Huron Consulting Group Inc (HURN) 2011 Q1 法說會逐字稿

Ladies and gentlemen and welcome to the Huron Consulting Group's Webcast to Discuss Financial Results for the First Quarter 2011. At this time, all conference call lines are on a listen only mode and later we will conduct our question and answer session for the 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 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 on 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 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 and President of Huron Consulting Group. Mr. Roth, please go ahead.

Good morning and welcome to Huron Consulting Group's first quarter 2011 earnings call. With me today on the call are Jim Rojas, our Chief Operating Officer, and Patty Olsen, our Corporate Vice President of Human Resources. Thanks for joining us this morning.

I'm going to spend a few minutes discussing the performance of each of our practices during the first quarter, and then I will describe how we see our performance shaping up for the rest of the year. Jim Rojas will then walk you through the numbers and provide color around key operating metrics. Let me start by discussing the first quarter.

Focusing first at the segment level, our Health and Education Consulting and Legal Consulting segments had solid results for the first three months, with both meeting our expectations. Our Financial Consulting segment had a soft first quarter, performing lower than our expectations, but still reasonable in light of the challenges in the accounting advisory and middle-market turnaround and restructuring markets.

I will now provide some color on each segment individually. Our Health and Education Consulting segment had revenues of $91 million for the first quarter, up 3% sequentially and an increase of 20% over Q1 2010. These results reflected continued strong performance by our Huron Healthcare practice and a significant pickup in activity within our Higher Education practice.

The Healthcare results were driven by the same market conditions that we have seen for the past six months -- declining hospital margins, reductions in Medicare and Medicaid reimbursement, and an increase in activity relating to emerging healthcare reform legislation. We also saw significant activity among our academic medical center clients, many of which are further challenged by the cost structure attributable to their unique mission involving teaching, research, and patient care.

As we start the second quarter we have a large number of assessments underway in our Healthcare practice. The assessments, typically six to 10 weeks in length, are generally offer at lower margins but enable us to more effectively price and scope follow-on implementation work. The large number of assessments, coupled with the ongoing changes in the healthcare arena, bodes well for the performance in this practice during the rest of the year.

Our Higher Education and Life Sciences practice had its strongest quarter in nearly 3 years. We began to see a pickup in activity in this practice toward the end of 2010 and it continued to build throughout the first quarter this year. Similar to the Healthcare business, our Higher Education clients are reacting to the need to closely examine operations and strategy at their institutions in light of decreasing public support, flat to declining research funding and limitations in the ability to increase tuition.

In addition, we've seen a notable uptick in our Life Sciences practice with fair market value assessments, government pricing and compliance matters among the areas leading demand.

Our Legal Consulting segment also had a solid quarter. We had mentioned in February that we were not certain whether Legal Consulting would be able to continue the pace in Q1 2011 that it had achieved in the last two quarters of 2010. While Q1 was slightly lower than Q4 of last year, the first quarter results exceeded our expectations.

Revenue was driven primarily by our E-Discovery offerings. And while the financial services sector was most prominent, our Huron Legal engagements remain well diversified across our strategic markets.

Finally, our Financial Consulting segment was the most challenged among our three segments. Our Restructuring and Turnaround practice saw a slight reduction in revenues over its pace during the last half of 2010. Our focus remains primarily in the middle-market. And while that segment of our economy continues to struggle, we are hopeful that demand will increase during the remainder of the year.

We continue to evaluate new markets for this business that will enable us to cut achieve our growth and margin expectations.

Accounting Advisory, which accounts for the remainder of the Financial Consulting segment, had the weakest performance among our practices, primarily stemming from continued softening in demand from one of our large government agency clients. However, the Accounting Advisory practice entered Q2 with an improved backlog and we expect an increase in the practice's performance during the balance of the year.

Looking out toward the remainder of the year, we remain comfortable with our guidance provided in February. The marketplace trends and our level of activity remains strong, especially within our two largest segments -- Health and Education Consulting and Legal Consulting, which account for about 90% of our revenue.

Despite aggressive recruiting in Health and Education, our utilization in those practices remains in the upper 70s. In Legal Consulting, our strategy of focusing on large multinational clients in highly litigious industries continues to pay dividends for us. On the whole we are well positioned in our key markets and we're fully focused on executing against our plan during the remainder of the year.

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

Thank you Jim. Good morning everyone. Before I begin, and as I have done in the past, I want to call your attention to a few housekeeping matters. I will be discussing our financial results primarily in the context of continuing operations.

As previously announced, during the fourth quarter of 2010 we reached an agreement in principle with the lead plaintiffs in the pending securities class-action lawsuit related to the restatement of the Company's financial statements in 2009. As a result, in Q4 we recorded a non-cash pretax charge of $12.6 million representing the fair value of the shares that will be used for settlement. In Q1 we recorded an additional non-cash pretax charge of $600,000 which represents the increase in the fair value of the settlement shares.

Additional details pertaining to the proposed settlement can be found in our 10-Q, which will be filed later today.

In addition, during the first quarter we consolidated certain office space in Chicago due to excess capacity and recorded a pretax restructuring charge of $500,000 which consisted of lease costs.

Also during the first quarter, and as previously announced, we successfully refinanced our current debt and established a new five-year $350 million credit facility. This new facility will provide us with the flexibility and liquidity for our short-term cash requirements, and meets our strategic long-term business needs with pricing that is more favorable than our previous one.

And lastly, during this call I will 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 background, I will walk you through some key financial results for the quarter.

Revenues for the first quarter of 2011 were $143 million, a 12% increase above the $127.7 million in the same quarter of 2010. EBITDA for the first quarter of 2011 was $17.4 million, a 34% increase compared to the $13 million a year ago.

Adjusted EBITDA came in at 44% higher at $19.7 million in Q1 2011, or 13.8% of revenues compared to the $13.7 million in Q1 of 2010 or 10.7% of revenues. Adjusted EBITDA excludes a number of items which are listed in our press release.

Our EBITDA margin in Q1 was impacted by our bonus accrual. We record our bonus accrual based on our forecast for the entire year and not the results of any one quarter. Since our revenues are expected to increase over the first quarter results, we also expect our margins to increase as the year progresses. This is similar to the way our margins played out during 2010.

Operating income was $11.6 million or 8.1% of revenues in Q1 of 2011, an increase of 56% compared to the $7.4 million or 5.8% of revenues in Q1 of 2010. Net income from continuing operations was $4 million or $0.19 per diluted share in the first quarter 2011, compared to $2.7 million or $0.13 per diluted share in the same period of 2010.

On an adjusted basis non-GAAP net income from continuing operations increased 58% to $6.7 million, or $0.32 per diluted share in the first quarter of 2011, from $4.3 million or 0.2 $0.21 per diluted share in the same period of 2010.

Our effective income tax rate increase to 51.5% in the first quarter of 2011 from 43% in the same period last year. The higher effective income tax rate in 2011 was primarily attributable to increased foreign losses with no tax benefit and higher state taxes.

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

The Health and Education Consulting segment generated 64% of total Company revenues during the first quarter of 2011. This segment posted revenues at $91 million for the first quarter of this year, 18% higher than the $76.9 million for the first quarter of 2010 and about 3% higher than the $88.5 million for the fourth quarter of 2010.

The performance-based fees in the first quarter were approximately $13 million, which is similar to last year. This is significant in revenues quarter over quarter was mainly a function of improved utilization and increased headcount, as our backlog or sold work has steadily improved since the second quarter of last year.

The operating income margin for Health and Education Consulting increased to 29% for Q1 2011 from 27.4% for the comparable quarter in 2010. Margins in Q1 2011 reflect lower administrative expenses.

Our Legal Consulting segment generated 26% of total Company revenues during the first quarter of 2011. This segment posted revenues of $37.3 million in the first quarter of 2011, up 13% from the $33.1 million in the comparable quarter in 2010. This growth was primarily driven by our Electronic Discovery practice.

The operating income margin for our Legal Consulting segment also improved to 25.7% from 22.4%. Margins were higher this year due to higher costs incurred last year to deliver document processing revenues.

While we were pleased by the strong performance by our Electronic Discovery practice, the improvements that we saw in our Advisory business during the second half 2010 did not continue into Q1. And we're focused on improving this business.

During the first quarter of 2011 our Financial Consulting segment generated 10% of total Company revenues. This segment posted revenues of $14.6 million in Q1 2011 compared with $17.7 million in the same quarter of 2010. Revenues in our Restructuring and Turnaround practice increased while our Accounting Advisory practice was down due to lower activity, as Jim has already discussed.

The operating income margin for Financial Consulting declined to 23.1% in Q1 of 2011 from 25.5% in the same quarter of 2010, primarily due to the bonus accrual as discussed earlier.

So, to recap our segments' results for the quarter, our Health and Education Consulting segment had a solid quarter with an increase in revenues quarter over quarter as well as sequentially. Our Electronic Discovery business within our Legal Consulting segment started the year stronger than expected; however, as we have said before, this business is event-driven and somewhat difficult to predict. Within Financial Consulting we saw growth in our Restructuring and Turnaround practice while the Accounting Advisory side continued to show some weakness.

Now turning to the balance sheet and cash flows, DSO came in at 64 days for the first quarter of 2011. With respect to cash flows, we had negative cash flows from operations of $3.4 million. A net use of cash in Q1 is typical for us due to bonus payouts, which were approximately $20 million. As in previous years, we expect that net cash flows will improve as the year progresses.

Our outlook on full-year guidance has not changed since our Q4 comments, and to affirm our previous numbers, revenues from reimbursable expenses in the range of $580 million to $620 million. Even though our performance-based fees were less than what we had expected for the quarter, we still anticipate that these fees will be approximately $80 million for the year. As we have stated in the past, these fees are difficult to estimate on a quarterly basis, but we feel comfortable with our yearly estimate.

Adjusted EBITDA in a range of $101.5 million to $111.5 million; as explained previously, our range is impacted by an incremental $6 million of investment in upgrading our healthcare technology platform, the costs of which are not capitalizable. This translates into approximate 100 basis point unfavorable impact on our margins.

Finally, we are anticipating adjusted non-GAAP net income in a range of $41 million to $46.5 million and between $1.85 and $2.10 in adjusted non-GAAP earnings per share. Our guidance on operating metrics, share counts and effective tax rate has not changed since our last call.

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

(Operator Instructions). Tim McHugh, William Blair.

Thank you. Jim Roth, I don't want to leave you on the beach there too long first, but Jim Roth, can we talk about the Higher Ed business a little bit? Is the improvement there sustainable? You mentioned it was the best quarter in three years. Just want to get a sense for what the ongoing trends feel like there to you.

Tim, I think it is sustainable. We had -- as I indicated, that business really began to pick up nicely for us in the last half of 2010 and it continued in the first quarter here. What we see is driving it is really I think some pretty fundamental changes in a lot of the business models that our Higher Education clients are looking at. So I do think we're going to continue to see some strength in that business.

Okay. And then if we could sail over to Jim Rojas, the contingent fees, can you talk a little bit about how you project those? At the start of the year, are you doing a bottom-up type of number? And is that how you get confidence in still projecting the $80 million given the first quarter came in lower than you thought?

No problem, Tim. What we do is we look at those sold engagements that we have that have a component of contingent fees and we factor into what we think performance is going to be using a bottom-up approach from our project teams. We also then look at those that we have that are in assessment and those that are in the pipeline to get some type of idea of where we feel like the -- for the magnitude of where they're going to come in at.

While we say they're difficult to predict, we do have good insight into those projects that are already sold. As we talked about, many of our projects are anywhere from six to twelve months in length, and then the contingent fees come in typically the second half -- either the third or fourth quarter of the projects.

And can you talk about the fees you thought that were going to come in and Q1, or at least I thought might come in at a higher level? Have some of those come in in April at this point, or is it more back-end loaded in the year than even that?

You know what, the fees come in at various times, many of them in the way that for revenue recognition purposes that we established our processes. We have complete sign off from our clients in terms of when we recognize those fees. And it's either from the management team, sometimes it's even board approval, and it is difficult for us to predict when boards are going to actually meet.

So honestly, they come in throughout the quarter. And I think with some of the activity that we have seen, even early in the first month of the quarter, we feel confident in terms of where we're going to be for the year.

Okay. And then on the assessments, you mentioned that they were up, or you have a large number of them going on right now. Can you give us some sort of sense of the magnitude? Is this just normal type of assessment growth that we would expect for a business that would grow to 10% to 15%? Or is it up a much larger number than that, that reflects some sort of abnormal strength in the business?

Tim, I'll answer. This is Jim Roth. I think it's up probably reflective of the pace in revenue growth that we're anticipating right now. I think there is nothing -- it's a very healthy pipeline that we are seeing right now. There's nothing abnormal about it.

But I think what interests us the most I think is what is driving it. And I think it is really -- what is driving it is the core issues that we think are going to continue to drive demand in the future. And that is very significant margin pressures and what continues to be a lot of uncertainty over how best to respond to whatever it is evolving from healthcare reform.

There's such an unclear picture for a lot of our clients in terms of exactly what they should be doing. So they've got to, on one hand, face the immediate financial pressures, but at the same time look at some pretty significant changes in their business. So it's that really bread and butter type of activity that is driving our demand right now.

Okay. And then on -- the last question would be -- have you looked at the -- you reiterated your guidance for the overall business. Should we expect similar types of growth that you talked about for each of the segments? I think it was at 15% growth for Health and Education for the year.

Yes, I think we're still looking at that kind of growth rate for the Health and Education Consulting segment.

Okay, thanks a lot.

Dan Leben, Robert W. Baird.

Thanks. Good morning. Just first on the bonus accruals. Could you talk about what rate you are accruing at? Is it targeting the middle point of guidance? Or how should we think about the rate of accruals so far in the first quarter, kind of with the target is for that?

Dan, this is Jim Rojas. I'll take that one.

We are accruing to the midpoint of our guidance in terms of our bonus accrual throughout the year. So, if you look at it in terms of annualizing where we are at from a revenue standpoint, we do have a ramp up to get to the midpoint. So that is where, based on my comments, that we will see a ramp up in revenues as accordingly that bonus accruals stays the same, so you will see an improvement in margins as the year goes on.

Okay, great. And then second, just back on the contingent performance fees within Health Care, We've been at $13 million now the last couple of quarters. Are there any changing dynamics underlying the scale or magnitude of those fees? Any changes in how customers are approaching paying upfront versus paying contingent fees, just given the fact that you think we'd see a little bit more than is typically in that third or fourth quarter?

You know, Dan, it is really just reflective of when projects were starting. And as we mentioned, our Health Care practice had a slow Q1 and Q2 of last year. As we saw activity ramp up in the second half of the year, we're just starting to get into the third and fourth quarter of those projects. So we're anticipating to see a ramp up.

Like I said, timing from quarter to quarter is difficult to predict. But we really do feel comfortable based on what we know we have sold, what we have in terms of projects that are completing in the next quarter or two. We feel comfortable with where our projections are at, at $80 million.

I think the $13 million isn't reflective of the trend going forward. It's really just where the business was in terms of early part of last year.

Great. Last one from me; brought some people over from LECG in the Legal practice. Could you talk about what they're going to be doing and how we should think about the revenue contribution from those incremental additions?

You know, the way I would think about it is, in our plan we had anticipated hiring people especially in the area that they are in, which is either in forensic collection or in processing of electronic discovery. So I would just say I don't -- there isn't naturally just an incremental increase. This is forecasted increases that we had talked about in this business anyway.

We did bring -- we brought about 10 people over, one managing director, and it was a great hire for us and we're very happy with the team that has come over. They have integrated well. And we just anticipate they would be like any other hires that we would have.

Tobey Sommer, SunTrust.

Thank you. I was wondering if you could give us some color on the mix of Health Care demand. Is there a bias towards larger hospital systems or the smaller kind of community ones?

This is Jim Roth. I think we've got a pretty nice balance. We're still doing work across our traditional spectrum of mid- and small-size hospitals. We've got a very healthy contingent, as I indicated, on the academic medical center side which brings to us a very different level of complexity in the way we attack the issues for our clients.

So we really are, I think, a pretty nice mix. We're doing a fair amount of work with health systems, multi-hospital health systems. So I feel very comfortable with the balance. And I think that is going to be reflective of the way things go in the future.

We mention the academic medical center market for a reason. I think it's one of the areas that we're very uniquely qualified to address in the marketplace. It has a combination of a higher cost structure at a point in time where you don't necessarily want to be having a higher cost structure. And so, the combination of research and patient care and teaching and education really fits right in the middle of our core competencies, so we feel really good about that market.

Absolutely. And that kind of leads into my next question. It has to do with the education mix, and perhaps on the Health Care side, the academic (inaudible) side.

Are you seeing the impact of state budgets driving some of that demand? Or is it more of a change in healthcare and the rules around that? I'm just kind of curious as to whether that state budget phenomenon is creeping in and aiding your business.

As it relates to Higher Education or Health Care?

Both actually.

Well, the answer is both, in fact, for I guess somewhat similar reasons.

State funding is having a pretty material impact on the Higher Education side. The budgets for the universities are really being cut, the public universities, in a pretty dramatic way. So that's been going on for a while, and the question now is how do you begin to balance your budgets on a go forward basis and still remain competitive particularly with some of the privates. So that is driving a lot of our business, number one.

On the Health Care side, the statewide mix in terms of how they're taking their existing funding and matching it between all the competing needs they have, including Medicaid, has created a lot of problems for the Health Care side as well as Medicaid reimbursements continue to go down.

And all of that comes together for us in our academic medical center clients, which are really bearing the brunt of almost all of that. So it is a good place for us to be right now, and again, one where I think we feel very comfortable with our core competencies.

Do you have a percentage of revenue or some sort of other color that would allow us to understand how significant the exposure is to state universities between the Health Care and the Education segments?

We really don't. I think the Health Care is probably about two-thirds of the overall Health and Education segment in terms of revenue. The interesting part for us is that increasingly we're going to market together with two businesses, kind of the way we look at the Health and Education with going together with our Higher Education and Health Care practices in the academic medical center front.

And it really gives us, again, some unique opportunities to present some skills to -- or some competencies to the market that is very much in demand right now. In general it's about two-thirds Health Care, one-third Higher Education and Life Sciences within that segment.

And then could you provide a little bit more color on what you're seeing in the restructuring market? That's my last question. Thanks.

That part of the market remains I would say flat. We have not experienced the need to lay off employees as some of our competitors in that market [already] have that. We've been pretty flat. Again I think it's because of our focus on the middle-market area and our ability to expand into some other industries that we typically have not been in.

So, for example, within restructuring we've done a little bit more work even in the Health Care segment. And so that is helping us out a little bit. So I think we're still projecting about flat for that practice for a period of time, which is partly -- we're trying to gauge the headwinds as to whether they are going to be supportive for us or whether they're going to work against us.

Some people think the economy is improving. Others think it is deteriorating; it is hard to tell. I think for now we're counting on that business being flat.

And this is Jim Rojas; I'll just add a little more color on the Health Care comment. We hired another managing director and actually hired back Dawn Gideon, who joined us back in January, to focus on the healthcare market. And we also have other managing directors who have healthcare experience in that business who have also won a couple of other projects in the healthcare space during the quarter.

So we do feel like that is an area of opportunity for us, even while other areas of restructuring may be more challenged. So it is one where we're focusing on as well.

Joseph Foresi, Janney Montgomery Scott.

My first question is in Financial Consulting it seems to be like a maybe $15 million or $14 million run rate. Is that the run rate you're sort of expecting for the back half of the year, assuming that business doesn't pick up there?

This is Jim Roth. I think that is about right. Possibly increasing slightly, but it's not going to be far from that.

Okay. And then in the Legal Consulting business, you have talked about for a couple of quarters there being some lumpiness in E-Discovery. Clearly helped that this quarter. Can you talk about any large projects that you have that could potentially begin and end, and maybe what your expectations are for those projects in the back half of the year?

You know, as I think Jim Rojas mentioned earlier, we always had difficulty projecting this because it's so event-driven. We have certainly benefited from some of the activity in the financial services industry and that has been probably the primary driver.

But I think we've done a pretty good job of spreading out our presence within telecom and in energy and a number of other segments and pharmaceuticals. So I think it still subject to the vagaries of the event-driven nature of this. I think we're pretty comfortable that our business on a go forward basis is not going to be dominated by any one particularly large project.

We have -- as I -- we started mentioning this probably mid-last year and it continues. And that is, there has not been a single project or a single client that has incredibly dominated this business for a while. And while some are obviously bigger than others, we feel very comfortable with the balance we have had and we expect that balance to continue into the future.

Okay. And then it looks like, just looking at the earnings results for the first quarter and the revenues in the quarter as well, it kind of looks like you are pointing more towards the midpoint of guidance. And I think you talked about sort of bonuses accruing on that pace as well. Is that fair at this point to think of it that way?

Yes, I think that is not unreasonable. Again, we feel comfortable with the guidance. I think the midpoint would be a natural conclusion to come to. But at this point we're -- given all the vagaries we have, ups and downs, we feel pretty comfortable with both the guidance we have set and the range and size of that guidance right now.

Okay. And then just lastly real quickly, any color you can give us on pricing or any changes in the pricing environment on any of your practices?

This is Jim Roth. The pricing pressure is -- remains there. We've seen that now for the better part of a year. I don't know that it is any worse than it has been. I'm not sure that I would say it's materially better right now.

So we really, in our projections, haven't really been looking for any dramatic increases in pricing. Occasionally we can get it and we're happy occasionally if we get more pressure and it comes in there. But at this stage we're really looking pretty neutral in terms of the growth rate for our billing rates on a go-forward basis.

All right. But that pricing pressure is across practices or is there any one worse or any one better? And is that due to competition?

No, I think they're all about the same. Every one of the practices obviously has different competitive environments, but in general I think they are -- we're pretty balanced and not looking for any material changes over what we have had really in 2010. You don't see anything getting better or worse.

Thanks.

And Joe, this is Jim Rojas. Actually I have just a couple of comments.

And one is, when you talk about pricing, and you saw it with our net fee per hour being down in Health and Education this quarter, so much of it is dependent upon contingent fees in terms of performance and delivery that it is really tough to guide as to what is actual pricing doing by looking at just our metrics, because a lot of it is contingent on how well our project teams perform for our clients. So that is one challenge in terms of just looking at rate and what is happening with rate.

The other thing I will say, I will just add a comment to what Jim had said about Financial Consulting. Since we don't give guidance by the segments, in 2009 (sic) in Financial Consulting was right around $70 million. And what we have said was that for the year it will be flat or slightly down, and so I still think we're seeing that is what the case is.

If you annualize out the $14 million, that is only $56 million. So I do think it is going to be better than the $14 million run rate. But I would not expect it to be much better than where we were at all last year.

All right, thank you.

Just to clarify, if I did say it, I meant 2010 on the $70 million. Just to clarify.

Paul Ginocchio, Deutsche Bank.

Thanks. Just on the utilization rate in Health Care, it looks like it's near all-time highs. Will you kind of keep that flat by adding headcount or do you plan to push that higher?

And then just on the IT investment in Health Care and Higher Ed, is that going to be uniform across the year? And what was it in the first quarter, again the specific $6 million on IT investment? Thanks.

I will take the utilization one, and then Jim, maybe you want to take the IT investment.

Paul, the utilization is pretty high and it is very hard to operate continuously in the 80s, at least at what we found. We typically had target in the low -- I'm sorry, in the mid-to upper 70s for that and I think that is where we would be more comfortable. Occasionally the peaks over 80 are manageable over a short-term, but not over a long-term.

So we've got pretty aggressive recruiting that is already underway. We've got fairly aggressive recruiting that we anticipate for the rest of the year. And our hope would be to get that down into a mid-to-upper 70s range for a period of time.

And, Jim, if I could follow up on that, how is the pipeline in the salaries of -- if it's -- for all that hiring, is there any issues? Particularly since you are saying bill rates are not going up, is there going to be a squeeze with salaries? Thanks.

No. They're pretty balanced right now. I think there is -- we have a -- we benefit from the fact that I think we have a very good, strong market presence in a lot of our businesses. And therefore it is very attractive to people that are coming in.

And it allows us to get some kind of balance and reasonableness in the kind of hiring and the -- I'm sorry, and the kind of salaries that we're offering. So we have an attractive Company that I think typically people would like to come to, so that has helped us get that kind of balance.

This is Jim Rojas. I will take the IT investment question. We're anticipating that that spend is pretty even throughout the four quarters this year. So there was no blip and we don't anticipate any blip in any one of the quarters.

Bill Sutherland, Boenning and Scattergood.

Thanks. Most my questions have been asked, but I wondered if on the tax rate, Jim Rojas, for the full-year any comment on that?

You know what, Bill, we're still anticipating to have a 44% effective tax rate for the year which was what our guidance was when we gave full-year guidance. We know that we had an uptick this quarter because of some of our foreign tax -- or foreign losses that weren't tax benefited. But we still anticipate to see the same rate that we had previously guided to.

Okay. And on the foreign losses, a little color on that if you would?

The foreign losses are primarily being generated in two places. One would be the Middle East and then the second place would be within the UK. Within the Middle East basically we are investing in the business there and growing it in terms of our global education and global health businesses.

And we know there is an investment we're making. But we do anticipate to see those losses turn around, which at some point will be a tax benefit for us because of the low tax rates that we have in those jurisdictions.

The other area where we are seeing the losses within the UK, and we have heavily invested in our Legal Consulting practice there over last year. We also opened and had a fantastic open house party at our new office space within the UK, which we have also added review space there for our E-Discovery business. So we have been heavily investing in that area as well for future growth.

So these are areas where we anticipate that these losses are going to turn around. And we're just temporarily seeing the impact of it right now.

Okay, great. One more for me, and that is on the -- when I look at the segment margins for the quarter, are they pretty much in the kind of range that you are expecting them to run for the rest of the year, Jim?

Yes, I would expect that they're all going to increase just because of the fact of how we talked about previously where our bonuses are. So I would say none are outliers right now in terms of significant improvement or significant changes. But I expect all of them to improve because of how we accrue bonuses.

And then with the more back ended sort of nature I guess of the contingent payments this year, that will be more than offsetting, I would suppose, any downtick in utilization that you may generate by hiring?

Absolutely.

Okay. And then just real quick, how many managing directors did you add in the quarter?

I believe we also -- one thing to recognize is, we also do promotions in the quarter. So I know we promoted six managing -- people from director to managing directors, and I believe we added four new managing directors in the quarter.

So we ended up with 127 at the end of the quarter -- 127 managing directors that were chargeable.

Great. Thank you all.

Tobey Sommer, SunTrust.

Thanks. Just had a kind of a big picture question. In the previous economic expansion, the big accounting firms were kind of retreating in general from various consulting spaces. And I'm wondering what you are feeling from them and seeing in the marketplace in terms of the traditional big accounting firms' presence in the market? Thanks.

This is Jim Roth. I think they are pretty aggressively going into the market in the consulting areas. We have seen this. We have heard it. I expect them to be increasingly aggressive, in some cases very aggressive at pursuing consulting work.

Are you noticing that on the hiring front, where people you are targeting are receiving multiple inquiries and/or offers from other firms including the big four?

I think there is probably still some inequities in the market for talent right now, where there is more people looking for work than there is, so I don't think we see is so much there. I don't think it has hurt us in terms of having to be ramping up our salaries to compete with the big four the way it was I forget how many -- five, six, seven years ago. But so -- we're not too worried about it from the recruiting side, but from a business side they are being very aggressive in some cases.

Thank you.

Tim McHugh, William Blair.

Yes, I was wondering if you could just talk a little more -- I know it is a small, but Calloway and what the trends were there that -- you said it was a little weaker than expected. I know the large government contract is the main piece of business there.

Jim, do you want to take that one?

Yes, I'll take that one. What we had mentioned previously in Q4 is that for the one large government contract that we had, that the client has changed the way that they utilize consultants. And we continue to see that evolve as time goes on.

And in the quarter we had less revenue than we had anticipated, but actually we've seen an uptick in activity there. And also we've seen an uptick in what we knew this practice needed to do is, by replacing that contract with other client work. And they've done a good job of that, and Jim mentioned that in his comments.

So, while we had a quarter that was softer than anticipated, we're anticipating increases in each of the next three quarters. So the outlook is getting better, but still not exactly where we want that business to be.

Okay, great. The last one on the Legal segment, especially the E-Discovery piece of it. It felt like on the last call that you were cautioning a little bit that the business was off to a little slower start at the start of the year that you saw in the last half. And yet the E-Discovery piece especially seemed to be very strong here.

So is it fair to assume you've seen a pickup lately? And does it feel like, while that business is lumpy, I guess has that trend continued here into the second quarter? And how you might have an outlook for the rest of the second quarter?

This is Jim Roth. Remember, we finished the last two quarters in 2010 were incredibly strong and we kind of provided guidance in February of this year that we said we didn't think it was going to be able to continue at that pace. In fact January of this year in that business was actually reasonably slow. Things then picked up pretty nicely in February and March and I think it kind of surprised us a little bit.

So I think we remain pretty comfortable with our growth rates for -- in terms of where we think that is going to be. We're still projecting flat to maybe 5% growth overall for the year in that segment, but that is coming again off of a pretty strong 2010.

Okay, great. Thanks. That's all for me.

You have no further questions at this time. Mr. Roth, I would like to turn the conference back over to you.

Thanks for taking time out this morning to discuss our first-quarter results. I want to close by thanking our employees whose focus, dedication and professionalism make Huron a very special place to work.

We look forward to speaking with you again in July when we announce our second-quarter results. Have a good day.

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