DiamondCluster Revenue Slashed In Half During Its Fourth Quarter

DiamondCluster International, a management consultancy based here, reported Thursday that revenue in the fiscal fourth quarter of 2002 was down by more than 50 percent due, in part, to market dips in Latin America and Europe.

For its quarter ended March 31, DiamondCluster lost $31.9 million, or $1.02 per share, on sales of $36.1 million. That compares with a loss of $27.3 million, or 89 cents per share, on sales of $74.9 million for the same quarter last year.

Before charges, DiamondCluster lost 7 cents per share, which was 2 cents lower than Wall Street consensus estimates. DiamondCluster closed trading Wednesday at $10.75 per share and was up 80 cents to $11.55 following the news.

Charges during the quarter included a non-operating charge for a writedown of equity investments of $1 million and other costs associated with the November 2000 merger with Cluster Consulting.

"Clearly, the environment in North America is still fragile," said Mel Bergstein, CEO of DiamondCluster, during a conference call to discuss results. "However, from our viewpoint, the sense of economic uncertainty is dissipating."

For example, Bergstein said clients that had been on the spending sidelines for several quarters began to spend again in the most recent quarter. While buying decisions are still being made slowly and the front-end types of projects are relatively small, DiamondCluster secured more new clients during the quarter than in any other quarter, absent the quarter it merged with Cluster Consulting, he said.

"We've been through such a hard period that a lot of us lost our confidence," said Bergstein. "So the key is to have the discipline and the sort of temerity to raise rates in the face of the market."

Those rates, however, will have to be managed carefully on a client-by-client basis, he said, adding that there is more pressure in Europe than North America at the moment.

Bergstein said the instability found in the pipeline in Europe and Latin America is similar to where North America was several quarters ago. DiamondCluster, he said, began implementing a "bridging strategy" last quarter to help carry the company through the downturn there.

"Essentially we are applying our wireless telecom skills in emerging markets such as Malaysia, India and South Africa," said Bergstein. "While clearly this strategy is working, it wasn't enough to offset the work that fell out of the pipeline [last quarter] due to delays in the market."

Meanwhile, he remained upbeat about the demand for follow-up work in North America to some of the new front-end work the company has been doing.

"As the large companies get larger and we get more vertical integration, we believe that creates more opportunity for objective, strategic advisors around technology," said Bergstein.

Looking ahead, Bergstein said he expects revenue in North America to increase by up to 10 percent in the current quarter. Revenue in Europe and Latin America is expected to remain flat, he said.

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