SOURCE: LECG Corporation

October 31, 2006 16:05 ET

LECG Corporation Reports Third Quarter 2006 Results

Third Quarter 2006 Revenues Grew 28% and EPS Was $0.25

EMERYVILLE, CA -- (MARKET WIRE) -- October 31, 2006 -- LECG Corporation (NASDAQ: XPRT), a global expert services firm, today reported financial results for the third quarter and nine months ended September 30, 2006.

Third Quarter Financial Results

Revenues for the third quarter 2006 increased 28% to $91,390,000 from $71,366,000 for the third quarter 2005. Expert and professional staff revenues increased 28%. Organic growth of expert and professional staff revenues was 15%.

Net income for the third quarter 2006 was $6,361,000, or $0.25 per diluted share, an increase of 18% over the third quarter 2005 net income of $5,400,000 or $0.22 per diluted share. Third quarter 2006 net income includes equity-based compensation of $1,661,000, or $0.04 per diluted share. Diluted shares outstanding increased 1% to 25,268,000 in the third quarter 2006 from 25,051,000 for the same period in 2005.

EBITDA(1) for the third quarter 2006 was $12,477,000, a 23% increase over the third quarter 2005 EBITDA of $10,143,000. Adjusted EBITDA(2) was $14,138,000 for the third quarter 2006, a 25% increase over third quarter 2005 Adjusted EBITDA of $11,344,000.

Nine Month Financial Results

Revenues for the nine months ended September 30, 2006 increased 24% to $264,904,000 from $213,628,000 for the same period in 2005. Expert and professional staff revenues increased 25%.

Net income for the nine months ended September 30, 2006 was $18,354,000, or $0.73 per diluted share, an increase of 11% over the same period in 2005 net income of $16,569,000, or $0.68 per diluted share. Net income for the nine months ended September 30, 2006 includes equity-based compensation of $4,930,000, or $0.12 per diluted share, and expensed acquisition costs of $317,000, or $0.01 per diluted share. Diluted shares outstanding increased 3% to 25,175,000 in the nine months ended September 30, 2006 from 24,441,000 for the same period in 2005.

EBITDA(1) for the nine months ended September 30, 2006 was $35,568,000, a 16% increase over EBITDA of $30,646,000 for the same period last year. Adjusted EBITDA(2) was $40,815,000 for the nine months ended September 30, 2006, an increase of 27% over the same period last year Adjusted EBITDA of $32,127,000.

"LECG is pleased with its business progress, with 2006 third quarter and nine month financial results demonstrating the company's continued performance and improvement. LECG also made several exceptional additions to the expert talent pool during the quarter, strengthening both its capabilities in new practice areas and its ability to deliver organic growth," said LECG chairman, Dr. David Teece. "Additionally, LECG is pleased that the frequency with which multi-disciplinary expert teams are engaged on client assignments has increased significantly."

Operating Metrics

LECG ended the third quarter 2006 with 1,280 employees and exclusive independent contractors, an increase of 3% from 1,244 as of June 30, 2006, and an increase of 16% from 1,104 as of September 30, 2005. Expert headcount increased from 373 to 381 as of June 30, 2006, and professional staff headcount increased from 602 to 620. Professional staff utilization was 82% on an available hours basis and 74% on a paid hours basis in the third quarter 2006 compared to 80% on an available hours basis and 70% on a paid hours basis in the third quarter 2005.

"LECG continues to add talent and grow revenues," said LECG chief operating officer Michael Jeffery. "Since joining as COO, I have been working with executive management and LECG professionals to identify opportunities to improve profitability and cash generation, while preserving the entrepreneurial reward structure that attracts top talent to the company. These efforts are ongoing, and will continue even as we implement changes in the upcoming months."

2006 Fiscal Year Outlook

LECG now anticipates that revenues for the full year will be in the range of $355.0 million to $360.0 million, or $90.0 million to $95.0 million for the fourth quarter. Net income for the year is expected to be in the range of $24.6 million to $25.3 million, or $6.2 million to $6.9 million for the fourth quarter of 2006, and net income per diluted share is expected to be in the range of $0.98 to $1.00 for 2006, or $0.25 to $0.27 in the fourth quarter. Net income guidance includes estimated equity-based compensation costs of $0.16 per diluted share for the full year, and expensed acquisition costs of $0.01 per diluted share. Previously stated 2006 net income guidance included equity-based compensation costs of $0.14 per diluted share.

Conference Call Webcast Information

To listen to a live audio webcast of LECG's third quarter 2006 financial results conference call, visit the company's website www.lecg.com. The conference call begins at 5:00 pm Eastern time today. A replay of the call will also be available on the company's website one hour after completion of the live broadcast.

About LECG

LECG, a global expert services firm with over 1000 experts and professionals in 36 offices around the world, provides independent expert testimony, 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 that help resolve 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. (NASDAQ: XPRT)

Statements in this press release concerning the future business, operating and financial condition of the Company 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 as of today, October 31, 2006. There may be events in the future that the Company is not able to accurately predict or control, which may cause actual results to differ materially from expectations. Information contained in these forward looking statements is inherently uncertain, and actual performance is subject to a number of risks, including but not limited to, among others, dependence on key personnel, acquisitions, risks inherent in international operations, management of professional staff, dependence on growth of the Company's service offerings, the ability of the Company to integrate successfully new experts into its practice, 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 cannot guarantee any future results, levels of activity, performance or achievement. The Company undertakes no obligation to update any of its forward looking statements after the date of this press release.

                             LECG CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF INCOME
      For the Quarter and Nine months ended September 30, 2006 and 2005
                   (in thousands, except per share data)
                               (Unaudited)


                                      Quarter ended     Nine months ended
                                      September 30,       September  30,
                                    ------------------  ------------------
                                      2006      2005      2006      2005
                                    --------  --------  --------  --------

Revenues                            $ 91,390  $ 71,366  $264,904  $213,628
Cost of services                     (59,811)  (47,192) (174,780) (142,045)
                                    --------  --------  --------  --------
Gross profit                          31,579    24,174    90,124    71,583
Operating expenses:
   General and administrative
    expenses                         (18,955)  (12,837)  (54,308)  (39,824)
   Depreciation and amortization      (1,824)   (1,141)   (5,013)   (2,968)
   Goodwill write-off                      -    (1,063)        -    (1,063)
                                    --------  --------  --------  --------
Operating income                      10,800     9,133    30,803    27,728
   Interest income                       195       225       683       623
   Interest expense                     (157)     (107)     (391)     (218)
   Other income (expense), net          (147)     (131)     (248)      (50)
                                    --------  --------  --------  --------
Income before income tax              10,691     9,120    30,847    28,083
Income tax provision                  (4,330)   (3,720)  (12,493)  (11,514)
                                    --------  --------  --------  --------
Net income                          $  6,361  $  5,400  $ 18,354  $ 16,569
                                    ========  ========  ========  ========

Net income per share:
   Basic                            $   0.26  $   0.23  $   0.76  $   0.71
   Diluted                          $   0.25  $   0.22  $   0.73  $   0.68
Share amounts:
   Basic                              24,371    23,678    24,261    23,201
   Diluted                            25,268    25,051    25,175    24,441





                            LECG CORPORATION
                 CONDENSED CONSOLIDATED BALANCE SHEETS
                   (in thousands, except share data)
                               (Unaudited)


                                                 September 30, December 31,
Assets                                                2006         2005
                                                  ------------ -----------
Current assets:
   Cash and cash equivalents                      $     20,458 $    35,722
   Accounts receivable, net of allowance of $829
    and $666                                           116,870      94,299
   Prepaid expenses                                      5,052       4,317
   Deferred tax assets, net                              1,482       1,745
   Signing and performance bonuses - current
    portion                                              9,435       6,122
   Other current assets                                  3,641       4,775
                                                  ------------ -----------
      Total current assets                             156,938     146,980
Property and equipment, net                             13,292      10,791
Goodwill                                                96,742      77,133
Other intangible assets, net                            10,578      10,865
Signing and performance bonuses - long-term             25,564      19,035
Deferred compensation plan assets                        9,547       6,403
Other long-term assets                                   1,488       1,678
                                                  ------------ -----------
Total assets                                      $    314,149 $   272,885
                                                  ============ ===========

Liabilities and stockholders' equity
Current liabilities:
   Accrued compensation                           $     44,320 $    43,924
   Revolving credit facility                            10,000           -
   Accounts payable and other accrued liabilities        7,562       5,412
   Payable for business acquisitions - current
    portion                                              6,496       6,510
   Deferred revenue                                      2,622       2,427
   Income taxes payable                                      -       3,961
                                                  ------------ -----------
      Total current liabilities                         71,000      62,234
Payable for business acquisitions - long-term            2,000       2,400
Deferred compensation plan obligations                  10,043       6,615
Deferred tax liabilities                                   989         989
Other long-term liabilities                              7,421       5,581

Commitments and contingencies

Stockholders' equity
Common stock, $.001 par value, 200,000,000 shares
 authorized, 24,552,770 and 24,243,482 shares
 outstanding at September 30, 2006 and December
 31, 2005, respectively                                     25          24
Additional paid-in capital                             151,523     144,171
Deferred equity compensation                                 -      (1,056)
Accumulated other comprehensive income (loss)              702        (165)
Retained earnings                                       70,446      52,092
                                                  ------------ -----------
      Total stockholders' equity                       222,696     195,066
                                                  ------------ -----------
Total liabilities and stockholders' equity        $    314,149 $   272,885
                                                  ============ ===========





                             LECG CORPORATION
              CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
           For the Nine months ended September 30, 2006 and 2005
                              (in thousands)
                                (Unaudited)


                                                        Nine months ended
                                                          September 30,
                                                        ------------------
                                                          2006      2005
                                                        --------  --------
Cash flows from operating activities
Net income                                              $ 18,354  $ 16,569
   Adjustments to reconcile net income to net cash
    provided by (used in) operating activities:
   Bad debt expense                                          222       122
   Depreciation and amortization of equipment and
    leaseholds                                             2,637     2,249
   Amortization of intangible assets                       2,376       719
   Goodwill write-off                                          -     1,063
   Signing and performance bonuses paid                  (18,034)   (6,318)
   Amortization of signing and performance bonuses         6,286     5,106
   Tax benefit from option exercises and equity
    compensation plans                                       281     5,782
   Equity based compensation                               4,930       418
   Deferred rent                                             198     1,142
   Other                                                      (8)     (119)
Changes in assets and liabilities:
      Accounts receivable                                (22,794)  (18,240)
      Prepaid and other current assets                     1,217    (1,169)
      Accounts payable and other accrued liabilities      (2,212)   (1,454)
      Accrued compensation                                 1,487    (1,580)
      Deferred revenue                                       163       488
      Deferred compensation plan assets net of
       liabilities                                           283       279
      Other assets                                           167      (473)
      Other liabilities                                    1,745     1,801
                                                        --------  --------
         Net cash provided by (used in) operating
          activities                                      (2,702)    6,385
Cash flows from investing activities
   Business acquisitions and earnout payments, net of
    acquired cash                                        (21,900)  (24,597)
   Purchase of property and equipment                     (4,796)   (5,924)
   Other                                                      39       (49)
                                                        --------  --------
      Net cash used in investing activities              (26,657)  (30,570)
Cash flows from financing activities
   Borrowings under revolving credit facility             25,000         -
   Repayments under revolving credit facility            (15,000)        -
   Exercise of stock options                               2,284     8,634
   Proceeds from secondary offering, net of offering
    costs                                                      -     1,311
   Proceeds from issuance of stock- employee stock plan      160       925
   Tax benefit from option exercises and equity
    compensation plans                                       784         -
                                                        --------  --------
      Net cash provided by financing activities           13,228    10,870
Effect of exchange rates on changes in cash                  867      (988)
                                                        --------  --------
Decrease in cash and cash equivalents                    (15,264)  (14,303)
Cash and cash equivalents, beginning of year              35,722    42,082
                                                        --------  --------
   Cash and cash equivalents, end of period             $ 20,458  $ 27,779
                                                        ========  ========

Supplemental disclosure
   Cash paid for interest                               $    238  $     60
                                                        ========  ========
   Cash paid for income taxes                           $ 15,898  $  5,789
                                                        ========  ========
Non cash investing and financing activities
   Fair value of common stock issued for acquisitions   $    250  $  1,250
                                                        ========  ========





                             LECG CORPORATION
                       EBITDA and Adjusted EBITDA
    For the Quarter and Nine months ended September 30, 2006 and 2005
                               (in thousands)


                                         Quarter ended    Nine Months Ended
                                          September 30,     September 30,
                                          2006     2005     2006     2005
                                        -------  -------  -------  -------
Net income                              $ 6,361  $ 5,400  $18,354  $16,569
Add back (subtract):
   Provision for income tax               4,330    3,720   12,493   11,514
   Interest income, net                     (38)    (118)    (292)    (405)
   Depreciation and amortization          1,824    1,141    5,013    2,968
                                        -------  -------  -------  -------
      EBITDA (1)                        $12,477  $10,143  $35,568  $30,646
                                        -------  -------  -------  -------


Adjustments to EBITDA
   Equity-based compensation              1,661      138    4,930      418
   Expensed acquisition costs                 -        -      317        -
   Goodwill write-off                         -    1,063        -    1,063
                                        -------  -------  -------  -------
      Adjusted EBITDA (2)               $14,138  $11,344  $40,815  $32,127
                                        =======  =======  =======  =======

(1) EBITDA is a non-GAAP financial measure defined as net income before
    provision for income tax, interest, and depreciation and amortization.
    The Company regards EBITDA as a useful measure 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 income, cash flows, or other measures of
    financial performance prepared in accordance with GAAP.

(2) Adjusted EBITDA is a non-GAAP financial measure defined by the Company
    as EBITDA as defined in (1) above adjusted for equity-based
    compensation,  expensed acquisition costs recognized in the first
    quarter of 2006, and a goodwill write-off in the third quarter of 2005.
    As is the case with EBITDA, this measure should be considered in
    addition to, and not as a substitute or superior to, operating income,
    cash flows, or other measures of financial performance prepared in
    accordance with GAAP.

Contact Information

  • Contacts
    Jack Burke
    Chief Financial Officer
    510-985-6700

    Erin Glenn
    Investor Relations
    510-985-6990
    Email Contact