Navigant Consulting's (NCI) CEO Julie Howard on Q2 2016 Results - Earnings Call Transcript

| About: Navigant Consulting, (NCI)

Navigant Consulting, Inc. (NYSE:NCI)

Q2 2016 Earnings Conference Call

July 26, 2016, 10:00 AM ET

Executives

Aaron Miles - Director, IR

Julie Howard - CEO

Stephen Lieberman - EVP & CFO

Lee Spirer - EVP and Global Business Leader

Analysts

Randy Reece - Avondale Partners

Kevin Steinke - Barrington Research

Tim McHugh - William Blair

Tobey Sommer - SunTrust

Bill Dezellem - Tieton Capital Management

Operator

Good morning and welcome to Navigant’s Second Quarter 2016 Earnings Conference Call.

At this time I would like to inform all participants, their lines will be on listen-only until the question-and-answer portion of the call. This call is being recorded. If you have any objections, you may disconnect at this time.

I would like to introduce Mr. Aaron Miles, Director of Investor Relations for Navigant. Mr. Miles, you may begin.

Aaron Miles

Good morning and welcome to Navigant’s second quarter 2016 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 Chairman and 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 and the reconciliations in the schedules attached to the press release along with the risk factors included in the Company’s 2015 annual report for potential factors which could affect the company's financial results and cause our actual results to differ materially from those contained in or implied by any forward-looking statements.

I will now turn the call over to Julie Howard.

Julie Howard

Good morning. Thank you for joining us today.

I am going to begin by commenting on our second quarter 2016 results and then I'll turn the call over to Stephen Lieberman, our Chief Financial Officer to review our business performance in more detail.

I am very pleased that we achieved yet another quarter of strong top and bottom line performance, highlighted by double digit year-over-year growth in both revenue and earnings.

These results are demonstrative of the steady execution of our strategic objective that we set forth for the company and our clear differentiators and experience and expertise that position us to thrive in the transformational environment that encompass the healthcare energy and financial services sectors today. This quarter we saw this opportunity that drives growth reflected in the performance of most of our service lines.

In the healthcare segment, the sheer breadth, depth and relevancy of the knowledge base of our professionals to the critical strategic needs of the health sector continues to be the key driver of our strong results quarter after quarter and this quarter was no different.

We achieved in excess of 20% RBR growth on a year-over-year basis, more than half of which was organic. This successful performance was driven by an increase in large multi-disciplinary strategy led transformation engagement, which incorporates clinical effectiveness, expense management and position engagement in the development of value based business models of the future. This has become a sweet spot for Navigant in the market.

Turning towards our energy business, this segment also delivered strong organic RBR growth with consistent contributions delivered across our portfolio of services. The energy sector is focused on creating a cleaner distributed and smarter energy infrastructure, which is driving increased client needs and opportunities.

This transformation of the industry includes a wide range of strategic operational, technological, commercial, environmental and regulatory changes that are transforming the traditional strategies and business models of the sector. We're well positioned to respond to and take advantage of this emerging change and growth environment.

Turning towards the Financial Services Advisory and Compliance segment, which also delivered very robust organic RBR growth driven by a diverse set of larger engagements. Our expertise and financial crime and consumer financial compliance issues continues to be in demand by major financial institutions.

And we expect compliance and business controls to remain key areas of focus of these institutions and for Navigant to remain on the shortlist to continue to assist current and new clients in the future.

And finally let's talk about our dispute forensics and legal technology segment. Our performance for the quarter was generally in line with our expectations with variability and the demand environment for our services driving a slight decline in RBR growth, but good improvements in profitability.

We experienced increasing demand for our industry aligned expertise in Healthcare and Life Sciences dispute matters and on the strength of our globally recognized construction and infrastructure disputes business. This growth in demand was offset by a decline in our Legal Technology Services business due to market demand and competitive pressures.

We would expect variability in demand by service line to continue as we progress throughout the year. This segment also took some personal actions during the first half of the year, which should continue to positively impact bottom line operating results.

To make this short and sweet, I am very proud of what we've accomplished throughout the first half of 2016 while realizing our organic revenue growth cause and improving our profitability. Our positioning top notch professionals and consistent execution continue to enhance our potentials of reliable growth company.

Going forward we remain optimistic about the business and based on the trajectory of our performance year-to-date, we hope to be in the upper half of our previously communicated guidance ranges for the full year.

Before I turn the call over to Steven, I just wanted to comment ever so briefly on the recent news surrounding the vote by Britain to withdraw from the European Union. And we all know it's still very early in the process to understand emerging issues and opportunities; however, initially we have not experienced, nor do we foresee in the near term any significant impact to our business. And of course like all companies will continue to monitor that situation and provide more information to all of you as the Brexit progresses.

And with that, I’m going to turn the call over to Steven to discuss our second quarter results in more detail and following that we will open up the call for Q&A. Thank you.

Stephen Lieberman

Thank you, Julie and good morning, to everyone on the call. I will take a few minutes to comment on our overall company results for the quarter, review the performance of our segments and then highlight our 2016 outlook.

Overall our second quarter results include a strong top line and bottom line performance and keep us in line to deliver our previously issued guidance for the full year 2016. Total revenues before reimbursement for RBR increased 13% for the second quarter of 2016 to $238.5 million with 10% organic growth as compared to the same period of the prior year.

The year-over-year growth in RBR was driven by a very strong result from our Financial Services Advisory and Compliance Healthcare and Energy Segments. Total segment operating profit was up 22% to $84.2 million for the second quarter of 2016. This compares a $69.2 million for the same period last year. All four segments realized improved profitability led by exceptional growth in the Financial Service Advisory and Compliance segment.

Second quarter 2016 general and administrative expense was $44.5 million or 19% of RBR. This represented an increase of 40% over the prior year mainly due to higher compensation and benefit expenses as a result of acquisitions and new hires, an increase in bad debts as well as certain non-recurring expenses.

Adjusted EBITDA was up 23% to $37.2 million for the second quarter of 2016 compared to $30.1 million for the same period of 2015. Adjusted EBITDA margin for the second quarter was 15.6%, which was an increase by 130 basis points compared to the second quarter of 2015 driven by higher RBR and ongoing cost management.

As anticipated, depreciation and amortization expense increased 24% in the second quarter of 2016 over the same period in 2015, primarily due to higher capital expenditures in the prior year and higher levels of intangible assets from recent acquisitions.

Net income for the second quarter of 2016 improved to $14.8 million or $0.30 per share compared to $7.8 million or $0.16 per share for the second quarter of 2015. Adjusted net income for the second quarter of 2016 was up 27% to $16.1 million or $0.33 per share compared to $12.7 million or $0.26 per share in the same period of the prior year.

Adjustment seems to compute for adjusted EBTIDA and adjusted net income are identified in our reconciliation of non-GAAP financial measures included after the financial statements in our press release.

The second quarter 2016 effective tax rate of 38.8% compared to 39.7% for the second quarter of 2015. The decrease in effective income tax rate was primarily driven by favorable changes in the mix of pre-tax income attributable to lower tax rate jurisdictions.

Our balance sheet remained strong with the leverage ratio of 1.46 times 12-month trailing adjusted EBITDA at the end of the second quarter of 2016. This compares to 1.37 times at the end of the second quarter of 2015 and 1.72 times at the end of the first quarter of 2016.

The modest year-over-year increase was mainly due to additional borrowings to fund the McKinnis acquisition in December of 2015. We anticipate leverage declining throughout the year borrowing any unanticipated investments. We repurchased approximately 427,500 shares of common stock during the second quarter of 2016 at an average cost of $6.8 million and average cost of $15.81 per share.

As of June 30, 2016, approximately 75 million remained available due to the company share repurchase authorization. From the program’s inception in the fourth quarter of 2011 we have repurchased approximately $114 million of our common stock and we continue to believe returning capital to shareholders is a good news of our excess free cash flow.

Capital expenditures totaled $5.1 million in the second quarter of 2016 compared to $10.3 million in the same period of the prior year. The decrease is driven by lower leasehold improvements partially offset by our continued investment in technology to support both our corporate infrastructure as well as our technology data and process businesses.

Second quarter of 2016 free cash flow increased to $24.4 million compared to $11.6 million for the same period of 2015, primarily driven by higher operating results and a decrease in capital investment spending.

Navigant’s business model continues to generate significant free cash flow and we’re using this cash to continue to invest in our people, process and technology capabilities while at the same time returning capital to shareholders via our share repurchase program.

Let me now review the performance for each of our four segments in more detail. The healthcare segment second quarter 2016 RBR increased 21% year-over-year with over half of the increase being organic. Growth in the quarter was driven by an increased contribution from key consulting areas, which included large multi disciplinary client engagements.

Second quarter 2016 segment operating profit was up 19% compared to the same period of 2015. We're very encouraged that our healthcare segment was able to realize substantial growth year-over-year while maintaining segment operating profit at around 33%.

Our energy segment RBR increased to 12% for the second quarter compared to the same period of the prior year, all of which was organic. RBR growth for this quarter resulted from strength across all consulting areas and continued success for our key client account program and acceleration of pipeline conversions towards the end of the quarter.

Second quarter segment operating profit was up 12% compared to the same period last year mainly due to higher RBR, which was driven by an increase in revenue generation from senior hirers and better alignment of resources.

We're pleased that the segment experienced strong RBR growth and was able to maintain the segment operating margin at 29% as we grow into the infrastructure investment we made in the past year.

The Financial Service Advisory and Compliance segment second quarter 2016 RBR was up a robust 36% year-over-year driven primarily by continued demand for financial crimes expertise and increase in compliance and controls engagement for major financial institutions.

The growth in RBR and higher consulting utilization led to an exceptional 56% increase in second quarter of 2016 segment operating profit year-over-year. Segment operating profit margin in the second quarter of 2016 was also up significantly to 44% compared to 38% in the second quarter of 2015.

Finally the Disputes, Forensics and Legal Technology segment second quarter 2016 segment RBR decreased 2% over the same period of the prior year. As Julie had previously mentioned growth and demand for our expertise and global construction in addition to healthcare disputes was offset primarily by a decline in demand for our legal technology solutions, but the market continues to be increasingly competitive and is facing pricing pressure as it matures.

Despite the decline in RBR, segment operating profit was up 13% in the second quarter of 2016 compared to the same period of 2015 reflecting actions to better align resources and increase in performance-based revenue.

These factors also drove the increase in segment operating profit margin to 37% in the second quarter of 2016 compared to 32% in the second quarter of 2015. Let's now turn to our outlook.

Overall we're confirming our company's guidance for 2016 targeting RBR in the range of $900 million to $940 million and then quite reflects growth of approximately 10% over last year, mostly organic. The estimated range of $960 million to $1.01 billion for total revenues, our estimate for adjusted EBITDA is in the range of $132 million to $145 million. Adjusted earnings per share is estimated to be at the upper end of $1.05 to $1.15 per share.

We continue to estimate healthy and free cash flow generation in the range of $75 million to $90 million and capital expenditures are anticipated to be $30 million to $35 million.

To wrap up, I would like to say how excited I am to have joined Navigant just over three months ago. I am very pleased with the progress we have made in the second quarter and feel we have momentum heading into the second half of the year. As always, we'll maintain a strong focus on servicing our clients and managing the business efficiently.

Thank you for your time. I'll now ask the operator to open up the call for questions.

Question-and-Answer Session

Operator

We'll now begin the question-and-answer session. [Operator Instructions] Our first question is coming from Randy Reece of Avondale Partners. Sir your line is open.

Randy Reece

Good morning.

Julie Howard

Good morning, Randy.

Stephen Lieberman

Hi Randy.

Randy Reece

First question, the financial services segment margin was unusually good. I was wondering if you could give us an idea of what to expect in the second half of the year?

Julie Howard

Well Randy, we would expect that we're seeing really good demand for our services right now and we probably expect that to continue throughout the balance of 2016.

We don’t talk specifically about the actual utilization, but certainly everybody that margin was driven to higher levels by the increased utilization of our professionals in that business who are all working really hard to service our clients right now and we would expect that to continue.

Randy Reece

The billing right looked really strong there too. Any specific explanation of that?

Stephen Lieberman

I think its overall demand for our expertise and we got a lot of large impressive engagements going on right now.

Randy Reece

Okay. In Healthcare Consulting, it seems like that piece of the business is significantly stronger than what it had been over the past couple of years and it seems like you're suggesting maybe a broader trend there, but could you give me a little more detail on what has improved in the Healthcare Consulting area?

Julie Howard

I think Randy it's a combination of the expertise and the knowhow that we bring to the table, but also the needs of the client base today compared to years ago and what I said in our commentary is that as we think about a future of value-based, more value-based driven business models, there is a need for not just as I said not just expense management, which used to be the primary focus of Healthcare Consulting, but really the combination of thinking about clinical effectiveness, expense management and physician engagement and the delivery of those value-based driven business models.

And those areas that we've always been really strong in and so it plays to our strength at the moment and that’s really a driver for our success in the market.

Randy Reece

And what percentage roughly of disputes forensics and legal technology is, the legal technology business?

Julie Howard

We have never broken that out specifically. It is not a significant portion of the business and I don’t know, I am going to let Stephen, he is kind of flipping through some pages right now, but he has never really given that.

Stephen Lieberman

Yeah it's -- of the total -- it's less than 15%, but we don’t really -- not give any more specifics about it.

Randy Reece

That’s helpful. Thank you. Finally, what is going on with the revenue cycle outsourcing business and is there any difference in performance there between Cymetrix and [Elevian]?

Julie Howard

We've been relatively consistent Randy with our revenue cycle outsourcing business. Not a lot of changed over the quarters. As we talked about, we’re performing well within the modular world if you will and actively pursuing some of the larger CRCM that we hope to be able to secure in the near future.

Randy Reece

Very good. Thank you very much.

Operator

Thank you. Our next question is from Kevin Steinke of Barrington Research. Sir your line is open.

Kevin Steinke

Good morning, everyone. Following up on the discussion of healthcare, can you give any more color on how -- what the size and the length of these large strategy led transformation projects are relative to maybe size and length of projects that you had historically in that business?

Julie Howard

Yeah, I would call them the kinds of engagements with the multi-year, multi-million dollar in the 10s kinds of opportunities for us.

Kevin Steinke

Okay. That’s helpful. And in the Energy business you talked about acceleration of pipeline or converting to projects near the end of the quarter. Do you feel like that business is now back on track in terms of pipeline conversion and ramping up how you expected for the year?

Stephen Lieberman

Yeah, we saw some pretty impressive growth 12% organic growth in that segment in that pipeline. The conversion was improving through the second quarter and we expect that to continue into the third quarter. It's hard to say real far out, but in the third quarter, yes.

Kevin Steinke

Okay. And I guess presumably, as revenue continues to ramp up and in Energy you’re going to get more operating leverage, margin expansion on the bottom line you said, fair way to think about it?

Stephen Lieberman

It is.

Kevin Steinke

Okay. If I could just ask about you maintaining the full year EPS guidance obviously nice strong first half of the year, if you came at the high-end of your EPS guidance, it would imply that EPS in the second half for the year is relatively flat versus the second half of last year.

Just wondering if there is anything specific that would lead to that outlook or if you're just maintaining a conservative stance and waiting to see how the rest of the year rolls out or any more color on that front would be helpful?

Julie Howard

I think Kevin it's fair to say and I said in my commentary that if our trajectory holds we would expect be at the upper end of all levels of our guidance range. But I think from a prudent perspective, we’re going to take a conservative stance and we’ll give ourselves another quarter to ensure that we can continue this kind of performance before making any adjustments.

Kevin Steinke

Okay. Fair enough. Make sense. And you talked a couple times about the increased competition and pricing pressure for legal technology solutions in the dispute segment. Is there anything about that, that would make you consider whether you want to be in that business long-term.

You said you see this as a fundamental change that this is really not going to go back to how it was previously and maybe it's something that you examine for the long-term about the viability you being in that business?

Lee Spirer

Hi, this is Lee Spirer. Let me take that. This is a trend that we've been facing over the last couple of years and very similar to our competitors as the market matures, has become competitive, there’s been some consolidation.

As we look at this business though the ability to provide some advisory route technology to solve litigation and investigations. We see it as a component of our broader legal channel services and our disputes business, our investigations business, our financial crimes business connect to these types of services and leverage them to assist our clients and getting the outcomes that they need.

We expect over time to get our fair share, but this is market that’s going to be ongoing competitive.

Kevin Steinke

Okay. That makes sense. And lastly I think the last couple quarter here you’ve called out higher bad debt expense is part of the increase in G&A. I’d love if there is anything to read into that or any color on why there has been a little bit higher bad debt?

Stephen Lieberman

Yeah, I won't take anything per se away. We just had a little bit of a tick up in our DSOs and just the reserves that we put on those, there is obviously some case by case that pops up early put bad debts, but I won't take away any particular trend.

Kevin Steinke

Okay. That’s helpful. Thanks for taking my questions.

Julie Howard

Thank you, Kevin.

Operator

Thank you. Next we have Tim McHugh of William Blair. Sir your line is open.

Tim McHugh

Hi, thanks.

Julie Howard

Good morning, Tim.

Tim McHugh

Good morning. I guess a few questions here, just want to start on the -- I guess with the healthcare given people have been asking about it. This trend of the larger engagements that you made a comment on, is that a new trend this quarter or is that -- could you talk a little bit about the strategy led approach -- just trying to understand if there is something new you saw versus a continuation of what you’ve been seeing.

Julie Howard

Yes, no, this is not new this quarter. This is just on a continuation of our performance Tim and types of engagements that we've been securing.

Tim McHugh

So, nothing competitively or in the client preference or something different than six month ago necessarily.

Julie Howard

No.

Tim McHugh

Okay. And I guess maybe this is higher level, but stretching across the business, you mentioned large projects that are both healthcare as well as for financial risk and compliance, how I guess what’s the risk around lumping this around that as we look forward for the next six, nine, 12 months? How long are these expected to last and I guess what’s the kind of large project risk now if we think about the other side of the claim?

Julie Howard

Our large project risk Tim is actually lower than it has been in the past. We have good large engagements in both [RBR] and healthcare, but nor massive if you will. There is different gradations of the size of engagement. So, I think it’s good granularity of a number of larger more multiyear types of engagements which we like.

Tim McHugh

Okay.

Julie Howard

But overall size of project risk is actually down for Navigant.

Tim McHugh

Okay. And then more in the numbers, but that kind of unallocated corporate cost is up a fair amount this year, which takes away from some of the segment level margin improvement we've seen. Is that just the shifting of cost between where you categorize it or is there kind of a story there of what’s happening?

Stephen Lieberman

Yeah, if you looking at G&A as a total, I think you have to take one step deeper by looking at G&A excluding bad debt where we did have a little bit of tick up in bad debt, but if you strip that out, we actually had a 40 basis point improvement as a percentage of RBR. So, you need to take a little bit deeper look into that.

Tim McHugh

Okay. What about even just the kind of the metrics that guys give out? The corporate headcount is up a fair amount then non-billable headcount let’s say, is up a lot in the last year.

Stephen Lieberman

Yeah, there is a couple things going on there. One is related to some of the acquisitions that we had previously and the movement of those individuals into the corporate functions.

There is obviously some various hiring that we do in IT and finance in the normal [past years], but I think a lot of what you're looking at is some of the changes that occurred by moving people from the segments as well as some of the acquisitions into the corporate functions.

Tim McHugh

Okay. Fair enough. Thank you.

Julie Howard

Thanks Tim.

Operator

Thank you. Next we have [Mark Riddick at Filti and company]. Sir you line is open.

Unidentified Analyst

Hi, good morning, everyone.

Julie Howard

Good morning.

Unidentified Analyst

I wanted to look at the energy segment for a minute and I was wondering if you could give us a little bit of detail on the progress that’s taking place on the key client program and some of the benefits that you’re seeing there and driving the organic growth and may be give a sense of what those efforts may be?

Stephen Lieberman

Sure, Mark. The key count program in energy is yielding double-digit growth at those accounts. Its straight forward as it sounds. We invest senior leaders at the account to broaden the type of relationships we've had. The type of engagements we're doing are more multi-disciplinary longer not just in our energy segment, but also in pulling in-competencies that have energy expertise, in disputes, in compliance and valuations from the other segments as well.

So by investing in these key, mostly investor-owned utilities, we're expanding the breadth and depth of relationship, raising the size of our engagement and the duration of our engagements.

Unidentified Analyst

Okay. And as far as I guess may be a penetration level if you will, may be where you are now versus where you were a year ago on this program, how should may be think about that?

Stephen Lieberman

I think while we had great progress over the last two years, this is still early innings on our ability to broaden out the accounts that we've chosen as well as add additional key accounts.

Unidentified Analyst

Okay. Okay. Great. I wanted to get a sense of the margin improvements in financial services and may be less so in disputes, but especially within financial services I was wondering if you could get a sense of the contribution of the margin expansion from either just operating leverage or may be a business mix standpoint given the nearly 600 basis point increase in those margins?

Stephen Lieberman

I think it’s really all the above. I think the team certainly grown RBR, have a number of engagements where they’ve got some good traction on pricing and utilization is way up. So its across the spectrum.

Unidentified Analyst

Okay. And the commentary that you made earlier regarding the Brexit and I appreciate you being proactive on that going and answering the question for that, but I wanted to get a sense of what type of feedback may be you’ve been receiving that give you a current level of comfort that you would necessarily be impacted or may be what you’re hearing from your customers there?

Julie Howard

Well shortly or immediately after the announcement, we gathered our senior business leaders together just to have a discussion about our business in England and on the continent more broadly and just to talk about where that business is derived from and to talk about potential economic impact and then we've been monitoring it since then and having open discussions.

And at the moments and I don’t think we're the only business out there given everything that has to transpire politically, I think it’s going to be a while for a lot of businesses to understand what potential issues and/or opportunity, which we believe is probably something that will come our way through the regulatory environment at some point in time. But for now, there is just no impact in any direction for us and we'll give you an update on that every single quarter.

Unidentified Analyst

Okay. Great. And then as far as use of cash, I know there is commentary as far as may be some debt reduction throughout. I was wondering if you can may be put -- I wasn’t sure if you were looking at a general target for a leverage target for the remainder of the year and then as well as may be some thoughts as far as use of cash with the share of purchase going forward that we can look forward to?

Stephen Lieberman

Yeah, we have a very balanced capital allocation approach. What you'll see is some decrease in leverage as we move through the course of the year but we've historically continued to support and plan to continue to support out stock buyback program. I will make a comment that our CapEx is likely to increase a little bit as we moved towards the tail end of the year.

We've got a large office move in Chicago and some IT infrastructure spending that’s going to move that up a little bit compared to what you’ve seen in the first half of the year.

Unidentified Analyst

Okay. Is the office move expected to take place before the end of the year or do you I guess may be foresee a timing where you might be….

Stephen Lieberman

Its 2017, the one that I am referring to but some of the spend happens in late 2016.

Unidentified Analyst

Okay. Got you. Thank you very much.

Stephen Lieberman

Thank you.

Operator

Thank you. Next we have Tobey Sommer of SunTrust. Sir your line is open.

Tobey Sommer

Thank you.

Julie Howard

Good morning Tobey.

Tobey Sommer

Good morning. Over the last several years, you’ve undertaken a kind of transformation of the revenue mix of the business towards the faster growing areas in Healthcare and Energy and I am curious is the effort to transform the business in part the acquisition or are we -- is that largely over and should we see a greater emphasis on organic growth from here?

Julie Howard

Well, Tobey, I guess I would approach in this regard. There is two different ways to approach acquisitions. One is, in addition of capability to our current team and we’ve made a lot of small acquisitions over time that extend the capability or maybe a geographic reach for us.

And then some are more transformational, which are acquisition into revenue cycle outsourcing and then by extension or delivery capability in India was transformational and much of that behind us.

So looking forward, we would expect to be able to leverage those investments and said that, we expected to leverage those investments well over a year or more ago and I think we’re demonstrating that.

We had expected to be able to exceed our historical growth experiences, which we have done and having double-digit organic growth in this environment I think is significant. So we're really pleased with that.

We also said that we would expect to return to earnings growth after working through all of the investments we made, both through acquisition and organically in some of this business transformation and so I think we’re now beginning to see the fruits of the labors that we had put into repositioning the business.

Tobey Sommer

How quickly do you think your recruiting engine can increase billable FTEs organically and over time?

Julie Howard

We have a strong recruiting engine internally with Navigant as well as robust external relationships that are very specific to some of the industry practices that we operate in and I think we’ve maintained good hiring throughout and I know Lee is there anything you want to say on that?

Lee Spirer

I think to date we’ve been able to continue to still in the team, where we've needed to as we've expanded these broader relationships. In a tough markets like Healthcare and Financial Services there is a battle for town, but we're actually quite pleased with what we've been able to do there.

And so we don’t see talent acquisition as a significant impediment to ongoing expected growth levels long-term in those industries. You know they really are challenging market competitive talent industries.

Tobey Sommer

Okay. So I guess FTEs -- global FTEs on the consulting side kind of up about 11% year-over-year. Can you sustain that kind of rate of growth organically over time, somewhere in low double-digit?

Julie Howard

We are expecting to be high single digit for the year headcount growth in our consulting businesses.

Tobey Sommer

Okay. Thank you. And I’m curious on the Financial Service side the projects that are quite large that are fueling growth and better utilization, are they expected to be long in duration?

Julie Howard

They are multi-period. They're expected to be -- they vary. It depends on the type of assignment on the client, but we have I think for the year at least for 2016 we feel really good about our potential and certainly things will lap over into next year, but there is not a standard form for each of these projects. So they vary.

Tobey Sommer

Last question for me on the non-billable headcount, is there a way to think about over time, do you manage it to a percentage of total employees, any kind of rule of thumb, if I look back over history oscillates between well over around 14% of total employees to high of around 16.5%, 17% or right around at that 16% number now?

Stephen Lieberman

We are not managing shall we say to a specific number. I think we clearly have objectives to be as efficient and run the business as efficiently as we can. And we’re going to try and take advantage of upscale and leverage as we move forward and using that infrastructure that we have efficiently. I would say probably if I was to point at something we manage more towards a dollar spend.

Tobey Sommer

Okay. Thank you very much.

Julie Howard

Thank you.

Operator

Thank you. Our last question is from Bill Dezellem of Tieton Capital. Sir your line is open.

Bill Dezellem

Thank you. First of all, a very nice quarter that came together really quite well.

Julie Howard

Thank you, Bill.

Bill Dezellem

First of all in reference to a prior question, I thought I heard this was in the Healthcare arena relative to potential large contracts, I thought I heard you say in response a plural answer, there could be more than one large contract that you believe you are close to signing? Did I hear that correctly and if so, how many contracts are you looking at?

Julie Howard

Bill, are you talking about in our revenue cycle outsourcing?

Bill Dezellem

Yes.

Julie Howard

And we don’t -- we’re not specific about -- I think as I've talked earlier, the sales cycle is unusually long, negotiations can be difficult, because there is just a lot to negotiate when you're thinking about outsourcing some of these operations.

So we aren’t going to provide any information about timing on when we think we'll be closing CRCM matters. But there are always some good opportunities out there larger ones, that ourselves and our competitive base is pursuing.

Bill Dezellem

Would you confirm that I did hear you say plural as though contract that you're pursuing that you thought could be close?

Julie Howard

I think you heard plural.

Bill Dezellem

Okay. Great. Thank you. And then would you provide a little bit more detail behind the Financial Services RBR growth please? You’ve mentioned it a few times, but I am hoping you will go into some more depth that success you had there?

Stephen Lieberman

Yeah. This is a long-term trend for demand in that -- in the Financial Services space. You want compliance, controls and investigated matters around financial crime. We have been very successful at extending our expertise into multiple different banking type projects in multiple different areas.

And again the cornerstones of these tend to be financial crime, anti-money laundering, there been banking related engagements took to the Panama papers as well as in consumer finance, the reaction in helping clients prepare to deal with CFPB investigation or to prevent any investigation.

It is those long-term market trends and our successful positioning that put us into large remediation as well as forward-looking advisory work. But that portfolio has become quite broad as Julie mentioned earlier.

These are a number of contracts. Some are multi-year, some we're working on three months and then replacing with another one for three months. So it’s a very holistic growth trajectory. Again depended upon the compliance environment, but we feel very strong about visibility for the rest of the year and our capabilities.

Bill Dezellem

Thank you. And I think I also heard in response to a Brexit question that over time, you think that the regulatory arena with Brexit could create opportunity for you, is that -- did we hear that correctly?

Julie Howard

You did. And I think it's just an assumption on our part that there will certainly be and there is going to be all sorts of opportunity and impacts to businesses and I think the potential is there.

But we have nothing concrete though that’s just our assumption from a regulatory perspective we’d expect to see companies having to deal with a variety of matters that we could be supportive of but that’s about as far as I would be willing to go on that.

Bill Dezellem

And really you won’t even know until there is some clarity on what regulations may or may not change for various firms in the U.K. and across the continent.

Julie Howard

That is absolutely true, but as we always say here change is good, change is good for our consulting business and there will undoubtedly be some opportunity, but that is off into the future at some point.

Bill Dezellem

Sure. Okay. Thank you. And then finally on quick seasonality do you normally experience in the second half of your year and/or do business that you have ending in the second half of the year, you don’t anticipate being replaced?

Julie Howard

Bill, our business is -- we don’t have a lot of seasonality and then you have certain impacts from because we're people oriented business, things like major holiday time sometimes impact your business opportunity, but we don’t tend to have engagements that specifically end at a particular time of the year.

They are based on client need. I don’t know if there is anything anybody else want to add.

Stephen Lieberman

No, I think that’s right.

Bill Dezellem

And how about any major contracts that you anticipate that either have ended or will be ending and so the -- you're going to have -- expect a whole in the second half relative to the first half?

Julie Howard

I don’t think there is anything that we would want to touch on or that we would expect and anything that we're thinking about would be built into our guidance for the year. So nothing unusual Bill.

Bill Dezellem

Great. Well, then we'll look forward to the first half somewhat repeating in the second half.

Julie Howard

Good.

Bill Dezellem

Thank you all.

Julie Howard

Thank you.

Stephen Lieberman

Thanks Bill.

Julie Howard

I think that, that is our last question that was teed up. So like to thank everybody for joining us today and we look forward to speaking with you in the next quarter. Have a great rest of the summer.

Operator

Thank you. That concludes today's conference. Thank you for participating. You may now disconnect.

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