EPIQ Systems, Inc.

1964–2003

EPIQ Systems, Inc. supplies specialized software to help trustees manage the bankruptcy process. Its Trustee Case Management System (TCMS) handles Chapter 7 filings, which liquidate a debtor's assets in exchange for a clean slate. Chapter 13 reorganizations, which involve a scheduled repayment of part of an individual's or a business's debt, are managed with CasePower software.

EPIQ (pronounced "epoch") products also have some involvement with Chapter 11 corporate reorganizations and farm-related Chapter 12 bankruptcies. In the case of Chapter 7 filings, rather than simply licensing the software, EPIQ generates fees based on the amount of money in trustees' accounts. The number of cases in a clients' database determines the fees for Chapter 13 software. EPIQ's financial services division, which accounts for about 15 percent of revenues, provides secure e-business communications software for handling data using various protocols.

EPIQ has become a regular on Forbes magazine's annual listing of the best small companies in the United States. It has grown rapidly both through acquisitions and organically, and the company prides itself on staying ahead of the competition in terms of technology. The rising number of bankruptcy filings in the United States--there were 1.58 million in 2002--did not hurt business. In 2003, FSB: Fortune Small Business found EPIQ to be the fifth-fastest growing small company in the United States. In its market, it was second only to financial services giant J.P. Morgan Chase & Co.

Kansas City Origins

Kansas City attorney Claude Rice, one of the founders of the law firm McDowell Rice Smith & Gaar, started what would become EPIQ systems in 1964. Rice was a Chapter 13 bankruptcy trustee and realized that computers could make tracking assets, collections, and payments to creditors, as well as court filings, more manageable for fellow trustees. In Chapter 13 bankruptcies, individuals or businesses set up installment plans to pay back all or a portion of their debts.

The business was then known as Electronic Processing Inc. (EPI). One of Rice's employees at his law firm and at EPI, R. Pete Smith, eventually acquired a 25 percent holding in EPI. Universal Money Centers Inc. (UMC) bought the company in 1984 in a deal worth about $4.5 million. UMC, founded in 1981, operated a data switch for ATMs (automated teller machines) in three states.

(UMC) bought the company in 1984 in a deal worth about $4.5 million.

1988–1998

Olofson Acquires EPI in 1988

An investment group led by former Marion Laboratories Inc. and Xerox executive Tom W. Olofson acquired EPI in July 1988 after UMC defaulted on its financing. Olofson served as chairman and chief executive officer, while his son, Christopher E. Olofson, a Fulbright scholar via Princeton University, became chief operating officer and president in 1993.

EPI was not profitable under UMC, but this changed under the Olofsons' management. The company posted revenues of $5.23 million in 1995, producing net income of $83,000. The next year, sales were up 21 percent to $6.32 million, with net income rising to $190,000.

1997 IPO

In spite of a long-running bull market, bankruptcy filings reached record levels in the late 1990s. As Tom Olofson told The Wall Street Transcript, bankruptcy filings were tied to debt levels, rather than to the general health of the economy. Debt levels showed no signs of slowing. According to the Kansas City Business Journal, EPI estimated there were more than half a million pending Chapter 13 cases managed by just 180 trustees across the country, while 1,200 Chapter 7 trustees held $2 billion on deposit. Without software, it would have been impossible for the trustees to handle thousands of cases each.

This produced an ideal environment for EPI's initial public offering on February 4, 1997. The offering raised $5.6 million. A secondary offering in 1998 raised another $11 million. EPI had sixty employees at the time of the IPO. The company chose the ticker symbol "EPIQ" for its listing on the NASDAQ exchange. The letter "Q" was used to flag companies in bankruptcy, and investors were already referring to the company as EPIQ.

1985–2001

EPI acquired a Chapter 13 software product from its founder, Claude Rice, in April 1998. It was the second largest bankruptcy software company in the late 1990s and acquired the third largest, DCI Chapter 7 Solutions, Inc., for $10.2 million in cash in November 1999. DCI was a subsidiary of Union Bank of California and specialized in Chapter 7 bankruptcy software. The purchase of DCI intensified EPIQ's rivalry with Chase Manhattan Bank (later part of J.P. Morgan Chase & Co.), whose affiliate in the bankruptcy software business was the market leader. A licensing agreement with Bank of America provided most of EPIQ's revenues.

New Name in 2000

EPI changed is name to EPIQ Systems, Inc. in March 2000. In the same month, the company acquired Phitech, Inc., a San Francisco developer of business-to-business e-commerce software, for $6.25 million in cash. Phitech's main product, Data Express, allowed businesses to acquire and route data over the Web using different protocols. For example, it was used to handle credit card transactions. Phitech's 1999 revenues of $2.1 million were up 60 percent over the previous year. A new Java-based product was expected to double revenues each year for three years. The company had 20 employees. Phitech had been founded in 1985 by its president and CEO, Hinda Gilbert.

In 2000, EPIQ began appearing on Forbes magazine's annual listing of the 200 best small companies in the United States. In March 2001, EPIQ would top Investor's Business Daily's ranking of financial services software companies.

Although business was strong in the bull market of the late 1990s, the weakening economy in 2001 enhanced EPIQ's prospects even more. Its stock reached record highs in May 2001, passing $30 a share for the first time. The company's performance was just beginning to get analysts' attention. As a "micro cap" stock with a market capitalization of less than $250 million, EPIQ had been considered small even among small-company funds, reported the Kansas City Star. Yet its main competitor, according to Investor's Business Daily, was the behemoth full-service financial firm J.P. Morgan Chase & Co.

Investor's Business Daily described some of EPIQ's market-leading statistics of the time. Among the most compelling stats, about a third of the country's 1,700 Chapter 7 trustees used the company's software. The Trustee Case Management System (TCMS) unit responsible for the Chapter 7 and Chapter 11 product accounted for three-quarters of EPIQ's business. The total amount its client trustees held in Bank of America accounts--the basis for EPIQ's Chapter 7 fees--had more than tripled to $800 million in three years.

2001–2003

Most of EPIQ's competition came from banks that had developed in-house software for administering bankruptcy cases. The company began to acquire its competition. It bought the relevant unit of Comerica Inc. in October 2001. The company paid $12 million for ROC Technologies, Inc., the Chapter 7 software subsidiary of Comerica's Imperial Bank unit. ROC had 100 trustee customers.

EPIQ acquired the Chapter 7 trustee business of Orange County, California's CPT Group, Inc. in July 2002. California had the greatest volume of bankruptcy filings and the highest values of liquidated assets. Later in the year, EPIQ announced a plan to buy Trumbull Bankruptcy Services LLC from The Hartford Financial Services Group for $31 million in cash. This would have greatly expanded EPIQ into the market for Chapter 11 services, which involved the high-growth area of corporate reorganizations. However, EPIQ soon canceled the deal. EPIQ did have a limited involvement with Chapter 11 management and continued to look for acquisitions in this area.

Record levels of debt and bankruptcy filings in 2002 were a boost for EPIQ's revenues. Bankruptcy filings rose 6 percent to 1.6 million. Sales for 2002 rose 27 percent to $38.3 million over 2001's record results. The company logged a net profit of $8.2 million. Chapter 7 bankruptcies accounted for 70 percent of filings in 2002. While bankruptcy services led growth, EPIQ's Phitech unit had high hopes for its new DataXpress Open Platform package, a Java-based product that made it simple for different computer systems to communicate online in e-commerce transactions.

Chapter 11 case management specialist Bankruptcy Services LLC (BSI) was acquired in January 2003. EPIQ paid $66 million in cash and stock for BSI, whose software was being used to handle such high profile bankruptcies as Enron Corporation and Global Crossing Ltd. CEO Tom Olofson relayed to The Wall Street Transcript the company's goal of raising its market share from 30 percent to 50 percent within several years.