IBM subcontractor Epiq Systems said revenue in its Settlement Adm...

depreciation and amortization plummeted 56 percent to $700,000 because “the contract had significant start-up costs,” Epiq said, not invoking the NTIA contract by name. Still, “the contract is on track with achieving targeted profit and margin levels, which are projected to increase during future quarters,” it said. Last summer, when Epiq landed its piece of the IBM contract (CED Aug 16 p1), “our revenue recognition was based on the amount of milestone payments that were due,” Chief Financial Officer Betsy Braham told analysts in an earnings call. “And the milestone payments were established at the inception of that case. The project activity has been much heavier earlier in the case than what was originally projected. So, we've incurred higher costs which you see coming through that line in the fourth quarter.” Since “the activity levels for this case in fact are much heavier than what the government had expected” for Q1, they boost costs, Braham said. “And because the milestone payments for revenue were set at the beginning of the case and they don’t change, we don’t have an alignment between our revenue and our costs. And so as we head into the second, third and fourth quarter of this year, we would expect to see that flip and the cost structure to go down relative to the revenue structure.” In the program’s 22.25 million-coupon base, the contract, as posted at NTIA’s site, pays the IBM team $2.53 million for the first 10 million coupons it mails, $1.11 million for the next 5 million, $712,000 for the 5 million after that, and nothing for the final 2.25 million. Payouts are higher in the “contingent” phase, when only over-the-air households qualify for the 11.25 million coupons available. The contract pays $1.74 million for the first 5 million contingent coupons mailed, $1.71 million for the remaining 6.25 million coupons.