Event
Summary
On June 1, Epicor Software Corporation (NASDAQ: EPIC),
one of leading providers of integrated enterprise and eBusiness software
solutions for the mid-market, announced the close of the sale of its Platinum
for Windows (PFW) product line to Sage Software.
The closing follows Epicor's May 21st announcement that it had signed
a definitive agreement with Sage for the sale of the PFW division. The
company will receive cash proceeds of $7 million at closing, which is
expected to occur no later than June 15, 2001. Epicor hopes the divestiture
of this non-strategic product line will allow it to reinforce its focus
on its core competencies providing end-to-end enterprise and eBusiness
solutions for the mid-market.
"The
sale of our PFW product line is consistent with Epicor's expanding focus
on collaborative commerce and integrated eBusiness solutions for the midmarket,
and our new technology initiatives based on Microsoft's .NET platform,"
stated George Klaus, CEO and Chairman of Epicor. "Platinum for Windows
is a PC-based financial application for small enterprise businesses. Although
the product has contributed to past success of the company, it no longer
fits with the strategic vision of Epicor going forward. Sage Software,
as a software product supplier that specializes in financial software
for small to medium sized businesses will provide an increased level of
strategic focus on this business for the benefit of all parties. The divestiture,
which helps to strengthen our financial flexibility, will require us to
adjust our previously stated revenue guidance downward by approximately
$2 million per quarter. We still expect to achieve profitability in the
fourth quarter of 2001, as previously indicated."
On
May 2, Epicor, 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 on May 2 that it 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. The company again pledged 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 and PFW divisions, 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 more than 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. "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."
Note:
This New Analysis is an expansion and revision of "Epicor To Try The Divestiture
Tack, Too" published on this site on June 1.
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
over 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
diverse back-office suites that run on different platforms, and delivery
of vertical solutions, is simply impossible under current circumstances.
Therefore, the divestiture of these non-core product lines should present
a financial shot in the arm and should sharpen the company's strategic
focus to provide 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), while the time
will only tell how Geac's divestiture tack will fare (see Geac
Decomposes To Survive). On the other hand, yet another Sage's product
acquisition, as a counteractive measure to Microsoft Great Plains leadership
in the segment, proves the theory of further mid-market consolidation
(see The
Mid-Market Is Consolidating, Lo And Behold).
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, notwithstanding.
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'e 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.
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 offering (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.