SOURCE: LECG Corporation

November 01, 2005 16:05 ET

LECG Corporation Reports Third Quarter 2005 Results

Expert and Professional Staff Revenues Grew 29%, EPS Was $0.22, Incurred Non-Cash Charge of $0.03 per Share

EMERYVILLE, CA -- (MARKET WIRE) -- November 1, 2005 -- LECG Corporation (NASDAQ: XPRT), a global expert services firm, today reported financial results for the third quarter ended September 30, 2005.

Third Quarter 2005 Financial Results

Revenues for the third quarter increased 27% to $71.4 million from $56.1 million for the third quarter of 2004. Expert and professional staff revenues increased 29%. Organic growth of expert and professional staff revenues was 20%. Performance-based revenue was $1.2 million this quarter compared to $1.8 million for the same period last year.

Net income was $5.4 million in the third quarter of 2005, 16% higher than net income of $4.7 million reported in the third quarter of last year. Net income per diluted share was $0.22 this quarter compared to net income per diluted share of $0.20 in the same period a year ago. Diluted shares outstanding increased 7% to 25.1 million in the third quarter of 2005 from 23.4 million for the same period in 2004.

Included in the third quarter of 2005 results is a non-cash charge to write-off goodwill of $1.1 million, or $0.03 per share, in connection with the previously announced departure in September of certain experts and staff from the insurance claims practice.

EBITDA (1) for the third quarter of 2005 was $10.1 million, a 14% increase over EBITDA (1) of $8.9 million in the third quarter of 2004. Adjusted EBITDA (2), which adds-back the non-cash goodwill write-off, was $11.2 million for the quarter, a 26% increase over the third quarter of 2004.

"LECG's growth in the third quarter continued in terms of revenues, profitability, and additions to our talent base," said LECG chairman, Dr. David Teece. "This ongoing growth reflects success in attracting leading experts seeking a platform to advise clients around the world."

Nine-Month Financial Results

Revenues for the nine months ended September 30, 2005 increased 40% to $213.6 million from $152.8 million for the same period in 2004. Expert and professional staff revenues increased 42%. Performance-based revenue was $1.7 million for the first nine months of 2005 and $3.6 million for the same period in 2004.

Net income for the nine months ended September 30, 2005 was $16.6 million, 38% higher than net income of $12.0 million in the first nine months of 2004. Net income per diluted share was $0.68 for the first nine months of 2005 compared to net income per diluted share of $0.51 in the same period in 2004. Diluted shares outstanding increased 5% to 24.4 million in 2005 from 23.3 million in 2004.

EBITDA (1) for the nine months ended September 30, 2005 was $30.6 million, a 35% increase over EBITDA (1) of $22.8 million in the same period in 2004. Adjusted EBITDA (2), which adds-back the non-cash goodwill write-off, was $31.7 million for the first nine months of 2005, a 39% increase over the same period in 2004.

Operating Metrics

LECG ended the third quarter with 1,104 employees and exclusive independent contractors, an increase of 14% from 968 as of June 30, 2005. Expert headcount increased to 326 from 319 as of June 30, 2005, and professional staff headcount increased to 548 from 443. Professional staff utilization for the third quarter of 2005 was 80%, as it was in the prior year period.

2005 Fiscal Year Outlook

For the full year 2005, LECG anticipates that revenues will be in the range of $283 to $290 million. Net income is expected to be in the range of $22.0 to $23.0 million, and earnings per diluted share is expected to be in the range of $0.91 to $0.93.

David Kaplan, president of LECG, commented, "LECG continues to deliver positive results as we expand our service offerings. The breadth and depth of our expertise provide clients with unparalleled talent to address complex, high-stakes problems."

Conference Call Webcast Information

To listen to a live audio webcast of LECG's third quarter 2005 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, November 1, 2005. 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 Quarters and Nine Months Ended September 30, 2005 and 2004
                        (in thousands, except per share data)
                                     (Unaudited)

                              Quarter ended         Nine months ended
                              September 30,            September 30,
                             2005       2004          2005      2004
                          ----------  ----------   ----------  ----------
Revenues                  $   71,366  $   56,066   $  213,628  $  152,847
Cost of services             (47,192)    (37,000)    (142,045)   (101,048)
                          ----------  ----------   ----------  ----------
Gross profit                  24,174      19,066       71,583      51,799
Operating expenses:
  General and
   administrative
   expenses                  (12,837)    (10,225)     (39,824)    (29,005)
  Depreciation and
   amortization               (1,141)     (1,044)      (2,968)     (2,677)
  Goodwill write-off          (1,063)          -       (1,063)          -
                          ----------  ----------   ----------  ----------
Operating income               9,133       7,797       27,728      20,117
  Interest income                225          69          623         251
  Interest expense              (107)        (61)        (218)       (183)
  Other income (expense),
   net                          (131)         27          (50)        (27)
                          ----------  ----------   ----------  ----------
Income before income tax       9,120       7,832       28,083      20,158
Income tax provision          (3,720)     (3,179)     (11,514)     (8,184)
                          ----------  ----------   ----------  ----------
Net income                $    5,400  $    4,653   $   16,569  $   11,974
                          ==========  ==========   ==========  ==========
Net income per share:
  Basic                   $     0.23  $     0.21   $     0.71  $     0.55
  Diluted                 $     0.22  $     0.20   $     0.68  $     0.51
Share amounts:
  Basic                       23,678      22,049       23,201      21,725
  Diluted                     25,051      23,365       24,441      23,333



                         LECG CORPORATION
              CONDENSED CONSOLIDATED BALANCE SHEETS
             September 30, 2005 and December 31, 2004
                (in thousands, except share data)
                           (Unaudited)


                                              September 30,   December 31,
                                                   2005           2004
                                                   ----           ----
Assets
Current assets:
  Cash and cash equivalents                    $  27,779       $  42,082
  Accounts receivable, net of allowance
   of  $592 and $433                              91,207          73,137
  Prepaid expenses                                 4,854           3,456
  Deferred tax assets, net                           471           1,476
  Current portion of signing bonuses and
   other current assets                           10,432          10,162
                                               ---------       ---------
    Total current assets                         134,743         130,313
Property and equipment, net                       10,530           6,493
Goodwill                                          69,254          57,947
Other intangible assets, net                      10,544             478
Long-term portion of signing bonuses
 and other assets                                 27,554          19,480
                                               ---------       ---------
Total assets                                   $ 252,625       $ 214,711
                                               =========       =========

Liabilities and stockholders’ equity
Current liabilities:
  Accounts payable and other accrued
   liabilities                                 $   5,275       $   6,701
  Accrued compensation                            40,226          37,599
  Payable for business acquisitions - current      3,985           6,183
  Deferred revenue                                 1,883           1,409
                                               ---------       ---------
    Total current liabilities                     51,369          51,892
Payable for business acquisitions - long-term      2,400           2,400
Deferred compensation plan                         6,051           3,203
Deferred tax liability                               386             386
Deferred rent and other long-term liabilities      5,131           2,443

Stockholders' equity:
Common stock, $.001 par value, 200,000,000
 shares authorized, 24,090,669 and 22,813,471
 shares issued and outstanding at September 30,
 2005 and December 31, 2004, respectively             24              23
Additional paid-in capital                       141,988         125,070
Deferred equity compensation                      (1,180)         (1,580)
Accumulated other comprehensive income               171           1,158
Retained earnings                                 46,285          29,716
                                               ---------       ---------
    Total stockholders' equity                   187,288         154,387
                                               ---------       ---------
Total liabilities and stockholders' equity     $ 252,625       $ 214,711



                                LECG CORPORATION
               CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
            For the Nine Months Ended September 30, 2005 and 2004
                                (in thousands)
                                 (Unaudited)

                                                     Nine Months Ended
                                                       September 30,
                                                   --------------------
                                                   2005            2004
                                                   ----            ----
Cash flows from operating activities
Net income                                     $  16,569       $  11,974
  Adjustments to reconcile net income to
   net cash provided by (used in) operating
   activities:
  Bad debt expense                                   122             165
  Depreciation and amortization of property
   and equipment                                   2,249           1,834
  Amortization of other intangibles                  719             843
  Goodwill write-off                               1,063               -
  Amortization of  signing and performance
   bonuses                                         5,106           2,812
  Equity based compensation                          418             (73)
  Tax benefit from option exercises and
   equity compensation plans                       5,782           2,718
  Deferred rent                                    1,142             801
  Other                                             (119)             58
  Changes in assets and liabilities:
    Accounts receivable                          (18,240)        (23,318)
    Prepaid and other current assets                (121)         (3,009)
    Accounts payable and other accrued
     liabilities                                  (1,454)          4,445
    Accrued compensation                          (2,628)          2,198
    Signing bonuses and other assets              (9,360)        (18,341)
    Other                                          5,137           1,949
                                               ---------       ---------
      Net cash provided by (used in) operating
       activities                                  6,385         (14,944)

Cash flows from investing activities
  Business acquisitions, net of acquired cash    (24,597)        (24,996)
  Purchase of property and equipment              (5,924)         (2,781)
  Other                                              (49)            (51)
                                               ---------       ---------
      Net cash used in investing activities      (30,570)        (27,828)

Cash flows from financing activities
  Proceeds from secondary offering, net
   of offering costs                               1,311               -
  Proceeds from issuance of stock
   - employee stock plan                             925           1,109
  Exercise of stock options                        8,634           2,604
  Receivable from unitholders                          -             295
  Distributions to common unit holders                 -          (4,235)
                                               ---------       ---------
      Net cash provided by (used in)
       financing activities                       10,870            (227)
Effect of exchange rates on changes in cash         (988)            (36)
                                               ---------       ---------

Increase (decrease) in cash and cash equivalents (14,303)        (43,035)
Cash and cash equivalents, beginning of year      42,082          67,177
                                               ---------       ---------
  Cash and cash equivalents, end of period     $  27,779       $  24,142
                                               =========       =========
Supplemental disclosure
  Cash paid for interest                       $      60       $     288
                                               =========       =========
  Cash paid for income taxes                   $   5,012       $     655
                                               =========       =========
Non cash investing and financing activities
   Fair value of common stock issued for
    acquisitions                               $   1,250       $   1,959
                                               =========       =========


                              LECG CORPORATION
                     EBITDA (1) and Adjusted EBITDA (2)
     For the Quarters and Nine Months Ended September 30, 2005 and 2004
                               (in thousands)

                            Quarter ended           Nine months ended
                             September 30,             September 30,
                          2005          2004          2005          2004
                       ----------    ----------    ----------   ----------

Net income             $    5,400    $    4,653    $  16,569    $   11,974
Add back
 (subtract):
 Provision for
  income taxes              3,720         3,179       11,514         8,184
 Interest, net               (118)           (8)        (405)          (68)
 Depreciation and
  amortization              1,141         1,044        2,968         2,677
                       ----------    ----------    ----------   ----------

  EBITDA (1)           $   10,143    $    8,868    $   30,646   $   22,767
                       ----------    ----------    ----------   ----------


Adjustments to EBITDA
 Goodwill write-off         1,063            -          1,063           -
                       ----------    ----------    ----------   ----------

  Adjusted EBITDA (2)  $   11,206    $    8,868    $   31,709   $   22,767
                       ==========    ==========    ==========   ==========
(1) EBITDA is a non-GAAP financial measure defined by the Company as net income before provision for income taxes, interest, and depreciation and amortization. The Company believes that EBITDA is 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 that adjusts EBITDA as defined in (1) above for the non-cash goodwill write- off of $1,063,000 recognized in the third quarter of 2005. The Company believes that Adjusted EBITDA is 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.

Contact Information

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

    Erin Glenn
    Investor Relations
    510-985-6990
    Email Contact