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Original Source: FD (FAIR DISCLOSURE) WIRE
OPERATOR: Good morning ladies and gentlemen and welcome to the Clark Consulting conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions following at that time. (OPERATOR INSTRUCTIONS) As a reminder ladies and gentlemen, this conference is being recorded. I would now like to introduce you to the Vice President of Corporate Finance and Investor Relations of Clark Consulting, Jim Radosevich. Sir you may begin.
JIM RADOSEVICH, VP, CLARK CONSULTING: Good morning and thank you for joining us today for the Clark Consulting conference call to discuss the third-quarter earnings results. If you haven't received a copy of the press release please call Ashton Partners at 312-553-6711. Before we begin be advised this call may involve forward-looking statements such as projections of revenue, earnings, capital structure and other financial items. Statements on the plans and objectives of the company or its management, statement of future economic performance and assumptions underlying the statements regarding the company and its business. The company's actual results could differ materially from any forward-looking statements due to several important factors described in the company's latest SEC filings.
The company assumes no obligation to update any forward-looking statements made during this call. On the line with us today from Clark Consulting are Tom Wamberg, Chairman and CEO, Tom Pyra, Chief Operating Officer, and Jeff Lemajeur, Chief Financial Officer. We will begin with brief remarks and then open the call for questions. Tom, if you are ready to begin?
TOM WAMBERG, CHAIRMAN, PRESIDENT, CEO, CLARK CONSULTING: Good morning everybody. Let's see, I am going to turn this over to Jeff, he going to go through our financials for the quarter, and then Tom Pyra is going to come on and he is going to talk about our operations. And then I am going to come back and I am sure a question in everybody's mind is how does Clark line up in respect to the news of the Spitzer investigations and so forth. I am going to talk about that in detail and then I will also talk about legislation; we've recently had a good success with the FSC/ETI bill which I think the President has signed, yes, he signed it. So anyway, let me turn this over to Jeff Lemajeur and I will be back with you at the end.
JEFF LEMAJEUR, CFO, CLARK CONSULTING: Thanks, Tom. To facilitate your understanding of our third-quarter results I will be using the financial statement attached to the press release as the basis for my comments starting with the income statement. Total revenues for the quarter were 11.2 million less than the third-quarter of 2003. First year revenues were down 11.8 million, or 27.1 percent from last year's third-quarter, primarily due to continuing weak market conditions for our banking products especially compared to last year's third-quarter when the expectation of declining yields in our products drove clients to action.
Third-quarter 2003 first year revenues included $2.7 million of revenue related to the two agreements signed in the third quarter of 2003 with insurance carriers that provide additional revenue based on the value of the in force block of business as a specified measurement dates. Third-quarter 2004 first year revenues did not include any revenue amounts relating to those agreements. We did record 101 million this quarter in renewal revenue and expect to record 1.1 million renewal revenue per quarter going forward relating to these two agreements. There are no marginal costs to the company relating to these revenue streams.
The revenues from carrier contracts in both the third quarter of 2004 and the third quarter of 2003 did not include any amounts relating to sales volume generated during the quarter. Renewal revenues were up 600,000 or 1.8 percent compared to the third quarter of 2003, primarily as a result of the classification of revenues from the carrier agreements we just discussed. Third quarter and year-to-date renewal revenues are $6 million greater than the company expected based on higher-than-budgeted persistency of our existing block of business.
Commission expense decreased 6.1 million, or 28.8 percent. As a percent of revenue commission expense improved 4.6 percent this quarter compared to last year's third-quarter primarily due to the mix between sales by employees versus sales by independent consultants.
Mitigating the improvement was the lower revenues from the carrier contracts since these revenues have no related commission expense. In addition, there were positive commission percentage impacts due to the ,ix between first year and renewal revenue and the higher percentage of consulting revenue which is not subject to commissions.
Renewal revenues generally have lower commissions than first-year revenues and employee sales generally have lower commissions than sales by independent consultants. Some of the commission savings from sales by employees is spent in the form of increased operating expenses. Independent consultants cover their operating expenses out of their commissions.
G&A expenses were down 1.6 million, or 3.9 percent despite approximately 230,000 of Sarbanes-Oxley section 404 compliance costs. The increased Sarbanes-Oxley costs were more than offset by significant cost reductions at the Executive Benefits Practice, and the Human Capital Practice. There was a workforce reduction in our Banking Practice that generated 230,000 of costs in the quarter but will reduce fixed costs by at least 300,000 per quarter going forward in response to the current soft market for bankings products.
Amortization expense was down 1.2 million or 20.9 percent from last year's third-quarter based on amortization schedules from our various acquisitions, and a 550,000 true up adjustment relating to the Long Miller acquisition in the third quarter of 2003. The positive variance in amortization expense compared to the prior year will continue absent any acquisitions.
Operating income decreased 2.3 million or 21.7 percent from the third quarter of 2003 reflecting the items we just discussed. As a percent of revenue operating margin decreased to 12.3 percent from 13.5 percent in last year's third quarter. Interest expense was down 500,000 or 8. percent relating to lower borrowing levels compared to last year's third quarter. Future quarter's interest expense should also be reduced compared to the prior year, due to the fact the company paid downs $66 million of debt in 2003 and an additional 26 million in the first nine months of 2004. Again, absent any acquisitions.
Pretax income decreased to 2.7 million from 4.6 million in the third quarter of 2003. The effective tax rate was 44.5 percent in the third quarter of 2004, versus 39.7 percent in the third …