Huron Consulting Group Inc (HURN) 2007 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 2007. At this time, all conference call lines are in a listen-only mode. Later we will conduct our question and answer session for this conference call.

(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 go ahead.

Thank you and good morning. Thank you for joining us for today's webcast to discuss Huron Consulting Group's third quarter 2007 results. 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 the news release on our website. Please review that information along with our filing with the SEC for 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 on our website for all the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers.

Joining me on the earnings call today in Chicago are Gary Burge, our Chief Financial Officer; Dan Broadhurst, our Chief Operating Officer; and Mary Sawall, our Vice President of Human Resources.

What I would like to cover first this morning are all the significant accomplishments we have achieved in building our business in the last 12 months, and why we are so well positioned to attack the marketplace in 2008 and deliver outstanding top-line and bottom-line growth for our investors. On the people side, we have added 394 net full-time billable consultants, an increase of 52% in the last 12 months.

Our full-time equivalents or on demand resources have increased by 438 people or 238%. At the start of 2007 we had 99 revenue generating managing directors and as of today we have 161. We were very successful in adding about 200 new college hires during the year. Young talent pool we have added to Huron is truly amazing and will benefit us for years to come. We will add a similar number of college recruits next year. I would also like to report that our year to date voluntary turnover is 13% versus 17% at this time in 2006. We are improving.

The other significant accomplishments we have achieved in the last 12 months are as follows. The document review business that we acquired in August 2006 had 250 workstations. Today we have 600 workstations, including a new 50 workstation pilot review center in India. We have also increased our processing capabilities with new software investments that will handle much greater volume in the future.

At the beginning of the year we acquired Wellspring and Glass. With the Wellspring acquisition we obtained the premier hospital consulting business in the United States. By combining Wellspring with our Speltz & Weis business, plus our existing healthcare provider business we have created a real market force to attack a broader healthcare community.

David Shade and his teams leadership and market relevance have been world class. With the Glass deal, came the leader of our restructuring and turnaround business. John DiDonato and six other talented MD's will have us very well positioned to attack the troubled company market.

We have also opened Huron's Tokyo office this year. As of today we have five managing directors and 20 full time employees. We look forward to this office having a positive impact on our 2008 results. During the third quarter we acquired Callaway. This is a very entrepreneurial group of 10 managing directors who have built a business that uses very experienced on demand resources to help clients with projects that need accounting, tax, and internal audit type resources.

You can imagine how proud we are of these accomplishments. Huron's nine months revenues have increased by nearly 80% over last year, with an 83% increase in operating income. We believe with all these accomplishments we are very well positioned to deliver 20% organic revenue growth. We have also a full pipeline of acquisitions with the goal of acquiring at least $100 million of annualized revenues in 2008.

Before I discuss market demands, I want to address results for the third quarter and full year relative to the guidance we gave you on August 7th. First you will note that our third quarter EPS of $0.58 came within the third quarter EPS range that we gave you back in August, and our updated full year EPS guidance of $2.30 to $2.34 remains within the range that we gave you in August.

Despite our revenues not meeting our expectations and falling short of our business plan, we have been able to deliver our bottom line results through management of our SG&A costs and downward adjustments to our variable compensation accruals as the result of us not meeting our budgeted revenue objectives. Now with respect to why we fell short of our third quarter revenue expectations and why we are going to fall short on the revenue expectations for the full year that we guided you to back on August the 7th.

In a nutshell, it occurred in our financial consulting practice excluding Callaway, and relates to what we refer to as foundation jobs. Revenues for Callaway and all of our other segments are definitely in line with what we gave you as our forecast in August. Foundation jobs in our financial consulting practice are jobs that produce at least a $1 million revenue for the quarter and can last several quarters, if not longer, in duration.

Financial consulting has seen a dollar amount and number of foundation jobs decline since the third quarter of last year and when we gave guidance back in August we were expecting a pick up in foundation jobs over the remaining five months of 2007, which has been slow to materialize until just recently.

As a point of reference, we had five foundation jobs in the third quarter of 2006 that accounted for $17.2 million in revenues. We had five foundation jobs in the second quarter this year at a total of $15.9 million revenues. And we only had three jobs in the third quarter this year that had a total of $8.7 million in revenues. This $8.5 million drop in foundation jobs revenues from a year ago and a $7.2 million drop from the second quarter are difficult to replace in a short time period with smaller jobs.

However, we have personally offset this loss of foundation revenue due to increased sales activities and wins on jobs that delivered between $200,000 and $1 million in quarterly revenues. Our revenues in Q3 of this year increased $2.6 million versus second quarter 2007 from comparable sized jobs. We are very encouraged by the fact that our sales effort have delivered very good results in the $200,000 to $1 million sizes jobs, which tell us that demand for this disputes and investigation services is still good.

Just this week we have seen our financial consulting daily run rate increase to a level higher than it has achieved for the last six months and comparable to the first quarter of this year, 2007. Unfortunately October is behind us. We only have two short months left in the fourth quarter so it's difficult at this stage to make up for the lost time. But what I can tell you now that if the fourth quarter was starting today I would have been very bullish on the prospects of meeting 2007 revenue guidance we originally gave you as we have several jobs that could turn into foundation jobs.

And we continue to have good sales on momentum, including a big foundation job that we are meeting with the client this afternoon to present our credentials. Before I leave this area I need to mention that Joe Floyd and his team of managing directors have historically produced great results for all of us at Huron. They have done more than their fair share of balancing the portfolio and producing results. We owe them great thanks.

They are coming back strong based on new work we are winning daily. Why are we so confident about the future of Huron? Why do we believe the market demands continue to be so strong for us? Let me start first with our financial consulting segment, which now includes the Callaway business.

As I have said before, I have been working this business for 24 years. We know many of the top lawyers, litigators, plus the managing partners of many major law firms in the world. We are also working with more than 100 in house legal counsel departments that we have met with and we have met with many more this year. They have not given us any indication that they see their case load or activity levels slowing down.

The 100 largest corporate legal departments are not forecasting any decrease in their annual budgets, and they continue to spend millions of dollars each year to install systems and improve their process to control and reduce costs. Socha Gelbmann survey predicts that electronic discovery market will grow from $1.7 million in 2006 to $3.2 billion in 2008. Electronic discovery is driven by disputes and investigation.

One last point. The SEC budget for their enforcement staff is between $900 million and $1 billion each year. They are charged with protecting public company shareholders. There will be something new that will drive new investigations or actions in the future.

We are also targeting five very specific areas which we think there are big opportunities that will result in future foundation jobs for Huron. The first one in the Foreign Corrupt Practices Act, which is a major area of concern to the justice department and the SEC. Second, the sub-prime credit crunch will create litigation investigations. We have just started what we believe is a major foundation job on a sub-prime dispute.

Third, labor and employment litigation is the fastest growing area of legal costs for most corporations. FAS157, Fair Value Measurements, great opportunity for our valuation group and we believe this is a good growth opportunity for us as well. And lastly, international arbitration. Globalization is causing more disputes, which will drive arbitrations.

I know I've covered a lot here, but I think it is important for you to know why we believe financial consulting is such a good business and that's why we can grow it at least 20% organically for the next three years. The market demands in this business are huge.

The addition of our Callaway partners provide us with another vehicle to build our position in financial consulting. Callaway has brought us experience in internal audit, SOX compliance, enterprise risk management and tax. Our vision is to be the premier full service financial and accounting consultant advisor without the restrictions that come from bundling those service with an audit practice.

Last quarter I mentioned a very significant Huron client assignment where we have been able to integrate Callaway into the service mix. I am pleased to report that we now have more than 100 Callaway practice employees working on that assignment. And that level should stay constant through the first quarter of 2008. The pipeline for Callaway corporate governance and tax compliance service lines continues to grow and the outlook is favorable for the fourth quarter and early 2008.

In addition with demand for non-audit accounting professional services is projected to increase in the next decade as the financial accounting departments continue to downsize and streamline, and compliance and financial reporting project work outpaces the capacity of the available internal staff who already have their hands full closing the books.

In addition, Callaway brings us significant cross selling opportunities, not only within financial consulting but with all of our other practices as well. We have been working together for just a couple of months but already we have identified some potentially significant opportunities. In the next few weeks you will see new messaging from our financial consulting business in CFO magazine and other leading publications, which will have messages such as the best kept secret is out. Huron offers a new fresh alternative to CFO's and financial executives. And secondly, Huron can do everything but the audit for financial executives.

We believe with all the accounting, tax and internal professionals we have in financial consulting we can make a big impact with the CFO's in the United States in the future.

I'll now move on to legal consulting. This business continues to be very strong. It remains our fastest growing business as corporate law departments need more help managing costs and information. And we are laser focused on those needs. We continue to win major new assignments every quarter in Fortune 500 legal departments, and we are helping them improve processes and reduce costs.

We have also invested in new, very exciting integrated discovery offering. We are going to launch this offering with a new and game changing approach beginning January 1, 2008. We're going to be showing a demo of this product offering in our New York office in December and you will hear about this new integrated offering in the upcoming months.

Our position in the legal consulting arena is to be both consultant and service provider to our clients. And we are addressing that position on both marketing and sales fronts. We are very well placed in this expanding market and continue to add significant law clerks to our client roster every month. We are uniquely positioned to respond with both capacity and capabilities.

We are very confident that this business can also grow more than 20% for the next three years. Our corporate consulting business also saw a nice improvement from the second quarter of 2007. Our strategy practice continues to do very well. Demand for their services is currently substantially more than the resources they have available. They are in high demand by very large corporations, particularly CEO's, to help them improve shareholder returns.

Our restructuring and turn around practice also had a slight up tic from the second quarter. There are lots of indications that the restructuring and turn around market will expand in the coming months. Our expansion into the Japanese market is also going well. We are well positioned to build our service around the emerging J SOX market that is developing there, as well as accounting investigations. We currently have 20 people in our Tokyo office. We have several assignments already in the works with a number of proposals outstanding.

Now we turn to our fourth segment, our clean up hitter, which is now our largest and most profitable practice this quarter, health and education consulting. The success this group is currently having in the marketplace and its long-term potential for the next three years is pretty amazing.

Our healthcare business continues to be strong. We are more than a consulting firm and our concentration in providing these services has been very well received in the market. Modern Healthcare recently ranked Huron number three on the list of largest healthcare management consulting firms. The Wellspring business has increased more than 100% from the third quarter of 2006 when they were a stand-alone company.

We have the leading hospital practice focused on hospital value transformation in the United States. There are 5,000 hospitals in the U.S. and we currently only serve 30 to 50 a year. We have identified 300 hospitals in the U.S. that could potentially use our service and will aggressively target them in 2008.

You can see how large the growth opportunities are in this market space. The healthcare and higher education practices is going to aggressively attack the academic medical centers as a team in 2008. They both serve the academic medical centers, but as a team we have a more powerful service offering.

Now let me turn to higher education practice. Continuing the theme that has been central to our higher education practice since Huron's conception, we are playing a dominate role in helping institutions manage their clinical research. Our dominance in the research arena has enabled us to provide other services to the universities in such areas as strategic planning and operational improvements.

The higher education practice continues to have substantial opportunities internationally, particularly in developing economies. There is a strong desire to increase in the quality and quantity of education in healthcare. Among our domestic clients there is also strong interest in creating international strategies.

Jim Roth was in the Middle East last week and we won two new major assignments. Jim and his team are very excited about their long-term prospects of growing the higher education business outside the United States. We will also attack the for profit higher education space in 2008.

To close, we had a very strong quarter and demand is strong. I spent a lot of time this morning discussing our business, including the legal disputes and investigations market. First to explain why our revenues are short of guidance and to discuss the demands for this business and how we are attacking it.

I spent less time on our three other segments which are equally important to us and are seeing tremendous organic growth. What I think it very relevant to what we have accomplished in the last 12 months is how we have changed the balance of our service offering and how we are delivering services with more variable on demand labor.

Last year, the Q3 of '06, financial consulting without Callaway was 38% of Huron revenues and this quarter it is only 20%. Financial consulting was 46% of segment operating income versus 20% this quarter. This all happened with our business growing 80% and improving operating margins. An argument can be made that Huron is a less risky business going forward and we are in a much better position to attack the market and grow our business.

While we are not ready to provide specific guidance yet for next year, we can tell you that we have completed the preliminary phase of our 2008 planning process, and we are confident that the guidance you will receive in February will not disappoint you relative to the consensus estimates that the street currently has out there for us.

Revenue growth at Huron has not slowed. In closing, I am committed to stay at Huron for at least four more years to help lead and guide team Huron in achieving extraordinary growth for our business, expand services for our clients and creating opportunities for our people. This team will not let you down. I'll now turn it over to Gary Burge.

Thanks Gary, and good morning everyone. As Gary said, despite some slowing in financial consulting revenues with respect to the foundation or $1 million plus jobs, we did have a very good quarter.

Some of the financial highlights included -- revenues of $134.1 million were up 78% year over year with consolidated organic growth of 20%. Our customer diversification continues to improve as our top 10 customers represented 30% of our total revenue for the quarter, compared to 37% a year ago.

EBITDA increased nearly 83% to $28.3 million for the third quarter, compared to $15.5 million a year ago. And our adjusted EBITDA rose 86% to $33.5 million. Our adjusted EBITDA margins increased 100 basis points to 25%.

Operating income increased nearly 80% to $21.8 million for the quarter, up from $12.1 million last year. Our operating margins improved slightly to 16.3% from 16.1% a year ago, as improved SG&A leverage was offset somewhat by higher levels of intangible amortization and stock based comp costs.

Our effective tax rate came in at 45.4% for the quarter, reflecting start up losses from our newly opened office in Tokyo that cannot produce tax benefits for GAAP purposes until the office begins to generate profits. Our effective tax rate for the year now stands at 44.5%. Finally, diluted EPS came in at $0.58 compared to $0.39 a year ago.

Now for some comments on the four segments. Revenues for financial consulting were $40 million for the third quarter of 2007, up nearly 40% from $28.6 million last year. This segment now includes our Callaway business. Excluding Callaway, third quarter revenues for financial consulting would have been down slightly from a year ago, as well as down sequentially from last quarter. But again, we see this as a timing issue with respect to our foundation or $1 million plus jobs, as Gary discussed.

Segment operating income declined to $11.7 million in the quarter from a very strong third quarter last year. Utilization declined from an unsustainably high 83% a year ago to 69% in this year's third quarter. The positive outlook we have in this lower utilization level is that we have ample capacity to gear up to meet big project demand. You can't gear up when utilization is north of 80%.

As Gary pointed out, the financial consulting business has contributed tremendous results for us over the last five years, and we are counting on its continued growth. Callaway is off to a very good start with Huron. They are market relevant and they are aggressive in selling their services. Callaway will be able to help us extend client relationships and generate some of their own $1 million plus clients as we move forward.

Revenues for legal consulting were $23.3 million in the third quarter of 2007, up 80% from $13 million last year. Organic growth for this segment was 50%. Operating income also increased impressively, nearly doubling to $7.2 million from $3.7 million in the same quarter a year ago with a nearly 300 basis point improvement in operating margin. We think there is great potential for this business.

The comprehensive menu of services that we provide to the general counsel is second to none, and as Gary mentioned we are very excited about our new integrated service offering that we'll bring to the market in 2008.

Revenues for health and education consulting were $49.8 million in the third quarter of 2007, up 136% from $21.1 million last year. Organic growth for our health and education businesses remain very strong at nearly 30%. And we remain very pleased with the strength that Wellspring, our healthcare provider practice, has displayed in the community hospital market. Wellspring is winning new engagements every week and they are only constrained by how quickly we can recruit the resources they need to reach out to more hospitals.

Operating income for this segment increased nearly 185% to $18.8 million from $6.6 million during the same period a year ago.

Revenues for corporate consulting were $21 million for the third quarter of 2007, increasing 67% from the same quarter last year. Even with some continued softness in the restructuring and turn around market, organic growth was 31% for this segment. Segment operating income increased 42% to $7 million from $5 million in the same quarter a year ago. Operating margins declined and utilization fell slightly as we continue to make people investments, like the new Tokyo office to grow this business in 2008.

As we've said many times, a balanced portfolio serves us well, giving us the ability to manage through fluctuating markets. This strategy proved its value again this quarter. Now for a few more stats.

DSO came in at 71 days at the end of the quarter, compared to 75 days in the third quarter last year. Our DSO increase since 12/31 of last year has been isolated to just a few practice areas and we are focused on getting those fixed. And finally, return metrics for Huron remain strong with return on assets of approximately 13% and a return on equity of 29% over the last 12 months.

Now guidance for Q4 and the full year 2007. As you saw in our press release, for Q4 we expect revenues in the range of $135 million to $138 million, and 61% to 65% -- $0.61 to $0.65 sorry, in diluted EPS. Fourth quarter results will include approximately $1.3 million or $0.04 per share in rapid amortization costs associated with our recent acquisitions. And we expect that fourth quarter results will also include a little over $5 million in stock based comp costs.

For the full year 2007 we expect a revenue in the range of $503 million to $506 million, and we have tightened our EPS range to $2.30 to $2.34 from our previous range of $2.24 to $2.37. In total, results for the full year 2007 are estimated to include approximately $8 million or $0.25 per share in rapid amortization costs. These costs for Callaway and other acquisitions completed to date will lapse in the fourth quarter and not carry over into 2008. Also, our full year ofshare based comp costs is estimated to be at approximately $19.5 million.

To assist in your modeling we have added average full time equivalents statistic as well as an average revenue per FTE stat for each of those periods presented. These FTE's primarily represent the Callaway resources for financial consulting, contract attorneys for legal consulting and other sub-contractors used across our other practices. Our modeling assumptions would include approximately 1,225 billable consultants on board by the end of 2007 and approximately 620 average FTE's in the fourth quarter.

Average utilization rates will be in our 70% to 75% target range and a 5% lift in our average hourly bill rates compared to the fourth quarter of 2006. Weighted average diluted share counts for 2007 are estimated to be approximately 18.3 million for Q4 and 18 million for the full year 2007. Finally, with respect to taxes, you should assume an effective tax rate of 44.5% for the year.

Now to recap. We are pleased with our strong results for the third quarter of 2007. We are also pleased with the positive results of our acquired businesses and are very excited about the opportunities for all of our businesses as we finish up 2007 and enter 2008. Let's now open it up for questions.

Thank you ladies and gentlemen. (OPERATOR INSTRUCTIONS). And the first question comes from the line of Mark Bacurin from Robert W. Baird. Please proceed.

Good morning. Couple of questions. I guess first of all on these large foundation jobs you mentioned five and that that's ramped down. Could you comment on what the demand drivers were behind those large jobs? And then what - you said sounds like there's been some pickup here over the last few weeks, what the demand driver was for the job you're seeing come in more recently?

Well, okay. On the demand jobs that we've had in the prior years and we really had them for about eight consecutive quarters, there were some stock options but it wasn't all stock options. We had some things where we were monitoring some compliance issues. We've had carve out. We're working with another company and trying to get their financial statements current.

So those were the drivers, and what we're seeing today is what are the additional drivers, is we're seeing a sub-prime - some in the sub-prime area. And I think we also believe that the five drivers that I mentioned to you can all create foundation jobs. It's just not one - it wasn't one thing, like it was all stock options. It isn't one thing like it's in the future. You just don't really know exactly why and how they all come, but you've got to really try to go get them if you can.

I guess the basis of the question is, is there anything going on in the current M&A environment in the slowdown we're seeing with private equity guys that would explain the lack of, I guess, back selling on some of the jobs?

I don't think so. I don't think that would be a reason for it.

Okay. Great. And then I guess just on the hiring, you obviously still ramped up against your headcount objectives and are still targeting 1,250 by year end. Is it fair to say or would you have changed that hiring plan if there had been a change in the pipeline as you see it moving into FY '08?

No. Absolutely not. No. We need -- we're going to need all these people probably before the quarter is over and definitely in the first quarter of '08. If anything we would have hired more.

Okay. Great. That's good to hear. And then just finally, you mentioned obviously not ready to state FY '08 guidance yet but you said from what you're seeing wouldn't be a disappointment relative to consensus. I just wanted to clarify because you mentioned that there's $100 million of annualized M&A or $100 million of annualized revenue opportunity on the M&A side. Are you factoring that into that comment, or no?

No. That doesn't include any of that. We're just saying our business as it stands today will clearly meet your expectation for all the guidance's out there for '08 with no acquisitions.

Very good. Thank you.

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

Thanks. Hi Gary and Gary, its Brandt Sakakeeny.

Hi Brandt.

Sorry. Just a couple quick data points. Did you give us the organic growth for the financial consulting business?

It would be at -- no. It was down slightly from the fourth quarter of last year.

Okay. And then I guess just with respect to the balance sheet in terms of objectives for M&A activity for next year, what - do you have the borrowing capacity that you need to pursue those type of acquisitions?

Yes Brent. We expect that certainly we can get - there's more capacity in talking with our lenders that we can upsize our credit agreement as necessary.

Okay. Great. And then with respect to bill rates in the financial consulting practice, can you just talk the trends there and sort of early expectations for how that might behave in early '08?

The only thing, Brent, that when you have large foundation jobs, you know, they clearly aren't price sensitive. And as you - if you - if we don't replace those, which I don't think is the case because I think we're already seeing we're going to replace them. You could see some price come down, but we plan on putting a rate increase in for '08.

Okay. Okay. And Gary it looks like just sort of eyeballing the math that each of these foundation jobs is about $3 million, say, in revs, sort of annual rev rate. Is there anything secular or structural that would argue that those type jobs in this environment are a little more constrained given perhaps pull backs in discretionary spenders? Is it just simply a function of some timing issues?

I just think its timing, Brent. I really do. I do not think - if you talk to as many sort of general counsels as we talk to and then you see the sort of the stuff that comes across our desk and things we win or don't win. I just don't think that there's a structural change in foundation jobs. I think its timing. And I think that if we do our job, they'll be back. It's all about execution. I don't think there's a market demand change.

Okay. Great. And then just finally on turnover metrics, anything in terms of retention of top partners or folks just coming out of school that change one way or the other in the quarter?

This is Mary Sawall. I'll address that. Compared with last year at every level, our voluntary turnover has gone down. And with managing directors, for example, year to date it's at about 4% compared with a little over 10% a year ago. So at every level we're seeing improvement.

Great. Perfect. Thank you very much.

And the next question comes from the line of Andrew Fones from UBS. Please proceed.

Yes. Hi. First of all I wanted the questions on the legal operational side. We've seen kind of revenues in that group remain at around the $23 million level each quarter this year versus pretty substantial growth through '06. Can you kind of talk to what, to why you think the revenue growth has kind of slowed looking on that kind of sequential basis?

And then can you talk about how you're approaching the market differently with the new offering? Thanks.

Yes. Andrew, what it really is is that whether myself or whoever, we get clearly ahead of ourselves and what we thought we could do with our document review business. We had a great first quarter on that business and we had projected that that was going to be a lot higher.

And so what we are going to do is we've got some new software. We are kicking off a major, what I would say a campaign to hundred largest buyers. You're going to see us have, you know, give that -- it's going to basically be faster, cheaper, better. You're going to see it priced differently.

You're going to see us aggressively going to the marketplace. So we believe that that's going to have a really changing impact as this is a really great product, and we do good work. But it just didn't grow to the pace that we thought it would. One of the things that when we go try to get our corporate clients who we work with to basically use our processing and review, is that a lot of them have been using traditional vendors for many years.

They're in major cases, and it's been slower to make them to change. But we have been -- they have been changing. But now we need to go out and aggressively let people know how good this product is and what we're going to do with it. But just so you do know, our core business, our consulting business has had 50% organic growth and continues to grow very well in that business.

Okay. Thanks. And then just to clarify. The software, is that something you've developed internally access or is that something you're buying off the shelf?

It -- we're buying the product. And the product is not for us to sell, but it's to make our service offering better.

Okay. Thanks. And then on the legal financial side, I guess you obviously touched on the foundation jobs. Can you talk at all about the win rate on those jobs? Whether that's changed, whether those you've seen more or fewer come to market? And then also have you seen any change in competition for those jobs? Thanks.

Well I don't think we -- you're talking about off the jobs in legal financial consulting?

The big foundation jobs.

The foundation jobs?

Yes.

Well, we had one large foundation job that we thought we won and thought was going to basically start and tip over that didn't happen, and we won that. But for a lot of various reasons, which I can't disclose, it hasn't yet started.

And we have lost a couple. We've lost at least one foundation job that I know of to a competitor. But we now see that we may have three new ones that just have started that are all back, you know, one is in the potential restatement area, another is a subprime, and another is sort of a healthcare type issue.

So these things are - I think that there's too many SEC enforcement. There's too many lawyers out there for I think the foundation jobs to stop. If you look at it, the 100 largest law firms in the United States have $71 billion of billings. You know, their not stopping hiring their college graduates. They're paying in a lot of money, and so I just don't think that this is a structural change. I think it's just a timing change.

With the acquisition you've made of Callaway and then looking at sort of Robert Half and the acquisition you've made in this space, do you see them cropping up anymore frequently in take-offs and so forth?

No. No we don't. That's not. I don't think we're really direct competitors. I think the way we're going to market with Callaway and the types of people we're talking to is not the same as we see with Robert Half.

Okay. Thanks.

And the next question comes from the line of Tobey Sommer from Suntrust Robinson Humphrey. Please proceed.

Thanks. I had a question about your new hiring intentions for next year. I think in your prepared remarks you suggested that the number could be the same, and I wanted to ask two questions about that.

Are you actually interviewing the same number of people and the same number of campuses? Or is your expectation that the ultimate yield will kind of be the same? And then on a separate issue I wanted to ask if you are dedicating any incremental time from your senior consultants to conduct those interviews versus the fourth quarter of last year? Thank you.

The answer is, we're at few more schools, Tobey. And we're being a little bit more selective, but we create quite a buzz on college campuses with Huron in the last three years. So there's no more time being spend this year than last year. So the effort and cost is not any greater, and so we'll get about the same number as we got last year with about the same effort.

Okay. I just wanted to get a sense because I think we started out last year targeting somewhere between 150, but ended up substantially higher than that, so I just wanted to get a since for if things go your way, not that we would model that, but if there's an opportunity for an ultimately higher number to materialize this time next year.

I think what we did last year is we - the reason I don't think that will happen, and I'll think we'll come in more like in 160 to 180 range because we have got a higher accept rate in. Last year, just because we were newer at this we didn't think we'd get. This year we're counting on a much higher accept rate. So if anything we may not meet our numbers because we not making as many offers as we made last year.

Okay. And then on a separate issue, regarding the opportunity for acquisitions in the next several quarters, I was curious from a modeling perspective. I know it varies kind of case by case, but given what you're looking at, what kind of expectations would you have for amortization to impact the immediate accretion from acquisitions in the pipeline?

What we've seen in the past and whether the future will be the past, is the way we try to look at these things is we try to see if they can be accretive immediately without the rapid amortization. And the question is, can they be? And then you just have to, you really don't know when you bought how big the backlog is, what the customer list is, how you do the valuation. So it goes back and forth. So what we've tried is can we at least get them so they're not EPS dilutive even with the rapid amortization.

Right. And just one other question. In the healthcare and education bracket, are you able to continue to find senior type consultants from industry? And have you noticed any increase at all in competition in that area?

I don't know if you saw yesterday, we put out a press release of two really experienced healthcare people. One who ran an operation at Harvard and another who was the head of operations of a major medical school. The type of people that want to come to Huron today and those two practices is pretty amazing.

We also added two very experienced resources to our Wellspring practice that were very experienced. So first and foremost this kind of talent that wants to come to us is basically increasing. And no, we're not seeing very much competition in either one of those two businesses.

Thank you so much.

And again, ladies and gentlemen, that is star one to ask a question. And the next question comes from the line of Tim McHugh from William Blair and Company. Please proceed.

Yes. I don't know if I missed it. Did you give an overall organic growth rate for the third quarter? And then what might be implied in your guidance for the fourth quarter?

Yes, Tim we gave an overall organic rate of 20% for the third quarter. And the fourth quarter we did not give that, but you may -- if you look back we had a very strong fourth quarter over a year ago, so we expect that it's going to be somewhat less than 20% in the fourth quarter, but our annual organic growth rate for the whole year is going to be something in the neighborhood of 23%, 22% and we think that's very strong and that gives us confidence, when we look next year, year over year, we're going to be able to continue a 20% plus organic growth rate.

Okay. That's great. And you talked about an improvement recently. I just wanted to clarify though, is this you're seeing more opportunities to pitch for new business for foundation jobs? Or are these jobs you've actually already won and you're working on at this point?

We've won and we're seeing more.

Okay.

Remarks said that our daily run rates are back to what they were in Q1. That's on one work. And we're seeing chances to take jobs to foundation plus opportunities.

Okay. Great. And then lastly, the SG&A it was lower than we had thought this quarter. Strong leverage of that line. Is that sustainable or are there things that you want to accelerate investments on in the future as we get out into '08?

I think the one thing that you probably just ought to stay at is about, for now, stay about a 20% SG&A as you model. If it's better than that hopefully that, but don't just go much below that for now. I mean, we still have a lot of -- we have huge growth goals here at Huron that we're not, you know, and we've got a lot of things to do to brand yourself and grow ourselves. We've got big goals here for the next five years, and we've got a lot of stuff to do to grow this business. And so I just wouldn't get them below 20%.

Okay. Great. Thank you.

And the next question comes from the line of Kevane Wong from JMP Securities. Please proceed.

That's JMP Securities. Hey, first just a quick clarification on the organic growth for legal operational consulting did you say 15% one-five or 50%, five-zero?

50, five-zero.

Five-zero. Okay. Fantastic. Also I was sort of curious speaking in the corporate consulting, smaller piece but it was doing nicely. What's happening as far as restructuring work? Are you seeing sort of a ramp up there from bankruptcies? Is that already being seen or is that something that's sort of in the future that you're looking for?

We're seeing a lot more opportunities, for sure. Particularly in the auto sector, and we're winning some smaller engagements. So we're seeing huge pickup in activity a lot with various lenders and some private equity firms. We don't have anything - we don't have a big foundation job there right now, like a United Airlines that we would have had in prior years. But we are seeing a lot of proposals, increased activities and smaller jobs that are causing the pick up.

Okay. Also back in the legal financial consulting, obviously you're pointing to a timing issue. How long are you thinking its going to take for that to sort of be back where it had been? Obviously you've talked about, do you have another foundation job you've picked up already. Is that something in 1Q '08 that you would expect to sort of be back on pace where it had been? Or is it going to take a little longer simply to wrap up these foundation jobs?

Well, I won't promise you anything with certainty, but we'd be very disappointed if it wasn't back in Q1 of '08.

Got you. And then also just a last one also, you were talking about FY '08 you're not expecting to disappoint from the current expectations out there. I'm assuming your - are you talking both sort of EPS expectations people have out there, revenues, both?

Both.

Got you. Perfect. Thank you.

And again, ladies and gentlemen, that is star one to ask a question. You have a follow up question coming from the line of Andrew Fones from UBS. Please proceed.

Yes. Thanks. I had a couple of more housekeeping type calls. Is it possible to give us the sense of what the impact of Callaway was on revenue in the third quarter, please?

Andrew, this is Gary. As of a matter of course we're not going to be talking about specific results for a Callaway, but I will tell you in for disclosure purposes on our website later today there will be a calculation showing how we get at the organic growth rate. And you'll be able to look at that to see what Callaway's results where here in the fourth quarter. But once they get embedded in our operations you will no longer see them broken out separately.

The other thing, Andrew, you can do is go to the press release. You can see some of the stuff in there that shows full time equivalents. You can go in there and get a pretty good estimate if you look at last year and this year in the financial consulting numbers.

Okay. Thanks. And then the second, you may have mentioned this. I may have missed it. But do you have the impact of accelerated amortization on the Q3 result?

For Q3 - bear with me for a second. $2.2 million in the third quarter, Andrew.

Okay. Thank you.

We're expecting it to be about $1.3 million in the fourth quarter.

Okay. And that's on a pre-tax basis?

Yes.

Okay. Thanks.

And there's no further questions at this time. Mr. Holdren, we have concluded the allotted time for this call. I would like to turn the conference over back to you.

Thank you very much. And in closing I want to just continue to thank all of our employees and our clients and shareholders for having the confidence in Huron. I promise you we won't let you down going forward. And we look forward to basically talking to you in February where we can report our full year 2007 results and give you our 2008 guidance. Thanks for listening this morning.

That concludes today's conference call. Thank you everyone for your participation. Have a wonderful day.