Huron Consulting Group Inc. (HURN)

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Huron Consulting Group, Inc. (HURN)

Q4 2008 Earnings Call

February 24, 2009 11:00 am ET


Gary E. Holdren - Chairman, Chief Executive Officer

Gary L. Burge - Chief Financial Officer

Daniel P. Broadhurst - Chief Operating Officer

Mary M. Sawall - Vice President of Human Resources


Tim McHugh - William Blair & Company

Tobey Sommer - SunTrust Robinson Humphrey

Jim Janesky - Stifel Nicolaus & Co.

Andrew Fones - UBS Securities

David Gold - Sidoti

Dan Leben - Robert W. Baird & Co., Inc.

Paul Ginocchio - Deutsche Bank

Kevane Wong - JMP Securities

William Sutherland - Boenning & Scattergood



Good morning ladies and gentlemen and welcome to the Huron Consulting Group’s webcast to discuss results for the Fourth Quarter and Full Year 2008. At this time, all conference lines are on listen-only mode. (Operator Instructions) And I would now like to turn the call over to Mr. Gary Holdren, Chairman, Chief Executive Officer of Huron Consulting Group. Mr. Holdren, please go ahead.

Gary Holdren

Good morning. And thank you for joining us for today’s webcast to discuss Huron Consulting Group’s fourth quarter and full year 2008 results. Before we begin, I would like to point all of you to the disclosure at the end of our news release for information about any forward-looking statements that may be made or discussed on this call. We have posted a news release on our website.

Please review that information along with our filing with the SEC for disclosure of factors that may impact subjects discussed in this morning’s webcast. Also on this call, we will be discussing one or more non-GAAP financial measures. Please look at our earnings release and our website for all the disclosures required by the SEC including reconciliation to the most comparable GAAP numbers.

Joining me on the earnings call today are Gary Burge, our Chief Financial Officer; and Mary Sawall, our Vice President of Human Resources.

This morning, I would like Gary Burge to start by covering our 2008 results as well as our 2009 guidance.

What you will see in our press release this morning is that our fourth quarter revenues were not in line with our forecast. Gary will share with you, where those short falls were.

However, you see our net income and EPS for the fourth quarter and 2008 were within the range we previously gave you.

It was very important for Huron as a growth company; to deliver consistent growth of revenues but what is equally, if not more important is to deliver consistent and predictable net income and EPS.

We are going to share with you this morning, how and why we are able to do that and how we will concentrate on delivering a more predictable, consistent growth and net income while at the same time, growing our top line.

We believe Huron will be able to deliver predictable net income for several reasons. First, Huron provides a balanced portfolio of service offerings, all capable of delivering very solid profit margins at the segment level.

Second, we have the pay-for-performance compensation model, where our professionals don’t receive bonuses without delivering reasonable revenue and profit growth.

Third, Huron’s variable labor cost models were our V3locity and CFO solutions business give us bottom line protection, if revenues do not meet our forecast.

Lastly, we will manage our SG&A cost to be the best in our peer group. These are the reasons, we think our ability to deliver and predict net income and EPS will be easier than predicting revenues in these current economic conditions.

We recognize the critical need demands at bottom line and deliver superior cash flow from operations, during this time of uncertainty to you as share holders.

After Gary’s remarks, I want to share with you our outlook regarding demand for each business segment and how we are going to be profit zealots in 2009. So, we can deliver results that will benefit both our employees and our shareholders. Gary?

Gary Burge

Thanks, Gary and good morning everyone. I’ve got a lot to cover with respect to the quarter and guidance, so let me get right into it. Some of the financial highlights included revenues of $164 million, were up 20.6% compared to last year’s fourth quarter with consolidated organic growth of 4%.

Excluding the financial consulting business, the combined organic growth rate for the remaining three segments was approximately 29%. EBITDA rose to $38.6 million, up about 32% from EBITDA of $29.2 million in Q4 2007. And our adjusted EBITDA, excluding share-based compensation, rose approximately 29% to $45 million.

Year-over-year, fourth quarter EBITDA margins improved 200 basis points to 23.5%, and adjusted EBITDA margins improved 180 basis points to 27.4%. Operating income increased nearly 23% to $28.5 million for the quarter from $23.2 million last year. And fourth quarter operating margin was 17.4% in 2008, compared to last year’s 17.1%. Without rapid amortization, operating margins would have been 19.1% in 2008, compared to 18% last year.

SG&A expenses for the quarter included a $2.5 million write-off of a specific client account, which was deemed to be uncollectible. Write-offs totaled $2.7 million for the quarter, which was unusually high as such write-offs typically average no more than $200,000 in any one quarter.

I also wanted to comment on the $1.9 million loss in other income for the quarter, which is comprised of approximately $1 million in net foreign currency exchange losses and an approximate $900, 000 loss, due to a decline in the market value of the investments that are used to fund our deferred compensation plan liability.

There was however, an off set to this $900,000 loss that served to reduce our direct expenses in the quarter. As our deferred compensation liability to employees also decreased at the same time. So net-net, the $1.8 million loss in other income translates into only $1 million loss at the pretax income line pertained to this foreign currency exchange loss with the deferred compensation plan items just being [noise] in our P&L.

Net income increased to $11.8 million in the fourth quarter of 2008 and diluted EPS was $0.59 compared to $0.63 a year ago. Revenue shortfalls and other cost and expenses noted above were somewhat mitigated at the bottom line to our variable labor and compensation cost models as well as SG&A cost management.

Now, for some comments on regarding each of our businesses. The Health and Education Consulting segment, which represented almost 55% of total revenues for Huron during the quarter, continues to be a bright spot for us as revenues were $90.1 million for the fourth quarter of 2008 increasing better than 80% from $15 million in the fourth quarter of 2007.

Organic revenue growth for this segment excluding Stockamp was in excess of 34%. We remain very pleased with the strength of the Health care practice has displayed in the hospital market. Both Wellspring and Stockamp having performed very well during the quarter. And our Higher Education and PhRMA health plan practices also performed well.

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