Jim Roth - President and CEO Mark Hussey - COO and CFO.
Tim McHugh - William Blair Paul Ginocchio - Deutsche Bank Tobey Sommer - SunTrust Robinson Humphrey Jason Anderson - Stifel Nicolaus Randy Reece - Avondale Partners Joseph Foresi - Janney Montgomery Scott Kevin Steinke - Barrington Research Associates, Inc.
Good afternoon, ladies and gentlemen. And welcome to Huron Consulting Group's webcast to discuss the Financial Results for the First Quarter 2015. At this time, all conference call lines are in listen-only mode. Later, we will conduct our question-and-answer session for the conference call participants, and instructions will follow at that time.
As a reminder, this conference call is being recorded. Before we begin, I would like to point all of you to the disclosure at the end of the Company's news release for information about any forward-looking statements that may be made or discussed on this call. The news release is posted on Huron's website.
Please review that information along with the filings with the SEC for a disclosure of factors that may impact subjects discussed in this afternoon's webcast. The Company will be discussing one or more non-GAAP financial measures.
Please look at the earnings release and on Huron's website for all the disclosures required by the SEC, including reconciliations to the most comparable GAAP numbers. And now I would like to turn the call over to Jim Roth, Chief Executive Officer and President of Huron Consulting Group. Mr. Roth, please go ahead..
Good afternoon. And welcome to Huron Consulting Group's first quarter 2015 earnings call. With me today is Mark Hussey, our Chief Operating Officer and Chief Financial Officer. While lower than the prior year results, we believe our first quarter performance is consistent with the path needed to achieve our full year guidance.
As indicated when we announced our full year results at the end of February, we expected softness in our Q1 performance primarily related to the lingering weakness in our Legal segment. We also experienced and anticipated lower revenues in our Healthcare segment as we transition between some engagements and prepared for new projects to begin.
Our Education and Life Sciences and Business Advisory segment got off to a strong start for the year and as I would describe in a few minutes, our second quarter is off to a stronger start across all segments.
In addition to the anticipated slower start to the year, there were several other factors that cause some noise in our first quarter results, including an increase in expense associated with our recent acquisition of Sky Analytics and Studer Group and restructuring charges associated with workforce reductions primarily in Huron legal.
We also incurred bonus expense that is in line with the mid point of our annual guidance. In that bonus accrual anticipates stronger performance during the remainder of the year.
Mark will provide more details in the financials but as you heard me say before, we manage our business to an annual plan and quarterly revenues and earnings held only part of that story. In 2014, we had a front end loaded year and guided toward a softer second half.
In 2015, we expect a more back ended loaded year which is reflected in our annual guidance. We believe our Q1 performance is consistent with the results we need to meet our annual revenue and earnings guidance which are affirming this quarter.
Let me provide some color on each of our segments and our thoughts on the remainder of the year before turn it over to Mark. I'll begin with Healthcare. As stated during our last earnings call we anticipate a more backend loaded year at healthcare as we prepare for some additional larger engagement that we expect to begin in the coming quarters.
During this transition we experienced some anticipated softness in the first quarter reflected in the segment's utilization rate of 72.5%. We believe that our utilization was strengthened in the coming quarters and will result in a full year average closer to that which we experienced in healthcare in 2014.
Our recent acquisitions Studer Group is off to a great start.
Studer Group is provided us with new competency in areas that are strategic to our growth expectations for the healthcare practice and equally important Studer Group has enabled us to enhance our offerings areas that are critical to our clients' efforts to improve their financial performance and quality of care objectives.
Turning to our Legal segment. The softness of the fourth quarter continued into the beginning of the Q1. However, we saw a significant increase in activity late in the first quarter leading to a 14% improvement in revenue over a week Q4, 2014.
This improvement was primarily driven by an increased in transactional work late in the quarter that have been largely absent since the third quarter of 2014. As we previously discussed the ebb and flow of this segment's performance is indicative of the volatility expected in a largely transactional business.
And can shift dramatically due to unpredictable results events such as M&A related second request activity. An increasing revenue in the back half of Q1 demonstrates the way that revenues in this business can accelerate quickly during peaks of transactional activity. Our Education and Life Sciences segment had its best revenue quarter ever.
The strong performance during the quarter was due to significant contributions across the solutions in both the education and the life sciences practices.
As we stated last year, the softness in this segment in late 2013 and early 2014 was attributable to transitions that we had to make to accommodate the rapidly changing market environment particularly in the education practice. We were successful in making those changes last year and results are clearly reflected in our first quarter results.
The first quarter saw strength across all of our service lines in education and the rapid pace of change across the higher education landscape combined with increasingly competitive academic and research environments is creating demand that we believe will continue to grow for the foreseeable future.
Our workday investment is going as anticipated and we continue to prepare for rapid growth in 2016. The strong demand in the last half of 2014 for our life sciences practice continued into the first quarter of 2015. We saw large increase in new engagements and strong utilization across the practice during the quarter.
Demand for our services remains strong as our client seeks our deep knowledge and expertise to help them analyze areas of future growth in a dynamic life sciences market.
Turning to our Business Advisory segment both the Legacy Business Advisory Practice and the Enterprise Performance Management and Analytic Practice start the year with strong performance. Our Legacy Business Advisory Practice achieve strong utilization driven by solid demand for our traditional restructuring and financial advisory services.
Our Enterprise Performance Management and Analytic Practice performed well and continue to build momentum through the first quarter. Let me now spend a few minutes talking about the rest of the year.
As I mentioned earlier, we fully anticipated a slower start to 2015 largely due to the backend loaded nature of our healthcare segment and the weakness in our legal segment that lingered into the first quarter. Even with the softness, today we affirm our revenue and earnings guidance including performance based revenue.
And I'd like to provide you with some more color on the outlook for each of our businesses. Our healthcare practice is well positioned to address the complexities and competitive challenges that our hospital plans are facing.
The drivers of our business this year continue to be the need to reduce cost and achieve improved quality and patient satisfaction levels.
Coupled with a slow but steady evolution into population health management, our clients have their hands full trying to achieve acceptable cost and quality performance in the consolidating, competitive and evolving market.
This array of factors is what drives our business and we are confident that our healthcare practice will continue to grow at a mid to upper single digit pace well into the future.
We expect utilization in our healthcare segment to increase as new projects come online and we anticipate our full year utilization in this segment will average in a high 70s. There remain uncertainties over timing of projects and performance based fees.
But we anticipate a pickup in revenue utilization and margin in this practice as the year progresses. For Huron Legal when we announced our annual guidance in February, we indicated a significant adjustment to how we view the baseline for growth for this business.
This adjustment was due primarily to the wrap of a number of large projects related to the credit crisis. As I've already mentioned this business could be highly volatile and does not allow for much visibility.
Consistent with this, the volatility driven by the lack of transactional work in the fourth quarter of 2014 continued into the first half of Q1, 2015. However, we saw a significant pickup in activity toward the end of the first quarter which was primarily attributable to an increase in transactional work.
Given the lack visibility in the segment, it makes it difficult to extrapolate strong or weak results very far into the future. We take comfort that the market demand is picked up recently particularly for M&A related second request activity.
In the Education and Life Sciences segment, our education practice saw strong demand in the first quarter and we anticipate the demand for all of our solutions in this practice to continue at a strong pace for the foreseeable future.
Higher education continues to face substantial challenges and pressures driven by uncertain funding streams, increased competition, dramatic changes in technology related to the delivery of curriculum, and a high degree of value scrutiny.
Anticipate we will continue to see strong demand for our services and the depth of our experienced team positions us well to help our higher education clients through this challenging time.
Our Life Sciences clients remain challenged by pricing pressures and regulatory risk as they look for new business models to drive top line results, improve their product pipelines and deliver improved patient outcomes to diverse populations.
The combination of our operations compliance and commercial strategy solutions has provided a broader footprint to help our client mitigate these risks and support their corporate growth objectives.
We expect solid performance to continue in this business as our life sciences practice continues to build its presence in the US and abroad in order to best serve our clients and help them achieve their strategic and operational goals. Finally, our Legacy Business Advisory Practice continues to see strong demand.
Our clients face increasing financial and operational challenges and our personnel have the expertise necessary to help our clients optimize their performance in order to maintain their positions in highly competitive markets.
We are also seen a shift with our enterprise performance management and analytics clients as they move some of their technologies to the cloud. We are well positioned to serve our clients whether on premise or in the cloud and we expect to perform well in the market as our pipeline for the year builds.
Our presence in our markets, the depths and experience of our people and our ability to deliver high quality, value added services to our clients remain strong, collectively giving us confident in our future. Because of these factors and the underline demand for our services, we are comfortable affirming our annual revenue and earnings guidance.
Now let me turn it over to Mark for more detailed discussion of our finance results.
Mark?.
Thank you, Jim. And good afternoon, everyone. Before I begin please note that I will be discussing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS.
Our press release, website and 10-Q each have reconciliations of these non-GAAP measures to the most comparable GAAP measures along with a discussion of why management uses these non-GAAP measures.
Also our acquisitions of Sky Analytics and Studer Group which closed in January and February respectively are included in our first quarter financial results. Sky Analytics is included within our Legal segment and Studer Group is included in our Healthcare segment. Now let me walk you through some of the key financial results for the quarter.
Revenues for the first quarter of 2014 were $187.9 million, down 10.9% from $210.7 million in the same quarter of 2014.
Revenues for the first quarter of 2015 reflect our acquisitions of the Vonlay, Threshold Consulting, Sky Analytics and Studer Group which in the aggregate generated $19.7 million of revenues representing 10.5% of total revenue in Q1.
The year-over-year decline in revenue is primarily attributable to two factors; first, as we discussed in our last earnings call, we experienced a reduction in Huron Legal revenues due to the wind down of large credit crisis related projects and decreased transactional work.
Second, in our Healthcare segment, we recorded $17.6 million lower of performance based fees when compared to 2014 and we also experienced revenue softness during the first quarter primarily related to project timing. As we previously discussed, we anticipate Huron Healthcare to have a more backend loaded year in 2015.
Operating income decreased $33.1 million or 79% to $8.8 million in Q1, 2015 from $41.8 million in Q1, 2014. Operating income margin was 4.7% in Q1, 2015 compared to 19.8% in Q1, 2014.
The decrease in operating margin in Q1, 2015 was primarily attributable to the lower revenue in the quarter including the lower level of performance based fees as well as an increase salaries, bonuses and related expenses as a percentage of revenues.
Selling, general and administrative revenue expenses also increased as a percentage of revenues and included $1.1 million of transaction related expenses. Depreciation and amortization increased $3.1 million primarily driven by our recent acquisition of Studer Group.
In Q1, 2015, we incurred a restructuring charge of $1.6 million related to workforce reductions in our legal and all other segments as well as within our corporate groups. Adjusted EBITDA was $20.4 million in Q1, 2015 or 10.9% of revenues compared to $49.1 million in Q1 of 2014 or 23.3% of revenues due primarily to the reduction in operating income.
Net income was $1.5 million, or $0.07 per diluted share in the first quarter of 2015 compared to $34.1 million or $1.48 per diluted share in the same quarter last year. Adjusted non-GAAP net income was $6.5 million or $0.29 per diluted share in the first quarter of 2015 compared to $25.5 million or $1.10 per diluted share in the same period of 2014.
Our effective income tax rate in the first quarter of 2015 was 58.8% compared to 16% a year ago. Effective tax rate for Q1 of this year was higher than the statutory rate primarily due to losses in foreign jurisdictions with no tax benefit and certain non-deductible expenses as a percentage of pretax income.
The prior year tax rate reflected the benefit of our check-the- box election. Now I'll make a few comments about the performance of each of our operating segments. The Healthcare segment generated 53% of total company revenues during the first quarter of 2015.
This segment posted revenues of $98 million for the first quarter of 2015, down $9.5 million or 8.9% from the first quarter of 2014. Revenues for the first quarter of 2015 included $7.7 million from our acquisition of Vonlay in May 2014. And $11.4 million from our acquisition of Studer Group which closed in mid February.
Excluding Vonlay and Studer Group, revenue decreased 26.6% compared to the year ago quarter primarily due to a reduction in performance based fees of $17.6 million versus the prior year quarter and lower revenues generated in Q1 of 2015 primarily related to project timing.
As we expected the Healthcare segment had a slower start to the year as we transition between some engagements and prepare for new projects to begin.
Utilization was 72.5% in the first quarter but as Jim mentioned we expect a full year utilization for this business to average in a high 70s as resources are deployed on projects expected to ramp up in future quarters. Performance based fees in Q1, 2015 were $13.5 million compared to $31.1 million in the same quarter last year.
I'd like to also remind everyone that timing of performance based fees can vary significantly. They are not driven by a seasonal pattern but rather the mix of engagements at any point in time. Operating income margin for Huron Healthcare was 29.6% for Q1, 2015 compared to 47.6% for the same quarter in 2014.
The decrease in margin was primarily due to the lower level of our performance based fees within the quarter. In addition, salaries and related expense increased as a percentage of revenues due to the lower utilization and finally we began to record intangible assets amortization related to the Studer Group acquisition.
Studer Group is off to a solid start and they are on track to meet their full year revenue and EBITDA expectations. Our Legal segment generated 18% of total company revenues in the first quarter. The segment posted revenues of $33.4 million in Q1, 2015 compared to $55 million in Q1, 2014.
As Jim mentioned, revenues in this segment improved over Q4, 2014 by 14% primarily due to increased in revenue late in the quarter driven by a pickup in transactional work. The pipeline for this business suggests that Q2 sequential revenue maybe 20% higher than in Q1.
The operating income margin for our Huron Legal was10.7% in the first quarter of 2015 compared to 22.7% in the same quarter of 2014. The decline in margin was largely driven by the reduction in revenue as well as the restructuring charge recorded in connection with the realignment of resources to support the new baseline.
The Education and Life Sciences segment generated 21% of total company revenues during the first quarter of 2015. The segment posted revenues of $39.9 million in Q1, 2015, an increase of 18.8% compared to revenues for Q1, 2014 of $33.6 million.
As Jim noted the increase in revenue during the quarter was driven by strong demand in both the education and life sciences practices. As a reminder, Frankel Group acquisition was completed in early January, 2014 ad as such the segment's growth is entirely organic.
The operating income margin for Huron Education and Life Sciences was 29.5% for Q1, 2015 compared to 19.2% for the same quarter in 2014. The increase in margin is primarily attributable to decrease in salaries and related expenses as a percentage of revenue due to increased utilization.
The practice also experienced an increased bill rate due to favorable mix. In addition, while our investment in our workday practice was not a material factor in Q1, we continue to ramp up activity on this growth initiative.
The Huron Business Advisory segment generated revenues of $15.7 million for the first quarter of 2015, an increase of 17.6% compared to $13.4 million in Q1, 2014. Both our legacy Business Advisory and EPM and analytics practices delivered strong growth in the quarter.
The operating income margin for the Huron Business Advisory was 10.2% for Q1, 2015 compared to 19.1% for the same quarter in 2014. The reduction in margin is primarily due to an increase in bonus, salaries and related expenses as a percentage of revenue. Over the course of the year, our margin expectations remain unchanged.
Other corporate expenses that allocated at the segment level were $28.6 million in Q1, 2015 compared with $24.4 million in Q1, 2014. Approximately $1.5 million of Studer Group's cost are included in G&A as these activities are consistent with other corporate activities.
In addition, we incurred transactional related cost of $1.1 million related to our acquisitions of Sky Analytics and Studer Group and cost of $700,000 associated with the rollout of our new CRM system during the quarter. Now turning to the balance sheet and cash flows.
DSO excluding our acquisition of Studer Group came in at 89 days for the first quarter of 2015, an increase compared to the fourth quarter of 2014 which was 77 days. The increase was related to the timing of cash collections.
Total debt includes both the $250 million face value of convertible notes and $283.8 million in senior bank debt for total debt of $533.8 million. We finished the quarter with cash of $7.2 million or net debt of $526.6 million.
The increase in net debt compared to Q4, 2014 reflects the purchase of Studer Group, the payment of our annual employee incentives in March and slower than anticipated cash collections during the first quarter. We believe the slowdown in collections was a temporary timing issue and the pace of collections is already increased in the second quarter.
We ended the quarter with a leverage ratio adjusted for Studer Group's healthy and EBITDA at approximately 3.5x. Cash flow from operations for the quarter was a use of $42.2 million as we funded $76.1 million in bonus payments. We continue to expect free cash flow for the year of approximately $125 million.
Finally, as Jim mentioned we are affirming the annual revenue and earnings guidance that we provided during our February earnings call. With that I'd now like to open the call to questions.
Operator?.
[Operator Instructions] Our first question comes from Tim McHugh of William Blair. Your line is open..
Hi, guys, thanks. Just wanted to ask can you a be a bit more specific I guess just given the ramp that's implied now what you are expecting for the healthcare segment revenue I guess for the year? And then you've talked about there are some large projects I guess I think are core part of why you are expecting to ramp.
Where specifically kind of are you at with those contracts? Are those done? And do you have better visibility today into exactly what you should expect for the year?.
Yes, Tim, this is Jim. Let me start and take the second part of it. We've got a number of large projects that were in various stages of pursuing. We have one that we started probably in mid February. We've got others that are -- we've got one that's very close and another one it is a little further away.
Until they are signed, they are not signed and we are a little bit cautious about talking too much about the timing of these things because we've said before we are very sensitive to the clients' need.
The reason these things get delayed is really more for complexities along the client side and they are trying to sequence this to make sure that it is going to properly aligned the time that they are looking at. And so from their end it is lot less about us and a lot more about them. And we think that's the right approach for them.
So we are at a stage where we think that these are still going to be going our way. We expect them to be -- we hoped that there going to be signed relatively soon. But we don't push for very, very good reasons. This is, it is really important that our clients get properly aligned.
If they are not aligned internally then our likely that being successful is substantially limited. So we also at the same point, I think bears mentioned that we have-- as I have indicated there is a lot of complexity particularly in some of the larger academic medical centers.
And what we are seeing is that there are more opportunities for some larger jobs and it is not to say that all our jobs are going to be large. But we probably are not going to comment on jobs, larger jobs that come on. We had one that came on in February. That's going to be one of our largest jobs ever and it is underway.
And one just find and probably went little bit quicker than others have but again we are lot less focused on the timing with much rather have this be done right from a clients' perspective than from our perspective. So we are hoping Tim that before too long I will be going but nothing is certain until they are signed and gone underway. .
Yes, Tim, with respect to the sequencing, I would say that you will see meaningful improvement in Q2 over Q1 and then we will see progression in Q3 and Q4 as those projects come online. So I'd -- I definitely expect Q2 would be higher than Q1 for sure. .
And I guess the comment on did sign, just going back to Jim your comment, are these projects, some of the larger ones later than you expected.
I guess did they get delayed and I guess where we are sitting relative to when you guided for the start of the year in terms of new projects ramping up?.
Tim, there are little bit more delayed than we originally thought they would be but not to the point where we feel that it's going to compromise our affirmation of the guidance at this stage. So we -- that's why we said the opening comment was we go through every quarter.
We go through a fairly robust discussion for every practice in terms of how the rest of the year is looking. And we did that just in March. And I have to clear here that if something doesn't occur some larger project don't occur this is true in any practice than something will get compromised.
At this point in time there is nothing that tells us that the pathway that our practices see towards the completion of our plans; there is nothing to believe that's compromised at this point in time which is why we are premier guidance right now. There are risks, there are puts and takes in everyone of those forecast and everyone of the assumption.
And we weigh those now as we have every quarter. And we make the decisions that we think are best in terms of how best communicate our guidance for the future and in this case what we've seen, we've talked about with practices. Our understanding of what's -- what is likely to occur is consistent with the guidance that we played out. .
Okay. And then just the legal margins, it is typically a fairly variable cost business.
So I guess, I am surprised I guess how weak they were in Q1 and then how much of Q2 is better would that flow down? And I guess kind with that in mind the margin expectations for that business going forward?.
Tim, I think you can -- based on Q1 we had seen a similar level of contracts or expenses as a percentage of revenue. And really the thing that depresses it was even though it has been a nice double digit reduction in the fixed cost; the revenue is still at a lower level that we really forecast on a full year basis.
If you just take the run rate, however all of that said we think that against the final is really that when you look restructuring charge in the quarter and the timing of that, we certainly did not get a full quarter impact of some of the actions that were taken.
So with higher revenue and the full impact of those, I would expect that we will still be in that range that we guided to back at the-- in our earnings call..
Thank you. Our next question comes from Paul Ginocchio of Deutsche Bank. Your line is open..
Thanks. Can I just ask a little bit about the Studer Group? Jim, could you give us an update on the revenue growth in the first quarter on a pro forma basis? And then when it comes to the talent you brought on, have retained everybody that you wanted to retain or have you lost anyone at all? Thanks..
Paul, this is Jim, I will answer second part and I get, have Mark talked about the growth rate. We haven't lost anybody. As we have predicted early on, we really expected the entire group to transition with us. They have. We heard and we had a lot of discussion with them obviously.
We've already begin to interact which probably little bit quicker than we thought. There would be some opportunities to begin interact between the practices. And the culturally it has been a really, really solid integration so far. And so we haven't lost anybody. Mark, you want to comment on the growth rate. .
Yes. So, Paul the growth rate so the $11.4 million was about half of the quarter. And frankly was in line with what we expected. Although I would say on a full year basis we probably have a little bit of upside than we thought what's going to happen. I think with respect to last year, you are looking at double digit increases coming into the year.
So it is in line with what we expected. And I would say again on a full year basis, this just expands on that. One of the things that we've talked about that affects the revenue for Studer Group is the purchase accounting and the deferred revenue impact. In the quarter, it only had about $400,000 impact.
And we had talked about a $2 to $3 million range for the year. At this point, based on where we are we think they will likely have some upside to that range. We will probably be below the $2 million hit to the year. And so we talked about a $70 million to $75 million range on a full year basis.
We are likely to be at the high end of that range and potentially higher than that for Studer for 2015..
Mark thanks for that.
So if there is maybe little bit more delay in the healthcare projects, the offset would be Studer Group and or little stronger trends in legal currently?.
Yes. I think that's exactly right. So I guess if you take a step back and you look at the full year and we said what we are thinking about why we have some confidence in our guidance. We certainly think what we expect some acceleration in healthcare from where it is.
And top of that we think we got the transaction work coming back into legal that we think sustains us in line with where we were on a full year basis. We have strength and momentum coming out of education and life sciences as well as business advisory. So we feel that again provides us a very nice back staff around any of the risks.
Although we still are optimistic that our healthcare assumption are still valid. .
And Paul just with regard to the validity of healthcare assumption, one of the things of course we look at and again we do this every quarter when we have our discussions around forecast is we try to gauge kind of work that were being asked to do, the kind of assessments that we are doing, the extent to which we have competition on any given environments and probably more important than any of that is just the overall market.
And in all cases we view it been very favorable to market, from our perspective remains very strong. There is always going to be aspects of individual practices within a market, within a segment that are going to be higher and lower. But that's always been the case.
In general, our view of the healthcare market is that is still rapidly evolving, that we are extremely well positioned in it. And that we have a lot of confidence in our future growth.
And if we saw any-- if we -- the thing that would give us hesitancy over the direction of the practice would be, if we saw more competition or if we saw weakening of demand across the board and this is something we just don't see at all.
The market is still very dynamic and we are incredibly well positioned particularly for some of the larger more complex health systems and academic medical centers. .
One final count, Paul because I didn't answer question on Studer pro forma on Q1. So that number pro form year-on-year Q1 revenue growth would be in the mid 20% range and kind of mid teen EBITDA growth range. .
Thank you. Our next question comes from Tobey Sommer of SunTrust. Your line is open..
Thank you. I wanted to ask you a question about the extent to which these larger projects, that are either emanating from the healthcare side vis-à-vis academic medical centers or the education side, are requiring services from multiple segments, and the extent to which that kind of business is increasing or decreasing versus recent years? Thanks..
Tobey, this is Jim. I think in terms of well particularly in the academic medical centers setting where we have very unique competencies. We have the collective way between our education life sciences practice and our healthcare practice. We have the academic or research, the physicians and clinical components all pull together.
We have done a great job of collaborating. So some of our very sizable jobs right now have been for a while, they are pursued, and they are performed as collaborative effort. And it really is I think exactly what we would want to see. We are very uniquely positioned to take on that more complex environment.
And as you have may have seen in Wall Street Journal article earlier this week I think it was -- or maybe late last week, where they talked about the strain and stresses on academic medical centers. That's what we are seeing everyday.
So our team is working a lot together and it is a major advantage from we go to market in terms of having those competencies pull together. I expect to see that lot. We also, frankly that was not just education and life sciences and healthcare that are working together.
We actually have seen some M&A activity between our business advisory and healthcare team, our business advisory and our education life sciences team. Our EPM net analytic practices working in a fair number of universities.
So we are seeing collaboration across our segments at in ways and at levels that I don't think we've ever witnessed in this company before. And frankly it is all coming very naturally which is the best part, it is happening because the markets are demanding and we happened to be very well positioned to that..
So these larger projects that seem to be surfacing with a little bit greater frequency recently have less competition for them?.
I will put it this way. I think when it boils down to understanding the complexities, the first of all having the industry knowledge number one and then having the broad competencies combined with that industry knowledge, I think there is not as many competitors that are able to handle the comprehensive scope that's more of clients are asking for. .
And my last question is just going to be on the legal business. The up tick that you saw at the end of the quarter and that will extend into I guess at least 2Q.
Do you have a way to assess whether that is Huron specific in your customer set, or indicative of the market? You know, we have seen some of the large transactions that have been scrutinized unwind but maybe this is a reflection of a kind of broader scrutiny on a host of deals we don't know about? Thanks..
Tobey, this is Jim. I wish I could you give a really clear answer on that. We struggle to really understand the lack of transactional work that hit us in the fourth quarter and the first part of the first quarter. So even though we have seen a pretty solid up tick towards the end of the first quarter now beginning into the second quarter.
I am reluctant to say okay everything is fine. I don't think we know. And I think we've seen this amongst some of our competitors in this area as well. I think it is just a very difficult market to assess right now. So I don't want to get carried away and extrapolate good or bad. I think we are in the market.
We, the clients that we are getting are reflective of their relationships that we have been building over a period of time and that's -- it is a very -- it is a competitive environment still and I think we are doing a great job of getting into market and demonstrate our value.
So I just at this stage given the ups and downs we've had over the last six months, I am really hesitant to say what's going to happen in the future. I think we just have to kind of wait and see what it is. We go back to the set I think we had a really strong end of the first quarter. It got off to a good start in the second quarter.
But I just -- we really kind of at loss to explain why we had such a downturn originally. So we are little bit over loss to predict now us we are doing just fine..
Thank you. Our next question comes from Jason Anderson of Stifel. Your line is open..
Hi, good evening, guys. Just wondered would there be any way you could comment or give us maybe a way to frame the size of these larger deals maybe comparatively? I mean, you've talked about the greater complexity and size of these.
It would be nice if you could maybe give us some framing and scope on that?.
A way we really want to kind of stray away from that right now. There are -- some of them are still being negotiated.
They are likely to take place if they take place over a series of years and so I think we just -- we don't know and we really would prefer not to get involved in some of the things for both competitive reasons but also just because we typically don't like to talk about client environments right now.
They are significantly larger than our average jobs have been over the years. And we will kind of leave it at that. .
Okay. Thanks and then on education and life sciences, obviously you look strong, it's doing well.
Would you want to -- should we think about your prior revenue guidance for that as being -- maybe that's coming up a bit? I mean it sounds like that strength is going to continue throughout the year?.
You know I would say we are optimistic right now. I would say if we continue to see the market perform in this way, I think there is a chance that we would see some upside to where we are.
I think we are pretty early in the year to necessarily call it at this point, but certainly we've seen nothing that would lead us to think that it is going to be weaker.
And I would also suggest that at this point based on what we've experienced with workday we are likely not to spend more than what we had initially indicated if we anything we might spend a little bit less. So we are hopeful that margins might be a little bit better than what we had originally guided too.
But again it is a little bit early in the year to get ahead of ourselves. .
And I think that practice just I'll add on to Mark said in terms of workday practice, is really coming along nicely. As we have indicated we are going to be growing at organically that was the nature of the investment that we disclose for 2015.
Our hope at this point is still as early but our hope at this point would be that in 2016 that we would probably be at worse in a neutral position in terms of investment in that business. We will continue to invest but we should have more than enough revenue to accommodate that investment in 2016.
So our current sense that could change as things go on. We are very pleased with the way that practice is evolving right now. .
Thank you. Our next question comes from Randy Reece with Avondale Partners. Your line is open..
Hi.
Did you say what the revenue contribution was from Studer in the quarter?.
We did Randy. It was $11.4 million and that's almost exactly half of the quarter. .
Okay. Very good. It looked like just the core billing rate of healthcare continued to hold up. Just overall activity level maybe the main variance, versus where my number was. It was just interesting looking at my model year. Revenue was $1.8 million light of my estimate and your expenses were right online.
It just, it seems like there wasn't a lot of variability in the expenses this quarter? I don't know if that's an illusion, if there's something accurate about that observation?.
The only comment I make Randy is I think it is largely true. I think there were some continuing investments and some of the assessment work that we've had on some of the engagements that we've been working on.
And that's put a little bit of pressure on the bill rate that we expect to recover with higher run rate revenue as well as higher contingent fees in the later quarters..
Yes.
In terms of just your hiring cycle this year, are there any differences in timing versus what you have done in the past or what you had expected entering the year?.
I think, Randy, it is Jim. I think we will probably, I mean we've always have the ability to accelerate or decelerate hiring based on our -- that the way we see the revenue falling out and so I think we are at a point in time we are still continue to do that. It is reasonably easy for us to push things out if we need to.
It is little bit more difficult for us to push things up. But we have that tool, both of those tools at our discretion and it will be based entirely in terms of how we see the revenue working itself up..
You will time it depending on how business ramps as the year goes on?.
Yes, exactly. Randy, I think so that we think about this is utilization as an operating lever has such an impact on margins and we see the positive side now on education and life sciences. We've seen a little bit of weakness affecting the healthcare margins in the quarter.
And so our inclination is to try to manage utilization at the levels that really optimize that and then put pressure on the hiring and recruiting to make sure that we can deliver in time. So if we can keep that in balance at all time, we run the constant utilization level, so that's the internal battle that we had going on.
But our inclination just to have higher utilization than -- and manage the hiring accordingly. .
Have you had any concern about the incremental cost of recruiting over the past few quarters?.
Randy, we probably read the same articles that you do. And I don't know that we've seen it materially show up in any of our hiring things yet. It is sound to say there are won't but I don't think we are seen it yet. And we read the same articles whether it is beginning to be some pressure. If we have seen it, it is not material..
All right. I guess those of us who pay less have a harder time recruiting than you do. .
We can compare those offline..
Thank you. Our next question comes from Joseph Foresi, Janney Montgomery Scott. Your line is open..
Hi.
Just on the large deal side, perhaps you could give us some color around the general timeframe in signing a large deal versus I guess an average sized deal? Maybe you can give us just a general idea on the number of large deals versus what you have seen in the past?.
Well, I guess there is a couple of ways to respond to that. I think we've typically said that -- and Mark you correct if I am wrong here, I think we've typically said that in the past probably our average size job in healthcare would probably be in the $8 million to $10 million range. .
Yes. .
Yes. And these are much bigger; they are bigger for a number of reasons. Number one is some of these larger jobs are involving more than one hospital. And that would certainly bring it up, in some cases substantially more than one hospital.
And then the other part though that we've been talking about for better part of three years as we've been building up our clinical services group and that is -- and I know with these kinds of discussion take place on earnings call among a lot of healthcare consulting firms but the reality is this is evolving, is change in the business model for our client is dramatically more complex than I think most people appreciate.
And so a large part of which driving these projects to be bigger is in fact just a sheer complexity. And I would say the same thing is true, I don't know if we have the results in health and education.
For example where we've always been talking about some very rapid changes and my guess is we've seen average size project in education increase as well. And both of those I can -- a large degree of it is attributable to the complexity of our clients environment. And so we have a lot more larger clients in healthcare than we used to before.
I think we would say the same thing is probably true in education. And that's why I said we are a little bit reluctant to be focusing too much on these because I am not going to say that mega projects are going to be become the norm.
But I do think that we are going to see larger projects evolve because they are more invasive, they are more strategic and in many cases they are involved in more than one institution. And I think collectively I think that's going to be a pattern that we hope plays out in those practices for a quite a while. .
Got it.
So if I extrapolate these large deals and them being in the pipeline, does that mean the volatility of results as we saw in the first quarter could potentially swing or become more volatile to both the up and the downside?.
I wish all of that went itself a really steady slope of revenue and earnings. I think in reality it is not going to, yes, there is going to be some volatility. We've seen quite a bit in the last four years in healthcare and education in particular among our largest practices and I think some of it just going to be the sequencing.
The interesting part that is true in a lot of our larger engagements in health and education are that they want to know who is going to do the work.
So it is one thing to say that Huron has all these great capabilities but our clients appropriately want to know who is going to do the work and at that stage it begins to-- it causes us to kind of sequence of set certain people aside for those projects.
And so when they are complex, it take a little bit while to negotiate, not so much on a contract terms as much more so around getting the timing right at our client.
And when we talk about the timing or talking about are they ready strategically, are they ready organizationally, are they ready culturally, do they have the sequencing of the project in place, those all things that happen at our client side.
And that's the part that we will always be very patient because I repeat it again it just a so critical for us to do working at our clients when the timing is right for them not so much when it is right for us.
And for these larger projects that are right now our sweet spot, we will wait and if causes increase volatility, I think we are going to have deal with it, we are going to try to do our best we can to manage the interim but we will -- and we will manage as appropriately as we can.
But when push comes a show for clients they are right in our sweet spot, we are going to let this carry out in their terms not in ours. .
Got it. Okay and then two more quick ones, the last time this happened, I think you took the bonus accrual as well, and I think maybe the earnings number was actually lower than what you put up this quarter.
Has the visibility changed on the business, and has it gotten better or worse since I think maybe two or three years ago when we got off to a slow start and then the business started to ramp? And then along with that question, should we be thinking differently about success fees?.
So let me just talk about the visibility part. I think every year that goes by I think we get a little bit better at really understanding the ebb inflow of our environment. I mean that the company is bigger and so the numbers of data points are bigger.
But I think we've gotten to be the point where we are pretty good at forecasting but I'll tell you we are not perfect and they are still -- there are always things, those projects that should have started that don't start or start late. There is other project that comes out of the blue that just shows up on our radar screen and we get going.
And so are always going to have that give and take and that just part of the challenge that any consulting firm has in terms of trying to mesh up the demand and supply in those kinds of environment. I think our visibility isn't necessarily any different. I think our ability to manage in that variability is probably little bit better. .
And Joe the only thing I would say you would think differently about success fees. I don't think there is anything really broadly speaking to think differently about them at this point. Again, I think it really comes back to the risk tolerance that the client has for paying a fee that does not have any risk associated with it.
And I think that is going to just continue to be the case in the market. It will change a little bit by project but really at the end of the day it is about what is the risk tolerance. And I don't think it changes our economics or anything else about our business. .
And the only thing I would add is some of our larger clients or client opportunities that are evolving right now are likely to be a mix of fixed and contingent. So again it is not all black and white. And that is based on the client wants and that's fine with us..
Thank you. Our next question comes from Kevin Steinke of Barrington Research. Your line is open..
Good afternoon.
I wanted to talk a little bit more about Studer Group, and know it's still early on with that acquisition but just wondering how the integration is going, in terms of your ability to go out and cross sell their services to some of your traditional clients, as well as your efforts to penetrate some of the markets they serve that you traditionally have not served?.
Kevin, it is Jim. So actually the integration is going well. The one that we probably focused on first is just a cultural integration. Studer Group had a really proud, very strong internal culture as did we.
And so we, groups, Studer Group and us went, only went forward with the transaction because we both became convinced that we would be a good cultural fit. So that's a part that even though we pull the deal, it is not that effort is done, that effort is just underway and I think it is going extremely well.
We have just -- it really began to get very strong alliance of people getting to know each other across the practices at a broader level and beginning to work together and beginning to share opportunities and client relationships. So that's already taking place.
I know there is a couple of situations already where we've been able to cross sell and our emphasis -- that something that's certainly were intermediate longer term objective of ours. I think we probably are getting a little bit of traction earlier than we had thought.
But I think that something we will continue to work on during the course of the year. But I mean so far not just financial which is certainly important but more importantly it is just the cultural fit we want them to be satisfied, we believe they are.
We are satisfied and I think the rest of it will be done the same way that I described the collaboration that exist among our other segments in healthcare and education and business advisory. It is just all happening very naturally. And we feel very really good about it. .
Okay. Great and Studer Group is more of a recurring revenue business.
And is that the type of business you would look to build out further, in terms of the longer contracts? Either as you continue to pursue acquisition opportunities or just organically?.
Kevin, I think the organic growth in that business is going to just continue to help us shift our mix to a more recurring revenue model. Right now I didn't add at this at the end of Jim's comment but I think it is relevant. They have a laser focus on their plan and it is an aggressive plan.
And they want to continue to just in their own right make healthcare better is really what they are all about. I think that model continue to serve very well for us.
And I think if we can extend that into other areas like our clinical solutions and physicians solutions where we have opportunities to be more present on site and have a longer term relationship to be a trusted advisor to the client that's going to just continue to help us extend on the organic side.
But that still aspiration, we still have a lot of work to get there. .
Sure. Sure. That makes sense. And just wanted to ask you about legal too. You know you had the credit crisis engagements wind down and at the same time you're looking to build up the advisory side of your business. I think the Sky Analytics acquisition is targeted to that effort.
So you know longer term should we expect the mix between advisory and e-discovery work to be kind of change permanently here as to what it was historically, or should we expect advisory to grow as a percentage of that practice as revenue? Or that segment's revenue?.
Yes, Kevin, I mean our expectation is that they are both going to grow. I don't know that we will see material change in terms of the mix between the two of them. Our expectations are that both grow and I think Bob Row has been doing a number of good things to continue to expand.
Both practices and so I think our hope is that they are both going to grow but I don't see any significant change in the mix over the next two or three years at this stage. .
[Operator Instructions] And I am not showing any further questions in queue. I'd like to turn the call back over to Mr. Roth for any further remarks. .
Thanks for spending time with us this afternoon. We look forward to speaking with you again in July when we announced our second quarter results. Have a good evening. .
That concludes today's conference call. Thank you and have a wonderful day..