Zacks_Analysts' Blog : Epicor Software Disappoints - Analyst Blog

Epicor develops and markets enterprise application software solutions targeting mid-sized firms with annual revenue of $10 million to $1 billion.

The company shifted its focus to target retail players from traditional markets which resulted in client wins in the quarter. Gross margin (excluding amortization) of 56.2% was up from 53.2% recorded in the previous quarter and 49.7%, a year ago. This was because of a larger percentage of high-margin license and maintenance revenues in the revenue mix along with an improvement in consulting margin.

Epicor reported a loss of 11 cents per share on a GAAP basis, while non-GAAP EPS came in at $0.11 beating the consensus by two cents. The company’s cost-cutting activities led to a decline in operating expenses. Epicor reduced its workforce by 10% and also lowered its discretionary spending.

Going forward, Epicor expects revenues between $96 million and $100 million in Q3’09, compared with the consensus estimate of $105.8 million. Non-GAAP EPS is projected between $0.09 and $0.10, against consensus estimate of $0.12.

The downturn in the economy has affected IT spending which in turn has hit the top-line. The company competes with large, multinational ERP vendors such as Oracle (ORCL) and SAP (SAP). These firms have greater financial resources and are moving aggressively towards acquiring a market niche. Competition is also coming from mid-range ERP vendors, including Lawson Software (LWSN), JDA Software (JDAS), IFS and Microsoft Business Solutions.

Management is trying hard to maintain profitability in difficult times and has succeeded in doing that. We view the guidance as cautious, given the company’s exposure to a retail environment that has been under pressure due to recessionary fears. We maintain our HOLD on the stock.