Huron Consulting Group, Inc. Q3 2008 Earnings Call Transcript

Nov. 3.08 | About: Huron Consulting (HURN)

Huron Consulting Group, Inc. (NASDAQ:HURN)

Q3 2008 Earnings Call

October 30, 2008 11:00 am ET

Executives

Gary E. Holdren – Chairman, Chief Executive Officer

Gary L. Burge – Chief Financial Officer

Daniel P. Broadhurst – Chief Operating Officer

Mary M. Sawall – Vice President of Human Resources

Analysts

Tim McHugh – William Blair & Company

Jim Janesky – Stifel Nicolaus & Co.

Tobey Sommer – Suntrust Robinson Humphrey

Andrew Fones – UBS Securities

[Carl Denoccio] – Deutsche Bank

Dan Leben – Robert W. Baird & Co., Inc.

David Gold – Sidoti

Bill Sutherland – Boenning & Scattergood Inc.

Operator

Good morning ladies and gentlemen and welcome to the Huron Consulting Group’s webcast to discuss results for the third quarter 2008. (Operator Instructions) And now I would like to turn the call over to Gary Holdren, Chairman and Chief Executive Officer of Huron Consulting Group. Mr. Holdren, please go ahead.

Gary E. Holdren

Thank you and good morning. I want to thank you for joining us for today’s webcast to discuss Huron Consulting Group’s third quarter 2008 results. Before we begin, I would like to point all of you to the disclosure at the end of our news release for information about any forward-looking statements that may be made or discussed on this call. We have posted a news released on our website.

Please review that information along with our filings with the SEC for disclosure of factors that may impact subjects discussed in this morning’s webcast. Also on this call we will be discussing one or more non-GAAP financial measures. Please look at our earnings release and on our website for all the disclosures required by the SEC including reconciliation to the most comparable GAAP numbers.

Joining me on the earnings call today are Gary Burge, our Chief Financial Officer; Dan Broadhurst, our Chief Operating Officer; and Mary Sawall, our Vice President of Human Resources.

This morning I would like to cover two topics. First, results of the third quarter and second, our thoughts on what impact the financial markets and economy will have on Huron for the rest of the year and in 2009.

Let me talk first about the third quarter. Gary Burge will cover the numbers a lot more closely when I am done with my remarks. The third quarter was very successful for Huron. First of all, we completed the acquisition of Stockamp and the integration is going well. Stockamp’s third quarter financial results came in as expected so we are off to a good start and Q4 will show more normal gross margins for Stockamp.

And Huron’s legacy business on an overall basis had a very good quarter. Excluding our previously announced restructuring charges and Stockamp results, the adjusted EBITDA margin for Huron’s combined portfolio businesses in the third quarter would have been better than 26%. That’s the highest margin percentage in Huron’s history and it certainly points to a solid performance in Q3.

Our Health and Education segment had a really good quarter. As I said, Stockamp’s integration is going very well and they met all of our operating and financial expectations in the first quarter with us. We are also very excited about how they are going to combine forces with our Wellspring and Higher Education teams to address the needs for hospitals, major health systems and the academic medical centers. Excluding Stockamp’s results, the legacy Health and Education business posted record revenues and an operating margin of nearly 40%.

We continued to demonstrate our market leadership position. Demand for these businesses by the marketplaces are extremely strong. Our Legal Consulting business also turned in great results for the quarter with record revenues and margins. V3locity was off the charts with our document reuse centers averaging more than 100% utilization in the third quarter. In our Finance Consulting segment we improved segment operating income by $2 million from second quarter of 2008 through headcount reductions and increased utilization.

As you will recall from last quarter’s conference call, we’ve closed down our operational consultant business because of below average operating results. As a reminder, operational consultants, set in our Corporate Consulting segment.

So I think we had a very good quarter during what was a difficult time for a lot of companies. I believe this speaks to our ability to adapt to the market and to take advantage of our strengths. And I think it also speaks to our ability to manage through challenging times with our balanced portfolio businesses and the return on investment concept clients get for using Huron.

But based on what we are seeing in the marketplace, how does this position Huron for the rest of 2008 and 2009? It is fair to say that very few of us at Huron and our clients and American industry in general and those of you in the investment community have direct experience dealing with the kind of marketplace turmoil we are witnessing today. We are also experiencing the uneasiness caused by wide swings in the equity markets, a lack of certainty in the credit markets, and whether consumers will have funds to buy goods and products.

I would be less than candid if I didn’t say that predicting 2009 revenue growth and results will involve more variables and uncertainties than any other time in the history of Huron. We expect to see some pullbacks or delays in assignments in some sectors and certainly any future widespread liquidity issues and companies drive to conserve cash could affect our business.

But along with these risks we also believe there are big opportunities for Huron. Our job is to minimize those risks and maximize those opportunities in the coming quarters. We need to attack the market in the next 14 months like we did when we started Huron in 2002. We need to be in the marketplace every day, visiting existing clients and calling on new ones to see how we can help them improve cash flow and solve business problems.

Here’s currently how we see our businesses. We are very well positioned with our Health and Education and Legal Consulting businesses, which represents nearly 70% of Huron’s revenues to date. We feel that we have number one market position in these businesses. Both are performing great and both are very well positioned for near and long term growth. These are really exceptional businesses.

The healthcare side of our business, Wellspring’s Stockamp, is also a business with longer term visibility and hard backlog. Their implementation signments are eight to 12 months. We currently have substantial 2009 backlog and the demand for their services are very high, with calls coming in weekly for help from clients.

Academic institutions and hospitals of all type are facing shrinking endowment funds and reduced government funding, and capital expenditures are not going away. And pressure to improve cash flow is even more acute now than it ever has been over the last several years.

We also see many opportunities for Health and Education business in the developing Middle East market.

In addition, the issues facing healthcare providers, payers and PhRMA companies are only going to intensify as a new administration takes control in Washington. We remain bullish on this business and we continue to believe that our biggest challenge is making sure we have enough qualified people to serve existing clients and new clients.

The macroeconomics of 2009 could enhance the growth of Health and Education consulting. Execution will be our key, not market demands. We are also very excited about our Legal Consulting segment, and especially our V3locity product. We feel that we are very well positioned to continue expand and grow our discovery related businesses.

We have built an extraordinarily powerful offering to the legal community that continues to gain market share every day. We continue to sign new match of service agreements for V3locity. Alliances with Discovery Services, LLC and the [Dime] Group for our V3locity services give us an increased sales force and increased review capacity in New York and Chicago. Having additional review capacity and sales force in New York will help us serve the financial services industry, where we believe there will be high demand and for all our legal discovery and consulting services.

As I mentioned, we have made some headcount adjustments in our Financial Consulting segment to improve our operating results. We still like this business very much. We feel that this segment has the tools and expertise to deal with what is likely to be a rising tide of investigations, litigation and dispute opportunities. And we also feel there will be increasing demand for CFO Solutions, particularly as it relates to the Financial Services industry and government’s investment and financial institutions.

I realize that we expressed these same feelings about Financial Consulting in the second quarter and that the business has yet to rebound. We are optimistic that business should increase sometime in 2009, we just don’t know when. In the meantime, we will continue to be out in the marketplace, continue to manage the headcount, and do everything we can to improve performance and position ourselves for new opportunities as they develop.

In our Corporate Consulting business, we remain optimistic about the outlook for our restructuring and turnaround business. Our experts in this space focus on out of court, middle market turnarounds and we believe there will be plenty of business in the turnaround market in the months and quarters that lie ahead.

Our strategy [gulp] business continues to do well and has a very solid backlog and we expect it to continue to bring exceptional shareholder value solutions to the [C suite]. Lastly, our utility business and Huron Japan continue to develop their niche product offerings.

Finally, even though some concerns have been expressed about a potential decline of the consulting industry in the current market, I want to point out that Huron does not compete in the same space as many of the other large firms in the marketplace. I’d also like to remind you 70% or more of Huron’s revenues will come from our Health and Education consulting and the Legal Consulting segments in 2009, and we will continue to use our capital to grow these practices and products.

We are not technology consultants generally, nor are our projects discretionary in the way that many analysts have defined the terms. We have also not had a substantial presence in the financial services sector. However, we do expect to capitalize on events driven in the financial services segment.

Huron has always focused on solutions that provide measurable business improvements and demonstrate a return on investments for our fees, and those solutions should be all the more essential in today’s environment. It’s very difficult for a hospital, university or a company to say it does not want to enhance root revenues and improve operating results in this or any other economic environment.

To wrap up, to the extent that we can predict near and long term trends in our markets right now, we believe there will be substantial opportunities for all of Huron’s business in 2009 and we are very pleased with how we are currently positioned. Growth and profitability is a key focus of my whole management team and every managing director in Huron. We will continue to add to our superior market offerings and we will trade up or exit when we feel we don’t have scale or we don’t offer superior client solutions. It’s not an easy market out there, but our job has always been help clients steer through tough environments and we continue to expect to excel at that.

Now let me turn it over to Gary Burge who will go over our financial results and guidance.

Gary L. Burge

Thanks Gary and good morning everyone. There’s a lot to cover with respect to the quarter and guidance so let me get right into it. Some of our financial highlights included revenues of

$168.7 million were up nearly 26% compared to last year’s third quarter, with consolidated organic growth up 12%. Excluding the Financial Consulting segment, combined organic growth rate for the remaining three segments was approximately 27%.

Our customer diversification continues to improve as our top ten customers represented about 27% of total revenue for the quarter compared to 30% a year ago. Overall, we came in slightly higher than the mid-point for the revenue and EPS ranges that we gave you heading into the quarter. EBITDA rose to $31.6 million, up about 12% from EBITDA of $28.3 million in Q3 last year and our adjusted EBITDA, excluding share based comp and our previously announced restructuring charges, rose approximately 22% to $40.8 million.

Our adjusted EBITDA margin of 24.2% was influenced by Stockamp’s results while they transitioned from their historical cash basis revenue recognition principles to GAAP and as Gary mentioned, excluding Stockamp, Huron’s legacy businesses posted an adjusted EBITDA margin of better than 26%.

Operating income increased 2% to $22.3 million for the quarter from $21.8 million last year and third quarter operating margin was 13.2% compared to last year’s 16.3%, reflecting the impact of the restructuring charge, increased amortization of intangibles, and the previously mentioned Stockamp revenue recognition issues. Net income decreased to $8.8 million in the third quarter of 2008 and diluted EPS was $0.44 compared to $0.58 a year ago. But again, this EPS number was solidly in the range that we gave you for the quarter.

Now for some comments regarding each of our businesses. The Health and Education consulting segment continued to be a bright spot for Huron as revenues were $77.7 million for the third quarter of 2008, increasing better than 56% from $49.8 million in the third quarter of 2007. Organic revenue growth for this segment, excluding Stockamp, was in excess of 25%. We remain very pleased with the strength that Wellspring has displayed in the community hospital market and our Higher Education and PhRMA health plan practices also had strong third quarters.

As Gary mentioned, the Stockamp integration has gone well and they fully met our expectations during the quarter in terms of revenue and operating income goals. In total, the Health and Education segment operating income met our expectations, increasing 19% to $22.4 million from the $18.8 million during the same period a year ago, reflecting the aforementioned intangible amortization increase and the Stockamp revenue recognition issues.

As Gary mentioned, margins without Stockamp and the amortization of intangibles approached a very healthy 40% for our legacy practices in this segment. Revenues for the Financial Consulting segment were $33.9 million for the third quarter of 2008, a decline of about 15% from

$40 million in the third quarter of 2007. Revenues for our disputes and investigations practice came in about where we had forecasted for 3Q while revenues for CFO Solutions were softer than we had expected, coming in about $1 million short of our forecast.

Our Financial Consulting operating income of $10 million declined about 14% from last year’s third quarter. We did see a slight improvement in operating margin as we have continued to manage our headcount down while we wait for the market for these services to rebound. We’d also like to point out that this segment’s operating margins and utilization both improved sequentially from 2Q as we better aligned our headcount with the current level of revenues.

As Gary said, we’re optimistic about the future of the disputes and investigations and the CFO Solutions businesses. We feel the recent turmoil on Wall Street and the financial markets should result in more disputes and litigation activity during the coming year, as well as an increased regulatory focus. These changing environments should create more opportunities for us.

Moving on to the Legal Consulting segment, revenues were $38.1 million for the third quarter 2008, increasing more than 63%, all organic, from $23.3 million in the third quarter of 2007. V3locity had a tremendous quarter as our product continues to gain acceptance by general counsels who see that the price, quality and speed of our discovery services clearly distinguishes us in the marketplace.

[Same] and operating income more than doubled to $15.7 million in Q3 of ’08 from $7.2 million during the same period a year ago. Operating margins in this segment improved to better than 41% from 31% a year ago, due to V3locity’s increased revenue volume and related operating efficiencies.

You’ve also seen improved utilization for our core legal consulting personnel since the beginning of the year. We believe there’s a great market for our legal services who continue to work hard to meet the needs of the general counsel with V3locity and our core Legal Consulting and Records Management businesses.

Revenues for Corporate Consulting segment were $18.9 million for the third quarter of 2008, decreasing as forecasted about 10% from $21 million in the third quarter of 2007. Quarterly, segment operating income declined to $3.3 million from $7 million in last year’s quarter. Quarterly results were impacted by charges associated with the closing of our operational consulting practice, as well as headcount actions taken in other practices and an effort to improve utilization and operating margins for this segment on a go forward basis.

$2 million of the company’s total of $2.3 million in third quarter restructuring charges were taken in this segment. With the decision on the operating consultant practice behind us, we are optimistic about the remaining practices in this segment as Gary mentioned. I also want to provide you some color on our third quarter income tax provision.

Our third quarter effective tax rate of 47.5% essentially raises our year-to-date effective tax rate from 45% to something closer to 46%, 45.8% actually. This provision increase is driven by additional international start up losses that cannot yet be tax benefited, and also reflects some current foreign tax credit limitations. We have also continued to see a greater proportion of our work being performed in higher states and local tax rate jurisdictions.

Now for a few more data points, DSO came in at 69 days at the end of the quarter, helped by Stockamp who does a great job of billing and collecting. We are also very pleased with the posting of nearly $40 million cash flow from operations during the third quarter. Our return metrics remains strong, with a return on assets of approximately 7.7% and a return on equity of 19% over the last 12 months.

Now guidance for Q4; while fourth quarter always presents challenges in terms of being able to accurately forecast available business days, in light of our clients and consultants holiday and vacation schedules, this quarter also has uncertainties presented by what may happen next in the financial and business market. Having said that, it’s our job to present what we think is a realistic forecast and as you saw in our press release, here’s what we expect for Q4. Revenues in the range of $170 to $178 million, EBITDA in a range of $38 to $41 million, operating income with a range of $27 to $30 million and $0.58 to $0.66 in diluted EPS.

We expect that the fourth quarter results are also going to include about $7 million in stock based comp costs. With our fourth quarter update, guidance for the full year 2008 has been updated to reflect revenue in the range of $621 to $629 million, EBITDA in the range of $121 to

$124 million, operating income range of $90 to $93 million, and diluted EPS in the range of

$2.12 to $2.20. Full year share based comp costs is estimated to be approximately $27 million.

From a modeling standpoint, we expect to have approximately 1550 billable consultants on board by the end of the fourth quarter and FTE’s should average approximately 875 for the year. We have forecasted utilization rates for the fourth quarter and full year approaching 75 and 70% respectively and we expect average hourly bill rates of approximately $260 and $270 for the quarter and full year respectively.

Lastly, we are assuming a 5% reduction in effective business days for the quarter, with the fourth quarter expected to have 57 days versus 60 days in the third quarter after taking out holidays and forecasted vacation days. Weighted average diluted share counts for 2008 are estimated to be approximately 20.2 million for Q4 and 19.1 million for the full year 2008. And finally, with respect to taxes, with our true up provision in the third quarter you should assume an effective tax rate of approximately 46% for the fourth quarter and the full year.

Let’s now open it up for questions.

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from Tim McHugh – William Blair & Company.

Tim McHugh – William Blair & Company

I wanted to ask about the Legal Consulting segment, in particular the V3locity business was very strong there and it seemed like as reflected in the average revenue for FTE that the pricing was very strong over the productivity spiked up a little bit relative to the last few quarters. I was wondering if you could give some more color on that?

Gary E. Holdren

Well Tim I think as we’ve sort of told everyone is that we were – V3locity is a new product and we explained to people that we were in the early stages of it. We’ve talked to people about throughput through the factory and I think what we’re seeing is, we had some big jobs and then also assume some of that efficiency starting to come through on operating results.

Tim McHugh – William Blair & Company

So you would expect that relatively speaking that that would be a sustainable level of productivity?

Gary E. Holdren

Well I think that there’s a couple of things going on there. One is that we had a real big job in there. I mean we had big jobs in there, they’re there for a while, people can get more efficient on those jobs. But I think there’s a combination of factors. Size of jobs, and just the nature of – just think about it.

If you have a job that goes four months and it’s the same subject matter, people are going to get more efficient on the documents and the process. But I would say, having said that, we do expect that we’ll continue to see good utilizations and our pricing will be good, and we’ll continue to – now I don’t know if it will stay at that level in Q4 and beyond, but we’ll see good results.

Tim McHugh – William Blair & Company

You highlighted some of the areas that you thought would benefit from the current macro environment but you also mentioned obviously that there’s some projects that could be delayed. I was wondering if you could talk a little bit more about what areas you would expect the most risk is in in the business for that sort of issue?

Gary E. Holdren

If you look at the general counsel, they decided they don’t want to put in a new matter management system you could have some there and I think you could also have some just in the higher end if the university decides they’re not going to put in a system or something. We don’t think it’s a very dramatic thing because we look at most of our businesses, we think that the key business should start soon from events, but it hasn’t.

So I guess we’re just being a little bit conservative. If the events don’t happen, we might not see improvement in FC and I think we – but the vast majority of our businesses, we see just more opportunities than we see people not spending the money.

Tim McHugh – William Blair & Company

Lastly you touched on the FC business and just from watching the headlines you would think that there’s been a pickup in the last month or so at least in investigations, but as you mentioned you’re not seeing it yet. Do you think - are we wrong from just reading from the headlines that there has been a pickup or competitively do you think you just haven’t won the engagements?

Gary E. Holdren

I guess from our perspective, and we’re talking lawyers and we’re in the market a lot with our V3locity product and talking to a lot of people, I’m not sure it’s picked up to the extent the headlines say they have. And it clearly hasn’t picked up at Huron. We’re not even seeing that many chances to lose.

Operator

Your next question comes from Jim Janesky – Stifel Nicolaus & Co.

Jim Janesky – Stifel Nicolaus & Co.

Gary Burge, what did you say your expectations were for utilization fourth quarter in 2008 respectively?

Gary L. Burge

We think we might be getting somewhere in the neighborhood of 75% so it’s going to creep up. And then for the full year it would be a 70% average because it’s got a full year average to pull up.

Jim Janesky – Stifel Nicolaus & Co.

And remind us how much of an effect – can you let us know how much of an effect Stockamp did have revenue wise in the third quarter?

Gary L. Burge

Well we gave you a range as we entered the quarter of $14 to $16 million of revenue and they are within that range.

Jim Janesky – Stifel Nicolaus & Co.

And in terms of sequentially looking at division by division, I would assume that any Financial Consulting to expect that that would be either flat or down might be in line. It looks like Legal is still moving ahead quite considerably. Obviously we have Stockamp in the Health and Education plus there’s a seasonal impact from Wellspring. What would you expect that as in Corporate Consulting just considering it’s somewhat cyclical offset by the restructuring business?

Gary L. Burge

Yes, well, regarding Corporate Consulting we would say certainly there should be potential upside in restructuring and turnaround business, but it’s a relatively small segment as you know and we would assume for purposes of our forecast right now it stays flat.

Gary E. Holdren

I think also Jim you asked about FC, we’re assuming it’s going to go down in Q4 from Q3 in our guidance.

Our core business you should assume for the most part because of the sequential days, I mean less days, that you wouldn’t see any sequential growth except for the pickup of the Stockamp revenues. You can pretty well see that when you do the math.

Jim Janesky – Stifel Nicolaus & Co.

Including Legal?

Gary E. Holdren

Yes, including Legal. Because one of the things that we had in Legal – we had that thing at 100% capacity and one of the things I keep trying to make sure that you guys all understand is V3locity’s going to be a great business, but if we run at 100% capacity one quarter and we’ve got big jobs, we just can’t make that happen quarter after quarter. And so you might see V3locity come down in Q4, but I sure hope that you don’t think that the business isn’t good.

Jim Janesky – Stifel Nicolaus & Co.

Is there a way, considering how strong restructuring is, are you considering ways in terms of either acquisitions or group hires to increase your presence in that area?

Gary E. Holdren

Absolutely not.

Jim Janesky – Stifel Nicolaus & Co.

So you’re comfortable with where you are?

Gary E. Holdren

Yes. We’re just not – I think I told you we’re going to put our capital in Health and Education and Legal. I don’t know whether you guys like that or not, but I think you should realize we’re becoming a pretty big health and legal consulting business as a part of Huron. We think that’s where we can really differentiate ourselves.

Jim Janesky – Stifel Nicolaus & Co.

You also talked about the backlog in Health and Education, how strong it is and I guess we would consider it the area of your strongest backlog and the most visibility. Considering that, I think that the market now wants to know where opportunities can be missed, not made. If we were to look out towards the end of 2009, how – what would be the reasons in your opinion why you would not realize the full potential of that backlog?

Gary E. Holdren

Based on what the guys that run that practice tell me, and based on what they’re hearing from the marketplace, I just can’t give you a reason. I don’t have one right now. It would be illogical for those to need cash and need it quick to handle their capital expansion and where we’ve got proven businesses that give them four and five times return on consulting fees, why would they not buy?

Jim Janesky – Stifel Nicolaus & Co.

Finally, Gary Burge, can you give us an idea of intangible asset amortization both the fourth quarter and I know that’s rapid enough up front so how we should scale that back in 2009?

Gary L. Burge

Yes. Rapid amortization will come down in the first quarter of 2009 to somewhere around $5, $600,000 and that’s down from about the $3 million level in the - $4 million in the fourth quarter.

Jim Janesky – Stifel Nicolaus & Co.

And that will – that $5 to $600 K we can float that through the rest of the year?

Gary L. Burge

No, that will end at the end of the first quarter.

Jim Janesky – Stifel Nicolaus & Co.

Oh, okay, so that’s it, right?

Gary L. Burge

Yes, for the rapid. They’ll see some longer term ongoing amortization, but the rapid will step down in the first quarter and then be gone going into the second quarter.

Jim Janesky – Stifel Nicolaus & Co.

But the ongoing amortization is in the line of depreciation and amortization rather than intangible asset amortization, right?

Gary L. Burge

Most of it, but there is a little up in direct costs. There’s some longer term software and customer relationship amortization up in that direct cost line.

Operator

Your next question comes from Tobey Sommer – Suntrust Robinson Humphrey.

Tobey Sommer – Suntrust Robinson Humphrey

You mentioned the systems both in terms of higher ed and in the general counsel’s office. Last time I ran the numbers I thought that might have been sort of like fourish percent of overall revenue and that was before Stockamp. Is that still a decent approximation for the exposure to that kind of IT system?

Gary E. Holdren

Yes, Tobey, that’s in the ballpark for total at Huron. It’s pretty small, Tobey.

Tobey Sommer – Suntrust Robinson Humphrey

So it would be roughly comparable with the restructuring practice as a percentage of revenue?

Gary E. Holdren

It’s not – you mean – give me your numbers again?

Tobey Sommer – Suntrust Robinson Humphrey

Roughly fourish.

Gary E. Holdren

It’s in the ballpark.

Tobey Sommer – Suntrust Robinson Humphrey

I have a question about the demand you saw on V3locity. Is there – are you able to see if that demand may be the front end of work related to the financial crisis? Or is it unrelated litigation?

Gary E. Holdren

So far it’s all unrelated.

Tobey Sommer – Suntrust Robinson Humphrey

The bill rates that you expected for the fourth quarter and the full year? Sorry, I missed that.

Gary L. Burge

Oh, yes, Tobey the bill rates – we are expecting for the third quarter somewhere in the neighborhood of $260 per hour and then for the full year about $270. The Stockamp definitely depressed the average bill rate in the third quarter and that will start to come up in the fourth quarter.

Tobey Sommer – Suntrust Robinson Humphrey

Intrinsic rates are still probably moving in a mid single digit pace?

Gary L. Burge

Yes.

Tobey Sommer – Suntrust Robinson Humphrey

Just a question about how to think of the healthcare business, Gary Holdren. I think investors are kind of struggling with that in consulting is such a broad term, everything from very discretionary type of work all the way to less discretionary, restructuring type work. Is much of what your core healthcare business does is that more analogous almost to the hospital restructuring?

Gary E. Holdren

Yes, I think that’s the way – the Stockamp clients would not like for you to think of them that way because they’re very healthy, right? But they’re giving them – they’re making them continue to be good to great hospitals because they’re giving them great solutions in revenue and patient progression. And they can see that return on investment and so they see that they need to do it just to make your hospitals great.

The Wellspring business has traditionally been more of going in a full value transformation, which would say just to take negative EBITDA and make it positive EBITDA. You could think of that maybe as a restructuring but it’s not a bankruptcy situation. But it’s just making them – it could be analogous to what we do in some of our turnarounds.

Tobey Sommer – Suntrust Robinson Humphrey

What’s a rough mix now in the healthcare and higher ed practice, between the legacy

Wellspring, the new Stockamp and the higher ed? Just in rough terms?

Gary E. Holdren

Your question is how do they relate to the –

Tobey Sommer – Suntrust Robinson Hum

No, what’s the rough revenue mixture in the segment of those two?

Gary E. Holdren

Yes, I mean when you look at them right now, they’re probably about a third, a third, a third.

Operator

Your next question comes from Andrew Fones – UBS Securities.

Andrew Fones – UBS Securities

I was wondering if you could give us a sense of how Callaway performed? And I think you said that the CFO business was a little bit weaker versus investigations and then the disputes business?

Gary L. Burge

Yes, Andrew, we were a little disappointed in Callaway’s results for the third quarter, about

$1 million short of what we were expecting heading into the quarter. So to the extent their business is affected by the economy, CFO’s and controllers making decisions on special projects, did that have an affect? We’d say probably yes. But we still are very positive on this business.

We think there’s some tremendous opportunities going forward with what may happen or is happening in the financial services industries in terms of special project work on a go forward basis. And we’re trying to direct our activity and marketing efforts towards that end.

Gary E. Holdren

We put a proposal in Andrew to try to be a provider to the FDIC mostly through using our on demand resources. We haven’t yet heard whether we have been selected. We think that’s where the on demand resources probably have the most potential to excel over the next either financial institutions or working for the government with the TARP situation.

Andrew Fones – UBS Securities

And then if you’re able to comment at all on the impact of large investigations versus Q2 and then disputes?

Gary L. Burge

You’re saying how many large investigations do we have in Q3?

Andrew Fones – UBS Securities

Yes, that would be great.

Gary L. Burge

Yes, there weren’t – we didn’t have any mega jobs, major investigations in Q3.

Andrew Fones – UBS Securities

I know it’s a little early, but I guess before we have another quarterly call you’ll make a decision on the number of offers to make to students next year. Can you give us any preliminary thoughts there?

Gary E. Holdren

That’s on recruiting. Mary?

Mary M. Sawall

Our target for campus recruiting next year is about 140 to 150 students. And that’s slightly down from this year. But we continue to have an active campus program and we’re in the process of integrating our campus recruiting with Stockamp which had a very robust program as well. So we’re getting good coverage and we’re looking forward to that.

Andrew Fones – UBS Securities

Do you have any plans to add any additional capacity to V3locity?

Gary E. Holdren

It will be announced, Andrew, shortly but we went into – we’re tripling our capacity in New York through a joint venture with [Dine] and we’ll look at some other facilities around the United States.

Andrew Fones – UBS Securities

What was the impact last year in the third quarter if you could from the operational consulting group? I’m just trying to understand the whole gamut of what you caught per business year-over-year.

Gary L. Burge

Yes, Andrew, third quarter of last year was $21 million of revenue for Corporate Consulting, this year was about $19 million and it’s really related to the overall the Operational Consulting business being gone from where it certainly was in last year’s results.

Puts and takes across the various practice areas but that’s the bottom line. That business has not grown dramatically from an organic point of view since last year.

Operator

Your next question comes from [Carl Denoccio] – Deutsche Bank.

Carl Denoccio – Deutsche Bank

Just a question about the Glass acquisition a couple years ago. Could you just tell me what percentage of the people you’ve now retained from that acquisition? Second, for us newcomers can you just remind us about the foundation business in the third quarter in the financial consulting region and what the comp is for the fourth quarter?

Gary E. Holdren

Yes, the Glass acquisition I’m not even sure I know how many of the existing people are still here.

Gary L. Burge

It’s about 60 I think in our restructuring and turnaround group which includes Huron had prior to the acquisition. So it’s down a little bit from where it was a year ago, but we’re waiting for that business to rebound. We can gear up on resources if we need them.

Gary E. Holdren

And the foundation jobs, we had – we previously disclosed that we, you know, they were

$1 million or above. It used to be that they were $10 million and $8 million and there were a lot of them and now what we’re doing is we have them more in the $1 million range and we just don’t have very many of them.

Carl Denoccio – Deutsche Bank

But a year ago for the fourth quarter, what was the comp?

Gary E. Holdren

Yes, we would have had about four of them last year that would have totaled $20 million in revenues.

Operator

Your next question comes from Dan Leben – Robert W. Baird & Co., Inc.

Dan Leben – Robert W. Baird & Co., Inc.

Just to follow up on that last question a little bit, could you just talk about the deals you’re seeing that are out there on the market that are available? Kind of the size of the deals you’re seeing, if you’re seeing a continual pullback in sizes and effect have gotten progressively worse in the third quarter?

Gary E. Holdren

Yes, I mean we’re – if you’re talking about Financial Consulting at FC what we’re seeing right now in the marketplace is we’ve not seen really big stuff. And we’re seeing stuff that’s more in the $500,000 to $1 million range per quarter. And those are the kind of opportunities we’ve got and those are the kind we continue to see. So we’re not seeing any big mega job opportunities right now.

Dan Leben – Robert W. Baird & Co., Inc.

Could you talk a – we’ve talked about financial services, could you talk a little bit about some of the other vertical markets where you have a pretty sizable presence, what you’re seeing from those customers?

Gary E. Holdren

Well we – clearly the two verticals that we do the best in is our Health and Education business and clearly our Health and Education business, our Health side is – we’re just seeing calls coming in every day from hospitals who want help and we’re signing contracts and we’re doing assessments and we’re building backlog and things. We don’t have the people to serve the market right now.

And you might say well, is that going to be a situation like FC where you had this big hot thing and it’s going to cool off? And I would just tell you that the difference here is that in those situations they were transactions, they were investigations, they were stock option type matters. There’s 4500 hospitals that need fixing today and they’re going to need fixing, they’re going to be closed, they’re going to need operational performance. So I don’t think the dynamics are the thing.

And right now we believe we’ve got the number one market leaders in helping hospitals improve their results in the United States so the demand is just fabulous. And we probably do have one of the – we’re probably the only people who serve higher education in the way that we serve it. And we serve 80 of the top 100 universities in the United States. And every year 80% of our business for the next year comes from repeat buyers. And we just see nothing but opportunities in those segments.

Dan Leben – Robert W. Baird & Co., Inc.

Obviously those are a few fantastic verticals. I guess I was thinking more along the lines of some of the other verticals you participate in in financial and legal and corporate in this whole thing.

Gary E. Holdren

Well corporate you know – if you think about our we’ve got [gulp] which is an offering that’s only got like 40 or 50 people and they do two or three jobs at a time. They don’t have enough resources to continue to do what they’re doing. Restructuring is in corporate and that’s not really corporate spending. We do see the auto sector as being one that we’re serving there.

But if you look at our business, we’re not strong in most sectors other than serving the general counsel through our offerings, using our V3locity tools and then serving the health and education but we don’t have a strong presence in oil and gas consulting. We’ve been niched practicing utilities. We don’t serve the aerospace industry or a lot of other industries. So we’re not strong and we don’t plan to be strong. We don’t have service to operate in those segments.

Dan Leben – Robert W. Baird & Co., Inc.

On the V3locity said you know how you talked about the big job that you had in the third quarter, do you have any visibility into when that job is scheduled to ramp down knowing that there can be quite a bit of variability in these things and just fall onto that? Could you talk a little bit about the pipeline of large jobs in V3locity?

Gary E. Holdren

That’s the large job that I talked about that we had in Q3 is over. But there was another job in there and we’ve got – that’s why I told you we’re not going to have as good a Q right now, unless some things happen. And you know a lot of things can happen very quickly in that business. Because you can have a month worth of work in there and you can do a lot of revenues.

But right now we’re not going to have as good a Q4 in V3locity unless we get a lot of business in in the next two months that will make us have a – but we see a lot of master service agreements are improving, our strategic alliances are improving, and we just hear a lot of clients talking about a lot of demand coming for discovery in 2009. And they basically [clue] completely. We just continue to win new master service agreements where people tell us we’ve got the best solution in the industry.

Operator

Your next question comes from David Gold – Sidoti.

David Gold – Sidoti

Just another question on financial. I think earlier in the year you had some issues there. Part of the trouble at that time was basically the relationships were in places where the large engagement firm go and it sounds like perception today is more that the large engagements aren’t happening just now. But can you speak a little bit about how the positioning’s changed and do you think the changes you’ve made have positioned your properly so that when the large engagements do come back you should start to see them again?

Gary E. Holdren

David we believe that we’ve still got the same good people that did those investigations that big law firms relied on. And I think we believe that the large investigations were going on it would be Fannie Mae or [Martel] or whoever it is and the firms that used use thought we were really good, so and the same people are still here. And the question is why aren’t the same large investigations coming or the same big jobs coming and why aren’t those lawyers handling as many big matters that they used to?

And I can’t really answer all that other than I think we just keep hearing that people haven’t yet decided who they’re going to sue, who – they don’t know where the value’s going to end up, but I think there’s still just some question about how large all this is going to be and who’s going to be available to sue when it all happens. But I would say we’ve got the right people. Just right now we’re currently not seeing the same size opportunities that we saw.

David Gold – Sidoti

But I guess earlier in the year some comments about expanding your marketing efforts and your relationships to make you better positioned so maybe was a little curious that if you can add some color sort of on the basically what you’ve done there and maybe how much success you think you’ve had as far as broadening relationships or is that something that’s just too hard to gauge given the environment?

Gary E. Holdren

I mean, you can’t gauge it right? Because the gauge has to be in revenues and the revenues aren’t there. But in the effort that you went through or our sale force type reporting, clearly the managers and directors have been out more trying to sell ever than before. So if you look at effort, it’s good. You don’t know whether someone’s got a relationship or not, right? But the end is are the sales there and right now they’re not.

Operator

Your next question is a follow up from Jim Janesky – Stifel Nicolaus & Co.

Jim Janesky – Stifel Nicolaus & Co.

Something that Mary commented on with Stockamp’s recruiting, my understanding was when you did Stockamp part of the reason why their growth had been held in check over the last couple of years was it was their inability to recruit in a tough labor market. When you said Stockamp, Mary, had a great recruiting system, is that prior to coming on board with Huron? Or was it after coming on board and you rolled them into your more sophisticated recruiting program that they’ve been able to increase headcount?

Mary M. Sawall

Stockamp had a great campus recruiting engine where they really hadn’t become as sophisticated as was inexperienced recruiting and that’s where I think they are going to see some real benefit of working with our recruiting group. And on the campus level, what we have found is, they had coverage in the southeast and west of the Mississippi, better than we did in terms of the campuses they went to, where our strength was in the northeast and the Midwest. So I think that that will merge well together.

And Jim [O’Malley] who heads up our recruiting is working with them to help them become more effective at experienced recruiting.

Jim Janesky – Stifel Nicolaus & Co.

Gary Burge, do you expect the 46% tax rate for the fourth quarter to continue into 2009?

Gary L. Burge

Yes, at this date Jim yes we’re looking for ways to mitigate that always with tax planning strategies and things. But right now it’s safe to assume it’s going to stay at that level.

Operator

Your next question is a follow up from Tobey Sommer – Suntrust Robinson Humphrey.

Tobey Sommer – Suntrust Robinson Humphrey

I was wondering if you could give us some color on how your business is going in Japan, maybe let us know what percentage of revenue that is? And whether it has had any sort of currency impact on your reported revenues or perhaps your guidance?

Gary E. Holdren

I’ll let Gary talk about currency and I would say Tobey when we first went there we went there thinking that we would be more running an operational consulting business, and what we have done and what we’re changing is we’re changing more of the into sort of using accounting type because of the international accounting standards and having people need to change. And then also having things to do with investigations and more.

So I would say the [Epsi] business is more where we’re going to be moving the Japan business toward versus originally it would have been more of a corporate consulting focus. So we sort of had to re-shuffle the deck. But it’s a very small percentage of Huron’s revenues.

Gary L. Burge

Tobey it’s less than 2% total here on revenues generated outside of the U.S. right now. And then so as a result since that’s relatively small, we don’t have huge currency risks at this stage. But who knows where our U.S. dollar’s going against these foreign currencies right now? It seems to be moving in a very odd direction so we’re not ruling out that we would potentially have some currency translation impacts going forward the bigger we get.

Tobey Sommer – Suntrust Robinson Humphrey

Another question on the hiring environment, is it changing materially and improving perhaps with other financial investment bank type companies coming under pressure, both at the junior and senior levels?

Gary E. Holdren

Well right now that’s not the skills we’re looking for. We’re looking for people who know how to run hospitals and universities. And so we still are in hot pursuit of those skills and the financial consulting skills are not the ones we’re literally looking for at this point, Tobey.

Tobey Sommer – Suntrust Robinson Humphrey

In terms of the hospital and university financial skills are those easier to come by or more challenging at this phase?

Gary E. Holdren

What we need is people who know the ins and outs of hospitals, the financial side but also the operational side. And that’s not people who’ve worked in banks or investment banks.

Tobey Sommer – Suntrust Robinson Humphrey

I understand it but searching for those people, has it become easier or more difficult or the same?

Gary E. Holdren

Well we’ve added four M.D.’s in healthcare and one M.D. in higher ed but we still need a lot more.

Tobey Sommer – Suntrust Robinson Humphrey

And then I wanted to get your perspective on the TARP and the fact that the entity is going to be supposedly buying some assets, liquid assets that haven’t had easily – been easy to calculate a value for them. Could those valuation events serve as a catalyst to allow potential litigants to actually file for losses and actually catalyst to start the lawsuits?

Gary E. Holdren

They could and that’s what we’ve heard. Because what I heard a few lawyers tell me the other day is that people need to know what they think they’ve lost and when sort of the determination is made and right now I don’t think people really know that yet.

So to your question, we believe that Tobey any of us who tell you we know exactly about this, you know, I’ve been scratching my head why more investigations weren’t done by the SEC, why people haven’t wanted to know why all these trillions of dollars are lost. And I’m running out of explanations of why this isn’t- why we aren’t doing better in this environment. I can’t figure it out personally.

Operator

Your next question comes from Bill Sutherland – Boenning & Scattergood Inc.

Bill Sutherland – Boenning & Scattergood Inc.

I’m curious on that proposal you’ve got to the FDIC is that a team or just yourself?

Daniel P. Broadhurst

We’ve got a proposal into assist the FDIC in potential closures of banks. And it’s a team of Huron folks and we’ve actually had to identify and display for the FDIC on our proposal of two SWAT teams if you will and it’s made up of our group of people.

Bill Sutherland – Boenning & Scattergood Inc.

Because I had heard it was normally some kind of group of vendors approaching those proposals.

Daniel P. Broadhurst

You need a lot of different skill sets to build out the full team. But with our variable on demand recruiting and fulfillment capabilities that we acquired with the Callaway team, we can get at all the resources we need for the FDIC proposal.

Bill Sutherland – Boenning & Scattergood Inc.

On Stockamp in Q4 should we be expecting a positive contribution after all the accounting?

Gary E. Holdren

At the gross margin line we definitely should. Sort of if you think about before rapid amortization and amortization but it’s – you definitely should see a substantial contribution.

Operator

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

Gary E. Holdren

Okay. In closing I’d just like to thank all of Huron’s employees both who serve our clients and our internal operations every day. This has been a year for us that, you know, had some challenges but we’ve done good and we really look forward to all the contributions people make in 2009. And I also want to thank all of you for having the confidence to be investors in Huron and we look forward to speaking to you in February where we will report our year end results. Thanks.

Operator

That concludes today’s conference call. Thank you everyone.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!