Document and Entity Information
Document and Entity Information - shares | 9 Months Ended | |
Sep. 30, 2015 | Oct. 29, 2015 | |
Document and Entity Information | ||
Entity Registrant Name | EPIQ SYSTEMS INC | |
Entity Central Index Key | 1,027,207 | |
Document Type | 10-Q | |
Document Period End Date | Sep. 30, 2015 | |
Amendment Flag | false | |
Current Fiscal Year End Date | --12-31 | |
Entity Current Reporting Status | Yes | |
Entity Filer Category | Accelerated Filer | |
Entity Common Stock, Shares Outstanding | 37,513,009 | |
Document Fiscal Year Focus | 2,015 | |
Document Fiscal Period Focus | Q3 |
CONDENSED CONSOLIDATED BALANCE
CONDENSED CONSOLIDATED BALANCE SHEETS - USD ($) $ in Thousands | Sep. 30, 2015 | Dec. 31, 2014 |
Current Assets: | ||
Cash and cash equivalents | $ 12,616 | $ 54,226 |
Trade accounts receivable, less allowance for doubtful accounts of $1,714 and $3,986 respectively | 146,260 | 117,854 |
Prepaid expenses | 14,304 | 12,934 |
Income taxes receivable | 6,478 | 9,437 |
Deferred income taxes | 5,400 | 4,625 |
Other current assets | 373 | 71 |
Total Current Assets | 185,431 | 199,147 |
Long-term Assets: | ||
Property and equipment, net | 80,493 | 70,579 |
Internally developed software, net | 15,742 | 14,713 |
Goodwill | 478,773 | 404,187 |
Other intangibles, net | 49,964 | 29,605 |
Other long-term assets | 16,103 | 20,021 |
Total Long-term Assets | 641,075 | 539,105 |
Total Assets | 826,506 | 738,252 |
Current Liabilities: | ||
Accounts payable | 20,199 | 18,548 |
Current maturities of long-term obligations | 12,279 | 10,959 |
Accrued compensation | 19,979 | 18,673 |
Customer deposits | 1,742 | 2,534 |
Deferred revenue | 4,022 | 2,276 |
Dividends payable | 3,532 | 3,376 |
Other accrued expenses | 9,995 | 7,988 |
Total Current Liabilities | 71,748 | 64,354 |
Long-term Liabilities: | ||
Deferred income taxes | 53,383 | 34,650 |
Other long-term liabilities | 14,371 | 11,789 |
Long-term obligations (excluding current maturities) | 386,646 | 302,522 |
Total Long-term Liabilities | $ 454,400 | $ 348,961 |
Commitments and contingencies | ||
Equity: | ||
Preferred stock-$1 par value; 2,000,000 shares authorized; none issued and outstanding | ||
Common stock $0.01 par value; authorized 100,000,000 shares; issued and outstanding September 30, 2015-40,835,651 and 37,482,297 shares, respectively; issued and outstanding December 31, 2014-40,835,651 and 36,680,469 shares, respectively | $ 408 | $ 408 |
Additional paid-in capital | 294,601 | 294,054 |
Accumulated other comprehensive loss | (7,930) | (4,362) |
Retained earnings | 57,617 | 88,391 |
Treasury stock, at cost-3,353,354 shares and 4,155,182 shares, respectively | (44,338) | (53,554) |
Total Equity | 300,358 | 324,937 |
Total Liabilities and Equity | $ 826,506 | $ 738,252 |
CONDENSED CONSOLIDATED BALANCE3
CONDENSED CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) $ in Thousands | Sep. 30, 2015 | Dec. 31, 2014 |
CONDENSED CONSOLIDATED BALANCE SHEETS | ||
Trade accounts receivable, allowance for doubtful accounts (in dollars) | $ 1,714 | $ 3,986 |
Preferred stock, par value (in dollars per share) | $ 1 | $ 1 |
Preferred stock, shares authorized | 2,000,000 | 2,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
Common stock, shares authorized | 100,000,000 | 100,000,000 |
Common stock, shares issued | 40,835,651 | 40,835,651 |
Common stock, shares outstanding | 37,482,297 | 36,680,469 |
Treasury stock, shares | 3,353,354 | 4,155,182 |
CONDENSED CONSOLIDATED STATEMEN
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Revenue: | ||||
Operating revenue | $ 131,325 | $ 103,955 | $ 369,637 | $ 335,626 |
Reimbursable expenses | 11,210 | 7,051 | 29,936 | 23,707 |
Total Revenue | 142,535 | 111,006 | 399,573 | 359,333 |
Operating Expense: | ||||
Direct cost of operating revenue (exclusive of depreciation and amortization shown separately below) | 64,420 | 48,193 | 183,350 | 163,361 |
Reimbursable expenses | 10,712 | 6,827 | 28,506 | 23,064 |
Selling, general and administrative expense | 42,267 | 35,332 | 126,104 | 125,870 |
Depreciation and software and leasehold amortization | 9,787 | 9,693 | 28,050 | 27,648 |
Amortization of identifiable intangible assets | 5,831 | 3,184 | 13,326 | 9,470 |
Impairment of goodwill and identifiable intangible assets | 1,162 | |||
Fair value adjustment to contingent consideration | 19 | (1,182) | 1,142 | |
Other operating expense, net | 1,308 | 215 | 4,306 | 792 |
Total operating expense | 134,344 | 103,444 | 383,622 | 351,347 |
Operating income | 8,191 | 7,562 | 15,951 | 7,986 |
Interest expense (income): | ||||
Interest expense | 5,374 | 3,945 | 15,083 | 12,674 |
Interest income | (17) | (4) | (22) | (17) |
Net Interest Expense | 5,357 | 3,941 | 15,061 | 12,657 |
Income (loss) before income taxes | 2,834 | 3,621 | 890 | (4,671) |
Provision for (benefit from) income taxes | 22,014 | (1,389) | 21,578 | (3,964) |
Net income (loss) | $ (19,180) | $ 5,010 | $ (20,688) | $ (707) |
Net income (loss) per common share: | ||||
Basic | $ (0.52) | $ 0.14 | $ (0.57) | $ (0.02) |
Diluted | $ (0.52) | $ 0.14 | $ (0.57) | $ (0.02) |
Weighted average common shares outstanding: | ||||
Basic | 36,706 | 35,780 | 36,509 | 35,339 |
Diluted | 36,706 | 36,288 | 36,509 | 35,339 |
Cash dividends declared per share of common stock | $ 0.09 | $ 0.09 | $ 0.27 | $ 0.27 |
CONDENSED CONSOLIDATED STATEME5
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS | ||||
Net income (loss) | $ (19,180) | $ 5,010 | $ (20,688) | $ (707) |
Other comprehensive income (loss): | ||||
Foreign currency translation adjustment, net of $0 tax in all periods | (1,483) | (1,775) | (1,510) | (720) |
Unrealized gains (losses) on derivatives, net of tax expense (benefit) of $332, $58, $0, and $(545), respectively | (1,510) | 73 | (2,058) | (737) |
Comprehensive income (loss) | $ (22,173) | $ 3,308 | $ (24,256) | $ (2,164) |
CONDENSED CONSOLIDATED STATEME6
CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE LOSS (Parenthetical) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS | ||||
Foreign currency translation adjustment, net of tax | $ 0 | $ 0 | $ 0 | $ 0 |
Unrealized gains (losses) on derivatives, tax expense (benefit) | $ 332 | $ 58 | $ 0 | $ (545) |
CONDENSED CONSOLIDATED STATEME7
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY - USD ($) shares in Thousands, $ in Thousands | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Income (Loss) | Retained Earnings | Treasury Stock | Total |
Balance at Dec. 31, 2013 | $ 403 | $ 291,414 | $ (541) | $ 102,754 | $ (68,016) | $ 326,014 |
Balance (in shares) at Dec. 31, 2013 | 40,299 | (5,307) | ||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net loss | (707) | (707) | ||||
Other comprehensive loss | (1,457) | (1,457) | ||||
Tax deficiency from share-based compensation | (968) | (968) | ||||
Restricted common stock issued under share-based compensation plans | $ 5 | 1,712 | $ 1,289 | 3,006 | ||
Restricted common stock issued under share-based compensation plans (in shares) | 537 | 100 | ||||
Stock option exercises | (1,536) | $ 11,932 | 10,396 | |||
Stock option exercises (in shares) | 923 | |||||
Common stock repurchased under share-based compensation plans | $ (3,982) | (3,982) | ||||
Common stock repurchased under share-based compensation plans (in shares) | (276) | |||||
Dividends declared ($0.27 per share) | (9,690) | (9,690) | ||||
Share-based compensation expense | 4,904 | 4,904 | ||||
Balance at Sep. 30, 2014 | $ 408 | 295,526 | (1,998) | 92,357 | $ (58,777) | 327,516 |
Balance (in shares) at Sep. 30, 2014 | 40,836 | (4,560) | ||||
Balance at Dec. 31, 2014 | $ 408 | 294,054 | (4,362) | 88,391 | $ (53,554) | 324,937 |
Balance (in shares) at Dec. 31, 2014 | 40,836 | (4,155) | ||||
Increase (Decrease) in Stockholders' Equity | ||||||
Net loss | (20,688) | (20,688) | ||||
Other comprehensive loss | (3,568) | (3,568) | ||||
Tax benefit from share-based compensation | 9 | 9 | ||||
Restricted common stock issued under share-based compensation plans | (4,560) | $ 9,939 | 5,379 | |||
Restricted common stock issued under share-based compensation plans (in shares) | 770 | |||||
Stock option exercises | (107) | $ 3,428 | 3,321 | |||
Stock option exercises (in shares) | 260 | |||||
Common stock repurchased under share-based compensation plans | $ (4,151) | (4,151) | ||||
Common stock repurchased under share-based compensation plans (in shares) | (228) | |||||
Dividends declared ($0.27 per share) | (10,086) | (10,086) | ||||
Share-based compensation expense | 5,205 | 5,205 | ||||
Balance at Sep. 30, 2015 | $ 408 | $ 294,601 | $ (7,930) | $ 57,617 | $ (44,338) | $ 300,358 |
Balance (in shares) at Sep. 30, 2015 | 40,836 | (3,353) |
CONDENSED CONSOLIDATED STATEME8
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Parenthetical) - $ / shares | Sep. 09, 2015 | Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 |
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY | |||||
Common Stock, Dividends, Per Share, Declared | $ 0.09 | $ 0.09 | $ 0.09 | $ 0.27 | $ 0.27 |
CONDENSED CONSOLIDATED STATEME9
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2015 | Sep. 30, 2014 | |
CASH FLOWS FROM OPERATING ACTIVITIES: | ||
Net cash provided by operating activities | $ 46,796 | $ 37,364 |
Cash flows from investing activities: | ||
Cash paid for business acquisitions, net of cash acquired | (124,550) | (302) |
Purchase of property and equipment | (15,159) | (23,436) |
Internally developed software costs | (7,290) | (5,379) |
Cash proceeds from sale of assets | 110 | 597 |
Net cash used in investing activities | (146,889) | (28,520) |
Cash flows from financing activities: | ||
Debt issuance costs | (1,681) | (837) |
Proceeds from borrowings of long-term debt | 75,000 | |
Repayment of long-term debt and other long-term obligations | (10,958) | (8,942) |
Proceeds from revolver borrowings | 23,000 | |
Repayment of revolver borrowings | (16,000) | |
Payment of acquisition-related liabilities | (92) | (4,963) |
Excess tax benefit related to share-based compensation | 439 | 953 |
Common stock repurchases | (4,151) | (3,982) |
Cash dividends paid | (9,929) | (9,544) |
Proceeds from exercise of stock options | 3,321 | 10,403 |
Net cash provided by (used in) financing activities | 58,949 | (16,912) |
Effect of exchange rate changes on cash | (466) | (137) |
Net decrease in cash and cash equivalents | (41,610) | (8,205) |
Cash and cash equivalents at beginning of period | 54,226 | 40,336 |
Cash and cash equivalents at end of period | 12,616 | 32,131 |
Supplemental disclosure of cash flow information: | ||
Cash paid for interest | 12,624 | 10,606 |
Cash (recovered) paid for income taxes, net | (7,047) | 6,625 |
Non-cash investing and financing transactions: | ||
Property, equipment, and leasehold improvements accrued in accounts payable | 2,893 | 2,047 |
Capital expenditures funded by capital lease borrowings | 6,503 | 446 |
Capital leases assumed in business acquisition | 9,061 | |
Dividends declared | $ 3,500 | 3,289 |
Acquisition-related liabilities | $ 976 |
ACCOUNTING POLICIES, INTERIM FI
ACCOUNTING POLICIES, INTERIM FINANCIAL STATEMENTS AND BASIS OF PRESENTATION | 9 Months Ended |
Sep. 30, 2015 | |
ACCOUNTING POLICIES, INTERIM FINANCIAL STATEMENTS AND BASIS OF PRESENTATION | |
ACCOUNTING POLICIES, INTERIM FINANCIAL STATEMENTS AND BASIS OF PRESENTATION | NOTE 1: ACCOUNTING POLICIES, INTERIM FINANCIAL STATEMENTS AND BASIS OF PRESENTATION The Condensed Consolidated Financial Statements of Epiq Systems, Inc. (“Epiq,” “we,” “our,” “us” or the “Company”) included herein have been prepared by the Company, without audit, in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”) and pursuant to the rules and regulations of the United States Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to such rules. The Company believes that the disclosures are adequate to enable a reasonable understanding of the information presented. The Condensed Consolidated Financial Statements included in this Form 10-Q should be read in conjunction with the consolidated financial statements and the related notes, as well as Management’s Discussion and Analysis of Financial Condition and Results of Operations included in the Company’s Annual Report on Form 10-K, as amended, for the year ended December 31, 2014 (“2014 Form 10-K”) and Management’s Discussion and Analysis of Financial Condition and Results of Operations included in this Quarterly Report on Form 10-Q. The preparation of financial statements in accordance with U.S GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements. Estimates also affect the reported amounts of revenues and expenses during the periods reported. Actual results may differ from those estimates. In the opinion of the management of Epiq, the unaudited Condensed Consolidated Financial Statements contain all adjustments necessary for a fair presentation of the results for interim periods. All adjustments made were of a normal and recurring nature. Appropriate reclassifications have been recorded in preparing the Condensed Consolidated Financial Statements. The results of operations for the three and nine months ended September 30, 2015, are not necessarily indicative of the results expected for other interim periods or for the full year ending December 31, 2015. Recently Issued Accounting Standards In April 2015, the Financial Accounting Standards Board (the “FASB”) issued accounting standard update (“ASU”) No. 2015-03 , Interest - Imputation of Interest: “ Simplifying the Presentation of Debt Issuance Costs.” This guidance changes the requirements for the reporting of debt issuance costs in financial statements. Upon adoption an entity would be required to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. This guidance is effective retrospectively for annual and interim periods after December 15, 2015. Early adoption of the guidance is permitted for financial statements that have not been previously issued. We will adopt this guidance during the fourth quarter of 2015. As of September 30, 2015, we had $6.7 million of debt issuance cost assets recorded in “Other long-term assets” in our Condensed Consolidated Balance Sheets. In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805): “Simplifying the Accounting for Measurement-Period Adjustments”, which eliminates the requirement for an acquirer in a business combination to account for measurement-period adjustments retrospectively. Under this guidance, acquirers must recognize measurement-period adjustments in the period in which they determine the amounts, including the effect on earnings of any amounts they would have recorded in previous periods if the accounting had been completed at the acquisition date. This guidance is effective for fiscal years beginning after December 15, 2016, with early adoption permitted. We elected to early adopt this ASU as of September 30, 2015. The adoption of this ASU did not have a material impact on our Condensed Consolidated Financial Statements. In May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers (Topic 606)”, which supersedes the revenue recognition requirements in Accounting Standards Codification 605, Revenue Recognition. This new revenue guidance outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most of the current revenue recognition guidance. The new guidance requires that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. To achieve this core principle, an entity should apply the following steps: (1) identify the contract with a customer, (2) identify the performance obligations under the contract, (3) determine the transaction price, (4) allocate the transaction price to the performance obligations under the contract and (5) recognize revenue when (or as) the entity satisfies a performance obligation. The new guidance also provides for additional disclosures with respect to revenues and cash flows arising from contracts with customers. This new revenue guidance was going to be effective for Epiq beginning in the first quarter of fiscal 2017. In August 2015, the FASB deferred the effective date by one year. Early adoption as of the original effective date will be permitted. Entities have the option of using either a full retrospective or a modified approach (cumulative effect adjustment in period of adoption) to adopt the new guidance. We are currently assessing the impact of this new revenue guidance on our consolidated financial position, results of operations and cash flows and will adopt this new guidance effective January 1, 2018. |
ACQUISITIONS
ACQUISITIONS | 9 Months Ended |
Sep. 30, 2015 | |
ACQUISITIONS | |
ACQUISITIONS | NOTE 2: ACQUISITIONS On April 30, 2015, Epiq and two of its wholly-owned subsidiaries completed the acquisition of all of the capital stock of Iris Data Services, Inc., a Texas corporation (“Iris”) pursuant to a Stock Purchase Agreement, dated April 7, 2015 (the “Purchase Agreement”). Under the terms of the Purchase Agreement, the aggregate purchase consideration was $133.7 million (the “Purchase Consideration”), consisting of $124.6 million in cash consideration (“Cash Consideration”) and $9.1 million of assumed capital lease obligations of the seller. The Cash Consideration was funded with existing cash and borrowings under our Credit Agreement (defined in Note 4 to the Condensed Consolidated Financial Statements). Of the Cash Consideration, $68.6 million was paid to the seller at closing and $55.2 million was paid to and then distributed by Iris to participants in the Amended and Restated Iris Data Services, Inc. Participation Plan (the “Plan”), in accordance with the terms of the Plan and the Purchase Agreement. The remaining Cash Consideration of $0.8 million, consisting of $0.6 million due to Plan participants and $0.2 million related to a post-closing working capital adjustment was paid during the three months ended September 30, 2015. The aggregate distributions to Plan participants are expected to result in post-closing tax benefits to Epiq of approximately $23.0 million. In addition, approximately $13.0 million of the Cash Consideration was placed in escrow for fifteen months after the closing as security for potential future indemnification claims. Iris is a leading provider of managed services for the legal profession including electronic discovery and document review. The Iris acquisition significantly accelerates Epiq’s strategic plan to offer managed services solutions to its existing global client base, while bringing Epiq’s eDiscovery and document review resources to a new client base. The results of operations of Iris have been included in Epiq’s Condensed Consolidated Statement of Operations subsequent to the April 30, 2015 acquisition date. Iris’s revenue and net loss included in our results of operations for the three months and nine months ended September 30, 2015 were $11.0 million and $2.8 million, and $18.7 million and $4.2 million, respectively. The following table summarizes the preliminary estimated fair values of the assets acquired and liabilities assumed as of the acquisition date. The Purchase Consideration was allocated to the assets acquired and liabilities assumed, including identifiable intangible assets, based on their respective fair values at the date of acquisition. This allocation resulted in goodwill of $74.9 million, all of which has been assigned to Epiq’s Technology segment. The recognized goodwill is primarily attributable to expected long-term growth in Iris’s operating results. Approximately $5.3 million of the goodwill is deductible for income tax purposes. The initial accounting for the acquisition of Iris is currently incomplete. We are in the process of obtaining information relative to the fair value of working capital accounts, including the income tax receivable, deferred income taxes and the valuation of the acquired intangible assets. The valuations will consist of appraisal reports, discounted cash flow analyses, or other appropriate valuation techniques to determine the fair value of the assets acquired or liabilities assumed. A majority of the deferred income taxes recognized as a component of the purchase price allocation is a result of the difference between the book and tax basis of the amortizable intangible assets recognized. The amount allocated to the deferred income tax liability is subject to change as a result of the final allocation of the purchase price to amortizable intangibles and property and equipment. (in thousands) Cash and cash equivalents $ Accounts receivable Income tax receivable Other current assets Deferred income tax assets Property and equipment Other long-term assets Intangible assets Goodwill Total assets acquired Accounts payable Accrued liabilities Deferred revenue Deferred income tax liabilities Capital lease obligations Total liabilities assumed Net assets acquired $ The fair values of intangible assets acquired have been initially estimated by utilizing a discounted cash flow approach, with the assistance of an independent appraisal firm. The intangible assets acquired as part of the Iris acquisition are being amortized over their expected estimated economic benefit period, and the preliminary fair values consist of the following: (in thousands) Fair Value Useful Life Customer relationships $ 8 years Technology 3 years Trade name 10 years Non-compete agreements 2 – 5 years Total $ Pro Forma Results of Operations The following table presents the unaudited pro forma combined results of operations of Epiq and Iris for the three and nine months ended September 30, 2015 and 2014, after giving effect to certain pro forma adjustments including: (i) amortization of acquired intangible assets, (ii) the impact of acquisition-related expenses, and (iii) interest expense adjustment for historical long-term debt of Iris that was repaid and interest expense on additional borrowings by Epiq to fund the acquisition. Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2015 2014 2015 2014 Total revenues $ $ $ $ Net income (loss) $ ) $ $ ) $ ) The unaudited pro forma financial results assume that the Iris acquisition occurred on January 1, 2014 and are not necessarily indicative of the actual results that would have occurred had those transactions been completed on that date. Furthermore, they do not reflect the impacts of any potential operating efficiencies, savings from expected synergies, or costs to integrate the operations. The unaudited pro forma financial results are not necessarily indicative of the future results to be expected for the consolidated operations. Acquisition-related expenses were $2.5 million for the nine months ended September 30, 2015 and are included in “Other operating expense” in the Condensed Consolidated Statement of Operations. Debt financing costs associated with the Iris acquisition were $1.0 million for the nine months ended September 30, 2015. Approximately $0.3 million of the debt financing costs were capitalized and included in “Other long-term assets” in the Condensed Consolidated Balance Sheets. The remaining $0.7 million of costs were expensed and included in “Interest expense” in the Condensed Consolidated Statements of Operations. These expenses were included in the unaudited pro forma combined results of operations of Epiq and Iris in fiscal 2014. |
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS | 9 Months Ended |
Sep. 30, 2015 | |
GOODWILL AND INTANGIBLE ASSETS | |
GOODWILL AND INTANGIBLE ASSETS | NOTE 3: GOODWILL AND INTANGIBLE ASSETS The change in the carrying amount of goodwill for the nine months ended September 30, 2015 was as follows: Technology Segment Bankruptcy and Settlement Administration Segment Total (in thousands) Balance as of December 31, 2014 $ $ $ Acquisitions — Impairment — ) ) Foreign currency translation ) — ) Balance as of September 30, 2015 $ $ $ The change in the carrying amount of identifiable intangible assets, net for the nine months ended September 30, 2015 was as follows: Customer Relationships Trade Names Acquired Technology Non-compete Agreements Total (in thousands) Balance at December 31, 2014 $ $ $ $ $ Acquisitions Impairment — — ) — ) Amortization ) ) ) ) ) Balance at September 30, 2015 $ $ $ $ $ The following table outlines the estimated future amortization expense related to intangible assets at September 30, 2015: Year Ending December 31, (in thousands) 2015 (From October 1, 2015 to December 31, 2015) 2016 2017 2018 2019 Thereafter Total $ Impairment of goodwill and identifiable intangible assets During the second quarter of 2015, management approved a plan to exit the operating business of Minus -10 Software, LLC (“Minus 10”), and as a result, we recorded a non-cash impairment charge of $1.2 million related to the Minus 10 goodwill and acquired intangible assets. In August 2015, we sold our 100% equity interest in Minus 10 for an amount immaterial to the Condensed Consolidated Financial Statements. The historical assets and liabilities and operating results of Minus 10 are included in the Bankruptcy and Settlement Administration segment until the date of disposition and are immaterial to the Condensed Consolidated Financial Statements. |
LONG-TERM OBLIGATIONS
LONG-TERM OBLIGATIONS | 9 Months Ended |
Sep. 30, 2015 | |
LONG-TERM OBLIGATIONS | |
LONG-TERM OBLIGATIONS | NOTE 4: LONG-TERM OBLIGATIONS The following is a summary of long-term obligations outstanding (dollars in thousands): Final Maturity Date Weighted- Average Interest Rate (1) September 30, 2015 December 31, 2014 Senior secured term loan August 2020 4.50% $ $ Senior secured revolving loan August 2018 4.44% — Capital leases August 2021 4.64% Notes payable September 2017 2.20% Acquisition-related liabilities n/a n/a — Total long-term obligations, including current portion Current maturities of long-term obligations Senior secured term loan ) ) Capital leases ) ) Notes payable ) ) Acquisition-related liabilities — ) Total Current maturities of long-term obligations ) ) Total Long-term obligations $ $ (1) Weighted average interest rate as of September 30, 2015. Credit Agreement As of September 30, 2015, we have a $475 million senior secured credit facility consisting of a $100 million senior secured revolving loan commitment, maturing in August 2018, and a $375 million amortizing senior secured term loan, maturing in August 2020 (the “Credit Agreement”). On January 26, 2015, we entered into the Second Amendment to the Credit Agreement (the “Second Amendment”), which increased the senior secured term loan interest rate options by 25 basis points to the following: (1) 2.75% plus prime rate subject to a 1.75% floor; or (2) 3.75% plus one, two, three or six month LIBOR subject to a 0.75% LIBOR floor, for an aggregate floating rate floor of 4.50%. The Second Amendment also amended the definition of “Applicable Margin” increasing the margin determined by reference to our consolidated net leverage ratio (as defined in the Credit Agreement) for purposes of calculating the interest rate for base rate loans, Eurodollar loans and the fee applicable to letters of credit as specified therein. In addition, the Second Amendment amended the definitions of “Consolidated EBITDA”, “Consolidated Net Income” and “Excess Cash Flow” to permit us to add back the additional following charges: (1) severance and reorganization costs and expenses incurred during any trailing twelve month period that includes a fiscal quarter ending on or after January 1, 2014, and on or prior to December 31, 2014; and (2) certain fees, costs and expenses incurred by us in connection with our previously announced review of certain strategic and financial alternatives, including potential proxy contests. On April 30, 2015, we entered into the Third Amendment to the Credit Agreement (the “Third Amendment”), which increased the borrowings outstanding under the senior secured term loan by an aggregate principal amount of $75 million. The Third Amendment provides for repayment of borrowings outstanding under the senior secured term loan in 21 quarterly payments of principal of $0.9 million, commencing on June 30, 2015, with the remaining principal balance of the term loan due upon the maturity date in August 2020. As of September 30 2015, we had $0.9 million in letters of credit outstanding that reduce the available borrowing capacity under the senior secured revolving loan. The following table summarizes maturities of long-term obligations as of September 30, 2015, that have materially changed from those disclosed in Note 5 to the consolidated financial statements included in our 2014 Form 10-K. (in thousands) Credit Capital Year Ending December 31, Agreement Leases 2015 (From October 1, 2015 to December 31, 2015) $ $ 2016 2017 2018 2019 Thereafter Total $ $ |
EQUITY
EQUITY | 9 Months Ended |
Sep. 30, 2015 | |
EQUITY | |
EQUITY | NOTE 5: EQUITY Share Repurchases We have a policy that requires us to repurchase shares of our common stock to satisfy employee tax withholding obligations upon the vesting of restricted stock awards or the exercise of stock options and, at the participant’s election, shares of common stock surrendered to the Company for satisfaction of the exercise price of stock options. During the nine months ended September 30, 2015 and 2014 we repurchased 227,700 shares of common stock for $4.2 million and 276,032 shares of common stock for $4.0 million, respectively. Additionally, during the nine months ended September 30, 2015, 1,889 shares of common stock were surrendered to us to satisfy the exercise price of stock options. Dividends On September 9, 2015, the Board of Directors (the “Board”) of Epiq declared a cash dividend of $0.09 per outstanding share of common stock payable on November 16, 2015 to shareholders of record as of the close of business on October 15, 2015. The aggregate amount of the dividends declared for the three and nine months ended September 30, 2015 was $3.4 million and $10.1 million, respectively. Shareholder Rights Agreement and Rights Dividend On September 18, 2014, we entered into a Rights Agreement (the “Rights Agreement”) pursuant to which the Board declared a dividend of one preferred stock purchase right (a “Right”) for each outstanding share of common stock of the Company. The dividend was paid on September 29, 2014, to holders of record as of the close of business on that date. On July 7, 2015, all Rights issued under the Rights Agreement expired and are no longer outstanding. Accumulated Other Comprehensive Loss, Net The following table summarizes the components of Accumulated other comprehensive loss (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Foreign currency translation adjustments Balance at beginning of period $ ) $ $ ) $ ) Other comprehensive loss , net of tax ) ) ) ) Balance at end of period $ ) $ ) $ ) $ ) Unrealized loss on cash flow hedges Balance at beginning of period $ ) $ ) $ ) $ — Other comprehensive income (loss) before reclassification adjustment, net of tax ) ) ) Reclassification adjustments, net of tax — — Balance at end of period $ ) $ ) $ ) $ ) |
EARNINGS PER SHARE
EARNINGS PER SHARE | 9 Months Ended |
Sep. 30, 2015 | |
EARNINGS PER SHARE | |
EARNINGS PER SHARE | NOTE 6: EARNINGS PER SHARE Basic earnings per common share is computed on the basis of weighted-average outstanding shares of common stock. Diluted earnings per common share is computed on the basis of basic weighted-average outstanding common shares adjusted for the dilutive effect, if any, of dilutive securities which included outstanding stock options and nonvested restricted stock awards. The following table summarizes basic and diluted earnings per share (in thousands, except per share amounts). Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Net income (loss) $ ) $ $ ) $ ) Weighted-average common shares outstanding: Basic common shares Effect of dilutive securities — — — Diluted common shares Net income (loss) per common share: Basic net income (loss) per common share $ ) $ $ ) $ ) Diluted net income (loss) per common share $ ) $ $ ) $ ) Potentially dilutive shares excluded from the calculation: Stock options and nonvested shares excluded as their inclusion would be anti-dilutive |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 9 Months Ended |
Sep. 30, 2015 | |
FAIR VALUE MEASUREMENTS | |
FAIR VALUE MEASUREMENTS | NOTE 7: FAIR VALUE MEASUREMENTS Recurring Fair Value Measurements The following table provides the financial assets and liabilities carried at fair value, in thousands, measured on a recurring basis as of September 30, 2015 and December 31, 2014 using the fair value hierarchy prescribed by U.S. GAAP. The fair value hierarchy has three levels based on the reliability of the inputs used to determine fair value. Level 1 refers to fair values determined based on quoted prices in active markets for identical assets. Level 2 refers to fair values estimated using significant other observable inputs. Level 3 includes fair values estimated using significant non-observable inputs. An asset’s or liability’s classification within the hierarchy is determined based on the lowest level input that is significant to the fair value measurement. Fair Value Measurements Carrying Quoted Prices in Active Markets Significant Other Observable Inputs Significant Unobservable Inputs Value (Level 1) (Level 2) (Level 3) September 30, 2015: Liabilities: Interest rate swap $ $ — $ $ — December 31, 2014: Assets: Interest rate cap $ $ — $ $ — Liabilities: Interest rate swap $ $ — $ $ — Acquisition-related contingent consideration — — Total Liabilities $ $ — $ $ Interest rate swap The fair value of our interest rate swap was determined via the income and market approaches utilizing certain observable inputs including the forward and spot curves for the underlying 1 month LIBOR over the remaining term of the agreement. Based on these characteristics these derivative instruments are classified as Level 2. The fair values of the derivative instruments are subject to material changes based upon changes in the forward curve for 1 month LIBOR and the volatility thereof. Acquisition-related contingent consideration Minus 10 In connection with our April 2014 acquisition of Minus 10, we established a contingent consideration liability considered to be a Level 3 liability. The fair value of the Minus 10 contingent consideration was based on management’s estimate of projected revenues and profit contributions over the measurement period (from April 2014 to December 2020) and an applied discount rate of 25% which was reflective of the inherent risk attributable to this new product line given its status as an early-stage venture. Such unobservable inputs include financial forecasts prepared by management which include estimates of future cash flows, projected revenues and profit contributions, and discount rates. As of the date of acquisition we estimated the original fair value of the contingent consideration to be approximately $0.9 million. During the second quarter of 2015, we remeasured the fair value of the contingent consideration using actual operating results and our revised forecasted operating results for Minus 10 for the remainder of the measurement period. As a result of this remeasurement, the fair value of the contingent consideration was reduced to zero, resulting in a non-cash gain of $1.2 million that is included in “Fair value adjustment to contingent consideration” in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2015. In August 2015, we sold our 100% equity interest in Minus 10 for an amount immaterial to the Condensed Consolidated Financial Statements. There are no further payments remaining under this contingent consideration obligation. De Novo Legal LLC In December 2011, Epiq acquired De Novo Legal LLC and its affiliated companies (“De Novo Legal”). In connection with the acquisition, certain contingent consideration was payable to the De Novo sellers relative to the January 1, 2013 to December 31, 2013 measurement period (the “Earn-out period”). In the first quarter of 2014, the sellers disputed our calculation of the earn-out amount and alleged that the performance measure was higher, thereby triggering the next tier of contingent consideration. Epiq and the sellers participated in a dispute resolution process as specified under the acquisition agreement and in April 2014 agreed to settle this matter for a cash payment to the sellers of $1.5 million which was paid to the sellers in April 2014. As a result, we recorded a total adjustment of $1.5 million to the contingent consideration obligation during the three months ended March 31, 2014, of which $1.1 million is included in “Fair value adjustment to contingent consideration” and $0.4 million is included in “Selling, general and administrative expense” in the Condensed Consolidated Statements of Operations for the nine months ended September 30, 2014. There are no further payments remaining under the contingent consideration obligation with respect to De Novo Legal. The following table represents the change in the acquisition-related contingent consideration obligation during the nine months ended September 30, 2015 and 2014 (in thousands): Fair Value Measurements Using Significant Unobservable Inputs (Level 3) 2015 2014 Beginning balance January 1 $ $ Present value accretion Payments ) ) Fair value related adjustments ) Ending balance September 30 $ — $ Nonrecurring Fair Value Measurements During the nine months ended September 30, 2015, we recorded $1.2 million of non-cash impairment charge related to Minus 10 goodwill and intangible assets. See Note 3 to the Condensed Consolidated Financial Statements for additional information related to the non-cash impairment charge. Other Fair Value Disclosures The carrying amounts of cash and cash equivalents, short-term investments, receivables, accounts payable and accrued expenses approximate their fair values because of the relatively short-term maturities of these financial instruments. As of September 30, 2015 and December 31, 2014, the amounts outstanding under both our credit facility and notes payable approximated fair value due to the borrowing rates currently available to us for debt with similar terms and are classified as Level 2. |
INCOME TAXES
INCOME TAXES | 9 Months Ended |
Sep. 30, 2015 | |
INCOME TAXES | |
INCOME TAXES | NOTE 8: INCOME TAXES We are required to adjust our effective tax rate at each interim period to be consistent with the estimated annual effective tax rate. We are also required to record the tax impact of certain discrete items, unusual or infrequently occurring items including changes in judgment about valuation allowances, and the effects of changes in tax laws or income tax rates, in the interim period in which they occur. In addition, jurisdictions with a projected loss for the year or a cumulative loss for the year-to-date interim period where no tax benefit can be recognized are excluded from the estimated annual effective tax rate. The impact of such an exclusion combined with the tax impact of recording certain discrete items could result in a higher or lower effective tax rate during a particular interim period, based upon the mix of earnings by jurisdiction and timing of actual earnings compared to annual forecast. For the three and nine months ended September 30, 2015, our effective tax rate is not customary and is significantly higher than our statutory income tax rate of approximately 40% in the U.S. and 21% in foreign jurisdictions. Contributing to the non-customary effective tax rates are the recognition of a valuation allowance in the U.S., the mix of pretax income or loss in domestic and foreign jurisdictions and the applicable statutory tax rates in these jurisdictions. Significant judgment is required in determining the timing and amount of valuation allowance to record against our deferred tax assets. Valuation allowances arise due to the uncertainty of realizing deferred tax assets. We assess whether valuation allowances should be established against our deferred tax assets based on the consideration of all positive and negative available evidence, using a “more likely than not” standard. In making such assessments, significant weight is to be given to evidence that can be objectively verified such as historical operating results and current trends. Beginning in the third quarter of 2015, we believe that a valuation allowance is now required due to our historical cumulative loss in the U.S. for the three year period ended September 30, 2015. Moreover, during the three months ended September 30, 2015, we continued to incur U.S. losses that contributed to the cumulative loss position in the U.S. We had positive cumulative earnings in the U.S. for the three year period ended June 30, 2015. The recent continuing U.S. loss is a significant factor in our assessment as it is objectively verifiable, and therefore, is considered significant negative evidence. Other evidence evaluated is our expectation of future taxable income by jurisdiction, which includes forecasted revenue growth and other factors such as strategic initiatives and industry trends. However, three-year historical cumulative losses are one of the most objectively verifiable forms of negative evidence and although estimating future earnings would be positive evidence, such forecasts are not objectively verifiable and are accordingly given less weight when compared to a three-year historical cumulative loss and recent continuing loss. In establishing a full valuation allowance against our U.S. net deferred tax assets during the period, certain deferred tax liabilities related to indefinite lived assets (goodwill) that are not amortized for financial reporting purposes were excluded from measurement. Because the deferred tax liability remains on the balance sheet indefinitely until such asset is impaired or disposed, the liability cannot be scheduled to reverse or considered as a source of income. As a result, these deferred tax liabilities are excluded from the measurement of the net deferred tax asset requiring a valuation allowance. In addition, tax amortization of the underlying assets results in an increase to the related deferred tax liabilities and an increase to tax expense recognized. On the basis of this evaluation, we recorded tax expense of $22.0 million and $21.6 million including the discrete impact of establishing a full valuation allowance against our U.S net deferred tax assets in “Provision for (benefit from) income taxes” in our Condensed Consolidated Statements of Operations for the three and nine months ended September 30, 2015, respectively. Included in tax expense for the nine months ended September 30, 2015 is approximately $2.5 million relating to our foreign operations and approximately $19.0 million resulting from the establishment of the valuation allowance against our U.S. net deferred tax assets and from the increase in the valuation allowance during the period. |
SHARE-BASED COMPENSATION
SHARE-BASED COMPENSATION | 9 Months Ended |
Sep. 30, 2015 | |
SHARE-BASED COMPENSATION. | |
SHARE-BASED COMPENSATION | NOTE 9: SHARE-BASED COMPENSATION We account for our share-based compensation by recognizing the grant date fair value of share-based awards, net of estimated forfeitures, as compensation expense over the underlying requisite service periods of the related awards. The following table presents total share-based compensation expense, which is a non-cash charge, included in the Condensed Consolidated Statements of Operations (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Direct cost of services $ $ $ $ Selling, general and administrative expense Total share-based compensation expense $ $ $ $ Included in pretax share-based compensation expense for the three and nine months ended September 30, 2015, is $2.0 million and $6.2 million of expense, respectively, related to fiscal year 2015 executive officer and employee incentive compensation awards that we plan to settle in Epiq common stock. The accrual is recorded in “Accrued compensation” on the accompanying Condensed Consolidated Balance Sheets as of September 30, 2015. Nonvested Share Awards During the first quarter of 2015, we granted an aggregate of 340,000 shares of performance-based restricted stock awards (“2015 Performance RSAs”) to executive officers and senior management of the Company, with a weighted-average grant date fair value of $18.17 per share. The vesting of the executive officer 2015 Performance RSAs requires certification by the compensation committee of the Board (the “Compensation Committee”) of the achievement of certain company financial performance criteria for the calendar year ending December 31, 2015. If achievement is certified by the Compensation Committee, the 2015 Performance RSAs will vest over the service period, which generally ranges from one to three years from the grant date. The vesting of the 2015 Performance RSAs is contingent upon continued employment by the participant through vesting date. As of September 30, 2015, we have assessed the likelihood that the performance criteria related to the 2015 Performance RSAs will be met and accordingly have recorded the related expense based on the estimated outcome. On January 28, 2014, we granted an aggregate of 225,000 shares of performance-based restricted stock awards (“2014 Performance RSAs”) to executive officers of the Company, with a weighted-average grant date fair value of $15.02. On February 20, 2015, the Compensation Committee certified that the performance condition was achieved and the 2014 Performance RSAs vested as of that date. On February 20, 2015, the Committee approved the grant of 314,869 shares of fully vested common stock, with a weighted-average grant date fair value of $18.28, as payment of 2014 annual incentive compensation to executive officers and employees, which was accrued as a liability and included in “Accrued compensation” on the Condensed Consolidated Balance Sheet as of December 31, 2014. Additionally, during the nine months ended September 30, 2015, we granted an aggregate of 150,000 shares of service-based restricted stock awards (“Service RSAs”), with a weighted-average grant date fair value of $17.01 per share. Of the 150,000 Service RSAs, 50,000 vested immediately, the remaining 100,000 Service RSAs have vesting periods of one to three years from the grant date. Stock Options During the nine months ended September 30, 2015, we granted an aggregate of 175,000 stock options, with a weighted-average exercise price of $17.77. The following table presents the weighted-average assumptions used and the weighted-average fair value per option granted. Nine Months Ended September 30, 2015 Expected life of stock option in years 7 Expected volatility 37% Risk-free interest rate 1.85% Dividend yield 2.3% Weighted average grant-date fair value $5.57 Stock options exercised during the nine months ended September 30, 2015 were 261,548 and had an intrinsic value $0.8 million on the date of exercise. Proceeds from stock options exercised were $3.3 million during the nine months ended September 30, 2015. During the nine months ended September 30, 2015, 1,889 shares of common stock were surrendered to Epiq to satisfy the exercise price of stock options and are included in “Stock option exercises” in the Condensed Consolidated Statements of Changes in Equity. Tax benefits from stock options exercised were $0.3 million during the nine months ended September 30, 2015. As of September 30, 2015, unrecognized compensation cost related to nonvested share-based awards and stock options was $8.7 million and $1.9 million, respectively, which will be recognized over a weighted-average period of approximately 2.2 years and 2.6 years, respectively. As of September 30, 2015, there are 517,494 remaining shares available for issuance under the amended and restated Epiq Systems, Inc. 2004 Equity Incentive Plan. 2015 Inducement Plan On September 3, 2015, the Board adopted the Epiq Systems, Inc. 2015 Inducement Award Plan (the “Inducement Plan”). The Inducement Plan provides for the grant of equity-based awards in the form of non-qualified stock options, incentive stock options, stock appreciation rights, restricted stock awards and shares of Epiq common stock. The Board has reserved 200,000 shares of Epiq common stock for issuance pursuant to equity awards granted under the Inducement Plan to individuals who were not previously employees or non-employee directors of Epiq. The Inducement Plan may be amended or terminated by the Board or the Compensation Committee at any time. The Inducement Plan was adopted in reliance on Nasdaq Listing Rule 5635(c)(4) and did not require shareholder approval. As of September 30, 2015, there have been no stock awards issued under the Inducement Plan. |
SEGMENT REPORTING
SEGMENT REPORTING | 9 Months Ended |
Sep. 30, 2015 | |
SEGMENT REPORTING | |
SEGMENT REPORTING | NOTE 10: SEGMENT REPORTING We report our financial performance based on the following two reportable segments: the Technology segment and the Bankruptcy and Settlement Administration segment. Our Technology segment provides eDiscovery services and technology solutions comprised of consulting, collections and forensics, processing, search and review, and document review to companies and law firms. Produced documents are made available primarily through a hosted environment utilizing our proprietary software and third-party software which allows for efficient attorney review and data requests. Our Bankruptcy and Settlement Administration segment provides managed services and technology solutions that address the needs of our customers with respect to litigation, claims and project administration, compliance matters, controlled disbursements, corporate restructuring, bankruptcy and class action proceedings. On April 30, 2015, we acquired Iris, a leading provider of managed services for the legal profession including electronic discovery and document review. Iris supports Epiq’s strategic plan to offer managed services solutions to its existing global client base, while bringing Epiq’s eDiscovery and document review resources to a new client base. The financial information of Iris is included in the Technology segment. The segment performance measure is based on earnings before interest, taxes, depreciation and amortization, other operating expense, and share-based compensation expense. In management’s evaluation of performance, certain costs, such as compensation for administrative staff and executive management, as well as other enterprise level expenses are not allocated by segment and, accordingly, the following reporting segment results do not include such unallocated costs. Assets reported within a segment are those assets that can be identified to a segment and primarily consist of trade receivables, property, equipment and leasehold improvements, software, identifiable intangible assets and goodwill. Cash, certain tax-related assets, and certain prepaid assets and other assets are not allocated to our segments. Although we can and do identify long-lived assets such as property, equipment and leasehold improvements, software, and identifiable intangible assets to reporting segments, we do not allocate the related depreciation and amortization to the segment as management evaluates segment performance exclusive of these non-cash charges. Following is a summary of segment information for the three months ended September 30, 2015 and 2014 (in thousands): Three Months Ended September 30, 2015 Technology Bankruptcy and Settlement Administration Eliminations Total Operating revenue $ $ $ — $ Intersegment revenue — ) — Operating revenues including intersegment revenue ) Reimbursable expenses — Total revenue ) Direct costs, selling, general and administrative expenses ) Segment performance measure $ $ $ — $ As a percentage of segment operating revenue % % % Three Months Ended September 30, 2014 Technology Bankruptcy and Settlement Administration Eliminations Total Operating revenue $ $ $ — $ Intersegment revenue — ) — Operating revenues including intersegment revenue ) Reimbursable expenses — Total revenue ) Direct costs, selling, general and administrative expenses ) Segment performance measure $ $ $ — $ As a percentage of segment operating revenue % % % Following is a reconciliation of our segment performance measure to consolidated income before income taxes for the three months ended September 30, 2015 and 2014 (in thousands): Three Months Ended September 30, 2015 2014 Segment performance measure $ $ Unallocated corporate expenses ) ) Share-based compensation expense ) ) Depreciation and software and leasehold amortization ) ) Amortization of identifiable intangible assets ) ) Fair value adjustment to contingent consideration ) — Other operating expense, net ) ) Operating income Interest expense, net ) ) Income before income taxes $ $ Following is a summary of segment information for the nine months ended September 30, 2015 and 2014 (in thousands): Nine Months Ended September 30, 2015 Technology Bankruptcy and Settlement Administration Eliminations Total Operating revenue $ $ $ — $ Intersegment revenue — ) — Operating revenues including intersegment revenue ) Reimbursable expenses — Total revenue ) Direct costs, selling, general and administrative expenses ) Segment performance measure $ $ $ — $ As a percentage of segment operating revenue % % % Nine Months Ended September 30, 2014 Technology Bankruptcy and Settlement Administration Eliminations Total Operating revenue $ $ $ — $ Intersegment revenue — ) — Operating revenues including intersegment revenue ) Reimbursable expenses — Total revenue ) Direct costs, selling, general and administrative expenses ) Segment performance measure $ $ $ — $ As a percentage of segment operating revenue % % % Following is a reconciliation of our segment performance measure to consolidated income (loss) before income taxes for the nine months ended September 30, 2015 and 2014 (in thousands): Nine Months Ended September 30, 2015 2014 Segment performance measure $ $ Unallocated corporate expenses ) ) Share-based compensation expense ) ) Depreciation and software and leasehold amortization ) ) Amortization of identifiable intangible assets ) ) Impairment of goodwill and identifiable intangible assets ) — Fair value adjustment to contingent consideration ) Other operating expense, net ) ) Operating income Interest expense, net ) ) Income (loss) before income taxes $ $ ) Following is revenue, determined by the location providing the services, by geographical area for the three and nine months ended September 30, 2015 and 2014 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Total Revenue United States $ $ $ $ United Kingdom Other countries Total revenue $ $ $ $ Following are assets by segment (in thousands): September 30, 2015 December 31, 2014 Total Assets Technology $ $ Bankruptcy and Settlement Administration Corporate and unallocated Total assets $ $ Following are long-lived assets, excluding intangible assets, by geographical area (in thousands): September 30, 2015 December 31, 2014 Long-lived assets United States $ $ Other countries Total long-lived assets $ $ Following are capital expenditures (including software development costs) by segment for the three and nine months ended September 30, 2015 and 2014 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Capital Expenditures Technology $ $ $ $ Bankruptcy and Settlement Administration Corporate and unallocated Total capital expenditures $ $ $ $ |
ACQUISITIONS (Tables)
ACQUISITIONS (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
ACQUISITIONS | |
Schedule of the purchase price of acquisition | (in thousands) Cash and cash equivalents $ Accounts receivable Income tax receivable Other current assets Deferred income tax assets Property and equipment Other long-term assets Intangible assets Goodwill Total assets acquired Accounts payable Accrued liabilities Deferred revenue Deferred income tax liabilities Capital lease obligations Total liabilities assumed Net assets acquired $ |
Schedule of fair value of intangible assets acquired | (in thousands) Fair Value Useful Life Customer relationships $ 8 years Technology 3 years Trade name 10 years Non-compete agreements 2 – 5 years Total $ |
Schedule of unaudited condensed pro forma financial information | Three Months Ended September 30, Nine Months Ended September 30, (in thousands) 2015 2014 2015 2014 Total revenues $ $ $ $ Net income (loss) $ ) $ $ ) $ ) |
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
GOODWILL AND INTANGIBLE ASSETS | |
Schedule of change in the carrying amount of goodwill | Technology Segment Bankruptcy and Settlement Administration Segment Total (in thousands) Balance as of December 31, 2014 $ $ $ Acquisitions — Impairment — ) ) Foreign currency translation ) — ) Balance as of September 30, 2015 $ $ $ |
Schedule of Identifiable intangible assets | Customer Relationships Trade Names Acquired Technology Non-compete Agreements Total (in thousands) Balance at December 31, 2014 $ $ $ $ $ Acquisitions Impairment — — ) — ) Amortization ) ) ) ) ) Balance at September 30, 2015 $ $ $ $ $ |
Schedule of estimated future amortization expense related to intangible assets | Year Ending December 31, (in thousands) 2015 (From October 1, 2015 to December 31, 2015) 2016 2017 2018 2019 Thereafter Total $ |
LONG-TERM OBLIGATIONS (Tables)
LONG-TERM OBLIGATIONS (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
LONG-TERM OBLIGATIONS | |
Summary of long-term debt | The following is a summary of long-term obligations outstanding (dollars in thousands): Final Maturity Date Weighted- Average Interest Rate (1) September 30, 2015 December 31, 2014 Senior secured term loan August 2020 4.50% $ $ Senior secured revolving loan August 2018 4.44% — Capital leases August 2021 4.64% Notes payable September 2017 2.20% Acquisition-related liabilities n/a n/a — Total long-term obligations, including current portion Current maturities of long-term obligations Senior secured term loan ) ) Capital leases ) ) Notes payable ) ) Acquisition-related liabilities — ) Total Current maturities of long-term obligations ) ) Total Long-term obligations $ $ (1) Weighted average interest rate as of September 30, 2015. |
Summary of maturity of long-term obligations outstanding | (in thousands) Credit Capital Year Ending December 31, Agreement Leases 2015 (From October 1, 2015 to December 31, 2015) $ $ 2016 2017 2018 2019 Thereafter Total $ $ |
Equity (Tables)
Equity (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
EQUITY | |
Schedule of Accumulated Other Comprehensive Income (Loss) | The following table summarizes the components of Accumulated other comprehensive loss (dollars in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Foreign currency translation adjustments Balance at beginning of period $ ) $ $ ) $ ) Other comprehensive loss, net of tax ) ) ) ) Balance at end of period $ ) $ ) $ ) $ ) Unrealized loss on cash flow hedges Balance at beginning of period $ ) $ ) $ ) $ — Other comprehensive income (loss) before reclassification adjustment, net of tax ) ) ) Reclassification adjustments, net of tax — — Balance at end of period $ ) $ ) $ ) $ ) |
EARNINGS PER SHARE (Tables)
EARNINGS PER SHARE (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
EARNINGS PER SHARE | |
Schedule of computation of basic and diluted net income per share | The following table summarizes basic and diluted earnings per share (in thousands, except per share amounts). Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Net income (loss) $ ) $ $ ) $ ) Weighted-average common shares outstanding: Basic common shares Effect of dilutive securities — — — Diluted common shares Net income (loss) per common share: Basic net income (loss) per common share $ ) $ $ ) $ ) Diluted net income (loss) per common share $ ) $ $ ) $ ) Potentially dilutive shares excluded from the calculation: Stock options and nonvested shares excluded as their inclusion would be anti-dilutive |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
FAIR VALUE MEASUREMENTS | |
Schedule of assets and liabilities measured and recorded at fair value on a recurring basis | The following table provides the financial assets and liabilities carried at fair value, in thousands, measured on a recurring basis as of September 30, 2015 and December 31, 2014 using the fair value hierarchy prescribed by U.S. GAAP. Fair Value Measurements Carrying Quoted Prices in Active Markets Significant Other Observable Inputs Significant Unobservable Inputs Value (Level 1) (Level 2) (Level 3) September 30, 2015: Liabilities: Interest rate swap $ $ — $ $ — December 31, 2014: Assets: Interest rate cap $ $ — $ $ — Liabilities: Interest rate swap $ $ — $ $ — Acquisition-related contingent consideration — — Total Liabilities $ $ — $ $ |
Schedule of changes in the fair value of contingent consideration related to acquisitions | The following table represents the change in the acquisition-related contingent consideration obligation during the nine months ended September 30, 2015 and 2014 (in thousands): Fair Value Measurements Using Significant Unobservable Inputs (Level 3) 2015 2014 Beginning balance January 1 $ $ Present value accretion Payments ) ) Fair value related adjustments ) Ending balance September 30 $ — $ |
SHARE-BASED COMPENSATION (Table
SHARE-BASED COMPENSATION (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
SHARE-BASED COMPENSATION. | |
Schedule of share-based compensation expense | The following table presents total share-based compensation expense, which is a non-cash charge, included in the Condensed Consolidated Statements of Operations (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Direct cost of services $ $ $ $ Selling, general and administrative expense Total share-based compensation expense $ $ $ $ |
Schedule of weighted-average assumptions used and the weighted-average fair value per option granted | Nine Months Ended September 30, 2015 Expected life of stock option in years 7 Expected volatility 37% Risk-free interest rate 1.85% Dividend yield 2.3% Weighted average grant-date fair value $5.57 |
SEGMENT REPORTING (Tables)
SEGMENT REPORTING (Tables) | 9 Months Ended |
Sep. 30, 2015 | |
SEGMENT REPORTING | |
Summary of segment information | Following is a summary of segment information for the three months ended September 30, 2015 and 2014 (in thousands): Three Months Ended September 30, 2015 Technology Bankruptcy and Settlement Administration Eliminations Total Operating revenue $ $ $ — $ Intersegment revenue — ) — Operating revenues including intersegment revenue ) Reimbursable expenses — Total revenue ) Direct costs, selling, general and administrative expenses ) Segment performance measure $ $ $ — $ As a percentage of segment operating revenue % % % Three Months Ended September 30, 2014 Technology Bankruptcy and Settlement Administration Eliminations Total Operating revenue $ $ $ — $ Intersegment revenue — ) — Operating revenues including intersegment revenue ) Reimbursable expenses — Total revenue ) Direct costs, selling, general and administrative expenses ) Segment performance measure $ $ $ — $ As a percentage of segment operating revenue % % % Following is a summary of segment information for the nine months ended September 30, 2015 and 2014 (in thousands): Nine Months Ended September 30, 2015 Technology Bankruptcy and Settlement Administration Eliminations Total Operating revenue $ $ $ — $ Intersegment revenue — ) — Operating revenues including intersegment revenue ) Reimbursable expenses — Total revenue ) Direct costs, selling, general and administrative expenses ) Segment performance measure $ $ $ — $ As a percentage of segment operating revenue % % % Nine Months Ended September 30, 2014 Technology Bankruptcy and Settlement Administration Eliminations Total Operating revenue $ $ $ — $ Intersegment revenue — ) — Operating revenues including intersegment revenue ) Reimbursable expenses — Total revenue ) Direct costs, selling, general and administrative expenses ) Segment performance measure $ $ $ — $ As a percentage of segment operating revenue % % % |
Schedule of reconciliation of segment performance measure to consolidated income (loss) before income taxes | Following is a reconciliation of our segment performance measure to consolidated income before income taxes for the three months ended September 30, 2015 and 2014 (in thousands): Three Months Ended September 30, 2015 2014 Segment performance measure $ $ Unallocated corporate expenses ) ) Share-based compensation expense ) ) Depreciation and software and leasehold amortization ) ) Amortization of identifiable intangible assets ) ) Fair value adjustment to contingent consideration ) — Other operating expense, net ) ) Operating income Interest expense, net ) ) Income before income taxes $ $ Following is a reconciliation of our segment performance measure to consolidated income (loss) before income taxes for the nine months ended September 30, 2015 and 2014 (in thousands): Nine Months Ended September 30, 2015 2014 Segment performance measure $ $ Unallocated corporate expenses ) ) Share-based compensation expense ) ) Depreciation and software and leasehold amortization ) ) Amortization of identifiable intangible assets ) ) Impairment of goodwill and identifiable intangible assets ) — Fair value adjustment to contingent consideration ) Other operating expense, net ) ) Operating income Interest expense, net ) ) Income (loss) before income taxes $ $ ) |
Schedule of revenue, determined by the location providing the services, by geographical area | Following is revenue, determined by the location providing the services, by geographical area for the three and nine months ended September 30, 2015 and 2014 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Total Revenue United States $ $ $ $ United Kingdom Other countries Total revenue $ $ $ $ |
Schedule of total assets by segment | Following are assets by segment (in thousands): September 30, 2015 December 31, 2014 Total Assets Technology $ $ Bankruptcy and Settlement Administration Corporate and unallocated Total assets $ $ |
Schedule of long-lived assets, excluding intangible assets, by geographical area | Following are long-lived assets, excluding intangible assets, by geographical area (in thousands): September 30, 2015 December 31, 2014 Long-lived assets United States $ $ Other countries Total long-lived assets $ $ |
Schedule of capital expenditures (including software development costs) by segment | Following are capital expenditures (including software development costs) by segment for the three and nine months ended September 30, 2015 and 2014 (in thousands): Three Months Ended September 30, Nine Months Ended September 30, 2015 2014 2015 2014 Capital Expenditures Technology $ $ $ $ Bankruptcy and Settlement Administration Corporate and unallocated Total capital expenditures $ $ $ $ |
ACQUISITIONS (Details)
ACQUISITIONS (Details) - USD ($) $ / shares in Units, $ in Thousands | Apr. 30, 2015 | Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 |
Acquisitions | ||||||
Post closing tax benefit | $ 23,000 | |||||
Cash consideration in escrow deposit | $ 13,000 | $ 13,000 | ||||
Escrow deposit term | 15 months | |||||
Basic net income (loss) per common share | $ (0.52) | $ 0.14 | $ (0.57) | $ (0.02) | ||
Diluted net income (loss) per common share | $ (0.52) | $ 0.14 | $ (0.57) | $ (0.02) | ||
Intangible assets: | ||||||
Goodwill | $ 478,773 | $ 478,773 | $ 404,187 | |||
Capital lease obligations | 9,061 | 9,061 | ||||
Pro forma financial information | ||||||
Revenue | 142,535 | $ 111,006 | 399,573 | $ 359,333 | ||
Net income (loss) | (19,180) | 5,010 | (20,688) | (707) | ||
Interest Expense | 5,374 | 3,945 | 15,083 | 12,674 | ||
Iris Data Services Inc | ||||||
Pro forma financial information | ||||||
Revenue | 11,000 | 18,700 | ||||
Net income (loss) | 2,800 | 4,200 | ||||
Iris Data Services Inc | ||||||
Acquisitions | ||||||
Total purchase price | $ 133,700 | |||||
Cash consideration | 124,600 | |||||
Cash consideration paid to seller | 68,600 | |||||
Cash consideration paid to plan participants | 55,200 | |||||
Cash consideration paid to plan participants and post-closing working capital adjustment | 800 | |||||
Portion of cash consideration payable to plan participants | 600 | 600 | ||||
Post-closing working capital settlement paid to the seller | 200 | 200 | ||||
Goodwill deductible for income tax purposes | 5,300 | |||||
Intangible assets: | ||||||
Fair value of intangible assets acquired | 34,694 | |||||
Cash and cash equivalents | 197 | |||||
Accounts receivable | 15,623 | |||||
Income tax receivable | 1,033 | |||||
Other current assets | 1,484 | |||||
Deferred income tax assets | 21,041 | |||||
Property and equipment | 10,642 | |||||
Other long-term assets | 246 | |||||
Intangible assets | 34,694 | |||||
Goodwill | 74,852 | |||||
Total assets acquired | 159,812 | |||||
Accounts payable | 4,407 | |||||
Accrued liabilities | 4,868 | |||||
Deferred revenue | 1,580 | |||||
Deferred income tax liabilities | 15,149 | |||||
Capital lease obligations | 9,061 | |||||
Total liabilities assumed | 35,065 | |||||
Net assets acquired | 124,747 | |||||
Pro forma financial information | ||||||
Revenue | 142,535 | 119,524 | 416,795 | 387,054 | ||
Net income (loss) | (18,596) | $ 2,278 | (19,940) | $ (8,153) | ||
Acquisition related expense | 2,500 | |||||
Debt financing costs | 1,000 | 1,000 | ||||
Debt financing costs capitalized | $ 300 | 300 | ||||
Interest Expense | $ 700 | |||||
Iris Data Services Inc | Customer relationships | ||||||
Intangible assets: | ||||||
Fair value of intangible assets acquired | $ 15,400 | |||||
Useful life | 8 years | |||||
Iris Data Services Inc | Technology Member | ||||||
Intangible assets: | ||||||
Fair value of intangible assets acquired | $ 8,400 | |||||
Useful life | 3 years | |||||
Iris Data Services Inc | Trade names | ||||||
Intangible assets: | ||||||
Fair value of intangible assets acquired | $ 7,000 | |||||
Useful life | 10 years | |||||
Iris Data Services Inc | Non-compete agreements | ||||||
Intangible assets: | ||||||
Fair value of intangible assets acquired | $ 3,894 | |||||
Iris Data Services Inc | Maximum | Non-compete agreements | ||||||
Intangible assets: | ||||||
Useful life | 5 years | |||||
Iris Data Services Inc | Minimum | Non-compete agreements | ||||||
Intangible assets: | ||||||
Useful life | 2 years |
GOODWILL AND INTANGIBLE ASSET29
GOODWILL AND INTANGIBLE ASSETS (Details) $ in Thousands | 9 Months Ended |
Sep. 30, 2015USD ($) | |
Change in the carrying amount of goodwill | |
Balance at the beginning of period | $ 404,187 |
Acquisitions | 74,852 |
Impairment | (153) |
Foreign currency translation | (113) |
Balance at the end of period | 478,773 |
Technology | |
Change in the carrying amount of goodwill | |
Balance at the beginning of period | 189,071 |
Acquisitions | 74,852 |
Foreign currency translation | (113) |
Balance at the end of period | 263,810 |
Bankruptcy and Settlement Administration Segment | |
Change in the carrying amount of goodwill | |
Balance at the beginning of period | 215,116 |
Impairment | (153) |
Balance at the end of period | $ 214,963 |
GOODWILL AND INTANGIBLE ASSET30
GOODWILL AND INTANGIBLE ASSETS (Details 2) $ in Thousands | 9 Months Ended |
Sep. 30, 2015USD ($) | |
Amortizing and Non-amortizing intangible assets | |
Balance at the beginning of period | $ 29,605 |
Acquisitions | 34,694 |
Impairment | (1,009) |
Amortization | (13,326) |
Balance at the end of period | 49,964 |
Customer relationships | |
Amortizing and Non-amortizing intangible assets | |
Balance at the beginning of period | 23,672 |
Acquisitions | 15,400 |
Amortization | (8,143) |
Balance at the end of period | 30,929 |
Trade names | |
Amortizing and Non-amortizing intangible assets | |
Balance at the beginning of period | 3,279 |
Acquisitions | 7,000 |
Amortization | (1,212) |
Balance at the end of period | 9,067 |
Acquired Technology | |
Amortizing and Non-amortizing intangible assets | |
Balance at the beginning of period | 1,056 |
Acquisitions | 8,400 |
Impairment | (1,009) |
Amortization | (2,410) |
Balance at the end of period | 6,037 |
Non-compete agreements | |
Amortizing and Non-amortizing intangible assets | |
Balance at the beginning of period | 1,598 |
Acquisitions | 3,894 |
Amortization | (1,561) |
Balance at the end of period | $ 3,931 |
GOODWILL AND INTANGIBLE ASSET31
GOODWILL AND INTANGIBLE ASSETS (Details 3) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2015 | Dec. 31, 2014 | |
Finite-Lived Intangible Assets, Net, Amortization Expense, Rolling Maturity [Abstract] | ||
2015 (from October 1, 2015 to December 31, 2015) | $ 5,020 | |
2,016 | 14,870 | |
2,017 | 10,586 | |
2,018 | 6,817 | |
2,019 | 5,154 | |
Thereafter | 7,517 | |
Total | 49,964 | $ 29,605 |
Non-cash gain on fair value adjustment to contingent consideration | $ 1,200 |
LONG-TERM OBLIGATIONS (Details)
LONG-TERM OBLIGATIONS (Details) $ in Thousands | Apr. 30, 2015USD ($)item | Jan. 26, 2015 | Sep. 30, 2015USD ($) | Dec. 31, 2014USD ($) |
LONG-TERM OBLIGATIONS | ||||
Total long-term obligations, including current portion | $ 398,925 | $ 313,481 | ||
Total Current maturities of long-term obligations | (12,279) | (10,959) | ||
Long-term obligations (excluding current maturities) | 386,646 | 302,522 | ||
Increase in applicable margin | 0.25 | |||
Credit Facility | ||||
LONG-TERM OBLIGATIONS | ||||
Aggregate amount of funds available | 475,000 | |||
Senior secured term loan | ||||
LONG-TERM OBLIGATIONS | ||||
Total long-term obligations, including current portion | 368,126 | 296,250 | ||
Total Current maturities of long-term obligations | $ (3,650) | (3,574) | ||
Weighted average interest rate (as a percent) | 4.50% | |||
Principal amount of debt issued | $ 375,000 | |||
Increase in borrowing capacity | $ 75,000 | |||
Number of quarterly repayments | item | 21 | |||
Payments of the principal amount of debt quarterly | $ 900 | |||
Senior secured term loan | Prime rate | ||||
LONG-TERM OBLIGATIONS | ||||
Basis points added to reference rate (as a percent) | 2.75% | |||
Variable interest rate basis | prime rate | |||
Interest rate, variable interest rate floor | 1.75% | |||
Senior secured term loan | LIBOR | ||||
LONG-TERM OBLIGATIONS | ||||
Basis points added to reference rate (as a percent) | 3.75% | |||
Variable interest rate basis | one, two, three or six month LIBOR | |||
Interest rate, variable interest rate floor | 0.75% | |||
Aggregate floating rate (as a percent) | 4.50% | |||
Senior secured revolving loan | ||||
LONG-TERM OBLIGATIONS | ||||
Total long-term obligations, including current portion | $ 7,000 | |||
Weighted average interest rate (as a percent) | 4.44% | |||
Aggregate amount of funds available | $ 100,000 | |||
Capital leases | ||||
LONG-TERM OBLIGATIONS | ||||
Total long-term obligations, including current portion | 14,335 | 3,177 | ||
Total Current maturities of long-term obligations | $ (3,949) | (2,749) | ||
Weighted average interest rate (as a percent) | 4.64% | |||
Notes payable | ||||
LONG-TERM OBLIGATIONS | ||||
Total long-term obligations, including current portion | $ 9,464 | 12,895 | ||
Total Current maturities of long-term obligations | $ (4,680) | (4,593) | ||
Weighted average interest rate (as a percent) | 2.20% | |||
Acquisition-related liabilities | ||||
LONG-TERM OBLIGATIONS | ||||
Total long-term obligations, including current portion | 1,159 | |||
Total Current maturities of long-term obligations | $ (43) | |||
Letters of credit | ||||
LONG-TERM OBLIGATIONS | ||||
Letters of credit outstanding amount | $ 900 |
LONG-TERM OBLIGATIONS (Details
LONG-TERM OBLIGATIONS (Details 2) $ in Thousands | Sep. 30, 2015USD ($) |
Credit Facility | |
Maturity of long-term obligations | |
2015 (From October 1, 2015 to December 31, 2015) | $ 913 |
2,016 | 3,650 |
2,017 | 3,650 |
2,018 | 10,650 |
2,019 | 3,650 |
Thereafter | 352,613 |
Total | 375,126 |
Capital leases | |
Maturity of long-term obligations | |
2015 (From October 1, 2015 to December 31, 2015) | 1,085 |
2,016 | 3,777 |
2,017 | 3,403 |
2,018 | 2,571 |
2,019 | 1,807 |
Thereafter | 1,692 |
Total | $ 14,335 |
EQUITY (Details)
EQUITY (Details) - USD ($) $ / shares in Units, $ in Thousands | Sep. 09, 2015 | Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | Sep. 18, 2014 |
Share Repurchases | |||||||
Number of shares of common stock repurchased under stock repurchase program | 227,700 | 276,032 | |||||
Value of shares of common stock repurchased under stock repurchase program | $ 4,200 | $ 4,000 | |||||
Additional shares of common stock surrendered under stock repurchase program | 1,889 | ||||||
Dividend | |||||||
Cash dividends declared per share of common stock | $ 0.09 | $ 0.09 | $ 0.09 | $ 0.27 | $ 0.27 | ||
Dividends payable | $ 3,532 | $ 3,532 | $ 3,376 | ||||
Total dividends declared | $ 3,400 | $ 10,100 | |||||
Shareholder Rights Agreement | |||||||
Preferred stock purchase right dividend declared | 1 |
EQUITY (Details 2)
EQUITY (Details 2) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Accumulated Other Comprehensive Income (Loss), Net of Tax | ||||
Balance beginning of the period | $ (4,362) | |||
Balance end of the period | $ (7,930) | (7,930) | ||
Foreign currency translation adjustments | ||||
Accumulated Other Comprehensive Income (Loss), Net of Tax | ||||
Balance beginning of the period | (2,979) | $ 514 | (2,952) | $ (541) |
Other comprehensive loss, net of tax | (1,483) | (1,775) | (1,510) | (720) |
Balance end of the period | (4,462) | (1,261) | (4,462) | (1,261) |
Unrealized loss on cash flow hedges | ||||
Accumulated Other Comprehensive Income (Loss), Net of Tax | ||||
Balance beginning of the period | (1,958) | (810) | (1,410) | |
Other comprehensive income (loss) before reclassification adjustment, net of tax | (1,537) | 73 | (2,085) | (737) |
Reclassification adjustments, net of tax | 27 | 27 | ||
Balance end of the period | $ (3,468) | $ (737) | $ (3,468) | $ (737) |
EARNINGS PER SHARE (Details)
EARNINGS PER SHARE (Details) - USD ($) $ / shares in Units, shares in Thousands, $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
EARNINGS PER SHARE | ||||
Net income (loss) | $ (19,180) | $ 5,010 | $ (20,688) | $ (707) |
Weighted Average Common Shares Outstanding (Denominator) | ||||
Weighted Average Common Shares Outstanding Basic | 36,706 | 35,780 | 36,509 | 35,339 |
Effect of dilutive securities | 508 | |||
Weighted Average Common Shares Outstanding Diluted | 36,706 | 36,288 | 36,509 | 35,339 |
Net loss per common share | ||||
Basic net income (loss) per common share | $ (0.52) | $ 0.14 | $ (0.57) | $ (0.02) |
Diluted net income (loss) per common share | $ (0.52) | $ 0.14 | $ (0.57) | $ (0.02) |
Antidilutive securities excluded from computation of diluted net income per share | ||||
Stock options and nonvested shares excluded as their inclusion would be anti-dilutive | 1,447 | 1,695 | 1,087 | 2,359 |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) - USD ($) $ in Thousands | 9 Months Ended | |
Sep. 30, 2015 | Dec. 31, 2014 | |
Interest rate swap | ||
Assets and liabilities measured and recorded at fair value on a recurring basis | ||
Variable rate basis | 1 month LIBOR | |
Recurring Basis | Carrying Value | ||
Assets and liabilities measured and recorded at fair value on a recurring basis | ||
Acquisition-related contingent consideration | $ 1,116 | |
Total Liabilities | 3,567 | |
Recurring Basis | Carrying Value | Interest rate cap | ||
Assets and liabilities measured and recorded at fair value on a recurring basis | ||
Interest rate cap | 1 | |
Recurring Basis | Carrying Value | Interest rate swap | ||
Assets and liabilities measured and recorded at fair value on a recurring basis | ||
Interest rate swap | $ 4,537 | 2,451 |
Recurring Basis | Significant Other Observable Inputs (Level 2) | Fair Value | ||
Assets and liabilities measured and recorded at fair value on a recurring basis | ||
Total Liabilities | 2,451 | |
Recurring Basis | Significant Other Observable Inputs (Level 2) | Fair Value | Interest rate cap | ||
Assets and liabilities measured and recorded at fair value on a recurring basis | ||
Interest rate cap | 1 | |
Recurring Basis | Significant Other Observable Inputs (Level 2) | Fair Value | Interest rate swap | ||
Assets and liabilities measured and recorded at fair value on a recurring basis | ||
Interest rate swap | $ 4,537 | 2,451 |
Recurring Basis | Significant Unobservable Inputs (Level 3) | Fair Value | ||
Assets and liabilities measured and recorded at fair value on a recurring basis | ||
Acquisition-related contingent consideration | 1,116 | |
Total Liabilities | $ 1,116 |
FAIR VALUE MEASUREMENTS (Deta38
FAIR VALUE MEASUREMENTS (Details 2) - USD ($) | Sep. 30, 2015 | Aug. 31, 2015 | Apr. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 |
Change in the acquisition-related contingent consideration obligation | |||||
Non-cash gain on fair value adjustment to contingent consideration | $ 1,200,000 | ||||
De Novo Legal LLC | |||||
Change in the acquisition-related contingent consideration obligation | |||||
Cash payment made to sellers on settlement of dispute | $ 1,500,000 | ||||
Contingent consideration | $ 1,500,000 | ||||
Remaining payments | $ 0 | ||||
De Novo Legal LLC | Fair Value Adjustment To Contingent Consideration | |||||
Change in the acquisition-related contingent consideration obligation | |||||
Contingent consideration | 1,100,000 | ||||
De Novo Legal LLC | Selling, general and administrative expense | |||||
Change in the acquisition-related contingent consideration obligation | |||||
Contingent consideration | 400,000 | ||||
Minus - 10 | |||||
Change in the acquisition-related contingent consideration obligation | |||||
Contingent consideration liability, discount rate (as a percent) | 25.00% | ||||
Contingent consideration | 0 | $ 900,000 | $ 0 | ||
Non-cash gain on fair value adjustment to contingent consideration | 1,200,000 | ||||
Equity interest sold | 100.00% | ||||
Remaining payments | $ 0 | ||||
Contingent consideration | Significant Unobservable Inputs (Level 3) | |||||
Change in the acquisition-related contingent consideration obligation | |||||
Balance at the beginning of period | 1,116,000 | 2,580,000 | |||
Present value accretion | 103,000 | 59,000 | |||
Payments | (37,000) | (3,728,000) | |||
Fair value related adjustments | $ (1,182,000) | 2,139,000 | |||
Balance at the end of period | $ 1,050,000 |
INCOME TAXES (Details)
INCOME TAXES (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Income taxes | ||||
Provision for income tax expense (benefit) | $ 22,014 | $ (1,389) | $ 21,578 | $ (3,964) |
United States. | ||||
Income taxes | ||||
Effective tax rate | 40.00% | |||
Deferred other tax expense (benefit) | $ 19,000 | |||
Foreign | ||||
Income taxes | ||||
Effective tax rate | 21.00% | |||
Provision for income tax expense (benefit) | $ 2,500 |
SHARE-BASED COMPENSATION (Detai
SHARE-BASED COMPENSATION (Details) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
SHARE-BASED COMPENSATION | ||||
Total share-based compensation expense | $ 3,557 | $ 703 | $ 10,483 | $ 4,979 |
Direct cost of services | ||||
SHARE-BASED COMPENSATION | ||||
Total Share-based compensation expense | 676 | 19 | 2,053 | 66 |
Selling, general and administrative expense | ||||
SHARE-BASED COMPENSATION | ||||
Total Share-based compensation expense | $ 2,881 | $ 684 | $ 8,430 | $ 4,913 |
SHARE-BASED COMPENSATION (Det41
SHARE-BASED COMPENSATION (Details 2) - USD ($) $ / shares in Units, $ in Thousands | Feb. 20, 2015 | Jan. 28, 2014 | Sep. 30, 2015 | Sep. 30, 2015 | Sep. 30, 2014 | Sep. 03, 2015 | Dec. 31, 2014 |
SHARE-BASED COMPENSATION | |||||||
Additional shares of common stock surrendered under stock repurchase program | 1,889 | ||||||
Other current assets | $ 373 | $ 373 | $ 71 | ||||
Accrued compensation | 19,979 | 19,979 | $ 18,673 | ||||
Nonvested share awards | |||||||
SHARE-BASED COMPENSATION | |||||||
Unrecognized compensation cost related to outstanding, unvested stock options and restricted stock | $ 8,700 | $ 8,700 | |||||
Weighted average recognition period of unrecognized compensation cost | 2 years 2 months 12 days | ||||||
2015 Performance-based RSAs | |||||||
SHARE-BASED COMPENSATION | |||||||
Restricted stock granted (in shares) | 340,000 | ||||||
Weighted-average grant date fair value (in dollars per share) | $ 18.17 | ||||||
2015 Performance-based RSAs | Minimum | |||||||
SHARE-BASED COMPENSATION | |||||||
Vesting period | 1 year | ||||||
2015 Performance-based RSAs | Maximum | |||||||
SHARE-BASED COMPENSATION | |||||||
Vesting period | 3 years | ||||||
Service RSAs | |||||||
SHARE-BASED COMPENSATION | |||||||
Restricted stock granted (in shares) | 150,000 | ||||||
Weighted-average grant date fair value (in dollars per share) | $ 17.01 | ||||||
Number of shares that vested immediately | 50,000 | ||||||
Remaining restricted stock (in shares) | 100,000 | 100,000 | |||||
Service RSAs | Minimum | |||||||
SHARE-BASED COMPENSATION | |||||||
Vesting period | 1 year | ||||||
Service RSAs | Maximum | |||||||
SHARE-BASED COMPENSATION | |||||||
Vesting period | 3 years | ||||||
Stock options | |||||||
SHARE-BASED COMPENSATION | |||||||
Additional shares of common stock surrendered under stock repurchase program | 1,889 | ||||||
Granted (in shares) | 175,000 | ||||||
Stock option exercises (in shares) | 261,548 | ||||||
Intrinsic value of stock options exercised | $ 800 | ||||||
Proceeds from stock options exercised | 3,300 | ||||||
Deferred Tax Expense from Stock Options Exercised | $ 300 | ||||||
Weighted Average Exercise Price (in dollars per share) | $ 17.77 | $ 17.77 | |||||
Unrecognized compensation cost related to outstanding, unvested stock options and restricted stock | $ 1,900 | $ 1,900 | |||||
Weighted average recognition period of unrecognized compensation cost | 2 years 7 months 6 days | ||||||
Weighted-average assumptions used and the weighted-average fair value per option granted | |||||||
Expected life of stock option | 7 years | ||||||
Expected volatility (as a percent) | 37.00% | ||||||
Risk-free interest rate (as a percent) | 1.85% | ||||||
Dividend yield (as a percent) | 2.30% | ||||||
Weighted average grant-date fair value (in dollars per share) | $ 5.57 | ||||||
2004 Plan | |||||||
SHARE-BASED COMPENSATION | |||||||
Number of remaining shares available for issuance under current plan | 517,494 | 517,494 | |||||
2015 Inducement Plan | |||||||
SHARE-BASED COMPENSATION | |||||||
Number of remaining shares available for issuance under current plan | 200,000 | ||||||
Stock awards issued during period | 0 | ||||||
Strategic Executive Incentive Plan | 2014 Performance-based RSAs | Vest one year after and upon certification of achievement of performance criteria by the compensation committee of the Board | |||||||
SHARE-BASED COMPENSATION | |||||||
Restricted stock granted (in shares) | 225,000 | ||||||
Weighted-average grant date fair value (in dollars per share) | $ 15.02 | ||||||
Executive officer and employee incentive compensation awards | |||||||
SHARE-BASED COMPENSATION | |||||||
Total Share-based compensation expense | $ 2,000 | $ 6,200 | |||||
Executive officer and employee incentive compensation awards | Share awards | |||||||
SHARE-BASED COMPENSATION | |||||||
Restricted stock granted (in shares) | 314,869 | ||||||
Weighted-average grant date fair value (in dollars per share) | $ 18.28 |
SEGMENT REPORTING (Details)
SEGMENT REPORTING (Details) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015USD ($) | Sep. 30, 2014USD ($) | Sep. 30, 2015USD ($)segment | Sep. 30, 2014USD ($) | |
Segment information | ||||
Number of reporting segments | segment | 2 | |||
Revenues: | ||||
Operating revenue | $ 131,325 | $ 103,955 | $ 369,637 | $ 335,626 |
Reimbursable expenses | 11,210 | 7,051 | 29,936 | 23,707 |
Total Revenue | 142,535 | 111,006 | 399,573 | 359,333 |
Direct costs, selling, general and administrative expenses | 102,289 | 77,844 | 294,895 | 257,482 |
Segment performance measure | $ 40,246 | $ 33,162 | $ 104,678 | $ 101,851 |
As a percentage of segment operating revenue | 31.00% | 32.00% | 28.00% | 30.00% |
Technology | ||||
Revenues: | ||||
Operating revenue | $ 91,847 | $ 69,139 | $ 255,029 | $ 228,831 |
Intersegment revenue | 204 | 187 | 1,311 | 625 |
Bankruptcy and Settlement Administration Segment | ||||
Revenues: | ||||
Operating revenue | 39,478 | 34,816 | 114,608 | 106,795 |
Operating segment | Technology | ||||
Revenues: | ||||
Operating revenue | 92,051 | 69,326 | 256,340 | 229,456 |
Reimbursable expenses | 809 | 205 | 1,431 | 2,162 |
Total Revenue | 92,860 | 69,531 | 257,771 | 231,618 |
Direct costs, selling, general and administrative expenses | 66,552 | 49,044 | 189,212 | 168,296 |
Segment performance measure | $ 26,308 | $ 20,487 | $ 68,559 | $ 63,322 |
As a percentage of segment operating revenue | 29.00% | 30.00% | 27.00% | 28.00% |
Operating segment | Bankruptcy and Settlement Administration Segment | ||||
Revenues: | ||||
Operating revenue | $ 39,478 | $ 34,816 | $ 114,608 | $ 106,795 |
Reimbursable expenses | 10,401 | 6,846 | 28,505 | 21,545 |
Total Revenue | 49,879 | 41,662 | 143,113 | 128,340 |
Direct costs, selling, general and administrative expenses | 35,941 | 28,987 | 106,994 | 89,811 |
Segment performance measure | $ 13,938 | $ 12,675 | $ 36,119 | $ 38,529 |
As a percentage of segment operating revenue | 35.00% | 36.00% | 32.00% | 36.00% |
Eliminations | ||||
Revenues: | ||||
Operating revenue | $ (204) | $ (187) | $ (1,311) | $ (625) |
Intersegment revenue | (204) | (187) | (1,311) | (625) |
Total Revenue | (204) | (187) | (1,311) | (625) |
Direct costs, selling, general and administrative expenses | $ (204) | $ (187) | $ (1,311) | $ (625) |
SEGMENT REPORTING (Details 2)
SEGMENT REPORTING (Details 2) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Reconciliation of our segment performance measure to income (loss) before income taxes | ||||
Segment performance measure | $ 40,246 | $ 33,162 | $ 104,678 | $ 101,851 |
Unallocated corporate expenses | (11,553) | (11,805) | (32,582) | (49,834) |
Share-based compensation expense | (3,557) | (703) | (10,483) | (4,979) |
Depreciation and software and leasehold amortization | (9,787) | (9,693) | (28,050) | (27,648) |
Amortization of identifiable intangible assets | (5,831) | (3,184) | (13,326) | (9,470) |
Impairment of goodwill and identifiable intangible assets | (1,162) | |||
Fair value adjustment to contingent consideration | (19) | 1,182 | (1,142) | |
Other operating expense, net | (1,308) | (215) | (4,306) | (792) |
Operating income | 8,191 | 7,562 | 15,951 | 7,986 |
Interest expense, net | (5,357) | (3,941) | (15,061) | (12,657) |
Income (loss) before income taxes | $ 2,834 | $ 3,621 | $ 890 | $ (4,671) |
SEGMENT REPORTING (Details 3)
SEGMENT REPORTING (Details 3) - USD ($) $ in Thousands | Sep. 30, 2015 | Dec. 31, 2014 |
Assets | ||
Total assets | $ 826,506 | $ 738,252 |
Corporate and unallocated | ||
Assets | ||
Total assets | 53,718 | 108,767 |
Technology | ||
Assets | ||
Total assets | 501,932 | 342,596 |
Bankruptcy and Settlement Administration Segment | ||
Assets | ||
Total assets | $ 270,856 | $ 286,889 |
SEGMENT REPORTING (Details 4)
SEGMENT REPORTING (Details 4) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | ||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | |
Capital Expenditures | ||||
Total capital expenditures | $ 6,119 | $ 6,284 | $ 22,449 | $ 28,815 |
Technology | ||||
Capital Expenditures | ||||
Total capital expenditures | 2,553 | 2,567 | 8,447 | 13,677 |
Bankruptcy and Settlement Administration Segment | ||||
Capital Expenditures | ||||
Total capital expenditures | 163 | 318 | 991 | 1,957 |
Corporate and unallocated | ||||
Capital Expenditures | ||||
Total capital expenditures | $ 3,403 | $ 3,399 | $ 13,011 | $ 13,181 |
SEGMENT REPORTING (Details 5)
SEGMENT REPORTING (Details 5) - USD ($) $ in Thousands | 3 Months Ended | 9 Months Ended | |||
Sep. 30, 2015 | Sep. 30, 2014 | Sep. 30, 2015 | Sep. 30, 2014 | Dec. 31, 2014 | |
Revenue and long-lived assets excluding intangible assets, by geographical area | |||||
Revenue | $ 142,535 | $ 111,006 | $ 399,573 | $ 359,333 | |
Long-lived assets | 96,235 | 96,235 | $ 85,292 | ||
United States | |||||
Revenue and long-lived assets excluding intangible assets, by geographical area | |||||
Revenue | 120,789 | 92,198 | 340,322 | 312,252 | |
Long-lived assets | 88,546 | 88,546 | 78,921 | ||
United Kingdom | |||||
Revenue and long-lived assets excluding intangible assets, by geographical area | |||||
Revenue | 16,537 | 13,423 | 46,516 | 37,170 | |
Other countries | |||||
Revenue and long-lived assets excluding intangible assets, by geographical area | |||||
Revenue | 5,209 | $ 5,385 | 12,735 | $ 9,911 | |
Long-lived assets | $ 7,689 | $ 7,689 | $ 6,371 |