SOURCE: LECG Corporation

LECG Corporation

April 27, 2009 16:00 ET

LECG Corporation Reports First Quarter 2009 Results

EMERYVILLE, CA--(Marketwire - April 27, 2009) - LECG Corporation (NASDAQ: XPRT), a global expert services firm, today reported financial results for the first quarter ended March 31, 2009.

"Our revenues this quarter continued to be affected by the weakness in the economy, as many litigation projects remained on hold and merger activity remained low," said Michael Jeffery, LECG's chief executive officer. "Despite the difficult environment, we experienced an upward trend in revenue at the end of the quarter and the increased level of activity has held into the second quarter. However, until we see clear indications that current levels of demand will be sustained, we remain cautious. We will continue to reduce our cost structure, streamline operations, and focus on practice areas where we have a competitive advantage and anticipate near- and long-term growth."

First Quarter 2009 Financial Results

First quarter 2009 revenues decreased 26.7 percent to $66.3 million compared with $90.5 million in the first quarter of 2008, and decreased 5.3 percent from fourth quarter 2008 revenues of $70.0 million. Net fee-based revenues were $63.9 million in the first quarter of 2009 and $87.2 million in the prior year period, a decrease of 26.7 percent year over year. Net fee-based revenues decreased 4.5 percent from $67.0 million in the fourth quarter of 2008.

First quarter 2009 net loss was $3.8 million or $0.15 per share, compared with net income of $4.0 million or $0.16 per diluted share in the first quarter of 2008, and net loss of $5.0 million or $0.20 per share in the fourth quarter of 2008, excluding one-time charges.

Adjusted EBITDA from continuing operations for the first quarter of 2009 was a loss of $4.8 million, compared to $8.6 million of income for the first quarter of 2008, and a loss of $6.8 million for the fourth quarter of 2008.

First Quarter 2009 Segment Results

Economics Services

LECG's economics services segment is composed of the company's global competition, securities, regulated industries, energy and environment, and labor sectors. Economics revenues were $28.9 million in the first quarter of 2009, representing 43.6 percent of total revenues versus 41.3 percent of total revenues in the fourth quarter of 2008. Net fee-based revenues for the segment were $28.1 million in the quarter, relatively unchanged from the fourth quarter of 2008 with notable strength in the energy and environment practice. Economics gross profit was $7.7 million, or 54.4 percent of total gross profit in the quarter. Direct profit margin was 27.7 percent, up from 25.1 percent in the fourth quarter of 2008. Professional staff utilization was 67.3 percent.

Finance and Accounting Services (FAS)

LECG's FAS segment is composed of the company's forensic accounting, intellectual property, healthcare, higher education, international FAS, financial services, and electronic discovery sectors. FAS revenues were $37.4 million in the first quarter of 2009, or 56.4 percent of total revenues versus 58.7 percent of total revenues in the fourth quarter of 2008. Net fee-based revenues for the segment were $35.8 million in the quarter, down $3.1 million from the fourth quarter of 2008 due to declines across most practice areas with the exception of forensic accounting, electronic discovery, and healthcare. FAS gross profit was $6.5 million, or 45.6 percent of total gross profit in the quarter. The direct profit margin decreased to 18.2 percent from 21.5 percent in the fourth quarter of 2008. Professional staff utilization was 67.0 percent.

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 877-857-6149. International callers may access the call by dialing 719-325-4809. For a replay of this teleconference, please call 888-203-1112 or 719-457-0820, and enter the passcode 2598543. The replay will be available through May 1, 2009. 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 and consulting firm, with more than 750 experts and professionals in 31 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. (NASDAQ: XPRT)

Statements in this press release and the related conference call concerning the future business, operating and financial condition of the company, including expectations regarding revenues and net income for future periods, 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 affect actual performance include the ongoing economic downturn and adverse economic conditions, 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 AND SUBSIDIARIES
           CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
                 (in thousands, except per share data)
                             (unaudited)

                                                        Three months ended
                                                            March 31,
                                                        ------------------
                                                          2009      2008
                                                        --------  --------
Fee-based revenues, net                                 $ 63,922  $ 87,171
Reimbursable revenues                                      2,383     3,331
                                                        --------  --------
     Revenues                                             66,305    90,502
Direct costs                                              49,617    57,172
Reimbursable costs                                         2,540     3,311
                                                        --------  --------
     Cost of services                                     52,157    60,483
Gross profit                                              14,148    30,019
Operating expenses:
  General and administrative expenses                     18,895    21,301
  Depreciation and amortization                            1,330     1,535
                                                        --------  --------
Operating (loss) income                                   (6,077)    7,183
Interest income                                               48       143
Interest expense                                            (315)     (197)
Other expense, net                                           (90)     (420)
                                                        --------  --------
(Loss) income before income taxes                         (6,434)    6,709
Income tax (benefit) expense                              (2,638)    2,724
                                                        --------  --------
Net (loss) income                                       $ (3,796) $  3,985
                                                        ========  ========

Earnings per share:
     Basic                                              $  (0.15) $   0.16
     Diluted                                            $  (0.15) $   0.16

Shares used in calculating earnings per share
  Basic                                                   25,386    25,299
  Diluted                                                 25,386    25,518



                    LECG CORPORATION AND SUBSIDIARIES
                  CONDENSED CONSOLIDATED BALANCE SHEETS
                    (in thousands, except share data)
                              (unaudited)

                                                  March 31,   December 31,
  Assets                                            2009          2008
                                                ------------  ------------
  Current assets:
    Cash and cash equivalents                   $      8,861  $     19,510
    Accounts receivable, net of allowance of
     $1,004 and $973                                  87,715        87,122
    Prepaid expenses                                   6,346         5,996
    Deferred tax assets, net - current portion        13,887        14,123
    Signing, retention and performance bonuses -
     current portion                                  16,078        15,282
    Income taxes receivable                           10,998         7,662
    Other current assets                               2,619         2,447
    Note receivable - current portion                    525           518
                                                ------------  ------------
      Total current assets                           147,029       152,660
  Property and equipment, net                         10,107        11,011
  Other intangible assets, net                         3,613         3,790
  Signing, retention and performance bonuses          34,555        34,976
  Deferred compensation plan assets                    8,029         9,684
  Note receivable                                      1,800         1,946
  Deferred tax assets, net                            36,952        36,952
  Other long-term assets                               6,416         5,188
                                                ------------  ------------
  Total assets                                  $    248,501  $    256,207
                                                ============  ============

  Liabilities and stockholders' equity
  Current liabilities:
    Accrued compensation                        $     38,237  $     49,313
    Accounts payable and other accrued
     liabilities                                       9,286        11,493
    Payable for business acquisitions - current
     portion                                               -         3,846
    Borrowings under line of credit                   17,000             -
    Deferred revenue                                   2,202         2,450
    Liability associated with divestiture                  -         2,642
                                                ------------  ------------
      Total current liabilities                       66,725        69,744
  Payable for business acquisitions                    1,055         1,055
  Deferred compensation plan obligations               8,459         9,632
  Deferred rent                                        6,269         6,601
  Other long-term liabilities                            471           569
                                                ------------  ------------
      Total liabilities                               82,979        87,601
                                                ------------  ------------

  Commitments and contingencies                            -             -

  Stockholders' equity
  Common stock, $.001 par value, 200,000,000
   shares authorized, 25,560,284 and 25,559,253
   shares outstanding at March 31, 2009 and
   December 31, 2008, respectively                        26            26
  Additional paid-in capital                         173,533       172,005
  Accumulated other comprehensive loss                (2,223)       (1,407)
  Accumulated deficit                                 (5,814)       (2,018)
                                                ------------  ------------
      Total stockholders' equity                     165,522       168,606
                                                ------------  ------------
Total liabilities and stockholders' equity      $    248,501  $    256,207
                                                ============  ============



              LECG CORPORATION AND SUBSIDIARIES
       CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                       (in thousands)
                         (unaudited)

                                                      Three months ended
                                                           March 31,
                                                    ----------------------
                                                       2009        2008
                                                    ----------  ----------
Cash flows from operating activities
Net (loss) income                                   $   (3,796) $    3,985
  Adjustments to reconcile net (loss) income to net
   cash used in operating activities:
  Bad debt expense                                          33          33
  Depreciation and amortization of property and
   equipment                                             1,152       1,172
  Amortization of intangible assets                        178         363
  Amortization of signing, retention and performance
   bonuses                                               4,245       4,083
  Equity-based compensation                              1,731       1,373
Changes in assets and liabilities:
  Accounts receivable                                   (1,535)    (13,207)
  Signing, retention and performance bonuses paid       (4,966)     (6,287)
  Prepaid and other current assets                         336        (779)
  Accounts payable and other accrued liabilities        (2,193)       (702)
  Income taxes                                          (3,235)      2,064
  Accrued compensation                                 (10,446)     (4,360)
  Deferred revenue                                        (244)         53
  Deferred compensation plan assets, net of
   liabilities                                             482      (1,895)
  Deferred rent                                           (287)       (199)
  Other assets                                             109      (3,121)
  Other liabilities                                        (34)          4
                                                    ----------  ----------
    Net cash used in operating activities              (18,470)    (17,420)
                                                    ----------  ----------
Cash flows from investing activities
Business acquisitions earn out payments                 (3,885)     (2,264)
Divestiture payments                                    (2,379)          -
Purchase of property and equipment                        (247)       (768)
Proceeds from note receivable                              139           -
Proceeds from disposal of property and equipment             -          54
Other                                                      (90)        (14)
                                                    ----------  ----------
    Net cash used in investing activities               (6,462)     (2,992)
                                                    ----------  ----------
Cash flows from financing activities
Borrowings under revolving credit facility              19,000      19,000
Repayments under revolving credit facility              (2,000)     (6,000)
Payment of loan fees                                    (2,243)          -
                                                    ----------  ----------
    Net cash provided by financing activities           14,757      13,000
                                                    ----------  ----------
Effect of exchange rates on changes in cash               (474)        405
                                                    ----------  ----------
Decrease in cash and cash equivalents                  (10,649)     (7,007)
Cash and cash equivalents, beginning of year            19,510      21,602
                                                    ----------  ----------
Cash and cash equivalents, end of period            $    8,861  $   14,595
                                                    ==========  ==========
Supplemental disclosure
  Cash paid for interest                            $      189  $      129
                                                    ==========  ==========
  Cash paid for income taxes                        $      613  $    3,290
                                                    ==========  ==========



                 LECG CORPORATION AND SUBSIDIARIES
                     SEGMENT OPERATING RESULTS
               ($ in thousands, except rate amounts)
                            (unaudited)

                               Three months ended March 31,
                ----------------------------------------------------------
                           2009                            2008
                ------------------------------  --------------------------
                           Finance                       Finance
                             and                           and
               Economics  Accounting  Total  Economics  Accounting  Total
                --------  ---------  -------  --------  ---------  -------
  Fee-based
   revenues,
   net          $ 28,079  $  35,843  $63,922  $ 39,934  $  47,237  $87,171
  Reimbursable
   revenues          827      1,556    2,383     1,032      2,299    3,331
                --------  ---------  -------  --------  ---------  -------
    Revenues    $ 28,906  $  37,399  $66,305  $ 40,966  $  49,536  $90,502

  Direct costs  $ 20,293  $  29,324  $49,617    26,547  $  30,625  $57,172
  Reimbursable
   costs             919      1,621    2,540     1,017      2,294    3,311
                --------  ---------  -------  --------  ---------  -------
    Gross
     profit     $  7,694  $   6,454  $14,148  $ 13,402  $  16,617  $30,019

Direct profit
 margin (1)         27.7%      18.2%    22.4%     33.5%      35.2%    34.4%
Gross margin        26.6%      17.3%    21.3%     32.7%      33.5%    33.2%

Operating
 statistics
Paid days             64         64       64        64         64       64
Billable
 headcount,
 period end          268        496      764       305        493      798
Billable
 headcount,
 period average      279        494      773       305        497      802
Billable FTEs,
 period average
 (2)                 223        394      617       262        410      672
Average
 billable rate  $    353  $     281  $   308  $    366  $     316  $   337
Paid utilization
 rate of billable
 FTEs (3)           69.6%      63.4%    65.6%     81.1%      71.2%    75.1%

Expert headcount,
 period end          113        219      332       120        196      316
Expert FTEs,
 period average
 (2)                  65        139      204        77        113      190
Jr/SR staff paid
 utilization
 rate (3)           67.3%      67.0%    67.1%     77.5%      68.7%    72.1%



               LECG CORPORATION AND SUBSIDIARIES
              RECONCILIATION OF NON-GAAP MEASURES
            ($ in thousands, except per share data)

                                                     Three months ended
                                                          March 31,
                                                  ------------------------
                                                      2009         2008
                                                  -----------  -----------

Fee-based revenues, net                           $    63,922  $    87,171

  Direct costs                                         49,617       57,172
                                                  -----------  -----------

Direct profit                                     $    14,305  $    29,999
                                                  ===========  ===========
Direct profit margin (1)                                 22.4%        34.4%


                                                     Three months ended
                                                          March 31,
                                                  ------------------------
                                                      2009         2008
                                                  -----------  -----------

Net (loss) income                                 $    (3,796) $     3,985

Adjustments to net (loss) income
  Deferred compensation plan                               62          303
  Income tax benefit (4)                                  (25)        (122)
                                                  -----------  -----------

Adjusted (loss) income from operations (5)        $    (3,759) $     4,166
                                                  ===========  ===========

  Adjusted (loss) income per diluted share (5)(7) $     (0.15) $      0.16

Shares used in calculating earnings per share
    Diluted                                            25,386       25,518



                 LECG CORPORATION AND SUBSIDIARIES
           RECONCILIATION OF NON-GAAP MEASURES (CONTINUED)
             ($ in thousands, except per share data)

                                                     Three months ended
                                                          March 31,
                                                  ------------------------
                                                      2009         2008
                                                  -----------  -----------

Net (loss) income                                 $    (3,796) $     3,985
Income tax (benefit) expense                           (2,638)       2,724
Interest expense, net                                     267           54
Depreciation and amortization                           1,330        1,535
                                                  -----------  -----------
EBITDA from operations (6)                             (4,837)       8,298

Adjustments to EBITDA from operations
  Deferred compensation plan                               62          303
                                                  -----------  -----------

Adjusted EBITDA from operations (6)               $    (4,775) $     8,601
                                                  ===========  ===========

----------------------
(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 39.9% and 40.4% in the quarter ended
    March 31, 2009 and 2008, respectively.
(5) Adjusted (loss) income from operations and adjusted (loss) income from
    operations per diluted share are non-GAAP financial measures. Adjusted
    (loss) income from operations excludes charges related to market
    fluctuations in the value of deferred compensation plan investments.
    Adjusted (loss) income from operations per diluted share is calculated
    using adjusted (loss) income from operations divided by diluted shares.
    The Company regards adjusted (loss) income from operations and adjusted
    (loss) income from operations 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) income, cash flows, or other measures
    of financial performance prepared in accordance with GAAP.
(6) EBITDA from operations and Adjusted EBITDA from operations are non-GAAP
    financial measures.  EBITDA from operations is defined as earnings from
    operations before provision for income tax, interest, and depreciation
    and amortization. Adjusted EBITDA from operations excludes charges
    related to market fluctuations in the value of deferred compensation
    plan investments. The Company regards EBITDA from operations and
    Adjusted EBITDA from operations 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) income, cash flows, or other measures
    of financial performance prepared in accordance with GAAP.
(7) For Q1 2009, diluted earnings per share and diluted shares are equal to
    basic earnings per share and basic shares, respectively, 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.

Contact Information

  • Investor Contacts:
    Steven R. Fife
    Chief Financial Officer
    510-985-6700

    Brooke Deterline
    Investor Relations
    415-775-1788
    investor@lecg.com