Published:
LECG Corporation Reports Third Quarter 2007 Results
Strong Client Demand Boosts Revenue Growth to 9%
Recovery Efforts on Track and Contribute to EPS of $0.26
LECG Corporation (NASDAQ: XPRT), a global
expert services firm, today reported financial results for the third
quarter and nine months ended September 30, 2007.
Third Quarter Financial Results
Revenues for the third quarter of 2007 increased 9.0 percent to $99.7
million from $91.4 million in the third quarter of 2006. Expert and
professional staff revenues increased 11.3 percent over the same period.
Organic growth of expert and professional staff revenues was 8.7 percent.
Reimbursable expenses decreased 21.7 percent to $4.7 million from $6.0
million in the third quarter of 2006.
Net income was $6.5 million in the third quarter of 2007, 6.1 percent
higher than net income of $6.2 million in the third quarter of last year.
Net income per diluted share was $0.26, compared with net income per
diluted share of $0.24 in the same period a year ago. Average diluted
shares outstanding were 25.6 million for the third quarter of 2007 compared
with 25.3 million for the same period in 2006.
EBITDA(2) for the third quarter of 2007 was $12.9 million, a 5.8 percent
increase from EBITDA of $12.1 million for the third quarter of 2006.
Michael Jeffery, LECG chief executive officer, commented, "LECG's third
quarter results exceeded our expectations. Strong client demand at the end
of the quarter helped us achieve better than anticipated revenues on both
lower expert and professional staff headcount. Professional staff
utilization was also strong."
Mr. Jeffery continued, "We believe our third quarter results reflect
sustainable benefits from implementing management's recovering value plan.
Further improvements in gross margin are achievable as we better manage our
available resources and increase overall leverage. We are committed to
delivering stronger financial performance."
Operating Metrics
As of September 30, 2007, LECG had 1,151 employees and exclusive
independent contractors compared with 1,189 as of June 30, 2007. Expert
headcount was 317, a decrease of 5.7 percent compared with 336 as of June
30, 2007. Professional staff headcount decreased 2.3 percent to 546 from
559 as of June 30, 2007.
Nine Month Financial Results
Revenues for the nine months ended September 30, 2007 increased 9.6 percent
to $290.4 million from $264.9 million for the same period in 2006. Expert
and professional staff revenues increased 10.3 percent. Reimbursable
expenses were $13.7 million compared with $13.8 million in the first nine
months of 2006.
Net income for the nine months ended September 30, 2007 was $14.0 million,
21.9 percent lower than net income of $17.9 million reported for the same
period last year. Net income per diluted share for the first nine months of
2007 was $0.55, including restructuring charges of $0.09, compared with net
income per diluted share of $0.71 for the same period a year ago. Average
diluted shares outstanding increased to 25.5 million for the nine months
ended September 30, 2007 from 25.2 million for the same period in 2006.
During the nine months ended September 30, 2007, the company took
restructuring charges of $3.9 million, or $0.09 per fully diluted share. Of
this amount, $2.4 million was related to non-cash items.
EBITDA(2) for the nine months ended September 30, 2007 was $29.1 million, a
16.5 percent decrease from EBITDA of $34.9 million in the same period of
2006. Adjusted EBITDA(3) was $33.1 million for the first nine months of
2007, a decrease of 6.1 percent over the prior year period.
Confirms Fourth Quarter 2007 Outlook
For the fourth quarter ending December 31, 2007, LECG anticipates revenues
will be in the range of $95 million to $98 million and that net income per
diluted share will be in the range of $0.24 to $0.26, consistent with
previously provided fourth quarter guidance. These figures are exclusive of
any fourth quarter restructuring charges that the company may incur as it
continues to implement its value recovery plan.
Incorporating the third quarter results, LECG anticipates revenues for the
full year 2007 will be in the range of $385 million to $388 million and net
income per diluted share will be in the range of $0.80 to $0.82, including
$0.09 of restructuring expense related to implementation of the recovery
plan incurred in the first nine months of the year.
Mr. Jeffery stated, "In the fourth quarter, LECG's management team expects
to finalize the incentive compensation programs, conclude the strategic
planning process, and complete the operational plan for 2008. We are
cautiously optimistic about the progress we have made to date and believe
we are on track to enter 2008 with a focused and nimble operational base, a
manageable business model that delivers an attractive return to our
shareholders, and a solid platform for profitable growth."
Board of Directors Appoints New Member
In a separate press release issued today, LECG announced that its board of
directors has appointed Alison Davis as a new member. The board also voted
to increase the number of board directors to nine. With the appointment of
Ms. Davis, there are currently eight members on the board.
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 firm with more than 850 experts and
professionals in 32 offices around the world, provides independent expert
testimony, original authoritative studies, and strategic 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 that help resolve complex
disputes and inform legislative, judicial, regulatory, and business
decision makers. LECG's experts are renowned academics, former senior
government officials, experienced industry leaders, and seasoned
consultants. (NASDAQ: 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 remainder of 2007, 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. 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
For the Quarter and Nine months ended September 30, 2007 and 2006
(in thousands, except per share data)
(Unaudited)
Quarter ended Nine Months ended
September 30, September 30,
--------------------- --------------------
2007 2006 (1) 2007 2006 (1)
---------- ---------- ---------- ---------
Revenues $ 99,650 $ 91,390 $ 290,434 $ 264,904
Cost of services 65,893 60,140 195,813 175,462
---------- ---------- ---------- ---------
Gross profit 33,757 31,250 94,621 89,442
Operating expenses:
General and administrative
expenses 20,736 18,955 65,115 54,308
Depreciation and amortization 1,767 1,824 5,453 5,013
---------- ---------- ---------- ---------
Operating income 11,254 10,471 24,053 30,121
Interest and other expense
(income), net 144 109 361 (44)
---------- ---------- ---------- ---------
Income before income tax 11,110 10,362 23,692 30,165
Income tax provision 4,570 4,197 9,666 12,217
---------- ---------- ---------- ---------
Net income $ 6,540 $ 6,165 $ 14,026 $ 17,948
========== ========== ========== =========
Net income per share:
Basic $ 0.26 $ 0.25 $ 0.56 $ 0.74
Diluted $ 0.26 $ 0.24 $ 0.55 $ 0.71
Share amounts:
Basic 25,205 24,371 25,060 24,261
Diluted 25,570 25,268 25,511 25,175
(1) As revised in our 2006 Form 10-K to reflect the correction of errors
noted in accordance with SAB 108.
LECG CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(Unaudited)
September 30, December 31,
Assets 2007 2006
------------- -------------
Current assets:
Cash and cash equivalents $ 13,548 $ 26,489
Accounts receivable, net of allowance of
$833 and $906 120,798 107,585
Prepaid expenses 5,852 5,092
Deferred tax assets, net 3,140 3,877
Signing and performance bonuses - current
portion 10,807 9,545
Income taxes receivable 2,327 5,481
Other current assets 5,133 2,494
------------- -------------
Total current assets 161,605 160,563
Property and equipment, net 13,606 13,701
Goodwill 113,423 101,960
Other intangible assets, net 10,169 9,855
Signing and performance bonuses - long-term 29,012 28,265
Deferred compensation plan assets 14,940 10,925
Other long-term assets 1,512 1,884
------------- -------------
Total assets $ 344,267 $ 327,153
============= =============
Liabilities and stockholders' equity
Current liabilities:
Accrued compensation $ 47,627 $ 50,852
Accounts payable and other accrued
liabilities 6,948 8,011
Payable for business acquisitions - current
portion 6,104 11,372
Deferred revenue 3,402 2,487
------------- -------------
Total current liabilities 64,081 72,722
Payable for business acquisitions - long-term 2,000 2,178
Deferred compensation plan obligations 14,399 11,550
Deferred tax liabilities 1,850 1,851
Other long-term liabilities 7,726 7,738
Commitments and contingencies
Stockholders' equity
Common stock, $.001 par value, 200,000,000
shares authorized, 25,320,143 and 24,907,072
shares outstanding at September 30, 2007 and
December 31, 2006, respectively 25 25
Additional paid-in capital 164,457 156,900
Accumulated other comprehensive income 2,394 880
Retained earnings 87,335 73,309
------------- -------------
Total stockholders' equity 254,211 231,114
------------- -------------
Total liabilities and stockholders' equity $ 344,267 $ 327,153
============= =============
LECG CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Period ended September 30, 2007 and 2006
(in thousands)
(Unaudited)
Nine months ended
September 30,
------------------------
2007 2006 (1)
----------- -----------
Cash flows from operating activities
Net income $ 14,026 $ 17,948
Adjustments to reconcile net income to net
cash provided by (used in) operating
activities:
Bad debt expense 141 222
Depreciation and amortization of property and
equipment 3,512 2,637
Amortization of other intangibles 1,942 2,376
Signing and performance bonuses paid (19,864) (18,034)
Amortization of signing and performance
bonuses 8,633 6,286
Non cash restructuring charge 2,433 -
Tax benefit from option exercises and equity
compensation plans 735 281
Equity-based compensation 4,367 4,930
Deferred rent (15) 198
Other (35) (8)
Changes in assets and liabilities:
Accounts receivable (13,354) (22,794)
Prepaid and other current assets (1,884) 1,152
Accounts payable and other accrued liabilities (800) 1,773
Income taxes 3,096 (4,261)
Accrued compensation 1,996 2,234
Deferred revenue 531 163
Deferred compensation plan assets, net of plan
obligations (1,165) 283
Other assets 453 167
Other liabilities 112 1,745
----------- -----------
Net cash provided by (used in) operating
activities 4,860 (2,702)
----------- -----------
Cash flows from investing activities
Business acquisitions, net of acquired cash (19,183) (21,900)
Purchases of property and equipment (3,313) (4,796)
Other 7 39
----------- -----------
Net cash used in investing activities (22,489) (26,657)
----------- -----------
Cash flows from financing activities
Borrowings from revolving credit facility 10,000 25,000
Repayments under revolving credit facility (10,000) (15,000)
Exercise of stock options 1,806 2,284
Proceeds from issuance of stock - employee
stock plan 110 160
Tax benefit from option exercises and equity
compensation plans 1,199 784
Other 59 -
----------- -----------
Net cash provided by financing activities 3,174 13,228
Effect of exchange rates on changes in cash 1,514 867
----------- -----------
Decrease in cash and cash equivalents (12,941) (15,264)
Cash and cash equivalents, beginning of year 26,489 35,722
----------- -----------
Cash and cash equivalents, end of period 13,548 20,458
=========== ===========
Supplemental disclosure
Cash paid for interest $ 230 $ 238
=========== ===========
Cash paid for income taxes $ 3,878 $ 15,898
=========== ===========
Non cash investing and financing activities
Fair value of common stock issued for
acquisitions $ - $ 250
=========== ===========
(1) As revised in our 2006 Form 10-K to reflect the correction of errors
noted in accordance with SAB 108.
LECG CORPORATION
Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
For the Quarter and Nine months ended September 30, 2007 and 2006
(in thousands)
Quarter ended Nine Months ended
September 30, September 30,
------------------ ------------------
2007 2006 2007 2006
-------- -------- -------- --------
Net income $ 6,540 $ 6,165 $ 14,026 $ 17,948
Provision for income tax expense 4,570 4,197 9,666 12,217
Interest expense (income), net (24) (38) (24) (292)
Depreciation and amortization
expense 1,767 1,824 5,453 5,013
-------- -------- -------- --------
EBITDA (2) 12,853 12,148 29,121 34,886
-------- -------- -------- --------
Adjustments to EBITDA
Expensed acquisition costs - - - 317
Restructuring charges - - 3,946 -
-------- -------- -------- --------
EBITDA (3) $ 12,853 $ 12,148 $ 33,067 $ 35,203
======== ======== ======== ========
(2) EBITDA is a non-GAAP financial measure defined as net income before
provision for income tax, interest, and depreciation and amortization.
The company regards EBITDA as a useful measure 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 alternative or
superior to, operating income, cash flows, or other measures of
financial performance prepared in accordance with GAAP.
(3) Adjusted EBITDA is a non-GAAP financial measure defined by the company
as EBITDA as defined in (2) above adjusted for restructuring expenses
relating to implementation of the value recovery plan in 2007, and
expensed acquisition costs recognized in the first quarter of 2006. As
is the case with EBITDA, this measure 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.
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