LECG Corporation Announces Third Quarter 2009
"Our third quarter results largely reflects current industry weakness wide demand, a condition that we believe may persist in the fourth quarter, "said Michael Jeffery, LECG chief executive." Although we see encouraging activity in some of our business sectors, the global environment led us to further reduce our costs during the quarter. We are enthusiastic about the future of LECG, particularly with the SMART merger proposal LECG. We believe that the planned combination of cost saving synergies and cross-selling, along with the portfolio LECG Expert highly regarded that positions us well for a return to revenue growth and profitability. "
Third Quarter 2009 Financial Results
Third quarter 2009 revenues decreased by 7.6 percent to 62.7 million U.S. dollars compared with 67.9 million U.S. dollars in the second quarter of 2009, and fell 27.1 percent compared with 86.1 million U.S. dollars in the third quarter of 2008.
The results for the third quarter of 2009 reflecting expenditures before taxes of $ 4.0 million in restructuring charges, $ 8.7 million in other impairments, 0.1 million U.S. dollars compensation on sales charges, $ 0.9 million in merger-related costs and net income of $ 2.2 million investment in social capital. Additionally, the company has reassessed its ability to realize deferred tax assets based on the current economic environment and position of the loss of the company. During the quarter, the company recorded a valuation allowance of $ 51.8 million against its net deferred tax assets. Including these charges, net loss the third quarter was 63.5 million U.S. dollars, or $ 2.48 per share. This compares with 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 revenues of $ 5.0 million for the third quarter of 2008.
Third quarter 2009 Segment Results
Business Services (Economy)
LECG's economy segment is 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 compared to 42.7 percent of total revenue in the second quarter of 2009. Net fee-based income 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, partially offset by force 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 Services Accounting (FAS)
LECG FAS segment is composed of forensic accounting firm, intellectual property, health, higher education, international FAS, financial services and the sectors of electronic discovery. FAS revenues were $ 37.2 million in the third quarter of 2009, or 59.2 percent of total revenue compared to 57.3 percent of total revenue in the second quarter of 2009. Net fee-based income for the segment were 35.4 million U.S. dollars in the quarter, up to 1.9 million in the second quarter of 2009 as weakness in forensic accounting and intellectual property make up our strength in financial services, health and electronic discovery. FAS gross profit was $ 8.9 million, or 59.0 per cent of total gross profit in the quarter. The direct profit margin was 25.1 per cent compared to 23.2 percent in the second quarter of 2009. The use of professional staff 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 U.S. dollars from 265.6 million U.S. dollars during the same period in 2008.
The net loss for the nine months ended 30 September 2009 was 73.8 million U.S. dollars compared to net income of $ 8.6 million reported for the same period last year. Net loss per share was $ 2.89 in the first nine months of 2009 versus net income of $ 0.34 per diluted share for the same period last year. The adjusted net loss per share was $ 0.41 in the first nine months of 2009 compared to 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 revenues of $ 19.5 million adjusted EBITDA for the same period in 2008.
Conference Call Webcast Information
LECG Corporation will hold a conference call and live webcast to discuss these results at 5:00 pm Eastern time today. National calls can access this conference call by dialing 877-719-9796. International callers can 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 access code 8548175. The replay will be available until 2 November 2009. The webcast will be accessed through the investor relations section of the company's website, www.lecg.com.
Forward-Looking Statements
The Statements in this press release and related conference call concerning the proposed transaction and future business, operations and financial position of the company, including expectations regarding revenues and net income in future periods, statements concerning plans and objectives of management for operations LECG future statements of assumptions underlying or relating to any representations, statements regarding the timing or completion of operations, and statements using the terms "believes," "expects," "will," "could," "plans," "anticipates," "estimate," "predicts," "intends," "potential," "continue," "should," "may" or the negative of these terms or similar expressions are "forward-looking" as defined in the Private Securities Litigation Reform Act of 1995. These statements are based on 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 results include the ongoing economic slowdown and conditions adverse economic, dependence on key personnel, cost and contribution of acquisitions, risks inherent in international operations, personnel management professional, dependence on growth of the services offered by the company, 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 inability to achieve cost savings and other synergies expected LECG as a result of operations, the outcome of any legal proceedings against the company, SMART and others in connection with the transactions, the failure of operations for close for any reason, the amount of costs, fees, expenses and charges relating to transactions, business uncertainty and contractual restrictions before closure of operations, the effect of war, terrorism or catastrophic events, share prices, currency exchange and interest rate volatility. For more information on these and other potential risk factors that could affect the company's financial results is included in the presentations of the company with Securities and Exchange Commission. The company assumes 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, with approximately 700 experts and professionals in 31 offices worldwide, 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 highly credentialed experts and conduct professional staff of economic and financial analysis to provide objective opinions and advice regarding complex disputes and inform legislative, judicial, regulatory, and business decision makers. LECG experts are renowned academics, former senior government officials, industry leaders with experience, and consultants experienced.
Additional Information and Where to Find
LECG has filed a preliminary proxy statement with the Securities and Exchange Commission Stock Exchange and intends to file a revised proxy statement and other relevant materials in connection with transactions. Once completed, the proxy statement be mailed to shareholders of LECG. Before making any voting decision or investment with respect to operations, investors and shareholders are urged LECG to carefully read the final proxy statement and other relevant materials when they become available because they will contain important information about transactions proposals. The proxy statement and other relevant materials (when available) and any other documents filed with the SEC by LECG, can be obtained free on the SEC website at www.sec.gov. In addition, LECG investors and shareholders may obtain free copies of the proxy statement (when available) and other documents filed with the SEC by LECG in LECG's website at www.lecg.com.
Participants in the solicitation
LECG and its directors and executive may be considered participants in the solicitation of proxies from the stockholders of the LECG in connection with the transactions. LECG information about the directors and officers Executives set forth in the preliminary proxy statement on Schedule 14A of LECG filed with the SEC on September 25, 2009, in the proxy statement in Annex 14A LECG 2008 Annual Meeting of Stockholders filed on 25 April 2008 and amended in the Annual Report on Form 10-K filed on April 29, 2009. Additional Information in relation to the interests of participants in the solicitation of proxies in connection with the transactions are included in the proxy statement that LECG shall with the SEC. Shareholders may obtain additional information on direct and indirect interests of LECG and its directors and officers with respect to transactions by reading the proxy statement when available and submissions referred to above.
No offer or solicitation
This is not meant and does not constitute an offer to sell or a solicitation of an offer to subscribe or buy or an invitation to purchase or subscribe for securities or the solicitation of any vote or approval in any jurisdiction.
Condensed LECG CORPORATION AND SUBSIDIARIES 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 ——— ——— ——— ——— Income based on fees, net $ 60,192 $ 83,221 $ 189,578 $ 255,751 Reimbursable revenues 2,531 2,829 7,319 9,880 ——— ——— ——— —– —- Revenue Expenditure 62,723 86,050 196,897 265,631 Direct 45,116 55,581 142,844 169,929 Reimbursable expenses 2,512 3,058 7,703 10,069 —— — ——— ——— ——— COSTS 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 deficiencies 8719 — 9939 – restructuring costs from 4019 to 5479 – sales positions 124 to 1863 – ——— ——— ——- – ——– – 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 ——— ——— ——- – ——— (Loss) net income of $ (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 shares) $ 0.34 used in the calculation of 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 $ 7246 Accounts $ 19,510 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 assets circulating 132,576 152,660 Premises and equipment, net 8,456 11,011 Goodwill 1,800 – Other intangible assets, net 3,256 3,790 Signing, retention and performance Bond plan assets 21,633 34,976 Deferred compensation 9,711 9,684 Receivables 1,503 1,946 Deferred tax assets, net – 36,952 Other long term assets 5320 5188 ————- ————- Total assets $ 184,255 $ 256,207 ======== ===== ============= Liabilities and stockholders' equity Current liabilities: Compensation earnings $ 36,740 $ 49,313 Accounts payable and other accrued liabilities 10,865 11,493 Payable for business acquisitions – current portion 1,700 3,846 Loans on line credit from 16,000 to 2741 2450 Deferred income liability associated with the transfer – 2642 ————- ————- Total current liabilities 68,046 69,744 to pay for acquisition business plan obligations 1,155 1,055 Deferred compensation 9,900 9,632 Deferred income 6,412 6,601 Other long term liabilities 1,374 569 ———- — ————- Total liabilities 86,887 87,601 ———- — ————- Commitments and contingencies – - Stockholders shares of common stock, $ .001 par value, 200,000,000 shares authorized, 25,841,017 and 25,559,253 shares outstanding at 30 September 2009 and 31 December 2008, respectively 26 26 Capital 173,679 172,005 Prima 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 (loss) of income $ (73,765) $ 8,591 Adjustments to reconcile (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 – Restructuring non-cash charges from 1234 to 1739 counts of Disposition – Other disorders 9939 – Equity-based compensation in 2463 4900 Excess tax benefits from stock-based compensation – (40) Other – 58 Changes in assets and liabilities: Accounts receivable (1,679) (8,422) signature, 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 Taxes on income (7,544) (1,550) accrued compensation (11,890) (6,838) Deferred income on plan assets 345 134 Deferred compensation, 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 Acquisitions of businesses earn out payments (3,885) (4,736) Payments of sale (3210) – Acquisition of property and equipment (1,053) (2,156) Proceeds of note receivable 422 399 Proceeds from the sale 619 – Other 8 (46) ——— ——— Net cash used activities investment (7,099) (6,539) —— — ——— Cash flows from financing activities Loan from revolving credit facility 43,000 55,000 Repayment under revolving credit (27,000) (55,000) Payment of loan fees (2,243) – Proceeds from exercise or issuance of shares to employees and others – 43 Excess of tax benefits of equity-based compensation – 40 Proceeds from issuance of shares – the stock purchase plans to employees 30 66 ——— ——— Cash Net provided by financing activities 13,787 149 ——— ——— Effect of exchange rate changes on cash 175 (341) ——— — —- —- Decrease in cash and cash equivalents cash (12,264) (9,297) Cash and cash equivalents at beginning of year 19,510 21,602 ——— ——— Cash and cash equivalents at end of period $ 7,246 $ 12,305 ========= ======== Additional information = cash paid for interest $ 1,014 $ 381 ========= ========= Cash paid for income taxes $ 1,900 $ 7,327 ——— —- —– LECG CORPORATION SEGMENT OPERATING RESULTS AND SUBSIDIARIES rate ($ in thousands, except) (Unaudited) Three months ended September 30, ————————— ————— 2009 2008 —————- —- —————————- —————– ——- Revenue and Finance and Economy total accounting of total accounting Economics ——– ——– ——– ——– – ——- — ——- 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 ——– ——– ——– — —– ——- – ——– Revenue 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 expenses 752 1,760 2,512 945 2,113 3,058 ——– ——– ——– ——– —– — ——– Gross profit $ 6,223 $ 8,872 $ 15,095 $ 12,933 14,478 U.S. dollars $ 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 staff, end of period 239 447 686 298 503 801 billable staff, period average 246 449 695 296 490 786 Billable FTEs, average period (2) 200 365 565 241 379 620 Average billable rate $ 349 $ 280 $ 305 $ 358 $ 319 $ 335 payment utilization rate of billable FTEs (3) 67.4% 65.5% 66.2% 80.6% 73.0% 75.9% counting experts, end of period 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 RESULTS operating segment (continued) ($ In thousands, except rate amounts) (unaudited) Nine months ended September 30, —————————– ————- —————- 2009 2008 ——- ———— —————- ——————— Finance and Accounting Finance and Economics Economics Accounting Total ——– ——– Total ——– ——– ——– —— – fee-based revenues, Net income $ 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 ——– ——– ——– —– — ——– — —– Income 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 expenses 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 staff, so of period 239 447 686 298 503 801 billable staff, period average 262 470 732 301 486 786 Billable FTEs, average period (2) 212 380 592 250 387 637 rate charged Average $ 354 $ 283 $ 310 $ 364 $ 320 $ 338 payment utilization rate of billable FTEs (3) 69.4% 64.6% 66.3% 80.5% 73.3% 76.1% count experts, the period 105 200 305 121 208 329 Expert FTEs end, middle period (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 Non-GAAP RECONCILIATION (in thousands, except per share data) Three months ended Nine months ended Sept. 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 benefits $ 15,076 $ 27,640 $ 46,734 $ 85,822 ========== ========== ========== ========== The 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 ———- ———- ———- ———- ( loss) income of $ (63,515) $ 1,995 $ (73,765) $ 8,591 Adjustments, net (loss) income Other impediments from 8719 to 9939 – Restructuring charges 4019 to 5479 – sales positions 124 to 1863 – Costs related to the merger 942 to 942 – Deferred compensation plan 41 118 319 421 equity-based compensation benefits (8) (2,210) – (2,210) – Assessment compensation deferred taxes 51,775 to 51,775 – Supplementary Income Tax (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 shares) $ 0.35 used in calculating earnings per share Diluted 25,654 25,526 25,515 25,528 LECG CORPORATIO N AND SUBSIDIARIES Non-GAAP RECONCILIATION (CONTINUED) ($ in thousands) Three months ended Nine months ended 30 September, September 30, ———————- ———————- 2009 2008 2009 2008 ———- ———- ———- ———- (loss) income of $ (63,515) $ 1,995 $ (73,765) $ 8,591 of 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 impediments 8.719 – 9939 to 4019 restructuring charges – 5479 – sale positions 124 – 1863 – the merger-related costs 942 to 942 – deferred compensation plan 41 118 319 421 Equity based compensation benefits (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 the fee based on net income. (2) full-time equivalent (FTE) is calculated by dividing total actual hours paid in the period by the number of paid days in the period times eight hours per day, provided forty-one weeks hours or 2080 hours spent per year. (3) utilization rate of pay is calculated by dividing the actual number of hours billed in the period by the actual number of hours paid in the period, assuming a forty-hour work week or 2080 hours spent per year. (4) assumes a marginal tax rate of 35.0% and 40.4% in the three and nine months ended 30 September 2009 and 2008, respectively. The tax benefit for the three and nine months ended September 2009 exclude non-deductible and selling expenses related to the merger. (5) Adjusted (loss) income as adjusted (loss) income per diluted share are not financial measures under GAAP. Adjusted (loss) profit excludes other impairments, restructuring expenses, selling expenses, acquisition expenses, expenses relating to market fluctuations in the value of investments of deferred compensation plan, equity-based compensation and benefits and deferred tax valuation allowance. Adjusted (loss) income per diluted share is calculated using adjusted (loss) income divided by diluted shares. The company believes adjusted (loss) income as adjusted (loss) income per share diluted, as useful measures of financial performance of the company. In general, a non-GAAP financial measure is a numerical measure of the performance of an enterprise, a situation financial 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, not as a substitute for or superior to operating (loss) income, cash flows or other measures financial performance prepared in accordance with GAAP. (6) EBITDA and Adjusted EBITDA are not financial measures under GAAP. EBITDA is defined as earnings before provision for income tax, interest and depreciation and amortization. Adjusted EBITDA excludes other impairments, restructuring expenses, separation costs, acquisition expenses, expenses relating to market fluctuations in the value of investments of deferred compensation plan based on equity and the benefit of compensation. The Company believes that EBITDA and Adjusted EBITDA as useful measures of financial performance of the company. In general, a non-GAAP financial measure is a numerical measure of the results of a business, financial condition 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, must 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 basis and shares, respectively, the effect on net loss would be anti-dilutive shares if common stock equivalents were included in the weighted average common shares outstanding during the period. (8) equity-based compensation benefits is about 2.8 million shares based on the recovery of compensation expense related to costs previously recognized in the non-cliff carried 7 years for lack of a fired employee options, offset by approximately $ 0.6 million of expenses related to accelerating the voluntary surrender of approximately 192,000 shares of previously granted stock options.
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