Navigant Consulting Management Discusses Q1 2014 Results - Earnings Call Transcript

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Navigant Consulting (NYSE:NCI)

Q1 2014 Earnings Call

April 29, 2014 10:00 am ET

Executives

Paul Longhini - Executive Director of Investor Relations

Julie M. Howard - Chairman, Chief Executive Officer and Member of Executive Committee

Lucinda M. Baier - Chief Financial Officer and Executive Vice President

Lee A. Spirer - Executive Vice President and Global Business Leader

Analysts

Randle G. Reece - Avondale Partners, LLC, Research Division

David Gold - Sidoti & Company, LLC

Timothy McHugh - William Blair & Company L.L.C., Research Division

Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division

Jeffrey Rossetti - Janney Montgomery Scott LLC, Research Division

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Operator

Good morning, and welcome to Navigant's First Quarter 2014 Earnings Conference Call. [Operator Instructions] This call is being recorded. If you have any objections, you may disconnect at this time.

I would like to introduce Mr. Paul Longhini, Executive Director of Investor Relations for Navigant. Mr. Longhini, you may begin.

Paul Longhini

Good morning, and welcome to Navigant's First Quarter 2014 Earnings Conference Call. We have posted our earnings release as well as supplemental information about the quarter on the Investor Relations section of our website.

Before I turn the call over to Julie Howard, Navigant's Chief Executive Officer, I would like to highlight the disclosure at the end of our earnings release for information about any forward-looking statements that may be made or discussed on this call. Please review this information, along with the company's SEC filings, for a disclosure of information that may impact subjects that we discuss this morning.

We will be discussing one or more non-GAAP financial measures on today's call. Reconciliations to the most comparable GAAP financial measures are contained in the schedule to our earnings release.

I will now turn the call over to Julie Howard.

Julie M. Howard

Thank you, Paul. Good morning, everyone, and thank you for joining us today. Cindy Baier, our Chief Financial Officer, is with me today to present Navigant's financial results and to discuss the company's 2014 business outlook. Lee Spirer is also with us, our Global Business Leader, and will be available to answer questions during Q&A.

First quarter 2014 revenues before reimbursements was largely consistent with where we expected it to be in the first quarter, consistent with Q4 2013 performance, with the exception of the contribution from our Energy segment, which I'll touch on in a moment.

RBR for the period was $175.1 million. Adjusted EPS was $0.20 for the period, with adjusted EBITDA of $22.3 million.

These results put us on track to deliver on our previously communicated growth and profitability outlooks for the overall business with an expectation that 3 of our 4 operating segments will meet or exceed our prior outlook during the balance of the year. We do expect our revenues to build throughout the year as the company realizes accelerated growth and improved margins as a result of leveraging our Q1 investment, which I will explain shortly.

As Cindy will discuss in more detail in her comments, our Healthcare segment grew year-over-year, albeit at a slower rate than we would have liked in the first quarter. While growth was constrained in the quarter by one-off factors, for the full year, we still expect segment performance to match our prior growth expectations, as our pipelines and opportunities reflect the regulatory trends driving transformational change in healthcare.

Our ability to provide strategic operational and outsourced solutions across the healthcare industry aligns well with the key challenges facing our clients today.

We're also really pleased with the quarterly performance of our Disputes, Investigations & Economics segment, where we are benefiting from positive demand drivers in several areas, including international arbitrations, financial services disputes related to credit default swap anti-trust litigation, as well as building demand emanating from expert report deadlines on various mortgage-related litigation matters.

In addition, our legal technology solutions business is beginning to rebound. We have been investing capital in our 2 open technology and have adopted a new go-to-market strategy that really emphasizes building broad, integrated relationships with large corporations and in-house counsel.

Turning to our Financial, Risk and Compliance segment. That segment also performed well in the first quarter and even slightly ahead of our expectations. Year-over-year comparisons, as you know, are difficult in light of the significant mortgage servicing review work that was winding down during last year. Nonetheless, we see positive trends as a result of increased focus on regulatory compliance for financial institutions, including anti-money laundering, CFPB readiness, fair lending and qualified mortgage processing, as a few examples.

As a result, we do expect to see a smaller decline in full year RBR for the segment than previously forecasted.

Finally, results for our Energy segment were below our expectations for the period, reflecting underperformance in one of the segment's service offering. Fundamental trends, however, within Navigant's Energy practice, and for the energy industry as a whole, remain very encouraging. As a result, we do expect continued year-over-year growth, although at lower levels than previously forecast within our Energy segment for the full year.

Jan Vrins joined us in January to lead that practice. And under his leadership, we are realigning our offering to market demand and also evolving them from smaller, more customized expert engagements into broader, comprehensive offerings to certain key client accounts.

As you know, throughout 2013, we really focused on our future by strengthening our balance sheet, returning capital to our shareholders and investing in internal growth initiatives. We also slowed down our pace of acquisitions and divested and/or transitioned out of certain businesses that did not align with our strategic or financial objectives. As a result of these efforts, we elevated our position to where we have the financial flexibility today to really accelerate our investments in organic growth, while also capitalizing on appropriate external opportunities that can help shift the balance of our offerings towards sources of higher growth reoccurring revenues.

During the first quarter, we made investments in expertise and capabilities with the addition of several seasoned professionals in strategic practice development and market-facing roles. And I wanted to share some of that detail with you today. As noted, Jan Vrins joined us during the quarter, bringing a track record of growth and a global perspective to lead our Energy practice, as well as extensive industry relationships that we can leverage.

We also appointed a new Chief Strategy and Innovation Officer, Renee Dye, who will lead our teams in the identification of solutions, services and collaboration possibilities to fuel our internal growth agenda.

Additionally and in conjunction with our innovation agenda, we also expanded our Healthcare leadership team by welcoming Paul Keckley, an industry thought leader with broad relationships across the healthcare sector. Paul will lead the newly developed Navigant Center for Healthcare Research and Policy Analysis. The center will focus on trends and issues relevant to each of the industry's major sectors and identify innovative solutions that will help clients strive in this fast-changing environment.

And lastly, we also brought on a new CIO, Saeed Fotovat, to deliver added value to our clients through leveraging data and technology solutions, in addition to providing strategic leadership for our internal IT function.

Beyond that, I'm especially pleased that we have had great success and responsiveness to our platform with the addition of numerous and talented senior revenue generators. During the quarter, the Energy practice brought on board 5 senior strategic hires with a wealth of experience and deep expertise in the areas of smart grid and data analytics, renewables, energy efficiency and demand-side management, all aligned to where we see demand driving from going forward.

In our Healthcare practice, we strengthened our clinical, academic and economic bench strength with the addition of several managing directors who provide solutions to clients who are challenged with delivering improved outcomes and patient satisfaction at a lower cost.

We also bolstered our global construction practice, with the addition of a Managing Director specializing in construction design, delay analysis and litigation support. And we also added bench strength in Singapore to respond to increasing market demand.

Our U.K. Disputes & Investigations team began to rebound throughout the quarter through the addition of several senior hires with deep capabilities in complex commercial disputes, securities litigation, international arbitration and forensic investigation matters.

And finally, as you have seen in recent press releases, we are capitalizing on in-the-trenches expertise by hiring several former government and regulatory officials who are uniquely credentialed to advise our clients on both the challenges and the risks associated with doing business with and/or being regulated by government agencies.

Complementing all of these investments in organic growth and the strategic hires that we've had, in Healthcare, we also added an advanced data analytics tool to our suite of technology-enabled solutions through a small acquisition early in the first quarter. We also made a small acquisition early in the second quarter, acquiring the life sciences practice of Leerink Swann Consulting. The addition of 20 professionals through this acquisition strengthens our Healthcare business' deep expertise in the dynamic, competitive and highly regulated life sciences industry by extending our capabilities in business strategy development, opportunity assessment, due diligence, R&D portfolio management, new business planning and new product planning.

Importantly, our first quarter profitability was also impacted by corporate development expenses incurred to evaluate certain external opportunities that we believe are consistent with our long-term strategy and will enhance our ability to integrate more reoccurring revenue streams into our business model.

In summary, we continue to take the necessary steps to position Navigant for long-term sustainability and growth. Our strong financial condition is providing us with the ability to invest in our businesses and recruit top talent to meet growing client demand in our end markets.

I'm going to turn the call now back over to Cindy, who will review our financial results for the quarter and give you a more detailed outlook for the year, and then I'll come back with a few closing remarks. Cindy?

Lucinda M. Baier

Thank you, Julie. Thank you, everyone, for joining us on today's call. I'll review the overall company results for the quarter and discuss the performance of our segments before updating you on our outlook for 2014.

For the first quarter 2014, Navigant reported revenue before reimbursements, or RBR, of $175.1 million compared to $183.1 million for the first quarter of 2013. As I mentioned in our last call, we were expecting our first quarter 2014 RBR to be relatively consistent with our fourth quarter 2013 RBR, given the difficult year-over-year comparisons in the Financial, Risk & Compliance segment. And our first quarter RBR reported this morning was consistent with those expectations.

First quarter 2014 general and administrative expenses were $33.1 million compared to $32.6 million for the prior year, with the increase primarily due to bad debt expense and costs associated with our inorganic growth initiatives partially offset by lower facilities cost. As we discussed in our last call, our expectation for 2014 was that our bad debt expense would return closer to our historical norms during 2014.

Adjusted EBITDA for first quarter 2014 was $22.3 million compared to $29 million for the prior year period. Adjusted EBITDA margin for first quarter 2014 was 13% compared to 16% in first quarter 2013. This anticipated lower RBR level and investments we've been making to drive organic and inorganic growth had a short-term margin impact, as we incurred costs related to these investments in advance of any revenue generation.

Operating income for first quarter 2014 was $17.3 million compared to $23.6 million for first quarter 2013. First quarter 2014 operating income included $1.2 million of other operating benefit, reflecting a fair value adjustment to reduce our estimated contingent acquisition liabilities primarily related to the EMPATH acquisition, while first quarter 2013 included a gain of $1.7 million on the disposition of a portion of the Economics practice.

These operating benefits had been excluded from our adjusted EBITDA calculations to enhance comparability.

Our effective income tax rate improved to 37% for first quarter 2014 compared to 42% a year ago, reflecting increased earnings from our foreign operations. We would expect that our full year rate will be closer to our historical norm.

Net income from continuing operations was $10.4 million in first quarter 2014 compared to $13.1 million in the first quarter 2013. Adjusted earnings per share for this year's quarter were $0.20 compared to $0.26 for first quarter 2013.

Let's review the results from our business segments.

RBR for the Healthcare segment grew 3% compared to first quarter 2013, all of which was organic. There were no performance-based fees recognized in the segment during the first quarter 2014 compared to approximately $600,000 in the same period 2013. The year-over-year RBR growth rate for the period was impacted by a few short-term factors related to the period. Two large government engagements that contributed to our prior year performance were completed in the fourth quarter as expected. But a few new engagements expected to mitigate the year-over-year impact started later in the first quarter 2014 than anticipated.

Second, severe weather disrupted our to consultant's ability to travel to client engagements. Finally, we temporarily shifted some revenue-generating resources to focus on strategic acquisitions, including the Leerink acquisition, which was announced earlier this month.

The Healthcare segment's first quarter operating profit declined 11% on a year-over-year basis as a result of the margin impact from RBR performance as well as investments in future growth, such as senior hiring and investing our consultants' time on potential acquisitions. We expect the Healthcare segment to benefit from the growth initiatives we've invested in, and we expect RBR to build throughout the year. We believe the fundamental demand drivers for our Healthcare services continue to be strong, and we are maintaining our outlook for mid- to high-teens RBR growth for the segment for the full year 2014.

The most recent RBR trend in our Disputes, Investigations & Economics segment is showing improvement, with RBR for the quarter only being down 1% on a year-over-year basis.

Segment operating profit was down 4%. We have seen strong demand in international arbitration as well as improving trends in our legal technology business, where we believe the changes made by new leadership, including a focus on developing deeper relationships with key corporate clients, are starting to create improved performance. We continue to expect mid single-digit RBR growth for this segment for the full year.

The Energy segment's RBR for the quarter declined 8% on a year-over-year basis. Segment operating profit was down 26% compared to first quarter 2013, reflecting the lower revenue level. Our markets and pricing service area, which included contracts with LIPA and NYPA, has been slow to replace that work as the team works to broaden its client base.

Other areas of the Energy segment performed to expectations for the quarter. We are seeing a robust pipeline for energy efficiency, policy analysis and demand-side management services, including recent wins on long-term contracts with the Department of Energy and a major utility. We have now incorporated our first quarter performance into our outlook for the year and now believe the Energy segment will deliver RBR growth during 2014 in the mid to high single digits.

The Financial Risk & Compliance segment performed better than we had forecast previously, with a 17% year-over-year RBR decline. This segment had a difficult comparable due to the large mortgage servicing review engagements in 2013 and the planned lower RBR contribution from restructuring services in 2014. These headwinds have been partially offset by strong demand for our anti-money-laundering services, CFPB readiness, qualified mortgage processes and other compliance services as the financial services industry adjusts to a more demanding regulatory environment. While segment operating margin increased to 43% in first quarter 2014, overall segment operating profit declined 5% on a year-over-year basis due to the RBR decline.

We have revised our 2014 expectations for this segment from the previous outlook of a 30% RBR decline to an RBR decline in the mid-20s.

Our bank debt at year end of $120.8 million was down 27% from the year ago levels. However, our debt increased from year end as a result of the normal seasonal impacts from annual incentive compensation payments and receivables trends. We are comfortable with our debt leverage ratio of 1x, which enables us to maintain flexibility for long-term growth.

We repurchased approximately 409,000 shares of common stock during the first quarter 2014 at a total cost of $7.4 million. Free cash flow was $18.5 million for the first quarter compared to $21.9 million for the prior year quarter. Capital expenditures totaled $6.5 million for the quarter, primarily for technology infrastructure.

Let's turn now to our outlook for 2014. As we discussed on our last earnings call, we believe RBR growth rates will build throughout the year as we execute on our growth initiatives. We continue to expect a short-term margin impact in the first half of the year, as costs related to our growth investments precede any associated revenue contribution.

Based on trends in our key markets and the factors discussed earlier, along with the outlook I provided by segment in my earlier comments, we are reiterating our previous outlook for the business as a whole. We are targeting RBR in the range of $735 million to $775 million. We expect a range of $810 million to $850 million of total revenues. Our outlook for adjusted EBITDA is in the range of $120 million to $130 million. Adjusted earnings per share is estimated to be in the range of $1.03 to $1.13 per share. We are expecting free cash flow in the range of $65 million to $75 million.

In conclusion, we remain focused on improving shareholder value through a disciplined approach to growth. And we will continue to balance near-term operating performance with investments in organic and inorganic growth in our highest opportunity areas.

Thank you for your time. I will now turn the call back over to Julie.

Julie M. Howard

Thank you, Cindy. I look forward to discussing the strategic direction of Navigant and where we're looking to take the company over the next several years at our upcoming 2014 Investor Day in New York City on June 5. It will also be an opportunity for all of you to hear from our senior leaders as well as outside experts who will discuss some of the trends impacting our key industry sectors. I really hope to see you all there.

And with that, we'd be happy to open it up for Q&A. Operator?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question from Randy Reece, Avondale Partners.

Randle G. Reece - Avondale Partners, LLC, Research Division

First of all, I was wondering if you could give a little more light on what you think the weather impact was across the segments. And was there one affected more than any of the others?

Julie M. Howard

Yes, I think we mentioned in our comments, Randy, I think we felt probably more of the weather impact on our Healthcare business than in any other business. As you know, that's a practice that travels and works at client sites all the time. So we had people who spent time in airports and weren't able to get to the client site or to make meetings. So that's where we felt the greatest impact across our entire business.

Randle G. Reece - Avondale Partners, LLC, Research Division

Just looking at the consultant to headcount in Healthcare. The past 2 years, the first quarter was the same as the fourth quarter. And I just wanted to understand a little more what the seasonality of your headcount changes is in Healthcare in the consulting side?

Julie M. Howard

It's an interesting question. I'm not sure that we have necessarily seasonality to the business, although I think we've seen an extraordinary push in the fourth quarter of each year to do recruiting and to get out there and have those conversations. As you know, it takes a fair bit of time to recruit individuals in, so I think that's probably why you've seen us and are kind of trend up in the first quarter. Lee, is there anything you'd want to add to that?

Lee A. Spirer

I think it's the -- well, it's dependent upon a lot of factors: jobs winding down, new jobs winding up, our preparing to scale. We have made some investments in Healthcare with senior practitioners who are going to start leading new areas of our business, so you see a little ramp there. But I think it's more of those factors than it is anything specific around seasonality.

Randle G. Reece - Avondale Partners, LLC, Research Division

What kind of a ramp in Healthcare headcount should we be looking at the rest of the year?

Julie M. Howard

I think it will be consistent with, although not quite equal to, the expected growth that we have for that business. I mean, we're a consulting business. So you oftentimes feel like you can realize growth through additional expertise and capabilities through head. But we also have some room on utilization within that business. And clearly, as our revenue cycle outsourcing, Alleviant business continues to grow. We would probably see more leverage-ability, so greater headcount growth.

Operator

Our next question from David Gold, Sidoti & Company LLC.

David Gold - Sidoti & Company, LLC

Wanted to delve a little bit more into the changes on the Energy side. First, I wanted to hear a little bit more on I'm going to say the realignment that's going on there and the time you think it takes given, I think, the revenue growth guidance suggests -- unless it's super back-end loaded, it suggests that we should return to growth there pretty much near term. So just wanted to get a sense for the changes and what's happening.

Julie M. Howard

Yes. So let me clarify. We're disappointed that we didn't meet our own internal expectations in the Energy segment for the first quarter. But we recognize that, that is -- it's almost entirely driven out of the sub-practice, if you will. That was impacted by the LIPA matter last year, so we remain a little uncertain as to whether that is markets and/or just kind of the wash over that we've had from that, and so we're not seeing as many opportunities as we had anticipated. So we're working hard. That's in our kind of markets and pricing practice to reinstate a good business flow. At the same time, we're incredibly excited to have Jan on board. And as you would expect from a new leader, he is working through and developing a strategy that he thinks will be more robust and growth-oriented for the Energy business, which includes to focus more on key accounts and invest on utilities, perhaps some oil and gas growth developments. And he's already knee-deep in the trenches. And I hope and encourage everybody will come to our Investor Day, you'll have an opportunity to meet him and he'll be able to talk about it in more detail. But the practice is already shifting, if you will. I wouldn't call it a realignment, David. Just that we're shifting a little bit more towards market demand from his perspective.

David Gold - Sidoti & Company, LLC

Got you. And then just part two of that, expectation for maybe the -- do you envision results over the hangover to subside and return to growth in the practice? Do we think it's a second quarter event or is it really more back-end loaded?

Julie M. Howard

I think it's a -- I mean, you're asking a question that's very hard for us to ascertain, right? There are what we know our opportunities are to regional [ph] pipeline in that business. But we definitely feel -- have felt a little bit of a pushback ever since. You can look at the results of that business from the end of second quarter last year when the LIPA thing came out to now, and you can see the compression. So it is our hope and plan that we will continue to rebuild there. Cindy, do you want to add to that?

Lucinda M. Baier

Yes. I would just say, David, that we really looking for a stairstep of growth in the Energy business to get back to the mid to high single digits with sort of sequential improvement in virtually every quarter.

David Gold - Sidoti & Company, LLC

Got you, okay. And then just one last. Do we mention some costs related to looking at some outside opportunities? Those -- were you referring to the Leerink deal that was done? Or were there -- are there other opportunities under review? And if yes, are they still under review or have they gone by the wayside?

Julie M. Howard

We are looking at -- vis-a-vis an addition, we are looking at some other opportunities, David, that we feel positive about. But we're not in a position at this point in time to say more.

David Gold - Sidoti & Company, LLC

Okay, perfect. So the increased costs could continue there?

Julie M. Howard

That's correct.

Lucinda M. Baier

Although not at the same level.

Operator

[Operator Instructions] Our next question, Tim McHugh, William Blair & Company.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Just following up on, I guess, that last one. Can you give us a rough sense what the kind of unusual expenses related to those, the transactions you might have been considered for, for the quarter, just to get a better sense of the underlying G&A run rate?

Lucinda M. Baier

Tim, this is Cindy. We spent about 1% of RBR on corporate development expenses, on the deals that we talked about. And that is outside the normal internal costs for our corporate development team.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay, great. And then the Risk & Compliance business that you're recognizing you increased or improved your guidance for the year. But even a mid-20s decline implies, I guess even sequentially, the revenue goes down from current levels. I guess it feels like, from my understanding, the restructuring business is now out of the numbers and you've moved past most of the mortgage businesses. So are we past the headwinds, at least as we think about sequentially from Q1 in terms of the run rate for that business? Or is there still some legacy kind of revenue in there, and that's what we have to think about as we go across the year?

Lucinda M. Baier

So, Tim, this is Cindy. Our restructuring revenue in 2013 is still in our comparable numbers because we didn't move or exit the entire restructuring practice. We only have the departure of a select group of people, so that's in our comparable. The other thing that I would say is we still have a mortgage servicing headwind. It's stronger in the first half of the year than in the second half of the year because every quarter last year, our mortgage servicing review work stepped down, so that's how we see it. But we do expect that business to grow throughout the year, again, sort of a stairstep approach.

Timothy McHugh - William Blair & Company L.L.C., Research Division

But the mortgage servicing business -- so in Q1 of this year, did you have as -- I guess some of those large mortgage fraud review projects, those are over now, right? Just looking at Q1 of '14, are you still getting revenue through those?

Lucinda M. Baier

We did have some revenue in Q4 or Q1 of 2014, but it was significantly less than Q1 of 2013.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay, all right. And then I believe there's a comment you made on the Disputes business about some deadlines approaching on projects, and that's part of the optimism. I guess I missed the full comment, but can you elaborate? Are there some large litigation matters that are proceeding forward that are at a kind of a critical point? Is that what the comment meant?

Julie M. Howard

I think my comment really, Tim, relates to the fact that if you think about credit crisis litigation, I mean, it's been around since 2008, 6 years. So at some point here, these cases really get mature and you find yourself at a position where you're starting to think about expert testimony, trials, kind of getting down to brass tacks. And so that gives us an opportunity because of our expert testimony business to really have some great opportunity and ramp in that area. That's simply the comment as it's kind of the agent stage of the litigation environment as it relates to some of the credit crisis work.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay. And then I guess just lastly, you gave some helpful color last quarter about kind of Q1. I guess it's an earlier question about Energy, but the full year guidance obviously assumes that revenue steps up across the year. Would you assume somewhat of what you said about segments kind of a gradual stairstep? Or is it going to be more 3Q and 4Q than 2Q even as we think about how the year -- how you're thinking about it at this point, I guess?

Julie M. Howard

We are planning and anticipating a stairstep, but you'll certainly see probably more significant stairstep in Q3 and Q4.

Operator

Our next question from Jerry Herman, Stifel, Nicolaus.

Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division

First question is just if we can circle back to the acquisition criteria, if you will, that you mentioned, Julie, the interest in expanding the recurring revenue base. But can you give some parameters on sort of the size of deals that you might be looking at and the wherewithal of the balance sheet as you see it?

Julie M. Howard

I can't, Jerry. I -- in the size of deals, I think I've said in various meetings and publicly that, clearly, we want to evolve and complement our consulting model with alternative revenue streams that provide more reoccurring long-term contract revenue that give us more sustainability, if you will, less volatility, if you will, to our results over time. So there's lots of different opportunities that we foresee and are evaluating that will allow us to do that, that again, will still be complementary to the industry sectors that we serve. And I would anticipate, as we've said before, that we're about 1x EBITDA right now from the debt level, entirely comfortable in increasing that because I know that we have strong free cash flow and the wherewithal to bring our debt levels back down very quickly. As we've demonstrated, one of the reasons to do that over the last 2 years was to demonstrate to everybody that we have that ability and we'll use it. So comfortable taking it up to a higher level at this point.

Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division

Okay. And then, maybe, can I flip that question into internal growth? And in particular, you have sort of instituted initiatives to drive organic growth. Can you give us an update on those endeavors and when we might see some monetization of those efforts?

Julie M. Howard

Well, internal efforts would include, clearly, the first one being hiring of what I would call revenue generators, people who have the opportunity to sell work to clients and deliver great client work. So that's one of the reasons that I listed out all of those hires. We really invested significantly in the first quarter in a number of key senior strategic hires in the businesses where we think we have great growth potential. That's one. We're also investing in high-performance selling. I've talked to a lot over the last 2 years about more of a focus deep within the organization, training people, giving them the tools to be better in the marketplace and identify opportunities with our clients and be able to sell deeper and more integrated engagements within the company. So there's some expense in the first quarter related to that. Cindy is giving me the nod. What else did you want to add to that?

Lucinda M. Baier

The one thing you may also want to know is that our Technology, Data and Process business is growing. It was up 14% in the first quarter year-over-year. We would expect that business to continue to grow throughout the rest of the year, realizing the benefit of some of the investments that we've made last year as well as this year.

Julie M. Howard

So when you think about organic growth, there's a push and a pull. The push is that we're investing in areas where we think the market is going to from a capabilities and expertise perspective. And that takes any time anybody switches environments, switches companies, what have you, goes from the regulatory environment to consulting, you've got a little bit of time where there's some ramp. So that's not an immediate day-1 revenue stream, but that's an investment that we're willing to stake. And then there's the pull, which is the market demand that causes us to build out the leverages within our businesses and where we hope to see increased utilization and pricing opportunities over time.

Jerry R. Herman - Stifel, Nicolaus & Company, Incorporated, Research Division

And then just one last one for me. Can you talk about the price of hiring? Are you seeing any inflation in compensation costs in those target areas?

Julie M. Howard

Go ahead, Lee.

Lee A. Spirer

Jerry, thanks, it's Lee. It's a competitive market in the high-growth areas. I don't think that we see compensation getting out of line. I think there's a little bit of balance between the market for talent and us becoming a really attractive place for talent to land, particularly in some of our growth markets like Healthcare and Energy. So it balances itself out. There's a little bit of inflation, but it's not nearly as significant as you might expect given our growth rates in those businesses.

Operator

Our next question, Joe Foresi, Janney Capital Markets.

Jeffrey Rossetti - Janney Montgomery Scott LLC, Research Division

This is Jeff Rossetti on for Joe. Just wanted to see if I could get some more detail on the Healthcare investments. Just wanted to see if you could give some background on the analytics tool and maybe kind of the strategy for investments on the analytics side in Healthcare going forward. And maybe some -- I think you mentioned that there were some Managing Director hires in the clinical -- on the clinical and economics side within Healthcare. Could you provide possibly the number and how you expect those Managing Directors to ramp? Is it just, as you've described for this segment, just a stairstep sequential improvement as the year progresses?

Lee A. Spirer

Joe, it's Lee. I'll address the technology and analytics question and defer. And Cindy will pick back up on the stairstep on the talent acquisition that we've had and what that means for our quarters going forward. The little piece of technology that we've picked up was very purpose-built to help in hospital settings of extracting information both from structured data as well as unstructured data to provide insight on reducing the cost of care and increasing quality of outcomes. Basically, it's a tool that allows us to provide analysis to support the hospital. A lot of the data doesn't exist in structured data fields like you would typically expect in data analysis, it may sit in the physician's notes. For example, blood pressure is actually captured by nurses in the notes, and it's rather difficult to extract that in a meaningful way and connect it to the structured data that you might have about other patient information. So the little tool that's going to allow us to basically provide data integration and allow the platform for us to provide the analytics and consulting that it's tightly connected to. The big issue on this is it's a tool to get data, but the value is really in answering -- asking the right questions and hypothesizing on the answers to help the client make the right decisions going forward.

Lucinda M. Baier

And then on the stairstep question, what we're seeing is essentially a sequential improvement, although not as dramatic as some of the other businesses. It takes generally 6 to 12 months for our revenue generators to produce, so that's a piece of it that we're seeing more improvement between Q1 and Q2 than in the rest of the quarters.

Jeffrey Rossetti - Janney Montgomery Scott LLC, Research Division

Okay, great. And then just a follow-up on the technology portion within Healthcare, the analytics tool. Is there any background like on the number of hospitals, maybe, that have purchased it? Or is it -- and I assume it's just a subscription service. Is there any detail on the price point relative to any other analytics tools that you're selling?

Lee A. Spirer

Yes. I would make a general comment about it. It's a piece of software that provides the ability for the hospital and for us to do analytics on it. It's been implemented in one major health system. We see it as being part of the package of what we're delivering in value-added services. It's not a standalone piece of software with specific pricing, it will be part of our overall solution suite.

Jeffrey Rossetti - Janney Montgomery Scott LLC, Research Division

Got it. Okay. And then the final thing on Healthcare, just given that you're maintaining the guidance for now for the year, but now it includes Leerink. Is there any piece of Healthcare that, maybe, you might see a little bit weaker than you'd expected a couple of months ago?

Julie M. Howard

Well, no. I think the only thing that I would say, I think the market is incredibly strong for Healthcare, and we've got great runway and opportunities for years to come and are pursuing that. The only, I think, piece of information that came out in the first quarter that impacts a lot of businesses is ICD-10. The conversion to ICD-10 has been pushed off for a year. So on one hand, that may impact some opportunities and slow them down. On the other hand, and we're still trying to determine, that may also create more opportunity on the provider side for us to be of more assistance during that period. So hard to know, but that would be one shift during the quarter that we still have to evaluate.

Lucinda M. Baier

And then on the guidance point. Our Healthcare range is relatively broad, being in the mid to high teens, and the Leerink acquisition is relatively small. So just because we have an acquisition and we haven't changed our guidance, that doesn't mean that our underlying business isn't as strong as we always thought it was.

Operator

Next question from Tobey Sommer with SunTrust.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Just kind of a follow-up question to that last one. Other than the change in the timing of the adoption of the new ICD standard, is there any kind of other unifying feature of the project delays that you could identify, or maybe just some of the pushouts associated with the Affordable Care Act? Or I'm not sure what you're seeing from your customers.

Julie M. Howard

Well, the project delays that we talked about, and we talked about some projects, larger projects ending and it's kind of normal course, some of it was some government work related to the exchanges. So we had that. And then we clearly, as I said in the beginning more than anywhere else, had an impact from the weather, as I think most businesses across the United States had this first quarter. It certainly created the situation where we had people who couldn't get to their clients. That's probably the biggest impact that you're seeing, Tobey.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Okay. I may have missed it, I apologize if I did, but have you quantified the revenue contribution of Leerink for this year?

Julie M. Howard

No, we haven't. But as Cindy said, it's small.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And...

Julie M. Howard

We noted -- I noted in my comments, we noted in the press release, it's 20 professionals within Life Sciences.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

And then if we make a calculation, assume a comparable revenue that's a fair ballpark?

Julie M. Howard

Yes, that's fair revenue per consultant in the Healthcare practice.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Okay. Within Energy, are there any regulatory catalysts to keep an eye on? Or what are the 2 or 3 biggest drivers for that over the next couple of quarters?

Julie M. Howard

Well, I think I mentioned, and I've talked about this in prior calls, the whole climate change legislation enacted by the Obama administration in late last year has certainly had an impact and a real focus on the need for better energy efficiency evaluation and methodologies and policies, as well as kind of a renewed focus on renewables, a renewed focus on better demand-side management from the customer's perspective. And I think it's created significant pressure on the investor-owned utility market because they're having to deal with the fact that there are renewables out there and energy efficiency standards to meet. So it's put significant cost pressure, which gives us an opportunity to be more relevant to that client base. Similar, very similar to the Healthcare environment right now where operational excellence and performance improvement and cost management strategy are going to become much more fundamentally important in their survival and the ability to thrive. And then there's kind of all the other issues that natural gas and frac-ing and the resiliency of our grid in United States, as evidenced by several strange outages during the first quarter. So there's lots of opportunity for us to be very busy in that business for years to come.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Okay. My last question, just kind of bouncing back to the Healthcare. You mentioned a big project working on the exchanges. How much revenue have you garnered from that kind of activity? And I just want to get a sense for that, whether it's one-time and over and something to think about in terms of forward modeling? Or given all of the, perhaps, improvements that the government can make in that regard, it represents an ongoing opportunity?

Julie M. Howard

Yes. No, we've mentioned that it -- I think we've talked about it before, it was -- it's insignificant, our work for the exchanges. We've done some work with the states in contemplating how they would be responsive to and build out workflows and what have you to be responsive to the exchange needs. But from a federal perspective, we had one engagement and that was it.

Lucinda M. Baier

And it was consulting, not IT services.

Julie M. Howard

Not IT.

Operator

At this time, we have no further questions. I'd like to turn it back to the presenters for any final closing comments.

Julie M. Howard

I don't think we have anything further. Thank you very much for joining our call today, and we look forward to seeing all of you in June.

Operator

Thank you. This does conclude today's conference. You may disconnect at this time.

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