Irvine-based Epicor Software Corp. has to rack up several more quarters of strong results to convince Wall Street it’s on the right track.
It’s been a year since longtime leader and Chief Executive George Klaus came back from retirement to head the maker of business software, which suffered through a trying 2008 and 2009.
Klaus inherited a battered Epicor that had been stung by a steep drop in corporate spending and weathered a protracted hostile takeover battle by an investor demanding change.
The company’s growth was pegged on the release of a new software suite, Epicor 9, which was slow to take off.
Epicor has been laying low for the past year or so as it has restructured and regrouped.
Lately it’s been showing signs of life with solid fourth-quarter results and some big-name customer announcements.
“Things have been improving day over day,” Klaus said. “We are encouraged by economic data points that may drive more (technology) spending by our prospective customers, as well as initial signs of a return to growth in many of the industries we address.”
Epicor makes what’s known as enterprise resource planning software, which helps midsize companies manage accounting, customer contacts, inventory, sales and other tasks.
Fourth-quarter results showed modest improvement—they came in down from a year earlier but beat Wall Street’s average expectations.
The company reported $112 million in sales, topping the $105 million analysts were expecting.
Excluding onetime charges, profits came in at $11 million, ahead of the $9 million forecast by Wall Street.
Epicor capped the results with a conservative outlook for the current quarter that was in line with expectations.
The company said it’s looking for first-quarter profits of $6 million to $7 million, in line with analysts’ expectations.
Sales are seen coming in at $98 million to $100 million, also in line with Wall Street estimates.
Epicor, which had a recent market value of nearly $500 million, saw its shares rise about 30% in the days before it released results, likely on investor anticipation of a strong quarter.
The stock’s gain has been more subtle since then, as some may have been disappointed Epicor didn’t offer a stronger forecast.
At this point in the economic recovery, investors seem to be betting on “beat and raise”—where companies top expectations for the recently ended quarter and guide higher for the current one.
“Epicor had a good quarter, but we are staying on the sidelines as one good quarter doesn’t make a trend,” said Joel Fishbein, an analyst at Lazard Capital Markets LLC in New York.
Fishbein has a “hold” rating on the stock.
Epicor has reason to play it safe. It’s missed its own or Wall Street’s expectations each quarter going back about a year.
“We had a history of at least four quarters in a row of missing our guidance,” Klaus said. “So we have started to set expectations that are conservative that we can meet or beat.”
Epicor needs to gain back Wall Street’s confidence, he said.
“One of the things that became critical was to start building credibility with Wall Street,” Klaus said. “So we are going to set a goal that we think we can make.”
Epicor 9
There were a few bright spots for Epicor in late 2009.
Epicor 9, which came out in late 2008, got off to a sluggish start but picked up steam in the second half of last year.
“One of the things that’s hard when you bring a new product out is that people want to see others using it—it feeds on itself,” Klaus said. “It took us a while to get it installed and to get businesses up and running.”
Some 111 of 150 customers Epicor landed in the fourth quarter bought Epicor 9, according to the company.
Eight of its 10 biggest new contracts were for Epicor 9, the company said.
“You have to focus on new customers if you are going to be a successful software company,” Klaus said. “Those buying follow-on software aren’t enough.”
About two-thirds of Epicor’s fourth-quarter revenue came from licenses for new software and renewals and maintenance service.
“We are feeling somewhat better about the business in general as Epicor 9 is starting to gain some traction,” analyst Fishbein said. “Commentary suggests the pipeline is improving.”
Klaus, who ran Epicor for more than a dozen years, returned to the top spot a year ago.
Software veteran Tom Kelly ran the company for a little more than a year while Klaus took a stab at retirement.
Kelly fended off a hostile takeover bid by New York hedge fund Elliott Associates LP that dragged on for months.
After the ordeal, directors decided that Epicor needed an experienced hand to steer the company through what proved to be more difficult months ahead as the economy went into a freefall.
Klaus said he’s confident heading into this year.
“People are positive, they want to grow and they are hopeful that 2010 will be a better year,” he said. “I would expect for us to have a very good year, barring some economic disaster.”
