Huron Consulting Group Inc (HURN) 2009 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 2009. (Operator instructions)

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

Good morning. And thank you for joining us for today's Webcast to discuss Huron Consulting Group's first quarter 2009 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 disclosure of factors that may impact subjects discussed in this morning's Webcast.

Today we will be discussing one or more non-GAAP financial measures. Please look at our earnings release and on our website for all disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers.

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

This morning, Gary Burge will start by covering our first quarter results as well as our 2009 guidance. Then I will provide some thoughts on where we are today and what the balance of the year holds for Huron.

In February, we gave you our outlook for Huron's full-year performance. And Gary Burge will tell you shortly why we believe the forecast is still solid. After Gary's remarks, I'm going to give you our outlook on the demand for each of our segments. I will also tell you how we are going to manage the Business, so we can deliver results that will benefit our clients, our employees and our shareholders.

Gary?

Thanks, Gary, and good morning, everyone.

While on an overall basis this quarter was not a strong one from a pure financial metrics point of view, we can tell you that we've seen progress being made in each of our segments over the first four months, which gives us reasons to be optimistic as we proceed through the second quarter and move into the second half of the year.

Key financial results for the quarter included the following. Revenues of $163 million were up approximately 17% compared to the first quarter of last year, while our top-line results excluding Stockamp reflect an overall negative organic growth rate of approximately 6%.

Gary and I will be giving you some color on why we see our Health and Education and Corporate Consulting segments being able to continue to grow their businesses over the balance of the year, and why we continue to see some recent disappointing revenue trends in Accounting and Financial Consulting and Legal Consulting beginning to reverse themselves here in the second quarter. This supports our improved outlook for both of these segments over the remainder of the year.

EBITDA increased nearly 14% to $29.3 million for the first quarter, and our adjusted EBITDA rose more than 11% to $35.9 million. Our adjusted EBITDA margin was 22% of revenues here in the first quarter of 2009, compared to approximately 23% a year ago. Excluding severance costs for both years, adjusted EBITDA margins would have been relatively flat compared to the year-ago quarter.

Operating income increased nearly 6% to $21.8 million for the quarter, up from $20.6 million last year. Our operating margin was nearly 13.5% compared to last year's nearly 15%, reflecting once again the higher severance cost of $1.1 million, as well as higher amortization cost of $1.3 million.

Net income of $10.3 million in the first quarter of 2009 translated into diluted EPS of $0.51, compared to $0.56 a year ago. As we pointed out in our news release this morning, Q1 '09 EPS reflected $0.04 per share in severance charges compared to $0.01 per share in the same quarter last year.

Now for some comments on each of our businesses.

The Health and Education Consulting segment, which represented 57% of total revenues for Huron during the quarter, continued to be a bright spot for us, as revenues were $93.6 million for the first quarter of 2009, increasing 83% from $51.1 million in the first quarter of 2008. Organic revenue growth for this segment excluding Stockamp was approximately 21%.

We remain very pleased with the strength that the healthcare practice has displayed in the hospital market, with both Wellspring and Stockamp having performed very well during the quarter. And our higher education practice continued to perform very solidly.

In total, the Health and Education segment operating income was outstanding, increasing more than 67%, to $37.1 million from $22.1 million in the same period a year ago. Strong operating margins for the segment of nearly 40% were down slightly from a year ago due to an increase of approximately $500,000 in severance costs and nearly $1.7 million in increased amortization costs.

Healthcare backlog continues to build very nicely, setting us up for a strong second half. And higher ed continues to see a good pipeline of opportunities in the Middle East, which is supplementing what we are doing here domestically.

Revenues for the Accounting and Financial Consulting segment were $24.4 million for the first quarter of 2009, a significant decline from $38.8 million in the first quarter of 2008. Revenues for this segment fell short of our internal forecasts and remained weak, as we continued to experience a down cycle as it relates to regulatory and litigation matters. This cycle, as well as the economy, has had an impact, as we've seen the overall number of matters for this segment decline about 6% from the first quarter of last year. And you've also seen the average dollar size of our -- matters in this segment -- decline by approximately 30%.

Obviously, our success going forward is going to be dependant on us achieving more wins and hopefully being able to increase the average size of our engagements. Like any consulting firm, we thrive on large engagements that drive utilization for a lot of people.

Accounting and Financial Consulting operating income of $2.5 million declined from $9.6 million in last year's first quarter, as profitability was impacted by revenue shortfalls, no improvement in the utilization of our consultants, a reduction in our FTEs, and approximately $700,000 in severance costs.

Now, from a forward-looking point of view, we are pleased to say that Accounting and Financial Consulting has had several recent wins in the financial services and insurance industry sectors that we should begin to see results from in the second quarter. We hope that these wins, combined with other opportunities that we see in the pipeline, mean that this segment has begun to rally.

This recent activity, combined with what we expect to see in terms of increased litigation and regulatory focus in the coming months, makes us cautiously optimistic that this segment will show top-line improvement as the year progresses, reversing the negative momentum we have seen over the last 12 to 18 months.

Moving on to the Legal Consulting segment -- revenues were $22.9 million for the first quarter of 2009, decreasing approximately 9% from $25.2 million in the first quarter of 2008. We were disappointed that V3locity revenues fell short of our forecasts, as we continue to see ongoing project delays, as litigation matters stop and start and as general counsels took steps to defer their discovery spend as long as possible in this uncertain economy.

However, we do continue to believe that there has not been any fundamental change in the overall demand for our V3locity product, other than the aforementioned timing issues. We clearly feel that we have the right product for this marketplace.

Recent activity in the second quarter has shown a pickup in V3locity matters and several new wins for our core Legal Consulting business, which should positively impact results here in the second quarter and build some momentum heading into the third quarter.

Legal Consulting segment operating income decreased to $3.2 million in Q1 '09 from $6.6 million during the same period a year ago. These operating income results reflect decreased revenue, a decline in the utilization of our core Legal Consulting resources, and increased investments we've made in sales and marketing, as well as our V3locity infrastructure over the past year. These infrastructure investments will help ensure the first-rate quality of our product and support our expected future growth.

We know that there's a very large market for our legal services. However, we have to continue to have some patience with the lumpiness of our revenues due to the event-driven nature of V3locity and our other e-discovery offerings.

Our goal, now that we have the facilities and infrastructure in place to support a large business, is to fill our pipeline with opportunities that we can increase and sustain the utilization of our document-review centers, which will then translate into more predictable revenues and operating income.

Revenues for the Corporate Consulting segment were $22.1 million for the first quarter of 2009, decreasing about 9% from $24.3 million last year. I want to remind you that this segment back in Q1 2008 included an operational consulting service line, with approximately $3.5 million in revenues. That was closed in the third quarter of last year. If we were to exclude those operational consulting revenues from last year's Q1 results, year-over-year organic growth for this segment would have been positive.

Strategy and our restructuring and turnaround businesses both had very solid quarters, and we expect that pattern to continue for the rest of the year. Quarterly revenue comps for this segment will also get easier as the year progresses. With the loss in revenues, quarterly operating income decreased slightly, to $8.2 million from $9.4 million last year; but operating margins remained very solid, in the high 30's.

Now for a few more data points -- DSO came in at 58 days at the end of the quarter, improving from 74 days at the end of the first quarter 2008. Despite difficult economic conditions, we are very pleased that our strong first quarter collection results came in as they did. We are also very pleased by our generation of positive cash flow from operations during the first quarter, which has historically not happened for us at this point in the year.

Now for guidance -- we are reiterating our guidance for the full year 2009 based on current market conditions and our outlook for the remainder of the year. As previously announced, we are projecting a revenue range of $730 million to $770 million, EBITDA in a range of $162 million to $173 million, operating income in a range of $132 million to $143 million, and diluted EPS in a range of $3.10 to $3.40. The midpoint of our revenue range -- $750 million -- reflects an estimated companywide organic growth rate of approximately 10% to 11%.

Gary will share his thoughts with you in a moment. But I have to say that we now feel more comfortable with this top and bottom-line forecast than we did back in February, when we initially gave this guidance. This is due to very solid improvement in our hard backlog and an improved pipeline of opportunities that we can see in front of us for all of our segments.

There is more measurable support for the back-end loading of our Health and Education and Legal Consulting segment revenues as well. At the same time, we still remain cautious by assuming that annual revenues for Accounting and Financial Consulting stay flat with the 2008 results at the midpoint of our consolidated revenue range.

For modeling purposes, you should assume that Huron's combined third and fourth quarter revenues will be about 55% of our total revenues for the year. As previously disclosed, full-year share-based compensation cost is estimated to be approximately $30.5 million. Average utilization rates are expected to approach 73% for the full year, average hourly bill rates are expected to be approximately $275 for the full year.

Our full-time billable headcount will average about 1,525 for the year, and our average full-time equivalents for the year will be about 975, assuming again the midpoint of our revenue range for the year. Weighted average diluted share counts for 2009 are estimated to be approximately $20.7 million for the full year. And finally, with respect to taxes, you should continue to assume an effective tax rate of approximately 45% for the full year.

I'll now turn the call back to Gary Holdren for his commentary on the Business and outlook.

Thank you, Gary.

Now that you've heard the details of our first quarter results, and our reiteration of our 2009 guidance, I'm going to take a few minutes to talk about the market demands for each of our segments.

We are being cautious. But at the same time, we are incrementally more comfortable with our guidance range than we were at the end of February. That's because of backlog firming up, plus some encouraging trends in the pipeline of new opportunities for Health and Education Consulting, Legal Consulting, and Accounting and Financial Consulting.

Let me start with our Health and Education Consulting segment, which accounted for 57% of Huron's revenues in the first quarter. This business will deliver significant organic growth in 2009. And as I have said many times, the Health and Education Consulting segment has solid visibility because of its hard backlog of work and a very specific pipeline of new opportunities that are being pursued.

Our experience tells us that the need for our services is at a high level right now, and increasing. And recent third-party research confirms the strength of our healthcare consulting business, despite the current economic conditions. Healthcare is a capital-intensive industry, with significant cash needs. Today's credit market and Wall Street issues come at a time when hospitals are facing Medicare cuts, increased labor costs and decreased donations. In addition, many hospitals will be required to increase their pension reserves to offset the losses on retirement investments.

So it is essential that hospitals continue to find ways to improve their cash from operations. They can do that by minimizing revenue leakage and accelerating cash collections through improvements to the revenue cycle. That is one of our key healthcare competencies.

We also help hospitals improve efficiencies from operations through increased labor utilization, reduction in non-labor-related costs, and maximizing the use of existing hospital infrastructure. This is essentially a healthcare restructuring and turnaround business, helping hospitals address degrading financial performance and the increasing risk of default on debt covenants.

Huron's Wellspring and Stockamp teams continue to expand their number-one market position, as our clients and the size of our assignments continue to increase in these difficult economic times. As I mentioned last quarter, the integration of these teams continues to go very well.

On the higher education front, many private universities have been affected by the loss of endowment income, and many public universities are facing a reduction in state funding. This has created opportunities for Huron -- first, the President's stimulus package has provided a dramatic increase in the amount of funding available for higher education in general and research in particular. Our clients are requesting assistance to provide the interim support necessary to meet the administrative requirements to propose on this funding.

Another trend favorably impacting our higher education practice is an increase in global initiatives among our US-based clients, such as -- assisting with the organizational support of an emerging medical schools and hospitals located in the Middle East, providing strategic and operational support to a large research university, expanding its global reach into several continents. And our Middle East practice is being driven by the continued effort of many Gulf countries to increase the quality and availability of education and healthcare.

Our higher education business is by no means immune from macroeconomic challenges. But continued investment in research, education and medical programs in the US and overseas leads us to believe this business will continue to perform very well for Huron the rest of 2009.

Now let me turn to Corporate Consulting, which includes our strategy business, restructuring and turnaround, utilities, and our Japan operations.

This segment represented about 14% of Huron's business in the first quarter because of the strength of our strategy and restructuring businesses. Both are currently very busy, and their backlogs are strong.

Our strategy offering continues to turn in high utilization rates and strong operating margins. We are helping clients address the strategic and resource allocation issues in today's environment. We have a great track record of wins at the C-suite of Fortune 500 companies, and the CEOs' testimonials of our work are highly credible in this marketplace.

The restructuring and turnaround business had a good first quarter, with solid activity in the auto supply sector. We are optimistic that this practice will continue to do very well for the balance of the year.

Our utility vertical is also showing some positive developments, as clients have asked us to help them assess, plan and propose on alternate energy strategies -- nuclear, wind and solar.

Now for Legal Consulting -- this business has dealt with some of the same market issues that affected it in the fourth quarter of 2008. Right now, it is keeping focused on building V3locity and leveraging relationships in the corporate general counsel office and the law firm space.

We have seen a pickup in activities from V3locity so far in the second quarter, and our backlog looks solid for the rest of the quarter and into the second half of the year. We remain comfortable with this business and see a ramp-up for the rest of the year. The core Legal Consulting business is also improving. We have seen a positive surge in new projects sold in March and April that will benefit Q2 results.

Our cost-control and information-management messages are striking a chord with our existing clients and new law department targets. Also, by employing a highly focused and solution-oriented approach, Legal Consulting has been able to leverage its experience with legal or regulatory matters affecting companies in one industry to companies in another industry addressing the same issues. We continue to win master service agreements at major companies, and the Legal Consulting business will continue to rebound from the fourth quarter of 2008 and early first quarter results.

Now turning to Accounting and Financial Consulting -- our 2009 goal for this segment is to aggressively attack the marketplace and execute on a tactical plan that will enable us to get this practice growing again and improve its profitability.

Toward that end, in the first quarter we took several steps to address marketplace and clients' need, including the hiring of experts in financial and government services. In addition, we've also beefed up our international financial reporting resources.

We are seeing that the litigation and arbitration pipeline is strengthening. We are also being considered for compliance projects, investigations and monitorships. We have picked up some new work in the financial services industry related to troubled insurance companies.

Even though we have not seen new significant enforcement activities out of the SEC yet, we know that there will be a lot of pent-up demand for investigation services once the SEC finishes charting its course and starts putting its plan into action.

Where it is appropriate, our Accounting and Financial Consulting resources continue to propose and work with our restructuring group. We are able to move resources in this very hot restructuring market.

We are cross-training our workforce. For example, the bankruptcy statements and schedules and claims-management processes are two areas where our AFC resources make a contribution to our restructuring offering in the marketplace. This market opportunity is unprecedented, and our peers in the bankruptcy space are short on resources. We are having some success in this area, and we continue to target more opportunities like this with companies in bankruptcy.

We remain cautiously optimistic about the prospects for the Accounting and Financial Consulting business, but we are still forecasting flat year-over-year growth at this point -- at the midpoint of our consolidated revenue range. We will continue to improve segment profitability while we actively attack the marketplace with our talented resources.

Let me reiterate -- this is a signature business for Huron. Accounting and Financial Consulting is in our DNA, and we look forward to the group regaining its momentum and once again making a strong contribution to Huron's results.

Let me sum up this morning's comments. We know this economy is not, by any way, out of the woods or out of trouble. And we know we've got a lot of work ahead of us. We know this will be a very challenging year, and we have to be in the marketplace every day delivering value solutions to our clients. We will also aggressively manage our costs through headcount and SG&A and continue to manage our cash flow.in order to deliver bottom-line results, that will meet the needs of both our shareholders and our employees.

We continue to believe we have been very balanced in assessing our outlook for the remainder of the year. We have reason to be optimistic. We just need to continue to execute and secure wins in the marketplace across each of our segments.

Now we will open it up for questions.

(Operator instructions) Tim McHugh, William Blair and Company.

Yes. Just want to touch on some of the comments you made about the improvement you've seen in the forensic -- or the Financial Consulting segment. Can you -- and I know you said you're -- the midpoint of your guidance still assumes flat year-over-year -- at the low point, what would that assume? As well as, can you give us any sense for the magnitude of the improvement that you've seen going into the second quarter here?

Yeah, I think, Tim, if we -- the magnitude that we see now -- if we didn't see any more, we probably would be somewhere, maybe still $10 million short or so. I think if we see somewhere -- if we just got what we see now, maybe $120 million, we'd still be short. But we've seen some substantial improvement.

So if -- so just so I -- so if you -- based on the projects you've won so far, and if you didn't win anything else, you'd feel comfortable with the $120 million annual run rate?

Well, we still got to replace it, just like the Consulting business, this is a sort of win-and-replace. But based on what we feel that we see in the improvement in pickup of jobs we know we've won, we still need to win more work to get to the midpoint.

Okay.

And then, within the Legal Consulting, I know in the past you've talked about -- for the V3locity product specifically, kind of $90 million or so as a rough annual run rate that you're hoping for this year. To get to that at this point, you would need essentially three quarters that were similar to the very strong third quarter you had last year. Is that still a range that you're thinking about for that segment? And can 2Q rebound that quickly to a level like that, given the wins you've had?

Well, Q2 will rebound. We still do believe that we've got people in seats today. And based on everything we've seen, Tim, we reforecast the Business, we still believe that we can come close to hitting that number.

Okay.

And then lastly, the strength in Stockamp -- can you talk about -- is that just -- were there any large engagements or large incentive fees, or are they just continuing to grow the number of engagements given the demand in the firm?

Well, one of the things we should make sure of is when we say healthcare, it includes both Wellspring and Stockamp. And they are winning assignments together, and they're winning bigger ones. And it's both more assignments, bigger ones -- and bigger assignments give you more opportunity for more success fees. So it's just a combination of winning more work, bigger engagements together, collectively, the two units.

Okay. Thank you.

Paul Ginocchio, Deutsche Bank.

Thanks.

Just wondering if I could ask about the financial -- the insurance business you've won in Finance and Accounting. Any way to size that in how much that's going to potentially impact the second quarter versus the first, just so we can sort of -- Q-on-Q sort of development? Thanks.

I think the improvement will be more in Q3 and Q4 than it will be in Q2. Those assignments probably won't start until sometime in May. And I think they ramp up, and they're typically 12 to 18 months. So you'll see more improvement in those in Q3 and Q4, and probably into '10. But they should be nice-sized jobs. They're not whales, but they're good backlog, and they're good work.

Okay, thank you.

Andrew Fones, UBS.

Yes, thank you.

I just wanted to touch on the Legal Consulting division. And within there, you mentioned you've seen a pickup in demand for V3locity. Has this been a kind of a -- some of the work that's been -- previously been deferred? Have your seen a release there? Or can you kind of describe what's driven these pickup-in-demand things?

One of them is we've got a very large second review for a major client that's taken quite a few seats. And we just continue to -- our clients are -- I think we're deferring -- for whatever reason, Andrew, they still have to have the work done. And I think if you could move stuff out three months, and move it into next year, you basically -- you've reduced your costs three quarters.

So I think we're just seeing -- we just saw sort of a movement of people. We've still got our master service agreements, we've still got clients telling us how much they need us to do this year. And we've a very large assignment in there right now for a second request.

Okay, thanks.

And then in terms of the Corporate division, you've seen a nice pickup there. It appears as though you've actually seen more than just the revenue drop to bottom line. Obviously, you closed down that one business in Q3, the Operational Consulting business. Could you comment at all in terms of what we might see in terms of margin improvement in that business over the balance of the year? Or do you think we've kind of reached a level you're comfortable with?

Andrew, Gary Burge here.

Yeah, margins in the high 30s right now are -- certainly meet our expectations. I wouldn't expect that those would continue to ramp up over that existing level. But it's a real solid performer right now, and we're very pleased with their results. And we think they can continue to work strong here through the remainder of the year based on existing backlog.

Thanks.

And then, just finally, in terms of the charge you took -- I looks as though about half of it was in the Financial Consulting group, and the rest was spread around the other areas. Can you kind of detail where the rest of that was, and perhaps when in the quarter you took the charge, and so what the impact was in Q1 -- if you saw any kind of cost savings at all, and how those cost savings -- what we might see in terms of cost savings for the full year? Thanks.

Right. Andrew, the two areas that absorbed the bulk of the severance charges were -- roughly half of it in Financial Consulting, and the other half basically in higher education and healthcare consulting. Those terminations took place throughout the quarter, but in general probably more in the second half. And there will be savings associated with this on a go-forward basis. But we caution people to try to do the math and say well, there's significant savings to come on a go-forward basis here, because we're continuing to hire into the Health and Education segment. And we're even hiring in Accounting and Financial Consulting, where we see good resources that can help us move the needle going forward.

But the quarter end headcount was fully adjusted for the severance?

Yes.

Thanks.

Tobey Sommer, SunTrust Robinson Humphrey.

Good morning. This is Frank, in for Tobey.

Had a quick question, kind of following the prior question -- do you expect any kind of charges related to severance, or any other charges in 2Q?

I think this is an ongoing thing for us. We're continuing to evaluate resources. And we'll -- would say that there -- positively or negatively -- that there would -- not necessarily charges going forward, but we're continuing to look at that. And we've always had some level of severance charges in any quarter.

Okay, great. And could you remind us the breakdown between restructuring and turnaround and strategy within the Corporate Consulting group?

In general, the strategy and restructuring and turnaround businesses are about the same size. And then the utilities and Japan operations each are something -- somewhere in the neighborhood of $10 million to $12 million of revenues on an annual basis.

Okay. And finally, you talked about several new products, projects in the core component of the Legal Consulting business. As far as the ramp-up horizon for those projects, would we expect to see most of that in the back half of the year? Or it's pretty early?

Well, the projects that you're going to see the improvement in -- you're going to see them in Q2, and probably Q3. So these things -- so we haven't sold the whole year through, but we have sold -- we had sort of a rough January, a rough February. April -- March improved, April improved, and we're seeing continued improvement, both in the revenue run rate and in the fees sold. But we still don't have the whole year sold. But we should see substantial improvement in Q2 and Q3 from the work sold recently.

Okay, great. Thanks so much.

Jim Janesky, Stifel Nicolaus.

Yes, thank you.

Gary Holdren, on the last call, you had spoken about questioning whether there would ever be a big ramp-up in what we referred to as regulatory activity coming out of the -- at least the federal government. And you said so far, you still have not seen that. What -- it sounds like your expectation now for a ramp-up is a bit higher. Can you tell me what that's based upon, please?

Yeah, it's based on work in the financial services sector, it's based on work on international arbitration, it's based on -- we're really going and getting -- winning in the marketplace -- a lot of other jobs, other than big investigations coming out of regulatory bodies. So we still don't have any, really, very high -- we still need a little bit of that. We'd like to get it. But we've still -- we've won a lot of things recently that's going to help our run rates, that aren't related to that yet.

Okay. But do you feel more confident now than at the beginning of this year, with respect to those -- that the government is going to get more active on the regulatory front in the back half of the year? And if so, why?

Yeah, I don't -- right now, I don't think we have any reason to have any optimism about that.

Okay. Okay, fair enough.

Gary Burge, when you look at percent of revenues -- you mentioned 55% of revenues would be back-end loaded -- what percent of operating profits or EBITDA -- however you want to look at it -- would you expect to be in the back half of the year as well?

Probably a -- slightly more, because we're expecting the back half of the year will have more contingent fees than we had in the first half. We would also expect that as the year goes on, we -- that our utilizations in Accounting and Financial Consulting and Legal Consulting would improve. And that certainly helps margins as that happens.

Sure. Sure. And --

So I'd say it'll be something better than 55% of the EBITDA, maybe something 60%-ish, if I had to guess.

Okay, makes sense. And when you look at the accounting for contingent fees -- when you first acquired Stockamp, and that percentage went up, you said you were going to try to smooth it out a little bit more. Then, in conversations with you folks have said there has been some pushback from your clients on that -- has there been any change to the expectation that for right now, we should expect that these are all going to be back-end loaded?

No, not entirely. We had a meaningful amount of contingent fees in the first quarter. About 9% of our revenues in the first quarter were contingent fee-related. And so we're working real hard to get those recognized as we go. But just the facts are there are going to be more opportunities to recognize contingent fees in the second half than there was in the first half. But we'll try to do our best to keep those coming through each quarter.

So the difference between -- because last time, on the last quarter call, you did say about 60% of the profits would be in the back half of the year. Since we did get some contingencies in the first half of the year, it is all the ramp-up in Financial and Legal, right?

Yeah, there's ramp-up in Financial and Legal that will help that -- help us get to that 55%. But also, our Health and Education segment -- they're moving into implementation phase as opposed to assessment phase. And the -- basically, the revenues will climb slowly, and our costs are going to stay relatively flat. So that helps margins as well.

Okay.

Last question -- I think that -- unless I missed something -- that some reductions in the headcount in the Healthcare and Education segment was somewhat of a surprise, considering the trends there. When was that decision made, and why?

The decision was made because every business should look at performers who don't meet expectations and move on them, regardless if they're hot or not. It's just -- it was just part of our year-end process as we went through our evaluations of people.

Okay. All right. Thank you.

Dan Leben, Robert W. Baird.

Great. Could you guys talk a little bit about where you see the margins in Financial and Legal Consulting getting to for the year? Obviously, very depressed in the first quarter?

Yeah, Dan, Gary Burge here.

Certainly the margins, where they stand right now, are not where we need them to be and want them to be. And so as the year progresses, we could get -- something in the 30% range is where we would want to be, as far as a run rate in the second half of the year.

Okay, great.

And then last quarter, you mentioned that the severance in this quarter was baked into the guidance. Does the guidance currently bake in any additional severance for the rest of the year?

We'll be prepared to deal with that in those guidance ranges we gave you.

Yeah, we'll cover all the severance in those guidance numbers.

Okay.

And then lastly, just the wins in Financial Consulting in the insurance-financial services space -- were those attributable to the new hires you brought in this quarter? Or was that -- were those from elsewhere?

Those -- we have not -- those -- we have not got any wins from the new people yet. So those were from embedded resources. So we still have substantial hope that we're going to get more wins from our new people in those service offerings, because we think they're really good people. And we really think there's huge opportunities in the financial sector.

Great. Thanks, guys.

David Gold, Sidoti.

Hi, good morning.

Was hoping -- Gary, wanted to ask if you could divulge a little bit for us the improved outlook, particularly on the legal side, with pretty aggregate cuts of late at the law firms, and the trouble they're having. And as part of that, was curious if you can just sort of fill out, basis to thesis, on why things are picking up there. Is it more an ease of spend? Or is it they've gotten to a point that they just can't hold back anymore on litigation in the legal work, and it just has to come through?

Yeah, well, I think the -- one of the things Shahzad Bashir and his managing directors have been really out in the marketplace. And they've been focusing on information management and cost reduction. And clearly, that's what every general counsel wants now. So we really are sort of hitting some sweet spots with what they want.

So I think a little bit of -- there was a little bit of let's wait, and let's try not to sort of reduce our costs, but at the same time, knowing if we're going to reduce costs and improve things, we've got to do that.

And the same thing, I think, in some of these V3locity matters -- people just have to get stuff done, and they were deferring it. And then -- so new MSAs, new work in Legal Consulting. And I think the financial services industry is going to need a lot of review work done for V3locity, just because of how many matters are out there and how much pent-up demand there is.

Yes. Okay, that's helpful.

Then, one other -- the headcount guidance, presumably, on an average basis at least, is down a little bit from where we are. At the same time, you're hiring in some of the practices. So is it safe, then, to assume that in certain practices, perhaps legal, there might be more improvements to be done?

Yeah, I think that you could see -- I think what you're going to see in all of our practices, as we go through the year, is we've got to make sure that we're as efficient as possible on all the utilization of all of our resources. And we're going to try to get the utilization up, give more of our people more experiences, get more out of our existing resources, and go lean for a little bit as we continue to see what happens for the rest of 2009.

Okay, perfect. Thank you so much.

Sean Jackson, Avondale Partners.

Yeah, good morning.

You mentioned about some of the strength in V3locity was due to the second review of a major client. Can you just comment on exactly when did that take place, when did it start? And also, how long do you expect that to continue?

It's a pretty large project. It started -- I think it started in April. And it's got a 60- or 90-day fuse on it.

Okay. All right, thanks.

And also, the new people wins you had, or the new people that you had in the financial sector -- what's the typical ramp-up for those? And is new business wins from them included in your guidance?

Well, no. You want it to be quicker than it is. But I think if you ask people to do much better than 12 months, you probably will basically get disappointed. So we've got the cost built in, but we've asked -- we basically haven't built anything into what we're expecting of them. But we would like to have some.

Okay.

And also, you've talked about reallocating some of your resources internally that go toward the hot areas -- restructuring and so forth. Can you just repeat exactly where are you taking those people from, and what projects are you bringing them to?

Okay, so you have -- bankruptcy has a lot of different things that you can do in very large bankruptcies. One of the things that needs to be done in every bankruptcy is that you have something called statements and schedules. So it's a lot of detailed work that needs to be done and needs to be filed.

Then, as the bank -- so that's right as the bankruptcy's being filed, a lot of detailed accounting work, and question of whether that's the highest-value work. And then you've got claims that have to be reconciled from the time that -- what someone thinks they're owed versus what you owe them, until you can emerge from bankruptcy. Again, very accounting-intensified.

So with our CFO On-Demand resources and some of our young people that have accounting type, we're helping going to market together, and even selling those services to some clients in the bankruptcy market, to basically take resources from our AFC business and put them over into the restructuring business.

Okay. All right, thank you.

Kevane Wong, JMP Securities.

Hey, guys.

First -- touched on a little bit, but just trying to get a little better clarification on the V3locity pick back up. It sounds like it's not really a snap-back that you're looking for, the June quarter. It sounds like it's sort of midpoint between where you may have been before and where you expect to sort of be. Is that a good way to think of it? Or is it -- are there other things ahead, like this big project, that are going to make it snap back a lot more to where it was?

I think that --

Depends on speed for pickup, right?

Yeah, I think what we'd like to do is like be a little cautious right now because of the lumpiness. But we would hope that you would see a good quarter out of V3locity in Q2 and for the rest of the year. We've got high hopes for it, but we've had some high hopes before.

So I would say put it somewhere between its high point and --

And the current one.

It's going to have a pretty good Q2.

Okay.

And maybe a little more conceptual thing about that -- like you mentioned, it does tend to be a lumpy business. Sort of the nature of the pricing model, et cetera, makes this more of a high-volume, required kind of business. How long do you think it takes, or what do you need to have happen, before this becomes more of a steady performer?

You just -- we got 1,000 seats now, and we need to have 70% - 75% of those seats filled on an ongoing basis. So we got to have more sales, so when slippage happens, that you basically can keep a steady volume going through that pipeline.

Okay.

And with this economy right now, and us basically only -- this business only being sort of a year old for us, the two of them together have not made it the most natural thing to happen.

Okay, so it sounds like it's really just -- in the current economy, it's simply going to be affected more by the lumpiness maybe? And once that improves, it'll get more smooth, as far as its performance?

That's what -- clearly, that's what our business plan is, is to get it smoother, more volume in there, and not have it have 50% or 40% utilization, have sort of the low point always be; and not build any more seats until we get a steady performance out of that business.

Got you.

Two other hopefully quick ones here, and I'll hop off. First, Health and Education -- I know you talk a lot about the backlog giving confidence. Is there any kind of figure that you can sort of give us? For example, this next 12 months, how much revenue's sort of in backlog -- just something we can sort of get a sense on the visibility, and look at when we're looking at our modeling?

I would just tell you that this is not one business you should worry much about.

Okay. Fine.

And then the last one -- the overall Company organic growth guidance -- you're talking about 10% to 11%, if I heard you right, is your guidance before. After fourth quarter, you were looking at mid to high teens. And you did have an acquisition since then. Do you think -- is that sort of edging down on that guidance, just being a little more conservative? When you're looking at it as a whole, are you simply [find more issue to be] cautious, and you're using the acquisition that you had to sort of balance that out? How should we view that?

Yeah, Kevane, Gary Burge here.

Yeah, probably, looking back on it, that mid teens was maybe a little aggressive in our point of view. But as we've -- as you know, we haven't changed our guidance for the full year. Recalibrated ourselves a little bit. Stockamp's off to a good start, so that doesn't go into that organic number on a year-over-year basis. So 10%, 11% seems to be about the right number, but it's all subject to how each of the segments performs between now and the end of the year.

(inaudible)

If we get a real good Q2 out of Stockamp, it won't show good organic growth.

Got you. Okay, no, it's fine. Thanks, guys.

Bill Sutherland, Boenning & Scattergood.

Hey, good morning.

Gary Burge, one clarification -- on that percentage of revenue you said was contingent fee in the first quarter, 9% --

Yes.

-- was that total revenue, or Healthcare revenue?

That's consolidated revenue.

Consolidated?

Yeah. As a percentage of consolidated revenue, yes.

But the only place where you recognize contingent fees is healthcare?

We can add a little bit in legal and elsewhere. But the majority of it is in healthcare, yes.

Okay.

Gary Holdren, I was curious kind of what you're seeing out there in the -- well, first of all, where your focus is most acute in the business-development areas in terms of acquisitions, and then kind of what you're seeing as far as that being the viable alternative right now.

Right now, we clearly would like to add to our products in the healthcare space. And we would look in any of our segments, particularly if we could find something in AFC or Legal. But right now, I can just tell you, the pipeline is not very full for us, and there's nothing really even close to being something that would happen in '09. So if something happened in '09, it would have to kind of pop up pretty quickly. And I don't see anything out there that's of any size that's happening. So '09's not going to -- probably not going to be a year of acquisitions.

Prices -- people want very high prices --

Yes.

-- surprisingly. And right now, we don't want to use our stock at this price. And we don't have a lot of excess cash. So we're probably going to be on the sidelines in '09.

Okay.

One last one -- in the strategy practice, can you give us one or two examples of the kind of work that's particularly in demand there? Thanks.

So you have a CEO of a major corporation that -- all of a sudden, their volumes are falling off like crazy. And those volumes falling off and not sure when it'll come back. So you've got a $30 billion company, and your share price is dropping like a rock, and your volumes are dropping like a rock. How do you find out how to go in and assess -- by product, by division, by capital -- how you should basically make decisions versus make just pinpoint decisions on reducing cost?

So CEOs who believe in capital allocation and want to find deep-dives into their business find that this product is very attractive right now, and in very high demand. And we don't have enough resources to serve the marketplace.

So when you call it a product, Gary, is it a methodology you bring to bear in every -- in most cases?

Yeah. The people have developed a deep-dive into how they look at companies, and how they do it in a process. And it's -- yes.

Yes. Okay. Thanks, guys.

(Operator instructions)

At this time, Mr. Holdren, we have concluded the allotted time for this call. I'd like to turn the Conference back over to you.

Thank you.

In closing, I just want to thank all of our employees, if you're on, who are at our clients every day, and the people who work in our internal operations, for just everything you do, and how much you mean to all of us here.

And we're going to go after this real hard, and really try to produce something really good for all of our employees and all of our clients. And hopefully, we'll be able to give you more news on the progress of that when we talk with you in July, after our second quarter.

Thanks.

That concludes today's Conference Call, ladies and gentlemen. Thank you, everyone, for your participation. Thank you, and you now may disconnect.