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SOURCE: LECG Corporation
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February 16, 2010 16:00 ET
LECG Corporation Reports Fourth Quarter 2009 and Year-End Results
EMERYVILLE, CA--(Marketwire - February 16, 2010) - LECG Corporation (NASDAQ: XPRT), a global
expert services firm, today reported financial results for the fourth
quarter and full year ended December 31, 2009.
"Our fourth quarter performance was highlighted by improved activity across
most of LECG's business sectors. However, the uncertainty associated with
our industry continues to impact visibility, leaving us cautious in the
near-term," said Michael Jeffery, LECG's chief executive officer.
"Longer-term we remain optimistic about LECG's future, including the
pending closure of the SMART merger. We expect 2010 to be a year of
important integration as we begin to capitalize on the business synergies,
cross-selling potential and cost saving opportunities to position the
combined company for a return to revenue growth and profitability."
Fourth Quarter 2009 Financial Results
Fourth quarter 2009 revenues increased 5.7 percent to $66.3 million,
compared with $62.7 million in the third quarter of 2009, and fell 5.3
percent versus $70.0 million in the fourth quarter 2008.
Net income for the fourth quarter was $0.8 million, or $0.03 per diluted
share, which included a $3.0 million tax benefit primarily related to a
recent rule change in the federal net operating loss ("NOL") carry-back
period. This is compared to a net loss of $64.7 million, or $2.52 per
share, in the third quarter of 2009 and a net loss of $95.3 million, or
$3.76 per share, in the fourth quarter of 2008. On a non-GAAP basis, the
fourth quarter adjusted net loss was $0.3 million, or $0.01 per share,
which excludes the tax benefit related to the NOL carry-back and pre-tax
charges of $1.2 million related to acquisition and integration costs, $0.5
million of loan fee impairment charges and other net charges of $0.2
million. This is compared to an adjusted net loss of $3.6 million, or
$0.14, in the third quarter of 2009 and an adjusted net loss of $6.4
million, or $0.25, in the fourth quarter of 2008.
Adjusted EBITDA for the fourth quarter of 2009 was $1.4 million, compared
to a loss of $3.8 million for the third quarter of 2009, and a loss of $6.8
million for the fourth quarter of 2008.
Fourth Quarter 2009 Segment Results
Economics Services
LECG's economics services segment consists of the company's global
competition, securities, regulated industries, energy and environment and
labor sectors. Net fee-based revenues for this segment were $25.1 million
in the quarter, up from $24.8 million in the third quarter of 2009. The
improvement was driven by slight increases across most sectors, partially
offset by a slight decline in regulated industries. Economics gross profit
was $7.6 million, or 41.4 percent of total gross profit in the quarter.
Direct profit margin was 30.0 percent, up from 25.0 percent in the third
quarter of 2009. Professional staff utilization was 68.4 percent, up from
64.6 percent in the third quarter of 2009.
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. Net fee-based revenues
for the segment were $38.7 million in the quarter, up from $35.4 million in
the third quarter of 2009, as strength across sectors offset a slight
decline in financial services. FAS gross profit was $10.8 million, or 58.6
percent of total gross profit in the quarter. The direct profit margin was
27.9 percent, up from 25.1 percent in the third quarter of 2009.
Professional staff utilization was 71.3 percent, up from 70.1 percent in
the third quarter of 2009.
Full-Year 2009 Financial Results
Revenues for the year ended December 31, 2009 decreased 21.6 percent to
$263.2 million from $335.7 million for the full year of 2008.
Net loss for the year ended December 31, 2009 was $74.1 million compared to
net loss of $86.7 million reported for the same period last year. Net loss
per share was $2.90 for 2009 versus net loss of $3.42 per share for the
prior year. During 2009, a valuation allowance was recorded against our net
deferred taxes of $53.2 million in the third quarter, which drove the
majority of the net loss. In 2008, the net loss was largely due to a fourth
quarter goodwill impairment charge of $118.8 million. Adjusted net loss per
share was $0.43 for 2009 compared with adjusted net income per diluted
share of $0.10 for 2008.
Adjusted EBITDA for the year ended December 31, 2009 was a loss of $8.9
million compared to income of $12.8 million for 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 888-213-3920. International callers may
access the call by dialing 913-312-0969. For a replay of the
teleconference, please call 888-203-1112 or 719-457-0820, and enter the
pass code 6068074. The replay will be available through February 22, 2010.
The webcast will be accessible through the investor relations section of
the company's website, www.lecg.com.
About LECG
LECG, a global expert services and consulting firm, with approximately 700
experts and professionals in 32 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.
Forward-Looking Statements
Statements concerning future business, operating and financial condition of
the company and the pending SMART merger and related equity financing
transactions, including expectations 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. The earnings per
share for the fourth quarter and year ended December 31, 2009 are
preliminary and subject to adjustment. Risks that may affect actual
performance include the ongoing economic downturn and adverse economic
conditions, the availability and terms of bank credit facilities,
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 and practice areas 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. Various factors could cause
the closing of the transaction to be delayed from the company's current
expectations, such as difficulties in arranging the necessary bank
financing, or conditions in the credit markets. 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 Year ended
December 31, December 31,
-------------------- --------------------
2009 2008 2009 2008
--------- --------- --------- ---------
Fee-based revenues, net $ 63,798 $ 66,963 $ 253,376 $ 322,714
Reimbursable revenues 2,501 3,085 9,820 12,965
--------- --------- --------- ---------
Revenues 66,299 70,048 263,196 335,679
Direct costs 45,475 51,547 188,319 221,476
Reimbursable costs 2,460 3,270 10,163 13,339
--------- --------- --------- ---------
Cost of services 47,935 54,817 198,482 234,815
Gross profit 18,364 15,231 64,714 100,864
Operating expenses:
General and administrative
expenses 18,133 22,224 73,258 88,021
Depreciation and amortization 1,148 1,480 4,997 5,939
Goodwill impairment - 118,800 - 118,800
Other impairments 132 5,358 10,071 5,358
Restructuring charges 180 6,437 5,659 5,937
Divestiture (income) charges (63) 3,136 1,800 3,136
--------- --------- --------- ---------
Operating loss (1,166) (142,204) (31,071) (126,327)
Interest income 38 95 160 445
Interest expense (1,063) (103) (2,680) (636)
Other income (expense), net 10 (616) (571) (1,849)
--------- --------- --------- ---------
Loss before income taxes (2,181) (142,828) (34,162) (128,367)
Income tax (benefit) expense (2,991) (47,550) 39,957 (41,680)
--------- --------- --------- ---------
Net income (loss) $ 810 $ (95,278) $ (74,119) $ (86,687)
========= ========= ========= =========
Earnings per share:
Basic $ 0.03 $ (3.76) $ (2.90) $ (3.42)
Diluted $ 0.03 $ (3.76) $ (2.90) $ (3.42)
Shares used in calculating
earnings per share
Basic 25,745 25,373 25,583 25,330
Diluted 25,782 25,373 25,583 25,330
LECG CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
December 31,
--------------------
Assets 2009 2008
--------- ---------
Current assets:
Cash and cash equivalents $ 13,044 $ 19,510
Accounts receivable, net 85,451 87,122
Prepaid expenses 4,981 5,996
Deferred tax assets, net - current portion - 14,123
Signing, retention and performance bonuses -
current portion 14,046 15,282
Income taxes receivable 13,498 7,662
Other current assets 1,660 2,447
Note receivable - current portion 547 518
--------- ---------
Total current assets 133,227 152,660
Property and equipment, net 7,814 11,011
Goodwill 1,800 -
Other intangible assets, net 3,078 3,790
Signing, retention and performance bonuses 20,293 34,976
Deferred compensation plan assets 10,017 9,684
Note receivable 1,351 1,946
Deferred tax assets, net 5,500 36,952
Other long-term assets 7,500 5,188
--------- ---------
Total assets $ 190,580 $ 256,207
========= =========
Liabilities and stockholders' equity
Current liabilities:
Accrued compensation $ 45,363 $ 49,313
Accounts payable and other accrued liabilities 8,823 11,493
Payable for business acquisitions - current portion 1,055 3,846
Borrowings under line of credit 12,000 -
Deferred revenue 3,052 2,450
Deferred tax liabilities, net - current portion 5,500 -
Liability associated with divestiture - 2,642
--------- ---------
Total current liabilities 75,793 69,744
Payable for business acquisitions 100 1,055
Deferred compensation plan obligations 10,163 9,632
Deferred rent 6,156 6,601
Other long-term liabilities 252 569
--------- ---------
Total liabilities 92,464 87,601
--------- ---------
Commitments and contingencies - -
Stockholders' equity
Common stock, $.001 par value, 200,000,000 shares
authorized, 25,895,679 and 25,559,253 shares
outstanding at December 31, 2009 and 2008,
respectively 26 26
Additional paid-in capital 174,917 172,005
Accumulated other comprehensive loss (690) (1,407)
Accumulated deficit (76,137) (2,018)
--------- ---------
Total stockholders' equity 98,116 168,606
--------- ---------
Total liabilities and stockholders' equity $ 190,580 $ 256,207
========= =========
LECG CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
Year ended
December 31,
--------------------
2009 2008
--------- ---------
Cash flows from operating activities
Net loss $ (74,119) $ (86,687)
Adjustments to reconcile net loss to net cash
used in operating activities:
Bad debt expense 1,032 132
Depreciation and amortization of property and
equipment 4,285 4,489
Amortization of intangible assets 712 1,450
Goodwill impairment - 118,800
Other impairments 10,071 5,358
Amortization of signing, retention and performance
bonuses 17,767 16,522
Deferred taxes 49,707 (44,708)
Equity-based compensation 3,967 6,778
Excess tax benefits from equity-based compensation - (41)
Non cash restructuring charges 1,150 2,441
Divestiture charges 1,739 3,136
Other - 71
Changes in assets and liabilities:
Accounts receivable (1,267) 9,258
Signing, retention and performance bonuses paid (10,552) (17,397)
Prepaid and other current assets 5,007 (57)
Accounts payable and other accrued liabilities (3,736) 4,969
Income taxes (5,485) (4,485)
Accrued compensation (5,155) (4,260)
Deferred revenue 671 (348)
Deferred compensation plan assets, net of
liabilities 197 415
Deferred rent (1,154) (947)
Other assets (1,438) (3,646)
Other liabilities (337) 870
--------- ---------
Net cash (used in) provided by operating activities (6,938) 12,113
--------- ---------
Cash flows from investing activities
Business acquisitions earn out payments (5,585) (9,736)
Divestiture payments (3,210) -
Purchase of property and equipment (1,381) (3,217)
Proceeds from note receivable 566 536
Proceeds from divestiture 619 -
Other - (177)
--------- ---------
Net cash used in investing activities (8,991) (12,594)
--------- ---------
Cash flows from financing activities
Borrowings under revolving credit facility 45,000 61,000
Repayments under revolving credit facility (33,000) (61,000)
Proceeds from exercise or issuance of stock to
employee and other - 46
Excess tax benefits from equity-based compensation - 41
Proceeds from issuance of stock - employee stock
purchase plan 40 85
Payment of loan fees (2,692) -
Other - 1
--------- ---------
Net cash provided by financing activities 9,348 173
--------- ---------
Effect of exchange rates on changes in cash 115 (1,784)
--------- ---------
Decrease in cash and cash equivalents (6,466) (2,092)
Cash and cash equivalents, beginning of year 19,510 21,602
--------- ---------
Cash and cash equivalents, end of year $ 13,044 $ 19,510
========= =========
LECG CORPORATION AND SUBSIDIARIES
SEGMENT OPERATING RESULTS
($ in thousands, except rate amounts)
(unaudited)
Three months ended December 31,
----------------------------------------------------------
2009 2008
---------------------------- ----------------------------
Finance Finance
and and
Economics Accounting Total Economics Accounting Total
-------- -------- -------- -------- -------- --------
Fee-based
revenues,
net $ 25,086 $ 38,712 $ 63,798 $ 28,015 $ 38,948 $ 66,963
Reimbursable
revenues 844 1,657 2,501 932 2,153 3,085
-------- -------- -------- -------- -------- --------
Revenues $ 25,930 $ 40,369 $ 66,299 $ 28,947 $ 41,101 $ 70,048
Direct costs $ 17,552 $ 27,923 $ 45,475 $ 20,989 $ 30,558 $ 51,547
Reimbursable
costs 783 1,677 2,460 1,152 2,118 3,270
-------- -------- -------- -------- -------- --------
Gross
profit $ 7,595 $ 10,769 $ 18,364 $ 6,806 $ 8,425 $ 15,231
Direct profit
margin (1) 30.0% 27.9% 28.7% 25.1% 21.5% 23.0%
Gross margin 29.3% 26.7% 27.7% 23.5% 20.5% 21.7%
Operating statistics
Paid days 66 66 66 65 65 65
Billable headcount,
period end 227 415 642 287 496 783
Billable headcount,
period average 228 420 648 295 502 797
Billable FTEs,
period average (2) 184 349 533 234 398 633
Average
billable rate $ 360 $ 304 $ 323 $ 361 $ 300 $ 323
Paid utilization
rate of billable
FTEs(3) 71.6% 69.3% 70.1% 63.7% 62.6% 63.0%
Expert headcount,
period end 98 192 290 122 221 343
Expert FTEs,
period average (2) 56 127 183 62 130 192
Jr/Sr staff
paid utilization
rate (3) 68.4% 71.3% 70.3% 60.7% 63.5% 62.4%
LECG CORPORATION AND SUBSIDIARIES
SEGMENT OPERATING RESULTS (CONTINUED)
($ in thousands, except rate amounts)
(unaudited)
Year ended December 31,
----------------------------------------------------------
2009 2008
---------------------------- ----------------------------
Finance Finance
and and
Economics Accounting Total Economics Accounting Total
-------- -------- -------- -------- -------- --------
Fee-based
revenues, net $106,186 $147,190 $253,376 $142,295 $180,419 $322,714
Reimbursable
revenues 3,223 6,597 9,820 4,490 8,475 12,965
-------- -------- -------- -------- -------- --------
Revenues $109,409 $153,787 $263,196 $146,785 $188,894 $335,679
Direct costs $ 75,945 $112,374 $188,319 $ 95,546 $125,930 $221,476
Reimbursable
costs 3,390 6,773 10,163 4,970 8,369 13,339
-------- -------- -------- -------- -------- --------
Gross profit $ 30,074 $ 34,640 $ 64,714 $ 46,269 $ 54,595 $100,864
Direct profit
margin (1) 28.5% 23.7% 25.7% 32.9% 30.2% 31.4%
Gross margin 27.5% 22.5% 24.6% 31.5% 28.9% 30.0%
Operating statistics
Paid days 261 261 261 260 260 260
Billable headcount,
period end 227 415 642 287 496 783
Billable
headcount,
period average 253 458 711 299 490 789
Billable FTEs,
period average (2) 205 372 577 246 390 636
Average
billable rate $ 355 $ 288 $ 313 $ 364 $ 315 $ 335
Paid utilization
rate of
billable FTEs (3) 69.9% 65.7% 67.2% 76.5% 70.5% 72.8%
Expert headcount,
period end 98 192 290 122 221 343
Expert FTEs,
period average (2) 61 132 193 66 116 183
Jr/Sr staff
paid utilization
rate (3) 67.1% 69.2% 68.4% 73.6% 70.0% 71.4%
LECG CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES
(in thousands, except per share data)
Three months ended Year ended
December 31, December 31,
-------------------- --------------------
2009 2008 2009 2008
--------- --------- --------- ---------
Fee-based revenues, net $ 63,798 $ 66,963 $ 253,376 $ 322,714
Direct costs 45,475 51,547 188,319 221,476
--------- --------- --------- ---------
Direct profit $ 18,323 $ 15,416 $ 65,057 $ 101,238
========= ========= ========= =========
Direct profit margin (1) 28.7% 23.0% 25.7% 31.4%
Three months ended Year ended
December 31, December 31,
-------------------- --------------------
2009 2008 2009 2008
--------- --------- --------- ---------
Net income (loss) $ 810 $ (95,278) $ (74,119) $ (86,687)
Adjustments to net income
(loss)
Goodwill impairment - 118,800 - 118,800
Other impairments 132 5,358 10,071 5,358
Restructuring charges 180 6,437 5,659 5,937
Divestiture (income) charges (63) 3,136 1,800 3,136
Acquisition costs 1,152 - 2,094 -
Integration costs 75 - 75 -
Loan fees impairment 484 - 484 -
Deferred compensation plan (22) 765 297 1,763
Equity-based compensation
benefit (8) - - (2,210) -
Deferred tax valuation
allowance (2,682) 3,500 50,511 3,500
Income tax provision (4) (374) (49,160) (5,703) (49,358)
--------- --------- --------- ---------
Adjusted income (loss) (5) $ (308) $ (6,442) $ (11,041) $ 2,449
========= ========= ========= =========
Adjusted income (loss) per
diluted share (5)(7) $ (0.01) $ (0.25) $ (0.43) $ 0.10
Shares used in calculating
earnings per share
Diluted 25,745 25,373 25,583 25,513
LECG CORPORATION AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP MEASURES (CONTINUED)
($ in thousands)
Three months ended Year ended
December 31, December 31,
------------------ ------------------
2009 2008 2009 2008
-------- -------- -------- --------
Net income (loss) $ 810 $(95,278) $(74,119) $(86,687)
Income tax (benefit) expense (2,991) (47,550) 39,957 (41,680)
Interest expense, net 1,025 7 2,520 191
Depreciation and amortization 1,148 1,480 4,997 5,939
-------- -------- -------- --------
EBITDA (6) (8) (141,341) (26,645) (122,237)
Adjustments to EBITDA
Goodwill impairment - 118,800 - 118,800
Other impairments 132 5,358 10,071 5,358
Restructuring charges 180 6,437 5,659 5,937
Divestiture charges (63) 3,136 1,800 3,136
Acquisition costs 1,152 - 2,094 -
Integration costs 75 - 75 -
Deferred compensation plan (22) 765 297 1,763
Equity-based compensation
benefit(8) - - (2,210) -
-------- -------- -------- --------
Adjusted EBITDA (6) $ 1,446 $ (6,845) $ (8,859) $ 12,757
======== ======== ======== ========
(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 39.4% and 39.9% in the quarter and year
ended December 31, 2009 and 2008, respectively. The tax benefit for
2009 excludes non-deductible divestiture and merger-related charges.
The tax benefit for 2008 excludes non-deductible goodwill impairment
of approximately $12 million.
(5) Adjusted income (loss) and adjusted income (loss) per diluted share are
non-GAAP financial measures. Adjusted income (loss) excludes goodwill
impairment, other impairments, restructuring charges, divestiture
charges, acquisition costs, integration costs, loan fees impairment,
charges related to market fluctuations in the value of deferred
compensation plan investments, equity-based compensation benefit and
deferred tax valuation allowance. Adjusted income (loss) per diluted
share is calculated using adjusted income (loss) divided by diluted
shares. The Company regards adjusted income (loss) and adjusted income
(loss) 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, 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 goodwill
impairment, other impairments, restructuring charges, divestiture
charges, acquisition costs, integration 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, cash flows, or other measures of financial performance
prepared in accordance with GAAP.
(7) Diluted earnings per share and diluted shares are equal to basic
earnings per share and basic shares, respectively, for all periods
presented except the year ended December 31, 2008, 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.