EPIQ Systems, Inc. Announces Fourth Quarter and Full Year 2004 Results

EPIQ Systems, Inc. Announces Fourth Quarter and Full Year 2004 Results

    Business Editors

    KANSAS CITY, Kan.--(BUSINESS WIRE)--Feb. 7, 2005--EPIQ Systems, Inc. (NASDAQ: EPIQ) announces results of operations for the fourth quarter and full year of 2004, with fourth quarter operating revenue (total revenue less reimbursed expenses) of $23.8 million versus $16.8 million last year and 2004 operating revenue of $105.1 million compared to $62.4 million last year.
    In accordance with a required accounting change (EITF 04-08 -- The Effect of Contingently Convertible Debt on EPS) effective December 15, 2004, potential shares related to our convertible notes issued June 10, 2004 are included in the diluted shares calculation as though the debt was converted entirely on the date of issuance. To date, no shares have been converted. In the absence of EITF 04-08, diluted weighted average shares outstanding would have been 18.3 million for both the quarter and the year. Taking into effect the accounting change, diluted weighted average shares outstanding were 21.1 million for the quarter and 19.8 million for the year. The convertible notes bear interest at 4% annually. EITF 04-08 requires earnings per share calculations to include the appropriate after tax interest adjustment. A reconciliation statement identifying the changes related to the new accounting treatment is attached.
    Fourth quarter 2004 net income from continuing operations was $1.9 million, or $0.10 per share ($0.10 per share before EITF 04-08), compared to $3.8 million and $0.21 per share last year. Fourth quarter net income includes net after tax expenses of $1.8 million for amortization of acquisition related intangibles and expenses related to financing including interest expense, amortization and write-off of capitalized loan fees, and embedded option mark-to-market expense/convertible debt accretion compared to $0.6 million last year. 2004 net income from continuing operations was $9.1 million, or $0.49 per share ($0.50 per share before EITF 04-08), compared to $14.5 million and $0.80 per share last year. 2004 net income includes net after tax expenses of $8.9 million for amortization of acquisition related intangibles and expenses related to financing including interest expense, amortization and write-off of capitalized loan fees, and embedded option mark-to-market expense/convertible debt accretion compared to $2.2 million for the prior year.
    Non-GAAP net income from continuing operations (net income from continuing operations plus amortization of acquisition related intangibles, acquisition related expenses, amortization and write-off of capitalized loan fees, and embedded option mark-to-market expense/convertible debt accretion, all net after tax) was $3.2 million in the fourth quarter of 2004 compared to $4.5 million last year. Fourth quarter 2004 non-GAAP net income per share was $0.17 ($0.18 per share before EITF 04-08), versus $0.25 last year. 2004 non-GAAP net income from continuing operations was $16.9 million compared to $17.7 million last year and was $0.89 per share ($0.93 per share before EITF 04-08), versus $0.98 last year. A reconciliation statement is attached.
    EPIQ Systems' management primarily analyzes financial results adjusted for certain items that are non-operational and not necessarily ongoing in nature, as well as cash flow generated from operations. Management evaluates the following key metrics: (i) Non-GAAP Adjusted EBITDA from continuing operations (earnings before interest/financing, taxes, depreciation, amortization, and acquisition related expenses) and (ii) net cash provided by operating activities.
    Non-GAAP Adjusted EBITDA from continuing operations was $8.3 million in the fourth quarter compared to $9.3 million for the year ago quarter; 2004 full year results increased 13% to $39.2 million compared to $34.6 million a year ago. A reconciliation statement is attached.
    Net cash provided by operating activities in the fourth quarter reached $11.2 million, a 35% increase from $8.3 million last year, and increased 53% to $31.6 million in 2004 from $20.7 million in 2003. A condensed cash flow statement is attached.
    Tom W. Olofson, chairman and CEO, and Christopher E. Olofson, president and chief operating officer of EPIQ Systems, stated: "2004 represented an important year of investment as we continue to execute our long-term strategic business plan. To complement our comprehensive franchise in bankruptcy administration, we added immediate market leadership in the class action administration market with the acquisition of Poorman-Douglas. We believe class action administration is well suited to our existing resources and capabilities and is a good counterbalance to bankruptcy administration. To extend our Chapter 11 market penetration, we formed Financial Balloting Group, a new subsidiary providing specialty voting and tabulation services and while large Chapter 11 corporate filings were down compared to prior years, high debt levels and rising interest rates suggest the possibility for robust future growth for bankruptcy services. The Company produced strong cash flow from operating activities of $31.6 million, representing a 53% increase over last year, and entered 2005 as a stronger and broader-based organization."

    Significant events in 2004 include:

--	Record-level consumer debt in 2004 near $2.1 trillion, marking the 13th consecutive annual increase.
--	1.62 million bankruptcies were filed in the U.S. Court's fiscal year ended September 30, 2004; essentially unchanged from the 1.66 million record level reached in 2003.
--	Forbes magazine ranked EPIQ Systems #37 on the 200 Best Small Companies list. This marks the Company's fifth consecutive appearance on this list.
--	Fortune Small Business ranked EPIQ Systems #36 on the America's Fastest-Growing Small Companies list, marking the Company's fourth consecutive appearance on this list.
--	In August, EPIQ Systems formed a new subsidiary, Financial Balloting Group (FBG). Based in New York, FBG offers specialty balloting and voting support services for Chapter 11 reorganization plans.
--	The Board of Directors elected Joel Pelofsky to serve as an independent member of the Company's Board of Directors effective July 1, 2004. Mr. Pelofsky formerly served as a U.S. Bankruptcy Court Judge and as a United States Trustee. The six-member Board is now comprised of four independent directors.
--	On April 30, 2004, EPIQ Systems divested the infrastructure software business unit to a private investor group.
--	EPIQ Systems released TCMS(TM) 9.0, the latest version of its industry-leading Chapter 7 case management solution. TCMS(TM) 9.0 represents the product's ninth consecutive, on-time annual release and further establishes EPIQ Systems' technology leadership.
--	In January 2004, EPIQ Systems acquired Poorman-Douglas Corporation, a national leader in class action and mass tort case administration services.

    Conference Call

    The Company will host a conference call today at 3:30 p.m. (CST) to discuss these results. Interested parties may dial (800) 473-6123. The audio with supplemental slides is also available at www.epiqsystems.com and www.vcall.com. A replay of the call will be available for one week by dialing (877) 519-4471 and entering pin# 5635676. The archived Internet broadcast will be available on the company's website until the next earnings update.

    Company Description

    EPIQ Systems provides an advanced offering of integrated technology-based products and services for fiduciary management and claims administration applications. Our solutions enable clients to optimize the administration of large and complex bankruptcy, class action, mass tort, and other similar legal proceedings. EPIQ Systems' clients include corporations, attorneys, trustees and administrative professionals who require sophisticated case administration and document management capabilities, extensive subject matter expertise and a high service capacity. We provide clients a packaged offering of both proprietary technology and value-added services that comprehensively addresses their extensive business requirements. For more information, visit us online at www.epiqsystems.com.

    This press release and the referenced conference call may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act, including those relating to the possible or assumed future results of operations and financial condition of the Company. These forward-looking statements are based on the Company's current expectations and may be identified by terms such as "goal" and "objective." Because those statements are subject to a number of risks, actual results may differ materially from those expressed or implied in this disclosure. These risks include (1) any material changes in our total number of bankruptcy trustees and cases, (2) any material changes in our Chapter 7 deposits, the services required by our Chapter 11, Chapter 13, class action or mass tort cases, or the number of cases processed by our Chapter 13 bankruptcy trustee customers, (3) material changes in the number of bankruptcy filings, class action filings or mass tort actions each year, (4) our reliance on and change in our non-exclusive marketing and pricing with Bank of America for Chapter 7 revenue, (5) the risks associated with new Chapter 7 depository relationships (6) future bankruptcy, class action, or mass tort legislation, (7) risks associated with the integration of acquisitions into our existing business operations, (8) risks associated with the significant new indebtedness we incurred in 2004, (9) a decline in new client engagements in our case management or document management business, and (10) other risks detailed from time to time in our SEC filings, including our annual report on Form 10-K. In addition, there may be other factors not included in our SEC filings that may cause actual results to differ materially from any forward-looking statements. We undertake no obligations to update any forward-looking statements contained herein to reflect future events or developments.

EPIQ SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In thousands, except per share data) (Unaudited)

Three months Twelve months ended ended December 31, December 31, ----------------- ----------------- 2004 2003 2004 2003 -------- -------- -------- -------- REVENUE: Case management $17,250 $13,119 $68,526 $49,688 Document management 6,588 3,696 36,549 12,730 -------- -------- -------- -------- Operating revenue 23,838 16,815 105,075 62,418 Reimbursed expenses 4,968 1,587 20,345 5,518 -------- -------- -------- -------- Total Revenue 28,806 18,402 125,420 67,936 -------- -------- -------- --------

OPERATING EXPENSES: Direct costs 13,875 4,759 60,384 16,490 General and administrative 6,677 4,362 25,886 16,868 Depreciation and software amortization 1,764 1,286 6,527 4,568 Amortization of identifiable intangible assets 2,023 976 7,767 3,610 Acquisition related - 308 2,197 1,793 -------- -------- -------- -------- Total Operating Expenses 24,339 11,691 102,761 43,329 -------- -------- -------- --------

INCOME FROM OPERATIONS 4,467 6,711 22,659 24,607

EXPENSES (INCOME) RELATED TO FINANCING: Interest expense, net of interest income 1,131 (13) 6,215 (83) Loan fee write-off - - 995 - -------- -------- -------- -------- Net Expenses (Income) Related to Financing 1,131 (13) 7,210 (83) -------- -------- -------- --------

INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES 3,336 6,724 15,449 24,690

PROVISION FOR INCOME TAXES 1,418 2,955 6,386 10,165 -------- -------- -------- -------- INCOME FROM CONTINUING OPERATIONS 1,918 3,769 9,063 14,525

INCOME (LOSS) FROM DISCONTINUED OPERATIONS - (4,908) 667 (5,818) -------- -------- -------- --------

NET INCOME $1,918 $(1,139) $9,730 $8,707 ======== ======== ======== ========

NET INCOME PER SHARE INFORMATION: Income per share - Diluted Income from continuing operations $0.10 $0.21 $0.49 $0.80 Income (loss) from discontinued operations - (0.27) 0.03 (0.32) -------- -------- -------- -------- Net income per share - Diluted $0.10 $(0.06) $0.52 $0.48 ======== ======== ======== ========

WEIGHTED AVERAGE COMMON SHARES OUTSTANDING - DILUTED 21,125 18,171 19,828 18,104 ======== ======== ======== ========

EPIQ SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands) (Unaudited)

December 31, December 31, 2004 2003 ------------ ------------ ASSETS ASSETS: Cash and cash equivalents $13,330 $30,347 Trade receivables, net 18,690 11,337 Property and equipment, net 20,431 11,886 Goodwill 147,728 64,188 Other intangibles, net 24,057 16,325 Other 15,852 7,844 ------------ ------------

Total Assets $240,088 $141,927 ============ ============

LIABILITIES AND STOCKHOLDERS' EQUITY LIABILITIES: Accounts payable $4,263 $1,998 Indebtedness 82,149 3,915 Other liabilities 13,843 6,759 STOCKHOLDERS' EQUITY 139,833 129,255 ------------ ------------

Total Liabilities and Stockholders' Equity $240,088 $141,927 ============ ============

EPIQ SYSTEMS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands) (Unaudited)

Three months ended Twelve months ended December 31, December 31, ------------------- ------------------- 2004 2003 2004 2003 --------- --------- --------- ---------

CASH FLOWS FROM OPERATING ACTIVITIES: Net income $1,918 $(1,139) $9,730 $8,707 Non-cash adjustments to net income Depreciation and amortization 5,067 2,516 17,409 9,541 Impairment provision - 7,615 - 7,615 Other, net 4,431 (2,360) 7,254 (1,621) Changes in operating assets and liabilities, net (214) 1,690 (2,804) (3,591) --------- --------- --------- --------- Net cash from operating activities 11,202 8,322 31,589 20,651 --------- --------- --------- ---------

CASH FLOWS FROM INVESTING ACTIVITIES: Cash paid for acquisition, net of cash acquired - - (113,111) (43,263) Other (998) (1,539) (5,918) (6,734) --------- --------- --------- --------- Net cash used in investing activities (998) (1,539) (119,029) (49,997) --------- --------- --------- ---------

CASH FLOWS FROM FINANCING ACTIVITIES: Net proceeds (payments) on indebtedness (7,438) - 69,114 - Other 38 83 595 580 --------- --------- --------- --------- Net cash from (used in) financing activities (7,400) 83 69,709 580 --------- --------- --------- ---------

NET INCREASE (DECREASE) IN CASH $2,804 $6,866 $(17,731) $(28,766) ========= ========= ========= =========

EPIQ SYSTEMS, INC. AND SUBSIDIARIES RECONCILIATION OF NET INCOME FROM CONTINUING OPERATIONS TO NON-GAAP NET INCOME FROM CONTINUING OPERATIONS (In thousands) (Unaudited)

THREE-MONTHS TWELVE-MONTHS ENDED ENDED December 31, December 31, 2004 2003 2004 2003 ------- ------- -------- -------- NET INCOME FROM CONTINUING OPERATIONS $1,918 $3,769 $9,063 $14,525

Plus (net of tax): Amortization of acquisition intangibles 1,163 548 4,559 2,124 Acquisition related expense - 173 1,290 1,055 Amortization/write-off - capitalized loan fees 163 - 1,828 - Non-cash embedded option charges (22) - 171 - ------- ------- -------- -------- 1,304 721 7,848 3,179 ------- ------- -------- --------

NON-GAAP NET INCOME FROM CONTINUING OPERATIONS $3,222 $4,490 $16,911 $17,704 ======= ======= ======== ========

EPIQ SYSTEMS, INC. AND SUBSIDIARIES RECONCILIATION OF EPS FROM CONTINUING OPERATIONS TO NON-GAAP EPS FROM CONTINUING OPERATIONS (Unaudited)

THREE-MONTHS TWELVE-MONTHS ENDED ENDED December 31, December 31, 2004 2003 2004 2003 ------ ------ ------ ------

EPS FROM CONTINUING OPERATIONS (on a diluted basis) $0.10 $0.21 $0.49 $0.80

Plus (net of tax): Amortization of acquisition intangibles 0.06 0.03 0.23 0.12 Acquisition related expense - 0.01 0.07 0.06 Amortization/write-off - capitalized loan fees 0.01 - 0.09 - Non-cash embedded option charges - - 0.01 - ------ ------ ------ ------ 0.07 0.04 0.40 0.18 ------ ------ ------ ------

NON-GAAP EPS FROM CONTINUING OPERATIONS (on a diluted basis) $0.17 $0.25 $0.89 $0.98 ====== ====== ====== ====== NON-GAAP EPS FROM CONTINUING OPERATIONS (diluted, before EITF 04-08) $0.18 (a) $0.93 (a) ====== ====== ====== ======

(a) Convertible debt was not issued until June 2004.

EPIQ SYSTEMS, INC. AND SUBSIDIARIES RECONCILIATION OF NET INCOME FROM CONTINUING OPERATIONS TO NON-GAAP ADJUSTED EBITDA FROM CONTINUING OPERATIONS (In thousands) (Unaudited)

THREE-MONTHS TWELVE-MONTHS ENDED ENDED December 31, December 31, 2004 2003 2004 2003 ------- ------- -------- -------- NET INCOME FROM CONTINUING OPERATIONS $1,918 $3,769 $9,063 $14,525

Acquisition related expense - 308 2,197 1,793 Depreciation and amortization 3,787 2,262 14,294 8,178 Expenses (income) related to financing 1,131 (13) 7,210 (83) Provision for income taxes 1,418 2,955 6,386 10,165 ------- ------- -------- -------- 6,336 5,512 30,087 20,053 ------- ------- -------- --------

NON-GAAP ADJUSTED EBITDA FROM CONTINUING OPERATIONS $8,254 $9,281 $39,150 $34,578 ======= ======= ======== ========

EPIQ SYSTEMS, INC. AND SUBSIDIARIES EPS CALCULATION ADJUSTMENTS PER EITF 04-08 (In thousands, except per share data) (Unaudited)

THREE-MONTHS TWELVE-MONTHS ENDED ENDED December 31, December 31, 2004 2004 ------------- -------------

NET INCOME $1,918 $9,063 Interest expense adjustment 296 647 ------------- ------------- ADJUSTED FOR DILUTED CALCULATION $2,214 $9,710 ============= =============

DILUTED WEIGHTED AVERAGE SHARES 18,268 18,259 Adjustment to shares 2,857 1,569 ------------- ------------- ADJUSTED FOR DILUTED CALCULATION 21,125 19,828 ============= =============

EPS BEFORE EITF 04-08 $0.10 $0.50 EPS AFTER EITF 04-08 $0.10 $0.49

--30--SL/dx*

CONTACT: EPIQ Systems, Inc. Shawn Southard, 913-621-9500 Email: ir@epiqsystems.com

KEYWORD: MISSOURI KANSAS INDUSTRY KEYWORD: SOFTWARE EARNINGS CONFERENCE CALLS SOURCE: EPIQ Systems, Inc.

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