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LECG Corporation Reports Second Quarter 2009 Results
Marketwire
Jul 28, 2009
EMERYVILLE, CA -- (Marketwire) -- 07/28/09 -- LECG Corporation (NASDAQ: XPRT), a global expert services firm, today reported financial results for the second quarter ended June 30, 2009.
"Market demand remained soft in the second quarter, particularly in global competition and our international sectors. We were, however, encouraged by the increased activity in some practice areas including financial services, forensic accounting and energy and environment," said Michael Jeffery, LECG's chief executive officer. "Although we expect the revenue recovery to be uneven, we continue to focus on improving our cost structure to further enhance gross margin and operational leverage."
Second Quarter 2009 Financial Results
Second quarter 2009 revenues increased 2.4 percent to $67.9 million compared with $66.3 million in the first quarter of 2009, and decreased 23.8 percent from the second quarter of 2008 revenues of $89.1 million. Net fee-based revenues were $65.5 million in the second quarter of 2009, an increase of 2.4 percent from $63.9 million in the first quarter of 2009. Net fee-based revenues decreased 23.3 percent from $85.4 million in the prior year period.
Results for the second quarter of 2009 reflect pre-tax charges of $1.4 million in restructuring charges, a $1.7 million divestiture charge, $1.2 million in other impairments and $0.2 million of mark-to-market losses related to the deferred compensation plan. Including these charges, the second quarter 2009 net loss was $6.5 million or $0.25 per share, compared with a net loss of $3.8 million or $0.15 per share in the first quarter of 2009, and net income of $2.6 million or $0.10 per diluted share in the second quarter of 2008. Excluding these charges, the adjusted loss per share was $0.11 for the quarter. Our adjusted loss per share was negatively impacted by approximately $0.03 due to the change in our 2009 estimated effective tax rate from 41% to 30% during the second quarter.
Adjusted EBITDA for the second quarter of 2009 was a loss of $1.8 million, compared to a loss of $4.8 million for the first quarter of 2009, and income of $6.1 million for the second quarter of 2008.
Second Quarter 2009 Segment Results
Economics Services
LECG's economics services segment is composed of the company's global competition, securities, regulated industries, energy and environment, and labor sectors. Economics revenues were $29.0 million in the second quarter of 2009, representing 42.7 percent of total revenues, versus 43.6 percent of total revenues in the first quarter of 2009. Net fee-based revenues for the segment were $28.2 million in the quarter, relatively unchanged from the first quarter of 2009, with strength in the energy and environment and securities practices, offset by a decline in global competition. Economics gross profit was $8.6 million, or 50.0 percent of total gross profit in the quarter. Direct profit margin was 30.9 percent, up from 27.7 percent in the first quarter of 2009. Professional staff utilization was 68.2 percent.
Finance and Accounting Services (FAS)
LECG's FAS segment is composed of the company's forensic accounting, intellectual property, healthcare, higher education, international FAS, financial services, and electronic discovery sectors. FAS revenues were $38.9 million in the second quarter of 2009, or 57.3 percent of total revenues versus 56.4 percent of total revenues in the first quarter of 2009. Net fee-based revenues for the segment were $37.3 million in the quarter, up $1.5 million from the first quarter of 2009 due to strength in forensic accounting and financial services. FAS gross profit was $8.5 million, or 50.0 percent of total gross profit in the quarter. The direct profit margin was 23.2 percent, up from 18.2 percent in the first quarter of 2009. Professional staff utilization was 68.6 percent.
Six Month Financial Results
Revenues for the six months ended June 30, 2009 decreased 25.3 percent to $134.2 million from $179.6 million for the same period in 2008. Net fee-based revenues decreased 25.0 percent year over year.
Net loss for the six months ended June 30, 2009 was $10.3 million, compared to net income of $6.6 million reported for the same period last year. There was a loss of $0.40 per share for the first six months of 2009, compared with diluted earnings per share of $0.26 for the same period a year ago. Adjusted earnings per share was a loss of $0.26 for the first six months of 2009, compared with adjusted diluted earnings per share of $0.27 for the first six months of 2008.
Adjusted EBITDA for the six months ended June 30, 2009 was a loss of $6.5 million, compared to income of $14.7 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 888-300-2348. International callers may access the call by dialing 719-325-2207. For a replay of this teleconference, please call 888-203-1112 or 719-457-0820, and enter the passcode 2034759. The replay will be available through August 3, 2009. 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 webcast.
About LECG
LECG, a global expert services and consulting firm, with 718 experts and professionals in 30 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.
Statements in this press release and the related conference call concerning the future business, operating and financial condition of the company, including expectations regarding revenues and net income for future 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 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. 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 AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
Three months ended Six months ended
June 30, June 30,
-------------------- --------------------
2009 2008 2009 2008
--------- --------- --------- ---------
Fee-based revenues, net $ 65,464 $ 85,359 $ 129,386 $ 172,530
Reimbursable revenues 2,405 3,720 4,788 7,051
--------- --------- --------- ---------
Revenues 67,869 89,079 134,174 179,581
Direct costs 48,111 57,176 97,728 114,348
Reimbursable costs 2,651 3,700 5,191 7,011
--------- --------- --------- ---------
Cost of services 50,762 60,876 102,919 121,359
Gross profit 17,107 28,203 31,255 58,222
Operating expenses:
General and administrative
expenses 18,782 22,165 37,607 43,466
Depreciation and amortization 1,280 1,426 2,610 2,961
Other impairments 1,220 - 1,220 -
Restructuring charges 1,404 - 1,460 -
Divestiture charges 1,725 - 1,739 -
--------- --------- --------- ---------
Operating (loss) income (7,304) 4,612 (13,381) 11,795
Interest income 42 94 90 237
Interest expense (643) (215) (958) (412)
Other expense, net (356) (96) (446) (516)
--------- --------- --------- ---------
(Loss) income before income
taxes (8,261) 4,395 (14,695) 11,104
Income tax (benefit) expense (1,807) 1,784 (4,445) 4,508
--------- --------- --------- ---------
Net (loss) income $ (6,454) $ 2,611 $ (10,250) $ 6,596
========= ========= ========= =========
Earnings per share:
Basic $ (0.25) $ 0.10 $ (0.40) $ 0.26
Diluted $ (0.25) $ 0.10 $ (0.40) $ 0.26
Shares used in calculating
earnings per share
Basic 25,515 25,307 25,451 25,303
Diluted 25,515 25,525 25,451 25,522
LECG CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
June 30, December 31,
Assets 2009 2008
------------ ------------
Current assets:
Cash and cash equivalents $ 3,428 $ 19,510
Accounts receivable, net of allowance of
$1,027 and $973 92,522 87,122
Prepaid expenses 6,226 5,996
Deferred tax assets, net - current portion 13,029 14,123
Signing, retention and performance bonuses -
current portion 15,833 15,282
Income taxes receivable 9,604 7,662
Other current assets 1,991 2,447
Note receivable - current portion 532 518
------------ ------------
Total current assets 143,165 152,660
Property and equipment, net 9,270 11,011
Goodwill 1,800 -
Other intangible assets, net 3,434 3,790
Signing, retention and performance bonuses 31,658 34,976
Deferred compensation plan assets 8,771 9,684
Note receivable 1,653 1,946
Deferred tax assets, net 36,952 36,952
Other long-term assets 6,017 5,188
------------ ------------
Total assets $ 242,720 $ 256,207
============ ============
Liabilities and stockholders’ equity
Current liabilities:
Accrued compensation $ 36,234 $ 49,313
Accounts payable and other accrued liabilities 10,408 11,493
Payable for business acquisitions - current
portion 1,700 3,846
Borrowings under line of credit 13,000 -
Deferred revenue 2,182 2,450
Liability associated with divestiture - 2,642
------------ ------------
Total current liabilities 63,524 69,744
Payable for business acquisitions 1,155 1,055
Deferred compensation plan obligations 8,590 9,632
Deferred rent 6,809 6,601
Other long-term liabilities 1,399 569
------------ ------------
Total liabilities 81,477 87,601
------------ ------------
Commitments and contingencies - -
Stockholders' equity
Common stock, $.001 par value, 200,000,000
shares authorized, 25,757,153 and 25,559,253
shares outstanding at June 30, 2009 and
December 31, 2008, respectively 26 26
Additional paid-in capital 174,387 172,005
Accumulated other comprehensive loss (902) (1,407)
Accumulated deficit (12,268) (2,018)
------------ ------------
Total stockholders' equity 161,243 168,606
------------ ------------
Total liabilities and stockholders' equity $ 242,720 $ 256,207
============ ============
LECG CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Six months ended
June 30,
--------------------
2009 2008
--------- ---------
Cash flows from operating activities
Net (loss) income $ (10,250) $ 6,596
Adjustments to reconcile net (loss) income to net
cash used in operating activities:
Bad debt expense 66 66
Depreciation and amortization of property and
equipment 2,254 2,235
Amortization of intangible assets 356 726
Amortization of signing, retention and performance
bonuses 8,657 8,270
Non cash restructuring charges 299 -
Divestiture charges 1,739 -
Other impairments 1,220 -
Equity-based compensation 3,216 3,039
Excess tax benefits from equity-based compensation - (28)
Other - 57
Changes in assets and liabilities:
Accounts receivable (5,996) (11,385)
Signing, retention and performance bonuses paid (6,958) (12,578)
Prepaid and other current assets 948 462
Accounts payable and other accrued liabilities (1,441) 1,619
Income taxes (1,659) (890)
Accrued compensation (12,495) (4,824)
Deferred revenue (187) 713
Deferred compensation plan assets, net of
liabilities (128) (1,672)
Deferred rent (567) (430)
Other assets 209 (4,236)
Other liabilities 768 20
--------- ---------
Net cash used in operating activities (19,949) (12,240)
--------- ---------
Cash flows from investing activities
Business acquisitions earn out payments (3,885) (2,436)
Divestiture payments (3,210) -
Purchase of property and equipment (712) (1,099)
Proceeds from note receivable 279 264
Proceeds from divestiture 619 -
Other (30) 8
--------- ---------
Net cash used in investing activities (6,939) (3,263)
--------- ---------
Cash flows from financing activities
Borrowings under revolving credit facility 30,000 37,000
Repayments under revolving credit facility (17,000) (33,000)
Payment of loan fees (2,243) -
Proceeds from exercise of stock options - 30
Excess tax benefits from equity-based compensation - 28
Proceeds from issuance of stock - employee stock
purchase plan 30 66
Other - 3
--------- ---------
Net cash provided by financing activities 10,787 4,127
--------- ---------
Effect of exchange rates on changes in cash 19 450
--------- ---------
Decrease in cash and cash equivalents (16,082) (10,926)
Cash and cash equivalents, beginning of year 19,510 21,602
--------- ---------
Cash and cash equivalents, end of period $ 3,428 $ 10,676
========= =========
Supplemental disclosure
Cash paid for interest $ 593 $ 276
========= =========
Cash paid for income taxes $ 1,723 $ 5,821
========= =========
LECG CORPORATION AND SUBSIDIARIES
SEGMENT OPERATING RESULTS
($ in thousands, except rate amounts)
(unaudited)
Three months ended June 30,
-------------------------------------------------------
2009 2008
--------------------------- --------------------------
Finance Finance
and and
Economics Accounting Total Economics Accounting Total
-------- ------- -------- ------- ------- --------
Fee-based
revenues, net $ 28,213 $37,251 $ 65,464 $37,688 $47,671 $ 85,359
Reimbursable
revenues 787 1,618 2,405 1,781 1,939 3,720
-------- ------- -------- ------- ------- --------
Revenues $ 29,000 $38,869 $ 67,869 $39,469 $49,610 $ 89,079
Direct costs $ 19,502 $28,609 $ 48,111 $24,485 $32,691 $ 57,176
Reimbursable costs 936 1,715 2,651 1,856 1,844 3,700
-------- ------- -------- ------- ------- --------
Gross profit $ 8,562 $ 8,545 $ 17,107 $13,128 $15,075 $ 28,203
Direct profit
margin(1) 30.9% 23.2% 26.5% 35.0% 31.4% 33.0%
Gross margin 29.5% 22.0% 25.2% 33.3% 30.4% 31.7%
Operating
statistics
Paid days 65 65 65 65 65 65
Billable headcount,
period end 257 461 718 298 470 768
Billable headcount,
period average 259 468 727 301 470 771
Billable FTEs,
period average(2) 212 383 595 246 373 619
Average billable
rate $ 360 $ 289 $ 316 $ 369 $ 324 $ 343
Paid utilization
rate of billable
FTEs(3) 71.1% 64.8% 67.1% 79.7% 75.8% 77.4%
Expert headcount,
period end 110 206 316 120 187 307
Expert FTEs,
period average(2) 63 135 198 64 112 176
Jr/SR staff paid
utilization rate(3) 68.2% 68.6% 68.5% 77.5% 75.1% 76.1%
LECG CORPORATION AND SUBSIDIARIES
SEGMENT OPERATING RESULTS (CONTINUED)
($ in thousands, except rate amounts)
(unaudited)
Six months ended June 30,
-------------------------------------------------------
2009 2008
--------------------------- --------------------------
Finance Finance
and and
Economics Accounting Total Economics Accounting Total
-------- ------- -------- ------- ------- --------
Fee-based
revenues, net $ 56,292 $73,094 $129,386 $77,622 $94,908 $172,530
Reimbursable
revenues 1,614 3,174 4,788 2,813 4,238 7,051
-------- ------- -------- ------- ------- --------
Revenues $ 57,906 $76,268 $134,174 $80,435 $99,146 $179,581
Direct costs $ 39,795 $57,933 $ 97,728 $51,032 $63,316 $114,348
Reimbursable costs 1,855 3,336 5,191 2,873 4,138 7,011
-------- ------- -------- ------- ------- --------
Gross profit $ 16,256 $14,999 $ 31,255 $26,530 $31,692 $ 58,222
Direct profit
margin(1) 29.3% 20.7% 24.5% 34.3% 33.3% 33.7%
Gross margin 28.1% 19.7% 23.3% 33.0% 32.0% 32.4%
Operating
statistics
Paid days 129 129 129 129 129 129
Billable headcount,
period end 257 461 718 298 470 768
Billable headcount,
period average 269 481 750 303 484 787
Billable FTEs,
period average(2) 218 388 606 254 391 646
Average billable
rate $ 356 $ 285 $ 312 $ 368 $ 320 $ 340
Paid utilization
rate of billable
FTEs(3) 70.3% 64.1% 66.3% 80.4% 73.4% 76.2%
Expert headcount,
period end 110 206 316 120 187 307
Expert FTEs,
period average(2) 64 137 201 70 112 183
Jr/SR staff paid
utilization rate(3) 67.7% 67.8% 67.8% 77.5% 71.7% 74.0%
LECG CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP MEASURES
($ in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Fee-based revenues, net $ 65,464 $ 85,359 $ 129,386 $ 172,530
Direct costs 48,111 57,176 97,728 114,348
---------- ---------- ---------- ----------
Direct profit $ 17,353 $ 28,183 $ 31,658 $ 58,182
========== ========== ========== ==========
Direct profit margin (1) 26.5% 33.0% 24.5% 33.7%
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Net (loss) income $ (6,454) $ 2,611 $ (10,250) $ 6,596
Adjustments to net (loss)
income
Other impairments 1,220 - 1,220 -
Restructuring charges 1,404 - 1,460 -
Divestiture charges 1,725 - 1,739 -
Deferred compensation plan 216 118 278 421
Income tax benefit (4) (939) (48) (991) (170)
---------- ---------- ---------- ----------
Adjusted (loss) income (5) $ (2,828) $ 2,681 $ (6,544) $ 6,847
========== ========== ========== ==========
Adjusted (loss) income
per diluted share (5)(7) $ (0.11) $ 0.11 $ (0.26) $ 0.27
Shares used in calculating
earnings per share
Diluted 25,515 25,525 25,451 25,522
LECG CORPORATION AND SUBSIDIARIES
Reconciliation of Non-GAAP MEASURES (CONTINUED)
($ in thousands, except per share data)
Three months ended Six months ended
June 30, June 30,
---------------------- ----------------------
2009 2008 2009 2008
---------- ---------- ---------- ----------
Net (loss) income $ (6,454) $ 2,611 $ (10,250) $ 6,596
Income tax (benefit)
expense (1,807) 1,784 (4,445) 4,508
Interest expense, net 601 121 868 175
Depreciation and
amortization 1,280 1,426 2,610 2,961
---------- ---------- ---------- ----------
EBITDA (6) (6,380) 5,942 (11,217) 14,240
Adjustments to EBITDA
Other impairments 1,220 - 1,220 -
Restructuring charges 1,404 - 1,460 -
Divestiture charges 1,725 - 1,739 -
Deferred compensation plan 216 118 278 421
---------- ---------- ---------- ----------
Adjusted EBITDA (6) $ (1,815) $ 6,060 $ (6,520) $ 14,661
========== ========== ========== ==========
(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 39.9% and 40.4% in the three and six
months ended June 30, 2009 and 2008, respectively, except for the
divestiture charge which has been tax effected at Canandian statutory
rate of 33% for the thee and six months ended June 30, 2009.
(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 and charges
related to market fluctuations in the value of deferred compensation
plan investments. 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 and charges
related to market fluctuations in the value of deferred compensation
plan investments. 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 second 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.
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