How Epicor Software Corporation CEO Steve Murphy grew Epicor Software Corporation to $1B revenue and 14K customers in 2021.

hey guys my guest today is steve murphy he joined epicore software corporation as ceo in october of 2017 bringing over 20 years of technology industry executive management experience to the role as ceo he's responsible for providing a long-term strategic vision for the company with a focus on customer experience and delivering innovative product services that support and drive business growth steve you're ready to take to the top hey great thanks nathan good to be here look forward to spending a little time with you you bet now epicore has quite a history here they officially launched what was this like 1970 something the company's about as old as me so it's been in business since 1971 we're almost 50 years old and we've grown a lot in the last few years but we generally have stuck to supporting manufacturing distribution warehousing things like that which has become a pretty hot business in the last few years surprisingly now how do you explain what you do today simply because when you look at where you rank in magic quantum to gartner i mean you rank for things like crm supply chain management you plan the hr tech space in the human capital management space it used to be on-prem now you're also sas how do you button all this up into a sentence to describe what you do yeah you know what i'd say is if somebody makes moves or sells a physical product it could be a vehicle it could be construction materials it could be something you buy in a hardware store the back end systems that manage all that movement and inventory that's what we tend to do interesting now give providing a little color here before you joined in 2017 of epicor and then we'll jump in with you you know epicore was a public company in 2009 revenue is breaking 409 million there was obviously an interesting breakdown of that revenue where again about 70 million of that was licensing revenue there was a big consulting business i think about 128 million bucks and then there was a maintenance contract business of 191 million and then a little hardware business for 20 million maybe for installing on-prem sort of hardware stuff you now come in obviously i imagine drastically change this revenue mix and the company has gone across many hands so taking into your head when you were first reached out by the epicore team to join in 2017 what was the thesis what did they want you to do and what got you excited yeah you know what the big one was the products were just about well the two two out of three cases they were cloud ready and the pivot to cloud hadn't been done yet and for the listeners thinking about what does that mean cloud it's kind of one of these terms it's confusing they had been designed and built in a modern architecture so that you could have nothing more than an android or an iphone in your hand and be running the warehouse or the factory with the software actually running in servers in seattle or bombay or you know somewhere else far away now having said that we hadn't done it yet four years ago we hadn't actually retooled the sales force and gone out and converted our existing base to software as a service or gotten good at selling that product into new customers and over the last four years that's been our mission and we've been um very successful at it we've built that business into about a quarter of a billion dollars we'll be about a billion dollar top line business this year and between a quarter and a third of that now is the cloud and that's been the uh it's been a lot of work but that's the transition we've worked our way through and one of the things we may talk about is it's change management in people as much as anything when it comes to transitioning a company with that big of a change and break down a little bit here how again how you got close to the company because again this has been through a lot of private equity hands in 2011 apex acquired both epicore and activate and a two billion dollar deal merged them together and then ended up with kkr in 2016 and a 3.3 billion dollar deal were you sort of an eir at kkr and they put you in this like did they find you as a at the same time as they bought kk as they bought epicor no you're gonna be the guy yeah you know what they found me and if you think about well when they find somebody what are they looking for and i think in the case of epicor they were looking for an executive that really understood manufacturing and distribution like the business i'm a process engineer i'm a mechanical engineer and about half of my career was in factories and warehouses and when i think about why kkr thought i would be a good fit they knew that i knew the products and had used the products and competed against the products and more than anything i believed in the quality of the company and the products which was what it took four years ago there was a lot of um there were many open questions about around what would be required for the company to grow and be successful and at an absolute minimum whether it's you or me or somebody else you had to look at it and say wow these are great products customers will love these products and they'll buy them if you couldn't believe that you probably wouldn't have taken the ceo job and i i knew enough to say products are in good shape they've been invested in and cared for properly we can go out and grow the business they found me i was a good fit i took a look at it and said i think i'm the right person to grow this business and it has worked out as planned which doesn't always happen but in this case it's happened rare rarely happens i might add rarely happens so steve give me a sense of how the mix has changed since 2017. again you had a big on-prem business a big maintenance contract sla oriented business you're trying to transition a lot of this to the cloud but what did the revenue mix look like in 2017 what was total top line and what percent was licensing sas yeah so i think the best two points the best way to look at it would be four years ago in a given quarter we would book uh 90 on prem 10 sas or less in the most recent quarter it was a 60 40 split flip-flop so 60 sas forty percent on friends so we we have crossed the rubicon we do book more sas than on prem and that did take the full four years to get to that point and i don't think we'll ever go back i think from this point forward we'll always book more sas there is a um a segment that really likes on-prem and in many cases it could be a a family business where they are good at managing assets because the biggest difference with on-prem is you have a cabinet with servers in it you know dell servers or whatever and if you're good at managing those and patching and upgrading you got people that have that know-how on-prem can be very cost efficient but it requires that level of skill i think that for us uh 60 40 split will probably move towards um 80 20. i don't know if it'll ever go much beyond that because i think there'll always be a segment that likes to be do-it-yourselfers when it comes to managing the erp system that's my guess and with this transition again you also have to manage growth right i mean people want to see growth in a business not just changing revenue and cannibalizing on-prem for sas so if you said you think you're about to break a billion dollars an ar about you know third of that's going to be sas where were you exactly a year ago in terms of run rate top line yeah a year ago the rum rate was was about seven or eight percent lower so we've been a steady mid to high single digit top line grower because the number is big you know you you yeah you're you're good with numbers i am too so the nominal amount's big enough that we've grown in that range and we'll probably go grow closer to 10 the top line this year having said that the because sas has been a quarter to a third that has grown at three or four times that fast we've typically seen 30 to 40 growth sometimes more in that sas business and it's most of our growth and with the on-prem seeing it be roughly flat it's um the on-prem business the maintenance business it isn't contracting it isn't getting smaller but it's almost perfectly flat are debt providers or other people that are putting valuations in the business do you feel like they're appreciating the rapid growth of the sas business considering it's a little bit muddied from all the other revenue lines yeah you know it's a great question i think two years ago we were just at the point where they noticed it a year ago when clayton dublin rice was putting a price tag on us valuing us they did appreciate it at this point with the numbers we're talking about they absolutely do but there's kind of a within your question i think there's a saturation point at around third to a half of your arr when you get to that point being cloud people do have to say you're kind of a cloud business and then with the bookings number i gave you because we're booking more sas anything else it changes the valuation and it'll be interesting for people like us to see whether or not that valuation model holds up i mean there's no excel model that says you should have a different discount rate for one revenue stream versus another but people do like cloud as far as valuation and that is in style and probably will be at least for a while yeah well this is this is a little bit what i don't understand because you've got these companies like uipath and databricks which are trading at...