DIAMOND MANAGEMENT & TECHNOLOGY CONSULTANTS, INC. (DTPI) filed Quarterly Report for the period ended 2009-09-30.
DiamondCluster International is a premier global management consulting firm that helps leading organizations develop and implement growth strategies improve operations and capitalize on technology. Mobilizing multidisciplinary teams from our highly skilled strategy technology and operations professionals worldwide DiamondCluster works collaboratively with clients unleashing the power within their own organizations to achieve sustainable business advantage. DiamondCluster is headquartered in Chicago with offices across Europe North America and South America. Diamond Management & Technology Consultants, Inc. has a market cap of $173.9 million; its shares were traded at around $6.34 with a P/E ratio of 90.6 and P/S ratio of 1. The dividend yield of Diamond Management & Technology Consultants, Inc. stocks is 4.4%.
Highlight of Business Operations:
In the fourth quarter of fiscal year 2009, the Company initiated a tender offer that was completed on March 9, 2009, (“Tender Offer”) which provided employees the opportunity to exchange certain previously granted but unvested Restricted Stock Units (“Eligible RSUs”) for Diamond Common Stock at an exchange ratio of one Eligible RSU for 0.80 shares of Common Stock. The shares are subject to a restriction on sale or transfer, with such restrictions lapsing over a minimum period of approximately six months and up to a maximum period of approximately four years, depending on the level of the employee. As a result of the Tender Offer, Diamond issued 1.2 million shares of Common Stock after withholding approximately 0.5 million shares to pay employee taxes incurred on the value of the stock received in the exchange, and recorded a $16.7 million pre-tax charge for stock-based compensation expense in the quarter ended March 31, 2009. Of the $16.7 million pre-tax charge, $14.3 million was attributed to project personnel costs, impacting gross margin, with the remaining $2.4 million attributed to other operating expenses.
Gross margin increased $0.9 million, or 9%, in the second quarter of fiscal year 2010 compared to the second quarter of fiscal year 2009 primarily due to a $3.1 million increase in net revenue resulting from an overall improvement in the economic environment, partially offset by an increase in project personnel costs before reimbursable expenses as discussed later under “Project Personnel Costs”. Our practice headcount was 486 at September 30, 2009, compared to 495 at September 30, 2008. Our annualized net revenue per practice professional was $376 thousand for the second quarter of fiscal year 2010 compared to $336 thousand for the second quarter of fiscal year 2009. The increase from the second quarter of fiscal year 2009 is attributable to increased revenue resulting from improved chargeability and reduced discounts.
Free cash flow was $14.4 million for the six months ended September 30, 2009. Management believes that the free cash flow metric, which is a non-GAAP measure, defined as net cash provided by operating activities ($15.0 million) net of capital expenditures ($0.7 million), provides a consistent metric from which the performance of the business may be monitored.
We recorded income tax expense of $1.9 million, which represents a 51% effective income tax rate, in the quarter ended September 30, 2009, compared to income tax expense of $1.6 million, a 75% effective income tax rate, in the same period in the prior fiscal year. The effective tax rate decreased in the quarter ended September 30, 2009, due to an increase in U.S. income relative to the corresponding period in the prior fiscal year and international income in the current quarter, compared to international losses in the same period in the prior fiscal year. The international income in the current quarter and loss in the same period in the prior fiscal year occurred in international jurisdictions where, due to ongoing losses and valuation allowances on the related international deferred tax assets, we currently do not recognize a tax benefit on international losses or record tax expense on international income. In the prior fiscal quarter ended September 30, 2008, we recorded $0.3 million of income tax expense related to a non-cash foreign exchange gain which is taxable in the international jurisdiction, but which is not recognized in the condensed consolidated financial statements. Excluding this $0.3 million tax expense, the effective income tax rate would have been 61% for the quarter ended September 30, 2008. These items caused a significant difference between the effective tax rate and the statutory tax rate.
We recorded income tax expense of $2.9 million, a 52% effective income tax rate, in the six months ended September 30, 2009, compared to income tax benefit of $0.2 million, a negative 18% effective income tax rate, in the same period in the prior fiscal year. The income tax benefit in the prior year was due to the reversal of a $1.5 million valuation allowance in the first quarter of the prior fiscal year as discussed below, partially offset by $0.3 million income tax expense related to the non-cash foreign exchange gain in the second quarter of fiscal year 2009 as discussed above.
We have deferred tax assets which have arisen primarily as a result of temporary differences between the tax bases of assets and liabilities and their related amounts in the financial statements as well as operating losses incurred primarily in fiscal year 2002 and fiscal year 2003. Deferred tax assets decreased $6.8 million in the six months ended September 30, 2009 as compared to the fiscal year ended March 31, 2009, primarily attributable to the timing of tax deductions for stock-based compensation expense related to the completion of the fourth quarter fiscal year 2009 tender offer. Of the $6.8 million decrease, $6.1 million represents an income tax deduction for book purposes in excess of the deduction for tax purposes and is reflected within the operating section of the condensed consolidated statement of cash flows for the six months ended September 30, 2009 as a decrease in “Deferred income taxes” and a corresponding decrease in “Income taxes payable.”
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