EX-99.1 2 a5003706ex99_1.txt EXHIBIT 99.1 EXHIBIT 99.1 EPIQ Systems, Inc. Announces Third Quarter 2005 Results KANSAS CITY, Kan.--(BUSINESS WIRE)--Oct. 25, 2005--EPIQ Systems, Inc. (NASDAQ: EPIQ) today announced results of operations for the third quarter of 2005 with operating revenue (total revenue less reimbursed expenses) of $25.8 million compared to $26.2 million for the second quarter of 2005 and versus $28.7 million for the year ago third quarter. September 30, 2005 year-to-date operating revenue of $78.0 million compares to $81.2 million last year. In accordance with a required accounting change (EITF 04-08 - The Effect of Contingently Convertible Instruments on Diluted Earnings per Share) effective December 15, 2004, potential shares related to our convertible notes issued June 10, 2004 are included in the diluted shares calculation for all periods presented as though the debt was converted entirely on the date of issuance. To date, no shares have been converted. In the absence of EITF 04-08, diluted weighted average shares outstanding would have been 18.9 million for the third quarter of 2005 and were 18.3 million for the year ago quarter. Taking into effect the accounting change, diluted weighted average shares outstanding were 21.7 million for the third quarter of 2005 and have been restated to 21.1 million for the year ago quarter. The convertible notes bear interest at 4% annually. EITF 04-08 requires earnings per share calculations to include the appropriate after tax interest adjustment. A reconciliation statement identifying the changes related to the new accounting treatment is attached. All earnings per share information, unless otherwise noted, references diluted earnings per share calculated in accordance with EITF 04-08. Third quarter 2005 net income from continuing operations was $3.1 million or $0.16 per share versus $2.9 million or $0.15 per share for the second quarter of 2005 and compared to $2.2 million or $0.12 per share for the year ago quarter. September 30, 2005 year-to-date net income from continuing operations was $9.2 million or $0.48 per share compared to $7.1 million or $0.39 per share for the prior year. Non-GAAP net income from continuing operations for the third quarter of 2005 was $4.4 million or $0.22 per share compared to $4.3 million or $0.22 per share for the second quarter of 2005 and versus $4.3 million or $0.22 per share in the third quarter of 2004. September 30, 2005 year-to-date non-GAAP net income from continuing operations was $12.9 million or $0.65 per share compared to $13.7 million or $0.72 per share for the prior year. Non-GAAP net income adjusts net income from continuing operations for amortization of acquisition related intangibles, acquisition-related expenses, capitalized loan fee amortization and extinguishment and embedded option mark-to-market expense/convertible debt accretion, all net after tax. A reconciliation statement is attached. EPIQ Systems' management primarily analyzes financial results adjusted for certain items that are non-operational and not necessarily ongoing in nature, as well as cash flow generated from operations. Management evaluates the following key metrics: (i) Non-GAAP Adjusted EBITDA from continuing operations (earnings before interest/financing and debt extinguishment, taxes, depreciation, amortization, and acquisition related expenses) and (ii) net cash provided by operating activities. Non-GAAP Adjusted EBITDA from continuing operations was $10.2 million in the third quarter of 2005 compared to $10.0 million in the second quarter of 2005 and versus $10.2 million for the year ago quarter and was $30.0 million for September 30, 2005 year-to-date compared to $30.9 million for the prior year. A reconciliation statement is attached. September 30, 2005 year-to-date net cash provided by operating activities was $13.7 million compared to $20.4 million last year. A condensed cash flow statement is attached. Tom W. Olofson, chairman and CEO, and Christopher E. Olofson, president and chief operating officer of EPIQ Systems stated, "The period leading up to the October 17, 2005 effective date for bankruptcy legislation witnessed a significant spike in bankruptcy filings for both consumer and corporate debtors. In particular, the week of October 10 saw a tremendous surge in new filings. EPIQ Systems' market share has held strongly, and we were particularly pleased to have been selected for major new Chapter 11 engagements during the third quarter. In support of our strategic objectives, we recently completed two smaller acquisitions which add important new service offerings and which expand the reach of our industry relationships." Recent key events include: -- After October 17, 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 became effective and makes the most sweeping changes in a generation, affecting both consumer and business bankruptcies. -- EPIQ Systems released TCMS(R) 10.6, an industry-leading Chapter 7 case management solution to provide updates for changes resulting from the new legislation. -- Since June 2004, the Federal Open Market Committee has raised the federal funds rate eleven times from its low of 1.00% to the current 3.75%. -- The Federal Reserve reported that corporate debt and consumer credit both pushed further into record levels, approaching $5.4 trillion and $2.2 trillion, respectively, as of June 30, 2005. -- In August we acquired Novare, Inc. a boutique provider of specialty bankruptcy consulting services, and in October we acquired Hilsoft, Inc. a national leader of legal notification programs for class action matters. Conference Call The Company will host a conference call today at 3:30 p.m. (CDT) to discuss these results. The Internet broadcast of the call with corresponding slides can be accessed at www.epiqsystems.com. To listen by phone, call (800) 350-6237 before 3:30 p.m. (CDT). 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, 2005 beginning approximately two hours after the call ends. To access the replay, call (800) 675-9924 and enter pin# 102505. Company Description EPIQ Systems is a national leader in the market for fiduciary management and claims administration systems and provides an advanced offering of integrated technology-based products and services. Our solutions enable clients to optimize the administration of large and complex bankruptcy, class action, mass tort, and other similar legal proceedings. EPIQ Systems' clients include corporations, attorneys, trustees and administrative professionals who require sophisticated case administration and document management capabilities, extensive subject matter expertise, and a high service capacity. We provide clients a packaged offering of both proprietary technology and value-added services that comprehensively addresses their extensive business requirements. For more information, visit us online at www.epiqsystems.com. Forward-looking and Cautionary Statements This press release and the referenced conference call may contain 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 operations and financial condition of the Company. These forward-looking statements are based on the Company's 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 the Company's 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 Chapter 7 deposit portfolio, the services required or selected by our Chapter 11, Chapter 13, class action or mass tort engagements, or the number of cases processed by our Chapter 13 bankruptcy trustee clients, (3) material changes in the number of bankruptcy filings, class action filings or mass tort actions each year, (4) our reliance on and future changes in our marketing arrangement and pricing arrangements with Bank of America for Chapter 7 revenue, (5) the marketing and pricing arrangements with other Chapter 7 depository banks, (6) the impact of recently enacted tort reform and bankruptcy reform legislation on the volume and timing of disposition of client engagements, (7) risks associated with the integration of acquisitions into our existing business operations, (8) risks associated with our indebtedness, and (9) other risks detailed from time to time in our SEC filings, including our annual report on Form 10-K for the year ended December 31, 2004. 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 INCOME (In thousands, except per share data) (Unaudited) Three months ended Nine months ended September 30, September 30, -------------------- ------------------ 2005 2004 2005 2004 ---------- --------- --------- -------- REVENUE: Case management $18,469 $16,980 $58,100 $51,278 Document management 7,373 11,671 19,895 29,961 ---------- --------- --------- -------- Operating revenue 25,842 28,651 77,995 81,239 Reimbursed expenses 6,174 7,043 17,118 15,375 ---------- --------- --------- -------- Total Revenue 32,016 35,694 95,113 96,614 ---------- --------- --------- -------- COSTS AND EXPENSES: Direct costs 14,775 18,533 42,074 46,509 General and administrative 7,035 6,998 23,071 19,209 Depreciation and software amortization 1,732 1,804 5,281 4,763 Amortization of identifiable intangible assets 1,442 2,032 4,492 5,744 Acquisition related 114 16 114 2,197 ---------- --------- --------- -------- Total Operating Expenses 25,098 29,383 75,032 78,422 ---------- --------- --------- -------- INCOME FROM OPERATIONS 6,918 6,311 20,081 18,192 ---------- --------- --------- -------- EXPENSES RELATED TO FINANCING: Interest income (28) (32) (106) (98) Interest expense 1,623 1,653 4,309 5,182 Debt extinguishment - 995 - 995 ---------- --------- --------- -------- Net Expenses Related to Financing 1,595 2,616 4,203 6,079 ---------- --------- --------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 5,323 3,695 15,878 12,113 PROVISION FOR INCOME TAXES 2,236 1,534 6,637 4,968 ---------- --------- --------- -------- NET INCOME FROM CONTINUING OPERATIONS 3,087 2,161 9,241 7,145 TOTAL DISCONTINUED OPERATIONS - (77) - 668 ---------- --------- --------- -------- NET INCOME $3,087 $2,084 $9,241 $7,813 ========== ========= ========= ======== NET INCOME PER SHARE INFORMATION: Income per share - Diluted Income from continuing operations $0.16 $0.12 $0.48 $0.39 Income (loss) from discontinued operations - (0.01) - 0.03 ---------- --------- --------- -------- Net income per share - Diluted $0.16 $0.11 $0.48 $0.42 ========== ========= ========= ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 21,718 21,135 21,259 19,388 ========== ========= ========= ======== EPIQ SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) September 30, 2005 December 31, 2004 ------------------ ------------------- ASSETS ASSETS: Cash and cash equivalents $13,203 $13,330 Trade receivables, net 26,653 18,690 Property and equipment, net 19,663 20,431 Goodwill 147,585 147,728 Other intangibles, net 20,195 24,057 Other 15,514 15,852 ------------------ ------------------- Total Assets $242,813 $240,088 ================== =================== LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accounts payable $3,911 $4,263 Indebtedness 72,915 82,149 Other liabilities 15,588 13,843 STOCKHOLDERS' EQUITY 150,399 139,833 ------------------ ------------------- Total Liabilities and Stockholders' Equity $242,813 $240,088 ================== =================== EPIQ SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three months ended Nine months ended -------------------- ------------------- September September September September 30, 30, 30, 30, 2005 2004 2005 2004 ---------- --------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $3,087 $2,084 $9,241 $7,813 Non-cash adjustments to net income: Depreciation and amortization 3,174 3,836 9,773 10,507 Other, net 1,330 2,112 2,584 4,658 Changes in operating assets and liabilities, net (4,168) (2,914) (7,861) (2,591) ---------- --------- --------- --------- Net cash provided by operating activities 3,423 5,118 13,737 20,387 ---------- --------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash acquired from (paid for) business combinations, net (650) 4 (650) (113,111) Other (2,607) (1,487) (4,013) (4,916) ---------- --------- --------- --------- Net cash used in investing activities (3,257) (1,483) (4,663) (118,027) ---------- --------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds (payments) on indebtedness (1,423) (7,606) (10,104) 76,552 Other 724 266 903 553 ---------- --------- --------- --------- Net cash provided by (used in) financing activities (699) (7,340) (9,201) 77,105 ---------- --------- --------- --------- NET DECREASE IN CASH $(533) $(3,705) $(127) $(20,535) ========== ========= ========= ========= EPIQ SYSTEMS, INC. AND SUBSIDIARIES RECONCILIATION OF NET INCOME FROM CONTINUING OPERATIONS TO NON-GAAP NET INCOME FROM CONTINUING OPERATIONS (In thousands) (Unaudited) Three months ended Nine months ended --------------------------- ------------------- September June September September September 30, 30, 30, 30, 30, 2005 2005 2004 2005 2004 --------- ------- --------- --------- --------- NET INCOME FROM CONTINUING OPERATIONS $3,087 $2,904 $2,161 $9,241 $7,145 Plus (net of tax): Amortization of acquisition intangibles 836 832 1,189 2,614 3,389 Acquisition related expense 66 - 9 66 1,296 Loan fee amortization and debt extinguishment 161 161 782 488 1,670 Non-cash embedded option charges 256 409 194 444 194 --------- ------- --------- --------- --------- 1,319 1,402 2,174 3,612 6,549 --------- ------- --------- --------- --------- NON-GAAP NET INCOME FROM CONTINUING OPERATIONS $4,406 $4,306 $4,335 $12,853 $13,694 ========= ======= ========= ========= ========= EPIQ SYSTEMS, INC. AND SUBSIDIARIES RECONCILIATION OF EPS FROM CONTINUING OPERATIONS TO NON-GAAP EPS FROM CONTINUING OPERATIONS (Unaudited) Three months ended Nine months ended -------------------------- ------------------- September June September September September 30, 30, 30, 30, 30, 2005 2005 2004 2005 2004 --------- ------ --------- --------- --------- EPS FROM CONTINUING OPERATIONS (on a diluted basis) $0.16 $0.15 $0.12 $0.48 $0.39 Plus (net of tax): Amortization of acquisition intangibles 0.04 0.04 0.05 0.13 0.17 Acquisition related expense - - - - 0.07 Loan fee amortization and debt extinguishment 0.01 0.01 0.04 0.02 0.08 Non-cash embedded option charges 0.01 0.02 0.01 0.02 0.01 --------- ------ --------- --------- --------- 0.06 0.07 0.10 0.17 0.33 --------- ------ --------- --------- --------- NON-GAAP EPS FROM CONTINUING OPERATIONS (on a diluted basis) $0.22 $0.22 $0.22 $0.65 $0.72 ========= ====== ========= ========= ========= EPIQ SYSTEMS, INC. AND SUBSIDIARIES RECONCILIATION OF NET INCOME FROM CONTINUING OPERATIONS TO NON-GAAP ADJUSTED EBITDA FROM CONTINUING OPERATIONS (In thousands) (Unaudited) Three months ended Nine months ended ---------------------------- ------------------- September June September September September 30, 30, 30, 30, 30, 2005 2005 2004 2005 2004 --------- -------- --------- --------- --------- NET INCOME FROM CONTINUING OPERATIONS $3,087 $2,904 $2,161 $9,241 $7,145 Acquisition related expense 114 - 16 114 2,197 Depreciation and amortization 3,174 3,202 3,836 9,773 10,507 Expenses related to financing and debt extinguishment 1,595 1,844 2,616 4,203 6,079 Provision for income taxes 2,236 2,077 1,534 6,637 4,968 --------- -------- --------- --------- --------- 7,119 7,123 8,002 20,727 23,751 --------- -------- --------- --------- --------- NON-GAAP ADJUSTED EBITDA FROM CONTINUING OPERATIONS $10,206 $10,027 $10,163 $29,968 $30,896 ========= ======== ========= ========= ========= EPIQ SYSTEMS, INC. AND SUBSIDIARIES EPS CALCULATION ADJUSTMENTS PER EITF 04-08 (In thousands, except per share data) (Unaudited) Three months ended Nine months ended September 30, September 30, ------------------- ------------------- 2005 2004 2005 2004 --------- --------- --------- --------- NET INCOME FROM CONTINUING OPERATIONS $3,087 $2,161 $9,241 $7,145 Interest expense adjustment for convertible debt 292 295 871 352 --------- --------- --------- --------- ADJUSTED FOR DILUTED CALCULATION $3,379 $2,456 $10,112 $7,497 ========= ========= ========= ========= DILUTED WEIGHTED AVERAGE SHARES 17,942 17,867 17,911 17,837 Adjustment to reflect stock options 919 411 491 414 Adjustment to reflect convertible debt shares 2,857 2,857 2,857 1,137 --------- --------- --------- --------- ADJUSTED FOR DILUTED CALCULATION 21,718 21,135 21,259 19,388 ========= ========= ========= ========= INCOME PER SHARE - DILUTED $0.16 $0.12 $0.48 $0.39 ========= ========= ========= ========= CONTACT: EPIQ Systems, Inc. Mary Ellen Berthold, 913-621-9500 Email: ir@epiqsystems.com