Huron... When The Consultants Need Consultants (HURN)

Huron Consulting Group Inc. (NASDAQ: HURN) was a stock we screened early this morning in pre-market hours for its active trading at VSInvestor.com.  We noted that this one was getting destroyed, but the company may have just become one of the worst stocks on NASDAQ.

Huron disclosed that it is restating financial statements for the fiscal years 2006, 2007 and 2008 and Q1 2009.  The restatements pertain to non-cash charges relating to how payments received by the sellers of certain acquired businesses were subsequently redistributed among themselves and to other select Huron employees.  The total estimated impact on net income and EBITDA might not sound that bad on the surface for all restated periods at $57 million, particularly when there is said to be no impact on cash, cash flows from operations or adjusted EBITDA.   Things go from bad to worse after that.

Essentially, the top brass is out.  Huron replaced its Chairman and CEO Gary Holdren, Chief Financial Officer Gary Burge, and Chief Accounting Officer Wayne Lipski.  Huron’s audit committee of the board discovered that shareholders of four Huron-acquired businesses from 2005 to 2007 redistributed portions of their acquisition related payments among themselves and to certain Huron employees.

The company is also conducting a separate investigation into its allocation of chargeable consulting hours in response to an SEC inquiry that could impact revenue recognition.

This would be expected on that sort of news, but the company lowered its internal 2009 revenue outlook to a new range of $650 to $680 million, down from its prior range of $730 to $770 million.

The company provides consulting services to Fortune 500 companies and leading academic institutions.  That is a problem because customers might think twice about using a consultancy firm that is under investigation and that just lost its top brass over issues such as this.  Its services are in health and education, accounting and financial, and legal consulting to the education, healthcare, pharmaceutical, professional, transportation, telecommunications, financial, electronics, consumer products, energy and utilities, industrial manufacturing, food, and beverage sectors.

Imagine if you are a key consulting client if a firm like this, and suddenly that firm has questions top to bottom on its own operations… We don’t want to add insult to injury, but the drop we are seeing shows that many fear this could result in a serious defection.  Probably, the stock is being hurt from Huron’s new lower guidance as well.

We might be back in a bull market, but it is likely to feel like a bear market for some time inside Huron.  Shares are down 67% at $14.26 today, and that $11.30 low of the day did mark a new 52-week low.

JON C. OGG
AUGUST 3, 2009