LECG Corporation (XPRT)

Q1 2010 Earnings Call

May 4, 2010 5:00 pm ET

Executives

Annie Leschin – IR

Steve Samek – CEO

Steve Fife – CFO

Analysts

Tim McHugh – William Blair & Co.

P resentation

Operator

Welcome to the first quarter 2010 LECG Corporation earnings conference call. (Operator Instructions) I would now like to introduce your host for today’s program, Ms. Annie Leschin. Please go ahead, Ma’am.

Annie Leschin

Thank you, operator. Good afternoon, everyone, and thank you for joining our first quarter 2010 earnings conference call. With me on today’s call are Steve Samek, LECG’s new Chief Executive Officer and Steve Fife, our Chief Financial Officer, both of whom will present prepared remarks. Just a reminder, the first quarter results include 21 days of Smart financial results.

I would like to remind you that on our call and on our press release issued today LECG is providing specific forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995 concerning LECG’s future business and operating and financial conditions. These forward-looking statements are based upon current expectations as of today and are subject to a number of risks and uncertainties that could cause actual results to differ materially from expectations.

Information on these risk factors is included in the company’s filings with the Securities and Exchange Commission, which we urge you to consider. The company cannot guarantee any future results, levels of activity, performance or achievement and undertakes no obligation to update any of its forward-looking statements.

Finally, you can find a reconciliation of the non-GAAP financial measures to GAAP financials used in our press release and on this call today on our website.

With that, I will turn the call over to Steve Samek for opening remarks. Steve?

Steve Samek

Thanks Annie. Good afternoon everyone and let me start by welcoming you all to my first earnings conference call as LECG’s CEO.

Before I begin I would like to take a minute to acknowledge and thank all of our stockholders for their feedback, patience and their support during these last few years of difficult market conditions and challenging times at LECG. As most of you know by now the merger officially closed on March 10 th which adds about 21 days of Smart’s results to LECGs first quarter.

So what I would like to do with you today is share with you first of all my preliminary thoughts on the combined firm. Secondly, how we plan to address the issues currently facing LECG and thirdly where we see the LECG of the future going. Now that I have seen the new LECG up close and for the last 52 days I would like to reiterate I really believe that LECG has always had a long with Smart the best experts and people in the industry and that the first and foremost thing in our strategy is to capitalize on that and expand our core skills.

So let me start with a review of ht quarterly results. As you know the specialty consulting industry has had another difficult quarter. After signs of improvement across most segments of LECG’s business in the fourth quarter market demand actually retreated in the first quarter, reflecting the tenuous and inconsistent state of the industry. As you have seen in our press release first quarter revenues from the legacy LECG declined by just under $3 million from the fourth quarter to over $63 million. But with Smart’s three week contribution of over $6.5 million during what is typically Smart’s peak month of the year total revenue for the combined firm reached $70 million for the first quarter.

I am going to let Steve Fife discuss this in greater detail but what I think is significant is in just a few weeks Smart contributed 9% to the top line revenue and 170 basis points to gross margin. This underscores one of the key rationales for the merger transaction. Even with this and our planned integration steps we are far from satisfied though with our performance. As a result I am focused on both and the short and the long-term actions and we have developed really a three-step plan.

First of all to integrate the businesses. Secondly to optimize the existing platform. Finally to invest going forward.

Before I go into the details of this plan let me first discuss the current state of the market. LECG along with many industry observers continues to believe that the long-term market opportunity for litigation and regulatory, investigative and other services will return but we have yet to see any consistent quarterly data that gives us confidence this resurgence is around the corner. Revenue levels across the market continue to be depressed and that reflects the ongoing industry wide trough that has persisted for nearly two years.

Now through the outlook that we have seen for both the broader economy but has begun to turn the corner in the last seven months our clients simply have yet to mirror the sentiment calling into question whether the historical underlying drivers of the markets are the appropriate metrics to follow in the future and whether the specialty consulting transactional business model is evolving. Once again, this is why we believe our new balanced portfolio will be strategically very important whichever way this trend breaks.

Right now our clients’ leading concern continues to center on their own financial conditions. Their top priorities remain conserving cash and managing costs in order to more quickly capitalize on any top line growth. Corporate budgets remain tight, only selectively opening for crucial cases where companies are otherwise not inclined to delay, defer spending or to settle. But when litigation does move forward we are seeing the scope of projects reduced and often doled out in smaller tranches.

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