Exhibit 99.1
Epiq Systems, Inc. Announces Fourth Quarter and Full Year 2006 Results
KANSAS CITY, Kan.--(BUSINESS WIRE)--Feb. 20, 2007--Epiq Systems, Inc.
(NASDAQ:EPIQ) announced results of operations for the fourth quarter and full
year of 2006 with fourth quarter operating revenue (total revenue less operating
revenue from reimbursed direct costs) of $38.7 million compared to $23.5 million
for the same period last year and 2006 operating revenue of $199.7 million
compared to $82.7 million last year. Operating revenue for the fourth quarter of
2006 does not include recognition of previously deferred revenue, while fourth
quarter 2005 operating revenue reflected a deferral of $5.6 million. In 2006,
the Company recognized $59.7 million of previously deferred revenue; during
2005, the Company deferred $24.5 million of revenue. Excluding the impacts of
deferred revenue for both fiscal years, operating revenue in 2006 increased 31%
compared to the prior year. A reconciliation statement is attached with
additional details.
The fourth quarter 2006 net loss of $2.1 million or ($0.11) per share
compared to a net loss of $4.0 million or ($0.22) per share for the year ago
quarter. Net income for 2006 was $35.1 million or $1.58 per share compared to a
net loss of $3.8 million or ($0.21) per share for the prior year. As a result of
our adoption of SFAS No.123R, "Share-Based Payment," effective January 1, 2006,
during the fourth quarter 2006 we recognized $3.7 million and for the full year
2006 we recognized $5.4 million of share-based compensation expense compared to
no expense during 2005.
Fourth quarter 2006 net cash provided by operating activities was $10.8
million compared to $13.5 million for the year ago quarter. Net cash provided by
operating activities for 2006 was $34.4 million, a 26% increase compared to
$27.2 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 operating revenue (operating revenue before reimbursed
direct costs adjusted to include deferred revenue accounted for under SOP 97-2,
"Software Revenue Recognition," in the period in which the services were
provided and to exclude the revenue in the later period in which the deferred
revenue is recognized, (ii) non-GAAP adjusted EBITDA (net income before
interest/financing, taxes, depreciation, amortization, share-based compensation,
and acquisition related expenses, adjusted to include deferred revenue accounted
for under SOP 97-2 in the period in which the services were provided and to
exclude the revenue in the later period in which it is recognized) and (iii)
non-GAAP net income (net income before amortization of acquisition related
intangibles, share-based compensation, acquisition-related expenses, capitalized
loan fee amortization, and embedded option mark-to-market expense/convertible
debt accretion, adjusted to include deferred revenue accounted for under SOP
97-2 in the period in which the services were provided and to exclude the
revenue in the later period in which it is recognized, all net of tax).
Reconciliation statements for non-GAAP operating revenue, non-GAAP adjusted
EBITDA, non-GAAP net income and non-GAAP earnings per share are attached.
Fourth quarter 2006 non-GAAP adjusted EBITDA was $8.9 million, compared to
$12.0 million for the year ago quarter. Non-GAAP adjusted EBITDA for 2006 was
$38.9 million, compared to $41.9 million for the prior year.
Non-GAAP net income for the fourth quarter of 2006 was $2.8 million or
$0.15 per share, compared to $5.2 million or $0.25 per share for the year ago
quarter. Non-GAAP net income for 2006 was $10.9 million or $0.53 per share
compared to $18.2 million or $0.90 per share for the prior year. Non-GAAP net
income includes net interest expense, which increased $1.7 million in the fourth
quarter of 2006 and $6.6 million for the full year of 2006 compared to last
year. The increase in interest expense is primarily attributable to bank debt
utilized to finance the November 15, 2005 acquisition of the Company's
electronic discovery business. As of December 31, 2006 the Company has reduced
its bank borrowings by $25.0 million since the electronic discovery acquisition.
Tom W. Olofson, chairman and CEO, and Christopher E. Olofson, president and
COO of Epiq Systems, stated, "As anticipated, 2006 was an important transitional
year of significant investment and integration. By year's end, we had appointed
new managing directors in our electronic discovery, class action and legal
settlements, and corporate restructuring businesses to strengthen our senior
management organization. In addition, we augmented the sales and leadership
teams in each of these areas.
During 2006, our electronic discovery business experienced significant
growth and is now ranked among the top national providers of electronic
discovery services. Operating revenue for our bankruptcy businesses also met or
exceeded internal objectives. Although our class action and legal settlements
business experienced a sales shortfall for new client engagements in 2006, its
fourth quarter revenue was the strongest quarter of the year.
Entering 2007, the company has an attractive opportunity to harvest the
benefits of its recent investments and stands as a market leader in integrated
technology solutions for electronic discovery, bankruptcy, class action and
legal settlements."
Key events in 2006 include:
-- Epiq Systems appeared on the top 20 Electronic Discovery Service
Providers list in the 2006 Socha Gelbmann Survey. The survey indicates
the electronic discovery market has a 2-year projected 55% CAGR, with
2005 revenue of $0.8 billion projected to reach $2.0 billion in 2007.
-- In 2006 the company further established its technology leadership in
the legal market with major software releases for DocuMatrix(TM), the
company's electronic discovery and document review platform and
TCMS(R), the company's Chapter 7 case management software.
-- New managing directors were appointed during the third quarter to
assume leadership for electronic discovery, corporate restructuring
and class action/legal settlements.
-- During 2006, the company recruited new sales and client relationship
executives in New York, London, Chicago, Los Angeles, and northern
California.
-- The company opened a full-service office (including sales, client
services and technology support) for its electronic discovery business
in Los Angeles.
-- 1.11 million bankruptcies were filed in the U.S. Court's annual period
ended September 30, 2006.
-- The Federal Reserve reported that both corporate debt and consumer
credit increased compared to the prior year, reaching $5.6 trillion
and $2.4 trillion, respectively, as of September 30, 2006.
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
www.epiqsystems.com. To listen by phone, call 800-322-9079 before 3:30 p.m.
central time. The archive of the Internet broadcast will be available on the
company's website until the next earnings update. A recording of the call will
be available through March 31, 2007 beginning approximately two hours after the
call ends. To access the replay, call 877-519-4471 and enter pin #8442362.
Company Description
Epiq Systems is a leading 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. Our clients
include leading law firms, corporate legal departments, bankruptcy trustees and
other professional advisors who require innovative technology, responsive
service and deep subject-matter expertise. For more information, visit us online
at www.epiqsystems.com.
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," "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) risks associated with the application of complex accounting rules to
unique transactions, including the risk that good faith application of those
rules and audits of those results may be later reversed by new interpretations
of those rules or new views regarding the application of those rules, (2) any
material changes in our total number of client engagements and the volume
associated with each engagement, (3) any material changes in our client's
deposit portfolio or the services required or selected by our clients in
engagements, (4) material changes in the number of bankruptcy filings, class
action filings or mass tort actions each year, (5) changes in the marketing and
pricing arrangements with our partner depository banks, (6) risks associated
with the integration of acquisitions into our existing business operations, (7)
risks associated with our indebtedness, and (8) 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 any forward-looking statements contained
herein to reflect future events or developments.
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three months ended Twelve months ended
December 31, December 31,
--------------------- ---------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
REVENUE:
Case management services $22,471 $14,910 $76,534 $53,042
Case management bundled
software license,
software upgrade and
postcontract customer
support services 7,203 625 87,716 1,771
Document management
services 8,977 7,979 35,472 27,874
---------- ---------- ---------- ----------
Operating revenue
before reimbursed
direct costs 38,651 23,514 199,722 82,687
Operating revenue from
reimbursed direct costs 7,772 6,526 24,448 23,643
---------- ---------- ---------- ----------
Total Revenue 46,423 30,040 224,170 106,330
---------- ---------- ---------- ----------
OPERATING EXPENSES:
Direct costs of services 14,919 8,282 48,345 30,225
Direct costs of services
- bundled 944 972 3,921 3,809
Reimbursed direct costs 7,731 6,461 24,583 23,756
General and
administrative 17,602 8,001 54,071 31,072
Depreciation and
software and leasehold
amortization 2,688 2,007 10,113 7,288
Amortization of
identifiable intangible
assets 2,957 2,259 11,629 6,751
Acquisition related 33 2,870 283 2,984
---------- ---------- ---------- ----------
Total Operating
Expenses 46,874 30,852 152,945 105,885
---------- ---------- ---------- ----------
INCOME (LOSS) FROM
OPERATIONS (451) (812) 71,225 445
---------- ---------- ---------- ----------
INTEREST EXPENSE (INCOME):
Interest income (97) (15) (208) (122)
Interest expense 4,253 2,501 13,468 6,809
---------- ---------- ---------- ----------
Net Interest Expense 4,156 2,486 13,260 6,687
---------- ---------- ---------- ----------
INCOME (LOSS) FROM
OPERATIONS BEFORE INCOME
TAXES (4,607) (3,298) 57,965 (6,242)
INCOME TAX PROVISION
(BENEFIT) (2,514) 747 22,834 (2,400)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $(2,093) $(4,045) $35,131 $(3,842)
========== ========== ========== ==========
NET INCOME (LOSS) PER
SHARE INFORMATION:
Net income (loss) per
share - Diluted $(0.11) $(0.22) $1.58 $(0.21)
========== ========== ========== ==========
WEIGHTED AVERAGE COMMON
SHARES OUTSTANDING -
DILUTED 19,477 18,627 23,048 18,092
========== ========== ========== ==========
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
December 31, December 31,
2006 2005
-------------- --------------
ASSETS
ASSETS:
Cash and cash equivalents $5,274 $13,563
Trade accounts receivable, net 33,066 33,504
Property, equipment and leasehold
improvements, net 23,153 23,751
Goodwill 260,609 249,427
Other intangibles, net 43,840 53,399
Other 16,278 44,827
-------------- --------------
Total Assets $382,220 $418,471
============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $7,930 $7,954
Deferred revenue 1,073 60,224
Indebtedness 154,361 173,548
Other liabilities 34,677 36,277
STOCKHOLDERS' EQUITY 184,179 140,468
-------------- --------------
Total Liabilities and Stockholders'
Equity $382,220 $418,471
============== ==============
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended Twelve months ended
December 31, December 31,
--------------------- ---------------------
2006 2005 2006 2005
---------- ---------- ---------- ----------
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income (loss) $(2,093) $(4,045) $35,131 $(3,842)
Non-cash adjustments to
net income (loss):
Depreciation and
amortization 5,645 4,266 21,742 14,039
Other, net 2,353 (1,808) 27,023 (6,668)
Changes in operating
assets and liabilities,
net 4,895 15,088 (49,521) 23,709
---------- ---------- ---------- ----------
Net cash provided
by operating
activities 10,800 13,501 34,375 27,238
---------- ---------- ---------- ----------
CASH FLOWS FROM INVESTING
ACTIVITIES:
Cash paid for business
combinations, net - (109,883) (3,586) (110,533)
Other (2,500) (2,284) (11,002) (6,297)
---------- ---------- ---------- ----------
Net cash used in
investing
activities (2,500) (112,167) (14,588) (116,830)
---------- ---------- ---------- ----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Net (payments)
borrowings on
indebtedness (7,013) 99,836 (30,656) 89,732
Other (39) (810) 2,580 93
---------- ---------- ---------- ----------
Net cash (used in)
provided by
financing
activities (7,052) 99,026 (28,076) 89,825
---------- ---------- ---------- ----------
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS $1,248 $360 $(8,289) $233
========== ========== ========== ==========
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF OPERATING REVENUE TO
NON-GAAP OPERATING REVENUE
(In thousands)
(Unaudited)
Three months ended Twelve months ended
--------------------- ---------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2006 2005 2006 2005
---------- ---------- ---------- ----------
OPERATING REVENUE BEFORE
REIMBURSED DIRECT COSTS $38,651 $23,514 $199,722 $82,687
Less:
Deferred revenue (SOP
97-2) - 5,644 (59,674) 24,466
---------- ---------- ---------- ----------
NON-GAAP OPERATING REVENUE $38,651 $29,158 $140,048 $107,153
========== ========== ========== ==========
Note: The adjustment reverses the effect of deferred revenue related to a
specific 36 month Chapter 7 bankruptcy arrangement spanning October 2003 -
September 2006. Throughout the 36 month fixed term of the arrangement the
company provided services to clients and received ordinary course cash payments
each month. However, based on the structure of this arrangement, SOP 97-2
required the deferral of substantially all revenue from the arrangement to the
final two quarterly periods. A deferral of $66.1 million of revenue was reported
through the first quarter of 2006, of which $60.1 million was recognized in the
second quarter of 2006 and $6.0 million was recognized in the third quarter of
2006. Although revenue from the arrangement was deferred, under generally
accepted accounting principals the related costs were not deferred but rather
recognized as incurred. Revenue for arrangements in periods prior to October
2003 and for the current arrangement, which began October 1, 2006, are
recognized in the period the services are provided.
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME (LOSS) TO
NON-GAAP ADJUSTED EBITDA
(In thousands)
(Unaudited)
Three months ended Twelve months ended
--------------------- ---------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2006 2005 2006 2005
---------- ---------- ---------- ----------
NET INCOME (LOSS) $(2,093) $(4,045) $35,131 $(3,842)
Deferred revenue (SOP
97-2) - 5,644 (59,674) 24,466
Acquisition related
expense 33 2,870 283 2,984
Depreciation and
amortization 5,645 4,266 21,742 14,039
Share-based compensation 3,689 - 5,359 -
Expenses related to
financing, net 4,156 2,486 13,260 6,687
Provision for (benefit
from) income taxes (2,514) 747 22,834 (2,400)
---------- ---------- ---------- ----------
11,009 16,013 3,804 45,776
---------- ---------- ---------- ----------
NON-GAAP ADJUSTED EBITDA $8,916 $11,968 $38,935 $41,934
========== ========== ========== ==========
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME (LOSS) TO
NON-GAAP NET INCOME
(In thousands)
(Unaudited)
Three months ended Twelve months ended
--------------------- ---------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2006 2005 2006 2005
---------- ---------- ---------- ----------
NET INCOME (LOSS) $(2,093) $(4,045) $35,131 $(3,842)
Plus (net of tax):
Deferred revenue (SOP
97-2) - 5,752 (36,103) 14,790
Amortization of
acquisition intangibles 1,789 1,367 7,036 4,084
Share-based compensation 2,215 - 3,306 -
Acquisition related
expense 20 1,736 171 1,805
Loan fee amortization 224 201 888 708
Non-cash embedded option
charges 678 164 511 626
---------- ---------- ---------- ----------
4,926 9,220 (24,191) 22,013
---------- ---------- ---------- ----------
NON-GAAP NET INCOME $2,833 $5,175 $10,940 $18,171
========== ========== ========== ==========
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF EPS TO
NON-GAAP EPS
(Unaudited)
Three months ended Twelve months ended
--------------------- ---------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2006 (a) 2005 2006 2005
---------- ---------- ---------- ----------
EPS (on a diluted basis) $(0.11) $(0.22) $1.58 $(0.21)
Plus (net of tax):
Deferred revenue (SOP
97-2) - 0.31 (1.57) 0.77
Amortization of
acquisition intangibles 0.09 0.06 0.31 0.19
Share-based compensation 0.12 - 0.14 -
Acquisition related
expense - 0.08 0.01 0.08
Loan fee amortization 0.01 0.01 0.04 0.04
Non-cash embedded option
charges 0.04 0.01 0.02 0.03
---------- ---------- ---------- ----------
0.26 0.47 (1.05) 1.11
---------- ---------- ---------- ----------
NON-GAAP EPS (on a diluted
basis) $0.15 $0.25 $0.53 $0.90
========== ========== ========== ==========
(a) The Non-GAAP EPS calculation excludes adjustments related to
convertible debt as such adjustments are antidilutive.
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
EPS CALCULATION
(In thousands, except per share data)
(Unaudited)
Three months ended Twelve months ended
--------------------- ---------------------
Dec. 31, Dec. 31, Dec. 31, Dec. 31,
2006 (b) 2005 (b) 2006 2005 (b)
---------- ---------- ---------- ----------
NET INCOME (LOSS) $(2,093) $(4,045) $35,131 $(3,842)
Interest expense
adjustment for
convertible debt - - 1,209 -
---------- ---------- ---------- ----------
ADJUSTED FOR DILUTED
CALCULATION $(2,093) $(4,045) $36,340 $(3,842)
========== ========== ========== ==========
DILUTED WEIGHTED AVERAGE
SHARES 19,477 18,627 19,399 18,092
Adjustment to reflect
stock options - - 792 -
Adjustment to reflect
convertible debt shares - - 2,857 -
---------- ---------- ---------- ----------
ADJUSTED FOR DILUTED
CALCULATION 19,477 18,627 23,048 18,092
========== ========== ========== ==========
NET INCOME (LOSS) PER
SHARE - DILUTED $(0.11) $(0.22) $1.58 $(0.21)
========== ========== ========== ==========
(b) Convertible debt is antidilutive and therefore excluded from EPS
calculation.
CONTACT: Epiq Systems, Inc.
Mary Ellen Berthold, 913-621-9500
ir@epiqsystems.com