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spk28: Consulting Group's webcast to discuss financial results for the first quarter, 2024. At this time, all conference call lines are in a listen-only mode. Later, we will conduct a 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 afternoon's webcast. The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Huron's website for all of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers. And now I would like to turn the call over to Mark Hussey, Chief Executive Officer and President of Huron Consulting Group. Mr. Hussey, please go ahead.
spk13: Good afternoon and welcome to Huron Consulting Group's first quarter 2024 earnings call. With me today are John Kelly, our Chief Financial Officer, and Ronnie Dale, our Chief Operating Officer. Our first quarter revenue, I'm sorry, our first quarter results reflect our ongoing focus on achieving consistent revenue growth and margin expansion. Revenues grew 12% over the first quarter of 2023, driven by strong growth in our healthcare segment, as well as continued growth in our education segment, which furthers the segment's multi-year growth trajectory. Our strong growth in the first quarter of 2023 was achieved on top of strong growth in the year-ago quarter, with Q1 of 2023 growth of 22% over the first quarter of 2022. Our first quarter results also demonstrate our commitment to delivering on the growth strategy and financial goals shared at our 2022 Investor Day, consisting of low double-digit annual revenue growth and expanding our adjusted EBITDA margins to mid-team levels leading to annual high team percentage adjusted EPS growth. We believe achieving our financial goals together with a balanced capital deployment strategy that prioritizes moderate leverage, share repurchase, and targeted M&A will drive strong returns for our shareholders over time. I'll now share some additional insight into the progress we've made on our strategy while providing color into our first quarter performance. As a reminder, to achieve our goals, we're committed to executing against five strategic pillars. The first pillar of our strategy is to continue accelerating growth in our largest industries, healthcare and education, where we're focused on building upon our leading competitive positions. In the healthcare segment, first quarter revenues grew 21% over the prior year quarter. The increase in revenues in Q1 of 2024 was driven by strong broad-based demand across our performance improvement, digital strategy and innovation, and financial advisory offerings. The operating environments for many healthcare organizations are mixed in recent months. Some health systems continue to face strained financial positions, driving continued demand for our performance improvement and distress-focused financial advisory offerings. Other healthcare providers have seen margins improve, and they're now seeking opportunities to evolve their strategies and advance their competitive positions by making strategic and operational investments. These organizations are creating demand for our digital strategy and innovation and non-distressed financial advisory offerings. As part of Huron's growth strategy, we continue to diversify our healthcare service portfolio over time to meet the broader needs of the market, which has yielded greater consistency in this segment's financial performance. We've expanded the offerings within our performance improvement business while growing our healthcare-focused strategy innovation, digital, and financial advisory offerings. If you look back to 2014, 10 years ago, our performance improvement offerings represented virtually 100% of segment revenues. Fast forward to 2023, we diversified our portfolio so that performance improvement offerings represent only 46% of healthcare segment revenues. We're confident that these investments we're making to expand our healthcare offerings are paying off, and we believe we're well positioned to address the wide array of opportunities and challenges facing our hospital and health system clients. Education segment revenues grew 7% in the first quarter of 2024 over the prior year quarter, driven by strong demand for our digital services and products. The education industry continues to face wide-ranging pressures. From top-line challenges, including difficulty meeting enrollment and fundraising goals, or challenging research funding sources, to cost and regulatory pressures, including increased governmental scrutiny, workforce disruptions, and a need to make significant technology investments, our clients require a broad array of services and products to help them address these issues. We continue to strengthen and expand our offerings in the education industry comprehensively address our clients needs. We're the leading firm in the industry serving research institutions. The challenges of managing the highly complex research enterprise are increasing due to declines in funding for federal and commercial research and increased cost to conduct research. Research mission is critical to our client base and our research businesses continue to be a strong source of growth for our education segment and a differentiator for our services among the most prominent research institutions. We continue to invest in strengthening our offerings in this area, including our Huron Research Suite software, which is the preeminent product in the market with over 600,000 users and over 500 institutions. The strength of our offering is yielded a client retention rate of over 99% across our suite of products. We also continue to expand our offerings to serve the broader needs of our mission-driven clients, particularly in education. For example, a recent acquisition of GG&A, one of the top philanthropy consulting firms, is creating new opportunities, not only in education, but also across healthcare and other not-for-profit clients. Another example of our expanded offerings is our athletics practice. We began to focus on university athletics in 2020, And today, we have worked with over 50 institutions, ranging from the top Division I conferences to FCS and smaller institutions, many of which are facing increasingly complicated operating environments stemming from the dramatic changes taking place in intercollegiate athletics. We help these organizations evaluate and execute upon their conference and athletic department strategies, which often have an outside impact on the financials, enrollment, and branding of our large academic clients. Our healthcare and education businesses have marked tailwinds which continue to propel their growth. Our leading competitive positions, deep client relationships, high quality delivery, and wide array of offerings position as well to be the partner of choice for our health system, university, and research-focused clients. Our second strategic pillar is focused on growing our commercial industry presence. In the first quarter of 2024, commercial segment revenues were largely flat, driven by increases in revenue for our financial advisory offerings, partially offset by declines in our strategy and innovation in digital offerings. We continue to see our commercial clients taking a more cautious approach to executing large-scale initiatives and strategy-related engagements as uncertainties in the macroeconomic environment persist. Our distressed financial advisory business continues to have a solid outlook although at a more moderate level than the strong record results achieved in 2023. With our focused strategy, we believe that commercial industries will create new avenues of growth for Huron. The mix of our digital strategy and financial advisory offerings has created a more balanced portfolio from which we can continue to grow our presence in financial services, industrials and manufacturing, and energy and utilities, while providing more consistency in our financial performance in different market cycles. Now let me turn to our third strategic pillar, advancing our integrated digital platform. In the first quarter of 2024, digital capability revenues grew 10% over the first quarter of 2023, driven by growth across the healthcare and education segments. In 2023, our digital capability grew to over a half billion dollars, a key milestone for that business and a testament The collective investments we've made in technology, data, and analytics across all industries. We continue to be a market leader in our digital offerings. We were named best in class in healthcare for ERP business transformation and implementation leadership, as well as IT consulting services in the payer market. We've also been awarded recognitions for driving innovation by other technology partners. And we're incredibly proud of the work we're doing and how we continue to expand our offerings to meet the rapidly evolving technology, data, and analytics needs of our clients. Intelligent automation, including the use of generative AI, is one area that is of great prominence and exploration in the market today. Our automation, analytics, and AI services revenues grew to over $50 million in 2023, demonstrating the value we bring to our clients and the growing significance of these advanced technologies in the market. Our work today spans advising clients on their intelligent automation strategies and roadmaps, including the data foundation needed to be successful, through to the implementation of distinct use cases in comprehensive intelligent automation programs. We provide two brief examples of how we're working with clients to apply AI. First, we're working with a commercial client to establish a centralized AI capability center that will provide a platform to responsibly govern their AI program while also incubating high-impact solutions across their business. Second, we're working with the health system to leverage generative AI to expedite the clinical appeals process as part of their revenue cycle to reduce the administrative burden of inefficient reimbursements. These are only two examples of many where we're leaning in to enable our clients' businesses through the use of AI. Expanding our digital capabilities, including our intelligent automation offerings through organic and inorganic investments, will continue to be an important driver of growth across our business for many years to come as our clients focus on driving growth and productivity in their own highly competitive markets through the use of technology, data, and analytics. Now let me turn to our last two strategic pillars, which are more financially focused. First, we're executing our margin improvement levers to achieve enhanced profitability. As it relates to margin expansion, our company-wide focus on improving profitability has yielded solid results. From 2020 to 2023, our full-year adjusted EBITDA margin has increased 200 basis points, and full-year adjusted diluted earnings per share has increased 128%. We continue to feel confident in our ability to improve our margins across our robust global platform which will drive further efficiency as we scale while continuing our focus in areas such as driving improved utilization, pricing realization, and SG&A leverage. Our final pillar focuses on deploying capital to accelerate our strategy and return capital to our shareholders. Since our investor day in March of 2022 and through the quarter just ended, we've repurchased 3.6 million shares at a weighted average price of $78.36 representing 16.5% of our common stock outstanding as of December 31, 2021. In 2024, we expect to execute our balanced capital allocation strategy across share repurchases, debt repayment, and tuck-in acquisitions. We believe that combining the capabilities and talent from acquisitions to enhance our competitive position, such as a recent GG&A acquisition, will drive strong growth and returns for our shareholders. And finally, let me acknowledge the heart of our strategy, our people. We have and will continue to invest in our incredibly talented team and strong collaborative culture. Our competitive advantage is driven by the strength and depth of our team and our company culture, which drives how we work together and to deliver on the most complex challenges of our clients, creates an environment where we're constantly innovating new offerings and advancing our business collectively as a unified team. Our ability to attract and retain top talent is demonstrated by our headcount growth of 41% from the end of 2021 to the end of 2023, coupled with consistently low attrition and high engagement scores. Our distinct culture, coupled with strong career advancement and development opportunities, provides a stable platform for ongoing growth, not only for our people, but also for our business. And now let me turn to our Outlook for the year. Today, we affirm our 2024 revenue and adjusted EBITDA margin guidance, and we're raising our adjusted earnings per share guidance to a range of $5.60 to $6.10. We continue to believe our growth trajectory is strong given the expected demand in our end markets across healthcare, education, and commercial, our strong competitive positions, and our deep client relationships. Given our focus, we have a unique breadth in our offering. depth in our talent, and relevance in our subject matter expertise that allows us to be nimble and innovative, yet have the credentials and experience to compete and win against much larger competitors. Let me close by saying that our commitment to our growth strategy is evident in our recent performance, including our first quarter results. Our progress would not be possible without the focus and dedication of our entire team, and I want to thank all of them for supporting each other, our clients, and our business as we strive to make a lasting impact in the work that we do each and every day. Now, I'm going to turn it over to John for a more detailed discussion of our financial markets. John?
spk20: Thank you, Mark, and good afternoon, everyone. Before I begin, please note that I will be discussing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS, and free cash flow. Our press release, 10Q Investor Relations page on the Huron website, have reconciliations of these non-GAAP measures, the most comparable GAAP measures, along with a discussion of why management uses these non-GAAP measures and why management believes they provide useful information to investors regarding our financial condition and operating results. Before discussing our financial results for the quarter, I'd like to acknowledge two housekeeping items. First, our first quarter results reflect the acquisition of DG&A, which closed on March 1st, and as such, one month of DG&A's operating results within the education segment. Second, in conjunction with the continued refinement of our operating model, we reclassified certain revenue generating professionals within our digital capability from our healthcare and education segments to our commercial segments, reflecting the flexibility of these professionals to provide services across all of our industries inclusive of healthcare and education. We have provided supplemental materials to provide additional details to this reclassification and which are posted on the investor relations section of our website. Now I will share some of the key financial results for the first quarter. Revenues for the first quarter of 2024 were $356 million, up 12% from $317.9 million in the same quarter of 2023. The increase in revenues for the quarter was driven by strong growth in our healthcare segment and continued growth in our education segment. Net income for the first quarter of 2024 was $18 million, or $0.95 per diluted share, compared to net income of $13.4 million, or $0.68 per diluted share, in the first quarter of 2023. Our effective income tax rate in the first quarter of 2024 was negative 2.5%, as we recognized an income tax benefit on our income before taxes, driven primarily by discrete tax benefits for share-based compensation awards that are vested during the quarter and non-taxable gains on the investments used to fund our deferred compensation liability. Adjusted EBITDA was $33.8 million in Q1 2024 for 9.5% of revenues compared to $29.5 million for 9.3% of revenues in Q1 2023. The increase in adjusted EBITDA for the quarter primarily due to the increase in segment operating income, partially offset by an increase in corporate expenses, which included certain third-party legal expenses that are not expected to continue at the same level in future quarters. Adjusted net income was $23.3 million for $1.23 per diluted share in Q1 2024, compared to $17.1 million, or $0.87 per diluted share, in the first quarter of 2023. resulting in a 41% increase in adjusted diluted earnings per share over Q1 2023. Now I'll discuss the performance of each of our operating segments. The healthcare segment generated 51% of total company revenues during the first quarter of 2024. This segment posted revenues of $180.7 million, up $31.7 million, or 21.3% from the first quarter of 2023. The increase in revenues in the quarter reflects strong demand for our performance improvement, digital, strategy and innovation, and financial advisory offerings. Consulting and managed services and digital capabilities grew 22% and 19% respectively in the first quarter, reflecting the continued broad-based demand for our offerings. Operating income margin for healthcare was 23.6% in Q1 2024, compared to 21.6% in Q1 2023. The increase in margin is primarily due to revenue growth and outpaced compensation costs for our revenue-generating professionals, partially offset by an increase in practice administration and meetings expenses as a percentage of revenues. The education segment generated 31% of total company revenues during the first quarter of 2024. The education segment posted revenues of $111.6 million, up $7.4 million, or 7.1% from the first quarter of 2023, and was achieved on top of strong growth in the year-ago quarter, with Q1 2023 growth of 29% over Q1 2022. Revenues in the first quarter of 2024 included $1.3 million from our acquisition of GG&A. The increase in revenues in the quarter driven by strong demand for our technology and analytics services and software products within our digital capability. The operating income margin for education was 19.7% for Q1 2024 compared to 22.2% for the same quarter in 2023. The decrease in operating income margin in the quarter was primarily driven by increased compensation costs for our revenue-generating professionals as a percentage of revenue partially offset by a reduction in contractor expenses. The commercial segment generated 18% of total company revenues during the first quarter of 2024 and posted revenues of $63.6 million compared to $64.7 million in the first quarter of 2023. Revenues were largely flat in the quarter, with increases in demand for our financial advisory offerings offset by declines in revenue within our strategy and innovation in digital offerings. Operating income margin for the commercial segment was 22.1% for Q1 2024 compared to 21.7% for the same quarter in 2023. The increase in operating income margin in the quarter was primarily driven by decreases in compensation costs for our revenue-generating professionals. Corporate expenses not allocated at the segment level and excluding restructuring charges were $52.5 million in Q1 2024, compared to $44.1 million in Q1 2023. Unallocated corporate expenses in the first quarter of 2024 and 2023 included $2.4 million and $1.9 million, respectively, of expense related to the increase in the liability of our deferred compensation plan, which is offset by the investment gain on the assets used to fund that plan collected in other income. Excluding the impact of the deferred compensation plan in both periods, unallocated corporate expenses increased $8 million, primarily due to increases in legal expenses, compensation expense for our support personnel, and other losses. The legal expenses, which are not expected to continue at the same level in future quarters, primarily relate to professional fees for a legal matter where you're on as a plaintiff and M&A-related expenses. Now turning to the balance sheet and cash flows. Total debt as of March 31st, 2024 was $574 million, consisting of our $275 million term loan and $299 million of borrowings on our revolver. We finished the quarter with cash of $19 million for net debt of $555 million. This was a $243 million increase in net debt compared to Q4 2023, primarily due to the payment of our annual cash bonuses, share repurchases, and the acquisition of GG&A all during the quarter. Regarding share repurchases, during the quarter we used $62.3 million to repurchase approximately 625,000 shares, representing 3.4% of our common stock outstanding as of December 31st, 2023. As of March 31st, 2024, $24 million remained available for share repurchases under our current share repurchase program. We expect the pace of share repurchase activity to moderate through the remainder of the year. Our leverage ratio, as defined in our Senior Bank Agreement, was 2.7 times adjusted EBITDA as of March 31, 2024, compared to 2.8 times adjusted EBITDA as of March 31, 2023. As a reminder, our first quarter typically represents a seasonal high leverage ratio given the payout of our annual bonuses in March. Cash flow used in operations in the first quarter of 2024 was $130.7 million. We used $8.8 million to invest in capital expenditures, inclusive of internally developed software costs and purchases of property and equipment, resulting in negative free cash flow of $139.5 million. We continue to expect full-year free cash flow to be in a range of positive $115 to $145 million. DSO came in at 91 days for the first quarter of 2024, compared to 87 days for the fourth quarter of 2023 and 83 days for the first quarter of 2023. DSO was elevated during the first quarter of 2024 relative to the other periods due to certain larger healthcare and education industry projects, for actual payment terms that will result in cash payments in the second and third quarters of 2024. We expect DSO to normalize in the 75 to 85 day range by the end of the year. Finally, let me turn to our guidance for the full year 2024. As Mark mentioned, we are affirming our revenue and adjusted EBIT guidance. With revenues before reimbursable expenses in a range of $1.46 billion to $1.54 billion, and adjusted EBITDA in a range of 12.8% to 13.3% of revenues. Today, we are raising our adjusted non-GAAP EPS to a range of $5.60, $6.10, reflective of a now lower anticipated full-year effective tax rate in the range of 26% to 28%, and a lower weighted average diluted share base for the year based on the accelerated pace of share repurchases during the first quarter. Thanks, everyone. I would now like to open the call to questions. Operators?
spk28: Thank you. Ladies and gentlemen, if you have a question at this time, please press star 1-1 on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, you may do so by pressing star 1-1 again. One moment for our first question, which comes from the line of Andrew Nicholas of William Blair and Company. Your question, please, Andrew. Thank you.
spk06: Good afternoon, everybody. I wanted to start on the healthcare segment's growth, a really strong quarter on that front. Mark, you alluded to kind of broad-based demand across that segment, but I was hoping you could unpack, you know, where the growth rates sit across PI, digital, strategy and innovation, financial advisory, just kind of Getting a sense for under the hood and aware that the strength is if there is a rotation between the different segments as you know the end market seems to get a bit healthier with time. That would be really helpful to kind of understand.
spk13: Yeah, John, why don't you? Why don't you give some color into some of the some of the trends by area?
spk20: Yep, I I'm happy to do that. I'll start there and then mark you can give the color commentary from a. Breakout within the healthcare business, continue to see a lot of strength, Andrew, within our consulting part of the business, and particularly our performance improvement part of the business. Year over year, that was up north of 20% between the two years. So consistent with Mark's comments, that's a part of the business where even though year over year we've seen some improvement in the industry in terms of average profit margins and things like that, There's still a number of clients that are facing financial strain right now, and we see continued demand for those types of projects. From a digital perspective, we continue to see really good growth overall, high team growth from a digital perspective. I think that's reflective of really the other part of the market, where we see clients that have reached more financial stability now turning around and really starting to execute on some of their investment plans, which oftentimes includes improving their digital infrastructure. So we've seen good growth there. And then you referenced as well strategy and financial advisory. Those are two smaller bases of revenue within the business, but areas that are really performing well. And so from a percentage perspective, they're up, call it north of 25% year over year. But they're starting from a smaller base, but I think those are both areas where we see a lot of demand with our clients right now in terms of working on their strategies as well as starting to think about balance sheet considerations where our financial advisory team plays really well with those clients. So hopefully that gives some color.
spk13: And I would say, you know, Andrew, to my comment on the mixed view of margins within the sector, you know, it really depends a little bit on market-specific situations, but I would tell you that collectively, in those systems that are having performance improvement issues, there are also aspects that address every one of the businesses. So it's not as if performance improvement is only on one side and not on the other. So it really is just maybe leaning more heavily on one side of that mix. And I'd say our power in the market right now is really our ability to bring that team together very collectively in coordination and seamlessly across each client situation, which has really enabled us to differentiate and have a very strong offering for clients in terms of driving value.
spk20: And maybe, Andrew, I'll jump in with one last point as it relates to the strategy business and as it relates to our healthy financial advisor business. The percentages probably aren't as helpful to think of But if you look at a year ago at this time, those were low single-digit million-dollar businesses for us that now are operating more at the mid-teen million-dollar level. And we continue to see – we're investing in that growth that we've seen and continue to see demand of a trajectory like that. So that's an area within the portfolio that we're pretty excited about in terms of adding growth to the healthcare business.
spk07: Now that's really helpful.
spk06: I guess I would have thought maybe a little bit more of a rotation, but it sounds like everything is still very much hitting on all cylinders. I appreciate that. And then maybe for my follow-up on the margin front, I'm pretty encouraged by the margin expansion, even with a little bit lower utilization in the quarter and some really strong headcount growth. So can you talk about the ability to expand margins despite lower utilization and then somewhat relatedly, I think it's up about 20 basis points year over year in the first quarter. You stuck to the full year margin expansion guidance. So what dynamics allow you to expect maybe more margin expansion on year over year basis through the rest of the year and the second half as opposed to the start of the year? Thank you.
spk20: Sure, Andrew. I can start there. We had a few items during the quarter that were not expected to repeat as the year goes on, that adds some extra expense. So we're actually very pleased with the 20 basis points of margin expansion in the quarter, given that we had some of those expenses. And one such item was one of our larger teams had a practice meeting during the quarter. We typically do one of those a year, not necessarily the same team every year, but the corresponding large event like that was during the fourth quarter of this year. It was during the first quarter of this year. So that was a little bit of an unfavorable comparison. That alone had about a 70 basis point impact on margins during the quarter. We also, as I referenced in my remarks, had some deal related expenses that came through during the quarter. You're aware of the closing of the GG&A acquisition. We had some one time items related to earn out valuations that also came through during the quarter. And then one final item that we referenced was we did have an uptick in legal expenses during the quarter that we're not expecting to repeat at that level as the year goes on. So there were some headwinds during the quarter related to some of those factors that are either things that have been adjusted out like the fair value or the earn out fair value adjustments and then one-time type items that we don't expect to repeat later in the quarter. So despite the 20 basis points of improvement during the first quarter, that's what gives us confidence that we'll be able to accelerate that margin expansion as the year goes on.
spk28: Thank you. Our next question comes from the line of Toby Sommer of Truist Securities. Your question, please, Toby.
spk09: Hey, good afternoon. This is Jasper Bibon for Toby. Can you maybe frame for us what to assume for healthcare performance improvement growth in your 24 guidance? And maybe I missed it in the earlier discussion about different practice groups within healthcare, but how is a student group doing right now?
spk20: Yeah, so from a performance improvement perspective during the year, I think that's an area of the business where the guidance initially at the beginning of the year called more mid to upper single digit growth within that business just because they had such a record performance in 2023. Obviously, we're off to a good start in that business with the growth that I described in the first quarter that's outpacing that. So that's an area where there's some potential for upside as the year goes on. But these functions were relatively conservative in the original plan. And then as far as the people business go with the old student group business they referred to. That's an area of the business we're planning for modest, you know, call it low single-digit growth during the year.
spk09: Got it. That's helpful. I guess maybe stepping back, any thoughts on the FTC's move to ban non-competes and what that might mean for your business?
spk13: Yeah, this is Mark. We're, you know, at this point, First of all, we all know it's going to get litigated. So I don't think we really know the outcome for several months. But having said that, we are not overly concerned about it in our business. It's certainly something we use and manage all the time. And Candley might be more of an opportunity as an example for us. But it's not something that right now is paramount in terms of our concern list.
spk09: Got it. Last one for me, like headcount growth came in a lot faster than we expected this quarter, and maybe some of that was GG&A, but how should we think about the pace of headcount ads and the corresponding impact on utilization over the balance of the year?
spk20: Yeah, there's a couple things to think of as you think about headcount. As you referenced, you've got the addition of GG&A, which is, think of that as about 100 FTEs. We've also been building out our managed services capabilities from a global delivery perspective using our India team as a base there. And so we've had some more aggressive headcount ads there as we continue to win new assignments in that area and build out that part of our business. But that tends to skew to a lower expense item than in some other areas. And then the other thing that's prevalent in the numbers is we have really record low attrition during the first quarter this year. And that's on top of what was low attrition in 2023 as well. So I think it's all those factors that you see, generally low attrition environment, and then some focused ads in some of the areas that we're investing for growth.
spk02: Makes sense. Thanks for taking the questions. Thank you.
spk28: Our next question comes from the line of Bill Sutherland of Benchmark. Your line is open, Bill. Thank you.
spk16: Mark and John, hey, I just want to make sure I got the speaker on. Can you hear me? Yes.
spk12: Okay, cool.
spk16: Cool. So just to follow up, I guess, on that headcount question, it was particularly strong in health care quarter on quarter, and it was like 11%. So I guess all those factors, John, you just referred to apply to health care. Is there any other color particularly for the segment? And then how do we think about kind of sequentially for the rest of the year the headcount trend there?
spk20: Well, to the broader point, so a lot of the headcount growth that you see there, Bill, is the additions to our managed services team over the course of the past year. I will say, you know, come through the numbers, this is an area where we continue to see excellent growth potential in this business. So it's definitely still an area of the business where we're hiring, we're adding talent in order to meet the needs of our clients and continue to see growth for the remainder of the year. And so from a modeling perspective, I think when you look at it longer term over the course of the year, I think it's still safe to think of an expectation that headcount growth is going to ultimately kind of land in line with revenue growth for the year. I think that's a safe assumption. Now, there may be areas as the year progresses where we do some additional investments, or there may be areas where we end up with higher utilization and a little bit less headcount add. But generally speaking, I think thinking of headcount percentage growth and revenue percentage growth is probably being in sync for the remainder of the year the way we look at it.
spk16: Okay. I know utilization can bounce around quarter to quarter. Pretty big moves in digital and consulting. digital up, consulting down. Consulting, I assume, is basically just catching up with the hiring, including the acquisition. I'm not sure what their utilization levels were, but is that fair to say? And then on digital, is that sustainable?
spk20: I'll offer two things, Bill, on the consulting side. There was a little bit of pressure on the utilization metric related to the acquisition just in the first month of onboarding some of those employees. Again, the low attrition environment in general is another factor. When you have a very low attrition environment, that can put a little bit of pressure on the utilization metric. From a digital perspective, I think that we actually have room to improve that metric as the year goes on after we land in the first quarter. So it was up year over year. It was actually down a little bit sequentially in the fourth quarter versus the first quarter. So we think that there's more room to run on that metric. And the final point I made, when we were talking about expenses earlier, I referenced the large team meeting that we had that was about 70 basis points of expense during the quarter. That also has a utilization impact. And while we don't have precision around it, I think we estimate that the impact for the consulting utilization related to that was about a percent and a half. So I think that that's not a completely insignificant kind of one-time item that you'd see in the first quarter.
spk16: You got it. Did you guys talk about this in the prepared remarks? I had to step away for a second. Your thoughts on capital allocation now that you've done a significant share buyback. I know you're going to moderate, but how are you looking at perhaps the M&A environment? Does there seem to be good opportunities or are you going to watch and see at this point?
spk13: We like the M&A pipeline we have and we've always had a pretty picky set of opportunities that we pursue often. We're getting to know them, sometimes working in the market together, but often that's the precursor for us to move to the next step of an acquisition. We've looked at a lot of companies over the last year, and I would just say, you know, we continue to look at really good opportunities that we feel good about. I do think they fit in the tuck-in type category, but, you know, The range of size could be a little bit bigger than in GG&A and, you know, if you're a little bit smaller than that. But I think that we'll continue to be, you know, obviously you can't time exactly when those happen, but I would expect us to be more active through the balance of the year.
spk16: Oh, good. Okay. Thanks for all the color guides. Appreciate it.
spk28: Thank you.
spk13: Thanks, Bill.
spk28: Our next question comes from the line of Kevin Steinke of Barrington Research and Associates. Your question, please, Kevin.
spk26: Good afternoon.
spk14: So you talked about some continuing caution from clients in the commercial segment about moving forward with digital and strategy and innovation projects. I believe on your last call, the fourth quarter call, you talked about seeing some signs that those areas could pick up. in 2024. Is that still the case, or do you think clients have become a little more cautious over the last three months or so here?
spk20: Hey, Kevin. It's John. We absolutely still see indications that suggest it could pick up as 2024 goes on. When we actually look at the size of the pipeline and some of the opportunities of the pipeline, we're really encouraged by it. There's some great projects in there, and I guess the underlying theme there is There's a lot of need and demand for our clients for the services that we provide. I think what has ended up being a little bit of a cautionary factor for the mixed signal is I think because of some of the general macro economic uncertainty that's in the market right now, you do see clients are just a little bit more hesitant to get a project started, a little bit more deliberate in how they pace out projects and things about that. So that's kind of what we're fighting through. But in terms of the needs that are out there in the market, we definitely see that. And from our perspective, it's really just kind of a matter of when, not a matter of if in terms of that coming back. But we're definitely going through a period right now where there's a little bit of uncertainty.
spk13: I think that's well said. I think it's, you know, the inflationary environment, the economy. But, you know, when you look at the election year, obviously it's on the minds of some of our clients as well. But, you know, I think that John said it right. The pipeline is actually – pretty good. It's a small matter of how does the timing play out with respect to specific opportunities, but we're definitely getting our share of that pass and feeling good about our offerings and being competitive in the market.
spk14: Okay, thanks. And then also on commercial, you mentioned continued growth in financial advisory. Is that area as hot as it has been? I know you're going to be Coming up against some more difficult comparisons here, but is that slowing at all or as strong as it's been or strengthening? Just kind of wondering directionally how that's trending.
spk20: I think it's – so the context I'd give, Kevin, is last year that business was really white hot in terms of demand and in terms of a record revenue sort of year. I think the growth rate is moderated, or we expect it to moderate from what we saw last year, but it still is a robust demand environment. There's still a significant amount of inquiries for our services in that area, and our team is still having, quite frankly, a significant amount of success on some of those opportunities. So when that business is performing well, it's a really high-margin part of our portfolio, and we continue to feel very good about prospects for that business as the year goes on. even if it's not growing at the kind of really high rate that it was growing in 2023 in a record year.
spk14: Okay, thank you. And then just lastly, I know you reiterated the full year 2024 revenue guidance, but any change at the segment level in terms of the growth outlook in each segment that gets you to that point? consolidated number?
spk20: I think it's probably a little too early to adjust the guidance there, Kevin. Obviously, the healthcare business is off to a great start. I continue to feel really good about the pipeline there. So I think that might be an area where you could expect to see potentially a little bit of upside. And, you know, the first quarter for the commercial segment was a little bit slower. That was more flat during the quarter. So that might be where you can see a little bit of pressure on the growth rate. But we'll... continue to execute throughout the year. And I would anticipate by the time we get the next call, we can refine that a little bit, but that those would be maybe in broad strokes where we see a little bit of increased demand versus where it's been a little bit softer.
spk14: Okay. Thank you. Lastly, John, I don't know if you called out the, you know, the dollar amount of the legal expenses that you don't expect to recur after the first quarter.
spk20: So there's always some level of legal expense in our SG&A, but I'd describe, Kevin, the amount that was above and beyond what would be the normal run rate would be a couple million dollars.
spk14: Okay, great. Thanks for taking the questions. Appreciate it.
spk11: Yeah, thanks, Kevin.
spk28: Thank you. Once again, to ask a question, please press star 1-1 on your telephone. Again, that's star 1-1 to ask a question. Once again, that's star 1-1 to ask a question. Please stand by. Our next question comes from the line of Moshe Khatri of Wedbush Securities. Please go ahead, Moshe.
spk24: Thanks.
spk19: Congrats on very, very strong results. I believe I think Huron is the only company in the space that's actually recruiting. So What's embedded in terms of organic headcount growth in your calendar 24 guidance? That's my first question. Thanks.
spk20: In terms of the guidance, so our revenue growth rate for the year from a projection perspective, the midpoint gas was around 10%, and the range around that was 7% to 13%. So in terms of us, expanding our talent pool during the year, we're expecting that to basically be of a similar trajectory as the revenue growth. So around that 10% range.
spk19: Understood. And then there's lots of questions about visibility, but then if I had to kind of look at visibility for healthcare education commercial now versus early calendar 24, let's say three months ago, has that changed, improved, got worse? How would you kind of... define it?
spk20: I would say within the healthcare summit, it's improved during the quarter. In a couple of different aspects, we've had some really nice opportunities in the pipeline. We've had some strong conversion of those opportunities, sales conversion into backlog. And so I think those things have improved visibility. And then we also have projects that have performance-based fee elements to them to the extent that we're able to successfully deliver for our clients. And I think our teams are executing very strongly on some of those projects, which gives us confidence that there's the potential for some revenue upside related to those projects as the year goes on. So I think healthcare would be an area where it's improved. I think education is very consistent with where we were three months ago. I think that, which is a positive story for us. We continue to see strong demand there and really broad-based demand across our different offerings, but I think that's been fairly consistent. And then commercial might be the one where the size of the pipeline continues to be robust, but in terms of visibility in the short term, that's where we've seen a little bit slower conversion, particularly on some of the digital projects. And I described there as maybe an area where there's a little bit more caution than maybe where we were three months ago.
spk13: Yeah, one point in addition on that is, you know, when you look at our financial advisory offerings, which we talked a little bit about, tend to have a very, very short sales cycle. I mean, literally it could be, you know, within a week to when an engagement might start. So those are the kind of things in that environment where, you know, it's kind of a balance to some of the other areas that we've seen a little bit of delay in decision-making or projects that are just pushed off.
spk19: Yep, understood. And then, so basically the pipeline in digital is strong, but it's just not converting. Is that the right way of looking at it or not converting on time?
spk20: In commercial, yes. I'd say in the other parts of the business, it's either stronger or, you know, healthcare has been stronger, education has been fairly consistent. I'd say in commercial for digital is the area where it's a good-looking pipeline, but where the conversion has just been slower than maybe historical nerves.
spk19: And then final question about your India operation. Can we get maybe some transparency in terms of the headcount? Maybe where was it a year ago? And what do you expect it to be during the next year or two?
spk20: So from a total headcount perspective, it's roughly 28% of our total workforce is in India. In the three areas that are most prominently um delivered by our global team india is our digital business which has about a thousand of of those employees our managed services business which has um call it uh five or six hundred of those employees and then we do support our corporate enterprise with our team members in that location as well which makes up the remainder of that account and from a growth perspective that's been an area that's been growing very strongly if you were to go A little further back than just last year, it's grown significantly. Five years ago, it was probably low hundreds in terms of employees that we had there, up to the 2,000 rough number that we have now in India. I'd say year over year, it was still a strong growth area, but it just matured a little bit, I'd say, over the course of the past year.
spk21: Understood. Thanks.
spk28: Thank you. Seeing no more questions in the queue, I'd like to turn the call back to Mr. Hussey.
spk13: Thanks for spending time with us this afternoon. We look forward to speaking with you again in July when we announce our second quarter results. Have a good evening.
spk28: That concludes today's conference call. Thank you, everyone, for your participation. you Thank you. Thank you. Thank you. Good afternoon and welcome to Huron Consulting Group's webcast to discuss financial results for the first quarter 2024. At this time, all conference call lines are in a listen-only mode. Later, we will conduct our 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 afternoon's webcast. The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Huron's website for all of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers. And now I would like to turn the call over to Mark Hussey, Chief Executive Officer and President of Huron Consulting Group. Mr. Hussey, please go ahead.
spk13: Good afternoon and welcome to Huron Consulting Group's first quarter 2024 earnings call. With me today are John Kelly, our Chief Financial Officer, and Ronnie Dale, our Chief Operating Officer. Our first quarter revenue, I'm sorry, our first quarter results reflect our ongoing focus on achieving consistent revenue growth and margin expansion. Revenues grew 12% over the first quarter of 2023, driven by strong growth in our healthcare segment, as well as continued growth in our education segment, which furthers the segment's multi-year growth trajectory. Our strong growth in the first quarter of 2023 was achieved on top of strong growth in the year-ago quarter, with Q1 of 2023 growth of 22% over the first quarter of 2022. Our first quarter results also demonstrate our commitment to delivering on the growth strategy and financial goals shared at our 2022 Investor Day, consisting of low double-digit annual revenue growth and expanding our adjusted EBITDA margins to mid-team levels, leading to annual high team percentage adjusted EPS growth. We believe achieving our financial goals together with a balanced capital deployment strategy that prioritizes moderate leverage, share repurchase, and targeted M&A will drive strong returns for our shareholders over time. I'll now share some additional insight into the progress we've made on our strategy while providing color into our first quarter performance. As a reminder, to achieve our goals, we're committed to executing against five strategic pillars. The first pillar of our strategy is to continue accelerating growth in our largest industries, healthcare and education, where we're focused on building upon our leading competitive positions. In the healthcare segment, first quarter revenues grew 21% over the prior year quarter. The increase in revenues in Q1 of 2024 was driven by strong broad-based demand across our performance improvement, digital strategy and innovation, and financial advisory offerings. The operating environments for many healthcare organizations are mixed in recent months. Some health systems continue to face strained financial positions, driving continued demand for our performance improvement and distress-focused financial advisory offerings. Other healthcare providers have seen margins improve, and they're now seeking opportunities to evolve their strategies and advance their competitive positions by making strategic and operational investments. These organizations are creating demand for our digital strategy and innovation and non-distressed financial advisory offerings. As part of Huron's growth strategy, we continue to diversify our healthcare service portfolio over time to meet the broader needs of the market, which has yielded greater consistency in this segment's financial performance. We've expanded the offerings within our performance improvement business while growing our healthcare-focused strategy innovation, digital, and financial advisory offerings. If you look back to 2014, 10 years ago, our performance improvement offerings represented virtually 100% of segment revenues. Fast forward to 2023, we diversified our portfolio so that performance improvement offerings represent only 46% of healthcare segment revenues. We're confident that these investments we're making to expand our healthcare offerings are paying off, and we believe we're well positioned to address the wide array of opportunities and challenges facing our hospital and health system clients. Education segment revenues grew 7% in the first quarter of 2024 over the prior year quarter, driven by strong demand for our digital services and products. The education industry continues to face wide-ranging pressures. top-line challenges including difficulty meeting enrollment and fundraising goals or challenging research funding sources to cost and regulatory pressures including increased government governmental scrutiny workforce disruptions and a need to make significant technology investments the clients require a broad array of services and products to help them address these issues we continue to strengthen and expand our offerings in the education industry and comprehensively address our clients needs. We're the leading firm in the industry serving research institutions. The challenges of managing the highly complex research enterprise are increasing due to declines in funding for federal and commercial research and increased cost to conduct research. Research mission is critical to our client base and our research businesses continue to be a strong source of growth for our education segment and a differentiator for our services among the most prominent research institutions. We continue to invest in strengthening our offerings in this area, including our Huron Research Suite software, which is the preeminent product in the market with over 600,000 users and over 500 institutions. The strength of our offering is yielding a client retention rate of over 99% across our suite of products. We also continue to expand our offerings to serve the broader needs of our mission-driven clients, particularly in education. For example, a recent acquisition of GG&A, one of the top philanthropy consulting firms, is creating new opportunities, not only in education, but also across healthcare and other not-for-profit clients. Another example of our expanded offerings is our athletics practice. We began to focus on university athletics in 2020, And today, we have worked with over 50 institutions, ranging from the top Division I conferences to FCS and smaller institutions, many of which are facing increasingly complicated operating environments stemming from the dramatic changes taking place in intercollegiate athletics. We help these organizations evaluate and execute upon their conference and athletic department strategies, which often have an outsized impact on the financials, enrollment, and branding of our large academic clients. Our healthcare and education businesses have marked tailwinds which continue to propel their growth. Our leading competitive positions, deep client relationships, high quality delivery, and wide array of offerings position as well to be the partner of choice for our health system, university, and research-focused clients. Our second strategic pillar is focused on growing our commercial industry presence. In the first quarter of 2024, commercial segment revenues were largely flat, driven by increases in revenue for financial advisory offerings, partially offset by declines in our strategy and innovation in digital offerings. We continue to see our commercial clients taking a more cautious approach to executing large-scale initiatives and strategy-related engagements as uncertainties in the macroeconomic environment persist. Our distressed financial advisory business continues to have a solid outlook although at a more moderate level than the strong record results achieved in 2023. With our focused strategy, we believe that commercial industries will create new avenues of growth for Huron. The mix of our digital strategy and financial advisory offerings has created a more balanced portfolio from which we can continue to grow our presence in financial services, industrials and manufacturing, and energy and utilities, while providing more consistency in our financial performance in different market cycles. Now let me turn to our third strategic pillar, advancing our integrated digital platform. In the first quarter of 2024, digital capability revenues grew 10% over the first quarter of 2023, driven by growth across the healthcare and education segments. In 2023, our digital capability grew to over a half billion dollars, a key milestone for that business and a testament The collective investments we've made in technology, data, and analytics across all industries. We continue to be a market leader in our digital offerings. We remain best in class in healthcare for ERP business transformation and implementation leadership, as well as IT consulting services in the payer market. We've also been awarded recognitions for driving innovation by other technology partners. And we're incredibly proud of the work we're doing and how we continue to expand our offerings to meet the rapidly evolving technology, data, and analytics needs of our clients. Intelligent automation, including the use of generative AI, is one area that is of great prominence and exploration in the market today. Our automation, analytics, and AI services revenues grew to over $50 million in 2023, demonstrating the value we bring to our clients and the growing significance of these advanced technologies in the market. Our work today spans advising clients on their intelligent automation strategies and roadmaps, including the data foundation needed to be successful, through to the implementation of distinct use cases in comprehensive intelligent automation programs. We provide two brief examples of how we're working with clients to apply AI. First, we're working with a commercial client to establish a centralized AI capability center that will provide a platform to responsibly govern their AI program while also incubating high-impact solutions across their business. Second, we're working with the health system to leverage generative AI to expedite the clinical appeals process as part of their revenue cycle to reduce the administrative burden of inefficient reimbursements. These are only two examples of many where we're leaning in to enable our clients' businesses through the use of AI. Expanding our digital capabilities, including our intelligent automation offerings through organic and inorganic investments, will continue to be an important driver of growth across our business for many years to come as our clients focus on driving growth and productivity in their own highly competitive markets through the use of technology data and analytics. Now let me turn to our last two strategic pillars, which are more financially focused. First, we're executing our margin improvement levers to achieve enhanced profitability. As it relates to margin expansion, our company-wide focus on improving profitability has yielded solid results. From 2020 to 2023, our full-year adjusted EBITDA margin has increased 200 basis points, and full-year adjusted diluted earnings per share has increased 128%. We continue to feel confident in our ability to improve our margins across our robust global platform which will drive further efficiency as we scale while continuing our focus in areas such as driving improved utilization, pricing realization, and SG&A leverage. Our final pillar focuses on deploying capital to accelerate our strategy and return capital to our shareholders. Since our investor day in March of 2022, which through the quarter just ended, we've repurchased 3.6 million shares at a weighted average price of $78.36 representing 16.5% of our common stock outstanding as of December 31, 2021. In 2024, we expect to execute our balanced capital allocation strategy across share repurchases, debt repayment, and tuck-in acquisitions. We believe that combining the capabilities and talent from acquisitions to enhance our competitive position, such as our recent GG&A acquisition, will drive strong growth and returns for our shareholders. And finally, let me acknowledge the heart of our strategy, our people. We have and will continue to invest in our incredibly talented team and strong collaborative culture. Our competitive advantage is driven by the strength and depth of our team and our company culture, which drives how we work together and to deliver on the most complex challenges of our clients, creates an environment where we're constantly innovating new offerings and advancing our business collectively as a unified team. Our ability to attract and retain top talent is demonstrated by our headcount growth of 41% from the end of 2021 to the end of 2023, coupled with consistently low attrition and high engagement scores. Our distinct culture, coupled with strong career advancement and development opportunities, provides a stable platform for ongoing growth, not only for our people, but also for our business. And now let me turn to our Outlook for the Year. Today, we affirm our 2024 revenue and adjusted EBITDA margin guidance, and we're raising our adjusted earnings per share guidance to a range of $5.60 to $6.10. We continue to believe our growth trajectory is strong, given the expected demand in our end markets across healthcare, education, and commercial, our strong competitive positions, and our deep client relationships. Given our focus, we have a unique breadth in our offering. depth in our talent, and relevance in our subject matter expertise that allows us to be nimble and innovative, yet have the credentials and experience to compete and win against much larger competitors. Let me close by saying that our commitment to our growth strategy is evident in our recent performance, including our first quarter results. Our progress would not be possible without the focus and dedication of our entire team, and I want to thank all of them for supporting each other, our clients, and our business as we strive to make a lasting impact in the work that we do each and every day. Now, I'm going to turn it over to John for a more detailed discussion of our financial markets. John?
spk20: Thank you, Mark, and good afternoon, everyone. Before I begin, please note that I will be discussing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS, and free cash flow. Our press release, 10Q Investor Relations page on the Huron website, have reconciliations of these non-GAAP measures, the most comparable GAAP measures, along with a discussion of why management uses these non-GAAP measures and why management believes they provide useful information to investors regarding our financial condition and operating results. Before discussing our financial results for the quarter, I'd like to acknowledge two housekeeping items. First, our first quarter results reflect the acquisition of DG&A, which closed on March 1st and, as such, one month of DG&A's operating results within the education segment. Second, in conjunction with the continued refinement of our operating model, we reclassified certain revenue generating professionals within our digital capability from our healthcare and education segments to our commercial segments, reflecting the flexibility of these professionals to provide services across all of our industries inclusive of healthcare and education. We have provided supplemental materials to provide additional details to this reclassification which are posted on the investor relations section of our website. Now I will share some of the key financial results for the first quarter. Revenues for the first quarter of 2024 were $356 million, up 12% from $317.9 million in the same quarter of 2023. The increase in revenues for the quarter was driven by strong growth in our healthcare segment and continued growth in our education segment. Net income for the first quarter of 2024 was $18 million, or $0.95 per diluted share, compared to net income of $13.4 million, or $0.68 per diluted share, in the first quarter of 2023. Our effective income tax rate in the first quarter of 2024 was negative 2.5%, as we recognized an income tax benefit on our income before taxes, driven primarily by discrete tax benefits for share-based compensation awards that invested during the quarter and non-taxable gains on the investments used to fund our deferred compensation liability. Adjusted EBITDA was $33.8 million in Q1 2024 for 9.5% of revenues compared to $29.5 million for 9.3% of revenues in Q1 2023. The increase in adjusted EBITDA for the quarter primarily due to the increase in segment operating income, partially offset by an increase in corporate expenses, which included certain third-party legal expenses that are not expected to continue at the same level in future quarters. Adjusted net income was $23.3 million for $1.23 per diluted share in Q1 2024, compared to $17.1 million for $0.87 per diluted share in the first quarter of 2023. resulting in a 41 percent increase in adjusted diluted earnings per share over Q1 2023. Now I'll discuss the performance of each of our operating segments. The healthcare segment generated 51 percent of total company revenues during the first quarter of 2024. This segment posted revenues of $180.7 million, up $31.7 million, or 21.3 percent in the first quarter of 2023. The increase in revenues in the quarter reflects strong demand for our performance improvement, digital, strategy and innovation, and financial advisory offerings. Consulting and managed services and digital capabilities grew 22% and 19% respectively in the first quarter, reflecting the continued broad-based demand for our offerings. Operating income margin for healthcare was 23.6% in Q1 2024 compared to 21.6% in Q1 2023. The increase in margin is primarily due to revenue growth and outpaced compensation costs for our revenue-generating professionals, partially offset by an increase in practice administration and meetings expenses as a percentage of revenues. The education segment generated 31% of total company revenues during the first quarter of 2024. The education segment posted revenues of $111.6 million, up $7.4 million, or 7.1% from the first quarter of 2023, and was achieved on top of strong growth in the year-ago quarter, with Q1 2023 growth of 29% over Q1 2022. Revenues in the first quarter of 2024 included $1.3 million from our acquisition of GG&A. The increase in revenues in the quarter driven by strong demand for our technology and analytics services and software products within our digital capability. The operating income margin for education was 19.7% for Q1 2024 compared to 22.2% for the same quarter in 2023. The decrease in operating income margin in the quarter was primarily driven by increased compensation costs for our revenue-generating professionals as a percentage of revenue partially offset by a reduction in contractor expenses. The commercial segment generated 18% of total company revenues during the first quarter of 2024 and posted revenues of $63.6 million compared to $64.7 million in the first quarter of 2023. Revenues were largely flat in the quarter, with increases in demand for our financial advisory offerings offset by declines in revenue within our strategy and innovation in digital offerings. Operating income margin for the commercial segment was 22.1% for Q1 2024, compared to 21.7% for the same quarter in 2023. The increase in operating income margin in the quarter was primarily driven by decreases in compensation costs for our revenue-generating professionals. Corporate expenses not allocated at the segment level and excluding restructuring charges were $52.5 million in Q1 2024 compared to $44.1 million in Q1 2023. Unallocated corporate expenses in the first quarter of 2024 and 2023 included $2.4 million and $1.9 million, respectively, of expense related to the increase in the liability of our deferred compensation plan, which is offset by the investment gain on the assets used to fund that plan collected in other income. Excluding the impact of the deferred compensation plan in both periods, unallocated corporate expenses increased $8 million, primarily due to increases in legal expenses, compensation expense for our support personnel, and other losses. The legal expenses, which are not expected to continue at the same level in future quarters, primarily relate to professional fees for a legal matter where you're on as the plaintiff and M&A-related expenses. Now turning to the balance sheet and cash flows. Total debt as of March 31st, 2024 was $574 million, consisting of our $275 million term loan and $299 million of borrowings on our revolver. We finished the quarter with cash of $19 million for net debt of $555 million. This was a $243 million increase in net debt compared to Q4, 2023, primarily due to the payment of our annual cash bonuses, share repurchases, and the acquisition of GG&A all during the quarter. Regarding share repurchases, during the quarter we used $62.3 million to repurchase approximately 625,000 shares, representing 3.4% of our common stock outstanding as of December 31st, 2023. As of March 31st, 2024, $24 million remained available for share repurchases under our current share repurchase program. We expect the pace of share repurchase activity to moderate through the remainder of the year. Our leverage ratio, as defined in our Senior Bank Agreement, was 2.7 times adjusted EBITDA as of March 31, 2024, compared to 2.8 times adjusted EBITDA as of March 31, 2023. As a reminder, our first quarter typically represents a seasonal high leverage ratio given the payout of our annual bonuses in March. Cash flow used in operations in the first quarter of 2024 was $130.7 million. We used $8.8 million to invest in capital expenditures, inclusive of internally developed software costs and purchases of property and equipment, resulting in negative free cash flow of $139.5 million. We continue to expect full-year free cash flow to be in a range of positive $115 to $145 million. DSO came in at 91 days for the first quarter of 2024 compared to 87 days for the fourth quarter of 2023 and 83 days for the first quarter of 2023. DSO was elevated during the first quarter of 2024 relative to the other periods due to certain larger healthcare and education industry projects contractual payment terms that will result in cash payments in the second and third quarters of 2024. We expect DSO to normalize in the 75 to 85 day range by the end of the year. Finally, let me turn to our guidance for the full year 2024. As Mark mentioned, we are affirming our revenue and adjusted EBITDA guidance. With revenues before reimbursable expenses in a range of $1.46 billion to $1.54 billion, and adjusted EBITDA in a range of 12.8% to 13.3% of revenues. Today, we are raising our adjusted non-GAAP EPS to a range of $5.60, $6.10, reflective of a now lower anticipated full-year effective tax rate in the range of 26% to 28%, and a lower weighted average diluted share base for the year based on the accelerated pace of share repurchases during the first quarter. Thanks, everyone. I would now like to open the call for questions. Operators?
spk28: Thank you. Ladies and gentlemen, if you have a question at this time, please press star 1-1 on your touchtone telephone. If your question has been answered or you wish to remove yourself from the queue, you may do so by pressing star 1-1 again. One moment for our first question, which comes from the line of Andrew Nicholas of William Blair and Company. Your question, please, Andrew.
spk06: Thank you. Good afternoon, everybody. I wanted to start on the healthcare segment's growth, a really strong quarter on that front. Mark, you alluded to kind of broad-based demand across that segment, but I was hoping you could unpack, you know, where the growth rates sit across PI, digital, strategy and innovation, financial advisory, just kind of getting a sense for under the hood and aware that the strength is if there is a rotation, uh, between the different segments as you know, the end market seems to get a bit healthier with time. Uh, that would be really helpful to, to kind of understand.
spk13: Yeah. John, why don't you, um, why don't you give some color into some of the, some of the trends by area?
spk20: Yep. I, I'm happy to do that. I'll start there. And then Mark, you can give the color commentary, um, from a, uh, breakout within the healthcare business, continue to see a lot of strength, Andrew, within our consulting part of the business, and particularly our performance improvement part of the business. Year over year, that was up north of 20% between the two years. So consistent with Mark's comments, that's a part of the business where even though year over year we've seen some improvement in the industry in terms of average profit margins and things like that, still a number of clients that are facing financial strain right now and we see continued demand for those types of projects from a digital perspective we continue to see really good growth overall high team growth from a digital perspective i think that's reflective of really the other part of the market where we see clients that have reached more financial stability now turning around and really starting to execute on some of their investment plans, which oftentimes includes improving their digital infrastructure. So we've seen good growth there. And then you referenced as well strategy and financial advisory. Those are two smaller bases of revenue within the business, but areas that are really performing well. And so from a percentage perspective, they're up, call it north of 25% year over year. But they're starting from a smaller base, but I think those are both areas where we see a lot of demand with our clients right now in terms of working on their strategies as well as starting to think about balance sheet considerations where our financial advisory team plays really well with those clients. So hopefully that gives some color.
spk13: And I would say, you know, Andrew, to my comment on the mixed view of margins within the sector, you know, it really depends a little bit on market-specific situations, but I would tell you that collectively, in those systems that are having performance improvement issues, there are also aspects that address every one of the businesses. So it's not as if performance improvement is only on one side and not on the other. So it really is just maybe leaning more heavily on one side of that mix, and I'd say our power in the market right now is really our ability to bring that team together very collectively in coordination and seamlessly across each client situation, which has really enabled us to differentiate and have a very strong offering for clients in terms of driving value.
spk20: And maybe, Andrew, I'll jump in with one last point as it relates to the strategy business and as it relates to our healthy financial advisor business. The percentages probably aren't as helpful to think of But if you look at a year ago at this time, those were low single-digit million-dollar businesses for us that now are operating more at the mid-teen million-dollar level. And we continue to see – we're investing in that growth that we've seen and continue to see demand of a trajectory like that. So that's an area within the portfolio that we're pretty excited about in terms of adding growth to the healthcare business.
spk07: Now that's really helpful.
spk06: I guess I would have thought maybe a little bit more of a rotation, but it sounds like everything is still very much hitting on all cylinders. I appreciate that. And then maybe for my follow-up on the margin front, I'm pretty encouraged by the margin expansion, even with a little bit lower utilization in the quarter and some really strong headcount growth. So can you talk about the ability to expand margins despite lower utilization and then somewhat relatedly, I think it's up about 20 basis points year over year in the first quarter. You stuck to the full year margin expansion guidance. So what dynamics allow you to expect maybe more margin expansion on year over year basis through the rest of the year and the second half as opposed to the start of the year? Thank you.
spk20: Sure, Andrew. I can start there. We had a few items during the quarter that were not expected to repeat as the year goes on, that adds some extra expense. So we're actually very pleased with the 20 basis points of margin expansion in the quarter, given that we had some of those expenses. And one such item was one of our larger teams had a practice meeting during the quarter. We typically do one of those a year, not necessarily the same team every year. But the corresponding large event like that was during the fourth quarter this year. It was during the first quarter this year. So that was a little bit of an unfavorable comparison. That alone had about a 70 basis point impact on margins during the quarter. We also, as I referenced in my remarks, had some deal-related expenses that came through during the quarter. You're aware of the closing of the GG&A acquisition. We had some one-time items related to earn-out valuations that also came through during the quarter. And then one final item that we referenced was we did have an uptick in legal expenses during the quarter that we're not expecting to repeat at that level as the year goes on. So there were some headwinds during the quarter related to some of those factors that are either things that have been adjusted out like the fair value or the earn out fair value adjustments and then one-time type items that we don't expect to repeat later in the quarter. So despite the 20 basis points of improvement during the first quarter, that's what gives us confidence that we'll be able to accelerate that margin expansion as the year goes on.
spk28: Thank you. Our next question comes from the line of Toby Sommer of Truist Securities. Your question, please, Toby.
spk09: Hey, good afternoon. This is Jasper Bibon for Toby. Can you maybe frame for us what to assume for healthcare performance improvement growth in your 24 guidance? And maybe I missed it in the earlier discussion about different practice groups within healthcare, but how is a student group doing right now?
spk20: Yeah, so from a performance improvement perspective during the year, I think that's an area of the business where the guidance initially at the beginning of the year called more mid-to-upper single-digit growth within that business just because they had such a record performance in 2023. Obviously, we're off to a good start in that business with the growth that I described in the first quarter that's outpacing that. So that's an area where there's some potential for upside as the year goes on. But these functions were relatively conservative in the original plan. And then as far as the people business go with the old student group business they referred to. That's an area of the business we're planning for modest, you know, call it low single digit growth during the year.
spk09: Got it. That's helpful. I guess maybe stepping back, any thoughts on the FTC's move to ban non-competes and what that might mean for your business?
spk13: Yeah, this is Mark. We're, you know, at this point, First of all, we all know it's going to get litigated. So I don't think we really know the outcome for several months. But having said that, we are not overly concerned about it in our business. It's certainly something we use and manage all the time. And Candley might be more of an opportunity as an example for us. But it's not something that right now is paramount in terms of our concern list.
spk09: Got it. Last one for me, like headcount growth came in a lot faster than we expected this quarter, and maybe some of that was GG&A, but how should we think about the pace of headcount ads and the corresponding impact on utilization over the balance of the year?
spk20: Yeah, there's a couple things to think of as you think about headcount. As you referenced, you've got the addition of GG&A, which is, think of that as about 100 FTEs. We've also been building out our managed services capabilities from a global delivery perspective, using our India team as a base there. And so we've had some more aggressive headcount ads there as we continue to win new assignments in that area and build out that part of our business. But that tends to skew to a lower expense item than in some other areas. And then the other thing that's prevalent in the numbers is we really record low attrition during the first quarter this year. And that's on top of what was low attrition in 2023 as well. So I think it's all those factors that you see, generally low attrition environment and then some focused ads in some of the areas that we're investing for growth.
spk02: Makes sense. Thanks for taking the questions. Thank you.
spk28: Our next question comes from the line of Bill Sutherland of Benchmark. Your line is open, Bill. Thank you.
spk16: Mark and John, hey, just want to make sure I got the speaker on. Can you hear me? Yes.
spk12: Okay, cool.
spk16: Cool. So just to follow up, I guess, on that headcount question, it was particularly strong in health care quarter on quarter, and it was like 11%. So I guess all those factors, John, you just referred to apply to health care. Is there any other color, particularly for the segment? And then how do we think about kind of sequentially for the rest of the year, the headcount trend there?
spk20: Well, to the broader point, so a lot of the headcount growth that you see there, Bill, is the additions to our managed services team over the course of the past year. I will say, you know, come through the numbers, this is an area where we continue to see excellent growth potential in this business. So it's definitely still an area of the business where we're hiring, we're adding talent in order to meet the needs of our clients and continue to see growth for the remainder of the year. And so from a modeling perspective, I think when you look at it longer term over the course of the year, I think it's still safe to think of an expectation that headcount growth is going to ultimately kind of land in line with revenue growth for the year. I think that's a safe assumption. Now, there may be areas as the year progresses where we do some additional investments, or there may be areas where we end up with higher utilization and a little bit less headcount add. But generally speaking, I think thinking of headcount percentage growth and revenue percentage growth is probably being in sync for the remainder of the year the way we look at it.
spk16: Okay. I know utilization can bounce around quarter to quarter. Pretty big moves in digital and consulting. Digital up, consulting down. Consulting, I assume, is basically just catching up with the hiring, including the acquisition. I'm not sure what their utilization levels were. But is that fair to say? And then on digital, is that sustainable?
spk20: I'll offer two things, Bill. On the consulting side, there was a little bit of pressure on the utilization metrics. related to the acquisition just in the first month onboarding some of those employees. Again, the low attrition environment in general is another factor. When you have a very low attrition environment, that can put a little bit of pressure on the utilization metric. From a digital perspective, I think that we actually have room to improve that metric as the year goes on from where it landed in the first quarter. So it was up year over year. It was actually down a little bit sequentially if you look at fourth quarter versus the first quarter. So we think that there's more room to run on that metric. And the final point I made, when we were talking about expenses earlier, I referenced the large team meeting that we had that was about 70 basis points of expense during the quarter. That also has a utilization impact. And while we don't have precision around it, I think we estimate that the impact for the consulting utilization related to that was about a percent and a half. So I think that that's not a completely insignificant
spk16: kind of one-time item that you see in the first quarter. Got it. Did you guys talk about this in the prepared remarks? I had to step away for a second. Kind of your thoughts on capital allocation now that you've done a significant share buyback. I know you're going to moderate, but how are you looking at perhaps the M&A environment? Does there seem to be good opportunities? Or are you going to kind of watch and see at this point?
spk13: You know, as far as we like the M&A pipeline we have, and, you know, we've always had a pretty picky set of opportunities that we pursue often. We're getting to know them. Sometimes we're getting the market together. but often that's the precursor for us to move to the next step of an acquisition. We've looked at a lot of companies over the last year, and I would just say, you know, we continue to look at really good opportunities that we feel good about. I do think they fit in the tuck-in type category, but, you know, the range of size could be a little bit bigger than GG&A, and, you know, a few are a little bit smaller than that, but I think that will continue to be, you know, obviously you can't time exactly when those happen, but I would expect us to be more active through the balance of the year.
spk16: Oh, good. Okay. Thanks for all the color guys. Appreciate it.
spk28: Thank you.
spk13: Thanks, Bill.
spk28: Our next question comes from the line of Kevin Steinke of Barrington Research and Associates. Your question, please, Kevin.
spk26: Good afternoon.
spk14: So you talked about some continuing caution from clients in the commercial segment about moving forward with digital and strategy and innovation projects. I believe on your last call, the fourth quarter call, you talked about seeing some signs that those areas could pick up in 2024. Is that still the case, or do you think clients have become a little more cautious over the last three months or so here.
spk20: Hey, Kevin. It's John. We absolutely still see indications that suggest it could pick up as 2024 goes on. When we actually look at the size of the pipeline and some of the opportunities of the pipeline, we're really encouraged by it. There's some great projects in there. And I guess the underlying theme there is there's a lot of need and demand for our clients for the services that we provide. I think what is ended up being a little bit of a cautionary factor for the mixed signal is I think because of some of the general macro economic uncertainty that's in the market right now, you do see clients are just a little bit more hesitant to get a project started, a little bit more deliberate in how they pace out projects and things about that. So that's kind of what we're fighting through. But in terms of the needs that are out there in the market, we definitely see that. From our perspective, it's really just kind of a matter of when, not a matter of if in terms of that coming back, but we're definitely going through a period right now where there's a little bit of uncertainty. Yeah, I think that's well said.
spk13: I think it's, you know, the inflationary environment, the economy. But, you know, when you look at the election year, obviously it's on the minds of some of our clients as well. But, you know, I think that John said it right. The pipeline is actually pretty good. It's a small matter of how does the timing play out with respect to specific opportunities. But we're definitely getting our share of that pass and feeling good about our offerings and being competitive in the market.
spk14: Okay, thanks. And then also on commercial, you mentioned continued growth in financial advisory. Is that area as hot as it has been? I know you're going to be coming up against some more difficult comparisons here, but is that – slowing at all or as strong as it's been or strengthening? Just kind of wondering directionally how that's trending.
spk20: I think it's so the context I'd give, Kevin, is last year that business was really light hot in terms of demand and in terms of a record revenue sort of year. I think the growth rate is moderated or we expect it to moderate from what we saw last year, but it still is a robust demand environment. There's still significant amount of inquiries for our services in that area, and our team is still having, quite frankly, a significant amount of success on some of those opportunities. So when that business is performing well, it's a really high-margin part of our portfolio, and we continue to feel very good about prospects for that business as the year goes on, even if it's not growing at the kind of really high rate that it was growing in 2023 in a record year.
spk14: Okay, thank you. And then just lastly, I know you reiterated the full year 2024 revenue guidance, but any change at the segment level in terms of the growth outlook in each segment that gets you to that consolidated number?
spk20: I think it's probably a little too early to adjust the guidance there, Kevin. Obviously, the healthcare business is off to a great start. I continue to feel really good about the pipeline there. So, I think that might be an area where you could expect to see potentially a little bit of upside. And, you know, the first quarter for the commercial segment was a little bit slower. That was more flat during the quarter. So, that might be where you can see a little bit of pressure on the growth rate. continue to execute throughout the year. And I would anticipate by the time we get the next call, we can refine that a little bit, but that those would be maybe in broad strokes where we see a little bit of increased demand versus where it's been a little bit softer.
spk14: Okay. Thank you. Lastly, John, I don't know if you called out the dollar amount of the legal expenses that you don't expect to recur after the first quarter.
spk20: So there's always some level of legal expense in our SG&A, but I'd describe, Kevin, the amount that was above and beyond what would be the normal run rate would be a couple of million dollars.
spk14: Okay. Great. Thanks for taking the questions. Appreciate it.
spk11: Yeah. Thanks, Kevin.
spk28: Thank you. Once again, to ask a question, please press star 1-1 on your telephone. Again, that's star 1-1 to ask a question. Once again, that's star 1-1 to ask a question. Please stand by. Our next question comes from the line of Moshe Khatri of Wedbush Securities. Please go ahead, Moshe.
spk24: Okay, thanks.
spk19: Congrats on very, very strong results. I believe, I think, Huron is the only company in the space that's actually recruiting. So, What's embedded in terms of organic headcount growth in your calendar 24 guidance? That's my first question. Thanks.
spk20: In terms of the guidance, so our revenue growth rate for the year, from a projection perspective, the midpoint gap is around 10%. And the range around that was 7% to 13%. So in terms of us, expanding our talent pool during the year, we're expecting that to basically be of a similar trajectory as the revenue growth. So around that 10% range.
spk19: Understood. And then there's lots of questions about visibility, but then if I had to kind of look at visibility for healthcare education commercial now versus early calendar 24, let's say three months ago, has that changed, improved, got worse? How would you kind of... define it?
spk20: I would say within the healthcare summit, it's improved during the quarter. In a couple of different aspects, we've had some really nice opportunities in the pipeline. We've had some strong conversion of those opportunities, sales conversion into backlog. And so I think those things have improved visibility. And then we also have projects that have performance-based fee elements to them to the extent that we're able to successfully deliver for our clients. And I think our teams are executing very strongly on some of those projects, which gives us confidence that there's the potential for some revenue upside related to those projects as the year goes on. So I think healthcare would be an area where it's improved. I think education is very consistent with where we were three months ago. I think that, which is a positive story for us. We continue to see strong demand there and really broad-based demand across our different offerings, but I think that's been fairly consistent. And then commercial might be the one where the size of the pipeline continues to be robust, but in terms of visibility in the short term, that's where we've seen a little bit slower conversion, particularly on some of the digital projects. And I described there as maybe an area where there's a little bit more caution than maybe where we were three months ago.
spk13: Yeah, one point in addition on that is, you know, when you look at our financial advisory offerings, which we talked a little bit about, tend to have a very, very short sales cycle. I mean, literally it could be, you know, within a week to when an engagement might start. So those are the kind of things in that environment where, you know, it's kind of a balance to some of the other areas that we've seen a little bit of delay in decision making or projects that are just pushed off.
spk19: Yep, understood. And then, so basically the pipeline in digital is strong, but it's just not converting. Is that the right way of looking at it or not converting on time?
spk20: In commercial, yes. I'd say in the other parts of the business, it's either stronger or, you know, healthcare has been stronger, education has been fairly consistent. I'd say in commercial for digital is the area where it's a good-looking pipeline, but where the conversion has just been slower than maybe historical nerves.
spk19: And then final question about your India operation. Can we get maybe some transparency in terms of the headcount? Maybe where was it a year ago? And what do you expect it to be during the next year or two?
spk20: So from a total headcount perspective, it's roughly 28% of our total workforce is in India. In the three areas that are most prominently delivered by our global team India is our digital business which has about a thousand of those employees our managed services business which has call it five or six hundred of those employees and then we do support our corporate enterprise with our team members in that location as well which makes up the remainder of that account and from a growth perspective that's been an area that's been growing very strongly if you were to go A little further back than just last year, it's grown significantly. Five years ago, it was probably low hundreds in terms of employees that we had there, up to the 2,000 rough number that we have now in India. I'd say year over year, it was still a strong growth area, but I think it's just matured a little bit over the course of the past year.
spk21: Understood. Thanks.
spk28: Thank you. Seeing no more questions in the queue, I'd like to turn the call back to Mr. Hussey.
spk13: Thanks for spending time with us this afternoon. We look forward to speaking with you again in July when we announce our second quarter results. Have a good evening.
spk28: That concludes today's conference call. Thank you everyone for your participation.
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