Huron Consulting Group Inc (HURN) 2008 Q1 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Huron Consulting Group's webcast to discuss results for the first-quarter 2008. At this time, all conference call lines are in a listen-only mode. Later, we will conduct our question-and-answer session for conference call participants, and instructions will follow at that time. As a reminder, this conference call is being recorded.

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.

Good morning and thank you for joining us for today's webcast to discuss Huron Consulting Group's first-quarter 2008 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 a news release on our website. Please review that information along with our filings with the SEC for the 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 and 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 our Atlanta office are Gary Burge, our Chief Financial Officer; Dan Broadhurst, our Chief Operating Officer; and Mary Sawall, our Vice President of Human Resources.

My remarks today will be brief, and Gary Burge and I will leave plenty of time for Q&A. When we announced on March 27 that we were not going to make our Q1 guidance numbers, we pointed out that three of our segments were doing well and the organic growth rates for those three segments would exceed 25%. We achieved those results.

The fact that we have generated the results we did in spite of the drop-off in our Financial Consulting segment demonstrates the strength of the balanced portfolio of Huron. We continue to feel comfortable that the Health and Education Consulting, Corporate Consulting, and Legal Consulting practices will have good organic growth rates for 2008 that together will exceed 25%.

When you look at our annual guidance, you will see us back-end loaded; and we're comfortable we can achieve those results. That is because of the nature of the Wellspring Healthcare assignments and the way projects and assignments are being scheduled out for our higher education practice.

As I've told you in the past, Wellspring does 8- to 12-week assessments at lower rates initially at new clients, which is then followed by an 8- to 12-month implementation at full rates. Wellspring has historically moved the implementation phase on 70% of their assessments. Wellspring had 17 assessments in process in the early part of this year compared to only six in the early part of 2007, which supports our increased revenue assumptions for 2008 as well as the assumption on the back-end loading of those revenues.

If you went back and reviewed Health and Education Consulting's 2007 quarterly results, you will see a 28% increase in Q3 and Q4 2007 results over the Q1 '07 results. We feel comfortable about that happening again in 2008.

Both groups, the Healthcare -- the Wellspring and higher ed, are in need of more experienced professional resources, which is another reason for the back-end loading of revenues as we recruit resources to meet the very strong market demands for these practices. The demand for Wellspring, higher education, and pharmaceutical and health plans is very robust, and we see it remaining very strong for the remainder of 2008 and into 2009. We continue to have very strong market presence in each of these practices.

The Corporate Consulting group has also improved dramatically from last year. We saw improvement from Galt, our strategy business; restructuring; operational; and two new groups, utility consulting and our Japanese operations. These groups should continue to see very solid year-over-year organic growth rates for the remainder of this year.

The Legal Consulting segment only had an 8% growth in revenues as compared to the first quarter of 2007, but the market for these services is still very vibrant. What general counsels want are cost containment and information management, exactly the services we provide. We continue to win assignments.

I am confident with our market position, and this offering will be back on high growth track in the second half of 2008. This also adds to the back end of our forecast. Our V3locity product sales are developing very well, and we are confident you will see increased results for each of the remaining quarters of 2008.

Now to Financial Consulting. I think you know this business has two components, our Financial and Economic Consulting business and the CFO Solutions business which we acquired last August.

The Financial and Economic Consulting business has fallen substantially over the last several quarters. The revenues were $36.6 million in Q1 '07; $29 million in Q4 of '07; and $22.6 million in Q1 of '08.

The fundamental reason for this fast drop has been the loss of jobs that generate more than $1 million a quarter. In every quarter of 2006 and 2007, except for Q3 2007, we had an average of five or six jobs generating more than $1 million in the quarter; and we had one or two that averaged $4 million in the quarter. In Q1 2008 we only had two jobs over $1 million.

Where we had a big increase in Q1 '08 business was from revenues of jobs generating $200,000 to $500,000 per quarter. These jobs generated $8.6 million in Q1 '08, which is double what we had in Q4 of '07. So while our average job size is down, we're winning assignments, which suggests we are holding our own in the marketplace.

Financial Consulting has been a great business for us for the past five years. We still believe Financial Consulting is a good business and one we want to be in for the long run. We feel the larger jobs will come back; the question is when. However, we are not counting on short-term rebound for this practice in our 2008 guidance.

Activities currently in process for this practice include increase our opportunities to win $1 million-plus jobs by tracking trends and meeting with the lawyers who are on these big cases. Continue to be active in the smaller job marketplace in order to win jobs from $200,000 to the $1 million range. We hope to continue to double the volume of these cases won in 2008 versus 2007. Finally, to continue to evaluate our senior talent, moving out those who are not performing and hiring better replacements.

Since January 1 of this year, four MDs have left Huron and we have added two very experienced and talented MDs as replacements. We have also transferred two Financial Consulting MDs to other practices that will be able to more fully utilize their skills.

From a demand perspective, we saw more opportunities in the marketplace for Financial Consulting in April than we saw at the start of the year, which is encouraging. We're seeing more wins and opportunities in the following areas. Healthcare investigations; defense of Big Four auditors; and cases involving restatements, transfer pricing, criminal defense, international arbitration, and various contractual disputes.

The CFO Solutions business has also been sluggish in the early part of 2008, as we've seen the sales cycle lengthen and some major assignments wind down. We continue to be active with our sales activity and marketplace. We also continue to go to our current client base with CFO Solutions.

We are encouraged that the pipeline of proposal opportunities is increasing for this practice, and with more at-bats we know we will get more hits.

Before I turn it over to Gary Burge, let me recap by saying that our balanced portfolio at Huron is our strength, and it is working. Three of our segments are on track to have a very successful 2008, and we're taking the steps necessary in Financial Consulting to get this business back on track to the point where it can once again be a strong contributor to 2009 and beyond. Now I will turn it over to Gary.

Thanks, Gary, and good morning, everyone. As Gary mentioned, our balanced portfolio was at work in the first quarter, as three of our four segments met expectations, while two of those three segments had outstanding growth.

Some of the financial highlights included revenues of $139.4 million were up 20% compared to last year's first quarter with consolidated organic growth of 6%. Excluding the Financial Consulting segment, the combined organic growth rate for our other three segments was approximately 27%.

Our customer diversification continues to improve as our top 10 customers represented approximately 25% of total revenue for the quarter compared to 32% a year ago.

EBITDA increased 2.4% to $25.8 million in the first quarter, and our adjusted EBITDA rose approximately 9.5% to $32.2 million. Our adjusted EBITDA margin was 23.1% of revenues.

Operating income increased 9% to $20.6 million for the quarter, up from $18.9 million last year. Operating margin was 14.8%, compared to last year's 16.3%. Net income increased 4.1% to $10.2 million in the first quarter of 2008, and diluted EPS was $0.56 compared to $0.55 a year ago.

Now for some comments regarding each of our businesses. Revenues for the Financial Consulting segment were $38.8 million for the first quarter of 2008, increasing 6% from $36.6 million in the first quarter of 2007. As a reminder, this segment now includes what we call the CFO Solutions business from the Callaway acquisition that was completed in the third quarter of 2007. As Gary mentioned, excluding Callaway, first-quarter revenues for our Financial Consulting segment would have been down 38% organically from a year ago -- $36.6 million down to $22.6 million, as this event-driven practice had a disappointing first quarter.

Financial Consulting operating income of $9.6 million decreased by $6.6 million or about 41% from last year's first quarter due to a significant drop-off in utilization rates for the full-time billable consultants in this segment. As we have seen a recent uptick of our pipeline of opportunities for medium-sized jobs -- those between $200,000 and $1 million per quarter -- we are cautiously optimistic that this group can regain some revenue momentum as the year goes on, as we continue to pursue opportunities for the plus-$1-million jobs.

Let's take a look at the performance for the other three segments, which continue to be bright spots for our business. Revenues for the Health and Education segment were $51.1 million in the first quarter of 2008, increasing better than 31%, all organically, from $38.9 million in the first quarter of 2007. We remain very pleased with the strength that Wellspring, our healthcare provider practice, has displayed in the community hospital market. Our higher ed and pharma health plan practices also had very strong first quarters, and we have a very positive outlook for those businesses as well.

In total, the Health and Education segment operating income was outstanding, increasing more than 81% to $22.1 million from $12.2 million during the same period a year ago. Even with the exclusion of Wellspring's rapid amortization, which was $1.6 million from Q1 2007 results, operating income for this segment would have improved 60% from a year ago.

Revenues for the Legal Consulting segment were $25.2 million for the first quarter of 2008, increasing, as Gary said, 8% from $23.3 million in the first quarter of 2007. While our core legal consulting services were up approximately 20% from a year ago, this segment also had a tough comparison to the first quarter of 2007, as our event-driven hosting, processing, and document review business -- now branded as V3locity -- had several major cases and tight review deadlines in the first quarter of last year that drove a high volume of revenue.

Having said that, V3locity revenues did meet our expectations in the first quarter. We're off to a good start in the second quarter, and we're confident this business will continue to ramp up as the year goes on, based on what we see as a strong market demand for these services.

Segment operating income decreased approximately 17% to $6.6 million from $7.9 million during the same period a year ago. Operating margins declined in this segment relative to last year's first quarter due to continued business development and investment activities relating to the launch of our V3locity product, and lower utilization rates for our Legal Consulting business.

We invested heavily in resources over the past year, increasing headcount by nearly 45%, anticipating strong demand in the Legal Consulting market here in 2008.

We believe there is great potential for this business. It's a matter now of continuing to hit the market hard to fill the sales pipeline for both V3locity and consulting services that are targeted at the general counsel market. The solutions, the technology, and the resources are in place.

Revenues for the Corporate Consulting segment were $24.3 million in the first quarter of 2008, increasing 40%, all organic, from $17.3 million in the first quarter of 2007. Results were driven primarily by our strategy practice Galt, which had another very good quarter, and improvement in our restructuring and turnaround business.

We're also pleased with the revenues generated by our new Tokyo office and our utility consulting practice. As Gary mentioned, both practices were added during the past year and have begun to establish themselves in the marketplace.

Segment operating income increased to $9.4 million in the first quarter of 2008, up 123% from $4.2 million during the same period a year ago, reflecting the improved top line and an absence of rapid amortization expense relating to the Glass acquisition. Even if you add back the $700,000 of Glass rapid amortization to Q1 2007 results, operating income for this segment still would have improved more than 90% from a year ago.

This balanced portfolio strategy proved its value again this quarter as strong results in our Health and Education and Corporate Consulting practices allowed us to weather the revenue downturn in Financial Consulting and also allowed us at the same time to make investments in V3locity, Japan, and a utility consulting practice.

Now for a few more stats. DSO came in at 74 days at the end of the quarter compared to 67 days at the end of last year. While our track record has always shown a first-quarter increase in DSO, we're continuing to focus our attention on this measure and striving for ways to bring it down and hold it more consistently throughout the year.

Finally, return metrics for Huron remain strong, with return on assets of approximately 10.7% and return on equity of 25.5% over the last 12 months.

Now, guidance for Q2 and the full-year 2008. As you saw in our press release, for Q2 we expect revenues in the range of $140 million to $145 million; EBITDA in the range of $23 million to $26 million; operating income in the range of $18 million to $21 million; and $0.48 to $0.57 in diluted EPS. We expect that second-quarter results will also include a little over $7 million stock-based comp costs.

For the full-year 2008, we expect a revenue range of $590 million to $620 million; EBITDA in a range of $116 million to $127 million; operating income in the range of $95 million to $106 million; and diluted EPS in the range of $2.57 to $2.88. Full year share-based comp cost is estimated to be approximately $28 million.

Other full-year modeling assumptions would include approximately 1,325 billable consultants on board by the end of 2008 and approximately 750 average FTEs for the year. Average utilization rates for the year we expect to be in the 65% to 70% range and a 4% lift in our average hourly bill rates compared to 2007.

I want to reiterate what Gary said with respect to guidance. While we have seen indications of an improving pipeline of opportunities for Financial Consulting, we have not assumed that this group will rebound in the near term, and therefore have assumed for guidance purposes that Financial Consulting revenues will remain relatively flat over the next three quarters. Revenue growth over the remainder of the year as reflected in our guidance will come primarily from the Health and Education and Legal Consulting segments.

Weighted average diluted share counts for 2008 are estimated to be approximately 18.4 million shares for Q2 and 18.5 million shares for the full-year 2008.

Finally, with respect to taxes, you should assume an effective tax rate of 44.5% for the full year.

To recap, three of our four segments met revenue expectations in the first quarter and we feel they will sustain, if not build, revenue momentum over the balance of the year. We feel that Financial Consulting has seen some lessening of the headwinds that they faced over the last several quarters, and we're cautiously optimistic they may begin to regain some revenue momentum over the balance of the year, although we have not yet built that recovery into our forecasts.

Let's now open it up for questions.

(OPERATOR INSTRUCTIONS) Tim McHugh with William Blair.

Yes, I want to ask first about the healthcare and higher education segment. You mentioned the 17 assessments you have had going on earlier this year. How many of those have come to a decision point yet? And when would you expect better visibility into how much of that will convert into additional assignments this year?

Tim, we have very good visibility into the '08 already, with conversion rates and assignments set up. So I don't have the specific number, but I know that we've got well into the numbers that we need to make the -- have really good visibility for the rest of the year and the numbers that we told you.

Okay. Then on Callaway, you mentioned a lengthening of the sales cycle. Curious what you attribute that to. Could that be due to any macroeconomic concerns amongst clients, or is there anything more specific going on?

I think first and foremost, we're asking Callaway to sell some additional services other than just what they sold. But I think right now companies in general are probably just a little leery to whether they need additional consulting fees in these sort of economic times.

Okay. Then moving over to the Corporate Consulting and improvement in Galt and restructuring, we can see restructuring trends picking up. But given the sensitivity of corporate spending, I wonder if you could comment on the sustainability of the improvement you saw in Galt recently and the outlook for that piece of Corporate Consulting.

Yes, what happens with Galt, what's the best thing for them, is that if they get into a very, very large corporation -- so we're talking about in the Fortune 50 worldwide -- they typically start with one division. Those divisions can have four, five, seven divisions. So what -- the best thing for them is that they continue just going from one division to another division; and we're seeing that.

Then even though the discretionary spending can be tight, these are projects where, if you get to the CEO and the CEO really wants to improve shareholder value, and these guys have got such a good track record and they have got such good references, we're continuing to see companies want to spend in that area. So we continue to see that to be sustainable.

Okay. Then one last one if I might. The guidance does seem to imply, even looking beyond the revenue, a pickup in profit margins in the second half of the year. I was wondering if you could comment on plans for managing headcount, whether it be through reductions or shifting people amongst the segments, to help you improve those margins in the second half of the year.

Well, the reason the margins are going up is, I mean, if you look at it the revenues are going up and we don't need a lot more people to do it.

Okay. So you don't anticipate doing anything in particular with your headcount?

I didn't say that. That is not yet reflected in these numbers.

Okay, thanks.

Brandt Sakakeeny with Deutsche Bank.

Thanks, Brandt Sakakeeny. Hi, Gary. Question for you regarding the pipeline, I guess Gary Burge. In the Financial Services area, can you talk to I guess both size of pipeline specifically? Are you seeing maybe these $1 million type contracts coming back up? Or is it still the couple hundred thousand type business?

And what specific areas are you potentially seeing that acceleration in pipeline activity?

Where we're seeing right now, you can't really -- you can't specifically tell whether a case is going to be, when it first starts, if it's going to be $1 million a quarter. So what you can see is you can see that these are -- the thing that is the most encouraging, they are with large law firms. They are with the law firms that if you went to the AmLaw 100 you would see them in the top 30, and you would see that these are major, major law firms.

Now the size of the matters, I mean, as I said, we're seeing opportunities in international arbitration that we were not getting before because we've got Tim Hart here, who came from Navigant, whose got an expertise in that.

We've seen a few criminal offense matters come in for people that we haven't done before. Seen some transfer pricing matters. Just more activity.

We've got a restatement going on that started -- a West Coast based company. We don't know how big it will be yet, but it's just starting.

So it's just really scrambling out, Brandt, and really just getting back in the marketplace and just saying that we need revenues and we need smaller cases if we don't have big ones. And hopefully see what happens with those, get to know the law firms better, get the lawyers, [hope] it's up.

So it is just a little bit of -- just happened to be a little bit scrappier. Win more engagements and hope they increase in size as the client has more needs.

Okay, great. Then can you just talk about the Callaway reorg? I saw that you had changed the earnout provisions given the reorg. How is that functioning now? Are you pleased or is it still too early to see how that new structure is going to behave?

I would say it's too early. But the behavior -- two reasons we did it is, one, we believed that we needed the Callaway team selling all of Huron. We needed them selling every service we possibly have, because they've got a good sales force. We couldn't ask them to sell all of Huron's services and then basically have them worry about making their earnout.

So Bruce Cox now leads that with Jeff Anderson. It's in the early stages. I think we will see positive results, but it's too early to claim victory.

Okay.

The other thing I think that we were finding that if you really want to have a true accounting solution offered things and where you want accountants to go and if you want -- okay. You've got -- you don't have enough resources so you use on-demand. But if you've got too many resources, you know, we want our LFC people to go over and work on Callaway. Well, you couldn't have asked them to take those kinds of people; it just wouldn't -- worked well enough.

So we made the decision with them that getting what I would say is a fair price on the earnout, on what it could have been using -- and then all the attributes that we got from it, we all concluded it was in our best interests to do it. I would say that it is still too early to claim victory.

Okay, great. Final question to Gary Burge. On the DSO, Gary, is that just an increase aging due to mix shift, or just more work in process? Or is there anything technical, increase in overseas business, that could be describing or explaining the increase in the DSO?

No, I don't think so, Brandt. We've always historically had a big forth-quarter push on DSO and getting that number as low as we can. Then there is always a lag headed into the first quarter, it seems like. So it's just seasonal nature, I guess, if anything. We don't like that, but we will continue to work with it.

But our DSO, our receivables, the collectibility is fine. There is no issue there. It's just a slower payment process, and we will continue to try to refine that and get it better.

Okay, great. Thank you.

Andrew Fones with UBS.

Yes, thanks. Just if you could first of all perhaps give us your views in terms of the outlook for Financial Consulting six, 12 months from now; the types of work that you think may come from the credit crunch; and the skills that you have that you think you would need to work on that type of work. Do you think you have all the skills in place now? Or are there things you need to add? Thanks.

Andrew, we have made some -- we've had some webinars and we've done some presentations. We put our quals together. I think maybe I've covered this with some of you before, where we've got economic skills, we've got SEC accounting skills, we've got investigative skills, we've got valuation skills, we've got former internal audit head of Wachovia.

We have been told by our package that goes out that it clearly is a package that meets the credentials of the marketplace to want -- that we would be able to win assignments. So I think we've got the skills in place.

Predicting exactly when those resources will be able to be utilized and what pace, I don't think we're -- we're not smart enough yet to be able to figure out when that will happen.

So what we have to -- the judgment we have to make collectively as a management team and our Board is -- how long do we wait if we have got the right people to serve this and we believe it's going to happen? Can we cover it with our other businesses? Or do we have to downsize it if it doesn't come quick enough?

That is what we struggle with. That is what we will struggle with over the remaining part of '08. Because we've got good people, it's just what -- when the market.

Then what we've got to try to do is in the short term, until those things come, is we've got to get scrappy and try to just increase the volume and numbers of smaller cases we can get, so we can basically have the revenues to pay the bills to get an acceptable margin.

Okay, thanks. Then can you tell us the number of college hires you're expecting in the second half of this year, and how you plan to manage that vis-a-vis demand?

We're going to have 135 people. We are going to basically manage that based on the demand that each business has, which could change as we go through the year. But if our demand stays the way it is, we will push out the start dates of the college hires. And we've already discussed that with them.

Okay, thanks. On bonus accruals, do you expect to accrue a normal level of bonuses for this year?

We've got a performance-based organization. Those who basically make their plans will get their bonuses; and those who don't won't. Whether they will be 100% or not just depends on how low some of our practices go versus the margins that we need to me the Street's expectations.

Okay, thanks. One final one. The bill rate for Financial Consulting was a little bit lower than we expected this quarter. What was the reason for that?

Andrew, this is Gary Burge. I think a mix issue as much as anything. When you don't have a lot of big foundation jobs -- those are the jobs that are at the high of average bill rates with a lot of MDs at work -- and that would be the issue as much as anything.

You get back in the situation where we have got a lot of $1-million-plus jobs, those rates will come back higher.

Okay, thanks.

Mark Bacurin with Robert W. Baird.

Good morning. First, on the Corporate Consulting business, Gary, were there any fees or success-based fees in that segment? Because the revenue growth there was quite a bit better than we were expecting.

No, not at all.

That's great. So can you break down -- I know you talked about restructuring in some of the other businesses. But is there any specific items there that are driving that growth? That's pretty amazing growth for the first quarter and a big uptick from Q4.

Yes, it's just -- they're all -- they all did. We didn't have much utility practice at all. So the big growth -- Japan was a big hit for us. We had almost no revenue in Japan, and Japan hit our budget.

All then -- I mean just everything was just right on top of its game. It was really good, it was really balanced within that Corporate Consulting.

Okay. Then if I look at the Q2 guidance, it looks like you're implying a sequential decline in EBITDA relative to Q1. I understand obviously Financial Consulting is going to be relatively flat. But it sounds like the other businesses should improve.

So are there any other onetime charges or expense issues that are weighing on the profitability in Q2?

I will let Gary cover sort of the components of what are the components of that.

Yes, Mark, there would be a -- right now if you would pick the midpoint of the range, there would be a slight sequential decline in EBITDA. The impacts of that would be a full-quarter effect of an increased level of stock-based compensation. SG&A is not changing significantly; it's up a little bit due to some increased marketing activity and a little bit of additional rent cost and things.

So the key going forward here is that growing that top line in the second half of the year; and margins, both at the EBITDA level as well as operating income level, will improve as those additional top-line revenues come in.

But I think, Mark, also, I think one of the things that we assumed is that if some of the businesses that are growing need more bonus dollars in Q2 than we had in -- so some of our decrease in margin is because we need to put more bonus dollars in some of the businesses that are performing better in Q2.

Okay. Then, just I guess to talk about the -- I think I heard correctly that your guidance for all of '08 assumes Financial Consulting basically flatlines at this current Q1 level. I'm just wondering, 51% utilization rate, obviously well below what you expect that to be at, and it doesn't sound like you're planning on ramping down headcount. So --

I didn't say that. I just said it is not built into any of our guidance numbers yet. If we did ramp it down, we probably got severance cost that would run through 2008. So we will still look at it. I didn't say we wouldn't do it; I just said we don't have it built in right now.

But I guess implied in that guidance then is that you're expecting utilization trends to stay down in the low 50s?

Yes.

Okay. That seems like that is some room for improvement one way or the other. (multiple speakers)

I would say you have to be correct about that.

Great. On the Legal Consulting business, utilization trends there if you strip out the [document review] stuff, looked like they are trending below expectations or below your targeted range there. Anything going on in the kind of core Legal Consulting business? Should we expect utilization trends in the 50s going forward?

No, shouldn't expect those in the 50s. We got rid of a little bit of headcount, which will have some impact. But we also had some -- a couple of jobs that we thought were going to happen. Plus we had rapid hiring.

That business, I think, will be just fine. We don't have the same concerns there as we have with our Financial Consulting business. We have number-one market position. We have good products. We have good pipeline.

Great. I guess just final, you did see a very nice uptick, obviously, with you the e-discovery and document review work in the quarter, it sounds like you expect this -- I think it was $14 million or so in the quarter, that that rate should be sustainable and even grow from there. So I guess that was number one.

I think you talked about on the Q4 call a large project that helped you in this quarter. I was wondering if you could quantify that first; and then also verify that you expect to ramp sequentially from this Q1 level.

We definitely have very good visibility into Q2 and we know that we're going to have a great Q2. We've got a lot of salespeople. We have got a good product out there.

So when we -- we did have a nice size job in Q1, but we have a bigger job in Q2 that replaced it. So we're doing just fine in that space right now.

Could you give us some help in terms of the mix of that business now? How much of it is being priced off of the per document review pricing model under V3locity versus the traditional billable hour model?

Most of it in Q1 was the old model and it is starting to increase in Q2. It is still not 50-50 yet, so -- but we're seeing some increase in Q2 a little bit. But most of Q1 was on the old pricing model.

Great, thank you.

Tobey Sommer with SunTrust.

Thank you. A question about the hospital assessments turning into implementations. I was just wondering if you could give us a sense for if an assessment produces X dollars, what does the implementation typically produce in a given quarter once you get to that phase? What sort of multiplier effect does typically occur?

Let's say that if you do a $300,000 to $500,000 assessment you should get at least a 10 times revenue on implementation.

Okay. Then, would it be a fair assumption for us to kind of be doing math on the historical 70% conversion rate?

I'm not -- I don't know whether you -- I don't have that right at my tip, so I would rather Gary get back to you to than to say something on a call that I am not positive of.

Okay, I can appreciate.

I just know, Tobey, they are red-hot right now.

Then I wanted to ask you a question about your summer hires. Last year, you brought in a lot of people and you had a better, in fact, yield, on your offers than you were expecting. I was wondering just if you could comment on that, given the fact that the Financial Consulting isn't red-hot and there potentially could be some streamlining.

How are you positioned to absorb those? Can you redirect them towards the segments that are experiencing real good demand?

Yes. I mean that is -- our goal is we made a commitment, and we are people of our word, that we went out and told 125 college kids that they had jobs. So now we can defer them a little bit, but it is our job to find them somewhere in Huron to let them have a good, successful career.

Whether they all go to where we thought they were originally going to go, or where their first choice is, might not happen.

But that number remains at 125 throughout kind of the summer and fall?

It is more going to be the fall and winter.

Okay. I had a question, Gary Burge, about the stock comp. You may have touched on this in the prepared remarks; and if I missed it, I apologize.

Is there a greater level of stock comp? Is it spread out more broadly throughout the organization? Any color you could provide there would be great.

We made our 2008 restricted stock grant on or about February 1. So you had just two months in the first quarter and you've got a full quarter effect of that first-quarter grant affecting second quarter. That will stay consistent then at about $7 million a quarter for the remainder of the year.

Is that at a higher level than it has been historically?

We had more shares, but a lower average share price. So the stock comp compared to a year ago -- if you just bear with me here for a second. We had about $4 million of stock-based comp costs, $4.2 million of stock-based comp cost in the first quarter of '07. That compares to around $6.4 million in the first quarter of '08.

So it's up. We got more shares out there. But it is a key element of our compensation, as you know, at the managing director level; and we will continue to invest in that as a means of compensation.

Thank you. One last question and thank you for taking the time. I think in the prepared remarks you said V3locity sales are kind of picking up. Any kind of color you can provide there on the uptake in customers in what could be a pretty disruptive pricing offering? Thanks.

Yes, we just -- I think Bob told me that he had met with some people and they had been to New York and he talked about some RFPs and major Master Service Agreements. We continue to get traction there, and we continue to win assignments from our old Master Service Agreements.

So we're just getting a lot more people that think it's a good product at a good pricing point, and we have the sales forces really hitting the street. So we're just having good success with it, Tobey.

Is this a function of converting more traditional business to a V3locity model? Or are you also winning new contracts outright?

We're winning RFPs, contracts outright. We are also winning clients where we're gone to the general counsel's office that they may not have been buying V3locity before, that now they believe and see that this is a good product and are buying it. So it is coming from both answering RFPs and getting our existing general counsel clients to buy the product. Plus law firms are -- we are selling it to law firms on specific type cases and transactions.

Thank you very much.

Jim Janesky with Stifel Nicolaus.

Thank you. Gary, when -- it appears as if you have been appropriately conservative in your outlook for the Financial Consulting segment considering the trends. When you look at the other three segments combined, either for business that has already started or business that is in the pipeline, can you give us an idea? Have you attached to that, when giving your outlook for the rest of the year, a lower than historic probability of getting that business? So being more conservative just considering the trends over the last couple of quarters.

So it's a question is -- right, Jim, is have we been more conservative in the three businesses that are doing better than we traditionally would have been in the past?

Well, right. I mean so if for example your pipeline was $100 and usually you get 60%.

Take healthcare, like Wellspring, Wellspring and we have been -- the one good thing that we've got and we did in the last few weeks is we really went in kicked the tires very hard and did a reforecast, relooked at all the businesses. We looked at where they were with their jobs, how many were hard backlog, what were the trends.

I would not say that we have been more conservative, but I would say we went through a much more diligent process to get comfortable with the numbers. So I might say that is a conservative approach.

Okay, okay. When you look at headcount, you had talked in the past about the possibility that we could see a reshuffling or reduction of as many as 15 or so senior people. You talked about four.

Did you feel as if they became -- these individuals became more productive, or that you saw additional work on the horizon, that at least in the near-term you didn't want to cut these individuals that bring in the work?

You mean, so why did we only -- why is there only six down versus 15?

Right.

Because I think we owe it to these people who have given us a great career at Huron more than three months' notice to basically change with a changing marketplace. I just don't think it is fair and not the way to do business.

Now do we know and do they all know that we're looking at them on a 90-day increment? Yes. But I just don't think it is fair to have a business that has produced results, that has produced over five years, and just tell people they've got 90 days.

True, okay. The -- we've seen some, for example, high-profile airline talks about mergers and such. You have historically had a presence there. Just with the talk of the mergers, are you seeing any consulting activity there? Or is that generally after they are announced?

There was a call yesterday that we have -- we haven't won it, but when you say activity, yes. We are positioned and we're positioning ourselves on some of the merger and integration work. It is very competitive. But you asked me, are we seeing activity? Yes.

Okay, okay.

We haven't won it, and it is very competitive.

Okay.

We are in the hunt.

All right. With respect to voluntary turnover, did you find that you had to maybe increase compensation, either cash or stock-based, in order to keep people? Or even despite that you have been losing people? Or has that been pretty stable at least at the beginning of the year?

I will let Mary Sawall answer that.

Yes, our voluntary turnover actually continues to decrease quarter-to-quarter. It was under 2.5% in the first quarter.

We did the usual things we do every year, looking at the market in determining base salary increases and then trying to make sure that our top performers were getting the bulk of the money and the bonuses.

We do expect turnover to increase somewhat in the second and third quarters. That happens every year. But on a quarter-over-quarter and year-over-year basis, we continue to see positive trends in it.

Okay, thank you.

Kevane Wong with JMP Securities.

Hey, guys; how are you doing? Most questions answered, but just a couple things. Overall -- I know you answered this for a segment. But when you're looking at success fees, how big were the success or performance fees in the quarter? With the guidance, did you guidance include any particular amount of success fees in the second half? Or is your guidance excluding sort of performance fees you might get?

There was none in Q1. I would just say that the success fees are not a big part of Huron's business or any of our numbers that we've given you.

Got you. Then also was curious on the Health and Education segment. Obviously you pointed to a lot of assessments at this point. Are the assessments sort of processed -- a period where you tend to use less of the contractors?

I noticed the last couple quarters had number of the contractors in the Health and Ed segment have come down. Is that something we should expect to pick back up as these assessments turn into implementations? Or is there something else sort of driving the drop in the use of contractors there?

Yes, I think the general idea is that as more revenues go up and they need more things to be done, you will have more contractors.

Okay, so that is something that is just sort of down because you're doing more assessments at this point, and it should pick up later, then?

I mean -- I don't know that I know the specific number sitting here. But just your concept is right, is that we are short of people right now and revenues are going up. And the way to solve that problem is with contractors.

Got you. All right, cool. Everything else was answered, so thanks very much.

(OPERATOR INSTRUCTIONS) Bill Sutherland with Boenning & Scattergood.

Hey guys, just one question at this point. I kind of wanted to see if we could talk about the healthcare practice a little bit below the surface.

I'm curious about the very strong momentum you have there in terms of the kinds of assessments that you're getting, the nature of them. Because at least the nonprofit hospital industry isn't in too bad shape right now. In fact parts of it are doing quite well. So just curious kind of what kinds of work you're getting requested to do. Thanks.

It's interesting you say that. I just shared -- I was with the head of the healthcare practice two nights last week, and his business this year, one of the things that -- 40% of it is going to be in probably very healthy academic medical centers. So we are just seeing great demand from that business in sort of all aspects of it. You know, the teaching hospitals, the academic medical centers, the community hospitals.

So I will just tell you, Bill, is that there's very few hospitals right now that don't want to improve their cash flow from operations.

That's understandable. Okay, thanks a lot.

Tobey Sommer with SunTrust.

Thank you. Two questions. Just could you give me a sense of the kind of dollars you can generate from a typical assessment within the hospital space over the course of however long that assessment lasts, a quarter or two?

You talking about an assessment or implementation?

The assessment side.

Well, the assessment is 8 to 12 weeks.

Okay.

(multiple speakers) We cover a little more than cost, so it depends on size of -- I think they go from $300,000 to $800,000 sort of the typical assessment size.

Okay, thank you. Then just to kind of follow up on a previous questioner, is there any -- when you think of the use of contractors, given your headcount situation currently, is there an opportunity perhaps for you to use less contractors this year and more of your own people? Perhaps shuffling some of the less experienced consultants from one segment to another in order to fill that need.

This is Dan Broadhurst speaking. We usually try to use the contractors just for subject matter experts, where niche sort of expertise, we need to bring in a -- and it's particularly in a hospital space, reference your question.

But yes, we are also continuing to hire more of a bench in the healthcare practice since we did the acquisition with Wellspring as well. So think of them as SMEs that we bring in to work in a particular department or bring a real specific skill set to the table.

Thank you.

As there are no further questions at this time, Mr. Holdren, I would like to turn the conference back over to you, sir.

Okay. We want to really appreciate all of you taking the time today and for having a continued interest in Huron.

In closing, I just want to thank all of the Huron employees for everything that they do every day. So we look forward to speaking to you in August again when we report our Q2 2008 earnings. Thanks.

Ladies and gentlemen, that concludes today's conference call. Thank you, everyone, for your participation. You may now disconnect. Have a great day.