Huron Consulting Group's CEO Discusses Q4 2013 Results - Earnings Call Transcript

Feb.25.14 | About: Huron Consulting (HURN)

Huron Consulting Group Inc. (NASDAQ:HURN)

Q4 2013 Results Earnings Conference Call

February 25, 2014; 05:00 p.m. ET

Executives

Jim Roth - President & Chief Executive Officer

Mark Hussey - Executive Operator Officer & Chief Financial Officer

Analysts

Tim McHugh - William Blair

Paul Ginocchio - Deutsche Bank

Frank Atkins - SunTrust

Jerry Herman - Stifel Nicolaus

Randy Reece - Avondale Partners

Jeff Rossetti - Janney Capital Market

Kevin Spanky - Barrington Research

Operator

Good afternoon ladies and gentlemen and welcome to Huron Consulting Group's webcast to discuss financial results for the fourth quarter and full year 2013.

At this time all conference lines are on a listen-only mode. Later we will conduct our question-and-answer session for our 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 other disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers.

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.

Jim Roth

Thank you. Good afternoon and welcome to Huron Consulting Group's fourth quarter 2013 earnings call. With me today is Mark Hussey, our Executive Operator Officer and Chief Financial Officer.

Five weeks ago we issued a pre-release of our estimated fourth quarter results. Today Mark and I will provide some additional color around our fourth quarter performance and provide our initial thoughts for 2014.

The highlight of the fourth quarter was the performance of our Huron Healthcare segment. Revenues for the quarter were beyond our expectations, primarily driven by some unexpectedly large performance based fees.

As I indicated during the pre-release investor call, larger than anticipated performance base fees occur when our professionals deliver measurable value in excess of client expectations. That was the case on several sizable engagements in Q4.

The market for our healthcare services continues to be strong and we are encouraged by the continued demand for our hospital clients, to help them identity and implement financial, clinical and strategic solutions that will keep them competitive in a rapidly chaining market place.

Our revenue cycle and performance improvement solutions continue to provide a strong foundation for the practice. The need to reduce cost at every hospital large and small is acute and our healthcare professionals are the best in the business, in helping our clients achieve their financial and operational objectives.

Our clinical solutions practice, which continues to grow at a faster pace than any other Huron practice area has seen growth in physician, strategy and clinical transformation services and we are also finding increasing demand for our analytics capabilities.

Given the trends in the healthcare arena and our demonstrated ability to deliver value, we believe that demand for these collective services will remain strong for the foreseeable future.

The Huron Legal segment continued its pace towards returning to improving revenue growth and profitability during the second half of the year. We saw additional diversification of our client base and improved margins coming from IR utilization, increased volume in E-Discovery and a better blend of processing and hosting.

Proliferation of data is commonly referenced driver of future growth in E-Discovery arena. Large corporations continue to see an increase in size, complexity and level of regulatory activity that makes managing data in large-scale lawsuits and investigations extremely difficult and costly.

Our ability to expand our client base and to provide efficient, cost effective and reliable services for managing client data remains the key to our success in this segment. We are focused on improving the pace of growth and the overall profitability of the segment in 2014.

The fourth quarter was mixed in our Huron Education and Life Sciences segment. Continued strength in our higher education technology practice and our recent Blue Stone acquisition were partially offset by some weakness in our Huron Education Consulting and Life Sciences service lines.

With respect to the technology in Blue Stone practices, our performance was strong and utilization remained high. We experienced less than desired utilization in our Higher Education, Consulting and Live Science practices. We believe the lower utilization of those practices is temporary and not structural and we have reasonable expectations for improvement in utilization throughout the segment in 2014.

Colleges and universities continue to undergo a transformation that is similar in scope and complexity to the healthcare industry. These institutions face pressure to make education more affordable, changes in the use of technology to support teaching and learning, declining public support and decreasing federal research funding. Institutions large and small are facing strategic and operational pressures and our professionals are very active in helping our clients address those challenges.

On the Life Sciences front, our acquisition of the Frankel Group earlier this year provided Huron with the strategy-focused professionals to complement our legacy, compliance and pricing services. While the Life Sciences practice was softer than expected in 2013, the addition of Frankel and an up-tick in client demand for our legacy business lead us to believe that this practice will have improved contribution to segment growth in 2014.

Huron financial finished the full year 2013 with a strong showing and solid backlog heading into the New Year. 2013 proved to be a recovery year for the segment with revenue growth of 36% year-over-year, along with significant margin improvement, paving the road for future growth.

We have changed the name of the segment to Huron Business Advisory effective at the beginning of 2014, to more accurately reflect the nature of the services that we provide and intend to provide as this practice grows.

I will now turn to my thoughts regarding 2014. As our press release indicates, we are setting our revenue guidance at $765 million to $795 million, consistent with our expectations for mid to upper-single digit growth across all segments.

As we indicated in our press release, we expect our stated revenue growth to be up in normalized revenue base that excludes an amount attributable to unanticipated Q4, 2013 performance based fees in the Healthcare segment. In other words, our 2014 revenue guidance anticipates mid to upper-single digit organic growth, absent the unexpected healthcare performance fees.

We are also estimating healthcare performance based revenues in 2014 will be $90 million to $100 million. The current composition of our healthcare assignments and the continuing growth of our clinical services business contribute to our belief that performance based fees as a percentage of total healthcare revenue will decline in 2014. Our current senses is that performance based revenues in 2014 will be more front-end loaded than the patterns that have occurred in prior years.

Given that today we are about one-sixth through the year, I want to provide a brief glimpse as to how things have evolved during the first two months. Despite some brutal weather impacting our people, our clients and the airplanes that we used to connect the two, the weather dose not appear to have had a measurable impact on our performance during the first two months. We have gotten out of the gate with some solid performance across the company.

As Mark will explain in a few minutes, our cash flow remains strong, enabling us to pay our 2013 year-end bonuses later this week and to have completed the Frankel acquisition with available cash on hand. The strength of our balance sheet has also enabled us to announce the share repurchase program to supplement our historical practice of strategically using our balance sheet to pay down debt and support an active M&A pipeline.

Before I turn it over to Mark, I want to congratulate Mark on his new promotion to Chief Operating Officer. For those of you on the phone and have had the please to work with Mark, whether as an investor or an analyst, you know full well why this promotion is so well deserved.

Internally at Huron, Mark is highly respected among our corporate staff and the professionals in the field and his contribution to our growth and success is very evident to all. As we indicated in the press release, he will continue to hold the CFO and Treasurer titles in addition to COO. Mark carries a lot of responsibilities on his shoulder and I’m horned to have him as a trusted and capable member of my team.

Let me conclude by saying that I am grateful to all of our people for the solid results that we achieved in 2013. We have a group of incredibly bright, confident and collaborative people working in this company and I am confident that we have many good days ahead.

Now let me turn it over to Mark for a more detailed discussion of our fourth quarter results. Mark.

Mark Hussey

Thank you, Jim and good afternoon everyone. Let me begin with a few housekeeping items. 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, along with a discussion of why management uses these non-GAAP measures.

Finally, as previously announced, our acquisition of Blue Stone International closed on October 1, so our fourth quarter results include that acquisition. In contrast, our acquisition of the Frankel Group closed effective January 1 and thus is not included in our Q4 results.

I’ll now walk you through some key financial results for the quarter. We posted record revenues of $211.3 million for the fourth quarter of 2013, up nearly 17% from $180.8 million in the same quarter of 2012, at a sequential increase of nearly 21% over Q3 of 2013. As I’ll discuss in further detail later, Q4 2013 benefited from higher than expected performance based fees, as well as incremental revenue from our acquisition of Blue Stone.

Operating income increased 6.8% to $36.9 million in Q4 2013 compared to $34.5 million in Q4 of 2012.

Adjusted EBITDA which excludes a number of items that are listed in our press release was $44.6 million in Q4, 2013 or 21.1% of revenues compared to $41 million in Q4, 2012 or 22.7% of revenues. On a full year basis adjusted EBITDA was 19.2% of revenues in 2013 compared to 18.5% in 2012.

The increase in EBITDA margin for the full year 2013 was due to the significantly higher level of performance based fees, a favorable mix from our higher margin healthcare business ad reduced SG&A expenses as a percentage of revenue.

Net income from continuing operations was $22.1 million or $0.96 per diluted share in the fourth quarter of 2013 compared to $18.6 million or $0.83 per diluted share in the same period of 2012.

Adjusted non-GAAP net income from continuing operations was $24 million or $1.5 per diluted share in the fourth quarter of 2013 compared to $20.2 million or $0.90 per diluted share in the same period of 2012.

Our effective income tax rate in the fourth quarter of 2013 was 38.2%, compared to 42.9% in the fourth quarter of 2012. The lower effective tax rate in Q4, 2013 was primarily due to lower than expected state taxes. The effective tax rate for Q4, 2012 was higher than the statutory rate and primarily to the impact of foreign losses with no tax benefit and certain non-deductible business expenses.

Now lets look at how each of our operating segments performed during the quarter. The Huron Healthcare segment generated 54% of total company revenues during the fourth quarter of 2013. This segment posted revenues of $114.1 million for the fourth quarter of 2013, up $26.5 million or 30.3% over the fourth quarter 2012. Almost half of this increase was due to higher performance base fees in 2013, which finished the year at $45.5 million compared with $32.3 million in the same quarter last year.

As Jim mentioned in his remarks, performance based fees exceeded the high end of our guidance range, as our healthcare team was very successful in delivering greater than expected results for a number of our clients.

The operating income margin for Huron Healthcare was 44.2% for Q4, 2013 compared to 46.9% for the comparable quarter in 2012. Utilization in this segment continues to be strong. For the fourth quarter of 2013, utilization was 81.5% compared to 80.4% last year.

Our Huron Legal segment generated 24% of total company revenues during the fourth quarter of 2013 and ended the year on a strong note, posting revenues of $51.1 million in the fourth quarter of 2013 compared to $51.5 million in the comparable quarter in 2012.

Sequentially Q4, 2013 revenue represented an increase of 12.9% over Q3, 2013. During the quarter just ended, we experienced increased volume in our E-Discovery services and we expect the momentum to continue into Q1 of this year.

The operating income margin for our Huron Legal segment was 25.6% in the fourth quarter of 2013 compared to 21% in the fourth quarter of 2012. The increase in this segment's margin was primarily due to lower salaries, stock compensation and related expenses as a percentage of revenues.

The Huron Education and Life Sciences segment generated 19% of total company revenues during the fourth quarter of 2013. The segment posted revenues of $40.6 million for the fourth quarter of 2013, which included $4.7 million from our acquisition of Blue Stone. Revenues in the fourth quarter of 2012 were $36.1 million.

The operating income margin for Huron Education and Life Sciences was 17.8% for Q4, 2013 versus 28.4% for the comparable quarter in 2012. The decrease in this segment's operating margin was mainly due to increases in contractor expense, salaries and related expenses and technology investments as a percentage of revenues. Utilization for the fourth quarter of 2013 was 66.8% compared to the 74.3% reported during last year's Q4.

The Huron financial segment generated 2% of total company revenues during the fourth quarter of 2013. Segment revenues were down 5.6% over the same quarter last year. This segment experienced a negative operating margin of 14.6% for Q4, 2013 compared to a positive operating income margin of 4.4% of the same period last year. The decrease was mainly attributable to higher bonus expense, reflecting improved performance during 2013. On a full year basis operating income margin was 24.3% for 2013 compared to 8.6% for 2012.

Now turning to the balance sheet and cash flows. DSO came in at 65 days for the fourth quarter of 2013. DSO was negatively impacted by approximately 7 days, due to the increased level of performance based fee revenue that was billed and not yet collected by year-end.

We continue to strengthen our balance sheet during Q4. We ended the year with $58 million in cash and total debt of $169 million, resulting in debt net of cash of a $111 million. Over the course of 2013 our net debt position was reduced by nearly 34%. Cash flow from operations for the year was over $115 million. With our strong cash position, we will be able to fund the 2013 bonus, which will be paid later this week, entirely with cash of hand.

As w announced in our earnings release, the Board has authorized a $50 million open market share reproached program. The strength of our balance sheet continues to support our active M&A pipeline, while providing an opportunity to return some cash to our shareholders through share repurchases.

Now let me summaries the guidance that was included in the press release. I want to remind everyone that our guidance reflects our recent acquisitions of both Blue Stone and the Frankel Group. However it dose not assume any share repurchases.

With that said, for full year 2014 we anticipate revenues before reimbursable expenses in a range of $765 million to $795 million, and imbedded in the guidance range our expected performance based fees in the range of $90 million to $100 million, EBITDA in a range of $141 million to $149.5 million and adjusted EBITDA at a range of $141.5 million to $150 million; net income in a range of $65 million to $69.5 million and adjusted non-GAAP net income in the range of $69.5 million to $74 million, and finally GAAP EPS between $2.80 and $3 and adjusted non-GAAP EPS in a range of $3 to $3.20.

And assuming the mid-point of our guidance range, we expect cash flows from operations of approximately $110 million. Weighted average diluted share accounts for 2014 are estimated to be $23.2 million and finally with respect to taxes you should assume an effective tax rate of approximately 41.5%.

Based upon our existing engagements in the pipelines and new proposal opportunities growing in front of us, as well as the economic environment which Jim discussed earlier, the revenue range that we are project reflects 6% to 10% increase from our 2013 revenue from continuing operations.

With respect the adjusted EBITDA net income and EPS, there are several items you’ll 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 you walk through these reconciliations.

Thanks everyone. And now I’d like to open up the call to questions. Operator.

Question-and-Answer Session

Operator

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

Tim McHugh - William Blair

Yes, thank you. I guess first just on, within the guidance. Obviously the top line looks good. I guess the margins, implicitly you’re expecting them to be down and I think we talked a little bit about this when you pre-released. But I guess now that you are giving some more details around the results, can you talk a little bit about why you expect margins down next year, besides I guess -- if there is anything other than the lower contingent fees.

Mark Hussey

Yes, so this is Mark. I think that is one of the main factors. I think that again, this year when you look at the revenue growth for 2013, Healthcare which is our highest margin business by far and away from the operating income perspective was a very large percentage of the growth this year and I think as we look at a more normalized mix in 2014, along with a little bit lower level contingent fees and then just some ongoing investments that we have in a portion of our education segment.

We have a fairly tempered view in terms of what we did this year. We had an increase of 70 basis points. So while we expect to continue to increase our margins over time, we probably see those happening a little bit less dramatically than we did in 2013.

Tim McHugh - William Blair

Okay. And then Mark, can you give us – I guess the comment was that the contingent fees will be more front end loaded than normal. Can you give us any even first half, second half type of relative sense of what you’re expecting?

Mark Hussey

I think without really giving any details, I think if you think about how they’ve come in, in the last couple of years, we’re expecting it to be a little bit more balanced. As you know, the timing of these are so hard to predict, but based on the visibility that we see into the first half, we think its going to be a little bit more balanced than even it was in 2013.

Jim Roth

Yes and Tim, this is Jim. I agree; I mean the way they’ve come in the last couple or three years has been slowly and then quickly. And I think this year we expected to be as Mark said, probably a little bit more balanced as you look throughout the course of the year. They remain still relatively difficult to predict, less so in terms of size, more so – somewhat in size, but more so in terms of timing, but we do feel that there’s going to be a bigger complement in the first half.

Tim McHugh - William Blair

Okay and then just in terms of the revenue guidance, can you give us any sort of sense by segment what you are looking for. You gave some qualitative comments on, I guess each of the segments, but is it – I mean is there anything that you’re assuming above or below the average you kind of described.

Mark Hussey

Yes Tim, this is Mark. I think its fair to say and I’ll make my comments really with respect to the reported numbers, since those are the ones that are out there and that way everyone can see in black and white, the portion of reference.

We’ll start with Healthcare. Back to our comment about really our preliminary earnings release talk to forecasting off the base that was more normalized without respect to the higher level of contingent fees.

Contingent fees for the year came in roughly a $104.5 million or so within healthcare and if you strip that out that really is with respect to our comment about kind of mid to upper single digits in terms of growth expectations. On a reported basis, it will probably be more in the mid, maybe just a touch below right at the kind of middle ranges of growth in healthcare.

Within Legal, again I think its fair to assume that we’ll probably, again as we’ve always taken a fairly conservative stance on these, just based on visibility and having lease visibility in this particular segment, kind of a low to mid single digit range would be in line with what our thinking would be.

I’m going to skip Education for a moment. I’ll come back, because we got a couple of things going on there with the acquisitions. In business advisory, again I think just based on the fact that you see the headcounts remaining relatively stable there, it should be relatively flat to maybe low single digits in terms of expectations.

And with respect to Education and Life Sciences, we talked a little bit about the acquisitions in terms of what their relative contribution would be. Overall for that particular segment, I think it probably ends up being somewhere in the mid-20%, 25% range for growth when you include the effects of those acquisitions overall for the full year.

Hopefully that makes somewhat of a lightening for you in…

Tim McHugh - William Blair

Yes. No, that was great. I guess and then my only other question is just more of a detail. The legal bill, the billing rates for the legal business, is that something of the integrated analytics touching on or what’s driving that bill rate up so much relative to the prior year?

Jim Roth

It really is not anything to do specifically with integrated analytics. Its really just the mix of work that we have and the engagements within that practice right now. Again those relate to the people who are billable consultants and primarily on the advisory side of the house. We’ve had some very good developments in that area and some very good clients. And so its really just the mix of the business that we have as opposed to anything else.

Tim McHugh - William Blair

Okay, great. Thank you.

Operator

Our next question will come from the line of Paul Ginocchio from Deutsche Bank. Please proceed.

Paul Ginocchio - Deutsche Bank

Yes, just a question about the financial business. It seemed like you had a relative to the beginning of the year kind of faded a little bit in the fourth quarter. I was disheartened that you think its going to be flat to low-single digit growth. Just talk about the order booking in that business. I know its probably one of your more [altered] businesses, but just talk about what you’re seeing right there now. Thanks.

Jim Roth

Yes Paul, its Jim. We saw a little bit of it tail-off in the fourth quarter, but not material. But I think our order book is looking strong in that business and I think we are -- if I have to guess I’d say ’14 going to look a lot like more ’13 than it did like ’12. So we are seeing some ramping up of some new projects, we’re seeing a reasonable amount of volume and we’re comfortable with the direction that that’s going right now.

Paul Ginocchio - Deutsche Bank

Great and then if you could just talk about legalization in Education again, and just talk about how we should think about if for ’14 relative to ’13.

Jim Roth

Mark will provide the number in a second. I think in education we’ve had, we’ve had for now the better part of two, maybe part of three quarts. We’ve had lower utilization than we wanted and part of what’s happened is if you look back in this segment, even going back into 2010 and around there we typically, we’ve always had a number of large systems projects and we’ve hand them then and we have them now, but we also tended to have some other projects that were larger in other parts of the non-technology parts of that business that utilized a number of people over a long period of time, actually very leveraged people and those kinds of projects just doesn’t take very many. It only takes one or two to make a dramatic difference and they tailed off really a little bit in 2012 and 2013 and its hard to predict when and where it will come back.

But the bread and butter of what we are doing in those business remains very strong and as I said in a number of times in the call, we’re also seeing new areas of opportunity grow, open up for us, both in the Education side but also the Life Sciences side and so what we’re seeing is new opportunities come up and what we’re also there, is doing our best to try to maintain the utilization levels that used to exist when you got one or two very large projects going on, that are taking on as I said 20, 30, 35 people for a full year. So that’s what’s missing.

I don’t think there’s anything structural about it at all. I think its just the way things are right now and we’ve had them for a long time and its not as though they are out there and we’re loosing them. I think they are just not out there right now, but we – this part of the business remains very vibrant and in some respects the change, as I said before, the change is taking place in the education space in particular, I think is even more pronounced than it is in healthcare. So, I think that’s why we’re so comfortable with where things are going in the future.

Mark Hussey

Great. Then Paul, specific to the utilization outlook, I think you saw some sequential improvement and I think you’ll continue to see it move through a little bit higher in the 60’s. Now clearly we’d love to see this business running in the 70% to75% range when things are really humming along very nicely. So that’s somewhat of an iterative process for us to go through and determine what the right moves are based on the mix of business that we have. So I would expect to see some modest improvement throughout the year.

Paul Ginocchio - Deutsche Bank

Great, Mark. If I can sneak one in. Just to Frankel and Blue Stone. Is that about $30 million of acquired revenues that are going to be consolidated in ’14? Thank you.

Mark Hussey

Yes, in incremental to what we reported in 2013, yes combined.

Paul Ginocchio - Deutsche Bank

Thank you.

Operator

Our next question will come from the line of Tobey Sommer from SunTrust. Please proceed.

Frank Atkins - SunTrust

Hi, this is Frank in for Tobey. You mentioned in your prepared remarks momentum in e-discovery moving into 1Q. Can you talk a little bit about e-discovery going forward and what you see in terms of that seasonality?

Jim Roth

Well, what we’re seeing is not so much seasonality. I think it is the continued movement of our sales team in helping us distribute our client base. We’ve been very successful. The number of clients that we have, the base of our clients continues to grow. So it has less to do with seasonality and more to do with just, the fact that I think the sales team is really, is beginning now to produce in ways that we have wanted them to, so that’s what makes us very comfortable about that.

You know its interesting when you look back at seasonality and there was kind of, there were two anomalies. We’ve already spoken of about being anomalies that statistically made no sense to us, but kept recurring.

One of them was that we never had many contingent revenues in the first quarter and as I said, I think we’ll see some this time, a decent amount, and then we also, I think for at least the last three of four years had some pretty lousy Januaries in the legal area. Again, but for no apparent reason, although sometimes we thought it might be attributable to LegalTech, but this year we’re opening up strong.

So I don’t think that there’s any real seasonality in legal numbers at all, just like I don’t think there’s any seasonality in the healthcare numbers at all, because its right now the strength, we’re producing the way we wanted to produce in terms of the sales team and that’s what’s benefiting us right now.

Frank Atkins - SunTrust

Okay, that’s helpful. And then versus where you stood last year, can you talk a little bit about your comfort level and your visibility as you go into this year’s guidance.

Jim Roth

Across the company?

Frank Atkins - SunTrust

Yes, on a consolidated basis.

Jim Roth

I don’t think the visibility – we have different visibility as you know in each one of our practices. I don’t know that the visibility has changed that much for any of them. I think there’s a couple of data points that we’ve looked at, that give us either more or less comfort in terms of how things are going forward. One of them is the pipeline and that seems to be looking pretty good, but probably more importantly is just what’s driving the market at this point and why would people be looking for our services at all.

And as I said, I really continue to think that the drivers for our businesses in all of our segments remain very strong and that we’re well positioned in the kind of businesses that we do at Huron right now to be responding to those. So I think its closer to the existing pipeline, which is good, and I think its looking at what’s the vibrancy and what’s happening in each of our markets and that collectively gives us some pretty decent comfort about where things are going.

Frank Atkins - SunTrust

Okay, and one last one. Where was turnover for the quarter and what does your recruiting market look like? Thank you very much.

Jim Roth

I don’t know if we have it for the quarter. I know for the year.

Mark Hussey

Normally we think of it in any given quarter frankly. We normally think of – even in the quarter we talked to annualized numbers. So I think in 2013 we had I believe our lowest turnover ever. It was just over 12.5%, so it’s continued in a downward trend, a good trend for us over the last three years and we felt very good about that. So we ended up in 2013 with turnover at 12.5%.

Frank Atkins - SunTrust

Thank you very much.

Operator

Our next question will come from the line of Jerry Herman from Stifel. Please proceed.

Jerry Herman - Stifel Nicolaus

Thanks. Good afternoon everybody and Mark, congratulations. I did want to pin you down on the margin comment you made earlier though, if I can. You used the term I think less dramatically in terms of the margin improvement, but you didn’t say that they would be down this year, even though the guidance seems to imply that. I mean, does that mean you are being conservative or does that mean that there’s something else going on there that we should take into consideration?

Jim Roth

Well, let me answer that Jerry by going back to our last reported guidance range, which is $18.5 to $18.9 after our Q3 guidance. Fairly we ended the year in the 19.2%, so we really did not necessarily have an expectation that our margins were going to be that strong. So it was one of the added benefits of the traditional performance fees for the year, but for us to sustain that was just that again we’re going to project that into the future and while the business model within healthcare is very powerful and can produce those, its not our starting point and that we totally expect if that’s going to happen out of the gauge.

I think but you’ve got a couple of other things going on, so there is a little bit of a mix issue. In all of our businesses there’s always a little bit of investment that takes the form of expense and that happens across various segments of the business. Its really the way that we continue to innovate and expand what we’re doing within the marketplace.

And then a final comment, both of the acquisitions that we had coming into this year were a little bit lower margin for different reasons than really we had in terms of the existing practices that we’re moving into and so the combination of those things over time, we expect to continue to produce margin enhancement, but at least are growing an assumption for the year is kind of consistent with the range that we had really after our Q3 earnings guidance.

Jerry Herman - Stifel Nicolaus

Great, thanks. And I was wondering if you folks have commented on sort of the healthcare area in particular and the utilization rates, they are running pretty high, pretty hot and I’m wondering if your seeing acquisition cost pressure, either in the form of people or actual deals that you might be looking at.

Mark Hussey

This is Jim. We’re not seeing it so much in people. I think we’ve got a very desirable platform to which to recruit people and so we haven’t seen it so much from a recruiting side. On the acquisition side there are certainly some frothy expectations out there. I’ll leave it at that and so that’s just part of the business right now. I think that’s going to be true for everybody.

We’ll continue to be the joint in terms of looking for acquisitions that are going to make sense for us and make sense for our model, but the healthcare M&A front is certainly at a premium at this point in time. So we are having to do a lot of due diligence in making certain that there’s going to deliver synergies or other strategies that we’re going to be benefiting from by making the acquisition are in fact going to come true. So we spent quite a bit of time looking at that.

So the long way of saying it, I think its not so much on the people side. It is definitely on the M&A side.

Jerry Herman - Stifel Nicolaus

Okay, thanks and just one last question with regard to the first quarter. Jim you mentioned some of the current trends and historically January could potentially be lousy in some of the segments. You mentioned front loading of the contingency fees. Should we think about changing of the cadence of the seasonality or the growth rate in the first quarter, i.e., should EPS growth be disproportionately larger in the first quarter or disproportionately intriguing to the full year based on what we see right now?

Jim Roth

I just think the performance-based fees are really just a factor of when – I mean there’s a variety of factors. When the contract gets signed and there isn’t necessarily any seasonality to that that probably has more of an impact than one that will be incurred than anything else and that is one that gets signed.

You know typically if you assume that the projects are going to be somewhere between nine and 18 months, you know as we begin to get out into a project, your going to begin to see them come in. So if we sign up a bunch of things in December, I think your going to end up seeing those. For those things that we sign up you’re going to probably see some decent contingent revenues hit in the fourth quarter. If we signed some in May or June and July, I think they are going to start hitting their first and second quarters.

So I’ve always said, I don’t think there’s any real seasonality to any of this, even though there appears to have been some certainly over the last three or four years as our practice has grown. So I just don’t think that there’s that much seasonality in there and I think – we’ll see.

Its too early to tell what ’15 is going to look like, let alone ’14. I just think that the way that patterns are falling right now, I don’t know that what we’re going to see in ’14 is going to be replicated in ’15, but I think it will have a different pattern than we had in ’13 and exiting the prior years as well. It really is just, its the nature of the jobs and when they are signed that probably has the biggest impact.

Jerry Herman - Stifel Nicolaus

Great, thanks guys. I’ll turn it over.

Operator

Our next question will come from the line of Randy Reece from Avondale Partners. Please proceed.

Randy Reece - Avondale Partners

Afternoon. I was trying to get a better understanding of the revenue patterns that we’ve seen in the FTE side of legal where the vast majority of your FTE’s are. If I just look, kind of on the unit revenue perspective, there has been something of a downtrend in their resident productivity and I presume there is some price influence there. But just looking also quarter-to-quarter there’s been quite a bit of volatility. If I adjust it for kind of a number of days billed per quarter, I’m trying to understand what’s going on there and was wondering if you could give me an idea of how to safely project those into the future, given the fluctuations that I see and a general downtrend in pricing.

Mark Hussey

Randy, this is Mark. I think if you look over a little bit, you know maybe more on a trailing basis as opposed to within the quarter, it might be a little bit more indicative of what the trends are. As we look at the FTE’s, we think there is not a perfect correlation, because you do have a lot of different things that can influence what that looks like. But I think that over a little bit longer period of time directionally it will certainly move with where the revenue is. I’d be happy to have a discussion with you offline about it.

Randy Reece - Avondale Partners

Do the changes in the revenue per FTE which you disclose every quarter, does that reflect any kind of shifting in the kinds of activities your doing?

Mark Hussey

Yes, there’s always some mix in there, because depending on how much processing or hosting revenue, this is just not purely review work. So you can have a little bit of mix issue around the type of work that’s happening.

Randy Reece - Avondale Partners

Okay, in terms of just finding people, are you going to be more or less senior oriented in your recruiting this year compared to the last couple of years?

Mark Hussey

In general or anything specific?

Randy Reece - Avondale Partners

Well, I was thinking in healthcare in particular.

Mark Hussey

Okay. I think we’ll still have a probably – I don’t expect balance to be that different than what its been in prior years. Really if you look at our hiring patterns in healthcare, over the last two or three years I think there we’ve had a mix of experienced and lesser-experienced and new hires and that’s served us well.

I think we’ve got great training programs here that help those newer people come up and grow rapidly and learn the business quickly, but we always need just given the complexity of our work, we always need some senior people as well and frankly we’ve been pretty successful in hiring at all those levels, but I do not expect there to be a material change in the mix in ’14.

Randy Reece - Avondale Partners

Just my external observation seems that you’ve been pretty successful at promoting people up to the ranks and its not having a great need to fill in the hole for attrition and such.

Mark Hussey

That, you’ve hit on one of the real hidden treasures that we have here and as we voiced, we talk about it and it sounds like a soft thing, but we have a very collaborative environment here and the reality is when you come in, at the younger levels people learn a lot and when they learn a lot they stay and they are happy and we are capable of promoting them and we have a lot less risk of getting people like that to continue to be promoted to the system than if you do if you take somebody in from the outside. So we’re very comfortable and proud of the fact that we’ve been able to have so many of our younger people come up to the ranks and we hope that we’d be able to maintain that for a long time to come.

Randy Reece - Avondale Partners

Thank you very much.

Operator

Our next question will come from the line of Joseph Foresi from Janney Capital Market. Please proceed.

Jeff Rossetti - Janney Capital Market

Hi, good afternoon. This is Jeff Rossetti on for Joe. Jim I believe you mentioned in your script in clinical solutions you mentioned the strength in physician strategy and clinical transformation. I just wanted to see if I could get some more granularity on where the strongest segment was and was it position integration? Just some additional detail if possible?

Jim Roth

You know Jeff, I don’t know that – its really been across the board on all of those. I think its just that whole clinical solutions business has really been growing as we hoped it would, at a really strong pace and we have all those services are doing very well. So I don’t even know that if we have the information as we record it individually by each of those minor areas, but they are all performing well and growing at I think about the same pace.

Jeff Rossetti - Janney Capital Market

Okay. You also called out the analytics capabilities. I just wanted to see what kind of investments you have planned for the analytics portion and also the clinical solutions in general for the coming year and where you might see the clinical solutions practice. What portion it might represent for your healthcare segment in 2014?

Mark Hussey

Yes Jeff, this is Mark. I think that without specifically commenting that I’d say in clinical solutions there’s a tremendous opportunity on the analytical side and its certainly something that we think about within our M&A pipeline, as well as internally with the people that we have, because we have a fairly good technology staff within our operation that’s been built up over time and supports our software development.

So with operating now typically I would say that it is certainly an area that we think about quite a bit and maybe something that we have more focus in probably at that point and just leave it at that.

Jeff Rossetti - Janney Capital Market

Okay, so its safe to say on the analytics side it might be an M&A area.

Jim Roth

Its going to be an important part. Jim, this is going to be an important part of our strategy going forward and so yes, we’ve got a variety of options and we’re continuing to pursue that, but I wouldn’t be totally surprised if there was something in the M&A area.

Jeff Rossetti - Janney Capital Market

Okay, than you.

Operator

Our next question will come from the line of Kevin Spanky from Barrington Research. Please proceed.

Kevin Spanky - Barrington Research

Good afternoon. You’ve talked about in recent quarters that the nature of some of the education projects in your pipeline were larger and more invasive to the potential client and therefore were taking a little longer to close. So I’m just wondering if you’ve had success closing in any of those recently and if that continues to be the way your pipeline is healing going forward.

Jim Roth

Yes, Kevin this is Jim. We certainly have closed some of them and probably more importantly, there are a lot of other ones that are beginning to come up. It is as we said, they are more difficult to close, but we also have more of them and so I hope that in ’14 and actually beyond there’s going to be a nice, hopefully a steady pipeline of these types of opportunity that will supplement our kind of core business that we’ve always had in education and live sciences.

I look at that, you know I look at those kind of emerging areas, whether they are in the technology area and the way institutions are applying technology to the way that they teach and the way that people learn, whether its around enrollment management.

To me those kind of emerging areas are very similar to the way that we’ve looked at the clinical solutions piece within healthcare and that is, there in healthcare we have the revenue cycle and performance management who are always the bread and butter of that business and now you got clinical solutions that’s really addressing the emerging parts of the change in the healthcare arena. We’re seeing the same type of thing happen in healthcare and we’re going to be structuring ourselves around managing it the same way.

Kevin Spanky - Barrington Research

Okay thank you and in terms of the acquired revenue this year, you said it was a little lower margin. Do you think margins on that business can improve going forward or will they kind of continue steady state?

Mark Hussey

No Kevin, I think that’s an area that we’d look at to make some improvements from a couple of deferent standpoints. One would be just as we think that there maybe some opportunities to really match up billing rates, all of it more closely with some of the opportunities that we have, as well as helping to drive just through grow and leveraging some of the SG&A that supports those practices that we can leverage some additional margin improvement as well. We clearly do not have an expectation that there would not be any improvement. We would absolutely be looking for improvement in margins.

Kevin Spanky - Barrington Research

Okay, one last question. What sort of headcount growth expectations do you have built into your 2014 guidance if you are willing to share that?

Mark Hussey

We did not provide any specific modeling assumptions this year and what we found is that really the best way to think about this is that really headcount growth should be roughly in-line with the revenue growth.

Kevin Spanky - Barrington Research

Okay, thank you very much.

Operator

(Operator Instructions) With no further questions I would like to turn the call back over to Mr. Roth for closing remarks.

Jim Roth

Thank you very much. Thank you for spending time with us this afternoon. We look forward to speaking with you again in April when we announce our first quarter results. Have a good evening.

Operator

Ladies and gentlemen, thank you for your participation. You may now disconnect. Have a great day.

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Huron Consulting Group Inc. (HURN): Q4 EPS of $1.05 beats by $0.02. Revenue of $211.34M (+16.9% Y/Y) beats by $1.19M.