SOURCE: LECG Corporation

May 02, 2006 16:05 ET

LECG Corporation Reports First Quarter 2006 Results

First Quarter 2006 Expert and Professional Staff Revenues Grew 22% and EPS Was $0.22

EPS Excluding Acquisition Related Expenses was $0.23

LECG Appoints Chief Operating Officer

EMERYVILLE, CA -- (MARKET WIRE) -- May 2, 2006 -- LECG Corporation (NASDAQ: XPRT), a global expert services firm, today reported financial results for the first quarter ended March 31, 2006 and announced the appointment of a chief operating officer.

First Quarter 2006 Financial Results

Revenues for the first quarter of 2006 increased 21% to $84,464,000 from $69,721,000 for the first quarter of 2005. Expert and professional staff revenues increased 22%. Organic growth of expert and professional staff revenues was 10%.

Net income for the first quarter of 2006 was $5,520,000, or $0.22 per diluted share, 3% higher than net income of $5,353,000, or $0.22 per diluted share reported last year. Net income for the first quarter 2006 includes $317,000 of costs, or $0.01 per diluted share, in connection with our efforts to make a significant acquisition that did not go forward, as previously disclosed. For the first quarter of 2006, LECG began expensing share-based compensation in accordance with Financial Accounting Standards Board Statement No. 123(R) Share Based Payment ("123(R)"). First quarter 2006 net income includes share-based compensation of $1,621,000, or $0.04 per diluted share. First quarter 2006 net income excluding share-based compensation and expensed acquisition costs was $6,669,000, or $0.27 per diluted share. Diluted shares outstanding increased 4% to 25,041,000 in the first quarter of 2006 from 23,978,000 for the same period in 2005.

EBITDA(1) for the first quarter of 2006 was $10,631,000, a 6% increase over EBITDA of $10,069,000 in the first quarter of 2005. Adjusted EBITDA(2) was $12,569,000 for the first quarter, an increase of 23% over the $10,207,000 realized in the prior year period.

"I am very pleased with LECG's first quarter results," said LECG chairman, Dr. David Teece. "Our performance reflects strong client demand for our expert services, addressing complex, high-stakes issues."

Operating Metrics

LECG ended the first quarter 2006 with 1,178 employees and exclusive independent contractors, an increase of 2% from 1,151 as of December 31, 2005, and an increase of 24% from 948 as of March 31, 2005. Expert headcount increased to 368 from 348 as of December 31, 2005, and professional staff headcount decreased to 553 from 563. Professional staff utilization on a paid hours basis was 77% in the first quarter of both years.

Chief Operating Officer Appointed

The board of directors has appointed Michael J. Jeffery as chief operating officer of LECG Corporation, effective May 15, 2006. Mr. Jeffery has served on LECG's board of directors since the company went public in November 2003 and has worked closely with Dr. Teece and other members of senior management throughout his tenure as a board member. Mr. Jeffery has extensive corporate operating experience resulting from having held executive management positions in several international financial services companies including Standard Chartered PLC, Robert Fleming & Co., and Nikko Bank (UK) plc.

"I am pleased to welcome Michael Jeffery to the executive management team," said LECG chairman, Dr. David Teece. "I have worked closely with Michael for the past few years and believe he has the right experience as well as the understanding of our culture, belief in our mission, and a focus on bottom line performance to be immediately effective in his new role."

2006 Fiscal Year Outlook

For 2006, LECG anticipates that revenues will be in the range of $334,000,000 to $338,000,000. Net income is expected to be in the range of $24,000,000 to $25,500,000, and net income per diluted share is expected to be in the range of $0.95 to $1.00, including share-based compensation, and excluding expensed acquisition costs of $0.01 per diluted share.

The expense in conjunction with the adoption of 123(R) is estimated to be $0.14 per diluted share for 2006, based on existing options outstanding. If 123(R) had been adopted at the beginning of 2005, net income per diluted share for 2005 would have been reduced by approximately $0.17 per share.

Conference Call Webcast Information

To listen to a live audio webcast of LECG's first 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, 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 around the world. 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, May 2, 2006. There may be events in the future that the Company is not able to accurately predict or control, and they 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 ended March 31, 2006 and 2005
                  (in thousands, except per share data)
                             (Unaudited)


                                                          Quarter ended
                                                            March 31,
                                                        ------------------
                                                          2006      2005
                                                        --------  --------

 Revenue                                                $ 84,464  $ 69,721
 Cost of services                                        (56,406)  (46,076)
                                                        --------  --------
 Gross profit                                             28,058    23,645
 Operating expenses:
  General and administrative expenses                    (17,397)  (13,550)
  Depreciation and amortization                           (1,463)   (1,116)
                                                        --------  --------
 Operating income                                          9,198     8,979
  Interest income                                            266       190
  Interest expense                                          (126)      (55)
  Other expense, net                                         (30)      (26)
                                                        --------  --------
 Income before income tax                                  9,308     9,088

 Income tax provision                                     (3,788)   (3,735)
                                                        --------  --------
 Net income                                             $  5,520  $  5,353
                                                        ========  ========

 Net income per share:
  Basic                                                 $   0.23  $   0.24
  Diluted                                               $   0.22  $   0.22

 Share amounts:
  Basic                                                   24,132    22,763
  Diluted                                                 25,041    23,978



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

                                                                 December
                                                      March 31,     31,
 Assets                                                 2006       2005
                                                      ---------  ---------
 Current assets:
  Cash and cash equivalents                           $  32,228  $  35,722
  Accounts receivable, net of allowance of $699 and
   $666                                                 102,431     94,299
  Prepaid expenses                                        5,272      4,317
  Deferred tax assets, net                                1,510      1,745
  Signing and performance bonuses current portion         7,615      6,122
  Other current assets                                    3,857      4,775
                                                      ---------  ---------
   Total current assets                                 152,913    146,980
 Property and equipment, net                             10,908     10,791
 Goodwill                                                81,008     77,133
 Other intangible assets, net                            10,072     10,865
 Signing and performance bonuses long-term               23,076     19,035
 Deferred compensation plan assets                        7,925      6,403
 Other long-term assets                                   1,548      1,678
                                                      ---------  ---------
 Total assets                                         $ 287,450  $ 272,885
                                                      =========  =========

 Liabilities and stockholders’ equity
 Current liabilities:
  Accrued compensation                                $  48,537  $  43,924

  Accounts payable and other accrued liabilities          5,363      5,412
  Payable for business acquisitions - current portion     5,032      6,510
  Deferred revenue                                        2,144      2,427
  Income taxes payable                                    4,461      3,961
                                                      ---------  ---------
   Total current liabilities                             65,537     62,234
 Payable for business acquisitions - long-term            4,091      2,400
 Deferred compensation plan                               8,202      6,615
 Deferred tax liabilities                                   989        989
 Other long-term liabilities                              5,557      5,581

 Commitments and contingencies

 Stockholders’ equity:
 Common stock, $.001 par value, 200,000,000 shares
  authorized, 24,356,412 and 24,243,482 shares
  outstanding at March 31, 2006 and December 31,
  2005, respectively                                         24         24
 Additional paid-in capital                             145,479    144,171
 Deferred equity compensation                                 -     (1,056)
 Accumulated other comprehensive loss                       (41)      (165)
 Retained earnings                                       57,612     52,092
                                                      ---------  ---------
   Total stockholders’ equity                           203,074    195,066
                                                      =========  =========
 Total liabilities and stockholders’ equity           $ 287,450  $ 272,885
                                                      =========  =========


                      LECG CORPORATION
        CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
         For the Quarter ended March 31, 2006 and 2005
                      (in thousands)
                        (Unaudited)
                                                          Quarter ended
                                                            March 31,
                                                        ------------------
                                                          2006      2005
                                                        --------  --------
Cash flows from operating activities
Net income                                              $  5,520  $  5,353
 Adjustments to reconcile net income to net cash used
  in operating activities:
 Bad debt expense                                             58        50
 Depreciation and amortization of property and
  equipment                                                  820       692
 Amortization of other intangibles                           643       424
 Signing and performance bonuses paid                     (7,951)   (3,241)
 Amortization of signing and performance bonuses           2,052     1,802
 Tax benefit from option exercises and equity
  compensation plans                                                   623
 Share- based compensation                                 1,621       138
 Deferred rent                                               118       467
 Other                                                       (24)      (11)
 Changes in assets and liabilities:
  Accounts receivable                                     (8,190)   (8,343)
  Prepaid and other current assets                          (182)   (1,472)
  Accounts payable and other accrued liabilities             450     2,114
  Accrued compensation                                     4,970      (900)
  Deferred revenue                                          (286)      261
  Deferred compensation plan assets net of liabilities        65       (18)
  Other assets                                                77         1
  Other liabilities                                           57       603
                                                        --------  --------
   Net cash used in operating activities                    (182)   (1,457)
 Cash flows from investing activities
  Business acquisitions and earnout payments, net of
  acquired cash                                           (3,531)   (4,997)
  Purchase of property and equipment                        (941)   (1,477)
  Other                                                       31         1
                                                        --------  --------
   Net cash used in investing activities                  (4,441)   (6,473)
 Cash flows from financing activities
  Proceeds from secondary offering, net of offering
  costs                                                        -     1,308
  Exercise of stock options                                  412       385
  Tax benefit from option exercises and equity
  compensation plans                                         593
                                                        --------  --------
   Net cash provided by financing activities               1,005     1,693
Effect of exchange rates on changes in cash                  124      (182)
                                                        --------  --------
Decrease in cash and cash equivalents                     (3,494)   (6,419)
Cash and cash equivalents, beginning of year              35,722    42,082
                                                        --------  --------
 Cash and cash equivalents, end of period               $ 32,228  $ 35,663
                                                        ========  ========
Supplemental disclosure
 Cash paid for interest                                 $     46  $      7
                                                        ========  ========
 Cash paid for income taxes                             $  2,802  $    581
                                                        ========  ========
Non cash investing and financing activities
 Fair value of common stock issued for acquisitions     $      -  $    250
                                                        ========  ========


                          LECG CORPORATION
                     EBITDA and Adjusted EBITDA
           For the Quarter ended March 31, 2006 and 2005
                          (in thousands)


                                                          Quarter ended
                                                             March 31,
                                                          2006      2005
                                                        --------  --------

Net income                                              $  5,520  $  5,353
Add back (subtract):
 Provision for income tax                                  3,788     3,735
 Interest income, net                                       (140)     (135)
 Depreciation and amortization                             1,463     1,116
                                                        --------  --------
   EBITDA (1)                                           $ 10,631  $ 10,069
                                                        --------  --------

Adjustments to EBITDA
 Share-based compensation                                  1,621       138
 Expensed acquisition costs                                  317         -
                                                        --------  --------
   Adjusted EBITDA (2)                                  $ 12,569  $ 10,207
                                                        ========  ========


(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 share-based compensation
    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
    Jack Burke
    Chief Financial Officer
    510-985-6700

    Erin Glenn
    Investor Relations
    510-985-6990
    Email Contact