Huron Consulting Group Inc (HURN) 2011 Q2 法說會逐字稿

Good morning, ladies and gentlemen, and welcome to the Huron Consulting Group's webcast to discuss financial results for the second quarter 2011. (OPERATOR INSTRUCTIONS.) As a reminder, this conference 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 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 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 Mr. 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 Second Quarter 2011 Earnings Call. With me today are Jim Rojas, our Chief Operating Officer; Mark Hussey, our new Chief Financial Officer; and Patty Olsen, our Vice President of Human Resources.

Before I get to our second-quarter results, I would like to take -- I would like to welcome the newest member of our executive team. Mark Hussey joined us on Monday of last week as our new CFO, taking over for Jim Rojas who has been serving the dual role of COO and CFO for the last few months. Mark is an experienced CFO with a solid track record at public and private companies, and I know that his transition period will be quick and efficient. I look forward to his support and counsel and his becoming an integral member of Huron's leadership team.

I also want to thank Jim Rojas for his unrelenting support and leadership acting as the CFO over the past two years. Jim's steady hand, great business sense and deep financial experience have been invaluable during the last few weeks -- the last few years, and I look forward to working equally close with Jim in his new role as COO.

I will now turn to our second quarter performance and provide perspective on what is driving our demand for our services in the market. Jim will then walk you through the second quarter numbers and provide color around the key operating metrics. Mark will take over responsibility for discussing the financial performance when we issue our third quarter results.

Huron's strong performance in the second quarter resulted from continued strength in our largest practices -- Health Care, Education and Life Sciences and Legal Consulting. For the last two quarters, we have commented on what appeared to be increasingly solid market demand for our largest service offerings. Our second quarter results are a reflection of that strong demand and the market's recognition of Huron's ability to provide value. During the quarter, we saw a steady flow of new work, primarily a result of the tremendous changes taking place in our core markets. What comforts me the most about our position in Health, Education and Legal is that we are winning the types of projects that we want to win, particularly those that involve not just the operational and financial challenges for which we are so well-known, but also the strategic projects where we are asked to help our clients navigate through a very uncertain business environment. This is particularly true in Health and Education, where our clients' business models are evolving in ways that could not have been anticipated five years ago.

Turning now to the segments. Our Health and Education Consulting and Legal Consulting segments again had solid results for the second quarter, with both segments meeting our revenue expectations. Our Financial Consulting segment continued to perform lower than our expectations, but still reasonable in light of the ongoing challenges in the accounting advisory and restructuring and turn-around markets.

I will now provide color on each of our businesses.

Our Health and Education Consulting segment had revenues of $106 million for the second quarter, a record high for the segment, with each of the individual practices delivering strong performance. The results for our Health Care practice were driven by market conditions that have become increasingly challenging for hospitals. These challenges include declining hospital margins, reductions in Medicare and Medicaid reimbursement, and the need to anticipate how health care reform will impact the hospital market. While the evolving health care reform legislation remains cloudy at best, our clients are increasingly responding to aspects of the legislation that are most likely to take hold. Among the most significant factors are the need for more physician alignment and the need to reduce costs and improve clinical quality. The immediate priorities of our clients are addressing our cost and quality, services that are at the heart of Huron's Health Care service offering. We are also seeing many hospitals begin to focus on the structural aspects of pending reform, including aligning physician groups and integrating clinical operations. Collectively, these changes are resulting in many hospitals evaluating the historical hospital business model, and Huron is very well prepared to meet this emerging demand.

We mentioned in the first quarter that our Health Care practice had a large number of assessments underway. Many of those assessments have resulted in implementation work, the results of which began to become evident in the second quarter and will continue through the rest of the year. Equally encouraging, we continue to add new assessments into our pipeline, a factor that bodes well for the remainder of the year and into 2012.

Contingent fees in our Health Care practice also had a significant impact on our second quarter results. Whereas our first quarter contingent fees were slightly less than we had anticipated, they were slightly more than anticipated in the second quarter. We have come to expect these quarterly variances in contingent fees and, as we have indicated in the past and as we continue to reiterate, the timing and size of contingent fees are difficult to estimate with precision. At the beginning of the year, we provided our estimate of annual contingent fees, and we continue to encourage you to focus on our progress towards achieving the annual goal rather than focus on the quarterly amounts which can be somewhat unpredictable in size and timing. When we issued 2011 guidance, we estimated $80 million in contingent fees for the year, and we remain confident with that estimate.

The second quarter also saw continued activity among our academic medical center clients, many of which are challenged not only by the aforementioned issues facing most hospitals, but also additional difficulties attributable to the unique mission involving teaching, research and patient care. Academic medical centers provide a critical service to the nation and the regions in which they operate, but they also tend to be the high-cost producer in an environment where high cost is increasingly difficult to justify. Our practices in Health and Education are uniquely positioned to help academic medical centers, based on our strengths across the AMC core missions, including research and academics. The AMC market will remain a key strategic focus for our Health, Education and Life Sciences practices.

Our Higher Education and Life Sciences practices had another very strong quarter. Similar to the health care business, our higher education clients are facing difficult financial challenges, reacting to the need to closely examine operations and strategy at their institutions. The drivers are decreased public support, flat-to-declining research funding, and limitations in the ability to increase tuition. The nature of our work in the Higher Education practice has also evolved to include many strategic projects aimed at helping our clients get positioned for a dramatically different future operating environment.

Our Life Sciences practice also contributed to a very solid quarter. In part from health care reform, in part from a more stringent compliance environment, our pharmaceutical and medical device clients are facing increased challenges across many fronts, particularly with government pricing and compliance matters. The Life Sciences practice has grown steadily over the past year, and we are confident that this practice will continue to grow consistent with the increasing needs of the life sciences organizations that it serves.

I am very excited about how the practices within the Health and Education segment are collaborating as they go to market. Huron's ability to deliver experienced personnel across the clinical, research, academic and life sciences arenas -- many of which are collectively present in our core markets -- creates a significant competitive advantage for Huron. Across Life Sciences, Education and Health Care, we continue to aggressively recruit to address our anticipated growth for each of these practices.

Switching now to Legal Consulting, this segment had another solid quarter. Despite our initial concerns over this segment's ability to match the strong results in the last half of 2010, we have been pleasantly surprised by the continued demand for our services, particularly in the electronic discovery part of our business. The transaction-based nature of the work in e-discovery makes demand hard to predict. However, we had a few sizeable projects continue throughout the second quarter and we had some new work ramp up quickly, all of which contributed to a solid second quarter. The only disappointment in legal consulting was our Advisory Services work, which fell short of our expectations. We are continuing to evaluate how best to improve the financial performance of this business over the course of the year.

Finally, our Financial Consulting segment was the most challenged among our three segments. We had predicted flat performance for 2011 as compared to 2010 for this segment. Our restructuring and turn-around practice didn't see a material drop-off that some of our competitors experienced, but our revenue did decline for the quarter. The economy remains unsettled and we expect that the last half of the year will improve slightly as compared to the first half for this practice.

Accounting Advisory, which accounts for the remainder of the Financial Consulting segment, had the weakest performance among our practices. We made some head count adjustments in this practice during the second quarter, and while a majority of the costs in this practice are variable, the reduction in head count helped mitigate the margin shortfall.

Looking out toward the remainder of the year, we have increased confidence in our ability to land toward the higher end of our initial 2011 revenue guidance, so we have narrowed the range of our original guidance to $600 million to $620 million. The market trends and our level of activity remain strong, especially within our two largest segments, which together account for over 90% of our revenue. While some uncertainties remain, we are well-positioned in our key markets and we are 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 second quarter results.

Thank you, Jim. Good morning, everyone.

As I have done the last several quarters, I'd like to start with a few housekeeping items. 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 a settlement agreement with the lead plaintiffs in the securities class action lawsuit related to the restatement. During the second quarter of 2011, we received final court approval on the settlement and the case was terminated on May 6. As a result of the settlement, we recorded a cumulative non-cash pre-tax charge of $13.6 million, $500,000 of which was recognized in the second quarter of 2011. More details pertaining to the settlement can be found in our 10-Q which will be filed later today.

In addition, during the second quarter, we recorded a pre-tax restructuring charge of $500,000, primarily consisting of severance expense associated with shutting down part of our global business based on market demand in the region.

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 second quarter of 2011 were $159 million, a 17% increase above the $136 million in the same quarter of last year, an 11% sequential increase over the first quarter.

EBITDA for the second quarter of 2011 was $28.6 million, an 87% increase compared to the $15.3 million a year ago.

Adjusted EBITDA came in 33% higher at $31.3 million in Q2 of 2011, or 20% of revenues, compared to $23.6 million in Q2 of last year, or 17% of revenues. Adjusted EBITDA excludes a number of items which are listed in our press release.

On a sequential basis, adjusted EBITDA increased 59% over Q1 while adjusted EBITDA margin increased 590 basis points. Our margin in Q1 was impacted by our bonus accrual which is based on our forecast for the entire year and not just the results of any one quarter. Since our revenues improved sequentially, we also saw our profitability improve.

Operating income was $22.8 million, or 14% of revenues, in Q2 2011, an increase of 139% compared to $9.6 million, or 7% of revenues in Q2 2010. Net income from continuing operations was $9.5 million, or $0.44 per diluted share, in the second quarter of 2011, compared to $3.5 million, or $0.17 per diluted share, in the same period of 2010.

On an adjusted basis, non-GAAP net income from continuing operations increased 28% to $12.4 million, or $0.58 per diluted share, in the second quarter of 2011, from $9.7 million, or $0.47 per diluted share, in the same period of 2010.

Our effective income tax rate increased to 50.8% in the second quarter of 2011 from 36.6% 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 an increase to the valuation allowance. The lower tax rate in the second quarter of last year was primarily attributable to a true-up of certain accruals and deferred tax liabilities.

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

The Health and Education Consulting segment generated 67% of total company revenues during the second quarter of 2011. This segment posted record quarterly revenues of $106 million for the second quarter of this year, 26% higher than the $84 million for the second quarter of 2010 and 16% higher than the $91 million for the first quarter of 2011. The strong performance this quarter was attributable to higher performance-based fees which totaled $33.7 million for the quarter compared to $16.7 million in Q2 of 2010 and $13.8 million in the first quarter of 2011.

The operating income margin for Health and Education Consulting increased to 36% for Q2 2011 from 34% for the comparable quarter in 2010. Margins in Q2 of 2011 reflect lower payroll cost as a percentage of revenues, partially offset by slightly higher SG&A expense related to training and business development.

Our Legal Consulting segment generated 25% of total company revenues during the second quarter of 2011. This segment posted revenues of $40 million in the second quarter of 2011, up 18% from $34 million in the comparable quarter in 2010. This growth was primarily driven by our electronic discovery practice, where we saw a continuation of the strong performance experienced in Q1.

The operating margin for our Legal Consulting segment came in at 24% compared to 27% in last year's second quarter. Margins were lower this year due to higher contractor costs in our electronic discovery practice, coupled with softness in our advisory business. While we did see a slight revenue pick-up on a sequential basis, the margin in our advisory business continues to be depressed due to lower utilization of our billable consultants.

During the second quarter of 2011, our Financial Consulting segment generated 8% of total company revenues. This segment posted revenues of $13 million in Q2 of 2011, compared to $18 million in the same quarter of last year. Revenues in our Accounting Advisory practice were down, as Jim has already mentioned.

The operating income margin for Financial Consulting declined to 19% in Q2 of 2011 from 28% in the same quarter of 2010, primarily due to higher severance and contractor costs.

So to recap our segments' results in the quarter, our Health and Education Consulting segment had a strong quarter with increases in revenue quarter over quarter as well as sequentially. Our electronic discovery business within our Legal Consulting segment had performed stronger than expected during the first half of this year. However, as we've said before, this business is event-driven and sometimes difficult to predict, and we still have work to do on the advisory side of this business as well. Our Financial Consulting segment continued to show weakness within the Accounting Advisory side of the business where we have not replaced the lost revenue from our work with a large government agency.

Now turning to the balance sheet and cash flows. DSO for the second quarter came in at 59 days and cash flows from operations were $35 million. We expect our cash flows from operations to continue to improve as the year progresses.

Our full-year guidance, which Jim has 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 before reimbursable expenses in a range of $600 million to $620 million. We still anticipate that our performance-based 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 confident with our ability to hit our estimate. We expect adjusted EBITDA in a range of $105.5 million to $111.5 million. Finally, we are anticipating adjusted non-GAAP income in the range of $44 million to $47 million, and between $2.05 and $2.20 in adjusted non-GAAP earnings per share. You will note that at the high end of the range, earnings per share is $0.10 better than our original guidance. This is due to lower interest expense resulting from our recent refinancing, as well as lower estimated share counts for the year as we continue to refine our assumptions. Weighted average diluted shares for 2011 are estimated to be approximately 21.5 million. Our guidance on effective tax rate has not changed since our last call, which was 45% for the full year.

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

(OPERATOR INSTRUCTIONS.) And your first question comes from Tim McHugh of William Blair. Please proceed.

Hi. Thank you. I actually have a brother Jim, so that works out alright. First wanted to ask just -- Jim, I apologize -- I missed the first few -- Jim Roth -- the first few minutes of your comments, but I wanted to ask a high-level picture. Obviously the success fees were great, but the utilization ticked down. I guess from a high level, in late 2009, you saw great success fees as engagements ended and then it took a little while to restaff. Is there anything to read in that trend or -- I guess basically underlying that is -- does the pace of new engagements and kind of the underlying engagement activity for that health care business remain as strong as you might have thought a quarter or two ago?

Tim, it's Jim. Yes, it remains very strong. We're very comfortable with where we are in the market. We're very comfortable with the trends that we're seeing there. I wouldn't -- as we kind of indicate on the contingent fee pieces, they're obviously -- the contingent fees themselves are going to ebb and flow, but I think maybe it helps to explain a little bit kind of why the contingent fees come up in the first place. They're actually -- we've got a steady flow of work coming through that remains strong. We've got a lot of assessments come through the pipeline. The contingent fees on a quarterly basis really are a reflection of which clients are active during the quarter, the composition of the pricing for those clients -- how much of it's fixed fee versus contingent fee, because that too can vary, and then also where are the projects that are active in the quarter -- where they stand in their respective life cycle. So all of those factors -- and, of course, our performance on each of those. So all those factors have an impact on how much contingent fee we would get in any particular quarter. So we look very carefully at the -- kind of the flow of new assessments coming in. They remain very strong. We look at the results that we're getting on the individual projects. They, too, have been going very well. And collectively, it just gives us a strong degree of comfort that we're in a good spot within the Health Care practice right now. Does that answer your question?

Yes, especially the assessments part. And then, I guess you had talked about a record number of assessments on the last call, and I guess it sounds like that continues. I guess the follow-up would be how -- any change in how those assessments are converting into new engagement starts or the pace or how quickly they convert?

The pace of converting to assessments it just as we've always expected -- very strong -- and I think the number of assessments entering our pipeline remains very strong as well.

Okay. And then just one last question. You've talked about the growth of the Life Sciences practice. Can you give us a sense how big is that as a part of the Health and Education business today?

Yes. I think it's -- I don't know that we typically break that down, Tim. It's becoming an increasingly meaningful part of the Higher Education and Life Sciences part. It's been growing steadily, I think, really across the pharmaceutical and med device manufacturer markets. I think we've been really pleased with the way that's been going. There's -- the growth is really stemming from the fact that there's a strong focus on regulatory issues for that part of the market. There's also a lot of focus right now on transparency with health care professionals, and a lot of that's what's driving it. I think the -- we have a practice on Higher Ed and Life Sciences and they kind of work together for a lot of reasons because we have a lot of the clinical and research issues overlap among those two practice areas. But it's a good and growing piece of the business. The Higher Education piece is growing very nicely as well, as we indicated in the opening comments, and I think that part of the segment's doing very well.

Okay. And then can I slip one more in there? Just the contingent fees at $80 million for the year -- it'll assume a much lower than the second quarter, obviously, pace of contingencies. Was the second quarter the opposite of the first quarter? Were some fees pulled in from Q3? I know some fees were pushed out from Q1 into Q2. Was -- at the end of the quarter, did you get more fees than expected or are you just trying to be conservative with the second half of the year as well?

Tim, this is Jim Rojas. I at first thought you were changing your name to Jim to be like me and Jim, but I guess that was just the operator. You know what? As Jim had said on his comments, the timing of these are uncertain and I actually think we went through an example last time of -- that it's sometimes not even dependent on the performance; it's when boards meet. So fees sometimes end up in one quarter or the next quarter, and the thing that we're trying to do is to not get into a situation where we're always explaining the timing of one or two different engagements, because that's going to happen every quarter. Jim mentioned in his comments, our first quarter was slightly less than we thought and this one was slightly more, but if you look at that, the two quarters combined were close to $46 million. I wouldn't say that we think that the pace is slowing down. It's really just a reflection of when certain engagements are at the end of their life cycle. And I think with your initial question, you really got to the heart of it. Are we replacing those faster than we replaced them in 2009? And the marketplace is very different now than it was at that time -- the uncertainty of what was going to happen with health care reform. We don't have those issues and we continue to be replacing those. And I think that's the most important thing to focus on.

Okay. Thank you very much.

And your next question comes from Dan Leben of R.W. Baird. Please proceed.

Not asking directly about success fees, but if we just exclude those from the Health and Education practice in the last couple quarters, the performance was down slightly sequentially. Is that just a situation where engagements are wrapping up and that's why you had the success fees or were there some other factors behind that that impacted the quarter?

Dan, I think -- this is Jim Roth -- I'll kind of go back to my comments here, that on a quarter-by-quarter basis, there are going to be these anomalies of how much of the contingent fees come in, the size of them, the timing of them, and as I said, even where an individual job is in the life cycle. So all those factors take into it. I don't think on a quarterly basis you can really look at the contingent and the non-contingent revenues separately and look at them and see if there's any trends coming through it because there's so many other factors that impact it. What we're trying to get everybody to focus on is, I think, number one, the number -- the strength of the marketplace, the strength of the assessments that are coming in, our ability to convert those, and that's really what we're looking at right now when we're managing the business and trying to project what's going to happen in the future. And I think we think all of those point to a very positive future. But I think the anomalies of quarterly trends for contingent and non-contingent revenues in this business really are very hard to look at individually.

Okay. And then on the Education practice, I know you have a practice in the Middle East. Have you -- how's the performance been in that business, given all that's going on over there so far this year?

It's been weaker than we'd like to see, Dan. We had a couple projects that didn't materialize because of challenges in individual countries. There's probably been -- there has been some -- just the normal disruptions you'd expect whenever you have all these national type of issues impacting the country. Having said that, we continue to believe it's an important part of what we're doing in our business. We scaled back a little bit in part of it in response to some of the uncertainties there, but our core businesses there I think will certainly be something that we're focusing on, but in the interim time, we're going to kind of be cautious about making investments in that market until we kind of see how things are going to be going. There are a decent number of open proposals out there. We have ongoing work. So all that continues. But as you would expect, we're being cautious in terms of how we view the ongoing events there.

Okay. Great. And then last one for me. Just could you talk a little bit about the hiring and retention environment within the Health Care practice because I know it's an area that a lot of the Big 4 have talked about moving into?

You know what, Dan? This is Jim Rojas. And as we've talked about before, we've been aggressively hiring people at all levels across our Health Care practice and we've seen a good flow of candidates that we've brought in. If you -- one of the things that you'll see when you look at our average number of people -- not just quarter-end -- but we had a lot of people join us at the end of Q1 last quarter. We've had more people join us going -- during the second quarter, and we're going to continue to aggressively recruit. In terms of retention, our retention numbers are slightly better than they were last year, which we commented on that we still think that we're best in class in terms of retaining people. So -- and numbers are improving. So overall, we think it's a good story, not just for the Health and Education Consulting segment, but really across all of our businesses.

Great. Thanks, guys.

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

Thanks. I had kind of a follow-up question on the hiring side. Do you expect to see a little uptick here as we -- as you bring on brand new graduates in kind of the lower echelon in terms of experience?

This is Jim Roth, Tobey. I'm not sure that it's going to be so much seasonal. We've had aggressive hiring plans across most of our business that really continued to start at the beginning of the year, where it's a mix of experienced and lesser experienced people that we're bringing on, which is kind of consistent with our typical model. So I'm not sure that it's going to be so much seasonal as much as it is we do expect there to be a pick-up in recruitment during the last half of the year.

Okay. And I had a question about Legal. In terms of your revenue mix in growth, what proportion is now being derived from those kind of master service-type agreements with large corporations versus kind of more one-off event-type business?

The success and the growth that we've had within our Huron Legal Group has really stemmed from, like you said, Tobey, going after large corporate clients and continuing to do that. It's always tough to look at percentages because if you get one job that was law firm-generated that has decent amount of revenues, that could throw off a percentage. What I would say is more important is the continuing of the strategy, of really developing those corporate relationships, and we really see that that's coming to fruition and really driving not only revenues in terms of our electronic discovery, but also in our advisory business. And we find that when we're serving clients from both services -- doing both services and advisory -- that we create more revenues. And that's all going through the General Counsel's office in corporations and not really event-driven. Do we still go after those event-driven projects? Absolutely, because they can be good because they tend to be larger in nature, but really we're going to continue in focusing longer term in growth on our General Counsel strategy.

One follow-up on that and then I'll get back in the queue. Do you plan additional investments and do you need more capacity to satisfy your growth trajectory in Huron Legal, or will you plan to use alternative means or outsource to get that capacity to satisfy the demand?

Two comments to that. One is, as you know, we do outsource all of our labor in terms of our electronic discovery on the review side of the business, so we can ramp up and ramp down very quickly. It's really space that becomes a question in terms of added capacity. And one thing that I will mention is that we did open a review center in the UK early this quarter in April, and while it's a small number of seats and addition to our capacity, we're basically full-out and full there through September or October of this year in terms of sold engagements. So it's proven just the strategy of expanding geographically is working here in this business. So will we add more capacity? I think we'll be careful to do that, just because we want to make sure that we're doing it in the right places at the right cost level in terms of what our contract attorneys cost, but if we see the demand continuing as it is, we will always look to add capacity.

Thank you.

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

Thanks. Just a question about the IT cost -- the $6 million of investment this year. Is that -- are you still on track to spend that and will there be any flow-through to fiscal '12? And then just sort of to go back to margin guidance. It looks like you're implying margins are going to be actually down year on year in the second half, even at the very highest end of your guidance range. Is that just conservatism around the contingent fees or is there something else? Thanks.

Paul, this is Jim. I'll take the second question first. In terms of our margin percentage, it's really what we're getting impacted is by mix, and we did mention that within Huron Legal, the advisory side of our business, you'll see that our utilization was about flat sequentially, and it's really just that mix in terms of the growth in the electronic discovery business does have an impact in terms of margin. So that's playing into what we're seeing overall for the company. I will say then on the technology investment that we're on track and that we're accomplishing what we need to in the way that we thought that the cost would play out as well.

So no flow into -- no likely flow into '12?

Yes, we do have -- we normally make -- not normally -- through the normal course of business, we're always making investments in our technology. We really called this out as something that was incremental, and we feel like most of, if not all of, the incremental spend will be in 2011.

Great. And maybe if I could just sneak one more in. If you look at your Health Care and Education between Life Sciences, Higher Ed and Health Care, are the growth rates around the same or is Health Care growing the fastest right now?

I think they're about the same. Quarter to quarter, there's going to be minor differences, but I think they're -- we've had good solid growth across all three of those components, and I think they're all really very relevant to the market. The markets that they're working in are all going through major change and I think we'll -- we hope to see the continued growth in those markets -- in those practices. But they're all very healthy growth rates right now.

Thanks very much.

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

Hi, all. Good morning. This is Ryan Davis filling in for Scott here. I just had a quick question on velocity and kind of what you're seeing from the competitive environment there. Is there any disruption as a result of new entrants to that space?

Yes. I think -- Ryan, it remains a -- this is Jim Roth. It remains a fairly competitive environment. We feel that we've been winning our fair share of the efforts. I think as Jim indicated a second ago, the master service agreements that we have with the large corporations really has been a very successful strategy for us, and at a minimum, it gives us kind of an easier path towards it. When something comes up typically at one of these corporations, it can sometimes come up quickly, and as a result, you want to be positioned to get it well, and our -- I think the fact that we can get an MSA, the fact that we've got a good track record, the fact that we have capacity -- all those things bode well, and those are things that, even though it's a very competitive marketplace, I think those attributes help us have a little bit of a competitive advantage. And we've seen that play out as certain events take place -- some of which are public, some of which are not -- but we get more than our share of those, and I think we feel very good about our competitive position there.

Okay. That's all I have for you guys. Congrats on the quarter. Thanks.

Thank you.

And your next question comes from Jim Foresi of Montgomery Scott. Please proceed.

Hi. Good morning. This is Jeff Rossetti in for Joe. I apologize if I missed this, but could you maybe talk about your expectations on the bill rate side and how much success fees played into the bill rate for this quarter?

I would say that our guidance for the rest of the year in terms of bill rates are basically flat. We had that as our assumption going into the year and we're staying the same with our estimate. And then the other question was how does the contingencies impact our bill rates? As you'll see from looking at the quarter, and specifically at Health, I believe that the bill rates were up about $50 to $60 an hour, and that was attributable primarily to the contingent fees.

Okay. Thank you. And just on the Financial Consulting side, I just wanted to see the exposure to the governments on that and maybe your large clients within that sector -- how that's been tracking?

Well, the -- it's -- on the Financial Consulting side, it has no impact on the restructuring and turn-around piece of it. On the Accounting Advisory piece, we've had a -- we have had a large government agency that had been a larger component of that practice's revenue in the past. That's been declining for some period of time and continues to decline. We've been able to replace some of that revenue with other engagements -- some in the government, some not -- but, as we indicated, we still have had some disappointing results in that practice as revenue continues to fall short. So we've not been as successful at replacing the large client as we had wanted. The mitigating factor for that business, however, is that a good portion of our costs, in fact, are variable, and so when we do have declining revenues, it doesn't have the same impact on margins that it would in another practice where there's mostly fixed costs. So we're still looking very hard. There remains a lot of opportunities within some of the government agencies on a variety of issues they're looking at right now, and we're aggressively going after those.

This is Jim Rojas. I just wanted to clarify what my comment was. Bill rates were up $30 -- I'd say exactly $29 an hour. If you would take the contingencies out -- which, for all the reasons that Jim had mentioned previously, that we don't think that that's the right analysis to do -- but the impact was $59 per hour of the contingency. So that's where my $59 was coming from. But overall, the rates increased $29 year over year.

Your next question comes from Randall Reese of Avondale. Please proceed.

I have no question. Thanks.

(OPERATOR INSTRUCTIONS.) Your next question comes from Tim McHugh with William Blair, and it is a follow-up question. Please proceed.

Thanks. I just wanted to ask two quick follow-ups. One, you mentioned turnover was down year over year. Can you give us what the number was?

Tim, for the first -- if you look at it just for -- if you look at the first half of the year, which I think is probably the most relevant item -- you would see that the first 6 months of last year was 9.6% turnover, and then the first half of this year was 9.3%. So I said slightly down, and that's where the numbers are playing out. You can't -- but one thing I want to be careful about is you can't annualize that number because second quarter tends to be the quarter with the highest turnover for most companies because of when bonuses are paid.

What was the full year? Do you know what the full year last year was?

Yes. Full year last year was right around 15%.

Okay. And my other quick follow-up was -- I apologize if I missed this -- but I think on some of the past calls, you've given -- or you've broken down your revenue guidance or expectations into some rough expectations for each of the segments. I don't know if you provided that -- an update to that going forward from here?

The one item that I would update is that in the past we've said that Financial Consulting would be flat. We don't think that that's a realistic expectation based on the first 6 months of this year, that that segment will be down. Exactly how much, it's probably -- what I would say is that what we've seen from the first two quarters in terms of revenue that you could probably annualize that number with a slight increase (inaudible).

And so that's offset by increases to the other two?

Absolutely. And that's why we've narrowed our guidance range to the high side.

Okay.

And with no further questions in the queue, I would like to turn the call back over to Jim Roth for closing remarks.

Thanks for taking time out this morning to discuss our second quarter results. We are obviously very pleased with our financial performance during the first half of the year, and all of the credit is due to the tremendous talent that resides within our employee base. We look forward to speaking with you again in November when we announce our third quarter results. Good day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect and have a great day.