Huron Consulting Group Inc (HURN) 2010 Q3 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to Huron Consulting Group's webcast to discuss financial results for the third quarter 2010. (OPERATOR INSTRUCTIONS.) As a reminder, this conference call is being recorded.

Before we begin, I would like to point all of you to the disclosure at the end of the company's news release for information about any forward-looking statement 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 on Huron's website for all 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 proceed.

Good morning and welcome to Huron Consulting Group's Third 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've just concluded our third quarter and our financial results were slightly ahead of our expectations since we provided our revised annual forecast in early October. Some unanticipated pick-up in revenue in the closing weeks of the quarter in our legal consulting and healthcare practices enabled us to finish slightly stronger than we had anticipated.

We're maintaining our annual forecasted revenue of $540 million to $550 million, although we are now anticipating that our year-end revenue will be closer to the high end of that range.

This week, we also announced two small acquisitions. While small in terms of size, each company will be significant in terms of implications for future synergies in our legal consulting and higher education practices. I will provide more background on these acquisitions in a few minutes.

I want to now briefly make some comments about each of our practices and how some of the macroeconomic events will have positive implications for our company.

On the health care front, the Republican gains on Tuesday seemed likely to add additional uncertainty for health care reform in the near term, ranging from potentially withholding funding from key reform initiatives to more saber-rattling around an outright appeal. I'm not going to get into predicting business anymore than I need to, other than to say that it has always been our position that the severity of the fiscal issues at the federal and state level will have significant impact on the health care industry for years to come and will likely continue to create sizeable opportunities for our healthcare practice, irrespective of whether other aspects of healthcare reform are delayed or curtailed. Having recently spent several days with a group of hospital CEOs, they were nearly uniformly focused on the significant revenue and cost pressures that are going to impact hospitals for the foreseeable future.

Specifically, many hospitals are preparing for the possibility that their top reimbursement rates will be nearly on par with Medicare rates. To the extent that scenario evolves, a top priority for hospitals will be to ensure that all potential revenue is captured and collected and that fundamental changes to their cost structure will have to be achieved. Helping hospitals address those fiscal pressures on the cost and revenue side is the core strength of our healthcare practice. We are very bullish on the prospects of this business.

Macroeconomic events have less impact on our other practices, but all of them are the beneficiaries of challenging economic times.

Let me now talk about legal consulting. This is shaping up to be a very strong year for our legal consulting practice. Unlike prior years, where one or two major client assignments have dominated, this year we are seeing a more disparate array of clients across the energy, financial, technology and pharmaceutical markets. Our portfolio of clients is now more balanced, with over 20 clients with year-to-date revenue over $1 million and some well in excess of that. In part driven by our continuing success in getting master service agreements with some of the global 100 companies, our success is also driven by our cost-value equation and the quality of our service. This is a competitive business, but our clients -- particularly our many repeat clients -- constantly mention their comfort with Huron's consistent quality and value. Simply put, that is what we want to be known for. Although quarterly results can vary, we see continued strength in this practice for the rest of the year and into 2011.

To bolster our e-discovery capacity to meet the demand of our global clients, this morning we announced the acquisition of Trilantic. We have been working with Trilantic for several years, as they helped us on some of our UK and European-based global clients. The acquisition not only helps us solidify our global client service offerings for e-discovery, but also brings under the Huron umbrella a very capable team of people who have immediate relevancy in one of our core markets.

Our higher education and life sciences practice has increased its utilization in recent months, as our client base of research universities, pharmaceuticals and life sciences institutions continue to adjust their strategic and operating positions in the difficult economic environment. Within higher education, we have seen an increase in strategic initiatives among many universities as they cope with new economic realities. Our technology practice in higher education has grown steadily throughout the economic -- the current economic trough, and we see continued emphasis among our client base to use technology to drive efficiencies and enhance reporting.

Our acquisition of Click Commerce, which we announced on Tuesday, will help to solidify the depth of services that we have to offer for our clients that perform basic and clinical research. Click has a strong presence in one of our core markets -- research institutions -- so integrating Click into our existing business will enable us to enhance our offerings to the research marketplace. Given that the annual federal expenditures for research are in excess of $75 billion, this is a very good strategic position for us to have. We have worked closely with Click over the past five years, so we were already familiar with the scope of their service offerings and the quality of their people. We're very excited to have them on board with us.

The two practices in our financial consulting segment -- restructuring and turn-around and accounting and advisory -- are also performing well. Accounting and advisory, which has been dominated by a series of engagements for a large government agency, saw a dip in revenues in the first half of this year, attributable to what we hoped was only a temporary slowdown in the agency's consulting needs. Fortunately, we've begun to see a pick-up in activity in this practice, and we are now hopeful that we will return to a revenue level more consistent with our expectations.

Our restructuring practice also had a solid quarter. The economy continues to challenge many mid-market companies, and some of our recent senior-level recruits in this practice have already yielded positive results. This practice has produced consistent financial results for us throughout the year, and we expect similar results for the rest of 2010 and well into next year, based on the continued tenuous economic recovery.

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

Thank you, Jim, and good morning everyone.

Before I begin, I want to call your attention to a few housekeeping matters. First, I will be discussing our financial results primarily in the context of continuing operations. As previously disclosed, we divested the strategy business effective December 1, 2009, and wound down our Japanese operations effective June 30, 2010. And in the third quarter this year, we exited the utilities consulting practice and divested our disputes and investigations practice effective September 30, 2010. The financial results of these businesses are all classified as discontinued operations. The activity over the last three quarters concludes our review of the underperforming businesses.

Secondly, as we have done in previous calls, 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.

So with that as context, I will walk you through some key financial results for the quarter.

Revenues for the third quarter of 2010 were $145.4 million, compared to $149 million for the third quarter of 2009. Economic uncertainty continues to impact certain parts of our business where clients' needs are not acute and viewed as discretionary, and I will discuss each of them in more detail later. However, as Jim pointed out, we have confidence in the strength of our overall business moving through Q4 and into 2011.

Our EBITDA for the third quarter of 2010 was $30.1 million, compared to a loss of $51.2 million a year ago. Our financial results in the third quarter of 2009 were largely impacted by a goodwill impairment charge of $67 million.

Adjusted EBITDA was $31.5 million, or 21.6% of revenues, in the third quarter of 2010, compared to $31.8 million, or 21.4% of revenues, in the same quarter last year. As a reminder, adjusted EBITDA during both quarters excludes non-cash compensation, restatement-related expenses, restructuring charges and the goodwill impairment charge that I just mentioned.

On a sequential basis, our adjusted EBITDA margin of 21.6% for the third quarter 2010 improved significantly over the first and second quarters, which were 10.7% and 17.4%, respectively.

The company's third-quarter 2010 operating income was $24.6 million, compared to a loss of $57.7 million in the third quarter of 2009. Net income from continuing operations was $11.1 million, or $0.53 per diluted share, for the third quarter of 2010, compared to a loss of $41.3 million, or $2.04 per share, for the same period last year.

On an adjusted basis, net income from continuing operations was $13 million, or $0.62 per diluted share, for the third quarter of 2010, compared to $9.4 million, or $0.46 per diluted share, for the same period last year.

On a sequential basis, both adjusted net income and adjusted earnings per share from continuing operations improved significantly over the first and second quarters. Adjusted net income and earnings per share for the third quarter were three times greater than the first quarter of 2010 due to the increased revenues and profitability resulting from higher utilization and bill rates and well as lower SG&A costs.

Net income, including discontinued operations, was $7.5 million, or $0.36 per diluted share, for the third quarter of 2010, compared to a loss of $64 million, or $3.16 per share, for the same period last year.

For the third quarter of 2010, our effective tax rate was 47% as compared to 31% in the same period of last year. As a reminder, we recognized a goodwill impairment charge last year that contributed to a tax benefit of $18.5 million on a pre-tax loss of $59.9 million. The tax benefit rate was reduced by the impact of non-cash compensation expense, which is not tax-deductible, and foreign losses that we were unable to fully tax benefit.

The effective tax rate in the third quarter this year was negatively impacted by higher non-deductible executive compensation and a higher percentage of foreign losses with no tax benefit.

Now let's look at how each of our business segments did in the quarter.

The health and education consulting segment generated 61% of total company revenues during the third quarter of 2010. Health and education consulting segment revenues were $89.1 million for the third quarter of 2010, compared to $99.7 million for the third quarter of 2009. On a sequential basis, revenues in the third quarter were up $5 million from the second quarter and $12 million from the first quarter.

During the third quarter, we added more than 30 consultants to our health and education consulting segment. This, combined with improved metrics across the board, including higher utilization, bill rates and revenue per FTE contributed to this segment's solid third quarter results.

As we expected, performance-based fees declined significantly from the levels in Q3 of 2009 but was higher than the level experienced in Q1 and comparable to Q2 of this year. On our last call, we had estimated performance-based fees to be $15 million in Q3, and they came in at $16 million.

The health and education consulting segment's operating margin decreased to 35.9% for the third quarter of 2010 from 38.8% in the same period last year. The profitability in this segment declined primarily due to lower performance-based fees recognized this quarter, as I just previously mentioned.

Our legal consulting segment generated 26% of total company revenues during the third quarter of 2010. This segment posted revenues of $37.9 million in the third quarter of 2010, an increase of nearly 30% from $29.3 million in the comparable quarter of 2009. The momentum that we experienced in our e-discovery services during Q2 continued nicely through the third quarter, and the consulting side of this segment also generated a more-than-10% increase in revenues year over year. This growth was achieved by an increase in activity across our business and not related to any one client or matter.

The operating margin for our legal consulting segment also improved to 30.9% from 18.3% compared to Q3 last year. This was mainly the result of higher revenue per full-time equivalent and lower full-time billable consultant headcount.

During the third quarter of 2010, our financial consulting segment -- which now consists of our accounting advisory and restructuring and turnaround businesses -- generated 13% of total company revenues. This segment posted revenues of $18.5 million in Q3 of 2010, compared to $20 million in the same quarter last year. The decline in revenues was due to our restructuring and turnaround business, which had a very strong third quarter last year, and a drop-off in revenues during the fourth quarter. Since the beginning of this year, however, we have seen a positive trend in revenue. Our accounting advisory practice generated Q3 2010 revenues that were comparable to last year, as well as to Q1 and Q2 of this year.

Segment operating income margin for financial consulting increased to 31.2% in Q3 of 2010 from 22.1% in the same quarter last year, largely attributable to lower cash compensation and higher utilization.

So to recap our segments' results in the quarter, while our health and education consulting segment was down compared to last year's third quarter due to significant contingent fees earned last year, the segment performed as we expected, growing sequentially over the previous two quarters. We witnessed strong performance within our legal consulting segment, and the momentum that we saw in Q2 continued into Q3. And financial consulting is continuing its stable performance.

Now turning to the balance sheet and cash flows. DSO for the third quarter came in at 69 days and cash flow from operations was almost $25 million. We expect our cash flow from operations to continue into the fourth quarter.

Our full-year guidance reflects adjustments for the divestiture of the D&I practice and the previously-discussed market factors. As Jim discussed, we acquired two businesses this week which are focused in the higher ed technology and e-discovery areas of our business. Combined, the two entities had a trailing 12 months of revenue of approximately $17 million and will not significantly impact the results in the third quarter.

On October 4, we provided revenue guidance from continuing operations before reimbursable expenses in the range of $540 million to $550 million. Our expectation is that we will be at the high end of the revenue range for the year, based on a solid finish to Q3 and the addition of the two acquisitions; adjusted EBIDTA in the range of $92 million to $95 million; adjusted non-GAAP net income in the range of $35.5 million to $37.5 million; and between $1.70 and $1.80 in adjusted non-GAAP earnings per share, all on a continuing operations basis.

For the full year, we expect an effective tax rate of 45% and weighted average diluted shares of 20.8.

Based on current estimates, we are projecting contingent acquisition payments to be approximately $20 million for 2010, paid in March of 2011.

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

Thanks, Jim.

We've made considerable progress this year in addressing some of our underperforming businesses in our financial consulting segment. During the past nine months, we have sold or shut down our Japanese practice, as well as our disputes and investigations and utilities practices. The net result of these actions is a more focused company and an ability to invest our resources in practices that are better prepared to drive future value for our shareholders. We will enter 2011 with a set of practices that are profitable, have strong market positions and offer growth prospects consistent with our longer-term expectations for this company.

Companywide, there is a sense that we are now positioned to be more focused, and I am confident that our results will be positively impacted by our slightly trimmed down, but more targeted, energies in the marketplace.

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

Thank you. (OPERATOR INSTRUCTIONS.) And your first question comes from the line of Timothy McHugh of William Blair. Please proceed.

Yes. First, I wanted to just ask about the fourth quarter guidance. Even at the high end of the range, it seems to imply a sequential decrease in revenue, whereas I know your old guidance had assumed a ramp through year-end and you've obviously completed a couple of acquisitions here and it sounds like you're on a favorable trend kind of intra-quarter throughout Q3 heading into Q4. So can you just talk about what factors would cause you to expect revenue to be down sequentially in Q4?

Tim, this is Jim Rojas. A couple of factors. One is there are two less business days in the fourth quarter compared to the third quarter, as well as additional vacation time that people take around the holidays. So just based on the sheer number of days that we have, we're expecting revenue to be near the level of Q3, but slightly down, but nothing that is a material decrease.

So there's no trends in the business that make you more cautious or something that you've seen lately won't continue basically?

No. No. One thing that we benefited from in Q3 that's apparent in the numbers is that the legal consulting business had a very strong Q3, and actually, the results in the last couple of weeks were much stronger, as Jim had mentioned in his opening remarks. So we expect LC to be strong in Q4, just not to the level that we saw in Q3. So that business may slow down a little bit, but nothing that's material, and it's more a comment of just how busy we were in Q3.

Okay. And then can I get an update on Stockamp? Obviously, one of the bigger factors you mentioned during the pre-announcement was kind of a delay in new contract signings. Since then, we've also heard a few other health care kind of services companies mention delays as well. Can you talk a little bit about the environment there, and then specifically, have you seen any of those contracts for Stockamp start to convert into actual contracts yet at this point?

Tim, this is Jim Roth. Let me respond to that. Let me back up for a second. When we provided our forecast at the very beginning of the year, we were coming off a very, very strong year, particularly for Stockamp. And I think probably in retrospect, when we go back and look at the guidance we provided early on, we had -- we were -- perhaps didn't adequately reflect some of the uncertainties that were going to exist in the health care marketplace during the first half of the year. And even some of those uncertainties still exist now and I think you've seen some of those. What -- and so there were clearly a few delays that took place on a couple of projects. We've mentioned those already. The delays that took place -- some of them actually have come through. In fact, what we've seen is a firming of our hard backlog for the fourth quarter in some of those areas, and actually, we're going to be entering 2011 with a very nice position in hard backlog. So we're very comfortable with the way that's evolving. I think what we've tried to do now, though, Tim, is to probably temper our guidance a little bit more, which you've already seen, just in terms of reflecting some of the overall uncertainties in the health care marketplace. The jobs that we had talked about being delayed in effect have kind of come through for us, but we're just -- we're going to be a little bit more conservative and try to anticipate more of the uncertainties that are going to be in the health care marketplace for a while. You've seen that in our revised guidance already and you'll certainly see that coming through in 2011 as well. But we are seeing, across our healthcare practice, a nice pick-up of revenues and it's looking not only to affect the fourth quarter -- I'm sorry -- but it's also likely going to let us enter 2011 with a pretty strong set of hard backlog.

Okay. And just to be clear, when you mentioned the hard backlog, basically you're referring to contracts that are signed but you've probably not started yet on the engagements? Is that a fair way to think about it?

Yes. It's a combination of projects that are signed and haven't started yet or contracts that are currently signed and that are going to go into 2011 with revenue with hard backlog -- with revenue.

Okay. Thank you.

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

Thanks. First, just can you help us (inaudible) how the revs from the two acquisitions are going to flow through, if it's material. And then second, just back to healthcare and contracts. Can you talk about win rates and conversion rates. Have you seen any change? There's obviously lots of competitors out there. I'm just wondering if you're seeing any increase in competition or, again, it's all basically just delays in projects. Thanks.

Paul, would you mind repeating your first question? It was hard to hear.

Sure. Asking how the revenues from the acquisitions flow through for the next couple quarters. Thanks.

You know what? Paul, this is Jim Rojas. I'll take the first question. As we mentioned, the acquisitions had $17 million of trailing 12 months of revenue. We're expecting growth in these businesses, but if you look at it, we're probably looking at less than $2 million of revenue for the month of November of December, so after you factor in some of the cost of acquisition, it's really not going to have a very material impact in Q4. However, we expect these businesses, as we integrate them and -- to develop the strategies of why we acquired them, we will absolutely see growth into next year. So not to specifically comment on what growth rates we're looking for these businesses. We think that they will -- that we'll do very well here with these two acquisitions into next year.

Paul, this is Jim Roth. I'll respond to the second question. We really haven't seen any significant pick-up in competition -- anything different than we've been witnessing all year. So I don't think the competitive environment has changed. It remains a competitive environment, but I don't think it's increased anymore. It's just -- I think what we have seen -- if I could probably try to characterize what we're having to manage through is that I think the nature of the changes that are likely to come through as a result of health care reform are so substantial that I think to take on some of the more structural changes to the business model that many of the hospitals are going to have to take on isn't something that just happens overnight, and they need to kind of get -- internally, they need to be thinking through, organizationally, when is the right time to do it and how and when do you go about making some of these very significant structural changes. I think that's the result -- that results in our seeing some of the -- just the kind of uncertainty about how best to proceed in this environment for a lot of our clients. Having said that, the part that hasn't gone away, and as I indicated earlier, I think is going to remain very strongly is the fact that the fiscal pressures are going to be very significant on hospitals almost no matter what. And so that's why we view -- we've been backed up, by the way, by a lot of discussions that we've had with senior management at many of our hospital clients. They are going to be very focused on enhancing revenue and reducing costs. And those types of projects which are right in our wheelhouse are going to be proceeding. But I think the broader -- some of the structural issues that the hospitals are going to be looking at probably take a little bit more time for them to think through because they are so significant on their overall operations and organization. So that's a long way of saying I think that the competition is going to still be very strong in this marketplace, but the demands and needs, I think, are going to be very acute, and we feel very well-positioned for us to be able to address those needs.

If I could just sneak a follow-up on that same question. Based on healthcare reform and the timeline, when do you think companies will -- or hospitals will actually have to start implementing changes instead of just thinking about them?

That's the hard part for us to forecast. I think there's not a single one that's not talking about it. I think the question is -- the problem is that the minute you get your head around what it means for an individual hospital, in many cases, the changes are so structural that they -- it just takes a little bit of time. I think some of them are certainly doing it now. We've got work that is going on today that is no question related to hospitals trying to change the way they're structured and operate so they can better perform in the environment that they're anticipating in the future. Those projects for us have already happened. I think the thing that we're trying to project is how quickly that pace is going to continue to pick up across the board. And we're going to -- as I indicated earlier, we're going to be just a little bit conservative in terms of predicting how quickly that's going to come about, but we're already seeing a lot -- everyone's talking about it. Everyone's talking about it. The real question is how and when they -- would they begin to take action on it.

Thank you very much.

That's the part we need to focus on.

Your next question comes from the line of Scott Schneeberger of Oppenheimer. Please proceed.

Thanks. Good morning. Could you guys speak on the tempo of the -- of what's going on in accounting advisory with your big client? It seems to really move and then slow down and then pick up. What are you thinking going forward there?

You know what? Scott, this is Jim Rojas. You know what? This is -- it's difficult to predict. Anyone can see the environment that's publicly available information as to some of the activities of this government agency, and it's really out of our control as to what they do or how they utilize consultants. More importantly is what we're doing as a business. Having a reliance on one large client that could be unpredictable is not a very comfortable place to be in, even though that client is a very good client and provides us with great revenues. So we're looking at the business to say, "How can we take the experiences of what we've learned as being a client to this company over the last year and a half and how do we take that and bring that to other areas of the marketplace?" So it's challenging and we'll continue to find ways to look for other avenues of revenue there.

Okay. Thanks. And Jim, you said at the beginning of your remarks that your business segment review has now concluded. So is the Huron we see at this moment what we're going to see 12 months from now?

You know what? I would say businesses always change and we change to the demands of what our clients are. Will we add new business segments? I would hope that we do, and we'll continue to look at our businesses. I think it would be incorrect to say that we won't look at the performance of the businesses, but the way that our business looks like right now, we're happy with it going forward.

Okay. Thanks. And then if I could sneak one more in. Velocity -- I assume that's where the strength at the end of the third quarter came through. Could you speak on the competitive environment? What type of matters you're seeing and -- you said it would maybe slow down a little bit in fourth quarter versus third quarter, but still it sounds like a decent clip. So if you could just take us a level lower there. Thanks.

Yes. This is Jim Roth. We've had a -- as I indicated in my comments, we've seen a very nice kind of change in the pattern of the revenues in this business. I think historically, if you go back and look at it, we had a small number of large projects that tended to dominate that business for a while, and what we've seen materialize really over the last three to four months -- maybe a little bit more -- is a nice build-up across all of our targeted industries, and so we have a lot less reliance on one individual project -- product -- I'm sorry -- project, and it really has given us a pretty stable group of companies that we're working with right now, many of which are beginning to be repeat business for us. I think we have had what really amounted to a pretty spectacular third quarter in that business. They were hitting on all cylinders across a lot of different companies, a I think the nice part about it -- I've always felt comfortable in that environment because the more companies that are familiar with what we're doing, the better off we're going to be. I think that position -- I think we're going to see that -- we may not see -- we're going to see -- always see lumpiness because the business is so dependent upon the ebb and flow of large-scale litigation, but I think the way that's positioned right now, we're going to be seeing a very nice compliment of companies come through and provide us with pretty decent revenue going into next year. And I think there's also a lot of other things that have been in the press recently that are going to enhance it, some of which haven't even begun to show up yet in our revenue amount. So I feel very comfortable with the portfolio of clients that we're serving in that business right now, and I think that's going to provide not only a good stream of revenue, but I hope a little bit more continuity of revenues in the coming quarters.

And Scott, the only thing I will add is that what we've seen is not only sort of a steady increase in litigation-related matters for our financial services and energy-related clients, but we're also seeing nice pick-ups in terms of M&A work that we're doing with our technology clients. So it's balanced and it's just not in litigation matters; it's also in some areas where we are seeing companies growing.

Thanks. Sounds good. Thanks for taking my questions.

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

Good morning. I apologize. I had to miss the very beginning of the call, but Jim, you'd said something about results coming in ahead of expectations around the pre-release. Just trying to get a sense of what changed and where the upside was relative to that in the quarter and are those trends something that are continuing into the fourth quarter?

Dan, it's Jim Roth. The trends -- we really had a nice -- particularly in the last couple weeks of the quarter, we had a real nice pick-up in our healthcare practice and our legal consulting practice, and I think that kind of gave us results that were a little bit ahead of expectations when we made our pre-announcement back in early October. So that's really what attributed to that. And I think those trends right now will certainly continue into the fourth quarter.

Okay. And then the reason that the 4Q guidance is down a little bit sequentially at the high end is just purely the days issue with those trends continuing?

Yes. I would say the days and then I also mentioned to Tim that legal consulting was incredibly busy in the last couple weeks of September, that we'll come off those numbers a little bit, but we feel that the overall pace of business is very good, though.

Okay. Great. And then just on the acquisitions. How should we think about the margin structure for both of those companies?

You know what? I would say that the margins that we get in those businesses will be commensurate with the margins that we have in the existing businesses already.

Okay. And then in terms of purchase price? Did you guys disclose a price or multiples paid or any sense for what these deals cost?

No. We did not disclose any of the deal parameters.

Were they in line in terms of valuation with historical deals or are these unique because they're more of a software play?

You know what? I would say that they're absolutely in line with what you see in the marketplace today -- not necessarily what we've paid in the past, but what you see in the marketplace today. It definitely would have to financially make sense for us because, as Jim mentioned, strategically and culturally, these acquisitions were no-brainers. These were companies that we knew very well and had worked with for a long time. But you also need the numbers to work as well, which they did.

Great. Thanks, guys.

(OPERATOR INSTRUCTIONS.) And your next question comes from the line of Joseph Foresi of Janney Montgomery Scott.

Hi. This is Jeff Rossetti calling on behalf of Joe Foresi. Thanks for taking my question. Just wanted to see if you could talk a little bit more about -- the utilization rates looked relatively strong. Is there any kind of anticipation for a normalized rate going forward and how you maybe view the headcounts trending by segment?

Well -- this is Jim Roth. A couple comments. The utilization rate was strong. We've always said that we try to target ourselves to the mid or upper 70's. I think you get much higher than that and it begins to put a lot of stress on the system. So we're pretty comfortable with where it's at right now. We've been in a growth mode in terms of bringing on new people and recruiting people over the last two or three months or so, and we expect that to continue over time. But we would -- we'd love to hold the utilization rates about where they're at right now. Maybe they may have to go down a little bit because it does get -- a strong 77-78 ends up being somewhat hard to manage over a longer period of time, but you can get away with that for shorter periods of time. So we're pretty actively recruiting across most of our segments at this point in time, and I think our utilization, even though it may drop off a little bit, is not -- we hope not to let it drop out too much below, say, 75% for the coming quarters.

And just to add on that, we had mentioned on our last call that we were looking to hire approximately 60 people within health care in the second half of the year. I believe, just in healthcare, we added 34 people. End of quarter -- end of quarter comparison sequentially. And so we're well on our way to that target and we feel like we will do that, and I think we'll be adding people in our other segments as well. So you'll see us adding more people in the fourth quarter.

Okay. Great. Thanks. And just one follow-up. If you could just maybe talk about your acquisition focus going forward? Is there -- would we expect more small bolt-on acquisitions or is there a target net-debt-to-EBITDA that you have?

We -- this is Jim Roth. We continue to evaluate other options for small acquisitions. I would -- it is possible to do a couple other small tuck-in acquisitions over a period of time. They've got to meet our criteria, not only financially, but also just from a strategic perspective. The nice thing about Click and Trilantic is that they are right in our sweet spot. We've known the people. We know the culture. And I think if we did any other acquisitions, it would be very much along the same kind of line where there's a very clear strategic fit for us.

Thank you.

(OPERATOR INSTRUCTIONS.) And there are no further questions. At this time, I'd like to turn the call back over to Mr. Roth for closing remarks.

Thank you for taking time out this morning to discuss our third-quarter results and outlook for the remainder of the year. I want to close by thanking our employees who stayed focused on the market and provide tremendous value and quality to our clients. Without them, none of this is possible.

We look forward to speaking with you again in February when we announce our year-end results and our thoughts on 2011. Good day.

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