SEGMENT REPORTING

9 Months Ended

Sep. 30, 2015

SEGMENT REPORTING

SEGMENT REPORTING

NOTE 10: SEGMENT REPORTING

We report our financial performance based on the following two reportable segments: the Technology segment and the Bankruptcy and Settlement Administration segment.

Our Technology segment provides eDiscovery services and technology solutions comprised of consulting, collections and forensics, processing, search and review, and document review to companies and law firms. Produced documents are made available primarily through a hosted environment utilizing our proprietary software and third-party software which allows for efficient attorney review and data requests. Our Bankruptcy and Settlement Administration segment provides managed services and technology solutions that address the needs of our customers with respect to litigation, claims and project administration, compliance matters, controlled disbursements, corporate restructuring, bankruptcy and class action proceedings.

On April 30, 2015, we acquired Iris, a leading provider of managed services for the legal profession including electronic discovery and document review. Iris supports Epiq’s strategic plan to offer managed services solutions to its existing global client base, while bringing Epiq’s eDiscovery and document review resources to a new client base. The financial information of Iris is included in the Technology segment.

The segment performance measure is based on earnings before interest, taxes, depreciation and amortization, other operating expense, and share-based compensation expense. In management’s evaluation of performance, certain costs, such as compensation for administrative staff and executive management, as well as other enterprise level expenses are not allocated by segment and, accordingly, the following reporting segment results do not include such unallocated costs.

Assets reported within a segment are those assets that can be identified to a segment and primarily consist of trade receivables, property, equipment and leasehold improvements, software, identifiable intangible assets and goodwill. Cash, certain tax-related assets, and certain prepaid assets and other assets are not allocated to our segments. Although we can and do identify long-lived assets such as property, equipment and leasehold improvements, software, and identifiable intangible assets to reporting segments, we do not allocate the related depreciation and amortization to the segment as management evaluates segment performance exclusive of these non-cash charges.

Following is a summary of segment information for the three months ended September 30, 2015 and 2014 (in thousands):

	Three Months Ended September 30, 2015
	Technology			Bankruptcy and Settlement Administration			Eliminations			Total
Operating revenue	$	91,847		$	39,478		$	—		$	131,325
Intersegment revenue	204			—			(204		)	—
Operating revenues including intersegment revenue	92,051			39,478			(204		)	131,325
Reimbursable expenses	809			10,401			—			11,210
Total revenue	92,860			49,879			(204		)	142,535
Direct costs, selling, general and administrative expenses	66,552			35,941			(204		)	102,289
Segment performance measure	$	26,308		$	13,938		$	—		$	40,246
As a percentage of segment operating revenue	29		%	35		%				31		%

	Three Months Ended September 30, 2014
	Technology			Bankruptcy and Settlement Administration			Eliminations			Total
Operating revenue	$	69,139		$	34,816		$	—		$	103,955
Intersegment revenue	187			—			(187		)	—
Operating revenues including intersegment revenue	69,326			34,816			(187		)	103,955
Reimbursable expenses	205			6,846			—			7,051
Total revenue	69,531			41,662			(187		)	111,006
Direct costs, selling, general and administrative expenses	49,044			28,987			(187		)	77,844
Segment performance measure	$	20,487		$	12,675		$	—		$	33,162
As a percentage of segment operating revenue	30		%	36		%				32		%

Following is a reconciliation of our segment performance measure to consolidated income before income taxes for the three months ended September 30, 2015 and 2014 (in thousands):

	Three Months Ended September 30,
	2015			2014
Segment performance measure	$	40,246		$	33,162
Unallocated corporate expenses	(11,553		)	(11,805		)
Share-based compensation expense	(3,557		)	(703		)
Depreciation and software and leasehold amortization	(9,787		)	(9,693		)
Amortization of identifiable intangible assets	(5,831		)	(3,184		)
Fair value adjustment to contingent consideration	(19		)	—
Other operating expense, net	(1,308		)	(215		)
Operating income	8,191			7,562
Interest expense, net	(5,357		)	(3,941		)
Income before income taxes	$	2,834		$	3,621

Following is a summary of segment information for the nine months ended September 30, 2015 and 2014 (in thousands):

	Nine Months Ended September 30, 2015
	Technology			Bankruptcy and Settlement Administration			Eliminations			Total
Operating revenue	$	255,029		$	114,608		$	—		$	369,637
Intersegment revenue	1,311			—			(1,311		)	—
Operating revenues including intersegment revenue	256,340			114,608			(1,311		)	369,637
Reimbursable expenses	1,431			28,505			—			29,936
Total revenue	257,771			143,113			(1,311		)	399,573
Direct costs, selling, general and administrative expenses	189,212			106,994			(1,311		)	294,895
Segment performance measure	$	68,559		$	36,119		$	—		$	104,678
As a percentage of segment operating revenue	27		%	32		%				28		%

	Nine Months Ended September 30, 2014
	Technology			Bankruptcy and Settlement Administration			Eliminations			Total
Operating revenue	$	228,831		$	106,795		$	—		$	335,626
Intersegment revenue	625			—			(625		)	—
Operating revenues including intersegment revenue	229,456			106,795			(625		)	335,626
Reimbursable expenses	2,162			21,545			—			23,707
Total revenue	231,618			128,340			(625		)	359,333
Direct costs, selling, general and administrative expenses	168,296			89,811			(625		)	257,482
Segment performance measure	$	63,322		$	38,529		$	—		$	101,851
As a percentage of segment operating revenue	28		%	36		%				30		%

Following is a reconciliation of our segment performance measure to consolidated income (loss) before income taxes for the nine months ended September 30, 2015 and 2014 (in thousands):

	Nine Months Ended September 30,
	2015			2014
Segment performance measure	$	104,678		$	101,851
Unallocated corporate expenses	(32,582		)	(49,834		)
Share-based compensation expense	(10,483		)	(4,979		)
Depreciation and software and leasehold amortization	(28,050		)	(27,648		)
Amortization of identifiable intangible assets	(13,326		)	(9,470		)
Impairment of goodwill and identifiable intangible assets	(1,162		)	—
Fair value adjustment to contingent consideration	1,182			(1,142		)
Other operating expense, net	(4,306		)	(792		)
Operating income	15,951			7,986
Interest expense, net	(15,061		)	(12,657		)
Income (loss) before income taxes	$	890		$	(4,671	)

Following is revenue, determined by the location providing the services, by geographical area for the three and nine months ended September 30, 2015 and 2014 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Total Revenue
United States	$	120,789	$	92,198	$	340,322	$	312,252
United Kingdom	16,537		13,423		46,516		37,170
Other countries	5,209		5,385		12,735		9,911
Total revenue	$	142,535	$	111,006	$	399,573	$	359,333

Following are assets by segment (in thousands):

	September 30, 2015		December 31, 2014
Total Assets
Technology	$	501,932	$	342,596
Bankruptcy and Settlement Administration	270,856		286,889
Corporate and unallocated	53,718		108,767
Total assets	$	826,506	$	738,252

Following are long-lived assets, excluding intangible assets, by geographical area (in thousands):

	September 30, 2015		December 31, 2014
Long-lived assets
United States	$	88,546	$	78,921
Other countries	7,689		6,371
Total long-lived assets	$	96,235	$	85,292

Following are capital expenditures (including software development costs) by segment for the three and nine months ended September 30, 2015 and 2014 (in thousands):

	Three Months Ended September 30,				Nine Months Ended September 30,
	2015		2014		2015		2014
Capital Expenditures
Technology	$	2,553	$	2,567	$	8,447	$	13,677
Bankruptcy and Settlement Administration	163		318		991		1,957
Corporate and unallocated	3,403		3,399		13,011		13,181
Total capital expenditures	$	6,119	$	6,284	$	22,449	$	28,815