EXHIBIT 99.1
Epiq Systems, Inc. Announces First Quarter 2007 Results
KANSAS CITY, Kan.--(BUSINESS WIRE)--April 24, 2007--Epiq Systems,
Inc. (NASDAQ: EPIQ) today announced results of operations for the
first quarter of 2007 with operating revenue (total revenue less
operating revenue from reimbursed direct costs) of $35.1 million
compared to $38.7 million for the fourth quarter of 2006 and $32.6
million for the same period last year. An expanded discussion of
operating revenue is provided below.
Net income for the first quarter of 2007 was $0.2 million, or
$0.01 per share compared to a net loss of $2.1 million or ($0.11) per
share for the fourth quarter of 2006 and a net loss of $1.7 million or
($0.09) per share for the year ago quarter. First quarter 2007 results
include a non-cash $2.1 million mark-to-market/convertible debt
accretion expense. During the first quarter of 2007 we recognized $0.3
million of non-cash share-based compensation expense compared to $3.7
million in the fourth quarter of 2006 and $0.5 million in the first
quarter of 2006 and the first quarter of 2006 reflects a deferral of
$6.4 million of revenue. These items are included as adjustments for
the non-GAAP profit measures provided below.
First quarter 2007 net cash provided by operating activities was
$8.9 million compared to $10.9 million for the fourth quarter of 2006
and $5.7 million for the year ago quarter. 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, the effect of tax adjustments which are
outside of our anticipated effective tax rate, 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.
Non-GAAP operating revenue for the first quarter of 2007 was $35.1
million compared to $38.7 million for the fourth quarter of 2006 and
$39.0 million for the same period last year. Non-GAAP operating
revenue for the first quarter of 2006 includes $6.4 million for
services which were provided during the quarter and the revenue was
recognized in a later period.
First quarter 2007 non-GAAP adjusted EBITDA was $11.3 million,
compared to $8.9 million for the fourth quarter of 2006 and $12.4
million for the year ago quarter.
Non-GAAP net income for the first quarter of 2007 was $3.5 million
or $0.16 per share, compared to $2.8 million or $0.15 per share for
the fourth quarter of 2006 and $4.4 million or $0.20 per share for the
year ago quarter. Non-GAAP net income includes a non-cash
mark-to-market expense for an embedded option for our convertible
notes, which increased $0.6 million compared to the fourth quarter of
2006 and increased $1.1 million compared to the same period last year.
The first quarter of 2007 includes $0.2 million of share-based
compensation expense compared to $2.2 million in the fourth quarter of
2006 and $0.4 million in the first quarter of 2006.
Operating revenue for Electronic Discovery for the first quarter
of 2007 was $10.1 million, a 21% increase compared to both the fourth
quarter of 2006 and the first quarter of 2006 (the highest revenue
quarter of 2006 for electronic discovery, related to a particularly
large client engagement). New client engagements combined with
expansion of work for existing clients contributed to the increase in
operating revenue for the first quarter of 2007. Non-GAAP adjusted
EBITDA for Electronic Discovery was $5.2 million, a 61% increase
compared to the fourth quarter of 2006 and a 4% increase compared to
the first quarter of 2006. In making comparisons between periods, it
is important to note that Epiq Systems invested heavily throughout
2006 following the November 2005 acquisition of nMatrix. Accordingly,
the cost structure, size of management team, and service capacity of
the electronic discovery business were much smaller in the first
quarter of 2006 than in the first quarter of 2007. Since the beginning
of 2007, increased revenues against the modified cost structure have
resulted in increased profitability.
Non-GAAP operating revenue for the Bankruptcy Trustee business for
the first quarter of 2007 was $8.3 million, compared to $8.8 million
in both the fourth quarter of 2006 and for the same period last year.
Changes in revenue between the quarters are related to ordinary
quarterly fluctuations in total bankruptcy deposits and caseloads
across all clients. Retention of existing clients remains extremely
high and we closed a variety of new client engagements during the
first quarter. Non-GAAP adjusted EBITDA for the Bankruptcy Trustee
business was $5.7 million compared to $6.1 million in the fourth
quarter of 2006 and $6.0 million for the first quarter of 2006.
Non-GAAP adjusted EBITDA fluctuations between the quarters are
primarily related to the quarterly fluctuations in operating revenue.
Operating revenue for Settlements & Claims (i.e. aggregate results
for Chapter 11 bankruptcy, class action and related business) for the
first quarter of 2007 was $16.7 million compared to $21.5 million in
the fourth quarter of 2006 and $21.8 million in the first quarter of
2006. The revenue difference was caused primarily by a reduced number
of new class action client engagements closed in 2006 that carry
forward in 2007. A new managing director for class action was
appointed in October 2006 and a new vice president of sales for class
action joined the business in April 2007. Non-GAAP adjusted EBITDA for
Settlements & Claims was $5.0 million for the first quarter of 2007
compared to $4.2 million in the fourth quarter of 2006 and $5.0
million for the same period last year. The profit margin for
Settlements & Claims increased in the first quarter of 2007 versus
2006 because of a shift in revenue mix caused by reduced client
requirements for document management services, which carry a lower
profit margin than case management services. Client needs for document
management vary by quarter according to timing considerations and the
lifecycle stage for client engagements.
Tom W. Olofson, chairman and CEO, and Christopher E. Olofson,
president and COO of Epiq Systems stated, "We are very pleased that
2007 is off to a strong start, in particular for our electronic
discovery business, which continues to build momentum. February and
March represented the top two all-time revenue months for electronic
discovery in the United States, and March set a new all-time high for
electronic discovery revenue in the United Kingdom.
"Our national bankruptcy franchise for Chapters 7, 11 and 13 is
well positioned to benefit from increased filings of new bankruptcy
cases. For the first three months of 2007, business filings are up 60%
and consumer filings are up 70% compared to the first three months of
2006. Financial difficulties in the sub-prime market and current new
recruiting drives in the bankruptcy departments of top law firms point
to potential significant future increases in Chapter 11 activity."
Key events in the first quarter of 2007 include:
-- The company further established its technology leadership in
the legal market with a major software release in the first
quarter for TCMS(R), the company's Chapter 7 case management
software.
-- During the first quarter, we expanded our management
organization with two new sales vice presidents to serve each
of the electronic discovery and class action markets.
-- 0.62 million bankruptcies were filed in the U.S. Court for the
twelve month period ended December 31, 2006.
-- The Federal Reserve reported that both corporate debt and
consumer credit increased compared to the prior year, reaching
$5.7 trillion and $2.4 trillion, respectively, as of December
31, 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)
922-9655 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 May
31, 2007 beginning approximately two hours after the call ends. To
access the replay, call (877) 519-4471 and enter pin #8701357.
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)
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 clients 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 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 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,
and (9) 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.
For more information
Mary Ellen Berthold, Epiq Systems, Inc., telephone: 913-621-9500,
email: ir@epiqsystems.com
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data)
(Unaudited)
Three months ended
March 31,
-------------------
2007 2006
---------- --------
REVENUE:
Case management services $20,832 $18,901
Case management bundled software license,
software upgrade and postcontract customer
support services 6,678 685
Document management services 7,585 12,975
---------- --------
Operating revenue before reimbursed direct
costs 35,095 32,561
Operating revenue from reimbursed direct costs 6,033 5,657
---------- --------
Total Revenue 41,128 38,218
---------- --------
OPERATING EXPENSES:
Direct costs of services 10,331 14,376
Direct costs of services - bundled 887 1,035
Reimbursed direct costs 6,022 5,720
General and administrative 12,924 11,699
Depreciation and software and leasehold
amortization 2,961 2,297
Amortization of identifiable intangible assets 2,524 2,767
---------- --------
Total Operating Expenses 35,649 37,894
---------- --------
INCOME FROM OPERATIONS 5,479 324
---------- --------
EXPENSES (INCOME) RELATED TO FINANCING:
Interest income (8) (46)
Interest expense 5,102 3,310
---------- --------
Net Expenses (Income) Related to Financing 5,094 3,264
---------- --------
INCOME (LOSS) BEFORE INCOME TAXES 385 (2,940)
INCOME TAX PROVISION (BENEFIT) 235 (1,191)
---------- --------
NET INCOME (LOSS) $150 $(1,749)
========== ========
NET INCOME (LOSS) PER SHARE INFORMATION:
Net income (loss) per share - Diluted $0.01 $(0.09)
========== ========
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 20,520 19,284
========== ========
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)
March 31, December 31,
2007 2006
--------------- --------------
ASSETS
ASSETS:
Cash and cash equivalents $4,933 $5,274
Trade accounts receivable, net 33,688 33,066
Property, equipment and leasehold
improvements, net 23,320 23,153
Goodwill 261,541 260,609
Other intangibles, net 41,316 43,840
Other 16,477 16,278
--------------- --------------
Total Assets $381,275 $382,220
=============== ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $8,571 $7,930
Indebtedness 148,093 154,361
Other liabilities 39,756 35,750
STOCKHOLDERS' EQUITY 184,855 184,179
--------------- --------------
Total Liabilities and Stockholders'
Equity $381,275 $382,220
=============== ==============
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Three months ended
March 31,
-------------------
2007 2006
---------- --------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $150 $(1,749)
Non-cash adjustments to net income (loss):
Depreciation and amortization 5,485 5,064
Other, net 1,466 (1,641)
Changes in operating assets and liabilities,
net 1,763 3,982
---------- --------
Net cash provided by operating activities 8,864 5,656
---------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Cash paid for business combinations, net - (150)
Other (3,216) (3,922)
---------- --------
Net cash used in investing activities (3,216) (4,072)
---------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings on indebtedness (8,612) (9,712)
Other 2,623 1,392
---------- --------
Net cash (used in) provided by financing
activities (5,989) (8,320)
---------- --------
NET DECREASE IN CASH AND CASH EQUIVALENTS $(341) $(6,736)
========== ========
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF OPERATING REVENUE TO
NON-GAAP OPERATING REVENUE
(In thousands)
(Unaudited)
Three months ended
--------------------------------
March 31, December 31, March 31,
2007 2006 2006
--------- ------------ ---------
OPERATING REVENUE BEFORE REIMBURSED
DIRECT COSTS $35,095 $38,651 $32,561
Less:
Deferred revenue (SOP 97-2) - - 6,438
--------- ------------ ---------
NON-GAAP OPERATING REVENUE $35,095 $38,651 $38,999
========= ============ =========
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 BANKRUPTCY TRUSTEE OPERATING REVENUE TO BANKRUPTCY
TRUSTEE NON-GAAP OPERATING REVENUE
(In thousands)
(Unaudited)
Three months ended
--------------------------------
March 31, December 31, March 31,
2007 2006 2006
--------- ------------ ---------
OPERATING REVENUE BEFORE REIMBURSED
DIRECT COSTS $8,266 $8,780 $2,359
Less:
Deferred revenue (SOP 97-2) - - 6,438
--------- ------------ ---------
NON-GAAP OPERATING REVENUE $8,266 $8,780 $8,797
========= ============ =========
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME (LOSS) TO
NON-GAAP ADJUSTED EBITDA
(In thousands)
(Unaudited)
Three months ended
--------------------------------
March 31, December 31, March 31,
2007 2006 2006
--------- ------------ ---------
NET INCOME (LOSS) $150 $(2,093) $(1,749)
Deferred revenue (SOP 97-2) - - 6,438
Acquisition related expense - 33 -
Depreciation and amortization 5,485 5,645 5,064
Share-based compensation 311 3,689 530
Expenses related to financing, net 5,094 4,156 3,264
Provision for (benefit from)
income taxes 235 (2,514) (1,191)
--------- ------------ ---------
11,125 11,009 14,105
--------- ------------ ---------
NON-GAAP ADJUSTED EBITDA $11,275 $8,916 $12,356
========= ============ =========
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF SEGMENT PERFORMANCE MEASURE TO
BANKRUPTCY TRUSTEE NON-GAAP ADJUSTED EBITDA
(In thousands)
(Unaudited)
Three months ended
--------------------------------
March 31, December 31, March 31,
2007 2006 2006
--------- ------------ ---------
SEGMENT PERFORMANCE MEASURE $5,735 $6,141 $(466)
Deferred revenue (SOP 97-2) - - 6,438
--------- ------------ ---------
NON-GAAP ADJUSTED EBITDA $5,735 $6,141 $5,972
========= ============ =========
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF NET INCOME (LOSS) TO
NON-GAAP NET INCOME
(In thousands)
(Unaudited)
Three months ended
--------------------------------
March 31, December 31, March 31,
2007 2006 2006
--------- ------------ ---------
NET INCOME (LOSS) $150 $(2,093) $(1,749)
Plus (net of tax):
Deferred revenue (SOP 97-2) - - 3,779
Amortization of acquisition
intangibles 1,527 1,789 1,674
Share-based compensation 221 2,215 350
Acquisition related expense - 20 -
Effective tax rate 67 - -
Loan fee amortization 238 224 221
Non-cash embedded option charges 1,295 678 164
--------- ------------ ---------
3,348 4,926 6,188
--------- ------------ ---------
NON-GAAP NET INCOME $3,498 $2,833 $4,439
========= ============ =========
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
RECONCILIATION OF EPS TO
NON-GAAP EPS
(Unaudited)
Three months ended
--------------------------------
March 31, December 31, March 31,
2007 2006 (a) 2006
--------- ------------ ---------
EPS (on a diluted basis) $0.01 $(0.11) $(0.09)
Plus (net of tax):
Deferred revenue (SOP 97-2) - - 0.19
Amortization of acquisition
intangibles 0.07 0.09 0.07
Share-based compensation 0.01 0.12 0.01
Acquisition related expense - - -
Effective tax rate - - -
Loan fee amortization 0.01 0.01 0.01
Non-cash embedded option charges 0.06 0.04 0.01
--------- ------------ ---------
0.15 0.26 0.29
--------- ------------ ---------
NON-GAAP EPS (on a diluted basis) $0.16 $0.15 $0.20
========= ============ =========
(a) The Non-GAAP EPS calculation excludes adjustments related to
convertible debt as such adjustments are antidilutive.
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
NON-GAAP REVENUE
(In thousands)
(Unaudited)
Three months ended
--------------------------------
March 31, December 31, March 31,
2007 2006 2006
--------- ------------ ---------
Electronic Discovery $10,112 $8,353 $8,375
Bankruptcy Trustee 8,266 8,780 8,797
Settlements & Claims 16,717 21,518 21,827
--------- ------------ ---------
NON-GAAP OPERATING REVENUE BEFORE
REIMBURSED DIRECT COSTS $35,095 $38,651 $38,999
========= ============ =========
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
NON-GAAP ADJUSTED EBITDA
(In thousands)
(Unaudited)
Three months ended
--------------------------------
March 31, December 31, March 31,
2007 2006 2006
--------- ------------ ---------
Electronic Discovery $5,210 $3,240 $5,012
Bankruptcy Trustee 5,735 6,141 5,972
Settlements & Claims 4,986 4,229 5,018
Unallocated (4,656) (4,694) (3,646)
--------- ------------ ---------
TOTAL NON-GAAP ADJUSTED EBITDA $11,275 $8,916 $12,356
========= ============ =========
EPIQ SYSTEMS, INC. AND SUBSIDIARIES
EPS CALCULATION
(In thousands, except per share data)
(Unaudited)
Three months ended
--------------------------------
March 31, December 31, March 31,
2007 (a) 2006 (a) 2006 (a)
--------- ------------ ---------
NET INCOME (LOSS) $150 $(2,093) $(1,749)
Interest expense adjustment for
convertible debt - - -
--------- ------------ ---------
ADJUSTED FOR DILUTED CALCULATION $150 $(2,093) $(1,749)
========= ============ =========
DILUTED WEIGHTED AVERAGE SHARES 19,511 19,477 19,284
Adjustment to reflect stock
options 1,009 - -
Adjustment to reflect convertible
debt shares - - -
--------- ------------ ---------
ADJUSTED FOR DILUTED CALCULATION 20,520 19,477 19,284
========= ============ =========
NET INCOME (LOSS) PER SHARE -
DILUTED $0.01 $(0.11) $(0.09)
========= ============ =========
(a) Convertible debt is antidilutive and therefore excluded from EPS
calculation.
CONTACT: Epiq Systems, Inc.
Mary Ellen Berthold, 913-621-9500
email: ir@epiqsystems.com