EMERYVILLE, CA, Oct. 27, 2009 (Marketwire) -- LECG Corporation (NASDAQ: XPRT), a global expert services firm, today reported financial results for the third quarter ended September 30, 2009.
"Our third quarter performance largely reflected the ongoing industry-wide weakness in demand, a condition that we believe may persist into the fourth quarter," said Michael Jeffery, LECG's chief executive officer. "Although we see encouraging activity in some of our business sectors, the overall environment led us to further reduce our costs during the quarter. We remain enthusiastic about LECG's future, particularly with the proposed SMART/LECG merger. We believe the anticipated combination of synergies from cost savings and cross-selling along with LECG's portfolio of highly regarded experts should position us well for a return to revenue growth and profitability."
Third Quarter 2009 Financial Results
Third quarter 2009 revenues decreased 7.6 percent to $62.7 million compared with $67.9 million in the second quarter of 2009, and fell 27.1 percent versus $86.1 million in the third quarter 2008.
Results for the third quarter of 2009 reflect pre-tax charges of $4.0 million in restructuring charges, $8.7 million in other impairments, $0.1 million in divestiture charges, $0.9 million in merger-related costs and a $2.2 million net benefit from the reversal of equity-based compensation. In addition, the company has re-assessed its ability to realize its deferred tax assets in light of the current economic environment and the loss position of the company. During the quarter, the company recorded a valuation allowance of $51.8 million against its net deferred tax assets. Including these net charges, the third quarter net loss was $63.5 million or $2.48 per share. This compares to a net loss of $6.5 million or $0.25 per share in the second quarter of 2009, and net income of $2.0 million or $0.08 per diluted share in the third quarter of 2008. Excluding these net charges, adjusted net loss was $3.8 million or $0.15 per share for the quarter.
Adjusted EBITDA for the third quarter of 2009 was a loss of $3.8 million, compared to a loss of $1.8 million for the second quarter of 2009, and income of $5.0 million for the third quarter of 2008.
Third Quarter 2009 Segment Results
Economics Services (Economics)
LECG's Economics segment consists of the company's global competition, securities, regulated industries, energy and environment, and labor sectors. Economics revenues were $25.6 million in the third quarter of 2009, representing 40.8 percent of total revenues versus 42.7 percent of total revenues in the second quarter of 2009. Net fee-based revenues for the segment were $24.8 million in the quarter, down from $28.2 million in the second quarter of 2009, driven by the continued decline in global competition and partially offset by strength in regulated industries. Economics gross profit was $6.2 million, or 41.0 percent of total gross profit in the quarter. Direct profit margin was 25.0 percent, down from 30.9 percent in the second quarter of 2009. Professional staff utilization was 64.6 percent.
Finance and Accounting Services (FAS)
LECG's FAS segment consists of the company's forensic accounting, intellectual property, healthcare, higher education, international FAS, financial services, and electronic discovery sectors. FAS revenues were $37.2 million in the third quarter of 2009, or 59.2 percent of total revenues versus 57.3 percent of total revenues in the second quarter of 2009. Net fee-based revenues for the segment were $35.4 million in the quarter, down $1.9 million from the second quarter of 2009, as weakness in forensic accounting and intellectual property offset our strength in financial services, healthcare and electronic discovery. FAS gross profit was $8.9 million, or 59.0 percent of total gross profit in the quarter. The direct profit margin was 25.1 percent, up from 23.2 percent in the second quarter of 2009. Professional staff utilization was 70.1 percent.
Nine Month Financial Results
Revenues for the nine months ended September 30, 2009 decreased 25.9 percent to $196.9 million from $265.6 million for the same period in 2008.
Net loss for the nine months ended September 30, 2009 was $73.8 million compared to net income of $8.6 million reported for the same period last year. Net loss per share was $2.89 for the first nine months of 2009 versus net income of $0.34 per diluted share for the same period a year ago. Adjusted net loss per share was $0.41 for the first nine months of 2009 compared with adjusted net income per diluted share of $0.35 for the first nine months of 2008.
Adjusted EBITDA for the nine months ended September 30, 2009 was a loss of $10.3 million compared to income of $19.5 million of adjusted EBITDA for the same period of 2008.
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. Domestic callers may access this conference call by dialing 877-719-9796. International callers may access the call by dialing 719-325-4830. For a replay of this teleconference, please call 888-203-1112 or 719-457-0820, and enter the passcode 8548175. The replay will be available through November 2, 2009. The webcast will be accessible through the investor relations section of the company's website, www.lecg.com.
Forward-Looking Statements
Statements in this press release and the related conference call concerning the proposed transaction and future business, operating and financial condition of the company, including expectations regarding revenues and net income for future periods, statements concerning the plans and objectives of LECG's management for future operations, statements of the assumptions underlying or relating to any forward looking statement, statements regarding the timing or completion of the transactions, 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 affect actual performance include the ongoing economic downturn and adverse economic conditions, 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, the company's ability to integrate the operations of SMART, the failure to achieve the costs savings and other synergies LECG expects to result for the transactions, the outcome of any legal proceedings instituted against the company, SMART and others in connection with the transactions, the failure of the transactions to close for any reason, the amount of the costs, fees, expenses and charges relating to the transactions, business uncertainty and contractual restrictions prior to the closing of the transactions, the effect of war, terrorism or catastrophic events, stock price, foreign currency exchange and interest rate volatility. 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.
About LECG
LECG, a global expert services and consulting firm, with approximately 700 experts and professionals in 31 offices around the world, provides independent expert testimony, financial advisory services, 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 regarding 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.
Additional information and where to find it
LECG has filed a preliminary proxy statement with the Securities and Exchange Commission and intends to file a revised proxy statement and other relevant materials in connection with the transactions. When finalized, the proxy statement will be mailed to the stockholders of LECG. Before making any voting or investment decision with respect to the transactions, investors and stockholders of LECG are urged to carefully read the final proxy statement and the other relevant materials when they become available because they will contain important information about the proposed transactions. The proxy statement and other relevant materials (when they become available), and any other documents filed by LECG with the SEC, may be obtained free of charge at the SEC's website at www.sec.gov. In addition, investors and stockholders of LECG may obtain free copies of the proxy statement (when available) and other documents filed by LECG with the SEC from LECG's website at www.lecg.com.
Participants in the solicitation
LECG and its directors and executive officers may be deemed to be participants in the solicitation of proxies from the LECG's stockholders in connection with the transactions. Information about LECG's directors and executive officers is set forth in the preliminary proxy statement on Schedule 14A for LECG filed with the SEC on September 25, 2009, in the proxy statement on Schedule 14A for LECG's 2008 Annual Meeting of Stockholders filed on April 25, 2008 and in the amended Annual Report on Form 10-K filed on April 29, 2009. Additional information regarding the interests of participants in the solicitation of proxies in connection with the transactions will be included in the proxy statement that LECG intends to file with the SEC. Stockholders may obtain additional information regarding the direct and indirect interests of LECG and its directors and executive officers with respect to the transactions by reading the proxy statement once it is available and the other filings referred to above.
No offer or solicitation
This is not intended to and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy or an invitation to purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction.
LECG CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)Three months ended Nine months ended
September 30, September 30,
-------------------- --------------------
2009 2008 2009 2008
--------- --------- --------- ---------
Fee-based revenues, net $ 60,192 $ 83,221 $ 189,578 $ 255,751
Reimbursable revenues 2,531 2,829 7,319 9,880
--------- --------- --------- ---------
Revenues 62,723 86,050 196,897 265,631
Direct costs 45,116 55,581 142,844 169,929
Reimbursable costs 2,512 3,058 7,703 10,069
--------- --------- --------- ---------
Cost of services 47,628 58,639 150,547 179,998
Gross profit 15,095 27,411 46,350 85,633
Operating expenses:
General and administrative
expenses 17,518 21,831 55,125 65,297
Depreciation and amortization 1,239 1,498 3,849 4,459
Other impairments 8,719 - 9,939 -
Restructuring charges 4,019 - 5,479 -
Divestiture charges 124 - 1,863 -
--------- --------- --------- ---------
Operating (loss) income (16,524) 4,082 (29,905) 15,877
Interest income 32 113 122 350
Interest expense (659) (122) (1,617) (533)
Other expense, net (135) (716) (581) (1,233)
--------- --------- --------- ---------
(Loss) income before income
taxes (17,286) 3,357 (31,981) 14,461
Income tax expense 46,229 1,362 41,784 5,870
--------- --------- --------- ---------
Net (loss) income $ (63,515) $ 1,995 $ (73,765) $ 8,591
========= ========= ========= =========
Earnings per share:
Basic $ (2.48) $ 0.08 $ (2.89) $ 0.34
Diluted $ (2.48) $ 0.08 $ (2.89) $ 0.34
Shares used in calculating
earnings per share
Basic 25,654 25,340 25,515 25,316
Diluted 25,654 25,526 25,515 25,528
LECG CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
September 30, December 31,
2009 2008
Assets ------------- -------------
Current assets:
Cash and cash equivalents $ 7,246 $ 19,510
Accounts receivable, net 86,791 87,122
Prepaid expenses 5,494 5,996
Deferred tax assets, net - current portion - 14,123
Signing, retention and performance bonuses
- current portion 14,499 15,282
Income taxes receivable 13,614 7,662
Other current assets 4,392 2,447
Note receivable - current portion 540 518
------------- -------------
Total current assets 132,576 152,660
Property and equipment, net 8,456 11,011
Goodwill 1,800 -
Other intangible assets, net 3,256 3,790
Signing, retention and performance bonuses 21,633 34,976
Deferred compensation plan assets 9,711 9,684
Note receivable 1,503 1,946
Deferred tax assets, net - 36,952
Other long-term assets 5,320 5,188
------------- -------------
Total assets $ 184,255 $ 256,207
============= =============
Liabilities and stockholders' equity
Current liabilities:
Accrued compensation $ 36,740 $ 49,313
Accounts payable and other accrued
liabilities 10,865 11,493
Payable for business acquisitions - current
portion 1,700 3,846
Borrowings under line of credit 16,000 -
Deferred revenue 2,741 2,450
Liability associated with divestiture - 2,642
------------- -------------
Total current liabilities 68,046 69,744
Payable for business acquisitions 1,155 1,055
Deferred compensation plan obligations 9,900 9,632
Deferred rent 6,412 6,601
Other long-term liabilities 1,374 569
------------- -------------
Total liabilities 86,887 87,601
------------- -------------
Commitments and contingencies - -
Stockholders' equity
Common stock, $.001 par value, 200,000,000
shares authorized, 25,841,017 and 25,559,253
shares outstanding at September 30, 2009 and
December 31, 2008, respectively 26 26
Additional paid-in capital 173,679 172,005
Accumulated other comprehensive loss (554) (1,407)
Accumulated deficit (75,783) (2,018)
------------- -------------
Total stockholders' equity 97,368 168,606
------------- -------------
Total liabilities and stockholders' equity $ 184,255 $ 256,207
============= =============
LECG CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Nine months ended
September 30,
--------------------
2009 2008
--------- ---------
Cash flows from operating activities
Net (loss) income $ (73,765) $ 8,591
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Bad debt expense 99 99
Depreciation and amortization of property and
equipment 3,315 3,370
Amortization of intangible assets 534 1,089
Amortization of signing, retention and performance
bonuses 13,338 12,391
Deferred taxes 51,775 -
Non cash restructuring charges 1,234 -
Divestiture charges 1,739 -
Other impairments 9,939 -
Equity-based compensation 2,463 4,900
Excess tax benefits from equity-based compensation - (40)
Other - 58
Changes in assets and liabilities:
Accounts receivable (1,679) (8,422)
Signing, retention and performance bonuses paid (9,804) (14,983)
Prepaid and other current assets 1,778 401
Accounts payable and other accrued liabilities (1,872) 3,146
Income taxes (7,544) (1,550)
Accrued compensation (11,890) (6,838)
Deferred revenue 345 134
Deferred compensation plan assets, net of
liabilities 241 (613)
Deferred rent (875) (668)
Other assets 894 (3,913)
Other liabilities 608 282
--------- ---------
Net cash used in operating activities (19,127) (2,566)
--------- ---------
Cash flows from investing activities
Business acquisitions earn out payments (3,885) (4,736)
Divestiture payments (3,210) -
Purchase of property and equipment (1,053) (2,156)
Proceeds from note receivable 422 399
Proceeds from divestiture 619 -
Other 8 (46)
--------- ---------
Net cash used in investing activities (7,099) (6,539)
--------- ---------
Cash flows from financing activities
Borrowings under revolving credit facility 43,000 55,000
Repayments under revolving credit facility (27,000) (55,000)
Payment of loan fees (2,243) -
Proceeds from exercise or issuance of stock to
employee and other - 43
Excess tax benefits from equity-based compensation - 40
Proceeds from issuance of stock - employee stock
purchase plan 30 66
--------- ---------
Net cash provided by financing activities 13,787 149
--------- ---------
Effect of exchange rates on changes in cash 175 (341)
--------- ---------
Decrease in cash and cash equivalents (12,264) (9,297)
Cash and cash equivalents, beginning of year 19,510 21,602
--------- ---------
Cash and cash equivalents, end of period $ 7,246 $ 12,305
========= =========
Supplemental disclosure
Cash paid for interest $ 1,014 $ 381
========= =========
Cash paid for income taxes $ 1,900 $ 7,327
--------- ---------
LECG CORPORATION AND SUBSIDIARIES
SEGMENT OPERATING RESULTS
($ in thousands, except rate amounts)
(unaudited)
Three months ended September 30,
----------------------------------------------------------
2009 2008
---------------------------- ----------------------------
Finance and Finance and
Economics Accounting Total Economics Accounting Total
-------- -------- -------- -------- -------- --------
Fee-based
revenues, net $ 24,808 $ 35,384 $ 60,192 $ 36,658 $ 46,563 $ 83,221
Reimbursable
revenues 765 1,766 2,531 745 2,084 2,829
-------- -------- -------- -------- -------- --------
Revenues 25,573 37,150 62,723 37,403 48,647 86,050
Direct costs 18,598 26,518 45,116 23,525 32,056 55,581
Reimbursable
costs 752 1,760 2,512 945 2,113 3,058
-------- -------- -------- -------- -------- --------
Gross profit $ 6,223 $ 8,872 $ 15,095 $ 12,933 $ 14,478 $ 27,411
Direct profit
margin (1) 25.0% 25.1% 25.0% 35.8% 31.2% 33.2%
Gross margin 24.3% 23.9% 24.1% 34.6% 29.8% 31.9%
Operating statistics
Paid days 66 66 66 66 66 66
Billable
headcount,
period end 239 447 686 298 503 801
Billable
headcount,
period average 246 449 695 296 490 786
Billable FTEs,
period average (2) 200 365 565 241 379 620
Average
billable rate $ 349 $ 280 $ 305 $ 358 $ 319 $ 335
Paid utilization
rate of billable
FTEs (3) 67.4% 65.5% 66.2% 80.6% 73.0% 75.9%
Expert headcount,
period end 105 200 305 121 208 329
Expert FTEs,
period average (2) 60 127 187 64 110 174
Jr/SR staff
paid utilization
rate (3) 64.6% 70.1% 68.1% 78.2% 72.9% 75.0%
LECG CORPORATION AND SUBSIDIARIES
SEGMENT OPERATING RESULTS (CONTINUED)
($ in thousands, except rate amounts)
(unaudited)
Nine months ended September 30,
----------------------------------------------------------
2009 2008
---------------------------- ----------------------------
Finance and Finance and
Economics Accounting Total Economics Accounting Total
-------- -------- -------- -------- -------- --------
Fee-based
revenues, net $ 81,100 $108,478 $189,578 $114,280 $141,471 $255,751
Reimbursable
revenues 2,379 4,940 7,319 3,558 6,322 9,880
-------- -------- -------- -------- -------- --------
Revenues 83,479 113,418 196,897 117,838 147,793 265,631
Direct costs 58,393 84,451 142,844 74,557 95,372 169,929
Reimbursable
costs 2,607 5,096 7,703 3,818 6,251 10,069
-------- -------- -------- -------- -------- --------
Gross profit $ 22,479 $ 23,871 $ 46,350 $ 39,463 $ 46,170 $ 85,633
Direct profit
margin (1) 28.0% 22.1% 24.7% 34.8% 32.6% 33.6%
Gross margin 26.9% 21.0% 23.5% 33.5% 31.2% 32.2%
Operating statistics
Paid days 195 195 195 195 195 195
Billable
headcount,
period end 239 447 686 298 503 801
Billable
headcount,
period average 262 470 732 301 486 786
Billable FTEs,
period average (2) 212 380 592 250 387 637
Average
billable rate $ 354 $ 283 $ 310 $ 364 $ 320 $ 338
Paid utilization
rate of billable
FTEs (3) 69.4% 64.6% 66.3% 80.5% 73.3% 76.1%
Expert headcount,
period end 105 200 305 121 208 329
Expert FTEs,
period average (2) 63 134 196 68 112 180
Jr/SR staff
paid utilization
rate (3) 66.7% 68.6% 67.9% 77.7% 72.1% 74.3%
LECG CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share data)
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Fee-based revenues, net $ 60,192 $ 83,221 $ 189,578 $ 255,751
Direct costs 45,116 55,581 142,844 169,929
---------- ---------- ---------- ----------
Direct profit $ 15,076 $ 27,640 $ 46,734 $ 85,822
========== ========== ========== ==========
Direct profit margin (1) 25.0% 33.2% 24.7% 33.6%
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Net (loss) income $ (63,515) $ 1,995 $ (73,765) $ 8,591
Adjustments to net (loss)
income
Other impairments 8,719 - 9,939 -
Restructuring charges 4,019 - 5,479 -
Divestiture charges 124 - 1,863 -
Merger-related costs 942 - 942 -
Deferred compensation plan 41 118 319 421
Equity-based compensation
benefit (8) (2,210) - (2,210) -
Deferred tax valuation
allowance 51,775 - 51,775 -
Income tax benefit (4) (3,743) (48) (4,734) (170)
---------- ---------- ---------- ----------
Adjusted (loss) income (5) $ (3,848) $ 2,065 $ (10,392) $ 8,842
========== ========== ========== ==========
Adjusted (loss) income per
diluted share (5)(7) $ (0.15) $ 0.08 $ (0.41) $ 0.35
Shares used in calculating
earnings per share
Diluted 25,654 25,526 25,515 25,528
LECG CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES (CONTINUED)
($ in thousands)
Three months ended Nine months ended
September 30, September 30,
---------------------- ----------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Net (loss) income $ (63,515) $ 1,995 $ (73,765) $ 8,591
Income tax expense 46,229 1,362 41,784 5,870
Interest expense, net 627 9 1,495 183
Depreciation and
amortization 1,239 1,498 3,849 4,459
---------- ---------- ---------- ----------
EBITDA (6) (15,420) 4,864 (26,637) 19,103
Adjustments to EBITDA
Other impairments 8,719 - 9,939 -
Restructuring charges 4,019 - 5,479 -
Divestiture charges 124 - 1,863 -
Merger-related costs 942 - 942 -
Deferred compensation plan 41 118 319 421
Equity-based compensation
benefit (8) (2,210) - (2,210) -
---------- ---------- ---------- ----------
Adjusted EBITDA (6) $ (3,785) $ 4,982 $ (10,305) $ 19,524
========== ========== ========== ==========
(1) Fee-based revenues, net less direct costs 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.
(4) Assumes a marginal tax rate of 35.0% and 40.4% in the three and nine
months ended September 30, 2009 and 2008, respectively. The tax benefit
for three and nine months ended September 2009 excludes non-deductible
divestiture and merger-related charges.
(5) Adjusted (loss) income and adjusted (loss) income per diluted share are
non-GAAP financial measures. Adjusted (loss) income excludes other
impairments, restructuring charges, divestiture charges, acquisition
costs, charges related to market fluctuations in the value of deferred
compensation plan investments, equity-based compensation benefit and
deferred tax valuation allowance. Adjusted (loss) income per diluted
share is calculated using adjusted (loss) income divided by diluted
shares. The Company regards adjusted (loss) income and adjusted (loss)
income 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 (loss) income, cash flows, or other measures of financial
performance prepared in accordance with GAAP.
(6) EBITDA and Adjusted EBITDA are non-GAAP financial measures. EBITDA is
defined as earnings before provision for income tax, interest, and
depreciation and amortization. Adjusted EBITDA excludes other
impairments, restructuring charges, divestiture charges, acquisition
costs, charges related to market fluctuations in the value of deferred
compensation plan investments and equity-based compensation benefit.
The Company regards EBITDA and Adjusted EBITDA 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 (loss) income, cash flows, or other measures
of financial performance prepared in accordance with GAAP.
(7) For the third quarter of 2009, diluted earnings per share and diluted
shares are equal to basic earnings per share and basic shares,
respectively, as the effect on net loss would be anti-dilutive if
common stock equivalent shares were included in the weighted average
number of common shares outstanding during the period.
(8) Equity-based compensation benefit consists of approximately $2.8
million of stock-based compensation expense recovery related to
previously recognized expense on the unvested portion of 7-year
cliff-vesting options of a terminated employee, offset by approximately
$0.6 million of accelerated expense related to the voluntary surrender
of approximately 192,000 shares of stock options previously granted.
