Huron Consulting Group Inc (HURN) 2011 Q4 法說會逐字稿

Welcome to the Huron Consulting Group conference call. At this time all conference call lines are on a listen-only mode. Later we will conduct our question-and-answer session with the conference call participants. And instructions will follow at that time. Now I would like to turn the call over to Jim Roth, Chief Executive Officer of Huron Consulting Group. Mr. Roth, please go ahead.

Good morning. And welcome to Huron Consulting Group's fourth quarter 2011 conference call. With me today are Jim Rojas, our Chief Operating Officer, Mark Hussey, our Chief Financial Officer, and Patty Olsen, our Corporate Vice President of Human Resources. We are pleased to announce another solid quarter for the Company. Revenues in the fourth quarter of 2011 for our two largest segments, Health and Education and legal consulting, increased more than 22%, compared to fourth quarter 2010. Our legal consulting segment had a particularly strong fourth quarter, based on a pick-up in activity stemming from several large E-discovery projects across multiple industries.

I will now discuss the fourth quarter performance for each of the three segments, and provide some perspective on the drivers of demand fueling growth in our primary service lines. Mark will then walk you through the financial and operating metrics. I will start with health and education consulting segment. We expect that the attractive market conditions for each of our service lines that led to strong performance in 2011, will remain equally attractive in 2012. The difficult revenue picture for hospitals and universities continues to be impacted by lower reimbursement, downward pressure on tuition, lower federal research funding, and declining state subsidies. For hospitals and universities, this pressure results in an intense focus on managing expenses, and improving operational efficiency. Our Huron Healthcare practice is primed to continue to be at the forefront of helping our provider clients meet the challenges. Our core business in health care, revenue cycle and hospital expense management remains strong.

Solid backlog for revenue cycle engagements and the steady increase of new assessments for comprehensive performance improvement, gives us comfort our that our existing businesses are on track for continued growth in 2012. The area with the most growth opportunity within our health care business is in our clinical solutions practice, where we recently hired Dr. Andy Ziskind to lead that solution. Andy has prior experience as the president of the Barnes-Jewish Hospital, and group president of BJC Healthcare in St. Louis. And he recently joined us from Accenture, where he provided leadership for its accountable care and academic health system practice. Let me explain why we are focused on the growth of our clinical solutions business.

As our hospital clients adjust to an uncertain future, our focus is to expand our service offerings beyond our traditional revenue and expense competencies. We intend to work more closely with our clients as they make strategic decisions about their emerging business model, and as they modify clinical operations to accommodate their strategic objectives. Put more simply, we are positioning ourselves to enhance our ability to assist hospital clients with this strategic and operational aspects of their changing business model. Recruitment of experienced personnel is clearly part of our growth strategy for clinical solutions.

Earlier this week, we announced the hiring of two managing directors, who will help strengthen our physician services solution. We are excited about where we believe we can take the clinical solutions practice, and as a talented medical doctor and experienced hospital executive, Andy Ziskind is very well suited to lead this effort and to help us build our existing competencies. In late January, Gordon Mountford, our Huron health care practice leader, also hired Jim Galis to lead our performance solutions business. Performance solutions includes our revenue cycle, nonlabor and workforce practices. Jim brings more than 25 years of health care consulting and management experience to Huron, and will strengthen our top-tier management within the health care practice as we continue to grow this business.

Our Huron education and Life Sciences practice is also benefiting from turbulence in its primary markets. Revenue growth is a major challenge for many universities. The pressure to limit tuition increases, coupled with declining public subsidies are causing many universities to consider alternative means for generating revenue. Some institutions are focusing on evaluating their global strategies as a means for enhancing growth. We are also seeing divergent forces among public universities and public university systems. Some are attempting to centralize administrative functions and academic authority, while others are trying the exact opposite, that is to provide more autonomy at the local or school level. Creating strategies to reduce administrative costs and develop more efficient operations, remains a top priority for public and private universities. Collectively these challenges provide opportunities for our higher education practice to provide strategic and operational guidance, consistent with our strong reputation in this market. Our life sciences practice has become one of our fastest growing businesses.

Large pharmaceutical companies and institutions that perform clinical research face a confluence of regulatory compliance issues, conflict of interest provisions, and ongoing concerns over marketing restrictions. This practice had a strong 2011 and it is well-positioned to continue double-digit growth in 2012. Across the health and education consulting segment, we anticipate hiring over 200 people on a net basis in 2012, reflecting our confidence in the market demand for our services, and our ability to serve those markets as they grow in size and complexity.

Now let me turn to our legal consulting segment, which had a very strong fourth quarter. Our results were stronger than initially expected, and we are pleased that the performance over the past six months reflects the continued success of our go to market strategy. The pick-up in revenues in the fourth quarter resulted from two particular assignments in different industries, that were intense in terms of time, scope, and complexity. While two engagements can skew short-term performance, it is also important to remember that our strategy is to develop lasting relationships with the General Counsel at large global corporations, and to broaden the number of companies that have master service agreements. As more corporations have an MSA in place with us, broadens our active base of clients, and increases the likelihood that one or more will ask us for assistance on a large and complex matter. While the specific projects that led to significant 2011 revenue are likely to wind down in 2012, it is our expectation that in part those projects will be replaced by other sizable engagements.

While we remain cautious about our ability in 2012 to replicate the very large projects that we delivered in 2011 within this segment, we are optimistic that our go to market strategy will continue to expose us to sizable projects across our areas of strategic industry focus. Our legal advisory practice, which has struggled from a margin perspective over the past year or so, saw notable improvement in Q4, and delivered its best quarter in over two years. We solidified our sales approach and made some operational improvements within the practice that are already showing positive results. I expect steady improvement for the top and bottom line in this practice as the year progresses.

Finally, let me turn to our financial consulting segment. As you are aware, in December of 2011, we sold our accounting advisory practice. As a result, our restructuring and turnaround practice now comprises the entire financial consulting segment. 2011 was not a stellar year for this practice, and Q4's performance witnessed the same challenging market conditions that affected this practice throughout 2011. We are increasingly comfortable that we will resume growth in this practice in 2012. During this year, we are increasing our focus on providing operational improvement services to our client base. It is not surprising that troubled companies often have troubled operations at their core, and we intend to expand our focus into providing operational improvement assistance as part of our service offering within the segment.

I now want to turn to our 2012 revenue guidance. We are projecting our 2012 revenue to be in the range of $620 million to $660 million. This guidance was developed based on balancing our optimism for the growth that we believe is achievable within our target markets, and the cautiousness that stems from specific projects and events in 2011, that will present tough comparisons in 2012.

There are three primary reasons for us to be cautious in our revenue growth estimates for 2012. First, we have nearly concluded a project with a large public university that generated over $20 million annually over the past three years. Replacing a project of that magnitude will take some time. As large university system-wide enterprise engagements are not that common in the higher education market. Second, we are faced with a very strong second half 2011 performance in Legal Consulting.

While we are making progress in finding replacement projects, it would be unreasonable to assume a continuation of growth based on the revenue generated from a few large projects during the past six months. Finally, 2011 benefited from the acquisition of our Click Commerce practice in late 2010. We have no acquisitions contemplated within our 2012 revenue guidance, although we continue to actively seek tuck-in acquisitions that complement our practices. I won't repeat the attributes of each of our practices that lead us to believe that we have solid opportunities for growth in 2012. I spent time earlier in the call going over the challenges our clients are facing in the health and education practices.

Across all of our segments, we have aggressive hiring plans in anticipation of solid demand. Collectively all of these factors were considered as we established what we believe to be a reasonable revenue guidance range for 2012. One other note with respect to guidance, during the past several years, we have provided guidance for contention fees within our health care practice. In 2011, those contingent fees accounted for well over one-third of our health care practice revenue. As we have discussed on prior investor calls, we believe that providing guidance around contingent fees tends to confuse the picture of the overall financial performance of the healthcare practice.

We have commented on numerous occasions that contingent fees can be unpredictable in size and timing. During the past several years, we have had contingent fees accelerated and deferred, impacting quarterly results, depending on which period the contingent fees are earned. We manage our business to achieve long-term goals, not quarterly goals. So internally we don't worry about whether contingent fees fall within one quarter or another. Our primary focus is on achieving our annual financial goals, irrespective of whether the fees are contingent, time and material, or fixed. Accordingly, effective for 2012, we are no longer going to provide annual contingent fee guidance within our healthcare practice.

One final comment before I turn it over to Mark, we noted in our earnings release that we are in settlement discussions with the SEC, related to the 2009 financial restatement. Based on those settlement discussions, we have accrued $1 million in the fourth quarter. Additional information will be provided when we issue our 10-K later today. Now let me turn it over to Mark to discuss our fourth quarter results.

Thank you, Jim. And good morning everyone. Before I begin my remarks, I am going to ask Robin to run through the forward-looking statement disclosure. Robin, would you please run us through that, please?

Yes, sir. 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 maybe discussed on this call. The news release is posted on Huron's website. Please review that information along with the filings with the SEC for a disclosure of factors that may impact subjects discussed in this morning's webcast.

The Company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Huron's website for all of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers, and now I would like to turn the call over to Mr. Mark Hussey, Chief Financial Officer.

Thanks, Robin. Let me begin my remarks now by covering a few housekeeping items. As we discussed on our third quarter earnings call, we entered into a definitive agreement to sell our accounting advisory practice. On December 30th, we closed this transaction and the practice was sold to a group of investors, including the managing director of the practice at the time. The results for this practice are reported as discontinued operations for the quarter just ended, and all prior quarters.

Consistent with our past practice, 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-K each 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. Finally, as Jim mentioned, during the fourth quarter of 2011, we recorded a $1 million charge related to settlement discussions with the SEC. This charge is classified as restatement-related expenses. So with that as background, I will walk to you through some key financial results for the quarter.

Revenues for the fourth quarter of 2011 increased 19%, to $163 million from $137 million in the same quarter of 2010. On a sequential basis, revenues were 6% higher than in Q3 2011. Operating income was $18.6 million in the fourth quarter of 2011, compared to $0.5 million in the same quarter in 2010, which reflected a litigation settlement charge of $12.6 million resulting from the restatement of the Company's financial statements in 2009. Adjusted EBITDA, which excludes a number of items listed in our press release was $28 million, or 17% of revenues in the fourth quarter of 2011, compared to $26.1 million, or 19% of revenues in the same quarter of 2010. On a sequential basis, Q4 2011 adjusted EBITDA was $5.2 million lower than Q3 2011, primarily due to higher bonus expense recorded in Q4, reflecting better than expected performance.

Net income from continuing operations was $7.8 million in the fourth quarter of 2011, or $0.35 per diluted share, compared to a net loss from continuing operations of $5.3 million, or a loss of $0.26 per diluted share in the comparable quarter of 2010. On an adjusted basis, non-GAAP net income from continuing operations was $11.2 million, or $0.51 per diluted share in Q4 of 2011. This was an increase of 42% compared to $7.9 million, or $0.38 per diluted share in the same quarter of 2010.

For the fourth quarter of 2011, we recognized income tax expense of $8.9 million on income from continuing operations of $16.7 million, resulting in an effective tax rate of 53%. This rate is higher than the statutory rate, primarily due to certain foreign losses with no related tax benefit, an increase to the valuation allowance, and the $1 million charge related to settlement discussions with the SEC that I mentioned earlier, which is not tax deductible. These items were partially offset by certain credits recorded based on updated information.

For the fourth quarter of 2010, we recognized income tax expense of $2.2 million on a loss from continuing operations of $3.1 million, resulting in an effective tax rate of 72%. Several factors affected that tax rate, including the litigation settlement charge that I mentioned earlier, which reduced pre-tax income, and certain foreign losses with no related tax benefit, as well as higher state taxes. Now let's look at how each of our operating segments performed during the quarter.

The health and education consulting segment generated 65% of total Company revenues during the fourth quarter of 2011. This segment posted revenues of $106 million for the fourth quarter of 2011, a 19% increase from $89 million in the comparable quarter in 2010, and a 2.5% increase over Q3 2011. And our healthcare practice within the segment had its best revenue quarter ever during Q4. The solid performance in the segment reflected an increase in overall demand for our services, as our clients continue to face competitive pressures, including increasing regulation, rising costs, reduced government subsidies and support, as well as declining reimbursements.

As a result of this continued demand, the number of our full-time billable consultants reached 1,062 at the end of 2011, a 17% increase from 907 at the end of 2010. Higher contingent fees, which totaled $29.6 million for the quarter, also contributed to this quarter's strong performance. This compares to contingent fees of $13.5 million in Q4 of 2010, and $28.9 million in the third quarter of 2011. The Health and Education consulting segments operating income margin was relatively flat at about 34% for both the fourth quarters of 2011 and 2010, although restructuring charges totaling $1.1 million and higher general and administrative expenses negatively impacted this segment's margin during the quarter just ended.

Our legal consulting segment generated 32% of total Company revenues during the fourth quarter of 2011. This segment had another record quarter, with revenues of $52 million in Q4 2011, an increase of 30% from $40 million in the comparable quarter in 2010, and an increase of over 18% from Q3 2011. Our electronic discovery business continued to see good momentum as a result of a number of significant projects for some of our global clients. While the advisory side of this segment also saw an increase in revenues quarter-over-quarter and sequentially, and represented the best quarter since Q2 of 2009. The operating income margin for our legal consulting segment was 22% for Q4 2011, compared to 27% for Q4 2010, due to higher bonus expense recorded in Q4 of 2011, reflecting better than expected performance.

During the fourth quarter of 2011, our financial consulting segment generated 3% of total Company revenues. This segment posted revenues of $6 million in the fourth quarter of 2011, compared to $9 million in the same quarter of 2010. While we experienced some softness in Q4, we are embarking on several new initiatives in 2012, including building on synergies with our other practices and hiring additional managing directors, which we anticipate will increase demand for our services in the highly competitive restructuring and turnaround consulting market. Segment operating income margin for financial consulting was 9% in Q4 of 2011, compared to 47% in the same quarter of 2010. The decline was due to higher salaries and related expenses as a percentage of revenues.

Now turning to cash flow and our balance sheet, DSO for the fourth quarter came in at 62 days, improving from the 70 days reported at the end of Q3 2011. Cash flows from operations was $54 million for the quarter, and $109 million for the year. Net of capital expenditures and earn out payments we generated cash flows totaling $70 million and paid down $63 million of our debt. As a result, we improved our balance sheet, decreasing our leverage ratio as defined in our credit agreement from 2.4 times a year ago to 1.6 times. And we reduced our debt to capitalization ratio from 42% a year ago to 33%.

Quickly, let me summarize the guidance that was included in the press release. For full-year 2012, we anticipate revenues before reimbursable expenses in a range of $620 million to $660 million. Adjusted EBITDA in a range of $113.5 million to $123.5 million. We are anticipating adjusted non-GAAP net income in a range of $50 million to $55.5 million, and between $2.25 and $2.50 in adjusted non-GAAP earnings per share.

Based upon our existing engagements and the pipeline of new proposal opportunities currently in front of us, as well as the current economic environment which Jim discussed earlier, the revenue range that we are projecting reflects a 2% to 9% increase from our 2011 revenue from continuing operations. With respect to adjusted EBITDA, net income, and EPS, there are several items that you will need to consider when reconciling these non-GAAP measures to comparable GAAP measures. The reconciliation schedules that we included in our press release, will help walk you through these reconciliations.

Here are a few other modeling assumptions. Earn-out payments for 2011 totaled $32 million, and the majority of these amounts will be paid in Q1 of 2012. After the payments in the first quarter of 2012, we have no further earn-outs under our existing agreements. Assuming the mid-point of our guidance range, we expect cash flows from operations of approximately $90 million, which includes expected realization of approximately $19.5 million in income tax receivables as of December 31st, that principally arose from the disposal of the accounting advisory practice. Weighted average diluted share counts for 2012 are estimated to be approximately 22.3 million. And finally with respect to taxes, you should assume an effective tax rate of approximately 45% for the full year. Thanks everyone. And now I would like to open the call to questions. Operator?

Robin, if you can open it up for questions.

Yes, sir. (Operator Instructions) And our first question comes from the line of Joseph Foresi from Janney Montgomery Scott. Please go ahead.

Hi, gentlemen. My first question is, I wonder if you can give us a further breakdown on the guidance as far as what you are expecting for growth rates in each of the three individual practices for the year? And I think also along the same lines, you talked about health care, maybe long-term health care and education going 15% long-term. Is that still the case?

Yes. So this is Jim Roth. I think as we have kind of talked about, we expect our financial consulting to be probably 0% to 5% for the coming year. I think LC will probably be about the same, and our health and education is going to be at this stage probably around 10% range or so. We have certainly talked about the markets and I think it is kind of an important point to recognize right now, that we really don't see anything that has changed in the markets in terms of, in any of our markets in terms of the receptiveness to our services. The markets are very vibrant in terms of their desire or need for the kinds of services we are offering. Our ability to respond to those conditions is as strong as ever. And we intend to be recruiting additional people into our practice to help achieve those growth rates. So I think we are comfortable with where things are. We obviously have established some cautiousness, which we think is reflective of the points we mentioned in the call earlier. And just an attempt to make sure that we are able to not get too far ahead of ourselves in terms of projecting growth in what is undoubtedly a very challenging marketplace for a lot of our clients.

So I mean just to be clear, the lower, the guidance, the present guidance range obviously takes, accounts for all of the lumpiness in those projects. Are you accounting for any revenue from the three areas that you pointed out? Or are those completely taken out of the guidance?

Well, there will be some of the jobs are still ongoing. They are just not going to be proceeding at the same pace, anywhere near the same pace they did in 2011.

Okay.

There will be some spillover in 2012 for some of the things we talked about.

Okay. And I know you are not talking about contingency fees. But how are you handling that in this particular guidance? Are you just taking a, maybe you could just describe how you are accounting for them in the guidance?

Sure. Joe, it is Mark. How are you? What we are doing with contingent fees is really taking the approach that our overall healthcare practice and the pricing of all of the engagements that we do, incorporates a range of a preference on risk tolerance by the client for how much they want to pay in terms of contingency. When we price the engagements, we are not necessarily looking to price more fixed fee or less contingencies. So it is a negotiation with the client. And inherently what we are trying to do is achieve an overall return for our investment, that we think makes sense for the particular client. So in that context, some portion of those and generally they range anywhere from 40% to 60%, depending on the client, will be incorporated into the healthcare fixed fees. So it can vary depending on the clients' risk tolerance. It can vary based on timing. It can vary based on all kinds of different factors. So in the context of that, it is really incorporated into the overall expectation. And that is one of the reasons we don't like to break it out separately, because we think it actually becomes distorted with respect to focusing on only that one particular item.

This is Jim Roth. I would also add, just as we go to market, when a client comes to us and they are about to contract with us, there is often a discussion about the nature of the terms that are going to be included in this. And sometimes they are evaluating internally as to whether they want it to be contingent or fixed fee or time and material. So that kind of decision is really something that often doesn't really get arranged until the very last-minute and we from our end, we understand the size of the project that is out there. We understand the economics that we need to be able to achieve. The structure of the engagement can vary, and it does vary frequently. And is often not determined until pretty much late in the game just before we sign an arrangement. That is one of the reasons why we are cautious about trying to be too prescriptive on the contingent fees, because they really end up being not at all the way we are running them. It is factor of the contract terms that we end up signing. But it is only, it takes a backseat in our minds to the overall performance expectations that we have to deliver to the client, and the economics that we are going to get in return.

Okay. And just one last question for me. On the healthcare side, maybe you could talk a little bit about how the assessment or the pipeline looks heading into 2012 versus 2011? And I think you had talked about a 15% long-term growth rate for the business. Is that still what you are expecting in the health and education segment?

The assessment pipeline remains very strong. I think the issues that we have talked about, that is driving the need for hospitals to have these assessments is as strong as ever. The pressures remain the same and our funnel looks very good. So we are comfortable in that area. The 15% growth is certainly something that we would like to be able to achieve, as I mentioned I think one of the contributing factors to what we hope to be strong growth for our healthcare practice, is going to be not only the continuation of success in our historically largest parts of the health care practice, which is the operations management and revenue cycle, but also the build-up of the clinical solutions. And we think the build-up of the clinical solutions practice will be something that will help us eventually contribute to what we hope to be robust growth rates for the healthcare practice.

Okay. Thank you.

And our next question comes from the line of Tim McHugh of William Blair & Company. Please proceed.

Hi, guys. Just want to ask on something you said, which is I believe you said health and education you would increase by 200 consultants, not which seems to imply a continuation of almost 18% to 20% headcount growth. Did I hear that correct? And is that, can you talk about where within that segment is it mostly in the clinical area, or are you growing the existing kind of revenue cycle and expense management at that same pace?

Hey, Tim. This is James Rojas. We are really hiring across each one of the solutions within our HEC segment. Primarily we continue to add within the revenue cycle area, and that is one that is a more traditional model, where we do hire a significant amount of people off campus. So in terms of looking at it in growth, you also have to look at how we are filling out the pyramids within each one of the practices as well, but to overall answer your question we are actively hiring in each one of the solutions within our HEC segment.

Okay. And then not to criticize 10% growth expectations, but how do I reconcile, close to 20% headcount growth versus 10% expected revenue growth for that business? I get the commentary about the Wisconsin project. But obviously I am assuming you factor that into your headcount expectations for the year?

Look, Tim, it is Jim Roth. I think we will as we have done every year, we continue to monitor our recruitment pace with how we see the market evolving. So those are all things that aren't necessarily going to come in at the front end of the year. They will come in as we progress throughout the year. We hope to be able to manage our recruitment efforts, along with how we see the market evolving. The toughest part about this business is to be able to get utilization rates that are manageable. That we don't get too high. At the same time we don't want to get too far ahead of ourselves in terms of recruitment. As always, it is a balancing act for us. Right now we feel as though we need to be aligning ourselves up for recruitment efforts at the level that we have discussed, in order to meet demand that we believe can come around. If for some reason it doesn't, we can always adjust that.

Tim, this is Jim Rojas. I will add on top of that, as you have seen and the investor community have seen that the contingent fees don't necessarily come in pro rata throughout the year. And we hire to the demand that we see at our client, in terms of the amount of people that we need. That doesn't always match the revenue that comes in, because in many of these large healthcare projects that we do, if there are contingent fees, they tend to come in the second half of the project. Unfortunately for us it doesn't line up nicely with the calendar. I wish it would. But it doesn't necessarily do that.

Okay. From a margin perspective, I don't know if there are a variety of puts and take. This time last year you talked about a large, not large but an incremental spending in IT for the revenue cycle business that would hurt margins by 100 basis points last year. And it seems like the margin guidance for next year assumes at the mid-point maybe 20 basis points of improvement. So what incrementally are you reinvesting in this year, or how should we think about that kind of 20 basis points improvement at the mid-point?

One thing that I wanted to highlight is that during the first quarter, we will go to general release with our new revenue cycle technology. So that project is being completed on time, and for the right amount of budget that we had. So that is a huge accomplishment by our people to be able to do that. Just like in any business we continue to make investments and not only investments in technology, because we do think that there are other opportunities within our other solutions within healthcare, that could be benefited by having some type of technology additive to the process. But we are also making investments within clinical as well. And those investments aren't necessarily technology, but they are investments in people and they are investments in terms of creating what our product is. So we will continue to invest in the areas that we see growth. Yes, you are right. We do anticipate increased margins for the year. But we will continue to make other investments.

Okay. Great. Thank you.

Our next question comes from the line of Dan Leben of Robert W. Baird, please proceed.

Thank you. Good morning. Just to follow-up on the last question. How should we think longer term about margin expansion? Is this kind of level in the guidance how we should think about what you guys think about on an annual basis? Or is this a little bit offset because of the factors Jim talked about contingent fees potentially not matching the calendar years?

Hi, Dan. It is Mark. We actually believe that longer term there are still opportunities for margin expansion within the business from a couple of different sources. One just as we continue to lever the top line around SG&A, we should continue to get a little bit of top-line leverage against relatively fixed costs. Although they will grow as we continue to invest in training and recruiting. And I believe that within the practices as well there is an element of practice support that is a little bit more fixed than variable. And that as they continue to grow, should also enhance the margins. So I would expect that over time, we will see some modest improvement. I don't think you are going to see major jumps. Our objective would be to continue to see some improvement a little bit over time. We don't think that we are optimized completely yet.

Okay. And then back to the large education deal. Is this a deal that wrapped up at year end, or is this kind of a bleed-off through the first couple of quarters, just trying to make sure we get the phasing of the revenues right?

This is Jim Roth. Dan, the project has been going on for the better part of three years right now. And like you have on a lot of these enterprise-wide projects, there is ongoing work that continues beyond it, in terms of post-implementation support. Sometimes there ends up being additional modifications and backfill. So the project is continuing, but at a pace that is nowhere close to the way it has been in prior years.

Okay. And then just last one for me. The D&A in the guidance is stepping down from the current kind of run rate. Is there any quarter with a particular step down, or should we think about it as being pretty smooth through the year?

It is relatively smooth.

Okay. Great. Thanks, guys.

And our next question comes from the line of Jim Janesky of Avondale Partners. Please proceed.

Thank you. I have a question about the financial consulting segment. I know it is only 5% of revenues. But it is a pretty significant drag on current profitability. It sounds like you not only do not want to shrink that area, but you just hired a new managing director in the space, and you talked about that you see opportunities. Can you talk about, first of all, how much, what the margin expectations are for financial consulting in 2012, and that leads to then, how much is that holding back adjusted EBITDA, and then why do you see opportunities? Do you think it is a matter of just hiring additional personnel that you think you can help grow that segment?

Jim, this is Jim Roth. There are a couple of comments I would make. First of all, historically this practice has had pretty good margins. I think they certainly had a setback in 2011. But they have some very capable people. I think from our end, let's just look at it strategically for a second. From our end, this is a practice I think that serves part of the market that they have been very relevant in. They have got some very strong people and have performed very good work. So our goal is to get back to some of the margin levels that we have had historically, which were substantially higher than they are right now. In terms of expansion, I think you know the part of what we are talking about recruiting into, is really expanding the operational capabilities of the practice, which I think is a natural for this group. They have done a lot of the restructuring work, but as I indicated in the call earlier, a lot of the effort that I think we have not historically focused on, relates to really helping the operations improve. I think we have a really good opportunity to expand it there as well. We have got people that know that business well. We have many opportunities I think to either expand our existing work or get introduced to new work because of those competencies. So I think that this is an area that we would like to see resume some pretty decent growth in, number one. And certainly get back to financial metrics that are a lot more consistent with the rest of the Company and their history.

Jim, let me just add a couple points. First of all, 9% is not the new run rate in financial consulting. Yes, the answer is yes. We definitely expect some margin improvement. If you look on a full-year basis, this year at about 25% was about 10 percentage points behind where it was a year ago. One of the factors in the fourth quarter was there were some success fees. And there are some in that particular business that did not materialize that we had expected. And that was really what really dragged the earnings down in the current quarter. And we would expect that those will still have potential to come in 2012 and turn around.

Okay. Great. And then on the success fees within healthcare, can certainly appreciate that the hand-wringing that sometimes goes on when there is an expectation that you put out there, and then you don't hit it because it slips a quarter, or something like that. But my question really has to do with has anything fundamentally changed in the way that you account for success fees, or your expectation for success fees as a percentage of an engagement, rather than just not having folks focus on a particular number, and to get away from that?

Jim, this is Jim Roth. Nothing has changed at all. The way we are going to market, the way our clients are reacting, none of that has truly changed. There may be a slight tendency towards wanting more contingent fees. But it is not necessarily material. I think in general it is again, it is not the way we even, it is not the way the work is sold or the way we pursue the work. It really remains up to the client's discretion in terms of what they want to do. They come to us because they have got an issue, the first thing they want to do is get comfort that in fact, we have the capabilities and competencies to help them resolve their issues, which is typically improve financial performance, and once they get that competency, the next question quickly turns to pricing. And there they have got a series of options. And depending upon their unique situations, their situation is how they eventually determine how they want to structure the pricing on this thing. We are neutral as to which approach they take, we have our own financial expectations that we want to achieve. But we are neutral in terms of how we go about doing that.

Okay.

Jim, just to confirm, no change on the accounting side. It has remained consistent.

Okay. Last question is that just no major acquisitions in your revenue guidance? Are tuck-ins in revenue guidance?

No. We don't have tuck-ins in revenue guidance. As we always have, we are always looking at opportunities for tuck-in acquisitions across all of our practices. But we don't contemplate any of them in our 2012 revenue guidance.

Okay, so that is all organic essentially. Okay. Alright. Thank you.

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

Thanks. My first question is could you describe the mix of demand within the healthcare practice, maybe kind of comparing and contrasting any changes between demand from hospital systems versus community hospitals, and whether the duration is either longer or shorter than it has been?

Tobey, this is Jim Roth. I don't think we have seen a tremendous change in demand. I would say over the last 12 to 18 months, we have probably seen more of our work coming from academic medical centers, and some of them are multi-hospital systems. So I think we have probably done more there than we have done in the smaller, mid-sized, and community-based hospitals. Having said that, we still have a very strong base. Part of our effort in 2012 will continue to go back down and penetrate all of those markets, large health systems, academic medical systems, community hospitals and everything in between. We have historically in our health care practice have had competencies across all of them. I think we have been really pleased with the extent to which we have been able to penetrate the AMC market, particularly over the past 12 to 18 months. But our growth strategy is really going to be addressing aggressively all of the providers in those collective markets.

And Tobey, this is Jim Rojas. We have not seen any change in the duration or the length of the projects. They continue to be 9 to 12 months on average.

Thanks. In the legal segment in the quarter, with the surge in revenue, I was a bit surprised that the margin didn't accompany that towards the higher end of the historical range. Can you give us any color as to what may have held back the profitability in the segment, given where the revenue ended up?

Yes. And, Tobey, as you remember that, we do our electronic discovery work using a variable workforce. And much of the work that came in was in the financial services segment, which typically is done in higher cost areas for us. So while that margin that we did receive, we also had a higher cost base as well to deliver that. So that did impact the margins.

Okay.

And then, Tobey, let me add also that from a bonus perspective, because of the way we account for our bonus, we record to the mid-point of our guidance, and when in the fourth quarter we exceeded, we had to go back retroactively and catch up to true-up on a full-year basis. So those are the two factors that really drove the margins lower than what they have normally been running.

Thank you for the color. On the tax rate guidance for 45%, wasn't some of your international operations and kind of launching some stuff, boost in the tax rate last year, and I was wondering if there was a possibility that tax rate could come in a little bit lower that be this year, as you start to operate in those areas?

Yes, Tobey. The tax rate this year was, as you saw, actually was a little higher than we expected it to be. The mix of where the income was earned was in tax jurisdictions that were less favorable to the overall tax rate than what we expected. As we looked at 2012, we do believe that we will improve the mix of where those are coming from, from a couple of different perspectives. The opportunity within the tax rate to improve that is really stopping or reducing the losses in some of the areas that we don't get tax benefits. But more importantly we have some valuation allowances that we can realize that would be potentially upside to the tax rate, but we are not necessarily counting on those at this point. But it is an area of active focus of ours in 2012.

Thanks. I was wondering if you could comment on potential new lines of business. You already spoke to the clinical solutions business that you are ramping up. I am wondering if you could comment about whether that is going to be a drag on margins in 2012? And then maybe speak to opportunities for a full-blown revenue cycle outsourcing business, as well as hospital restructuring business?

Tobey, this is Jim Roth. The margins that we have talked about so far will anticipate the growth that we would expect within clinical solutions. So that has all been factored in. With respect to either outsourcing work or hospital restructuring, the outsourcing is certainly we have looked at that periodically. We will continue to look at that as a possibility. But that is certainly not contemplated at this point in any of our 2012 results. That along with a number of other additional service offerings are things that we are continually looking at. In terms of the restructuring business, I think that is one of the areas we have talked about historically, which is a natural for our restructuring practice, and our healthcare practice. And that will certainly be something that we think we can, we will continue to try to penetrate that market as it evolves, and I think we have got great skills to be able to do that. I would not anticipate there being any major investment that would be required in order for us to be able to serve those kinds of markets.

Thank you. Last housekeeping question. How much revenue in 2011 was contributed from acquisitions to Click Commerce?

It contributed about 200 basis points of growth rate.

Thank you very much.

(Operator Instructions). And the next question comes from the line of Bill Sutherland of Northland Capital Market. Please proceed.

Thanks. Mark, I was curious on the restructuring and restatement guidance for the year. If you can give us a little color on that?

Sure. So for next year, we have a $10.5 million number in our guidance. The way that breaks out is about $5.5 million of that is related to restructuring. As we have actually made public as well, we have entered a new lease in our New York market. And actually recently just moved to the new space downtown. As we seek a subtenant, the expectation is that the remaining lease payments in excess of any sublease will be taken as a restructuring charge in 2012. And then the $5 million on the restatement related is really related to the ongoing indemnification obligations that we have in connection with the former officers and our own defense. And that will continue until a resolution of the matter.

Okay. And so at least on the restructuring side, is there anything that is at least visible at this point that would create reason for that line into 2013?

I am sorry. Could you repeat that, Bill?

So I understand the restatement. Just continues until resolution. But on the restructuring, are there any additional items on the horizon that would cause that line to continue past this current estimate?

Bill, this is Jim Rojas. One of the things and we have talked about this in the past, and it was part of the restructuring that had to do with we had a real estate portfolio that was more suited to a disputes and investigations business. And which lent itself to having more office space and what we have done is we have gone through our major locations to make sure that we have right-sized those, and we have talked about New York in the past. New York most likely is our last one, that is the only one that we are anticipating within our guidance this year. But like any company, we are always continuing to look and to monitor, to make sure that our infrastructure costs match what our business is. But within the guidance that we have provided, that is the only restructuring item that we are anticipating.

Okay. Thanks. And then just a clarification on the guidance for financial consulting. Is that 0% to 5% growth off the Q4 2011 run rate, or the full-year 2011 revenue?

Off the full-year run rate. Not Q4, the full year.

The 28.5. Okay. And then last one. On the international business, about what percent of revenue is that, or at least for 2011? And then I saw the hiring on the restructuring side, and then it was actually going to be international. I am kind of curious as to what you think about your strategy outside North America? Thank you.

One of the things we have not disclosed in the past what our international revenues are. The one thing it becomes challenging, because each one of our practices have different opportunities within international locations from healthcare to legal consulting to even financial consulting. You saw that we hired a restructuring person in the UK this year. So it is one thing that it becomes more challenging to do, because we don't classify revenues that way. What I would say is, though we continue to see opportunities across our practices to increase international exposure, and we will continue to look for those opportunities. I don't see us significantly expanding our infrastructure internationally. But as we take an approach of following our clients to where the demand is, we will continue to increase our international revenue.

Our next question comes from the line of Ato Garrett, Deutsche Bank, please proceed.

Good morning. I have a question relating to utilization levels. Given the head count additions that you made in the fourth quarter and the planned head count additions you announced, is that going to bring utilization levels down, or are they going to stay about the same?

Yes. Our expectation is that we will keep utilization levels across the Company right around that 75% level.

Okay. Great. And then looking at the online education project that you guys did with University of South Carolina. Do you think that kind of engagement is repeatable, or is that a one-time project?

We have, the whole dynamics in the higher education environment is changing dramatically. We are always going to be looking for ways to kind of evaluate how we can best treat that. It is possible that we will do other things similar to that in the future.

Okay. Great. Thank you.

And our next question comes from the line of Dan Mazur of Harvest Capital. Please proceed.

Good morning, guys. Congratulations on a great year. Just wanted to ask with your cash flow outlook. As we get past the final earn out what is the priority for cash flow? Do you want to continue to deleverage, or is it acquisition or is it other, or just maybe the way you think about the most efficient capital structure is 1.6 the right, or is it lower, or higher? Thanks.

Sure, Dan. This is Mark. It is actually kind of a high-class problem to have, to talk about what to do when you have got a little excess cash. Our first and foremost priority is investing in the business. So if we can find tuck-in acquisitions that complement the existing practices, that is by far and away the most important thing to us and our focus. And we are not in a hurry necessarily to use excess cash, if we think that we have opportunities. At the same time we have ample liquidity in terms of the current capital structure that we have. So the priority so far and what you saw in this past year was absent any immediate opportunities we have paid down our revolver. And as of the end of the year it was really only about $5 million into the revolver. As we look into 2012, once we are through the first part of the year, the first quarter with the earn-out payments and our annual bonus payments, we will be in a position where we will start to generate excess cash again and kind of reverse a short-term increase that we expect to see in funding some of those payments. So we will revisit it at that time. But prioritization-wise it would be first and foremost tuck-in acquisition, debt reduction I would say is the next one absent any other immediate uses. And that is balanced around not reducing our liquidity. We are very covetous of having ample liquidity within the business. And so then it becomes a matter of what do you do after that. And we have looked at and continue to look at all of the options from share repurchase, dividends, et cetera, in terms of making sure we have a capital structure that serves shareholders in the best interest of the Company, at the same time giving us the flexibility to grow and deliver top line expansion.

Okay. That makes sense. It sounds like maybe something you will revisit a little bit later in the year. And, yes, it is a dramatically different position to be in than a couple years ago. So that is a great thing.

Thanks, Dan.

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

Thank you. As we enter 2012, our market position remains solid, and our dedicated people are fully focused on continuing to provide the highest quality service that has become the hallmark of this Company. We are encouraged by our prospect for growth in 2012, and look forward to speaking to you in April when we announce our first quarter results. Good day.

That concludes today's conference call. Thank you everyone for your participation. You may now disconnect.

Due to operator error, Huron Consulting Group's standard disclosures where not read by the operator at the beginning of the conference call in accordance with the company's standard procedure. Huron's standard disclosure is as follows -

Good morning ladies and gentlemen, and welcome to Huron Consulting Group's webcast to discuss financial results for the fourth quarter and full year 2011. At this time, all conference call lines are on a listen-only mode. Later we will conduct our question and answer session for conference call participants, and instructions will follow at that time. As a reminder, this conference call is being recorded.

Before we begin, I would like to point all of you to the DISCLOSURE at the end of the Company's news release for information about any Forward Looking Statements that may be made or discussed on this call. The news release is posted on Huron's website.

Please review that information, along with the filings with the SEC, for a disclosure of factors that may impact subjects discussed in this morning's webcast.

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

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