EPIQ Systems Inc. (EPIQ, Financial) filed Quarterly Report for the period ended 2009-03-31.
EPIQ Systems Inc. develops markets and licenses proprietary software solutions for workflow management and data communications infrastructure that serve the bankruptcy trustee market and financial services market. EPIQ Systems Inc. has a market cap of $526 million; its shares were traded at around $14.74 with a P/E ratio of 30.7 and P/S ratio of 2.2. EPIQ Systems Inc. had an annual average earning growth of 36.5% over the past 10 years. GuruFocus rated EPIQ Systems Inc. the business predictability rank of 3.5-star.
Operating Expense The direct cost of services, exclusive of depreciation and amortization, was $19.7 million for the three months ended March 31, 2009, an increase of $0.9 million, or 4%, as compared to $18.8 million in the prior year. Contributing to this increase was a $1.3 million increase in compensation related expense; a $1.5 million increase in production supplies; a $0.8 million increase in the cost of outside services, primarily related to temporary help and mailing; and a $0.3 million increase in software maintenance costs related to client service capabilities. These increases were partially offset by a $3.1 million decrease in legal noticing costs. Changes by segment are discussed below.
Bankruptcy direct and administrative expenses increased $3.5 million, or 51%, to $10.4 million for the three months ended March 31, 2009, compared to $6.9 million in prior year. The increase is primarily attributable to a $1.1 million increase in compensation costs, due to additional staffing in support of new client retentions; a $1.0 million increase in outside services expense, resulting from several large noticing engagements; a $0.7 million increase in reimbursed direct costs, which directly corresponds to the increase in operating revenue from reimbursed direct costs; and a $0.5 million increase in intercompany expense related to call center services performed by the settlement administration segment for the bankruptcy segment. The intercompany expense is eliminated in consolidation.
Settlement administration direct and administrative expenses, including reimbursed direct costs, for the three months ended March 31, 2009 were $21.6 million, an increase of $0.8 million, or 4%, compared to $20.8 million in the prior year. The increase in expense is the result of an increase in call center, outside services, and mailing supplies costs of $1.3 million, which supported the large contract referenced above; and a $2.4 million increase in reimbursable expenses. These increases were partially offset by a decrease of $3.1 million in the cost of legal noticing which is directly related to the decrease in legal notification revenue.
During the three months ended March 31, 2009, our operating activities provided net cash of $2.5 million. Contributing to net cash provided by operating activities was net income of $3.3 million and increased non-cash expenses, such as depreciation and amortization and share-based compensation expense, of $7.9 million. These items were partially offset by an $8.8 million net use of cash resulting from changes in operating assets and liabilities. The most significant change in operating assets and liabilities was a $14.0 million increase in trade accounts receivable, related to a large matter in settlement administration and several large matters in the bankruptcy segment. Trade accounts receivable will fluctuate from period to period depending on the timing of sales and collections. Partially offsetting the increase in accounts receivable was an increase in accounts payable and other liabilities of $5.1 million. Accounts payable will fluctuate from period to period depending on timing of purchases and payments.
As of March 31, 2009, our borrowings consisted of $51.9 million (including the fair value of the embedded option) from the contingent convertible subordinated notes, which bears interest at 4% per annum based on the $50.0 million principal amount, and approximately $8.0 million of obligations related to capital leases and deferred acquisition price payments. During 2007, the term of our contingent convertible subordinated notes was extended to June 2010. The notes will require the use of $50.0 million of cash at the extended maturity date if the note holders do not convert the notes into shares of our common stock. The holders of the contingent convertible subordinated notes have the right to convert at a price of approximately $11.67 per share. If any or all notes are converted into shares of our common stock prior to the scheduled maturity of those notes, then there will be no cash requirements associated with those converted notes, other than the regular payment of interest earned prior to the conversion date.
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EPIQ Systems Inc. develops markets and licenses proprietary software solutions for workflow management and data communications infrastructure that serve the bankruptcy trustee market and financial services market. EPIQ Systems Inc. has a market cap of $526 million; its shares were traded at around $14.74 with a P/E ratio of 30.7 and P/S ratio of 2.2. EPIQ Systems Inc. had an annual average earning growth of 36.5% over the past 10 years. GuruFocus rated EPIQ Systems Inc. the business predictability rank of 3.5-star.
Highlight of Business Operations:
Consolidated Results Revenue Total revenue was $60.8 million for the three months ended March 31, 2009, an increase of $11.8 million, or 24%, as compared to the prior year. A portion of our total revenue consists of reimbursement for direct costs we incur, such as postage related to document management services. We reflect the operating revenue from these reimbursed direct costs as a separate line item on our accompanying Condensed Consolidated Statements of Income. Operating revenue from reimbursed direct costs was $8.2 million, an increase of $3.1 million, or 61%, from $5.1 million in the period year. Although operating revenue from reimbursed direct costs may fluctuate significantly from quarter to quarter, these fluctuations have a minimal effect on our income from operations as we realize little or no margin from this revenue.Operating Expense The direct cost of services, exclusive of depreciation and amortization, was $19.7 million for the three months ended March 31, 2009, an increase of $0.9 million, or 4%, as compared to $18.8 million in the prior year. Contributing to this increase was a $1.3 million increase in compensation related expense; a $1.5 million increase in production supplies; a $0.8 million increase in the cost of outside services, primarily related to temporary help and mailing; and a $0.3 million increase in software maintenance costs related to client service capabilities. These increases were partially offset by a $3.1 million decrease in legal noticing costs. Changes by segment are discussed below.
Bankruptcy direct and administrative expenses increased $3.5 million, or 51%, to $10.4 million for the three months ended March 31, 2009, compared to $6.9 million in prior year. The increase is primarily attributable to a $1.1 million increase in compensation costs, due to additional staffing in support of new client retentions; a $1.0 million increase in outside services expense, resulting from several large noticing engagements; a $0.7 million increase in reimbursed direct costs, which directly corresponds to the increase in operating revenue from reimbursed direct costs; and a $0.5 million increase in intercompany expense related to call center services performed by the settlement administration segment for the bankruptcy segment. The intercompany expense is eliminated in consolidation.
Settlement administration direct and administrative expenses, including reimbursed direct costs, for the three months ended March 31, 2009 were $21.6 million, an increase of $0.8 million, or 4%, compared to $20.8 million in the prior year. The increase in expense is the result of an increase in call center, outside services, and mailing supplies costs of $1.3 million, which supported the large contract referenced above; and a $2.4 million increase in reimbursable expenses. These increases were partially offset by a decrease of $3.1 million in the cost of legal noticing which is directly related to the decrease in legal notification revenue.
During the three months ended March 31, 2009, our operating activities provided net cash of $2.5 million. Contributing to net cash provided by operating activities was net income of $3.3 million and increased non-cash expenses, such as depreciation and amortization and share-based compensation expense, of $7.9 million. These items were partially offset by an $8.8 million net use of cash resulting from changes in operating assets and liabilities. The most significant change in operating assets and liabilities was a $14.0 million increase in trade accounts receivable, related to a large matter in settlement administration and several large matters in the bankruptcy segment. Trade accounts receivable will fluctuate from period to period depending on the timing of sales and collections. Partially offsetting the increase in accounts receivable was an increase in accounts payable and other liabilities of $5.1 million. Accounts payable will fluctuate from period to period depending on timing of purchases and payments.
As of March 31, 2009, our borrowings consisted of $51.9 million (including the fair value of the embedded option) from the contingent convertible subordinated notes, which bears interest at 4% per annum based on the $50.0 million principal amount, and approximately $8.0 million of obligations related to capital leases and deferred acquisition price payments. During 2007, the term of our contingent convertible subordinated notes was extended to June 2010. The notes will require the use of $50.0 million of cash at the extended maturity date if the note holders do not convert the notes into shares of our common stock. The holders of the contingent convertible subordinated notes have the right to convert at a price of approximately $11.67 per share. If any or all notes are converted into shares of our common stock prior to the scheduled maturity of those notes, then there will be no cash requirements associated with those converted notes, other than the regular payment of interest earned prior to the conversion date.
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