KANSAS CITY, Kan., Oct. 27, 2011 (GLOBE NEWSWIRE) -- Epiq Systems, Inc. (Nasdaq:EPIQ) today announced results of operations for the third quarter 2011 with operating revenue (total revenue before operating revenue from reimbursed direct costs) of $69.8 million, up 34% compared to $52.0 million for the same period last year. September 30, 2011 year-to-date operating revenue was $192.7 million, up 23% compared to $157.1 million for the prior year. Operating revenue in the third quarter for the E-Discovery segment reflects an 84% increase over the prior year. The E-Discovery segment now represents half or more of the company's third quarter and year-to-date operating revenue and non-GAAP adjusted EBITDA.
On September 15, 2011, the Board of Directors increased the quarterly cash dividend to 5.0 cents per common share payable on November 17, 2011, to shareowners of record at the close of business on October 27, 2011. The new quarterly dividend rate represents a 43% increase from the prior quarterly dividend rate of 3.5 cents per common share.
Net income for the third quarter of 2011 was $4.3 million compared to $4.5 million for the year ago quarter. September 30, 2011 year-to-date net income was $10.1 million compared to $10.8 million for the prior year. Net income per share for the third quarter of 2011 was $0.12 per share compared to $0.12 per share for the year ago quarter. September 30, 2011 year-to-date net income per share was $0.28 compared to $0.28 per share for the prior year.
Non-GAAP net income for the third quarter of 2011 was $8.2 million compared to $7.3 million for the year ago quarter. September 30, 2011 year-to-date non-GAAP net income was $23.0 million compared to $20.7 million for the prior year. Non-GAAP net income per share for the third quarter of 2011 was $0.23 per share, up 21% compared to $0.19 per share for the year ago quarter. September 30, 2011 year-to-date non-GAAP net income per share was $0.63, up 19% compared to $0.53 per share for the prior year.
Third quarter 2011 non-GAAP adjusted EBITDA was $20.8 million, up 23% compared to $17.0 million for the year ago quarter. September 30, 2011 year-to-date non-GAAP adjusted EBITDA was $58.8 million, up 17% compared to $50.1 million for the prior year.
September 30, 2011 year-to-date net cash provided by operations was $27.1 million, up 42% compared to $19.2 million for the prior year. Condensed consolidated statements of income, balance sheets and cash flow statements are attached.
Operating revenue for the E-Discovery segment for the third quarter of 2011 increased 84% to $36.6 million compared to $20.0 million for the year ago quarter. September 30, 2011 year-to-date operating revenue increased 70% to $96.3 million compared to $56.5 million in the prior year. Third quarter 2011 non-GAAP adjusted EBITDA was $14.8 million, up 58% compared to $9.4 million for the year ago quarter. September 30, 2011 year-to-date non-GAAP adjusted EBITDA was $40.9 million, up 64% compared to $25.0 million in the prior year. E-Discovery is now Epiq Systems' largest segment and is well situated with technology and service leadership and a top global position in the industry to continue driving growth.
Operating revenue for the Bankruptcy segment for the third quarter of 2011 was $23.8 million compared to $22.0 million for the year ago quarter. September 30, 2011 year-to-date operating revenue was $68.1 million compared to $71.0 million in the prior year. Non-GAAP adjusted EBITDA was $11.6 million for the third quarter of 2011, compared to $12.6 million for the year ago quarter. September 30, 2011 year-to-date non-GAAP adjusted EBITDA was $35.5 million compared to $39.5 million in the prior year. Bankruptcy results reflect the impact of declining bankruptcy filings in 2011. Epiq Systems continues to be a market leader in each chapter served by its Bankruptcy franchise and continues to maintain high aggregate Chapter 7 deposit balances and market share for bankruptcy engagements.
Operating revenue for the Settlement Administration segment for the third quarter of 2011 was $9.3 million compared to $10.0 million in the year ago quarter. September 30, 2011 year-to-date operating revenue was $28.2 million compared to $29.6 million in the prior year. Non-GAAP adjusted EBITDA was $1.9 million for the third quarter of 2011 compared to $1.5 million for the year ago quarter. September 30, 2011 year-to-date non-GAAP adjusted EBITDA was $4.1 million, compared to $5.2 million in the prior year. The segment results reflect a delay in the start-up of several matters expected to have begun earlier in the year.
Tom W. Olofson, chairman and CEO of Epiq Systems stated, "We are very pleased to have achieved our financial objectives for the third quarter as our E-Discovery segment establishes itself as the largest operating segment of the company. We have recently expanded our Expert and Professional Services group within the segment to include legal consulting services, and we continue to support our clients through global capabilities spanning the U.S., the U.K. and Hong Kong. Our financial strength and performance enable us to increase the cash dividend for our shareholders and reflect our confidence for the future and our commitment to provide long-term shareholder value. "
Key events:
- In October 2011, Epiq expanded its Expert and Professional Services group to include legal consulting services. The expanded electronic discovery services include expert witness testimony, evidence management, case strategy development and case and project management, vendor management, technology review and selection, litigation readiness consulting and a full range of electronic discovery services.
- On August 18, 2011, Epiq paid a cash dividend of 3.5 cents per share of outstanding common stock. On September 15, 2011, the Board of Directors declared a cash dividend of 5.0 cents per share of outstanding common stock, which will be paid on November 17, 2011 to stockholders of record at the close of business on October 27, 2011. The new quarterly dividend rate represents a 43% increase from the prior quarterly dividend rate of 3.5 cents per common share.
- As reported by the Administrative Office of the U.S. Courts, bankruptcy filings totaled 1,529,560 for the 12 month period ended June 30, 2011, down 3% versus the same period ended June 30, 2010. Chapter 11 bankruptcy filings fell 11%, Chapter 7 filings were down 4%, and Chapter 13 filings increased 2% for the 12 month period ended June 30, 2011 versus the same period in 2010.
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, please call (877) 303-6311 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 27, 2011 beginning approximately two hours after the call ends. To access the recording, please call (855) 859-2056 and enter conference ID number 13971656.
Company Description
Epiq Systems is a leading provider of managed technology for the global 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, mortgage processors, financial institutions, and other professional advisors who require innovative technology, responsive service and deep subject-matter expertise.
Use of Non-GAAP Financial Measures
This press release includes the following non-GAAP financial measures: (i) non-GAAP net income (net income adjusted for amortization of acquisition intangibles, share-based compensation, acquisition-related expense, capitalized loan fee amortization, litigation expense/settlement, non-cash embedded option charges, and the effect of tax adjustments that are outside of Epiq Systems' anticipated effective tax rate, 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 depreciation, amortization, share-based compensation, acquisition-related expense, net expenses related to financing, litigation expense/settlement, and provision for income taxes). Income taxes represent a complex element of a company's income statement and effective tax rates can vary widely between different periods. Epiq Systems uses a statutory tax rate of 40% to reflect income tax adjustments in presentation of its non-GAAP net income and non-GAAP earnings per share. Utilization of a statutory tax rate for presentation of the non-GAAP measures is done to allow a consistent basis for investors to understand financial performance across historical periods and to allow a comparison with other companies, many of whom use similar non-GAAP financial measures to supplement their GAAP results.
Although Epiq Systems reports its results using GAAP, Epiq Systems also uses non-GAAP financial measures when management believes those measures provide useful information for its stockholders. These non-GAAP financial measures are intended to supplement the GAAP financial information by providing additional insight regarding results of operations. Certain items are excluded from these non-GAAP financial measures to provide additional comparability measures from period to period. These non-GAAP financial measures will not be defined in the same manner by all companies and may not be comparable to other companies. These non-GAAP financial measures are reconciled in the accompanying tables to the most directly comparable measures as reported in accordance with GAAP, and should be viewed in addition to, and not in lieu of, such comparable financial measures.
Forward-looking and Cautionary Statements
This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and include, but are not limited to, any projection or expectation of earnings, revenue or other financial items; the plans, strategies and objectives of management for future operations; factors that may affect our operating results; new products or services; the demand for our products or services; our ability to consummate acquisitions and successfully integrate them into our operations; future capital expenditures; effects of current or future economic conditions or performance; industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. These forward-looking statements are based on our current expectations which may not prove to be accurate. Forward-looking statements may be identified by terms such as "believe," "expect," "anticipate," "should," "planned," "may," "estimated," "goal," "objective," "seeks," and "potential" and variations of these words and similar expressions or negatives of these words. 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 clients' 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, or changes in government legislation or court rules affecting these filings, (4) overall strength and stability of general economic conditions, both in the United States and in the global markets, (5) significant changes in the competitive environment, (6) risks associated with handling of confidential data and compliance with information privacy laws, (7) changes in or the effects of pricing structures and arrangements, (8) risks associated with the integration of acquisitions into our existing business operations, (9) risks associated with indebtedness, (10) risks associated with foreign currency fluctuations, (11) risks associated with developing and providing software and internet-based technology solutions to our clients, (12) risks associated with interruptions or delays in services at data centers, (13) risks of errors or failures of software or services, (14) risks associated with our international operations, (15) risks of litigation against us, and (16) other risks detailed from time to time in our SEC filings, including our most recent annual report on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-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 obligation to update publicly or revise any forward-looking statements contained herein to reflect future events or developments, except as required by law.
(Tables follow)
| EPIQ SYSTEMS, INC. | ||||
| CONDENSED CONSOLIDATED STATEMENTS OF INCOME | ||||
| (In thousands, except per share data) | ||||
| (Unaudited) | ||||
| Three months ended September 30, | Nine months ended September 30, | |||
| 2011 | 2010 | 2011 | 2010 | |
| REVENUE: | ||||
| Operating revenue before reimbursed direct costs | $ 69,752 | $ 51,999 | $ 192,656 | $ 157,149 |
| Operating revenue from reimbursed direct costs | 6,359 | 6,288 | 17,031 | 22,442 |
| Total Revenue | 76,111 | 58,287 | 209,687 | 179,591 |
| OPERATING EXPENSE: | ||||
| Direct cost of services (exclusive of depreciation and amortization shown separately below) | 23,888 | 16,455 | 64,526 | 48,207 |
| Direct cost of bundled products and services (exclusive of depreciation and amortization shown separately below) | 778 | 831 | 2,391 | 2,669 |
| Reimbursed direct costs | 6,289 | 6,126 | 16,778 | 21,959 |
| General and administrative | 26,395 | 20,068 | 72,763 | 64,181 |
| Depreciation and software and leasehold amortization | 5,795 | 4,911 | 16,808 | 15,358 |
| Amortization of identifiable intangible assets | 6,146 | 1,697 | 16,107 | 5,213 |
| Other operating (income) expense | (1,621) | 281 | (486) | 350 |
| Total Operating Expense | 67,670 | 50,369 | 188,887 | 157,937 |
| INCOME FROM OPERATIONS | 8,441 | 7,918 | 20,800 | 21,654 |
| INTEREST EXPENSE (INCOME): | ||||
| Interest expense | 1,555 | 408 | 4,122 | 1,132 |
| Interest income | (96) | (7) | (112) | (29) |
| Net Interest Expense | 1,459 | 401 | 4,010 | 1,103 |
| INCOME BEFORE INCOME TAXES | ||||
| 6,982 | 7,517 | 16,790 | 20,551 | |
| PROVISION FOR INCOME TAXES | 2,696 | 2,979 | 6,649 | 9,763 |
| NET INCOME | $ 4,286 | $ 4,538 | $ 10,141 | $ 10,788 |
| NET INCOME PER SHARE INFORMATION: | ||||
| Net income per share – Diluted | $0.12 | $0.12 | $0.28 | $0.28 |
|
WEIGHTED AVERAGE COMMON SHARES OUTSTANDING – DILUTED |
36,629 | 38,185 | 36,550 | 40,315 |
| Cash dividends declared per common share | $0.05 | $0.035 | $0.155 | $0.07 |
| EPIQ SYSTEMS, INC. | ||
| CONDENSED CONSOLIDATED BALANCE SHEETS | ||
| (In thousands) | ||
| (Unaudited) | ||
| September 30, 2011 | December 31, 2010 | |
| ASSETS | ||
| ASSETS: | ||
| Cash and cash equivalents | $4,680 | $5,439 |
| Trade accounts receivable, net | 83,918 | 59,940 |
| Property and equipment, net | 40,747 | 41,258 |
| Goodwill | 363,908 | 294,789 |
| Other intangibles, net | 60,180 | 43,580 |
| Other | 40,627 | 33,212 |
| TOTAL ASSETS | $594,060 | $478,218 |
| LIABILITIES AND STOCKHOLDERS' EQUITY | ||
| LIABILITIES: | ||
| Accounts payable | $11,693 | $13,227 |
| Indebtedness | 186,176 | 89,805 |
| Other liabilities | 65,484 | 46,663 |
| STOCKHOLDERS' EQUITY | 330,707 | 328,523 |
| TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $594,060 | $478,218 |
| EPIQ SYSTEMS, INC. | ||
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | ||
| (In thousands) | ||
| (Unaudited) | ||
| Nine months ended September 30, | ||
| 2011 | 2010 | |
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||
| Net income | $ 10,141 | $ 10,788 |
| Non-cash adjustments to net income: | ||
| Depreciation and amortization | 32,915 | 20,571 |
| Other, net | 4,944 | 7,334 |
| Changes in operating assets and liabilities, net | (20,861) | (19,515) |
| Net cash provided by operating activities | 27,139 | 19,178 |
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||
| Property and equipment, software and other | (15,462) | (15,449) |
| Cash paid for business acquisition, net of cash required | (99,330) | -- |
| Net cash used in investing activities | (114,792) | (15,449) |
| CASH FLOWS FROM FINANCING ACTIVITIES: | ||
| Net change in indebtedness | 100,379 | (12,222) |
| Repurchase of common stock | (10,858) | (30,872) |
| Cash dividends paid | (3,728) | (1,348) |
| Other | 596 | (421) |
| Net cash provided by (used in) financing activities | 86,389 | (44,863) |
| Effect of exchange rate changes on cash | 505 | (6) |
| NET DECREASE IN CASH AND CASH EQUIVALENTS | $ (759) | $ (41,140) |
| EPIQ SYSTEMS, INC. | ||||
| RECONCILIATION OF NET INCOME TO | ||||
| NON-GAAP ADJUSTED EBITDA | ||||
| (In thousands) | ||||
| (Unaudited) | ||||
| Three months ended September 30, | Nine months ended September 30, | |||
| 2011 | 2010 | 2011 | 2010 | |
| NET INCOME | $4,286 | $4,538 | $10,141 | $10,788 |
| Plus: | ||||
| Depreciation and amortization | 11,941 | 6,608 | 32,915 | 20,571 |
| Share-based compensation | 2,072 | 2,165 | 5,589 | 5,992 |
| Acquisition-related expense | (1,621) | 281 | (486) | 350 |
| Expenses related to financing, net | 1,459 | 401 | 4,010 | 1,103 |
| Litigation expense/settlement | -- | -- | -- | 1,574 |
| Provision for income taxes | 2,696 | 2,979 | 6,649 | 9,763 |
| 16,547 | 12,434 | 48,677 | 39,353 | |
| NON-GAAP ADJUSTED EBITDA | $20,833 | $16,972 | $58,818 | $50,141 |
| EPIQ SYSTEMS, INC. | ||||
| RECONCILIATION OF NET INCOME | ||||
| TO NON-GAAP NET INCOME | ||||
| (In thousands, except per share data) | ||||
| (Unaudited) | ||||
| Three months ended September 30, | Nine months ended September 30, | |||
| 2011 | 2010 | 2011 | 2010 | |
| NET INCOME | $4,286 | $4,538 | $10,141 | $10,788 |
| Plus (net of tax(1)) : | ||||
| Amortization of acquisition intangibles | 3,687 | 1,019 | 9,664 | 3,138 |
| Share-based compensation | 1,222 | 1,537 | 3,301 | 4,364 |
| Acquisition-related expense | (973) | 168 | (292) | 210 |
| Loan fee amortization | 117 | 73 | 297 | 184 |
| Litigation expense/settlement | -- | -- | -- | 952 |
| Non-cash embedded option charges | -- | -- | -- | (445) |
| Effective tax rate adjustment (2) | (97) | (28) | (67) | 1,543 |
| 3,956 | 2,769 | 12,903 | 9,946 | |
| NON-GAAP NET INCOME | $8,242 | $7,307 | $23,044 | $20,734 |
| NON-GAAP NET INCOME PER SHARE - DILUTED | $0.23 | $0.19 | $0.63 | $0.53 |
| (1) Individual adjustments are calculated using a tax rate of 40% except for the non-qualified portion of share-based compensation. | ||||
| (2) The effective tax rate adjustment reflects a non-GAAP provision for income taxes at a statutory tax rate of 40%. | ||||
| EPIQ SYSTEMS, INC. | ||||
| CALCULATION OF DILUTED NET INCOME PER SHARE AND | ||||
| DILUTED NON-GAAP NET INCOME PER SHARE | ||||
| (In thousands, except per share data) | ||||
| (Unaudited) | ||||
| Three months ended September 30, | Nine months ended September 30, | |||
| 2011 | 2010 | 2011 | 2010 | |
| NET INCOME | $4,286 | $4,538 | $10,141 | $10,788 |
| Interest expense adjustment for convertible debt | -- | -- | -- | 537 |
| Amounts re-allocated to nonvested shares | -- | (12) | -- | (34) |
| NET INCOME ADJUSTED FOR DILUTED CALCULATION | $4,286 | $4,526 | $10,141 | $11,291 |
| NON-GAAP NET INCOME | $8,242 | $7,307 | $23,044 | $20,734 |
| Interest expense adjustment for convertible debt | -- | -- | -- | 537 |
| Amounts re-allocated to nonvested shares | -- | (12) | -- | (34) |
| NON- GAAP NET INCOME ADJUSTED FOR DILUTED CALCULATION | $8,242 | $7,295 | $23,044 | $21,237 |
| BASIC WEIGHTED AVERAGE SHARES | 35,268 | 37,063 | 35,145 | 36,646 |
| Adjustment to reflect share-based awards | 1,361 | 1,122 | 1,405 | 1,080 |
| Adjustment to reflect convertible debt shares | -- | -- | -- | 2,589 |
| DILUTED WEIGHTED AVERAGE SHARES | 36,629 | 38,185 | 36,550 | 40,315 |
| NET INCOME PER SHARE – DILUTED | $0.12 | $0.12 | $0.28 | $0.28 |
| NON-GAAP NET INCOME PER SHARE - DILUTED | $0.23 | $0.19 | $0.63 | $0.53 |