Huron Consulting Group Inc (HURN) 2006 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Huron Consulting Group webcast to discuss results for the third quarter ended September 30, 2006.

[OPERATOR INSTRUCTIONS]

And now, I would like to turn the call over to Gary Holdren, Chairman and Chief Executive Officer of Huron Consulting Group. Mr. Holdren, please proceed, sir.

Thank you and good morning and thank all of you for joining us to talk about our third quarter results and the market demands for our business. Before we begin, I would like to point all of you to the disclosure at the end of our news release for information about any forward-looking statements that may be made or discussed on this call. We have posted a news release on our website. Please review that information along with our filings with the SEC for a disclosure of factors that may impact subjects discussed in this morning's webcast.

Also, on this call we will be discussing one or more non-GAAP financial measures. Please look at our earnings release for all of the disclosures required by the SEC, including reconciliations of the most comparable GAAP numbers. Joining me on the earnings call today in Chicago are Gary Burge, our chief financial officer, and Dan Broadhurst, our vice president of operations.

Our results for the third quarter were very good and continue to reflect all the work and planning to create a balanced portfolio of service offerings. In a few minutes, Gary Burge will provide you with more details regarding our financial results for the quarter. I think a good indication of the market demand for Huron Services is a look at our third quarter performance metrics. If you compare our performance in Q3 to Q2 of this year, sequential quarter growth, I think this is a good indication of how hot the current market demand is and how well our balanced portfolio is working. Our segments made equal contributions to our operating income. Financial consulting increased our utilization by more than 6% in Q3 from Q2 and exceeded 80% utilization for the quarter, while operational consulting maintained utilization in the high 70s and added nearly 60 billable consultants during the quarter.

The third quarter is a quarter where many vacations are taken and at a time when campus hires join the company. We added about 50 of our 75 new college campus hires this quarter. Including the campus hires, we added 94 billable consultants in the quarter and our utilization rate increased to 78.9% from 76.7%. And our revenues increased 11% over Q2. Our disputes and investigation business has run at a very high capacity in October and we have many projects that will run well into 2007. We continue to have more than 50 people at a major truck and engine manufacturer working on accounting issues, to help them get their financial statements filed with the SEC. We also have several large carve-out jobs, carving a division out of a major corporation to make it a standalone company and one which will be a large job for us in 2007.

We have a good number of stock option investigations, two of which are in our top 10 jobs for October. We continue to expand our disputes business. We have a large job to try to help a company call off a merger and we have just been hired on another major transfer pricing case. We are also adding to our PhD group of economists and we are winning large economic disputes assignments. We will continue to add aggressively to this group of managing directors and we are in active discussions with a number of MD candidates. These candidates include big four audit partners, valuation experts, PhD economists and experts in large litigation disputes. We are very excited about potential growth over the next three years in our disputes and investigation business. As we have said before, the market demand remains very robust. We just need to find as many resources as we can to meet this market demand.

Now, I would like to turn to our operational consulting segment. I'm going to cover the legal business consulting first since our legal channel customers have tremendous needs for our services. We continue to be hired by general counsels of major Fortune 500 companies and we continue to penetrate the oil, pharma and financial services industries. We are being hired to help with strategic plans, records management, discovery and cost reduction efforts. The amended federal rules of civil procedures are going to be a huge driver of both our proactive records management and our reactive discovery management services offerings. We have recently been hired by three Fortune 100 companies to assist in this area.

Also on that front, we recent added managing director Scott Rosenberg. Scott specializes in providing technology solutions to large law firms and corporate legal departments. We are also very pleased with our two new acquisitions, Document Review Consulting Services and Aaxis Technologies. Three of our largest jobs in October were doing document reviews for major corporations. We are also referring our investigation litigation clients to Aaxis and Document Review. The acceptance of these services by our clients has exceeded our expectations.

Now, I will turn to our operation consulting practice that serves higher education institutions, academic medical centers, hospitals, health plans and the pharma industry. This industry or client segment is very large and represents between 15% to 20% of the U.S. GDP. Our higher education practice has grown almost 100% year over year and 65% in the first nine months of 2006. The key market drivers for higher education are the continued demand for assistance in helping academic institutions and medical centers manage research, the increased focus on integrating technology into university research operations and foreign countries wanting to start research universities and academic centers in their countries.

Our provider hospital business offers us some of our greatest opportunities for growth at Huron. The healthcare industry continues to be challenged by decreasing payments for Medicare and Medicaid and intense pressure from managed care plans. Additionally, there are competitive costs and operational pressures on many academic medical centers. Our health plans business practice is also very busy with all the activities around the complexities associated with Medicare enrollment and Medicare contracting. Our pharmaceutical compliance business is being driven by compliance with off-label drug promotions in compliance with the Medicare -- Medicaid Rebate Act.

On the corporate consulting side of our operational consulting segment, our Galt & Company business continues to gain major clients to help them with shareholder value transformation. And we are growing our performance improvement in supply chain businesses at major Fortune 500 companies. I think you can see why we are so excited about the market opportunities for growth at Huron at 2007 and beyond. Our number one business issue continues to be how do we find great talent? How are we going to continue to grow at Huron? First, we're going to continue to promote internal resources to take on new and greater responsibilities. We will continue to hire managing directors from the outside and build pyramids below them. We are going to hire 150 new college recruits -- we're in the process of doing that right now, who will start in the summer of 2007. We are going to continue to work on very specific focused programs to retain our outstanding people who work at Huron today and we will continue to look at group hires and tuck-in acquisitions.

Before turning it over to Gary Burge, I just want to personally say thank you for the more than 1,000 employees who work for Huron, for continuing to make this a special place to work and to provide value to our clients and communicates every day. Now, Gary Burge.

Thanks, Gary, and good morning, everyone. As Gary commented, we are very pleased with our continued strong results for the third quarter of 2006. Some of the financial highlights for the quarter included revenues of $75.2 million were up more than 38% year over year and our organic growth rate was running at better than 25%. EBITDA increased 58% to $15.5 million in the third quarter compared to $9.8 million a year ago and our EBITDA margins increased 250 basis points to about 20.5% from 18% a year ago. And our adjusted EBITDA margins increased 180 basis points to 24% from about 22% a year ago.

Operating income increased 68% to $12.1 million for the quarter, up from $7.2 million last year. And GAAP, diluted EPS came in at $0.39 compared to $0.22 a year ago, $0.26 for the year-ago quarter when adjusted for intangible asset write-off and secondary offering costs. We had $17.4 million diluted shares outstanding, which was up 2.7% from a year ago. Other quarterly highlights include the following. Our financial consulting segment posted solid revenues of $34.6 million, which was up about 4% from a year ago. Our largest practice -- disputes and investigations -- had an outstanding quarter as revenues were up nearly 35%. We continued to see softness in our distressed industry practices, bankruptcy and restructuring and Speltz & Weis, but, as we've said before, we like these distressed industry practices and we are patiently waiting out this cycle where there continues to be a lot of liquidity that is supporting tremendous levels of high-yield debt.

We continue to see great returns on the investments we've made in operational consulting, as Gary mentioned. OC contributed nearly 54% of our revenues for the quarter, the highest contribution for operational consulting in Huron's history. They posted revenues of $40.5 million, a 93% increase in the same quarter last year, including acquisitions. But what we really like, however, is the fact that the organic growth rate in this segment was in excess of 50%. The organic growth rate was fueled by significant investments that were made in our higher ed and legal business consulting practices, as those practices delivered revenue increases approaching 100% and 50% respectively.

Overall, our utilization remains strong at 78.9%, with our balance portfolio again at work. Financial consulting came in at better than 80% and operational consulting came in at better than 77%. We like the fact we've added 138 billable consultants, a 22% increase from the same period last year, while at the same time sustaining and actually increasing our utilization. We are also really pleased with the fact that we added almost 100 of those billable consultants this past quarter and again not only maintained, but saw an increase in our utilization from this year's second quarter. We think this shows that we truly do have a balanced portfolio of service offerings and more importantly that these service offerings are market relevant to our customers and are in demand.

Now, for a few more stats. DSO came in at 76 days for quarter. We are not pleased with those results and are refocusing attention on this measure here in the fourth quarter in order to get it back down to 70 days or better ASAP. Our analysis shows our unbilled [whip aging] actually improved by two days during the quarter, meaning there isn't a problem with us getting bills out the doors to our client. However, reduced amount of customer retainers, relating to job that concluded during the quarter, increased our DSO calculation by two days and our accounts receivable aging added days to our overall DSO stat. We don't see any collectability issues with those AR accounts and we think that it was more of a timing issue on cash receipts towards the end of the quarter. In fact, we had a very good cash collection month in October with almost $36 million being collected, which is a record month for us and about a 25% improvement over the monthly run rate we have been seeing over the last two quarters. So, we think we're getting back on track and can sustain that momentum.

As couple of final stats. Using our trailing 12-month GAAP net income, we are pleased to report that we continue to have strong return metrics with a 16% return on assets and nearly a 27% return on equity in the third quarter. These results include approximately $9 million in pretax and non-cash stock-based comp expense and about three-quarters of a million in secondary offering costs over the last 12 months. Now, the outlook for the remainder of the year. Based on currently available information for Q4, we expect revenues in the range of $79 to $81 million, operating income of $13 to $14 million and $0.42 to $0.45 in diluted EPS. For the full year 2006, we expect a revenue range of $284 to $286 million, GAAP operating income, including the secondary offering costs in the range of $46 to $47 million and GAAP EPS in the range of $1.50 to $1.53. These estimates include approximately $3 million and $10 million of stock-based comp expense in Q4 and the full year respectively. Weighted average diluted share counts for 2006 are expected to be approximately $17.6 million for Q4 and $17.4 million for the full year 2006.

We do want to caution everyone not to get ahead of us and assume that we're going to run right to the top of these revenue and EPS ranges or beat these ranges for the fourth quarter and the year. Demand remains strong. Our utilization remains in our expected ranges, et cetera. The only uncertainty we have is how many effective business days we will have in the quarter due to vacation days being taken, client availability to get work done, et cetera. In addition, as Gary mentioned, we're heavily into our college recruiting season and our consultants will be spending, on a cumulative basis, more than 400 man days in the fourth quarter on these recruiting efforts, taking them away from client work. Time well spent, but recruiting will have an impact on our Q4 revenues.

Lastly, our effective tax rate in the third quarter was approximately 42%, reflecting a year-to-date true-up of our consolidated tax provision, based upon estimated state income allocations. Our year-to-date rate has thus come down to 43% and you should assume that same rate for the fourth quarter.

To conclude, we're very pleased with our strong results for the quarter and we feel that we're well positioned to wrap up the year and as we head into 2007. Let's now open it up for questions.

Thank you.

[OPERATOR INSTRUCTIONS]

Your first question comes from the line of Matt Litfin with William Blair. Please proceed, sir.

Yes, hi. Good morning. Congratulations on a strong third quarter.

Thanks, Matt.

Thanks, Matt.

So, the first question is I wanted to follow up on Gary Burge's comments just now about the effective business days in the fourth quarter. What does your guidance imply? Is your guess at the number of those business days? How does that compare to the third quarter number of business days and to the sense of what the potential range is around whatever assumption you're using there for fourth quarter?

Yes, Matt. We're thinking right now that the fourth quarter is going to have somewhere between 55 and 56 effective business days. That compares to 58 that we had in the third quarter. So again, that uncertainty is just how much vacation is going to be taken, how much this recruiting is going to impact us. And when revenues are a million plus dollars a day, you can imagine just a little uncertainty we have. But I'll reiterate, demand is good, utilization is strong. We've got people working a lot of hours, so it's nothing with the business that concerns us. It's just how many days are we going to have when it's all said and done?

Okay. And then, what is implied in the guidance for consultant headcount at the end of this calendar year?

I think we're targeting to be at 800 for the consultants by the end of this year and so we're -- the recruiting pipeline looks good and we'll continue to pound away on that.

If you go to the stats, Matt, I think you see we're at like about seven -- if you take out the -- if you go to the 810 that was in our press release and take out 46, you come to 764 and I think Gary's right. We're shooting to have 800 in the year.

Okay. And then, your plans on -- you mentioned, for 2007, to hire 150 college graduates. What is your assumption on staff turnover and what was the experience during the third quarter? And what are your plans for hiring apart from those college grad level type people?

Well, I'll let Dan Broadhurst tell you about turnover, but I think, Matt, from our perspective, we couldn't hire too many people. The market demand is so good, we couldn't hire -- so it's just whether we can find them and then get them here. So, there is no -- we're going to go as fast as we can trying to hire people because there's not a business we have, other than what Gary said in the distress business, where we are way short of having people just take care of the demand.

And Matt, it's Dan. Regarding turnover, we're -- the turnover in Q3 was consistent with Q2, so running at about 5.5%. We're running in the low 20s on an annualized basis. And we'd expect that number to probably decrease in Q4 as it has historically.

Okay.

And that, I think, Matt, is that we're really going to work on -- and I don't know whether we'll do it or not, but one of our number focus is on '07 from all of our management team is to try to retain our best people because, I mean, the way you look at it, every time one of our people leave, it's $400,000 of revenues that we have to replace. And so, we just need to make this one of our number one focus. If you think about all the demand we have, how many people, every time we lose that person, it just -- we've got -- it sets us back. So, we've got to make a real effort to make that one of our number one business priorities and make all of the leadership team and all the managing directors feel that they really have to [bit] -- that it has to be a key metric that we have to focus on.

Okay. Thanks, Gary.

Your next question comes from the line of Kelly Flynn with UBS. Please proceed.

Hi. This is Andrew Fones for Kelly. I was wondering if you could talk a little bit about the impact of the acquisitions in the quarter on your margins. Are those acquisitions at your overall company gross margin and so forth or was there -- is there any difference there?

We just don't -- we don't give that kind of detail. We're just not -- I think that you can -- we just don't want to get into the detail of giving that kind of information, Andrew. I mean, we just give it at the segment level. But we've said that our acquisitions are accretive and these are very good businesses for us.

Okay. Thanks.

Yes, Andrew, Gary Burge here just to add onto that. We are targeting 20% plus operating margins for these businesses and so, certainly, they'll be equal, if not better to any of our other operating businesses.

Okay. Maybe just following on from Matt's question about hiring. Do yo have like a budgeted goal in terms of the headcount in '07? Is there a number that you're targeting there that you could share with us?

Well, we sure wouldn't be less than 1,000 at the end of '07 and that would be sort of a minimum. But we'd like to be over that.

Okay. Thanks. And ...

Your next question comes from the line of Tobey Sommer with SunTrust Robinson Humphrey. Please proceed.

Thanks. I was wondering if you could give some additional detail on your higher education practice and talk about whether you're getting growth primarily from additional projects from customers with whom you already have relationships or whether you're seeing new customers contributing more to the growth.

Yes, yes, and yes.

Okay. In that respect, you did say something, I think, in your prepared remarks, if I heard correctly, about international research as well. Any details you could share with us there?

Well, there could be some announcements. There's some stuff very close to happening that we're not prepared to share yet, but we're close to having some potential major assignments in other countries.

It ...

We'll serve them with our U.S. people for now.

Okay. And if you look at your mix of business, in your prepared remarks, you cited several, I guess, substantial projects that will give you some visibility into '07 and et cetera. And I was curious, from a mixed standpoint, is there a greater contribution to revenue and profitability from these larger projects, relative to the past or is it roughly comparable?

No, I mean, I think the one thing you've got to realize is, I think, what we've said. And I think everybody hopefully realizes this is that the way we grow Huron and the way we grow the EPS as we grow revenues -- because we're going to cap the gross margin at 45%. So, it could be that if something produces more margin and it grows faster, it's just going to make the -- some of those employees make more money and we will share 45% of that. But we're going to -- and one of the things we've got to make sure people realize how we're running this business is we're -- once we get to our 20% revenue growth and we get our margin dollars that go to 45%. Anything above that, we share 55%, 45% with our people.

Sure. And then, I'll ask one last question and I'll get back in the queue. You did say you have some nice stock options related investigations going on. Do you have any expectations broadly and not just for the engagements that you're on, but for this, I guess, developing demand driver, relative to whether they'll develop into civil suits and maybe what that would mean for your business?

No, we really don't. It's not -- I don't think you -- anybody would know at this point. And we just -- right now, there is so much demand for our business that's coming from so many different areas is, at this point, we just need people. We just -- we continue to get so many calls for so much different business in so many different areas.

Thank you very much.

Your next question comes from the line of Sandra Notardonato with Robert Baird. Please proceed, ma'am.

Thank you for taking my question. The first one I have is on Sarbanes Oxley. I guess there's some increased talk out of the Republicans to ease the Sarbanes Oxley. I'm wondering if that at all has any implications on your business in the near to intermediate term?

I don't think so, Sandy. I really don't see where it would -- with the kinds of things we're getting now, if a company wants to carve out a business or there's a failed merger, there's an economic dispute or whether it's -- the only thing I could say that you might say there is would the SEC -- now it has 1,200 or 1,500 enforcement people. Are they going to cut those people back and not enforce things? I mean, I just don't see that having any impact on our business.

Do you see, potentially, that the consulting firms that are getting a lot of Sarbanes Oxley work might start going after more of the work that you're going after in higher education, as an example? Just your thoughts there, Gary would be helpful.

Well, I think, Sandy, I mean, you don't want to be arrogant and say no, but I mean, they would have a huge barrier of entry against our people. We've got such good people and we've got such good market share there. They could try and I'm not -- I'm sure people will go them. I mean, if people continue to listen to our calls, right?

Right.

I mean, and know how good a business this is, I'm sure they want to get into it. But I think we've got -- we've got -- I think we've got the best people in the business and we continue to attract the best people that want to work with the best team.

Speaking of the barrier to entry, does seem like the barriers to entry on the higher ed side are pretty high. Who do you see if, with any regularity, you can comment in terms of competition?

We don't really see anyone.

Okay.

We really don't.

Okay. On the recruiting front, should we be modeling, in 2007, some regularity to the man hours that are associated with the folks that you're going to need to take out of the field and devote to recruiting, Gary Burge?

Yes, Sandra. I think we've doubled our target of number of college recruits for next year and I would see no reason in 2008 that we wouldn't be thinking of the same level and so, at this stage, if there were something that's kind of significantly changed in that regard, we'd incorporate that into our 2007 guidance, but ...

And that would be September quarter -- excuse me, a December quarter as well, correct?

Yes, the bulk of that college recruiting happens beginning in the month of October.

Okay. Great. And then, another question I have is the 150 folks that you're planning for summer of '07 versus the -- I think it was something around 70 for '06. Did you notice any or are you noticing that you're having to pay them more in terms of whether it's a salary increase or a sign-on bonus?

Just, Sandy, not too much -- not too much if you recruit key kids from the Midwest to come to Chicago. Maybe a little bit increased signing bonus. But what we're facing and what we -- is we're asking a substantial amount of these people to go to New York and to convince Midwest kids to go to New York. We are going to have to pay them more, but we make more for our people in New York. And so, it won't have any -- the salaries may go up a little bit, but we -- it won't at all affect margins. It may even increase margins if we can get more people into New York.

Have you filled the -- let me ask how far you are in terms of filling the office that you opened up in New York?

We won't -- the big thing to fill it, Sandy, will be if we -- once we get 60 or 70 of these new young people, we're also going to try to get maybe 40 or 50 of our people from Huron to transfer to New York plus do hiring. So, I think by the end of '07, we should be 60% or 70% there.

Okay.

We need 350 people. We've got about 150 now. So, if we add maybe 100 next summer and so we're 250 and maybe hire a few. Maybe we'll complete it by sometime in '08. We'll have 350 people there by mid-'08. Clearly, if we do another recruiting year that big, we'll clearly have it filled by September of '08.

Okay. And then, my last question -- the comment on some potential major assignments overseas, using your U.S. people, will you have to open up an office, though, regardless, overseas and what does that mean for CapEx?

At this point, if we were to open anything, it would be probably based on client commitments and we probably would -- we wouldn't do it with big CapEx things until we knew -- unless they were four or five year assignments. So, I think it would be -- I wouldn't -- right now, we're not planning a lot of additional CapEx from offices expanding in '07.

Okay, great. Great quarter.

Thanks.

Your next question comes from the line of Brandt Sakakeeny with Deutsche Bank. Please proceed

Thanks, Gary. Great job on the quarter. Question for you. I missed the attrition level in the quarter. Could you give that again?

Yes, the turnover rate was about 5.5% for the quarter. And that's consistent with Q2.

Okay. And is that -- is that still slightly ahead of where you want it to be?

Yes. I think, as Gary commented earlier, we -- long run -- long term, we want to be more in the mid-teens, mid to high teens. And we have implemented a lot of steps and programs already in this year to start that, some of which have been -- Gary's talked in the past about a CEO advisory counsel, where he gets together with a group of staff level people all the way up to directors, periodically. We've got culture teams embedded in each of our practices and we've also started a major retention program that we've not only brought in the managing directors into, but the directors and the manager as well to be on -- as part of the solution here.

Okay, great. And then, I guess a question for Gary Holdren. Gary, obviously, you record -- I'm sorry -- you've recruited MDs and also certainly brought in some acquisitions like Galt. How successful has that been in terms of integrating the junior people in those acquisitions sort of into the broader sort of Huron fold. And ultimately, is that an avenue, too, that you can supplement on the recruitment effort?

You mean that we can put our young people into those businesses, Brandt?

Exactly. And also use acquisitions, too, as a vehicle for driving more young people.

Yes, I think that, clearly, that's one of our strategies. We -- the two new acquisitions that we did -- the processing and document review, they're not that prone to that. But clearly, Scott Gillis and the Galt people were out hiring young people off the campus as well, enroll young people. They continue to use our people on their jobs. And so, we really believe, as we start looking at tuck-in acquisitions, one of the things that most of the companies that come to us about wanting to join Huron is that their somewhat amazed at our leverage model and most of them are not leveraged. And they're very excited about using leverage to make money and to sort of -- and so, we really think if we do do more tuck-in acquisitions, it will even require us to have more young people to fold into those businesses, which will even help us integrate more because it will all become Huron.

Great. Thank you.

[OPERATOR INSTRUCTIONS]

Your next question comes from the line of James O'Brien with Ryan Beck. Please proceed.

Yes. Good morning. Utilization was strong in the quarter, but for the financial consulting line, I'm looking. It was down year over year. Can you maybe tell us a little bit what was going on there, if anything?

Well, the only thing that had happened there is we could -- I think Gary continued to say is that our financial disputes and investigation business was up substantially, but we've had a decline in our corporate advisory business and our Speltz & Weis business over last year. So, that's why you see that utilization going down for that segment.

Okay. Got you. With the bill rate being up about 5%, without looking too, too far ahead, is that something you're planning on, say, going into next year that you'll be able -- because demand is running so hot here that you'll be able to quite easily raise your bill rates again?

Yes.

Okay. And one last question, Gary Holdren. Obviously, with -- I just mentioned, demand running so hot, are there areas that you're looking to fill in right away and, if so, what those may be? And then, secondly, are there any other skill sets or practices that you don't have currently that you're looking at, whether it's doing it organically or through a tuck-in? You really see, on the horizon, it's somewhere you really have to be involved in.

Well, one of the things that we would like to do is I think I've mentioned that we think there's huge demand in the provider sector hospitals. We would like to have that be a much bigger part of our business because our higher education, there's research -- Academic Medical Center is associated with them, so we think we really need to grow that practice and it gives us great opportunity. We just -- if you look around all of our business, we need more people. And I think the only other business that I'd like to be and we've talking about is the transaction advisory business, which would supplement this carve-out work we're doing plus help us do financial due diligence with private equity funds and hedge funds.

And so, I think we'd like to see if we could develop the transaction advisory business. And -- but in every area, we just need -- we just need so many more people. And again, I think what you'll see is you'll see us react to client demands. I think we think it's so much easier to not have -- if you don't try to guess where the market is, but you go where you're clients ask you to go. I mean, that's why we would go overseas, because we'd be going there with a specific client and a specific job versus opening an office somewhere and trying to get the market to come to us.

Understood. Thank you.

Your next question comes from the line of James Wilson with JMP Securities. Please proceed.

Thanks. Good morning, guys. I was wondering if you could give a little more color on what seemed to continue to be your fasted growing practices -- higher education and legal outsourcing as to the components of growth of number of clients or utilization or depth of the assignments that you have? How much broader, for instance, they might be getting with individual institutions. Any other kind of color as to how and where all the growth is coming from?

Well, it's just a combination, Jim. If you take the higher education, it's just a combination of so many factors. We -- by having a group that puts -- has the technology solution on grants and that being something that needs more work, that's driving -- those are longer-term assignments. And if you get somewhere like a Harvard or a Yale or whatever, whether it's one assignment or not, they just keep with us, just keep asking us to do more things. And then, once people read about Yale on some issue in the paper, more people call us. So, it's just a combination of everything. The demand is just so great and we just keep keeping at the same clients. We keep getting bigger assignments. We keep extending our assignments. New people call us. Getting into new areas other than research. You start doing things for the CFO now. You might do sourcing projects. It's just a huge expansion of everything we do.

Okay. And what about on the legal outsourcing front? How is that sort of proceeding?

Well, the -- we're really having a huge impact in the -- I think this is a fact. I think almost every oil field service company and every oil company in Texas, we have as a client right now. And all areas, if you think about it -- from records management to discovery to e-billing -- it's just -- it's a huge growth opportunity for us and we also believe that the growth opportunities that exist for us in the pharma sector, we -- I think most of you know we've been at Pfizer for four years and we don't think we're going to be leaving there any time. So, Pfizer's the one who asked us to do -- buy Aaxis and Document Review. There's some huge opportunities. And we also believe that by being in New York, we have some huge opportunities to penetrate the financial services industry. They're a huge user of legal services, big cases, big discovery. So, all those give us big opportunities.

All right. All right. Thanks a lot.

You're next question is a follow-up question from the line of Matt Litfin with William Blair. Please proceed.

Yes, a question for Gary Burge. Would you be willing to quantify the year-over-year effect of the big United Airlines case that was -- in last year's third quarter and what the effect was on the growth rate. And maybe address the -- how the comparisons become going forward.

Yes, Matt, United Airlines still remains in our top 10 clients, but at the bottom end of the top 10, whereas a year ago it was very close to the top. So, that client -- we're still out there, still providing services beyond the original bankruptcy work, of course. And we hope we can remain out there and be helpful to them for well into next year. But that has had an impact on the bankruptcy and restructuring business. So, our people are out looking for new opportunities, looking at doing things on more on the M&A or transaction side and finding ways to be -- respond to client needs out there. And I think they're going to be successful. And we know this liquidity that's out there right now is going to start to dry up here at some point and that's going to mean good things to their business.

Would it be possible to estimate the financial segments revenue growth rate without United in there?

Without United in there, well, the organic growth rate would have been greater, certainly, because United is probably half the revenues it was a year ago at this stage, if not even less.

Matt, our revenues in Q3 last year versus Q3 this year for our corporate advisory practice and our Speltz & Weis business is down a very substantial amount year over year.

Yes, thank you.

Your next question is also a follow-up question from the line of Kelly Flynn with UBS. Please proceed.

Yes, hi, guys. I just wanted to ask a follow-up on utilization. I know in the past you've given some kind of longer term guidelines on where you expect utilization to run. Could you kind of update on that, please?

Yes, I think, Andrew, I think we've said that -- I would just really like to run this business around 75% long term. Maybe we can't if we -- the market demand is as hot. But the one thing right now is -- the thing I think that you all know and I've said, probably, ever since we've been a public company. You need people and you need to have dry powder. And if you run 80% and 85%, you can't take large assignments. I can't tell you right now the number of assignments that people want us to put people on and we don't have people to put on. And so, we really need to try to run this and to make this thing profitable and provide you all with a fair shareholder return at a 75% utilization rate long term.

Andrew, this is Gary Burge. Just to add onto Gary's comments. We're not turning large amounts of work down, but we've got big assignments with 20, 30 people that could have more people on them if we had the resources.

Okay. Thanks.

[OPERATOR INSTRUCTIONS]

I would now like to turn the call back over to Mr. Holdren for closing remarks. Please proceed, sir.

Okay. I wanted to thank all of you for your time today. And I just hope you can tell how excited we are about the future of Huron Consulting. And I hope none of you read anything into the Q4 numbers about revenue or guidance about anything about the slow demand. We are so well positioned and we've got such great people and such great market demands to proceed into '07. And we've got a great company and we're building a great company and we look forward to giving you the year-end results and guidance in February. So, thanks for attending this morning.

This concludes today's conference. Thank you, everyone, for your participation. You may now disconnect. Good day.