LECG ( XPRT) Q3 2010 Earnings Call November 8, 2010 5:00 p.m. ET Executives Annie Leschin - Investor Relations Warren Barratt - CFO Steve Samek - CEO Analysts Tim McHugh - William Blair & Co. Presentation Operator
Steve Samek Thanks Annie, and thank you all for joining us today. I'm excited to share with you the progress we've made over the last three months and the creation of what I'm calling the new LECG. As you know, the strategic intent of the merger this spring between LECG and SMART was to create a global, multidisciplinary integrated professional services firm by combining the deep expert thought leadership and capabilities of LECG with the broad operational technology, tax, and governance footprint of SMART. We believe that this combined capacity is unrivaled in the industry and creates unique capability to provide not only depth in each of the existing sectors that we currently operating in, but also as integrated solutions from the combined companies. Now as we outlined in May, our 2010 action plan centers on three broad areas: integration of the firms, including a significant reduction of SG&A costs while improving processes and capabilities; secondly, the optimization of our assets to improve our go to market strategy and create growth across the sectors, which in many cases would not occur without the merger; and thirdly, the investment in our business through hiring alliances and acquisitions. During the third quarter, we made significant progress on many fronts of this strategy, including critical steps toward our refinancing, which I'm just going to talk about in a minute; new engagements from our integrated offerings; continued reduction of costs; the completion of the relocation of our corporate offices to Devon, Pennsylvania; a net increase in the full-time M.D. experts; continued penetration of high-end, vet-the-company market opportunities; and the closing of our very successful Bourne acquisition. The main message with all of this is that while our revenues dipped due to choppy market conditions and the lag effect of full-time M.D. expert turnover in the first and second quarters that we've already talked about, our ongoing efforts to reduce costs and the performance of our newly added consulting and governance sectors helped us to keep margins fairly constant.
Importantly, at the same time we generated positive cash flow from operations this quarter. I think this is critical. I think this is a direct reflection of our continued ability to execute effectively on our strategic plan and align our business to the current market. We have clearly generated some good momentum on a solid trajectory toward renewed profitability in 2011, leading me to believe that we're turning the corner strategically.Let me highlight a few key accomplishments this quarter in more detail. First, and probably foremost, is earlier today we received a commitment letter for a revolving credit facility from a top-20 U.S. commercial bank, which we expect will enable us to refinance our debt by year end and provide liquidity. Warren is going to discuss this in as much detail as we're able to at this stage in our discussion, which is obviously very early, but this is an important milestone for the company from a realignment perspective. While we've got a bit more work to do before we finalize and we can discuss any of the details in depth, we will be very pleased, obviously, to be able to put this behind us and take away what I believe has been an overhang not just in our stock price, but with our people and in the marketplace. Secondly, we've made considerable progress in our recruiting and retention efforts. Since our last earnings call in early August, we added three full time expert M.D.s and importantly, lost only one to voluntary turnover. Additionally, we've had several more candidates in the pipeline, including three who are going to start in November. This brings the total number of new, full-time M.D. experts that have started in 2010 to 19. It's important to note that we expect many of these new leaders to bring immediate books of businesses with them. But perhaps just as importantly, and because we are very interested in rapidly growing each of our sectors, these new hires have been fairly equally distributed across the firm, including five in the litigation group, four in economics practice, three in the consulting practice, and seven in the governance practice, four of which came from the Bourne acquisition. This reflects the confidence that these M.D. experts have in our business model, as we have already brought on M.D. experts in 2010 than any other one-year period of time since 2007. Read the rest of this transcript for free on seekingalpha.com