Epicor Continues To Bleed

Epicor Continues To Bleed
P.J. Jakovljevic - June 8, 2000

Event Summary

As reported in the press release on the company's Web site on April 27, Epicor Software Corporation reported its financial results for the first quarter ended March 31, 2000. Revenues for the first quarter were $56.6 million, compared with $66.1 million for the first quarter 1999. Net loss for the quarter was $8.9 million or $0.22 per share, compared with a net income for the same period last year of $2.1 million or $0.05 per share (See Figure 1).

Figure 1

The company has continued its aggressive measures to control costs and streamline its operating processes, which is evidenced by a sequential decrease in operating expenses from approximately $52.8 million before charges in the fourth quarter of 1999 to $38.4 million in the first quarter of 2000. The company believes that the first quarter 2000 revenues were negatively impacted by an unanticipated lag in demand following Y2K as customers continued to postpone IT expenditures for enterprise systems, particularly in the manufacturing sector.

During the first quarter, the company completed several strategic objectives aimed at providing its mid-market customers with affordable Internet-driven solutions. These included the launch of the "e by Epicor" Internet-enabled, integrated front office and back office solution; delivery of the first version of Epicor's eCommerce StoreFront solution; and strategic alliances with Clarus Corporation to provide integrated web-based B2B procurement and trading exchange solutions to the mid-market; and with Ultimate Software to provide integrated human resource and payroll solutions.

"While we are still in a transition period refining our business model, we are pleased with the progress we have made in aggressively reducing operating expenditures," said Rick Roll, president and chief operating officer. "As we have seen this quarter, the industry-wide demand for traditional enterprise systems following the Y2K slowdown will take longer to rebound than originally anticipated. We continue to see strong interest in our front office products and are beginning to see interest in our newly released eBusiness, eCommerce, eProcurement and B2B trading exchange solutions."

Market Impact

This year seems to be the continuation of harrowing 1999 for Epicor Software (formerly Platinum Software). In addition to the Y2K-caused ERP slowdown, which has also affected most of its competitors, Epicor's situation has been aggravated by managing the acquisition of DataWorks Corporation, a mid-range manufacturing ERP supplier which with a history of acquisitions of its own, had a diverse set of products for different markets and/or company sizes.

While the acquisition has made Epicor one of the largest mid-market ERP vendors, it has also burdened it with a long list of diverse products to be incorporated into a clear product strategy, to be stabilized, or to be discontinued. The blending of different corporate cultures has compounded the difficulties. In January Epicor announced plans to reduce its workforce by approximately 11% to curb costs. Epicor's losses (See Figures 1 & 2) are a direct result of its challenges, and we believe the next 12 months will be the company's make-or-break period.

Figure 2

On a much brighter note, Epicor is a prominent mid-market leader (with more than 10,000 installations worldwide) due to its focus on the mid-market from the early days. It has established a very good global presence and product capabilities, as well as a vertical focus for some industries. The current hardships have apparently not affected its service & support delivery and customers' satisfaction. As a matter of fact, Epicor offers an implementation guarantee regarding time duration and fixed costs. Further, Epicor, in the final stage of its reorganization, has gradually introduced a line of integrated e-business, CRM, APS, and business intelligence modules with its core ERP solution. This promotes it as one of the first mid-market vendors with integrated back and front offices.

Epicor will market its bundle of integrated components under the brand name 'e' (having Vantage and Platinum ERA as its manufacturing and non-manufacturing core ERP products respectively) and has created separate divisions for its Avante, Platinum for Windows, Vista and Impresa product lines. Giving each division profit and loss responsibility should help Epicor weather the impending stormy period.

User Recommendations

We generally recommend including Epicor in a long list of an enterprise application selection for mid-market companies (with $10M-$500M in revenue) within the following industries: hospitality & food service, financial services, software & computer services, metal fabrication, capital equipment manufacturing, and electronics. Users from industries not mentioned above may benefit from evaluating some stand-alone Epicor product components (e.g., CRM, APS, e-commerce, and business intelligence application suite) on an opportunity-by-opportunity basis. This as well as obtaining Epicor's implementation guarantee could be leveraged against other vendors in the selection.

Any organization evaluating Epicor should consider existing functionality only, and, in the case of final selection, should inquire and negotiate incorporation of new applications' components now at negotiated license fees, given its recent increase in new product introductions. Moderate caution should be exercised now and a watchful eye should be kept on the company's future financial performance.

comments powered by Disqus