HURN

Huron Consulting Group Inc. - 10-Q Summary (Period Ended Sept 30, 2005)

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 nine months ended September 30, 2005. 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 $17.2 million, expanding the Company's capabilities in interim management and turnaround services for healthcare facilities.

Key Financial Metrics

Liquidity: Net cash provided by operating activities was $12.1 million for the nine months ended September 30, 2005. The Company has a $25.0 million credit facility with $22.6 million available as of period end and no borrowings outstanding.

Material Changes vs. Prior Period

• Revenue Growth: Revenues increased 46.3% ($17.2 million) for the quarter and 27.7% ($32.9 million) for the nine months compared to the prior year. Growth was driven by an increase in the number of consultants (up 29.6% year-over-year), higher utilization rates, and the S&W acquisition.
• Profitability: Operating income surged 238.1% for the quarter and 56.1% for the nine months. This was primarily due to revenue growth and the absence of restructuring charges that impacted the prior year (specifically a $1.3 million charge in Q3 2004).
• Costs: Direct costs increased 31.1% for the quarter, largely due to higher consultant headcount and compensation. Stock-based compensation expense rose significantly ($1.4 million in Q3 vs. $0.1 million in Q3 2004) due to restricted stock awards granted prior to and following the IPO.
• Segment Performance: Financial Consulting revenues grew 63.5% (Q3) with operating margins expanding to 40.3%. Operational Consulting revenues grew 25.6% (Q3) with margins at 30.9%.

Outlook, Risks, and Unusual Items

• Client Bankruptcy Impact: A major client filed for bankruptcy on July 5, 2005. New financial terms were negotiated retroactively, reducing Q3 revenues by $1.2 million. The Company wrote off $0.6 million of intangible assets related to this client's contract. Management expects these new terms to negatively impact operating margins in Q4 2005.
• Accounting Changes: The Company is adopting SFAS No. 123R (Share-Based Payment) effective January 1, 2006. Management does not expect a material impact on financial position or results of operations.
• Guidance: The filing does not provide specific numerical guidance for the full year 2005. Management expects to fund growth through operating cash flows, IPO proceeds, and the credit facility.
• Risks: Risks include the outcome of the client bankruptcy proceedings, potential challenges to fees earned, and the ability to maintain high utilization rates as the firm expands.

Key Facts for Investor Verification

• Client Concentration: One client represented 10.3% of Q3 revenues ($5.6 million) and filed for bankruptcy; another represented 9.9% of Q3 revenues ($5.4 million).
• Acquisition Integration: Verify the integration progress of Speltz & Weis LLC and the realization of projected synergies, given the recent write-off of related intangible assets.
• Stock-Based Compensation: Monitor the impact of the upcoming SFAS 123R adoption on future earnings, as the Company currently uses the intrinsic value method (APB 25).
• Working Capital: Receivables and unbilled services increased significantly ($15.9 million) during the nine-month period; verify collection trends and allowance adequacy.
• Debt Covenants: Confirm continued compliance with the bank credit agreement covenants, particularly regarding minimum equity and capital expenditures.