EX-99.1 2 a5525865ex991.txt EXHIBIT 99.1 Exhibit 99.1 Epiq Systems, Inc. Announces Third Quarter 2007 Results Led By 77% Growth for Electronic Discovery KANSAS CITY, Kan.--(BUSINESS WIRE)--Oct. 23, 2007--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(TM), our eDiscovery software, and upgrades to our TCMS(R) 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. 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, ------------------ ----------------- 2007 2006 2007 2006 --------- -------- -------- -------- REVENUE: Case management services $26,536 $16,980 $71,069 $54,064 Case management bundled products and services 6,728 12,818 20,139 80,511 Document management services 5,921 4,591 21,242 26,495 --------- -------- -------- -------- Operating revenue before reimbursed direct costs 39,185 34,389 112,450 161,070 Operating revenue from reimbursed direct costs 5,662 4,643 17,730 16,676 --------- -------- -------- -------- Total Revenue 44,847 39,032 130,180 177,746 --------- -------- -------- -------- OPERATING EXPENSES: Direct costs of services 9,355 8,299 30,101 33,427 Direct costs of services - bundled 998 961 2,782 2,976 Reimbursed direct costs 5,593 4,685 17,625 16,852 General and administrative 16,208 12,411 44,383 36,469 Depreciation and software and leasehold amortization 3,272 2,633 9,071 7,424 Amortization of identifiable intangible assets 2,352 3,027 7,228 8,672 Other operating expenses 565 - 565 250 --------- -------- -------- -------- Total Operating Expenses 38,343 32,016 111,755 106,070 --------- -------- -------- -------- INCOME FROM OPERATIONS 6,504 7,016 18,425 71,676 --------- -------- -------- -------- INTEREST EXPENSE (INCOME): Interest income (10) (23) (42) (111) Interest expense 2,168 2,523 10,615 9,215 --------- -------- -------- -------- Net Interest Expense 2,158 2,500 10,573 9,104 --------- -------- -------- -------- INCOME BEFORE INCOME TAXES 4,346 4,516 7,852 62,572 PROVISION FOR INCOME TAXES 1,922 1,835 3,485 25,348 --------- -------- -------- -------- NET INCOME $2,424 $2,681 $4,367 $37,224 ========= ======== ======== ======== NET INCOME PER SHARE INFORMATION: Net income per share - Diluted $0.07 $0.09 $0.14 $1.10 ========= ======== ======== ======== WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 36,704 34,366 31,803 34,597 ========= ======== ======== ======== EPIQ SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited) September 30, December 31, 2007 2006 -------------- ------------- ASSETS ASSETS: Cash and cash equivalents $2,854 $5,274 Trade accounts receivable, net 36,219 33,066 Property, equipment and leasehold improvements, net 32,147 23,153 Goodwill 260,933 260,609 Other intangibles, net 36,612 43,840 Other 15,986 16,278 -------------- ------------- Total Assets $384,751 $382,220 ============== ============= LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accounts payable $6,819 $7,930 Indebtedness 139,484 154,361 Other liabilities 40,508 35,750 STOCKHOLDERS' EQUITY 197,940 184,179 -------------- ------------- Total Liabilities and Stockholders' Equity $384,751 $382,220 ============== ============= EPIQ SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited) Three months ended Nine months ended September 30, September 30, ------------------ ----------------- 2007 2006 2007 2006 --------- -------- -------- -------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $2,424 $2,681 $4,367 $37,224 Non-cash adjustments to net income: Depreciation and amortization 5,624 5,660 16,299 16,096 Other, net 728 1,981 3,597 24,670 Changes in operating assets and liabilities, net (203) (5,073) (827) (54,415) --------- -------- -------- -------- Net cash provided by operating activities 8,573 5,249 23,436 23,575 --------- -------- -------- -------- CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for business combinations, net - (101) - (3,586) Other (8,285) (1,991) (15,348) (8,502) --------- -------- -------- -------- Net cash used in investing activities (8,285) (2,092) (15,348) (12,088) --------- -------- -------- -------- CASH FLOWS FROM FINANCING ACTIVITIES: Net payments on indebtedness (1,902) (6,923) (19,834) (23,643) Other 692 979 9,326 2,619 --------- -------- -------- -------- Net cash used in financing activities (1,210) (5,944) (10,508) (21,024) --------- -------- -------- -------- NET DECREASE IN CASH AND CASH EQUIVALENTS $(922) $(2,787) $(2,420) $(9,537) ========= ======== ======== ======== EPIQ SYSTEMS, INC. AND SUBSIDIARIES RECONCILIATION OF OPERATING REVENUE TO NON-GAAP OPERATING REVENUE (In thousands) (Unaudited) Three months ended Nine months ended ---------------------------- -------------------- September June September September September 30, 30, 30, 30, 30, 2007 2007 2006 2007 2006 ---------- ------- --------- ---------- --------- OPERATING REVENUE BEFORE REIMBURSED DIRECT COSTS $39,185 $38,171 $34,389 $112,450 $161,070 Less: Deferred revenue (SOP 97-2) - - (6,027) - (59,674) ---------- ------- --------- ---------- --------- NON-GAAP OPERATING REVENUE $39,185 $38,171 $28,362 $112,450 $101,396 ========== ======= ========= ========== ========= 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 principles 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 Nine months ended -------------------------- ------------------- September June September September September 30, 30, 30, 30, 30, 2007 2007 2006 2007 2006 --------- ------ --------- --------- --------- OPERATING REVENUE BEFORE REIMBURSED DIRECT COSTS $8,417 $8,329 $14,369 $25,012 $85,459 Less: Deferred revenue (SOP 97-2) - - (6,027) - (59,674) --------- ------ --------- --------- --------- NON-GAAP OPERATING REVENUE $8,417 $8,329 $8,342 $25,012 $25,785 ========= ====== ========= ========= ========= EPIQ SYSTEMS, INC. AND SUBSIDIARIES RECONCILIATION OF NET INCOME TO NON-GAAP ADJUSTED EBITDA (In thousands) (Unaudited) Three months ended Nine months ended --------------------------- ------------------- September June September September September 30, 30, 30, 30, 30, 2007 2007 2006 2007 2006 --------- ------- --------- --------- --------- NET INCOME $2,424 $1,794 $2,681 $4,367 $37,224 Deferred revenue (SOP 97-2) - - (6,027) - (59,674) Acquisition related expense - - - - 250 Depreciation and amortization 5,624 5,189 5,660 16,299 16,096 Share-based compensation 795 703 579 1,809 1,671 Expenses related to financing, net 2,158 3,320 2,500 10,573 9,104 Mark-to-market interest rate floors 521 - - 521 - Provision for income taxes 1,922 1,328 1,835 3,485 25,348 --------- ------- --------- --------- --------- 11,020 10,540 4,547 32,687 (7,205) --------- ------- --------- --------- --------- NON-GAAP ADJUSTED EBITDA $13,444 $12,334 $7,228 $37,054 $30,019 ========= ======= ========= ========= ========= EPIQ SYSTEMS, INC. AND SUBSIDIARIES RECONCILIATION OF SEGMENT PERFORMANCE MEASURE TO BANKRUPTCY TRUSTEE NON-GAAP ADJUSTED EBITDA (In thousands) (Unaudited) Three months ended Nine months ended --------------------------- -------------------- September June September September September 30, 30, 30, 30, 30, 2007 2007 2006 2007 2006 ---------- ------ --------- ---------- --------- SEGMENT PERFORMANCE MEASURE $5,485 $5,792 $11,639 $17,013 $77,133 Deferred revenue (SOP 97-2) - - (6,027) - (59,674) ---------- ------ --------- ---------- --------- NON-GAAP ADJUSTED EBITDA $5,485 $5,792 $5,612 $17,013 $17,459 ========== ====== ========= ========== ========= EPIQ SYSTEMS, INC. AND SUBSIDIARIES RECONCILIATION OF NET INCOME TO NON-GAAP NET INCOME (In thousands) (Unaudited) Three months ended Nine months ended ---------------------------- -------------------- September June September September September 30, 30, 30, 30, 30, 2007 2007 2006 2007 2006 ---------- ------- --------- ---------- --------- NET INCOME $2,424 $1,794 $2,681 $4,367 $37,224 Plus (net of tax): Deferred revenue (SOP 97-2) - - (3,646) - (36,103) Amortization of acquisition intangibles 1,423 1,423 1,831 4,373 5,247 Share-based compensation 504 444 374 1,170 1,091 Acquisition related expense - - - - 151 Effective tax rate 67 (2) - 132 - Loan fee amortization 80 216 222 534 663 Mark-to-market adjustments 31 314 (441) 1,640 (168) ---------- ------- --------- ---------- --------- 2,105 2,395 (1,660) 7,849 (29,119) ---------- ------- --------- ---------- --------- NON-GAAP NET INCOME $4,529 $4,189 $1,021 $12,216 $8,105 ========== ======= ========= ========== ========= EPIQ SYSTEMS, INC. AND SUBSIDIARIES RECONCILIATION OF EPS TO NON-GAAP EPS (Unaudited) Three months ended Nine months ended -------------------------- -------------------- September June September September September 30, 30, 30, 30, 30, 2007 2007 2006 2007 2006 ---------- ----- --------- ---------- --------- EPS (on a diluted basis) $0.07 $0.06 $0.09 $0.14 $1.10 Plus (net of tax): Deferred revenue (SOP 97-2) - - (0.11) - (1.04) Amortization of acquisition intangibles 0.05 0.03 0.05 0.13 0.15 Share-based compensation 0.01 0.01 0.01 0.03 0.03 Acquisition related expense - - - - - Effective tax rate - - - - - Loan fee amortization - 0.01 0.01 0.01 0.02 Mark-to-market adjustments - 0.01 (0.01) 0.05 - ---------- ----- --------- ---------- --------- 0.06 0.06 (0.05) 0.22 (0.84) ---------- ----- --------- ---------- --------- NON-GAAP EPS (on a diluted basis) $0.13 $0.12 $0.04 $0.36 $0.26 ========== ===== ========= ========== ========= EPIQ SYSTEMS, INC. AND SUBSIDIARIES NON-GAAP REVENUE (In thousands) (Unaudited) Three months ended Nine months ended ------------------------------- ----------------------- September June September September September 30, 30, 30, 30, 30, 2007 2007 2006 2007 2006 ----------- ------- ----------- ----------- ----------- Electronic Discovery $13,003 $12,224 $7,354 $35,339 $23,046 Bankruptcy Trustee 8,417 8,329 8,342 25,012 25,785 Settlements & Claims 17,765 17,618 12,666 52,099 52,565 ----------- ------- ----------- ----------- ----------- NON-GAAP OPERATING REVENUE BEFORE REIMBURSED DIRECT COSTS $39,185 $38,171 $28,362 $112,450 $101,396 =========== ======= =========== =========== =========== EPIQ SYSTEMS, INC. AND SUBSIDIARIES NON-GAAP ADJUSTED EBITDA (In thousands) (Unaudited) Three months ended Nine months ended ---------------------------- ------------------- September June 30, September September September 30, 30, 30, 30, 2007 2007 2006 2007 2006 --------- -------- --------- --------- --------- Electronic Discovery $6,111 $6,454 $3,264 $17,776 $11,270 Bankruptcy Trustee 5,485 5,792 5,612 17,013 17,459 Settlements & Claims 7,108 5,033 2,580 17,125 12,891 Unallocated (5,260) (4,945) (4,228) (14,860) (11,601) --------- -------- --------- --------- --------- TOTAL NON-GAAP ADJUSTED EBITDA $13,444 $12,334 $7,228 $37,054 $30,019 ========= ======== ========= ========= ========= EPIQ SYSTEMS, INC. AND SUBSIDIARIES EPS CALCULATION (In thousands, except per share data) (Unaudited) Three months ended Nine months ended --------------------------- ------------------- September June September September September 30, 30, 30, 30, 30, 2007 2007(a) 2006 2007(a) 2006 --------- ------- --------- --------- --------- NET INCOME $2,424 $1,794 $2,681 $4,367 $37,224 Interest expense adjustment for convertible debt 305 - 305 - 904 --------- ------- --------- --------- --------- ADJUSTED FOR DILUTED CALCULATION $2,729 $1,794 $2,986 $4,367 $38,128 ========= ======= ========= ========= ========= DILUTED WEIGHTED AVERAGE SHARES 30,185 29,848 29,162 29,770 29,057 Adjustment to reflect stock options 2,233 2,132 918 2,033 1,254 Adjustment to reflect convertible debt shares 4,286 - 4,286 - 4,286 --------- ------- --------- --------- --------- ADJUSTED FOR DILUTED CALCULATION 36,704 31,980 34,366 31,803 34,597 ========= ======= ========= ========= ========= NET INCOME PER SHARE - DILUTED $0.07 $0.06 $0.09 $0.14 $1.10 ========= ======= ========= ========= ========= (a) Convertible debt is antidilutive and therefore excluded from EPS calculation. CONTACT: Epiq Systems, Inc. Mary Ellen Berthold, 913-621-9500 ir@epiqsystems.com