EX-99.1 2 a5085525ex991.txt EPIQ SYSTEMS, INC. EXHIBIT 99.1 Exhibit 99.1 EPIQ Systems, Inc. Announces Fourth Quarter and Full Year 2005 Results KANSAS CITY, Kan.--(BUSINESS WIRE)--Feb. 21, 2006--EPIQ Systems, Inc. (NASDAQ: EPIQ) today announced results of operations for the fourth quarter and full year of 2005 with fourth quarter operating revenue (total revenue less reimbursed expenses) of $29.2 million compared to $23.8 million last year and 2005 operating revenue of $107.2 million compared to $105.1 million last year. Fourth quarter 2005 net income from continuing operations was $1.7 million or $0.09 per share compared to $1.9 million or $0.10 per share last year. 2005 net income from continuing operations was $10.9 million or $0.56 per share compared to $9.1 million or $0.49 per share last year. Non-GAAP net income from continuing operations for the fourth quarter of 2005 was $5.2 million or $0.25 per share compared to $3.2 million or $0.17 per share for the prior year. 2005 non-GAAP net income from continuing operations was $18.2 million or $0.90 per share compared to $16.9 million or $0.89 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 $12.0 million for the fourth quarter of 2005 compared to $8.3 million for the prior year. 2005 non-GAAP Adjusted EBITDA from continuing operations was $41.9 million compared to $39.2 million for the prior year. A reconciliation statement is attached. Net cash provided by operating activities was $13.5 million for the fourth quarter of 2005 compared to $11.2 million for the prior year. 2005 net cash provided by operating activities was $27.2 million compared to $31.6 million for the prior year. A condensed consolidated cash flow statement is attached. Tom W. Olofson, chairman and CEO, and Christopher E. Olofson, president and chief operating officer of EPIQ Systems stated, "Throughout 2005, we made key investments to extend our national presence in the legal technology industry, highlighted by our November acquisition of the high growth electronic discovery software business of nMatrix. As we begin a new year, we have established a unique combination of capabilities spanning electronic discovery, claims administration, document review, legal notification and case management. Today, EPIQ Systems is a national leader in specialty integrated solutions for the legal industry and is well poised to take advantage of growth opportunities in our core practice areas of bankruptcy, class action litigation and financial transactions." Significant events in 2005 include: -- Forbes named EPIQ Systems to its Midas List of top 25 national technology companies based on the Company's exceptional, sustained revenue growth over the past five years. -- In November we acquired nMatrix, Inc. a leading provider of products and services for electronic discovery and litigation support. -- In October we acquired Hilsoft, Inc. a national leader of legal notification programs, and in September we acquired Novare, Inc. a boutique provider of specialty bankruptcy consulting services. -- On October 17, 2005, most provisions of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 became effective and made the most sweeping changes to bankruptcy law in a generation, affecting both consumer and business bankruptcies. -- The Class Action Fairness Act of 2005 was signed into law and became effective February 18, 2005. The new law provides federal jurisdiction to any action where any class member resides in a different state from any defendant, and where the aggregate amount in controversy exceeds $5 million. -- A record 1.78 million bankruptcies were filed in the U.S. Court's fiscal year ended September 30, 2005; up 10% from the 1.62 million level reached in 2004. -- The Federal Reserve reported that both corporate debt and consumer credit pushed further into record levels, approaching $5.5 trillion and $2.2 trillion, respectively, as of September 30, 2005. -- Since June 2003, the Federal Open Market Committee has raised the federal funds rate fourteen times from its low of 1.0% to the current 4.5%. Conference Call The Company will host a conference call today at 3:30 p.m. (CST) 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 (877) 666-6296 before 3:30 p.m. (CST). 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 30, 2006 beginning approximately two hours after the call ends. To access the replay, call (877) 519-4471 and enter pin# 7044248. 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 complex legal proceedings, including electronic litigation discovery, bankruptcy administration, class action administration, 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 an integrated 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 electronic discovery, 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 our marketing and pricing arrangements with Bank of America and other depository banks, (5) the impact of recently enacted tort reform and bankruptcy reform legislation on the volume and timing of disposition of client engagements, (6) risks associated with the integration of acquisitions, particularly nMatrix, 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 INCOME (In thousands, except per share data) (Unaudited) Three months Twelve months ended ended December 31, December 31, ------------------ ------------------ 2005 2004 2005 2004 --------- -------- --------- -------- REVENUE: Case management $21,179 $17,248 $79,279 $68,526 Document management 7,979 6,587 27,874 36,549 --------- -------- --------- -------- Operating revenue 29,158 23,835 107,153 105,075 Reimbursed expenses 6,526 4,971 23,643 20,345 --------- -------- --------- -------- Total Revenue 35,684 28,806 130,796 125,420 --------- -------- --------- -------- COSTS AND EXPENSES: Direct costs 15,715 13,875 57,790 60,384 General and administrative 8,001 6,677 31,072 25,886 Depreciation and software amortization 2,007 1,764 7,288 6,527 Amortization of identifiable intangible assets 2,259 2,023 6,751 7,767 Acquisition related 2,870 - 2,984 2,197 --------- -------- --------- -------- Total Operating Expenses 30,852 24,339 105,885 102,761 --------- -------- --------- -------- INCOME FROM OPERATIONS 4,832 4,467 24,911 22,659 --------- -------- --------- -------- EXPENSES RELATED TO FINANCING: Interest income (15) (30) (122) (128) Interest expense 2,501 1,161 6,809 6,343 Debt extinguishment - - - 995 --------- -------- --------- -------- Net Expenses Related to Financing 2,486 1,131 6,687 7,210 --------- -------- --------- -------- INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 2,346 3,336 18,224 15,449 PROVISION FOR INCOME TAXES 639 1,418 7,276 6,386 --------- -------- --------- -------- INCOME FROM CONTINUING OPERATIONS 1,707 1,918 10,948 9,063 TOTAL DISCONTINUED OPERATIONS, NET OF TAX - - - 667 --------- -------- --------- -------- NET INCOME $1,707 $1,918 $10,948 $9,730 ========= ======== ========= ======== NET INCOME PER SHARE INFORMATION: Income per share - Diluted Income from continuing operations $0.09 $0.10 $0.56 $0.49 Income from discontinued operations - - - 0.03 --------- -------- --------- -------- Net income per share - Diluted $0.09 $0.10 $0.56 $0.52 ========= ======== ========= ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 22,431 21,125 21,551 19,828 ========= ======== ========= ======== EPIQ SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) December 31, December 31, 2005 2004 ------------- ------------- ASSETS ASSETS: Cash and cash equivalents $13,563 $13,330 Trade receivables, net 33,504 18,690 Property and equipment, net 23,751 20,431 Goodwill 249,427 147,728 Other intangibles, net 53,399 24,057 Other 21,226 15,852 ------------ ------------- Total Assets $394,870 $240,088 ============ ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accounts payable $7,954 $4,263 Indebtedness 173,548 82,149 Other liabilities 36,827 13,843 STOCKHOLDERS' EQUITY 176,541 139,833 ------------ ------------- Total Liabilities and Stockholders' Equity $394,870 $240,088 ============ ============= EPIQ SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three months Twelve months ended ended December 31, December 31, ------------------ ------------------- 2005 2004 2005 2004 --------- -------- --------- --------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,707 $1,918 $10,948 $9,730 Non-cash adjustments to net income: Depreciation and amortization 4,266 3,787 14,039 14,294 Other, net 424 5,711 3,008 10,369 Changes in operating assets and liabilities, net 7,104 (214) (757) (2,804) --------- -------- --------- --------- Net cash provided by operating activities 13,501 11,202 27,238 31,589 --------- -------- --------- --------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash acquired from (paid for) business combinations, net (109,883) - (110,533) (113,111) Other (2,284) (998) (6,297) (5,918) --------- -------- --------- --------- Net cash used in investing activities (112,167) (998) (116,830) (119,029) --------- -------- --------- --------- CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds (payments) on indebtedness 99,836 (7,438) 89,732 69,114 Other (810) 38 93 595 --------- -------- --------- --------- Net cash provided by (used in) financing activities 99,026 (7,400) 89,825 69,709 --------- -------- --------- --------- NET INCREASE (DECREASE) IN CASH $360 $2,804 $233 $(17,731) ========= ======== ========= ========= 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 Twelve months ended ended ------------------------------ ------------------- Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31, 2005 2005 2004 2005 2004 --------- ---------- --------- --------- --------- NET INCOME FROM CONTINUING OPERATIONS $1,707 $3,087 $1,918 $10,948 $9,063 Plus (net of tax): Amortization of acquisition intangibles 1,367 836 1,163 4,084 4,559 Acquisition related expense 1,736 66 - 1,805 1,290 Loan fee amortization and debt extinguishment 201 161 163 708 1,828 Non-cash embedded option charges 164 256 (22) 626 171 --------- ---------- --------- --------- --------- 3,468 1,319 1,304 7,223 7,848 --------- ---------- --------- --------- --------- NON-GAAP NET INCOME FROM CONTINUING OPERATIONS $5,175 $4,406 $3,222 $18,171 $16,911 ========= ========== ========= ========= ========= EPIQ SYSTEMS, INC. AND SUBSIDIARIES RECONCILIATION OF EPS FROM CONTINUING OPERATIONS TO NON-GAAP EPS FROM CONTINUING OPERATIONS (Unaudited) Three months Twelve months ended ended ------------------------------ ------------------- Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31, 2005 2005 2004 2005 2004 --------- ---------- --------- --------- --------- EPS FROM CONTINUING OPERATIONS (on a diluted basis) $0.09 $0.16 $0.10 $0.56 $0.49 Plus (net of tax): Amortization of acquisition intangibles 0.06 0.04 0.06 0.19 0.23 Acquisition related expense 0.08 - - 0.08 0.07 Loan fee amortization and debt extinguishment 0.01 0.01 0.01 0.04 0.09 Non-cash embedded option charges 0.01 0.01 - 0.03 0.01 --------- ---------- --------- --------- --------- 0.16 0.06 0.07 0.34 0.40 --------- ---------- --------- --------- --------- NON-GAAP EPS FROM CONTINUING OPERATIONS (on a diluted basis) $0.25 $0.22 $0.17 $0.90 $0.89 ========= ========== ========= ========= ========= 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 Twelve months ended ended ------------------------------ ------------------- Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31, 2005 2005 2004 2005 2004 --------- ---------- --------- --------- --------- NET INCOME FROM CONTINUING OPERATIONS $1,707 $3,087 $1,918 $10,948 $9,063 Acquisition related expense 2,870 114 - 2,984 2,197 Depreciation and amortization 4,266 3,174 3,787 14,039 14,294 Expenses related to financing and debt extinguishment 2,486 1,595 1,131 6,687 7,210 Provision for income taxes 639 2,236 1,418 7,276 6,386 --------- ---------- --------- --------- --------- 10,261 7,119 6,336 30,986 30,087 --------- ---------- --------- --------- --------- NON-GAAP ADJUSTED EBITDA FROM CONTINUING OPERATIONS $11,968 $10,206 $8,254 $41,934 $39,150 ========= ========== ========= ========= ========= EPIQ SYSTEMS, INC. AND SUBSIDIARIES EPS CALCULATION (In thousands, except per share data) (Unaudited) Three months Twelve months ended ended ------------------------------ ------------------- Dec. 31, Sept. 30, Dec. 31, Dec. 31, Dec. 31, 2005 2005 2004 2005 2004 --------- ---------- --------- --------- --------- NET INCOME FROM CONTINUING OPERATIONS $1,707 $3,087 $1,918 $10,948 $9,063 Interest expense adjustment for convertible debt 297 292 290 1,178 647 --------- ---------- --------- --------- --------- ADJUSTED FOR DILUTED CALCULATION $2,004 $3,379 $2,208 $12,126 $9,710 ========= ========== ========= ========= ========= DILUTED WEIGHTED AVERAGE SHARES 18,627 17,942 17,881 18,092 17,848 Adjustment to reflect stock options 947 919 387 602 411 Adjustment to reflect convertible debt shares 2,857 2,857 2,857 2,857 1,569 --------- ---------- --------- --------- --------- ADJUSTED FOR DILUTED CALCULATION 22,431 21,718 21,125 21,551 19,828 ========= ========== ========= ========= ========= INCOME PER SHARE - DILUTED $0.09 $0.16 $0.10 $0.56 $0.49 ========= ========== ========= ========= ========= CONTACT: EPIQ Systems, Inc. Mary Ellen Berthold, 913-621-9500 ir@epiqsystems.com