Huron Consulting Group Inc. - 2009 10-K Summary
Business Context and Reporting Period
This filing covers the fiscal year ended December 31, 2009. Huron Consulting Group Inc. is a leading provider of operational and financial consulting services operating in four segments: Health and Education Consulting, Accounting and Financial Consulting, Legal Consulting, and Corporate Consulting. In December 2009, the company announced a strategic shift to divest its Japan operations and the MS Galt & Company LLC strategy business, classifying these as discontinued operations. Effective January 1, 2010, the company reorganized into three segments, merging Accounting and Financial Consulting with Corporate Consulting into a new Financial Consulting segment.
Key Financial Metrics
| Metric | 2009 | 2008 |
|---|---|---|
| Revenues (Continuing Ops) | $628.7 million | $573.8 million |
| Operating Income (Loss) | ($2.6 million) | $49.8 million |
| Net Income (Loss) | ($32.9 million) | $10.1 million |
| Net Income (Loss) from Continuing Ops | ($14.5 million) | $5.5 million |
| Operating Margin | (0.4%) | 8.7% |
| Cash and Cash Equivalents | $6.5 million | $14.1 million |
| Long-Term Debt | $219.0 million | $280.0 million |
| Working Capital | ($0.2 million) | $12.9 million |
Material Changes vs. Prior Period
- Restatement of Financial Statements: The company restated financial results for 2006–2008 and Q1 2009 due to accounting errors regarding acquisition-related payments. Selling shareholders had redistributed portions of earn-out payments to themselves and employees based on performance/employment, which should have been recorded as non-cash compensation expense. This resulted in a $7.5 million non-cash charge in 2009 (compared to $26.5 million in 2008).
- Goodwill Impairment: Following the restatement announcement and a significant drop in stock price, the company recorded a $106.0 million non-cash goodwill impairment charge. Of this, $67.0 million was recorded in continuing operations (Accounting and Financial Consulting: $59.0M; Corporate Consulting: $8.0M), and $39.0 million was allocated to discontinued operations.
- Restatement-Related Expenses: The company incurred $17.5 million in expenses related to the restatement, primarily legal and accounting fees.
- Revenue Growth: Revenues from continuing operations increased 9.6% to $628.7 million, driven by the full-year impact of the Stockamp acquisition and organic growth in the Health and Education segment, despite declines in Accounting and Financial Consulting and Legal Consulting.
- Discontinued Operations: The company reported a net loss of $18.4 million from discontinued operations (Japan and Galt), compared to income of $4.6 million in 2008.
Guidance, Outlook, Risks, and Unusual Items
- Legal and Regulatory Risks: The company is subject to ongoing SEC investigations regarding the restatement and the allocation of time within a practice group. The U.S. Attorney's Office (USAO) has requested documents. Additionally, consolidated shareholder class action lawsuits and derivative suits have been filed. The company states it cannot predict the outcome or estimate potential liabilities, which could be material.
- Management Changes: Significant senior management turnover occurred in July 2009, including the resignation of the Chairman/CEO and the departure of the CFO and Chief Accounting Officer. New leadership was appointed to address the restatement and reputational issues.
- Cost Reduction Program: In Q3 2009, the company initiated a cost reduction program targeting an annualized $30 million in expense savings, primarily through workforce reductions.
- Debt Covenants: The company amended its Credit Agreement in September 2009 to modify EBITDA definitions (allowing add-backs for impairment and restatement charges) and adjust leverage ratios to ensure compliance. As of year-end, the company was in compliance with all covenants.
- Outlook: Management expects moderate increases in cash compensation to retain talent and increased operating expenses (legal fees) related to the restatement matters. Future earnings may be impacted by the uncertain nature of the legal proceedings and the economic environment.
Key Facts for Investor Verification
- Restatement Impact: Verify the full extent of the non-cash compensation charges ($8.3 million total in 2009) and the specific accounting adjustments made to prior periods.
- Legal Exposure: Monitor the status of the SEC investigation, USAO document requests, and the consolidated shareholder class action/derivative lawsuits for potential fines, penalties, or damages.
- Goodwill Valuation: Assess the remaining goodwill balance ($464.2 million) and the assumptions used in the impairment test, particularly given the volatility in the consulting sector and the company's reputation.
- Debt Compliance: Confirm continued compliance with the amended Credit Agreement covenants, specifically the fixed charge coverage ratio and leverage ratio, given the company's loss position.
- Discontinued Operations: Track the progress of the divestiture of the Japan operations and the final financial impact of the Galt sale.