SOURCE: LECG Corporation

October 30, 2007 16:02 ET

LECG Corporation Reports Third Quarter 2007 Results

Strong Client Demand Boosts Revenue Growth to 9%

Recovery Efforts on Track and Contribute to EPS of $0.26

EMERYVILLE, CA--(Marketwire - October 30, 2007) - LECG Corporation (NASDAQ: XPRT), a global expert services firm, today reported financial results for the third quarter and nine months ended September 30, 2007.

Third Quarter Financial Results

Revenues for the third quarter of 2007 increased 9.0 percent to $99.7 million from $91.4 million in the third quarter of 2006. Expert and professional staff revenues increased 11.3 percent over the same period. Organic growth of expert and professional staff revenues was 8.7 percent. Reimbursable expenses decreased 21.7 percent to $4.7 million from $6.0 million in the third quarter of 2006.

Net income was $6.5 million in the third quarter of 2007, 6.1 percent higher than net income of $6.2 million in the third quarter of last year. Net income per diluted share was $0.26, compared with net income per diluted share of $0.24 in the same period a year ago. Average diluted shares outstanding were 25.6 million for the third quarter of 2007 compared with 25.3 million for the same period in 2006.

EBITDA(2) for the third quarter of 2007 was $12.9 million, a 5.8 percent increase from EBITDA of $12.1 million for the third quarter of 2006.

Michael Jeffery, LECG chief executive officer, commented, "LECG's third quarter results exceeded our expectations. Strong client demand at the end of the quarter helped us achieve better than anticipated revenues on both lower expert and professional staff headcount. Professional staff utilization was also strong."

Mr. Jeffery continued, "We believe our third quarter results reflect sustainable benefits from implementing management's recovering value plan. Further improvements in gross margin are achievable as we better manage our available resources and increase overall leverage. We are committed to delivering stronger financial performance."

Operating Metrics

As of September 30, 2007, LECG had 1,151 employees and exclusive independent contractors compared with 1,189 as of June 30, 2007. Expert headcount was 317, a decrease of 5.7 percent compared with 336 as of June 30, 2007. Professional staff headcount decreased 2.3 percent to 546 from 559 as of June 30, 2007.

Nine Month Financial Results

Revenues for the nine months ended September 30, 2007 increased 9.6 percent to $290.4 million from $264.9 million for the same period in 2006. Expert and professional staff revenues increased 10.3 percent. Reimbursable expenses were $13.7 million compared with $13.8 million in the first nine months of 2006.

Net income for the nine months ended September 30, 2007 was $14.0 million, 21.9 percent lower than net income of $17.9 million reported for the same period last year. Net income per diluted share for the first nine months of 2007 was $0.55, including restructuring charges of $0.09, compared with net income per diluted share of $0.71 for the same period a year ago. Average diluted shares outstanding increased to 25.5 million for the nine months ended September 30, 2007 from 25.2 million for the same period in 2006.

During the nine months ended September 30, 2007, the company took restructuring charges of $3.9 million, or $0.09 per fully diluted share. Of this amount, $2.4 million was related to non-cash items.

EBITDA(2) for the nine months ended September 30, 2007 was $29.1 million, a 16.5 percent decrease from EBITDA of $34.9 million in the same period of 2006. Adjusted EBITDA(3) was $33.1 million for the first nine months of 2007, a decrease of 6.1 percent over the prior year period.

Confirms Fourth Quarter 2007 Outlook

For the fourth quarter ending December 31, 2007, LECG anticipates revenues will be in the range of $95 million to $98 million and that net income per diluted share will be in the range of $0.24 to $0.26, consistent with previously provided fourth quarter guidance. These figures are exclusive of any fourth quarter restructuring charges that the company may incur as it continues to implement its value recovery plan.

Incorporating the third quarter results, LECG anticipates revenues for the full year 2007 will be in the range of $385 million to $388 million and net income per diluted share will be in the range of $0.80 to $0.82, including $0.09 of restructuring expense related to implementation of the recovery plan incurred in the first nine months of the year.

Mr. Jeffery stated, "In the fourth quarter, LECG's management team expects to finalize the incentive compensation programs, conclude the strategic planning process, and complete the operational plan for 2008. We are cautiously optimistic about the progress we have made to date and believe we are on track to enter 2008 with a focused and nimble operational base, a manageable business model that delivers an attractive return to our shareholders, and a solid platform for profitable growth."

Board of Directors Appoints New Member

In a separate press release issued today, LECG announced that its board of directors has appointed Alison Davis as a new member. The board also voted to increase the number of board directors to nine. With the appointment of Ms. Davis, there are currently eight members on the board.

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. 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 broadcast.

About LECG

LECG, a global expert services firm with more than 850 experts and professionals in 32 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, including expectations regarding revenues and net income for the remainder of 2007, 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 effect actual performance include 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
              CONDENSED CONSOLIDATED STATEMENTS OF INCOME
  For the Quarter and Nine months ended September 30, 2007 and 2006
                  (in thousands, except per share data)
                               (Unaudited)


                                   Quarter ended       Nine Months ended
                                    September 30,         September 30,
                                --------------------- --------------------
                                   2007     2006 (1)     2007     2006 (1)
                                ---------- ---------- ---------- ---------

 Revenues                       $   99,650 $   91,390 $  290,434 $ 264,904
 Cost of services                   65,893     60,140    195,813   175,462
                                ---------- ---------- ---------- ---------
 Gross profit                       33,757     31,250     94,621    89,442
 Operating expenses:
   General and administrative
    expenses                        20,736     18,955     65,115    54,308
   Depreciation and amortization     1,767      1,824      5,453     5,013
                                ---------- ---------- ---------- ---------
 Operating income                   11,254     10,471     24,053    30,121
 Interest and other expense
  (income), net                        144        109        361       (44)
                                ---------- ---------- ---------- ---------
 Income before income tax           11,110     10,362     23,692    30,165
 Income tax provision                4,570      4,197      9,666    12,217
                                ---------- ---------- ---------- ---------
 Net income                     $    6,540 $    6,165 $   14,026 $  17,948
                                ========== ========== ========== =========

 Net income per share:
   Basic                        $     0.26 $     0.25 $     0.56 $    0.74
   Diluted                      $     0.26 $     0.24 $     0.55 $    0.71
 Share amounts:
   Basic                            25,205     24,371     25,060    24,261
   Diluted                          25,570     25,268     25,511    25,175

(1) As revised in our 2006 Form 10-K to reflect the correction of errors
    noted in accordance with SAB 108.





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

                                                September 30, December 31,
 Assets                                             2007          2006
                                                ------------- -------------
 Current assets:
   Cash and cash equivalents                    $      13,548 $      26,489
   Accounts receivable, net of allowance of
    $833 and $906                                     120,798       107,585
   Prepaid expenses                                     5,852         5,092
   Deferred tax assets, net                             3,140         3,877
   Signing and performance bonuses - current
    portion                                            10,807         9,545
   Income taxes receivable                              2,327         5,481
   Other current assets                                 5,133         2,494
                                                ------------- -------------
     Total current assets                             161,605       160,563
 Property and equipment, net                           13,606        13,701
 Goodwill                                             113,423       101,960
 Other intangible assets, net                          10,169         9,855
 Signing and performance bonuses - long-term           29,012        28,265
 Deferred compensation plan assets                     14,940        10,925
 Other long-term assets                                 1,512         1,884
                                                ------------- -------------
 Total assets                                   $     344,267 $     327,153
                                                ============= =============

 Liabilities and stockholders' equity
 Current liabilities:
   Accrued compensation                         $      47,627 $      50,852
   Accounts payable and other accrued
    liabilities                                         6,948         8,011
   Payable for business acquisitions - current
    portion                                             6,104        11,372
   Deferred revenue                                     3,402         2,487
                                                ------------- -------------
     Total current liabilities                         64,081        72,722
 Payable for business acquisitions - long-term          2,000         2,178
 Deferred compensation plan obligations                14,399        11,550
 Deferred tax liabilities                               1,850         1,851
 Other long-term liabilities                            7,726         7,738

 Commitments and contingencies

 Stockholders' equity
 Common stock, $.001 par value, 200,000,000
  shares authorized, 25,320,143 and 24,907,072
  shares outstanding at September 30, 2007 and
  December 31, 2006, respectively                          25            25
 Additional paid-in capital                           164,457       156,900
 Accumulated other comprehensive income                 2,394           880
 Retained earnings                                     87,335        73,309
                                                ------------- -------------
   Total stockholders' equity                         254,211       231,114
                                                ------------- -------------
 Total liabilities and stockholders' equity     $     344,267 $     327,153
                                                ============= =============





                                LECG CORPORATION
                CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
               For the Period ended September 30, 2007 and 2006
                                 (in thousands)
                                  (Unaudited)


                                                      Nine months ended
                                                        September 30,
                                                  ------------------------
                                                      2007       2006 (1)
                                                  -----------  -----------
Cash flows from operating activities
Net income                                        $    14,026  $    17,948
   Adjustments to reconcile net income to net
    cash provided by (used in) operating
    activities:
   Bad debt expense                                       141          222
   Depreciation and amortization of property and
    equipment                                           3,512        2,637
   Amortization of other intangibles                    1,942        2,376
   Signing and performance bonuses paid               (19,864)     (18,034)
   Amortization of signing and performance
    bonuses                                             8,633        6,286
   Non cash restructuring charge                        2,433            -
   Tax benefit from option exercises and equity
    compensation plans                                    735          281
   Equity-based compensation                            4,367        4,930
   Deferred rent                                          (15)         198
   Other                                                  (35)          (8)
Changes in assets and liabilities:
   Accounts receivable                                (13,354)     (22,794)
   Prepaid and other current assets                    (1,884)       1,152
   Accounts payable and other accrued liabilities        (800)       1,773
   Income taxes                                         3,096       (4,261)
   Accrued compensation                                 1,996        2,234
   Deferred revenue                                       531          163
   Deferred compensation plan assets, net of plan
    obligations                                        (1,165)         283
   Other assets                                           453          167
   Other liabilities                                      112        1,745
                                                  -----------  -----------
     Net cash provided by (used in) operating
      activities                                        4,860       (2,702)
                                                  -----------  -----------
Cash flows from investing activities
   Business acquisitions, net of acquired cash        (19,183)     (21,900)
   Purchases of property and equipment                 (3,313)      (4,796)
   Other                                                    7           39
                                                  -----------  -----------
     Net cash used in investing activities            (22,489)     (26,657)
                                                  -----------  -----------
Cash flows from financing activities
   Borrowings from revolving credit facility           10,000       25,000
   Repayments under revolving credit facility         (10,000)     (15,000)
   Exercise of stock options                            1,806        2,284
   Proceeds from issuance of stock - employee
    stock plan                                            110          160
   Tax benefit from option exercises and equity
    compensation plans                                  1,199          784
   Other                                                   59            -
                                                  -----------  -----------
     Net cash provided by financing activities          3,174       13,228
Effect of exchange rates on changes in cash             1,514          867
                                                  -----------  -----------
Decrease in cash and cash equivalents                 (12,941)     (15,264)
Cash and cash equivalents, beginning of year           26,489       35,722
                                                  -----------  -----------
Cash and cash equivalents, end of period               13,548       20,458
                                                  ===========  ===========
Supplemental disclosure
   Cash paid for interest                         $       230  $       238
                                                  ===========  ===========
   Cash paid for income taxes                     $     3,878  $    15,898
                                                  ===========  ===========
Non cash investing and financing activities
   Fair value of common stock issued for
    acquisitions                                  $         -  $       250
                                                  ===========  ===========


(1) As revised in our 2006 Form 10-K to reflect the correction of errors
    noted in accordance with SAB 108.




                              LECG CORPORATION
 Reconciliation of GAAP Financial Measures to Non-GAAP Financial Measures
    For the Quarter and Nine months ended September 30, 2007 and 2006
                               (in thousands)


                                      Quarter ended     Nine Months ended
                                      September 30,       September 30,
                                    ------------------  ------------------
                                      2007      2006      2007      2006
                                    --------  --------  --------  --------

Net income                          $  6,540  $  6,165  $ 14,026  $ 17,948
  Provision for income tax expense     4,570     4,197     9,666    12,217
  Interest expense (income), net         (24)      (38)      (24)     (292)
  Depreciation and amortization
   expense                             1,767     1,824     5,453     5,013
                                    --------  --------  --------  --------
    EBITDA (2)                        12,853    12,148    29,121    34,886
                                    --------  --------  --------  --------

Adjustments to EBITDA
  Expensed acquisition costs               -         -         -       317
  Restructuring charges                    -         -     3,946         -
                                    --------  --------  --------  --------

    EBITDA (3)                      $ 12,853  $ 12,148  $ 33,067  $ 35,203
                                    ========  ========  ========  ========


(2) 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 alternative or
    superior to, operating income, cash flows, or other measures of
    financial performance prepared in accordance with GAAP.

(3) Adjusted EBITDA is a non-GAAP financial measure defined by the company
    as EBITDA as defined in (2) above adjusted for restructuring expenses
    relating to implementation of the value recovery plan in 2007, and
    expensed acquisition costs recognized in the first quarter of 2006. 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:

    Steven R. Fife
    Chief Financial Officer
    510-985-6700

    Erin Glenn
    Investor Relations
    510-985-6990
    Email Contact