A year ago, Irvine-based Epicor Software Corp. placed a $121 million bet.
In late 2005, the business software maker acquired CRS Retail Systems Inc., a Newburgh, N.Y.-based maker of software for retailers. The deal was Epicor’s largest so far. At the time, the purchase price represented 40% of Epicor’s yearly sales and 15% of its market value.
It also marked a switch for Epicor, which sells accounting and other business software to midsize companies.
CRS’ forte: software to run cash registers at stores, a different world than that of the manufacturers, warehouses, hotels and professional services firms Epicor once only catered to.
Some on Wall Street balked, warning about integration woes and fretting about Epicor’s use of cash and credit to finance the buy.
Epicor stuck to its guns, promising diversification and revenue gains.
A year into things, the buy seems to be paying off. In fourth-quarter results posted last week, Epicor’s sales were up 27% to $104 million, the first time the company surpassed the $100 million in quarterly sales mark.
CRS accounted for about $14 million in the quarter. Its sales were up 20% for the year, according to Chief Executive George Klaus.
The unit “exceeded our annual expectations on every metric,” Klaus said during a conference call last week.
Epicor added about 750 customers with CRS, according to the company.
The acquisition is bringing growth, said Mark Schappel, vice president of equity research for New York-based Hapoalim Securities. He said he estimates CRS is growing sales at a 40% clip.
“One of the reasons is that CRS is a very small company,” Schappel said. “When Epicor bought them, they really gave them a balance sheet and an infrastructure. So when they go out to customers, they look at them as part of a much larger organization.”
Schappel was among the skeptics.
“I actually downgraded the stock at the time,” he said. “One reason is that manufacturer-oriented application providers had a very difficult time historically moving into retail.”
He also worried about Epicor’s balance sheet. The company used some of its $50 million in cash at the time and a portion of a $125 million credit line to buy CRS.
His concerns have come to pass: “Oh, absolutely, as the numbers show,” Schappel said.
Epicor has built up its cash, which was $70 million as of Dec. 31.
The company also cleaned up an accounting issue in the past year. Early in 2006, the company’s sales force was slowed by an internal audit of how revenue was recorded, which since has been resolved.
“We had a slow start in Q1 of 2006 due to a number of distractions,” Klaus said. “Clearly we were able to put those distractions behind us and focus on selling software.”
For the year, Epicor had sales of $384 million, up 33% from 2005. Net income fell by half to $24 million on charges from underestimated consulting commissions, spokesman Damon Wright said.
“It’s not a bad problem to have,” he said.
Epicor has been on a hiring binge, adding sales, marketing and consulting positions. That’s set to continue in the current quarter, then trail off through the rest of the year, according to Klaus.
“We are clearly experiencing a growth-oriented business here,” he said. “Our pipelines are stronger than ever.”
Epicor is hiring at CRS and companywide, Wright said, declining to give numbers.
“As a percentage basis, we’re adding more to CRS,” he said.
