Event
Summary
On May 2, Epicor Software Corporation (NASDAQ: EPIC),
one of leading providers of integrated enterprise and eBusiness software
solutions for the mid-market, reported its financial results for the first
quarter ended March 31, 2001. The company's license revenue plummeted
over 40% to $12.3 million, while service revenue fell 3% to $33.9 million,
generating total revenue of $46.9 million a 17% decline compared to $56.6
million for the Q1 2000. Net loss for Q1 2001 was $22.1 million, compared
with a net loss for the same period last year of $14.2 million. The net
loss for the first quarter 2001 includes various adjustments made to asset
values, primarily accounts receivable and capitalized software development
costs, to better reflect the current economic environment and geographical
market conditions.
Figure
1.
The
company also announced that it has completed the sale of its Impresa
for MRO division to Avexus, Inc., a software and services
company catering to the maintenance, repair, and overhaul (MRO) ERP marketplace
for highly engineered assets. Terms and conditions of the divestiture
were not disclosed. Epicor believes the sale of this division is in line
with the company's expanding focus on collaborative commerce and integrated
eBusiness solutions for the mid-market, and that it reflects the company's
commitment to its core competencies, increasing shareholder value and
enhancing its long-term growth outlook. Epicor pledges to continue to
invest in its future while increasing operating efficiencies and improving
service levels including leveraging its offshore development facilities.
In addition, the company continues to invest in the deployment of new
technologies predominantly based on Microsoft's .NET platform.
Epicor
also said that as a result of it undergoing various strategic initiatives
to reduce its costs, including employee and facility reductions, it will
experience a restructuring charge of $6 to $7 million in the second quarter
of 2001. Epicor expects its actions to reduce ongoing quarterly costs
and expenses by roughly $6 million to $7 million. As a result of the sale
of its Impresa division, as well as the uncertainty surrounding demand
in the software market and general economic conditions, the company has
reduced its revenue forecasts for 2001 and now expects revenues for the
year to decrease approximately 14% from 2000 revenues to less than $190
million level. The company, nonetheless, expects to achieve profitability
in Q4 2001.
"While
the actions we have taken to reduce our cost structure in response to
market conditions were difficult, we believe that we have positioned Epicor
for success even in these uncertain times," said George Klaus, CEO and
chairman. "As we continue to strive to meet our goals, the divestiture
of the Impresa division reflects the company's strategy to focus on its
core integrated applications suite, which we believe will drive sustained
profitable growth for our shareholders. We would like to thank the management
and employees of the Impresa division for their dedication and anticipate
that Avexus will create promising new opportunities as they continue to
build their business and support their loyal customer base."
Market
Impact
Epicor's
free fall with a steep loss of market share continues. The company struggled
throughout 2000, with revenues declining 15% and with a huge net loss
of $40.7 million. Now, Epicor expects that once again revenue will fall
14% for the year, although with a dose of stifled optimism and slim profit
expectations for 2001. In addition to the economic slowdown reasons cited
by the company and to the non-cited fierce competition from Tier 1 vendors,
which have also affected most of its brethren, Epicor's situation has
been particularly exacerbated by protracted indigestion from the acquisition
of DataWorks Corporation, a mid-range manufacturing ERP supplier which
with a history of acquisitions of its own, had brought a diverse set of
products into the marriage.
Although
the acquisition has initially made Epicor one of the largest mid-market
ERP vendors, the burden of an unfocused, multi-product and multi-technology
(Microsoft, Progress Software, etc.) strategy in markets with diverse
dynamics has snowballed sales, R&D, and service & support costs, while
diminishing the likelihood these products could stand a chance of long-term
success in their respective niches. Epicor has finally admitted it has
undertaken too much at once.
The
challenge of Web-enabling and integrating its front-office suite to all
the diverse back-office suites that run on different platforms, and the
delivery of vertical solutions, is simply impossible under current circumstances.
Therefore, the divestiture of this non-core product line should both present
a financial shot in the arm and should sharpen the company's strategic
focus to provide a single point provider for some mid-market enterprises.
The similar tack has all but helped Ross Systems turn its business around
(see Is
Ross Systems Up To A Hat Trick? and Ross
Systems Closes Ranks For A (Possible) Turnaround ).
Look
for more divestiture attempts from Epicor (e.g., Avante and Vista
product lines) so that the company remains focused only on further developing
its Microsoft-centric flagship products comprised within its e by Epicor
product suite. This might help Epicor remain a prominent mid-market leader.
In addition to its focus and understanding of the mid-market, the company
has established a solid global infrastructure and product capabilities,
as well as a vertical focus for some industries. The current hardships
have reportedly not affected its service & support delivery or its customers'
satisfaction levels.
Although
Epicor offers an implementation guarantee regarding time duration and
fixed costs, it might not be good enough without improved financial viability.
The bigger and/or more viable competitors will heavily exploit that to
deter potential clients from partnering with Epicor. In any case, the
long awaited delivery of Epicor's main manufacturing and distribution
products as well as porting of all core products onto Microsoft SQL Server
database should significantly relieve the company's R&D burden and might
improve its general competitiveness.
User
Recommendations
While Epicor is just one of a plethora of mid-market vendors reporting
dwindling revenues, it is one of those that is hurting the most. 2001
will be very challenging for the company. Users are advised to follow
Epicor's new product introductions and keep a close eye on its future
performance. While Epicor's solid balance sheet should be further boosted
by the recent sale of its Impresa division, its cash resources are not
infinite.
The
positive sign is the company's more manageable and narrower focus though.
But, the "catch 22" for current and potential users is to discern Epicor's
corporate strategy viability within the product line/industry in question.
Users will benefit from approaching the company and informing themselves
about what the company plans for future service & support (or divestiture
and/or product stabilization?) of its individual products are and what
would the ramifications of migrating (or not) to its new product (or to
other vendors') offering be. Users should vigorously question Epicor on
its future options and investigate alternative solutions now to fully
understand their situation and options. Companies considering a new enterprise
solution should be wary of the Epicor's non-core offerings (e.g., Vista,
Avante, etc.), until the company more clearly states its future plans.
More
comprehensive recommendations for both current and potential Epicor users
can be found in Epicor
Software Corp.: Completing Painstaking "e"Volution.