Diamond Reports Third Quarter Fiscal Year 2009 Results.
CHICAGO -- Diamond Management & Technology Consultants, Inc. (NASDAQ: DTPI), a premier global management and technology consulting firm, today announced results for its third quarter of fiscal year 2009 (ended December 31, 2008).
Net revenue for the third quarter ended December 31, 2008 was $37.0 million, compared with $40.5 million in the prior quarter, and $46.7 million for the same period last year.
"Our third quarter revenue was impacted by the economic environment. We believe we are operating our business well, managing our costs and making the right moves to improve future performance," said Adam Gutstein, President and CEO of Diamond. "We are pleased that both our core and new clients find our services valuable despite, and perhaps because of, the challenging environment. Given our track record of high-quality and high-impact work, as well as the strength of our relationships, we are confident that as our clients and prospects recognize the need for change, they will look to Diamond."
The Company reported income from continuing operations before income taxes of $2.4 million in the third quarter, compared with income from continuing operations before income taxes of $2.1 million in the prior quarter and income from continuing operations before income taxes of $6.1 million reported in the third quarter of the prior fiscal year.
Income tax expense was $2.4 million, including $0.6 million of UK tax expense on a non-cash foreign exchange gain. The effective tax rate was 99%, compared with 75% in the prior quarter. Income from continuing operations after income taxes was $14,000, compared with income from continuing operations after income taxes of $0.5 million in the prior quarter and $2.8 million in the same period last year. The Company reported diluted earnings per share from continuing operations of $0.00, compared with $0.02 per diluted share in the prior quarter and $0.09 per diluted share in the same period last year. Diluted weighted average shares outstanding decreased to 25.9 million from 26.4 million in the prior quarter and 30.6 million in the year-ago period.
Adjusted EBITDA (income from continuing operations before interest, taxes, depreciation, amortization and stock-based compensation expense) was $6.2 million in the third quarter of fiscal year 2009, the same as the prior quarter.
Free cash flow (cash flow provided by operating activities less capital expenditures) in the third quarter of fiscal year 2009 was $7.1 million, compared with $4.7 million in the prior quarter and $18.3 million in the year-ago period. The Company ended the third quarter with cash and cash equivalents of $42.4 million and no borrowings.
During the third quarter, the Company repurchased approximately 500 thousand shares at an average price of $4.01 for a total repurchase of $2.1 million. As of December 31, 2008, the remaining stock repurchase authorization outstanding was $26.9 million.
The Company served 57 clients during the third quarter of fiscal year 2009, compared with 64 clients served in the second quarter and 65 in the third quarter last year. The Company added 10 new clients in the third quarter, the same as the prior quarter, and compared to 18 clients added during the year-ago period. The top five clients represented 40% of revenue during the third quarter of fiscal year 2009 compared to 35% in the prior quarter and 41% in the year-ago period.
The Company ended the third quarter with 473 client-serving professionals, compared with 495 in the prior quarter and 512 in the year-ago period. Chargeability was 60% in the third quarter of fiscal year 2009, compared with 66% in the prior quarter and 65% in the year-ago period. Annualized net revenue per professional was $305 thousand, compared with $336 thousand in the prior quarter and $363 thousand in the year-ago period. Annualized voluntary attrition was 11% in the third quarter, compared with 9% in the prior quarter and 10% in the third quarter last year.
Revenue by industry practice in the third quarter was: Financial Services: 33%; Insurance: 26%; Enterprise: 18%; Healthcare: 17%; Public Sector: 3%; and Telecom: 3%.
Given the markets in which the Company competes to attract and retain the highest quality people, the Company has initiated a plan to modify its compensation program with respect to variable compensation by moving away from significant equity grants to primarily cash payments. As a result, the Company intends to greatly reduce future equity grants to employees and replace equity incentives with cash incentives in its variable compensation programs. The Company believes a cash-based approach will provide more predictable and competitive performance incentives for its employees, which will in turn make the Company more successful and increase shareholder value.
As part of this plan, the Company will commence a Tender Offer, beginning today and expiring March 9, 2009, giving employees the opportunity to exchange certain previously granted Restricted Stock Units ("Eligible RSUs") for Diamond common stock at an exchange ratio of one Eligible RSU for 0.80 shares of common stock. In addition to the discount implied by the exchange ratio, employees who participate will also agree to a sale restriction on the stock received ranging from 6 months for staff employees, up to 2 years for partners, and 4 years for the Chief Executive Officer and the Chief Financial Officer. There are approximately 2.3 million Eligible RSUs and a requirement that at least 1.6 million Eligible RSUs be tendered for the Company to complete the Tender Offer. Should the Company complete the Tender Offer, the Company will recognize all stock-based compensation expense associated with the tendered Eligible RSUs in the fourth quarter, rather than over time, and incur a one-time non-cash charge of $13 to $18 million in the March quarter. On a tax-effected basis, the EPS effect will be approximately $0.31 to $0.44 per diluted share.
"We announced a Tender Offer today as part of an overall plan to put the Company on stronger footing. In addition to moving to a more desirable form of incentive compensation, this change away from equity awards will reduce stock-based compensation expense and significantly reduce overhang and dilution over the long term. As a result, in fiscal year 2010, we expect pretax income to improve, while increasing our investment in the business, driving future growth," said Gutstein.
Fourth Quarter 2009
The Company expects fourth quarter net revenue to be in the range of $35 to $37 million. Excluding the impact of the Tender Offer, the Company expects pretax income of zero to $1 million, Adjusted EBITDA in the range of $3 to $4 million, reported tax expense to be in the range of $0.2 to $0.6 million, and GAAP EPS to be in the range of a loss of $0.01 to positive $0.01 per diluted share. The weighted average share count is expected to be approximately 26 million. Free cash flow is expected to be $1 to $3 million.
The successful completion of the Tender Offer is expected to reduce pretax income by $13 to $18 million, reduce GAAP EPS by $0.31 to $0.44 per diluted share, and reduce non-operating cash flow by $2 million, as a result of the Company withholding shares to pay employee taxes incurred as part of their participation in the Tender Offer.
Diamond will host a conference call today, February 5, 2009 at 8:00 am CT to discuss the results of the quarter. The dial-in number for the conference call is 800-926-4458 for North American callers and 212-231-2904 for international callers. The replay will be available until February 12, 2009, and can be accessed by calling 402-977-9140, then entering passcode number 21410449. The call will be broadcast live and archived on Diamond's web site at www.diamondconsultants.com.
Diamond is a management and technology consulting firm. Recognizing that information and technology shape market dynamics, Diamond's small teams of experts work across functional and organizational boundaries to improve growth and profitability. Since the greatest value in a strategy, and its highest risk, resides in its implementation, Diamond also provides proven execution capabilities. We deliver three critical elements to every project: fact-based objectivity, spirited collaboration, and sustainable results. Diamond is headquartered in Chicago, with offices in New York, Washington, D.C., Hartford, London, and Mumbai. Diamond is publicly traded on the NASDAQ Global Select Market under the symbol "DTPI." To learn more, visit www.diamondconsultants.com.
Statements in this press release that do not involve strictly historical or factual matters are forward-looking statements within the meaning of the "safe harbor" provisions of the federal securities laws. Forward-looking statements involve estimates, projections, assumptions, risks and uncertainties and speak only as of the date of this release based on information available to the Company as of the date of this release, and the Company assumes no obligation to update any forward-looking statements. Actual results may differ materially from the results projected in any forward-looking statement. For a discussion of some of the risks and uncertainties that could cause actual results to differ materially, please refer to the risks and uncertainties identified in our filings with the SEC.
Non-GAAP Financial Measures
This press release includes non-GAAP financial measures. For a description of these non-GAAP financial measures, including the reasons management believes the non-GAAP measures are useful to investors, and reconciliations of these non-GAAP financial measures to the most directly comparable financial measures prepared in accordance with U.S. generally accepted accounting principles (GAAP), please see the section entitled "Unaudited Reconciliations of GAAP to Non-GAAP Financial Measures."
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|Article Type:||Financial report|
|Date:||Feb 5, 2009|
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