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Epiq Systems Inc. (NASDAQ:EPIQ)

Q4 2007 Earnings Call

February 19, 2008 4:30 pm ET

Executives

Tom Olofson - Chairman and CEO

Chris Olofson - President and COO

Betsy Braham - EVP and CFO

Analysts

Richard Shannon - Northland Securities

Herb Buchbinder - Wachovia Securities

Dan Perlin - Wachovia

Dan Mazur - JMP Asset Management

Operator

Good afternoon ladies and gentlemen. My name is Vanessa, and I will be your conference operator today. At this time I would like to welcome everyone to the Epiq Systems Inc. earnings release conference call. (Operator Instructions)

It is now my pleasure to turn the floor over to your host, Miss Mary Ellen Berthold. Ma'am, you may begin.

Mary Berthold

Thank you. Good afternoon and welcome to Epiq Systems fourth quarter and year end 2007 earnings conferences 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 3:00 PM Central Time, and is available on our website at www.epiqsystems.com. There you can also access the webcast of this call including slides of supplemental information. The webcast will be archived until next quarter's call and a phone replay will be available through March 31st.

During the call we may discuss our financial objectives and make forward-looking statements. 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 Form 10-K annual report and our Form 10-Q quarterly reports filed with the SEC, which are 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 Olofson

Thank you, Mary Ellen. Good afternoon. Welcome to our Q4 and year-end conference call. We are pleased to have all of you in attendance. You should have access to our press release, which will provide detailed information on our financial performance and attached financial statement. What I will do in the conference call is to highlight those performance measurements that we traditionally spend time on during our quarterly calls and at the end of the presentation, you of course will have ample opportunity for any additional questions which you may have.

Let's begin with non-GAAP earnings per share. In Q4, we achieved $0.14. This represented a 40% increase versus $0.10 in a year ago quarter. For the full year, we achieved $0.50. This represented a 0.3% increase versus $0.35 last year.

Our management objective was $0.50 and I am very pleased that we achieved that and we felt that we had a very strong year in '07 from an earnings point of view.

Let's now look at adjusted EBITDA. In Q4, $12.5 million, this was a 40% increase versus $8.9 million in the year ago quarter. For full year, $49.5 million, this was a 27% increase versus $38.9 million for last year.

Non-GAAP operating revenue, in Q4 $39.2 million, which was a slight increase versus $38.6 million in the year ago quarter, and for the full year, $151.6 million, which was an 8% increase versus $140 million in the prior year.

I should point out that our case management revenue increased 18%. We focused more in '07 on the higher margin case management revenue that gave us a significantly more favorable revenue mix and that of course contributes very directly toward improved margins cash flow and profitability.

We have an objective of $150 million and I am pleased to say that we slightly exceeded that and I also had to say that in regard to EBITDA that we did achieve our right EBITDA objective for the year as well.

We will look at one additional measurement, cash provided by operating activity. In Q4 that was $12.8 million, an 18% increase versus the year ago quarter of $10.9 million and for the year $36.2 million, a 5% increase versus $34.4 million for the prior year.

Our management objective there was to exceed $35 million and so I'm pleased to say that we were able to accomplish that objective as well.

Let's now look at some performance measurements in our three segments. Let's begin with Electronic Discovery where we had an absolutely outstanding year. We are very, very pleased with all of the developments relative to eDiscovery.

Let's begin with operating revenue. In Q4, that was $13.7 million, a 64% increase versus $8.4 million in the year ago quarter. For the full year in eDiscovery, revenue of $49.1 million, a 56% increase versus $31.4 million last year. This was a very strong revenue growth. I am pleased to say that the EBITDA growth is even stronger.

So let's now look at EBITDA for eDiscovery. Q4, $6.6 million, a 104% increase versus $3.2 million and for the full year, $24.4 million, a 68% increase versus $14.5 million in the prior year.

I am very pleased with eDiscovery and Chris will talk more about that in just a few moments.

Let's move now to the Bankruptcy Trustee segment. Beginning with operating revenue, a slight decline in Q4 from $8.8 million last year to $7.8 million this year and a slight decline in revenue for the full year from $34.6 million to $32.9 million. These fluctuations were based on deposits and caseloads. Our market share continues very strong. In fact we continued to increase our market share in that business.

Let's now look at non-GAAP EBITDA for Bankruptcy Trustee. In Q4, a slight decrease from $6.1 million to $5.1 million and for the full year, a slight decrease from $23.6 million to $22.1 million. Chris will talk more about bankruptcy filings and about how filings continue to accelerate and we expect that trend to continue as we go through 2008.

Looking now Settlements and Claims, this is a combination of our Corporate Restructuring Chapter 11 business and our Class Action business. You will see here that there is a slight decline in revenue, but a very nice increase in EBITDA and I will touch on that in just a moment.

Let's begin in Q4. Operating revenue, $17.6 million, which was down slightly from $21.5 million in the year ago quarter, and on a year-to-date basis $69.7 million, which was down slightly versus prior year from $74.1 million.

On the other hand, we had a significantly stronger revenue mix. Once again that's addition case management revenue versus document management revenue, with case management carrying a significantly higher margin.

Accordingly, in Q4, our EBITDA was $4.7 million, which was an 11% increase versus $4.2 million last year and for the full year our EBITDA was $21.8 million, which was a 28% increase versus the $17.1 million for the prior year.

Let's look briefly at the balance sheet. We very significantly strengthened the balance sheet during the year which complemented the very strong overall financial performance of the company which we just touched on. The balance sheet now has shareholder equity of $284 million, that's up $100 million versus the year ago period. That's the function of the successful private equity offering we completed and the performance of the company.

Our indebtedness with banks is down to zero. We used the proceeds from that offering to eliminate all bank debts, so we haven't unused bank line of credit. We do have a $50 million convertible in place. You are aware of that, it matures in June of 2010, it carries a 4% coupon. It is our assumption as it always has been that sometime between now and June of 2010 that will simply convert to equity and those convertible shares are included of course in the share count when we compute EPS.

Our cash balance at the end of the year was $30 million that continued to steadily increase. The last I looked at the conclusion of last week that was slightly in excess of $20 million. So we feel very good about the balance sheet. We have plenty of liquidity and we are pleased to be able to review all of these financial results with you.

What we will do now is turn the meeting over to Chris and then I will return with some wrap-up comments. We will talk about our outlook for 2008 and Chris will cover now a number of operational and strategic topics with you.

Chris Olofson

Good afternoon. As Tom mentioned, we were very pleased with the performance throughout the business in Q4 and all the way through 2007. Operationally, financially strategically, it was a very good year.

Starting with some comments for Electronic Discovery, 2007 was a breakout year for the company that clearly established Epiq as a top tier competitor in the eDiscovery space. Q4 was an all-time record quarter for eDiscovery. And in fact each quarter of 2007 got sequentially stronger versus prior period.

We have a strong mix of corporate and law firm clients. We are focused on the repeat business model, building master services agreements with large corporate clients and positioning ourselves as a premier provider focused on the top end of the market.

Recently, we have experienced increased international growth. In fact, this January is an all-time record month for our London office. We have recently issued a major software release of DocuMatrix supporting 60 languages and extending our ability to service both U.S. and non U.S. clients and it is our intention to continue to invest in and build our international business alongside a very vibrant domestic business.

Turning to our national bankruptcy franchise, we have rarely been so happy as we are now to have the national bankruptcy franchise that we do, encompassing every chapter, liquidation, reorganization, cases of every size in all geographic markets around the country. We continue to have excellent market share throughout bankruptcy even as 2007 market conditions were not as strong as they had been in the prior periods.

That said, we've seen sixth consecutive quarter of increased bankruptcy filings, albeit still growing towards the level of late 2005 when new bankruptcy legislation took effect.

To take a moment on cooperate restructuring or our Chapter 11 business, we had a good number of retentions in December, more than that since the beginning of the year, so we have a good base of new cases in the early stages as we start up our business for 2008.

Macroeconomic conditions such as the subprime mortgage crisis can precipitate very directly new client engagements for Epiq Systems in both our corporate restructuring and eDiscovery areas and in fact we have seen that happening.

In the Class Action area, in 2007 we booked the largest individual case that we have ever seen. That matter will be in full swing throughout 2008 and Class Action continues to represent an attractive growth opportunity for the company.

Strategically, well we have no imminent material acquisitions to discuss today, as always we continue to look. We are focusing on complementary opportunities for our eDiscovery business but would also consider acquisitions in our other lines of business.

In eDiscovery, in particular, there are a variety of properties on the market right now, some have been there for a while. We are being very selective as we evaluate the opportunity. We really like our Electronic Discovery business and we'll continue to grow it organically and on a very selective basis, potentially through strategic acquisitions.

2008 is off to a strong start. We are anticipating strong results for Q1. Let me now turn things back over to Tom.

Tom Olofson

Thanks Chris. As Chris and I have indicated, we feel very good about our performance in 2007 and we will talk about 2008 momentarily, but we concluded 2007 with strong momentum. We carried that momentum into 2008. We feel good about overall financial performance, in particular profitability, cash flow margins. As I mentioned, we feel equally good about our balance sheet, a lot of strength there, a lot of liquidity.

I would also like to comment on the niche markets in which we have a position of leadership. And as you know, we participate in markets, corporate restructuring, bankruptcy, litigation, class action, eDiscovery. I think the point to make here is that with the variety of challenges facing our economy, these are very viable markets. We have some very significant and attractive growth opportunities in these markets.

And while the difficulties in the economy are very challenging to a number of companies, we feel, based on markets that we participate in, that we have some excellent opportunities and we are pursuing those in a very assertive way. We do find that there is a bit of a disparity between the current market value of our stock and our financial performance and the strength of these markets. And I think the way we would simply summarize that is that for investors that have confidence in the company and like the markets in which we participate, we would tell you that in our mind there is some very significant capital appreciation potential in our stock at the present time.

Let's now take a look at 2008. I will provide you with an overview of our management's objectives. We will take a look at non-GAAP EPS, EBITDA and operating revenue. I will provide you with a range in each of those areas. And let's begin with non-GAAP EPS. As you recall in '06, it was $0.35, in '07 $0.50.

Our management objective for 2008 is a range of $0.50 to $0.64. While we don't break out these objectives quarterly, since we are into the first quarter, I would offer the following insights as to how we look at that presently.

We look at Q1 in '08 as follows. We feel our EPS will be higher than Q4 of '07 which came in at $0.14 and this would show a very significant increase versus Q1 of '07 the year ago quarter when we achieved $0.11.

So once again $0.60 to $0.64 is the management objective for the full year and I provided you those comments relative to Q1.

Let's now switch to EBITDA, in '06 $39 million, '07 $50 million. Our range for '08, our management objective is $60 million to $64 million for EBITDA.

Let's now move to operating revenue, in '06 $140 million, in '07 $152 million. Our management objective range for '08 is $185 million to $195 million. So that summarizes for you our management objectives in EPS, EBITDA and operating revenue. As Chris and I have indicated, we're off to a very solid start in '08. We feel very good about our performance as we move through this year.

With that said, we would now like to move into the question-and-answer session. And I'll turn things back to the operator to begin the questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question is coming from Richard Shannon of Northland Securities. Please go ahead.

Richard Shannon - Northland Securities

Hi, Braham, how are you?

Chris Olofson

We are just fine, Richard.

Richard Shannon - Northland Securities

Okay. My first question is on your guidance for 2008. I am wondering if you could break down those numbers by the operating segments both in terms of operating revenues and EBITDA margins. Any flavor for how that should break out and trend throughout the year?

Betsy Braham

Rich, we typically don't provide guidance at that level of detail. We do it at a high level of detail, especially this early in the year where there are a lot of variables that could change throughout the course of the year. So that's how we will typically handle guidance this early in the year.

Tom Olofson

I think the only other comment that we would make Richard, and I think it came through pretty clearly with Chris and myself. We certainly view eDiscovery as the growth driver, it was in '07, it will continue to be that way in '08. But we do feel very good about our other two segments as well.

Richard Shannon - Northland Securities

Okay. Can I infer that you mean that those can grow in 2007, each one of them?

Betsy Braham

Absolutely, we believe we have the opportunities for growth in each one of our segments. We would expect our Electronic Discovery segment to grow at the highest rate, our Settlements and Claims segment to grow then secondarily, and then thirdly our Bankruptcy Trustee.

Richard Shannon - Northland Securities

Okay. A couple of other quick questions, and I will jump in the line. First of all related to tax, as we saw your effective tax rate in the fourth quarter trend quite a bit low than what you have talked about before. How should we look at that in 2008?

Betsy Braham

Well, in terms of your tax rate, you really should not look at the quarterly annual rate, but the annual rate is 37%. It is a little bit lower in 2007, because it had carryover losses from our London business that we were able to take advantage of in 2007. I think as we go forward for 2008, our tax rate would be 43.5%, it would be a good estimate for 2008.

Richard Shannon - Northland Securities

Okay. Last question, when we are trying to model operating expenses, you have a bucket that is not associated with any of the operating segments. In other words, it's unallocated. I am curious as to how you expect that to grow in 2008 and what's associated with any changes we ought to see there?

Betsy Braham

Unallocated is predominantly corporate type expenses that are not allocated directly to business units, which would include corporate functions as well as insurance and travel and those types of things. We would expect to see those grow modestly in 2008 in the single-digit range.

Richard Shannon - Northland Securities

Okay, great. Thanks. I will jump in the line.

Betsy Braham

Thanks, Richard.

Operator

Thank you. Your next question is coming from Herb Buchbinder of Wachovia Securities. Please go ahead.

Herb Buchbinder - Wachovia Securities

Tom and Chris and Betsy, I have a question mostly for Chris. Can you tell me what you need to do in eDiscovery that you really cannot do today to provide the market to the best of your ability and how do you get there? Is this where you look for acquisitions or can you do it internally? Because my impression is that there are somethings in eDiscovery that you are not quite able to do at this point. Is that true? Am I right? Am I wrong onto something or not?

Chris Olofson

Well, eDiscovery comprises of a broad spectrum and different people use that term to mean different things depending on context. Our current eDiscovery business based on the way we have defined it, which starts when data is ingested into the system, it is processed and then it's put up for review by attorneys and ultimately produced.

Using our existing resources as they exist in the business today, we have established a top tier, very solid presence working with the best law firms and corporate clients. We have the opportunity to extend our total reach within eDiscovery by adding complementary products and services that exist earlier in the litigation life cycle than where we have chosen to enter the scene as of today.

We are evaluating opportunities currently to either build or buy some of those additional functionalities. As much as we like the eDiscovery business, we think that there may be some interesting opportunities to extend our reach and we will be looking at those carefully throughout 2008.

Herb Buchbinder - Wachovia Securities

Okay. In terms of buying versus building, can you give us an idea of what kind of investment might be required to get to where you want to be?

Chris Olofson

Well, we really like where we are right now. I think that the task before us is to continue to tend to business, a very strong opportunity for organic growth and absent a specific opportunity it would be premature for me to try to quantify that investment. So I think we would have to let the year play out, let certain opportunities firm up before we would comment at greater length.

Herb Buchbinder - Wachovia Securities

Okay. Richard your capacity to do an acquisition now is certainly greater than it's been in awhile since you got your balance sheet in good shape.

Chris Olofson

When you look at the offering and no bank debt and the way the company is positioned, we feel we are in a very good spot to respond advantageously to an attractive opportunity, yes.

Herb Buchbinder - Wachovia Securities

In terms of that being accretive versus more of a long-term investment, can you just comment generally as to how you view your acquisitions right now?

Tom Olofson

Herb, I think we would probably say the same thing that we've traditionally said. Our interest is always to look at accretive deals or if something is really, really attractive strategically, it might be neutral initially and then move into accretive going forward. We really have always tended to stay away from anything that would be significantly dilutive. As you know, we are not interested in turnaround. We are not interested in things that are losing money.

So we've really tried to be very, very selective here and we would continue to that course going forward. As Chris indicated, we are not in the middle of anything major at the present time and we have not been. But we do continue to look for opportunities, they could be a smaller niche type opportunities, it could be something more material at a future date. But we are always very mindful of the accretive aspect of that, as well as the good strategic fit.

Herb Buchbinder - Wachovia Securities

Thank you very much.

Tom Olofson

Okay.

Operator

(Operator Instructions) Your next question is coming from Richard Shannon of Northland Securities. Please go ahead.

Richard Shannon - Northland Securities

A couple of questions on Electronic Discovery, I noticed in your third quarter 10-Q, you talked about your different revenue streams in terms of processing and hosting. Kind of curious as to as you look into 2008, do you see processing as being revenue that can grow during the year or is that going to be under pressure by the pricing? Want to get your thoughts on that.

Betsy Braham

Well, we clearly think that we have the opportunity to grow both processing and hosting revenue within the Electronic Discovery business. We grew both of those categories in 2007 and we expect that to continue in 2008 timeframe. And while there are pricing pressures within Electronic Discovery, that's been true since before we entered the business in 2005 and we do offer a premium level pricing that is consistent with our product and service offering. And so while we do experience some pricing pressures, they are consistent with really wherever we are expected to be at this point in the marketplace.

Richard Shannon - Northland Securities

Okay. So do you expect the price environment in terms of like year-over-year decline in pricing per gigabyte, do you expect that to be less than it's been in the past, or could it possibly be greater?

Betsy Braham

I would say we wouldn't expect pricing to go up. I think, generally we will see some erosion in pricing as we did in 2007 and we would expect that to continue somewhat into 2008. But again that's been planned and it's been expected as we operate in this marketplace, and going back to 2005 when we bought business we anticipated that pricing will come down sequentially each year.

Richard Shannon - Northland Securities

Okay. Another question with Electronic Discovery, I think it was, I'm not sure if it's Tom's or Chris's comments but you mentioned that there are a number of Electronic Discovery properties out on the market. I am kind of curious as to whether you consider those properties to be companies that are selling from a position of strength, or do you see them as distressed or wanting to exit the market while valuations are still high? And how do you take advantage of whatever situation you perceive to be out there now?

Chris Olofson

It's Chris and I was the one who made the comment. There are some in each category, quite frankly. There are some attractive properties for sale. There are some things that I feel used to be stronger that are now needing an exit strategy more urgently than perhaps some of the others.

And we have evaluated a number of opportunities, some of which we have been invited into, others which we've reached out to. We will continue to do that diligently and just be very selective as to where we make our investments. But the strength of what we see on the market runs the gamut right now.

Richard Shannon - Northland Securities

Okay. Quick question on Chapter 11 business, you mentioned in the press release that you had a number of engagements so far this year. And I think you mentioned even a one large one. I am curious as to whether you consider the environment still very attractive out there and just waiting for the actual filings to happen. And also wondering whether you see the potential for any large cases out there, maybe not necessarily the size of maybe a Delta Air Lines you've seen in the past, but someone that can really by themselves move the needle. I want to get your thoughts on that?

Chris Olofson

Sure. You saw in that press release, we were retained on a matter that had over 100,000 creditors, I mean anything nice sized engagements. As we look at independent industry reports and association journals, we are seeing articles that suggest words like surge in restructuring work during 2008. So our interpretation of the high number of engagements we had at the end of 2007 and the beginning of 2008 is a positive sign of what we hope will be things to come. It is difficult for us to predict with precision exactly when that does happen, but based on a wide variety of industry coverage, we are certainly very happy to have the leadership position in corporate restructuring and in fact in the trustee business that we currently have.

Richard Shannon - Northland Securities

Okay, great. Thank you.

Operator

Thank you. Your next question is coming from Dan Perlin of Wachovia. Please go ahead.

Dan Perlin - Wachovia

Thanks, guys. I had a couple of quick follow-up questions. You talked about the case management versus your document management positive mix shift. I am wondering if you can comment how you expect us to accelerate throughout the year? Or is it consistent with what we have seen in maybe the past couple of quarters?

Betsy Braham

Well, Dan, relative to case versus document management as Electronic Discovery becomes a larger component of our overall mix, we would expect to continue seeing case management grow. And based on the growth that we had in Electronic Discovery in 2007, it wasn't surprising to us to see case management grow and not to see document management grow.

The one area that could shift that a little bit in 2008 would be in fact that would have several large corporate restructuring filings because they do have large document management components that fit early in the last life cycle from a revenue perspective. And so we could see some shifts in 2008 and this is where kind of the mix of the type of cases in which particularly segments are coming from through will impact us.

Dan Perlin - Wachovia

Can you also talk about maybe on a trend line basis the kind of trustee asset growth as we know the filings are increasing, but I am wondering how that's been trending and how you expect that to play out throughout the year?

Betsy Braham

Based on the fact that bankruptcy filings in the '06 timeframe were actually coming down and now they are just beginning to rise, what you saw, what we would have seen in the 2007 timeframe was a gradual decline in bankruptcy filings throughout the year. As we now go through 2008, we would expect to see the deposits begin to increase.

Dan Perlin - Wachovia

Okay. And then there has been a lot of talk about potential acquisitions maybe even in eDiscovery. I am wondering when you look at your uses of cash, how do you think about the international opportunity?

Betsy Braham

International opportunity is very important for us and it is where we are spending a lot of time. We had significant improvement in our international operations in 2007 and we would expect to see at least that level, if not greater, from a 2008 perspective and I think it will be a major area of focus for us.

Dan Perlin - Wachovia

And just couple of other quick questions for your EPS guidance, what share count roughly you are using for next year?

Betsy Braham

Our share count for 2008, as we start the year and this would include both our base outstanding shares accounting for options and also accounting for convertible debt, you should think around 41.5 at the beginning of the year and probably ending the year at about 42.5.

Dan Perlin - Wachovia

Okay. Got it. And just to clear the $185 million to $195 million revenue guidance; that's an operating number, correct?

Betsy Braham

That is operating revenue, yes.

Dan Perlin - Wachovia

Okay, great. And then the unallocated, I guess, cost in the fourth quarter came down a bit more than we would have expected sequentially. Is there anything we should think about that occurs in the fourth quarter that we take forward?

Betsy Braham

Revenue expense primarily impacted by our mark-to-market for our interest rate floor options, because that would have come through on the P&L line, let me just look at it real quick, make sure I give you the correct category. It would have come through the P&L line of other operating income expense and that goes through unallocated. And in the fourth quarter we would have had a mark-to-market adjustment that would had been a positive P&L impact of $1.7 million.

Dan Perlin - Wachovia

Got it. Okay, great. Thank you.

Betsy Braham

Sure.

Operator

Thank you. The next question is coming from Dan Mazur of JMP Asset Management. Please go ahead sir.

Tom Olofson

Operator, there seems to be a technical problem, let's move onto the next caller, please.

Operator

(Operator Instructions). Your next question is coming from Dan Mazur of JMP Asset Management. Please go ahead.

Dan Mazur - JMP Asset Management

Hello.

Betsy Braham

Hi, Dan.

Dan Mazur - JMP Asset Management

Okay. Now my line works. Most of my questions have been answered. I just had a quick follow-up. Betsy, are you continuing to hedge some of the interest rate exposure you have in the business?

Betsy Braham

We do have interest rate floors. We executed those floors in the third quarter of 2007. And as I just indicated, we took a mark-to-market adjustment in both the third quarter and the fourth quarter and hedging is a very important part of our Chapter 7 business and we will continue to make sure that we protect our position in Chapter 7.

Dan Mazur - JMP Asset Management

It looks like you backed out the mark for in you EBITDA. Am I reading that right, so you are excluding any gained from your hedging activities and your operating EPS and adjusted EBITDA?

Betsy Braham

Yeah. Let me tell you exactly what we are doing on the interest rate floors in our non-GAAP EPS. So there was cost of those when we entered into the options in August 2007 and they are 36 months term. So we took the cost of the option and we are amortizing that cost in non-GAAP over that 36 months timeframe. If in fact we ever receive a gain on them, we will take that gain through our non-GAAP also. What we are not doing on quarter-to-quarter basis for non-GAAP is running through this notional change in the mark-to-market adjustments because it's non-cash.

Dan Mazur - JMP Asset Management

Okay.

Betsy Braham

So what we are trying to do on non-GAP is just make sure we allocate the cost which was $1.6 million in August. And then if we get a gain, we'll allocate that to non-GAAP also, because the gain would come to us in the form of cash and then we are eliminating all non-cash mark-to-market adjustments.

Dan Mazur - JMP Asset Management

At some point, do you think over the life, it will flow into your EBITDA you are just going to committed. It's obviously conservative way given that there you do have some exposure in your operating business to back out those hedging (inaudible) flow through at some point?

Betsy Braham

Yeah. It really depends on, we have bought different tranches and it depends on how those particular tranches flow through relative to where LIBOR and fed fund rates go over the course of the remaining 2.5 years life of those options.

Dan Mazur - JMP Asset Management

Okay. Thanks.

Operator

Thank you. There appears to be no further questions at this time. I'd now like to turn the floor back to Christopher Olofson for any closing comments.

Chris Olofson

Thank you all for joining us may. We hope you have a good afternoon.

Operator

Thank you. This does conclude today's Epiq Systems Inc. conference call. You may now disconnect, and have a great day.

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