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Huron Consulting Group (NASDAQ:HURN)

Q4 2007 Earnings Call

February 20, 2008, 11:00 am ET

Executives

Gary E. Holdren – Chairman and CEO

Gary L. Burge – VP, CFO and Treasurer

Analysts

Timothy McHugh – William Blair & Company, LLC

Andrew Fones – UBS

Mark Bacurin – Robert W. Baird & Co., Inc.

Tobey Sommer – Suntrust Robinson Humphrey

James Janesky – Stifel Nicolaus & Company, Inc.

Abhiskek Gami – Bank of America

Kevane Wong – JMP Securities

Operator

Good morning, ladies and gentlemen, and welcome to the Huron Consulting Group’s webcast to discuss results for the Fourth Quarter and Full Year 2007. (Operator Instructions) Now, I would like to turn the call over to Gary Holdren, Chairman and Chief Executive Officer of Huron Consulting Group. Mr. Holdren, please go ahead.

Gary Holdren

Good morning, and thank you for joining us for today’s webcast to discuss Huron Consulting Group’s Fourth Quarter and Full Year 2007 results. Before we begin, I would like to point all of you to the disclosure at the end of our news release for information about any forward-looking statements that’ll be made or discussed on this call. We have posted a news release on our website. Please review that information, along with our filing with the SEC for a disclosure of factors that may impact subjects discussed in this morning’s webcast. Also on this call we will be discussing one or more non-GAAP financial measures. Please look at our earnings release and our website for all the disclosures required be the SEC, including reconciliation to the most comparable GAAP numbers.

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

Today, I would like to spend the majority of my time talking about 2008 and the market demands and opportunities that exist for each of our businesses. I know that many of you have questions about the macroeconomic environment and whether this well help, will this hurt or help Huron in 2008. I will address this for each businesses as I discuss the market demands.

Before beginning on market demands, I want to just say a few words about 2007: Gary Burge will give you all the financial results in just a few minutes. In 2007, Huron substantially broadened it’s portfolio of service offerings with the Wellspring, Glass and Callaway acquisitions. We lowered our turnover rate to less than 16%. We added 89 new managing directors through hires and promotions and acquisitions. We now have more than 2,000 employees and full-time equivalents who help Huron succeed in the marketplace every day and more than 1,100 clients entrusted us to serve them this past year. The consulting business is a people talent business and the way we will keep winning 2008 and beyond is to keep doing more of the same, attract and retain the best people. When you review the proxy statement this year, you will see that all the Huron executive officers received zero cash bonuses in 2007. The officers made an unanimous decision, since we didn’t achieve our stretch internal revenue goals, we would put our bonus dollars into the staff bonus pool.

Now let me turn to 2008 and beyond. I want reiterate to all of you that we believe that Huron can continue to deliver a 20% top line organic growth rate and a 20% to 25% bottom line EPS growth rate. We have been told since the beginning of when we were going to be a public company, if we could deliver 20% organic revenue growth and 20% to 25% bottom line year-over-year that we would be a great company. We are going to deliver these results in 2008. Our balance portfolio and service offerings and our ability to adapt to changing market conditions allow us to continue to be able to deliver these results. These results may not come from the same practices in the past, but that is why we continue to go where the market is hot and unique. That is Huron’s strength.

We also believe you should look at Huron on a year-over-year basis and invest in us because of our 20/25 organic growth metrics combined with some tuck-in acquisitions which could add another 10% to 15% of annual revenues each year. As our business grows and business conditions change, there will be quarters when the positions of our forecast will be affected by multiple events - starts and stops in big foundation jobs, large volume swings in our V3locity assignments, contingent fee write-ups and on and on. Our priories and sight remain on meeting and exceeding our annual and long-term growth rates, not just quarterly numbers.

Let’s take a look at some of the stories behind the results. I’ll start with our Health and Education Consulting business first. This business has tremendous long-term growth potential given our market position with research universities and troubled, distressed and healthy hospitals. Spending on health and education is about 25% of the U.S. GDP and it is growing faster than most segments of the economy. Huron has number one market share with these two service offerings. Our portfolio of healthcare offerings has done very well and we expect great things in 2008. 5,500 hospitals in the U.S. are not getting financially stronger. Our healthcare practice continues to knock the cover off the ball by delivering services that help our hospital clients dramatically improve their operating performance and financial results. We have booked seven new hospital assessments in the first six weeks of 2008, which bodes well for implementation work over the balance of 2008. Wellspring revenues are backend loaded in the calendar year. In 2008, we will be working to expand more into the academic medical center space and provide a full range of performance improvement services to all hospitals, whether troubled or healthy. This business continues to move upstream in the marketplace. We recently added some larger multi-hospital systems and academic medical centers to our client-base, including prestigious teaching institutions. Huron’s practice that addresses the Pharmaceutical and Health Plans has a great start in 2008 and will have a great year. Our work with health plans has included several large engagements involving Medicare and Medicaid compliance issues. We continue to see more litigation investigations in this sector, like Attorney General Cuomo’s action last week against United Healthcare – claims processing, technical and industry issues continue to affect health plans and recent events indicate that there will be even more attention paid to this industry by regulators in the months ahead. Likewise, our Pharmaceutical practice continues to see strong demand ready to compliant, investigations and disputes in the areas of pricing, off label promotions and sales and marketing activities. Our Health and Education practices are continuing their rapid expansion domestically, and they’re also seen new opportunities in projects in developing economies. The reputation of our Health and Education practice is helping us make significant inroads with projects in the Middle East to create and develop better universities and healthcare institutions. We recently added Dr. Robert Crone from Harvard Medical International who will help us seek business with domestic healthcare clients who are looking to develop international strategies and assist global healthcare entities improve their quality of care and management of healthcare operations. In the U.S., our service to research institutions continues to grow at a very rapid pace. The complexity, risk and challenges associated with performing laboratory-based and clinical research has created a very solid environment for our seasoned team. We don’t think there are any macroeconomic pressures that can slow the Health and Education Consulting business growth for Huron over the next several years.

Now our Legal Consulting business which continues its growth in a high demand marketplace: The core business is doing very well and has added several large companies to its existing client portfolio. The demand from general counsels to help improve their law departments’ efficiencies is coming from companies across all industries. We continue to add new big Fortune 500 companies each month. We’re also seeing an active demand for European Union-based companies. We’ve already been asked to serve two E.U.-based companies even though we have not actively pursued that market. We continue to create demand in our role as a trusted business advisor to the largest law department, and that truly differentiates us from our competitors. We believe we have the number one market share by a wide margin in advising corporate counsel of Fortune 1000 companies. We are seeing clear market acceptance over discovery consulting strategies where our clients are in engaging as per discovery advice, collection, processing review, all in a very integrated manner. Emerging in 2008 is our latest offering to the general counsel marketplace, V3locity. This product was launched at the Legal Tech’s conference in New York earlier this month. We have recently got some new clients that have multiyear agreements and we have dozens of new opportunities that we hope will translate into more multiyear agreements. V3locity is a game changing offering to the marketplace for discovery services and significantly reduces discovery costs for clients. For law firms and general counsels, discovery has become a trying and inefficient process, and it represents nearly 70% of the general counsel’s budgets. V3locity gives our clients a competitive advantage on litigation matters, investigations and second requests in regulatory reviews. We’re the only provider with an integrated solution that doesn’t rely on third parties. V3locity’s guaranteed per page pricing structure and highly accurate analysis makes it another strategic addition to Huron’s rapidly growing Legal Consulting business. I look forward to giving you updates on this exciting new product as the year progresses. With the position we have in the marketplace and our new V3locity product, we believe our organic growth over the next three to five years will be quite good regardless of the economy.

I’m also excited about the strategy developing for Huron’s Financial Consulting business, which now includes the Callaway acquisition which has been fully integrated and is now going to market under the Huron name. We are positioning Huron to provide everything but the audit to the office of the CFO and his or her direct reports. Our compliment of full service finance and accounting experts, combined with our on-demand resources are being well received in the marketplace today. By focusing on selling services to companies of all size, offering them solutions in complex accounting, tax, internal audit, valuation and just multiple engagements to manage accounting data, we tap a much bigger market to help us attain our organic growth rate in Financial Consulting. On the Financial Consulting foundation job front, we saw some traction compared to Q3, but frankly not at the levels we were hoping for. We continue to actively market our capabilities (inaudible) in the credit crisis, but we have not yet seen a significant amount of work. We are confident we will get our faire share; we just can’t predict exactly when it will start. Our Financial Consulting business without Callaway is down substantially from a year ago in our Q1 guidance, and we are forecasting modest growth in our annual guidance, excluding the Callaway business. This is a great business and we will work very hard to get it back under Joe Floyd and Tim Hart’s leadership. Our MDs are in the marketplace every day working on getting business, and I personally have been in this business very long and know that this business will come back. You will be very proud of the Financial Consulting business before 2008 is over.

In Corporate Consulting, our strategy practice, Galt, continues to thrive in the marketplace by helping the C suite improve shareholder value. We are helping management bring the disciplines of the capital market inside of corporations. We anticipate beginning two or three new strategy opportunities in the upcoming quarters. On a restructuring and turnaround front, the year is off to a strong start compared to 2007 and all of our resources are highly utilized, particularly with companies in the Auto sector. We have also seen some nice wins with our Utility Consulting business. We really believe we can become a market leader in this space. As I mentioned last quarter, our Tokyo office is ready for the JSOX market. As of today, we have five managing directors and we look forward to this office having a positive impact on our 2008 results.

I think you can see Huron has a bright future, and we believe that the overall economic environment will have little negative impact on our business.

In closing, we have a great business. We have a plan to grow this business 20% plus for the next five years. We are attracting and retaining the best people. Our balanced portfolio of being aware of challenging and changing market conditions is the strength of Huron. I know that many of you might think this is corny or puffy, but teams beat individuals. Huron is a team and that is our strength. The leaders, managing directors of people of Huron want to be together. We’re also substantial shareholders. Our interest and your interest are the same – Increase Shareholder Value.

Thank you, and I’ll turn it to over to Gary Burge for our financial results and our outlook for 2008.

Gary Burge

Thanks, Gary; and good morning, everyone. I’d like to start off by saying that we had a very good quarter which met our top line and bottom line expectations. Some of the financial highlights included revenues of $136 million were up 63% year-over-year with consolidated organic growth of 11% for the quarter, which I’ll talk about more as I address each of the segments. I would like to point out that while the organic growth did moderate for the quarter, it was 22% for the full year. Our customer diversification continues to improve as our top ten customers represented 29% of total revenue for the quarter compared to almost 37% a year ago. EBITDA increased more than 65% to $29.2 million for the fourth quarter compared to $17.6 million a year ago, and our adjusted EBITDA rose more than 71% to $34.8 million. Also, our adjusted EBITDA margins increased 130 basis points to 25.6% as we continue to leverage our SG&A costs. Operating income increased 61% to $23.2 million for the quarter, up from $14.4 million last year. Operating margins remained about the same, 17.1% compared to 17.3% a year ago, due to the impact of rapid amortization on intangible assets. However, excluding $1.2 million of rapid amortization in the fourth quarter 2007, our adjusted operating margin would’ve been 18%. The fourth quarter of 2006 had no rapid amortization. Finally, diluted EPS improved 37% coming in at $0.63 compared to $0.46 a year ago.

Now for some comments regarding each of our businesses: Revenues for the Financial Consulting segment were $46.7 million for the fourth quarter of 2007, increasing 53% from $30.6 million in the fourth quarter of 2006. As a reminder, this segment now includes a project-based on-demand resources from the Callaway acquisition that we completed in the third quarter. Excluding Callaway, fourth quarter revenues for the Financial Consulting would’ve been down 5% organically from a year ago as our Financial and Economic Consulting practice, an event-driven practice, continues to have tough quarterly comparisons as this business was running so strong for us a year ago. Having said that, revenues for our Financial and Economic Consulting practice did improve sequentially by about $1.5 million from the third quarter of 2007 as we saw some rebound in foundation job activity in 4Q. Segment operating income increased 23% to $17.8 million from $14.4 million in the same quarter a year ago. Utilization declined from an unsustainably high 86% a year ago to 68% in this year’s fourth quarter. It’s also impacted operating margins for the segment which were down from a year ago. The Financial Consulting business has contributed tremendous results for us over the last five years, and we are counting on its continued growth albeit with the choppiness in results that can come with the event-driven business that they are in.

Results for the Legal Consulting Segment were $20.4 million for the fourth quarter of 2007, increasing 13% from $18 million in the fourth quarter of 2006. While our core Legal Consulting services were up strongly compared to a year ago, more than 40%, this segment also had a tough comparison in the fourth quarter of 2006 as our event-driven doc review business had several major cases and tight review guidelines in the fourth quarter of last year that drove a high volume of revenue. Segment operating income increased approximately 8% to $5.9 million from $5.4 million in the same period a year ago. Operating margins declined slightly in this segment as we continued our business development and investment activities relative to our V3locity product. As we’ve said before, we believe there’s great potential for this business. The comprehensive menu of services that we provide to the general counsel is second to none and is a matter now of educating the market and filling the pipeline with sales activity.

Revenues for the Health and Education Consulting Segment were $50 million for the fourth quarter of 2007, increasing 109% from $23.9 million in the fourth quarter of 2006. Organic growth for our core higher ed and pharma health plan businesses remain very strong at more than 30%. We remain very pleased with the strength at Wellspring, our healthcare provider practice, as displayed in the community hospital market. Since joining the Huron platform in January of 2007, Wellspring revenues have increased about 40% on a year-over-year basis, 2007 over 2006. In total, the Health and Education Segment operating income was outstanding, increasing more than 200% to $21.3 million from $7.1 million during the same period a year ago.

Revenues for Corporate Consulting were $18.8 million in the fourth quarter of 2007, increasing 71% from $11 million in the fourth quarter of 2006. Organic growth was 32% for this segment driven primarily by our strategy practice, Galt, that had a great year; and we were also pleased with the revenues generated by our new Tokyo office. This segment did have mixed results, however, as some elements of our restructuring and turnaround and operational consulting practices fell short of our expectations for the quarter. Segment operating income declined to $2.8 million in the fourth quarter of 2007 from $4.6 million during the same period a year ago, reflecting these mixed results at the practice level including lower utilization as well as investments we have made in starting up Japan.

As we’ve said many times, our balance portfolio serves us well, giving us the ability to manage through fluctuating markets. The strategy proved its value again this quarter as strong results in our healthcare, pharma health plan, higher ed and strategy practices allowed us to show patience with our event-driven businesses, like financial and economic consulting and document review, and also allowed us to make investments in V3locity and in Japan.

Now for a few more stats: DSO came in at 67 days at the end of the quarter compared to 55 days in the end of the fourth quarter last year. Our DSO did improve four days from the third quarter of this year and we’ll continue to see if we can manage this statistic down in future quarters. Cash flow from operations was $43 million in the fourth quarter of 2007 reflecting these improved cash collections. Finally, return metrics for Huron remain strong with the return on assets of approximately 12% and a return on equity of 28% over the last 12 months.

Now guidance for Q1 and the full year 2008: As you saw in our press release for Q1, we expect revenues in the range of $142 to $147 million, EBITDA in the range of $28 to $30 million, operating income in a range of $23 to $25 million and $0.66 to $0.70 in diluted EPS. We expect that first quarter results will also include a little over $6 million in stock-based comp costs. For the full year 2008, we expect revenue range of $640 to $670 million, EBITDA in a range of $132 to $138 million, operating income in the range of $111 to $117 million and diluted EPS in the range of $3.10 to $3.28. Full year share-based compensation costs is estimated to be a little over $28 million. Other full year modeling assumptions would include approximately 1,350 billable consultants onboard by the end of the year and approximately 700 average FTEs for the year. Average utilization rates will be in our 70% to 75% target range and a 5% lift in our average hourly bill rates compared to the fourth quarter of 2007. Weighted average diluted share counts for 2008 are estimated to be approximately $18.4 million for Q1 and $18.6 million for the full year 2008. Finally, with respect to taxes, you should assume an effective tax rate of 44% for the full year.

To recap, we are pleased with our top and bottom line results for the fourth quarter and full year 2007. We’re also pleased with the positive results of our acquired businesses. Finally, as Gary mentioned, we are very excited about our prospects for growth as we continue through 2008.

Let’s now open it up for questions.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions) Our first question comes from the line of Mr. Tim McHugh of William Blair & Company. Please proceed, sir.

Timothy McHugh – William Blair & Company, LLC

Yes, I just wanted to touch on the guidance. You mentioned there’s a few things that can impact the quarter and that’s why perhaps your Q1 guidance for organic growth is probably a little lower than it’s implied for the full year. Specifically you mentioned Wellspring might be backend loaded for the year, and I think you suggested that perhaps Galt and some of the corporate consulting could be backend loaded, I was wondering if you could just elaborate on that.

Gary Holdren

Yeah, Tim, Wellspring, what happens with Wellspring is that they start the year and they do assessments and the assessments don’t get the same rates and then they start the implementation which are 8 to 12 months and those implementations are at higher rates; and if they complete them, every one of them if they meet certain standards, then they have write-ups in them which increase the profitability and sort of backend load the results, so they start beginning of the year, get assessments and build up. Galt’s just not as much backend loaded; they just got a lot of demand. Right now what’s probably affecting Q1 more than anything is just we’re not having the same level of success with our core Legal Financial Consulting business that we had in the six quarters went it ran 85% hot. We just believe that how good we are at that and how much we know about the marketplace and how big the market is that that just has to come back in the second half just because of how aggressive we are out in the marketplace and what we know about the market space.

Timothy McHugh – William Blair & Company, LLC

Then on restructuring, you mentioned that the demand trends there looking out seem fair for both, but in the fourth quarter it didn’t quite meet your expectations. Can you give and elaborate on that?

Gary Holdren

The business wasn’t as good and the margins weren’t as good and all of sudden we started getting work and we’ve got… But we’ve only got 70-some people there and most of them are utilized, so they just won jobs. They won jobs in quarter one and they didn’t have them in quarter four.

Timothy McHugh – William Blair & Company, LLC

Then just one last one here: V3locity, can you talk about the reception in the marketplace as you’ve launched that now for little over a month or so?

Gary Holdren

I think the thing that, the comments we keep getting is what a lot of people just can’t believe, and we’ll have to some education on it, is people believe the product is too good at the price and they just keep wondering how you can deliver all you say you can deliver and are you tricking us on the price and can you really do that. So right now what we’ve got continue to do is have our existing clients tell prior clients that we can do it and get people to try us because they believe it’s so game changing at such a favorable price that we just got keep working the marketplace.

Timothy McHugh – William Blair & Company, LLC

Thank you.

Operator

Your next question comes from the line of Mr. Andrew Fones of UBS. Please proceed, sir.

Andrew Fones – UBS

Yes, thank you. First of all, on the Corporate division, I was wondering if you could explain what drove the lower utilization. You mentioned that ramping up in Japan perhaps weighed on the utilization there. You also mentioned restructuring and operational consulting perhaps coming in a little bit below your own expectations. Can you kind of perhaps just give us some flavor as to what drove most of the declining utilization?

Gary Holdren

You answered yourself, Andrew. We had added 20 some people or we had 20 some people at the end of the year. Japan which was a building process, our operational consulting business and our RT business was slow and all those together, Galt was doing very well, but it’s only, there’s only 40 people and so the combination and so what’s happened and what’s happening in the first quarter is RT restructuring it busy. We’ve got some better favorable results in Japan and Galt’s still busy and we’re continuing to work on corporate. So Q4 wasn’t very good, but Q1’s going to be better.

Andrew Fones – UBS

Thanks. Then regarding Q1, can you give us the number of days that you expect in the period, what the impact could be through Easter and perhaps also if you could perhaps give us the number of days that were in Q4 and what you’re expecting for the full year ’08? Thanks.

Gary Holdren

We’ve got 64 days in Q1 and you got 61 days in Q, and I think we used about 250 for the year, is that right, 253 for the year. Total business days available doesn’t take effective days for vacation, but we use, that’s the way we run our business. We look at revenues per day and so we divide by revenues per day in Q1 is going to have 64; revenues per day is going to have 253 for the year.

Andrew Fones – UBS

Thanks. Then just kind of finally, and I guess king of Tim also touched on this, but it seems as though the guidance for Q1, the organic growth implied by that versus for the full year, you’re expecting some acceleration as you move through the year. Should I understand most of that could come from Financial Consulting as you look at it?

Gary Holdren

I think it’s a combination of factors. One, we hope to have an increase in Financial Consulting. We also think that we should see some improvement in our V3locity business. We also think that Wellspring will be backend loaded. We also hope that we’re going to grow headcount. So it’s a combination of everything.

Andrew Fones – UBS

Kind of in terms of the comps as well, you mentioned that the comps certainly are easier for Financial Consulting in the second half of the year.

Gary Holdren

Restate your question again.

Andrew Fones – UBS

Sorry. Just looking at the comps, I think you also mentioned for Financial Consulting that the comps get easier as you work through the year.

Gary Holdren

Yeah, I mean if I you start looking, you can go back and look, I’m looking at it myself, we had $36 million in Q1 of last year and it just kept working its way down Q2 and then we made the Callaway acquisition in Q3 and Q4, but the business just kept coming down during the year that where it came down under $30 million. So it’s going to make the comps easier as we go. With what Joe Floyd and Tim Hart are doing and what we’re seeing in the marketplace and what we think will happen just from being more active is that that business that we just have to get, we have to get more business. We know the law firms are busy; we know there’s business out there. We’re not going wait for the big whales like subprime, we’re just going to go one brick at a time. We’re just going to add to this business each day with a new assignment.

Andrew Fones – UBS

Thanks. Then just finally on that point, it looks like we saw a sharp pickup in securities litigation during the fourth quarter, are you seeing any impact from that on your business in terms of particularly on I guess the Financial Consulting division?

Gary Holdren

No, we haven’t yet. We’ve got a few proposals out, but to be honest with you, we haven’t. We hope that’s upside. But we’re not guiding to it or putting it in our guidance yet.

Andrew Fones – UBS

Thanks.

Operator

Your next question comes from the line of Mr. Mark Bacurin of Robert W. Baird. Please proceed, sir.

Mark Bacurin – Robert W. Baird & Co., Inc.

Good morning. Couple questions. Gary Burge, last quarter you gave us kind of a breakdown of the number of foundation clients and what the revenue contribution was. I was hoping maybe we could get that again for Q4.

Gary Burge

Yes, Mark, with respect to those foundation clients, we did have some rebound in activity in the fourth quarter of 2007. We had six of those foundation clients up from I believe three in the third quarter, the revenues of course were up as well in the fourth quarter, as I mentioned earlier, because the revenues were up sequentially in the Financial Consulting Segment third quarter versus fourth quarter; and the revenues in total relative to those six foundation jobs was about $14 million versus $8 million that we had from foundation jobs in the third quarter, so improved. We’re still out there in the marketplace looking for more of those foundation jobs as well as smaller jobs and time will tell. We expect we’ll be able to see improvement as the year goes on here in 2008.

Mark Bacurin – Robert W. Baird & Co., Inc.

Thank you. Then looking within Legal, the non-billable consultancies, you saw a decline in FTEs as well as continuing sequential erosion of the revenue stream there. Can you comment just generally about: Has there been any impact from kind of the build up to V3locity, the demand side, waning as people waited to see that product? I know you said there was some large projects, but I guess I’m surprised at the lack of kind of revenue streams there.

Gary Holdren

I think what happened, Mark, is we were focused and Chris Getner and his team, processing team, were basically beta testing and trying to get V3locity ready. The fact is I think that we had some slippage in jobs and so we continue to see the revenues from processing and document review continue to slide in the results in Q4. But I can tell you, they’re back at a pretty nice way in Q1. You’ll be pleased with the Q1 results.

Mark Bacurin – Robert W. Baird & Co., Inc.

That’s good to hear. Any reason to think the sales cycle for the V3locity product offering, I mean I know this is over the initial learning phase, but you’re just seeing the sale cycle for that new integrated product is going to be different than what you experienced in the past?

Gary Holdren

I mean I think the thing is that you wouldn’t think it would be and I don’t want it to be, but I don’t think I can tell you with 100% accuracy which way it’s going to turn. That’s why we’re going to have… I had the whole sales team in here Monday of this week meeting with them on this product and we sure have a lot of inquiries and a lot of demand and we have a lot of big companies asking us to do a lot of big things and they just continue to question: How can this be this good? How can you do what you say you’re doing? That continues to be the number… So one company, big financial institution, is going to give us a pilot, they’re going to let us try us because they continue to believe this is too good to be true. That’s our number one problem right now we’re fighting is people are probably going to give us pilots versus give us the whole work now because they just, they don’t know whether we can do it.

Mark Bacurin – Robert W. Baird & Co., Inc.

You’re comfortable with now going direct to the corporate side as opposed to getting these referrals through the law channel or the legal channel (inaudible)…

Gary Holdren

Yeah, the majority of our business, if you wanted our strategy, will be build your core business with corporates, do one-off events with law firms, but the majority of the business will be with just continual master service agreements with very large corporations where we’ll do all their discovery.

Mark Bacurin – Robert W. Baird & Co., Inc.

Great. Then if I could on the Financial side, obviously very good results out of the Callaway side of business, could you just comment generally about, I know you’re doing everything but the audit, but can you talk about specific demand drivers where you’re seeing, where you’re putting most of the resources?

Gary Holdren

I mean we’re pushing our people to go talk to lawyers. We’re pushing our people to go talk to, there’s a chance to outsource an internal audit function. There’s tax things to be done. There’s people who are thinking about car routes. I mean we’re pushing both in the traditional channels of lawyers, but we’re also pushing more and more into corporations and the internal audit head, the tax head, the chief accounting officer trying to just get more feet on the street and make more sales and people aware of what we can do at the price points. I mean the biggest thing right now is people are somewhat leery that they’ve never heard of Huron; they never heard of this new offering and you come in and tell us you can do it with these resources that are this experienced, on-demand at this price, again, some of the stuff seems to be too good to be true. So we just have to continue being there, getting our message out, being persistent and convincing clients that it is as good as we say it is.

Mark Bacurin – Robert W. Baird & Co., Inc.

Great. One final one, Gary Burge, there’s $32 million accrual for business acquisition, is that just an earn out or can you tell us what that’s related to and does that get paid off Q1?

Gary Burge

Yes, that’s an earn out for acquisitions completed in 2007 and prior years, and it will get paid in Q1.

Mark Bacurin – Robert W. Baird & Co., Inc.

Great. Thank you.

Operator

Your next question comes from the line of Tobey Sommer of Suntrust Robinson. Please proceed, sir.

Tobey Sommer – Suntrust Robinson Humphrey

Thank you. Wanted to ask a question about what your acquisition pipeline looks like. Others have touched on the quarter and guidance and wondering if you could comment about what your expectation would be for contribution in 2008 from acquisition. Thanks.

Gary Holdren

Yeah, Tobey, right now we don’t have anything really very close; and at this point, I can’t tell you whether we’re going to go have something. There might be some small stuff, but it normally takes us three to five months to do something from the start of nothing’s really very close. So I’m not sure we’re going to have a lot of acquired revenues in ’08, but you know things can change. But my guess it would be, clearly it would be in the second half of the year anything happens of any significance.

Tobey Sommer – Suntrust Robinson Humphrey

Relative to your uses of cash and your sort of view on the capital structure of the firm or any changes relative to how much leverage you think the business should comfortably support.

Gary Burge

Tobey, Gary Burge here. Plans for cash generated from operations this coming year would be absent new acquisitions would be to continue to pay down our debt. However, should we good acquisition opportunities, we can certainly increase our leverage and would be comfortable doing that.

Tobey Sommer – Suntrust Robinson Humphrey

Then, Gary Burge, I was wondering if you could, I think you mentioned some of the organic growth rates by segment, if you wouldn’t mind repeating those and what the overall organic growth rate was in the quarter. Thank you.

Gary Burge

Yes, overall organic growth rate for the quarter, Tobey, was 11% for the Company, 22% for the full year, and so revenues in 2007 were more frontend loaded as opposed to backend loaded the way the year turned out. But in terms of those organic growth rates for the Corporate Consulting practice, we had 32% organic growth rate. The organic growth rate for Financial Consulting, which includes Callaway and the financial and Economic Consulting itself, you strip out Callaway, it was 5% decline in revenues for the reasons we’ve talked about. Overall for organic growth rates for Legal Consulting for the full quarter, for the quarter and fourth quarter was 13%, 27% for the full year; and that organic growth rate declined relative to the full year was entirely related to the document review business. Our core Legal Consulting business had approximately a 36% organic growth rate year-over-year. Then lastly, our Higher Education and Healthcare Segment had an overall 20% organic growth rate, and that’s primarily do the results from our higher education practice as well as our pharma and health plans business had outstanding years.

Tobey Sommer – Suntrust Robinson Humphrey

Thank you very much.

Operator

Your next question comes from the line of Mr. Jim Janesky of Stifel Nicolaus. Please proceed, sir.

James Janesky – Stifel Nicolaus & Company, Inc.

Yes, thank you. Gary, I have a question on the I guess way of looking at is the lack of business coming out of the credit market so far. If you could just give us an idea why you think there isn’t much business. Is it because possibly the business is going elsewhere? Are companies just sitting on their hands and/or crossing their fingers and hoping that the regulators just go away or what are your thoughts? Is this generally what happens in a crisis? I guess the subprime crisis really came to a head in the October timeframe of last year and may take a good six to eight months before we get a substantial amount of revenues out of that area.

Gary Holdren

This is Gary Holdren’s opinion, some based on my opinion and some based on facts: I will tell you that we have gone to every financial institution in New York. I think we’ve gone to every major litigator and every law firm who’s working in this area. We aren’t hearing that we’re losing proposals to others and winning. I think there’s two things that I think that are happening is I don’t think the SEC yet has been very actively engaged yet like they were in stock options and others as to whether the timing of when they mark these securities to the right price was done at the right time or it should’ve been done earlier, which if that investigation starts, you can imagine that would be a great business driver. But that hasn’t started. I think the other thing if I look back to the savings and loan crisis and I think about that, those were small companies, savings and loan, the Resolution Trust came and bailed them out. Right now these are big institutions and if Merrill Lynch loses this or Citicorp or whatever, there hasn’t been a bailout yet like there could’ve been. So if the government was going to buy all these loans and want to know the value like they did with the Resolution Trust Corp, that could drive it. I think litigation is starting but I think it’s in the early stages. So I think it’s a combination of all those. I think you have to believe that there was $400 billion of wealth that was traded, someone is going to be mad. There’s going to have to be lawsuits about that. I think what may be happening is people are trying to see who has the money and where do I go get the money if I lost it. I think that just may… If you think about it, trials sometimes take three to five years from the time they’re initiated to the trial, so I think it’s a little combination of all that. But I can tell you, we are actively in the marketplace trying to figure this out and trying to be there. We just haven’t seen it come yet.

James Janesky – Stifel Nicolaus & Company, Inc.

You do believe that based on the current pipeline of business and looking at your backlog and your experience with being able to turn that back or to convert that backlog into business that you can do the range of numbers that you gave in ’08 and that any subprime work could be incremental. Is that a correct way of looking at it here?

Gary Holdren

Well I think right now we have not given… When you say backlog, we consider backlog to be signed arrangements that is actual work. What we’re now working on is we’ve got backlog, but the backlog is not the level it needs to be to get back to where we were. So what we need to do is we need to create new work and we need to create new opportunities; and I think what we’re saying is that having been in this so long and knowing how much work is out there and knowing what our people need to do that it has, we have to get work. We just never… I’ve been doing this since 1983, if you’re out in the marketplace, the law firms have $70 billion worth of billings. There’s plenty of work; there’s plenty of disputes. We know from our corporate clients the number of cases being filed, their cost is not going down. So we know there’s no change in the market conditions. There may have been a change in how many investigations are going on from stock options, but there’s plenty of litigations; they’re plenty of disputes; there’s plenty of work to do. We just need to go get refocused, get it booked and start working. When we do that, then our numbers will come back. Some of that could be subprime, some of it could be credit crisis, some of it could be investigations. We could get hired to do maybe an investigation with this thing that Cuomo did on United Healthcare. They’re could be a lot of different things. What we have to do is be in the marketplace every day knocking on doors, talking to attorneys, talking to our corporate clients and getting work. When that happens, it’s not an if, it’s when it happens, then you’ll see the business come back and we’ll have better results than what we’re even forecasting.

James Janesky – Stifel Nicolaus & Company, Inc.

Thank you.

Operator

Your next question comes from the line of Abhishek Gami of Bank of America. Please proceed.

Sugio on behalf of Abhiskek Gami – Banc of America

Hello. This is Sugio calling on behalf of Abhiskek Gami. I have another question. One is on the utilization front, is this project down this quarter, I would like to know how fast you expect to (inaudible)… level. Secondly, the utilization’s down for the second consecutive quarters, are you seeing any strength (inaudible)… new engagements?

Gary Burge

This is Gary Burge. I heard the second part of the question which was asking whether utilization being down was that related to a delay in the startup of engagements, and I’d say at this stage no. We’re still out there in the marketplace, as Gary said, obtaining and seeking new work and we’re positive and encouraged that that will certainly happen. Then you were breaking up a little bit with your question; we didn’t hear the first part of it.

Sugio on behalf of Abhiskek Gami – Bank of America

The first part was like how fast are you expecting to ramp up to the (inaudible) levels?

Gary Burge

Oh back up to what it was a 70% to 75% level?

Abhiskek Gami – Bank of America

Yes.

Gary Burge

Certainly that’s in our business plans for 2008 that we’ll get back to those levels and we’ll… The key is selling the work, then the utilization takes care of itself.

Sugio on behalf of Abhiskek Gami – Bank of America

Just a couple of questions on your guidance. Looking at your guidance, it seems the group is a little backend loaded. I would like to know what has given you the confidence to offer (inaudible) backended guidance with the growth being backended? Is it: Are you banking up on your backlog or the pipeline or are you counting upon something latter in the year? Secondly, how much of the revenue from the newly introduced V3locity (inaudible) has been baked into this (inaudible) revenue guidance?

Gary Holdren

We’re having a real difficult hearing you, but let me… I mean I think you’re asking a lot about why guidance is backend loaded.

Sugio on behalf of Abhiskek Gami – Bank of America

My question is what is giving you the kind of confidence or the (inaudible). Are you banking upon your backlog or pipeline or are you counting upon something latter in the year?

Gary Holdren

I think we’re counting a lot on our experience in the market demands. Like we believe and we’ve had consistent growth in our higher education practice, and the more people we hire, the more we do and so we’re going to continue to hire. So you would continue to see higher education and the pharmaceutical and health plans just grow because they have more people and there’s enough demand and they’re doing very well. So that would be traditional that you just see that go up and be backend loaded. The Wellspring business, the healthcare Wellspring business is definitely backend loaded because they get implementations, they get higher rates and they typically get some write-ups from those. Our Legal Consulting business is growing fast. We are planning on that continuing to grow with headcount, that continues to grow throughout the year. We’ve got about 130-some college students coming in between, in the summer months to the fall. We believe that we’re going to have more volume and growth in the V3locity business as it gets launched, so that will have a little bit more backend loaded; and we have not at this point put anything in our guidance that assumes the Financial Consulting business will come back. If that comes back, that would even be more backend loading.

Sugio on behalf of Abhiskek Gami – Bank of America

Just one more thing: How much of revenues from the newly introduced V3locity (inaudible) solution has been baked into the (inaudible) guidance?

Gary

How much V3locity revenue is in guidance?

Sugio on behalf of Abhiskek Gami – Bank of America

Yeah.

Gary

We don’t give that level of detail.

Sugio on behalf of Abhiskek Gami – Bank of America

Thanks a lot.

Operator

(Operator Instructions) Your next question comes from the line of Kevane Wong of JMP Securities. Please proceed.

Kevane Wong – JMP Securities

Hey guys, how you doing? Few things: First, what were the performance fees in the quarter?

Gary Burge

Kevane, Gary Burge here. Minimal 2% or less of total revenues.

Kevane Wong – JMP Securities

Gotcha. Good. Then just to clarify, on the Legal Consulting, as far as the quarter, it sounded like what I pulled out is it was really sort of taking your eye off the ball during the quarter as you were launching V3locity up that was to the main factor. Was there really anything else or is it really to say the matter of focus for diverted at the time which is now back on target?

Gary Holdren

I think it’s a little bit of that we needed to get the V3locity launched and it hurt our processing revenues and we continue to have some job slip that we had a big job, a second request job that we thought that was going to start like in November that didn’t really start until like the 20th of December. So it was a combination of a big job that slipped that’s now completed and we completed it in 60 days and it was a great job. There was some slippage in when we thought jobs were going to start and basically getting V3locity ready.

Kevane Wong – JMP Securities

It was big enough to sort of move the needle for the quarter it sounds like?

Gary

Kevane Wong – JMP Securities

Gotcha. Looking at March quarter, are there any particular big jobs in that grouping that could have a similar effect or that you would expect to or is everything right now so far running pretty much on track in Legal Consulting?

Gary

Well we’ve had some big jobs in V3locity and our processing in Q1, but we also think we’ve got some good ones starting in Q2. Right now what we don’t is we don’t have any visibility right now in Q3 and Q4 with those big jobs, but we’ve got our sales engine and our hype going with V3locity that we think that we can fill in. So Q1 had some big jobs that are over; Q2’s got some starting that we know of and so that’s a little bit about what I tried to say in my opening remarks is that it’s a little bit of experience of managing this whole portfolio of businesses and keeping them all going and not over promising and having these stops and starts. So the way we could basically get a little bit of lumpiness out of it is just continue to have more sales and have more corporate clients so we don’t have any lumpiness in V3locity because big jobs… I mean we had a real big job in Q1 that had 60 million pages that had to be reviewed in two months and so you can just imagine what that does to your revenues.

Kevane Wong – JMP Securities

Gotcha. It’s also nice that you’re able to actually be able to handle those kind of jobs, so it’s a marketplace positioning obviously.

Gary Holdren

One of our big selling points is we’ve got a client now that we did 60 million pages at a price at a per page price that’s a great reference for us, so it was a great job for a lot of reasons.

Kevane Wong – JMP Securities

Gotcha. Also, lastly here, Corporate Consulting, you mentioned as far as your structuring practice didn’t hit what you were expecting. Could you give a little insight as far as what’s happening in the marketplace? Was it a marketplace issue? Was it a Huron issue? Was it a bit of both? What happened as far as that sort of missing on the restructuring business?

Gary Holdren

Well I think it could’ve been a little bit of both. I think you never know. We weren’t winning jobs in ’07 and whether the markets more vibrant or not, I think I’m not positive but we are winning jobs now. So whether we were at the wrong place or we had the wrong resources going after the wrong jobs, I’m not positive. But I know right now that we’re hitting more on eight cylinders versus four.

Kevane Wong – JMP Securities

Gotcha. As far as like RFP flow, etcetera, that’s sort of what you’re looking at for what you’re seeing now? Did that start picking up at a certain point in 4Q as far as sort of RFPs and the like that you were receiving?

Gary Holdren

We don’t give RFPs but we get calls from credit hedge funds or creditors or debtors or whatever and we just started getting more calls in the Auto sector and we started having to write skills to meet what the market wanted.

Kevane Wong – JMP Securities

Gotcha. Perfect. All right, thank you.

Operator

Mr. Holdren, we have concluded the allotted time for this call. I like to turn the conference back over to you. Please proceed, sir.

Gary Holdren

I want to thank all of you for your time today, and I want to just continue to try to make sure you understand that we don’t talk about stuff that we don’t believe we can deliver and I think we’ve got a pretty good solid reputation of when we say something, we can do it. We really… We’ve been doing this a long time; we know this business. So if you’re concerned about that we don’t have a good handle on the backend of this business or we’re backending it hoping it happens, I just want to assure that’s not what we’re here talking about. We’re big shareholders and we’re going to deliver the results and we know how to run this business. So in closing, I just want to thank all the people from here on in, all the hard work they did in 2007 and for them helping us build this great Company. So we look forward to speaking to all of you in May when we have our first quarter 2008 earnings. Thanks.

Operator

That concludes today’s conference call. Thank you, everyone, for your participation. You may now disconnect. Have a wonderful day.

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Source: Huron Consulting Group Q4 2007 Earnings Call Transcript

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