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Executives

Lew P. Schroeber - Vice President of Investor Relations and Finance

Tom W. Olofson - Chairman and Chief Executive Officer

Christopher E. Olofson - President, Chief Operating Officer and Director

Elizabeth M. Braham - Chief Financial Officer, Principal Accounting Officer, Executive Vice President, Corporate Secretary and Treasurer

Analysts

Timothy McHugh - William Blair & Company L.L.C., Research Division

Peter J. Heckmann - Avondale Partners, LLC, Research Division

Epiq Systems (EPIQ) Q3 2013 Earnings Call October 28, 2013 4:30 PM ET

Operator

Good day, ladies and gentlemen, and welcome to the Epiq Systems, Inc. Third Quarter 2013 Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded. I would now like to turn the conference over to Lew Schroeber of Epiq Systems. You may begin.

Lew P. Schroeber

Thank you, good afternoon, and welcome to Epiq Systems Third Quarter 2013 Earnings Conference Call. With me today to lead the discussion and address your questions are Epiq Systems' Chairman and Chief Executive Officer, Tom Olofson; President and Chief Operating Officer, Chris Olofson; and Executive Vice President and Chief Financial Officer, Betsy Braham.

Our earnings release was today at 3 p.m. Central Time and is available on our website at epiqsystems.com. The webcast replay of this earnings call will be available on our website until next quarter's call, and a phone replay will be available through November 4.

As always, we discuss our financial objectives and make forward-looking statements during this call. We remind you that forward-looking statements involve a number of risks and uncertainties that could cause actual results to differ materially from those indicated. These risks are included in our earnings release and also in our annual report on Form 10-K and the quarterly reports on Form 10-Q, which are filed with the SEC and available on our website or the SEC's website. We strongly encourage you to review these risk factors.

It is now my pleasure to turn the call over to Epiq Systems' Chairman and CEO, Tom Olofson.

Tom W. Olofson

Thank you, Lew. Good afternoon. Welcome to our Q3 conference call. We're pleased to have you in attendance. I'll begin the call and provide some highlights relative to Q3 financials and some general corporate items. I will then discuss our projections for yearend 2013. I'll turn the meeting over to Chris at that time for his remarks. Chris will go into additional detail on a variety of operational topics. Betsy will then join us, and the 3 of us will be happy to take your questions in the Q&A session.

So let me begin with some highlights in Q3. In an overall corporate basis, we feel we had a very strong, solid quarter. Operating revenue for the quarter was $110 million, a 31% increase. That was all organic growth. And I should point out, all of the operating revenue numbers we discuss today represent organic growth. We've been asked that question quite a bit in the last few years because we have had some strategic acquisitions, which obviously have contributed to past growth, but this year is purely an organic growth year.

On a Y-t-D basis, operating revenue, $318 million, up 24%. If we now look at non-GAAP net income per share, we came in at $0.26, which was right in line with consensus. This was an increase versus $0.24 for the quarter a year ago. On a Y-t-D basis, we were at $0.72, up from $0.70.

In terms of non-GAAP adjusted EBITDA, we came in at $26.5 million, a 14% increase. And Y-t-D, we're at $72.2 million, up from $68.6 million.

Let me now highlight the eDiscovery business, and Chris will talk about this business and the other operating units in more detail during his comments. But I would like to highlight eDiscovery as follows. The operating revenue for the quarter, $75.6 million, and this was a very strong 49% organic growth. This represents the fifth consecutive sequential quarterly increase, and so we've established a very solid, positive trend in this business. On a Y-t-D basis, the operating revenue was $200.5 million, and that represents a 41% growth versus prior year. Non-GAAP adjusted EBITDA for the quarter, $25.6 million, up 29%. On a Y-t-D basis, EBITDA, $63.7 million, up 19%.

Now the eDiscovery business currently represents more than 2/3 of our total operating revenue. It is the largest business within Epiq. It is also the fastest growing business within Epiq. And it operates in the largest market, a multibillion-dollar global eDiscovery market, which means that we have the most potential for future growth in this business.

Global ESI solutions continues to grow. It now provides 60% of our eDiscovery revenue on a Y-t-D basis. Global Document Review services has had very accelerated growth, and it now represents 40% of our eDiscovery operating revenue. Our international business is very strong, continues to grow at an accelerated pace. On a Y-t-D basis, our international eDiscovery operating revenue is up 90%.

We are in the process of launching our Japanese business in Tokyo. We have just launched our Canadian business in Toronto. Previously in the year, we put a strategic data center in China, in the city of Shanghai. We have also expanded our London office, and likewise, we have expanded our Hong Kong office. Our international business is thriving, and we look for future growth going forward.

We have achieved some very significant market share increases during this year. We have now surpassed a number of major competitors that only a couple of years ago were quite a bit larger than we were. We have now surpassed them in size and market share. We have established a very firm position of global leadership. And as I mentioned, this is our largest and fastest growing business, it is our growth driver. So we think we have a very favorable story to tell, relative to our eDiscovery business.

Let me now proactively discuss our overall profit margin in the company. You can see from our results that we have exceptionally strong revenue growth. And we've clearly done that, really focused on that to take a commanding position of leadership, especially in global eDiscovery. In terms of our margin, these are the following things which would have an impact on it in 2013.

First, over and above our original profit plan, when we saw some of the opportunities unfold, we wanted to really take advantage of those, put action plans in place to seize the moment, if you will, and take market share and take leadership. So we have had some very significant strategic investments, primarily in eDiscovery. For example, we had not originally planned to launch the Japanese business. We had not planned to launch the Canadian business. When we saw the opportunities, we put the data center in Shanghai and expanded both Hong Kong and London. And we did not expect that we would achieve the kind of growth that we have achieved in Document Review, and we've added significant facilities and have made other investments to accommodate that. So those are examples of our strategic investments. I would value those strategic investments in the $0.05 to $0.06 per share range. We'll come back and talk about that a little bit further in a moment.

Back to the margin. We also have a higher mix now in eDiscovery of Document Review versus ESI. ESI is clearly growing, and that's a very important point to make. But Document Review is growing at a very rapid pace. And therefore, the mix has changed and we have more Document Review business. ESI carries a higher profit margin. Document Review carries a lower profit margin within the eDiscovery business.

In addition, looking elsewhere in the company, the Settlement business, which is our class action, mass torts operation, that has grown very nicely this year. And that carries a lower profit margin versus Bankruptcy, which is a high profit margin business, but is actually off slightly in terms of revenue this year because we're in the bottom portion of the Bankruptcy cycle. And that's something we don't control. We know that in a not-too-distant future date, that cycle would become more robust. You'll see Bankruptcy filings increase, we'll benefit from that, it's a high profit margin business. But in 2013, we're clearly in the lower end of that cycle. If you put all of those factors together, I think that gives you some very good insight into our profit margins.

Let me now switch to shareholder value. And I'll talk about 2 things. One, we reactivated our share repurchase program. During the quarter, we've acquired slightly over 1,100,000 shares at an average price of $12.62. We felt, with the shares being undervalued, it made perfect sense to reactivate the shareholder repurchase program, and we think it has gone very smoothly.

Next, we are continuing our cash dividend. The board has recently declared a quarterly dividend of $0.09 per share. That will be payable to shareholders on December 9th to those shareholders of record at the close of business on November 1. The $0.09 per quarter cash dividend, which is an on ongoing dividend, equates to $0.36 per year. The $0.36 per year, at the current price of the stock, equates to a yield of approximately 2.6%.

Now, let me talk for a moment about financial flexibility. We recently closed a $400 million senior credit facility. This includes a $100 million revolving line of credit, also a $300 million term loan. Now in addition to that, we do have access, if required at a future date, to a $200 million accordion feature. We feel that this combination provides us with some significant financial flexibility for the future, in particular, as we look at potential strategic requirements. I should point out that at the current time, we have no strategic transactions planned, but we put the credit facility in place so we had flexibility for the future.

Let me comment very briefly on the Bankruptcy and Settlement business. Once again, Chris will discuss these in more detail in just a few moments. During the quarter, operating revenue for Bankruptcy was $18.6 million, and this was down from $21.2 million a year ago. On a Y-t-D basis, Bankruptcy operating revenue is $60.2 million, and this is down from $66.9 million.

Everything considered, recognizing we really are in the bottom end of this Bankruptcy cycle, I think our Bankruptcy revenue has held up quite well. Our objective is to maintain, and where we can, increase our market share. But we're dealing with very limited Bankruptcy filings. And as I said a few moments ago, we do feel, based on a variety of macroeconomic considerations, that in the not-too-distant future date, we think we'll move back into the beginning of a more robust Bankruptcy cycle. And naturally, when that happens, we'll get some benefit from that.

For Settlement, the operating revenue for the quarter was $15.6 million, up from $11.7 million a year ago. On a Y-t-D basis, settlement operating revenue, $57 million compared with $47.1 million in the prior year, that's up 21%. That's actually a very strong performance for Settlement. Because if you go back to 2011, operating revenue in that business was about $37 million. And this year, in 2013, it will double. And so, we've been able to double that class action, mass tort business between 2011 and 2013. Naturally, we've taken some important market share away from competitors. We have gotten some very sizable intentions and we feel we have a very strong team in place heading up that business unit.

Let me now conclude my remarks by talking about how I project 2013 to conclude. Let's start with operating revenue. I project that we will be between $425 million and $430 million in operating revenue. That's a nice increase versus prior year of $345 million. The way I would break out the operating revenue is as follows. I feel that eDiscovery will be slightly in excess of $275 million. I think Bankruptcy will be slightly less than $80 million. And I feel that Settlement will be slightly less than $75 million. That would put us in the $425 million to $430 million range.

When I look at non-GAAP adjusted EBITDA, I feel that we'll come in at $100 million, and that will be up from $92 million a year ago. When I look at non-GAAP EPS, I feel that we will come in at $0.98, that's up from $0.96 a year ago. And here, I would refer you back to my comments relative to the margin. We have at an additional $0.05 or $0.06 per share on the incremental investment spending that I mentioned to you a few minutes ago, principally in the eDiscovery business, to a large extent in the international portion of that business, and then also in the domestic Document Review business for eDiscovery.

We made those decisions very deliberately. And once again, we did that because the opportunity was ripe to take significant market share to establish ourselves as the global leader, get that critical mass, that leadership. And since this is our largest and our fastest-growing business, with the highest potential for the future, we felt those were very appropriate decisions.

We've made the decision to continue that in Q4. We are not cutting back on investment spending in Q4. We could do that, that certainly would be worth x number of pennies per share. That's not the right thing to do. This is the opportunity for us to really cement that leadership. And so as I mentioned, we're launching Canada right now. We just started that the other day. We are really ramping up Japan. And those are 2 examples. And we're really ramping up Document Review because we're having such significant success with Document Review revenue. So to net that out, at the end of the year, I see $425 million to $430 million of revenue, $100 million of EBITDA, $0.98 in non-GAAP EPS, EPS, and I think that's a good way to summarize it.

Now with that said, let me turn things over to Chris. And when Chris concludes his remarks, we'll open the Q&A session.

Christopher E. Olofson

Good afternoon. As Tom mentioned, eDiscovery had its best-ever revenue quarter by quite a wide margin, with 49% all-organic growth versus the year-ago quarter, and on a year-to-date basis, a 41% growth. At the end of 9 months, our year-to-date revenue for eDiscovery at $200.5 million, in fact, exceeds all of our full year 2012 eDiscovery revenue and is the fifth consecutive quarter of increase. We have major new relationships on both the law firm and corporate side, both domestic and international. We have seen all of our major revenue categories grow, both sequentially and year-on-year. In fact, during the quarter, we saw all-time monthly and quarterly new high-water marks in all major revenue categories, including the whole business unit, international, domestic ESI and domestic Document Review. As Tom mentioned during his remarks, of particular note, on a year-to-date basis, international revenue growth, up approximately 90%, again, emphasizing that is all organic growth and development. The financial complexion of the quarter is affected by that ESI Document Review revenue mix, 60% approximately towards ESI, 40% approximately towards Document Review, with their respective difference margins. That's probably to be expected, particularly as we continue to pursue and distinguish ourselves competitively on the integrated ability to provide all services through an Epiq Systems relationship. Clients do spend more on Document Review services, and we are seeing that in the revenue mix. You're also seeing the continuation of long-established pricing trends on our unit pricing. And as Tom mentioned, we have invested quite extensively this year, both domestically and internationally.

We are having very strong client demand from major relationships. We have seen scope expansion and time extension on some of our largest matters, and this is contributing very directly to the significant revenue growth that characterized the third quarter. During the quarter, very significant contributions from litigation matters, in particular.

Earlier in October, we announced our new location in Toronto. This will be initially for Document Review, but will expand to full-service, filter processing and hosting ESI services in early 2014. We have already been supporting significant client relationships in Canada from our U.S. facilities, and we believe that our new in-country presence will give us the leadership opportunity for Canada that we perceive as very attractive.

We have opened a new review center in Phoenix that leverages our existing cost structure. You may know that Phoenix is already a major operating center for our U.S. ESI business, and we have seen major expansion in London, nearly 50%, in fact, to keep pace with growing client demand. And in Asia, Tokyo is up and running, Hong Kong has expanded significantly, and our Shanghai data center now enable us to provide in-country services to Chinese clients.

On the product side, we had a press release during the quarter announcing a new product, Epiq Analytics. This is an early case assessment tool, it is developed internally at Epiq Systems to help clients make better case strategy decisions in a very user-friendly way. It plays to data minimization, it plays to concept search and clustering, and it will be another tool that we use to distinguish ourselves in the competitive marketplace looking into 2014.

So when we look at the discovery franchise across-the-board, Epiq really had emerged with the top global leadership position. We are continuing to invest in the franchise that continues to present significant opportunity for us. And we offer our clients a unique strength in the combination of both proprietary technology and third-party tools, very attractive global infrastructure and a service delivery mechanism that has emerged with a very strong leadership position in the marketplace.

Turning to the Bankruptcy and Settlement Administration segment, quarterly revenue for the segment as a whole, so inclusive of all of the Bankruptcy lines and the Settlement Administration lines, showed a slight increase in the year-on-year comparison, $34.2 million versus $33.0 million for the year ago. And within that aggregate result, Settlement Administration revenue is significantly up, offset by a decline in Bankruptcy. Settlement Administration is having an excellent year. As we had earlier indicated, we expect that Q1 will probably be the strongest quarter of the year for Settlement because of the very significant start-up contribution of a very large matter. That said, we have really seen some strong market share development and developed a strong inventory of matters in-house over the course of the year. And as is generally the case, Settlement is our business line that is subject to the most quarterly volatility, so it's most helpful to look at it from an annualized perspective.

The Bankruptcy business, with its 4 components, is offsetting the growth in Settlement and is impacted by market conditions in the Bankruptcy market, and we think that will continue through the balance of the year. We are at a low point in the Bankruptcy cycle. In fact, filings for the quarter ended September 30, 2013, are the lowest since March 2008, and this does feed into our aggregate Bankruptcy results.

To say a few words on Corporate Restructuring more specifically, of those matters that have been available in the marketplace, we have maintained a #1 market share by a material margin. And in fact, our year-to-date number of retentions is only slightly than our total retentions in 2012. But I think it's important to point out they're generally smaller matters with less revenue opportunity for shorter periods of time than we have seen from some of the mega filings in the past. So those cases that are coming into the system are moving through more quickly. They can quite frequently be pre-packs or asset sales that would represent a lower opportunity for us. We do envision an uptick in the Bankruptcy business line, as leveraged debt matures in the marketplace. We have invested in the business line by introducing a new product that was announced at the end of September, Epiq Access in the corporate restructuring market. This is a mobile application with cross-platform support both for Apple and Android and gives users access to case information, for those matters that we have been retained on and the ability to arrange services from Epiq Systems through the application. It's a nice addition to our total offering.

It's a nice, distinguishing factor in a very competitive marketplace right now. And since we have talked about 2 new products on this call, I'll just confirm the difference between Epiq Analytics and Epiq Access, which sounds a little bit similar, but are, in fact, quite different. Epiq Analytics is the early case assessment tool in eDiscovery. Epiq Access is the mobile application within Corporate Restructuring. In the context of the Bankruptcy marketplace, our market share remains strong, our leadership position remains very solid, and we do believe we have the best Bankruptcy franchise in the business with comprehensive coverage across consumer and business cases all of Chapters 7, 11 and 13, and a bench of industry experts that had a very strong reputation in the marketplace.

So those are some comments on the operating business. At this point, I'll go back to Tom for any final comments and then the Q&A period.

Tom W. Olofson

I think that gives you a good overview of Q3. We feel good about the performance in the quarter. And on Y-t-D a basis, we think we'll have a good solid fourth quarter to wrap things up, as I projected. With that said, we're ready to take any questions you may have.

Question-and-Answer Session

Operator

[Operator Instructions] The first question is from Tim McHugh of William Blair & Company.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Not to start with the negative, but just on the Bankruptcy side. Can you talk about what -- even sequentially across this year, what you've seen? Is it the project activities that surrounds kind of the, I guess, the base revenue, is that down or are you just seeing bigger projects from -- that you won a couple of years ago wind down, I guess, just any more color you can have on that?

Tom W. Olofson

So I'll say a few things qualitatively and then Betsy can talk about some of the quantitative details. Generally, we're seeing some of the large mega matters from several years ago begin to conclude in an expected orderly way, faster than newer matters are coming into our inventory. And those matters that are coming into the inventory are generally of smaller size than some of the very significant cases that we have been retained on historically, and that we think would be a keystone of the go-forward business when those types of filings return to the marketplace. In addition, when you look at the number of Bankruptcy filings across-the-board in general, including consumer cases, and that will in turn feed some of our Chapter 7 business, or Chapter 13 business, our AACER business, we are seeing our clients have portfolios that are somewhat smaller than we have seen in the past and because some of our revenue models in this segment are attached to case volumes. That, too, is contributing to the trend we're seeing in this segment. Betsy can share some more quantitative details with you.

Elizabeth M. Braham

So if you look at the Bankruptcy business for 2012, we -- revenue declined 4% on a year-to-date basis versus when you look at it this year, our revenues has declined 10%. I think that, that is mostly due to the large cases that came into the business in the 2008, 2009 and 2010 timeframe are at a later stage and therefore generate less value to us in 2013 than they did in 2012, as Chris said.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay. And then can you give some helpful data on the breakout of ESI versus Document Review. Can you give us, I guess, some numbers to benchmark that against from a year or 2 years ago? I guess whatever time period you would like.

Christopher E. Olofson

When we entered the Document Review space in 2009, we did so organically, and there would've been an immaterial contribution in 2009 from Document Review. We began building that business out organically, but then accelerated the growth at the end of 2011 with the acquisition of De Novo, and that was at the very end of 2011. For clarity's sake, when we acquired Encore in April of 2011, there was no Document Review component to the Encore business, and therefore, no acquired Document Review growth from that particular acquisition. In 2012, we began focusing on the integrated sale as a competitive differentiation, where we would offer the client both ESI and Document Review services. And in fact, consulting field collection and field forensic work through a single relationship. And we were successful in building out that dimension of the business and are seeing it very specifically in 2013 in the shifted revenue mix. So that's the qualitative story and Betsy can perhaps share some of the quantitative details.

Tom W. Olofson

Yes, the only other comment I'd make, Tim, before Betsy, the growth in Document Review, which has been organic in 2013, has been very strong. Stronger than we anticipated. We're very pleased with that. We've added a lot of strength and resources in Doc Review, it's an important part of our business. And while the margins are lower, by definition, in Doc Review than they are in ESI, the Doc Review business is extremely important to us. It leads to a lot of other things. It's a very good business for us to be in. And the growth that we're getting, we've been very pleased with and it's exceeded our expectations.

Elizabeth M. Braham

Exactly. And I think one of the most important points that Chris made that I want to reemphasize is that if you look at Epiq at the end of 2011, when we completed the Encore and the De Novo acquisitions, the way to think of that is you had 2 baseline businesses, basically Epiq and Encore, that had very minimal Document Review services, and only De Novo had Document Review services. So you had the majority of that client base to sell Document Review services to. And it was a very large, strategic focus for us. So as we look at the growth for ESI, naturally, it is not nearly as much because all 3 businesses: De Novo, Encore and Epiq, had ESI services, although De Novo's ESI were lower. And then the other important part is that our international Document Review business, at the end of 2011, was minimal, very little Document Review business, which has also grown. And so as we look though at the mix of U.S. ESI and Document Review services, and the percentage of that mix, it's had the practical impact of moving up several percentage points, about 4 percentage points, because of the large growth of Document Review. So just a much smaller growth rate for ESI versus Document Review. But there are some very specific reasons, as you look at how we went into the complexion of the businesses pre-acquisition versus post-acquisition.

Timothy McHugh - William Blair & Company L.L.C., Research Division

So I'd just make sure I heard that right. So 400 basis points, just if I wanted to apply the math year-over-year?

Elizabeth M. Braham

Yes, between 2012 and 2013, just U.S. eDiscovery, the overall mix of both ESI and Document Review.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay. And then can you talk about the risk of large projects. You talked about you've had a few particular large litigation projects come in. I know it's a lumpy business by its nature, but are there any particularly large projects we have seen in the last quarter or 2 that -- I'm sure you might not -- you won't say what they are, is there any risk around the timing and then the longevity of those projects as we look forward?

Christopher E. Olofson

Well, naturally we work in a project-based revenue model and we are often hired on some of the largest matters in the industry, and then we are subject to the orderly start up, middle period and wind downs of those cases. What we have seen is that the significant organic growth that we have experienced this year has also spread out our business across additional geographies, new relationships that we did not have before. And they offset our reliance on individual matters that we had booked previously. So I do think it's quite a legitimate question, and when old cases wind down, as is always the case, and has occurred in our business since we got into it, it's important for us to have a portfolio that more than offsets that. Thus far, we have certainly done that and then some, and would continue to focus on building out our pipeline to support those results going forward.

Elizabeth M. Braham

And I would just add to that, Tim, that we are less susceptible today than we were historically to large projects because, as Chris indicated, we have more large law firm and corporate clients. And so we have more large clients in litigation matters and second requests that we are supporting. That notwithstanding, we will always be with the very large cases, if we don't have the large cases starting up simultaneously, subject to some fluctuations on a quarterly basis some large projects. But we do have many more in our portfolio today than we have historically.

Tom W. Olofson

And the other general comment, Tim, is since this is a growing business, we're putting a lot of investment in it. Naturally, we're continuing to expand, strengthen the sales force, and we'll continue that going forward. We think there are a number of geographic areas that we can penetrate more effectively domestically, and we are focused on doing exactly that. So expanding and strengthening the sales force, I think both domestically and internationally, is a key part of our plan to keep this business growing.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay, great. One last question, I guess. Just did you have, at this point in the year, how's your visibility or, I guess, what's your expectation for -- in terms of 2014 for the Settlement Administration business? Are there other large projects that can replace the one you had this year? Or should we look at the recent run rate over the last 2 quarters as more reflective of what you might see going forward? And I know you qualitatively said you've got good portfolio of projects, and I guess, but relative to replacing that large project from earlier this year, what's your expectation?

Tom W. Olofson

We've had several large projects in the last couple of years. We would certainly not expect to double the business every 2 years. We've had some very, very significant growth, as we've gone through 2012 and 2013. We do have a much stronger sales operation than we previously had. We have a much stronger overall management team. We're really focused on giving this business the support it needs. We feel very good about it going forward. But you're right, Chris will comment in a minute, when a large project is concluded, it's always important to replace that's with another single large project or with 2 or 3 good-sized projects. And so we're always in the business of doing that. And I think that's my general comment. As we always do, Tim, we'll talk more specifically about 2014 when we conclude the year. Chris, do you want to add anything to Settlement?

Christopher E. Olofson

Sure. So if you go back to year 2012, the largest matter that we had was an environmental matter where we did the notice advertising work, and that was a nonrecurring revenue contribution in Q2. When we look at largest matter in 2013, which is the antitrust matter, it has its largest current year contribution in Q1. However, it's not a notice advertising engagement, it is a Settlement Administration engagement. And therefore, it will have quite a tail of revenue opportunity into future years. And I would expect this to be a multiyear engagement. Like most cases of this variety, however, it will not contribute evenly month-by-month or quarter-by-quarter. It will have certain periods of significant activity and then certain periods of reduced activity awaiting the next milestone. But I would characterize that large antitrust matter as more in hibernation. It will generate revenue, however, not at the level of 2013 over the upcoming 12 months. But the main point is, there will be significant revenue opportunities in future periods that distinguish this matter from the notice advertising nonrecurring matter of 2012.

Elizabeth M. Braham

Tim, we're in the process, obviously, of working on our 2014 objectives and plans and are evaluating the executive who has responsibility for that business, to look at what our current inventory of projects looks like. And very importantly, what is in the Q. And as we complete that, as Tom indicated, when we do our year-end earnings release, we'll be more specific relative to our objective on the segments at that time.

Operator

And the next question is from Peter Heckmann of Avondale Partners.

Peter J. Heckmann - Avondale Partners, LLC, Research Division

I have a follow-up question on electronic Discovery, continue to see really attractive revenue growth, both domestically and internationally. And clearly, those investments seem to be paying off. In terms of that $0.05 to $0.06 kind of expense drag, when do you think that, that -- I hear you saying we're going to make some additional investments, open some additional international offices, additional sales people. I assume that goes into 2014. But do we think that we're going to see the margins generally stabilize in this range and leverage some of those investments? Or I guess, from a trajectory standpoint, I mean, this year's looked pretty stable so far, 3 quarters in a row. Do you think we can get margins in this range? Is this a good range to use for the next couple of quarters?

Elizabeth M. Braham

I would say that as we look at Q2 and Q3, I think that because it has the higher mix of Document Review built in already, and because it also has the lower mix of Bankruptcy and higher Settlement Administration, I think that they are a good proxy for as we look out over the next several quarters for what we would expect the business to be doing at a margin level.

Peter J. Heckmann - Avondale Partners, LLC, Research Division

Okay. And specifically, just within the eDiscovery or Technology segment, the margin -- the average margin between the second and the third quarter, is that something reasonable to expect the next couple of quarters?

Elizabeth M. Braham

Yes, I believe so.

Peter J. Heckmann - Avondale Partners, LLC, Research Division

Okay, okay. And then just as a qualifying point, you raised revenue guidance and maintained, essentially maintained EBITDA guidance at the midpoint of your previous guide. But EPS is just a little bit lower, and is that a reflection of higher interest expense? I just want to make sure I'm clear on that.

Elizabeth M. Braham

Well, with the share repurchase, our lower share count has an offset to part of the interest expense. So it has an impact. I would say, the larger impact really is looking at, again, the pieces that Tom reviewed. And we are expecting a very strong fourth quarter for Document Review. And so, it really is the combination of everything that we've been looking at and our start-up cost for Canada because we're just going into it in the fourth quarter, begin to kick in this quarter also, for the first time, versus Japan and Hong Kong and London and the other expenses have been in there now for several quarters.

Operator

There are no further questions in the queue at this time. I'd like to turn the call back over for closing remarks.

Lew P. Schroeber

Thank you, everyone, for joining us. Have a good afternoon.

Operator

Ladies and gentlemen, this concludes today's program. You may now disconnect. Good day.

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