Huron Consulting Group Inc (HURN) 2008 Q3 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 third quarter 2008. At this time, all conference call lines are on 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.

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. I want to thank you for joining us for today's webcast to discuss Huron Consulting Group's Third 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 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 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 are Gary Burge, our Chief Financial Officer; Dan Broadhurst, our Chief Operating Officer and Mary Sawall, our Vice President of Human Resources. This morning, I would like to cover two topics, first, results for the third quarter, and second, our thoughts on what impact the financial markets and the economy will have on Huron in the rest of the year and in 2009.

Let me talk first about the third quarter. Gary Burge will cover the numbers a lot more closely when I am done with my remarks. The third quarter was very successful for Huron. First of all, we completed the acquisition of Stockamp and the integration is going well. Stockamp's third quarter financial results came in as expected, so we are off to a good start and Q4 will show more normal gross margins for Stockamp.

And Huron's legacy business on an overall basis had a very good quarter. Excluding our previously announced restructuring charges and Stockamp Group results, the adjusted EBITDA margin for Huron's combined portfolio of businesses in the third quarter would have been better than 26%. That's the highest margin percentage in Huron's history and it certainly points to a solid performance in Q3.

Our health and education segment had a really good quarter. As I said, Stockamp's integration is going very well and they met all of our operating and financial expectations in the first quarter with us. We are also very excited about how they are going to combine forces with our Wellspring and higher education teams to address the needs for hospitals, major health systems and academic medical centers. Excluding Stockamp results, the legacy health and education business posted record revenues and an operating margin of nearly 40%. We continue to demonstrate our market leadership positions. Demand for these businesses by the marketplaces are extremely strong.

Our legal consulting business also turned in great results for the quarter, with record revenues and margins. V3locity was off the charts with our document review centers averaging more than 100% utilization in the third quarter. In our financial consulting segment, we improved segment operating income by $2 million from second quarter of 2008 through headcount reductions and increased utilization. As you will recall from last quarter's conference call, we closed down our operational consulting business because of below average operating results. As a reminder, operational consulting is set in our corporate consulting segment.

So, I think we had a very good quarter during -- what was a difficult time for a lot of companies. I believe this speaks to our ability to adapt to the market and take advantage of our strengths. And I think it also speaks to our ability to manage through challenging times with our balanced portfolio of businesses and the return on investment concept clients get for using Huron.

But based on what we are seeing in the marketplace, how does this position Huron for the rest of 2008 and 2009? It is fair to say that very few of us at Huron and our clients and American industry in general or those of you in the investment community have direct experience dealing with the kind of marketplace turmoil we are witnessing today. We are all experiencing the uneasiness caused by wide swings in the equity markets, the lack of certainty in the credit markets and whether consumers will have funds to buy goods and products.

I would be less than candid if I didn't say predicting 2009 revenue growth and results will involve more variables and uncertainties than at any other time in the history of Huron. We expect that we could see some pullbacks or delays in assignments in some segments -- sectors and certainly, any future widespread liquidity issues and companies strategy to conserve cash could affect our business.

But, along with these risks, we also believe there are big opportunities for Huron. Our job is to minimize those risks and maximize those opportunities in the coming quarters. We need to attack the market in the next 14 months like we did when we started Huron in 2002. We need to be in the marketplace every day visiting existing clients and calling on new ones to see how we can help them improve cash flow and solve business problems.

Here is currently how we see our businesses. We are very well positioned with our health and education and legal consulting businesses, which represents nearly 70% of Huron's revenues today. We feel that we have number one market position in these businesses. Both are performing great and both are very well positioned for near and long-term growth. These are really exceptional businesses. The healthcare side of our business, Wellspring and Stockamp, is also a business with longer term visibility and hard backlog. Their implementation assignments are 8 to 12 months. We currently have substantial 2009 backlog and the demand for their services are very high, with calls coming in weekly for help from clients.

Academic institutions and hospitals at all times are facing shrinking endowment funds and reduced government funding and capital expenditures are not going away. The pressure to improve cash flow is even more acute now than it ever has been over the last several years. We also have seen many opportunities for health and education business in a developing Middle East market. In addition, the issues facing healthcare providers, payors and pharma companies are only likely to intensify as a new administration takes control in Washington.

We remain bullish on this business and we continue to believe that our biggest challenge is making sure we have enough qualified people to serve existing clients and new clients. The macroeconomics of 2009 could enhance the growth of health and education consulting. Execution will be our key, not market demands. We are also very excited about our legal consulting segment, and especially our V3locity product. We feel that we are very well positioned to continue to expand and grow our discovery-related businesses. We have built an extraordinarily powerful offering to the legal community that continues to gain market share every day.

We continue to sign new master service agreements for V3locity. Alliances with Discovery Services LLC and the Dine Group for V3locity Services gives us an increased sales force and reach -- and increased review capacity in New York and Chicago. Having additional review capacity and a sales force in New York will help us serve the financial services industry, where we believe there will be high demand for all of our legal discovery and consulting services.

As I mentioned, we have made some headcount adjustments in our financial consulting segment to improve our operating results. We still like this business very much and we feel that this segment has the tools and expertise to deal with what is likely to be a rising tide of investigations, litigation and dispute opportunities. And we also feel there will be increasing demand for CFO solutions, particularly as it relates to the financial services industry and the government's investment in financial institutions.

I realize that we expressed these same feelings about financial consulting at the end of the second quarter and that the business has yet to rebound. We are optimistic that business should increase some time in 2009, we just don't know when. In the meantime, we will continue to be out in the marketplace, continue to manage the headcount and do everything we can to improve performance and position ourselves for new opportunities as they develop.

In our corporate consulting business, we remain optimistic about the outlook for our restructuring and turnaround business. Our experts in this space focused on out-of-court middle market turnarounds. But we believe there will be plenty of business in the turnaround market in the months and quarters that lie ahead. Our strategy Galt business continues to do well and has a very solid backlog, and we expect that it will continue to bring exceptional shareholder value solutions to the C-suite. Lastly, our utility business and Huron Japan continue to develop their niche product offerings.

Finally, even though some concerns have been expressed about a potential decline in the consulting industry in the current market, I want to point out that Huron does not compete in the same space as many of the other large firms in the marketplace. I'd also like to remind you, 70% or more of Huron's revenues will come from our health and education consulting and the legal consulting segments in 2009 and we will continue to use our capital to grow these practices and products.

We are not technology consultants generally, nor our projects discretionary in the way that many analysts have defined the terms. We have also not had a substantial presence in the financial services sector. However, we do expect to capitalize on events driven in the financial services segment. Huron has always focused on solutions that provide measurable business improvements and demonstrate a return on investments for our fees and those solutions should be all the more essential in today's environment. It's very difficult for a hospital, university or company to say that it is not one to enhance revenues and improve operating results in this or any other economic environment.

To wrap up, to the extent we can predict near and long-term trends in our markets right now, we believe there'll be substantial opportunities for all of Huron's business in 2009 and we are very pleased with how we are currently positioned. Growth and profitability is a key focus and my whole management team and every managing director in Huron. We will continue to add to our superior market offerings and we will trade up or exit when we feel we don't have scale or we don't offer superior client solutions. It's not an easy market out there, but our job has always been to help clients steer through tough environments and we continue to expect to excel at that.

Now, let me turn it over to Gary Burge, who will go over our financial results and guidance.

Thanks, Gary, and good morning, everyone. There is a lot to cover with respect to the quarter and guidance, so let me get right into it. Some of our financial highlights included revenues of $168.7 million were up nearly 26% compared to last year's third quarter, with consolidated organic growth of 12%. Excluding the financial consulting segment, combined organic growth rate for the remaining three segments was approximately 27%.

Our customer diversification continues to improve as our top 10 customers represented about 27% of total revenue for the quarter, compared to 30% a year ago. Overall, we came in slightly higher than the mid-point of the revenue and EPS ranges that we gave you heading into the quarter.

EBITDA rose to $31.6 million, up about 12% from EBITDA of $28.3 million in Q3 last year and our adjusted EBITDA, excluding share-based comp and our previously announced restructuring charges, rose approximately 22% to $40.8 million. Our adjusted EBITDA margin of 24.2% was influenced by Stockamp's results while they transition from their historical cash basis revenue recognition principles to GAAP, and as Gary mentioned, excluding Stockamp, Huron's legacy businesses posted an adjusted EBITDA margin of better than 26%.

Operating income increased 2% to $22.3 million for the quarter from $21.8 million last year, and third quarter operating margin was 13.2%, compared to last year's 16.3%, reflecting the impact of the restructuring charge, increased amortization of intangibles and the previously mentioned Stockamp revenue recognition issues. Net income decreased to $8.8 million in the third quarter of 2008 and diluted EPS was $0.44, compared to $0.58 a year ago. But again, the EPS number was solidly in the range that we gave you for the quarter.

Now, for some comments regarding each of our businesses. The health and education consulting segment continues to be a bright spot for Huron, as revenues were $77.7 million for the third quarter of 2008, increasing better than 56% from $49.8 million in the third quarter of 2007. Organic revenue growth for this segment excluding Stockamp was in excess of 25%. We remain very pleased with the strength that Wellspring has displayed in the community hospital market and our higher education and pharma and health plan practices also had strong third quarters.

As Gary mentioned, the Stockamp integration has gone well and they fully met our expectation during the quarter in terms of revenue and operating income goals. In total, the health and education segment operating income met our expectations, increasing 19% to $22.4 million from the $18.8 million during the same period a year ago, reflecting the aforementioned intangible amortization increase and the Stockamp revenue recognition issues. As Gary mentioned, margins without Stockamp and the amortization of intangibles approached a very healthy 40% for our legacy practices in this segment.

Revenues for the financial consulting segment were $33.9 million for the third quarter of 2008, a decline of about 15% from $40 million in the third quarter of 2007. Revenues for our disputes and investigations practice came in about where we had forecasted for 3Q, while revenues for CFO solutions were softer than we expected, coming in about $1 million short of our forecast. While financial consulting operating income of $10 million declined about 14% from last year's third quarter, we did see a slight improvement in operating margin, as we have continued to manage our headcount down while we wait for the market for these services to rebound.

I would also like to point out that this segment's operating margins and utilization both improved sequentially from 2Q, as we have better aligned our headcount with the current level of revenues. As Gary said, we are optimistic about the future of the disputes and investigations and the CFO solutions businesses. We feel the recent turmoil on Wall Street and the financial markets should result in more disputes and litigation activity during the coming year, as well as an increased regulatory focus. These changing environments should create more opportunities for us.

Moving onto the legal consulting segment, revenues were $38.1 million for the third quarter of 2008, increasing more than 63%, all organic, from $23.3 million in the third quarter of 2007. V3locity had a tremendous quarter, as our product continues to gain acceptance by general counsels who see that the price, quality and speed of our discovery services totally distinguishes us in the marketplace. The segment operating income more than doubled to $15.7 million in Q3 '08 from $7.2 million during the same period a year ago. Operating margins in this segment improved to better than 41% from 31% a year ago, due to V3locity's increased revenue volume and related operating efficiencies.

We've also seen improved utilization for our core legal consulting personnel since the beginning of the year. We believe there is a great market for our legal services. We continue to work hard and meet the needs of the general counsel with V3locity and our core legal consulting and records management businesses. Revenues for corporate consulting segment were $18.9 million for the third quarter of 2008, decreasing as forecasted about 10% from $21 million in the third quarter of 2007.

Quarterly segment operating income declined to $3.3 million from $7 million in last year's quarter. Quarterly results were impacted by charges associated with the closing of our operational consulting practice, as well as headcount actions taken in other practices in an effort to improve utilization and operating margins for this segment on a go-forward basis. $2 million of the Company's total of $2.3 million in third quarter restructuring charges were taken in this segment.

With the decision on the operational consulting practice behind us, we are optimistic about the remaining practices in this segment, as Gary mentioned. I also want to provide you some color on our third quarter income tax provision. Our third quarter effective tax rate of 47.5% essentially raises our year-to-date effective tax rate from 45% to something closer to 46%, 45.8%, actually. This provision increase was driven by additional international startup losses that cannot yet be tax benefited and also reflects some current foreign tax credit limitations. We have also continued to see a greater proportion of our work being performed in higher state and local tax rate jurisdictions.

Now, for a few more data points, DSO came in at 69 days at the end of the quarter, helped by Stockamp, who does a great job of billing and collecting. We are also very pleased with the posting of nearly $40 million in cash flow from operations during the third quarter. Our return metrics remain strong, with a return on assets of approximately 7.7% and a return on equity of 19% over the last 12 months.

Now, guidance for Q4. While the fourth quarter always presents challenges in terms of being able to accurately forecast available business days, in light of our clients' and consultants' holiday and vacation schedules, this quarter also has uncertainties presented by what may happen next in the financial and business markets.

Having said that, it's our job to present what we think is a realistic forecast and as you saw in our press release, here is what we expect for Q4. Revenues in the range of $170 million to $178 million, EBITDA in the range of $38 million to $41 million, operating income with a range of $27 million to $30 million and $0.58 to $0.66 in diluted EPS. We expect that the fourth quarter results are also going to include about $7 million in stock-based comp costs.

With our fourth quarter update, guidance for the full year 2008 has been updated to reflect revenue in the range of $621 million to $629 million, EBITDA in the range of $121 million to $124 million, operating income range of $90 million to $93 million and diluted EPS in the range of $2.12 to $2.20. Full year share-based comp cost is estimated to be approximately $27 million.

From a modeling standpoint, we expect to have approximately 1,550 billable consultants on board by the end of the fourth quarter, and FTE should average approximately 875 for the year. We have forecasted average utilization rates for the fourth quarter and full year approaching 75% and 70%, respectively, and we expect average hourly bill rates of approximately $260 and $270 for the quarter and full year respectively. Lastly, we are assuming a 5% reduction in effective business days for the quarter, with the fourth quarter expected to have 57 days versus 60 days in the third quarter, after taking out holidays and forecasted vacation days.

Weighted average diluted share counts for 2008 are estimated to be approximately 20.2 million for Q4 and 19.1 million for the full year 2008. And finally, with respect to taxes, with our true-up provision in the third quarter, you should assume an effective tax rate of approximately 46% for the fourth quarter and the full year.

Let's now open it up for questions.

Thank you. (Operator Instructions).

Our first question comes from the line of Tim McHugh with William Blair and Company. Please proceed, sir.

Yes, first, I wanted to ask about the legal consulting segment, in particular the V3locity business was very strong there. And it seemed like as reflected in the average revenue per FTE that the pricing was very strong or the productivity spiked up a little bit relative to the last few quarters. I was wondering if you could give us some more color on that?

Well, Tim, I think as we've sort of told everyone is that we were -- V3locity is only -- it's a new product and we -- I think we explained to people that we were in the early stages of it. We talked to people about throughput through the factory and I think all of what we're seeing a little bit is we had some big jobs and we are also seeing some of that efficiency starting to come through our operating results.

So, you would expect relatively speaking that it would be a sustainable level of productivity?

Well, I think that there are a couple of things going on there. One is we had a real big job in there and we have big jobs in there, they're there for a while. People can get more efficient on those jobs. So, I think there's a combination of factors, size of jobs and just the nature of -- just think about it. If you have a job that goes four months and it's the same subject matter, people are going to get more efficient on the documents and the process. But I would say having said that, we do expect that we'll continue to see good utilizations and our pricing will be good and we will continue to -- or I don't know if it will stay at that level in Q4 and beyond, but it -- will see good results.

Okay, and then you highlighted some of the areas that you thought would benefit from the current macro environment. But you also mentioned obviously that there's some projects that could get delayed. I was wondering if you can talk a little bit more about what areas you would expect the most risk is in the business for that sort of issue?

Well, if you -- just the general counsel, which doesn't have -- they haven't decided if they want to put in a new matter management system. We could have some there, and I think you could also have some just on the higher end if the university decides that they don't want to put in a system or something. But we don't think it's a very dramatic thing, because we look at most of our businesses.

We think that the FC business now should start seeing from the events, but it hasn't. So, I guess we're just being a little bit conservative. If the events don't happen, we might not see improvement in FC and I think we might not see some. But for the vast majority of our businesses, we see just more opportunities than we see people not spending money.

Okay, then, lastly, you touch on the FC business. Just from watching the headlines, you would think there's been a pickup in the last month or so, at least in investigations. But as you mentioned, you're not seeing it yet. Do you think, are we wrong from just reading from the headlines that there has been a pickup, or competitively, do you think you just happened to have won the engagement?

I guess from our perspective, and we're talking to the lawyers and we're in a market a lot with our V3locity product and talking to a lot of people, I'm not sure it's picked up to the extent the headlines say they have. And it clearly hasn't picked up at Huron. We're not even seeing that many chances to lose.

Okay, thank you.

Our next question comes from the line of Jim Janesky with Stifel Nicolaus. Please proceed with your question.

Yes, first, Gary Burge, what did you say your expectations were for utilization fourth quarter and 2008 respectively?

We think we might be getting somewhere in the neighborhood of 75%. So, it is going to creep up and then for the full year, it would be up 70% average, because we have got a full year average to pull up.

Okay. And remind us, how much of an effect -- can you let us know how much of an effect Stockamp did have revenue-wise in the third quarter?

Well, we gave you a range as we entered the quarter of $14 million to $16 million of revenue and there, within that range.

Okay. And in terms of -- in terms of sequentially looking at division by division, I would assume that financial consulting, to expect that that would be either flat or down, might be in line. It looks like legal is still moving ahead quite considerably. Obviously, we have Stockamp in the health and education, plus there is a seasonal impact from Wellspring. What would you expect then as well in corporate consulting, just considering it is somewhat cyclical offset by the restructuring business?

Yes, well regarding corporate consulting, we would say, certainly there should be potential upside in restructuring and turnaround business. But it's a relatively small segment, as you know, and we would assume for purposes of our forecast right now it stays flat.

I think also, Jim, when you ask about FEC, we are assuming it is going to go down in Q4 from Q3 in our guidance.

Okay, okay.

Our core business you should assume for the most part, because of the sequential days, I mean less days, that you wouldn't see any sequential growth except for the pickup of the Stockamp revenues.

Okay, including --

You can pretty well see that when you do the math.

Including legal?

Yes, including legal. Because one of the things that we had in legal, we had that thing at 100% capacity and one of the things I keep trying to make sure that you guys all understand is, V3locity is going to be a great business. But if we run at 100% capacity one quarter and we have got big jobs, we just can't make that happen quarter after quarter. And so you might see V3locity come down in Q4, but I sure hope you don't think that the business isn't good.

Sure, that makes sense. Is there a way considering how strong restructuring is, are you considering ways in terms of either acquisitions or group hires to increase your presence in that area?

Absolutely not.

So, you are comfortable with where you are?

Yes, we are just not -- that's not -- I think I told you, we are going to put our capital in health and education and legal.

Okay, okay.

So, I don't know whether you guys like that or not, but I think you should realize, we are becoming a pretty big health and legal consulting business as a part of Huron.

Okay, fair enough.

We think that's where we can really differentiate ourselves.

You also talked about the backlog in health and education, how strong it is and I guess we would consider it the area of your strongest backlog and the most visibility. Considering that I think that the market now wants to know where opportunities can be missed, not made, if we were to look out towards the end of 2009, how -- what would be the reasons in your opinion why you would not realize the full potential of that backlog?

Based on what the guys around that practice tell me, and based on what they are hearing from the marketplace, I just can't give you a reason. I don't have one right now. It would be illogical for those who need cash and need it quick to handle their capital expansion and where we've got proven businesses that give four and five times return on consulting fees, why would they not buy?

Okay, all right, thanks. And then finally, Gary Burge, can you give us an idea of intangible asset amortization both for the fourth quarter and then I know that to wrap it in an upfront, so how we should scale that back in 2009?

Yes, the rapid amortization will come down in the first quarter of 2009 to somewhere around $500,000, $600,000, and that is down from about the $3 million level in the -- $4 million level in the fourth quarter.

And that $500K to $600K, we can flow that through the rest of the year?

No, that will end at the end of the first quarter.

Okay, so that is it, right?

Yes, for the rapid. There will still be some ongoing longer-term amortization, but the rapid will step down in the first quarter and then be gone going into the second quarter.

But the ongoing amortization is in the line of depreciation and amortization rather than intangible asset amortization, right?

Most of it, but there is a little up in direct costs. There is some longer-term software and customer relationship amortization up in that direct cost line.

Great, okay. Thank you.

And our next question comes from the line of Tobey Sommer with Suntrust Robinson Humphrey. Please proceed with your question, sir.

Thank you. I had a question, you mentioned the systems, both in terms of higher ed and in the general counsel's office. Last time I ran the numbers, though, I thought there might have been sort of like 4%-ish of overall revenue and that was before Stockamp. Is that still a decent approximation for the exposure to kind of installation of IT systems?

Yes, Tobey, that is in the ballpark for total Huron.

It is pretty small, Tobey.

So, it would be roughly comparable with the restructuring practice as a percentage of revenue?

It's you mean -- yes. Give me your numbers again? (inaudible)

Revenue or percent of total Huron revenues.

Our IT practice isn't 4% of the total Huron.

It's in the ballpark.

Okay. I had a question about the demand you saw on V3locity. Is there -- are you able to see if that demand may be the front end of work related to the financial crisis, or is it unrelated litigation?

So far, it is all unrelated.

Okay, perfect. And a housekeeping question, the bill rates that you expected for the fourth quarter and the full year? Sorry I missed that.

Oh yes, Tobey, the bill rates, let me find them here. We are expecting for the third quarter, somewhere in the neighborhood of $260 per hour and then for the full year, about $270. So, we are -- the Stockamp definitely depressed the average bill rate in the third quarter and that will start to come up in the fourth quarter.

Intrinsic rates are still probably moving in a mid-single-digit pace?

Yes.

Okay. And then just a question about how to think of the healthcare business, Gary Holdren. I think investors are kind of struggling with that and consulting is such a broad term, everything from very discretionary type work all the way to less discretionary restructuring-type work. Is much of what your core healthcare business does, is that more analogous to almost a hospital restructuring?

Yes, I think that's a way -- I mean not, the Stockamp clients would not like for you to think of them that way, because they are very healthy, right? But they are giving them -- they are making them continue to be from good to great hospitals, because they are giving them great solutions in revenue and patient progression. And they can see that return on investment and so they see that they need to do it just to make their hospitals great.

The Wellspring business has traditionally been more of going in a full value transformation, which would say just to take negative EBITDA and make it positive EBITDA. So, you could think of that maybe as a restructuring, but it is not a bankruptcy situation. But it's just making them -- it could be analogous to what we do in some of our turnaround stuff.

Okay, that is very helpful. And what is a rough mix now in the healthcare and higher ed practice, between the legacy Wellspring, the new Stockamp and the higher ed? Just rough terms?

Your question is, how do they relate to the --?

What's the, like, revenue mixture in the segment of those three?

I mean, when you look at them right now, they are probably about a third, a third, a third.

Okay, thank you very much.

Our next question comes from the line of Andrew Fones with UBS Securities. Please proceed with your question.

Yes, thanks. In terms of the quarter, I was wondering if you could give a sense of how Callaway performed? I think you said that the CFO business was a little bit weaker versus investigations and then the disputes business? Thanks.

He's asking about Callaway and how Callaway performed. Yes, Andrew, we were a little disappointed in Callaway's results for the third quarter, about $1 million short of what we were expecting heading into the quarter. So, to the extent their business is affected by the economy, CFOs and controllers making decisions on special projects, did that have an effect? We'd say probably yes. But we still are very positive on this business. We think there is some tremendous opportunities going forward with what may happen or is happening in the financial services industries in terms of special project work on a go-forward basis. And we are trying to direct our activity and marketing efforts towards that end.

We put a proposal in, Andrew, to try to be a provider to the FDIC, mostly through using our on-demand resources. We haven't yet heard whether we have been selected.

Okay.

We think that is where the on-demand resources probably had the most potential to excel over the next financial institutions are working for the government with the TARP situation.

Okay, thanks. And then if you are able to comment at all on kind of the impact of large investigations versus Q2 and then disputes? Thanks.

You are saying how many large investigations did we have in Q3?

Yes, that would be great.

Yes, there weren't -- we didn't have any mega jobs, any mega investigations in Q3.

I know it's a little early, but I guess before we have another quarterly call, you'll make your decision on the number of offers to make to students for next year. Can you give us kind of any preliminary thoughts there? Thanks.

That's recruiting. Mary?

Yes, our target for our campus recruiting next year is about 140 to 150 students. And that's slightly down from this year. But we continued to have an active campus program and we are in the process of integrating our campus recruiting with Stockamp's, which had a very robust program as well. So we are getting good coverage and we are looking forward to that.

Okay, thanks. Do you have any plans to add any additional capacity to V3locity? Thanks.

Well, we -- it will be announced, Andrew, shortly. But we went into -- we are tripling our capacity in New York through a joint venture with the Dine Group. And we are continuing to look at some other facilities around the United States.

Okay. Thanks. And then just kind of a housekeeping item. What was the impact last year in the third quarter, if you could, from the operational consulting group? I am just trying to understand organically what your corporate business did year-over-year? Thanks.

Yes, Andrew, third quarter of last year was $21 million of revenue for corporate consulting. This year, it is about $19 million and it's really related to the overall the operations business, operational consulting business being gone from where certainly it was in last year's results.

Okay.

There is puts and takes across the various practice areas, but that is the bottom line. So that business has not grown dramatically from an organic point of view since last year.

Okay, thank you.

Our next question comes from the line of Paul Ginocchio with Deutsche Bank. Please proceed, sir.

Thanks. Just the question about the Glass acquisition a couple of years ago, can you just tell me how much -- what percentage of the people you now retain from that acquisition? And second for us newcomers, can you just remind us about the foundation business in the third quarter in the financial consulting region, and what the comp is for the fourth quarter? Thanks.

Yes, the Glass acquisition, I am not even sure I know how many of the existing people are still here.

It's about 60 in our restructuring and turnaround group, which includes what Huron had prior to the acquisition. That's down a little bit, Paul, from where it was a year ago. But we are waiting for that business to rebound. We can gear up on resources if we need them.

And the foundation jobs, we had -- we previously disclosed that they are $1 million or above. It used to be that they were $10 million and $8 million and there were a lot of them. And now, what we are doing is we have more in the $1 million range and we just -- we don't have very many of them. We forecast many for Q4.

But a year ago, for the fourth quarter, what was the comp?

Yes, we would have had about four of them last year that would have totaled $20 million in revenues.

Okay, thank you very much.

Our next question comes from the line of Dan Leben with Robert W. Baird. Please proceed, sir.

Thanks, good morning. Just to follow up on that last question a little bit, can you just talk about the deals you are seeing that are out there in the market that are available, just kind of the size of the deals you are seeing, if you are seeing the continual pullback in size has in effect gotten progressively worse in the third quarter?

Yes, I mean, what we are seeing I mean, if you are talking about financial consulting or FEC, what we are seeing right now in the marketplace is we have not seen really big stuff and we are seeing stuff that is more in the $500,000 to $1 million range per quarter. And those are the kind of opportunities we have got and those are the kind that we continue to see. So, we are not seeing -- we are currently not seeing any big mega job opportunities right now.

Okay, great. And can you talk a little -- we've talked a lot about financial services. Could you talk a little bit about some of the other vertical markets where you have a pretty sizeable presence, what you are seeing from those customers?

Well, we -- clearly, our verticals that we do the best in is our health and education business. And clearly, our health and education business with our health side is -- you are just seeing calls coming in every day from hospitals who want help. And we are signing contracts and we are doing assessments and we are building backlog and things. We don't have the people to serve the market right now. And you might say, well, is that going to be a situation like FEC, where you had this big hot thing and it is going to cool off?

And I would just tell you that the difference here is in those situations, there were transactions, there were investigations. There were stock option-type matters. There are 4,500 hospitals that need fixing today, and they are going to need fixing. They are going to be closed. They are going to need operational performance. So I don't think the dynamics are the thing and right now, we believe we have the number one market leaders in helping hospitals improve their results in the United States.

So, the demand is just fabulous. And we do have probably -- we are probably the only people who serve higher education in the way that we serve it and we serve 80 of the 100 top universities in the United States, and every year, 80% of our business from the next year comes from repeat buyers. So -- and we just see nothing but opportunities in those segments.

Yes, obviously those are two fantastic verticals. I guess I was thinking more along the lines of some of the other verticals you participate in, in financial and legal and corporate consulting.

Well, corporate, we really don't -- if you think about our, we've got Galt, which is an offering that has only got like 40 or 50 people. They do two or three jobs at a time. They don't have enough resources to continue to do what they are doing. Restructuring is in corporate and that is not really corporate spending. We do see the auto sector as being one that we are serving there.

But if you look at our business, we are not strong in most sectors, other than serving the general counsel due to our offerings, using our V3locity tool and then serving the health and education. But we don't have a strong presence in oil and gas consulting, a niche practice in utilities and we don't serve the aerospace industry or -- and a lot of other industries. So, we are not strong and we don't plan to be strong. We don't have service offerings in those segments.

Great, and then just one last question real quick. On the V3locity side, you talked about the big job that you had in the third quarter. Do you have any visibility into when that job is scheduled to ramp down, knowing that there could be quite a bit of variability in these segments, just to follow onto that? Could you talk to us about the pipeline of large jobs in V3locity?

Yes, the large job that I talked about that we had in Q3 is over. But there is another job in there that we have got and that is why I told you, we are not going to have as good a quarter right now unless some things happen. And a lot of things can happen very quickly in that business, because you can have a month worth of work in there and you can do a lot of revenues.

But right now, we are not going to have as good a Q4 in V3locity unless we get a lot of business in the next two months that will make us have a good quarter but we see a lot of our master service agreements are improving. Our strategic alliances are improving. And we just hear a lot of clients talking about a lot of demand coming for discovery in 2009 and they basically -- we just continue to win new master service agreements, where people tell us we have got the best solution in the industry.

Great, thanks, guys.

Our next question comes from the line of David Gold with Sidoti. Please proceed, sir.

Hi, good morning. Just another question on financial. I think earlier in the year, we had some issues there. Part of the trouble at that time was basically the relationships were in places where the large engagements weren't going. And it sounds like the perception today is more that the large engagements aren't happening just now. But can you speak a little bit about how the positioning has changed and do you think the changes you have made have positioned you properly so that when the large engagements do come back, you should start to see them again?

Well, I think -- I mean, David, we believe that we still have the same good people who did those investigations, that big law firms have relied on and I think we believe when the large investigations were going on, whether it be Fannie Mae or Nortel or whoever it is and the firms that used us thought we were really good. So, the same people are still here. The question is, why aren't the same large investigations coming or the same big jobs coming and why aren't those lawyers handling as many big matters that they used to?

And I can't really answer all that, other than I think we just keep hearing that people haven't yet decided who they are going to sue. They don't know where the value is going to end up and I think there is just still some question about just how large all this is going to be and who is going to be available to sue when it all happens. But I would say we have got the right people, just right now we are currently not seeing the same size opportunities that we saw.

But I guess though earlier in the year, some comments about expanding your marketing efforts and your relationships to maybe better position you, and so maybe just a little curious if you can add some color on sort of the basically what you have done there and maybe how much success you think you have had as far as broadening relationships? Or is that something that is just too hard to gauge [for you]?

You just, I mean, you can't gauge it, right? Because the gauge has to be in revenues, and the revenues aren't there. But in the effort, if you went through -- or our sales force type reporting, clearly, the managing directors have been out more trying to sell more than ever before. But so if you look at effort, it is good. You don't know whether someone has got a relationship or not, right? But you -- the end is that there are sales there, and right now, there are not.

Got you, got you. Okay. Fair enough. Thank you.

(Operator Instructions).

Your next question is a follow-up question from the line of Jim Janesky with Stifel Nicolaus. Please proceed, sir.

Yes, something that Mary commented on with Stockamp's recruiting, I had a follow-up question on. My understanding was, when you did Stockamp, part of the reason why their growth had been held in check over the last couple of years was they -- was their inability to recruit in a tough labor market. When you said Stockamp, Mary, had a great recruiting process, is that prior to coming onboard with Huron? Or was it after coming onboard and you rolled them into your more sophisticated recruiting program that they have been able to increase headcount?

Sure. Stockamp's issue -- Stockamp had a great campus recruiting engine, where they really hadn't become as sophisticated, was in experienced recruiting and that is where I think they are going to see some real benefit of working with our recruiting group. And on the campus level, what we have found is they had coverage in the Southeast and west of the Mississippi better than we did in terms of the campuses they went to, where our strength was in the Northeast and the Midwest. So I think that will merge well together. And Jim O'Malley, who heads up our recruiting, is working with them to help them become more effective at experienced recruiting.

Okay, thanks. Gary Burge, do you expect the 46% tax rate for the fourth quarter to continue into 2009?

Yes, at this stage, Jim, yes. We are looking for ways to mitigate that always with tax planning strategies and things. But right now, it is safe to assume it is going to stay at that level.

Okay, thanks.

Our next question is a follow-up question from the line of Tobey Sommer with Suntrust Robinson Humphrey. Please proceed with your question.

Thank you. I was wondering if you could give us some color on how your business is going in Japan, maybe let us know what percentage of revenue that is and whether it has had any sort of currency impact on your reported revenues or perhaps your guidance?

I will let Gary talk about currency and that. But I would say, Tobey, what -- when we first went there, we went there thinking that we would be more in a operational consulting business. And what we have done and what we are changing is we are changing more to be into using sort of accounting-type, because of the international accounting standards, and having people need to change and then also having things to do with investigations and more. So, I would say the FEC business is where we are going to be moving the Japan business toward, versus it regionally would have been more of a corporate consulting focus. So we sort of had to reshuffle the deck. But it is a very small percentage of Huron's revenues.

Right, yes, Tobey, it is less than 2% of total Huron revenues generated outside of the US right now. And then so as a result, since that is relatively small, we don't have huge currency risks at this stage. But who knows where our US dollar is going against these foreign currencies right now. It seems to be moving in very odd directions, so we are not ruling out that we would potentially have some currency translation issues going forward as the bigger we get.

Okay, thank you. And then another question, to kind of follow up on the hiring environment, is it changing materially and improving perhaps with other financial investment bank-type companies coming under pressure, both at the junior and senior levels?

Well, right now, that is not the skills we are looking for. We are looking for people who know how to run hospitals and universities. And so we still are in hot pursuit of those skills and the financial consulting skills are not the ones we are really looking for at this point in time.

In terms of the hospital and university financial skills, are those easier to come by or more challenging at this stage?

What we need is people who know how to -- the ins and outs of hospitals, the financial side but also the operational side. And that is not people who have worked in banks or investment banks.

Well, I understand. But searching for those people, has it become easier or more difficult or is it the same?

Well, we have added four MDs in healthcare and one MD in higher ed. So but it is not enough we still need a lot more.

Okay. And then I wanted to just get your perspective on the TARP and the fact that the entity is going to be supposedly buying some assets, some liquid assets that haven't had easily -- it hasn't been easy to calculate a value for them. Could those valuation events serve as a catalyst to allow potential litigants to actually file for losses and actually a catalyst to start the lawsuits?

They could. And we think -- I mean, that is what we have heard. Because what I heard a few lawyers tell me the other day is, people need to know what they think they have lost and when sort of the determination is made. And right now, I don't think people really know that yet. So to your question, we believe that Tobey, any others who tell you they know exactly about this, I have been scratching my head why more investigations weren't done by the SEC, why people haven't wanted to know why all these trillions of dollars have lost. So, I am running out of explanations of why we aren't doing better in this environment.

Fair enough. Thank you for your help.

I can't figure it out, personally.

Thank you.

Our next question comes from the line of Bill Sutherland with Boenning, Scattergood. Please proceed with your question.

Thanks. Gary Holdren, I think I have the answer. It is the election year.

Let's get it going then.

Believe me, I am ready. I am curious on that proposal you have got to the FDIC. Is that a team or just yourself?

No, this is Dan Broadhurst. We have got a proposal in to assist the FDIC in potential closures of banks. And it is a team of Huron folks and we have actually had to identify and display for the FDIC a proposal, two SWAT teams if you will, and it is made up of our group of people.

Okay. Because I had heard it was normally some kind of group of vendors approaching those proposals.

You need a lot of different skill sets to build out the full team. But with our variable on-demand recruiting and fulfillment capabilities that we acquired with the Callaway team, we can get at all the resources we need for the FDIC proposal.

And I may have missed this, I apologize. On Stockamp in Q4, should we be expecting a positive contribution after all the accounting?

At the gross margin line, we definitely should. And sort of if you think about before rapid amortization and amortization. But it is -- you definitely should see a substantial contribution.

Okay. I think everything else has been addressed. Thanks, guys.

Okay.

(Operator Instructions). Mr. Holdren, we have concluded the allotted time for this call. I would like to turn the conference back over to you.

Okay. In closing, I would just like to thank all of Huron's employees and both who serve our clients and our internal operations every day. This has been a year for us that had some challenges, but we have done good and we really look forward to all the contributions people will make in 2009 and I also want to thank all of you for having the confidence to be investors in Huron and we look forward to speaking to you in February, where we will report our year-end results. Thanks.

That concludes today's conference call. Thank you, everyone, for your participation.