SOURCE: LECG Corporation

April 30, 2007 16:05 ET

LECG Corporation Reports First Quarter 2007 Results

Announces EPS of $0.17 Excluding $0.04 Restructuring Charge

EMERYVILLE, CA -- (MARKET WIRE) -- April 30, 2007 -- LECG Corporation (NASDAQ: XPRT), a global expert services firm, today reported financial results for the first quarter ended March 31, 2007.

First Quarter 2007 Financial Results

Revenues for the first quarter increased 13 percent to $95,462,000 from $84,464,000 for the first quarter of 2006. Expert and professional staff revenues increased 13 percent. Organic growth of expert and professional staff revenues was seven percent.

Net income was $3,266,000 in the first quarter of 2007, 41 percent lower than net income of $5,520,000 reported in the first quarter of last year. Net income per diluted share was $0.13 this quarter, including a restructuring charge of $0.04, compared with net income per diluted share of $0.22 in the same period a year ago. Diluted shares outstanding increased one percent to 25,413,000 in the first quarter of 2007 from 25,041,000 for the same period in 2006.

During the first quarter, the company took a restructuring charge of $1,638,000, or $0.04 per fully diluted share, resulting from the termination of certain experts and staff. The restructuring charge is composed of $936,000 in write-offs of unamortized signing bonus expense, $444,000 to cover expert compensation advances, both of which are non-cash items, and $258,000 in accrued severance expense.

EBITDA(1) for the first quarter of 2007 was $7,258,000, a 32 percent decrease from EBITDA of $10,631,000 in the first quarter of 2006. Adjusted EBITDA(2) was $8,896,000 for the first quarter of 2007, a decrease of 19 percent over the prior year period.

Michael Jeffery, LECG chief executive officer commented, "LECG's management team has begun implementation of our 2007 recovery plan which is intended to rebuild shareholder value by focusing on more profitable revenue growth, improving gross margin, and controlling our general and administrative expenses to plan."

"In the first quarter, we took actions that will result in annualized cost savings of seven to eight million dollars," Mr. Jeffery stated. "We identified 21 experts who did not meet our profitability targets tied to leverage and margin contribution, all of whom are leaving LECG. We also closely evaluated historical utilization and performance of individual professional staff and are reducing headcount where our standards are not being met. In addition, we will close one of our offices in Los Angeles when the lease expires in July."

Mr. Jeffery concluded, "Management continues to evaluate both the financial contribution of individual experts as well as professional staff performance. We are committed to making the tough decisions that we believe will result in improved operating results with minimal disruption to our revenues."

Acquires The Secura Group LLC

As previously announced, on March 16, 2007 LECG acquired the Secura Group LLC which focuses on financial services and regulatory compliance. 20 employees joined LECG, including nine experts and six professional staff. The purchase price consisted of $9,500,000 in cash paid at closing. Additional payments of up to $2,500,000 will be made in cash if specific revenue growth and profitability targets are met during the period from the closing to December 31, 2010. The Secura Group's revenues in fiscal year 2006 were $8.9 million.

"Secura's professionals, led by William Isaac, former chairman of the Federal Deposit Insurance Corporation, have unmatched knowledge of the regulatory landscape governing US and international banks," said LECG chairman, Dr. David Teece. "They are thought leaders in their field and reinforce LECG's reputation as the preeminent resource for specialized expertise and top talent."

Operating Metrics

As of March 31, 2007, LECG had 1,261 employees and exclusive independent contractors compared with 1,291 as of December 31, 2006. Expert headcount was 349, a decrease of seven percent compared with 376 as of December 31, 2006. Professional staff headcount decreased two percent to 624 from 634 as of December 31, 2006.

Revised 2007 Fiscal Year Outlook

As a result of the $0.04 restructuring charge incurred in the first quarter, LECG has revised its 2007 guidance. LECG now expects that revenues for the full year 2007 will be in the range of $380 million to $400 million, and net income per diluted share will be in the range of $0.86 to $0.96, including the $0.04 restructuring charge. Previously stated 2007 guidance anticipated revenues of $375 million to $400 million, and net income per diluted share of $0.90 to $1.00. For the second quarter ending June 30, 2007, LECG anticipates revenues will be in the range of $96 million to $98 million, and that net income per diluted share will be in the range of $0.20 to $0.22.

As the company continues to implement its value recovery plan, it may incur additional expenses that could further impact guidance.

"This quarter is our first step on the road to recovering shareholder value. I feel confident we are focused on the right drivers, and that the benefits to our shareholders will begin to materialize over the next several quarters as we continue to implement our plan," stated Mr. Jeffery.

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 over 950 experts and professionals in 35 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, April 30, 2007. 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 ended March 31, 2007 and 2006
            (in thousands, except per share data)
                     (Unaudited)



                                                       Quarter ended
                                                          March 31,
                                                  -------------------------
                                                      2007         2006
                                                  ------------ ------------

 Revenues                                         $     95,462 $     84,464
 Cost of services                                       66,421       56,406
                                                  ------------ ------------
 Gross profit                                           29,041       28,058
 Operating expenses:
     General and administrative expenses                21,809       17,397
     Depreciation and amortization                       1,896        1,463
                                                  ------------ ------------
 Operating income                                        5,336        9,198
 Interest and other income, net                            154          110
                                                  ------------ ------------
 Income before income tax                                5,490        9,308
 Income tax provision                                    2,224        3,788
                                                  ------------ ------------
 Net income                                       $      3,266 $      5,520
                                                  ============ ============

 Net income per share:
     Basic                                        $       0.13 $       0.23
     Diluted                                      $       0.13 $       0.22
 Share amounts:
     Basic                                              24,860       24,132
     Diluted                                            25,413       25,041






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


                                                   March 31,   December 31,
Assets                                                2007         2006
                                                  ------------ ------------
Current assets:
  Cash and cash equivalents                       $     11,459 $     26,489
  Accounts receivable, net of allowance of $743
   and $906                                            115,263      107,585
  Prepaid expenses                                       4,937        5,092
  Deferred tax assets, net                               3,843        3,877
  Signing and performance bonuses - current
   portion                                              10,697        9,545
  Income taxes receivable                                4,785        5,481
  Other current assets                                   3,522        2,494
                                                  ------------ ------------
    Total current assets                               154,506      160,563
Property and equipment, net                             14,373       13,701
Goodwill                                               112,011      101,960
Other intangible assets, net                            11,292        9,855
Signing and performance bonuses - long-term             33,207       28,265
Deferred compensation plan assets                       12,640       10,925
Other long-term assets                                   1,627        1,884
                                                  ------------ ------------
Total assets                                      $    339,656 $    327,153
                                                  ============ ============

Liabilities and stockholders' equity
Current liabilities:
  Accrued compensation                            $     50,814 $     50,852
  Accounts payable and other accrued liabilities         7,886        8,011
  Payable for business acquisitions - current
   portion                                               8,649       11,372
  Revolving line of credit                               5,000            -
  Deferred revenue                                       3,585        2,487
                                                  ------------ ------------
    Total current liabilities                           75,934       72,722
Payable for business acquisitions - long-term            2,000        2,178
Deferred compensation plan obligations                  13,291       11,550
Deferred tax liabilities                                 1,850        1,851
Other long-term liabilities                              7,857        7,738

Commitments and contingencies

Stockholders' equity
Common stock, $.001 par value, 200,000,000
 shares authorized,  25,252,811 and 24,907,072
 shares outstanding at March 31, 2007 and
 December 31, 2006, respectively                            25           25
Additional paid-in capital                             161,168      156,900
Accumulated other comprehensive income                     956          880
Retained earnings                                       76,575       73,309
                                                  ------------ ------------
    Total stockholders' equity                         238,724      231,114
                                                  ------------ ------------
Total liabilities and stockholders' equity        $    339,656 $    327,153
                                                  ============ ============




                       LECG CORPORATION
          CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
            For the Period ended March 31, 2007 and 2006
                      (in thousands)
                       (Unaudited)


                                                        Quarter ended
                                                          March 31,
                                                  ------------------------
                                                      2007         2006
                                                  -----------  -----------
Cash flows from operating activities
Net income                                        $     3,266  $     5,520
   Adjustments to reconcile net income to net
    cash used in operating activities:
   Bad debt expense                                        75           58
   Depreciation and amortization of equipment and
    leaseholds                                          1,172          820
   Amortization of intangible assets                      723          643
   Signing and performance bonuses paid               (11,091)      (7,951)
   Amortization of signing and performance
    bonuses                                             2,792        2,052
   Non-cash restructuring charges                       1,380            -
   Tax benefit from option exercises and equity
    compensation plans                                     34            -
   Equity-based compensation                            1,560        1,621
   Deferred rent                                          119          118
   Other                                                  (72)         (24)
  Changes in assets and liabilities:
     Accounts receivable                               (7,752)      (8,190)
     Prepaid and other current assets                    (639)        (182)
     Accounts payable and other accrued
      liabilities                                        (128)         450
     Income taxes                                         699            -
     Accrued compensation                                 719        4,970
     Deferred revenue                                     715         (286)
     Deferred compensation plan assets, net of
      plan obligations                                     27           65
     Other assets                                         196           77
     Other liabilities                                     20           57
                                                  -----------  -----------
       Net cash used in operating activities           (6,185)        (182)
Cash flows from investing activities
  Business acquisitions and earnout payments, net
   of acquired cash                                   (14,907)      (3,531)
  Purchases of property and equipment                  (1,704)        (941)
  Other                                                    (8)          31
                                                  -----------  -----------
       Net cash used in investing activities          (16,619)      (4,441)
Cash flows from financing activities
  Borrowings from revolving credit facility             5,000            -
  Exercise of stock options                             1,656          412
  Tax benefit from option exercises and equity
   compensation plans                                   1,052          593
  Other                                                   (10)           -
                                                  -----------  -----------
    Net cash provided by financing activities           7,698        1,005
                                                  -----------  -----------
Effect of exchange rates on changes in cash                76          124
                                                  -----------  -----------
Decrease in cash and cash equivalents                 (15,030)      (3,494)
Cash and cash equivalents, beginning of year           26,489       35,722
                                                  -----------  -----------
  Cash and cash equivalents, end of period        $    11,459  $    32,228
                                                  ===========  ===========

Supplemental disclosure
  Cash paid for interest                          $        31  $        46
                                                  ===========  ===========
  Cash paid for income taxes                      $       472  $     2,802
                                                  ===========  ===========




                      LECG CORPORATION
                EBITDA and Adjusted EBITDA
         For the Quarter ended March 31, 2007 and 2006
                     (in thousands)


                                                        Quarter ended
                                                          March 31,
                                                      2007         2006
                                                  ------------ ------------
Net income                                        $      3,266 $      5,520
  Provision for income tax expense                       2,224        3,788
  Interest income, net                                     128          140
  Depreciation and amortization expense                  1,896        1,463
                                                  ------------ ------------
    EBITDA (1)                                    $      7,258 $     10,631
                                                  ------------ ------------

Adjustments to EBITDA
  Expensed acquisition costs                                 -          317
  Restructuring charges                                  1,638            -
                                                  ------------ ------------
    Adjusted EBITDA (2)                           $      8,896 $     10,948
                                                  ============ ============




(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 a restructuring charge
    in the first quarter 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

    Jack Burke
    Chief Financial Officer
    510-985-6700

    Erin Glenn
    Investor Relations
    510-985-6990
    Email Contact