Epiq Systems, Inc. Announces Second Quarter 2008 Results - Reporting 49% Operating...

Epiq Systems, Inc. Announces Second Quarter 2008 Results - Reporting 49% Operating Revenue Growth

KANSAS CITY, Kan.--(Business Wire)--
Epiq Systems, Inc. (NASDAQ: EPIQ) today announced results of
operations for the second quarter of 2008 with operating revenue
(total revenue before operating revenue from reimbursed direct costs)
of $56.9 million, up 49% compared to $38.2 million for the same period
last year. June 30, 2008 year-to-date operating revenue was $100.8
million, up 38% compared to $73.3 million for the prior year.

Net income for the second quarter of 2008 was $3.2 million, $0.08
per share, up 78% compared to $1.8 million, $0.06 per share, for the
year ago quarter. June 30, 2008 year-to-date net income was $5.8
million, $0.15 per share, up 205% compared to $1.9 million, $0.06 per
share, for the prior year.

Second quarter 2008 net cash provided by operating activities was
$7.3 million, up 22% compared to $6.0 million for the year ago
quarter. June 30, 2008 year-to-date net cash provided by operations
was $15.1 million compared to $14.9 million for the prior year. A
condensed consolidated cash flow statement is attached.

Epiq Systems' management also evaluates the following non-GAAP
financial measures: (i) non-GAAP net income (net income adjusted for
amortization of acquisition-related intangibles, share-based
compensation, realized cash gains on financial instruments, non-cash
mark-to-market adjustments, acquisition-related expenses, the effect
of tax adjustments which are outside of the company's anticipated
effective tax rate, and capitalized loan fee amortization, all net of
tax), and (ii) non-GAAP adjusted EBITDA (net income adjusted for
interest/financing, taxes, depreciation, amortization, share-based
compensation, realized cash gains on financial instruments, non-cash
mark-to-market adjustments, and acquisition-related expenses).
Reconciliation statements for non-GAAP financial measures are provided
below.

Non-GAAP net income for the second quarter of 2008 was $5.9
million, $0.15 per share, up 40% compared to $4.2 million, $0.12 per
share, for the year ago quarter. June 30, 2008 year-to-date non-GAAP
net income was $11.3 million, $0.29 per share, up 47% compared to $7.7
million, $0.23 per share, for the prior year.

Second quarter 2008 non-GAAP adjusted EBITDA was $14.3 million, up
16% compared to $12.3 million for the year ago quarter. June 30, 2008
year-to-date non-GAAP adjusted EBITDA was $27.5 million, up 17%
compared to $23.6 million for the prior year.

Operating revenue for the Electronic Discovery segment for the
second quarter of 2008 was $16.3 million, up 34% compared to $12.2
million for the year ago quarter. June 30, 2008 year-to-date operating
revenue was $29.5 million, up 32% compared to $22.3 million in the
prior year. New client engagements combined with increased work for
existing clients and continued expansion of the international business
contributed to the increases in operating revenues. Second quarter
2008 Non-GAAP adjusted EBITDA for Electronic Discovery was $8.1
million, up 25% compared to $6.5 million for the year ago quarter.
June 30, 2008 year-to-date non-GAAP adjusted EBITDA was $14.5 million,
up 24% compared to $11.7 million in the prior year.

Operating revenue for the Bankruptcy segment for the second
quarter of 2008 was $12.5 million, compared to $16.0 million for the
year ago quarter. June 30, 2008 year-to-date operating revenue was
$25.9 million, compared to $31.0 million in the prior year. Changes in
revenue are related primarily to the application of Chapter 7 pricing
formulas that reference short-term interest rates as well as
fluctuations in Chapter 7 bankruptcy deposits due to prior periods
with lower new case filing activity. Market share exhibited continuing
strength and retention of existing clients remains extremely high. As
reported by the Administrative Office of the U.S. Courts, bankruptcy
filings increased 27% during the first 3 months of 2008 vs. the same
period in 2007. Continued increases in bankruptcy filings and
potential increases in short-term interest rates would have a positive
effect on future bankruptcy revenue. Non-GAAP adjusted EBITDA was $6.1
million for the second quarter of 2008 and $9.4 million for the year
ago quarter. June 30, 2008 year-to-date non-GAAP adjusted EBITDA was
$16.9 million compared to $18.5 million in the prior year.

Operating revenue for the Settlement Administration segment for
the second quarter of 2008 was $28.2 million compared to $9.9 million
in the year ago quarter. June 30, 2008 year-to-date operating revenue
was $45.5 million compared to $19.9 million in the prior year.
Non-GAAP adjusted EBITDA was $6.1 million for the second quarter of
2008 compared to $1.4 million for the year ago quarter. June 30, 2008
year-to-date non-GAAP adjusted EBITDA was $6.8 million, compared to
$3.0 million in the prior year. The increases in both operating
revenue and non-GAAP adjusted EBITDA are related to new client
activity. New client engagements under contract have been strong since
the beginning of the year and contribute to the backlog that will be
worked off in future periods.

Tom W. Olofson, chairman and CEO, and Christopher E. Olofson,
president and COO of Epiq Systems stated, "We are pleased to report a
very strong second quarter, and we remain on track to achieve our full
year objectives. Major new client engagements contributed to operating
results in every segment. Electronic discovery continues to exhibit
strong growth, and we witnessed a record quarter for settlement
administration. The reduced profit contribution from the bankruptcy
segment is related primarily to Chapter 7 pricing tied to short-term
interest rate changes. Market share remains very strong throughout
bankruptcy, and we have the leading share of new corporate
restructuring engagements for the year."

Recent key events include:

-- Epiq Systems ranks as a top five provider for both e-discovery
processing and e-discovery review solutions on the 2008
Socha-Gelbmann Survey.

-- We completed the UK acquisition of Pinpoint Global, Ltd., an
emerging provider of proprietary electronic discovery and
electronic disclosure solutions.

-- 47 of the top 50 global law firms have active relationships
with Epiq Systems.

-- 2008 year-to-date corporate restructuring bankruptcy
engagements increased by more than 145% compared to the same
period last year.

-- Total bankruptcy filings have increased for each of the past
eight quarters. Over 900,000 bankruptcies were filed for the
twelve month period ending March 31, 2008.

-- The Federal Reserve reported that both corporate debt and
consumer credit increased compared to the prior year, reaching
$6.5 trillion and $2.6 trillion, respectively, as of March 31,
2008.

Conference Call

The company will host a conference call today at 3:30 p.m. central
time to discuss these results. The internet broadcast of the call can
be accessed at www.epiqsystems.com. To listen by phone, call (888)
459-5609 before 3:30 p.m. central time. The archive of the internet
broadcast will be available on the company's website until the next
earnings update. A recording of the call will be available through
August 31, 2008 beginning approximately two hours after the call ends.
To access the replay, call (800) 642-1687 and enter conference ID
number 56037836.

Company Description

Epiq Systems is a leading provider of integrated technology
solutions for the legal profession. Our solutions streamline the
administration of bankruptcy, litigation, financial transactions and
regulatory compliance matters. We offer innovative technology
solutions for electronic discovery, document review, legal
notification, claims administration and controlled disbursement. Our
clients include leading law firms, corporate legal departments,
bankruptcy trustees and other professional advisors who require
innovative technology, responsive service and deep subject-matter
expertise. For more information, visit us online at
www.epiqsystems.com.

Forward-looking and Cautionary Statements

This press release contains forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933 and Section 21E
of the Securities Exchange Act, including those relating to the
possible or assumed future results of our operations and financial
condition. These forward-looking statements are based on our current
expectations and may be identified by terms such as "believe,"
"expect," "anticipate," "should," "planned," "may," "goal,"
"objective" and "potential." 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)
any material changes in our total number of client engagements and the
volume associated with each engagement, (2) any material changes in
our client's deposit portfolio or the services required or selected by
our clients in engagements, (3) material changes in the number of
bankruptcy filings, class action filings or mass tort actions each
year, (4) risks associated with handling of confidential data and
compliance with information privacy laws, (5) changes in or the
effects of pricing structures and arrangements, (6) risks associated
with the integration of acquisitions into our existing business
operations, (7) risks associated with our indebtedness, (8) risks
associated with the application of complex accounting rules to unique
transactions, including the risk that good faith application of those
rules and audits of those results may be later reversed by new
interpretations of those rules or new views regarding the application
of those rules, and (9) other risks detailed from time to time in our
SEC filings, including our annual report on Form 10-K. In addition,
there may be other factors not included in our SEC filings that may
cause actual results to differ materially from any forward-looking
statements. We undertake no obligations to update any forward-looking
statements contained herein to reflect future events or developments.

-0-
*T
EPIQ SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data)
(Unaudited)

Three months ended Six months ended
June 30, June 30,
------------------ -----------------
2008 2007 2008 2007
--------- -------- -------- --------

REVENUE:
Case management services $35,928 $23,702 $64,724 $44,534
Case management bundled
products and services 4,463 6,733 9,754 13,412
Document management services 16,546 7,736 26,360 15,321
--------- -------- -------- --------
Operating revenue before
reimbursed direct costs 56,937 38,171 100,838 73,267
Operating revenue from
reimbursed direct costs 7,905 6,035 13,014 12,068
--------- -------- -------- --------
Total Revenue 64,842 44,206 113,852 85,335
--------- -------- -------- --------

OPERATING EXPENSES:
Direct costs of services 24,438 10,415 43,264 20,746
Direct costs of services -
bundled 908 898 1,855 1,784
Reimbursed direct costs 7,880 6,010 13,002 12,032
General and administrative 18,221 15,252 33,300 28,177
Depreciation and software and
leasehold amortization 3,853 2,837 7,563 5,798
Amortization of identifiable
intangible assets 2,325 2,352 4,603 4,876
Other operating expense
(income) 859 - (1,512) -
--------- -------- -------- --------
Total Operating Expenses 58,484 37,764 102,075 73,413
--------- -------- -------- --------

INCOME FROM OPERATIONS 6,358 6,442 11,777 11,922
--------- -------- -------- --------

EXPENSE (INCOME) RELATED TO
FINANCING:
Interest income (36) (25) (180) (32)
Interest expense 441 3,345 932 8,447
--------- -------- -------- --------
Net Expenses Related To
Financing 405 3,320 752 8,415
--------- -------- -------- --------

INCOME BEFORE INCOME TAXES 5,953 3,122 11,025 3,507

PROVISION FOR INCOME TAXES 2,799 1,328 5,214 1,563
--------- -------- -------- --------

NET INCOME $3,154 $1,794 $5,811 $1,944
========= ======== ======== ========

NET INCOME PER SHARE
INFORMATION:
Net income per share -
Diluted $0.08 $0.06 $0.15 $0.06
========= ======== ======== ========

WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING - DILUTED 41,634 31,980 41,510 31,458
========= ======== ======== ========
*T

-0-
*T
EPIQ SYSTEMS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands)
(Unaudited)

June 30, December 31,
2008 2007
----------- -------------
ASSETS
ASSETS:
Cash and cash equivalents $11,229 $13,415
Trade accounts receivable, net 50,483 33,925
Property and equipment, net 37,452 32,403
Goodwill 264,330 260,684
Other intangibles, net 31,935 34,310
Other 18,111 18,057
----------- -------------

Total Assets $413,540 $392,794
=========== =============

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Accounts payable $18,854 $7,401
Indebtedness 58,282 61,592
Other liabilities 43,874 40,119
STOCKHOLDERS' EQUITY 292,530 283,682
----------- -------------

Total Liabilities and Stockholders' Equity $413,540 $392,794
=========== =============
*T

-0-
*T
EPIQ SYSTEMS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)

Three months ended Six months ended
June 30, June 30,
------------------ -----------------
2008 2007 2008 2007
--------- -------- -------- --------

CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $3,154 $1,794 $5,811 $1,944
Non-cash adjustments to net
income:
Depreciation and
amortization 6,178 5,189 12,166 10,674
Other, net 252 1,403 1,477 2,869
Changes in operating assets
and liabilities, net (2,269) (2,387) (4,321) (624)
--------- -------- -------- --------
Net cash provided by
operating activities 7,315 5,999 15,133 14,863
--------- -------- -------- --------

CASH FLOWS FROM INVESTING
ACTIVITIES:
Cash acquired from (paid for)
business combinations, net (4,712) - (4,712) -
Property and equipment,
software, other (4,110) (3,846) (11,441) (7,062)
--------- -------- -------- --------
Net cash used in investing
activities (8,822) (3,846) (16,153) (7,062)
--------- -------- -------- --------

CASH FLOWS FROM FINANCING
ACTIVITIES:
Net payments on indebtedness (2,016) (9,320) (2,622) (17,932)
Net proceeds from issuance of
stock 980 5,606 1,429 8,192
Other (12) 404 27 441
--------- -------- -------- --------
Net cash used in financing
activities (1,048) (3,310) (1,166) (9,299)
--------- -------- -------- --------

NET DECREASE IN CASH
AND CASH EQUIVALENTS $(2,555) $(1,157) $(2,186) $(1,498)
========= ======== ======== ========
*T

-0-
*T
EPIQ SYSTEMS, INC.
RECONCILIATION OF NET INCOME TO
NON-GAAP ADJUSTED EBITDA
(In thousands)
(Unaudited)

Three months ended Six months ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
--------- --------- --------- ---------

NET INCOME $3,154 $1,794 $5,811 $1,944

Acquisition related
expenses 859 - 859 -
Depreciation and
amortization 6,178 5,189 12,166 10,674
Share-based compensation 872 703 1,396 1,014
Expenses related to
financing, net 405 3,320 752 8,415
Realized gain on interest
rate floors - - 1,273 -
Provision for income taxes 2,799 1,328 5,214 1,563
--------- --------- --------- ---------
11,113 10,540 21,660 21,666
--------- --------- --------- ---------

NON-GAAP ADJUSTED EBITDA $14,267 $12,334 $27,471 $23,610
========= ========= ========= =========
*T

-0-
*T
EPIQ SYSTEMS, INC.
BANKRUPTCY SEGMENT
RECONCILIATION OF SEGMENT PERFORMANCE MEASURE TO
NON-GAAP ADJUSTED EBITDA
(In thousands)
(Unaudited)

Three months ended Six months ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
--------- --------- --------- ---------

SEGMENT PERFORMANCE MEASURE $6,141 $9,400 $13,439 $18,513

Realized gain on interest
rate floors - - 3,465 -
--------- --------- --------- ---------

NON-GAAP ADJUSTED EBITDA $6,141 $9,400 $16,904 $18,513
========= ========= ========= =========
*T

-0-
*T
EPIQ SYSTEMS, INC.
RECONCILIATION OF NET INCOME TO
NON-GAAP NET INCOME
(In thousands)
(Unaudited)

Three months ended Six months ended
------------------ ------------------
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
--------- -------- -------- ---------

NET INCOME $3,154 $1,794 $5,811 $1,944

Plus (net of tax):
Amortization of acquisition
intangibles 1,407 1,423 2,785 2,950
Share-based compensation 546 444 891 665
Acquisition related expense 520 - 520 -
Effective tax rate 418 (2) 804 65
Loan fee amortization 80 216 160 454
Mark-to-market adjustments (244) 314 (487) 1,609
Realized gain on interest
rate floors - - 770 -
--------- -------- -------- ---------
2,727 2,395 5,443 5,743
--------- -------- -------- ---------

NON-GAAP NET INCOME $5,881 $4,189 $11,254 $7,687
========= ======== ======== =========
*T

-0-
*T
EPIQ SYSTEMS, INC.
RECONCILIATION OF EPS TO
NON-GAAP EPS
(Unaudited)

Three months ended Six months ended
------------------- ------------------
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
--------- --------- -------- ---------

EPS (on a diluted basis) $0.08 $0.06 $0.15 $0.06

Plus (net of tax):
Amortization of acquisition
intangibles 0.04 0.03 0.08 0.09
Share-based compensation 0.02 0.01 0.02 0.02
Acquisition related expense 0.01 - 0.01 -
Effective tax rate 0.01 - 0.02 -
Loan fee amortization - 0.01 - 0.01
Mark-to-market adjustments (0.01) 0.01 (0.01) 0.05
Realized gain on interest
rate floors - - 0.02 -
--------- --------- -------- ---------
0.07 0.06 0.14 0.17
--------- --------- -------- ---------

NON-GAAP EPS (on a diluted
basis) $0.15 $0.12 $0.29 $0.23
========= ========= ======== =========
*T

-0-
*T
EPIQ SYSTEMS, INC.
OPERATING REVENUE
(In thousands)
(Unaudited)

Three months ended Six months ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
--------- --------- --------- ---------

Electronic Discovery $16,278 $12,224 $29,516 $22,336
Bankruptcy 12,498 16,004 $25,862 $31,047
Settlement Administration 28,161 9,943 45,460 19,884
--------- --------- --------- ---------

OPERATING REVENUE BEFORE
REIMBURSED DIRECT COSTS $56,937 $38,171 $100,838 $73,267
========= ========= ========= =========
*T

-0-
*T
EPIQ SYSTEMS, INC.
NON-GAAP ADJUSTED EBITDA
(In thousands)
(Unaudited)

Three months ended Six months ended
------------------ -----------------
June 30, June 30, June 30, June 30,
2008 2007 2008 2007
--------- -------- -------- --------

Electronic Discovery $8,064 $6,454 $14,459 $11,665
Bankruptcy 6,141 9,400 $16,904 $18,513
Settlement Administration 6,050 1,425 $6,759 $3,034
Unallocated (5,988) (4,945) (10,651) (9,602)
--------- -------- -------- --------

TOTAL NON-GAAP ADJUSTED EBITDA $14,267 $12,334 $27,471 $23,610
========= ======== ======== ========
*T

-0-
*T
EPIQ SYSTEMS, INC.
EPS CALCULATION
(In thousands, except per share data)
(Unaudited)

Three months ended Six months ended
------------------- -------------------
June 30, June 30, June 30, June 30,
2008 2007(a) 2008 2007(a)
--------- --------- --------- ---------

NET INCOME $3,154 $1,794 $5,811 $1,944
Interest expense adjustment
for convertible debt 301 - 603 -
--------- --------- --------- ---------

ADJUSTED FOR DILUTED
CALCULATION $3,455 $1,794 $6,414 $1,944
========= ========= ========= =========

DILUTED WEIGHTED AVERAGE
SHARES 35,424 29,848 35,357 29,559
Adjustment to reflect stock
options 1,924 2,132 1,867 1,899
Adjustment to reflect
convertible debt shares 4,286 - 4,286 -
--------- --------- --------- ---------

ADJUSTED FOR DILUTED
CALCULATION 41,634 31,980 41,510 31,458
========= ========= ========= =========

NET INCOME PER SHARE -
DILUTED $0.08 $0.06 $0.15 $0.06
========= ========= ========= =========

(a) Convertible debt is antidilutive and therefore excluded from EPS
calculation.
*T

Epiq Systems, Inc.
Lew P. Schroeber, 913-621-9500
ir@epiqsystems.com

Copyright Business Wire 2008