DTPI Diamond Management & Technology Consultants, Inc. (MM)

Diamond Management & Technology Consultants, Inc. (NASDAQ: DTPI), a premier global management and technology consulting firm, today announced results for its first quarter of fiscal year 2011.

Net revenue for the first quarter ended June 30, 2010 was $52.0 million, an increase of 3% compared with $50.3 million in the fourth quarter of fiscal year 2010, and an increase of 37% compared with $37.9 million reported in the first quarter of the prior fiscal year.

Pretax income was $6.3 million in the first quarter of fiscal year 2011 compared with $5.8 million in the fourth quarter of fiscal year 2010 and $1.9 million in the first quarter of fiscal year 2010. Pretax margin increased to 12.2%, up from 11.5% in the previous quarter and 5% in the first quarter last year.

Income from continuing operations after taxes in the first quarter of fiscal year 2011 was $3.3 million, or $0.12 per diluted share. This compares to $7.2 million, or $0.26 per diluted share, in the fourth quarter of fiscal year 2010 which included a one-time valuation allowance reversal benefit, and $0.8 million, or $0.03 per diluted share, in the first quarter of fiscal year 2010. Diluted weighted average shares outstanding was 28.4 million compared with 27.8 million in the fourth quarter of fiscal year 2010 and 27.4 million in the first quarter of fiscal year 2010, driven primarily by an increase in stock price.

The reported effective tax rate was 48% in the first quarter of fiscal year 2011 compared with negative 25% in the fourth quarter of fiscal year 2010 and 55% in the first quarter of fiscal year 2010. During the fourth quarter of fiscal 2010, the company reversed a deferred tax asset valuation allowance in the United Kingdom resulting in a one-time income tax benefit of $3.4 million, which caused the negative reported effective tax rate for the quarter.

EBITDA (defined as income from continuing operations before interest, taxes, depreciation, and amortization) was $6.7 million in the first quarter of fiscal year 2011 compared with $6.2 million in the fourth quarter of fiscal year 2010 and $2.4 million in the first quarter of fiscal year 2010.

Free cash flow (cash flow provided by operating activities less capital expenditures) was $8.8 million in the first quarter of fiscal year 2011 compared with $7.8 million in the fourth quarter of fiscal year 2010 and $3.6 million in the first quarter of fiscal year 2010. The Company ended the quarter with cash and cash equivalents of $60.2 million. The $60.2 million cash balance does not include $4.1 million in restricted cash that was released in July.

During the first quarter, Diamond repurchased approximately 240,000 shares at an average price of $8.19 per share for a total amount of $2 million. As of June 30th, 2010 total share repurchase authorization was $20.1 million.

The Company also announced that its Board of Directors declared on July 29, 2010, a quarterly dividend of $0.09 per share of common stock, payable on September 15, 2010, to shareholders of record at the close of business on September 1, 2010.

“Our business is performing well and the first quarter results represent strong year over year growth and sequential improvement,” said Adam Gutstein, President & CEO of Diamond. “Demand for our services remains healthy across each of our industry verticals and we anticipate continued revenue and earnings growth for the remainder of fiscal 2011. Our performance and outlook are driven by a combination of Diamond having the right positioning, skills and services, while continuing to work with the very best clients.”

The Company’s first quarter fiscal 2011 financial results are summarized as follows:

  Financial Results ($ in millions except Earnings Per Share)   Q1 FY10 Q4 FY10 Q1 FY11 Net Revenue $37.9 $50.3 $52.0 Income from Continuing Operations before Income Tax (Pretax Income) $1.9 $5.8 $6.3 Diluted Earnings Per Share from Continuing Operations $0.03 $0.26 $0.12 Adjusted Diluted Earnings Per Share from Continuing Operations(1) $0.03 $0.11 $0.12 EBITDA $2.4 $6.2 $6.7 Free Cash Flow $3.6 $7.8 $8.8 (1) Excluding the one-time tax benefit from an income tax valuation allowance reversal in the UK and using a 49% tax rate from the preceding quarter, fourth quarter fiscal year 2010 EPS would have been $0.11 per share.  

The Company’s business metrics are summarized as follows:

          Q1 FY10 Q4 FY10 Q1 FY11 Total Clients 61 66 67 Top 5 Client Concentration (% of Net Revenue) 34%

42%

42% New Clients Added 10 16 13 Revenue Generated from New Clients 6%

4%

3%

Days Receivables Outstanding 31 35 32 Client-Serving Professionals (Quarter End) 441

527

532

Revenue per Professional (Annualized, $ in thousands) $335 $393 $393 Chargeability 74% 77% 75% Voluntary Attrition (Annualized) 13% 14% 17% Total Headcount (Quarter End) 551 643 652   Revenue By Industry   Q1 FY10 Q4 FY10 Q1 FY11 Financial Services 33% 32% 30% Insurance 24% 25% 26% Healthcare 19% 20% 21% Enterprise* 18% 19% 19% Public Sector 6% 4% 4% *The enterprise vertical includes telecommunications, consumer packaged goods, travel and entertainment, retail and distribution, and manufacturing and logistics.  

Q2 and FY2011 Guidance

Second quarter net revenue is anticipated to be in the range of $52 to $54 million, pretax income is anticipated to be in the range of $6.3 to $7 million and GAAP EPS to be in the range of $0.12 to $0.14 per diluted share. The company expects stock based compensation to be $1.3 million, reported tax expense to be in the range of $2.9 to $3.1 million, weighted average share count of approximately 28.5 million and free cash flow of $12 to $14 million. The company expects to end the September quarter with 575 to 585 consultants.

For the full fiscal year of 2011, Diamond anticipates net revenue to be in the range of $214 to $220 million, up 21% to 24% year-over-year. The Company expects pretax income in the range of $28 to $29.5 million, GAAP EPS in the range of $0.53 to $0.57 and stock based compensation expense to be $5.3 million. Reported tax expense is projected to be in the range of $12.7 to $13.2 million, and weighted average share count is expected to be 28.8 million. Free cash flow is expected to be at least $20 million.

 

Q2 and FY2011 Guidance (in millions, except Earnings Per Share)

            Q2 FY11           FY11 Revenue           $52 – $54           $214 – $220 Pretax Income           $6.3 – $7.0          

$28 – $29.5

Reported Tax Expense           $2.9 – $3.1          

$12.7 – $13.2

Weighted Avg. Share Count           28.5           28.8 Earnings Per Share           $0.12 – $0.14          

$0.53 – $0.57

Free Cash Flow           $12 – $14           > $20                    

Conference Call

Diamond will host a conference call today, August 4, 2010, at 8:00 am CT to discuss the results of the quarter. The dial-in number for the conference call is (800) 926-6734 for North American callers and (212) 231-2903 for international callers. A replay of the call will be available over the Internet beginning shortly after the call ends. The call will be broadcast live and archived on Diamond’s web site at www.diamondconsultants.com. You may also listen to a telephonic replay of the discussion beginning approximately one hour after the completion of the call through 9:00 AM CT on August 11, 2010. The replay can be accessed by calling (800) 633-8284 or (402) 977-9140, then entering passcode number 21477133.

About Diamond

Clients engage Diamond Management & Technology Consultants, Inc. (NASDAQ: DTPI) to help their companies grow, improve margins, and increase the productivity of their investments. Working together to design and execute business strategies that capitalize on changing market forces and technology, Diamond’s consultants are experts in helping clients attract and retain customers, increase the value of their information, and plan and execute projects that turn strategy into measurable results.

Diamond’s capabilities are rooted in deep strategy, technology, operations, and industry experience. The firm’s approach to client service is based on objectivity, collaboration, and an unwavering commitment to its clients’ best interests. Headquartered in Chicago, Diamond has offices in New York, Washington, D.C, Hartford, London, and Mumbai. To learn more, visit: www.diamondconsultants.com.

Forward-Looking Statements

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

The 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.”

  DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per share data)       For the Three Months Ended June 30, 2009 2010 (Unaudited) (Unaudited) Revenue: Net revenue $ 37,892 $ 52,002 Reimbursable expenses   7,080     9,171   Total revenue 44,972 61,173   Project personnel expenses: Project personnel costs before reimbursable expenses 28,621 35,740 Reimbursable expenses   7,080     9,171   Total project personnel expenses 35,701 44,911     Gross margin   9,271     16,262     Other operating expenses: Professional development and recruiting 706 2,133 Marketing and sales 541 804 Management and administrative support   6,103     6,925   Total other operating expenses   7,350     9,862     Income from Operations 1,921 6,400   Other expense, net   (19 )   (57 )   Income from continuing operations before income taxes 1,902 6,343   Income tax expense   1,055     3,037     Income from continuing operations after income taxes 847 3,306   Discontinued operations: Income from discontinued operations, net of income taxes   85     -     Net Income $ 932   $ 3,306     Basic income per share of common stock: Income from continuing operations $ 0.03 $ 0.12 Income from discontinued operations   0.00     -   Net income $ 0.03   $ 0.12     Diluted income per share of common stock: Income from continuing operations $ 0.03 $ 0.12 Income from discontinued operations   0.00     -   Net income $ 0.03   $ 0.12     Shares used in computing basic income per share 27,273 27,105   Shares used in computing diluted income per share 27,369 28,394   The following amounts of stock-based compensation expense ("SBC") are included in each of the respective expense categories reported above:   For the Three Months Ended June 30, 2009 2010 (Unaudited) (Unaudited)   Project personnel costs before reimbursable expenses $ 842 $ 840 Professional development and recruiting 12 13 Marketing and sales 90 107 Management and administrative support   373     367   Total SBC $ 1,317   $ 1,327       DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)     March 31, June 30, ASSETS 2010 2010 (Unaudited) Current assets: Cash and cash equivalents $ 55,834 $ 60,204 Restricted Cash 4,104 4,104 Accounts receivable, net of allowance of $477 and $510 as of March 31 and June 30, 2010, respectively 22,947 21,378 Income taxes receivable - 2,682 Deferred tax asset - current portion 6,888 2,754 Prepaid expenses and other current assets   3,066     3,236     Total current assets 92,839 94,358   Computers, equipment, leasehold improvements and software, net 3,667 3,858 Deferred tax asset - long-term portion 7,911 7,237 Other assets   1,584     1,316     Total assets $ 106,001   $ 106,769       LIABILITIES AND STOCKHOLDERS' EQUITY   Current liabilities: Accounts payable $ 5,613 $ 3,922 Income taxes payable - current portion 2,752 - Accrued compensation 17,741 22,044 Accrued benefits 2,355 2,986 Other accrued liabilities   5,632     5,909     Total current liabilities 34,093 34,861   Deferred rent - long term portion 1,613 1,573 Accrued income tax liabilities - long-term portion   585     585     Total liabilities 36,291 37,019 Commitments and contingencies   Stockholders' equity: Common stock, net, 27,252 and 27,278 shares issued and outstanding as of March 31 and June 30, 2010, respectively 511,650 511,008 Accumulated other comprehensive loss (4,423 ) (4,593 ) Accumulated deficit   (437,517 )   (436,665 )   Total stockholders' equity   69,710     69,750     Total liabilities and stockholders' equity $ 106,001   $ 106,769       DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (1) (In thousands)     For the Three Months Ended June 30, 2009 2010 (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 932 $ 3,306 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 489 431 Stock-based compensation 1,317 1,327 Deferred income taxes 6,839 4,786 Excess tax benefits from employee stock plans (5 ) (324 ) Changes in assets and liabilities: Accounts receivable 1,020 1,549 Prepaid expenses and other (110 ) (316 ) Accounts payable (904 ) (1,512 ) Accrued compensation 331 4,298 Income taxes payable / receivable (6,512 ) (5,283 ) Other assets and liabilities   677     1,304     Net cash provided by operating activities   4,074     9,566     Cash flows from investing activities: Increase in restricted cash (2 ) - Capital expenditures, net   (480 )   (816 )   Net cash used in investing activities   (482 )   (816 )   Cash flows from financing activities: Stock option and employee stock purchase plan proceeds 397 443 Payment of employee withholding taxes from equity transactions (106 ) (612 ) Common stock cash dividends (1,921 ) (2,453 ) Excess tax benefits from employee stock plans 5 324 Purchase of treasury stock   (280 )   (1,963 )   Net cash used in financing activities   (1,905 )   (4,261 )   Effect of exchange rate changes on cash   276     (119 )   Net increase in cash and cash equivalents 1,963 4,370   Cash and cash equivalents at beginning of period   46,112     55,834     Cash and cash equivalents at end of period $ 48,075   $ 60,204       (1) The Condensed Consolidated Statements of Cash Flows is prepared on a combined basis and the reported results include both continuing and discontinued operations for the three month period ended June 30, 2009.     DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC.       UNAUDITED RECONCILIATIONS OF GAAP TO NON-GAAP FINANCIAL MEASURES (In thousands)   RECONCILIATION OF INCOME FROM CONTINUING OPERATIONS AFTER INCOME TAXES TO EBITDA :   For the Three Months For the Three Months Ended March 31, Ended June 30, 2010 2009 2010 (Unaudited) (Unaudited) (Unaudited)   Income from continuing operations after income taxes $ 7,221 $ 847 $ 3,306 Depreciation and amortization expense 410 489 431 Interest income, net (5 ) (10 ) (27 ) Income tax expense (benefit)   (1,426 )   1,055     3,037   EBITDA (1) $ 6,200   $ 2,381   $ 6,747     (1) EBITDA, defined as income from continuing operations before interest, taxes, depreciation and amortization, is not a measure of financial performance under U.S. generally accepted accounting principles (GAAP). Management believes EBITDA is a useful indicator of the Company's financial and operating performance and its ability to generate cash flows from operations that are available for share repurchases and capital expenditures. Investors should recognize that EBITDA might not be comparable to similarly-titled measures of other companies. This measure should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared in accordance with GAAP.     RECONCILIATION OF CASH PROVIDED BY OPERATING ACTIVITIES TO FREE CASH FLOW (2):   For the Three Months For the Three Months Ended March 31, Ended June 30, 2010 2009 2010 (Unaudited) (Unaudited) (Unaudited)   Net cash provided by operating activities $ 8,090 $ 4,074 $ 9,566 Capital expenditures   (304 )   (480 )   (816 ) Free cash flow $ 7,786   $ 3,594   $ 8,750     (2) Free cash flow, defined as net cash provided by operating activities less capital expenditures, is a non-GAAP term. Management believes that by providing more visibility on free cash flow and reconciling to net cash provided by operating activities, the Company provides a consistent metric from which the quality of its business may be monitored. This measure should be considered in addition to, and not as a substitute for or superior to, any measure of performance prepared in accordance with GAAP.