Epiq Systems Announces 2010 Year-End Results Led by eDiscovery Operating Revenue Growth of 61% in the Fourth Quarter and 45% for the Year
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Kansas City, KS (February 22, 2011) - Epiq Systems, Inc. (NASDAQ: EPIQ) today announced results of operations for the fourth quarter and full year of 2010 with fourth quarter operating revenue (total revenue before operating revenue from reimbursed direct costs) of $60.4 million, up 27% compared to $47.7 million for the same period last year. 2010 operating revenue was a record $217.6 million compared to $208.5 million for the prior year. eDiscovery operating revenues for both the fourth quarter and the full year also reflect record all-time highs of $24.6 million and $81.1 million, respectively. The year-over-year comparisons of consolidated operating revenue reflect the planned conclusion of the major analog-to-digital television conversion contract that was completed in the latter part of 2009.
Net income for the fourth quarter of 2010 was $3.1 million, $0.08 per share, compared to $3.6 million, $0.09 per share, for the year ago quarter. 2010 net income was $13.9 million, $0.36 per share, compared to $14.6 million, $0.38 per share, for the prior year. 2010 net income includes expenses of $1.6 million for a voluntary settlement related to a shareholder derivative action, which was finalized during the third quarter of 2010, and $2.6 million in acquisition expenses related to Jupiter eSources LLC, which was completed during the fourth quarter of 2010.
Non-GAAP net income for the fourth quarter of 2010 was $8.0 million compared to $6.8 million for the year ago quarter. 2010 non-GAAP net income was $28.7 million compared to $26.7 million for the prior year. Non-GAAP net income per share for the fourth quarter of 2010 was $0.21 per share, up 24% compared to $0.17 per share for the year ago quarter. 2010 non-GAAP net income per share was $0.74, up 10% compared to $0.67 per share for the prior year.
Fourth quarter 2010 non-GAAP adjusted EBITDA was $19.0 million, up 12% compared to $17.0 million for the year ago quarter. 2010 non-GAAP adjusted EBITDA was $69.1 million, up 8% compared to $64.1 million for the prior year.
Fourth quarter 2010 net cash provided by operating activities was $15.3 million compared to $24.3 million for the year ago quarter. 2010 net cash provided by operations was $34.4 million compared to $51.8 million for the prior year. Year-end trade accounts receivable increased primarily due to strong sales in the fourth quarter of 2010 compared to the year ago quarter. Condensed consolidated balance sheets and cash flow statements are attached.
Operating revenue for the eDiscovery segment for the fourth quarter of 2010 was $24.6 million, up 61% compared to $15.3 million for the year ago quarter. The fourth quarter represents the strongest quarterly result in the history of the company's eDiscovery business, and also marked the fifth consecutive sequential quarterly increase in operating revenue for the segment. 2010 operating revenue also established a new record annual high at $81.1 million, up 45% compared to $55.8 million in the prior year. Fourth quarter 2010 non-GAAP adjusted EBITDA was $10.6 million, up 80% compared to $5.9 million for the year ago quarter. 2010 non-GAAP adjusted EBITDA was $35.6 million, up 92% compared to $18.5 million in the prior year. Expansion of the client base, both domestically and internationally, and increasing contributions from document review services added to the robust growth and profitability of the segment in 2010. The eDiscovery business represents 37% of the company's 2010 operating revenue, and the company believes that the segment is well situated with technology and service leadership and a top position internationally to continue driving growth in 2011.
Operating revenue for the Bankruptcy segment for the fourth quarter of 2010 was $26.2 million, up 8% compared to $24.2 million for the year ago quarter. 2010 operating revenue was $97.2 million, up 7% compared to $91.0 million in the prior year. Non-GAAP adjusted EBITDA was $13.0 million for the fourth quarter of 2010, compared to $12.7 million for the year ago quarter. 2010 non-GAAP adjusted EBITDA was $52.5 million, up 11% compared to $47.4 million in the prior year. The growth of the segment reflects the high number of active bankruptcy matters, continued high aggregate Chapter 7 deposit balances, the multi-year nature of most bankruptcy engagements, and the company's high market share in all bankruptcy offerings. In addition, the fourth quarter acquisition of AACER® (Automated Access to Court Electronic Records) adds another strategic product in the Epiq bankruptcy solutions offering, further strengthening the Bankruptcy segment.
Operating revenue for the Settlement Administration segment for the fourth quarter of 2010 was $9.6 million, up 18% compared to $8.2 million in the year ago quarter. The segment met planned expectations for 2010 with operating revenue of $39.2 million compared to $61.7 million in the prior year. Non-GAAP adjusted EBITDA was $2.8 million for the fourth quarter of 2010, up 109% compared to $1.3 million for the year ago quarter. 2010 non-GAAP adjusted EBITDA was $8.0 million, compared to $17.9 million in the prior year. The fourth quarter of 2010 reflected the first quarterly comparison versus a prior year period that was not significantly impacted by the large analog-to-digital television conversion contract. The comparison of 2010 full year results versus the prior year reflects the inclusion of the large analog-to-digital television conversion contract in 2009 that concluded as expected in the latter part of 2009.
Tom W. Olofson, chairman and CEO, and Christopher E. Olofson, president and COO of Epiq Systems stated, "We are very pleased to have met our financial objectives for both the quarter and the year. eDiscovery results showed particular strength, and Epiq continues to develop momentum as a global leader in this market. Both our legacy services and newly introduced document review services showed high growth, and our international franchise continues to expand as a percentage of the segment. In the Bankruptcy segment, financial results were also strong and reflected year-over-year growth despite fewer major corporate restructuring matters being filed. Integration of our October 2010 acquisition of the AACER® product continues on schedule, and this new offering is expected to contribute throughout 2011. The retirement of our convertible notes, the initiation of a cash dividend, and the share buyback program are favorable developments for our shareholders and reflect financial strength and confidence in future periods. We believe that in 2011, eDiscovery will again experience strong growth."
Key events in 2010 included:
o Epiq acquired Jupiter eSources LLC effective October 1, 2010. The proprietary software product, AACER® (Automated Access to Court Electronic Records), assists creditors including banks, mortgage processors, and their administrative services professionals to streamline processing of their portfolios of loans in bankruptcy cases. The AACER® product electronically monitors developments in all U.S. bankruptcy courts and applies sophisticated algorithms to classify docket filings automatically in each case to facilitate the management of large bankruptcy claims operations.
o The company expanded document review capacity by opening new state-of-the-art review centers in mid-town New York and in London to assist international and multi-national law firms and corporate clients with the efficient and timely management of their e-disclosure and e-discovery processes.
o The company opened a new office in Wilmington, Delaware to support corporate restructuring clients. The district of Delaware is characterized by an extremely high percentage of Chapter 11 bankruptcy filings, and Epiq Systems is the only provider of case management services to establish a physical presence in this important market.
o Epiq retired the approximately $50.0 million aggregate principal amount of 4 percent contingent convertible subordinated notes which matured on June 15, 2010. The note holders elected to convert approximately $27.2 million of the notes into 2.3 million shares of common stock based on an $11.67 conversion price, and to redeem approximately $22.8 million, which was paid entirely from cash on hand thereby reducing the diluted weighted average share calculation by approximately 2.0 million shares.
o Epiq initiated a share repurchase program in June of 2010, and has acquired approximately 4.1 million shares of common stock at an average price of $12.86 through February 18, 2011.
o The company initiated its first quarterly cash dividend in 2010 of 3.5 cents per outstanding common share paid on August 12, 2010 followed by an identical dividend paid on November 18, 2010. On January 17, 2011, the Board of Directors declared a cash dividend of 3.5 cents per outstanding common share which was paid on February 17, 2011.
o Epiq filed a shelf registration statement with the Securities and Exchange Commission as a routine replacement of its existing shelf registration statement, which was set to expire on October 11, 2010 after a 3-year term. The new shelf registration statement covers securities having a maximum aggregate offering price of $67 million, which is the amount that remained unsold from the prior 2007 shelf registration statement.
o Epiq's senior credit facility was amended and extended for an additional four year period, increasing the amount of funds available from $100 million to $140 million with an accordion feature to increase to $200 million to facilitate future business expansion.
o As reported by the Administrative Office of the U.S. Courts, bankruptcy filings totaled 1,593,081 for the 12 month period ended December 31, 2010, up 8% versus the same period in 2009. Filings have grown steadily since the 12 month period ended December 31, 2006, when bankruptcy filings totaled 617,660 in the first full 12 month period after the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 took effect.
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 March 22, 2011 beginning approximately two hours after the call ends. To access the recording, call (800) 642-1687 and enter conference ID number 38558702.
Company Description
Epiq Systems is a leading global 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 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 expense, capitalized loan fee amortization, litigation expense/settlement, non-cash embedded option charges, and the effect of tax adjustments that are outside of the company's 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 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.
These non-GAAP financial measures are intended to supplement the GAAP financial information included in this press release by providing additional insight regarding results of operations. 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.
For more information
Lew P. Schroeber, Investor Relations, telephone: 913-621-9500
email: ir@epiqsystems.com or visit us online at www.epiqsystems.com
