News

  • August 9, 2016

    Epiq Reports Second Quarter 2016 Results, Reaffirms 2016 Outlook

    Conference Call Today at 4:30 pm ET

    Kansas City, Kan. (August 9, 2016) — Epiq Systems, Inc. (“Epiq”) (NASDAQ: EPIQ), a leading global provider of integrated technology and services for the legal profession, today announced results for its second quarter ended June 30, 2016. Epiq will hold an investor conference call today at 4:30 pm ET (information below).

    Summary Results (Unaudited)

     
    Three months ended
    June 30,
    (In millions, except per share data) 2016 2015
    Segment Operating Revenue    
         Technology $96.0 $93.2
         Bankruptcy & Settlement Administration $34.6 $37.4
    Total Operating Revenue $130.6 $130.6
    Net Loss ($5.6) ($3.2)
    Net Loss Per Diluted Share ($0.15) ($0.09)
    Diluted Weighted Average Shares 37.4 36.5
    Adjusted EBITDA(1) $28.4 $24.7
    Adjusted Net Income(1) $8.0 $6.7
    Adjusted Earnings Per Diluted Share(1) $0.21 $0.18
    Adjusted Diluted Shares(1) 37.8 37.1
    Net Cash provided by Operating Activities $13.2 $24.1
    (1)   Adjusted EBITDA, adjusted net income and adjusted earnings per diluted share are all non-GAAP financial measures. See the accompanying tables herein for information regarding these measures and reconciliation to the most directly comparable GAAP measure.
     

    Second Quarter 2016 Financial Overview
    Quarterly consolidated operating revenue was $130.6 million in the second quarter of 2016, which was unchanged compared to the second quarter of 2015. The second quarter of 2016 was highlighted by record operating revenue in the Technology segment. Quarterly net income decreased by $2.4 million to a net loss of $5.6 million compared to a net loss of $3.2 million in the prior year quarter. The quarterly net loss reflects provisions for income taxes of $6.3 million, interest expense of $5.5 million and $4.5 million related to Epiq’s review of strategic and financial alternatives. Epiq’s board of directors concluded the review of strategic and financial alternatives on July 27, 2016 with the announcement that Epiq will be acquired for $16.50 per share by OMERS Private Equity and Harvest Partners.

    Quarterly consolidated adjusted EBITDA rose 15% to $28.4 million and adjusted earnings per diluted share increased 16% to $0.21 compared to the prior year quarter. The increases reflect Technology segment operating revenue growth of $2.8 million, or 3%, compared to the prior year quarter, which was partially offset by a decline of $2.8 million, or 8%, in Bankruptcy & Settlement Administration operating revenue. The increase in Technology segment operating revenue was driven by increases in electronically stored information (“ESI”) in North America, primarily as the result of the impact of Epiq’s acquisition of Iris Data Services in April 2015, and an increase in operating revenue from ESI solutions in Europe and Asia, which were partially offset by a decrease in global document review operating revenue. Operating revenue generated from ESI generates higher margins compared to operating revenue from global document review services.

    Second quarter 2016 capital expenditures of $7.7 million, including property and equipment and software development, was unchanged compared to the prior year quarter. Quarterly net cash from operating activities of $13.2 million declined by $10.9 million compared to the prior year quarter reflecting higher accounts receivables resulting from increased revenue in prior quarters and the timing of revenue and collections. Certain annual incentive awards related to restricted stock were granted by the compensation committee of the board of directors in early 2016 to executive officers and certain senior management employees, which were recognized as a cash expense. The issuance of restricted stock to the grant recipients for these awards, which was contingent upon the approval by the company’s shareholders of the company’s amended and restated 2004 equity incentive plan at the 2016 Annual Shareholder Meeting on July 28, 2016, was effectuated after the shareholder meeting following the requisite approval.

    Recent Company Highlights

    • Recognized as Innovative Managed Services Provider in 2016 Innovation Awards by ALM

    • Achieved kCura Orange-level Best in Service certification as a Relativity® provider

    • Expansion of its Relativity® service offering in the People’s Republic of China, supported by a ISO27001-compliant data center in Shanghai with portable, on-site deployment capability for matters requiring additional security

    • The release of a new “DMX dashboard” for DocuMatrix®, offering unprecedented business intelligence and data transparency to the global legal profession

    • Appointed three new directors to the Board with support of second largest shareholder

    • Declared dividend of $0.09 per share and paid on July 5, 2016 to shareholders of record at the close of business on May 23, 2016.

    “We are pleased to report another solid quarter of financial results in the second quarter of 2016. The positive outcomes we saw again in the second quarter are some of the successful payoffs to our domestic and international investments of the last few years, as well as the strategic and operational initiatives that we implemented in the last 12 months,” said Tom W. Olofson, chairman and chief executive officer.

    Olofson continued, “Additionally, we look forward to concluding our recently announced transaction with OMERS Private Equity and Harvest Partners, two experienced and world-class investors with an extensive understanding of the legal technology solutions and services industry, and combining with DTI, which will maximize value for our shareholders and help us achieve our vision of becoming the world’s preferred strategic partner for complex legal matters.”

    Segment Review

    Technology Segment (eDiscovery)

      Three months ended
    June 30,
    (In millions)(Unaudited) 2016 2015
    Operating Revenue $96.0 $93.2
    Adjusted EBITDA(1)(2) $29.2 $24.0
    Segment Operating Revenue Mix By Service Type    
         Electronically Stored Information (ESI) 65% 57%
         Document Review 35% 43%
    Segment Operating Revenue Mix By Region    
         North America $71.6 $74.1
         Europe and Asia $24.4 $19.1
    (1)   Adjusted EBITDA is a non-GAAP financial measure. See the accompanying table herein for information regarding this measure and reconciliation to the most directly comparable GAAP measure on a consolidated basis.
    (2)   Segment adjusted EBITDA excludes unallocated corporate adjusted EBITDA for the three months ended June 30, 2016 and 2015, respectively.
     

    Epiq’s Technology segment provides integrated technology solutions for electronic discovery (eDiscovery), including ESI, document review and eDiscovery managed services. Second quarter 2016 Technology segment operating revenue grew 3% compared to the prior year period. The increase reflects the impact of the Iris Data Services acquisition in April 2015 and increased operating revenue from Epiq’s eDiscovery operations in Europe and Asia, which were partially offset by a decrease in global document revenue caused by lower document review billable hours. Quarterly operating revenue from Epiq’s international eDiscovery operations increased 31% on a year-over-year basis mostly from new clients and retentions in Europe and Asia. International eDiscovery comprised 25% of Technology segment revenue compared to 20% in the prior year quarter.

    Segment adjusted EBITDA grew 22% versus the prior year period reflecting an operating revenue mix shift to higher margin ESI in domestic and international operations relative to document review.

    Bankruptcy and Settlement Administration (“B&SA”) Segment

      Three months ended
    June 30,
    (In millions)(Unaudited) 2016 2015
    Operating Revenue $34.6 $37.4
    Adjusted EBITDA(1)(2) $10.0 $9.5
    (1)   Adjusted EBITDA is a non-GAAP financial measure. See the accompanying table herein for information regarding this measure and reconciliation to the most directly comparable GAAP measure on a consolidated basis.
    (2)   Segment adjusted EBITDA excludes unallocated corporate adjusted EBITDA for the three months ended June 30, 2016 and 2015, respectively.
     

    Second quarter 2016 Bankruptcy and Settlement Administration segment operating revenue declined $2.8 million compared to the second quarter of 2016. This decrease was primarily due to an operating revenue decrease of $1.8 million from bankruptcy-related services caused by lower levels of active matters in corporate restructuring, chapter 7 and AACER® solutions, and a decrease of $1.0 million in revenue from settlement administration solutions, primarily related to a decrease in legal noticing services. Quarterly segment adjusted EBITDA was slightly higher on a year over year basis reflecting a smaller contribution to segment results from the lower margin Settlement Administration business.

    2016 Financial Outlook
    Based on current expectations, Epiq maintains its initial 2016 financial outlook and estimates operating revenue for 2016 between $520 million and $540 million, adjusted EBITDA between $112 million and $118 million, and adjusted earnings per share between $0.87 and $0.90. This guidance includes a number of assumptions based on current facts and expectations, which are subject to change.

    The financial tables accompanying this press release do not include a reconciliation of Epiq’s 2016 estimated adjusted EBITDA or adjusted net income (used to calculate adjusted earnings per share) to an estimate of GAAP net income. It is difficult to predict and estimate future nonrecurring operating charges incurred in connection with the completion of activities related to our strategic and financial review process and impairment charges related to goodwill and acquired intangible assets, as these items are dependent on future events that are uncertain. Accordingly, a reconciliation of our non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort.

    INVESTOR CONFERENCE CALL INFORMATION
    Management will host an investor conference call today at 4:30 p.m. ET (3:30 p.m. CT).

    Call Dial in:     (877) 303-6311 or (631) 813-4730

    Webcast URL:    http://www.epiqsystems.com/investors/corporate-overview/

    Audio replay:     (855) 859-2056, ID# 53304224, available through August 16, 2016

     

    About Epiq Systems

    Epiq (NASDAQ: EPIQ) is a leading global provider of professional services and integrated technology for the legal profession. Our innovative solutions are designed to streamline the administration of litigation, investigations, financial transactions and regulatory compliance, corporate restructuring and bankruptcies, class action and mass tort proceedings, federal regulatory actions and data breach responses. Epiq’s subject-matter experts bring clarity to complexity, create efficiency through expertise and deliver confidence to our clients around the world. For more information, visit us at www.epiqsystems.com.

    Use of Non-GAAP Financial Measures

    This press release includes the following non-GAAP financial measures: (i) adjusted net income (net income (loss) adjusted for amortization of acquisition intangibles, intangible asset impairment expense, share-based compensation expense, contingent equity award expense, acquisition and related expense, loan fee amortization and write off, litigation (recovery) expense, timing of recognition of expense, reorganization expense, gain or loss on disposition of assets, strategic and financial review expense, and the effect of tax adjustments that are outside of Epiq Systems’ anticipated effective tax rate, all net of tax), (ii) adjusted earnings per share, calculated as adjusted net income on a fully diluted per share basis, and (iii) adjusted EBITDA (net income (loss) adjusted for depreciation and amortization expense, share-based compensation expense, contingent equity award expense, acquisition and related expense, net expense related to financing, litigation (recovery) expense, timing of recognition of expense, reorganization expense, gain or loss on disposition of assets, strategic and financial review expense, and income tax expense (benefit)). Income taxes typically represent a complex element of a company’s income statement and effective tax rates can vary widely between different periods. Epiq Systems uses an approximate statutory tax rate of 40% to reflect income tax effects in the presentation of its adjusted net income and adjusted net income per share. Utilization of an approximate statutory tax rate for presentation of adjusted net income and adjusted net income per share is done to allow a consistent basis for investors to understand financial performance of the company across historical periods.

    Management of Epiq Systems uses these non-GAAP financial measures, together with GAAP results, to assess current and prospective operating results. Management of Epiq Systems believes adjusted net income, adjusted earnings per share and adjusted EBITDA may be useful to investors to compare the results of operations of Epiq Systems and trends with those of other companies without the effect of unusual or non-recurring items from period to period. The compensation committee has used adjusted earnings per share and adjusted EBITDA in evaluating the performance of management and in determining executive bonuses.  These non-GAAP financial measures are intended to supplement the GAAP financial information by providing additional insight regarding results of operations and to allow a comparison with other companies, many of whom use similar non-GAAP financial measures to supplement their GAAP results. Certain items are excluded from these non-GAAP financial measures to provide additional comparability measures from period to period. These non-GAAP financial measures will not be defined in the same manner by all companies and may not be comparable to other companies. 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.

    Forward-looking and Cautionary Statements

    This press release includes forward-looking statements. These forward-looking statements include, but are not limited to any projection or expectation of earnings, revenue or other financial items; the plans, strategies and objectives of management for future operations; factors that may affect our operating results; new products or services; the demand for our products and services; our ability to consummate acquisitions, successfully integrate them into our operations and achieve expected synergies; future capital expenditures; effects of current or future economic conditions or performance; industry trends and other matters that do not relate strictly to historical facts or statements of assumptions underlying any of the foregoing. These forward-looking statements are based on our current expectations. In this press release, we make statements that plan for or anticipate the future. Forward-looking statements may be identified by words or phrases such as “believe,” “expect,” “anticipate,” “should,” “planned,” “may,” “estimated,” “goal,” “objective,” “seeks,” and “potential” and variations of these words and similar expressions or negatives of these words. Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, provide a “safe harbor” for forward-looking statements. 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) failure to keep pace with technological changes and significant changes in the competitive environment, (2) risks associated with cyber-attacks, interruptions or delays in services at data centers, (3) general economic conditions and the cyclical nature of certain markets; (4) risks of errors or fraud related to our business processes, (5) interruptions or delays in service at data centers we utilize for delivery of our services, (6) undetected errors in, and failure of operation of, software products releases, (7) unavailability of third-party technology, (8) failure of our financial, operating and information systems to operate as intended, (9) our inability to attract, develop and retain executives and other qualified employees, (10) risks associated with the integration of acquisitions into our existing business operations, (11) risks associated with our international operations, (12) risks of litigation for infringement of proprietary rights, (13) future government legislation or changes in judicial interpretations, (14) any material non-cash write-downs based on impairment of our goodwill, (15) fluctuations in our quarterly results that could cause fluctuations in the market price of our common stock, (16) volatility of the market price of our common stock, (17) the impact of our current review process of strategic alternatives, (18) the impact of potential proxy contests and related litigation, (19) our failure to pay cash dividends, (20) our inability to raise additional capital to fund our operations because of our level of indebtedness, (21) our inability to maintain compliance with debt covenant ratios, (22) risks associated with indebtedness and interest rate fluctuations, (23) risks associated with provisions of our articles of incorporation that prevent a takeover of Epiq, and (24) other risks detailed from time to time in our filings with the Securities and Exchange Commission, including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. In addition, there may be other factors not included in our Securities and Exchange Commission filings that may cause actual results to differ materially from any forward-looking statements. We undertake no obligation to update publicly or revise any forward-looking statements contained herein to reflect future events or developments, except as required by law.

    Investor Contacts
    Kelly Bailey
    Epiq Systems
    913-621-9500
    ir@epiqsystems.com

    Chris Eddy
    Catalyst Global
    212-924-9800
    epiq@catalyst-ir.com

    Press release in PDF format with tables.