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Article by DailyStocks_admin    (08-26-08 07:46 AM)

Filed with the SEC from Aug 14 to Aug 20:

Epicor Software (EPIC)
Elliott Associates and its affiliates have asked the company whether it has considered exploring strategic alternatives. The Elliott group may meet with Epicor's management, board and other shareholders and to formulate plans or proposals regarding the company. The group beneficially owns about 5.98 million shares (9.9%).

BUSINESS OVERVIEW

Introduction

Epicor Software Corporation (Epicor or the Company) designs, develops, markets and supports enterprise application software solutions and services primarily for use by mid-sized companies and the divisions and subsidiaries of Global 1000 enterprises, which generally consist of companies with annual revenues between $10 million and $1 billion, and emerging enterprises, which generally consist of rapidly growing businesses with annual revenues under $25 million. Epicor’s solutions are designed to help companies focus on their customers, suppliers, partners and employees through enterprise-wide management of resources and information. This collaborative focus distinguishes the Company from conventional enterprise resource planning (ERP) vendors, whose primary focus is improving internal business processes and efficiencies. The Company believes that by automating and integrating information and critical business processes across their entire value chain, enterprises can improve not just their bottom line, but also their top line, allowing them to compete more effectively in today’s increasingly global economy.

The Company’s products include back office applications for production management, supply chain management (SCM), retail management and financial accounting, as well as front office customer relationship management (CRM) and service management. Epicor also provides industry-specific solutions to the manufacturing, distribution, services and retail and hospitality industry sectors, as well as to a range of industries and vertical markets within these sectors including financial services, professional services, industrial machinery, consumer goods, automotive, hotels and specialty retail. Epicor’s solutions also focus on the need for increased supply chain visibility and transparency and offer e-commerce and collaborative portal capabilities that allow companies to further extend beyond the traditional “four walls” of their enterprise and further integrate their operations with those of their customers, suppliers and partners.

The Company’s products are increasingly developed on and use a service-oriented architecture (SOA), which can help manufacturers, distributors, retailers and services organizations more quickly and efficiently respond to changing business requirements and practices. SOA is a modular, standards-based approach to software development and its deployment is designed to provide a more agile and adaptable application foundation, which can help companies more effectively align their IT resources and enterprise software with their overall business objectives.

The Company offers solutions targeted to the following industries:

Manufacturing —Epicor’s manufacturing solutions provide integrated ERP solutions for discrete and mixed-mode manufacturers. The Company’s solutions are designed to meet the challenges of today’s agile manufacturing environment typified by short product lifecycles, continual process improvement, mass customization and lean manufacturing initiatives. The Company’s products have been designed for specific types of manufacturers – from a small local job shop to a large regional manufacturer. The key industries on which Epicor focuses its manufacturing solutions include metal fabrication, industrial machinery, automotive, electronics, consumer goods and aerospace.

Distribution —Epicor’s distribution solutions are designed to meet the expanding requirement to support a demand-driven supply network (DDSN) by increasing focus on the customer and providing a more seamless order to shipment cycle, as well as inventory and warehouse management, sales and order processing (S&OP), financials, CRM and planning and forecasting solutions. The Company’s distribution solution is designed to automate a business, from customer acquisition and order management to warehouse fulfillment, accounting and customer service. The distribution suite offers an end-to-end solution set tailored for wholesale distributors including third-party logistics providers.

Retail and Hospitality —Epicor provides solutions tailored for the retail, hospitality and entertainment industries. The Company’s retail solutions can support both smaller, single PC-based point-of-sale (POS) retail outlet scenarios, as well as larger scale, distributed POS environments in specialty, general merchandise retailing and large specialty store chains that require more comprehensive POS, loyalty management and merchandising capabilities. Epicor provides both “best-of-breed” retail solutions for large Tier-One retailers, as well as complete “post-to-host” solutions which can integrate all elements of the retail supply chain from the store register through to the enterprise merchandising, planning, selling and financial applications. The Company’s hospitality solutions, designed for food service, hotel, sports and recreation and other entertainment companies, can manage and streamline virtually every aspect of a hospitality organization — from point-of-sale or property management system integration, to cash and sales management, food costing, core financials and business intelligence — all within a single solution.

Services —Epicor’s solutions for services companies is focused on delivering a complete, end-to-end enterprise solution designed to meet the critical business requirements of mid-sized to larger distributed service organizations, providing service organizations with the tools to improve staff utilization, maximize billing and revenue recognition, optimize resources and increase cash flow. The services suite includes opportunity and bid management, CRM, resource and engagement management, project accounting, portfolio and performance management and collaborative commerce applications tailored for specific industries including financial services, audit and accountancy, architectural, engineering and construction, commercial research, not-for-profit organizations, software and computer services, professional services and management consulting.

Beyond the targeted enterprise-wide solutions described above, Epicor also offers the following point solutions:

Supply Chain Management (SCM) —Epicor’s supply chain management solutions enable companies to extend and optimize their enterprises and more effectively collaborate with their customers, suppliers and partners. From business-to-business e-commerce applications to advanced planning and scheduling to advanced warehouse management, forecasting and fulfillment, Epicor offers solutions that can improve operational performance, while strengthening relationships across the supply chain to increase customer value.

Supplier Relationship Management (SRM) —Epicor’s supplier relationship management solutions include applications for strategic sourcing, procurement and spending analytics. These solutions are designed to enable an organization to reduce costs by driving inefficiencies out of the procurement process. They provide a complete web-based, buy-side commerce solution that can rapidly be deployed standalone or as part of an integrated enterprise solution.

Customer Relationship Management (CRM) —Epicor’s award-winning customer relationship management solution is designed to enable small and midsize enterprises to manage their entire customer lifecycle. Epicor’s collaborative CRM solution enables businesses to gather, organize, track and share prospect, customer, competitor and product information, to boost revenues and increase customer satisfaction.

Accounting and Finance —Epicor’s award-winning financial and accounting solutions provide a foundation for good fiscal governance and accurate financial performance through a combination of core ledger, cash and asset management, deferred revenue accounting and contract renewal and electronic payment facilities.

IT Service Management (ITSM) —Epicor ITSM provides a robust set of service management features that support key IT processes as outlined by the Information Technology Infrastructure Library (ITIL) version 2 (ITIL v2) and version 3 (ITIL v3) and has been certified by Pink Elephant as ITIL Compatible in five key service management areas: incident management, problem management, change management, configuration management and service level management.

The Company’s software products incorporate a significant number of features localized to address international market opportunities, including support for multiple languages, multiple currencies and accounting for global taxation methods.

The Company offers consulting, training and support services to supplement the use of its software products by its customers. Midmarket companies require cost effective systems that have broad functionality, yet are rapidly implemented, easily adapted and highly configurable to their unique business requirements.

The Company was incorporated in Delaware in November 1987, under the name Platinum Holdings Corporation. In September 1992, the Company changed its name to Platinum Software Corporation. In April 1999, the Company changed its name to Epicor Software Corporation. The Company has thirteen active operating subsidiaries worldwide.

As part of its business strategy, the Company has pursued acquisitions to expand its customer base, global product offering and geographic footprint. The acquisition of NSB Retail Systems PLC (NSB) (announced in December 2007 and completed in February 2008), CRS Retail Technology Group, Inc. (CRS) in 2005, Scala Business Solutions N.V. (Scala) in 2004 and ROI Systems, Inc. (ROI) in 2003 are typical of this ongoing strategy.

NSB

On December 17, 2007, the Company announced that the Epicor and NSB Boards of Directors reached agreement on the terms of the recommended acquisition of NSB by Epicor pursuant to a scheme of arrangement under section 425 of the United Kingdom Companies Act 1985. On February 7, 2008, Epicor completed the acquisition of NSB and shareholders of NSB received £0.38 in cash per NSB ordinary share. The terms of the transaction valued the fully diluted share capital of NSB at approximately £160 million (approximately $322 million USD, based on the US$:£ exchange rate on December 14, 2007). As of June 30, 2007, NSB had cash and equivalents balance of $34.6 million and no debt. NSB Group designs, develops, markets and supports store and merchandising solutions to leading retailers of apparel, footwear, and specialty merchandise. The acquisition of NSB provides an expanded portfolio of products and services for large specialty retailers and department stores, as well as a fully hosted, managed service offering designed for smaller and mid-sized retailers who are interested in rapid implementation via an on-demand versus on-premise offering. NSB products are developed on the Microsoft .NET platform and are highly complementary to the Company’s retail products.

CRS

In December 2005, pursuant to a stock purchase agreement, the Company acquired CRS, a privately held company. CRS designs, develops, markets and supports software, hardware and services that assist general merchandise and specialty retail companies in increasing sales, improving customer service and reducing operating costs. CRS applications leverage Microsoft ® and Java technologies and have over 50,000 in-store systems installed in 32 countries and 10 languages. The CRS acquisition provides existing customers new, complementary product offerings and creates expanded opportunities in the hospitality and retail vertical, particularly in key international markets through increased marketing, improved sales execution, enhanced viability and worldwide sales and support infrastructure. The Company recorded the acquisition of CRS as a purchase in 2005, and the results of CRS’s operations are included in the Company’s Consolidated Statements of Operations from the date of acquisition.

Scala

In June 2004, Epicor acquired Scala, a publicly held software company headquartered in Amsterdam, the Netherlands, by means of an exchange offer made for all of the outstanding ordinary shares of Scala. Scala designs, develops, markets and supports collaborative ERP software ( iScala ) that is used by the small- and medium-size divisions and subsidiaries of large multinational corporations, as well as by independent stand-alone companies in developed and emerging markets. Scala’s solutions are based on a Web services platform and utilize Microsoft ® technologies. Scala’s software and services support local currencies and accounting regulations, are available in more than 30 languages and are used by customers in over 140 countries. In addition to complementary product offerings, the Scala acquisition provided the Company with a significantly expanded worldwide presence. The Company recorded the acquisition of Scala as a purchase in 2004, and the results of Scala’s operations are included in the Company’s Consolidated Statements of Operations from the date of acquisition.

Background

Epicor designs its products and services primarily for midmarket companies and the divisions and subsidiaries of Global 1000 enterprises, which generally consist of companies with annual revenues between $10 million and $1 billion, and emerging enterprises, which generally consist of rapidly growing businesses with annual revenues under $25 million. In the past, midmarket companies were underserved by smaller “best-of-breed” applications or traditional financial and ERP systems that had originally been designed for larger corporations. These large enterprise systems, though highly functional, were also extremely complex and expensive to purchase, install, integrate and maintain. Further, the complexity of the infrastructure and ongoing maintenance to support these systems often required a centralized deployment model. This limited access to critical data to the organization's information technology (IT) department, which then limited timely availability of information to decision makers, managers and key employees. Moreover, these mostly proprietary systems provided little flexibility or adaptability to the constantly evolving requirements of midmarket companies.

Beginning in the early 1990s, as Global 1000 companies aggressively invested in information technology to help them streamline and integrate disparate business processes, they created a tremendous demand in their operating subsidiaries and the small to mid-size enterprise (SME) market for enterprise-wide software applications that integrated business processes and information. Initially, only larger organizations had the technological expertise, budget and ability to support the lengthy implementations typified by the early solutions.

While SMEs understood the business value of enterprise applications, they lacked the extensive resources required to implement and support such first-generation solutions. In their quest to boost productivity and profits as well as to gain a competitive advantage, mid-sized companies have increasingly turned to integrated application software to automate and link their business processes. The Company believes that due to the midmarket's unique business constraints of limited budgets and rapid implementation timeframes, “best-of-breed” solutions and after-market application integrations are far too complex and costly to offer an effective enterprise solution.

As a group, mid-sized companies face tremendous global competitive pressures as they compete for business against larger corporations, other mid-sized competitors and smaller start-ups. They generally understand the need to remain close to their customers and suppliers, while making the most effective use of relatively limited resources. Mid-sized companies frequently demand a quick return on technology investments and require that solutions be affordable – not only to acquire and implement, but also to maintain and support – throughout their entire operational life span.

Epicor’s experience has been that mid-sized companies are practical consumers with respect to technology, typically selecting affordable, proven solutions. The dramatic decrease in information technology costs over the past decade, coupled with a simultaneous increase in computing power, has made key new technologies accessible to this cost-conscious market. Microsoft Corporation took advantage of increased computing capabilities to develop Microsoft BackOffice ® (now the Microsoft Windows Server family), a robust network operating system and scalable relational database that provides smaller businesses with a sophisticated technology infrastructure previously accessible only to Global 1000 corporations. Microsoft has quickly become the fastest growing technology platform and is particularly attracting midmarket companies with its features, familiarity and ease-of-use.

The recent development of more cost-effective, adaptable and agile infrastructures, such as the emergence of SOA and technologies like Microsoft .NET and Web services, is also driving mid-sized companies to increase their investment in enterprise applications. Unlike monolithic, tightly-coupled systems of the past, SOA and Web services provide the ability to create highly functional applications through the assembly or collection of loosely-coupled, self-describing business services. This standards-based design approach provides a secure, scalable, unified design framework that allows both developers and information workers to more easily access, combine and reuse software application functionality. With an SOA, businesses have the ability to more easily and efficiently align their information systems and technology resources, allowing them the ability to respond more quickly to continually changing business requirements.

Epicor’s early adoption of Microsoft .NET and Web services technology allows its product offerings, development and services to leverage the benefits of SOA and provide growing mid-sized businesses with increased flexibility, inter-operability and cross-platform capability. These capabilities are extremely important as the market for Enterprise Applications continues to grow worldwide.

Industry Analyst Market Growth Projections

According to the press release “AMR Research Releases Enterprise Applications Market Sizing Reports,” dated July 11, 2007, “ERP vendor revenue across all segments is expected to grow from $28.8B in 2006 to $47.7B by 2011.” In addition, “The Midsize Enterprise ERP Spending Report, 2007-2008,” published December 10, 2007 by AMR Research states that “midsize enterprises will increase ERP budgets by 5.1% in 2008… by 2010, 43% of companies would like to employ a single, global financial and shared services ERP system.”

Industry Segments and Geographic Information

Epicor’s reportable operating segments include license fees, consulting, maintenance and other. For the purposes of Statement of Financial Accounting Standards No. 131, “Disclosures about Segments of an Enterprise and Related Information,” a breakout of the Company’s sales by segment is provided in Note 13 of the “Notes to Consolidated Financial Statements” under Item 8, “Financial Statements and Supplementary Data.” A summary of the Company’s sales by geographic region is incorporated herein by reference to Note 13 of the “Notes to Consolidated Financial Statements” under Item 8, “Financial Statements and Supplementary Data.”

Technology Strategy

The Company's technology strategy is to develop leading enterprise software applications using industry-standard tools where possible, and to take advantage of leading third-party, industry-standard technologies for database management systems, operating systems, user interfaces, infrastructure and connectivity (including internet, intranet and extranet access). As the Company continues to deliver enterprise application solutions, it is increasingly focused on leveraging new technology platforms and standards, like Web services, which support the integration of computing and communication paradigms as one across multiple devices. For businesses to compete in today’s increasingly real-time world, they need to adopt an infrastructure that can integrate the internet, wireless, mobile, voice response and personal digital assistants (PDA) to support business “anytime, anywhere.” Computing platforms, like Microsoft .NET, allow Epicor enterprise solutions to adopt SOA, and support commerce in a distributed computing world.

The Company will continue to focus on leveraging emerging and industry-standard technologies to provide rapid return on investment and lower overall total cost of ownership for the Company’s customers. Today, the Company's core product architecture incorporates the following:

Architecture

The Company’s product architecture is designed to help its customers and partners economically deploy, tailor and integrate highly functional industry applications to suit their specific business processes and requirements. A key focus of the architecture strategy is the development and enhancement of client frameworks that allows both companies and individuals to optimize labor-intensive data management tasks. The Company also continues to enhance its SOA strategy across its product lines, which enables enterprises to incorporate new and existing software applications more seamlessly, better leverage their existing IT assets and implement new industry processes and best practices more fully. The Company also invests in software tools, architectures and frameworks focused on consistent, high quality code and developer productivity across its world-wide development organization.

Service-Oriented Architecture (SOA)

The Company has built its SOA around three pillars: application programming interface (API), orchestration and business process management (BPM). APIs are essentially the building blocks of the system, as they are the conventions, protocols and semantics that define how a software service, function, process or application is invoked or accessed. APIs provide consistency and flexibility by ensuring that all programs using a common API will have similar interfaces. The Company’s API’s are highly granular in nature and comply with Web services standards to promote inter-operability and ease of integration. The Company believes providing both wide functionality coverage and open standards in its API is a significant benefit to customers. Orchestration is the process of coordinating work between systems inside and outside the enterprise and is central to electronic commerce and other distributed computing scenarios. The Company’s orchestration product is Epicor Service Connect for its Enterprise, Epicor for Service Enterprises, iScala, Clientele, Vantage and Vista products. Business process management (BPM) capabilities, which allow enterprises to redirect application logic without customizing the application code, have a dual purpose. The first is to define relevant business events and establish notifications to users, other applications and (importantly) workflow management systems. The second is to define business constraints that either warn or inhibit applications from processing transactions under specific conditions. The Company’s Epicor for Service Enterprises, iScala, Clientele, Vantage and Vista include BPM solutions.

Products

The Company designs, develops, markets and supports enterprise software applications that provide mid-sized organizations and divisions of Global 1000 companies with industry specific, highly functional, technically advanced business solutions. The Company’s products are aligned according to the markets that they serve – Distribution and Services ( Enterprise ), Industrial ( iScala ), Manufacturing and Supply Chain ( Vantage, Vista, Avanté and Manage 2000 ), Retail ( CRS and NSB ) and Customer Relationship Management and ITSM ( Clientele ).

Distribution and Services - Epicor Enterprise

Epicor Enterprise (incorporates products formerly named e by Epicor, Platinum ERA and Clientele ) , an integrated, customer-centric suite of client/server and Web-based ERP software applications, is designed to meet the unique business needs of midsized companies worldwide (including divisions and subsidiaries of larger corporations). Epicor Enterprise is typically targeted to either distribution or service-based businesses with revenues between $25 million and $1 billion annually. These organizations require the functional depth and sophistication of traditional high-end enterprise business applications, but desire a rapid and cost-effective product implementation.

Epicor Enterprise is optimized for use with the Microsoft Windows operating system and the Microsoft SQL Server relational database. Epicor Enterprise leverages XML Web services to enable more robust integration with other applications within and external to the enterprise. In addition to the availability of XML Web services, Epicor Enterprise supports various industry standard technologies, including Microsoft Message Queue Services (MSMQ), Transaction Services and COM+ architecture, which along with XML documents, improves componentization and support reliable message-based integration between applications and distributed servers. Microsoft Visual Basic for Applications (VBA) is also included to enhance client customization and to facilitate integration with third-party applications. In addition, the Financials Suite and SCM Suite utilizes a 32-bit client that has been optimized for the Microsoft SQL Server database (running in either 32-bit or native 64-bit mode) in order to leverage the capabilities of the client/server model of computing. This implementation results in a substantial reduction in network traffic as compared to other client/server approaches and provides scalable high performance. Project Suite was developed in the Company’s Internet Component Environment (ICE) , a SOA built with Microsoft .NET and Web service technology. ICE is also available to customers to create customizations and extensions using ubiquitous tools like Visual Studio .NET.

Epicor Enterprise includes the following application suites: CRM Suite , Financials Suite , Supply Chain Management Suite, Portal Suite , Business Intelligence Suite, Project Suite , Payroll/Human Resources and industry-specific solutions delivered for a variety of markets .


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CRM Suite (Sales Force Automation, Marketing Automation, Customer Service and Support, IT Service Management) provides integrated CRM capabilities that are tightly integrated with the Financials Suite and SCM Suite. This integrated approach to CRM enables companies to have a 360-degree view of their customer relationships. The CRM Suite is the integrated version of the Company’s Clientele product suite and includes Sales and Marketing, Case Management, Customer Service and Support and Self-Service, empowering organizations to focus on the right opportunities while providing access to timely information. Sales and Marketing provides contact, lead, opportunity and account management in one package. Support manages the support requirements of an organization’s external customers and provides call management, product tracking, RMA tracking, call queuing/follow-up and problem resolution.


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Financials Suite (General Ledger and Financial Reporting, Accounts Receivable, Credit and Collections, Lockbox, Accounts Payable, Electronic Funds Transfer, Cash Management, Automated AP Matching, Sales Tax Management and Asset Management) comprises an integrated accounting solution that enables a company to automate the financial aspects of their business. Presently the following back office financial applications are generally available in version 7.3.6: System Manager, General Ledger, Average Daily Balances, Accounts Receivable, Accounts Payable, Cash Management, Multi-Currency Manager, Asset Management, Import Manager, Credit and Collections, Lockbox, Electronic Funds Transfer (EFT), Advanced Allocations, Automated AP Matching, Sales Tax Management and Customization Workbench.


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SCM Suite (Distribution, Procurement, Sourcing, Storefront, Warehouse Management, Assembly) is a comprehensive solution designed to improve the efficiency and responsiveness of a company’s operations. It enables companies to effectively manage their distribution operations, including purchasing, quality control, inventory, logistics and the order management cycle. The customer-centric focus of Epicor Enterprise enables companies to respond quickly to customer demands and improve customer service. The integration of Financials Suite and SCM Suite with the rest of the Epicor Enterprise products helps to ensure that a company’s entire enterprise is synchronized — from the customer to the warehouse to the supplier. Presently the following distribution applications are generally available in version 7.3.6: Sales Order Processing, Inventory Management, Purchasing, Distribution, Assembly, Royalties, Promotions and Rebates.


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Supply Chain Execution ( Warehouse Management System and Data Collection Suite), extends the distribution functionality for the SCM Suite to supply chain execution processes. These applications are tightly integrated with SCM Suite so that information is available in real-time. Data Collection Suite (DCS) provide s wireless shop floor data collection, radio frequency identification (RFID) and the use of bar code technology to track inventory from the time it enters a facility until it is shipped to a customer, as well as additional warehouse management capabilities. Warehouse Management System (WMS) enables a company to streamline order fulfillment, closely track inventory, manage third-party logistics (3PL) and prioritize resources on the shop floor.


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SCM Suite also includes the Supplier Relationship Management (SRM) Suite which consists of Sourcing, Procurement and Spend Analysis . Sourcing provides a comprehensive solution for strategic control of sourcing, purchasing and selling activities from complex auctioning and dynamic pricing to optimizing trading partners, terms, goods and services. Sourcing provides a highly configurable framework with the

flexibility to rapidly deploy collaborative RFP/RFI/RFQ (RFx) and comprehensive forward and reverse auction capabilities. Sourcing is designed to streamline manual processes to rapidly locate, source and transact with qualified suppliers and eliminate the inefficiencies in the RFx process for direct, indirect and spot purchasing. Procurement enables the streamlined integration of the entire procurement process. It provides employee-direct requisitioning and purchasing, catalog management, supplier management and policy enforcement. This integrated e-commerce application enables organizations to gain and improve control of operational resources by leveraging the Internet to connect large populations of frontline employees, management and suppliers. Procurement provides a complete planning, execution and analysis system, designed to reduce costs, increase agility, and perform predictably. Procurement facilitates a trading network, allowing buyers and suppliers to maintain control over their trading relationships and provides a virtual bridge between buyers and suppliers. Procurement also includes an integrated budget and commitment tracking feature that gives requisitioners and approvers a comprehensive view of their commitments inside and outside of procurement relative to approved budgets.


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Storefront enables Epicor’s customers to sell products and services over the Web, providing consumers and trading partners a convenient 24/7 order entry mechanism for making purchases. By supporting both B2B and B2C activity, Storefront is a versatile engine that can handle many requirements of a company. Through Storefront , companies can rapidly and cost-effectively introduce new products, enter new markets or simply provide electronic access to a catalog of standard products, which can free up salespeople to focus on more complex transactions. The business data entered over the Internet is captured and used by the other Epicor applications.


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Project Suite , a component of the Epicor for Service Enterprises industry solution, offers comprehensive project and portfolio management and delivery management capabilities to support the planning and execution of service engagements. Engagements can be structured through user-definable work breakdown structures, and an organization-wide resource service can be called upon as needed to match the right personnel to the right task at the right time—anywhere across the enterprise. Project Suite leverages XML technologies to support bidirectional integration to Microsoft Enterprise Project Management as part of an end-to-end project management solution. Project Suite includes Resource Management, Engagement Management, Project Accounting, Contract Management and Performance Management.


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Portal Suite is a Web-based enterprise information portal (EIP) offering a self-service solution designed to help customers, suppliers and employees access relevant information from both within the enterprise (such as account information and support activities) and from external sources (industry information, news feeds, weather, etc). Portal Suite consists of a Portal framework based on Microsoft SharePoint products and technologies, which is enriched by role-based access and content-specific information packs (e.g. customer content, supplier content and employee content). Portal Suite provides a gateway to the information users require to carry out their jobs more effectively, while assisting them with decision support. Portal Suite makes use of the popular SharePoint personalization paradigm to allow each user’s experience to be tailored and filtered to their specific function or role to minimize “information overload.”


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Epicor Enterprise also includes several tools that help customers maintain, audit and extend their Epicor system, while reducing total cost of ownership. These tools are Service Connect , DBAudit, Customization Workbench, Import Manager and Epicor Integration Hub. Epicor Service Connect enables collaboration between applications, suppliers and customers. DBAudit provides the ability to detect database changes and report on who made the addition, modification and/or deletion and when. Customization Workbench provides a toolset for creating custom forms, database objects and logic to meet specialized customer requirements. Import Manager and Epicor Integration Hub provide the ability to exchange data between Epicor Enterprise and other systems via SQL and XML while adhering to the data validation and business rules defined in Epicor Enterprise .


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Business Intelligence Suite is an integrated decision support suite offering a complete set of tools that allows a company to strategically analyze the data available throughout Epicor Enterprise . Business Intelligence Suite comprises the following components: DecisionStore (data warehousing), Explorer AI and BI Web Parts (OLAP visualization and packaged key performance indicators that drive strategic insights), Active Planner (active, continuous planning and forecasting, and enterprise performance management), Microsoft FRx (financial reporting), transaction reporting, ad hoc queries and agents/alerts.

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UltiPro Workforce Management (a Payroll/HRMS solution offered via a reseller relationship with Ultimate Software) provides a complete workforce management solution. This solution is designed to allow a company to streamline human resource and payroll processes, report on and analyze key business metrics and provide Web-based self-service to empower its employees. Business intelligence tools, such as UltiPro Workforce Management , enable strategic analysis of key business trends for better planning and informed decision-making. Ultimate Software’s UltiPro Workforce Management solution is available as a common component with the following Epicor product families: Epicor Enterprise and Avanté .

CEO BACKGROUND

Mark Duffell
Mark Duffell was employed by Epicor in a variety of management and executive roles from 1996 through March 31, 2008. From July 2005 through February 19, 2008, Mr. Duffell served as Epicor’s President and COO. Prior to that time, he served as Epicor’s Executive Vice President and general manager for the Enterprise Solutions Group and International Operations. He also served as Vice President of EMEA and North American Sales for Epicor. Mr. Duffell graduated with a first class honors degree in production engineering from Kingston University in 1984. Mr. Duffell’s employment with the Company ended on March 31, 2008.



Michael Piraino
Michael Piraino joined Epicor as Senior Vice-President and Chief Financial Officer in May 2003, bringing 28 years experience in senior executive and financial roles. In July 2005, he was promoted to Executive Vice President. Prior to joining Epicor, Mr. Piraino founded CEO Resources L.L.C., a premier executive resource management company providing small to medium high-growth companies with interim CEO services, corporate finance and M&A advisory services and integration strategies. He currently serves on the Board of Directors for Buy.com. Mr. Piraino holds a Bachelor of Science degree in accounting from Loyola University of Los Angeles. He is a certified public accountant.

MANAGEMENT DISCUSSION FROM LATEST 10K

Overview

The Company designs, develops, markets and supports computer software applications, which assist mid-sized companies as well as the divisions and subsidiaries of larger corporations in the planning, management and operation of their businesses. The Company is focused on the mid-market, which generally includes companies or divisions with annual revenues between $10 million and $1 billion. The Company’s software products and related consulting and support services are designed to help these companies automate key aspects of their business operations, processes and procedures – from customer relations, ordering, purchasing and planning, to production, distribution, accounting and financial reporting. By automating these processes, companies may gain faster access to more accurate information, which can improve operating efficiency, reduce cost and allow companies to be more responsive to their customers, ultimately leading to increased revenues. The Company also offers support, consulting and education services in support of its customers’ use of its software products. The Company’s products and services are sold worldwide by its direct sales force and an authorized network of value added resellers (VARs), distributors and authorized consultants.

Total revenues for the year ended December 31, 2007, increased 11.9% to $429.8 million, compared to $384.1 million for the year ended December 31, 2006. Net license revenue increased by 10.0% to $109.4 million for the year ended December 31, 2007, compared to $99.5 million for the year ended December 31, 2006. Consulting revenue was $134.7 million for the year ended December 31, 2007, an increase of 25.3%, when compared to consulting revenues of $107.5 million for the year ended December 31, 2006. Maintenance revenue for the year ended December 31, 2007 was $160.3 million, an increase of 6.8% compared to maintenance revenues of $150.1 million for the year ended December 31, 2006. Hardware and other revenue for the year ended December 31, 2007 was $25.4 million, down from $27.0 million for the year ended December 31, 2006.

Overall gross margin was 51.3% for the year ended December 31, 2007, compared to 52.5% during the same period in 2006, primarily due to a higher mix during 2007 of consulting revenues, which have relatively lower gross margins than software and maintenance revenues.

Cash flows from operations were $65.3 million during the year ended December 31, 2007, a 39.6% increase over 2006 cash flows from operations of $46.8 million.

Critical Accounting Policies

The consolidated financial statements are prepared in conformity with United States of America generally accepted accounting principles (GAAP). As such, management is required to make judgments, estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The significant accounting policies which are most critical to aid in fully understanding and evaluating reported financial results include the following:

Revenue Recognition

The Company enters into contractual arrangements with end-users that may include licensing of the Company’s software products, product support and maintenance services, consulting services, resale of third-party hardware or various combinations thereof, including the sale of such products or services separately. The Company’s accounting policies regarding the recognition of revenue for these contractual arrangements is fully described in Note 1 of Notes to Consolidated Financial Statements.

The Company considers many factors when applying accounting principles generally accepted in the United States of America related to revenue recognition. These factors include, but are not limited to:


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The actual contractual terms, such as payment terms, delivery dates and pricing of the various product and service elements of a contract;


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Availability of products to be delivered;


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Time period over which services are to be performed;

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Creditworthiness of the customer;


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The complexity of customizations and integrations to the Company’s software required by service contracts;


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The sales channel through which the sale is made (direct, VAR, distributor, etc.);


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Discounts given for each element of a contract;


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Any commitments made as to installation or implementation “go live” dates and


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Whether vendor specific objective evidence of the fair value of undelivered elements exists.

Each of the relevant factors is analyzed to determine its impact, individually and collectively with other factors, on the revenue to be recognized for any particular contract with a customer. Management is required to make judgments regarding the significance of each factor in applying the revenue recognition standards, as well as whether or not each factor complies with such standards. Any misjudgment or error by management in its evaluation of the factors and the application of the standards, especially with respect to complex or new types of transactions, could have a material adverse affect on the Company’s future revenues and operating results.

Allowance for Doubtful Accounts

The Company’s accounts receivable go through a collection process that is based on the age of the invoice and requires attempted contacts with customers at specified intervals and assistance from other personnel within the Company who have a relationship with the customer. The Company writes-off accounts to its allowance when the Company has determined that collection is not likely. The Company believes no significant concentrations of credit risk existed at December 31, 2007. Receivables from customers are generally unsecured.

The Company maintains an allowance for doubtful accounts based on historical collections performance and specific collection issues. If actual bad debts differ from the reserves calculated, the Company records an adjustment to bad debt expense in the period in which the difference occurs. Such adjustment could result in additional charges to the Company’s results of operations.

Intangible Assets

The Company’s intangible assets were recorded as a result of the Company’s acquisitions and represent acquired technology, customer base and trademarks. These intangible assets are amortized on a straight-line basis over the estimated economic life of the asset. The Company periodically evaluates the recoverability of the intangible assets and considers any events or changes in circumstances that would indicate that the carrying amount of an asset may not be recoverable. Any material changes in circumstances, such as large decreases in revenue or the discontinuation of a particular product line, could require future write-downs in the Company’s intangibles assets and could have a material adverse impact on the Company’s operating results for the periods in which such write-downs occur.

Goodwill

The Company’s goodwill was recorded as a result of the Company’s acquisitions. In accordance with SFAS No. 141, “Business Combinations,” the Company has recorded these acquisitions using the purchase method of accounting. In accordance with SFAS No. 142, “Goodwill and Other Intangible Assets,” the Company performed an impairment review of its recorded goodwill in 2007 and determined that no impairment of goodwill existed because the estimated fair value of each reporting unit exceeded its carrying amount. The Company tests its recorded goodwill for impairment on an annual basis, or more often if indicators of potential impairment exist, by determining if the carrying value of each reporting unit exceeds its estimated fair value. Factors that could trigger an impairment include, but are not limited to, underperformance relative to historical or projected future operating results, significant changes in the manner of use of the acquired assets or the Company’s overall business and significant negative industry or economic trends. Future impairment reviews may require write-downs in the Company’s goodwill and could have a material adverse impact on the Company’s operating results for the periods in which such write-downs occur.

Stock-Based Compensation

The Company accounts for stock-based compensation in accordance with SFAS No. 123 (revised 2004), “Share-Based Payment” (SFAS 123-R). The Company adopted the provisions of SFAS 123-R in the first quarter of 2006. Under the fair value recognition provisions of this statement, stock-based compensation expense is measured at the grant date based on the value of the award and is expensed ratably over the vesting period. Determining the fair value of stock options at the grant date requires judgment, including estimating expected dividends, volatility, terms and estimating the amount of share-based awards that are expected to be forfeited. If actual forfeiture rates differ significantly from the estimate, stock-based compensation expense and the Company’s results of operations could be materially impacted. Beginning in 2006, the Company changed its previous practice by no longer granting stock options to employees, and granting restricted stock as an alternative. Compensation expense for restricted stock is based on the fair market value of the restricted stock on its grant date, and is expensed ratably over the vesting period.

Income Taxes

Income taxes are determined under guidelines prescribed by SFAS No. 109, " Accounting for Income Taxes " ("SFAS 109"). Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

The Company regularly reviews the deferred tax assets for recoverability and has established a valuation allowance when it is more likely than not that some portion, or all, of the deferred tax assets will not be realized. The Company assesses the recoverability of the deferred tax assets and the need for a valuation allowance on an ongoing basis. In making this assessment, the Company is required to consider all available positive and negative evidence to determine whether, based on such evidence, it is more likely than not that some portion, or all, of the net deferred assets will be realized in future periods.

During the year ended December 31, 2007, the Company determined, primarily based on operating income during recent years and anticipated operating income and cash flows for future periods that it is more likely than not that certain foreign deferred tax assets will be realized in the future and accordingly, it was appropriate to release the valuation allowance recorded against those deferred tax assets. As a result, the Company released a portion of the valuation allowance related to certain foreign jurisdictions, resulting in a non-cash income tax benefit to net income, as well as a credit to goodwill as some of the deferred tax assets existed at the date of Scala’s acquisition. The Company intends to maintain a valuation allowance for the remaining foreign deferred tax assets until sufficient positive evidence exists to support its reversal. The remaining valuation allowance will continue to be evaluated over future quarters. If it is determined that it is more likely than not that all or a portion of these remaining foreign deferred tax assets will be utilized to offset future taxable income, the valuation allowance could be decreased or eliminated altogether which will result primarily in a decrease to goodwill.

Future releases of the valuation allowance related to these assets will be accounted for as a reduction of goodwill rather than a reduction of income tax expense if the valuation allowance decrease occurs prior to the effective date of SFAS No. 141 (revised 2007), “Business Combinations,” or SFAS No. 141(R). Effective January 1, 2009, SFAS 141(R) provides that any reduction to the valuation allowance established in purchase accounting is to be accounted for as a reduction in income tax expense.

The Company is subject to income taxes in the U.S. and numerous foreign jurisdictions. Significant judgment is required in evaluating our uncertain tax positions and determining our provision for income taxes. Effective January 1, 2007, the Company adopted Financial Interpretation No. 48, Accounting for Uncertainty in Income Taxes-an interpretation of FASB Statement No. 109 (“FIN 48”). FIN 48 contains a two-step approach to recognizing and measuring uncertain tax positions accounted for in accordance with SFAS No. 109, “Accounting for Income Taxes.” The first step is to evaluate the tax position for recognition by determining if the weight of available evidence indicates that it is more likely than not that the position will be sustained on audit, including resolution of related appeals or litigation processes, if any. The second step is to measure the tax benefit as the largest amount that is more than 50% likely of being realized upon settlement.

Although the Company believes it has adequately reserved for our uncertain tax positions, no assurance can be given that the final tax outcome of these matters will not be different. The Company adjusts these reserves in light of changing facts and circumstances, such as the closing of a tax audit or the refinement of an estimate. To the extent that the final tax outcome of these matters is different than the amounts recorded, such differences will impact the provision for income taxes in the period in which such determination is made. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate, as well as the related net interest.

Results of Operations

Comparison of the Year Ended December 31, 2007 to the Year Ended December 31, 2006

Revenue

The increase in license fee revenues during the year ended December 31, 2007, compared to the same period in 2006, is due primarily to higher average selling prices for the Company’s products, both domestically and internationally as well as an increase in sales of the Company’s Vantage and Scala products. License fee revenues for the year ended December 31, 2007 included ten sales greater than $0.5 million, of which three were greater than $1.0 million. One of the sales greater than $1.0 million was related to the sale of a non-strategic asset (see “Sale of Non-Strategic Asset”). License fee revenues for the year ended December 31, 2006 included eleven sales greater than $0.5 million, of which none were greater than $1.0 million.

The increase in consulting revenues during the year ended December 31, 2007, compared to the same period in 2006, is primarily due to contracts for larger consulting engagements and the Company’s strategic objective of providing an expanded offering of professional services, such as managed services and hosting. As the Company’s average selling price for software increases, the Company has experienced a corresponding increase in the average size of its consulting engagements for implementing new systems for customers. In order to meet the demand for this additional consulting work, the Company hired additional consulting personnel. Consulting headcount also increased due to the acquisition of PA in May of 2007. Total consulting headcount increased by 9% from December 31, 2006 to December 31, 2007.

The increase in maintenance revenues during the year ended December 31, 2007, compared to the same period in 2006, is due to continued high renewal rates in the Company’s customer base, continued higher license sales and related maintenance contracts sold with new licenses and an increase in existing customers whose maintenance agreements had previously lapsed, but who have now renewed their maintenance agreements.

Hardware and other revenues consist primarily of the resale of third-party hardware. The decrease in hardware and other revenue for the year ended December 31, 2007, as compared to the same period in 2006, is due to the timing of customer hardware orders, which vary based on the customers’ hardware roll-out schedules, resulting in a high degree of variability in the Company’s hardware revenues.

International revenues were $170.9 million and $141.2 million for the years ended December 31, 2007 and 2006, representing 39.8% and 36.8%, respectively, of total revenues. The 2007 increase of international revenue in both absolute dollars and as a percentage of revenue is primarily due to successful sales of larger international consulting engagements and the Company’s strategic objective of providing an expanded offering of professional services. Foreign currency exchange rate fluctuations resulted in foreign currency-based revenues during the year ended December 31, 2007 being reported $11.9 million, or 3.1%, higher than these revenues would have been if they had been translated at 2006 foreign currency exchange rates. The Company expects international revenues to decrease as a percentage of total revenues as a result of the NSB acquisition as NSB has historically had very little international revenue.

Cost of Revenues and Gross Margins

Cost of license fee revenues consists primarily of software royalties paid for third-party software incorporated into the Company’s products, referral fees paid to VARs, costs associated with product packaging and documentation and software duplication. For the year ended December 31, 2007, compared to the same period in 2006, gross profit decreased as a percentage of revenue, as costs increased primarily due to the mix of products.

Cost of consulting revenues consists primarily of salaries, benefits, commissions, bonus, other headcount-related expenses and travel for the Company’s consulting organization, which provides consulting services to customers in the implementation and integration of the Company’s software products, as well as education, training and other consulting and programming services. These costs increased in absolute dollars and as a percentage of revenue during the year ended December 31, 2007, compared to the same period in 2006, due primarily to a 9% increase in consulting headcount. In order to support the market demand for services, the Company has continued to hire consulting resources, and whenever practicable, does so in lower cost geographies. Consulting services margins were slightly negatively impacted as new hires were being trained for their scheduled deployment on revenue generating activities.

Cost of maintenance revenues consists primarily of maintenance royalties on third-party software incorporated into the Company’s products, as well as salaries, benefits and other headcount-related expenses for the Company’s support organization. For the year ended December 31, 2007, compared to the same period of 2006, cost of maintenance revenues increased in absolute dollars due primarily to an increase in headcount. Maintenance gross profit increased during the year ended December 31, 2007, compared to the same period in 2006, due to higher maintenance revenue, as well as the lower headcount costs associated Company’s continued resource investment in lower cost geographies to help support additional demand for the Company’s maintenance services.

Cost of hardware and other revenues decreased in absolute dollars due to the timing of customer hardware orders, which vary based on the customers’ hardware roll-out schedules and can result in a high degree of variability in our hardware gross profit margins. Gross profit for hardware and other revenues was relatively consistent for the year ended December 31, 2007, compared to the same period in 2006.

Amortization of Intangible Assets

Amortization of intangible assets consists of amortization of capitalized acquired technology, customer base and trademarks that were recorded as a result of acquisitions. The Company’s intangible assets are amortized over the estimated economic lives of the assets. For the years ended December 31, 2007 and 2006, the Company recorded amortization expense, included in cost of revenues, related to intangible assets of $17.4 million and $17.0 million, respectively. Amortization of acquired technology and trademarks will be complete in 2013 and amortization of the customer base will be complete in 2014.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries, commissions, travel, advertising and promotional expenses. The increase in these costs in absolute dollars and as a percentage of revenue for the year ended December 31, 2007, compared to the same period in 2006, is primarily due to increased headcount of approximately 15%. In addition, stock-based compensation expense increased $1.1 million for the year ended December 31, 2007, compared to the same period in 2006, due primarily to additional grants of shares in the performance-based restricted stock plan for existing employees and new hires.

Software Development

Software development costs consist primarily of compensation of development personnel, related overhead incurred to develop new products and upgrade and enhance the Company’s current products and fees paid to outside consultants. The majority of these expenses have been incurred by the Company in the United States, Mexico, Eastern Europe and Russia, where the Company operates development centers.

Software development expenses increased in absolute dollars for the year ended December 31, 2007, compared to the same period in 2006. The increase in these costs is due primarily to an increase in headcount of approximately 12%, primarily to focus on translation and localization of its products for various international markets. Software development expenses for the year ended December 31, 2007 decreased as a percentage of total revenue, compared to the same period in 2006 due to the Company’s investment in new resources in lower cost geographies.

General and Administrative Expense

General and administrative expenses consist primarily of costs associated with the Company’s executive, financial, legal, human resources and information services functions. General and administrative expenses increased in total dollars but remained consistent as a percentage of total revenues during the year ended December 31, 2007, compared to the same period in 2006. This increase is primarily attributable to increases in personnel-related costs and provision for doubtful accounts. The increase in personnel-related costs included $0.8 million related to stock-based compensation due primarily to additional grants of shares in the performance-based restricted stock plan for both existing employees and new hires during the year.

Stock-Based Compensation Expense

Stock-based compensation expense includes compensation expense from stock options granted prior to 2006 and restricted stock issued by the Company. For the year ended December 31, 2007 and 2006, stock-based compensation expense was $11.7 million and $9.5 million, respectively.

At December 31, 2007, there was approximately $8.6 million and $2.7 million of unrecognized compensation cost related to performance-based restricted stock and other restricted stock grants, respectively. These costs are expected to be recognized over weighted average periods of approximately one year and two years, respectively. The compensation cost related to the performance-based restricted stock depends on the estimated number of shares that will vest based on the probable outcome of the performance conditions. Therefore, the recognized compensation could vary significantly, depending on the outcome of those conditions. The Company is required at each reporting date to assess whether achievement of any performance condition is probable. Quarterly compensation expense may include a cumulative adjustment resulting from changes in the estimated number of shares expected to be earned during that plan year. Based on the Company’s final achievement for the 2007 plan year, the Company recorded stock compensation expense related to performance-based grants of $8.0 million for the year ended December 31, 2007.

At December 31, 2007, there was approximately $0.3 million of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of approximately one year.

Restructuring and Other

During 2007, the Company recorded restructuring charges of $0.9 million. This includes severance costs of $0.9 million and facility charges of $0.1 million related to the third quarter 2007 restructuring. The facility charges are due to terminating a lease to an office in Europe and the related leasehold improvements on the facility. Additionally, during 2007, the Company released $0.1 million as a result of a change in estimate associated with the existing restructuring reserves.

During the year ended December 31, 2007, the Company incurred $0.7 million in due diligence costs associated with a potential acquisition. These costs were charged to results of operations in connection with the decision not to proceed with the acquisition.

Interest Expense

Interest expense decreased for the year ended December 31, 2007, as compared to the same period in 2006. The decrease is primarily due to the Company’s convertible senior notes issued in May of 2007, which had a lower interest rate than the credit facility in place in 2006. This credit facility was paid in full in May 2007 (see Note 6 in Notes to the Consolidated Financial Statements).

Sale of Non-Strategic Asset

During March of 2007, the Company entered into an arrangement to sell the assets of its payroll bureau operations in Russia. In connection with this asset sale arrangement, the Company also entered into an arrangement with the same party to license the iScala payroll product for resale on an exclusive basis in certain Eastern European territories. This transaction was accounted for as a multiple-element arrangement under EITF Issue No. 00-21. Based on an estimated fair value of the payroll bureau, the Company allocated $2.5 million of the total consideration to the sale of these assets as well. This consideration, less the carrying amounts of $0.8 million of goodwill and $0.1 million of net customer base intangible assets originally recorded in connection with the 2004 acquisition of Scala and $22,000 of net tangible assets, resulted in a net gain of $1.6 million which is included in “gain on sale of non-strategic asset” in the accompanying Consolidated Statements of Operations for the year ended December 31, 2007. The remaining consideration related to the iScala payroll product license is included in “license fees” in the accompanying Consolidated Statements of Operations for the year ended December 31, 2007.

Interest Income and Other, Net

Interest income and other, net, increased for the year ended December 31, 2007, as compared to the same period in 2006, due primarily to an increase in interest earned on the Company’s cash balances. The Company’s average cash balance in 2007, which included cash designated for acquisition at December 31, 2007, increased significantly over 2006. The increase in interest income was offset by foreign currency loss. The foreign currency loss results primarily from marking to market the Company’s outstanding option contracts related to the 2008 NSB Retail Systems acquisition (see Note 15 in Notes to the Consolidated Financial Statements).

Provision for Income Taxes

The provision for income taxes consists of provisions for federal, state and foreign income taxes. The Company operates in an international environment with significant operations in various locations outside the U.S. Accordingly, the consolidated income tax rate is a composite rate reflecting the earnings in the various locations and the applicable rates.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amount of tax-related assets and liabilities and income tax provisions. The Company assesses the recoverability of the deferred tax assets on an ongoing basis. In making this assessment the Company is required to consider all available positive and negative evidence to determine whether, based on such evidence, it is more likely than not that some portion or all of our net deferred assets will be realized in future periods. This assessment requires significant judgment. In addition, the Company has made estimates involving current and deferred income taxes, tax attributes relating to the interpretation of various tax laws, historical bases of tax attributes associated with certain tangible and intangible assets.

The Company recorded a provision for income taxes of $1.3 million and $14.8 million for the twelve months ended December 31, 2007 and 2006, respectively. The effective income tax rates were 3.0% and 38.3% for the twelve months ended December 31, 2007 and 2006, respectively. The effective tax rate differs from the statutory U.S. federal income tax rate of 35% primarily due to a non cash income tax benefit resulting from the release of certain foreign valuation allowances during 2007, and due to state and foreign income tax and permanent differences between GAAP pre-tax income and taxable income during 2006.

Future releases of the valuation allowance related to these assets will be accounted for as a reduction of goodwill rather than a reduction of income tax expense if the valuation allowance decrease occurs prior to the effective date of SFAS No. 141 (revised 2007), “Business Combinations,” or SFAS No. 141(R). Effective January 1, 2009, SFAS 141(R) provides that any reduction to the valuation allowance established in purchase accounting is to be accounted for as a reduction in income tax expense.

During the year ended December 31, 2007, the Company determined, primarily based on operating income during recent years and anticipated operating income and cash flows for future periods that it is more likely than not that certain foreign deferred tax assets will be realized in the future, and, accordingly, it was appropriate to release the valuation allowance recorded against those deferred tax assets. As a result, the Company released a portion of the valuation allowance related to certain foreign jurisdictions, resulting in a non-cash income tax benefit to net income as well as a credit to goodwill as some of the deferred tax assets existed at the date of Scala’s acquisition. The Company intends to maintain a valuation allowance for the remaining foreign deferred tax assets until sufficient positive evidence exists to support its reversal. The remaining valuation allowance will continue to be evaluated over future quarters. If it is determined that it is more likely than not that all or a portion of these remaining foreign deferred tax assets will be utilized to offset future taxable income, the valuation allowance could be decreased or eliminated altogether which will result primarily in a decrease to goodwill.

The Company adopted FIN 48 on January 1, 2007. As a result of adoption, the Company recognized a charge of $1.1 million to the January 1, 2007 retained earnings balance. During 2007, the company increased unrecognized tax benefits related to uncertain tax positions in the amount of $0.2 million.

MANAGEMENT DISCUSSION FOR LATEST QUARTER

Results of Operations

Revenue

The decrease in license revenues for the three and six months ended June 30, 2008, compared to the same period in 2007, is due primarily to lengthening sales cycles and some deals that were expected to close in the second quarter of 2008 and slipped into the third quarter of 2008. In addition, customers are implementing projects on a staged basis where they purchase and roll out smaller parts of their total solution. The decreases were partially offset by additional license revenues due to the acquisition of NSB. License revenues for the three months ended June 30, 2008, included four sales greater than $0.5 million, of which one was greater than $1.0 million. License revenues for the three months ended June 30, 2007, included one deal greater than $0.5 million, which was not greater than $1.0 million. License revenues for the six months ended June 30, 2008, included six sales greater than $0.5 million, of which one was greater than $1.0 million. License revenues for the six months ended June 30, 2007, included four deals greater than $0.5 million, of which one was greater than $1.0 million. The one sale greater than $1.0 million in 2007 was related to the sale of a non-strategic asset (see “Sale of Non-Strategic Asset”).

Consulting revenues increased for the three months ended June 30, 2008, compared to the same period in 2007, due primarily to additional consulting revenues from the acquisition of NSB. Consulting revenues increased for the six months ended June 30, 2008, compared to the same period in 2007, due the acquisition of NSB offset by decreased consulting revenue due to a significant international engagement in the prior period with no similar engagement in the current period. Consulting revenues were also negatively impacted by a strategic consulting deal with a large customer that required the Company to allocate significant consulting resources to this project with little additional associated revenues to date.

The increase in maintenance revenues for the three and six months ended June 30, 2008, compared to the same periods in 2007, is due primarily to the acquisition of NSB, which contributed maintenance revenues during the quarter, as well as continued high renewal rates in the Company’s customer base, continuing license sales in prior periods and related maintenance contracts sold with new licenses and an increase in existing customers whose maintenance agreements had previously lapsed, but who have now renewed their maintenance agreements.

Hardware and other revenues consist primarily of the resale of third-party hardware. The increase in hardware and other revenue for the three and six months ended June 30, 2008, as compared to the same period in 2007, is due to the timing of customer hardware orders, which vary based on the customers’ hardware roll-out schedules, resulting in a high degree of variability in the Company’s hardware revenues.

International revenue was $43.1 million and $40.4 million for the three months ended June 30, 2008 and 2007, representing 33.7% and 38.2%, respectively, of total revenues. International revenues were $79.4 million and $82.4 million for the six months ended June 30, 2008 and 2007, representing 34.5% and 39.8%, respectively, of total revenues. The increase in international revenue in absolute dollars for the three months ended June 30, 2008 compared to the same period in 2007 is primarily due to the acquisition of PA as well as continued high renewal rates on international maintenance revenues. The decrease in international revenues as a percentage of revenues was primarily due to the addition of NSB revenue which is primarily earned in the United States. The decrease in international revenues for the six months ended June 30, 2008 compared to the same period in 2007 in both absolute dollars and as a percentage of total revenues is primarily due to the greater than $1.0 million sale that occurred in the first quarter 2007, see sale of a non-strategic asset below, with no similar sale in the current period and was also impacted by the addition of NSB revenues which are primarily earned in the United States. Foreign currency exchange rate fluctuations resulted in foreign currency-based revenues during the three months ended June 30, 2008 being reported $2.9 million, or 2.8%, higher than these revenues would have been if they had been translated at 2007 foreign currency exchange rates. Foreign currency exchange rate fluctuations resulted in foreign currency-based revenues during the six months ended June 30, 2008 being reported $5.2 million, or 2.5%, higher than these revenues would have been if they had been translated at 2007 foreign currency exchange rates.

Cost of Revenues and Gross Margins

Cost of license revenues consists primarily of software royalties paid for third-party software incorporated into the Company’s products, referral fees paid to Value Added Resellers (VARs), costs associated with product packaging and documentation and software duplication. For the three months ended June 30, 2008, compared to the same period in 2007, gross profit of license revenue decreased as costs increased due primarily to a higher mix of third party software sales. For the six months ended June 30, 2008, compared to the same period in 2007, gross profit of license revenue was relatively flat.

Cost of consulting revenues consists primarily of salaries, benefits, commissions, bonus, other headcount-related expenses and travel for the Company’s consulting organization, which provides consulting services to customers in the implementation and integration of the Company’s software products, as well as education, training and other consulting and programming services. These costs increased in absolute dollars and as a percentage of revenue during the three and six months ended June 30, 2008, compared to the same periods in 2007, due primarily to the acquisition of NSB. Consulting services margins increased for the three months ended June 30, 2008, compared to the same period in 2007, due to increasing the utilization rates of consultants. Consulting services margins decreased for the six months ended June 30, 2008, compared to the same period in 2007, due in part to a strategic consulting contract with a large customer for which the Company adjusted cost estimates and recorded future estimated losses. In addition, consulting services margins were negatively impacted in the first quarter of 2008 due to lower than expected utilization rates related to the integration of NSB and the significant hiring the Company has done in lower cost geographies over the past several quarters, which has required more training to bring these consultants up to fully billable rates.

Cost of maintenance revenues consists primarily of maintenance royalties on third-party software incorporated into the Company’s products, as well as salaries, benefits and other headcount-related expenses for the Company’s support organization. For the three and six months ended June 30, 2008, compared to the same periods of 2007, cost of maintenance revenues increased in absolute dollars due primarily to the acquisition of NSB. Maintenance gross profit decreased during the three and six months ended June 30, 2008, compared to the same periods in 2007, due to the addition of NSB maintenance revenue, which has lower gross margins.

Cost of hardware and other revenue increased in absolute dollars in the three and six months ended June 30, 2008 compared to the same periods in 2007, due to the timing of customer hardware orders, which vary based on the customers’ hardware roll-out schedules and can result in a high degree of variability in our hardware gross profit margins.

Amortization of Intangible Assets

Amortization of intangible assets consists of amortization of capitalized acquired technology, customer base and trademarks that were recorded as a result of acquisitions. The Company’s intangible assets are amortized over the estimated economic lives of the assets. For the three months ended June 30, 2008 and 2007, the Company recorded amortization expense, included in cost of revenues, related to intangible assets of $8.9 million and $4.3 million, respectively. For the six months ended June 30, 2008 and 2007, the Company recorded amortization expense, included in cost of revenues, related to intangible assets of $16.0 million and $8.5 million, respectively. The increase in amortization expense for the three and six months ended June 30, 2008, as compared to the same periods in 2007 is due to the additional amortization expense related to the NSB acquisition. Amortization of acquired technology and trademarks will be complete in 2013 and amortization of the customer base will be complete in 2015. See Note 4 in Notes to Unaudited Condensed Consolidated Financial Statements for expected future amortization expense.

Sales and Marketing

Sales and marketing expenses consist primarily of salaries, commissions, travel, advertising and promotional expenses. These costs increased in absolute dollars, but decreased as a percentage of revenue, for the three months ended June 30, 2008, compared to the same period in 2007. The decrease as a percentage of revenue is due to the increased revenues. These costs increased in both absolute dollars and as a percentage of revenue for the six months ended June 30, 2008, compared to the same period in 2007. The increase in absolute dollars for the three and six months is due to increased headcount of approximately 10%, related primarily to the NSB acquisition.

Software Development

Software development costs consist primarily of compensation of development personnel, related overhead incurred to develop new products and upgrade and enhance the Company’s current products and fees paid to outside consultants. The majority of these expenses have been incurred by the Company in the United States, Canada, Mexico, Eastern Europe and Russia, where the Company operates development centers.

Software development expenses increased in absolute dollars and as a percentage of revenue for the three and six months ended June 30, 2008, compared to the same periods in 2007. The increase in these costs is due primarily to an increase in headcount of 47% due to increased hiring and the acquisition of NSB, as well as to additional investment the Company is making in software development ahead of the launch of Epicor 9.

General and Administrative Expense

General and administrative expenses consist primarily of costs associated with the Company’s executive, financial, legal, human resources and information services functions. General and administrative expenses decreased in total dollars and as a percentage of total revenues during the three and six months ended June 30, 2008, compared to the same periods in 2007. This decrease is primarily attributable to reductions in provision for doubtful accounts and personnel related costs, including stock-based compensation expense, associated with changes in senior management within the Company, partially offset by an increase in costs from the acquisition of NSB.

Stock-Based Compensation Expense

Stock-based compensation expense includes compensation expense from stock options granted and restricted stock issued by the Company. For the three months ended June 30, 2008 and 2007, stock-based compensation expense was $1.9 million and $3.3 million, respectively. For the six months ended June 30, 2008 and 2007, stock-based compensation expense was $4.4 million and $6.7 million, respectively.

At June 30, 2008, there was approximately $10.6 million and $5.5 million of unrecognized compensation cost related to performance-based restricted stock and other restricted stock grants, respectively. These costs are expected to be recognized over weighted-average periods of approximately two years. The compensation cost related to the performance-based restricted stock depends on the estimated number of shares that will vest based on the probable outcome of the performance conditions. Therefore, the recognized compensation could vary significantly, depending on the outcome of those conditions. The Company is required at each reporting date to assess whether achievement of any performance condition is probable. Quarterly compensation expense may include a cumulative adjustment resulting from changes in the estimated number of shares expected to be earned during that plan year. Based on the Company’s current assessment, the Company has recorded stock compensation expense related to these grants of $1.1 million and $2.9 million for the three and six months ended June 30, 2008, respectively.

At June 30, 2008, there was approximately $0.6 million of total unrecognized compensation cost related to unvested stock options. This cost is expected to be recognized over a weighted-average period of approximately two years.

CONF CALL

Damon Wright - Senior Director of Investor Relations

Thank you, Sarah, and good afternoon to everyone on the call. We appreciate you joining us today to discuss our 2008 second quarter financial results. Our press release issued this afternoon detailing these results maybe accessed on our website at www.epicor.com under the Investor section.

Joining us on today’s call are Tom Kelly, Epicor’s President and CEO, and Russ Clark, Epicor’s SVP, Finance and Principal Accounting Officer. Tom will begin the call with a few comments, followed by Russ, who will discuss certain financial results in more detail.

Before we begin, I would appreciate your patience as I review our Safe Harbor statement. The discussions on today’s call will include forward-looking statements. These forward-looking statements include statements regarding the company’s expected revenue, earnings and other financial results, as well as expected new product releases and other statements that are not historical facts. Actual results may differ materially from those expressed or implied in the forward-looking statements.

For a discussion of such risks and uncertainties, which could cause actual results to differ from those contained in our forward-looking statements, please see our annual report on Form 10-K for the period ended December 31, 2007 in our Form 10-Q for the period ended March 31, 2008. Today’s comments will also include the discussion of certain non-GAAP financial measures, such as adjusted EBITDA, free cash flow and non-GAAP revenue and non-GAAP earnings, which exclude amortization of prior intangible assets; stock-based compensation expense; restructuring and other charges.

The most directly comparable GAAP financial measures and information reconciling the company’s non-GAAP and GAAP results are included in our earnings release in the Form 8-K to be filed with the SEC.

With that I would now like to turn the call over to Tom.

Thomas Kelly - Chief Executive Officer, President and Director

Thank you, Damon. I’m pleased to report that our second quarter financial results delivered on a majority of the goals that we set forth in our last call with strong sequential improvements across all our key financial metrics. Our results this quarter support our belief that the issues impacting Q1 were isolated events rather than systemic conditions and we believe these results show the underlying strength of the core fundamentals of Epicor’s business, namely, 20,000 customers are installed base of customers once again drove record recurring maintenance revenue streams for the quarter and helped us to continue to generate significant cash flows of more than $35 million from operations and approximately $30 million in free cash flow.

Our global footprint, which led to a good mix of international and Americas revenues, was instrumental in helping us win sizable deals with multi-national companies. Our direct model which enables us to offer a lower total cost of ownership and contributed to strong consulting revenues and consulting margins exceeding 20%, and our vertical focus which is narrow enough that we can provide category killer solutions, yet diverse enough addressing multiple subsets of five distinct industries to provide Epicor with a wealth of opportunities to pursue. I plan to provide commentary on our Q2 execution and what we are seeing in our markets, as well as the steps we’ve taken and are taking to ensure we respond rapidly to the opportunities and market conditions. Before I do that, I want to ask Russ Clark, our Senior VP Finance and Principal Accounting Officer, to highlight some of the financial metrics from the quarter. Russ?

Russ Clark - SVP Finance and Principal Accounting Officer

Thank you, very much Tom. I will provide some color around a few specific areas of our second quarter results, but please refer to the press release and tables for the remainder of the information.

GAAP revenue for Q2 was $128 million and non-GAAP revenue was $130.6 million, the difference being the impact of NSB purchase accounting, deferred revenue haircuts of $2.5 million in maintenance and $150,000 in consulting. So, you’ll see the breakout of our Q2 revenue by segment in the statement of operations and Tom will be spending time addressing our revenues in more detail.

Turning to gross margin detail, as expected and similar to last quarter, maintenance margins of 74.2% were down year-over-year due to the addition of a larger mix of retail maintenance revenues, which have a relatively lower gross margin than the rest of our business.

We anticipate maintenance gross margins will range between 74% to 75% for the balance of the year. As expected consulting gross margins recovered from Q1 exceeding 20%.

The strong margins were primarily the result of our focus on increasing utilization rates. We believe this margin improvement is sustainable and we expect to slowly build upon it for the remainder of the year. Hardware margins rebounded from Q1 to 9.5% in Q2, which we believe should be a steady state rate for the balance of the year.

License gross margins were 76.3% decreasing year-over-year due to less contribution from retail and a higher mix of third party software sales. We expect license growths margins return to more historical levels of 77% to 79% during the balance of the year.

Total non-GAAP gross margin excluding amortization was 51% down year-over-year due to revenue mix which had a lower percentage of retail license revenues than anticipated as well as a significantly higher percentage of low margin hardware revenues versus the year ago quarter. We expect total gross margin to increase by at least a couple of percentage points during the final six months of 2008. Q2 GAAP net income was $1.3 million or $0.02 per diluted share. Non-GAAP net income was $9.9 million or $0.17 per diluted share. Non-GAAP net income improved significantly over Q1 but fell short of our guidance range due primarily to the lower than expected retail license revenues.

Adjusted EBITDA margins of 15% were of 70 basis points from the same period last year also due primarily to the mixed revenues. We expect to experience improvement in our adjusted EBITDA margins each quarter for the remainder of 2008.

Moving on, we continued to focus on managing operating expenses in each line item other than R&D came in lower as a percentage of revenue than Q2 last year. R&D was up as expected as we’re near the release of EPICOR 9 and we will be increasing our investment to help ensure a successful launch.

Total operating expense was down just under 3% points to 37.7% of non-GAAP revenue compared to 40.5% of revenue in the year earlier period. Moving on to additional quarterly metrics our mix of America’s and international software license revenues for the quarter was split approximately 69% America’s and 31% international, which is about the mix we expect during the balance of the year. 2008 second quarter total revenue and cost were almost equally impacted by foreign currency fluctuations. We had very strong collections during the quarter of approximately $150 million, which drove excellent cash flow from operations of more than $35 million.

Free cash flow was also strong for the quarter of sequentially over Q1 by approximately $10 million coming in at $13 million. As of June 30, 2008 the balance sheet included $132.4 million in cash, cash equivalence, and short term investments. Our total debt balance at the end of the quarter was $387.5 million consisting primarily of the $230 million of 2 3/8 percent convertible bonds and $157 million in LIBOR-based term loan and revolving line of credit under our credit facility.

Subsequent, quarter end we made a discretionary principle payment of $5 million on the credit facility. We did experience a technical breach by a few hundred thousand dollars of a covenant in the credit facility. This would not have occurred had we made our discretionary principal payment prior to as opposed to following quarter end. We have already received a waiver from the lenders and have taken steps to ensure that we more appropriately monitor compliance with this covenant during this quarter and in the future. I now would like to turn the call back to Tom.

Thomas Kelly - Chief Executive Officer, President and Director

Thank you Russ. Over the course of our second quarter I have the opportunity to present at several investor conferences I was also able to sit down face to face with a number of our investors and analysts. Similar to my comments on our Q1 call, I made it clear that Q2 would be my first full quarter to work with this team as well as my first chance to get a full quarter’s feel for the market opportunities and conditions that may positively or negatively impacts our business. I was very pleased with the team’s execution in Q2.

We corrected and in many cases completely turned around the issues within control that impact it does on Q1. Well we thought we had factored in an appropriate level of caution for our Q2 APS guidance we fell short we fell short as retail license revenues came in below our expectations. I want to reiterate that our ERP vertical had solid performance in Q2 and our outlook for this vertical remains solid for the balance of the year. I want to spend a few moments going through our execution on each revenue line because I believe Epicor was treated as if it were a broken company after our Q1 results and clearly it’s not.

Maintenance, our largest and most profitable business, was solid across the board hitting new record revenues while continuing in it’s best to class retention rates of 94%. We also won back 177 customers to maintenance contracts during the quarter, which are expected to generate $3.5 million in highly profitable maintenance revenue on an annual basis.

We are well on our way to driving recurring maintenance revenue streams in excess of $200 million for the year and this is an incredibly valuable franchise. Consulting, which was significantly lower in Q1 than our expectations or historical performance, came back with execution that exceeded our near-term goal. High utilization rates drove strong revenues and powered gross margins in excess of 20%. Our backlog in the consulting business is strong and we expect to exceed $160 million in consulting revenues for the year. We believe our Q2 consulting margin improvement is sustainable and consulting is tasked with driving additional improvements over the balance of 2008. Hardware was in line with our expectations and gross margins returned to more historic rates of single high digits.

So, turning to license revenues, while we do not break out specific license performance other than the total license revenue, I want to provide some additional directional color to highlight the significant improvements we made over Q1. For our ERP solution offerings, our product sales in the Americas and international regions demonstrated sequential license growth of more than 25% and 50%, respectively. As in Q1, America’s once again delivered solid performance. International also had a solid quarter bouncing back from Q1 as our international sales teams are becoming more tenured and we continue to extend our America-based sales processes into our international regions.

Additionally, we saw strong uptake in our senior living solutions businesses internationally and on our first Americas senior living solutions sale. We believe that this market offers excellent opportunity for Epicor around the world.

Our ERP license performance was within our expected range, and we are pleased to see our customers continue to spend and allocating dollars to ERP solutions. ERP implementations remain at the top of the Company’s must-do IT projects as evidenced by the fact that we added a significant number of new name customers, more than 150 in total in Q2. We have not seen a change to the competitive environment, nor have we seen deals disappearing for lack of funding. While our ERP pipelines remain strong, we continue to see some lengthening of the ERP cycles as we’ve talked to you in the past. This is in due part to some of the larger deals we are tracking, but is also due to some customers deciding to implement projects on a stage basis where they initially purchase and rollout smaller parts of their total solution.

Of note, our further outline pipelines have increased even more significantly, which we believe indicates that opportunities are not disappearing and at some point we expect to see a release of what we believe is pent up demand. At this point in time we are maintaining, though prudently, a cautious outlook and continue to expect single-digit year-over ERP license growth for the second half of 2008. Turning to our retail business, sales of our retail solutions did improve sequentially over Q1, which was our primary objective as we left Q1, which we believe also reflected in the market digesting and beginning to embrace our combined company product strategy. However, compared to our expectations, our retail performance was below the levels that we had anticipated or expect. We believe that the Q2 shortfall was in due part to conditions within our control, and we have taken immediate actions to address them. As we’ve stated in the past, we’ve been vigilant in looking at any macroeconomic impact on our retail business. While we did not see signs of impact throughout the bulk of the quarter, towards the end of Q2, we experienced retail sales push and sales cycles lengthening.

Additionally, some retailers appear to be pulling back on near-term implementations of full-scale projects and rolling out portions of them. The competitive environment hasn’t changed and our retail pipelines look good. As retailers are embracing the ability to have an end-to-end solution from a single provider. However, we also believe retailers have been somewhat more cautious on the timing of their spending decisions which has had a more significant impact on our retail business since deal sizes are considerably larger than an ERP.

And more importantly, because we believe the economic conditions that we are now seeing evidenced are manifesting themselves in the retail business more so than in the manufacturing sector. To address these conditions that are outside of our control we’ve made adjustments to our term sales--retail sales focus. In addition to some organizational changes we’ve we believe there is a good market for solution that offer retailers a very quick ROI such as Epicor’s sales audit and enterprise selling solutions, both of which have very rapid payback schemes for all our customers. Additionally, we are tailoring our full suite retail offerings to provide more efficient delivery and expressive package for the service retail solutions. Market and customer feedback indicates that the retailers are spreading on these types of projects. As such we expect to continue to see sequential retail license revenue growth through 2008. Although, we’ve reduced our financial expectations to reflect a more cautious approach we still expect this retail business to grow through out the year. We also anticipate that our performance and our execution will continue to strengthen during the same period.

We’ll continue to keep a close eye on the retail markets and business to ensure we’ve taken the right steps to efficiently and profitably grow this business. I believe the liger-term benefits Epicor has retained in terms of market share leadership, technology advantage and the synergies and efficiencies realized when combining Epicor retail on NSB will far outweigh any short-term macroeconomic challenges. We are continuing to invest in our combined product strategy to ensure that is confidence returns to the retail market we’re in the best position to capitalize on our market leadership. Before I talk briefly about our cost structure I do want to mention that if I look at our second half guidance and comparing that to the second half of 2007, we’ve seen significant--we’re anticipating second half year-on-year growth. In revenues we’re anticipating second half growth year-on-year anywhere between 30% to 35%. In NLR, we’re expecting a second-half growth of anywhere between 7% to 23% all based on our guidance and in EPS, we’re anticipating anywhere from the low 6% to 22% over our second half numbers of 2007 hardly a condition that would indicate that Epicor does not have many things to be optimistic about and look forward to on its growth.

In addition to addressing the issues and of the Q1 and driving significant improvements in each revenue line we’ve also taken some steps towards optimizing our cost structures. Epicor has gone through significant change in the first half of 2008 and in many ways this is shaping up to be a transitional year. We’ve made major changes in our executive management team and we’ve refocused the responsibilities of other members.

We have integrated a large acquisition and our annual revenues will exceed a half billion dollars for the first time.

And we are preparing for and investing in the launch of an existing new product Epicor 9 which we expect will provide excellent growth opportunities across all our business lines in 2009 and beyond.

We have continued to flatten our organizational structure which is in line with my management philosophy and should also enable Epicor to benefit from being a more nimble and flexible organization that could more rapidly identify and respond to opportunities and/or challenges in our markets.

Our Senior VPs of international and America sales now directly to me effectively removing two leaders from the organizational structure that existed a year ago. Laurie Klaus has moved to lead Worldwide Consulting and he’s building on the initiatives put in at the end of Q1. She and her team have also identified additional areas for improvement and efficiencies and as evidence in our Q2 results are rapidly driving some of the operating leverage the consulting business has been expecting from more than a year.

Additionally, our consulting and sales organizations have become intimately late and in the joint pursuit of maximizing Epicor’s revenue opportunity from every customer. We’ve not optimized the synergies in the past and this is the working relationship I believe must exist for Epicor to accelerate on top and bottom line growth rates in the future. Lori’s background in sales and her current role in consulting give us the best opportunity from a senior management standpoint to melt these two organizations more closely together. While I do not plan to go into further specifics at this time, I want to assure you that we continue to review our cost structure to ensure that we’ll drive operating margin increases through out the reminder of year none of the measures we have taken or expect to take will impede our initiatives for sales growth for our development efforts. In fact, we are making additional investments ahead of our launch of Epicor 9 to help ensure we bring a wide-reaching and very powerful product to market later this year, which we believe will raise Epicor’s profile even further in the ERP space. We started 2008 slowly, but in Q2 we demonstrated significant improvements across all financial metrics, and as I indicated earlier, the second-half guidance still provides for a very substantial growth opportunities for Epicor in the second half. I am confident that we have the right team in place with the appropriate focus to ensure we continue this momentum throughout the remainder of the year.

Prior to opening up the call for questions, I want to provide a brief update on our CFO search and our analyst day. We are well underway with the search and we have a very impressive initial candidate list, which includes internal candidates, as well as seasoned technology CFOs. I’ve been meeting with the candidates, and while I’m optimistic that we will wrap up the search soon, the important thing is to ensure we seek the right person. As evidenced by their excellent work this quarter, we have a strong financial team led by Russ Clark here with me today in the Americas and our Senior VP of International Finance. John Brims and we do not expect to miss a beat over the course of the search.

In terms of our analyst day, we have known from the beginning that the summer period and the earnings seasons presented some scheduling conflicts broadly across our folks that we were targeting to bring in. While we had a reasonable and fairly decent response on that, we have had some recent changes to the schedule in some parts, which have resulted in some people having to substitute other people in attendance and in some cases had to cancel. We looked at this and decided that we would respond to requests that we have had for a number of years here and have decided to remove this analyst day and reschedule it from the summer to our Perspectives customer conference in October. It’s a conference where we gather in several thousand of our customers and it is always one of the highlights of the year. We will be having a simultaneous or a parallel analyst track going on for industry analysts, and we think this will allow us to integrate these two programs together to give a more robust and comprehensive view of our product suite and the opportunities that we think Epicor has in front of them. So, we’ll give you more details on that. The conference will be held in Las Vegas in October and we just believe it will be a much better product for all of you to attend. We apologize for any inconvenience. Operator, we’re ready to take questions.

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