Add
DUF to Portfolio
Set Alert
Email to a
Friend
| |||
|
|
Quotes & Info
|
| DUF > SEC Filings for DUF > Form 10-Q on 26-Oct-2012 | All Recent SEC Filings |
26-Oct-2012
Quarterly Report
Disclosure Regarding Forward-Looking Statements
This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the "Exchange Act"), which reflect the Company's current views with respect to, among other things, future events and financial performance. The Company generally identifies forward looking statements by terminology such as "outlook," "believes," "expects," "potential," "continues," "may," "will," "could," "should," "seeks," "approximately," "predicts," "intends," "plans," "estimates," "anticipates" or the negative version of those words or other comparable words. Any forward-looking statements contained in this discussion are based upon our historical performance and on our current plans, estimates and expectations. The inclusion of this forward-looking information should not be regarded as a representation by us, or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Such forward-looking statements are subject to various risks and uncertainties and assumptions relating to our operations, financial results, financial condition, business prospects, growth strategy and liquidity. If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, our actual results may vary materially from those indicated in these statements. These factors should not be construed as exhaustive and should be read in conjunction with the other cautionary statements and the risk factors section that are included in our Annual Report on Form 10-K for the year ended December 31, 2011 and any subsequent filings of our Quarterly Reports on Form 10-Q. The forward-looking statements included in this Quarterly Report on Form 10-Q are made only as of the date of this filing with the Securities and Exchange Commission. The Company does not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments or otherwise.
Critical Accounting Policies and Estimates
Management's discussion and analysis of the Company's financial condition and
results of operations is based upon the Company's consolidated financial
statements, which have been prepared in accordance with accounting principles
generally accepted in the United States ("GAAP"). The preparation of financial
statements in conformity with GAAP requires management to make estimates and
assumptions that affect amounts of assets and liabilities and disclosures of
contingent assets and liabilities as of the date of the financial statements and
reported amounts of revenue and expenses during the periods presented. Actual
results could differ from these estimates. Estimates and assumptions are
reviewed periodically and the effects of revisions are reflected in the
consolidated financial statements in the period they are deemed to be necessary.
Significant estimates made in the accompanying consolidated financial statements
include, but are not limited to the following:
• proportional performance under client engagements for the purpose of
determining revenue recognition,
• accounts receivable and unbilled services valuation,
• incentive compensation and other accrued benefits,
• useful lives of intangible assets,
• the carrying value of goodwill and intangible assets,
• amounts due to noncontrolling unitholders,
• reserves for estimated tax liabilities, restructuring charges and lease
loss liabilities,
• contingent liabilities,
• certain estimates and assumptions used in the allocation of revenue and
expenses for our segment reporting, and
• certain estimates and assumptions used in the calculation of the fair
value of equity compensation issued to employees and the fair value of
acquisition related contingent consideration.
A summary of the Company's critical accounting policies and estimates can be found in our Annual Report on Form 10-K for the year ended December 31, 2011. There have been no significant changes in new accounting pronouncements or in our critical accounting policies and estimates from those that were disclosed in our Annual Report on Form 10-K for the year ended December 31, 2011.
Overview
Duff & Phelps is a leading provider of independent financial advisory and
investment banking services. The firm balances analytical skills, market insight
and independence to provide expertise in the areas of valuation, transactions,
financial restructuring, alternative assets, disputes and taxation. Over 1,000
Duff & Phelps employees work out of more than 25 offices around the
world-including Amsterdam, Atlanta, Austin, Beijing, Boston, Chicago, Dallas,
Denver, Detroit, Houston, London, Los Angeles, Morristown, Munich, New York,
Paris, Philadelphia, San Francisco, Seattle, Shanghai, Silicon Valley, Tokyo,
Toronto and Washington, D.C.
We provide services through three segments: Financial Advisory, Alternative Asset Advisory and Investment Banking.
[[Image Removed]]
Financial Advisory Alternative Asset Advisory Investment Banking
Valuation Advisory Portfolio Valuation M&A Advisory
Tax Services Complex Asset Solutions Transaction Opinions
Dispute & Legal Management Consulting Due Diligence Global Restructuring Advisory
|
Equity-based compensation discussed herein includes (a) grants of units of D&P Acquisitions prior to the recapitalization transaction that were effectuated in conjunction with the IPO ("Legacy Units"), (b) options to purchase shares of the Company's Class A common stock granted in connection with the IPO ("IPO Options") and (c) restricted stock awards and units and performance-based restricted stock awards and units issued in connection with the Company's ongoing long-term compensation program ("Ongoing RSAs"). The IPO, Recapitalization Transactions and the Company's capital structure are further detailed in our Annual Report on Form 10-K for the year ended December 31, 2011.
Amounts are reported in thousands, except for per share amounts, headcount or where the context requires otherwise.
Results of Operations
Three months ended September 30, 2012 versus three months ended September 30,
2011
The results of operations are summarized as follows:
Three Months Ended
September 30, September 30, Unit Percent
2012 2011 Change Change
Revenue $ 108,413 $ 92,028 $ 16,385 17.8 %
Reimbursable expenses 3,299 2,395 904 37.7 %
Total revenue 111,712 94,423 17,289 18.3 %
Direct client service costs
Compensation and benefits 58,630 50,705 7,925 15.6 %
Other direct client service costs 3,330 2,050 1,280 62.4 %
Acquisition retention expenses 2,020 221 1,799 814.0 %
Reimbursable expenses 3,364 2,415 949 39.3 %
67,344 55,391 11,953 21.6 %
Operating expenses
Selling, general and administrative 28,822 23,611 5,211 22.1 %
Depreciation and amortization 4,765 2,878 1,887 65.6 %
Restructuring charges 406 3,091 (2,685 ) (86.9 )%
Transaction and integration costs 35 335 (300 ) (89.6 )%
34,028 29,915 4,113 13.7 %
Operating income 10,340 9,117 1,223 13.4 %
Other expense/(income), net
Interest income (4 ) (14 ) 10 71.4 %
Interest expense 121 30 91 303.3 %
Other expense 54 10 44 440.0 %
171 26 145 557.7 %
Income before income taxes 10,169 9,091 1,078 11.9 %
Provision for income taxes 3,953 2,655 1,298 48.9 %
Net income 6,216 6,436 (220 ) (3.4 )%
Less: Net income attributable to
noncontrolling interest 515 2,404 (1,889 ) (78.6 )%
Net income attributable to Duff & Phelps
Corporation $ 5,701 $ 4,032 $ 1,669 41.4 %
Other financial and operating data
Adjusted EBITDA(a) $ 17,566 $ 15,410 $ 2,156 14.0 %
Adjusted EBITDA(a) as a percentage of
revenue 16.2 % 16.7 % (0.5 )% (3.0 )%
Adjusted Pro Forma Net Income(a) $ 7,654 $ 7,449 $ 205 2.8 %
Adjusted Pro Forma Net Income per fully
exchanged, fully diluted share
outstanding(a) $ 0.20 $ 0.20 $ - - %
End of period managing directors 193 165 28 17.0 %
End of period client service
professionals 1,074 829 245 29.6 %
|
We define Adjusted EBITDA as operating income before depreciation and amortization, equity-based compensation originating prior to our IPO and associated with grants of ownership units of D&P Acquisitions and stock options granted in conjunction with our IPO and other items which are generally not part of our ongoing operations, including but not limited to restructuring charges and acquisition related expenses. We define Adjusted Pro Forma Net Income as net income before equity compensation associated with grants of ownership units of D&P Acquisitions and stock options granted in conjunction with our IPO, and certain items which are generally not part of our ongoing operations, including but not limited to restructuring charges and acquisition related expenses, less pro forma corporate income tax applied at an assumed effective corporate tax rate. Adjusted Pro Forma Net Income per share consists of Adjusted Pro Forma Net Income divided by the fully dilutive weighted average number of the Company's Class A and Class B shares for the applicable period. These measures are reconciled in the tables below.
Adjusted EBITDA, Adjusted Pro Forma Net Income and Adjusted Pro Forma Net Income
per share are non-GAAP financial measures which are not prepared in accordance
with, and should not be considered a substitute for or superior to measurements
required by GAAP. The presentation of this additional information is not meant
to be considered in isolation or as a substitute for the most directly
comparable GAAP measures. In addition, these non-GAAP measures are not defined
in the same manner by all companies and may not be comparable to other similarly
titled measures of other companies.
Reconciliation of Adjusted EBITDA
Three Months Ended
September 30, September 30,
2012 2011
Net income attributable to Duff & Phelps Corporation $ 5,701 $ 4,032
Net income attributable to noncontrolling interest 515 2,404
Provision for income taxes 3,953 2,655
Other expense/(income), net 171 26
Operating income 10,340 9,117
Depreciation and amortization 4,765 2,878
Equity-based compensation associated with Legacy Units and
IPO Options(1) - (232 )
Acquisition retention expenses 2,020 221
Restructuring charges 406 3,091
Transaction and integration costs 35 335
Adjusted EBITDA $ 17,566 $ 15,410
|
Reconciliation of Adjusted Pro Forma Net Income
Three Months Ended
September 30, September 30,
2012 2011
Net income attributable to Duff & Phelps Corporation $ 5,701 $ 4,032
Net income attributable to noncontrolling interest 515 2,404
Equity-based compensation associated with Legacy Units and
IPO Options(1) - (232 )
Acquisition retention expenses 2,020 221
Restructuring charges 406 3,091
Transaction and integration costs 35 335
Adjustment to provision for income taxes(2) (1,023 ) (2,402 )
Adjusted Pro Forma Net Income, as defined $ 7,654 $ 7,449
Fully diluted weighted average shares of Class A common
stock 36,208 27,060
Weighted average New Class A Units outstanding 2,897 10,813
Pro forma fully exchanged, fully diluted shares outstanding 39,105 37,873
Adjusted Pro Forma Net Income per fully exchanged, fully
diluted share outstanding $ 0.20 $ 0.20
_______________
|
Revenue
Revenue excluding reimbursable expenses increased $16,385 or 17.8% to $108,413
for the three months ended September 30, 2012, compared to $92,028 for the three
months ended September 30, 2011. The increase in revenue resulted from an
increase in revenue from each of our segments, as summarized in the following
table:
Three Months Ended
September 30, September 30, Dollar Percent
2012 2011 Change Change
Financial Advisory
Valuation Advisory $ 33,895 $ 33,887 $ 8 - %
Tax Services 11,008 9,572 1,436 15.0 %
Dispute & Legal Management Consulting 22,708 18,319 4,389 24.0 %
67,611 61,778 5,833 9.4 %
Alternative Asset Advisory
Portfolio Valuation 6,417 6,730 (313 ) (4.7 )%
Complex Asset Solutions 6,270 3,998 2,272 56.8 %
Due Diligence 2,516 2,643 (127 ) (4.8 )%
15,203 13,371 1,832 13.7 %
Investment Banking
M&A Advisory(a) 8,145 5,741 2,404 41.9 %
Transaction Opinions 5,957 7,466 (1,509 ) (20.2 )%
Global Restructuring Advisory(b) 11,497 3,672 7,825 213.1 %
25,599 16,879 8,720 51.7 %
Total Revenue (excluding reimbursables) $ 108,413 $ 92,028 $ 16,385 17.8 %
_______________
|
Our Financial Advisory segment benefited from higher revenue from Dispute & Legal Management Consulting and Tax Services. Revenue from Dispute & Legal Management Consulting increased primarily from demand to support financial services and intellectual property related litigation activity. This demand is also driven by a notable increase in corporate spending to support commercial litigation. The increase in revenue from Tax Services primarily resulted from the timing of contingency fees earned. Revenue from Valuation Advisory was relatively unchanged. Increases in revenue from fixed asset, legal entity and non-transaction related valuations were partially offset by a decrease in revenue from valuations for purchase price allocations.
Our Alternative Asset Advisory segment benefited primarily from an increase in revenue from our Complex Asset Solutions business unit as a result of support for dispute-related financial services engagements given the specialized capabilities of this business unit.
Our Investment Banking segment benefited from higher revenue from Global Restructuring Advisory and M&A Advisory, partially offset by a decrease in revenue from Transaction Opinions. The increase in revenue from Global Restructuring Advisory primarily resulted from our acquisitions of MCR and the Toronto-based restructuring practice of RSM Richter, partially offset by a decrease in revenue from our domestic restructuring business as a result of the decline in global restructuring markets. The increase in revenue from M&A Advisory primarily resulted from our acquisition of Pagemill. Revenue from our Transaction Opinions business decreased primarily as a result of an increase in the number of opinions issued at a lower average value per opinion.
Our client service headcount increased to 1,074 client service professionals at September 30, 2012, compared to 993 client service professionals at December 31, 2011. In addition, we had 193 client service managing directors at September 30, 2012, compared to 192 at December 31, 2011.
Direct Client Service Costs
Direct client service costs increased $11,953 or 21.6% to $67,344 for the three
months ended September 30, 2012, compared to $55,391 for the three months ended
September 30, 2011. Direct client service costs include compensation and
benefits for client service employees, fees payable to contractors and other
expenses related to the execution of engagements.
The following table adjusts direct client service costs for equity-based
compensation associated with Legacy Units and IPO Options, acquisition retention
expenses and reimbursable expenses:
Three Months Ended
September 30, September 30,
2012 2011
Revenue (excluding reimbursables) $ 108,413 $ 92,028
Total direct client service costs $ 67,344 $ 55,391
Less: equity-based compensation associated with Legacy Units
and IPO Options - 419
Less: acquisition retention expenses (2,020 ) (221 )
Less: reimbursable expenses (3,364 ) (2,415 )
Direct client service costs, as adjusted $ 61,960 $ 53,174
Direct client service costs, as adjusted, as a percentage of
revenue 57.2 % 57.8 %
|
Direct client service costs, as adjusted, increased between periods primarily as the result of higher compensation from an increase in headcount between periods primarily from our acquisitions. Overall, our compensation margins improved slightly as compared to the corresponding prior year quarter.
The increase in acquisition retention expenses resulted from our acquisitions and includes expense associated with equity or cash-based retention incentives to certain individuals who became employees of the Company through acquisitions. Equity-based incentives are typically subject to certain annual or cliff vesting provisions over three years contingent upon certain conditions which include employment. Cash-based incentives are generally subject to certain annual or cliff vesting provisions up to four years contingent upon certain conditions which may include employment. These incentives may be in addition to future grants or cash bonuses awarded as a component of ongoing incentive compensation.
Operating Expenses
Operating expenses increased $4,113 or 13.7% to $34,028 for the three months
ended September 30, 2012, compared to $29,915 for the three months ended
September 30, 2011. The following table adjusts operating expenses for
equity-based compensation associated with Legacy Units and IPO Options,
depreciation and amortization, restructuring charges and transaction and
integration costs:
Three Months Ended
September 30, September 30,
2012 2011
Revenue (excluding reimbursables) $ 108,413 $ 92,028
Total operating expenses $ 34,028 $ 29,915
Less: equity-based compensation associated with Legacy Units
and IPO Options - (187 )
Less: depreciation and amortization (4,765 ) (2,878 )
Less: restructuring charges (406 ) (3,091 )
Less: transaction and integration costs (35 ) (335 )
Operating expenses, as adjusted $ 28,822 $ 23,424
Operating expenses, as adjusted, as a percentage of revenue 26.6 % 25.5 %
|
Operating expenses, as adjusted, increased between periods primarily as the result of higher operating costs primarily from our acquisitions as well as real estate initiatives for new offices due to the expiration of existing leases and consolidation of existing space.
The increase in depreciation and amortization primarily resulted from (i) technology spend related to investments to enhance our platform for our tax business and upgrades of existing computer systems and (ii) real estate build outs due to the expiration of office leases and the consolidation of certain offices from acquisitions.
In June 2011, the Company identified opportunities for cost savings through office consolidations of underutilized space and workforce reductions of non-client service professionals. In March 2012, the Company identified opportunities for cost savings through the elimination of our M&A Advisory practice in France and certain Investment Banking positions in France. The Company incurred restructuring charges of $406 during the three months ended September 30, 2012 for changes in estimates of original assumptions related to office consolidations at our Los Angeles location which we have been . . .
|
|