Non-GAAP Financial Measures
This press release and the related conference call contain non-GAAP financial measures. In evaluating the Company's performance, management uses certain non-GAAP financial measures to supplement consolidated financial statements prepared under GAAP.
Non-GAAP Earnings Measure. The Company uses a non-GAAP earnings measure in its public statements. Management believes this non-GAAP measure helps indicate the Company's baseline performance before gains, losses or charges that are considered by management to be outside on-going operating results. Accordingly, management uses this non-GAAP measure to gain a better understanding of the Company's comparative operating performance from period- to-period and as a basis for planning and forecasting future periods. Management believes this non-GAAP measure, when read in conjunction with the Company's GAAP financials, provides useful information to investors by offering:
-- the ability to make more meaningful period-to-period comparisons of the
Company's on-going operating results;
-- the ability to better identify trends in the Company's underlying
business and perform related trend analysis;
-- a better understanding of how management plans and measures the
Company's underlying business; and
-- an easier way to compare the Company's most recent results of
operations against investor and analyst financial models.
The non-GAAP earnings measure for 2006 used by the Company is defined to exclude the following charges and benefits: amortization of intangible assets and stock based compensation expense, each net of tax. The non-GAAP earnings measure for the first six months of 2007 used by the Company is defined to exclude the following charges and benefits: amortization of intangible assets, stock based compensation expense, debt issuance fees write-off, restructuring charges, and a gain from the sale of a non-strategic asset, each net of tax. The non-GAAP earnings measure for the 2007 second quarter used by the Company is defined to exclude the following charges and benefits: amortization of intangible assets, stock based compensation expense, and debt issuance fees write-off, each net of tax. Management believes that the expense associated with the amortization of acquisition-related intangible assets is appropriate to be excluded because a significant portion of the purchase price for acquisitions may be allocated to intangible assets that have short lives and exclusion of the amortization expense allows comparisons of operating results that are consistent over time for both the Company's newly acquired and long- held businesses. Management also believes that the exclusion of stock-based compensation allows for more accurate comparisons of our operating results to our peer companies because of varying available valuation methodologies, subjective assumptions and the variety of award types which effect the calculations of stock based compensation. Management believes that it is appropriate to exclude the gain related to the sale of the Company's Russia- based payroll bureau, because this additional income as a result of the asset sale is not related to the Company's ongoing business operations. Finally, management believes it is appropriate to exclude the write-off of capitalized debt issuance costs that resulted from the Company's pay-off of an outstanding term loan with proceeds from the convertible financing in May 2007 and the restructuring charges because these charges are not related to the Company's ongoing business operations and it allows for more accurate comparisons of our operating results to our peer companies.
General. These non-GAAP measures have limitations, however, because they do not include all items of income and expense that impact the Company's operations. Management compensates for these limitations by also considering the Company's GAAP results. The non-GAAP financial measures the Company uses are not prepared in accordance with, and should not be considered an alternative to, measurements required by GAAP, such as operating income, net income and income per share, and should not be considered measures of the Company's liquidity. The presentation of this additional information is not meant to be considered in isolation or as a substitute for the most directly comparable GAAP measures. In addition, these non-GAAP financial measures may not be comparable to similar measures reported by other companies.
EPICOR SOFTWARE CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands)
(Unaudited)
June 30, December 31,
2007 2006
ASSETS
Current assets:
Cash and cash equivalents $194,522 $70,178
Short-term investments 1,973 -
Accounts receivable, net 82,532 83,965
Deferred income taxes 17,733 17,909
Inventory, net 6,500 4,885
Prepaid expenses and other current assets 7,012 7,587
Total current assets 310,272 184,524
Property and equipment, net 12,770 12,251
Deferred income taxes 21,797 19,836
Intangible assets, net 54,910 56,209
Goodwill 173,694 163,360
Other assets 12,783 5,710
Total assets $586,226 $441,890
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $13,879 $14,298
Accrued expenses 43,168 50,919
Current portion of accrued restructuring
costs 914 795
Current portion of long-term debt 72 1,102
Current portion of deferred revenue 62,411 63,726
Total current liabilities 120,444 130,840
Long-term debt, less current portion 230,143 98,273
Long-term portion of accrued restructuring
costs 670 876
Long-term portion of deferred revenue 1,148 1,271
Long-term deferred income and other taxes 8,152 2,010
Total long-term liabilities 240,113 102,430
Stockholders' equity:
Common stock 60 59
Additional paid-in capital 360,010 350,605
Less: treasury stock at cost (13,634) (10,895)
Accumulated other comprehensive loss (164) (954)
Accumulated deficit (120,603) (130,195)
Total stockholders' equity 225,669 208,620
Total liabilities and stockholders' equity $586,226 $441,890
EPICOR SOFTWARE CORPORATION
PRELIMINARY CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
(Unaudited)
Three Months Six Months
Ended Ended
June 30, June 30,
2007 2006 2007 2006
Revenues:
License fees $25,103 $23,995 $47,135 $43,306
Consulting 34,100 27,270 66,823 52,228
Maintenance 39,700 37,533 78,753 73,702
Hardware and other 6,803 10,744 14,324 14,784
Total revenues 105,706 99,542 207,035 184,020
Cost of revenues 47,877 44,034 95,055 79,795
Amortization of intangible assets 4,304 4,249 8,486 8,494
Total cost of revenues 52,181 48,283 103,541 88,289
Gross profit 53,525 51,259 103,494 95,731
Operating expenses:
Sales and marketing 18,817 16,422 37,445 31,423
Software development 9,571 8,844 18,250 17,176
General and administrative 14,425 13,080 29,834 25,322
Restructuring charges - - 221 -
Total operating expenses 42,813 38,346 85,750 73,921
Income from operations 10,712 12,913 17,744 21,810
Gain on sale of a non-strategic
asset - - 1,579 -
Interest expense (2,725) (2,327) (4,852) (4,211)
Interest and other income, net 2,023 910 2,592 1,196
Income before income taxes 10,010 11,496 17,063 18,795
Provision for income taxes 3,719 4,411 6,339 7,148
Net income $6,291 $7,085 $10,724 $11,647
Net income per share:
Basic $0.11 $0.13 $0.19 $0.21
Diluted $0.11 $0.12 $0.19 $0.21
Weighted average common shares
outstanding:
Basic 57,039 55,763 56,854 55,683
Diluted 57,881 56,950 57,804 56,795
EPICOR SOFTWARE CORPORATION
PRELIMINARY NON-GAAP EARNINGS RECONCILIATION
(in thousands, except per share amounts)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Net income $6,291 $7,085 $10,724 $11,647
Add back, net of tax:
Amortization of intangible
assets 2,745 2,795 5,402 5,629
Stock-based compensation
expense 2,430 1,308 4,899 1,899
Debt issuance fees write off 529 - 529 -
Restructuring charges - - 139 -
Gain on sale of a non-strategic
asset - - (992) -
Non-GAAP earnings $11,995 $11,188 $20,701 $19,175
Non-GAAP earnings per diluted
share $0.21 $0.20 $0.36 $0.34
Weighted average common shares
outstanding:
Diluted 57,881 56,950 57,804 56,795
EPICOR SOFTWARE CORPORATION
PRELIMINARY NET INCOME TO ADJUSTED EBITDA RECONCILIATION
(dollars in thousands)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Total revenues $105,706 $99,542 $207,035 $184,020
Net income $6,291 $7,085 $10,724 $11,647
Income taxes 3,719 4,411 6,339 7,148
Interest expense 2,725 2,327 4,852 4,211
Amortization 4,367 4,535 8,595 9,083
Depreciation 1,482 1,365 2,996 2,776
Foreign exchange gain (186) (557) (157) (544)
Restructure charges - - 221 -
Gain on sale of a non-strategic
asset - - (1,579) -
Interest income (1,734) (384) (2,305) (640)
Other (103) 30 (131) (12)
Adjusted EBITDA $16,561 $18,812 $29,555 $33,669
Adjusted EBITDA percent of total
revenues 15.7% 18.9% 14.3% 18.3%
Web site: http://www.epicor.com//
