Exhibit 99.1
FOR IMMEDIATE RELEASE
November 5, 2009
Huron Consulting Group Announces Third Quarter 2009 Financial Results
• | Revenues of $172.2 million for Q3 2009 increased 2.1% from $168.7 million in Q3 2008 and grew sequentially from $165.8 million in Q2 2009. |
• | The Company’s previously announced goodwill impairment analysis resulted in a $106.0 million non-cash pretax goodwill impairment charge taken in Q3 2009, which is approximately 20% of the Company’s total goodwill balance of $506.5 million as of June 30, 2009. |
• | Results for Q3 2009 also included restructuring and restatement charges totaling $15.1 million. |
• | GAAP loss per share including the aforementioned charges was $(3.16) in Q3 2009 compared to diluted earnings per share of $0.12 in Q3 2008. |
• | Non-GAAP adjusted diluted earnings per share was $0.59 in Q3 2009 compared to $0.86 for Q3 2008(7). This change is almost entirely due to the increase in the effective tax rate. |
• | Average number of full-time billable consultants(2) totaled 1,430 for Q3 2009 compared to 1,488 for Q3 2008. Average number of full-time equivalent professionals(5) totaled 861 for Q3 2009 compared to 947 in the same period last year. |
• | Company provides updated full year 2009 revenue guidance of $650 million to $665 million. |
CHICAGO – November 5, 2009 – Huron Consulting Group Inc. (NASDAQ: HURN), a leading provider of business consulting services, today announced its financial results for the third quarter ended September 30, 2009.
“Huron’s third quarter results demonstrate the strength of our client relationships, the quality and dedication of our people, and our ability to work as a team through a challenging economic and business environment,” said James H. Roth, chief executive officer, Huron Consulting Group. “Despite some of the significant challenges following the announcement of our financial restatement, the Huron team has stayed focused on the business of serving our clients and generating new client engagements. We will remain focused on the execution of our business plan for the fourth quarter of 2009 and throughout 2010.”
In evaluating the Company’s financial performance and consistent with previous periods, the Company has adopted the use of certain non-GAAP measures for a comparison to prior periods and for guidance as described below under “Use of Non-GAAP Financial Measures.”
Third Quarter 2009 Results
Revenues of $172.2 million for the third quarter of 2009 increased 2.1% from $168.7 million for the third quarter of 2008 and grew sequentially from $165.8 million in the second quarter of 2009. The Company recorded a $106 million non-cash pretax charge for the impairment of goodwill in the third quarter of 2009, which is approximately 20% of the Company’s total goodwill balance of $506.5 million as of June 30, 2009. The impairment charge is non-cash in nature and does not affect the Company’s liquidity. Results for the third quarter 2009 also included approximately $15.1 million in restructuring and restatement related charges. GAAP net loss was $64.0 million, or a loss of $(3.16) per share, for the third quarter of 2009 compared to GAAP net income of $2.4 million, or $0.12 per diluted share, for the same period last year. Non-GAAP adjusted net income(7) was $11.9 million, or $0.59 per diluted share, for the third quarter of 2009 compared to $17.0 million, or $0.86 per diluted share, for the comparable quarter in 2008. This change is almost entirely due to an increase in the effective tax rate reflecting losses that cannot be tax benefited and an increase in the state tax liability. Adjusted earnings before interest, taxes, depreciation and amortization (“Adjusted EBITDA”) (7), which excludes share-based compensation expense, non-cash compensation expense, restructuring charges, non-recurring expenses related to the restatement, goodwill impairment charge, and an other gain, was $38.1 million, or 22.1% of revenues for the third quarter, compared to $40.8 million, or 24.2% of revenues, in the comparable quarter last year.
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“We are pleased with our revenues for third quarter and the contributions from all of our business units during these uncertain times,” said Roth. “The quarterly results were positively influenced by better than forecasted levels of contingent fees and continued strong demand in the Health and Education Consulting segment, reflecting our deep industry skills to assist hospitals, healthcare organizations and universities with their complex challenges.”
The average number of full-time billable consultants(2) was 1,430 in the third quarter of 2009 compared to 1,488 in the same quarter last year. Full-time billable consultant utilization rate was 69.8% during the third quarter of 2009 compared with 71.3% during the same period last year. The average number of full-time equivalent professionals(5) totaled 861 in the third quarter of 2009 compared to 947 for the comparable period in 2008. Average billing rate per hour for full-time billable consultants was $284 for the third quarter of 2009 compared to $250 for the third quarter of 2008.
Year-to-Date Results
Revenues of $501.1 million for the first nine months of 2009 increased 11.0% from $451.5 million for the same period last year. The GAAP net loss, which includes restructuring, restatement and goodwill impairment charges as discussed above, was $47.3 million, or a loss of $(2.36) per share, for the first nine months of 2009 compared to GAAP net income of $6.6 million, or $0.35 per diluted share, for the same period last year. Non-GAAP adjusted net income(7) was $45.6 million, or $2.22 per diluted share, for the first nine months of 2009 compared to $49.1 million, or $2.62 per diluted share, for the comparable period in 2008. Adjusted EBITDA(7), which excludes share-based compensation expense, non-cash compensation expense, restructuring charges, non-recurring expenses related to the restatement, goodwill impairment charge, and an other gain, rose 4.5% to $110.5 million, or 22.0% of revenues, compared to $105.8 million, or 23.4% of revenues, in the comparable period last year.
The average number of full-time billable consultants(2) increased 14.1% to 1,493 in the first nine months of 2009 compared to 1,308 in the same period last year. The average number of full-time equivalent professionals(5) decreased slightly to 811 in the first nine months of 2009 compared to 851 for the comparable period in 2008. Full-time billable consultant utilization rate was 69.7% during the first nine months of 2009 compared with 67.9% during the same period last year. Average billing rate per hour for full-time billable consultants was $269 for the first nine months of 2009 compared to $265 for the same period last year.
Operating Segments
Huron’s results reflect a broad portfolio of service offerings that help clients address complex business challenges. The Company’s operating segments are as follows:
• | Health and Education Consulting – Representing 57% of Huron’s total third quarter 2009 revenues, this segment was positively influenced by better than forecasted levels of contingent fees and continues to show solid growth as it assists healthcare organizations and universities respond to increased funding constraints and regulatory challenges. Huron’s services help the institutions it serves improve their financial and operational performance. |
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• | Legal Consulting – Representing 17% of Huron’s total third quarter 2009 revenues, this segment continues to see steady demand for document review and discovery services, and mixed demand for other consulting services. This segment continues to assist Fortune 500 general counsels manage spiraling costs in what are challenging times for the legal industry. |
• | Accounting & Financial Consulting – Representing 16% of Huron’s total third quarter 2009 revenues, this event-driven segment continues to operate in a sluggish market and performed consistent with the slower litigation and regulatory environment. However, despite the sluggish environment, this segment delivered sequential quarterly growth for the first time in eight quarters. This segment continues to pursue opportunities in the financial services industry, provide advisory services to government entities, and implement International Financial Reporting Standards (IFRS) at large U.S.-based multinationals. |
• | Corporate Consulting – Representing 10% of Huron’s total third quarter 2009 revenues, this segment is benefiting from solid demand for its Restructuring and Turnaround business while services being delivered in its Strategy, Utilities and Japan markets experienced soft demand. |
Segment financial results are included in the attached schedules and discussed in greater detail in Huron’s Form 10-Q for the quarter ended September 30, 2009.
Financial Restatement
The Company announced on July 31, 2009 that it would restate its financial statements for the fiscal years 2006, 2007 and 2008 and the first quarter of 2009. On August 17, 2009, Huron completed the restatement. The restatement pertained to the accounting for certain acquisition-related payments received by selling shareholders of four acquired businesses that were subsequently redistributed by such selling shareholders among themselves and to other select client-serving and administrative Company employees based, in part, on continuing employment with the Company or the achievement of personal performance measures.
The selling shareholders were not prohibited from redistributing such acquisition-related payments under the terms of the purchase agreements with the Company for the acquisitions of the acquired businesses. However, under GAAP, such payments were imputed to the Company, and the portion of such payments redistributed based on performance or employment was required to be reflected as non-cash compensation expense of the Company, even though the amounts received by the selling shareholders did not differ significantly from the amounts they would have received if such portion had been distributed solely in accordance with their ownership interests. The restatement was necessary because the Company did not record such portions of the acquisition-related payments as a separate non-cash compensation expense with a corresponding increase in paid-in capital.
Based on the results of the Company’s inquiry into the acquisition-related payments to date and the previously disclosed agreement amendments with the selling shareholders, earn-out payments for periods after August 1, 2009 are accounted for as additional purchase consideration and not also as non-cash compensation expense. The Company recognized $1.2 million of additional non-cash compensation expense during the third quarter of 2009 related to the redistributed acquisition-related payments for the period from July 1 to July 31, 2009.
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The restatement resulted in a reduction of approximately $56 million in net income and earnings before interest, taxes, depreciation and amortization (“EBITDA”) for all restated periods. However, the restatement had no effect on Huron’s total assets, total liabilities or total stockholders’ equity on an annual basis. Further, the Company did not expend additional cash with respect to the compensation charge, and the restatement had no effect on Huron’s cash or net cash flows from operations.
See the Company’s Form 10-Q for the quarter ended June 30, 2009, Form 10K/A filed on August 17, 2009, and Form 10Q/A filed on August 17, 2009 for additional information related to the financial restatement.
Goodwill Impairment
As a result of the significant decline in the price of the Company’s common stock following the Company’s July 31, 2009 announcement of its intention to restate its financial statements, the Company engaged in the previously announced impairment analysis with respect to the carrying value of its goodwill in connection with the preparation of the financial statements for the quarter ended September 30, 2009, and recorded a $106.0 million non-cash pretax charge for the impairment of goodwill, which was approximately 20% of the Company’s total goodwill balance of $506.5 million as of June 30, 2009. The impairment charge was recognized to reduce the carrying value of goodwill associated with the Company’s Accounting & Financial Consulting and Corporate Consulting segments. The impairment charge is non-cash in nature and does not affect the Company’s liquidity.
New Management Roles
On November 3, 2009, James H. Roth, chief executive officer, was appointed to the Company’s Board of Directors and James K. Rojas, chief financial officer, assumed the additional role of treasurer, succeeding Gary L. Burge who resigned from the position on that date.
Outlook for 2009
The Company provided guidance for full year 2009 revenues before reimbursable expenses in an updated range of $650 million to $665 million. The Company also anticipates GAAP loss per share in a range of $(2.01) to $(1.80), non-GAAP adjusted diluted earnings per share(9,11) in a range of $2.85 to $3.05, loss before interest, taxes, depreciation and amortization(9,11) in a range of $(13) million to $(8) million, and Adjusted EBITDA(9,11) in a range of $139 million to $144 million. Management will provide a more detailed discussion of its outlook during the Company’s earnings conference call webcast.
Third Quarter 2009 Webcast
The Company will host a webcast to discuss its financial results today at 9:00 a.m. Eastern Time (8:00 a.m. Central Time). The conference call is being webcast by Thomson and can be accessed at Huron Consulting Group’s website athttp://ir.huronconsultinggroup.com. A replay will be available approximately two hours after the conclusion of the webcast and for 90 days thereafter.
About Huron Consulting Group
Huron Consulting Group helps clients in diverse industries improve performance, comply with complex regulations, resolve disputes, recover from distress, leverage technology, and stimulate growth. The Company teams with its clients to deliver sustainable and measurable results. Huron provides services to a wide variety of both financially sound and distressed organizations, including leading academic institutions, healthcare organizations, Fortune 500 companies, medium-sized businesses, and the law firms that represent these various organizations. Learn more atwww.huronconsultinggroup.com.
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Use of Non-GAAP Financial Measures(7,11)
In evaluating the Company’s financial performance and outlook, management uses EBITDA, loss before interest, taxes, depreciation and amortization, Adjusted EBITDA, Adjusted EBITDA as a percentage of revenues, adjusted net income and adjusted diluted earnings per share, which are non-GAAP measures. Management believes that such measures, as supplements to operating income (loss), net income (loss) and diluted earnings (loss) per share and other GAAP measures, are useful indicators for investors. These useful indicators can help readers gain a meaningful understanding of our core operating results and future prospects without the effect of non-cash or other one-time items and the Company’s ability to generate cash flows from operations that are available for taxes, capital expenditures, and to repay debt. Investors should recognize that these non-GAAP measures might not be comparable to similarly titled measures of other companies. These measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flows or liquidity prepared in accordance with accounting principles generally accepted in the United States.
Statements in this press release, including the information incorporated by reference herein, that are not historical in nature, including those concerning the Company’s current expectations about its future results, are “forward-looking” statements as defined in Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified by words such as “may,” “should,” “expects,” “plans,” “anticipates,” “assumes,” “can,” “considers,” “could,” “intends,” “might,” “predicts,” “seeks,” “would,” “believes,” “estimates” or “continues”. Risks, uncertainties and assumptions that could impact the Company’s forward-looking statements relate, among other things, to (i) the restatement, (ii) the SEC investigation and related Company inquiries with respect to the circumstances that led to the restatement and the related private shareholder class action lawsuits and derivative lawsuits, (iii) the SEC investigation and related Company inquiries into the allocation of time in certain practice groups, (iv) requests by the United States Attorney’s Office for the Northern District of Illinois for certain documents, (v) the Company’s projected accounting treatment for acquisition-related payments after August 1, 2009, (vi) the cost reduction program implemented in the third quarter of 2009, and (vii) management’s assessment of the Company’s internal control over financial reporting and any required remediation. In addition, these forward-looking statements reflect our current expectation about our future results, levels of activity, performance, or achievements, including, without limitation, that our business continues to grow at the current expectations with respect to, among other factors, utilization rates, billing rates, and number of revenue-generating professionals; that we are able to expand our service offerings; that we successfully integrate the businesses we acquire; and that existing market conditions, including those in the credit markets, do not continue to deteriorate substantially. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. Please see “Risk Factors” in our 2008 Annual Report on Form 10K/A and in our Quarterly Report onForm 10-Q for the period ended September 30, 2009 for a description of the material risks we face.
Media Contact:
Jennifer Frost Hennagir
312-880-3260
jfrost-hennagir@huronconsultinggroup.com
Investor Contact:
James K. Rojas, Chief Financial Officer
312-583-8722
investor@huronconsultinggroup.com
###
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CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
(Unaudited)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
Revenues and reimbursable expenses: | ||||||||||||||||
Revenues | $ | 172,228 | $ | 168,659 | $ | 501,084 | $ | 451,461 | ||||||||
Reimbursable expenses | 14,652 | 16,696 | 42,038 | 40,874 | ||||||||||||
Total revenues and reimbursable expenses | 186,880 | 185,355 | 543,122 | 492,335 | ||||||||||||
Direct costs and reimbursable expenses(exclusive of depreciation and amortization shown in operating expenses): | ||||||||||||||||
Direct costs | 108,813 | 106,310 | 317,117 | 293,650 | ||||||||||||
Intangible assets amortization | 961 | 3,036 | 3,734 | 3,084 | ||||||||||||
Reimbursable expenses | 14,630 | 16,734 | 42,035 | 40,922 | ||||||||||||
Total direct costs and reimbursable expenses | 124,404 | 126,080 | 362,886 | 337,656 | ||||||||||||
Operating expenses: | ||||||||||||||||
Selling, general and administrative | 29,737 | 34,435 | 98,389 | 96,377 | ||||||||||||
Restructuring charges | 2,090 | 2,343 | 2,090 | 2,343 | ||||||||||||
Restatement related expenses | 13,042 | — | 13,427 | — | ||||||||||||
Depreciation and amortization | 5,697 | 6,260 | 17,304 | 16,768 | ||||||||||||
Impairment charge on goodwill | 106,000 | — | 106,000 | — | ||||||||||||
Total operating expenses | 156,566 | 43,038 | 237,210 | 115,488 | ||||||||||||
Other gain | — | — | 2,687 | — | ||||||||||||
Operating income (loss) | (94,090 | ) | 16,237 | (54,287 | ) | 39,191 | ||||||||||
Other income (expense): | ||||||||||||||||
Interest expense, net of interest income | (3,256 | ) | (4,938 | ) | (9,009 | ) | (9,065 | ) | ||||||||
Other income (expense) | 1,025 | (518 | ) | 1,196 | (847 | ) | ||||||||||
Total other expense | (2,231 | ) | (5,456 | ) | (7,813 | ) | (9,912 | ) | ||||||||
Income (loss) before income tax expense (benefit) | (96,321 | ) | 10,781 | (62,100 | ) | 29,279 | ||||||||||
Income tax expense (benefit) | (32,327 | ) | 8,343 | (14,828 | ) | 22,657 | ||||||||||
Net income (loss) | $ | (63,994 | ) | $ | 2,438 | $ | (47,272 | ) | $ | 6,622 | ||||||
Earnings (loss) per share: | ||||||||||||||||
Basic | $ | (3.16 | ) | $ | 0.13 | $ | (2.36 | ) | $ | 0.37 | ||||||
Diluted | $ | (3.16 | ) | $ | 0.12 | $ | (2.36 | ) | $ | 0.35 | ||||||
Weighted average shares used in calculating earnings (loss) per share: | ||||||||||||||||
Basic | 20,239 | 18,901 | 20,061 | 17,947 | ||||||||||||
Diluted | 20,239 | 19,845 | 20,061 | 18,750 |
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited)
September 30, | December 31, | |||||||
2009 | 2008 | |||||||
(Restated) | ||||||||
Assets | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 26,731 | $ | 14,106 | ||||
Receivables from clients, net | 109,129 | 88,071 | ||||||
Unbilled services, net | 63,743 | 43,111 | ||||||
Income tax receivable | 358 | 3,496 | ||||||
Deferred income taxes | 18,636 | 15,708 | ||||||
Prepaid expenses and other current assets | 16,037 | 14,563 | ||||||
Total current assets | 234,634 | 179,055 | ||||||
Property and equipment, net | 42,407 | 44,708 | ||||||
Deferred income taxes | 40,527 | 2,064 | ||||||
Other non-current assets | 17,461 | 15,722 | ||||||
Intangible assets, net | 24,553 | 32,372 | ||||||
Goodwill | 401,706 | 505,676 | ||||||
Total assets | $ | 761,288 | $ | 779,597 | ||||
Liabilities and stockholders’ equity | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 13,592 | $ | 6,505 | ||||
Accrued expenses | 31,037 | 27,361 | ||||||
Accrued payroll and related benefits | 63,632 | 48,374 | ||||||
Accrued consideration for business acquisitions | 211 | 60,099 | ||||||
Income tax payable | 4,326 | 2,086 | ||||||
Deferred revenues | 18,499 | 21,208 | ||||||
Current portion of capital lease obligations | 320 | 518 | ||||||
Total current liabilities | 131,617 | 166,151 | ||||||
Non-current liabilities: | ||||||||
Deferred compensation and other liabilities | 8,562 | 5,511 | ||||||
Capital lease obligations, net of current portion | 50 | 204 | ||||||
Bank borrowings | 301,500 | 280,000 | ||||||
Deferred lease incentives | 8,547 | 8,705 | ||||||
Total non-current liabilities | 318,659 | 294,420 | ||||||
Commitments and contingencies | — | — | ||||||
Stockholders’ equity | ||||||||
Common stock; $0.01 par value; 500,000,000 shares authorized; 22,195,397 and 21,387,679 shares issued at September 30, 2009 and December 31, 2008, respectively | 212 | 202 | ||||||
Treasury stock, at cost, 813,643 and 404,357 shares at September 30, 2009 and December 31, 2008, respectively | (42,957 | ) | (21,443 | ) | ||||
Additional paid-in capital | 325,266 | 263,485 | ||||||
Retained earnings | 29,459 | 76,731 | ||||||
Accumulated other comprehensive income (loss) | (968 | ) | 51 | |||||
Total stockholders’ equity | 311,012 | 319,026 | ||||||
Total liabilities and stockholders’ equity | $ | 761,288 | $ | 779,597 | ||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine months ended | ||||||||
September 30, | ||||||||
2009 | 2008 | |||||||
(Restated) | ||||||||
Cash flows from operating activities: | ||||||||
Net income (loss) | $ | (47,272 | ) | $ | 6,622 | |||
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | ||||||||
Depreciation and amortization | 21,038 | 19,852 | ||||||
Share-based compensation | 16,574 | 20,421 | ||||||
Non-cash compensation | 8,333 | 23,952 | ||||||
Allowances for doubtful accounts and unbilled services | 3,527 | 3,859 | ||||||
Deferred income taxes | (40,681 | ) | 375 | |||||
Impairment charge on goodwill | 106,000 | — | ||||||
Non-cash gain and other | (2,686 | ) | — | |||||
Changes in operating assets and liabilities, net of businesses acquired: | ||||||||
Increase in receivables from clients | (21,620 | ) | (6,354 | ) | ||||
Increase in unbilled services | (24,167 | ) | (29,867 | ) | ||||
Decrease in current income tax receivable / payable, net | 5,306 | 7,459 | ||||||
Decrease (increase) in other assets | 308 | (7,494 | ) | |||||
Increase in accounts payable and accrued liabilities | 16,246 | 8,805 | ||||||
Increase (decrease) in accrued payroll and related benefits | 14,943 | (11,874 | ) | |||||
(Decrease) increase in deferred revenues | (3,879 | ) | 8,653 | |||||
Net cash provided by operating activities | 51,970 | 44,409 | ||||||
Cash flows from investing activities: | ||||||||
Purchases of property and equipment, net | (10,971 | ) | (17,478 | ) | ||||
Net investment in life insurance policies | (1,424 | ) | (1,326 | ) | ||||
Purchases of businesses, net of cash acquired | (48,370 | ) | (227,537 | ) | ||||
Net cash used in investing activities | (60,765 | ) | (246,341 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from exercise of stock options | 160 | 231 | ||||||
Shares redeemed for employee tax withholdings | (3,163 | ) | (5,773 | ) | ||||
Tax benefit from share-based compensation | 3,611 | 9,337 | ||||||
Proceeds from borrowings under credit facility | 202,000 | 575,500 | ||||||
Repayments on credit facility | (180,500 | ) | (364,000 | ) | ||||
Payments of capital lease obligations | (283 | ) | (1,321 | ) | ||||
Net cash provided by financing activities | 21,825 | 213,974 | ||||||
Effect of exchange rate changes on cash | (405 | ) | (490 | ) | ||||
Net increase in cash and cash equivalents | 12,625 | 11,552 | ||||||
Cash and cash equivalents at beginning of the period | 14,106 | 2,993 | ||||||
Cash and cash equivalents at end of the period | $ | 26,731 | $ | 14,545 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Non-cash investing activity: | ||||||||
Issuance of common stock in connection with business combinations | $ | — | $ | 55,000 | ||||
Issuance of common stock in connection with business combination classified as a liability | $ | — | $ | 15,000 |
SEGMENT OPERATING RESULTS AND OTHER OPERATING DATA
(Unaudited)
Three Months Ended | Percent | |||||||||||
September 30, | Increase | |||||||||||
Segment and Consolidated Operating Results (in thousands): | 2009 | 2008 | (Decrease) | |||||||||
(Restated) | ||||||||||||
Health and Education Consulting: | ||||||||||||
Revenues(6) | $ | 99,714 | $ | 76,511 | 30.3 | % | ||||||
Operating income(1), (6) | $ | 38,676 | $ | 17,722 | 118.2 | % | ||||||
Segment operating income as a percent of segment revenues | 38.8 | % | 23.2 | % | ||||||||
Accounting and Financial Consulting: | ||||||||||||
Revenues(6) | $ | 26,809 | $ | 35,071 | (23.6 | %) | ||||||
Operating income (loss)(1),(6) | $ | 2,904 | $ | 9,610 | (69.8 | %) | ||||||
Segment operating income as a percent of segment revenues | 10.8 | % | 27.4 | % | ||||||||
Legal Consulting: | ||||||||||||
Revenues | $ | 29,314 | $ | 38,137 | (23.1 | %) | ||||||
Operating income | $ | 5,360 | $ | 15,724 | (65.9 | %) | ||||||
Segment operating income as a percent of segment revenues | 18.3 | % | 41.2 | % | ||||||||
Corporate Consulting: | ||||||||||||
Revenues | $ | 16,391 | $ | 18,940 | (13.5 | %) | ||||||
Operating income(1) | $ | 5,044 | $ | 2,313 | 118.1 | % | ||||||
Segment operating income as a percent of segment revenues | 30.8 | % | 12.2 | % | ||||||||
Total Company: | ||||||||||||
Revenues | $ | 172,228 | $ | 168,659 | 2.1 | % | ||||||
Reimbursable expenses | 14,652 | 16,696 | (12.2 | %) | ||||||||
Total revenues and reimbursable expenses | $ | 186,880 | $ | 185,355 | 0.8 | % | ||||||
Statement of operations reconciliation: | ||||||||||||
Segment operating income | $ | 51,984 | $ | 45,369 | 14.6 | % | ||||||
Charges not allocated at the segment level: | ||||||||||||
Other selling, general and administrative expenses | 34,377 | 22,872 | 50.3 | % | ||||||||
Depreciation and amortization expense | 5,697 | 6,260 | (9.0 | %) | ||||||||
Impairment charge on goodwill | 106,000 | — | N/M | |||||||||
Total operating income (loss) | (94,090 | ) | 16,237 | N/M | ||||||||
Other expense, net | (2,231 | ) | (5,456 | ) | (59.1 | %) | ||||||
Income (loss) before income tax expense (benefit) | $ | (96,321 | ) | $ | 10,781 | N/M | ||||||
Other Operating Data: | ||||||||||||
Number of full-time billable consultants (at period end) (2): | ||||||||||||
Health and Education Consulting(6) | 844 | 817 | ||||||||||
Accounting and Financial Consulting(6) | 260 | 329 | ||||||||||
Legal Consulting | 134 | 149 | ||||||||||
Corporate Consulting | 162 | 185 | ||||||||||
Total | 1,400 | 1,480 | ||||||||||
Average number of full-time billable consultants (for the period)(2): | ||||||||||||
Health and Education Consulting(6) | 858 | 788 | ||||||||||
Accounting and Financial Consulting(6) | 269 | 334 | ||||||||||
Legal Consulting | 140 | 155 | ||||||||||
Corporate Consulting | 163 | 211 | ||||||||||
Total | 1,430 | 1,488 | ||||||||||
Full-time billable consultant utilization rate(3): | ||||||||||||
Health and Education Consulting(6) | 75.1 | % | 81.4 | % | ||||||||
Accounting and Financial Consulting(6) | 63.1 | % | 57.5 | % | ||||||||
Legal Consulting | 58.0 | % | 66.3 | % | ||||||||
Corporate Consulting | 63.1 | % | 59.8 | % | ||||||||
Total | 69.8 | % | 71.3 | % |
SEGMENT OPERATING RESULTS AND OTHER OPERATING DATA (CONTINUED)
(Unaudited)
Three Months Ended | ||||||||
September 30, | ||||||||
Other Operating Data: | 2009 | 2008 | ||||||
Full-time billable consultant average billing rate per hour(4): | ||||||||
Health and Education Consulting(6) | $ | 299 | $ | 231 | ||||
Accounting and Financial Consulting(6) | $ | 246 | $ | 281 | ||||
Legal Consulting | $ | 188 | $ | 243 | ||||
Corporate Consulting | $ | 331 | $ | 309 | ||||
Total | $ | 284 | $ | 250 | ||||
Revenue per full-time billable consultant (in thousands): | ||||||||
Health and Education Consulting(6) | $ | 106 | $ | 86 | ||||
Accounting and Financial Consulting(6) | $ | 72 | $ | 74 | ||||
Legal Consulting | $ | 51 | $ | 73 | ||||
Corporate Consulting | $ | 99 | $ | 86 | ||||
Total | $ | 93 | $ | 82 | ||||
Average number of full-time equivalents (for the period)(5): | ||||||||
Health and Education Consulting(6) | 107 | 103 | ||||||
Accounting and Financial Consulting(6) | 107 | 160 | ||||||
Legal Consulting | 645 | 676 | ||||||
Corporate Consulting | 2 | 8 | ||||||
Total | 861 | 947 | ||||||
Revenue per full-time equivalents (in thousands): | ||||||||
Health and Education Consulting(6) | $ | 85 | $ | 81 | ||||
Accounting and Financial Consulting(6) | $ | 69 | $ | 64 | ||||
Legal Consulting | $ | 34 | $ | 40 | ||||
Corporate Consulting | $ | 166 | $ | 103 | ||||
Total | $ | 45 | $ | 49 |
SEGMENT OPERATING RESULTS AND OTHER OPERATING DATA
(Unaudited)
Nine Months Ended | Percent | |||||||||||
September 30, | Increase | |||||||||||
Segment and Consolidated Operating Results (in thousands): | 2009 | 2008 | (Decrease) | |||||||||
(Restated) | ||||||||||||
Health and Education Consulting(6): | ||||||||||||
Revenues | $ | 283,205 | $ | 181,001 | 56.5 | % | ||||||
Operating income(1) | $ | 106,746 | $ | 54,894 | 94.5 | % | ||||||
Segment operating income as a percent of segment revenues | 37.7 | % | 30.3 | % | ||||||||
Accounting and Financial Consulting(6): | ||||||||||||
Revenues | $ | 77,035 | $ | 111,965 | (31.2 | %) | ||||||
Operating income(1) | $ | 7,910 | $ | 18,925 | (58.2 | %) | ||||||
Segment operating income as a percent of segment revenues | 10.3 | % | 16.9 | % | ||||||||
Legal Consulting: | ||||||||||||
Revenues | $ | 83,423 | $ | 93,858 | (11.1 | %) | ||||||
Operating income | $ | 16,316 | $ | 32,387 | (49.6 | %) | ||||||
Segment operating income as a percent of segment revenues | 19.6 | % | 34.5 | % | ||||||||
Corporate Consulting: | ||||||||||||
Revenues | $ | 57,421 | $ | 64,637 | (11.2 | %) | ||||||
Operating income(1) | $ | 19,149 | $ | 16,295 | 17.5 | % | ||||||
Segment operating income as a percent of segment revenues | 33.3 | % | 25.2 | % | ||||||||
Total Company: | ||||||||||||
Revenues | $ | 501,084 | $ | 451,461 | 11.0 | % | ||||||
Reimbursable expenses | 42,038 | 40,874 | 2.8 | % | ||||||||
Total revenues and reimbursable expenses | $ | 543,122 | $ | 492,335 | 10.3 | % | ||||||
Statement of operations reconciliation: | ||||||||||||
Segment operating income | $ | 150,121 | $ | 122,501 | 22.5 | % | ||||||
Charges not allocated at the segment level: | ||||||||||||
Other selling, general and administrative expenses | 81,104 | 66,542 | 21.9 | % | ||||||||
Depreciation and amortization expense | 17,304 | 16,768 | 3.2 | % | ||||||||
Impairment charge on goodwill | 106,000 | — | N/M | |||||||||
Total operating income (loss) | (54,287 | ) | 39,191 | (238.5 | %) | |||||||
Other expense, net | (7,813 | ) | (9,912 | ) | (21.2 | %) | ||||||
Income (loss) before income tax expense (benefit) | $ | (62,100 | ) | $ | 29,279 | (312.1 | %) | |||||
Other Operating Data: | ||||||||||||
Number of full-time billable consultants (at period end) (2): | ||||||||||||
Health and Education Consulting(6) | 844 | 817 | ||||||||||
Accounting and Financial Consulting(6) | 260 | 329 | ||||||||||
Legal Consulting | 134 | 149 | ||||||||||
Corporate Consulting | 162 | 185 | ||||||||||
Total | 1,400 | 1,480 | ||||||||||
Average number of full-time billable consultants (for the period)(2): | ||||||||||||
Health and Education Consulting(6) | 881 | 564 | ||||||||||
Accounting and Financial Consulting(6) | 296 | 358 | ||||||||||
Legal Consulting | 151 | 166 | ||||||||||
Corporate Consulting | 165 | 220 | ||||||||||
Total | 1,493 | 1,308 | ||||||||||
Full-time billable consultant utilization rate(3): | ||||||||||||
Health and Education Consulting(6) | 76.1 | % | 80.2 | % | ||||||||
Accounting and Financial Consulting(6) | 57.0 | % | 54.6 | % | ||||||||
Legal Consulting | 57.8 | % | 62.0 | % | ||||||||
Corporate Consulting | 69.3 | % | 62.5 | % | ||||||||
Total | 69.7 | % | 67.9 | % |
SEGMENT OPERATING RESULTS AND OTHER OPERATING DATA (CONTINUED)
(Unaudited)
Nine Months Ended | ||||||||
September 30, | ||||||||
Other Operating Data: | 2009 | 2008 | ||||||
Full-time billable consultant average billing rate per hour(4): | ||||||||
Health and Education Consulting(6) | $ | 268 | $ | 251 | ||||
Accounting and Financial Consulting(6) | $ | 249 | $ | 277 | ||||
Legal Consulting | $ | 211 | $ | 238 | ||||
Corporate Consulting | $ | 343 | $ | 314 | ||||
Total | $ | 269 | $ | 265 | ||||
Revenue per full-time billable consultant (in thousands): | ||||||||
Health and Education Consulting(6) | $ | 291 | $ | 289 | ||||
Accounting and Financial Consulting(6) | $ | 202 | $ | 211 | ||||
Legal Consulting | $ | 170 | $ | 204 | ||||
Corporate Consulting | $ | 336 | $ | 283 | ||||
Total | $ | 266 | $ | 256 | ||||
Average number of full-time equivalents (for the period)(5): | ||||||||
Health and Education Consulting(6) | 105 | 63 | ||||||
Accounting and Financial Consulting(6) | 91 | 194 | ||||||
Legal Consulting | 609 | 587 | ||||||
Corporate Consulting | 6 | 7 | ||||||
Total | 811 | 851 | ||||||
Revenue per full-time equivalents (in thousands): | ||||||||
Health and Education Consulting(6) | $ | 258 | $ | 285 | ||||
Accounting and Financial Consulting(6) | $ | 191 | $ | 188 | ||||
Legal Consulting | $ | 95 | $ | 102 | ||||
Corporate Consulting | $ | 343 | $ | 324 | ||||
Total | $ | 129 | $ | 137 |
(1) | Includes non-cash compensation expense as follows (in thousands): |
Three Months Ended | Nine Months Ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
Health and Education Consulting | $ | 733 | $ | 4,229 | $ | 5,606 | $ | 10,192 | ||||||||
Accounting and Financial Consulting | 271 | 812 | 1,895 | 10,742 | ||||||||||||
Corporate Consulting | 222 | 1,006 | 832 | 3,018 | ||||||||||||
Total | $ | 1,226 | $ | 6,047 | $ | 8,333 | $ | 23,952 | ||||||||
(2) | Consists of our full-time professionals who provide consulting services and generate revenues based on the number of hours worked. | |
(3) | Utilization rate for our full-time billable consultants is calculated by dividing the number of hours all our full-time billable consultants worked on client assignments during a period by the total available working hours for all of these consultants during the same period, assuming a forty-hour work week, less paid holidays and vacation days. | |
(4) | Average billing rate per hour for our full-time billable consultants is calculated by dividing revenues for a period by the number of hours worked on client assignments during the same period. | |
(5) | Consists of consultants who work variable schedules as needed by our clients, as well as contract reviewers and other professionals who generate revenues primarily based on number of hours worked and units produced, such as pages reviewed and data processed. Also includes full-time employees who provide software support and maintenance services to our clients. | |
(6) | Reflects the restatement of our government contract consulting practice from our Health and Education Consulting segment to our Accounting and Financial Consulting segment in conjunction with an internal reorganization. | |
N/M | Not meaningful, change greater than 500%. |
RECONCILIATION OF NET INCOME (LOSS) TO
ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION(7)
(in thousands and unaudited)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
Revenues | $ | 172,228 | $ | 168,659 | $ | 501,084 | $ | 451,461 | ||||||||
Net income (loss) | $ | (63,994 | ) | $ | 2,438 | $ | (47,272 | ) | $ | 6,622 | ||||||
Add back: | ||||||||||||||||
Income tax expense (benefit) | (32,327 | ) | 8,343 | (14,828 | ) | 22,657 | ||||||||||
Interest and other expenses | 2,231 | 5,456 | 7,813 | 9,912 | ||||||||||||
Operating income (loss) | $ | (94,090 | ) | $ | 16,237 | $ | (54,287 | ) | $ | 39,191 | ||||||
Add back: | ||||||||||||||||
Depreciation and amortization | 6,658 | 9,296 | 21,038 | 19,852 | ||||||||||||
Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA)(7) | (87,432 | ) | 25,533 | (33,249 | ) | 59,043 | ||||||||||
Add back: | ||||||||||||||||
Share-based compensation | 3,136 | 6,851 | 16,574 | 20,421 | ||||||||||||
Non-cash compensation | 1,226 | 6,047 | 8,333 | 23,952 | ||||||||||||
Restructuring charges | 2,090 | 2,343 | 2,090 | 2,343 | ||||||||||||
Restatement related expenses | 13,042 | — | 13,427 | — | ||||||||||||
Impairment charge on goodwill | 106,000 | — | 106,000 | — | ||||||||||||
Other gain | — | — | (2,687 | ) | — | |||||||||||
Adjusted EBITDA(7) | $ | 38,062 | $ | 40,774 | $ | 110,488 | $ | 105,759 | ||||||||
Adjusted EBITDA as a percentage of revenues | 22.1 | % | 24.2 | % | 22.0 | % | 23.4 | % | ||||||||
RECONCILIATION OF NET INCOME (LOSS) TO ADJUSTED NET INCOME(7)
(in thousands and unaudited)
Three months ended | Nine months ended | |||||||||||||||
September 30, | September 30, | |||||||||||||||
2009 | 2008 | 2009 | 2008 | |||||||||||||
(Restated) | (Restated) | |||||||||||||||
Net income (loss) | $ | (63,994 | ) | $ | 2,438 | $ | (47,272 | ) | $ | 6,622 | ||||||
Weighted average shares(8) | 20,239 | 19,845 | 20,061 | 18,750 | ||||||||||||
Diluted earnings (loss) per share | $ | (3.16 | ) | $ | 0.12 | $ | (2.36 | ) | $ | 0.35 | ||||||
Add back: | ||||||||||||||||
Amortization of intangible assets | 2,327 | 5,224 | 7,839 | 8,641 | ||||||||||||
Share-based compensation | 3,136 | 6,851 | 16,574 | 20,421 | ||||||||||||
Non-cash compensation | 1,226 | 6,047 | 8,333 | 23,952 | ||||||||||||
Restructuring charges | 2,090 | 2,343 | 2,090 | 2,343 | ||||||||||||
Restatement related expenses | 13,042 | — | 13,427 | — | ||||||||||||
Impairment charge on goodwill | 106,000 | — | 106,000 | — | ||||||||||||
Other gain | — | — | (2,687 | ) | — | |||||||||||
Tax effect | (51,904 | ) | (5,928 | ) | (58,730 | ) | (12,876 | ) | ||||||||
Total adjustments, net of tax | 75,917 | 14,537 | 92,846 | 42,481 | ||||||||||||
Adjusted net income(7) | $ | 11,923 | $ | 16,975 | $ | 45,574 | $ | 49,103 | ||||||||
Weighted average shares — diluted | 20,359 | 19,845 | 20,561 | 18,750 | ||||||||||||
Adjusted diluted earnings per share(7) | $ | 0.59 | $ | 0.86 | $ | 2.22 | $ | 2.62 | ||||||||
(7) | In evaluating the Company’s financial performance, management uses earnings (loss) before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, adjusted net income, and adjusted diluted earnings per share, which are non-GAAP measures. Management believes that the use of such measures, as supplements to operating income, net income and diluted earnings per share and other GAAP measures, are useful indicators for investors. These useful indicators can help readers gain a meaningful understanding of our core operating results and future prospects without the effect of non-cash or other one-time items and the Company’s ability to generate cash flows from operations that are available for taxes, capital expenditures, and to repay debt. Investors should recognize that these non-GAAP measures might not be comparable to similarly titled measures of other companies. These measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flows or liquidity prepared in accordance with accounting principles generally accepted in the United States. | |
(8) | In the three and nine month periods ending September 30, 2009, the Company’s earnings resulted in a net loss, therefore, basic weighted average common shares outstanding is used in computing diluted loss per share. For the three and nine month periods ending September 30, 2008, diluted weighted average common shares outstanding is used in computing diluted earnings per share. |
PROJECTED ADJUSTED EARNINGS BEFORE INTEREST, TAXES, DEPRECIATION AND AMORTIZATION(9, 11)
(in millions and unaudited)
Year Ending | ||||||||
December 31, 2009 | ||||||||
Guidance Range | ||||||||
Low | High | |||||||
Projected revenues — GAAP | $ | 650 | $ | 665 | ||||
Projected net loss — GAAP(9) | $ | (40 | ) | $ | (36 | ) | ||
Add back: | ||||||||
Income tax benefit | (12 | ) | (11 | ) | ||||
Interest and other expenses | 11 | 11 | ||||||
Projected operating loss | (41 | ) | (36 | ) | ||||
Add back: | ||||||||
Depreciation and amortization | 28 | 28 | ||||||
Projected loss before interest, taxes, depreciation and amortization (EBITDA) (9, 11) | (13 | ) | (8 | ) | ||||
Add back: | ||||||||
Share-based compensation | 22 | 22 | ||||||
Non-cash compensation | 8 | 8 | ||||||
Restructuring charges | 3 | 3 | ||||||
Restatement related expenses(10) | 17 | 17 | ||||||
Impairment charge on goodwill | 106 | 106 | ||||||
Other gains | (4 | ) | (4 | ) | ||||
Projected adjusted EBITDA(9, 11) | $ | 139 | $ | 144 | ||||
Projected adjusted EBITDA as a percentage of projected revenues | 21.4 | % | 21.7 | % | ||||
(in millions and unaudited)
Year Ending | ||||||||
December 31, 2009 | ||||||||
Guidance Range | ||||||||
Low | High | |||||||
Projected net loss — GAAP(9) | $ | (40 | ) | $ | (36 | ) | ||
Projected loss per share — GAAP(9) | $ | (2.01 | ) | $ | (1.80 | ) | ||
Add back: | ||||||||
Amortization of intangible assets | 10 | 10 | ||||||
Share-based compensation | 22 | 22 | ||||||
Non-cash compensation | 8 | 8 | ||||||
Restructuring charges | 3 | 3 | ||||||
Restatement related expenses(10) | 17 | 17 | ||||||
Impairment charge on goodwill | 106 | 106 | ||||||
Other gains | (4 | ) | (4 | ) | ||||
Tax effect | (63 | ) | (63 | ) | ||||
Total adjustments, net of tax | 99 | 99 | ||||||
Projected adjusted net income(9, 11) | $ | 59 | $ | 63 | ||||
Projected adjusted diluted earnings per share(9, 11). | $ | 2.85 | $ | 3.05 | ||||
(9) | Projected net loss — GAAP, projected loss before interest, taxes, depreciation and amortization, projected adjusted EBITDA, projected loss per share — GAAP, projected adjusted net income and projected adjusted diluted earnings per share (i) exclude potential settlement costs, penalties, damages, administrative remedies, fines or liabilities for additional amounts that may be incurred in connection with the SEC investigations into the restatement and the allocation of time in certain practice groups or the private shareholder class action lawsuits and the derivative lawsuits in respect of the restatement, which costs, penalties, damages, administrative remedies, fines or liabilities for additional amounts cannot be estimated and could be material and (ii) exclude other unanticipated costs and expenses in connection with the SEC investigations, the private shareholder class action lawsuits and the derivative lawsuits, or the requests by the United States Attorney’s Office (“USAO”) for the Northern District of Illinois for certain documents, which costs and expenses could be material. See the Company’s Form 10-K/A for the year ended December 31, 2008, Form 10-Q/A for the quarter ended March 31, 2009, Form 10-Q for the quarter ended June 30, 2009, all filed on August 17, 2009, and Form 10-Q for the quarter ended September 30, 2009, which the Company intends to file on November 5, 2009, for additional information about the SEC investigations, private shareholder class action lawsuits and derivative lawsuits, and the USAO’s request for certain documents. |
(10) | Reflects (i) anticipated costs and expenses incurred and expected to be incurred in connection with the restatement, the Company’s inquiries into the facts and circumstances underlying the restatement and the allocation of time in certain practice groups, the SEC investigations, the shareholder class action lawsuits and the derivative lawsuits, and the USAO’s request for certain documents and (ii) the settlement costs of an indemnification claim arising in connection with a representation and warranty in a purchase agreement for a previous acquisition. |
(11) | In evaluating the Company’s outlook, management uses projected EBITDA, projected adjusted EBITDA, projected adjusted EBITDA as a percentage of revenues, projected adjusted net income and projected adjusted diluted earnings per share, which are non-GAAP measures. Management believes that the use of such measures, as supplements to projected operating loss, projected net loss and projected loss per share and other GAAP measures, are useful indicators for investors. These useful indicators can help readers gain a meaningful understanding of the Company’s core operating results and future prospects without the effect of non-cash or other one-time items and the Company’s ability to generate cash flows from operations that are available for taxes, capital expenditures, and to repay debt. Investors should recognize that these non-GAAP measures might not be comparable to similarly titled measures of other companies. These measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flows or liquidity prepared in accordance with GAAP. |