The following discussion and analysis of our consolidated results of operations and financial condition should be read in conjunction with the "Cautionary Statement Concerning Forward-Looking Statements," our "Risk Factors," "Selected Financial Data," and "Financial Statements and Supplementary Data" included in this Form 10-K.

Management's Overview

eDiscovery

Our eDiscovery segment provides consulting, collections and forensics, processing, search and review, production of documents and document review services to companies and law firms. Our eData Matrix ® and third-party software analyze, filter, deduplicate and produce documents for review. Documents are made available primarily through a hosted environment utilizing our DocuMatrix™ and third-party software which allows for efficient attorney review and data requests. Our customers are typically large corporations that use our products and services cooperatively with their legal counsel to manage the eDiscovery process for litigation, investigations, anti-trust filings and other regulatory matters and data requests.

The substantial amount of electronic documents and other data used by businesses has changed the dynamics of how attorneys support discovery in complex litigation, investigations and data requests. Due to the complexity of matters, the volume of data that is maintained electronically, and the volume of documents that are produced, law firms have become increasingly reliant on electronic evidence management systems to organize and manage the discovery process.

Following is a description of the significant sources of revenue in our eDiscovery business.

º •
º Consulting, forensics and collection service and consulting fees based on the number of hours that services are provided.

º •
º Fees related to the conversion of data into an organized, searchable electronic database. The amount earned varies primarily on the number of documents.

º •
º Hosting fees based on the amount of data stored.

º •
º Production of documents based on the number of documents

º •
º Document review fees based on the number of hours spent reviewing documents, the number of pages reviewed, or the amount of data reviewed.

Our eDiscovery segment primarily relies on the demand for discovery technology and services in support of litigation, investigations, anti-trust filings, and other regulatory matters and data requests both domestically and internationally. The domestic eDiscovery market is highly fragmented with national providers as well as regional providers that primarily serve specific geographic areas, while the international market remains consolidated among a limited number of global participants. We remain well positioned in the top bracket of market participants with global capabilities, including operations in the United States, London and Hong Kong.

On December 28, 2011, we acquired De Novo Legal LLC ("De Novo") for approximately $86.6 million and $5.0 million is being held by us and deferred for 18 months following the closing as security for potential indemnification claims. Included in the purchase price of $86.6 million was estimated contingent consideration of $16.2 million which was contingent upon the achievement of substantial future operating revenue growth which exceeds market expectations. Based on our assessment of projected revenue over the remainder of the measurement period, we determined it is not likely that the contingent consideration opportunity will be achieved. As a result of this assessment,

the fair value of the potential contingent consideration was adjusted to zero as of December 31, 2012. The transaction was funded from our credit facility. See Note 13 of our Notes to Consolidated Financial Statements for further detail.

On April 4, 2011, we acquired Encore Discovery Solutions ("Encore"). The purchase price was comprised of $104.3 million of cash, $10.0 million of which was withheld for any claims for indemnification and purchase price adjustments and which was paid in the fourth quarter 2012.

The De Novo and Encore acquisitions further augmented the size of the eDiscovery business and accelerated growth opportunities. Each of these companies had a strong customer base that complements our own market share. By continuing the availability of both businesses' products, services and technologies, we will continue to offer an industry leading combination of resources, experience and subject matter expertise

Operating revenue in our eDiscovery segment was $197.0 million in 2012, which represented 57% of our consolidated total as compared to $132.9 million in 2011, representing 51% of our consolidated total and $81.1 million in 2010, representing 37% of our consolidated total.

Bankruptcy

Bankruptcy is an integral part of the United States' economy. As reported by the Administrative Office of the United States. Courts for the fiscal years ended December 31, 2012, 2011, and 2010, there were approximately 1.22 million, 1.41 million, and 1.59 million new bankruptcy filings, respectively. Bankruptcy filings for the twelve-month period ended December 31, 2012 decreased 13% versus the twelve-month period ended December 31, 2011. During this period, Chapter 7 filings decreased 15%, Chapter 11 filings fell 10%, and Chapter 13 filings decreased 10%.

Our bankruptcy business provides solutions that address the needs of Chapter 7 and Chapter 13 bankruptcy trustees to administer bankruptcy proceedings and of Chapter 11 debtor corporations that file a plan of reorganization.

º •
º Chapter 7 is a liquidation bankruptcy for individuals or businesses that, as measured by the number of new cases filed in the twelve-month period ended December 31, 2012, accounted for approximately 69% of all bankruptcy filings. In a Chapter 7 case, the debtor's assets are liquidated and the resulting cash proceeds are used by the Chapter 7 bankruptcy trustee to pay creditors. Chapter 7 cases typically last several years.

º •
º Chapter 11 is a reorganization model of bankruptcy for corporations that, as measured by the number of new cases filed in the twelve-month period ended December 31, 2012, accounted for less than 1% of all bankruptcy filings. Chapter 11 generally allows a company, often referred to as the debtor-in-possession, to continue operating under a plan of reorganization to restructure its business and to modify payment terms of both secured and unsecured obligations. Chapter 11 bankruptcy engagements are generally long-term, multi-year assignments that provide revenue visibility into future periods. The key participants in a bankruptcy proceeding include the debtor-in-possession, the debtor's legal counsel, the creditors, the creditors' legal counsel, and the bankruptcy judge. The end-user customers of our Chapter 11 bankruptcy business are debtor corporations that file a plan of reorganization and professional bankruptcy trustees.

º •
º Chapter 13 is a reorganization model of bankruptcy for individuals that, as measured by the number of new cases filed in the twelve-month period ended December 31, 2012, accounted for approximately 30% of all bankruptcy filings. In a Chapter 13 case, debtors make periodic cash payments into a reorganization plan and a Chapter 13 bankruptcy trustee uses these cash payments to make monthly distributions to creditors. Chapter 13 cases typically last between three and five years.

The Executive Office for United States Trustees, a division of the United States Department of Justice, appoints all bankruptcy trustees. A United States Trustee is appointed in most federal court districts and generally has responsibility for overseeing the integrity of the bankruptcy system. The bankruptcy trustee's primary responsibilities include liquidating the debtor's assets or collecting funds from the debtor, distributing the collected funds to creditors pursuant to the orders of the bankruptcy court and preparing regular status reports for the Executive Office for United States Trustees and for the bankruptcy court. Trustees manage an entire caseload of bankruptcy cases simultaneously.

The application of Chapter 7 bankruptcy regulations has the practical effect of discouraging trustee customers from incurring direct administrative costs for computer system expenses. As a result, we provide our Chapter 7 products and services to our trustee customers at no direct charge, and they maintain deposit accounts for bankruptcy cases under their administration at a designated banking institution. We have arrangements with various banks under which we provide the bankruptcy trustee case management software and related services, and the bank provides the bankruptcy trustee with deposit-related banking services. Our Chapter 7 trustee services deposit portfolio was approximately $2.0 billion throughout 2012, while pricing continued at lower levels under our agreements and continues to be impacted by the low short-term interest rate environment.

Our bankruptcy segment relies on bankruptcy filings which impact the demand for new restructuring engagements. The segment was impacted during 2012 by the overall declining trends in the number of bankruptcy filings due in part to the improvements in the credit markets which allowed many companies and individuals to restructure their debt and/or postpone debt maturities. We believe that the levels of bankruptcy filings may increase in the short term as companies face the next cycle of debt maturities combined with continued high unemployment and the worldwide economic challenges. We remain one of the market leaders in each of the Chapter 7, 11 and 13 markets that we serve, and we continue to maintain a substantial aggregate Chapter 7 deposit balance.

On October 1, 2010, we completed the acquisition of Jupiter eSources LLC ("Jupiter eSources"). The purchase price was comprised of $60.0 million of cash, $8.4 million of which was withheld by us for 18 months for any claims for indemnification and was paid in May 2012, and purchase price adjustments. In addition, there is potential contingent consideration based on future revenue growth. The potential undiscounted amount of payments that could have been required under the contingent consideration was between $0 and $20 million over a four year period. No contingent consideration has been earned through December 31, 2012 and based on our assessment of projected revenue over the remainder of the measurement period we determined it is not likely that any contingent consideration will be achieved. See Note 13 of our Notes to Consolidated Financial Statements for further detail. In 2012 and 2011, we recorded intangible asset impairment expense of $1.8 million and $1.3 million, respectively, related to the AACER® trade name identifiable intangible asset recognized in connection with our acquisition of Jupiter eSources. See Note 1 of our Notes to Consolidated Financial Statements for further detail. The Jupiter eSources transaction was funded from our credit facility.

Through this purchase, we acquired a proprietary software product, AACER®, that 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 United States bankruptcy courts and applies sophisticated algorithms to classify docket filings automatically in each case to facilitate the management of large bankruptcy claims operations. By implementing Epiq's AACER® solution, clients achieve greater accuracy in faster timeframes, with a significant cost savings compared to manual attorney review of each case in the portfolio.

Following is a description of the significant sources of revenue in our bankruptcy business.

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º Data hosting fees and volume-based fees.

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º Professional service fees and other support service fees related to the administration of cases, including data conversion, claims processing, claims reconciliation, professional services, and disbursement services.

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º Deposit-based fees or service fees assessed on deposit accounts. Deposit-based fees are earned primarily on a percentage of Chapter 7 total liquidated assets placed on deposit with a designated financial institution by our trustee clients, to whom we provide, at no charge, software licenses, limited hardware and hardware maintenance, and post-contract customer support services. The fees we earn based on total liquidated assets placed on deposit by our trustee clients may vary based on fluctuations in short-term interest rates.

º •
º Legal noticing services to parties of interest in bankruptcy matters, including direct notification and media campaign and advertising management in which we coordinate notification, primarily through print media outlets, to potential parties of interest for a particular client engagement.

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º Reimbursement for costs incurred, primarily related to postage on mailing services.

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º Monitoring and noticing fees earned based on monthly or on-demand requests for information provided through our AACER® software product.

Operating revenue in our bankruptcy segment was $88.3 million in 2012, which represented 26% of our consolidated total as compared to $92.0 million in 2011, representing 35% of our consolidated total and $97.2 million in 2010, representing 45% of our consolidated total in 2010.

Settlement Administration

Our settlement administration segment provides managed services, including legal notification, claims administration, project administration, call center management, website administration and controlled disbursement.

The customers of our settlement administration segment are companies that require the administration of a settlement, resolution of a class action matter, or administration of a project. We sell our services directly to these customers and other interested parties, including legal counsel, which often provide access to our clients.

Following is a description of the significant sources of revenue in our settlement administration business.

º •
º Fees contingent upon the month-to-month delivery of case management services such as claims processing, claims reconciliation, project management, professional services, call center support, website development and administration, and controlled disbursements. The amount we earn varies primarily on the size and complexity of the engagement.

º •
º Legal noticing services to parties of interest primarily in class action matters including media campaign and advertising management, in which we coordinate notification through various media outlets, such as print, radio and television, to potential parties of interest for a particular client engagement.

º •
º Reimbursement for costs incurred related to postage on mailing services.

Key participants in this marketplace include law firms that specialize in representing class action and mass tort plaintiffs and other law firms that specialize in representing defendants. Class action and mass tort refers to litigation in which class representatives bring a lawsuit against a defendant company or other persons on behalf of a large group of similarly affected persons. Mass tort refers to class action cases that are particularly large or prominent. Class action and mass tort litigation is often complex and the cases, including administration of any settlement, may last several years.

Our settlement administration segment is reliant upon the number of case management contracts and related services in support of class action litigation and similar settlements involving complex administration and distributions. We believe that we will continue to experience increased opportunities in 2013 as we build on our sales and marketing efforts in this market.

Operating revenue in our settlement administration segment was $59.5 million in 2012, which represented 17% of our consolidated total as compared to $36.4 million in 2011, representing 14% of our consolidated total and $39.2 million in 2010, representing 18% of our consolidated total in 2010.

Results of Operations for the Year Ended December 31, 2012 Compared with the Year Ended December 31, 2011

The following provides information relevant to our consolidated results of operations. Also see discussion of segment results in Results of Operations by Segment section below.

Consolidated Results of Operations

                                                       Year Ended December 31,
                                                                     $ Change
                                                                    Increase /
Amounts in thousands                         2012        2011       (Decrease)    % Change
Operating revenue                          $ 344,750   $ 261,265    $    83,485          32 %
Reimbursed expenses                           28,335      22,061          6,274          28 %

Total Revenue                                373,085     283,326         89,759          32 %

Direct costs of operating revenue
(exclusive of depreciation and
amortization shown separately below)         145,629      90,954         54,675          60 %
Reimbursed direct costs                       27,426      21,773          5,653          26 %
General and administrative                   117,023      97,779         19,244          20 %
Depreciation and software and leasehold
amortization                                  27,399      23,081          4,318          19 %
Amortization of identifiable intangible
assets                                        26,588      21,323          5,265          25 %
Fair value adjustment to contingent
consideration                                (17,188 )    (7,166 )      (10,022 )       N/M
Acquisition related (income) expense            (200 )     7,681         (7,881 )       N/M
Intangible asset impairment expense            1,777       1,278            499          39 %
Other operating income                           (20 )         -            (20 )       N/M

Total Operating Expense                      328,434     256,703         71,731          28 %

Income From Operations                        44,651      26,623         18,028          68 %

Interest Expense (Income)
Interest expense                               9,263       5,844          3,419          59 %
Interest income                                  (18 )      (128 )          109         N/M

Net Interest Expense                           9,245       5,716          3,529          62 %

Income Before Income Taxes                    35,406      20,907         14,499          69 %
Provision for Income Taxes                    12,979       8,827          4,152          47 %

Net Income                                 $  22,427   $  12,080         10,347          86 %

Revenue

The increase in operating revenue was driven by a $64.0 million increase in the eDiscovery segment, resulting from organic growth as well as from the Encore and De Novo acquisitions, and a $23.2 million increase in the settlement administration segment partially related to a large legal notification engagement, offset by a $3.7 million decrease in the bankruptcy segment.

Our total revenue includes reimbursed expenses, such as postage related to notification services. We reflect these reimbursed expenses as a separate line item on our accompanying Consolidated Statements of Income. Although reimbursed expenses may fluctuate significantly from period to period, these fluctuations have a minimal effect on our income from operations as we realize little or no margin from this revenue.

Operating Expenses

The increase in the direct costs of operating revenue, exclusive of depreciation and amortization, was primarily the result of our operating revenue growth, and included a $33.9 million increase in compensation-related expense, a $14.1 million increase in legal notification and advertising services costs, primarily related to a large legal notification engagement, a $5.6 million increase in third-party production costs and outside services, a $1.7 million increase in costs related to data hosting, and a $1.3 million increase in expense related to maintenance service contracts, offset by a $2.0 million decrease in general office expense.

The increase in reimbursed direct costs for the year ended December 31, 2012 as compared to 2011 corresponds to the increase in revenue from reimbursed expenses.

The increase in general and administrative costs was primarily due to our operating revenue growth, and included an increase of $10.8 million in compensation and related expense, a $2.1 million increase in travel expense, a $1.7 million increase in professional services, a $1.4 million increase in office and equipment lease expense, a $0.8 million increase in telephone and utilities expense and a $1.1 million increase in general office expense which is primarily related to the Encore and De Novo acquisitions. See Note 13 of our Notes to Consolidated Financial Statements for further detail.

Depreciation and software and leasehold amortization increased primarily as a result of increased depreciation on equipment and software related to investments in our business segments and depreciation on equipment acquired in the Encore and De Novo acquisitions.

Amortization of identifiable intangible assets increased due to the acquisition of intangible assets associated with the acquisitions of Encore and De Novo.

The income of $17.2 million from the fair value adjustment to contingent consideration during the year ended December 31, 2012 is related to the De Novo acquisition. The income of $7.2 million from the fair value adjustment to contingent consideration during the year ended December 31, 2011 is related to the Jupiter eSources acquisition. See Notes 5 and 13 of our Notes to Consolidated Financial Statements for further detail.

Acquisition related expense in 2011 of $7.7 million was primarily related to the acquisitions of Encore and De Novo in 2011.

Intangible asset impairment expense was $1.8 million and $1.3 million for the years ended December 31, 2012 and 2011, respectively, related to impairment of the AACER® trade name acquired in 2010 as part of the Jupiter eSources acquisition. See Note 2 of our Notes to Consolidated Financial Statements for further detail.

Interest Expense, Net

The increase in interest expense resulted primarily from increased borrowings on our senior revolving loan to fund the Encore and De Novo acquisitions in April 2011 and December 2011, respectively, in addition to $1.2 million of accreted interest expense related primarily to acquisition-related obligations in connection with the De Novo acquisition.

Income Taxes

Our effective tax rate for 2012 was 36.7% compared with an effective rate of 42.2% for the prior year. This decrease is primarily related to a greater proportion of income being generated in lower state tax jurisdictions and the favorable impact of effectively settling a state income tax audit claim.

Results of Operations by Segment

    The following segment discussion is presented on a basis consistent with our
segment disclosure contained in Note 14 of our Notes to Consolidated Financial
Statements. The table below presents operating revenue, direct and
administrative costs (including reimbursed costs) and segment performance
measure for each of our reportable segments and a reconciliation of the segment
performance measure to consolidated income before income taxes.


                                                Year Ended
                                               December 31,          $ Change
                                                                    Increase /
Amounts in thousands                         2012        2011       (Decrease)    % Change
Operating revenue
eDiscovery                                 $ 196,959   $ 132,918    $    64,041          48 %
Bankruptcy                                    88,265      91,971         (3,706 )        -4 %
Settlement Administration                     59,526      36,376         23,150          64 %

Total operating revenue                    $ 344,750   $ 261,265    $    83,485          32 %

Reimbursed expenses
eDiscovery                                 $   1,546   $     601    $       945         157 %
Bankruptcy                                     7,088       5,882          1,206          21 %
Settlement Administration                     19,701      15,578          4,123          26 %

Total reimbursed expenses                  $  28,335   $  22,061    $     6,274          28 %

Direct costs, general and administrative
costs
eDiscovery                                 $ 125,182   $  77,606    $    47,576          61 %
Bankruptcy                                    53,915      50,421          3,494           7 %
Settlement Administration                     72,037      48,395         23,642          49 %
Intercompany eliminations                     (3,796 )    (2,461 )       (1,335 )        54 %

Total direct costs, general and
administrative costs                       $ 247,338   $ 173,961    $    73,377          42 %

Segment performance measure
eDiscovery                                 $  73,526   $  55,988    $    17,538          31 %
Bankruptcy                                    41,465      47,432         (5,967 )       -13 %
Settlement Administration                     10,756       5,945          4,811          81 %

Total segment performance measure          $ 125,747   $ 109,365    $    16,382          15 %

Reconciliation of Segment Performance
Measure to Consolidated Income Before
Income Taxes
Segment performance measure                $ 125,747   $ 109,365
Corporate and unallocated expenses           (36,021 )   (29,176 )
Share-based compensation expense              (6,719 )    (7,369 )
Depreciation and software and leasehold
amortization                                 (27,399 )   (23,081 )
Amortization of intangible assets            (26,588 )   (21,323 )
Fair value adjustment to contingent
consideration                                 17,188       7,166
Acquisition related income (expense)             200      (7,681 )
Intangible asset impairment expense           (1,777 )    (1,278 )
Other operating income                            20           -

Income from operations                        44,651      26,623
Interest expense, net                         (9,245 )    (5,716 )

Income before income taxes                 $  35,406   $  20,907

eDiscovery Segment . . .