After a shaky first quarter, mid-size ERP supplier Epicor righted its ship and reported glowing results for the second quarter of 2006, which closed on June 30. Revenue for the period set a record at $99.5 million, up 40% from the $71 million in the second quarter of 2005.
"I remain very bullish about Epicor's outlook for 2006 and beyond," said George Klaus, Epicor's chairman and CEO, in a prophetic announcement at the close of the first quarter.
The second-quarter performance gives weight to the company's claim that the first quarter's poor results were anomalous, and that the outlook for Epicor in 2006 remains strong. According to the company's appraisal at the time of their release, first quarter results were hindered by an internal audit that prompted Epicor to change the way it negotiates and contracts with customers. Consequently, the sales force underwent training to conform to the new policies, a distraction Klaus believes drove down sales performance.
With that distraction out of the way, Epicor posted a record quarter of sales. The company's revenue rise has much to do with its December 2005 acquisition of CRS Retail Systems Inc. In quarter one, CRS contributed $15 million to Epicor's top line. In the second quarter, CRS bested expectations by delivering $22 million in revenue.
However, the strong top-line growth belied Epicor's bottom-line performance, which fell year over year. Non-GAAP earnings of $11.2 million were down 14% from $12.9 million in the second quarter of 2005. Likewise, non-GAAP earnings per share were 20 cents, down from 23 cents in the same period last year.
Excluding the effect of CRS, Epicor posted organic revenue growth in quarter two of 9.1%. More specifically, organic software license revenue jumped 12.6% year over year, driven primarily by Vantage 8, an ERP package built for mid-size make-to-order (MTO) and mixed-mode manufacturers. On a conference call to announce the second-quarter results, Klaus predicted 10% to 12% organic software revenue growth for the year.
Epicor's consulting revenue also showed strong growth. Total consulting revenue, including CRS's contribution, soared more than 48%, from $18.4 million in the second quarter of 2005 to $27.3 million in the second quarter of 2006. Disregarding CRS's effect, consulting revenue grew 18.2% to $21.7 million.
The overall strong performance, Klaus said, was "the result of management team's focus on the basic elements of our business ..." He also asserted that "demand for our product remains robust." Specifically, Klaus said that the company would focus more on the Asia Pacific region for selling opportunities. "Asia Pacific represents an excellent organic growth opportunity for Epicor," he said, especially in retail and manufacturing segments.
In the second quarter, Klaus said, Epicor landed 179 new customers and retained 130. That yielded a customer retention rate of 94%, which Klaus said compared favorably to an industry average of 85%.
The strong demand cited by Klaus and other company officials inspired an upward revision in Epicor's guidance for 2006. Full-year guidance after the close of the first quarter came in at $372 million to $377 million. The new expectations are for total revenue of $378 million to $383 million.
Asked by an analyst to explain Epicor's momentum in the ERP space, Klaus said, "In the space we're in, the mid-market, we still see that growing twice as fast as the tier-one market."