James Roth - President and CEO John Kelly - CFO, EVP and Treasurer Mark Hussey - COO and EVP.

Tim McHugh - William Blair & Company Kevin Steinke - Barrington Research Tobey Sommer - SunTrust.

Good afternoon ladies and gentlemen and welcome to the Huron Consulting Group's broadcast to discuss Financial Results for the Second Quarter 2017. At this time, all conference call lines are on a listen-only-mode. Later we will conduct the question-and-answer session for 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 morning'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 of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers. And now, I'd 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 second quarter 2017 earnings call. With me today are John Kelly, our Chief Financial Officer; and Mark Hussey, our Chief Operating Officer. Our Business Advisory and Education segments continue to meet our expectations during the second quarter, while our healthcare segment remained challenged.

Let me provide some perspective on each of our segments and then turn it over to John, so he can walk you through the financials. I'll begin with Healthcare. During the second quarter, Healthcare segment revenues declined 22% compared to the prior year quarter.

On an organic basis, healthcare revenues decreased approximately 27% over the second quarter of 2016. The quarter-over-quarter decline, which primarily attributable to the roll off of a large engagement in the first quarter of 2017 and to a lesser extent continued softness in our revenue cycle offering within the performance improvement solution.

Excluding the impact of the large engagement in the first quarter of 2017, Healthcare segment revenues declined 10% sequentially in the second quarter.

From a revenue perspective, the Healthcare segment is nearly evenly split between the performance improvement business, which includes our revenue cycle and cost and clinical offerings and the advancing solutions business, which comprises our Studer Group, technology services, medical group and strategy offerings.

Within performance improvement, we believe we are nearing a point of stabilization in this business inclusive of our revenue cycle offering after a nearly two year decline. We have recently seen some positive indications related to demand for these services and anticipate a steadier run rate for the remainder of the year.

Many healthcare providers are facing increased pressure on margins due to rising expenses that continue to outpace reimbursement. This scenario has created stronger sense of urgency for our performance improvement services.

While our performance improvement business appears to be stabilizing, we see some signs of softness in our advancing solutions business, of which the Studer Group offering is the largest component. In Studer Group we have recently experienced an unanticipated slowdown in demand that we expect will impact our revenue for the remainder of the year.

The reasons for the revenue shortfall are the early termination of contracts among certain national health systems and slower than expected new business sales.

While renewals from expiring contracts continue, we believe the primary cause for the recent cancellations was the need by clients to reduce discretionary spending amidst continuing margin pressures. Studer Group's core regional and community hospital base is currently stable and the business's net promoter scores remain high.

Although, some of the large clients have terminated some of the coaching services, many of these clients still have an ongoing relationship with Studer Group as they continue to our software products to enable and sustain performance in key clinical and administrative processes.

We continue to enhance our offerings within our healthcare practice to address evolving market needs and aligned with client buying preferences. As we discussed at our Investor Day in February, we see the healthcare market purchasing services in a more discrete and flexible manner.

Within the broader Healthcare segment, we continue to integrate our offerings to create a unified value proposition for our clients consistent with the way they are viewing the transformation of their businesses. Our core performance improvement offerings are well along the way to being more effectively aligned with the market.

We are innovating new offerings within Studer Group, while also unbundling some of their current offerings to enable us to better integrate Studer Group's leadership, change management and cultural transformation services with our performance improvement solutions to further sustain our results.

There are indications that the changes we have made to respond to the market needs and its preference for greater flexibility and how they engage with us are resonating. We are successfully broadening our client base, creating a stronger foundation from which we can grow.

In 2017, we are on pace to work with 30% more clients than in 2016, although with smaller engagements as we have discussed on prior calls. And we are increasingly winning follow on work across our breadth of services as we shift to more of an ongoing trusted advisor relationship with our clients.

Although demand appears to be improving for most of our healthcare services, the significant shift in how the healthcare market has been buying our services has caused disruption to revenues and margins over the past couple of years.

As we have disclosed in prior quarters, if the financial performance of our Healthcare segment continue to decline, and did not meet our expectations, we could be required to perform an interim impairment analysis with respect to our carrying value of goodwill for the healthcare reporting unit prior to our usual annual test.

Due to our second quarter results, and a revised forecast for the remainder of 2017 coupled with the revenue and margin trends for the Healthcare segment over the past two years, we performed such an interim impairment analysis as part of our second quarter close process. And have recorded a goodwill impairment charge for our Healthcare segment.

There is no impact to ongoing operations, revenues, cash flows or financial covenant compliance due to the goodwill impairment charge. While the impairment charge reflects current visibility, we believe we have a strong set of capabilities that will continue to differentiate Huron in the market.

And we are aggressively pursuing strategic initiatives that will position us to return to long-term growth. Some of the initiatives we discussed during our Investor Day are beginning to yield some positive results in our business.

The addition of Innosight further adds to our opportunities to differentiate our comprehensive strategic, operational, analytic and technology offerings in the market as many of our clients are ongoing disruption that requires transformation of their businesses.

In summary although we have recently seen some softness in our Studer Group offering, we believe we are nearly in a point of stabilization and performance improvement. We believe the changes we have made are taking hold in the market and we have the right pieces in place to address our client's most pressing challenges.

They are facing significant and rapid change and with our broad set of capabilities and deep industry expertise, we are uniquely positioned to help our hospital and health system clients transform their organizations.

Turning now to the Education segment, as of June 1st, we realigned the life sciences practice with the Business Advisory segment, which I will discuss in more detail shortly. In Education the segment achieves strong performance in the quarter, growing revenues nearly 18% year-over-year.

This segment had exceptional performance in the first half of the year led by our strategy in operations and technology offerings. Over the past several years we have made investments in our cloud related businesses and today we have nearly 100 people supporting our cloud efforts within education.

Within the past few weeks we have had two significant goal lines for large research universities, bringing in resources for many service lines across the education business to support these successes.

We will continue to invest in these businesses to grow our resources and expand our presence as clients are increasingly turning to the cloud to modernize their systems and improve their performance. The Education segment is on a path to have its third consecutive year of double-digit growth.

Higher education institutions are under considerable stress if we remain well positioned to meet the evolving demand of this sector. Our Business Advisory segment now includes four businesses. Enterprise Solutions and Analytics or ES&A, legacy business advisory, strategy and innovation, and life sciences.

This segment continued to perform in line with our expectations during the second quarter. Given the realignment of the life sciences business the makeup of the Business Advisory segment is now approximately 45% ES&A, 20% legacy business advisory, 20% strategy and innovation and 15% life sciences.

These practices within the Business Advisory segment have some common characteristics. First the clients predominantly have four profit objectives and second many of their clients serve global markets. This is in contrast to our Healthcare and Education businesses, which today primarily serve not for profit and domestic clients.

The addition of life sciences to the Business Advisory segment better aligns our largest strategy capabilities and global operations under one segment, driving increased collaboration and improved efficiencies across these businesses. Now let me turn to the individual businesses within this segment beginning with ES&A.

The ES&A business performed well during the second quarter of 2017 achieving organic revenue growth in the mid-teen range. In the first half revenue growth was primarily driven by our business intelligence and sales force solutions.

Cloud based platforms have accelerated pace at which our clients are adopting new technologies as our clients look to thrive in the digital economy they are leveraging our broad functional and technical capabilities to gain operational efficiencies. Improved customer experiences and unlock valuable insights to better manage their business.

Our talented team of consultants bring the best of process and technical expertise together across our portfolio of services to deliver the results of our clients' desire.

The performance of our legacy business advisory practice declined year-over-year due to tough comparisons that were driven by a large contingent fee earned in the second quarter of 2016. Excluding this contingent fee the business advisory practice has grown in the mid-single-digit range for the first half of 2017.

This business continues to broaden its client base to serve not only distressed clients but also non-distressed clients looking to improve their financial and operational performance.

With the diversified client base and service offering we are able to support the needs of our clients at different stages in their evolution, which provides us more opportunities to drive growth in this business.

The strategy and innovation practice, which we acquired in the first quarter within a sight, continued its strong momentum in the second quarter.

With the combination of our strategy and operations capabilities and deep industry expertise we are uniquely positioned to help our clients transform as they strive to strengthen their businesses today, while creating growth opportunities for the future.

When we acquired this business in March, there was a strong sense that Innosight and Huron would be far better off together than apart.

This has proven true in multiple collaborative engagements we have won during the second quarter by bringing Huron's collective competencies and industry expertise to market together with the strategy and innovation team to present an approach and depth of capabilities unmatched by competitors.

In a short time, we have successfully garner market together with major clients in the healthcare and life sciences industries. And we are aggressively expanding our collaborative approach into other industries and client relationships.

Now turning to life sciences, the Life Sciences business continue to perform in line with our expectations in the second quarter. In addition to the segment realignment during the quarter, we also made some organizational changes to accelerate our growth in the Life Sciences business.

First, we decided to focus our investments on growing the life sciences strategy business and exited the compliance and operations or C&O business during the second quarter.

This action allows us to optimize investments in our people and preserve our ability to invest more quickly and effectively in the global life sciences strategy business where we see our latest growth opportunities.

Taking into account the divestiture of the C&O business and the acquisition of Pope Woodhead, we expect the life sciences' practice to grow revenues in the upper single-digit range on a full year basis. Second, we welcome John Westwood to Huron as the new leader of the Life Sciences practice.

John most recently served as Senior Partner and Managing Director at LEK Consulting where he co-founded and led the firm's life sciences practice. Working with our experienced team, John will help to broaden our services and accelerate Huron's global growth in pharmaceutical, biotech and medical devices industries.

He will also work closely with the practice to expand its collaborative efforts with other Huron businesses to enhance our competitive advantage across the broader healthcare spectrum.

I firmly believe that under John's leadership working together with our very talented Life Sciences team, this business will continue to grow building upon our strong reputation in the life sciences industry.

During our Investor Day in February, we discussed our vision for building stronger strategic advantage through deeper collaboration within Huron and we continue to make progress.

Excluding Life Sciences practice, in the first half of 2017 the Business Advisory segment generated approximately $21% of their total revenues in the healthcare, education and life sciences industries. Also during the first half of 2017, nearly 50% of our top 15 clients work with at least two practices within Huron.

We believe our clients are best supported and achieved the most valuable outcome when we bring the right solutions to bear from across the firm. Our ability to meaningfully collaborate brings a unique value proposition to our clients strengthening our client relationships and competitive advantage, and building a foundation for future growth.

Let me turn to our 2017 guidance, as our press release indicates, we are updating our annual revenue guidance to $730 million to $750 million and our GAAP earnings per share guidance to a loss of $6.25 to $6.15, which includes the $7.05 goodwill impairment charge.

And on a non-GAAP adjusted basis, our updated EPS guidance is now income of $2.20 to $2.30. We updated our revenue guidance due to two primary factors. First, our healthcare expectations for the remainder of the year have changed.

This change is driven by the softness in Studer Group and slower than anticipated growth in the first half of the year in our performance improvement solution despite recent signs of stabilization. Second, as a result of the sale of the C&O business, revenues within our life sciences practice will be lower than contemplated in our original guidance.

Excluding the impact of the C&O sale, we expect our education and business advisory segments will continue to be in line with our original full year revenue expectations with anticipated organic growth in the low double-digit range. We also updated our adjusted EPS guidance, primarily reflecting the reductions in revenue I just discussed.

Finally, we are updating our healthcare performance based fee guidance to $25 million to $30 million. Although there is no question that this is been a challenging period for the healthcare practice, let me share a final perspective about why I'm excited about Huron's future.

The pace of change in the healthcare industry has led us to make significant changes in the way we operate our business and our go-to-market strategy.

We've made considerable progress in transforming this business, enhance in the depth and breadth of our service offerings, broadening our client base and more deeply integrating complementary offerings within the practice and across the firm. We are one of the largest and most well recorded healthcare management consulting firms.

And we've aligned our competencies to be responsive to our client need strategically and operationally navigate an uncertain and rapidly changing healthcare environment. We've a broad range of capabilities to support our healthcare clients.

We are unifying the practice to leverage the breadth and depth of our capabilities and repositioning how we engaged with the market in order to capitalize on our growing best of clients.

We've made significant progress in executing a major transformation of our healthcare practice and we are far better prepared for growth today than we were even three months ago. Our management focus for the remainder of the year will be to continue to position us for future growth by executing our plans to unify the healthcare business.

Our Education and Business Advisory segments, which comprise over half of our business continue to perform well and both segments are seeing market opportunities that are well suited for future growth.

Our focused will also be to continue enhancing the strong market facing platform that has enabled these segments to achieve solid growth over the past few years. Our people are our most important assets and are the driving force that is executing our vision of a more integrated company and creating opportunities in new areas where we can grow.

We see a lot of change and disruption in all of the industries that we served including in our own and I'm proud and confident that our nearly 3,000 employees are prepared and energized to achieve new levels of success Huron's future. Now, let me turn it over to John for a more detailed discussion of our financial results.

John?.

Thank you, Jim and good afternoon, everyone. Before I begin, please note that I'll be discussing non-GAAP financial measures such as EBITDA, adjusted EDITDA, adjusted net income, adjusted EPS and free cash flow.

Our press release, 10-Q and Investor Relations page on the Huron website 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 and why believes they provide useful information to investors regarding our financial condition and operating results.

Effective as of the second quarter of 2017, we reorganized our internal reporting structure by moving our life sciences practice from the Education and Life Sciences segment, which is now the Education segment to the Business Advisory segment.

The historical results of our life sciences practice have been reclassified to the Business Advisory segment for all periods presented in our 10-Q and in today's discussion. A supplemental 8-K with recast historical segment results for the 2016 quarters and full year 2015, reflecting this reorganization will be provided later this afternoon.

Also our acquisition of the international business of ADI strategies, which closed in April is included in our second quarter financial results in the Business Advisory segment. Now let me walk you through some of the key financial results for the quarter.

Revenues for the second quarter of 2017 declined 1.5% to $181.4 million compared to $184.3 million in the same quarter of 2016. Second quarter 2017 revenues include $19.8 million from our acquisitions of HSM Consulting, Pope Woodhead and Innosight, all of which closed after the second quarter of 2016.

Second quarter 2017 revenues also included incremental revenues due to the fourth quarter impact of our acquisition of the U.S. business of ADI Strategies completed in May 2016 and revenues from our recent acquisition of the international business of ADI Strategies. Both of which have been fully integrated into our business.

Net loss from continuing operations was $150.5 million or $7 per share in the second quarter of 2017, compared to income of $16.1 million or $0.76 per diluted share in the same quarter last year. The decline in net income over the prior year period reflects the goodwill impairment charge related to the Healthcare segment.

As Jim noted, we've aggressively made changes to reposition the Healthcare business for growth and we see positive indicators for demand in our performance improvement solution.

However, as we've previously disclosed could be required based on our second quarter performance and revised forecast for the remainder of 2017 and reflective of the revenue and margin trends over the past two years.

As part of our second quarter close, we determine that we should perform an interim impairment analysis relating to the healthcare reporting unit and as a result we concluded that the carrying value of the unit exceeded its fair value. As such we recorded a $209.6 million non-cash pre-tax goodwill impairment charge for the second quarter of 2017.

The charge was related to goodwill recorded in conjunction with all of our Healthcare segment acquisition over the past 12 years including the [indiscernible] and Studer Group acquisitions. As you noted there is no impact to ongoing operations, revenue, cash flow or financial covenant compliance due to the goodwill impairment charge.

Our effective tax rate in the second quarter 2017 was 26.2% compared to 33.8% a year ago.

Excluding the impact of the goodwill impairment charge our effective income tax rate was 44%, which was higher that our statutory rate inclusive of state income taxes due to certain non-deductible business expenses and the state tax true up, partially offset by certain credits and deductions.

Adjusted EBITDA was $24.5 million in Q2 2017 or 13.5% of revenues compared to $41.6 million in Q2 2016 or 22.6% of revenues. The year-over-year decrease in adjusted EBITDA was primarily attributable to lower operating income in our Healthcare segment.

Adjusted non-GAAP net income from continuing operations was $10.6 million or $0.49 per diluted share in the second quarter of 2017 compared to $23.3 million or $1.09 per diluted share in the same period 2016. Now I will make a few comments about performance of each of our operating segments.

The Healthcare segment generated 46% of total company revenues during the second quarter of 2017. This segment posted revenues of $83.2 million for the second quarter of 2017 down $22.9 million or 21.5% from the second quarter of 2016.

Revenues for the second quarter of 2017 included $6.4 million from our acquisition of HSM Consulting, which closed during the third quarter of 2016. Excluding this incremental amount revenue on an organic basis decreased 27% compared to the second quarter of 2016.

As Jim mentioned the decline in revenue was primarily driven by the wind down of large engagement through softness in our performance improvement business in particular our revenue cycle offering. Performance based fees in Q2 2017 were $4.5 million compared to $14.8 million in the same quarter last year.

Our full year expectation for the range of performance based fees is now $25 million to $30 million. Operating income margin for healthcare was 28.4% for Q2 2017 compared to 39% for the same quarter in 2016.

The year-over-year decrease in operating margin was primarily attributable to an increase in salaries, bonus and related expense as a percentage of revenues. The second quarter of 2016 also included a bonus adjustment, which improve segment operating margin during that quarter.

We continue to execute on smaller projects during the second quarter of 2017, which offer less contingent fee upside of resource efficiencies and large engagements driving reduced margins for this business. The Education segment generated 24% of total company revenues during the second quarter of 2017.

The segment posted record quarterly revenues of $43.9 million in the second quarter an organic increase of 17.7% compared to revenues for Q2 2016 of $37.3 million. The operating income margin for the Education segment was 28.4% for Q2 2017, compared to 30.8% for the same quarter in 2016.

The decrease in operating income margin in the quarter was primarily attributable to an increase in salaries, bonus and related expenses as a percentage of revenues as we continue to invest in our cloud offerings. As Jim noted our cloud solutions performed well during the second quarter.

The Business Advisory segment, which now includes the ES&A, legacy business advisory, strategy and innovation and life sciences practices generated 30% of total company revenues in the second quarter. The segment posted revenues of $54.3 million for the second quarter of 2017, an increase of 32.8% compared to $40.8 million in Q2 2016.

Revenues for the second quarter of 2017 included $13.3 million of revenues from our acquisitions of Pope Woodhead and Innosight. Second quarter 2017 revenues also included incremental revenues due to the full quarter impact of our acquisition of the U.S.

business of ADI Strategies completed in May of 2016 and revenues from our recent acquisition of the International business of ADI Strategies both of which have since been fully integrated into our Business Advisory segment. The operating income margin for Business Advisory was 22.5% in Q2 2017 compared to 26.6% for the same quarter in 2016.

The decrease in operating income margin in the quarter primarily attributable to the favorable impact of a large success fee from our broker dealer during the second quarter of 2016. Other corporate expenses now allocated at segment level were $30.7 million in Q2 2017 compared with $28 million in Q2 2016.

The quarter included approximately $1.4 million of restructuring charges. In addition, approximately $3.1 million of Pope Woodhead and Innosight's cost are included in the unallocated G&A as these activities are consistent with other corporate activities within Huron.

As our business mix continues to shift, we are actively managing our cost structure across the enterprise. Now turning to the balance sheet and cash flows, DSO came in at 59 days for the second quarter of 2017 compared to 61 for the first quarter of 2017.

Total debt includes the $250 million face value of convertible notes, $167 million of senior bank debt and a $5 million promissory for a total debt of $422 million.

We finished the quarter with cash of $30 million for net debt of $409 million, a decrease of approximately $24 million compared to net debt of $433 million as of the end of the first quarter. We ended Q2 2017 with the leverage ratio as defined in our senior secured credit agreement of approximately 3.2 times adjusted EBITDA.

We expect our leverage ratio to increase by 10 and 20 basis points in the third quarter before decreasing below 3.0 times by the end of the year. Cash provided by operating activities for the first six months of 2017 was $23 million. We expect cash flows from operating activities for the year of $95 million to $105 million.

We still expect capital expenditures for the year to be approximately $25 million. Net of capital expenditures, we expect free cash flow for the year of approximately $70 million to $80 million net of cash taxes and interest and excluding non-cash stock compensation.

As Jim mentioned, we are updating our annual revenue guidance to $730 million to $750 million. We're also reducing our annual earnings guidance for GAAP EPS to a loss of $6.25 to $6.15 per share and non-GAAP adjusted EBITDA to income of $2.20 to $2.30 per share.

We expect our effective tax rate exclusive of the impact of the goodwill impairment charge to be in the range of 44% to 45%, reflective of the impact of the new share based compensation accounting rules. I'd like to highlight the following key assumptions related to our updated guidance.

Regarding the Healthcare segment, our expectation is that revenue will be flat sequentially in the third and fourth quarters compared to the second quarter results. We now expect full year Healthcare segment operating margin to be around 33%.

Regarding the Education segment, we expect the full year revenue growth percentage to be in the low double-digit range compared to 2016. This revenue growth is entirely organic. We now expect full year Education segment operating margin to be between 24% and 25%.

With regards to the Business Advisory segment, excluding strategy and innovation and life sciences, we expect the full year organic revenue growth percentage to be in the low double-digit range compared to 2016.

For this portion of the business, excluding the impact of the significant success fee recognized during the second quarter of 2016, organic revenue growth was in the upper single-digit range during the first half of the year. Our strategy and innovation practice remains on track with our initial expectations.

After factoring in both the acquisition of Pope Woodhead and the divestiture of our C&O practice, we expect our life sciences practice to grow in the upper single-digit range in 2017. We now expect overall Business Advisory segment margins to be in the 23% to 24% range.

Finally with regard to unallocated corporate SG&A, you should expect the quarterly run rate between $28 million and $30 million for the remainder of 2017. Please note that this run rate includes an estimated incremental $3 million per quarter related to the ongoing operations of Innosight and Pope Woodhead acquisitions.

As a closing reminder, with respect to adjusted EBITDA, adjusted net income and adjusted EPS there are several items that you will need to consider when reconciling these non-GAAP measures to comparable GAAP measures. The reconciliation schedules that we included in our press release will help walk you through these reconciliations.

With that I would now like to open the call up to questions.

Operator?.

Thank you. [Operator Instructions] And our first question comes from Tim McHugh with William Blair & Company. Sir, please go ahead..

Thank you. First just to ask about Studer, I guess can you elaborate on what you're hearing is one question on that.

Secondly, maybe can you kind of quantify how meaningful I guess the slowdown is there?.

Hey Tim, it's Mark. Yes so with Studer I think it was pretty descriptive in the comments. You had some larger national systems that have been under margin pressure and have had directives to reduce spending across the system. And that's been something that's been a change. I think it's reflective of the increased margin pressure within the group.

And I'll let John to quantify what it means for the year..

Tim we're now expecting Studer to be down in the upper single-digit percent range full year 2017 as compared to 2016. We don't have guidance yet on 2018, until we go through our budgeting process at the end of Q4. However, the full year impact of the 2017 cancellations will be a headwind to that 2018 growth.

To get the complete picture, you need to factor in assumptions about new business development, renewals of existing contracts and we'll be in a position to do that later in the year..

I guess what was the performance in the first half if you expect it down high single-digits for the full year?.

I think it was relatively flat year-on-year. Let me check with John just....

I am looking it was relatively flat for the first six months Tim..

Okay. And I guess just Mark, to follow up to that. Not to I guess question it but a little bit there have been pressure I guess so and I guess it seems though little unusual for someone to cancel it sounds like early before their contract period was up. So I guess is it just as you say the pressure got that much worse.

And I guess it sounds like this is a couple of hospitals I guess.

So is that right to think of it that way, if that is one entity that did this?.

Right, Tim. It was more than one entity and I think you're right, it's been unusual in the cadence for Studer to see cancellation out of sequence.

And candidly some of the cancellations as we said have actually they've had very high net promoter scores we've done a lot of work with our clients just to really make sure that we accurately understand the rationale for that. In some areas, they have retained certain of the services that are provided with Studer.

And I think there was a comment that Jim had made about the direction that we're unbundling some of the services. So historically, Studer has gone to market with a very one single contract that brought all the services together and was for a three year period of time.

And I think that's in some respects the market wants more flexibility no different than we've seen in some of our PI offerings in terms of how they're buying those services. So we still think we have very high levels of service delivery, high satisfaction. And we think it really is truly a financial issue with respect to decisions that came through..

Okay.

Was this requested in the second quarter results or more something that is an incremental as we look forward?.

It's really reflected Tim in the second half outlook, because with the cancellation there is normally a notice period. And so that really bridges you into largely out of Q2 for the most part into Q3 and Q4..

Okay, thank you..

And our next question is from Kevin Steinke with Barrington Research. Your line is now open..

Good afternoon. So was the Studer impact to guidance only cancellations.

I believe you also said just kind of delayed sales cycles as well is that part of the guidance reduction too?.

Yeah Tim it's - I'm sorry Kevin it's actually a little bit of both. So the cancellations was probably the precipitating factor and the slower new business sales I think has been a factor that's been out there a little bit that we have been watching for a while, but predominantly it's the impact of the cancelations..

Okay.

And taking the revenue guidance at the midpoint has gone down by $30 million you talked about Studer in both slower than expected performance improvement, can you divide that up in terms of the guidance reduction into those two buckets at all?.

I would say Kevin it's probably the factors that Jim cited related to the total decline in the midpoint revenue guidance were really the healthcare factors and then also the fact that we have C&O dropping off, the C&O practice within our Life Sciences segment dropping in the back half for the year.

So I'd say I think the Healthcare piece is about two-thirds of that $30 million and the Life Science piece being the other component. So as far as that Healthcare piece goes I'd probably describe is about three quarter Studer Group and then about a quarter related to changing expectations for the performance improvement practice..

Okay, that's helpful. And just you talked about you think performance improvement is stabilizing although it's been softer than expected and that's part of the guidance reduction.

So can you just talk a little bit more about why you believe that stabilizing and what gives you confidence that it's doing that?.

Yes Kevin this is Jim. I guess there is a couple of factors.

First of all we have been like everybody else we have been looking an hearing in the market about pressures, I think we have seen a buildup in urgency among some of our clients to make cost reductions in particular, but also using the revenue cycle just trying to get better performance I think the margins are really going squeezed right now.

As we have talked about for a long time there was a lot of uncertainty I think the fact is that right now people are recognizing there is probably going to be uncertainty for a long time and are now focused on addressing what I think for many places has been reduced margins.

And so I think that's what we have seen it in work that we have won and we have seen it in work that appears to be up for bid or up for our piece.

And so with our sense is both across the board in some of the larger hospitals and economic medical centers, but also for some of the more small to mid-size hospitals the margin pressure is getting increasingly difficult.

I mean, I think it's really simple to explain that the labor costs are simply increasing significantly more than the reimbursements..

And the thing I'd add to that is that we have made changes in how we are going to market that I think are resonating and we are seeing as Jim mentioned an expansion in the client base.

And we had initially started changing things our across in clinical solution probably over a year ago and we had a good success in terms of how that resonated the market. And we have pursued really the same thing on our revenue cycle offering and that is also resonating.

So what it's doing is helping us just essentially increased the addressable market that really will be interested in the services and how they want to consume them. And I think collectively increase margin pressure is with our repositioning is coming together that gives us more confidence in the outlook being stable..

Okay. And Education, the restated Education segment, 18% growth there you're talking about.

So was that you talked about in the first quarter some projects with some unusually high intensity did that continue in the second quarter? And then does that kind of fall off in the second half and get you more down to the low double-digit range for the full year?.

Yes I think our guidance kind of anticipates lower double-digit range there I think not that dissimilar to healthcare there are a lot of changes going on in higher education and we are very well prepared to meet those.

But I think it is pretty - we have been talking about this now for probably the better part of two years and our progress and our growth in higher ed is really across all of our practices within that.

But I think in the most recent quarter actually probably most recent first half of the year we have had considerable strength in our technology cloud based solutions and our strategy and operations solution. So, we feel that we should be able to hit the lower double-digit growth range for the remainder of the year..

Okay. Does that imply though that maybe the growth just slows a little bit in the second half just from that 18% level. Just trying to parse I guess low double-digit what the definition of that is and if we draft them more like high single-digits or lower teens in the second half..

Kevin, we're looking high single-digits right now for the second half..

Okay, alright, perfect. And that's all I have for now. I'll turn it over..

Our next question comes from Tobey Sommer with SunTrust..

Thanks. I wonder if you could size the different pieces and businesses within the Healthcare segment, just like to understand how the different trends kind of blend together to move the overall segment. Thanks..

Hey Tobey, this is John. When we look at the Healthcare segment it's really about at 50-50 split between the performance improvements side of the business and the advancing solution side. So within performance improvements it's probably about a 60-40 split between life cycle and cost and clinical on that half of the business.

And then within advancing solutions the majority of Studer Group with the rest being our technology, strategy and medical group practices..

Okay, thanks. So, when you talked about performance improvement signs getting better little more urgency. Just trying to understand is that a reflection of sentiment and conversations or contracts and billing..

It's expectation in pipeline, Tobey?.

Okay, got it. And then I think you described in your prepared remarks collaborative engagements that you're seem pretty excited about with respect to Innosight and I was hoping you could some more color around that and what you see as an opportunity in that area? Thanks..

Well, Tobey it's Jim, the collaborative efforts we talked about really come in a couple ways. I mean, number one, Innosight in and of itself was obviously very strong across a lot of commercial sectors and actually had done some more in healthcare sector both on the provider side and the payer side.

And what we've been able to get in the short period of time that they have been under our umbrella is we have bid with them together using our industry competencies in one case life sciences and in another case healthcare where we had pretty significant competition.

And we were able to win because of our collective knowledge of the industry and their approach to strategy and looking at the future and they approach in our industry competencies really resonated well with the clients I think that's what we against a very formidable set of competitors.

So, we take a lot of pride in the way that's worked out over a really short period of time to which we've been together and I think we're only now just beginning to see some of the opportunities that are ahead of us as we continue to go to market together.

So, these early successes has really helped our confidence that we're on to something that other really aren't able to combine and I think that's why we're going to be obviously very aggressive at taking that combined approach into the arena across Health, Education, Life Sciences segments, in addition to with our normal commercial segments that they have gone to..

Okay.

In recent quarters you've been active reshaping the offering impart via acquisition, are you not to say do more acquisition, but is that flurry of activity in reshaping or do we have more of that behind of us than we have in front of us over the near-term or are you going need to continue fuel your positioning with acquisitions near-term?.

We actually feel Tobey very good of our client positioning and we don't expect to be heading into M&A in the near future..

Okay.

And so from a - could you maybe describe for me what that implies from a capital allocation and balance sheet perspective then?.

Tobey, I'd say the focus right now is going to be our debt pay down. As I talked about in my remarks from a bank definition perspective, we're at 3.2 times leverage at the end of the quarter. Our preference is to be more and I'd say the mid-2s. So the priority right now will be paying down debt..

Okay. And then could you just repeat if you could the expectations for growth in the Education segment. I missed that detail..

Hey Tobey so for full year '16 versus '17, we expect Education to grow I the low double-digit range. And so through the first half of the year they're up 18%. And the implication for the back half of the year is that will be in the upper single-digits..

Okay, thank you very much..

And our next question comes from [indiscernible] with Benchmark. Your line is now open..

Thank you. Just a couple left at this point. Within performance improvement where you characterize a steadier run rate in the second half.

Is that like a mix of cost in clinical seeing forward momentum and lesser declines in the revenue cycle?.

Hey Bill it's Mark. It's actually remarkably balanced, I think we have seen with the changes in how we're going to market in terms of delivery really a stabilization and I would just say is very, very balanced across all the service offerings that we have right now.

So that's also been a very nice development in terms of just the outlook in terms of how the evolution is happening. It's a more diverse client base than we've seen it's a balanced offering. Our sales model the way that we've gone to market has involved a lot broader number versus the more concentrated engagements.

So it gives us a just a good feeling about the trajectory of the business..

And then as far as any remaining large scale revenue cycle deals that are ongoing.

Does they have any sense of their longevity at this point in the kind of the just the magnitude that they represent at this point?.

Yes Bill, we wouldn't comment on any individual one, but I would just say that when you look at the impact of larger engagements on the mix of the overall business, I would say having followed off this tough comparison from the Q1. I think we'll start to see a much more balanced mix. There are some decent size engagements.

I don't want to say they're all small, I mean, I think that's always been historic mix and perhaps with the recovery and margin pressures in the business, it's what I would characterize as very healthy. It gives us the ability to deploy people and gain efficiencies and have impact.

At the same time it's not so overwhelming that we feeling like we're creating up a future hole for ourselves in terms of comparisons..

And then last one on the performance fees.

Are they kind of going to be ratable Q3 and Q4?.

I think so Bill..

Okay..

Yes..

Okay, thanks everybody..

Mr. Roth, we have concluded the allocated time for this call. I'd like to turn the conference back over to you..

Thank you for spending time with us this afternoon. We look forward to speaking with you again when we announce our third quarter results. Good evening..

That concludes today's conference call. Thank you everyone for your participation..