Huron Consulting Group Inc. - 10-Q Summary (Period Ended June 30, 2007)
Business Context and Reporting Period
This is a Quarterly Report (Form 10-Q) for Huron Consulting Group Inc., an independent provider of financial and operational consulting services. The reporting period covers the three and six months ended June 30, 2007. Effective January 1, 2007, the Company reorganized its operations into four segments: Legal Financial Consulting, Legal Operational Consulting, Health and Education Consulting, and Corporate Consulting.
Key Financial Metrics
| Metric | Three Months Ended June 30, 2007 | Six Months Ended June 30, 2007 |
|---|---|---|
| Revenues | $118.3 million | $234.3 million |
| Operating Income | $19.8 million | $38.7 million |
| Net Income | $10.1 million | $19.9 million |
| Diluted EPS | $0.56 | $1.11 |
| Operating Margin | 16.7% | 16.5% |
| Cash and Equivalents (End of Period) | $3.4 million | $3.4 million |
| Bank Borrowings Outstanding | $107.0 million | $107.0 million |
| Goodwill | $137.7 million | $137.7 million |
Cash Flow: Net cash used in operating activities was $6.9 million for the six months ended June 30, 2007. Net cash used in investing activities was $106.4 million, primarily due to acquisitions. Net cash provided by financing activities was $100.2 million, driven by borrowings under the credit facility.
Material Changes vs. Prior Period
- Revenue Growth: Revenues increased 74.5% ($50.5 million) for the quarter and 80.3% ($104.3 million) for the six months compared to the prior year periods. Growth was driven by acquisitions (Wellspring, Glass, DRCS, Aaxis) and increased billable consultant headcount.
- Profitability: Operating income increased 74.8% for the quarter and 84.4% for the six months. Net income increased 60.8% and 67.7%, respectively.
- Debt Levels: Bank borrowings increased significantly from $8.0 million at December 31, 2006, to $107.0 million at June 30, 2007, to fund acquisitions and operations.
- Segment Performance: All four segments reported revenue growth. Health and Education Consulting saw the largest revenue increase (106.7% for the quarter) due to the Wellspring acquisition. Legal Operational Consulting revenue grew 147.3% due to the inclusion of DRCS and Aaxis.
Guidance, Outlook, Risks, and Unusual Items
- Acquisitions: The Company completed two major acquisitions in January 2007: Wellspring Partners LTD ($67.5 million) and Glass & Associates, Inc. ($32.8 million). A subsequent acquisition of Callaway Partners, LLC ($60.0 million) was announced in late July 2007.
- Debt Capacity: The credit facility was amended in February 2007 to increase the maximum borrowing limit to $175.0 million. A subsequent amendment in July 2007 increased this limit to $200.0 million.
- Contingencies: The Company anticipates paying approximately $30.0 million in additional purchase consideration (earn-outs) for 2007 acquisitions, with $0.9 million accrued as of June 30, 2007.
- Legal Proceedings: On July 3, 2007, the Official Committee of Unsecured Creditors of Saint Vincents Catholic Medical Centers filed a lawsuit against the Company and certain managing directors alleging breach of fiduciary duties and other claims. The Company intends to vigorously defend the suit, believing the claims are without merit.
- Outlook: Management expects to continue hiring revenue-generating professionals and acquiring complementary businesses. They believe cash flows from operations and borrowings will be adequate to fund growth.
Investor Verification Checklist
- Verify the integration progress and revenue contribution of the Wellspring and Glass acquisitions.
- Monitor the status of the Saint Vincents litigation and potential financial impact.
- Review the utilization of the expanded $200 million credit facility and debt covenants compliance.
- Assess the realization of the $30 million estimated earn-out payments for 2007.
- Track the trend in operating margins as the Company scales up with new acquisitions and increased headcount.