LECG Corporation (XPRT)

Q2 2010 Earnings Call

August 3, 2010 17:00 pm ET

Executives

Steve Fife - CFO

Steve Samek - CEO

Analysts

Tim McHugh - William Blair & Co.

Presentation

Operator

Welcome to the LECG Corporation Second Quarter 2010 Earnings Conference Call. (Operator Instructions). As a reminder this conference is being recorded.

I would now like to introduce your host for today Mr. Steve Fife, Chief Financial Officer. Sir, please go ahead.

Steve Fife

Good afternoon, everyone, and thank you for joining our second quarter 2010 conference call. I am Steve Fife, Chief Financial Officer at LECG and with me is Steve Samek, LECG's Chief Executive Officer.

I would like to remind you that on our call and in our press release issued today LECG Corporation 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 management's 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 activities, performance or achievements and undertakes no obligations 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 in today's earnings release.

Steve Samek will kick off our call today, with a discussion on the state of the industry and a discussion of our progress during the quarter. I will then be back to give an overview of our second quarter financial results.

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

Steve Samek

It's hard to believe that it was only four months past since our merger with SMART, with so much that have happened to LECG and the industry since then and you probably all heard the ancient Chinese curse and proverb, may you live in interesting times.

Well, the industry and LECG are certainly going through those interesting times with the events in the industry and our business over the past quarter, we are more convinced than even that we are building the right business model.

In our last quarter, I laid down an aggressive 2010 action plan and we have made significant progress against that plan so far. So today, I want to cover three things with you. First of all, I wanted to discuss the state of the industry and why our vision for LECG is the right one for the changes that we are seeing in the market.

Secondly, I want to give you some insight in to our revenue and our growth prospects and then finally I do want to spend some time on the overview of our 2010 action plans and the results that we have achieved to-date.

So, let me start with the industry. If you look at the high level view of the state of the industry and why we see our recent merger is transformational. You all know that while the recession hit the industry very hard in late 2008 and into 2009, the prevailing market view was that we would see recovery in 2010. That clearly has not happened yet. In fact, if anything, we have seen the industry continue to go sideways and in some cases slide.

Most point to the nagging recovery from the recession is the main reason, and many of our competitors have experienced similar sequential and year-over-year declines in their revenues just like we have, and demand does remain choppy.

In our Economics segment for example, we saw better top line performance overall with all practice areas showing some sequential growth and most showing year-over-year growth. In our Litigation, Forensics and Financial segments for example, all the two of our sectors are damaged and e-discovery sector showed sequential and year-over-year declines.

At the same time, clients are deferring projects and adjusting the scope of engagements as clients' buying patterns are beginning to change. It is seems to be utilizing professional and expert services and smaller increments are moving ahead with engagements and litigation, but are engaging smaller teams for shorter period of time also resulting in smaller projects.

While these industry trends speak for themselves, I believe and I begin to stress across the entire industry points to a fundamental shift in the business services model, something that is arguably been coming for sometime and I think the changes we are starting to see now may prove to be more fundamental and at least partially permanent.

Buyers of expert and professional services are beginning to look for different combination of skills and more cost-effective ways to help address their issues more systemically. Providers need to have best-of-breed talent, they need to have a broader footprint solutions, tight cost controls and innovative solutions to meet their customer demands.

I believe that this supports our conviction, that truly differentiate ourselves and the being industry leader, we have got to create a global multidisciplinary integrated expert and professional services firm. This was the basis for the merger with SMART.

The breakthrough back to growth will be when we or anybody in the industry broadly convert the potential providing integrated solutions into revenue growth that wouldn't have happened without integration and consolidation. Based on my experience, the incremental revenue potential from be in a broad based integrated firm providing unique, but also differentiated new skill sets could be in a 15% or 20% of total revenue over time.

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