Huron Consulting Group Inc.

The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Huron’s web site for all disclosures required by the SEC including reconciliation 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 Second Quarter 2012 Earnings Call. With me today are Mark Hussey, our Chief Financial Officer and Patty Olsen, our Corporate Vice President of Human Resources.

Jim Rojas, our Chief Operating Officer will not be joining us today due to a prior commitment.

I will spend a few minutes talking about our Q2 performance and our outlook for the rest of the year and will then turn it over to Mark for a more detailed discussion of the financials.

As anticipated, our second quarter performance was impacted by several large engagements in our healthcare practice for which performance based fees will not be recognized until later in the year. All of our segments, with the exception of Financial Consulting are performing at a pace consistent with our expectations.

I recognize the challenges for our investors stemming from the ebb and flow of healthcare revenue, so I am going to go straight into a discussion of our segment performance in order to provide more color on our results.

Revenue in the Health and Education consulting segment was $9.6 million lower in the second quarter of this year as compared to the second quarter of last 2011. The primary factor driving the lower revenue was the fact that we had $34 million in performance based fees in the second quarter last year compared to only $14 million in the second quarter this year, a decline of $20 million.

Let me pause here briefly to talk about performance based revenue in the health care practice. Every month, we perform a detailed review of every project that’s expected to generate performance based fees.

During that review, we evaluate the extent to which our efforts remain on target to generate performance based fees along with the timing and magnitude of those fees.

Our most recent internal forecasting review continues to indicate that we are on track to generate performance based fees for the year consistent with our internal estimates. There are other factors that we look at within the segment that provide us with additional comfort that we are on pace to achieve our planned results.

Those factors include the size of our revenue backlog and the extent to which that backlog continues to build, the utilization rate of our personnel, and the level of new assessments that we are performing for prospective clients. All of these factors, backlog, utilization and new assessments are projecting positive trends for the practice consistent with our guidance.

The leaders of our healthcare business meet quarterly with many of our clients and I participate in some of those meetings with our largest healthcare clients. Our recent meetings indicate that our efforts are on track to achieve expected results and that the clients are comfortable with results to date.

From a market perspective, demand for our services continues to be strong. Some of the hospitals we serve are facing severe financial challenges while those that are generating healthy margins are facing increasing difficult regulatory and competitive challenges that are creating the need to reduce costs and improve revenue.

Combined with the rapidly evolving transition in provider business models from fee for service to value based billing, we expect the trends for our healthcare practice to continue to remain positive for Huron.

Our higher education and life sciences practice had a solid second quarter, highlighted by its largest revenue quarter ever. Universities are undergoing a rapidly evolving business environment.

The drivers of the change include decline in public funding, the onset of new and very expensive online courses, flat to declining federal research funding and pressure to limit tuition increases.

Collectively these pressures are forcing all universities to evaluate their strategy and operations, actions that are at the core of our service offerings in the higher education practice. There is nothing that gives us any reason to believe that these pressures will abate in the near or intermediate term and we are confident that this practice will finish the year strongly.

Our Legal Consulting segment finished another strong quarter. Within e-discovery services, growth was driven by some of our financial services clients that continue to generate strong demand and we continue to expand the number of global clients within our portfolio.

The recent acquisition of AdamsGrayson will enhance our ability to serve the D.C. marketplace where many large regulatory disputes and investigations are centered and we expect the acquisition to be accretive to revenue and earnings.

Our advisory practice within the Legal Consulting segment had another strong performance during the second quarter. The advisory practice has improved its revenue for the fifth quarter in a row and we are pleased with the way it is positioned for continued growth.

Finally, our Financial Consulting segment had a challenging quarter. While the restructuring and turnaround business at many of our competitors has been similarly challenged, we will continue to monitor this practice closely and are taking the necessary steps to get it back on pace to acceptable growth and profitability level.

We've lowered our annual revenue guidance to $620 million to $640 million before taking into account the AdamsGrayson acquisition, although still within the range of our initial annual guidance, we feel more comfortable at the lower end of the range given anticipated shortfalls in Financial Consulting and the potential for some healthcare revenue to be deferred into the first quarter of next year.

We do not provide performance based fee guidance, but we expect our performance based revenues in the second half of the year to be significantly higher than the first half. Similar to what we experienced in 2011 following the first quarter, we expect a sizeable pickup in the performance based revenues during the balance of the year as we realize the benefits of the current productive hours being spent on engagements.

Finally, we remain on pace to achieve our recruiting goals for 2012. Our attrition rates, which typically have been lower than industry norms, have actually been lower than we had expected, further reinforcing our confidence that our employees are very engaged to support the achievement of revenue and earnings goals for the year.

Now let me turn it over to Mark to discuss our second quarter results.

Thank you, Jim. Good afternoon, everyone.

Let me begin by discussing a few housekeeping items. Consistent with our past practice, I will be discussing our financial results primarily in the context of continuing operations.

I will also be discussing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income and adjusted EPS. Our press release, web site and 10-Q, each have reconciliations of these non-GAAP measures to the most comparable GAAP measures as well as a discussion of why management uses these non-GAAP measures.

I will now walk you through some key financial results for the quarter. Revenues for the second quarter of 2012 were $144.7 million, compared to $153.1 million in the same quarter of last year.

Sequentially, second quarter revenues increased about 4% from $138.6 million in the first quarter. Last year’s second quarter included a record $33.9 million in performance based fees and in this year’s quarter, performance based fees were $13.8 million.

Second quarter 2012 EBITDA was $19.9 million or 13.8% of revenues compared to $28.0 million or 18.3% of revenues in the comparable quarter last year. The decline in margin reflects the lower level of performance based fees coupled with 13.3% increase in our average full times billable head count.

These resources were relatively productive as measured by our utilization levels.

For Q2 2012, utilization was 74.5% compared with 71.9% a year ago. However, due to the lower level of performance based fees in Q2 2012, our average billing rate declined to $210 per hour from $270 per hour in the same quarter last year.

I will provide some additional color when I discuss the operating segments in a few moments.

Adjusted EBITDA came in at $21.5 million in Q2 2012 or 14.9% of revenues compared to $30.8 million in Q2 2011 for 20.1% of revenues. Adjusted EBITDA excludes a number of items which are listed in our press release.

Sequentially adjusted EBITDA increased 83% over Q1 while adjusted EBITDA margin increased 640 basis points.

Operating income was $14.7 million or 10.2% of revenues in Q2 2012 compared to $22.3 million or 14.6% of revenues in Q2 of 2011.

Net income from continuing operations was $6.3 million or $0.28 diluted earnings per share in the second quarter of 2012 compared to $9.2 million or $0.43 per diluted share in the same period of 2011. Adjusted non-GAAP net income from continuing operations was $8.2 million or $0.37 per diluted share in the second quarter of 2012 compared to $12.1 million or $0.56 per diluted share in the same period of 2011.

Our effective income tax rate decreased to 49.7% in the second quarter of 2012 from 51% in the second quarter of 2011. The effective rates for both periods were higher than the statutory rate inclusive of state income taxes due mainly to the impact of foreign losses with no tax benefit and certain non-deductible expenses.

Now let’s look at how each of our business segments performed in the quarter. The Health and Education Consulting segment generated 65% of total company revenues during the second quarter of 2012.

This segment posted quarterly revenues of $94.5 million for the second quarter of this year, compared to $104.1 million for the second quarter of 2011, a decline of $9.6 million including a decrease of performance based revenues of $20 million.

The operating income margin for Health and Education Consulting was 30.2% for Q2 2012 compared to 35.4% for the comparable quarter in 2011. The decrease in margin reflects the lower level of performance based fees and higher compensation expense associated with an increase in average full time billable consultants of 16.7%.

The timing of performance based fees impacted most of the financial measures in the segment and we expect a significant pick up in these revenues in the second half of 2012.

As Jim said, the healthcare practice in particular, is experiencing solid marketplace demand. Utilization for this segment increased from 73.6% in the second quarter of 2011 to 76.6% in the second quarter of 2012.

Our Legal Consulting segment generated 32% of total company revenues during the second quarter of 2012. This segment posted revenues of $45.9 million in the second quarter of 2012, up 14.8% from $40 million in the comparable quarter in 2011.

The momentum that we have experienced during the first quarter in our advisory business continued into the second quarter. Our document review and electronic discovery business also experienced solid growth.

Our full time billable consultant utilization rate in this segment increased to 68.7% during Q2 2012 from 54.9% a year ago, reflecting increased demand in the advisory business. The operating income margin for our Legal Consulting segment came in at 27.2% compared to 24.1% in last year’s second quarter reflecting lower contractor expense, partially offset by higher compensation and technology expense as a percentage of revenues.

During the second quarter of 2012, our Financial Consulting segment generated 3% of total company revenues. This segment posted revenues of $4.3 million in Q2 2012 compared to $9 million in the same quarter of last year.

The operating income margin for Financial Consulting declined to a negative 7.9% in Q2 2012 from a positive 30.8% in the same quarter of 2011, primarily due to higher salaries and related expenses as a percentage of revenues.

As Jim discussed, the Financial Consulting segment has several initiatives underway to improve the segment’s financial performance and broaden its service offerings. We believe the professional and service offerings remain relevant in the marketplace and we expect performance to improve in the second half of this year and into 2013.

Now turning to the balance sheet and cash flows. We were pleased with several measures including DSO for the second quarter which came in at 62 days or about 9 days better than Q1.

Cash flows from operations for the first half of 2012 were $28.5 million and particularly strong in the second quarter at $41 million. For the full year, we expect cash flows from operations to be about $80 million to $90 million.

As Jim mentioned, we have narrowed the ranges of our previous full year guidance based on our current best estimates. For full year 2012, we anticipate revenues before reimbursable expenses in the range of $630 million to $650 million.

This amount includes the AdamsGrayson acquisition that closed on July 2. We anticipate EBITDA in the range of $107 million to $112.5 million and adjusted EBITDA in the range of $116 million to $121.5 million.

We expect GAAP diluted earnings per share in the range of $1.90 to $2.05 and non-GAAP adjusted diluted earnings per share in the range of $2.30 to $2.45. Weighted average diluted shares for 2012 are estimated to be approximately $22.4 million and our guidance on the effective tax rate remains at 45% for the full year.

Let me conclude with a couple of final notes. Last week we reached a settlement with the SEC resolving its investigation into the company’s 2009 financial restatement.

The settlement imposed a fine of $1 million. We have previously accrued for this amount in 2011 and consequently it will not have any impact on our 2012 earnings.

Separately, during the second quarter of 2012, we have conducted a preliminary settlement discussion with respect to the pending Keytom [ph] case. Although no settlement was reached as a result of the discussions, we approved $1.2 million of litigation settlement expense.

Our second quarter 10-Q will have further details. This charge is unrelated to the SEC settlement that I just mentioned.

Thanks, everyone, and now I will turn it back to the operator open it up for questions. Operator.

I guess first I want to ask just, either Mark or Jim, can you give us, given the new guidance, what type of growth rates for the different segments are you assuming now in that updated guidance?

I will take that one, Tim. So if you look at the overall guidance, the color that we had given you when we originally gave the guidance was for Health and Education Consulting up between 5% and 10%.

And if you back into what the new guidance implies within that segment, obviously we just told you that education had a record quarter and is doing particularly well. So a portion of that decline is going to be related to the healthcare business.

The Legal Consulting segment, of course, we just added the $10 million, of AdamsGrayson which we called it out for you. And originally we had expected this to be flat to up 5%, roughly.

At this point, we continue to be confident in that guidance and maybe a little bit of more optimistic just based on what we have seen year-to-date. Financial Consulting is clearly struggling and where they are right now, although we are very optimistic in the second half that the run rate will improve, it will be attributable for a portion of that decline.

Okay, so just on the healthcare, or the Health and Education segment overall, would you be expecting a lower growth right now or is it relatively unchanged?

It will be a little bit lower than we had in original guidance because we have gone to the lower half of the range.

Oaky, I just didn’t know how much of that was financials. Okay, given that, what are you seeing out there and as you look at the complexity of the case, Jim, you gave us some color about the process you go through.

And looking at the contingent fees -- but are you seeing anything in the complexity of the cases or the length of time to earn the fees that makes you think they could slip, are more likely to possibly slip into 2012. Or 2013 or is that just trying to be conservative given what’s happened so far in the year.

Tim, this is Jim. Some of the projects that we are working on right now, certainly, are complex and particularly in some of the academic medical centers, the complexity of getting to where you need to go is complex and we kind of anticipated that.

We do know -- the point we were trying to make in the comments was that when we look back at what it is we need to achieve, we are very comfortable that we are going to be hitting our metrics. For us the question is going to be, when?

We understand that’s an important question to ask. But one of the reasons we put the guidance towards the lower end was to reflect the fact that it is possible that some of the revenues that we originally thought would fall in 2012 may in fact fall into first quarter 2013.

Our current guidance reflects those possibilities.

Okay, and have you seen any signs that as you move from Q2 to Q3 that the fees are starting to come in and any commentary, Mark, you might give between Q3 and Q4? Are they particularly Q4 weighted?

It is going to be hard for us -- it's Jim again, for us to gauge whether it is going to be Q3 or Q4. When we go out and we have the monthly or sometimes quarterly discussions with the clients, it really is about making sure.

When we go out to a particular client, it’s not as though there is just one contingent or task that’s going to be the focus of contingent revenues. It is actually multiple tasks that comes through.

You may have one for labor, you may have one for non-labor, you may have one for revenue cycle. So there is independent pathways towards the contingent revenues of the performance fees on any given project.

And each one of them has its own set of complexities and timings and opportunities. So when we have these reviews with the clients, we are going back on a task by task basis and trying to figure out where do we stand.

Is the client satisfied with the pace at which things are going? Are we on pace to get the results that we are looking for?

That collectively gives us some comfort as to where we are going. So even though some of the projects are a little bit more complex and some of them may in fact be taking a little bit more time than we thought, our sense of our ability to get to where we need to go when we committed the client hasn’t changed.

That’s the part that I said, I really want to reinforce because it is an important part of us providing the guidance that we have right now and the comfort around it.

Tim, in terms of the timing, again, while we are not specific in terms of which quarter because we don’t give quarterly guidance, we certainly expect Q3 will be much better than Q2. And we think that Q4 will be better than Q3.

So I would not characterize this as completely weighted in a very last quarter of the year waiting for everything to happen. There is expectation that Q3 will be better than Q2.

Just to be fair on this, every one of those work streams that we speak -- that we see for every one of our clients there is opportunities for things to be missed. We don’t do it often, but it occurs.

There are also opportunities for us to receive more performance fees than we had anticipated. It happens as well.

So we have got all these complexities of timing and amount that you have factor into this. That’s why we go through such a detailed assessment on a month-by-month basis.

Just looking at the bill rate in health and ed outside of contingencies, those numbers are still down a little bit year-over-year. Can you just talk about any mix issues in terms of more contingent engagements of mix towards education?

Anything that’s impacting that or is it just a competitive market?

Dan, this is Mark. There are a lot of things that affect the bill rate.

One of the things is assessments which we normally do at close to a break even level. And so while it’s not a material impact in terms of the bill rate, but certainly we have indicated a stronger level of assessments, year-on-year.

But also, and probably the more important factor, is just the mix of the engagements and what percentage of that comes in the form of fixed fee at the beginning versus contingent at the end. So as you look at that, there we have had some larger engagements that we talked about earlier in the year that were a little bit more toward the higher end of that range.

And so that has more impact even if you strip out the contingent fees.

Okay, great, and any changes to activity in the pipeline following the Supreme Court decision? Have you seen any flow through, positive or negative, to the business?

Dan, this is Jim. I think it’s too early to really sense that.

We said upfront that we didn’t think we would be impacted that much because the marketplace issues are having such a big impact on our clients right now, on their performance and the challenges that they are up against. I think even if there was a change, I think it is frankly too early for us to tell.

The nature of the work that we are seeing right now -- and then frankly I think this is true in healthcare, but it is also true in higher education. The stresses on those industries are really significant right now.

I think what happens is the nature of the projects that were being asked to look at or consider or actually do are probably more invasive than they have been before. There is certainly going to be more challenging and more complex.

So to some extent, it takes a little bit more time for the projects to ramp up. But when they ramp up, I think, for the large part, we are seeing projects that are going to continue to be large and complex and probably last for a period of time.

So maybe that’s a long way of saying, I am not sure that we have seen anything yet that we can directly attribute to the Supreme Court ruling but at the same token, the marketplace is very vibrant throughout the entire segment right now.

Great, and then on the legal segment, the average revenue per FTE ticked up nicely back to levels you were at in 2010. Can you talk about the drivers behind that?

Is that simply a good set of big cases where you got a lot of leverage? I just want to understand the dynamic.

I think you described it well. I think we have some larger cases that we mentioned in Jim’s remarks relative to some of our Financial Services clients, and that -- as those revenues have grown in the quarter is reflected in the average that you are seeing.

Okay, and then last one from me. Just on AdamsGrayson, you mentioned the impact to revenue.

What about adjusted EBITDA and EPS?

We didn’t break that out separately, but at this point we are going to integrate that into the practice. And so we don’t intend to mange and track this business separately because it is inherently an e-discovery part of the business.

What I can tell you is that we have actually had a couple of early wins already on a couple of larger clients and we are very excited about it. We think that in terms of the service offering, they were primarily review.

They didn’t do a lot on the processing side. So that’s clearly an incremental opportunity for us in terms of additional services within their existing base.

Then finally, as we talked a little about it before, the model that they use includes the ability to have on-site customer review, customer managed review and as a result of that, it gives us a new opportunity to get into cases and situations that we might not otherwise have gotten into with the former model that we were using.

When you look at the operating margin within Health and Education, it was up pretty dramatically sequentially despite revenues only up a couple of million sequentially, and therefore so was the absolute dollars of operating income. Can you share with us why?

Yes, Jim, it’s Mark, and again, I think the key driver was each quarter as we adjust our bonus expectations, which is done toward the midpoint of guidance, and with a narrowed range would have reversed some of the bonus expense and contributed to margin.

Okay, did you reverse, and that’s because of the slippage into 2013, I should say, the potential slippage into 2013 of success fees?

Yes, as it relates to the overall new guidance range, that’s yes.

But the core, there is no change in the core businesses operating income metrics, right. This was just bonus related.

Yes. Principally, bonus related and again, we have said this in the past, our process is very well laid out and non-discretionary in nature because we don’t have the ability to vary our bonus expense to achieve a margin within the quarter.

We are looking to with a full year number expected to be. And so really in a context to that, really, as you look at our guidance as well, based on first half numbers, our bonus expense now again will be at a run rate on a fixed basis here in Q3 and Q4 given that if we are on pace to achieve those numbers.

And as a result we should see an improvement in margin as a result of the fixed bonus expense on higher revenue to the extent we hit the guidance numbers.

Okay. Jim, can you help us understand what the difference is year-over-year in the sequential realization of success fees.

So last year they started off at about the same level as they were at this year and then jumped up significantly in the June quarter and then backed off in the September and December quarter of 2011 but only by a little bit. What changed the pace of recognition so significantly year-over-year, in your mind?

Jim, this is Jim. I wish that there was some pattern that we can point to in the activities that are going to be generating revenue for us.

This is the challenge for us in the sense that our first half is to go out and try to generate the projects that are going to be doing the work and so once we do that, we then do our best to try to begin to project. But we certainly have a higher complement of projects today that are performance based than we have had in the recent past.

It so happens to be that, that tends to dominated by probably 3, maybe 4, pretty good size jobs, all of which, for reasons that are not systemic or just happen to be the way they are. They have performance fees that are going to be paying out more towards the end of these cycles.

It’s not always the case that way. Each client has a different design and different metric in terms of how and when performance fees are measured or performances are measured and therefore performance fees are paid out.

So we end up really doing our best to try to gauge the progress through which we are going to be generating the work and hitting the performance targets. We try to judge the complexity of the opportunities.

As we have said before, there is going to times, there could be times where, if we spend additional effort on the project and therefore more time, we actually may end up getting more revenue. So we make those decisions as well.

So every task on every job has this whole unique set of patterns. We are in a pattern right now where the biggest projects tend to be pushing revenues out towards the second half of the year.

I think, it could be, next year has a very different pattern. We just don’t know, but I think that’s as best we can tell.

This is just the cards that we have got right and as far as I said, as challenging as it is, but I realize for everyone to try to make sense as to where it is going and what’s going to happen. We take a lot of comfort in the fact that the work that we are doing today, is in fact going very going well and that we seem to be on target to hit the performance metrics that we set.

Let me just add to what Jim said, which is really that’s driven by the mix of engagements. All of that said, at any point in time, our healthcare practice is incented to hit an annual plan number in terms of really, EBITDA, and so to the extent that they have to deal with the marketplace mix, they are trying to navigate through all of those challenges to achieve the annual targets that they have out in front of them.

So even though the mix has changed over time, what they are trying to do is still achieve the overall plan for the year.

So when you talked about the guidance range of 5% to 10% growth and Health and Education, possibly being slanted towards the lower end, is that because purely of success fee timing or is there a fundamental change in the market?

I think there is no fundamental change in the market that we have seen. It’s as strong as it was through last year.

It is even stronger this year. So there is no change in the market from our perspective.

This is really a question of the timing about some of our biggest jobs.

We feel very good about where the market is at and we feel equally good about our ability to competitively serve the market today.

Sorry if I missed this, but you had said earlier, I think on a previous call, you thought performance fees would grow in line with revenue in the healthcare and higher ed division. Is that still true?

Then second, can you talk about margins in the HEC division? Head count is up 18% year-on-year, but revenues are sort of down in the first half of the year.

So just what is the outlook for margins?

Then finally, in e-discovery, you talked about mainly financial services projects. Can you talk about if you are working on any LIBOR projects?

Or what’s driving within financial services? What’s driving e-discovery?

Sure. Paul, with respect to the margins, I am going to take this from the standpoint of pricing in the healthcare environment.

As Jim mentioned, we haven’t really seen a change in the market. That’s been true really of our expectations from a profitability standpoint as we look at the opportunities.

In other words, we have not really changed our margin expectations over time and that incorporates the assumed staffing levels to achieve the number. So over time we believe that we have stable margins within that side of the practice and really, I would say, on the higher ed side, that particular practice is well.

It is fairly stable. It can have a different mix depending on what’s going on at any point of time but we believe that if you look historically, our expectation would be the margin performance is going to be generally in line.

I don’t know, Jim, if you have anything to add.

No, I think that’s exactly right. I would agree to that.

Maybe I will answer that piece about e-discovery, Paul. I think our preference is typically not to talk about clients.

Certainly we don’t about clients unless they have already been made public. And I think that sometimes it gets a little bit misleading if we talk about particular events because we could say that we are doing work for LIBOR and the LIBOR matter with one of the banks.

And what you don’t really get out of that is how big it is and I think our preference is just to say that. It is the last group I need to talk about all the complexities that are challenging financial services industry right now, and I think we have a pretty good array of clients across the various issues that are affecting them right now.

I would rather leave it at that. It is probably our largest industry that we are serving right now but we do a lot in energy, we do a lot in pharmaceutical as well, we are doing a lot in telecom and tech.

So all the current stuff, for the most part, we are doing some of it. But I think I would rather leave it at that.

Understood. Is it still your outlook that performance fees grow in line HEC revenue or have you toned that down a little bit?

No, so back to what Jim said originally about the mix of engagements going out at any point in time. So we have seen an increase in several clients that have taken this a little bit towards the higher end of the range.

If you look historically, we are really not outside the range of what we have seen.

If you look at how much revenue is going to come from performance based fees versus fixed fee, and so that has a variance in terms of what the future effect on revenue would be. So to the extent that we have new engagements that are going to be a little bit higher in that mix.

That may end up, depending on what period of time you are looking, push it into future period of time. Over time, if you look at it, it would be higher just because of the mix.

But in any given quarter, based on the recognition it can vary a little bit.

This is Frank, in for Tobey. Wanted to ask a little bit about the life sciences business, how is demand and pricing been the pharma and medical device side?

Life science has actually been doing very well. It continues to grow.

It has had a nice growth rate for us, and I think they are broadening the level of services they are providing. And we are pretty pleased with the growth rate within that group as well.

I think it is indicative really of the collective across the board, all the various practices within the higher education, life sciences business have been doing very well. As we indicated, we had a record quarter in the second quarter for that group.

So life science certainly was part of that.

Okay, if I can dig into legal a little bit more. Can you talk a little bit about the pricing environment there and any areas that have either strength or weakness by either practice or geography you have seen?

I don’t know that we are seeing. There has always discussion of pricing pressures.

It still is a very competitive market, make no question about it, but for us, right now, even though pricing is always going to be an issue, I think what’s really driving the collective business in the segment is that fact that the needs across the board are pretty acute. So even if there is some pricing pressure, I think some of the improved margins that we have seen are really the result of the fact that we are getting high volume in the various services that contribute to that volume.

We are learning to manage the business a little bit better. We have been making progress over the last several quarters and we hope to continue to do that.

Okay, great, and what was consultant turnover in the quarter?

Actually, on a year-to-date basis, it’s running about, let’s see, I am not going to talk to the quarter but on an annualized basis, its running probably about 15% to 16%.

Okay, great, and finally, you talked about potential pickup in financial segment in the second half of the year. Maybe if you could talk about some things that would drive that or what gives you some comfort that things could turn out there?

Well, it obviously has been a challenging, at least, last couple of quarters and we had hoped to see more improvement in the second quarter and we didn’t. It went the other direction.

There is a couple of things that give us some comfort. Probably the most important one would be, we have got some really good people on the practice and that they are in the market quite a bit.

I think we need to just have a few things fall our way, either through as transaction. We are broadening some of the services there, but again I think we have got some really competent people that are in the market.

We are not losing tons of work. I think we just have to have more times at bat and that will hopefully come in the third quarter.

So that’s what we are pushing for right now. But we have broadened the services we provide and we are just extremely, extremely focused on trying to generate revenue by getting out and talking to people.

And then I think hopefully events will fall our way in the third quarter and beyond.

My first question is just, as we think and talk a lot about the success fees, has the visibility on the timing of these fees improved at all as we have gone through the year. Is there any color or metric you can give us around backlog or assessments that would give us a little more comfort numerically about the direction of the business?

I would say, the fundamental visibility is better only because we have a shorter runway ahead of us and so as you have more visibility shorter range, we get a little bit more comfortable in terms of where our number is. And that’s one of the reasons why we just narrowed our range, because we do have more comfort.

With respect to quantifying the numbers, we have looked at this actually, have contemplated whether or not we publish a number. But as we report our numbers, we have a Health and Education segment and so really the fundamental pipelines are very different for education versus how it works within healthcare.

What I can tell you is that we certainly have seen improvement in the pipeline and we feel that based on the level of hard backlog as well as the assessment activity within that, that we are at a level that gives us confidence behind our statement that we have very solid prospects looking ahead.

I would agree with that. I mean, as Mark indicated, we have thought about whether there is other thing as we can give more color and we would like to if we could, but it just gets to be a little bit more complicated because of the varying patterns within higher ed and then higher life sciences and health care.

The backlog has been growing, assessments are very strong right now. So all the things that we look at internally to figure out how things are going are just fine.

To a large extent, we already have much of the activity that we are doing today particularly on assessments are all really going to generate 2013 revenues. So if we are doing an assessment today, it’s likely going to be impacting 2013 and so our job is certainly to close out the year as strong as we can.

But our job is also to make sure that we hit the road running on January 1, 2013 because we know with that growth expectations there as well. And I think collectively when we look at all the different factors that we talked about, the kinds of work that we are getting, the kinds of opportunities that are being serviced to us, the growth of the backlog, the number of assessments, all those factors give us comfort that we are going in the right direction.

Okay. Well, maybe instead of, maybe, quantitative, I know you have given some qualitative numbers -- but how does the backlog and assessments look compared to historical levels?

Are they at all time highs? Are they trending upwards?

Maybe you can just provide color on that in that format.

The backlog -- so maybe I will let Mark talk about the backlog in a second. The assessments, as we have said in the past, is a little bit hard to judge because I could tell you that we have got the highest level of assessments, but they could be relatively small opportunities or I can say that they are lower than they did in the past but they could be higher.

So unfortunately the actual number of assessments doesn’t say much. We are doing a very healthy number of assessments right now that give us comfort that we are in the right spot and that they are likely to generate very decent future revenue.

Yes, in terms of the backlog, there is also complexities looking at it. So if we sell a multi year engagement with one large client and over time that’s going to inflate a prior period comparison to look at.

So you really have to break it down and you can’t just generalize without really having an understanding. But what I can tell you is that, from a quantitative and qualitative perspective, as Jim indicated, it has been growing and it is a robust profile right now relative to the remaining fees of contracts that we have actually signed and have the expectations in place with respect to both fixed fee and contingent.

And the other thing, Joe, that I think I would talk about a little bit is that we certainly are very pleased the continued growth of our performance improvement and the type of work in our revenue cycle work that was historically done. We have mentioned before, and I want to mention right now because it is really an important part of where we expect the future growth to be in our clinical solutions, it is really the kind of work that we are being asked to do and the kinds of opportunities that are being presented to us are exactly reflective of the kind of work that we think is going to be a very high demand in the future.

I mean there are areas that remains a tremendous amount of change as we have said before in the fundamental business models of these hospitals. And we are positioning ourselves in the clinical solutions area to be really well positioned to help our clients with that.

I wish you can see the kind of work that we are being asked to look at or do right now. It is very exciting and it is exactly the kind of work that I know is going to be the foundation for us for solid growth in the future over and above the kind of the core bread and butter things that we have historically done so well in this practice.

Okay, just on the topic of assessments and backlog being characterized as healthy. Maybe you can remind us what you think the long term growth rate of the health and education practice is?

Based on what you are seeing this year and the fact that it back-end loaded, would you expect a acceleration in that growth rate heading into 2013 or at the end of 2013 just based on what you guys are seeing in the pipeline?

Joe, this is Mark. I think, fundamentally we have always talked about the long term and by long term, I am saying the next 5 years.

We think health care -- if you look at the broader economics and the percentage of GDP that’s going continue to be actually a higher percentage. There is going to be continued spending and demand in this marketplace

As you can see from our hiring over time, we continue to hire at north of 10%. Over time, as clinical develops into a larger solution, we are going to have plenty of opportunities, we think to be at a minimum of 10% growth within the health and education segment.

Frankly, the whole, all of my statements about healthcare hold equally true on the education side of the house as well.

I would agree with that. What you will see as we begin to put together our plans for future years, but I would be disappointed if we drop below 10%.

I think there is just so much activity that’s taking place and we happen to be very well positioned to do that. And so I would consider 10% to be a very attainable growth rate and I would certainly do everything we can and try to get above that.

Okay, just one last one from me. Is there any way to quantify the impact on margins from the success fees?

In other words, does $1 million in success fees equals, maybe, 1 basis point impact on margin? Because I imagine most of it is going to start to trickle down the EPS, the current guidance implies that.

So is there any metric that you can give us on that front?

Joe, the success fees largely dropped to the bottom line because there is such a discrepancy in terms of the current efforts versus when the revenue recognition happens. So if you think about fees that we recognize in the current quarter, these efforts happen last year or perhaps in Q1 but, to a very large degree, the efforts would not have come in the current period.

So it’s generally been true that these fees just generally drop to the bottom line in the period that they are recognized. Not to say that you don’t have other things going on in the base where you have hours being spent that may not have these recognized.

But if you look specifically at the ones that are recognized against the efforts in the current period, largely drops the bottom line.

I am just filling in for Bill today. Couple of quick questions for you guys.

Do you have, especially, large engagements that you are expecting to end during the third quarter?

I am sorry. I think you cut out right when you asked the question.

Could you repeat that please?

Yes, I am sorry about that. Do you have, especially, large engagements you are expecting to end during the third quarter?

Not that I am aware of. Just for anything off the top of my head.

Not really. Just thinking off the top of my head, I don’t think anything in the Health and Education segment that I am aware of.

We have got some that will be rolling off but that’s not going to be so big. In the legal consulting business, you always have an option that something can end very quickly, but you also have the same possibility that one could start up very quickly.

There is nothing that we are doing today of a very sizeable magnitude that I think will have different patterns in the third quarter.

Okay, and then just a last question from me. I know you touched on this earlier, but should we be still looking for flat to 5% revenue growth in the financial consulting segment for the full year of 2012?

No, I don’t think that is. At this point, just based on where we are seeing the run rate right now, we are not expecting to be flat to up 5%.

It will likely have some decline although the run rate in the second half of the year, we are looking to improve substantially based on some of the initiatives and activities that we have going on.

Just have a quick one on adjusted EBITDA. Kind of a follow up to Joe’s question.

You have had in the past, some individual quarters where you have had some large outsized performance fees and its driven margins higher in the quarter, but kind of more in that 20% to 21% adjusted EBITDA margin range. I think your guidance for second half implies a lot higher margin range.

What’s different in the second half than maybe some of those individual quarters where you did high 20s or mid 30s performance fees?

It’s Mark. So it really is driven largely by the success fees in the second half and really the underlying business otherwise these have headcount, headcount growth.

So really on a second half basis compared with the first half, assuming that our guidance to you in the second half does some substantial increase will have disproportionate profitability and bring the adjusted EBITDA margin really out of line on long term basis. Plus, at the same time, you get the advantage of having the bonus being at a fix level against higher revenue.

Okay, so you have just had on just doing the last 3 quarter’s substantial levels, you just have the comps spread out more? It still just looks like it’s a really big jump on what’s just flowing through in the second.

It just comes down to help comp flows through.

Yes, I think that’s exactly what it is.

Okay, that’s helpful and then acquisitions to remain the top priorities for capital at this point or could you digest in the second half and then maybe just talk about capital allocation.

Jim, with respect to acquisitions, maybe you want to talk about.

I think in all of our practice as we have got, as we have always done we have always looked at a variety of things, and so I do think that I would expect there to be some potential acquisitions over the next year this time. We certainly are looking at things in each of our segments, probably more so in the 2 largest segments.

Really, from a return perspective, we think in the interest of shareholders, if we can go out in the marketplace and find investments that are going to generate those attractive returns on a risk adjustment basis. It’s our highest and best use of capital.

So that’s going to continue to be prioritized.

Just one more I can sneak in there. Can you talk about the head count growth plan for the Health and Education business and then probably, I guess, I know you didn’t want to give backlog number but can we take that as a rough proxy for the case of the backlog growth that you are seeing?

I am assuming you are hiring are commensurate with the pace of growth rate and the demand you are seeing.

Yes, I think, Tim, that’s probably pretty good surrogate. The one thing that we still, as we have mentioned before, in the higher ed part of the healthcare, we still have a little bit of that anomaly where we are hiring into people that historically have been contractors.

And we are hiring people in there now. So that puts the growth rate and FTE slightly higher than the growth rate, but I think that’s a reasonable surrogate.

That is really both across the health and the education side of the practice. We have seen really strong head count growth and hiring needs on both sides and that’s probably not surprising consistent with the comments that we made earlier about not only demand on the healthcare backlog but also with respect to just the demand within the education side of the business.

Is there any plan to slow that down? What’s the expectation for the second half of the year?

We will slow it down a little bit, partially because our attrition rate is less than we anticipated. So we have got a little bit more flexibility in terms of how we recruit and staff and into the engagements.

The other thing, in some of service lines, really across the legal consulting and the health and education segment, we got some new services as well that we are beginning to ramp up and some times those services require different skills that we actually don’t have right now. So that too accounts for some of the hiring we are doing right now in anticipation of further growth for those businesses.

But in general I think, Tim, to answer your question it’s a decent surrogate, although it will slow down a little bit.

Really, Tim, one last color comment, it is just that really sometimes it is tied to some of the campus recruiting that we do for analyst will affect a little bit of the timing of when they come in, when they are available. So you tend to see a little bit more hiring between May and September and then towards Q4 it just naturally starts to go down anyway.

I want to thank everybody for spending time with us this afternoon on the call. I look forward to speaking with you again in October when we announce our third quarter results.

Have a good evening.