Epiq Systems, Inc. Announces Third Quarter 2009 Results; Bankruptcy Segment Reports Second Consecutive Quarter of 93% Operating Revenue Growth
KANSAS CITY, Kan., Oct. 26, 2009 (GLOBE NEWSWIRE) -- Epiq Systems, Inc. (Nasdaq:EPIQ) today announced results of operations for the third quarter of 2009 with operating revenue (total revenue before operating revenue from reimbursed direct costs) of $51.1 million compared to $51.8 million for the same period last year. September 30, 2009 year-to-date operating revenue was $160.9 million, up 5% compared to $152.7 million for the prior year. Operating revenue reflects record Bankruptcy segment results, led by Chapter 11 year-to-date growth of 156% compared to the prior year, as well as the expected impact in the Settlement Administration segment of the wind down of the major analog-to-digital television conversion contract that was substantially completed during the second quarter of 2009.
Net income for the third quarter of 2009 was $4.9 million, $0.12 per share, up 22% compared to $4.0 million, $0.10 per share, for the year ago quarter. September 30, 2009 year-to-date net income was $11.0 million, $0.28 per share, up 13% compared to $9.8 million, $0.26 per share, for the prior year. Bankruptcy segment operating revenue, which carries the highest non-GAAP adjusted EBITDA margin of all segments at 52% year-to-date, increased to 42% of 2009 year-to-date operating revenue compared to 26% last year, resulting in higher profit levels and improved operating margins in 2009 versus the prior year.
Third quarter 2009 net cash provided by operating activities was $6.5 million, up 123% compared to $2.9 million for the year ago quarter. September 30, 2009 year-to-date net cash provided by operations was $27.5 million, up 52% compared to $18.1 million for the prior year. A condensed consolidated cash flow statement is attached.
Epiq Systems' management also evaluates the following non-GAAP financial measures: (i) non-GAAP net income (net income adjusted for amortization of acquisition intangibles, share-based compensation, realized cash gains on financial instruments, non-cash mark-to-market adjustments, acquisition expense, the effect of tax adjustments that are outside of the company's anticipated effective tax rate, and capitalized loan fee amortization, all net of tax), (ii) non-GAAP earnings per share, calculated as non-GAAP net income on a fully diluted per share basis, and (iii) non-GAAP adjusted EBITDA (net income adjusted for interest/financing, taxes, depreciation, amortization, share-based compensation, realized cash gains on financial instruments, non-cash mark-to-market adjustments, and acquisition expense). Reconciliation statements for non-GAAP financial measures are provided below.
Non-GAAP net income for the third quarter of 2009 was $6.8 million, $0.17 per share, up 16% compared to $5.8 million, $0.15 per share, for the year ago quarter. September 30, 2009 year-to-date non-GAAP net income was $19.9 million, $0.50 per share, up 16% compared to $17.1 million, $0.44 per share, for the prior year.
Third quarter 2009 non-GAAP adjusted EBITDA was $16.1 million, up 10% compared to $14.6 million for the year ago quarter. September 30, 2009 year-to-date non-GAAP adjusted EBITDA was $47.1 million, up 12% compared to $42.1 million for the prior year.
Operating revenue for the Bankruptcy segment for the third quarter of 2009 was $25.4 million, up 93% compared to $13.2 million for the year ago quarter. September 30, 2009 year-to-date operating revenue was $66.8 million, up 71% compared to $39.0 million in the prior year. Non-GAAP adjusted EBITDA was $13.8 million for the third quarter of 2009, up 106% compared to $6.7 million for the year ago quarter. September 30, 2009 year-to-date non-GAAP adjusted EBITDA was $34.7 million, up 47% compared to $23.6 million in the prior year, which included a $3.5 million cash gain on interest rate floor options. Excluding the prior year one-time cash gain on interest rate floor options, year-to-date 2009 non-GAAP adjusted EBITDA increased 73% compared to the prior year. The strong financial results for the segment relate to an increase in Chapter 11 filings and retentions, which have generated a 156% year-to-date increase in corporate restructuring operating revenue compared to the prior year.
Operating revenue for the Electronic Discovery segment for the third quarter of 2009 was $12.2 million compared to $15.1 million for the year ago quarter. September 30, 2009 year-to-date operating revenue was $40.5 million compared to $44.6 million in the prior year. Third quarter 2009 non-GAAP adjusted EBITDA was $3.3 million compared to $6.7 million for the year ago quarter. September 30, 2009 year-to-date non-GAAP adjusted EBITDA was $12.6 million compared to $21.1 million in the prior year. The quarter and year-to-date segment results include the effects of organic investment of new service offerings, geographic expansion into new markets, the impacts of the current economic conditions and pricing pressures in the industry. It is anticipated that as the global economy recovers, this market segment will experience increased case activity levels resulting in increased spending.
Operating revenue for the Settlement Administration segment for the third quarter of 2009 was $13.6 million compared to $23.5 million in the year ago quarter. September 30, 2009 year-to-date operating revenue was $53.5 million compared to $69.0 million in the prior year. Non-GAAP adjusted EBITDA was $4.6 million for the third quarter of 2009 compared to $6.7 million for the year ago quarter. September 30, 2009 year-to-date non-GAAP adjusted EBITDA was $16.6 million, compared to $13.5 million in the prior year. The decline in third quarter operating revenue and non-GAAP adjusted EBITDA was related to the major analog-to-digital television conversion contract that was launched in the fourth quarter of 2007 and which, as expected, was substantially completed during the second quarter of 2009.
Tom W. Olofson, chairman and CEO, and Christopher E. Olofson, president and COO of Epiq Systems stated, "We continue to experience excellent growth in bankruptcy revenue, highlighted by major contributions from a significant portfolio of corporate restructuring Chapter 11 engagements. Third quarter 2009 Bankruptcy segment operating revenue set a new all-time record, surpassing the second quarter of 2009, which is now the second-strongest quarterly result. Chapter 11 corporate restructuring engagements are generally long-term, multi-year assignments that are characterized by a recurring revenue component and revenue visibility into future periods. In addition, Chapter 7 bankruptcy trustee services aggregate deposit balances continue to exhibit growth and strength, with a 26% year-to-date increase versus the prior year. As we consider these variables combined with continued strong bankruptcy filings and an anticipated future increase in short term interest rates, the Bankruptcy segment is poised for continued growth through the remainder of 2009 and in 2010."
Recent key events include:
* Within the Bankruptcy segment, Chapter 11 operating revenue increased 156% during the first nine months of 2009 compared to the same period last year. New third quarter client retentions included companies such as Samsonite Company Stores, Bashas', Basin Water, Luna Innovations, Finlay Enterprises, and Holley Performance Products. * During the National Association of Bankruptcy Trustees Annual Seminar, we premiered the next generation version of TCMS(R), our comprehensive trustee case management system, which is scheduled for release in 2010. Utilizing the latest technology available, the new release of TCMS(R) will provide a modernized user interface and significant value-added features including customized one click buttons, advanced search capabilities and integration with Microsoft Outlook. * As reported by the Administrative Office of the U.S. Courts, bankruptcy filings totaled 1,306,315 for the 12 month period ended June 30, 2009, up 35% versus the same period in 2008. During this period, Chapter 7 filings were up 47%, Chapter 11 filings were up 91%, and Chapter 13 filings were up 12%. The quarter ending June 30, 2009 represented the highest quarterly filing period since the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 was enacted. * We launched IQ Review(TM), a revolutionary combination of new intelligent technology and expert services which incorporates new prioritization technology into DocuMatrix(TM), our flagship document management platform. With the ability to "learn" from a legal expert, IQ Review(TM) determines patterns in content across all data, rates each document, and fast tracks the most responsive documents to the beginning of the review -- the result is more cost effective prioritized reviews.
Conference Call
The company will host a conference call today at 3:30 p.m. Central time to discuss these results. The internet broadcast of the call can be accessed at http://www.epiqsystems.com/. To listen by phone, please call (888) 481-2845 before 3:30 p.m. central time. An archive of the internet broadcast will be available on the company's website until the next earnings update. A recording of the call will also be available through November 26, 2009 beginning approximately two hours after the call ends. To access the recording, please call (888) 203-1112 and enter passcode 7692044.
Company Description
Epiq Systems is a leading global provider of integrated technology solutions for the legal profession. Our solutions streamline the administration of bankruptcy, litigation, financial transactions and regulatory compliance matters. We offer innovative technology solutions for electronic discovery, document review, legal notification, claims administration and controlled disbursement of funds. Our clients include leading law firms, corporate legal departments, bankruptcy trustees, government agencies and other professional advisors who require innovative technology, responsive service and deep subject-matter expertise.
The Epiq Systems, Inc. logo is available at http://www.globenewswire.com/newsroom/prs/?pkgid=5250
Forward-looking and Cautionary Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act, including those relating to the possible or assumed future results of our operations and financial condition. These forward-looking statements are based on our current expectations and may be identified by terms such as "believe," "expect," "anticipate," "should," "planned," "may," "estimated," "goal," "objective" and "potential." Because forward-looking statements involve future risks and uncertainties, listed below are a variety of factors that could cause actual results and experience to differ materially from the anticipated results or other expectations expressed in our forward-looking statements. These factors include (1) any material changes in our total number of client engagements and the volume associated with each engagement, (2) any material changes in our client's deposit portfolio or the services required or selected by our client s in engagements, (3) material changes in the number of bankruptcy filings, class action filings or mass tort actions each year, (4) risks associated with handling of confidential data and compliance with information privacy laws, (5) changes in or the effects of pricing structures and arrangements, (6) risks associated with the integration of acquisitions into our existing business operations, (7) risks associated with our indebtedness, (8) risks associated with foreign currency fluctuations, (9) risks associated with developing and providing software and internet-based technology solutions to our clients, and (10) other risks detailed from time to time in our SEC filings, including our annual report on Form 10-K. In addition, there may be other factors not included in our SEC filings that may cause actual results to differ materially from any forward-looking statements. We undertake no obligations to update publicly or revise any forward-looking statements contained herein to reflect future events or devel opments.
(Tables follow)
EPIQ SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited) Three months Nine months ended ended Sept. 30, Sept. 30, ---------------- ------------------ 2009 2008 2009 2008 ------- ------- -------- -------- REVENUE: Case management services $33,356 $33,576 $103,702 $ 98,300 Case management bundled products and services 3,877 4,488 10,680 14,242 Document management services 13,874 13,768 46,477 40,129 ------- ------- -------- -------- Operating revenue before reimbursed direct costs 51,107 51,832 160,859 152,671 Operating revenue from reimbursed direct costs 6,702 7,051 23,968 20,065 ------- ------- -------- -------- Total Revenue 57,809 58,883 184,827 172,736 ------- ------- -------- -------- OPERATING EXPENSES: Direct cost of services (exclusive of depreciation and amortization shown separately below) 17,966 19,526 57,359 62,791 Direct cost of bundled products and services (exclusive of depreciation and amortization shown separately below) 916 910 2,626 2,765 Reimbursed direct costs 6,660 6,986 23,742 19,988 General and administrative 18,197 17,865 60,348 51,165 Depreciation and software and leasehold amortization 4,763 4,273 13,829 11,836 Amortization of identifiable intangible assets 1,828 2,271 5,582 6,874 Other operating expense (income) 127 1 611 (1,511) ------- ------- -------- -------- Total Operating Expenses 50,457 51,832 164,097 153,908 ------- ------- -------- -------- INCOME FROM OPERATIONS 7,352 7,051 20,730 18,828 ------- ------- -------- -------- INTEREST EXPENSE (INCOME): Interest expense 339 406 1,077 1,338 Interest income (56) (39) (107) (219) ------- ------- -------- -------- Net Interest Expense 283 367 970 1,119 ------- ------- -------- -------- INCOME BEFORE INCOME TAXES 7,069 6,684 19,760 17,709 PROVISION FOR INCOME TAXES 2,200 2,690 8,727 7,904 ------- ------- -------- -------- NET INCOME $ 4,869 $ 3,994 $ 11,033 $ 9,805 ======= ======= ======== ======== NET INCOME PER SHARE INFORMATION: Net income per share - Diluted $ 0.12 $ 0.10 $ 0.28 $ 0.26 WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 41,938 41,120 41,909 41,368
EPIQ SYSTEMS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) Sept. 30, Dec. 31, 2009 2008 ---------- -------- (Unaudited) ASSETS ASSETS: Cash and cash equivalents $ 28,260 $ 19,006 Trade accounts receivable, net 52,364 48,540 Property and equipment, net 37,527 39,951 Goodwill 264,237 263,871 Other intangibles, net 21,347 26,851 Other 24,395 20,727 ---------- -------- TOTAL ASSETS $428,130 $418,946 ========== ======== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accounts payable $ 6,872 $ 12,781 Indebtedness 55,120 61,222 Other liabilities 45,975 44,448 STOCKHOLDERS' EQUITY 320,163 300,495 ---------- -------- TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $428,130 $418,946 ========== ========
EPIQ SYSTEMS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three months Nine months ended ended Sept. 30, Sept. 30, ---------------- ----------------- 2009 2008 2009 2008 ------- ------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 4,869 $ 3,994 $ 11,033 $ 9,805 Non-cash adjustments to net income: Depreciation and amortization 6,591 6,544 19,411 18,710 Other, net 4,892 1,102 9,886 2,579 Changes in operating assets and liabilities, net (9,807) (8,705) (12,795) (13,026) ------- ------- -------- -------- Net cash provided by operating activities 6,545 2,935 27,535 18,068 ------- ------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for business combinations, net -- (50) -- (4,762) Property and equipment, software and other (4,368) (6,027) (14,661) (17,468) ------- ------- -------- -------- Net cash used in investing activities (4,368) (6,077) (14,661) (22,230) ------- ------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net payments on indebtedness (1,721) (767) (5,040) (3,389) Other (511) (402) 1,354 1,054 ------- ------- -------- -------- Net cash used in financing activities (2,232) (1,169) (3,686) (2,335) ------- ------- -------- -------- Effect of exchange rate changes on cash 100 (102) 66 (102) ------- ------- -------- -------- NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 45 $(4,413) $ 9,254 $ (6,599) ======= ======= ======== ========
EPIQ SYSTEMS, INC. RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED EBITDA (In thousands) (Unaudited) Three months Nine months ended ended Sept. 30, Sept. 30, ---------------- ---------------- 2009 2008 2009 2008 ------- ------- ------- ------- NET INCOME $ 4,869 $ 3,994 $11,033 $ 9,805 Plus: Depreciation and amortization 6,591 6,544 19,411 18,710 Share-based compensation 2,048 1,043 6,304 2,439 Acquisition expense 127 1 634 860 Expenses related to financing, net 283 367 970 1,119 Realized gain on interest rate floors -- -- -- 1,273 Provision for income taxes 2,200 2,690 8,727 7,904 ------- ------- ------- ------- 11,249 10,645 36,046 32,305 ------- ------- ------- ------- NON-GAAP ADJUSTED EBITDA $16,118 $14,639 $47,079 $42,110 ======= ======= ======= =======
EPIQ SYSTEMS, INC. BANKRUPTCY SEGMENT RECONCILIATION OF SEGMENT PERFORMANCE MEASURE TO NON-GAAP ADJUSTED EBITDA (In thousands) (Unaudited) Three months Nine months ended ended Sept. 30, Sept. 30, ---------------- ---------------- 2009 2008 2009 2008 ------- ------- ------- ------- SEGMENT PERFORMANCE MEASURE $13,813 $ 6,691 $34,735 $20,129 Realized gain on interest rate floors -- -- -- 3,465 ------- ------- ------- ------- NON-GAAP ADJUSTED EBITDA $13,813 $ 6,691 $34,735 $23,594 ======= ======= ======= =======
EPIQ SYSTEMS, INC. RECONCILIATION OF NET INCOME TO NON-GAAP NET INCOME (In thousands) (Unaudited) Three months Nine months ended ended Sept. 30, Sept. 30, -------------- ---------------- 2009 2008 2009 2008 ------ ------ ------- ------- NET INCOME $4,869 $3,994 $11,033 $ 9,805 Plus (net of tax): Amortization of acquisition intangibles 1,106 1,374 3,377 4,159 Share-based compensation 1,576 643 4,877 1,534 Acquisition expense 77 1 384 520 Effective tax rate (628) 16 823 820 Loan fee amortization 52 62 156 223 Mark-to-market adjustments (244) (244) (731) (731) Realized gain on interest rate floors -- -- -- 770 ------ ------ ------- ------- 1,939 1,852 8,886 7,295 ------ ------ ------- ------- NON-GAAP NET INCOME $6,808 $5,846 $19,919 $17,100 ====== ====== ======= =======
EPIQ SYSTEMS, INC. RECONCILIATION OF EPS TO NON-GAAP EPS (Unaudited) Three months Nine months ended ended Sept. 30, Sept. 30, ------------- ------------- 2009 2008 2009 2008 ------ ------ ------ ------ EPS (on a diluted basis) $ 0.12 $ 0.10 $ 0.28 $ 0.26 Plus (net of tax): Amortization of acquisition intangibles 0.03 0.04 0.08 0.11 Share-based compensation 0.04 0.02 0.12 0.04 Acquisition expense -- -- 0.01 0.01 Effective tax rate (0.01) -- 0.02 0.02 Loan fee amortization -- -- -- -- Mark-to-market adjustments (0.01) (0.01) (0.01) (0.02) Realized gain on interest rate floors -- -- -- 0.02 ------ ------ ------ ------ 0.05 0.05 0.22 0.18 ------ ------ ------ ------ NON-GAAP EPS (on a diluted basis) $ 0.17 $ 0.15 $ 0.50 $ 0.44 ====== ====== ====== ======
EPIQ SYSTEMS, INC. EPS CALCULATION (In thousands, except per share data) (Unaudited) Three months Nine months ended ended Sept. 30, Sept. 30, ---------------- ---------------- 2009 2008 2009 2008 ------- ------- ------- ------- NET INCOME $ 4,869 $ 3,994 $11,033 $ 9,805 Interest expense adjustment for convertible debt 305 305 904 908 Net income re-allocated to nonvested shares (21) -- (56) -- ------- ------- ------- ------- NET INCOME ADJUSTED FOR DILUTED CALCULATION $ 5,153 $ 4,299 $11,881 $10,713 ======= ======= ======= ======= NON-GAAP NET INCOME $ 6,808 $ 5,846 $19,919 $17,100 Interest expense adjustment for convertible debt 305 305 904 908 Net income re-allocated to nonvested shares (21) -- (56) -- ------- ------- ------- ------- NON- GAAP NET INCOME ADJUSTED FOR DILUTED CALCULATION $ 7,092 $ 6,151 $20,767 $18,008 ======= ======= ======= ======= BASIC WEIGHTED AVERAGE SHARES 35,917 35,512 35,793 35,409 Adjustment to reflect share-based awards 1,738 1,322 1,831 1,673 Adjustment to reflect convertible debt shares 4,283 4,286 4,285 4,286 ------- ------- ------- ------- DILUTED WEIGHTED AVERAGE SHARES 41,938 41,120 41,909 41,368 ======= ======= ======= ======= NET INCOME PER SHARE - DILUTED $ 0.12 $ 0.10 $ 0.28 $ 0.26 ======= ======= ======= ======= NON-GAAP NET INCOME PER SHARE - DILUTED $ 0.17 $ 0.15 $ 0.50 $ 0.44 ======= ======= ======= =======
CONTACT: Epiq Systems Investor Relations Lew P. Schroeber 913-621-9500 ir@epiqsystems.com www.epiqsystems.com