Form 8-K EPIQ SYSTEMS INC For: Aug 03
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): August 3, 2015
EPIQ SYSTEMS, INC.
(Exact name of registrant as specified in its charter)
Missouri | 001-36633 | 48-1056429 | ||
(State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification Number) |
501 Kansas Avenue
Kansas City, Kansas 66105
(Address of principal executive offices, including zip code)
(913) 621-9500
(Registrants telephone number, including area code)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):
¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425). |
¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12). |
¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)). |
¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)). |
Item 2.02. | Results of Operations and Financial Conditions. |
On August 3, 2015, Epiq Systems, Inc. (Epiq Systems) issued a press release announcing its financial results for the three and six months ended June 30, 2015. The full text of the press release (including financial tables) as well as the investor presentation with respect to Epiq Systems financial results for the three and six months ended June 30, 2015 for use in connection with an earnings conference call are being furnished as Exhibit 99.1 and Exhibit 99.2 to this Current Report on Form 8-K, respectively, and are incorporated herein by reference.
The press release and the investor presentation include the following non-GAAP financial measures: (i) adjusted net income (net loss adjusted for amortization of acquisition intangibles, share-based compensation, intangible asset impairment expense, acquisition and related expense, one-time technology expense, loan fee amortization, litigation expense, timing of recognition of expense, reorganization expense, (gain) loss on disposition of assets, strategic review expense, and the effect of tax adjustments that are outside of Epiq Systems anticipated effective tax rate, all net of tax), (ii) adjusted net income per share, calculated as adjusted net income on a fully diluted per share basis, and (iii) adjusted EBITDA (net loss adjusted for depreciation and amortization, share-based compensation, intangible asset impairment expense, acquisition and related expense, one-time technology expense, net expense related to financing, litigation expense, timing of recognition of expense, reorganization expense, (gain) loss on disposition of assets, strategic review expense, and provision for income taxes). Income taxes typically represent a complex element of a companys 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 the non-GAAP measures is done to allow a consistent basis for investors to understand financial performance of the company across historical periods.
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. These non-GAAP financial measures are reconciled in the press release and the investor presentation slides 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.
Management of Epiq Systems uses these non-GAAP financial measures, together with GAAP results, as it assesses current and prospective operating results and for assessing anticipated operating results for potential acquisitions. The compensation committee has used non-GAAP financial measures in evaluating the performance of management and in determining executive bonuses. Management of Epiq Systems believes these non-GAAP measures may be useful to investors by comparing the results of operations of Epiq Systems without the effect of these items. 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.
The information in this Current Report on Form 8-K, including Exhibit 99.1 and Exhibit 99.2, shall not be deemed filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the Exchange Act), or otherwise subject to the liabilities of that section, and shall not be deemed to be incorporated by reference into any registration statement or other filing with the Securities and Exchange Commission made by Epiq Systems under the Securities Act of 1933, as amended, or the Exchange Act, whether filed before or after the date hereof, except as otherwise expressly stated by specific reference in such filing.
Item 9.01. | Financial Statements and Exhibits. |
(d) Exhibits
The following exhibits are furnished as part of this report:
Exhibit 99.1 | Epiq Systems, Inc. Press Release issued August 3, 2015, reporting Epiq Systems, Inc.s financial results for the three and six months ended June 30, 2015. | |
Exhibit 99.2 | Investor presentation with respect to Epiq Systems, Inc.s financial results for the three and six months ended June 30, 2015 for use on the earnings conference call on August 3, 2015. |
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
EPIQ SYSTEMS, INC. | ||||||
Date: August 3, 2015 | ||||||
By: | /s/ Tom W. Olofson | |||||
Name: | Tom W. Olofson | |||||
Title: | Chairman of the Board, Chief Executive Officer and Director |
EXHIBIT INDEX
Exhibit No. |
Description | |
99.1 | Epiq Systems, Inc. Press Release issued August 3, 2015, reporting Epiq Systems, Inc.s financial results for the three months ended June 30, 2015. | |
99.2 | Investor presentation with respect to Epiq Systems, Inc.s financial results for the three months ended June 30, 2015 for use on the earnings conference call on August 3, 2015. |
Exhibit 99.1
Legal Technology Solutions Provider Epiq Systems
Reports Second Quarter 2015 Results and Reaffirms 2015 Outlook
Conference Call Today at 4:30 pm ET
Kansas City, KS (August 3, 2015) Epiq Systems, Inc. (NASDAQ: EPIQ), a leading global provider of integrated technology solutions for the legal profession, today announced results for its second quarter ended June 30, 2015. Epiq will hold a conference call today at 4:30 pm ET to review its results (details below).
Summary Results (Unaudited) |
||||||||
Q2 | ||||||||
(In millions, except share count and per share data) |
2015 | 2014 | ||||||
Segment Operating Revenue |
||||||||
Technology |
$ | 93.2 | $ | 78.5 | ||||
Bankruptcy & Settlement Administration |
$ | 37.4 | $ | 36.9 | ||||
Total Operating Revenue |
$ | 130.6 | $ | 115.4 | ||||
Net Loss |
($ | 3.2 | ) | ($ | 3.4 | ) | ||
Net Loss Per Diluted Share |
($ | 0.09 | ) | ($ | 0.10 | ) | ||
Adjusted EBITDA(1) |
$ | 24.7 | $ | 24.7 | ||||
Adjusted Net Income(1) |
$ | 6.7 | $ | 7.4 | ||||
Adjusted Earnings Per Share(1) (Diluted) |
$ | 0.18 | $ | 0.21 | ||||
Adjusted Diluted Shares (in thousands) |
37,119 | 35,765 | ||||||
Net Cash from Operating Activities |
$ | 24.1 | $ | 19.6 |
(1) | Adjusted net income, adjusted EBITDA and adjusted earnings per share are all non-GAAP financial measures. See the accompanying tables herein for information regarding these measures and reconciliation to the most comparable GAAP measure. |
Q2 Financial Overview
Epiqs second quarter 2015 operating revenue increased by 13% year over year reflecting higher demand for global electronic discovery (eDiscovery) solutions and including $7.7 million from recently acquired Iris Data Services, both within the Technology segment. Quarterly Adjusted EBITDA of $24.7 million and Adjusted EPS of $0.18 per diluted share were in line with company expectations.
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International eDiscovery operations continue to provide double-digit revenue growth but downward pricing pressure in North American electronically stored information (ESI) services negatively impacted operating margins. A modest increase in Bankruptcy and Settlement Administration operating revenue was due primarily to services provided for large class action and data breach engagements during the second quarter.
The second quarter 2015 net loss was primarily due to acquisition related expenses of $1.0 million and amortization of identifiable intangible assets of $2.9 million resulting from the acquisition of Iris Data Services.
Total quarterly capital expenditures, including software development costs and unallocated corporate expenses, declined over 30% in the current quarter compared to the same period last year. Net cash provided by operating activities increased by $4.5 million compared to the prior year period.
Recent Business Highlights
| Completed the acquisition of Iris Data Services on April 30, 2015. Iris was named Best eDiscovery Managed Services Provider at the ALM LegalTech News Innovation awards in July 2015. |
| Appointed key senior business leaders, including: |
| Ellen Jones Polhamus, senior vice president, eDiscovery client services |
| Pamela Corrie, managing director, corporate restructuring |
| Jill Bauer, managing director, Chapter 7 bankruptcy solutions and fiduciary services |
| Catherine Ostheimer, vice president, marketing and communications |
| Declared dividend of $0.09 per share, Epiqs 21st consecutive quarterly dividend. |
Epiqs technology platform, expertise and growing global footprint position our company as a leader to serve a broad range of needs within the legal community, said Tom W. Olofson, chairman and CEO of Epiq Systems. Our eDiscovery revenues rebounded from a decline in the first quarter of 2015 to grow nearly 22% in the most recent quarter, before adding two months of revenue contribution from our acquisition of Iris Data Services. We also demonstrated success winning new engagements and expanding our service delivery in bankruptcy and settlement administration.
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Our acquisition of Iris Data Services closed on April 30, and we are making solid progress on the integration of back-office functions, such as HR and finance, as well as the sales organizations. The addition of Iriss market leading managed services solutions enhances our mix of transactional and recurring revenue while also broadening our client base. Importantly, the demand for managed services continues to grow as we have already signed 12 new clients year to date in 2015, compared to 15 new clients for the full year 2014, and we have completed 20 contract extensions with existing clients. This trend demonstrates our commitment to delivering an efficient, market-leading and cost-effective experience to our clients. We will continue to build on this track record to drive value for our clients and shareholders.
Segment Review
Technology Segment (eDiscovery) |
||||||||
Q2 | ||||||||
(In millions)(Unaudited) |
2015 | 2014 | ||||||
Operating Revenue |
$ | 93.2 | $ | 78.5 | ||||
Adjusted EBITDA |
$ | 24.0 | $ | 20.5 | ||||
Operating Revenue Mix |
||||||||
By Service Type |
||||||||
Electronically Stored Information (ESI) |
57 | % | 54 | % | ||||
Document Review |
43 | % | 46 | % | ||||
By Region |
||||||||
North America |
80 | % | 81 | % | ||||
Europe and Asia |
20 | % | 19 | % |
Epiqs Technology segment provides integrated technology solutions for electronic discovery (eDiscovery), including global electronically stored information (ESI) and global document review. The proportion of higher margin ESI revenue relative to document review increased during the second quarter of 2015 on a year over year basis and pricing pressure in North American ESI services continued to impact operating margins. The increase in Adjusted EBITDA relative to last years quarter was supported by higher margin work in Europe and Asia and incremental business from Iris Data Services.
Bankruptcy and Settlement Administration Segment |
||||||||
Q2 | ||||||||
(In millions)(Unaudited) |
2015 | 2014 | ||||||
Operating Revenue |
$ | 37.4 | $ | 36.9 | ||||
Adjusted EBITDA |
$ | 9.5 | $ | 13.9 |
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A low level of Chapter 11 bankruptcy filings persisted in the second quarter, a trend that is expected to continue for the balance of 2015. According to the American Bankruptcy Institute, total bankruptcy filings in the United States decreased 12 percent in the first six months of 2015 compared to the prior year with commercial filings down 19 percent for the same period. Epiq continues to win non-traditional work and special projects from current clients to supplement operating revenue in this segment. Services provided for large class action and data breach engagements during the second quarter helped to drive a year over year increase in segment revenue. Segment Adjusted EBITDA declined primarily due to an increase in lower margin noticing and mailing services provided for those engagements and a decrease in bankruptcy related services compared to the same period last year.
2015 Financial Guidance
Epiq confirmed its 2015 financial outlook based on currently available information. As previously disclosed, for the full year 2015 operating revenue is expected to range between $500 and $520 million, adjusted EBITDA between $109 and 115 million and adjusted EPS between $0.90 and $0.96.
Conference Call Information:
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# 87248410, available through August 10, 2015 |
About Epiq Systems
Epiq Systems is a leading global provider of integrated technology solutions for the legal profession, including electronic discovery, bankruptcy, and class action and mass tort administration. We offer full-service capabilities to support litigation, investigations, financial transactions, regulatory compliance and other legal matters. Our innovative technology and services, deep subject-matter expertise and global presence spanning 45 countries served from 20 locations allow us to provide secure, reliable solutions to the worldwide legal community. 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 adjusted for amortization of acquisition intangibles, share-based compensation, intangible asset impairment expense, acquisition and related expense, one-time technology expense, loan fee amortization, litigation expense, timing of recognition of expense, reorganization expense, gain or loss on disposition of assets, strategic 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 adjusted for depreciation and amortization,
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share-based compensation, intangible asset impairment expense, acquisition and related expense, one-time technology expense, net expense related to financing, litigation expense, timing of recognition of expense, reorganization expense, gain or loss on disposition of assets, strategic review expense, and provision for (benefit from) income taxes). Income taxes typically represent a complex element of a companys 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 the non-GAAP measures is done to allow a consistent basis for investors to understand financial performance of the company across historical periods.
Although Epiq Systems reports its results using GAAP, Epiq Systems also uses non-GAAP financial measures when management believes those measures provide useful information for its shareholders. 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) risks of errors or failures of software or services, (4) interruptions or delays in service at data centers we utilize for delivery of our services, (5) undetected errors in, and failure of operation of, software products releases, (6) our reliance on third-party hardware and software, (7) failure of our financial, operating and information systems to operate as intended, (8) our inability to attract, develop and retain executives and other qualified employees, (9) risks associated with the integration of acquisitions into our existing business operations, (10) risks associated with our international operations, (11) lack of protection of our intellectual property through patents and formal copyright registration, (12) risks of litigation against us for infringement of proprietary rights, (13) material changes in the number of bankruptcy filings, class action filings or mass tort
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actions each year, or changes in government legislation or court rules affecting these filings, (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) our inability to maintain compliance with debt covenant ratios, (17) risks associated with indebtedness and interest rate fluctuations, (18) risks associated with provisions of our articles of incorporation that prevent a takeover of Epiq, (19) overall strength and stability of general economic conditions, both in the United States and in the global markets, (20) the impact of our current review process of strategic alternatives, and (21) 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 |
Chris Eddy or David Collins | |||
Epiq Systems |
Catalyst Global | |||
913-621-9500 |
212-924-9800 | |||
[email protected] |
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EPIQ SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)
Three Months Ended June 30, |
Six Months Ended June 30, |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
REVENUE: |
||||||||||||||||
Operating revenue |
$ | 130,557 | $ | 115,451 | $ | 238,312 | $ | 231,671 | ||||||||
Reimbursable expenses |
7,453 | 9,605 | 18,726 | 16,656 | ||||||||||||
|
|
|
|
|
|
|
|
|||||||||
Total Revenue |
138,010 | 125,056 | 257,038 | 248,327 | ||||||||||||
OPERATING EXPENSE: |
||||||||||||||||
Direct cost of operating revenue (exclusive of depreciation |
67,901 | 57,533 | 118,930 | 115,168 | ||||||||||||
Reimbursable expenses |
7,290 | 9,434 | 17,794 | 16,237 | ||||||||||||
Selling, general and administrative expense |
44,773 | 46,374 | 83,837 | 90,538 | ||||||||||||
Depreciation and software and leasehold amortization |
9,498 | 9,255 | 18,263 | 17,955 | ||||||||||||
Amortization of identifiable intangible assets |
4,810 | 3,166 | 7,495 | 6,286 | ||||||||||||
Impairment of goodwill and identifiable intangible assets |
1,162 | | 1,162 | | ||||||||||||
Fair value adjustment to contingent consideration |
(1,201 | ) | | (1,201 | ) | 1,142 | ||||||||||
Other operating expense, net |
2,861 | 496 | 2,998 | 577 | ||||||||||||
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|
|
|
|
|
|
|
|||||||||
Total Operating Expense |
137,094 | 126,258 | 249,278 | 247,903 | ||||||||||||
INCOME (LOSS) FROM OPERATIONS |
916 | (1,202 | ) | 7,760 | 424 | |||||||||||
INTEREST EXPENSE (INCOME): |
||||||||||||||||
Interest expense |
5,480 | 3,852 | 9,709 | 8,729 | ||||||||||||
Interest income |
(1 | ) | (9 | ) | (5 | ) | (13 | ) | ||||||||
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|
|
|
|
|
|
|
|||||||||
Net Interest Expense |
5,479 | 3,843 | 9,704 | 8,716 | ||||||||||||
LOSS BEFORE INCOME TAXES |
(4,563 | ) | (5,045 | ) | (1,944 | ) | (8,292 | ) | ||||||||
BENEFIT FROM INCOME TAXES |
(1,322 | ) | (1,626 | ) | (436 | ) | (2,575 | ) | ||||||||
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|
|
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|
|
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NET LOSS |
($ | 3,241 | ) | (3,419 | ) | ($ | 1,508 | ) | ($ | 5,717 | ) | |||||
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|
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NET LOSS PER COMMON SHARE INFORMATION: |
||||||||||||||||
Basic |
($ | 0.09 | ) | ($ | 0.10 | ) | ($ | 0.04 | ) | ($ | 0.16 | ) | ||||
Diluted |
($ | 0.09 | ) | ($ | 0.10 | ) | ($ | 0.04 | ) | ($ | 0.16 | ) | ||||
WEIGHTED-AVERAGE COMMON SHARES OUTSTANDING: |
||||||||||||||||
Basic |
36,536 | 35,365 | 36,409 | 35,115 | ||||||||||||
Diluted |
36,536 | 35,365 | 36,409 | 35,115 | ||||||||||||
Cash dividends declared per common share |
$ | 0.09 | $ | 0.09 | $ | 0.18 | $ | 0.18 |
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EPIQ SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
June 30, 2015 |
December 31, 2014 |
|||||||
ASSETS: |
||||||||
Cash and cash equivalents |
$ | 18,916 | $ | 54,226 | ||||
Trade accounts receivable, net |
148,158 | 117,854 | ||||||
Property and equipment, net |
78,910 | 70,579 | ||||||
Internally developed software, net |
15,134 | 14,713 | ||||||
Goodwill |
478,970 | 404,187 | ||||||
Other intangibles, net |
55,795 | 29,605 | ||||||
Other |
58,488 | 47,088 | ||||||
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|
|
|
|||||
Total Assets |
$ | 854,371 | $ | 738,252 | ||||
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|
|
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LIABILITIES: |
||||||||
Current liabilities, excluding debt |
69,880 | 53,395 | ||||||
Indebtedness |
410,652 | 313,481 | ||||||
Other non-current liabilities |
50,999 | 46,439 | ||||||
Total Equity |
322,840 | 324,937 | ||||||
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|
|
|
|||||
Total Liabilities and Equity |
$ | 854,371 | $ | 738,252 | ||||
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|
|
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EPIQ SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)
Six Months Ended June 30, |
||||||||
2015 | 2014 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES: |
||||||||
Net loss |
($ | 1,508 | ) | ($ | 5,717 | ) | ||
Non-cash adjustments to loss: |
||||||||
Depreciation and amortization |
25,758 | 24,241 | ||||||
Other, net |
11,731 | 5,615 | ||||||
Changes in operating assets and liabilities, net |
||||||||
Trade accounts receivable |
(14,958 | ) | 6,907 | |||||
Other, net |
6,908 | (12,276 | ) | |||||
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|
|
|
|||||
Net cash provided by operating activities |
27,931 | 18,770 | ||||||
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|
|
|
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CASH FLOWS FROM INVESTING ACTIVITIES: |
||||||||
Property and equipment; and internally developed software |
(16,330 | ) | (22,531 | ) | ||||
Cash paid for business acquisitions, net of cash acquired |
(123,649 | ) | (302 | ) | ||||
Other |
108 | 209 | ||||||
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|
|
|
|||||
Net cash used in investing activities |
(139,871 | ) | (22,624 | ) | ||||
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|
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CASH FLOWS FROM FINANCING ACTIVITIES: |
||||||||
Net change in indebtedness |
87,643 | (4,285 | ) | |||||
Common stock repurchases |
(4,017 | ) | (3,627 | ) | ||||
Cash dividends paid |
(6,629 | ) | (6,334 | ) | ||||
Payment of acquisition-related liabilities |
(29 | ) | (4,957 | ) | ||||
Debt issuance costs |
(1,644 | ) | (837 | ) | ||||
Other, net |
1,518 | 6,978 | ||||||
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|
|
|
|||||
Net cash provided by (used in) financing activities |
76,842 | (13,062 | ) | |||||
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|
|
|
|||||
Effect of exchange rate changes on cash |
(212 | ) | 1,570 | |||||
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|
|
|
|||||
NET DECREASE IN CASH AND CASH EQUIVALENTS |
($ | 35,310 | ) | ($ | 15,346 | ) | ||
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EPIQ SYSTEMS, INC.
RECONCILIATION OF NET LOSS
TO ADJUSTED EBITDA
(Unaudited)
(In thousands)
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
NET LOSS |
($ | 3,241 | ) | ($ | 3,419 | ) | ($ | 1,508 | ) | ($ | 5,717 | ) | ||||
Plus: |
||||||||||||||||
Depreciation and amortization expense |
14,308 | 12,421 | 25,758 | 24,241 | ||||||||||||
Share-based compensation expense |
5,305 | 737 | 6,926 | 4,276 | ||||||||||||
Intangible asset impairment expense |
1,162 | | 1,162 | | ||||||||||||
Acquisition and related expense (1) |
1,710 | 211 | 1,915 | 1,800 | ||||||||||||
One-time technology expense (2) |
| 1,532 | | 3,645 | ||||||||||||
Expense related to financing, net (3) |
5,383 | 3,767 | 9,493 | 8,637 | ||||||||||||
Litigation (recovery) expense, net (4) |
17 | 1,457 | (504 | ) | 1,569 | |||||||||||
Timing of recognition of expense (5) |
| | (290 | ) | | |||||||||||
Reorganization expense (6) |
790 | 9,267 | 1,972 | 11,922 | ||||||||||||
(Gain) Loss on disposition of assets |
(31 | ) | 351 | (13 | ) | 351 | ||||||||||
Strategic review expense |
632 | | 1,678 | | ||||||||||||
Benefit from income taxes |
(1,322 | ) | (1,626 | ) | (436 | ) | (2,575 | ) | ||||||||
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|
|||||||||
27,954 | 28,117 | 47,661 | 53,866 | |||||||||||||
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ADJUSTED EBITDA |
$ | 24,713 | $ | 24,698 | $ | 46,153 | $ | 48,149 | ||||||||
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(1) | Acquisition and related expense includes one-time costs associated with acquisitions and fair value adjustments to contingent consideration. |
(2) | One-time technology related costs associated with security and consolidation of data centers from acquisitions. |
(3) | Expense related to financing is net of interest income. |
(4) | Litigation expense and recovery related to significant one-time matters. |
(5) | Adjustment to match timing of expenses to be consistent with timing of GAAP revenue and recoveries for settlement administration matters. |
(6) | Expenses primarily related to one-time charges for post-employment benefits. |
10
EPIQ SYSTEMS, INC.
RECONCILIATION OF NET LOSS
TO ADJUSTED NET INCOME
(Unaudited)
(In thousands, except per share data)
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
NET LOSS |
($ | 3,241 | ) | ($ | 3,419 | ) | ($ | 1,508 | ) | ($ | 5,717 | ) | ||||
Plus (net of tax) (1) : |
||||||||||||||||
Amortization of acquisition intangibles |
2,886 | 1,900 | 4,497 | 3,772 | ||||||||||||
Share-based compensation |
3,183 | 442 | 4,156 | 2,566 | ||||||||||||
Intangible asset impairment expense |
697 | | 697 | | ||||||||||||
Acquisition and related expense (2) |
1,029 | 163 | 1,175 | 1,149 | ||||||||||||
One-time technology expense (3) |
| 919 | | 2,187 | ||||||||||||
Loan fee amortization and write-off |
631 | 219 | 993 | 900 | ||||||||||||
Litigation (recovery) expense, net (4) |
147 | 1,016 | (24 | ) | 1,225 | |||||||||||
Timing of recognition of expense (5) |
| | (174 | ) | | |||||||||||
Reorganization expense (6) |
474 | 5,560 | 1,183 | 7,153 | ||||||||||||
(Gain) Loss on disposition of assets |
(19 | ) | 210 | (8 | ) | 210 | ||||||||||
Strategic review expense |
379 | | 1,007 | | ||||||||||||
Effective tax rate adjustment (7) |
503 | 392 | 341 | 742 | ||||||||||||
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9,910 | 10,821 | 13,843 | 19,904 | |||||||||||||
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ADJUSTED NET INCOME |
$ | 6,669 | $ | 7,402 | $ | 12,335 | $ | 14,187 | ||||||||
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ADJUSTED EARNINGS PER SHARE DILUTED |
$ | 0.18 | 0.21 | $ | 0.33 | $ | 0.40 | |||||||||
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(1) | Individual adjustments are calculated using a tax rate of 40%. |
(2) | Acquisition and related expense includes one-time costs associated with acquisitions and fair value adjustments to contingent consideration. |
(3) | One-time technology related costs associated with security and consolidation of data centers from acquisitions. |
(4) | Litigation expense or recovery related to significant one-time matters. |
(5) | Adjustment to match timing of expenses to be consistent with timing of GAAP revenue and recoveries for settlement administration matters. |
(6) | Expenses primarily related to one-time charges for post-employment benefits. |
(7) | The effective tax rate adjustment reflects a non-GAAP provision for income taxes at a tax rate of 40%. |
11
EPIQ SYSTEMS, INC.
OPERATING REVENUE
(Unaudited)
(In thousands)
Three months ended June, 30 |
Six months ended June, 30 |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Technology |
$ | 93,159 | $ | 78,523 | $ | 163,182 | $ | 159,692 | ||||||||
Bankruptcy |
17,629 | 23,890 | 37,711 | 41,255 | ||||||||||||
Settlement Administration |
19,769 | 13,038 | 37,419 | 30,724 | ||||||||||||
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Total Bankruptcy and Settlement Administration |
37,398 | 36,928 | 75,130 | 71,979 | ||||||||||||
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TOTAL OPERATING REVENUE |
$ | 130,557 | $ | 115,451 | $ | 238,312 | $ | 231,671 | ||||||||
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EPIQ SYSTEMS, INC.
ADJUSTED EBITDA
(Unaudited)
(In thousands)
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
Technology |
$ | 24,042 | $ | 20,537 | $ | 42,251 | $ | 42,835 | ||||||||
Bankruptcy and Settlement Administration |
9,477 | 13,903 | 22,181 | 25,854 | ||||||||||||
Unallocated Corporate (1) |
(8,806 | ) | (9,742 | ) | (18,279 | ) | (20,540 | ) | ||||||||
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TOTAL ADJUSTED EBITDA |
$ | 24,713 | $ | 24,698 | $ | 46,153 | $ | 48,149 | ||||||||
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(1) | Unallocated corporate adjusted EBITDA excludes expenses related to share-based compensation, impairment expense related to acquired intangible assets, acquisition and related expense, including fair value adjustments to contingent consideration, one-time technology expense, non-routine litigation expense or recovery, timing of recognition of expense, gain or loss on disposition of assets, strategic review expense, and one-time reorganization expense. |
12
EPIQ SYSTEMS, INC.
CALCULATION OF NET LOSS PER SHARE AND
DILUTED ADJUSTED EARNINGS PER SHARE
(Unaudited)
(In thousands, except per share data)
Three months ended June 30, |
Six months ended June 30, |
|||||||||||||||
2015 | 2014 | 2015 | 2014 | |||||||||||||
NET LOSS |
($ | 3,241 | ) | ($ | 3,419 | ) | ($ | 1,508 | ) | ($ | 5,717 | ) | ||||
BASIC WEIGHTED AVERAGE SHARES |
36,536 | 35,365 | 36,409 | 35,115 | ||||||||||||
Adjustment to reflect share-based awards |
| | | | ||||||||||||
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DILUTED WEIGHTED AVERAGE SHARES(1) |
36,536 | 35,365 | 36,409 | 35,115 | ||||||||||||
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NET LOSS PER SHARE DILUTED |
($ | 0.09 | ) | ($ | 0.10 | ) | ($ | 0.04 | ) | ($ | 0.16 | ) | ||||
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ADJUSTED NET INCOME |
$ | 6,669 | $ | 7,402 | $ | 12,335 | $ | 14,187 | ||||||||
BASIC WEIGHTED AVERAGE SHARES |
36,536 | 35,365 | 36,409 | 35,115 | ||||||||||||
Adjustment to reflect share-based awards |
583 | 391 | 607 | 236 | ||||||||||||
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DILUTED WEIGHTED AVERAGE SHARES |
37,119 | 35,756 | 37,016 | 35,351 | ||||||||||||
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ADJUSTED EARNINGS PER SHARE - DILUTED |
$ | 0.18 | $ | 0.21 | $ | 0.33 | $ | 0.40 | ||||||||
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(1) | Diluted weighted average shares outstanding for the three and six months ended June 30, 2015 and 2014 exclude the dilutive impact of options outstanding due to the GAAP net loss reported for the respective periods. |
13
Second
Quarter 2015 Earnings Conference Call
August 3, 2015 NASDAQ: EPIQ www.epiqsystems.com Exhibit 99.2 |
2 Forward Looking Statements & Use of Non-GAAP Measures This presentation 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) risks of errors or failures of software or services, (4) interruptions or delays in service at data centers we
utilize for delivery of our services, (5) undetected errors in, and
failure of operation of, software products releases, (6) our reliance on third-party hardware and software, (7) failure of our financial, operating and information systems to operate as intended, (8) our inability to attract, develop and retain executives and other qualified employees, (9) risks associated with the
integration of acquisitions into our existing business operations, (10)
risks associated with our international operations, (11) lack of protection of our intellectual property through patents and formal copyright registration, (12) risk of litigation against us for infringement of proprietary rights, (13) material changes in the number of bankruptcy filings, class action filings
or mass tort actions each year, or changes in government legislation or
court rules affecting these filings, (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) our inability to maintain compliance with debt covenant ratios, (17) risks
associated with indebtedness and interest rate fluctuations, (18) risks
associated with provisions of our articles of incorporation that prevent a takeover of Epiq, (19) overall strength and stability of general economic conditions, both in the United States and in the global markets, (20) the impact of our current review process of strategic alternatives, and
(21) 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. This presentation includes the following non-GAAP financial measures: (i) adjusted net income (net loss adjusted for amortization of
acquisition intangibles, share-based compensation, intangible asset
impairment expense, acquisition and related expense, one-time technology expense, loan fee amortization, litigation expense, timing of recognition of expense, reorganization expense, loss on disposition of assets, strategic 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 loss adjusted for depreciation and amortization, share-based compensation, intangible asset impairment expense, acquisition and related expense, one-time technology
expense, net expense related to financing, litigation expense, timing of
recognition of expense, reorganization expense, loss on disposition of assets, strategic review expense and provision for (benefit from) income taxes). Income taxes typically represent a complex element of a companys 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 the non-GAAP measures is done to allow a consistent basis for investors to understand financial
performance of the company across historical periods. Although Epiq Systems reports its results using GAAP, Epiq Systems
also uses non-GAAP financial measures when management believes those measures provide useful information for its shareholders. 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. |
Q2 2015
Earnings Conference Call 3
(1) A non-GAAP measure, refer to page 8 for reconciliation to most directly
comparable GAAP measure. (2) A non-GAAP measure, refer to page
9 for reconciliation to most directly comparable GAAP measure. (3)
A non-GAAP measure, refer to page 10 for calculation. Second Quarter
2015 Financial Results (In millions, except share count and
per share data) (Unaudited) Three months ended June 30, 2015 Three months ended June 30, 2014 Technology Segment Operating Revenue $93.2 $78.5 Bankruptcy & Settlement Administration Segment Operating Revenue $37.4 $36.9 Total Operating Revenue $130.6 $115.4 Net Loss ($3.2) ($3.4) Net Loss Per Diluted Share ($0.09) ($0.10) Adjusted EBITDA (1) $24.7 $24.7 Adjusted Net Income (2) $6.7 $7.4 Adjusted Earnings Per Share (EPS) (Diluted) (3) $0.18 $0.21 Adjusted Diluted Shares (in thousands) 37,119 35,765 Net Cash from Operating Activities $24.1 $19.6 |
Q2 2015
Earnings Conference Call 4
(In thousands) (Unaudited)
June 30, 2015 Dec 31, 2014 Cash and Cash Equivalents $18,916 $54,226 Trade Accounts Receivable, Net 148,158 117,854 Property and Equipment, Net 78,910 70,579 Goodwill 478,970 404,187 Other Intangibles, Net 55,795 29,605 Indebtedness 410,652 313,481 Equity 322,840 324,937 Selected Balance Sheet Data |
Q2 2015
Earnings Conference Call 5
(In thousands) (Unaudited)
Six months ended June 30, 2015 Six months ended June 30, 2014 Net Loss ($1,508) ($5,717) Non-cash Adjustments to Net Loss Depreciation and Amortization 25,758 24,241 Other, Net 11,731 5,615 Changes in Operating Assets and Liabilities, Net Trade Accounts Receivable (14,958) 6,907 Other, Net 6,908 (12,276) Net Cash Provided by Operating Activities 27,931 18,770 Cash from Operating Activities |
Q2 2015
Earnings Conference Call 6
Segment Operating Results
Technology Operating
Revenue
(In millions)
Technology Bankruptcy and Settlement Administration Operating Revenue Adjusted EBITDA Operating Revenue Adjusted EBITDA Q2 2015 $93.2 $24.0 $37.4 $9.5 Q2 2014 $78.5 $20.5 $36.9 $13.9 Bankruptcy & Settlement Administration Operating Revenue |
2015
Financial Guidance
Current guidance estimates for fiscal year 2015, which include the acquisition of Iris
Data Services, have not changed from the first quarter.
Guidance estimates may be updated in future periods as conditions permit (1) . 2015E Operating Revenue $500 - $520 million Adjusted EBITDA $109 - $115 million Adjusted EPS $0.90 - $0.96 (1) This guidance includes a number of assumptions based on current facts and expectations, which are subject to change.
Q2 2015 Earnings Conference Call
7 |
Q2 2015
Earnings Conference Call 8
(In thousands) (Unaudited)
Q2 2015 Q2 2014 Net Loss ($3,241) ($3,419) Plus: Depreciation and Amortization Expense 14,308 12,421 Share-based Compensation Expense 5,305 737 Intangible Asset Impairment Expense 1,162 - Acquisition and Related Expense (1) 1,710 211 One-time Technology Expense (2) - 1,532 Expense Related to Financing, Net (3) 5,383 3,767 Litigation Expense, Net (4) 17 1,457 Reorganization Expense (5) 790 9,267 (Gain) Loss on Disposition of Assets (31) 351 Strategic Review Expense 632 - Benefit from Income Taxes (1,322) (1,626) Adjusted EBITDA 24,713 24,698 (1) Acquisition and related expense includes one-time costs associated with acquisitions and fair value adjustments to
contingent consideration.
(2) One-time technology related costs associated with security and consolidation of data centers from acquisitions.
(3) Expense related to financing is net of interest income. (4) Litigation expense related to significant one-time matters. (5) Expenses primarily related to one-time charges for post-employment benefits.
Adjusted EBITDA Reconciliation |
Q2 2015
Earnings Conference Call
9 (In thousands, except per share data) (Unaudited) Q2 2015 Q2 2014 Net Income (Loss) ($3,241) ($3,419) Plus (net of tax (1) ): Amortization of Acquisition Intangibles 2,886 1,900 Intangible Asset Impairment Expense 697 - Share-based Compensation Expense 3,183 442 Acquisition and Related Expense (2) 1,029 163 One-time Technology Expense (3) - 919 Loan Fee Amortization and Write-off 631 219 Litigation Expense, Net (4) 147 1,016 Reorganization Expense (5) 474 5,560 (Gain) Loss on Disposition of Assets (19) 210 Strategic Review Expense 379 - Effective Tax Rate Adjustment (6) 503 392 Adjusted Net Income $6,669 $7,402 Adjusted Earnings Per Share Diluted $0.18 $0.21 (1) Individual adjustments are calculated using a tax rate of 40%. (2) Acquisition and related expense includes one-time costs associated with acquisitions and fair value adjustments to
contingent consideration.
(3) One-time technology related costs associated with security and consolidation of data centers from acquisitions.
(4) Litigation expense related to significant one-time matters. (5) Expenses primarily related to one-time charges for post-employment benefits.
(6) The effective tax rate adjustment reflects a non-GAAP provision for income taxes at a tax rate of 40%.
Adjusted Net Income Reconciliation |
Q2
2015 Earnings Conference Call 10
(In thousands, except per share data) (Unaudited)
Q2 2015 Q2 2014 Net Loss ($3,241) ($3,419) Basic Weighted Average Shares 36,536 35,365 Adjustment to reflect share-based awards - - Diluted Weighted Average Shares (1) 36,536 35,365 Net Loss Per Share Diluted ($0.09) ($0.10) Adjusted Net Income $6,669 $7,402 $0.18 $0.21 (1) Diluted weighted average shares outstanding for the three months ended June 30, 2015 and 2014 exclude the dilutive
impact of options outstanding due to the GAAP net loss reported for the respective
periods. Diluted Adjusted Earnings Per Share Calculation
Adjusted Earnings Per Share Diluted |
Investor Contacts Kelly Bailey Epiq Systems (913) 621-9500 IR@epiqsystems.com Chris Eddy Catalyst Global (212) 924-9800 epiq@catalyst-ir.com NASDAQ: EPIQ www.epiqsystems.com |
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