Huron Consulting Group Inc (HURN) 2011 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 2011. At this time, all conference call lines are in a listen-only mode. Later we will conduct our question-and-answer session for conference call participants and instructions will follow at that time. As a reminder, this conference call is being recorded.

Before we begin, I would like to point 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 the 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 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 third quarter 2011 earnings call. With me today are Jim Rojas, our Chief Operating Officer; Mark Hussey, our Chief Financial Officer; and Patty Olsen on the phone, our Corporate Vice President of Human Resources.

We are pleased to announce another solid quarter for the company. Revenues in the third quarter of 2011 for our two largest segments, Health & Education and Legal Consulting, which comprise 92% of our revenues, increased more than 15% compared to third quarter 2010. We are pleased with these results given the challenges in the economy today and the complex environment faced by our clients.

I will start by discussing our third quarter performance and provide some perspective on the drivers of the demand for our services in each of the three segments. Mark Hussey will then walk you through the third quarter numbers and provide color around the key operating metrics.

Let me start first with the Health & Education Consulting segment. Our Health & Education Consulting segment had revenues of $103 million for the third quarter. The results for our Huron Healthcare practice, which comprises about 70% of this segment, were driven by increasingly difficult market conditions for our hospital clients. During the past several months, we have spent considerable time talking face-to-face with senior leadership at many hospitals and academic medical centers across the country. There is no better way to gauge the demand for healthcare services then to spend time with management who are responsible for leading major healthcare institutions. The responses we heard from these discussions were consistent and they focused primarily on the issues that we have been describing over the past year -- ongoing uncertainties around healthcare reform; reimbursement pressures for Medicare and Medicaid patients; and the need to align physicians to accommodate the transition away from fee-for-service pricing toward value-based pricing.

During the past several quarters, we have seen a significant ramp-up in client demand for evaluating hospital strategies. However, there is no question that a bulk of the challenge and for us a bulk of the work is focused on the operational aspects associated with implementing these strategies. While the appropriate strategy for each client varies depending on the vagaries of their own competitive landscape, the primary focus for each hospital is on improving the quality of healthcare, reducing costs and improving the revenue cycle. These challenges are driving the healthcare consulting market today and our core service offerings are uniquely positioned to address these challenges for our clients. We take great comfort that the depth of our strategic and operational capabilities across the provider and academic medical center spectrum help to differentiate our services from those of many of our competitors.

Our Huron Education & Life Sciences practices had another solid quarter. Similar to the healthcare business, our higher education clients are facing difficult financial challenges, reacting to the need to closely examine operations and strategies at their institutions. The drivers are decreased public support, flat-to-declining research funding, declining gifts, and limitations on the ability to increase tuition. The nature of our work in the Higher Education practice has evolved to include many strategic projects aimed at helping our clients get positioned for a dramatically different future operating environment. There are changes taking place on a real time basis in the higher education market that will impact the strategy and delivery model for many universities. The depth of our relationships and the extent of our experience help us to be at the forefront of this change.

Our Life Sciences practice also contributed to a solid quarter. The pharmaceutical and medical device clients are facing some of the same uncertainties involving healthcare reform and the companies in this market are faced with increased regulatory and pricing scrutiny. This part of our practice has been strong throughout the year and we expect that trend to continue for the foreseeable future. We are aggressively recruiting throughout the Health & Education Consulting segment as we prepare for our expectations of solid demand in the coming quarters.

Our Legal Consulting segment had its best revenue quarter since inception of this company. E-discovery continues to be the primary driver of the results in the segment. During the third quarter, we saw the continuation and expansion of some sizable projects in the financial services industry and the beginning of some new and complex projects in the energy and technology industries.

I am pleased that our strategy of creating long-term relationships with the general counsels' office is increasingly leading to moving this business away from being transaction- or event-focused to one that is based on providing a growing set of services to a global corporate client base. Our expanding global presence including our recently Open Document Review Center in the UK and upcoming center in India, will make it easier for our target markets to rely on Huron for their e-discovery and advisory needs throughout the world. We took some actions during the third quarter to address the profitability of the advisory services practice within Legal Consulting. Those actions coupled with increased demand contributed to improved revenue and margins in this business.

Finally, our Financial Consulting segment was the most challenged among our three segments. Margins in our Restructuring & Turnaround practice are slightly down, but there are some recent signs that revenue growth is achievable in the future. With a tenuous economy, we are hopeful that this business will see increased demand for our Restructuring & Turnaround services as certain sectors of the economy continue to struggle.

As we will discuss in our 10-Q when it is filed this afternoon, we are announcing our intention to sell the Accounting Advisory business to a group that includes the current leader of that practice. This practice was acquired in 2007 and while it contributed strongly during that year as the market for the services in this area have declined since then so has the performance of this business. We took a $23.9 million non-cash pretax goodwill impairment charge in the third quarter, which reflects the declining revenues of this business.

Looking out toward the remainder of the year, we have increased confidence in our ability to land toward the higher end of our 2011 revenue guidance. Accordingly, we have narrowed the range and slightly increased the top end of the guidance. Our current guidance for full year revenue is $615 million to $625 million, including the results of the Accounting Advisory practice. On a continuing operations basis, which excludes the $25 million in annual guidance that we had projected for Accounting Advisory, our new revised revenue guidance is $590 million to $600 million.

The marketplace trends and our level of activity remained strong, especially within our two largest segments, Health and Education Consulting and Legal Consulting. 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.

We will be providing 2012 guidance when we release fourth quarter earnings in February. At this stage, we anticipate that market conditions will remain conducive to supporting continued growth in revenue and earnings throughout the coming year.

Now, let me turn it over Mark to discuss our third-quarter results.

Thank you, Jim, and good morning, everyone. I will begin by discussing a few housekeeping items. Consistent with previous quarters, I will be discussing our financial results, primarily in the context of continuing operations.

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, each have reconciliations of these non-GAAP measures to the most comparable GAAP measures, as well as a discussion why management uses these non-GAAP measures.

Before I walk you through some key financial results for the quarter, I want to highlight a couple items from our earning release. As additional background on the goodwill impairment charge, during the third quarter of 2011 in connection with our quarterly forecasting cycle, we updated the forecasted results of operations for each of our segments based on their most recent financial results and best estimates of future operations.

The updated forecast did not result in the anticipated improvement in revenues with the Accounting Advisory practice, primarily due to the inability to generate new revenues to replace decreasing revenues from one significant customer.

We also noted in the news release that we entered into a definitive agreement to sell our Accounting Advisory practice, which represents about 44% of the year-to-date Q3 2011 revenues of the Financial Consulting segment and approximately 23% of the year-to-date 2011 operating income of this segment. The transaction is subject to certain customary closing conditions and is expected to close prior to the end of the year. More details will be included in our 10-Q.

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

Revenues for the third quarter of 2011 were $159 million, a 9% increase above $145 million in the same quarter of last year. EBITDA for the third quarter of 2011, which includes the impact of the $23.9 million goodwill impairment charge, was $8.6 million compared to $30.1 million a year ago.

Adjusted EBITDA increased 7% to $33.8 million in Q3 2011 or 21% of revenues, compared to $31.5 million in Q3 2011 or 22% of revenues. Adjusted EBITDA excludes a number of items which are listed in our press release, including the goodwill impairment charge.

Operating income was $2.2 million or 1% of revenues in Q3 2011 includes the impact of the goodwill impairment charge, compared to $24.6 million or 17% of revenues in Q3 2010.

Net income from continuing operations was $0.2 million or breakeven per diluted share in the third quarter of 2011 compared to $11.1 million or $0.53 per diluted share in the same period of 2010. Again, Q3 2011 EPS includes the goodwill impairment charge, which is $0.65 per diluted share.

On an adjusted basis, non-GAAP net income from continuing operations increased 27% to $16.5 million or $0.75 per diluted share in the third quarter of 2011, compared to $13.0 million or $0.62 per share in the same period of 2010.

For the third quarter of 2011, we recognized an income tax benefit of $1.2 million on loss from continuing operations of $1.1 million, resulting in an effective tax benefit rate of 114%. This rate is higher than the statutory rate, primarily due to the impact of certain credits and deductions recorded based on updated information obtained in the quarter, partially offset by the impact of foreign losses with no tax benefit.

For the third quarter of 2010, we recognized income tax expense of $9.8 million on income from continuing operations of $20.9, resulting in a tax rate of 47%.

Now let's look at how each of our business segments did in the quarter. The Health & Education Consulting segment generated 65% of total company revenues during the third quarter of 2011. This segment posted quarterly revenues of $103 million for the third quarter of this year, 16% higher than the $89 million recorded for the third quarter of 2010.

The strong performance this quarter reflected an increase in overall demand for the segment services and a higher number of full time billable consultants, which averaged over 1,000 during the third quarter of 2011, compared to about 840 in the same period last year. Higher contingent fees, which totaled $28.9 million for the quarter, also contributed to this quarter's strong performance. This compares to contingent fees of $16 million in Q3 of 2010 and $33.7 million in the second quarter of 2011. I am certain there will be some questions around contingent fees so let me comment on that now.

When we issued 2011 guidance, we estimated $80 million in contingent fees for the year. On a year-to-date basis, contingent fees are $76 million, which is higher than anticipated. We are revising our performance-based fee estimates for the full year to approximately $100 million.

I want to remind you that contingent fees are factored into most of our healthcare engagements in a range depending on the risk tolerance and preferences of the client. Contingent fees are an integral part of the normal ongoing pricing and margin structure of the healthcare practice. I also want to reiterate the inherent difficulty in estimating the timing and magnitude of contingent fees on a quarterly basis. We have been concerned that an overemphasis on contingent fees detracts attention in the fundamental performance on Huron Healthcare, which continues to perform very well.

The operating income margin for the Health & Education Consulting segment came in at 35% for Q3 2011, compared to 36% for the comparable quarter in 2010. Margins in Q3 2011 reflect an increase in salaries and related expenses of our revenue generating and support personnel as a percentage of revenues, partially offset by a decline in contractor expense.

Our Legal Consulting segment generated 27% of total company revenues during the third quarter of 2011. This segment posted record quarterly revenues of $44 million in the third quarter of 2011, up 15% from $38 million in the comparable quarter in 2010 and up 9% from $40 million in Q2 2011. This growth was primarily driven by our Electronic Discovery business where we saw a continuation of the solid performance experienced in the past three quarters.

The operating income margin for our Legal Consulting segment came in at 29%, compared to 31% in last year's third quarter. Margins were lower this year due to higher contractor costs in Electronic Discovery business coupled with continued softness in our Advisory business. On a sequential basis, Advisory revenues increased almost 10% and utilization of our full time billable consultants improved compared to Q2 2011. Compared to the third quarter of 2010, lower utilization levels placed pressure on our margins in Q3 2011.

During the third quarter of 2011, our Financial Consulting segment generated 8% of total company revenues. This segment posted revenues of $12 million in Q3 2011, compared to $19 million in the same quarter of last year. Revenues in our Accounting Advisory practice continue to decline. And as we've already mentioned, we expect to close on the sale of this business by the end of 2011.

The operating income margin for Financial Consulting declined to 22% in Q3 2011 from 31% in the same quarter of 2010, primarily due to higher direct costs and SG&A as a percentage of revenues.

So to recap our segments' results in the quarter, our Health & Education Consulting segment had a strong quarter with an increase in revenues year-over-year. Our Electronic Discovery business within our Legal Consulting segment continues to perform well. However, as we've said before, this business is event-driven and sometimes difficult to predict. I'd also like to note that we are making good progress in improving the performance on the advisory side of the business. Our Financial Consulting segment showed weakness within the Accounting Advisory side of the business as we've already discussed while our Restructuring & Turnaround practice is holding relatively steady on a sequential basis.

Briefly I would like to provide a few highlights from the balance sheet and cash flow statement. DSO for the third quarter came in at 70 days and cash flows from operations were $23 million. Total debt as of September 30 was $234 million, a $20 million decline compared to total debt as of June 30. We expect our cash flows from operations to continue to improve in the fourth quarter.

Our full year guidance revenue range, as Jim mentioned in his opening remarks, has been narrowed and increased on a continuing operations basis. Our guidance range as of the end of the June quarter was revenue in the range of $600 million to $620 million. We are narrowing and increasing the range to $615 million to $625 million before adjusting for the divestiture of the Accounting Advisory practice. Anticipated results for the Accounting Advisory practice would have been approximately $25 million for the year and will be reclassified to discontinued operations following the expected closing of the transaction in the fourth quarter.

Since we have not reclassified the Accounting Advisory practice to discontinued operations as of the third quarter, we have provided some indication of the revenue and operating income contribution to the segment in our 10-Q filing. In summary, on a year-to-date Q3 2011 basis, the Accounting Advisory practice represents approximately 44% of Financial Consulting segment revenue and 23% of operating income.

On a continuing basis, we expect revenues before reimbursable expenses in the range of $590 million to $600 million. We expect adjusted EBITDA in the range of $105.5 million to $110 million. We are anticipating adjusted non-GAAP net income in a range of $44.5 million to $47.0 million and between $2.05 and $2.15 in adjusted non-GAAP diluted earnings per share with GAAP diluted EPS in a range of $1 to $1.10. Weighted average diluted shares for 2011 are estimated to be approximately 21.7 million shares. Our guidance on the full year effective tax rate is approximately 45%.

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

(Operator Instructions) Our first question comes from the line of Tim McHugh from William Blair. Please go ahead.

Yes, thanks. I guess, first I want to ask, Jim, you talked a little bit about an increasing demand for strategy work and you said the bulk of the work still more in the implementation and operational improvement side that you guys specialize in. Are you seeing more demands? Are you shifting some of the service offerings towards including more strategy work, I guess, how should we think about that?

Tim, couple ways. First of all, I think we are actually seeing demand in both sides. I think what's evolved -- what's evolving right now pretty rapidly is that a lot of hospitals are really having to focus on what strategies they want to pursue in light of all of the things that I mentioned in the call and I won't repeat them. So the real question is what strategies do they want to begin to execute and that happening carries with it a whole bunch of implications to either decide to do something or not to do something. And once they have decided what their strategy is going to be, executing those strategies requires I think a tremendous amount of operational support.

So we are seeing demand in both areas, both on the strategy side to sort through how they get through the current uncertainties, and then once they have decided to actually go ahead and do them. We do know what the core of all of this though is going to be a need to reduce costs and improve the revenue cycle operation. So there is no question that irrespective of what strategies they pursue, our core businesses are going to be in high demand. What we are seeing now though is additional opportunities to help our clients sort through some of the strategic issues that they are facing.

But have you been hiring? I mean, is it organic hiring efforts to that or is that something you look to perhaps acquire in the future or maybe it's future hiring efforts, how should we think about it?

Tim, we have been doing some of the strategy work already. We are hiring to be even more capable of addressing the demand in that area. But we have been doing some already. It happened for a while and that piece of our business is emerging. We are expecting to grow pretty significantly in the future.

Okay. And then just can you talk a little bit more on the Legal business? You mentioned, obviously doing very well, but you mentioned, I think the international expansion and then an offshore capability. Can you talk a little bit what you are doing with regard to that?

Yeah, good morning, Tim. This is Jim Rojas. What we've recently opened was a temporary facility in India to meet the needs of our clients, and it's really our clients who are really requesting our capabilities internationally as well. So, we moved into a temporary space, we are going to move into a permanent space sometime in January. And our current facility holds between 40 and 50 reviewers. So when you look at the complete scope of the number of capacity that we have it's small, but it's expanding and it's something that we think will contribute in the coming year.

And Tim, I think the key issue here though is that this is stemming again from a lot of the demand from our clients that have these offshore places that would be more responsive to their global presence and their global needs.

Okay. And then Mark, one or two numbers questions for you, just to be clear the fourth quarter implied EBITDA guidance doesn't seem to have come up as much as the revenue guidance did for the year. Can you talk about any -- are there any factors impacting Q4 that we should keep in mind?

Yeah, Tim, I think when you look at the contingent fee guidance that we just gave you, essentially if you compare Q4 to Q3 assuming the $100 million for the full year versus the $76 million that would imply roughly $24 million plus or minus in Q4, contingent fees versus $29 million in Q3. So, that is one impact that will take the EBITDA down.

In addition to that, sequentially, SG&A if you look at it was a little bit light in Q3, we had a few favorable adjustments that are not going to recur and we'll do that more on a year-to-date run rate of prior SG&A. So, that will come up somewhat as well in Q4. And then frankly, we've got a little bit of just seasonality around the utilization as you get into the holidays versus more of a peak in Q3.

Okay. And then I guess as we look ahead -- I know you are not ready to give guidance for 2012, but a significant impact this year that you had a -- or expect was 100 basis points hit to margins from the IT investments in Stockamp. As we are far along in the year, can you give us a thought on will those investments kind of a roll away here as we move into 2012, or I guess has it progressed as you thought, and can we still think that that was a kind of more of a one-time 2011 spend that will go away?

Tim, one thing to mention is that our group that's working on this project has done a great job of coming in at the expected level of cost that we had anticipated for the year. So, that's something that we are very proud of and really coming in on time with our expectations. We will evaluate going into next year, there may be other technology investments that we want to make, this was one that was specific in our revenue cycle practice, but there is other ones that we could make in terms of labor, or non-labor, or in clinical. So, I don't think we are prepared right now to say that will that -- incremental $6 million that we spent, will that 100% go away next year in terms of just spending on revenue cycle, yes, it will, we may decide to make investments in other places. But, that's as we are preparing for our plans for next year that's going to be at the top of our list of discussions.

Okay. Thank you.

Thanks for your question. Our next question today comes from the line of Dan Leben from Baird. Please go ahead.

Great, thank you. Just a follow up on the previous question. What did the quarterly flow of that $6 million expense look like, so we have the seasonality right as we roll out our estimates for next year?

Dan, it's been pretty even throughout the four quarters. We don't -- and it's similar to what we said in the third quarter, in each quarter we are spending about the same amount, so that's spread pretty evenly throughout the year.

Okay, great. And then you mentioned the moving on some of the legal offshore, are there any particular verticals that are demanding that because they have kind of more complex international engagements?

We are specifically seeing it from our financial services clients more so than other areas, but for us we feel like the opportunity is across each one of our industry verticals. But we are just seeing the demand right now from financial services.

And then on the -- finally from me on the healthcare hiring side, I mean, are they looking for talent? How has the compensation demands trended with very strong market demand for the product?

The compensation -- this is Jim Roth, the compensation demands are aren't unreasonable. I think there remains a strong degree of competition for the best people out there that are capable of doing what we do among all of our competitors. It's not just having the healthcare knowledge, it's also having the healthcare knowledge and being willing and able to get on an airplane every week and that combination certainly limits the pool of talent. So there is a lot of competition for the best people. We feel like we've got a really good platform from which people can be successful. So we're confident that we continue to grow organically in this area, but there is no question there is added competition. I don't know that it's getting to the point where it's leading to outrageous compensation demands. We haven't seen that yet, but there is certainly competition.

Great. Thanks guys.

Thank you for your question. Our next question today is from the line of Tobey Sommer from SunTrust. Please go ahead.

Thank you. I was wondering if -- I think you mentioned in your prepared remarks of a pretty large client loss. Could you give us a little more color, maybe tell us kind of what segment that was in? Thanks.

Good morning, Tobey. It's Jim Rojas. I mean, when we talked about, we didn't talk about a client loss, we talked about declining revenues from a specific client and it was the government client that we've talked about in the past at the Accounting Advisory Practice service.

Okay. Thank you. I wanted to ask a question about the Legal, are you still driving a significant portion of growth from your kind of master service type agreements where you get approved and then try to take wallet share from clients or has the market evolved and kind of are you getting your growth from other avenues? Thanks.

Tobey, that's a strategy that continued to prove working very well for our Huron Legal Group. So, a lot of the growth is coming from those clients that we have master service agreements and it's one that we try when we get any large global client to sign and it's one that aids in the procurement process. So that strategy definitely continues to prove fruitful for us.

Does it represent a larger proportion of the segment's revenue direct from the client or is the mix kind of that that comes via some external law firm holding steady?

You know what and we've talked about this in the past. Our strategy is really going after global companies and really servicing the general counsel's office and we continue with that strategy, a smaller percentage of our revenue comes from actually law firms or chasing individual transactions. So we're going to continue with that strategy. There are always those individual projects or cases that come up through law firms that are absolutely good for our business, but our main strategy is to focus on the general counsel's office and getting them to sign master service agreements.

Okay. One last question from me, I'll get back in the queue. On the healthcare side with the contingency fees, are you finding that customers are more willing to kind of put more on the line with those contingency fees than in the past and/or are you finding them kind of wanting to negotiate a higher bill rate for the ongoing work and less contingency fees? Thanks.

This is Jim Roth. I think it remains all across the board. I mean, it's entirely dependent upon individual client preferences and it depends largely on how they are going to convey the assignment internally. I mean, some organizations are reluctant to go back and commit a fixed amount of fees for what can be an uncertain outcome. Others have confidence that that would be right approach that they will get better pricing if they do a fixed fee. So it all depends and so it is absolutely different every single time.

And let's switch, which gets me to one point that we get a little bit worried some time that the concerns over the contingent fees are being used as an indicator of future performance and this is why we're a little bit reluctant to spend too much time focusing just on the contingent fees for a couple of reasons. Number one, we have the clients are as we indicated all across the board in terms of their desire for the kind of pricing that they want out of our services and probably more importantly though is the amount of effort that it takes us to generate contingent fees also varies, so we not only have the issue of uncertainty about timing and size of contingent fees, but we also have the fact that it becomes very difficult to go back in and try to predict the amount of cost that's attributable to an incremental dollar in contingent fess. In some cases, it's almost nothing, in other cases, it's substantial.

We don't know until the job begins and the job actually begins to be fulfilled, we don't know what level of effort's going to be required to bring in a certain amount of contingent fees. And so, that's something that we tried to monitor carefully, but one of our concerns is just that internally we actually don't even manage this business by looking that closely at contingent fees. We certainly know what we try -- we try to forecast them to the extent that we can, but they are such an integral part of the business as opposed to being something that we can isolate and use as a basis for managing. So we're very focused on the broader targets that we have for the healthcare practice and a lot less focused on the impact that contingent fees will have and our ability to achieve our goals and objectives in this practice. So we just want to continue to reiterate our strong caution about; a, how we use contingent fees to manage our business; and b, how they get interpreted in terms of what it might mean for future performance.

Thank you, Jim. The color was helpful.

Thank you very much for your question. And next question today is from the line of Jim Janesky from Avondale Partners. Please go ahead.

Jim, you had a significant increase in headcount in Healthcare & Education, 22% increase, you had a 78% utilization rate. So it seems as if you're putting the consultants to work very quickly. How sustainable is that 78%? Can it go up over the next several quarters and what gives you confidence that that can happen if you think it's true?

Well, I mean, we certainly are going to be aggressive and continuing to recruit. We think the demand is going to be there. I think we're not certain that the same trend is going to continue. As I indicated, it's a competitive market for talent and so we want to be cautious in terms of our ability to predict how aggressively we can be in this area. But we feel good about the fact that the demand is there. We I think very importantly feel like we've got an attractive environment into which to attract talent and so -- but there is a lot of other factors that impact our ability to recruit people, one of which is just their ability to fit into the way we do business, our culture which we feel very strongly about and need to protect and just the ability to deliver. So there is a whole bunch of factors. We want to remain cautious in terms of our ability to project organic growth, but at the same time, it's something that we're looking at that we are in the market constantly looking for quality people that can do our work.

Well, would it be fair to say that if you could find the right people at the right compensation level, you would continue to hire at a pretty aggressive clip?

Yes, I think so.

Okay.

We're --

Go ahead, sorry.

I feel like we have the demands as I indicated in our prepared remarks, the demands I think are so substantial and will continue to be for a while, but you can't that it's -- we just try to match the -- we could hire a lot of people. It's the ability to hire and manage and successfully integrate those people which is something that we always try to monitor and that just puts a little bit of limitation in terms of how fast we want to grow. There is plenty of talented people out there. Your ability to absorb them and properly integrate them and make sure that they can deliver the value and maintain a reputation is something that you always have to watch out for.

Okay. Hey, Mark, within the margin implications for higher salaries in Healthcare & Education, was that because of higher initial compensation? Did you raise kind of base salaries for people that maybe you haven't done in the past couple of years?

I think you've got essentially on-boarding costs of a bunch of new hirers coming in, some additional support cost associated with that, a little bit of training. Again, I would characterize that the margins in the business as a result of compensation have fundamentally not really changed. It's something that we aggressively have to manage. But at this point I would say that's not -- higher comp is not really a higher driver with respect to slightly lower margins.

Okay. Thanks. And then within the Legal segment, can you give us an idea of how long, is this one large project does it that sound that way, it sounds like its several projects, kind of the magnitude of them and how long you would expect them to go on or should we expect the same lumpiness going forward or do you have some visibility there?

Yes, I guess, Jim, I would say that the practice has done a very good job of taking the lumpiness out. If you look at our trend over the last six quarters, it has been pretty steady increase. We are enjoying some larger projects, but that's the way that that business operates. And we continue to win those and they are not just one individual project and they are just not in one industry and it's not just litigation, it's also in terms of M&A work as well. So, they are working very hard to diversify the types of projects, the types of clients and I think that strategy is paying off, and it has really taken the lumpiness that we may have had two years ago with this practice and really shown that we can show steady growth.

Okay. And then finally at the risk of beating a dead horse on the contingent fees. Mark, is there as usual a chance that some of these fees could fall into the first quarter of 2012 or are you pretty comfortable that they will be signed in the fourth quarter?

Jim, again I'm just going to reiterate, yes, there is always a chance that some of these can slip and then to just remind everyone, from a revenue recognition standpoint until you get the final sign off from the client we do not have the ability to recognize these fees. And so to the extent that board meetings are involved at the hospital level and they may move and then you have got the holidays, there is always a chance that you can have swings that are virtually unpredictable or uncontrollable on our part.

Okay. Thank you.

Thank you very much for your question. Our next question is from Paul Ginocchio from Deutsche Bank. Please go ahead.

Yeah, thanks, just two questions. First on the guidance, it looks like underlying guidance was raised $15 million at the bottom end and $5 million at the top end, that doesn't really account for the $20 million raise in contingent fees, is there an offset within accounting advisory, maybe different expectations today than last quarter or is that just a mix of your business within the healthcare between performance, contingent fees and regular fees?

Paul, yes, this is Mark, it's a mix of the mix of fees that are coming in with respect to what we expected. So there is nothing really from a fundamental shift, it's just a mix issue.

Mix within fees in healthcare?

Correct.

Okay, great. And then just on e-discovery, I think recently you allowed some of your clients, you are giving clients now the option to use different underlying technology. Is that the case and is that also helping margins? I think you might have said something about this before but I missed it? Thanks.

And Paul, one thing about our practice is we've always been technologically agnostic to allow clients to utilize technologies, other technologies that they may have procured. The difference is now we are procuring other technologies ourselves as well to give them that alternative, but that's one fundamental thing that has not changed.

Is that also helping margins, is that one of the reasons of the margin uplift or not yet?

You know what, we are in the investment stage right now in terms of procuring new technology. So, I mean, not all of that gets capitalized. So I wouldn't say we have seen margin improvement at this point, but we do anticipate from the new technologies that we'll have some margin improvement next year.

Thank you.

Thank you for your question. Our next question is from the line Scott Schneeberger from Oppenheimer Co. Please go ahead.

Thanks, good morning. Could you guys speak to the pipeline for healthcare? How quickly is that moving through, how robust is it, is there any indecision or slowness on the part of the hospitals with regard to perhaps the political environment?

Scott, this is Jim Roth. No, we are not seeing any slowness. I think there is, as I indicated, the one issue that confronts all of them almost irrespective of the strategies that they begin to deploy is the fact that they have got to reduce costs. When we hear many hospitals preparing for the fact that they have to be expecting in the near term to be managing their business to a maximum of Medicare rates across the board, that's a pretty compelling reason for them to have to go back and look pretty seriously at their cost structure. We've even heard a couple say that they are expecting that it's possible to have to go down to Medicaid rates rather. So, there is a strong need almost irrespective of what you do to improve quality, reduce costs, improve the revenue cycle and again that kind of fits into core of our business. What we are trying to build up around that is increasing demand that we are seeing for kind of the strategies in terms of how to evolve through healthcare reform and what approaches they want to take to begin to address those. But we are not seeing any hesitation at this point. Even though there still remains a lot of uncertainties about exactly where healthcare reform is going. The fundamental economics, which are poor and deteriorating I think, are something that's going to drive demand for us for a while.

Okay, thanks. Couple more quick ones. Could you remind us on the length of, you mentioned litigation and some M&A work in Legal that seems to be moving nicely now. Could you remind us the length of a typical project and maybe what you are seeing now, how long do you think some of that will stick around?

Scott, if you talk about litigation matters, litigation matters can last three months, they can last 13 months, they can even last longer than that. So, each individual case has its own lifecycle. Many times though with the second request that we have with Hart-Scott-Rodino, those are fairly quick projects where companies have to respond in terms of requests they are getting from the government. So, the M&A ones are typically shorter term, the litigation ones are typically longer and every matter is different.

Okay. Thanks. Then just one last one. You mentioned SG&A a little bit lower in the third quarter, but going back up to the run rate. Just curious, if you could take us a level deeper what was that and how should we think about it going forward kind of that the prior run rate is how we should look out in the coming year as well?

Scott, with respect to your question, are you asking why Q3 was a little bit lower or what?

Yes, specifically why was Q3 a little bit lower and then just to follow-up if you can, how to think about it going forward? You mentioned go back to former run rate, but.

Yes, yes, got it. So, with respect to Q3 there was nothing individually material, but there were a number of things that collectively probably brought it down around between $1 million and $1.5 million versus the prior run rate is if you look at on a year-to-date basis. So, those things are non-recurring and so going forward we are expecting a run rate probably in the roughly $30 million per quarter level.

Okay. Thanks. That's helpful. I appreciate it guys.

Absolutely.

Thank you for your question. Our next question is from the line of Joseph Foresi from Janney Montgomery Scott. Please go ahead.

Hi, good morning. This is Jeff Rossetti in for Joe. Just wanted to ask a clarifying questions, I apologize if I missed it on the Legal consulting side. Jim, could you maybe talk about how the e-discovery is becoming a little bit less transaction based, is that attributed to the offshore shift and some of the new technologies and just maybe talk about some of the actions that you took to improve the margins during the quarter?

You know, let me clarify my point. What I was saying is that much of our work isn't coming from individual transactions from law firms. However, any litigation matter is an individual transaction. What our strategy is, is to go after the general counsel's office that will have many matters that we can assist them with. So, that's the clarification on that point.

Okay. Thank you. And is there any way to get an update just on the overall level of assessments for healthcare versus the prior quarter?

I am sorry I missed that. The assessments. We are seeing, our demand is consistent with the quarters in prior times. We are seeing pretty consistent demand build up. So there is really nothing of any kind of anomaly that we are seeing good or bad, it's just very strong business and again the assessments are always kind of hard to evaluate because you don't know how big they are, so we can give you the numbers are not necessary reflective of what's happening in the market. I think the point we are trying to make is we see demand continuing to build and we are very confident that's going to be there for a while.

Okay. Thank you very much.

Thank you very much for your question. (Operator Instructions). Our next question is from the line of Paul Ginocchio from Deutsche Bank. Please go ahead.

Yes, thanks. Just with the disposal of Accounting Advisory, is there going to be any associated sort of unallocated corporate expenses, are you going to be able to reduce cost anyway from that?

Paul, it's actually fairly modest. Given that it was not a huge practice, there will be a little bit of savings associated with it, but probably not a material change.

Okay. Apologies. Mr. Roth, we do seem to have lost the line of Mr. Ginocchio. Mr. Ginocchio is no longer connected to the call.

Okay. Well, I think we are going to go ahead and wrap it up then now. I appreciate taking time out this morning to discuss our third-quarter results. I would like to close by acknowledging our people all of whom play an integral role contributing to the success of this company. And I think indicative of the strength of our culture and employee base during the past quarter in its annual survey, Consulting Magazine named Huron, one of the top 10 places to work within the consulting industry. We are honored to have received the award which reflects the team work in collaboration of let us provide such great value to our clients. We look forward to speaking with you again in February when we announce our fourth quarter results. Thanks. And have a good day.

Thank you very much. Ladies and gentlemen, that does now conclude your conference call for today. You may now disconnect your lines. Have a great day. And thank you for joining.