EPIQ Systems, Inc. (NASDAQ:EPIQ)
Annual Shareholder Meeting
June 13, 2013 11:00 am ET
Tom W. Olofson - Chairman and Chief Executive Officer
Elizabeth M. Braham - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Corporate Secretary and Treasurer
Christopher E. Olofson - President, Chief Operating Officer and Director
Peter J. Heckmann - Avondale Partners, LLC, Research Division
Tom W. Olofson
Good morning. Welcome to Epiq's, believe it or not, 17th annual shareholders meeting as a public company. We're delighted to have you join us this morning. We actually have another interesting event coming up. Hello, Fred. I see you there. July 15 will be our 25th anniversary as a company, going back to July 15, 1988, when I actually bought the business. And we were, of course, a private company, between 1988 and doing the IPO in February of 1997. I thought you might enjoy hearing just a couple of things about what Epiq looked like in 1988, put it in an interesting perspective 25 years ago. We had annual revenue of a rousing $4 million. We had assets of $4 million. You'll enjoy this. It's called a leveraged buyout. We had $2.5 million of long-term debt, which I had a pleasure of personally guaranteeing. And then we had $0.5 million of mezzanine financing from private equity firm. And I bought that firm out a couple of years later. We were on Kansas Avenue. Now the facility was a bit smaller. But we actually were at the same address. And thanks to the multifaceted accounting talents of our controller at that time, Mike Rider, who's with us today. Mike, why don't you wave to the crowd. Everybody knows Mike. I think we made $25,000 at first year, but only thanks to Mike.
And by the way, the only reason that happened, they were passing out paychecks at the end of the month. And there's no envelope on my desk. I said, Mike, I said what's going on? Well, he said, you told me that we really needed to be profitable, so he said, "This is really the way we're going to do it." To make matters worse, and this is true, a few months later, he came back. Again, there's no envelope on my desk, but Mike's at the door. And it's always a little dangerous in those days when Mike was at the door. I said, "Mike, what do you need?" Well, he said, "I'm a little short this month," he said, "I wonder if I could set up a line of credit with you, so we can actually make the payroll." But we went through all those exciting times. That's called entrepreneurship and starting as well a company. As you'll see today, we've got some exciting things to talk to you about. And Chris and I will give you an update on a number of things, which I think you'll find very positive and very exciting.
What I'd like to do first is to have Betsy Braham come up, our CFO. We'll designate Betsy as the judge of the election. And Betsy will review with you the proxy vote and then I'll come back later after that.
Elizabeth M. Braham
Thank you, Tom. Good morning. So the items on our proxy election this year is to elect the 7 nominees to our Board of Directors for a term of 1 year. The second item is to ratify the appointment of our independent auditors, Deloitte, for the year ending December 31, 2013. And the third item is to approve the advisory vote for compensation of the company's named executive officers.
So does anyone present prefer to revoke a proxy that's previously been voted or instead vote in person? There being none, we will proceed then with the election.
Of the 36.3 million shares that are eligible to vote, 34.5 million of those have voted. The results of the nomination of our directors is that all directors have been renominated, with votes between 20.2 million and 29.8 million votes to be elected. On the second item, our auditors, Deloitte & Touche, have been reelected with 34.4 million votes. And relative to the advisory non-binding vote for executive compensation, it has also received 21.6 million for votes and has also passed. That is the result of the 3 items, and I will turn it back over to you, Tom.
Tom W. Olofson
What I'd like to do next is just briefly make a few introductions to begin the meeting. And the meeting is officially called to order, and we do have a quorum. I'd like to introduce first, and I'll ask each of you just to stand up. All of our independent directors attend our shareholders' meeting. There's a brief biographical sketch on our directors in the proxy statement, for those of you that would like to read about their backgrounds. So let me introduce them. Brian Satterlee; Ed Connolly; Jim Byrnes; Joel Pelofsky; and Chuck Connely. And these are our 5 independent directors. And they also comprise all of our committees, our Audit Committee, Compensation Committee, Nominating and Corporate Governance Committee. Our board consists of 7 directors in total with 5 independent, 2 executive officers as directors. And we've always had a very significant majority, of course, of independent directors on the board. Chris Olofson, our President and Chief Operating Officer, is a longtime board member. And you'll be hearing from Chris shortly. And then I've served as Chairman of the Board going back to our IPO in February of 1997 and, of course, likewise when we were a private company.
We have 4 senior executive officers, and we refer to that group as the Executive Management Committee. You've met 3 of those members: Chris, Betsy, myself. Let me introduce Brad Scott. Brad is the fourth member of that group. Brad is Senior Vice President and Chief Human Resources Officer. Has a strong background in leadership and organizational development. Has been with a number of the leading law firms in New York, as well as IBM, and joined us very recently. So that's the group of 4 executive officers and the 7 members of the board.
As Chris and I speak with you about the business today, there's 4 key capabilities that we require to have leadership in the specialty niche markets in which we operate. And we clearly are leaders in each of those markets. But the 4 capabilities, we require in no particular order: Number one, expertise in technology, which clearly includes our proprietary software. And we view ourselves as a technology company.
Number two, a deep subject matter expertise. We're in very specialty markets, complex markets, and we really do require considerable expertise in those subject matter areas.
Number three, relationships. We are in the corporate relationship business. We're a relationship company. The easiest way to describe that. You don't get retained in Lehman Brothers just because you have good technology, you offer good service. You have to have relationships at the highest levels in all of those key areas.
And then we have to be fanatics in client service. In the markets we're in, you live and die on client service. And we have to have considerable capabilities in those areas.
We're going to talk quite a bit today about eDiscovery. We are the global leader in the eDiscovery business. We are going to add to that in a few different directions going forward. We've recently launched a new ad campaign. A lot of people simply don't realize that we talked a bit about this last year. People still know us primarily for our bankruptcy expertise. And we are leaders in bankruptcy, there's no question about that. And we'll talk about that today. Nobody does it better than we do. But the message that we have to get out there is that we have really become, over the last couple of years, the global leader in the eDiscovery business. The multibillion-dollar business is a worldwide business. It's a double-digit-growth business. And we have become a global leader. It does not reflect in the value of our company. Many people would tell you the value of that business is significantly greater than the entire company is currently valued, and there's a lot of merit to that. We know what other eDiscovery businesses are worth, and what kind of multiples they trade at. And there's no way to have what this year will be approximately $0.25 billion eDiscovery business, which is a global leader. And you've seen the recent press releases. There's no way to look at that business and not assign it a very attractive value.
We have recently, and Chris will talk about these things in more detail, but you've seen the press releases come out. We've recently entered the Japanese market. Our office is, of course, in Tokyo. We've expanded our Hong Kong office and moved to large headquarters. The other day, we put a press release out that we've just put a data center in Shanghai. We also have data centers in Hong Kong and Tokyo. The London office is really growing at a very significant rate. We have a data center in London actually. We haven't announced it yet, Chris will talk about it, but we're going to launch our Canadian business shortly.
The domestic eDiscovery business, in fact, the worldwide headquarters is in New York. The domestic business, we have 2 major facilities in this country, in Midtown Manhattan and in Phoenix. We are achieving a very, very attractive growth domestically, as well as internationally. And our mission this year -- and we've actually really reassessed this on a very, very recent, current timeframe. Our mission is to really take significant market share away from our competitors right now, right now. We are making some very important investments. We are adding some key people in a number of locations. I just talked about where we're expanding in some new geographic locations. The opportunity for us to really strike -- we have all the momentum. We have all the inertia going. And so right now, we are going to really, really put it to the competition. And we're going to take a lot of market share. And we're going to have, I think, a very, very attractive overall growth in our eDiscovery revenue on a worldwide basis. We're doing some very exciting things in the document review business. And Chris will go into a lot of detail on these things, but eDiscovery is an extraordinarily important business for us. And we are doing very, very well. The acquisitions we did in the last couple of years accomplished the objective. When we bought Encore in Phoenix, we got a series of third-party tools, which were very important to us and very complementary from a proprietary software that came with the original nMatrix deal. When we bought De Novo, it really boosted our strength in the document review marketplace. And both of those deals have worked out very, very well, and we have achieved all of the benefits that we were hoping for. So as you go through the rest of the presentation, you'll hear a lot today on eDiscovery.
And remember, in our total business -- and I think this says a lot. We do with 48 of the top 50 law firms in the world. Of course, my question is, what happened to the other 2. So one of these days, hopefully, we'll say we do with all 50. But that's an interesting accomplishment. And I think it says a lot about our market penetration and the kind of growth that we're achieving. And those law firms, of course, would include the top 5 law firms in London, which I refer to as the Magic Circle firms. And we have, I think, at last count, if not all 5, I think we have at least business with 4 of those firms. So the business is doing very, very well.
We talked about bankruptcy, and we're going to spend a few minutes today. I think your -- I'm going to put some things in perspective for you. I'll show you some slides. You'll see historically how important bankruptcy has been to the market valuation of the company. And even for those of you who follow us carefully, I think you'll actually be very, very interested in a couple of the slides that show you that the various breakouts we've had in the stock have always tied directly. They've correlated precisely to the bankruptcy cycle. We anticipate that will happen in the future, but what we also have to accomplish is to reflect eDiscovery in the market value of the company. And that, we haven't done, and that, we need to do.
So our bankruptcy business today, even though bankruptcy is down right now, we know that we're in the down part of the cycle. And so we're taking the opportunity to get more market share. And even in the Chapter 7 business where interest rates continue at 0, and you all know that, that's an important part of that revenue model, we're continuing to pursue additional market share. So we always make money in bankruptcy. Even in a down cycle, we make money. In fact, we make pretty good money. In an up cycle, we do extraordinarily well. And I'll talk with you in a few minutes about our views on when we think the bankruptcy cycle will pick back up.
Our class action settlement business, we've had significant growth. A couple of years ago, it was a $37 million business, went to $60 million last year. This year, $65 million -- $65 million to $70 million. We've really, really made some nice progress. Strong management team. Strong sales operation. The best we've ever had. We're taking, again, a lot of business from major competitors. We're getting larger cases. We're doing very, very well in that area. And the class action settlement business, the restructuring business are very complementary. And as you know, from an accounting point of view today, we simply present them as a single segment, bankruptcy and class action settlement. And there's a good reason for that. And that makes really good common sense to present it that way. And then our technology segment, of course, is today, our eDiscovery business.
Let me show you some slides. The first thing I'd like to do, because this does not reflect in the price of our stock, and I'm going to talk about the stock a little bit as we go through these slides. And so let me clarify upfront, I think what I have to say will be informative and interesting. I'm not in the business naturally of projecting or predicting stock prices, so I just want to clarify that at the beginning of the presentation because stock prices depend on a wide variety of variables, many of which we don't actually influence or control. But I do want to share with you what's happened in the 5-year period between '07 and '12. It's an interesting period. And the reason I picked that period is our stock peaked in '07. Our stock had a high of $20.5 in '07. I want you to just keep that in the back of your mind when you watch the slide, peaked at $20.5 in '07, okay.
Operating revenue has had an 18% annual growth between '07 and '12. It's gone down from about $150 million to close to $350 million. Next, let's look at non-GAAP EBITDA, very similar statistics. You'll find that all these numbers are pretty close. I'm going to show you 4 areas in which we're measured. EBITDA has gone from $50 million, call it, $92 million, and that was a 13% annual growth.
Next, right off the cash flow statement, cash from operations. Always a very important measurement for us. 15% annual growth, $36 million to $74 million. And by the way, this growth is very, very consistent in all of these areas. It's very consistent year-over-year. It's not just from '07 to '12, with a lot of up and down in the middle. For the most part, these are all very, very solid consistent growth trends.
And then non-GAAP EPS. Interestingly, $0.50 back in '07 with a stock of $20.5, and $0.96 last year. The stock was more around $11 or $12. So I think the first thing we've seen is that, we're in the performance business. We're a very results-oriented company. We really do focus on performance. We prioritize, I think, the right things. We think outside the box when we need to. And when you're in our kind of business, you have to have the mental toughness and the tenacity to execute. Because a good plan, if you don't execute, it doesn't get you anywhere. And so we try very much to do those things. But what else happened in that 5-year period. We initiated a dividend program, and we did that in a very, very deliberate way. We felt that this would be a very good program for our investors, and our investors have been very supportive. We not only launched the dividend program back in Q2 of 2010, and at that time, it was $0.035 a quarter, which is $0.14 annualized. We then increased it in '11 to $0.05, which is $0.20 annualized. Took it up in '12 to $0.065. And then round it up to the current rate of $0.09, and that's $0.36 annualized. And at the end of 2012, recognizing what we thought might take place with the tax situation, and a few other companies did similar things, we provided our shareholders with a special year-end dividend, which was like adding an extra quarter. So you really got five $0.09 dividends in 2012 and got $0.45 instead of $0.36.
Now I should also say, we have a 3% yield, which is pretty good in a 0% interest environment, but we didn't intend to have a 3% yield. The only reason it's a 3% yield is you have a $12 price, which we think is a very, very undervalued price with a $0.36 dividend. For example, if you had an $18 price, you have a 2% yield. If you have a $15 price, you have 2.5% yield, and that's how the arithmetic works. So a 3% yield is a very nice yield, and that was not our objective. Our objective is to find ways to increase the price of the stock, leave the dividend where it is. And we're fine if we have a 2.5%, 2% yield, what have you. So that's a little history on the dividend.
Now let's talk about bankruptcy for just a minute. And it ties directly with what's historically happened to the valuation of the company. Look at 2007, you call 2007 the anticipation of a robust bankruptcy cycle. So this, you have the anticipatory effect on our stock of becoming robust bankruptcy cycle, and you'll see that in just a minute.
Well, in 2008, Lehman Brothers filed. We have the big financial meltdown. So clearly, here in the middle of a robust bankruptcy period. And you can see the filings continued, 2009, 2010. And as typically that happens after a couple of years in the bankruptcy business, you now see the filings coming down in '11 and '12. The number for '13 is only for 5 months, but even if you projected out 12 months, it will show a slight decline from '12. So we're still in a declining trend. And we'll talk in a minute about when we think and why we think that will change.
Another chart I'll show you, and there's a wide variety of charts to deal with debt, I just picked one. Always remember, there is a direct correlation between debt and bankruptcy. Pretty simple when you think about it. If you don't have any debt, you can't go bankrupt. If you have too much debt and you can't service it, you're in trouble. It's pretty simple, whether you're at the consumer level or whether you're at the commercial business level.
Now this chart shows you commercial leverage loans. You can see that in 2013, there's very, very little debt maturing. It escalates fairly significantly in 2014, it goes up ninefold, and stays at that level in '15. And then the debt maturity is totally out of control as you go into the '15, '16 period. There's not a chance in our opinion that the banks are going to roll all that debt over. Or as to say in our business goes, kick the tin can down the road a little further. There's not a chance.
What else do we think is going to happen in the '14-'15 timeframe other than commercial debt maturities really escalating. Everybody agrees that it is impossible to keep interest rates at 0 forever. It gets to be a bit artificial. You just can't do it. It's not realistic. And someday, it's going to cause some inflationary issues and a variety of other issues. But think about what happens when interest rates begin to escalate and tie that to some of the things that are happening with debt over the next few years.
The next thing that you want to remember as it relates to the bankruptcy business in the '14 and '15 timeframe is national health care, which is a completely new phenomena for United States. Never been there, never had it. There's one thing everybody agrees on irrespective of what your political views are. Everybody agrees on one thing. All of the expense numbers, all the cost and budget numbers that have been provided by Washington are significantly lower than what's really going to happen. I haven't talked to anybody that really disagrees with that. The amount of money this program is going to cost is astronomical. Insurance expenses are going to skyrocket. But what are companies doing about it? And it's coming up in all kinds of various company meetings and conferences and so on. Even your very largest companies are talking about reducing employment or converting full-time people to part-time people. The program is going to be too expensive. Can't afford it.
What are small companies doing? And you know, in our economy, to a large extent, it doesn't depend on the General Motors of the world. It depends on the entrepreneurial companies. All the private companies all over the country that are employing lots of people. What's happening is, in the smaller companies, they're reorganizing. Maybe there's one company that's owned by a family or a private ownership group that has x number of people in it. You split it into several companies, lay off a certain number of people or convert some to part-time and make sure that all your S Corps or LLCs have less than 50 people. I mean, there's seminars on it all over the country every week for small business. If you can have less than 50 people, you're exempt from the national health care stuff.
So one of the things to think about is what happens to unemployment in the next couple of years. It's already too high, and it's really not changing that much. So if you look at debt, if you look at interest rates, if you look at national health care and you tie some of those things together, the reason that the experts on insolvency and restructuring back in New York and elsewhere are talking about a robust bankruptcy cycle not that far down the road is for all those reasons. Nobody can pinpoint when the next cycle is, but it's going to be sometime in the next year, 2 years. I don't think it's 4 or 5 years away. I think it's sometime in next couple of years. And it's interesting to look at it because it clearly relates to Epiq because we're in that business.
All right. Now let's look at Epiq stock for a minute. Remember I said that there have been 3 breakouts in the stock. If you go way to the left end of that chart back to 1997, we did our IPO. And these prices are adjusted for splits naturally and the way all of the financial professionals do it, they adjust the historical prices for the dividend. And so they're properly adjusted for the dividend and for the split adjustments. So when the company went public, $0.88 a share. That's the number way off to the one side, $0.88 a share. You see the first breakout is in that very first year. It goes from $0.88 to $3.30, which is almost quadrupling the price of the stock. So it was a good year. Some of you in the room remember that.
Okay. Why did that happen? That happened because bankruptcy for Epiq was actually discovered. In other words, when Chris and I were on the roadshow doing the IPO presentation, the biggest obstacle we had and the reason that a number of investment banks passed on doing the IPO with us is they said, "Who in the world is going to invest in a company that's in a crazy business like bankruptcy? It's unheard of. I mean, bankruptcy is not a really good word in financial circles. I don't think you guys are going to get this balloon up in the air. It's not going to work, so we'll take a rain check. We'll pass."
Found some people who did it. We actually went to Minneapolis and did it and actually had a pretty successful IPO in Minneapolis. But you see, later that year, later that year, bankruptcy got discovered. We're the only public company that was in the bankruptcy business, and it got discovered. Then the bankruptcy business was pretty good back then, so you had a breakout in the stock.
Now the next breakout is 2001. And you can see $4.82 up to $12.24. Well, my goodness, that's up 2.5x, not bad for a year's work. And it actually peaked at $16.50 that year. But what happened in 2001, exactly the same thing that happened in 2007. It was the anticipatory effect of the bankruptcy cycle. In 2001, immediately following that anticipation, you had Enron and WorldCom and all of those -- and you all remember that. And so the stock really escalated. And then you can see the next few years, the stock just kind of up and down, up and down, up and down, just kind of went to sleep for a few years.
2007, another break. This time, it goes up at about 1.6x, pretty good year. And it goes from $10.74 to $16.53, but it had a high of $20.39, so right under $20.5. The anticipation of the next bankruptcy cycle, which was a meltdown in the '08, '09 and Lehman Brothers and all the rest of it. So what do we know? We know when there's a robust bankruptcy cycle, Epiq stock will flourish. And we know when it will start to flourish is the anticipatory effect before the bankruptcy cycle actually takes off, typically a year or so before.
Now what we're not happy about is what happened to stock the last few years. Because here is what is not reflected in that '07 to '12 period. The double-digit-growth performance in all of the financial metrics in which we really measure. There are clearly some other companies that have done that. There are not a lot. There are not a lot that for 5 straight years have been double-digit in every category that they're measured. And that's our job, and that's what we strive to do, but it doesn't reflect an evaluation of the company. It does not reflect the initiation of the dividend. So you have the dividend on top of the double-digit growth performance. But here's what it really does not reflect. This is probably the single most important thing that it doesn't reflect. In that 5-year period, we developed the finest global eDiscovery business. There's nothing better in the world right now in the eDiscovery business than Epiq Systems, $0.25 billion this year, all over the world. Chris is going to talk to you about it in a few minutes. It's a fascinating story. And we actually entered that market the very, very end of 2005. So our first year in, it was 2006. And it was a $20 million, $25 million business at that time. It's tenfold today, and that includes a couple of acquisitions in there, but they worked. They worked and they have really contributed. So the business has grown tenfold. And we're now a global leader, and it's a terrific business to be in. One of the things people say to us about bankruptcy is, "We love you in bankruptcy, but it's a finite market." "Gosh, we wish bankruptcy was 10x as big as it is." Well, so do we. Not a perfect world. But there's a lot of growth for us there. But guess what, eDiscovery is huge. It's a multibillion-dollar market, and it's global, and it's grows double-digit. And if you would go out and value eDiscovery companies, and you start looking at the multiples you'd get, multiple on revenue, multiple on EBITDA, it is way, way, way north of the multiples that Epiq has today. And so we have to do something about that, and we have to take initiatives to do that.
So we think going forward, the eDiscovery business, another bankruptcy cycle, continuation of the dividend program, we are also going to examine some additional share buyback. We've done that historically. Our board will take another look at that. We'll decide what we may want to do about that because we are legitimately in the business of building the value of the stock. Look, I can look at it 2 ways. I can say if I go back to 1997, I mean, I owned stock from 1997, right? Hey, $0.88 to $12 or $13, it's not bad. It's actually hard to duplicate. It's hard to duplicate. I do a lot of investing and there's not a lot of companies that are up 13, 14, 15-fold in that timeframe. We are not remotely satisfied with where our stock is. Because it doesn't make any sense to go back to 1997, who cares at this point. We look at the last couple of years, and the stock isn't doing what the stock should be doing. So we need to really stay very focused on that, and I think that we are going to see the stock benefit from eDiscovery and from another bankruptcy cycle. And we are going to look for new ways to communicate the right message because Epiq is not being put in the right category right now. We don't have the right multiples, we are not being assessed financially correctly, and we need to figure out what to do about it.
And the last chart simply kind of recaps everything, and I'll conclude my comments on this little portion of the presentation by simply saying, it makes a dramatic case when you look at where the little charts are in 2007. Hence, starting with that $0.50, and you got a stock that was over $20. It spent an awful lot of time at $18 and $19. And then you look at the $0.96 and all the other charts in 2012 and the stock end of the year, $12.58 adjusted for splits and dividends, $12.75 if you don't adjust it for the dividend. And that's the issue that we are focused on, and that's what we need to address and resolve. Nobody has more interest in the stock appreciating than I do. And I tell that to our institutional investors when they call in. I am a proponent without any equivocation for finding the right ways to increase the value of our stock. There's not more of an advocate than the CEO of the company, which I think is a good thing. But I thought you would find those charts interesting and I wanted to go through that message with you.
Now, what I'd like to do at this point is have Chris come up. Chris is President, Chief Operating Officer of the company. Chris runs the business, all the business units report to Chris, domestic, international. And Chris will talk with you about a number of different topics and certainly will give you additional insight into the eDiscovery business.
Christopher E. Olofson
Good morning. We're happy you're here. Thank you for coming, some of you for the 17th time. I'm pleased to have the opportunity to talk about subjects of interest to all of us as investors in Epiq Systems, to share with you the story of continuing growth in the markets where we compete. And I'll just start at the very end of 2012, which well, old news by now, we know was a year of record revenue for the company. Our highest ever non-GAAP EPS, and in fact, achievement of our sixth consecutive year of double-digit growth in non-GAAP EPS.
So 2013 is going to be another year about growth, another year about building the business in our selected markets of eDiscovery where we help lawyers with technology to manage the vast quantities of information they manage in Bankruptcy and Settlement Administration where we help lawyers with the legal notification, claims administration and disbursement services that are so complex in the matters that they are litigating or settling.
And I'll touch upon several themes this morning. The first being looking under the hood a little bit of Epiq Systems today and what are some of its key characteristics. We'll then look at a selection of current client engagements and discuss what types of customers are hiring the company today. And then a particular focus and go a bit more in-depth with the Electronic Discovery business line in particular, where we really have come out with the leadership position in that very attractive field.
So starting with some characteristics of today's Epiq Systems. When you look at our literature or you speak with our sales staff in the field or you go to an industry event where we may be presenting, we'll characterize Epiq Systems as managed technology for the global legal profession. That's the tagline that we use to synthesize all of our operating activities as distinctly as we can. And I thought it might be helpful today to take that tagline, to dissect it and look underneath it and discuss a little bit in greater detail what it really stands for.
Starting with managed technology. So as Tom indicated, we see ourselves as a technology services company and our technology strategy is an integral component to the company at large, and it has several dimensions to it. It has a software dimension, it has an IT dimension and it has a fulfillment capabilities dimension. So we are largely a software-driven business. If you look in our eDiscovery practice, our Bankruptcy business, our Settlement Administration business, software plays a very important role and in fact, proprietary software is at the very center of the business. We have internally developed proprietary software applications. In fact, here in Kansas City is our largest concentration of software engineering resources. And we believe that the proprietary products are very important to the continuing success of the business. They maximize our control over the future of our company, they enable us to be as agile and as nimble as we need to be in competitive situations. And the great majority of our software is delivered in a hosted environment across our business lines. So it would be the exception and not the rule for a client to install Epiq Systems' proprietary products on premises.
In fact, what the great majority of clients do is they act as our software through a hosted environment. And in addition to that, it is really we, on the Epiq System staff more often than not, who are consuming and utilizing the proprietary software as much as or more than the clients themselves. And it's really for that reason that we talk about managed technology services.
So, for example, in an eDiscovery business, while it is certainly true that our end user clients can access our systems in a hosted environment, so too is it the case that our project management staff, our litigation support professionals, our other services organization members are utilizing the software at all times. So a key theme to the business is our software delivery is bundled with value-added services. Services for importing and exporting data, services for running queries and searches, services for conducting research on the data set, services for validating claims and so on and so forth. And that's what we really mean by our definition of managed technology services and the importance of proprietary internally developed software.
Alongside the proprietary products, which are the cornerstones of the businesses, we also round out our software strategy with select third party software tools. And in fact, we are a leading global distributor of some of the specialty tools in eDiscovery, for example, that are most prevalent in the marketplace. While this enables us to do a couple of things, it enables us to avoid the investment cost of developing software that we believe we can more easily license from a third party, it enables us to remain highly relevant to that component of the customer base that may wish a more generic solution or solutions that they know in advance can be supported beyond their relationship with Epiq Systems. And it is that combination of the proprietary software alongside the third-party tools that gives us the most compelling presence in our marketplaces.
So situating next to the software dimension of our technology strategy is the IT infrastructure. And we have a fast, high-capacity network around the world today that supports our businesses. Data centers in New York, Kansas City, Phoenix, London, Hong Kong, Tokyo, Shanghai, that we leverage across our various operating units to gain advantages and scale that would be very difficult for a smaller competitor or a competitor in a single category of our business to meet or certainly unable to succeed. And clearly, one of the most important subjects today in any managed IT environment is information security. And we have invested extensively and have very important capabilities today to lead our selected markets with best practices for information securities and to keep our clients information in a secure state.
So we have software, we have IT and the final dimension of that technology strategy are the fulfillment capabilities. So throughout various locations of Epiq Systems, we have high-speed, high-capacity print and mail facilities. We have multilingual call center capabilities. We have sophisticated disbursement and tax record preparation facilities. And that when we combine those 3 things in combination, the software, the IT infrastructure, the fulfillment capabilities, they, in the aggregate, give a very strong foundation that represents the managed technology component of our managed technology for global legal.
It's not necessarily embedded directly in the tagline, but subject matter expertise is an extremely important component of our business. And Tom mentioned that very specifically. We work in specialty marketplaces that are not necessarily immediately well understood by outsiders: Bankruptcy, litigation, anti-trust investigation, other types of investigations, settlements to large matters. They have very distinctive practices, they have very high barriers-to-entry and they are frequently unfamiliar to all but the most inside members of their communities.
Technology alone is insufficient for success in our marketplaces. It is the expertise surrounding the technology, the ability to apply the technology that distinguishes Epiq Systems in the competitive marketplace. Our clients generally are coming to us with a big problem. They are generally in a reactive posture. They have a complex issue and very little time for success. And that is where the bench strength of the professionals at Epiq Systems, the subject matter experts, the technologist working together really create the value that the client received. So throughout Epiq Systems, there are all sorts of attorneys. We are not a law firm, we don't sell legal advice but we draw very extensively on the in-depth background our staff has as former practicing litigators, plaintiff counsel, bankruptcy counsel, defense counsel, to develop leadership to develop best practices and to share that information and to share that expertise and that track record with the client that is coming to us in the moment with an urgent problem requiring a sophisticated resolution.
And at the end of our tagline, we talked about the global legal profession. We'll start with the in the profession. We are very much in the relationship business. Ours is a business founded on a repeat business model where we cultivate and sustain trusted relationships with key law firms, key corporate legal departments, the largest law firms in the United States, the top law firms in the U.K., some of the largest corporate legal departments in the world. And they will generally come to us with their largest matters, their most complexed requirements and their highest stakes. And it is the called cultivation of that network of lawyers, whether they're in house or in firms or in an advisory capacities, that is very important in feeding the Epiq Systems business. And the global nature of the business continues to emerge.
Certainly, in eDiscovery, we are in New York, London, Hong Kong, Tokyo, in the domestic market. We round out in Phoenix, Los Angeles, Washington D.C. All of the right cities that are the hotbed of activity in our selected markets. And if you put those ideas together and you sort of box them up, that is what we lead when we discuss managed technology services for the global legal profession.
As 2013 had started up and since the last time we were in this room last spring, we have been hired on a whole series of high-profile, significant matters. And I selected just a couple from around the business, different geographies, different business lines to give you a flavor of the type of customer that we are serving right now.
First, we are retained for the settlement of the payment card interchange fee case. This is a $7.25 billion settlement. It is the largest private anti-trust settlement in history. We have been retained in a significant capacity. In the first month of the year, we had one-on-one correspondence with 20 million constituents in that matter. In the first several months of the year, we ran a media print and online awareness campaign that touched by estimate over 80% of the adult population in the United States. So there's one example and the scale at which we work.
Another example. We are right in the middle of the LIBOR investigations and eDiscovery work around the world. And in fact, in our LIBOR work where we work with our entire series of clients, there is one matter in particular where our project encompasses 100 million live documents in the production environment. That is the type of business where we specialize.
Here, closer to home in the first several months, this first 2 quarters of the year, we have been retained on a dozen anti-trust investigations. Second request for the FTC or the Department of Justice, to the best of our awareness and we followed this very carefully. That is the best market share, best performance in the industry. Those are very complex, fast-moving cases and we work on a dozen of them so far this year.
Incorporate restructuring. We know that it is a quiet period right now in bankruptcy filing. However, of the findings that have been made this year, our market share has been very strong. For example, Reader's Digest. We are the claims agent on this case. One of the larger, more prominent cases so far this year.
In our Bankruptcy information business. We have been hired so far this year by one of the top 5 banks to provide bankruptcy information so they can better administer their portfolio of claims.
A final example. If you read in the paper, and this example addresses our Settlement business. There are fewer securities litigation cases in the marketplace now than there had been in the past. However, of those that have been filed, our market share has been outstanding. And in fact, of the 6 major new matters in securities litigation where we have been retained, one is one of the largest cases of all time. So this gives you a sampling of the types of customers, the types of work, the types of location, the size of engagements where we are presently performing client work around the company.
What I'd like to spend a little bit of extra time today and discuss with you in more detail is the eDiscovery business. This is such an important part of the company. It is our largest line of business. You would have seen in the first quarter more than half the revenue. And the real headline here for eDiscovery is we have the best leadership position in the global discovery marketplace. We have built that very steadily since our initial entrance to the market in 2005. And we are growing, we are building worldwide client relationship, we are taking market share and we are so pleased at this point to emerge as the player to beat in eDiscovery with ample headroom ahead of us and continuing growth opportunity in a space that remains very global and very fragmented.
What are some of the distinguishing factors in our eDiscovery franchise that make it, that enable it to have this leadership position and this will tie that to some of the characteristics of the company as a whole. Well, first, we now have the best ability to provide integrated services suit tenets capability for clients ranging from field consulting, the initial collection of data, the ingestion of data into our data center, the hosting of that data for the attorneys and the review of those documents within the case. A suit tenets capability.
Two, we have the technology strategy that includes proprietary software with our leading DocuMatrix document review platform; our eDataMatrix evidence processing engine; and Epiq portal, our web-based project management tool for clients. All of those available alongside are leading presence in the distribution of third-party tools. So we have maximum choice for clients and we have the best choices available.
Number three, experience in bench strength. We have one of the best deal sheets, if you will, in the eDiscovery marketplace worldwide. If you are a client and you need assistance with Technology Assisted Review, in other words using the computer to scan the documents instead of or alongside human review, Epiq has the best track record, the most experience to lend consultative advice. If you need assistance with a second request, an M&A transaction, you need assistance in financial services for bank regulatory work, we have seen a breadth and a depth of engagements that is unparalleled in the field.
Number four is a global infrastructure and this infrastructure continues to grow. Very recently, we opened a new data center in Shanghai, enabling us to provide in-country services for clients whose data cannot be exported. We have just recently opened a full-service office in Tokyo, which is a very attractive marketplace for eDiscovery services. We have staffed the office and we are now taking our first orders this week .
We will be expanding into Canada later this year. We already have an entire series of client relationships and by having an in-country presence will augment our revenue and profit streams from Canada. And I think it's interesting to note that just because we may not have a physical presence in a particular country does not mean we don't do client work there. In fact, last year, we did work in 50 countries, 5-0 countries around the world primarily for eDiscovery. And we have mobile environment that we can drop/ship into the client's location, send our staff into the client's location, perform our work either start to finish or start to critical mass at the client's location and either conclude or send the balance of the work back to one of our data centers. So we truly have the ability, the capacity and the scale now to serve eDiscovery clients anywhere in the world with any type of business requirements.
And our leadership position is increasingly recognized in the marketplace. Earlier this week, Gartner issued a magic quadrant report for eDiscovery software. We were very pleased with the outcome and there was not a single player ranked in the report for eDiscovery software that materially did any better than we did in the all-important ability to execute access, which is what we think is the most important thing a client would evaluate. The ability to complete the work accurately.
So today, as we're just about ready to enter the second half of 2013 in eDiscovery, just to cite some examples, we have top positions and assignments for M&A transaction works, for bank regulatory work. We have top corporate relationships in verticals including financial services, in pharmaceutical, a growing practice in energy. We have relationships stemming law firms in the United States, the United Kingdom, Asia and global corporate legal departments in a variety of sectors.
So our corporate headquarters remains here in Kansas City. Our software engineering organization, our IT organizations headquartered here in Kansas City as are a variety of other departments. And you may know, we are expanding our physical plant here in Kansas City. We are creating local jobs and it's important to know that the business as a whole is definitely not limited to Kansas City. In fact, our largest office is outside Kansas City. Our largest office is New York City, not a surprise given the line of work that we are in and the global nature of the business continues to emerge in importance.
So those are some comments about eDiscovery. We are pleased to share with you this morning the success, the enthusiasm, the optimism we have for the eDiscovery business going forward. And most importantly, to set forth with clarity the leadership set the have established in this business.
With that said, I'd like to welcome Tom back up for his continuing comments and then we'll be happy to address your questions after that.
Tom W. Olofson
Hopefully, you have found the presentations this morning interesting and informative. We really wanted to take this opportunity to talk about the big picture of Epiq, where we are, where we're going, some strategic considerations, some special emphasis on eDiscovery, how we look at bankruptcy in the future, the great progress in class action. As Chris has said in his concluding comments, it still surprises me a little bit, it's probably simply because we started here back in 1997 and maybe people remembered the $0.88 stock from 1997. But we still have a lot of shareholders and a lot of people that feel that most of what we do is here in Kansas City. And we're very happy to have our corporate headquarters here. As Chris said, we're expanding the facility, we have a great building over on Kansas Avenue and it's actually worked out to be a very nice corporate headquarters for us. But that is our corporate headquarters.
Operationally, that's really not where we are for the most part. As Chris indicated, in Midtown, eDiscovery's headquarter, Corporate Restructuring's headquarter, it's our largest domestic location. We have major locations in Phoenix, in Portland, Oregon. And then internationally, we've talked with you about the headquarters in London at the other major cities in which we participate.
I read a very interesting article the other day and it talked about the top financial centers for business in the world. And the top 5 ranking cities in this article are New York, London, Singapore, Hong Kong, Tokyo. And we are actively engaged in all of those except Singapore. And interestingly, we talked about Singapore the other day. And we're not planning something tomorrow or next week but with the Asian business we have and the growth we're undertaking, it wouldn't surprise me if we did that in the future. The point is that Epiq as a company is in all the major financial centers in the world and we're happy to have our corporate office here. But we can't have investors look at us in the markets we're in and not understand where we really do business. Because when you're in eDiscovery or Restructuring and Class Action, you have to be in those major markets to be a global leader.
We've talk with you every quarter relative to all of the excruciating details abated the operations and all that. We did that at the end of April. Well, we'll visit with you again on that at the very end of July. What we'd like to do at this meeting once a year is really just talk about the business and try to put that all that in perspective for you, so we look forward to having another conference call with you at the very end of July and talk about how everything's progressing. Today, we're happy to take any questions you have at all on the overall business especially things that Chris and I have talked about. So we'll take whatever questions you have and then following that, we'll adjourn the meeting. So do we have any questions? Yes? Do we have a microphone for the people asking questions? That way everybody can hear. Thank you, Johnny.
Good morning. Congratulations on the company's international growth, and I was wondering if you could, as you reflect back over the past 6 years, just perhaps talk about especially with respect to eDiscovery why it's so important to have a global presence?
Tom W. Olofson
Sure, and I think that's a great question, and Chris I'd like you to talk about that if you will. The question is why is the international markets so important to our eDiscovery business?
Christopher E. Olofson
So eDiscovery international revenue continues to grow as a percentage of the whole. So one of the reasons is we have a very attractive addressable market. Secondly, the pricing is very favorable in our international market. There is less competition, there are fewer players in the marketplace. Three, it's a very distinguishing factor for our franchise that we do have a legitimate global reach, not just sales people here and there but data centers, project management, local production capabilities. So that when we are pitching a master services agreement with a global corporation, whether in pharmaceuticals or financial services or energy or another target market, the number of competitors who are able to serve that client all the way around the world is a significantly fewer number of players that would pursue just the domestic business. And that's really an area where we shine and do particularly well. Our international offices generate not only local in-country revenue but they also generate tremendous fulfillment revenue for relationships source in the United States or United Kingdom, so it's a very important part of the strategy. You can tell from our recent announcements that we are growing that part of the business and believe it will continue to be a very successful part of the eDiscovery franchise.
Tom W. Olofson
Peter J. Heckmann - Avondale Partners, LLC, Research Division
Good morning, Tom. It's Pete Heckmann with Avondale Partners. Great presentation, I enjoyed hearing it. I tend to agree with you about the outlook for the company and the cycle returning and bankruptcy and a strong outlook for eDiscovery. And as you rightly note, the stock hasn't performed, the market doesn't seem to be according an appropriate value to the company. But the company hasn't been very active in the stock buyback program. And could you talk about that? It seems to me this is single biggest value enhancing move you could make right now would be buying back 10% of the outstanding stock, and an immediate step up in your earnings per share and attractive margin as your usual interest. Have you -- has the board considered that?
Tom W. Olofson
Yes. We look at 3 things and try to have the right balance. We look at having financial flexibility for appropriate acquisitions and I think we've been successful with that in the recent years and the best example is probably building the eDiscovery business. Number two, the dividend program. We do feel that, that's very well received and we want to afford our shareholders an appropriate dividend. Number three, share buyback. And Peter's correct that share buyback has a lot of advantages to it. We've done some buyback in the past. We've had some input from other institutional investors that we should reexamine perhaps being a little bit more aggressive in that area. And so my answer is that we are discussing that at the board level. We do agree that buyback is an important area and so we're giving that, I think, some go-forward consideration. Yes?
To the extent that the market doesn't accord an appropriate value to the company, would you consider potentially going private or selling out to a larger entity and can you talk about -- have you -- there has been a lot of M&A activity in eDiscovery space, can you talk about whether you have been approached by any large entity?
Tom W. Olofson
Sure. Our position is and has been, and we talked about it with some frequency, that we feel that at least at the current time and in the near-term, intermediate-term future, it makes good sense for us to continue as a freestanding public company. We think we have the opportunity to significantly build shareholder value. I think we will, over the next few years, in particular with another bankruptcy cycle and with the eDiscovery catching on. And so I think that we can serve our shareholders well by building value that way, providing a dividend, perhaps looking at the buyback program as you suggested and continuing just to grow the business. But we don't have a current interest in going private. That's a very legitimate question because a number of companies are doing that today. And we have always said in the recent past that our position is just what I described and we think we can make a lot of good progress for our shareholders, being a freestanding company as we look out to the future. Sir?
First of all, [indiscernible] and how important will price be in gaining market share in eDiscovery and what impact does that have on margins?
Tom W. Olofson
Christopher E. Olofson
So like all maturing technology spaces, and this has been the case in eDiscovery since we entered the marketplace in 2005, the more established the service is, the unit pricing tends to come down. That's been that way for a long time, it continues that way today. As newer services are conceived and as we bring out innovation into the marketplace, those start at more premium unit prices and as they, in turn, mature, the trend continues. Within the eDiscovery marketplace, Epiq Systems' position is to be the best economic value to clients. And to demonstrate that we have a compelling price that delivers best value. It is not our position and we don't play as the low cost provider situating at the bottom of the price ladder. That's not the cost structure we have in this business, that's not the investment that we have made in this business and that's not our target customer profile. So pricing is a relevant consideration to eDiscovery buyers as all buyers in all industries. It is not the only factor and particularly, when we look at the types of global engagements, premium technologies, premium services that we contribute, we're able to step away from chasing to the bottom of the pricing ladder.
Tom W. Olofson
My question is you mentioned that Epiq Systems has been in a quite a few of the global markets. And you even mentioned Singapore as the potential [indiscernible] where you already are today. Any other global markets that in your region is a potential for the company to enter?
Tom W. Olofson
Sure. Let's have Chris take that. The question is are there other global markets that are attractive to us on a current or near-term basis?
Christopher E. Olofson
Lots is the short answer. So look for us in Canada later this year. And just if -- just because we may not open a full-service office in a particular country or a particular geography does not mean we have not or will not be doing business there. As I mentioned last year, we're in 50 countries. And frequently, it can be more cost-effective for us to send in the mobile environment, field consulting staff, perform our work, give the client value, generate profits and ease that delivery method. Unless we see a need and a continuing volume of business in a location where we want an operational hub. And so far, that is Phoenix, New York, London, Hong Kong, Tokyo, with smaller presences in our document review facilities in the United States, Washington, D.C., Dallas and then soon opening in Canada. But there is all sorts of global opportunity in Asia, in the Middle East, in Eastern Europe, in central South America. We do have experienced working in those marketplaces with our mobile environment and we think we will continue to see increasing demand for work around the world.
Peter J. Heckmann - Avondale Partners, LLC, Research Division
I know the focus over the last year or so has been on organic growth. Do you foresee this over the next year or would you be open to acquisitions given the right opportunity?
Tom W. Olofson
Again, it's a good question, Pete. It's a question that the answer is one of balance. Organic growth always has to be a priority. I mean, we have to manage well the business we have, so we have to run effectively, efficiently, grow it in the right way, achieve our objectives, so organic growth is always going to be a top priority. We are always in the business of selectively looking for a strategic acquisitions. And I think the group has heard, we're saying this before, but the 2 key points and the criteria are: you got to have the right strategic fit and you have to meet our financial standards. We will find something that's a turnaround, we won't buy something losing money no matter how attractive it may look strategically. It needs to be accretive. It needs to at least be neutral the day we buy it and then modestly accretive and then nicely accretive shortly thereafter. And so we look for a couple of different kinds of things. Add-ons in our existing business lines. So you might find something in the Restructuring or Class Action or eDiscovery, that's a perfect add-on. And we will give that serious consideration but yet very selectively. Because what you don't want to do, and everybody and anyone knows this, you don't want to make a big mistake with an acquisition because it's a huge headache and it causes a lot of problems. And our track records actually been I think pretty good in that respect. And the last few acquisitions we've done have worked out very nicely. So we don't have anything currently. We are always thinking about it, looking. And we want to balance once again, acquisitions, dividend, buyback along with things required to run the business. I mean, capital investments and new data centers and that sort of extension. So we like to balance it that way. So we are looking for acquisitions but we don't have anything currently. And in the meantime, we've got a business going on, it's a great business, we need to run it really, really well.
Any other questions this morning? Thank you very, very much for your attendance. We appreciate the support of all of our investors and hopefully you found this to be an interesting meeting you participated. Thanks.
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