HURN

Huron Consulting Group Inc. - 10-Q Summary

Business Context and Reporting Period

This filing is a Quarterly Report on Form 10-Q for the period ended June 30, 2005. Huron Consulting Group Inc. is an independent provider of financial and operational consulting services to Fortune 500 companies, healthcare organizations, and law firms. The company operates through two segments: Financial Consulting and Operational Consulting. A significant event during the period was the acquisition of Speltz & Weis LLC ("S&W") on May 9, 2005, for a total purchase price of $17.2 million, expanding Huron's capabilities in healthcare crisis management and interim services.

Key Financial Metrics

Note: Reimbursable expenses are presented separately in the income statement but are excluded from the revenue figures above as per the company's management discussion.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 21.7% ($9.0 million) for the quarter and 19.2% ($15.7 million) for the six months compared to the prior year periods. Growth was driven by increased billable hours, higher utilization rates (76.1% vs. 71.8% for the quarter), and higher average billing rates.
• Acquisition Impact: The S&W acquisition contributed $3.2 million in revenue for both the quarter and the six-month period. It also added $14.6 million in goodwill and $2.6 million in intangible assets to the balance sheet.
• Expense Increases: Direct costs rose 22.0% for the quarter, primarily due to increased consultant headcount (up 15.3% to 557 consultants) and signing bonuses. Stock-based compensation expense increased significantly to $1.2 million for the quarter (from $0.2 million) due to restricted stock awards granted prior to and following the IPO.
• Profitability: While operating income decreased slightly for the quarter ($0.5 million) due to the absence of a $1.6 million success fee recognized in Q2 2004, operating income for the six-month period increased 26.1% to $16.4 million.

Guidance, Outlook, and Risks

• Outlook: Management expects to continue growing by hiring highly qualified consultants and expanding service offerings. Capital expenditures for 2005 are estimated at approximately $8.0 million to support employee growth and office expansion.
• Liquidity: The company maintains a $25.0 million credit facility with no borrowings outstanding as of June 30, 2005. Approximately $23.0 million was available under the agreement after accounting for letters of credit. Cash decreased by $13.0 million during the period, primarily due to the cash portion of the S&W acquisition.
• Accounting Changes: The company must adopt SFAS No. 123(R) regarding share-based payments effective January 1, 2006. Management does not expect this to have a material impact on financial position or results.
• Risks and Contingencies:
  • Client Concentration: One client represented 11.4% of consolidated revenues for the quarter and 12.6% for the six months. This client's receivables represented 12.2% of total receivables.
  • Bankruptcy: A client filed for bankruptcy on July 5, 2005. The company is seeking court approval to retain its interim management team for this client, with a decision expected in September 2005.
  • Goodwill Impairment: The $14.6 million goodwill balance is subject to annual impairment testing, which involves significant management judgment regarding future cash flows.

Investor Verification Checklist

• Verify the integration progress and revenue contribution of the Speltz & Weis LLC (S&W) acquisition.
• Monitor the outcome of the bankruptcy proceeding for the client representing >10% of revenue.
• Assess the impact of the upcoming SFAS No. 123(R) adoption on future stock-based compensation expenses.
• Review the sustainability of the increased utilization rates (76.1%) and average billing rates in the context of continued hiring.
• Confirm the status of the $3.0 million notes payable issued for the S&W acquisition and the potential for additional contingent consideration payments.