Huron Consulting Group Inc (HURN) 2010 Q2 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 second quarter 2010. 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.

Before we begin I would like to point out all of you to the disclosure at the end of the Company's news release for information about any forward-looking statements that may be made or discussed on this call. The news release is posted on Huron's website. Please review that information along with the filings with the SEC for a disclosure of factors that may impact subjects discussed in this morning's webcast.

The Company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Huron's website for all of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers.

And now I would like to turn the call over to Jim Roth, Chief Executive Officer of Huron Consulting Group. Mr. Roth, please go ahead.

Good morning, and welcome to Huron Consulting Group's second-quarter 2010 earnings call. With me today are David Shade, our President and COO; Jim Rojas, our CFO; and Mary Sawall, our Vice President of Human Resources.

We have just concluded our second quarter and our financial results were in the range of the quarterly expectations that were included in our annual guidance earlier this year. We started the year slowly and expected to have a moderate improvement in growth during Q2. Our second-quarter results are consistent with those expectations. We are now expecting year-end revenue to be between $600 million and $620 million, reflective of our confidence that second-half results will be within the range that we anticipated earlier in the year.

In a few minutes Jim Rojas will provide the numbers behind our results, but first I will summarize our performance and provide a brief outlook for the rest of the year.

The Health and Education Consulting segment increased revenue nearly 9% quarter over quarter. Wellspring+Stockamp and the Higher Education and Life Sciences practices all started slowly in the second quarter, but each built up steam throughout the remainder of the quarter.

The Wellspring+Stockamp Huron Healthcare practice results were moderated by a large project that we originally thought would start at the beginning of the year but didn't begin in earnest until May. That project, which has a multiyear tail, is fully underway and we expect it to provide consistent revenues well into the future without interruption.

The Healthcare practice has also suffered through a temporary slower decision-making process earlier in the quarter among our client base as many waited for clarity regarding healthcare reform. Now that the healthcare reform legislation has passed and as we look forward to the remainder of the year, several important patterns have emerged that will favorably impact our Wellspring+Stockamp Huron Healthcare practices in the future.

First, anticipating significant challenges on reimbursement, our hospital clients are heavily focused on revenue cycle improvements. Although our Stockamp Revenue Cycle practice was soft during the first half of the year largely due to the previously mentioned delay of a large project, this practice is expecting a much improved second-half performance. As you recall, Stockamp had a hugely successful second half of last year and while we don't expect the results to reach those same levels, we are confident that this business will pick up in the ensuing months.

Another emerging pattern relates to the way the provider healthcare market is responding to the financial and operational incentives that are inherent in the new legislation. Some of these incentives will require dramatic changes to the way that clinical care is provided and managed. Some people had predicted after the legislation passed that the reform package was going to be good for hospitals and academic medical centers. We have seen little evidence of that. The demand for improvement in hospital operations and revenue and expense management has accelerated dramatically in the past few months. The reasons are complex, but the primary drivers are a combination of a reduction in the Medicare and Medicaid reimbursements and evolving incentives that are likely to change the way clinical care is reimbursed.

These factors are leading to a substantial demand for improving hospital operations and creation of new approaches to clinical care that will be more focused on outcomes and less on procedure reimbursement. Even though some of the actual healthcare reform initiatives won't be fully enacted for several years, the way hospitals provide care will change dramatically. Combined with the reimbursement concerns, the overall environment is creating immediate pressure to improve margins and reassess clinical care delivery. This is translating into a rapidly developing increase in demand for our Wellspring+Stockamp Huron Healthcare practices, providing us with comfort that our full-year revenue estimates for this practice are reasonable.

Accompanying the reform actions has been a much-publicized focus on healthcare compliance. In response to a strong increase in compliance activity, we are investing in experienced personnel to enhance our existing healthcare compliance focus across our Life Science and Healthcare practices. Completing the picture within the Health and Education Consulting segment, our Higher Education and Life Sciences practice performed quite well in the second quarter. June revenues were the highest ever achieved in a single month for this practice, and the outlook for the rest of the year is strong. Financial conditions are still tight at many universities but some of the projects that have been on hold over the past year have begun to rise to the surface. Within the research administration environment funding remains strong and we are seeing renewed interest from institutions that have deferred investments in research administration infrastructure.

Our Legal Consulting segment had an impressive second quarter. The financial performance was generated by increased revenue in non-discretionary areas including E-Discovery and document review. In addition, discretionary offerings primarily relating to cost reduction and information management which had been soft during the past year rebounded nicely in the second quarter, including several projects that will continue for the rest of the year and likely beyond.

Our client base in the Legal Consulting segment remains stellar, with many of the Global 200 companies relying on us to help them manage their voluminous corporate information, increase the efficiency and reduce the cost of large-scale matters. The multi-solution legal consulting offerings that we provide to our global clients focus on complex matters involving litigation, intellectual property and antitrust. Our ability to serve these clients on a global scale is critical to our success and we are anticipating expanding our global presence to address the marketplace demand. We are predicting a strong finish to the second half of the year in this segment.

Our Financial Consulting segment consists of three practices -- Accounting and Advisory, Restructuring and Turnaround, and Disputes and Investigations. Accounting and Advisory revenues continue to be dominated by a series of large engagements for a government entity. This work is ongoing and should continue well into 2011. The diversity of the work in this practice continues to expand, involving not just projects related to the banking crisis, but also large and complex corporate projects that are efficiently addressed by our flexible staffing model. For example, we continue to work with a major corporation as it prepares for the new international financial reporting standards.

Revenues in our Restructuring and Turnaround practice were up 10% Q2 over Q1. Given our manufacturing and operational focus and the continued strains in the economy, this practice is expected to perform well during the remainder of the year. We expect to invest in several additional new managing directors in the second half who will be key contributors to the future growth of this practice.

Finally, our Disputes and Investigations practice had a slower second quarter. The downturn was reflective of several factors including limited new investigations and an improving but still slow commercial disputes market. We also lost a very sizable multi-year engagement due to a conflict resulting from our heavy focus on the financial services industry within our Legal Consulting segment. Conflicts are inevitable within the D&I practice, but this loss was particularly difficult given its potential size. We have seen a pickup of a demand but we are still reluctant to predict the timing and scale of growth in this practice.

Now let me turn it over to Jim Rojas to discuss our second-quarter results.

Thank you, Jim, and good morning everyone. Before I begin I want to call your attention to a couple of housekeeping matters as well as a couple of unplanned one-time expenses that impacted our overall second quarter-results.

First, I will be discussing our financial results primarily in the context of continuing operations. As a reminder, we sold our Strategy practice at the end of 2009. Also, effective June 30 of this year we have decided to wind down and exit our Japanese business. The previously disclosed potential sale that was to occur during the second quarter did not happen. The financial results of these two groups continue to be classified as discontinued operations.

Second, I will also be discussing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS. Our press release, website and 10-Q have reconciliations of these non-GAAP measures to the most comparable GAAP measures as well as a discussion of why management uses these non-GAAP measures.

Also during the second quarter we settled a litigation matter, the claims of which related to a company that we acquired in 2005 and work that was primarily performed before Huron purchased the company. As a result of this settlement we recorded a pre-tax charge of $4.8 million.

In addition, during the second quarter we incurred $2.4 million of restatement-related expenses primarily consisting of legal discovery fees. This amount was higher than we had originally anticipated as we were expecting our insurance carrier to reimburse certain costs on a more timely basis. We continue to work through these issues.

Finally, we are continually looking for areas where we can reduce costs. To this end, in the second quarter we consolidated one of our offices into our Chicago headquarters. As a result we recorded a pre-tax restructuring charge of $1.2 million which primarily consisted of lease costs. I will be happy to clarify how these factors impacted our results and answer any questions you may have during the Q and A session.

So with that as context, I will walk you through some key financial results for the quarter. Revenues for the second quarter of 2010 were $143.7 million compared to $154.4 million for the second quarter of 2009. As anticipated, our performance improved in the second quarter and we continue to expect the second half of the year to be better than the first half of the year. We are still seeing softness in discretionary spending by our clients as well as continued delayed decisions by certain clients on potential new opportunities. These factors impacted all three of our segments to various degrees and I will discuss each of them in more detail later.

Our EBITDA for the second quarter of 2010 was $15 million compared to $24.7 million a year ago. Adjusted EBITDA was $23.3 million or 16.2% of revenues in the second quarter of 2010 compared to $25.4 million or 16.5% of revenues in the same quarter last year. As a reminder, adjusted EBITDA excludes noncash compensation, restatement related expenses, a one-time gain in Q2 of 2009 as well as the litigation settlement and restructuring charges previously described. Compared to the first quarter of 2010 both adjusted EBITDA and adjusted EBITDA margin improved significantly.

The Company's second quarter 2010 operating income was $9.2 million compared to $17.9 million in the second quarter of 2009. Operating margin decreased to 6.4% in Q2 of 2010 compared to 11.6% in the same quarter last year, primarily due to the litigation settlement, higher restatement related expenses and the restructuring charge, all of which were recorded in Q2 of 2010. Also, I would like to remind you that we had a one-time gain that was recognized in the second quarter of 2009 of $2.7 million. Excluding those amounts and noncash compensation, operating margin would have been flat in Q2 of 2010 compared to the same quarter of last year.

Net income from continuing operations was $3.3 million or $0.16 per diluted share for the second quarter of 2010 compared to $7.8 million, or $0.38 per diluted share for the same period last year. On an adjusted basis, net income from continuing operations was $9.4 million, or $0.45 per diluted share for the second quarter of 2010 compared to $11 million, or $0.54 per diluted share for the same period last year. Taking into account all factors, adjusted net income and adjusted diluted EPS increased significantly over the first quarter of this year.

Net income was $2.4 million, or $0.12 per diluted share, for the second quarter of 2010 compared to $9.6 million, or $0.47 per diluted share, for the same period last year.

For the second quarter of 2010 our effective income tax rate decreased to 37.2% compared to 49.5% in the same period last year. The lower tax rate in the second quarter of this year was primarily attributable to a true-up of certain accruals related to tax positions and deferred tax liabilities, coupled with the absence of noncash compensation expense in 2010.

Now let's look at how each of our business segments did in the quarter. The Health and Education Consulting segment, our largest segment, generated 58% of total Company revenues during the second quarter of 2010. Health and Education Consulting segment revenues were $83.8 million for the second quarter of 2010 compared to $91.5 million for the second quarter of 2009. Revenues in the second quarter were almost $7 million more than the first quarter of 2010.

As Jim mentioned, Health and Education Consulting revenues in Q2 2010 were affected by a temporary delay in the overall demand for our services which we believe was a function of healthcare providers just beginning to wrestle with the issues raised by healthcare reform, and as hospitals continued to evaluate the cost benefit of using our services versus addressing the issues themselves.

Performance-based fees declined slightly from the levels in Q2 of 2009, but as anticipated these fees were higher than in the first quarter of this year. Performance-based fees were almost $17 million in Q2 of 2010 compared to $13 million in the first quarter of 2010. The Health and Education Consulting segment's operating margin decreased to 34.4% for the second quarter of 2010 from 37.6% in the same period last year. The decrease in this segment's operating margin was principally attributable to the previously mentioned one-time contract settlement of $2.7 million recognized in the second quarter of 2009. Without this, operating margins would have been flat. Compared to Q1 2010 segment operating margin of 27.4%, Health and Education Consulting's Q2 margins have significantly improved due to the increase in revenues of almost $7 million.

Now turning to Legal Consulting. This segment generated 24% of total Company revenues during the second quarter of 2010. This segment posted revenues of $34 million in the second quarter of 2010, up nearly 9% from $31.2 million in the comparable quarter of 2009. The numbers reflect a continued demand for our document review services. This was offset by a decline in the legal operational consulting part of our segment compared to Q2 of last year. However, compared to Q1, the consulting practice saw an increase in revenue and demand for their services. The operating margin for our Legal Consulting segment also improved to 27.4% from 24.7% compared to Q2 last year. This was mainly the result of higher revenue per full-time equivalents and lower full-time billable consultant headcount.

During the second quarter of 2010 our Financial Consulting segment generated 18% of total Company revenues. This segment posted revenues of $26 million in Q2 of 2010 compared with $31.7 million in the same quarter of 2009. The decrease primarily resulted from a continued slowness in our Disputes and Investigations practice, partially offset by improvements in Accounting and Advisory. Our Restructuring and Turnaround business was down 8% compared to last year's second quarter but was up almost 10% from Q1 this year. Segment operating margin for Financial Consulting increased to 18.1% in Q2 of 2010 from 12.3% in the same quarter last year. Excluding the impact of non-cash compensation, the operating margin for Q2 of last year would have been 14.8%. This improvement was partially driven by lower business development costs.

So to recap our segments results in the quarter, our Health and Education segment was soft compared to last year's quarter but showed solid improvement compared to Q1 of this year. The Legal Consulting segment replicated the strong performance from Q1. And within Financial Consulting, the Restructuring and Turnaround and Accounting and Advisory practices met our expectations but were offset by continued softness in the Disputes and Investigations practice.

Now turning to the balance sheet and cash flows. DSO for the second quarter came in at 67 days and cash flows from operations were $8 million. We expect our cash flows from operations to continue to improve as the year progresses.

Now our full-year guidance which, as Jim mentioned in his opening remarks, has been narrowed based on our current assessment of backlog and our business outlook for the next several months. We expect revenues from continuing operations before reimbursable expenses in the range of $600 million to $620 million, adjusted EBITDA in the range of $107 million to $111 million, and adjusted non-GAAP net income in the range of $44 million to $46 million, and between $2.10 and $2.20 in adjusted non-GAAP earnings per share, all on a continuing operations basis. We expect adjusted non-GAAP EPS to be within the high end of the range that we previously provided despite the narrowed revenue range due to a lower effective tax rate which we expect to be 44.5%. Our guidance on operating metrics, share counts, et cetera, has not changed since our last call. Based on current estimates we are projecting earn-outs to be between $20 million and $25 million for 2010 performance. Our previous range was $30 million to $40 million. This change is due to the slow start that we had previously discussed in our Healthcare practice.

I will now turn it back to Jim Roth for his final comments.

Thanks, Jim. We have our work cut out for us in the second half of the year, but we have seen increased vibrancy in our core businesses during the last several months that give us confidence that our full-year estimates are achievable. We started this year knowing that the economic conditions would require a day-to-day and week-to-week battle in the market. We have been primed for that battle and we are confident that the remainder of the year will be more favorable for our personnel and our shareholders.

I would now like to open up the call to questions. Operator?

Thank you. (Operator instructions). The first question comes from the line Tim McHugh of William Blair and Company. Please proceed, sir.

Yes, thank you. Hi, guys. First, can I ask just to clarify, Jim -- Jim Roth. You mentioned I think -- I think you were saying Education had its highest month ever in June or was that the overall segment? If you can just clarify and then maybe expand a bit on that? Is that sustainable?

Tim, that was Higher Education and Life Sciences. So that was -- no, just the Higher Education practice, yes.

And you mentioned seeing -- you gave some qualitative color about some improving trends there. Is there anything unusual about that month, though, that that's not sustainable?

No, I think, Tim, as we look back over the last 12 months or so, we know that there was some real challenges in the higher education market and we've seen some of those challenges kind of come by the wayside there. Things are improving a little bit within the university market and the research market. And I think we're expecting the next -- the rest of the year to be stronger. So we're pretty comfortable with the pace that that practice is on right now.

Okay. And then a follow-up question would be can you give us an update on headcount at this point in the year? It ticked down again sequentially here, but you're describing some improving demand trends. Would you expect headcount to grow from here? Are you going to try and maintain it flattish? What are your kind of plans for the rest of the year? And maybe by -- it's different by business.

We are anticipating growth really across, I think, all of our segments. We're going to be -- we are recruiting in some cases heavily. And I expect headcount to be increasing by year end. We think we could be close to 1,300 by year-end. We're at about 1,200 now, I believe.

1,237.

1,237. 1,237 now.

Okay, thanks. And Jim Rojas, last question. I'm not sure if I missed it. Can you give us -- do you have an updated view of cash flow or free cash flow for this year? I know you said what the contingency payments -- or the earn-out payments will be.

We said that operating cash flow was $8 million in the quarter. We anticipate that amount for the year to be around $45 million to $50 million. I know previously we had said $60 million. That was before we had the St. Vincent settlement and also some of the higher restatement related costs, so the primary change is the one-time charges that we've experienced why we've decreased that amount.

Okay, thank you.

Thank you.

And your next question comes from the line of Tobey Sommer of SunTrust. Please proceed.

Hi, this is Frank in for Tobey. Quick question on the Legal Consulting. Average bill rate was down slightly. Has there been any pricing pressure in that area or has that been result of mix shift?

You know what, as you said it was down slightly. You know what, it's hard to tell. We see it's probably more a mix of the clients that we have and the engagements more so than any pressure that we're seeing in that segment.

Okay, great. And in Financial Consulting, can you describe a little bit competitive pressures and where you think the industry is going in terms of just the competition and kind of what you're seeing out there?

Frank, are you -- we've got three businesses in that Financial Consulting segment and they're probably all three experiencing different competitive trends and also different marketplace demands. Are you asking about a specific one or more broadly across the whole segment?

I would say Accounting and Advisory as well as Disputes and Investigation.

Well, Accounting and Advisory, the services that we really offer there are pretty flexible in terms of the staffing that we have, and so we really -- our focus there is trying to help corporations and other entities try to address kind of large scale complex matters and we do that on a flexible basis. And so really, the competitive trends on that are highly dependent upon the specific issue that needs to be addressed. So that's a little bit hard to answer other than I think that the pricing is stable and we're not really seeing any pressures now that we haven't really been experiencing for awhile.

From the Restructuring side, things actually remain quite strong. Our margins are good there. I think that the challenges in the economy are continuing to haunt a lot of our core market focus in that area and we feel pretty strong about both our ability to continue to provide good profits but also our ability to continue to grow that into areas that we think are going to be challenged in the future.

Okay, great. And if I could sneak one more in. Can you talk a little bit about turnover rates and voluntary and involuntary turnover trends?

Yes, Mary Sawall.

This is Mary Sawall. This year as the economy improved and some of our competitors are directly targeting our people we've seen a slight uptick in turnover in some of our practices and a slight decrease in other practices. So our total year-to-date turnover is about 9.5% which is a couple of points higher than where we were last year. In our practices where we've seen an uptick and where we're growing we're actually taking some specific actions to take a look at that and address it. Does that answer the question?

Yes, that's very helpful. Thank you.

Okay.

But I do want to just emphasize on a recruiting perspective we really are -- we are looking to invest across, really, all of our segments right now. We see good growth opportunities and we have -- and have been very active and will continue to be active in recruitment of new people and to continue to invest in areas that we know we can grow in.

And we feel like we're seeing great candidates. I'd add that as well.

Yes. I think we've got a very attractive base with which to recruit into, and so that's been very helpful in terms of our ability to attract candidates that are going to help us grow.

And the next question comes from the line of Joe Foresi of Janney Montgomery Scott. Please proceed.

Good morning. I just had a couple of quick questions here. First, on the Health practice, it sounded like you thought that the back half of the year was going to be better. I wonder if you could just help us understand how to reconcile sort of an improving demand environment in the back half of the year versus what we're seeing in the economy which remains pretty tough. What would, I guess, compel your client base to go ahead with projects where they were probably hesitant before?

Well, I think some of the hesitancy, Joe, before had less to do with the economy, particularly in the Healthcare segment, and more to do with just uncertainties as to whether healthcare reform would pass, and even if it did or didn't, what that would mean. I think even though it's passed, I think there still are as many questions as there were before. But as I indicated in our -- in my opening comments, I think that really what's going to be driving the healthcare environment, not just for the rest of the year but I think well into the future, is that there are really going to be some pretty fundamental changes in the overall healthcare arena. We've seen this, as I indicated, on the reimbursement side, which is going to put a lot of pressure on the revenue side for hospitals. And then I think probably even more importantly, I think it's just going to be that there are going to be new incentives that will dramatically change the way they have to provide care. I mean, this is a basic fundamental change in their business, and in some cases it may be in their business model.

And I think all that creates the need for change and the need to help that -- it's been creating demand for us in terms of helping our clients sort through how they're -- what are the changes -- what changes do they need to make and then actually beginning to make those changes and figuring out the implications of those changes. And it's not just a question of laying out what needs to be done in a hospital. It's actually making the changes and modifying all the existing relationships between physicians, between the hospital, between the payor community. I mean, it's a very complex process and I think there is going to be tremendous demand for our core services in that area, not just for the rest of the year but well into the future.

And are you already starting to see that pickup? Are you already starting to see clients come to you and say we need you to help us deal with these changes?

Yes. And I mean, it's not as though it happened two hours after the legislation passed, but we have seen since the legislation did pass, and I suspect that was probably in -- I forgot when it was, April or May or whenever it was -- we have seen a pretty significant uptick since then when people realized this is actually now going to happen. And the reality is some of these things still don't take full effect for another two, three, in some cases, four years or more. But I think people now are being encouraged by their boards to go back and to figure out well, what changes should we be making and how is it going to impact our operations and our organization. And that's generated a lot of -- a significant increase in demand that we've seen pretty quickly after the legislation passed.

Okay. And I wonder if you could give as much color as you can. I know that you took revenue guidance down a little bit. What assumptions were in the former higher end of guidance and what assumptions are now in the new guidance? I wonder if you could just talk about the changes that were made.

You know what, Joe, this is Jim Rojas. I just wanted to comment on where we see our contingent fees for the second half of the year. And partly because of the comments that we've made that we do see -- that we did experience a slowdown in engagements starting. And we talked about the lifecycle of projects and when we see contingent fees hitting is typically in the third or fourth quarter of a year-long assignment. And as you have those projects that start to delay and the decision-making process delays, it may also delay the contingent fees that come with it. Those are somewhat uncertain.

I know previously we had given guidance of $12 million to $15 million in the first half of the year and actually on an average we are probably at the high end of that range. And what we said for the second half was $18 million to $20 million per quarter. I think we're probably going to average more right around the $15 million overall. It may be a little bit higher in the third, maybe a little bit-- right around that for the -- or a little bit lower for the fourth quarter. So if you look at that, that could be a $5 million to $10 million swing for us, and that's partly why contingent fees are challenging to estimate. That's why we've narrowed the top end of the range. That's one of the items that we've done and it's --and the other factors are everything that we mentioned in the opening comments.

Okay. And so basically you're -- that's the contributing factors that the contingent fees are being maybe pushed out a little bit because the engagements started later. Is that accurate?

Yes.

Okay. And can you just remind us what were the contingent fees again in this quarter?

They were $17 million.

$17 million. And just one last question from me. Is the base rate or the base revenue rate absent contingency fees in the Health and Education about $65 million a quarter?

Yes, I mean, I think that's a number we've sort of backed into before and saying that it's always challenging because the mix of the business can change over time. But I think on a quarterly basis excluding the contingent fees, I think we had $83 million of revenue less the $17 million. So that gets you right to where you said.

Okay. And then one last question. Just in some of your FC businesses in Disputes and Investigations, just given sort of the restatement last year, have you seen any difficulties based on kind of what happened last year in kind of pursuing new engagements in any of your businesses?

No, Joe. I really think that -- I think for awhile actually we've had no impact from those prior events, that we've had no impact on our ability to go to market. So I would say for certainly most of this year.

Okay, great, thank you.

And your next question comes from the line of Paul Ginocchio of Deutsche Bank. Please proceed.

Thanks. Just for clarification on the guidance again, it sounds like D and I in the second quarter caused a little bit of the top end of the range coming down plus the contingent fees. Is that correct? Does that capture all the difference, the delta in your revenue guidance?

Yes.

Okay. And then the headcount reduction, (inaudible) again for the clarification, is this more of a statement about -- it doesn't sound like it's a statement about the revenue outlook. Is it because there was a slight tick up in churn or are you making a statement about how you want to drive utilization going forward? Is this sort of a new level where you're just going to operate at a higher level of utilization than historically?

No, we're-- I mean, if you're talking in headcount in terms of adding people, I think we were down 25 people Q1 to Q2 on average. And basically -- and that was all primarily in the Healthcare part of the business. And that was really based on the fact of we knew we were slow and things would be ramping up. We had the normal attrition that we would at the lower levels and we just didn't replace those people right away. Will we be replacing them in the third and fourth quarter? Absolutely. And that's why we see numbers getting up to the 1,250 to 1,300 range for people.

Excellent. Just a last one. How much do you think it will cost to wind down Japan?

How much did it cost?

Or will it cost?

You know what, when you -- when the Q comes out later this afternoon that's all separated in terms of discontinued operations. So you'll see the exact charge. Off the top of my head it's probably right around $2 million -- $ 2 million, $2.5 million.

Thank you.

And that cost is primarily severance-related cost for our associates there.

And that was in the second quarter already or is that coming up in the third?

That was in the second quarter.

Thank you.

And your next question comes from the line of Kevin Ciabattoni of Boenning and Scattergood. Please proceed.

Good morning. Most of my questions have already been answered. You discussed the pricing in Legal and Financial. Can you give us some color on what you saw there in terms of the pricing environment in Healthcare?

The pricing in Healthcare I think remains very strong. And I think we've -- and we've said this before. There certainly is a lot of competition but I think one of the things that has differentiated our Huron Healthcare practices, Wellspring + Stockamp, is when we go to market and pricing becomes an issue -- and there's no question that there's a lot of sensitivity -- but I would say there's been a number of occasions where we have actually achieved pricing where we came in on a proposal that was substantially over the next level of competitor. And I think what we have to offer better than our competitors' offer is an ROI that really enables our higher rates to relate to much better value for our clients. So there's always some pressure on pricing but I think it's our value proposition for our clients and our ROI that really makes it there. And I think our pricing will remain strong, I think, for the rest of the year.

Okay, that's helpful. And then what are you seeing as your priorities for cash for the rest of the year?

You know what, as we've typically done in the Q3 and Q4 time period, we will use -- well, we use the cash generated to pay down debt and that's typically what you've seen. Last year if you look at what our debt balance was in Q4, it was significantly less than Q1 because primarily we have a high use of cash in the first quarter to pay the earn-out payments that we've had and bonus payments. If you're specifically meaning in terms of where we look like for CapEx, we're still not changing the estimate of where we were at, somewhere right around the $10 million to $15 million level.

Okay, and then what are you guys seeing in the acquisition pipeline? How active is it? And are you guys looking more in one segment than the other two, a little bit of color there?

You know, we continue to see opportunities for acquisition across all of our segments. One of the things that we've said pretty consistently over the last year is that we're going to be pretty strict at looking at acquisitions and making sure that they meet all the criteria that we want. But one of the things that's interesting is there is many opportunities that are out there right now. And we continue to look at those and we will going forward. I don't see us doing any significantly large acquisitions, but I would always say that we're always looking for those ones that are nice tuck-in businesses, either in Healthcare and Legal Consulting where we're looking the most.

Okay, thanks. That's all I have.

And your next question comes from the line of Dan Leben of Robert W. Baird. Please proceed.

Good morning, this is [Mick Dobray] for Dan Leben. A couple of questions for us. First, Mary, you mentioned that there are some competitors that are targeting some of your folks as far as recruiting and whatnot. Are you doing anything on the retention side of things to where perhaps adjusting comp or anything like that in order to make sure you retain some of [the MDs] looking at the second half?

Well, we're always thinking about retention, and as it pertains to our top performers we'll do things as we need to. But we have nothing systematic. We don't -- we aren't seeing that we have systematic compensation issues, but when someone is targeting your people they're willing to throw in some extra money to get someone. And we have to be aware of that and talking to our people and making sure we understand what they're thinking.

Okay. And as far as the Financial headcount, how should we think about that progressing towards the second half? Are you looking at perhaps focusing a little more or less recruiting-wise in that segment?

Yes, I would anticipate that the headcount in Financial Consulting will remain flat. I mean, one of the things is as we ramp up in our Accounting and Advisory practice, that is a variable business so we can bring FTEs in very easily. But for the full-time employees, I would say that segment is going to be flat.

Okay and one last question for Healthcare. Can you comment on where you see the size and scope of engagements post-healthcare regulation versus pre. I mean, are these engagements likely to be larger or longer lasting? How should we think about that?

It's hard for us to judge this early kind of post-reform. I think some of them -- we'll continue to see a lot of the same types of typical revenue cycle in hospital operations projects that we've seen before aimed at improving revenue or reducing costs. I think the ones that could get to be out-sized are where there tends to be a much more fundamental change in the way they're running their business or having to run their business. And if that's the case, I think we could end up seeing larger, longer-term projects on the horizon.

Thank you.

And your next question comes from the line of Scott Schneeberger at Oppenheimer. Please proceed.

Hi. This is Jim for Scott. I believe as far as Higher Ed, last quarter you mentioned endowment values recovered which gave improved, I guess, visibility or helped university budgets and the potential spending therein. Did that trend persist given a tougher May and June on Wall Street or should we be not thinking about it that way, it's too close to --?

I think what's driving -- if I understand your question, what's driving the Higher Education business I think is just now some realization that the events of the last 18 to 24 months are going to require some strategic and more dramatic operational changes than at least many of the universities anticipated and probably most did not want to actually have happen and now some are facing some stark financial realities so they are now beginning to do things that are strategic and operational that are requiring our services. If I had to characterize the nature of the change and the recent pickup it is projects along the lines of helping them sort out those strategic and operational issues.

Do you know how it's been tracking the last three quarters or maybe , say, given -- anticipating increased activity in restructuring maybe offsetting D&I or how should we be thinking about

You know, our expectation is that you'll see upticks in utilization. We should approach the 60% utilization number but I wouldn't forecast any more radical increase than that.

Okay, and one more if I may. I understand they're fully integrated now, the Stockamp + Wellspring, but is there -- can you, I guess, bifurcate what exactly is driving the business presently? Is it legacy Stockamp product or is it the Wellspring offering that might be contributing an out-sized portion to current trends?

They're really both contributing very much to the growth and I think will continue to. As I indicated, I think our -- the opportunities in the Healthcare segment are going to be both revenue cycle focused but also hospital operations focused. So we expect them both -- they have been and will continue to be both contributing heavily to our growth.

Thanks very much.

And Mr. Roth, we have concluded the allotted time for this call. I'd like to turn the conference back over to you.

Thank you for taking time out this morning to discuss our second-quarter results and outlook for the remainder of the year. I would also like to thank all of our employees who have done such a tremendous job of staying focused on our business as we navigate the challenging economy.

We look forward to speaking with you again when we announce third-quarter results. Good day.

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