Tom Kelly, chief executive of Epicor Software Corp., has faced a trial by fire since coming on board earlier this year.
Kelly’s had to steer through a 60% drop in the business software maker’s stock in the past 12 months, fight off a hostile takeover bid and cut 300 jobs.
Kelly, ever the optimist, chocks all this up to an anomaly of a year.
“2008 has been a major year of transition,” he said. “These were all external conditions that as a company we needed to respond to. However, I’m incredibly enthused and optimistic about our products, technology, people and positioning. I have that same perspective today as I did a year ago.”
Amid distractions, Kelly said he’s been intensely focused on the launch of Epicor 9, the company’s latest version of software for retailers, manufacturers, hotels and other users.
“Epicor 9 is out later than we originally planned, but part of that was to ensure the quality of the product and the launch,” Kelly said.
Tempered Views
Analysts are tempered on their outlook for the software as corporations pare back technology spending.
Epicor makes what’s known as enterprise resource planning software, which helps midsize companies manage accounting, customer contacts, inventory, sales and other tasks.
Kelly expects the software to be even more valuable to companies in tough economic times.
“Companies will be much tougher on looking at the return on investment and the total cost of ownership,” he said. “But we think that plays into our hands in 2009.”
To gear up for the launch expected this month, Epicor has been training salespeople, preparing marketing materials and hitting the road to talk to analysts.
Key members of the marketing team recently did a “world tour” in Asia, Europe and the Middle East.
Epicor 9 comes in multiple languages and can be configured to run in multiple currencies, Kelly said. It also can operate on handheld devices,a feature called “Epicor Everywhere.”
Challenge
Wall Street’s not convinced Epicor 9 will be a panacea to the company’s woes.
“Kelly took the reins at a very difficult time and the challenge he faces now is negotiating in this economy and facing an enterprise resource planning market that is likely to be severely challenged,” said Steven Koenig, an analyst at KeyBanc Capital Markets Inc. in San Francisco. “We believe Epicor will be challenged in 2009 as buyers are likely to remain hesitant to commit.”
The new software package is likely to be a tough sell at a time when companies are taking a hard look at their technology budgets, according to Peter Goldmacher, an analyst at Cowen & Co. in San Francisco.
“I don’t think any single product release can trump the macroeconomic challenges we are facing,” Goldmacher said. “I don’t think Epicor 9 will contribute significantly to sales.”
On average, analysts expect $502 million in sales this year at Epicor and $39 million in profits.
The company had a recent market value of $230 million.
Takeover Bid
For the past two months, Epicor fought off a takeover bid by New York hedge fund Elliott Associates LP.
Elliott dropped its bid last month, after Kelly and Epicor’s board four times rejected its offers.
“We believed that the tender offer that was put forth by Elliot was so highly conditional it was to the point of being illusory,” Kelly said. “We thought the market conditions were incredibly volatile during this period of time.”
Elliott offered to buy Epicor for $7.50 a share, which valued the company at about $450 million.
With this year’s slump in Epicor shares, that was enough for some: About a quarter of Epicor’s stockholders sold roughly 14.4 million shares to Elliott before the hedge fund bowed out.
“I don’t think Epicor did anything wrong by not wasting time on” the offer, analyst Goldmacher said. “I thought Elliott pursued the whole opportunity very poorly. I think Epicor probably did the right thing by ignoring it.”
Higher Costs
The company has a lot riding on Epicor 9.
Kelly wouldn’t say how much Epicor has spent developing the software.
For the nine months through September, the company’s software development costs were up nearly 50% from a year earlier to $41 million.
Marketing costs were up 12% to $63 million with more spending yet to come with the launch of Epicor 9.
If sales don’t live up to expectations, Epicor’s profits could be squeezed.
For 2009, analysts on average expect a 2% yearly sales gain to $513 million. They expect profits to grow 9% to about $43 million.
Epicor’s Kelly said he thinks Epicor can outpace a contracting market.
“I’m not trying to be a Pollyanna,” he said. “We understand that we can’t change the macro world. But our charge is to outgrow the market. I believe we will take market share in 2009.”
