Epiq Systems, Inc. Announces Third Quarter 2007 Results Led By 77% Growth for Electronic Discovery
Press release: KANSAS CITY — Epiq Systems, Inc. (NASDAQ: EPIQ) today announced results of operations for the third quarter of 2007 with operating revenue (total revenue less operating revenue from reimbursed direct costs) of $39.2 million compared to $38.2 million for the second quarter of 2007 and $34.4 million for the same period last year. September 30, 2007 year-to-date operating revenue was $112.5 million compared to $161.1 million for the prior year. The third quarter of 2006 and September 30, 2006 year-to-date revenue reflects the recognition of $6.0 million and $59.7 million, respectively, of revenue which had been previously deferred from the periods in which the related services had been provided. An expanded discussion of operating revenue is provided below.
Net income for the third quarter of 2007 was $2.4 million, or $0.07 per share compared to $1.8 million or $0.06 per share for the second quarter of 2007 and $2.7 million or $0.09 per share for the year ago quarter. The third quarter of 2006 reflects the recognition of $6.0 million of revenue which had been previously deferred from the periods in which the services had been provided. September 30, 2007 year-to-date net income was $4.4 million, or $0.14 per share compared to $37.2 million or $1.10 per share for the prior year. September 30, 2006 year-to-date net income reflects recognition of $59.7 million of revenue which had been previously deferred from the periods in which the related services had been provided. These items are included as adjustments for the non-GAAP financial measures provided below.
Third quarter 2007 net cash provided by operating activities was $8.6 million compared to $6.0 million for the second quarter of 2007 and $5.2 million for the year ago quarter. September 30, 2007 year-to-date net cash provided by operations was $23.4 million compared to $23.6 million for the same period in the prior year. A condensed consolidated cash flow statement is provided below.
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, non-cash mark-to-market adjustments 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, non-cash mark-to-market adjustments, acquisition-related expenses, the effect of tax adjustments which are outside of our anticipated effective tax rate, capitalized loan fee amortization, and adjustments 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 financial measures are provided below.
Non-GAAP operating revenue for the third quarter of 2007 was $39.2 million compared to $38.2 million for the second quarter of 2007 and $28.4 million for the same period last year. Non-GAAP operating revenue for the third quarter of 2006 excludes $6.0 million of revenue earned in previous periods but recognized during the quarter. September 30, 2007 year-to-date non-GAAP operating revenue was $112.5 million compared to $101.4 million for the prior year. September 30, 2006 year-to-date non-GAAP operating revenue excludes $59.7 million of revenue that was earned in previous periods but recognized during the year-to-date period.
Third quarter 2007 non-GAAP adjusted EBITDA was $13.4 million, compared to $12.3 million for the second quarter of 2007 and increased 86% compared to $7.2 million for the year ago quarter. September 30, 2007 year-to-date non-GAAP adjusted EBITDA of $37.1 million increased 23% compared to $30.0 million for the same period in the prior year.
Non-GAAP net income for the third quarter of 2007 was $4.5 million or $0.13 per share, compared to $4.2 million or $0.12 per share for the second quarter of 2007 and $1.0 million or $0.04 per share for the year ago quarter. September 30, 2007 year-to-date non-GAAP net income was $12.2 million or $0.36 per share, compared to $8.1 million or $0.26 per share for the prior year. September 30, 2007 year-to-date non-GAAP net income excludes $1.6 million in non-cash mark-to-market adjustments compared to $(0.2) million for the prior year, net of tax.
Operating revenue for Electronic Discovery for the third quarter of 2007 was $13.0 million, compared to $12.2 million for the second quarter of 2007 and a 77% increase compared to $7.4 million for the year ago quarter. September 30, 2007 year-to-date operating revenue was $35.3 million, a 53% increase compared $23.0 million for the prior year. New client engagements combined with increased work for existing clients and expansion of the international business contributed to the increase in operating revenue for the third quarter of 2007. Non-GAAP adjusted EBITDA for Electronic Discovery was $6.1 million, compared to $6.5 million for the second quarter of 2007 and an 87% increase compared to $3.3 million in the year ago quarter. September 30, 2007 year-to-date non-GAAP adjusted EBITDA was $17.8 million, a 58% increase compared to $11.3 million in the prior year.
Non-GAAP operating revenue for the Bankruptcy Trustee business for the third quarter of 2007 was $8.4 million, compared to $8.3 million in the second quarter of 2007 and $8.3 million for the year ago quarter. September 30, 2007 year-to-date non-GAAP operating revenue was $25.0 million, compared to $25.8 million in the prior year. Changes in revenue are related to ordinary 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 third quarter. Non-GAAP adjusted EBITDA for the Bankruptcy Trustee business was $5.5 million compared to $5.8 million in the second quarter of 2007 and $5.6 million for the year ago quarter. September 30, 2007 year-to-date non-GAAP adjusted EBITDA was $17.0 million, compared to $17.5 million in the prior year. Non-GAAP adjusted EBITDA fluctuations between the quarters are primarily related to changes in operating revenue resulting from ordinary fluctuations in deposits and caseloads across all clients.
Operating revenue for Settlements & Claims (which includes Chapter 11 bankruptcy, class action and related business) for the third quarter of 2007 was $17.8 million compared to $17.6 million in the second quarter of 2007 and $12.7 million in the year ago quarter. September 30, 2007 year-to-date operating revenue was $52.1 million, compared to $52.6 million in the prior year. Non-GAAP adjusted EBITDA for Settlements & Claims was $7.1 million for the third quarter of 2007 compared to $5.0 million in the second quarter of 2007 and $2.6 million for the year ago quarter. September 30, 2007 year-to-date non-GAAP adjusted EBITDA was $17.1 million, compared to $12.9 million in the prior year.
Tom W. Olofson, chairman and CEO, and Christopher E. Olofson, president and COO of Epiq Systems stated, “We are very pleased to have concluded the quarter with record monthly revenue for electronic discovery. In addition to the significant increase compared with the prior year, we achieved sequential quarterly growth in both operating revenue and non-GAAP net income despite customary summertime seasonality.
“We enter the fourth quarter with optimism, as every one of our segments has strong momentum. Our trustee services unit has won new business, and our settlement & claims business has been retained on our all-time largest multi-year individual client engagement. In electronic discovery, we continue to grow our customer relationships and introduce major enhancements to our proprietary software.”
Recent key events include:
A major software release of DocuMatrix™, our eDiscovery software, and upgrades to our TCMS® and TCMSWeb bankruptcy trustee case management software.
40% growth in the number of electronic discovery client relationships since the end of 2006.
A top-5 ranking for eDiscovery services to corporate customers on the 2007 Socha Gelbmann 5th Annual Electronic Discovery survey.
Win of the company’s all-time largest multi-year individual client engagement in the class action market.
Filing of a $150.0 million shelf registration statement in August with the Securities Exchange Commission to support long-term strategic business expansion.
Total bankruptcy filings have increased each quarter for each of the past five quarters.
The Federal Reserve reported that both corporate debt and consumer credit increased compared to the prior year, reaching $6.0 trillion and $2.5 trillion, respectively, as of June 30, 2007.
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 888-459-5609 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 November 30, 2007 beginning approximately two hours after the call ends. To access the replay, call 877-519-4471 and enter pin #9343160.
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.
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