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LECG Corporation Reports Third Quarter 2008 Results Fee-Based Revenues Were $83.2 Million; EPS Was $0.08 EMERYVILLE, CA--(MARKET WIRE)--Oct 27, 2008 -- LECG Corporation (XPRT - News), a global
expert services firm, today reported financial results for
the third
quarter and nine months ended September 30, 2008. LECG also
announced today
the appointment of Richard Boulton, head of LECG's FAS segment,
to its
board of directors, and the addition of two new experts,
Paul O'Rourke and
Kathryn Holliday.
"Our third quarter revenue performance was lower due to challenging economic conditions; however, we remain committed to our strategic plan and are more excited than ever about our future opportunities," commented Michael Jeffery, LECG chief executive officer. "We are increasingly involved in the mounting opportunities related to the current financial and economic crises and we continue to attract top talent as we add expertise in key disciplines and geographies, improving our position for longer-term growth." Third Quarter 2008 Financial Results Third quarter 2008 revenues decreased 11.2 percent to $86.1 million compared with $96.9 million in the third quarter of 2007, and decreased 3.4 percent from second quarter 2008 revenues of $89.1 million. Net fee-based revenues were $83.2 million in the third quarter 2008 and $92.1 million in the prior year period, a decrease of 9.7 percent year over year. Net fee-based revenues decreased 2.6 percent from $85.4 million in the second quarter of 2008. Third quarter 2008 net income was $2.0 million or $0.08 per diluted share, compared with $6.5 million, or $0.26 per diluted share in the third quarter of 2007, and $2.6 million or $0.10 per diluted share in the second quarter of 2008. Results for the third quarter of 2008 reflect two non-operational items -- a $0.5 million benefit from the reversal of restructuring charges and a $0.6 million charge from market fluctuations in deferred compensation plan investments. Adjusted EBITDA from continuing operations for the third quarter of 2008 was $4.9 million, a 61.1 percent decrease from $12.6 million for the third quarter 2007 and a 19.7 percent decrease from $6.1 million for the second quarter 2008. Third Quarter 2008 Segment Results Economics Services LECG's economics services segment is composed of the company's global competition, securities, regulated industries, and labor sectors. Economics revenues were $37.4 million in the third quarter of 2008, representing 43.5 percent of total revenues. Net fee-based revenues for the segment were $36.7 million in the quarter, down $1.0 million from the second quarter of 2008 primarily due to a decrease in the global competition and labor sectors. Economics gross profit was $12.9 million, or 47.2 percent of total gross profit in the quarter. The direct profit margin improved 80 basis points from the second quarter, to 35.8 percent. Professional staff utilization was up 70 basis points at 78.2 percent. Finance and Accounting Services (FAS) LECG's FAS segment is composed of the company's forensic accounting, intellectual property, health care, higher education, international FAS, financial services, and electronic discovery sectors. FAS revenues were $48.6 million in the third quarter of 2008, or 56.5 percent of total revenues. Net fee-based revenues for the segment were $46.6 million in the quarter, down $1.1 million from the second quarter of 2008 primarily due to a slowdown in the forensic accounting and international FAS sectors, partially offset by strength in the financial services and intellectual property sectors. FAS gross profit was $14.5 million, or 52.8 percent of total gross profit in the quarter. The direct profit margin decreased 20 basis points from the second quarter, to 31.2 percent. Professional staff utilization decreased 220 basis points to 72.9 percent. Nine Month Financial Results Revenues for the nine months ended September 30, 2008 decreased 5.9 percent to $265.6 million from $282.2 million for the same period in 2007. Net fee-based revenues decreased 4.6 percent year over year. Net income for the nine months ended September 30, 2008 was $8.6 million, 38.6 percent lower than net income of $14.0 million reported for the same period last year. Diluted earnings per share for the first nine months of 2008 was $0.34, compared with diluted earnings per share of $0.55 for the same period a year ago. Adjusted earnings from continuing operations per diluted share was $0.35 for the first nine months of 2008, compared with diluted earnings per share of $0.62 for the first nine months of 2007. Adjusted EBITDA from continuing operations for the nine months ended September 30, 2008 was $19.6 million, a 39.1 percent decrease from adjusted EBITDA from continuing operations of $32.2 million for the same period of 2007. Conference Call Webcast Information LECG Corporation will host a conference call and live webcast to discuss these results at 5:00 p.m. Eastern time today. The webcast will be accessible through the investor relations section of the company's website, www.lecg.com. A replay of the call will be available on the company's website two hours after completion of the live broadcast. About LECG LECG, a global expert services and consulting firm, with more than 800 experts and professionals in 33 offices around the world, provides independent expert testimony, original authoritative studies, and strategic advisory and financial advisory services to clients including Fortune Global 500 corporations, major law firms, and local, state, and federal governments and agencies worldwide. LECG's highly credentialed experts and professional staff conduct economic and financial analyses to provide objective opinions and advice regarding complex disputes and to inform legislative, judicial, regulatory, and business decision makers. LECG's experts are renowned academics, former senior government officials, experienced industry leaders, and seasoned consultants. NasdaqGS:XPRT Statements in this press release concerning the future business, operating and financial condition of the company, including expectations regarding revenues and net income for the fourth quarter and subsequent periods, and statements using the terms "believes," "expects," "will," "could," "plans," "anticipates," "estimates," "predicts," "intends," "potential," "continue," "should," "may," or the negative of these terms or similar expressions are "forward looking" statements as defined in the Private Securities Litigation Reform Act of 1995. These statements are based upon management's current expectations. These statements are subject to risks and uncertainties that may cause actual results to differ materially from those expectations. Risks that may effect actual performance include dependence on key personnel, the cost and contribution of acquisitions, risks inherent in international operations, management of professional staff, dependence on growth of the company's service offerings, the company's ability to integrate new experts successfully, intense competition, and potential professional liability. Statements in this press release concerning historical segment revenue, costs of services and other operational data have been recast as if the current management and reporting structure had been in place since the beginning of all periods presented. Since the Company historically measured its business performance at a consolidated entity level and made resource allocations differently under that structure, the recast of historical segment information is not intended to represent the actual results that would have been achieved if these business segments had been managed under the new structure since the beginning of the period presented, or to be an indication of future results. Further information on these and other potential risk factors that could affect the company's financial results is included in the company's filings with the Securities and Exchange Commission. The company undertakes no obligation to update any of its forward looking statements after the date of this press release.
LECG CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share data)
(unaudited)
Three Nine
months ended months ended
September 30, September 30,
------------------- -------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Fee-based revenues, net $ 83,221 $ 92,104 $ 255,751 $ 268,103
Reimbursable revenues 2,829 4,770 9,880 14,095
--------- --------- --------- ---------
Revenues 86,050 96,874 265,631 282,198
Direct costs 55,581 59,132 169,929 176,069
Reimbursable costs 3,058 4,739 10,069 14,044
--------- --------- --------- ---------
Cost of services 58,639 63,871 179,998 190,113
Gross profit 27,411 33,003 85,633 92,085
Operating expenses:
General and administrative
expenses 21,831 20,300 65,297 63,636
Depreciation and amortization 1,498 1,764 4,459 5,439
--------- --------- --------- ---------
Operating income 4,082 10,939 15,877 23,010
Interest and other expense, net 725 145 1,416 361
--------- --------- --------- ---------
Income from continuing operations
before income taxes 3,357 10,794 14,461 22,649
Income tax provision 1,362 4,441 5,870 9,241
--------- --------- --------- ---------
Income from continuing operations 1,995 6,353 8,591 13,408
--------- --------- --------- ---------
Income from operations of
discontinued subsidiary, net of
income taxes - 187 - 618
Net income $ 1,995 $ 6,540 $ 8,591 $ 14,026
========= ========= ========= =========
Basic earnings per share:
Income from continuing operations $ 0.08 $ 0.25 $ 0.34 $ 0.54
Income from operations of
discontinued subsidiary - 0.01 - 0.02
--------- --------- --------- ---------
Basic earnings per share $ 0.08 $ 0.26 $ 0.34 $ 0.56
========= ========= ========= =========
Diluted earnings per share:
Income from continuing operations $ 0.08 $ 0.25 $ 0.34 $ 0.53
Income from operations of
discontinued subsidiary - 0.01 - 0.02
--------- --------- --------- ---------
Diluted earnings per share $ 0.08 $ 0.26 $ 0.34 $ 0.55
========= ========= ========= =========
Shares used in calculating earnings
per share
Basic 25,340 25,205 25,316 25,060
Diluted 25,526 25,570 25,528 25,511
LECG CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
September 30, December 31,
Assets 2008 2007
------------- -------------
Current assets:
Cash and cash equivalents $ 12,305 $ 21,602
Accounts receivable, net of allowance of $958
and $866 109,988 103,444
Prepaid expenses 6,919 6,156
Deferred tax assets, net 11,159 12,301
Signing, retention and performance bonuses -
current portion 14,911 16,162
Income taxes receivable 4,395 2,674
Other current assets 2,393 2,310
Note receivable - current portion 511 490
------------- -------------
Total current assets 162,581 165,139
Property and equipment, net 11,179 12,586
Goodwill 114,135 106,813
Other intangible assets, net 8,607 9,696
Signing, retention and performance bonuses -
long-term 39,397 45,523
Deferred compensation plan assets 12,394 15,599
Note receivable - long-term 2,090 2,510
Other long-term assets 5,225 1,453
------------- -------------
Total assets $ 355,608 $ 359,319
============= =============
Liabilities and stockholders' equity
Current liabilities:
Accrued compensation $ 48,196 $ 64,577
Accounts payable and other accrued
liabilities 10,661 7,856
Payable for business acquisitions - current 4,254 2,750
Deferred revenue 3,075 2,989
------------- -------------
Total current liabilities 66,186 78,172
Payable for business acquisitions - long-term 1,055 -
Deferred compensation plan obligations 11,315 15,133
Deferred tax liabilities 4,505 4,505
Deferred rent 7,156 7,718
Other long-term liabilities 400 301
------------- -------------
Total liabilities 90,617 105,829
------------- -------------
Commitments and contingencies - -
Stockholders' equity
Common stock, $.001 par value, 200,000,000
shares authorized, 25,554,228 and
25,444,678 shares outstanding at September
30, 2008 and December 31, 2007, respectively 26 25
Additional paid-in capital 170,343 166,325
Accumulated other comprehensive income 1,362 2,471
Retained earnings 93,260 84,669
------------- -------------
Total stockholders' equity 264,991 253,490
------------- -------------
Total liabilities and stockholders' equity $ 355,608 $ 359,319
============= =============
LECG CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months
ended September 30,
--------------------
2008 2007
--------- ---------
Cash flows from operating activities
Net income $ 8,591 $ 14,026
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Bad debt expense 99 141
Depreciation and amortization of property and
equipment 3,370 3,512
Amortization of intangible assets 1,089 1,942
Amortization of signing, retention and performance
bonuses 12,391 8,633
Equity-based compensation 4,900 4,367
Excess tax benefits from equity-based compensation (40) (1,199)
Non cash restructuring charges - 2,433
Other 58 (35)
Changes in assets and liabilities:
Accounts receivable (8,422) (11,924)
Signing, retention and performance bonuses paid (14,983) (19,864)
Prepaid and other current assets 401 (1,769)
Accounts payable and other accrued liabilities 3,022 (983)
Income taxes (1,550) 4,961
Accrued compensation (6,838) 1,820
Deferred revenue 258 507
Deferred compensation plan assets, net of
liabilities (613) (1,165)
Deferred rent (668) (15)
Other assets (3,913) 452
Other liabilities 282 112
--------- ---------
Net cash (used in) provided by operating
activities (2,566) 5,952
--------- ---------
Cash flows from investing activities
Business acquisitions, net of acquired cash and earn
out payments (4,736) (19,183)
Purchase of property and equipment (2,156) (3,313)
Proceeds from note receivable 399 -
Other (46) 7
--------- ---------
Net cash used in investing activities (6,539) (22,489)
--------- ---------
Cash flows from financing activities
Borrowings under revolving credit facility 55,000 10,000
Repayments under revolving credit facility (55,000) (10,000)
Proceeds from exercise of stock options 43 1,806
Excess tax benefits from equity-based compensation 40 1,199
Proceeds from issuance of stock - employee stock
purchase plan 66 110
Other - 59
--------- ---------
Net cash provided by financing activities 149 3,174
--------- ---------
Effect of exchange rates on changes in cash (341) 422
--------- ---------
Decrease in cash and cash equivalents (9,297) (12,941)
Cash and cash equivalents, beginning of year 21,602 26,489
--------- ---------
Cash and cash equivalents, end of period $ 12,305 $ 13,548
========= =========
Supplemental disclosure
Cash paid for interest $ 381 $ 230
========= =========
Cash paid for income taxes $ 7,327 $ 3,878
========= =========
LECG CORPORATION
SEGMENT OPERATING RESULTS
($ in thousands, except rate amounts)
(unaudited)
Three months ended September 30,
----------------------------------------------------------
2008 2007
----------------------------------------------------------
Finance Finance
and and
Account- Account-
Economics ing Total Economics ing Total
-------- -------- -------- -------- -------- --------
Fee-based
revenues, net $ 36,658 $ 46,563 $ 83,221 $ 41,040 $ 51,064 $ 92,104
Reimbursable
revenues 745 2,084 2,829 1,360 3,410 4,770
-------- -------- -------- -------- -------- --------
Revenues $ 37,403 $ 48,647 $ 86,050 $ 42,400 $ 54,474 $ 96,874
Direct costs,
less
restructuring
charges $ 23,525 $ 32,056 $ 55,581 $ 27,331 $ 31,801 $ 59,132
Restructuring
charges - - - - - -
Reimbursable
costs 945 2,113 3,058 1,368 3,371 4,739
-------- -------- -------- -------- -------- --------
Gross profit $ 12,933 $ 14,478 $ 27,411 $ 13,701 $ 19,302 $ 33,003
Direct profit
margin (1) 35.8% 31.2% 33.2% 33.4% 37.7% 35.8%
Gross margin 34.6% 29.8% 31.9% 32.3% 35.4% 34.1%
Operating
statistics
Paid days 66 66 66 65 65 65
Billable
headcount,
period end 298 503 801 315 547 862
Billable
headcount,
period average 296 490 786 314 562 876
Billable FTEs,
period average
(2) 241 379 620 281 447 728
Average
billable rate $ 358 $ 319 $ 335 $ 337 $ 292 $ 310
Paid
utilization
rate of
billable FTEs
(3) 80.6% 73.0% 75.9% 83.4% 75.2% 78.4%
Expert
headcount,
period end 121 208 329 122 194 316
Expert FTEs,
period average
(2) 64 110 174 90 117 207
Jr/SR staff
paid
utilization
rate (3) 78.2% 72.9% 75.0% 80.0% 74.0% 76.2%
Nine months ended September 30,
----------------------------------------------------------
2008 2007
----------------------------------------------------------
Finance Finance
and and
Account- Account-
Economics ing Total Economics ing Total
-------- -------- -------- -------- -------- --------
Fee-based
revenues, net $114,280 $141,471 $255,751 $116,197 $151,906 $268,103
Reimbursable
revenues 3,558 6,322 9,880 4,272 9,823 14,095
-------- -------- -------- -------- -------- --------
Revenues $117,838 $147,793 $265,631 $120,469 $161,729 $282,198
Direct costs,
less
restructuring
charges $ 74,557 $ 95,372 $169,929 $ 77,810 $ 95,185 $172,995
Restructuring
charges - - - 200 2,874 3,074
Reimbursable
costs 3,818 6,251 10,069 4,234 9,810 14,044
-------- -------- -------- -------- -------- --------
Gross profit $ 39,463 $ 46,170 $ 85,633 $ 38,225 $ 53,860 $ 92,085
Direct profit
margin (1) 34.8% 32.6% 33.6% 33.0% 37.3% 35.5%
Gross margin 33.5% 31.2% 32.2% 31.7% 33.3% 32.6%
Operating
statistics
Paid days 195 195 195 195 195 195
Billable
headcount,
period end 298 503 801 315 547 862
Billable
headcount,
period average 301 486 786 314 618 932
Billable FTEs,
period average
(2) 250 387 637 273 484 757
Average
billable rate $ 364 $ 320 $ 338 $ 337 $ 285 $ 305
Paid
utilization
rate of
billable FTEs
(3) 80.5% 73.3% 76.1% 81.0% 70.7% 74.4%
Expert
headcount,
period end 121 208 329 122 194 316
Expert FTEs,
period average
(2) 68 112 180 89 120 209
Jr/SR staff
paid
utilization
rate (3) 77.7% 72.1% 74.3% 77.4% 68.7% 71.7%
(1) Fee-based revenues, net less direct costs before restructuring charges
as a percentage of fee-based revenues, net.
(2) Full Time Equivalents (FTEs) are calculated by dividing actual total
paid hours in the period by the number of paid days in the period
times eight hours per day, assuming a forty-hour work week or 2,080
paid hours per year.
(3) Paid utilization rate is calculated by dividing the actual number of
billed hours in the period by the actual number of paid hours in the
period, assuming a forty-hour work week or 2,080 paid hours per year.
LECG CORPORATION
RECONCILIATION OF NON-GAAP MEASURES
($ in thousands, except per share data)
Three Nine
months ended months ended
September 30, September 30,
-------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Fee-based revenues, net $ 83,221 $ 92,104 $ 255,751 $ 268,103
Direct costs 55,581 59,132 169,929 176,069
Adjustment to direct costs of
services
Restructuring charges - - - (3,074)
--------- --------- --------- ---------
Direct profit $ 27,640 $ 32,972 $ 85,822 $ 95,108
========= ========= ========= =========
Direct profit margin (4) 33.2% 35.8% 33.6% 35.5%
Three Nine
months ended months ended
September 30, September 30,
-------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Net income $ 1,995 $ 6,540 $ 8,591 $ 14,026
Income from operations of
discontinued subsidiary, net
of income taxes - (187) - (618)
--------- --------- --------- ---------
Income from continuing
operations 1,995 6,353 8,591 13,408
Adjustments to net income
Deferred compensation plan 577 100 998 162
Restructuring charges
(benefit) (500) - (500) 3,946
Income tax provision (5) (31) (41) (202) (1,664)
--------- --------- --------- ---------
Adjusted income from continuing
operations (6) $ 2,041 $ 6,412 $ 8,887 $ 15,852
========= ========= ========= =========
Adjusted income from continuing
operations per
diluted share (6) $ 0.08 $ 0.25 $ 0.35 $ 0.62
Shares used in calculating
earnings per share
Diluted 25,526 25,570 25,528 25,511
Three Nine
months ended months ended
September 30, September 30,
-------------------- --------------------
2008 2007 2008 2007
--------- --------- --------- ---------
Net income $ 1,995 $ 6,540 $ 8,591 $ 14,026
Income from operations of
discontinued subsidiary, net
of income taxes - (187) - (618)
--------- --------- --------- ---------
Income from continuing
operations 1,995 6,353 8,591 13,408
Income tax provision 1,362 4,441 5,870 9,241
Interest expense, net 9 (24) 184 (24)
Depreciation and amortization 1,498 1,764 4,459 5,439
--------- --------- --------- ---------
EBITDA from continuing
operations (7) 4,864 12,534 19,104 28,064
Adjustments to EBITDA from
continuing operations
Deferred compensation plan 577 100 998 162
Restructuring charges
(benefit) (500) - (500) 3,946
--------- --------- --------- ---------
Adjusted EBITDA from continuing
operations (7) $ 4,941 $ 12,634 $ 19,602 $ 32,172
========= ========= ========= =========
(4) Fee-based revenues, net less direct costs before restructuring charges
as a percentage of fee-based revenues, net.
(5) Assumes a 40.6% and 40.5% tax rate in the quarter and nine months
ended September 30, 2008 and 2007, respectively.
(6) Adjusted income from continuing operations and adjusted income from
continuing operations per diluted share are non-GAAP financial
measures. Adjusted income from continuing operations excludes
restructuring charges relating to the implementation of the 2007
value recovery plan and charges related to market fluctuations in the
value of deferred compensation plan investments. Adjusted income
from continuing operations per diluted share is calculated using
adjusted income from continuing operations divided by diluted
shares. The Company regards adjusted income from continuing
operations and adjusted income from continuing operations per diluted
share as useful measures of financial performance of the business.
Generally, a non-GAAP financial measure is a numerical measure of a
company's performance, financial position or cash flow that either
excludes or includes amounts that are not normally excluded or
included in the most directly comparable measure calculated and
presented in accordance with GAAP. This measure, however, should be
considered in addition to, and not as a substitute or superior to,
operating income, cash flows, or other measures of financial
performance prepared in accordance with GAAP.
(7) EBITDA from continuing operations and Adjusted EBITDA from
continuing operations are non-GAAP financial measures. EBITDA from
continuing operations is defined as income from continuing operations
before provision for income tax, interest, and depreciation and
amortization. Adjusted EBITDA from continuing operations excludes
restructuring charges relating to implementation of the 2007 value
recovery plan and charges related to market fluctuations in the value
of deferred compensation plan investments. The Company regards EBITDA
from continuing operations and Adjusted EBITDA from continuing
operations as useful measures of financial performance of the
business. Generally, a non-GAAP financial measure is a numerical
measure of a company's performance, financial position or cash flow
that either excludes or includes amounts that are not normally
excluded or included in the most directly comparable measure
calculated and presented in accordance with GAAP. This measure,
however, should be considered in addition to, and not as a substitute
or superior to, operating income, cash flows, or other measures of
financial performance prepared in accordance with GAAP.Contact: Investor Contacts
Steven R. Fife
Chief Financial Officer
510-985-6700
Brooke Deterline
Investor Relations
415-775-1788
investor@lecg.com
Source: LECG
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