UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
8-K
CURRENT
REPORT
PURSUANT
TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
November 9,
2005
Date
of
Report (Date of earliest event reported)
Huron
Consulting Group Inc.
(Exact
name of registrant as specified in its charter)
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Delaware
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000-50976
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01-0666114
|
|
(State
or other jurisdiction
|
(Commission
|
(IRS
Employer
|
|
of
incorporation or organization)
|
File
Number)
|
Identification
Number)
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550
West Van Buren Street
Chicago,
Illinois
60607
(Address
of principal executive offices)
(Zip
Code)
(312)
583-8700
(Registrant’s
telephone number, including area code)
Check
the
appropriate box below if the Form 8-K filing is intended to simultaneously
satisfy the filing obligation of the registrant under any of the following
provisions:
|
o
|
Written
communications pursuant to Rule 425 under the Securities Act (17
CFR
230.425)
|
|
o
|
Soliciting
material pursuant to Rule 14a-12 under the Exchange Act (17 CFR
240.14a-12)
|
|
o
|
Pre-commencement
communications pursuant to Rule 14d-2(b) under the Exchange Act (17
CFR
240.14d-2(b))
|
|
o
|
Pre-commencement
communications pursuant to Rule 13e-4(c) under the Exchange Act (17
CFR
240.13e-4(c))
|
Item
2.02. Results of Operations and Financial
Condition.
On
November 9, 2005, Huron
Consulting Group Inc. held a webcast relating to its financial results for
the
quarter and nine months ended September 30, 2005. The full text of the
transcript of the webcast is furnished as Exhibit 99.1 to this Current
Report on Form 8-K and is incorporated in this report as if fully set forth
herein.
Item
7.01. Regulation FD Disclosure.
The
information set forth under Item
2.02 of this report is incorporated herein by reference.
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1
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SIGNATURE
Pursuant
to the requirements of the Securities Exchange Act of 1934, the registrant
has
duly caused this report to be signed on its behalf by the undersigned hereunto
duly authorized.
|
Huron
Consulting Group Inc.
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|||
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(Registrant)
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|||
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Date:
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November 9,
2005
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/s/
Gary L. Burge
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Gary
L. Burge
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|||
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Vice
President,
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|||
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Chief
Financial Officer and Treasurer
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2
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EXHIBIT
INDEX
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Exhibit
Number
|
Description
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99.1
|
Transcript
of November 9, 2005 webcast of Huron Consulting Group
Inc.
|
EXHIBIT
99.1
HURN
- Q3 2005 HURON CONSULTING GROUP INC
EARNINGS
CONFERENCE CALL TRANSCRIPT
EVENT
DATE/TIME: NOV. 9. 2005 / 5:00 PM ET
CORPORATE PARTICIPANTS
Gary
Holdren
Huron
Consulting Group - Chairman and Chief Executive Officer
Gary
Burge
Huron
Consulting Group - Vice President and Chief Financial Officer
Mary
Sawall
Huron
Consulting Group - Vice President Human Resources
CONFERENCE
CALL PARTICIPANTS
Matt
Litfin
William
Blair - Analyst
Andrew
Fones
UBS
-
Analyst
Chris
Mammone
Deutsche
Bank - Analyst
Sandra
Notradonato
Robert
W.
Baird - Analyst
Patrick
Elgrably
Next
Generation Equity Research - Analyst
Jim
Wilson
JMP
Securities - Analyst
PRESENTATION
Operator
Good
afternoon, ladies and gentlemen, and welcome to the Huron Consulting Group
webcast to discuss results for the third quarter ended September 30, 2005.
(Operator Instructions). And, now, I'd 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 - Huron Consulting Group - Chairman and Chief Executive Officer
Thank
you, and thank you for joining us for today's webcast to discuss Huron
Consulting Group's third quarter results. Before we begin, I would like to
point
all of you to the disclosure at the end of our news release for information
about any forward looking statements that may be made or discussed on this
call.
We have posted the news release on our website. Please review that information,
along with our filings with the SEC for disclosure factors that may impact
subjects discussed in this afternoon's webcast.
Also
on
this call, we will be discussing one or more non-GAAP financial measures.
Please
look at our earnings release for all the disclosures required by the SEC,
including reconciliation to the most comparable GAAP numbers.
Joining
me here in Chicago this afternoon are Gary Burge, our Chief Financial Officer;
Mary Sawall, our Vice President of Human Resources; and Dan Broadhurst, our
Vice
President of Operations. This afternoon I would like to provide you an update
on
Huron's accomplishments during the third quarter, our achievements for the
year,
and the market demand for our services.
Our
third
quarter revenues were a record $54.3 million, which was a 46% increase over
Q3
of 2004 and a 7.5% increase over Q2 of '05. This record was achieved even
after
the impact of a $1.2 million reduction in fees from a client in bankruptcy,
and
we also deferred a $1.4 million performance-based fee in our sourcing business.
We ended the quarter with 626 billable professionals, a 28% increase from
Q3 of
2004. Utilization was very strong at 76.2%. We are very pleased that the
market
demands are so great in this normally slower quarter.
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1
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Our
EPS
was $0.26 before two charges, a $0.02 charge for the cost of our secondary
offering and $0.02 for the write-off of intangible asset related to a client
contract that would have been amortized in Q4 of 2005. Gary Burge will take
us
all through the details of Q3 earnings in just a few minutes.
A
few
highlights. Our Financial Consulting practice had a great quarter. Utilization
was 83% for the quarter. This was driven by large client investigations,
as well
as our involvement in representing debtors in large bankruptcies. By way
of
comparison, utilization in Q3 2004 was 64% and 62% in Q3 of 2003. These large
client assignments require our professionals to work very hard over the summer
months, and we are very grateful to all of our employees for their hard
work.
We
are
also very pleased with the performance of our Operational Consulting practice,
which is less driven by client crisis than our Financial Consulting practice.
Operational Consulting utilization for the quarter was 69%, which is consistent
with last year's Q3 and normal for the summer months. This level was achieved
even with significant practice headcount growth.
So,
to
sum it up, it was a great quarter from a revenue standpoint; some pleasant
upside surprises, offset by a reduction of fees at one client and a deferral
of
fees at another client. We are also pleased with our earnings from operations
for the quarter.
What
have
we accomplished this year? We started 2005 with 483 billable professionals,
including 54 billable managing directors. Our net revenues per billable
professional was $327,000 for the 2004 year. As of October 31, 2005, we have
637
billable professionals, including 74 billable managing directors. Our annualized
revenue run rate per billable professional will exceed $350,000 per person
for
2005. We have added 17 managing directors through hires and promotions and
eight
through the acquisition of Speltz & Weis LLC.
We
are
also very pleased how we have balanced our portfolio service offerings. More
than 50% of our billable professionals are now in our Operational Cconsulting
practice. Our Operational Consulting practice, as of September 30, 2005,
now has
a leverage ratio of greater than 10 to 1. We will continue to work on increasing
our Financial Consulting leverage ratio.
For
the
first nine months of 2005, we obtained 80% of our revenues from clients we
served in 2004. Our clients are staying with us and buying repeat
assignments.
Now,
let
me turn to the market demands and how Huron is positioned to serve these
market
demands. Let me start with the demands for our Disputes and Investigations
business. In the last month, the calls and opportunities we have received
from
the top 40 law firms in the US are the highest since Huron has been in business.
We continue to be asked to propose on and do work for clients on the biggest,
most complex investigations and disputes in the United States, the kind you
will
read about in the second column of the Wall Street Journal.
Every
day, our brand and reputation continue to grow at Huron. We will soon have
over
200 people working in this practice. We plan on growing this practice
aggressively in 2006 through hiring additional Senior MDs. Our recruiting
pipeline is very strong with professionals who want to join Huron. Michael
MacLean has just joined Huron from KPMG, and Mike will add to our ability
to do
complex accounting investigations.
Corporate
Advisory Services. We continue to believe that the bankruptcies and debt
defaults will increase during 2006, and we, Huron, are very well positioned
to
represent airlines, auto, and hospital clients. The addition of Susan Storey
in
our New York office will help us expand our practice with the New York
banks.
Higher
Education. Universities in the United States are under intense financial
pressures. Their top lines continue to get squeezed. Research dollars, state
funding, tuition, contributions, endowment returns, and the costs keep
increasing. This represents tremendous opportunities for Huron. We are currently
working with five of the eight Ivy League schools and many other top
universities. We have added three MDs to this practice in 2005, and we are
nearing 100 professionals in the higher education practice. We continue to
be
excited about our market positions and its long-term growth
opportunities.
Legal
Business Consulting. The demands on the general counsel of major corporations
to
manage their matters continue to expand in the Sarbanes-Oxley world. A major
issue facing almost every corporation today is what to do with records, both
hard copies and electronic. Jim Coulson, an expert in records management
with
more than 30 years of experience, recently joined us to expand our offering
in
this area. He also brought his team with him and clients. Our growth in the
whole area of helping clients manage records, organize documents, in system
and
discovery, including forensic technology, is a large growth opportunity for
Huron in 2006. This year, we have
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added
four MDs in the Legal Business Consulting practice, and we will have grown
this
practice more than 75% in 2005.
Healthcare.
The demand for the services of our Speltz & Weis team and all the other
services we offer to healthcare providers and payors is very high. There
are
5,000 hospitals in the United States, and these hospitals are being squeezed
in
almost every direction. The revenue line is being hardest hit. The cost of
providing services is rising. Reimbursements from payers, Medicare, and Medicaid
are declining, and more and more patients are uninsured. More than 1,500
hospitals in the United States have less than one week of cash on hand. Most
hospitals and cities have more beds and facilities than today's current
procedures warrant, and hospitals have very high levels of debt.
Speltz
& Weis has very experienced healthcare executives that can either act as
interim executives or consultants to help improve hospitals' operations.
With
Huron's Provider group, our Strategic sourcing team, and Speltz & Weis, we
can help hospitals with all areas of their operations. Since we acquired
them in
May, Speltz & Weis has won two new healthcare assignments, and we have four
more active proposals which are in various phases. Our Speltz & Weis team is
very active in the marketplace, and they are being very
well-received.
We
are
adding experienced healthcare professionals to the Speltz & Weis team. In
the last two weeks, we have hired three senior executives for this group.
We
couldn't be more pleased with the group of professionals that joined us from
Speltz & Weis. We are very excited about our growth in healthcare provider
space, and we believe our experiences and credentials from current client
assignments will be very valuable in generating future clients.
Demand
for our Healthcare Payor group is also very strong. The Medicare Modernization
Act is driving high demand as clients are trying to meet filing deadlines.
This
group also works with the pharma industry, helping them resolve pricing
disputes.
Our
Sourcing and Performance Group continues to generate good opportunities and
help
clients reduce cost and improve operations. The addition of Dom Champa to
the
Performance Improvement Group will increase our service offerings to the
marketplace.
I
hope I
have conveyed to you why we are so excited about Huron's opportunity to succeed
in this very vibrant marketplace. There are very solid opportunities, we
are
experiencing extremely strong demand in the marketplace, and we think we're
very
well positioned to take care of these opportunities going forward. I would
now
like to turn the call over to Huron's Chief Financial Officer, Gary Burge,
and
Gary will take us through our financial results in more detail.
Gary.
Gary
Burge - Huron Consulting Group - Vice President and Chief Financial Officer
Thanks,
Gary, and good afternoon, everyone. As Gary mentioned, we had some challenges
this quarter. However, we are very pleased with our overall results. We had
a
strong quarter.
Some
of
the financial highlights of the third quarter included revenues of $54.3
million
were up 46% year-over-year, and our organic revenue growth was approximately
37%. Adjusted EBITDA before stock-based comp, secondary offering expenses,
and
non-recurring charges recorded in the third quarter of 2004 was $12.1 million
in
this year's quarter compared to $5.4 million in the third quarter a year
ago.
Margin
expansion was good, as our adjusted EBITDA margin for the quarter was
approximately 22% this year, compared to about 15% a year ago. These EBITDA
results include approximately $900,000 in increased recruiting costs when
compared to last year and approximately $575,000 in increased public company
costs versus last year.
Also
with
respect to the quarter, we continue to accrue staff bonuses at above target
rates to reflect what has been a strong 2005 performance for the majority
of our
operations. However, this quarter, we did reduce senior management bonuses
that
were accrued in the first six months of this year by approximately $1 million,
in line with our performance-based goals.
Other
quarterly highlights include the following. We had an outstanding recruiting
quarter, as our number of consultants at quarter end stood at 626, up 28%
from a
year ago. That number was up also 12% sequentially, as we added approximately
70
professionals this quarter. The Operational Consulting segment has grown
significantly by adding more than 100 consultants since the third quarter
of
last year.
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Utilization
ran strong at 76%, up from 66% last year. As Gary mentioned, utilization
in the
Financial Consulting segment was particularly strong at nearly 83% as we
were
engaged in a number of significant and time-sensitive client matters during
the
quarter. Utilization in the Operational Consulting segment was up slightly
from
a year ago at about 70%, as we have successfully integrated the large number
of
new hires into that group.
As
Gary
said, the demand for our services remains very strong. The Financial Consulting
segment posted organic revenue growth of nearly 47% when compared to the
same
quarter last year, and the Operational Consulting segment posted revenue
growth
of nearly 26%.
Average
billing rate per hour came in at $244, up approximately 4% from a year ago.
You
will note that the average billing rate for Operational Consulting segment
declined approximately 5% from a year ago to $209. The primary reason for
this
was a $1.4 million net deferral of performance-based fees for a sourcing
client
during the quarter, as Gary mentioned.
This
deferral resulted in a $14 reduction in the average billing rate for the
segment
and also had the impact of reducing the average billing rate for the whole
company by $6. This billing rate impact will turn around in future quarters,
as
these performance-based fees are recognized.
Next,
DSO
came in at 67 days for the quarter. This includes approximately $6 million
of
unbilled revenue associated with the bankrupt client. This unbilled revenue
was
billed last week, and we expect to be paid in about three to four
weeks.
Now,
let
me summarize for you what the impacts were on the quarter from this bankruptcy
client situation. In connection with our retention to continue to serve this
client, we agreed to new financial terms and conditions, including changes
in
billing rates retroactive to July 5, 2005. This had the impact of reducing
revenues for the third quarter by approximately $1.2 million. Results for
the
quarter were also impacted by approximately $450,000 in legal and other costs
related to our retention in this matter.
As
a
result of the changing contract terms, we also incurred a charge of
approximately $600,000 to write off the remaining value of the intangible
asset
associated with this client contract that was set up at the time of the Speltz
& Weis acquisition. This write-off is included in the deprecation and
amortization line on the financials. Please refer to the MD&A and subsequent
event disclosures in our 10-Q which we filed this afternoon for further
discussion of this matter.
Where
does this leave us from an EPS point of view? Well, we feel there are two
non-operating items affecting the quarter when you sort through the details.
Diluted EPS was $0.26 per share for the quarter before deducting $0.02 for
the
write-off of the intangible assets and before deducting another $0.02 for
the
secondary offering costs incurred, bringing us back to the GAAP diluted EPS
of
$0.22 as reported. You can refer to the last page of our earnings press release
for this reconciliation.
One
could
argue that there was more noise in the quarter and that we can point out
more
adjustments, but it's our job to take responsibility for those unplanned
events
and to manage through them. We think $0.26 is the right number when you look
at
our quarter.
In
summary, we believe we had a great quarter. Revenues met expectations as
client
demand was strong. Utilization of resources ran at high levels, resulting
in
good margins, and we had a great recruiting quarter.
Before
we
get to guidance, I'd like to highlight the following. Using our trailing
12-month GAAP net income before adjustments and using a post-IPO balance
sheet
for our calculations, we are pleased to report that we had a better than
16%
return on assets and a 26% return on equity over the past year. We think
these
returns are very good for a company that is only three-and-a-half years old
and
also looks very good when compared to our peer group. I'll also remind you,
again, that the implementation of FAS 123R next year will have a minimal
impact
on our results, but that will not be the case for all of our peers.
Now,
for
guidance for the remainder of the year. We expect results for the full year
to
be at the lower end of the previously announced 2005 ranges of $205 to $208
million in revenues and the EPS range of $1.07 to $1.12. These estimates
reflect
an expected reduction in diluted EPS of approximately $0.03 or $0.04 from
the
Speltz & Weis operation in the fourth quarter and includes the impact of the
billing rate changes already discussed. You should note that our EPS guidance
excludes costs associated with a secondary offering.
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Now,
for
modeling purposes, you should assume approximately 16.9 million diluted shares
for the entire year for GAAP EPS calculations, and you should also assume
approximately $7 million in stock-based comp expense in the full year. Also
for
modeling purposes, you should now assume an effective tax rate of 44.5% for
the
full year, reflecting non-deductible secondary expenses, some shift of income
to
states with higher statutory tax rates, and a lowered pretax income estimate
that has increased the impact of permanent differences, such as non-deductible
meals and entertainment costs.
We
will
be providing 2006 guidance on our next conference call when we report our
year-end results. I'll now turn it back to Gary.
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
After
our
comments today, I hope you can see why we remain so bullish on the future
of
Huron Consulting Group.
In
summary, this is how I would describe our quarter and the rest of 2005. We
made
the revenue numbers we guided you toward 90 days ago. We did this because
of our
balance portfolio service offering, because our Financial Consulting business
was well over our target at 83% utilization. This positive impact was somewhat
offset by the $1.2 million reduction in fees at the bankrupt client and the
$1.4
million deferral fees at a sourcing client.
Our
expenses ran higher than anticipated. Early in the quarter, we authorized
some
expensive retained searches to fill our pipeline of MDs for 2006. We also
had
the legal expenses on the bankrupt client we did not anticipate. Management
made
the decision that the bonuses of senior executives should be reduced to be
in
line with our performance-based goals. We think our performance is consistent
with our guidance. We do not believe the secondary cost or the Q3 write-off
of
the intangible asset as part of our normal operations.
So
what
about the rest of 2005? At the low end of the range, Gary Burge described
of
$205 million in revenue and $1.07 in EPS that would imply $53.5 million in
revenues for the quarter and $0.26 EPS. Those are the numbers we are guiding
you
toward. Remember, our guidance for 2006 will be consistent with our long-term
objectives, 15% organic revenue growth and 20% EPS growth.
The
last
point I would like to remind all of you of is that we, the employees of Huron
Consulting, own 20% of the Huron shares on a fully diluted basis, and our
interests are much aligned with all of those of you on the phone. So, now,
I'd
like to open it up for questions.
QUESTION
AND ANSWER
Operator
Thank
you, sir. (Operator instructions). Our first question comes from the line
of
Matt Litfin with William Blair. Please proceed.
Matt
Litfin - William Blair - Analyst
Hi.
Good
afternoon, and congratulations on a strong quarter.
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Thank
you, Matt.
Matt
Litfin - William Blair - Analyst
Can
that
low 80s utilization rate be continued in the Financial Consulting practice,
or
is that just simply running too hot, and I guess the correlated question
is what
effect are you assuming that the holiday season will have on your utilization
in
the fourth quarter?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Well,
Matt, as you know, and you've known us since we've been going, that that's
an
unusual utilization. It's not sustainable and we don't want it to be sustainable
so you would not expect that to be sustained in Q4 at the same
rate.
Matt
Litfin - William Blair - Analyst
Okay,
maybe just a quick follow up to that Gary. Have you seen any fall off in
October
in that utilization or much or is that more of your kind of historical caution
having been in this business for 30 years?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
We're
--
demand for our services is still really good through the 9th day of November,
Matt. Not quite that high but still very strong.
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5
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Matt
Litfin - William Blair - Analyst
Okay,
I
had a follow up for Gary Burge on that fourth quarter guidance, the $0.03
to
$0.04 reduction to EPS from Speltz & Weis in the fourth quarter, just a
little clarity on that. Where is that coming from, is that an extension of
the
charge or is that just a loss from the operations there?
Gary
Burge - Huron Consulting Group - Vice President and Chief Financial Officer
Matt,
the, that would be reflective of - we talked about the adjustment of billing
rates, retroactive to July 5th, those still - those billing rates remain
on a go
forward basis as well for a portion of the Speltz & Weis employees who are
working on that bankruptcy client. So that has an effect on the profitability
of
that group and also, they will continue to be still, in the fourth quarter,
some
intangible amortization.
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
And
I
guess to add to that Matt that - when we gave you guidance we didn't, we
didn't
know that was going to happen and we anticipated we'd be at full rates for
that
contract.
Matt
Litfin - William Blair - Analyst
Okay,
one
more question if I might for Mary, can you - what was the consultant turnover
figure in the quarter on an annualized basis and how did that trend relative
to
your expectations?
Mary
Sawall - Huron Consulting Group - Vice President Human Resources
Okay,
sure. Our voluntary turnover among our billable consultants Matt is, its
been
consistent with what we expected, it was beginning to trend down in the third
quarter but on an annualized basis we're in the low to mid 20s
range.
Matt
Litfin - William Blair - Analyst
Okay,
great thank you.
Operator
Your
next
question comes from the line of Kelly Flynn with UBS. Please
proceed
Andrew
Fones - UBS - Analyst
Hi,
this
is Andrew Fones, not Kelly. And I don't want to get too distracted by some
of
these one-time items, but I did want to ask about the bankruptcy client.
I guess
you bought Speltz & Weis on May 10th, what was your visibility at that point
into likelihood of bankruptcy with that client and was it the bankruptcy
that
forced the renegotiation of terms?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
The
time
that we bought Speltz & Weis we were told that there was not a very high
likelihood of going into bankruptcy and going into bankruptcy was the reason
for
the renegotiation of the rates.
Andrew
Fones - UBS - Analyst
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6
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Okay,
I've read in some newsletters regarding, I think, that client that there
was a
management -- or a consultant change related to that client. Can you go into
that at all?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Yes,
the
-- as part of the -- as part of our retention on October 28th there was also
a
retention of what's called a chief restructuring officer and Alvarez &
Marsal, a guy by the name of Guy Sansone was brought in to be the chief
restructuring officer, and he also brought in with him a CFO that was appointed
by the courts to manage the business of Saint Vincent's.
Andrew
Fones - UBS - Analyst
So
was
this purely a matter of them wanting to bring in people with extensive
bankruptcy experience or what caused the kind of the change there?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
I
think
the changes, and I think that if you go look at the history of bankruptcies,
it's not unusual for a chief restructuring officer to basically satisfy all
parties. The unsecured creditors, the secured creditors, the US trustee,
the
bankruptcy judge, that someone new, independent come in and look at the
operations and oversee the operations. But the Alvarez & Marsal - and Marsal
team is only like 3 people.
Andrew
Fones - UBS - Analyst
Okay.
Okay, thanks. And then on the secondary offering, I know you pulled your
S1
today, is that something you're still looking at, could we expect to see
a new
filing?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
I
think
you -- that's really a matter that was done at the primary shareholder did
that
and that's going to be their decision based on market conditions, and our
conditions and our business conditions as well.
Andrew
Fones - UBS - Analyst
Okay.
And
then on guidance. We have guidance for Q4 but as we look ahead to 2006, could
you give us a sense of what your hiring targets are?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
They
would just be consistent with what I think we've told everybody, most of
them -
when you look at our - what we've told people is that our organic revenue
growth
of - 15%.
Is
made
up of 10% headcount and 5% price increases. That's been consistent with what
we've told everybody. That would be consistent with the way we run the business
in '06.
Andrew
Fones - UBS - Analyst
Okay
and
the strong hiring in Q3, should we expect to continue increase in headcount
in
Q4 or do you expect that to kind of level off a little bit here as the hiring
was so strong in Q3.
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
It's
not
real - the fourth quarter, the holidays is not as strong a hiring period
so I
think you should see that will level off.
Andrew
Fones - UBS - Analyst
Okay,
thank you.
Operator
Your
next
question comes from the line of Brandt Sakakeeny with Deutsche Bank. Please
proceed.
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7
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Chris
Mammone - Deutsche Bank - Analyst
Hi
guys
it's Chris Mammone for Brandt Sakakeeny, congratulations on a good quarter.
Just
following up quickly on Andrew's last question, do you sort of have a year-end
target for headcount?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
I
think
we'll be, we'll be right around, somewhere around 650 at the most. But I
wouldn't get us over that - 640 to 650 is probably where we'll come
out.
Chris
Mammone - Deutsche Bank - Analyst
Okay,
and
the, just a couple housekeeping items for Gary Burge. The days in the third
quarter and then expectations for days in the fourth quarter?
Gary
Burge - Huron Consulting Group - Vice President and Chief Financial Officer
The
--
yes, Chris, probably in the third quarter we had a -- in the neighborhood
of 62
effective business days and the fourth quarter, if you look at the calendar
and
based on experience in prior years, it could be as low as 56 to 58.
Chris
Mammone - Deutsche Bank - Analyst
Okay,
thanks guys.
Operator
Your
next
question comes from the line of Sandra Notradonato with Robert W. Baird.
Please
proceed.
Sandra
Notradonato - Robert W. Baird - Analyst
Thank
you. Okay so my first question, associated with the $1.2 million associated
with
Speltz & Weis , how much of that is due to lower bill rates versus the
change from Speltz & Wies people to Alvarez & Marsal?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
It's
all
bill rate, Sandy.
Sandra
Notradonato - Robert W. Baird - Analyst
All
bill
rates. Okay. Then you mentioned that 80% of your clients you had in 2004,
do you
know how much of that is clients that are working on the same engagement
versus
clients that you've sold new business to?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
I'll
ask
Gary to get back to you with that, I don't think we have that number right
at
the top of our heads.
Sandra
Notradonato - Robert W. Baird - Analyst
Okay,
any
-- the October 17th deadline in terms of change in bankruptcy of -- the way
bankruptcies are filed, did you see any one time benefit you think this quarter
that you might not see again, making it a difficult comparison or was it
normal
course of business.
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Well,
we
got one large client, Northwest Airlines. So that was -- that was clearly,
I
think that drove, the October 17th deadline, drove that. But as I think that
Sandy if you'll, I think most of the probably the clients you follow is that,
I
think people feel that just because of the low default rates and just a
tremendous amount of debt out there is that there should be some expanded
activity sometime in '06, whether it's mid '06, late '06. So I think you're
going to see quite a bit of enhanced activity in clients filing bankruptcy
after
the October 17th deadline.
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Sandra
Notradonato - Robert W. Baird - Analyst
Okay,
and
does the fact that it’s become more difficult to file for bankruptcy mean that
your expectation would be that engagements are longer and maybe benefit you
in
terms of the consulting services that you provide?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
I
think
they're -- I think that it may just be -- I don't think anybody knows this
yet,
but I think because of the time that you have to get in and out, I think
that
bankruptcy engagements might be shorter.
Sandra
Notradonato - Robert W. Baird - Analyst
Oh,
okay.
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Yes,
I
don't think you'll see another United Airlines for 3 years.
Sandra
Notradonato - Robert W. Baird - Analyst
Okay,
and
you're still working with United, correct?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Yes.
Sandra
Notradonato - Robert W. Baird - Analyst
Okay.
The
folks, Speltz & Weis, have they been redeployed on some of the new
engagements that you mentioned that they won in the quarter?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Yes,
we
don't have any excess, we don't have any excess bodies not working from Speltz
& Weis .
Sandra
Notradonato - Robert W. Baird - Analyst
Okay,
just a couple of more questions if I could. The - you mentioned that the
guidance for Q4 does not include secondary offering expenses, is that right,
Gary?
Gary
Burge - Huron Consulting Group - Vice President and Chief Financial Officer
That's
correct Sandy.
Sandra
Notradonato - Robert W. Baird - Analyst
So
that
would be a reduction of $0.02?
Gary
Burge - Huron Consulting Group - Vice President and Chief Financial Officer
Yes.
Sandra
Notradonato - Robert W. Baird - Analyst
Okay,
you're not expecting any more costs associated with that or is there just
a
little bit this quarter that might add a little bit to that 2
cents?
Gary
Burge - Huron Consulting Group - Vice President and Chief Financial Officer
Yes,
I
mean it should be pretty much less. There's a little bit of carryover, but
not
much.
Sandra
Notradonato - Robert W. Baird - Analyst
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Okay,
and
in the higher education area, are you doing any work in New Orleans, any
of the
universities there?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
I'm
not
positive as we sit here -- I don't really know, I should know that but I
don't
know -- I don't remember like anything coming from Tulane or anything like
that
Sandy.
Sandra
Notradonato - Robert W. Baird - Analyst
Okay,
I
think that is all my questions, thank you.
Operator
Your
next
question comes from the line of Patrick Elgrably with Next Generation. Please
proceed.
Patrick
Elgrably - Next Generation Equity Research - Analyst
Thank
you. Can you, can you guys address why the company has decided to continue
to
provide services to Saint Vincent in what seems like a less than optimal
engagement in terms of profitability, and as a follow up to that, maybe the
expected duration of the agreement?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
I
think
one of the things Patrick is it -- one of the things is that -- yes, I mean
would you say that if we had the margins are less than they would have otherwise
been, yes. But you've got to realize -- that is a tremendous -- that's the
largest health care bankruptcy ever, to be associated with that company and
coming off successfully and getting the experience from it. Plus, we're
providing other services there with our CAS group, our Provider group, and
our
Sourcing group -- that's all at full rates.
Patrick
Elgrably - Next Generation Equity Research - Analyst
Okay.
And
the company's made real good progress in filling out the pyramid, and so
as we
approach the 10 to 1 target leverage ratio and I understand there's still
work
to be done there, but are there opportunities, maybe mix related to expand
the
ratio further or should we think of 10 to 1 as perhaps a ceiling
there?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Well,
since it took us almost 4 years to get there, don't expand us too
quick.
Patrick
Elgrably - Next Generation Equity Research - Analyst
Fair
enough. Thank you.
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Okay.
Operator
Your
next
question comes from the line of Jim Wilson with JMP Securities. Please
proceed.
Jim
Wilson - JMP Securities - Analyst
Well,
thanks. Was wondering if -- very good color -- appreciated some of your thoughts
on the industry segments and verticals. I was wondering could you color that
headcount growth for next year a little bit, if it's 10% growth if it's going
to
be fairly even across segments or verticals or if there's any particular
segment
you expect, particularly expect to grow the headcount more than
others?
And
then
secondly, sort of tying that back to Q3, was there any sort of out of the
course
of, of the ordinary course of business over the last 3 -- or so far this
year to
date, any particular segments or sectors that the revenue weighting was
particularly strong in the quarter?
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Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Well,
I
think if you listened to my comments we're -- I mean the disputes and
investigation business continues to grow with the utilization of the client
calls, so that one will grow, will continue to fuel that growth.
I
think
if the Corporate Advisory Service practice turns around like we think it
will,
we'll want to fuel that growth. Our Operational Consulting business -- we're
so
pleased about our diversification in our portfolio and how much the market
demands are. I think it's very hard to -- what we do is we keep a very active
pipeline, Mary and her team, and all of our service offerings, we have
requisitions that are on file. We keep people going, we keep the pipeline
and we
try to have enough people to meet the market demands, pretty close to keep
with
our target utilization rates of around 75%.
Jim
Wilson - JMP Securities - Analyst
Okay,
and
then the headcount thoughts next year, fairly similar to where the strength
has
been it might be a little bit -
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Yes,
that's the way I would -- that's the way you should see it.
Jim
Wilson - JMP Securities - Analyst
Yes,
think so. Okay all right, great, thanks a lot.
Operator
Your
next
question is a follow up from the line of Kelly Flynn with UBS.
Andrew
Fones - UBS - Analyst
Yes,
first of all on the tax rate, I was wondering whether there was any opportunity
to bring that rate back down to kind of the 42% range?
Gary
Burge - Huron Consulting Group - Vice President and Chief Financial Officer
Yes,
Andrew, this is Gary, we're looking at that every day without a doubt, looking
at some alternatives in terms of tax planning strategies, etc. And so it's
on
our to do list and we're actively looking at alternatives and ways to manage
that for ourselves.
Andrew
Fones - UBS - Analyst
Do
you
think that could be back to 42% by '06, or could it take longer?
Gary
Burge - Huron Consulting Group - Vice President and Chief Financial Officer
No,
I
wouldn't want to say that at this stage, because it is very dependant on
where
you do your work and we happen to be doing a lot of work in New York right
now.
Andrew
Fones - UBS - Analyst
Okay,
and
then if you could just kind of help me understand the seasonality of your
businesses, looking back since you have formed, both practices have grown
sequentially in the fourth quarter despite fewer days. Can you help me
understand what we might expect this quarter? And also, perhaps in conjunction
with that question. Utilization obviously was a little bit lower in the
Operational Consulting group this quarter, how long do you think it could
take
us to see that move back up to kind of the 70%, 75% range?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Don't,
just so you know the history of our company, in 2000 and -- I would just
tell
you, since I remember almost every day since I've been here. December of
2002
was an unusual investigation in Ireland and so every December or something,
something's come in.Bbut you just shouldn’t plan for that, we're not planning
for that.
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We're
planning for more normal utilization. We're planning on our OC practice staying
about where it is, but clearly we're looking for increased utilization from
our
Operational Consulting practice in '06.
Andrew
Fones - UBS - Analyst
Okay,
can
you give me any color on you think how long it may take some of those
consultants to kind of ramp up to more normal level of utilization?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Stay
tuned. We'll give you a good - we'll give you a good color on that in
February.
Andrew
Fones - UBS - Analyst
Okay.
Thanks, Gary.
Operator
(Operator
Instructions). Your next question comes from the line of Sandra Notradonato
with
Robert W Baird. Please proceed.
Sandra
Notradonato - Robert W. Baird - Analyst
Thanks,
I
just had 2 follow-ups. The $1 million reduction in bonuses that were being
accrued for senior management is that across the board or is that specific
to
certain areas?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
More
into
the senior management and the leadership team.
Sandra
Notradonato - Robert W. Baird - Analyst
I
see.
Okay. And then, if Mary could talk a little bit about turnover, I think it's
up
sequentially, is there anything that you can read into or anything that you
can
share with us in terms of where employees are going and from what area are
you
seeing the most turnover?
Mary
Sawall - Huron Consulting Group - Vice President Human Resources
Sandy,
actually compared with year to date, Q3 of '04 versus '05, our turnover is
down
and sequentially from last quarter it's down. However, I can speak a little
bit.
One thing we have noted this year and it may be because we're three and one-half
years old now, is we have had a lot more people making the decision to leave
to
go back to school and that's very normal., It was sort of abnormal in the
first
couple of years. We've had people other than that, nothing really unusual.,
Some
people decide after several years that the lifestyle of consulting isn't
one
they want to continue in and they make career changes. We do have some people
who leave to competitors, just as we hire from our competitors. But the only
really unusual thing we've had this year is just a big blip in people going
back
to school. We've also had our first employee who left to go back to school
early
and come back to us.
Sandra
Notradonato - Robert W. Baird - Analyst
Okay.
Mary
Sawall - Huron Consulting Group - Vice President Human Resources
Which
was
really nice to see…
Sandra
Notradonato - Robert W. Baird - Analyst
And
so
the - the annualized turnover rate was 22% I think you said?
Mary
Sawall - Huron Consulting Group - Vice President Human Resources
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Low,
low
to mid 20s.
Sandra
Notradonato - Robert W. Baird - Analyst
That's
the annualized number?
Mary
Sawall - Huron Consulting Group - Vice President Human Resources
Yes,
annualized.
Sandra
Notradonato - Robert W. Baird - Analyst
And
what
was the turnover just in the quarter?
Mary
Sawall - Huron Consulting Group - Vice President Human Resources
About
6%.
Sandra
Notradonato - Robert W. Baird - Analyst
Okay,
great. And that's down from, I believe it was in the mid-teens last
quarter?
Mary
Sawall - Huron Consulting Group - Vice President Human Resources
You
know
for some reason I didn't bring that with me, but it's down.
Sandra
Notradonato - Robert W. Baird - Analyst
Okay,
and
if you include involuntary turnover, what is the, what is the annualized
number?
Mary
Sawall - Huron Consulting Group - Vice President Human Resources
The
annualized number -- I don't have that just for billable -- but our involuntary
turnover is annualized at about 4% right now. I actually think it will come
in
more like 3.5% for involuntary.
Sandra
Notradonato - Robert W. Baird - Analyst
Okay,
and
then one last question for Gary Holdren. The folks that you have hired for
the
Operational Consulting practice, are most of them now deployed on engagements
or
do you still have somewhat of a bench going into 2006?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
They're
all working, we just would like to get a little bit more out of
them.
Sandra
Notradonato - Robert W. Baird - Analyst
Okay.
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
There's
no one sitting on the bench.
Sandra
Notradonato - Robert W. Baird - Analyst
And
when
you say you'd like to get more work out of them can you just explain a little
bit more?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Well,
I
mean we'd like to get, we'd like to have a little bit more demand that would
get
our utilization up and some of the projects may be longer and some of the
managing directors haven't yet got to their full - you know we've hired so
many,
Sandy.
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Sandra
Notradonato - Robert W. Baird - Analyst
Right.
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
That
they're not all yet at full maturity. So lets say we're expecting $3 to $5
million from them, we may have only got annualized a million, so that - if
they
were $3 million versus a million that could drive the utilization up
substantially of our existing people.
Sandra
Notradonato - Robert W. Baird - Analyst
Okay,
okay, great. Thanks again.
Operator
Your
next
question is a follow up from the line of Matt Litfin, please
proceed.
Matt
Litfin - William Blair - Analyst
Yes,
how's the acquisition pipeline looking?
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
We
don't
have anything we're -- we don't have anything that is imminent, Matt. We've
got
people who clearly would like to join Huron. Bbut, as I told you, and I think
I'm consistent with my first and foremost -- anything we would do would be
small
in nature. We'd have to, the people would have to be just like the people
from
Speltz & Weis. They would have - their culture, their make up, the way they
want to be teammates and the way they want to go to marketplace. They have
to be
just the same. It would have to be at the right price and it would have to
be
accretive. And that's - we put people through a pretty tough screening to
get
there.
Matt
Litfin - William Blair - Analyst
Sounds
good. Thank you.
Operator
Mr.
Holdren. We have concluded the allotted time for this call.
Gary
Holdren - Huron Consulting Group - Chairman and Chief Executive Officer
Okay,
I
appreciate all of you staying around wherever you are tonight in the east
coast
and taking time to listen to us and we'll look forward to talking to you
all
again and after we wrap up the fourth quarter and thank you again and hope
you
have a prosperous rest of 2005.
Operator
That
concludes today's conference call, thank you everyone for your
participation.
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