource planning (ERP), customer relationship management (CRM), supply chain management (SCM) and professional services automation (PSA) software solutions to midmarket companies and divisions of the Global 1000. Founded in 1984, Epicor serves over 20,000 customers in more than 140 countries, providing solutions in over 30 languages. Employing innovative service-oriented architecture (SOA) and Web services technology, Epicor delivers end-to-end, industry-specific solutions for manufacturing, distribution, retail, hospitality and services that enable companies to drive increased efficiency, improve performance and build competitive advantage. Epicor solutions provide the scalability and flexibility to meet today's business challenges, while empowering enterprises for even greater success tomorrow. Epicor offers a comprehensive range of services with its solutions, 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 www.epicor.com.
Epicor is a registered trademark of Epicor Software Corporation. CRS is a Trademark of CRS Retail Systems Inc. All other trademarks referenced are the property of their respective owners.
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 annual report on Form 10K and 10K/A for the year ended December 31, 2005 at pages 17-25 and quarterly report on Form 10Q for the quarter ended March 31, 2006 at pages 36-44. 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 CRS, and non-GAAP net income, fully taxed non-GAAP net income, non-GAAP net income per diluted share amounts and fully taxed non-GAAP net income per diluted share amounts, which exclude the amortization of intangible assets, stock-based compensation expense, each 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)
June 30, December 31,
2006 2005
ASSETS
Current assets:
Cash and cash equivalents $64,459 $49,768
Short-term investments -- 3,271
Accounts receivable, net 68,261 67,728
Deferred income taxes 20,823 20,726
Inventory 8,725 4,572
Prepaid expenses and other current assets 9,165 6,759
Total current assets 171,433 152,824
Property and equipment, net 10,963 11,347
Deferred income taxes 22,449 22,449
Intangible assets, net 64,492 73,539
Goodwill 165,712 164,451
Other assets 5,674 4,341
Total assets $440,723 $428,951
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $20,988 $12,150
Accrued expenses 49,689 56,709
Current portion of accrued restructuring costs 2,613 2,812
Current portion of long-term debt 1,103 100
Current portion of deferred revenue 60,092 57,183
Total current liabilities 134,485 128,954
Long-term debt, less current portion 115,863 124,639
Long-term portion of accrued restructuring costs 1,067 1,460
Long-term portion of deferred revenue 1,726 2,284
Long-term deferred income taxes 1,165 1,164
Total long-term liabilities 119,821 129,547
Stockholders' equity:
Common stock 58 56
Additional paid-in capital 340,701 336,139
Less: treasury stock at cost (10,679) (10,679)
Accumulated other comprehensive loss (1,297) (1,053)
Accumulated deficit (142,366) (154,013)
Total stockholders' equity 186,417 170,450
Total liabilities and stockholders' equity $440,723 $428,951
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,
2006 2005 2006 2005
(as (as
Restated) Restated)
Revenues:
License fees $23,995 $18,369 $43,306 $34,042
Consulting 27,270 18,358 52,228 35,282
Maintenance 37,533 33,488 73,702 66,734
Hardware and other 10,744 808 14,784 1,749
Total revenues 99,542 71,023 184,020 137,807
Cost of revenues 44,034 25,440 79,795 50,154
Amortization of intangible assets 4,249 2,811 8,494 5,594
Total cost of revenues 48,283 28,251 88,289 55,748
Gross profit 51,259 42,772 95,731 82,059
Operating expenses:
Sales and marketing 16,422 13,661 31,423 27,762
Software development 8,844 7,035 17,176 14,425
General and administrative 13,080 11,093 25,322 22,249
Total operating expenses 38,346 31,789 73,921 64,436
Income from operations 12,913 10,983 21,810 17,623
Interest expense (2,327) (295) (4,211) (574)
Other income (expense), net 910 (29) 1,196 (183)
Income before income taxes 11,496 10,659 18,795 16,866
Minority interest in income of
consolidated subsidiary -- 59 -- 90
Provision for income taxes 4,411 (18,954) 7,148 (18,515)
Net income $7,085 $29,554 $11,647 $35,291
Net income per share:
Basic $0.13 $0.54 $0.21 $0.65
Diluted $0.12 $0.52 $0.21 $0.63
Weighted average common shares
outstanding:
Basic 55,763 54,486 55,683 54,231
Diluted 56,950 56,592 56,795 56,419
EPICOR SOFTWARE CORPORATION
NON-GAAP EARNINGS RECONCILIATION
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2006 2005 2006 2005
(as (as
Restated) Restated)
Net income $7,085 $29,554 $11,647 $35,291
Add back, net of tax:
Amortization of intangible assets 2,795 2,680 5,629 5,383
Stock-based compensation expense 1,308 591 1,899 1,197
Non-cash income tax benefit -- (19,917) -- (19,917)
Non-GAAP earnings $11,188 $12,908 $19,175 $21,954
Non-GAAP earnings per diluted share $0.20 $0.23 $0.34 $0.39
Weighted average common shares
outstanding:
Diluted 56,950 56,592 56,795 56,419
EPICOR SOFTWARE CORPORATION
2005 FULLY TAXED NON-GAAP EARNINGS RECONCILIATION
(in thousands, except per share amounts)
(Unaudited)
Three Months
Ended
June 30,
2005
Income before income taxes $10,659
Minority interest in income of consolidated subsidiary 59
Provision for income taxes at statutory tax rates 4,157
Fully taxed net income $6,443
Add back, net of tax:
Amortization of intangible assets 1,798
Stock-based compensation expense 591
Fully taxed non-GAAP earnings $8,832
Fully non-GAAP earnings per diluted share $0.16
Weighted average common shares outstanding:
Diluted 56,592
Web site: http://www.epicor.com/