Q3 2019 Earnings Call
Good afternoon, ladies and gentlemen, and welcome to ensure Ron consulting groups, but cast to discuss financial results for the third quarter 2019. At this time all conference call lines are one of 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 with again I would like to point.
All of you point to all of you.
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 releases posted on Shrontz web site.
Please review that information along with the filings with the FCC or disclosure of factors that may impact subjects disgust and this afternoon's webcast. The company will be discussing one or more non-GAAP financial measures.
Please look at the earnings release, and one tranche website for all of the disclosures required by the FCC, including reconciliations to the most comparable GAAP numbers.
And now I'd like to turn the call over to Jim Roth, Chief Executive Officer of Huron Consulting Group Mr. Roth. Please go ahead.
Good afternoon, and welcome to Huron consulting groups third quarter 2019 earnings call with me today is John Kelly, our Chief financial Officer, and more capacity or President and Chief operating officer.
You're on deliberate 11% organic revenue growth in the third quarter, our strong third quarter performance was driven by continued organic growth across all three operating segments.
This is the sixth consecutive quarter, what we have delivered year over year organic revenue growth.
Two years ago, we developed a strategic plan aimed at transforming our business to respond to the substantial change that continues to take place in our primary Marcus hook.
The focus of this plan was to make sure that we were innovative in evolving our services such that we wouldn't be successful and helping our clients anticipate and manage through the significant change in the wrong businesses.
Examples are successful innovation are visible and all of our segments and I believe that these new services along with the success of our core offerings formed the foundation for continued organic growth.
I will now provide a brief overview of the performance for each segment and then John will add color to the financials.
Let me begin with with health care.
During the third quarter healthcare segment revenues grew 11% compared to the prior year quarter.
The quarter over quarter growth was driven by continued strong results in our performance improvement business.
Our health system and academic Health center clients continue to face a challenging environment as the market becomes more competitive.
Our clients are in search of new revenue sources increased operating in clinical efficiency.
And the ability to leverage technology to improve performance.
We continue to believe that our new and evolving offerings are well positioned to meet this demand for our clients.
We have spoken in recent quarters about our successful efforts in diversifying the range of offerings within our health care business, reflecting the changing nature of the health and health care environment, and the changing needs of our clients.
In recent example of how we are evolving our core business beyond our traditional offerings relates to our revenue cycle solution.
Our long standing relationship with Adventist Health has led to discussions we're having to establish a managed services model to support their revenue cycle operations.
The transition to Shiran is currently expected to begin in November once we have finalized the contract.
As part of this transition, we will lead and manage the administrative functions related to revenue cycle operations for Adventist health.
In conjunction with the anticipated transition real onboard approximately 100 managers as they continue to oversee the broader at Ventas motorcycle team.
We're excited about the prospect of establishing this new relationship with Inventus as we continue to enhance our offerings in support of the changing needs of our clients.
Today, we also announced a strategic investment in and new partnership with medically home.
Medically home partners with health systems, and all supportive stakeholders.
Basically shift advanced care from hospitals to patient homes.
Utilizing innovative clinical and typically technological infrastructure.
The company's unique model as a physician led and nurses powered medical command center that provides a centralized on demand acute medical care management in a home setting.
When appropriate receiving care at home can lead to higher quality care at a lower cost in that environment more conducive for patient recovery.
As a part of our new relationship we have become a strategic implementation partner to medically home.
Our role in supporting the implementations Leverages, our core strengths focusing on areas, including but not limited to command center configuration acute rapid response supply chain implementation managed care strategy and project management.
We believe that with our new and evolving offerings, we can help our clients strategically and operationally address the many challenges facing the healthcare industry.
The business Advisory segment continued to perform well during the quarter growing 9% organically over Q3 2018.
Growth in the quarter was driven by the us in a business advisory and life Sciences businesses.
We remain focused on growing our commercial sector businesses, particularly in the financial services life Sciences energy and utilities and manufacturing industries.
We believe we have a meaningful competitive advantage, given our scale and ability to collaborate combining our strategy technology and operational competencies with our strong industry expertise.
We believe the business Advisory segment will continue to be a driver of growth for Huron as we expand our commercial competencies.
In the business Advisory segment. We're also focused on collaboration within our core industries of health care and higher education.
The first nine months of 2019.
Business Advisory segment generated 33% of its total revenues in healthcare and education industries.
Year to date business Advisory segment revenues generated in healthcare and education industries are up 21% over the same period in 2018.
Turning now to Education Education segment revenues in Q3, 2019 grew 12% over the same period in 2018.
The strong quarter over quarter growth was led primarily by our research and cloud ERP solutions.
At the end of 2019, we anticipate this business will achieve five consecutive years of double digit percentage organic revenue growth and we believe we remain well positioned in the market as or higher education clients continued to face unprecedented strategic financial and operational challenges.
We've accelerated the hiring of resources in our education business in areas. We believe will drive future growth. So we can capitalize on market opportunities as we position ourselves for continued growth in 2020.
Finally, let me turn to our outlook for the year.
As our press release indicates we are increasing our annual revenue guidance to 850 to 865 million.
And narrowing our adjusted EBITDA guidance in a range of 12% to 12.3% of revenues.
We now expect an increasing adjusted diluted earnings per share in a range of 20% to 27% over 2018.
We raised our revenue guidance to reflect the current and anticipated demand for our services for the remainder of the year.
We narrowed our adjusted EBITDA range, while increasing our adjusted EPS range as we continue to drive operational efficiencies and manage expenses, while still investing in our capacity to deliver strong organic growth.
We believe we are continuing to build a solid foundation from which we can grow revenue margins and earnings.
We are in the midst of our two 2020 planning process and are focusing on prioritizing investments that we believe will support our future growth, we have and will continue to invest in areas that we believe will drive organic revenue growth across all three segments.
We're also investing in technology infrastructure that we believe will increase productivity and drive efficiency across our client facing and corporate activities.
These investments aligned with our long term financial strategy of achieving sustainable organic growth and improved profitability over time.
Finally, we're obviously pleased with our solid performance so far this year.
I'm fortunate to be working with an incredibly talented team of people across all of our practices and on our and in our corporate departments that share our vision and passion for helping our clients to successfully growing this company.
Without their efforts none of this would be possible.
Now, let me turn it over to John for a more detailed discussion of our financial results.
Thank you Jim and good afternoon, everyone.
But 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 10-Q, Investor Relations page on the German website have reconciliations of these non-GAAP measures to the most comparable GAAP measures along with the discussion of why management uses these non-GAAP measures in why management believes they provide useful information to investors regarding our financial condition and operating results.
Also my comments today are all on a continuing operations basis.
Now, let me walk you through some of the key financial results for the quarter.
Revenues for the third quarter of 2019 for $219.3 million up 10.5% from $198.4 million in the same quarter of 2018.
The increase in revenues in the quarter was driven by solid organic growth across all three operating segments.
Net income was $13.7 million for 61 cents per diluted share in the third quarter 2019, compared to $8.2 million or 37 cents per diluted share in the same quarter in the prior year.
Our effective income tax rate in the third quarter, 2018 was 15% compared to 14.4% a year ago.
Our effective tax rate for Q3, 2019 was more favorable than the statutory rate inclusive of state income taxes, primarily due to discrete tax benefits for us federal return to provision adjustments related to the 2018 corporate income tax return.
And a previously unrecognized benefit due to the expiration of statute of limitations on our check the box election made in 2015 to treat wholly owned foreign subsidiaries as disregarded entities for us federal income tax purposes.
Adjusted EBITDA was $28.8 million in Q3 2019.
13.1% of revenues compared to $24.7 million in Q3, 2018 or 12.5% of revenues.
Adjusted non-GAAP net income was $17.7 million or 79 cents per diluted share in the third quarter 2019, compared to $14.1 million or 64 cents per diluted share in the same period of 2018.
Now I'll make a few comments about the performance of each of our operating segments.
The healthcare segment generated 46% of total company revenues during the third quarter of 2019. This segment posted revenues of $100 million from the third quarter of 2019.
Up $9.6 million or 10.6% from the third quarter 2018.
The increase in revenue was driven by demand in our performance improvement business.
Performance based fees in Q3, 2019 were $16.3 million compared to $8.4 million at the same quarter last year.
Our full year expectation for the range of performance based fees remains $60 million to $70 million.
Operating income margin for health care was 32.9% for Q3 2019 compared to 29.5% for the same quarter in 2018.
The year over year increase in margin was primarily due to revenue growth that outpaced expenses.
We continue to expect healthcare segment operating margins to be in the 30% to 32% range for full year 2019.
The business Advisory segment generated 28% of total company revenues during the third quarter of 2019.
Segment posted revenues of $62.5 million in Q3 2019.
$5.3 million from 9.3% from the third quarter 2018.
The increase in revenue during the third quarter was driven by the SNA business Advisory and life Sciences businesses.
The operating income margin for the business Advisory segment was 19.1% for Q3 2019 compared to 20.7% for the same quarter in 2018.
The decrease in operating margin was primarily attributable to increases in salaries and related expenses performance bonuses and share based compensation expense for our revenue generating professionals.
We continue to expected the business advisory segment operating margin to be in the 20% 22% range for full year 2019.
Dedication segment generated 26% of total company revenues during the third quarter 2019.
Segment posted record revenues of $56.8 million in Q3 2019.
Up $5.9 million for 11.6% from the third quarter of 2018.
The increase in revenue was driven by our research in cloud ERP solutions.
The operating income margin for education was 25.4% for Q3 2019 compared to 29.5% for the same quarter in 2018.
The decrease in operating margin was primarily attributable to increases in salaries and related expenses performance bonuses and share based compensation expense for our revenue generating professionals as well as increased contractor expenses.
We continue to expect education segment operating margins to be in the 20, 426% range for full year 2019.
Other corporate expenses, not allocated that segment level or $32.3 million in Q3, 2019, compared with $30.5 million in Q3 2018.
The Q3 2019 total.
Includes $600000 of transaction related expenses, and an increase in salaries and related expenses, including share based compensation expense for our support personnel.
Now turning to the balance sheet and cash flows.
Dsos came in at 70 days for the third quarter 2019, compared to 67 days for the second quarter 2018.
The increase in Dsos, primarily reflects the impact of increased with uncertain healthcare engagements, where the contractual scheduled billings and revenue recognized through September thirtyth will according to occur in the fourth quarter in early 2020.
Now expect dsos to be approximately 65 days by the into 2019.
Total debt as of September Thirtyth 2019 includes the $250 million face value of convertible notes.
$50 million and senior bank debt and a $4 million promissory note for total debt $304 million.
We finished the quarter with cash of $49.4 million per net debt of $255 million.
This was a $46 million decrease compared to Q2 with 2019.
Our leverage ratio as defined in our senior Bank agreement was 2.4 times trailing 12 month adjusted EBITDA at the end of Q3 2019.
32.6 times trailing 12 month adjusted EBITDA as of June Thirtyth 2019.
On October Onest, we used our revolving credit facility and approximately $33 million of cash on hand, it to pay off our convertible notes.
Our pro forma leverage on October Onest as defined in our senior Bank agreement was 2.2 times, our trailing 12 month adjusted EBITDA.
Cash flow generated from operations in the third quarter, 2019 was $58 million and we use $6.7 million of our cash to invest and capital expenditures.
Inclusive of internally developed software costs, resulting in free cash flow $51.3 million.
During the third quarter, we amended and extended our revolving credit facility. The amendment increased our borrowing capacity to $600 million extended the term until the third quarter of 2024 improved pricing and provided additional covenant flexibility.
The amendment agreement provides ample capacity and flexibility to pursue a balanced capital deployment approach consistent with our sustainable growth strategy.
In terms of our balanced capital deployment approach our primary focus is on reducing our borrowings and driving our leverage ratio is defined in our seat senior bank agreement below two times adjusted EBITDA.
We also anticipate deploying cash on share repurchases to offset the annual share based solution created by our share based compensation programs.
To the extent that there are strategic tuck in acquisition or investment opportunities, but the direct connection to our strategy and a strong financial return profile will also consider those opportunities.
Finally, we do expect increased balance sheet investment in technology infrastructure.
Both to support our revenue generating data and analytics capabilities.
And also to support our internal operations as we grow continue to work collaboratively across practices and established new business models.
As Jim noted, we are raising our full year 2019 revenue guidance to 850 million to $865 million.
In addition, we're narrowing our full year adjusted EBITDA guidance to be in a range of 12% to 12.3% of revenues.
And now anticipate an increase in full year adjusted non-GAAP diluted earnings per share in a range of 20% to 27% over full year 2018.
Finally, we now expect our full year effective tax rate to be approximately 25%. We continue to expect cash flows from operations for the year to be in a range of one on $110 million.
We expect capital expenditures sort of expenditures for the year inclusive of internally developed software costs to be approximately $20 million to $24 million and free cash flow for the year to be in a range of $80 million to $90 million net of taxes and interest in excluding noncash stock compensation.
Thanks, everyone I would now like to open up the call to questions operator.
Thank you ladies and gentlemen, if you have a question at this time. Please press star one on you touched on telephone.
Your question asked and answered how are you willing to move your stuff from the Q you may do sell by pressing the county.
Our first question.
And our first question comes from Tobey Sommer with Suntrust. Your line is open.
Thank you could you expand a little bit on.
Revenue cycle.
Business and.
The relationship sort of the term and profit profile that you see unfolding over time.
Sure Toby I'll start it off and then Jim remark man some color.
So the the contract.
We should note Jim mentioned on the call, but we're still finalizing all the details on the contract but on the contracts going to include both a managed services component as well as a performance based incentive component and that performance based incentive component of any based on the financial and operational improvements that we're able to drive in collaboration with the client.
So based on the size of the client environment.
As Jim noted, we expect to that we'll be taking on nearly 100 employees.
And the combination of both of those components of managed services and the performance part of it are more expecting this job on annual basis to be larger than a typical large integrated performance improvement type project. The exact size is going to depend on on how much incentives were able to drive, but I think you know at a minimum.
It's probably going to be to the neighborhood 30 million dollar a year contract.
We expect the contribution margin on it.
Probably to be slightly lower than a difficult performance improvement project given the overall mix, including the managed services component, but we're not expecting it to cause any significant changes to our overall health care margins.
On the it's going to be a multi year contract significantly longer than one of our typical performance improved the contracts, which is just reflective of the deep partnership that we have on the client with us on so as to specifically thinking about 2020, I think we just want to be cautious because we're still in the midst. So the 2020 planning cycle and I think it's important to.
I look at this in the context of our full outlook when we give that in February but then the other important thing I notice. This client was a client of ours in 2019 as well so it's not going all the incremental in 2020.
Okay.
Thank you for that.
Does this represent.
A new sales initiative in new kind of line of business.
Yes.
Such that you'll be pursuing.
Other relationships similar to this to.
Gain scale and maybe improve the that incremental.
Of that that kind of project level profitability. Thanks.
Coverages, Jim I'll respond to that we do think those prospects were having additional.
Relationships like this in the future for US I think probably more importantly, I mean is not just in health care as across all our businesses. We were looking for opportunities to help our clients really.
Help them.
Change the way that they're running their businesses and help us help them constant through how to maneuver through a very competitive and transitory environment in two of financial services to healthcare through an education. So was there environment continues change we are doing the best we can to continue to provide the kind of services both from a.
Technology perspective, and project management perspective that operational perspective to help them for new through this change.
We said this before but there is so much transition taking place in our clients environments and we feel really good about the way that we positioned ourselves to be able to be of assistance to them as their needs evolve and so thats really what this is doing this is a natural evolution for us in many respects and in this case, we know revenue cycle so well.
Well and we have the circumstance where client just wanted more of our project management support over the entire represent both cycle operation as opposed to be more of our system of the point type of solution. So we feel really good about this and I think you'll probably begin to see more.
Things like this not only in health care, but also as we continue to expand our offerings in our other services as well.
Okay.
Is this.
Reflective of our of broader push to.
The increase the proportion of recurring services or am I.
Go it go to bridge too far enough.
It certainly has an attribute of this but I don't think that Thats. Our primary objective on our primary objective is willing to help our clients sort out.
Ways for them the best for Us.
Yes, there are issues there their operational challenges.
I think the fact that this has some ongoing revenue opportunities for US is certainly a positive for us, but it's not the primary objective for us.
Okay, and then two things I want to touch on the education business.
It sounded like you were describing a a ramp for acceleration in internal hiring maybe give me some context or if I heard that correctly and then.
What does the horizon looked like for.
Catalyst demand, particularly on sort of cloud implementations as.
The major software vendors.
Come out with the kind of more significant education modules. Thanks.
So I will allow us to answer the second one first Toby.
Clearly a lot of our growth of both in Fts, but also in revenue has been coming from our cloud based solutions across multiple vendors in education, and so I think youre going to continue to see that weve. Most of the work that we've done so far has been around financials and HCM with different vendors in the education.
Space.
As we've been talking about for the last.
Your and a half or two we expect to have a ramp up in the student part of the cloud solution as well the.
The current maturity of the product remains a little but behind.
And so we're having to wait a little bit on that that's affected more of our larger research universities to a lesser extent that's affected some of the smaller less complex institutions, but I think what you're seeing right now as we have very high aspirations for continued growth us as the education market continues to transition to the cloud we think will.
Well, we're well positioned across multiple channels and I think you'll continue to see that is being more primary drivers for our growth in this business.
Yes and.
Tobey. This is John I'll, just add we have been hiring on during the back half of the year third quarter into the fourth quarter really reflective of some of that anticipated demand that just describing so that's been something that we've been doing a build up the team.
And really the other thing I'd note. If you look across the board so even beyond the education segment, but if you look at all three segments on there is notable increases in head count on this quarter versus last quarter, that's reflective of our view of demand in the different parts of the business, but also on it is the quarter. The when we do a lot of our campus hiring and yet a lot of headcount.
Coming from framing that recruiting route so to some extra color there.
Thank you very much I'll get back into queue.
Thank you and as a reminder, if you would like to ask the question Press Star one on you touched on telephone.
And our next question comes from Kevin. Thank you with Barrington Research. Your line is open.
Good afternoon.
So.
You guys again cited.
Your collaboration efforts across segments in terms of.
Serving more healthcare and education clients with your business advisory offerings, I think is up to 33%.
Of the segment's revenue in the first nine months.
Is there a particular goal you have with with regard to what percent of revenue you'd like to see.
Business advisory coming from healthcare and education or should we just kind of expected to continue to incrementally.
Wrapping up as a percentage as you focus your efforts there.
Yes, Kevin as Jim It's interesting I don't think we have a goal in mind I mean to some extent it's more the reason we highlighted is more reflective of reflective of I think some competitive advantages that we have in terms of being able to take the kind of competencies that we have in in the business Advisory segment.
We particularly around strategy and technology, and bringing them into our core industries of health and education and I think that combination has been really successful for us is what our clients are demanding and the reason we highlighted is I think it's just one of the strengths Chevron has in terms of our ability to not just collaborate in theory, but actually together.
Don So there is a part of me that actually loved would love to see that percentage go down because it simply mean that that the commercial part of our business is continuing to grow and we absolutely expect that to be happening. So it's less about us achieving some type of percentage, let alone a higher percentage and more of our intent is to be able to demonstrate the fact that we have what I think as of bill.
Good work across our organizational boundaries to two of results in ways that are resonating with our clients.
Great Okay, great got it thank you.
You might have touched on it a bit or maybe I missed it but can you just.
Maybe discuss the various.
Practices within the business Advisory segment performed in the quarter what maybe.
Really stood out.
In terms of performance there.
Sure. Kevin This is John I'm happy to take that if you look in the third quarter from revenue perspective.
We had some nice growth really in our SNA segment from a technology perspective, as well as within the legacy business advisory part of the business, which is.
Kind of a traditional distressed part of the business they've been really strong throughout the year, particularly during the third quarter. They were very highly utilized.
Insight was down about $3 million, if you're looking at the third quarter this year versus the third quarter last year.
We continue to be encouraged by their pipeline and the opportunities that they're seeing it some very large and procedures clients I think from the beginning we've always described this business is one thats going to be a little bit lumpy relative to its size relative to their size. They tend to have a small number of bigger jobs. So that dollar amount I gave that could be.
Literally a job or too and they also had a tough comparison two at a very strong third quarter last year, and there's going to be a little bit of that effect. We look at the fourth quarter Twoq is at a very strong fourth quarter last year too.
And then life Sciences also grew during the quarter on generally inline with our with our expectations.
Okay. Thanks Thats helpful. You mentioned.
The legacy.
Practice.
Having strong performance there I mean.
Do you see.
Any significant pickup in financial distress due to economic conditions happening among your client base.
Within business advisory is specifically for that practice or they just kind of on a role with with winning new work.
And just any color there might be helpful.
Kevin This is Jim I think they're probably on a role in an environment that has a lot of distress in at right now and I think theyre just it's an indication. This at the market speaks there's lots of competition out there and the fact that market is challenged I mean, a lot of the there was a lot of distress out there and they come to us from a solution. This group was extraordinarily busy this past.
Third quarter and I think it's just reflective of the fact that they've got a really great reputation and and they can deliver some pretty solid results. So so I think that market. I think we continue to think that type of distressed situation, particularly in the middle market area has been pretty stressed and I think we'll continue to benefit us as we go forward.
Okay got it.
And could you just maybe talk a little bit more about the.
The partnership with medically home strategic implementation partner relationship there I mean in what.
You are hearing from your clients serves the demand you're seeing from clients.
For the service that.
Led you to to enter into that partnership.
Yes, so I'll tell you what's driving this means we have as we've talked about for a long time I think the way that care as being provided continues to change we are we still talk about.
Kind of commercialization of healthcare in that it's been to unlock that your corner drugstore. While this is I think just another continued.
Avenue for health care to be delivered Theres, no question that that all things being equal and they're not but all things being equal you're better off probably in many cases being treated at home if if its medically appropriate can feasible.
So there are certain.
Services that could easily be performed at a hospital, but I think it's the probably lower cost environment in the home.
I think there's there are.
Samples, where it's much better for the for the patient in the caregivers. So is it doesn't it's not it's not applicable in all circumstances, but when it is applicable I think the some significant cost and quality opportunities and so medically home is really trying to work with the hospitals and to go back and basically say, if theres an opportunity for us to effectively treat a pace.
And at home, let's work together. So this is not competing with the hospitals is working with the hospitals to deliver this type of service to.
In the patients home and so I think this is inevitable in terms of the direction of this is going to be going.
Scaling this business is hard to medically homes. We think has a model thats really thats really well thought out and has already been began to indicate the fact that they can in fact scale and we're going to actually thats part of our role as related to be helping them scale the business and be pulled together the infrastructure, that's going to be necessary to do that.
Okay great.
In terms of the adjusted EBITDA margin guidance. It just came down a touch on the high end, John just any any thoughts on.
The piece of the guidance.
Ed attributed to really two main factors, Kevin first we do continue to higher.
A very strong pace reflected the demand that we see.
And really across our markets. So I think the way it's working out this year, we've been adding debt head count and a strong case I think we all that that head count is helping to drive revenue that's at least covering the cost of those heads, but we're probably not at full utilization and full incremental margins rate on that hiring yet. So I think that has a little bit of a dampening effect on the 20.
19 full year margins.
And then secondly, just probably a little bit of mix in there to talk about the business Advisory segment I'd say for looking from an overall perspective, yes, now has grown at a faster pace on them, what we anticipate beginning of the year.
In in aside I mentioned data.
A tough comp in the third quarter this year and potentially in the fourth quarter as well. So I'd say that's net of all that is put a little bit of pressure on the margins and that's why we brought the midpoint of the EBITDA margin percent guidance down by about 10 basis points.
Okay, great. Okay, great yeah. Thanks for taking the questions I saw ahead. Thank you.
Thank you and our next question comes from.
Andrew neglect with William Blair. Your line is open.
Hi, good afternoon.
Just wanted to touch a little bit first on healthcare.
Hoping you could provide a little bit more color on the makeup of growth in the period I know you mentioned.
Few times, the strength and performance improvement drove the good quarter, but if you could maybe speak to revenue cycle and studer and some of the other pieces of that business and how they performed in the period.
Sure Andrew I can start Genmark in had any color to it I'd say from AD performance performance improvement was certainly the strongest.
Strongest business within our healthcare segment during the quarter. They had a really nice growth year over year I would characterize that growth within the performance improvement as.
Balanced amongst the different offerings within performance improvement on certainly from a.
Revenue cycle perspective continues to remain a robust market. We continue to have some nice growth in that area, but like we talked about on prior calls on its more than just revenue cycle really across the board within performance improvement, we're seeing solid demand on really within all the different areas of that offering I would say.
Hey, Studer group was generally in line with the expectations that we set out to gain year and then our technology group.
Was down.
A couple million box during the quarter, we don't think that Theres anything.
Structural about that we think is just a little bit softer quarter I'm always look at the opportunities in the pipeline, we feel good about that business, where it's trending.
But it was really certainly the offerings within performance improvement that drove the growth in the quarter.
Great. That's helpful. Thank you and then just in terms of deferred stepping back and looking at the business.
As a whole any any comment that you make on kind of the size of the projects you're seeing.
Both in the quarter and looking at your existing pipeline that is it still.
Trending towards smaller projects as a whole are there other bigger pieces that you are seeing pop up just any update there would be helpful.
So it's certainly still.
Smaller jobs that lease while we saw several years ago from performance improvement perspective, I think as Weve discussed of the year evolve on those there have been some medium size to larger size jobs that we've seen on as to our clients have.
Yes had demand for our services in those areas. So I'd say, it's been modestly trending a little bit higher but I'd say, we're still an environment, where the jobs are on average a much smaller than there were several years ago.
Got it and then just last one from me just in terms of fourth quarter guidance is the revenue cycle when.
I would add and test embedded in there at all or is the fact that hasn't officially tenet been signed you mean that could be an area of upside.
So it is it's embedded in the guidance Andrew Okay. All right. Thank you.
Thank you.
And we have a follow up from Tobey Sommer with Suntrust. Your line is open.
Thanks could you expand upon your description in the prepared remarks of increased.
Tech investments.
Im curious about that in.
Net and then secondly, a separate question could you comment about the capital deployment I think you referenced balanced but in the prior quarter you had.
Some professional fees associated with looking at that a potential acquisition and then made an investment this quarter. So just kind of want to get your your update on that the tendency towards organic growth rather than inorganic.
You Tom sure Tobey I am happy to Ed I'm happy to take both of those so from a technology perspective technology investment perspective, I'd say, it's generally across the board, we're making investments. We noted in the prepared remarks, and we'll continue to make investments in our analytics platform, which is a tool that.
We used to help drive enable our consulting engagements and drive tribe insights for our clients, although thats something that we're pretty excited about as some that's where we're going to enhance some of our consulting offerings.
We also.
At making an investment in our internal technology infrastructure.
There is a few components of that but the biggest one is we are upgrading our ERP system to consolidate tools across different areas like HR and finance.
Address more functionality, that's really going to enable our strategy.
So thats those of you the big ticket items that were talking about.
Thanks, and one last follow up on the revenue cycle.
In the adventurous relationship.
What the Companys competitive advantage compared to firms that have been in.
The the outsourced revenue cycle business for for a long time.
Okay.
Tobey this is Jim.
I think.
We happen to know that revenue cycle business, I think as well as anybody I think thats really when it falls down to enough nothing more on the fact is that at Ventas has been a good client of ours for a long period of time across a variety of of services and the reality is that when it's it's obviously the rubber to cycle part of this is.
A huge component for any health system, let alone at Ventas, and and I think to put your trust and confidence in the management of that critical part of the business you want to do you want to be doing something with somebody that you have confidence in and be somebody that really knows.
Your business, well and I think thats, what it is with US we really have.
Felt really good about our relationship with at Ventas is just a great organization has run very well and we're just really product. The fact that come to us with this really important part of their business.
And at Tobey I, just realized I inadvertently did not answer your second question, which was on the capital deployment strategy and I'll just circle back on that real quick the.
Were our strategy is around organic revenue growth. That's our primary focus on like we mentioned on prior calls to the extent that theres a tuck in type.
Investments or acquisition, where.
We think it can be incremental to the business either because it's.
Giving us an immediate.
Assembled team talented team or some capabilities that otherwise would have to go out and try to organically higher in the market, we can get to market quicker what that might be an area, where we'd look at it but that's all going to be in the context of the overall strategy, which is organic so it's still kind of view it.
In that lens and Thats part of what we need by the balanced capital deployment strategies of the open to that but the focus will be on organic revenue growth.
Thank you for circling back advantage.
Thank you and as a reminder, if you would like to ask a question press Star one are you touched on telephone.
And I'm showing no further questions at this time I'd like to turn the call back to Mr., Jim Roth for any closing remarks.
Thank you very much for spending time with us. This afternoon, we look forward to speaking with you again in February when we announce our fourth quarter results have a good evening.
Ladies and gentlemen. This concludes today's conference call. Thank thank you for everyone's participation you may now disconnect and have a great.
Okay.
Okay.
Good afternoon, ladies and gentlemen, and welcome to Toronto consulting groups webcast to discuss financial results for the third quarter 2019.
This time all conference call lives I want to listen only mode. Later, we will conduct a question and answer session for conference call participants and instructions will follow with that Todd as a reminder, this conference call is being recorded.
Before with again I would like to point.
All of you point to all of you.
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 releases posted on <unk> website.
Please review that information along with the filings with the FCC for disclosure of factors that may impact subjects discussed and this afternoon's webcast. The company will be discussing one or more non-GAAP financial measures.
Please look at the earnings release at one sure watch website for all of the disclosures required by the FCC, including reconciliations to the most comparable GAAP numbers.
And now I'd like to turn the call over to Jim Roth, Chief Executive Officer of Huron Consulting group. That's Roth. Please go ahead.
Good afternoon, and welcome to Huron consulting groups third quarter 2019 earnings call with me today as John Kelly, Our Chief Financial Officer, Mark I see our president and Chief operating Officer.
You're on delivered 11% organic revenue growth in the third quarter, our strong third quarter performance was driven by continued organic growth across all three operating segments.
This is the six consecutive quarter, while we have delivered year over year organic revenue growth.
Two years ago, we developed a strategic plan aimed at transforming our business to respond to the substantial change that continues to take place and our primary markets.
The focus of this plan was to make sure that we were innovative in evolving our services such that we wouldn't be successful and helping our clients anticipate and manage through the significant change in their own businesses.
Examples are successful innovation are visible and all of our segments and I believe that these new services along with the success of our core offerings form the foundation for continued organic growth.
I will now provide a brief overview of the performance for each segment and then John will add color to the financials.
Let me begin with with health care.
During the third quarter healthcare segment revenues grew 11% compared to the prior year quarter.
Quarter over quarter growth was driven by continued strong results in our performance recruitment business.
Our health system and academic health set of clients continue to face a challenging environment as the market becomes more competitive.
Our clients are in search of new revenue sources increased operating a clinical efficiency.
And the ability to leverage technology to improve performance.
We continue to believe that our new and evolving offerings are well positioned to meet this demand for our clients.
We have spoken in recent quarters about our successful efforts and diversifying the range of offerings within our health care business, reflecting the changing nature of the health and health care environment, and the changing needs of our clients.
A recent example of how we are evolving our core business beyond our traditional offerings relates to our revenue cycle solution.
Our long standing relationship with Adventist Health has led to discussions we're having to establish a managed services model to support their revenue cycle operations.
The transition to Shiran is currently expected to begin in November once we have finalized the contract.
As part of this transition, we will lead and manage the administrative functions related to revenue cycle operations for Adventist health.
In conjunction with the anticipated transition, we will onboard approximately 100 managers as they continue to oversee the broader than just noticed cycle team.
We are excited about the prospect of establishing this new relationship with Inventus as we continue to enhance our offerings in support of the changing needs of our clients.
Today, we also announced the strategic investment in a new partnership with medically home.
Medically home partners with health systems, and all support of stakeholders safe, we ship advanced care from hospitals to patients homes.
Rising innovative clinical and technological infrastructure.
The company's unique model, it's a physician led and nurse powered medical command center that provides a centralized on demand acute medical care management and a home setting.
When appropriate receiving care at home can lead to higher quality care at a lower cost in an environment more conducive for patient recovery.
As a part of our new relationship we have become a strategic implementation partner to medically home.
Our role in supporting the implementations Leverages, our core strengths focusing on areas, including but not limited to command center configuration acute rapid response supply chain implementation.
Managed care strategy and project management.
We believe that with our new and evolving offerings, we can help our clients strategically and operationally address the many challenges facing the healthcare industry.
The business Advisory segment continued to perform well during the quarter, we're only 9% organically over Q3 2018.
Yes in the quarter was driven by the SNA business Advisory and life Sciences businesses.
We remain focused on growing our commercial sector businesses, particularly in the financial services life Sciences energy and utilities and manufacturing industries.
I believe we have a meaningful competitive advantage, given our scale and ability to collaborate combining our strategy technology and operational competencies with our strong industry expertise.
We believe the business Advisory segment will continue to be a driver of growth for Huron as we expand our commercial competencies.
The business Advisory segment. We're also focused on collaboration within our core industries of health care and higher education.
Your first nine months of 2019, the business Advisory segment generated 33% of its total revenues in healthcare and education industries.
Year to date business Advisory segment revenue was generated in healthcare and education industries are up 21% over the same period in 2018.
Turning now to Education Education segment revenues in Q3, 2019 grew 12% over the same period in 2018.
Strong quarter over quarter growth was led primarily by our research and cloud ERP solutions.
At the end of 2019, we anticipate this business will achieve five consecutive years of double digit percentage organic revenue growth.
And we believe we remain well positioned in the market as or higher education clients continued to face unprecedented strategic financial and operational challenges.
We've accelerated the hiring of resources in our education business and areas, we will drive future growth. So we can capitalize on market opportunities as we position ourselves for continued growth in 2020.
Finally, let me try to our outlook for the year.
As a press release indicates we are increasing our annual revenue guidance to 850 to 865 million.
And narrowing our adjusted EBITDA guidance range of 12% to 12.3% of revenues.
We now expect an increasing adjusted diluted earnings per share in a range of 20% to 27% over 2018.
We raised our revenue guidance to reflect the current and anticipated demand for our services for the remainder of the year.
We narrowed our adjusted EBITDA range, while increasing our adjusted EPS range as we continue to drive operational efficiencies and manage expenses, while still investing in our capacity to deliver strong organic growth.
We believe we are continuing to build a solid foundation from which we can grow revenue margins and earnings.
We are in the midst of our two 2020 planning process and are focusing on prioritizing investments that we believe will support our future growth.
We have and will continue to invest in areas that we believe will drive organic revenue growth across all three segments.
You also invest in technology infrastructure that we believe will increase productivity and drive efficiency across our client facing in corporate activities.
These investments aligned with our long term financial strategy of achieving sustainable organic growth and improved profitability overtime.
Finally, we're obviously pleased with our solid performance so far this year.
Fortunate to be working with an incredibly talented team of people across all of our practices and are in our corporate departments that share our vision and passion for helping our clients to successfully growing this company.
Without their efforts none of this would be possible.
Now, let me turn it over to John for a more detailed discussion of our financial results.
Thank you Jim and good afternoon, everyone.
Before I begin. Please note that I will be discussing non-GAAP financial measures such as EBITDA adjusted EBITDA adjusted net income adjusted EPS and free cash flow.
Our press release 10-Q, Investor Relations page on the you're on web site have reconciliations of these non-GAAP measures to the most comparable GAAP measures along with a discussion of why management uses these non-GAAP measures and why management believes they provide useful information to investors regarding our financial condition and operating results.
Also my comments today are all on a continuing operations basis.
Now, let me walk you through some of the key financial results for the quarter.
Revenues for the third quarter of 2019 were $219.3 million up 10.5% from $198.4 million in the same quarter of 2018.
The increase in revenues in the quarter was driven by solid organic growth across all three operating segments.
Net income was $13.7 million or 61 cents per diluted share in the third quarter 2019.
Compared to $8.2 million or 37 cents per diluted share in the same quarter in the prior year.
Our effective income tax rate in the third quarter, 2018 was 15% compared to 14.4% a year ago.
Our effective tax rate for Q3, 2019 was more favorable than the statutory rate.
Most of of state income taxes, primarily due to discrete tax benefits for us federal return to provision adjustments related to the 2018 corporate income tax return.
And a previously unrecognized benefit due to the expiration of statute of limitations on our check the box election made in 2015 to treat wholly owned foreign subsidiaries disregarded entities for us federal income tax purposes.
Adjusted EBITDA was $28.8 million in Q3 2019.
18.1% of revenues compared to $24.7 million in Q3, 2018 or 12.5% of revenues.
Adjusted non-GAAP net income was $17.7 million or 79 cents per diluted share in the third quarter 2019, compared to $14.1 million for 64 cents per diluted share the same period of 2018.
Now I'll make a few comments about the performance of each of our operating segments.
The healthcare segment generated 46% of total company revenues during the third quarter of 2019. This segment posted revenues of $100 million from the third quarter 2019.
Up $9.6 million or 10.6% from the third quarter 2018.
The increase in revenue was driven by demand in our performance improvement business.
Performance based fees in Q3, 2019 were $16.3 million compared to $8.4 million at the same quarter last year.
Our full your expectation for the range of performance based fees remains $60 million to $70 million.
Operating income margin for healthcare was 32.9% for Q3 2019 compared to 29.5% for the same quarter in 2018.
The year over year increase in margin was primarily due to revenue growth that outpaced expenses.
We continue to expect healthcare segment operating margins to be in the 30% to 32% range for full year 2019.
The business Advisory segment generated 28% of total company revenues during the third quarter of 2019.
Segment posted revenues of $62.5 million in Q3 2019.
$5.3 million or 9.3% from the third quarter 2018.
The increase in revenue during the third quarter was driven by yesterday business advisory to life Sciences businesses.
The operating income margin for the business Advisory segment was 19.1% for Q3 2019 compared to 20.7% the same quarter in 2018.
The decrease in operating margin was primarily attributable to increases in salaries and related expenses performance bonuses and share based compensation expense for our revenue generating professionals.
We continue to expected the business advisory segment operating margin to be in the 20% 22% range for full year 2019.
The education segment generated 26% of total company revenues during the third quarter 2019.
Segment posted record revenues of $56.8 million in Q3 2019.
$5.9 million for 11.6% from the third quarter of 2018.
The increase in revenue was driven by our research in cloud ERP solutions.
The operating income margin for education was 25.4% for Q3 2019 compared to 29.5% for the same quarter in 2018.
The decrease in operating margin was primarily attributable to increases in salaries and related expenses performance bonuses and share based compensation expense for our revenue generating professionals as well as increased contractor expenses.
We continue to expect education segment operating margins to be in the 20, 426% range for full year 2019.
Other corporate expenses, not allocated that segment level or $32.3 million in Q3 2019.
$30.5 million Q3 2018.
The Q3 2019 total.
Includes $600000 of transaction related expenses, and an increase in salaries and related expenses, including share based compensation expense for our support personnel.
Now turning to the balance sheet and cash flows.
Dsos came in at 70 days for the third quarter 2019, compared to 67 days for the second quarter 2019.
The increase in DSL, primarily reflects the impact of increased with on certain health care engagements, where the contractual schedule billings and revenue recognized through September thirtyth recalling occur in the fourth quarter in early 2020.
We now expect Dsos to be approximately 65 days by the into 2019.
Total debt as of September Thirtyth 2019 includes the 250 million dollar face value of convertible notes.
$50 million in senior bank debt any $4 million promissory note for total debt $304 million.
We finished the quarter with cash of $49.4 million per net debt of $255 million.
This was a $46 million decrease compared to Q2 with 2019.
Our leverage ratio as defined in our senior Bank agreement was 2.4 times trailing 12 month adjusted EBITDA at the end of Q3 2019 compared to 2.6 times trailing 12 month adjusted EBITDA as of June Thirtyth 2019.
On October Onest, we used our revolving credit facility and approximately $33 million of cash on hand to pay off our convertible notes.
Pro forma leverage on October Onest as defined in our senior Bank agreement was 2.2 times, our trailing 12 month adjusted EBITDA.
Cash flow generated from operations in the third quarter 2019 was $58 million and we use $6.7 million of our cash to invest and capital expenditures inclusive of internally developed software costs, resulting in free cash flow $51.3 million.
During the third quarter, we amended and extended our revolving credit facility. The amendment increased our borrowing capacity to $600 million extended the term until the third quarter of 2024 improved pricing and provided additional covenant flexibility.
The amendment agreement provides ample capacity and flexibility to pursue a balanced capital deployment approach consistent with our sustainable growth strategy.
Most of our balanced capital deployment approach our primary focus is on reducing our borrowings and driving our leverage ratio is defined in our seat senior bank agreement below two times adjusted EBITDA.
We also anticipate deploying cash on share repurchases to offset the annual share based solution created by our share based compensation programs.
To the stuff that there are strategic tuck in acquisition or investment opportunities, but the direct connection to our strategy and a strong financial return profile will also consider those opportunities.
Finally, we do expect increased balance sheet investment in technology infrastructure.
Both to support our revenue generating data and analytics capabilities.
And also to support our internal operations as we grow continue work collaboratively across practices and established new business models.
As Jim noted, we're raising our full year 2019 revenue guidance to 850 million to $865 million.
In addition, we're narrowing our full year adjusted EBITDA guidance to be in a range of 12% to 12.3% of revenues.
And now anticipate an increase in full year adjusted non-GAAP diluted earnings per share in a range of 20% to 27% over full year 2018.
Finally, we now expect our full year effective tax rate to be approximately 25%. We continue expect cash flows from operations for the year to be in a range of one or $110 million.
We expect capital expenditures sort of expenditures for the year inclusive of internally developed software costs to be approximately $20 million to $24 million and free cash flow for the year to being a range of $80 million to $90 million net of taxes and interest excluding noncash stock compensation.
Thanks, everyone I would now like to open up the call to questions operator.
Thank you ladies and gentlemen, if you have a question at this time. Please press star one on you touched on telephone.
Your question asked and answered or you wish you move yourself from the Q you may do so by pressing the county.
Our first question.
And our first question comes from Tobey Sommer with Suntrust. Your line is open.
Thank you could you expand a little bit on.
The revenue cycle.
The business and.
The relationship sort of the term and profit profile that you see unfolding over time.
Sure I'll start it off and then Jim remark man some color.
So the contract.
We should note Jim mentioned on the call, but we're still finalizing all the details on the contract but on the contracts going to include both have managed services component as well as a performance based incentive component and that performance based incentive component based on the financial and operational improvements that we're able to drive in collaboration with the client.
So based on the size of the client environment.
As Jim noted, we expect that we'll be taking on nearly 100 employees.
And the combination of both of those components managed services and the performance part of it are more expecting this job on annual basis to be larger than a typical large integrated performance improvement type project that size is going to depend on.
How much incentives were able to drive but I. Thank you know at a minimum it's probably going to be in the neighborhood 30 million dollar a year contract.
We expect the contribution margin on it.
Probably to be slightly lower than a typical performance improvement project given the overall mix, including the managed services component, but we're not expecting it to cause any significant changes to our overall healthcare margins.
It's going to be a multi year contract significantly longer than one of our typical performance approved the contract which is just reflective of the deep partnership that we have on the client with us on so.
Specifically thinking about 2020, I think we just want to be cautious because we're still in the midst of the 2020 planning cycle and I think it's important to probably look at this in the context of our full outlook, while we give that in February but then the other important thing I noticed this client was a client of ours in 2019 as well so it's not going all the incremental in 2020.
Okay.
Thank you for that.
Does this represent.
A new sales initiative and new kind of line of business.
No.
Such that you'll be pursuing.
Other relationships similar to this to.
Gain scale and maybe improve the that incremental.
Of that kind of project level profitability. Thanks.
Topic as Jim I'll respond to that.
We do think those prospects were having additional.
Relationships like this in the future for US I think probably more importantly.
Just in health care as across all four businesses.
We're looking for opportunities to help our clients really.
Help them.
Changed the way that they're running their businesses and help us help them how to think through how to maneuver through a very competitive and transitory environment, it's true or financial services as to a health care as through an education. So as their environment continues change we are doing the best we can to continue to provide the kinds of services both from a.
Technology perspective, and project management perspective operational perspective to help them when you through this change.
We've said this before but there is so much transition taking place in our clients environments and we feel really good about the way that we've positioned ourselves to be able to be assistants to them as their needs evolve and so thats really what this is doing this is a natural evolution for us in many respects and in this case, we know revenue cycle.
So well and we have a circumstance where client just wanted more of our project management support over the entire revenues at port cycle operation as opposed to be more of a system.
Good point solution. So we feel really good about this and I think you'll probably begin to see more.
Things like this not only in healthcare, but also as we continue to expand our offerings in our other services as well.
Okay.
Is this.
Reflective of our of broader push to.
The increase the proportion of recurring services or am I.
Go ahead go to bridge too far.
Yes, it's certainly isn't attribute of this but I don't think that that's our primary objective. Our primary objective is going to help our clients sort out.
Ways for them the best for Us.
Yes, there are issues there their operational challenges.
I think the fact that this has some ongoing revenue opportunities for US is certainly a positive for us, but it's not the primary objective for us.
Okay, and then two things I wanted to touch on the education.
Business.
It sounded like you were describing a.
Ramp or acceleration in internal hiring maybe give me some context or if I heard that correctly and then.
What does the horizon looked like for.
Catalyst demand, particularly on sort of cloud implementations as.
The major software vendors.
Come out with the kind of more significant education modules. Thanks.
So I mean, I'll I'll ask through answer the second one first Toby.
Clearly a lot of our growth of Bolton Fts, but also in revenue has been coming from our cloud based solutions across multiple vendors in education, and so I think youre going to continue to see that we most of the work that we've done so far has been around financials in HCM with different vendors in the education.
Space.
As we've been talking about for the last.
You're an effort to we expect to have a ramp up in the student part of the cloud solution as well the.
The current maturity of the product remains a little bit behind.
So we're having to wait a little bit on that that's affected more of our larger research universities to a lesser extent that's affected some of the smaller less complex institutions, but I think what you're seeing right now as we have very high aspirations for continued growth is as the education market continues to transition to the cloud we think we're well.
All right, we're well positioned across multiple channels and.
I think you'll continue to see that is being more primary drivers for our growth in this business.
Yes and.
Tobey. This is John I'll, just add we have been hiring on during the back half of the year third quarter into the fourth quarter really reflective of some of that anticipated demand that Jim describing so that's been something that we've been doing that build up the team.
Really the other thing I'd note. If you look across the board so even beyond the education segment, but if you look at all three segments on there is notable increases in headcount.
This quarter versus last quarter, that's reflective of our view of demand in the different parts of the business, but also.
The quarter when we do a lot of our campus hiring and you have a lot of headcount coming from from me that recruiting route. So just some extra color there.
Thank you very much I'll get back into queue.
Thank you and as a reminder, if you would like to ask a question press Star one on you touched on telephone.
And our next question comes from Kevin. Thank you with Barrington Research. Your line is open.
Good afternoon.
So.
Yeah.
Again cited.
Your collaboration efforts across segments in terms of.
Serving more healthcare and education clients.
To your business advisory offerings, I think is up to 33%.
The segment's revenue in the first nine months.
Is there a particular goal you have with with regard to what percent of revenue you'd like to see in business advisory coming from healthcare and education or should we just kind of expected to continue to incrementally creeping up as a percentage as you focus your efforts there.
Yes, Kevin as Jim It's interesting I don't think we have a goal in mind I mean to some extent.
It's more the reason we highlighted is more reflective reflective of I think some competitive advantages that we have in terms of being able to take the kind of competencies that we have in in the business Advisory segment, we particularly around strategy and technology and bringing them into our core industries of Uh huh.
And education and I think that combination has been really successful for us is what our clients are demanding and the reason we highlighted is I think it's just one of the strength that you're on has in terms of our ability to not just collaborate in theory, but actually to get it done. So there's a part of me that actually look would love to see that percentage go down because it simply means that the commercial part of our.
Business is continuing to grow and we absolutely expect that to be happening. So it's less about us achieving some type of percentage, let alone a higher percentage and more of our intent and just to be able to demonstrate the fact that we have what I think his ability to work across our organizational boundaries to develop results in ways that are resonating with our clients.
Great Okay, great got it thank you.
You might have touched on it a bit or maybe I missed it but can you just.
Maybe discuss the various.
Practices within the business Advisory segment performed in the quarter, what maybe ill really stood out.
In terms of performance there.
Sure. Kevin This is John I'm happy to guide to take that if you look in the third quarter from a revenue perspective.
We had some nice growth really in our SNA segment from a technology perspective, as well as within the legacy business advisory part of the business, which is.
Kind of a traditional distressed part of the business they've been really strong throughout the year, particularly during the quarter. They were very highly utilized.
In a site was down about $3 million, if you're looking at the third quarter this year versus the third quarter last year.
We continue to be encouraged by their pipeline and the opportunities that they're seeing it some very large a prestigious clients I think from the beginning we've always described this business is one thats going to be a little bit lumpy relative to its size relative to their size. They tend to have a small number of bigger jobs. So that dollar amount I gave that can be.
Literally a job or too and they also had a tough comparison two at a very strong third quarter last year, and there's going to be a little bit of that effect will look at the fourth quarter Twoq is at a very strong fourth quarter last year too.
And then life Sciences also grew during the quarter on generally inline with our with our expectations.
Okay. Thanks Thats helpful. You mentioned.
The legacy.
Practice.
Having strong performance there I mean.
Do you see.
Any significant pickup in financial distress due to economic conditions.
Bidding among your client base.
Within business advisory specifically for that practice or they just.
Kind of on a role with with winning new work.
And just any color there might be helpful.
Kevin This is Jim I think they're probably on a role in an environment that has a lot of distress in at right now and I think theyre just it's an indication. This at the market speaks there's lots of competition out there and the fact that that market is challenged I mean, a lot of the there was a lot of distress out there and they come to us for those solutions. This group was extraordinarily busy this.
Yes third quarter and.
I think it's just reflective of the fact that they've got a really great reputation and and they can deliver some pretty solid results. So so I think that market. I think we continue to think that that type of distressed situation, particularly in the middle market area has been pretty stressed and I think we'll continue to benefit us as we go forward.
Okay got it.
And could you just maybe talk a little bit more about the.
The partnership with medically home strategic implementation partner relationship there I mean in what.
You are hearing from your clients are the demand you're seeing from clients.
Thats service that.
Led you to to enter into that partnership.
Yes, so I'll tell you what's driving this means that we use that as we've talked about for a long time I think the way that care as being provided continues to change we pocket, we still talk about.
Kind of the commercialization of health care in that it's being the unlike at your corner drugstore well. This is I think just another continued.
Avenue for health care to be delivered Theres, no question that that all things being equal and they're not but all things being equal you're better off probably in many cases being treated at home if if its medically appropriate feasible and so there are certain.
Services that could easily be performed at a hospital, but I think.
It's probably lower cost environment in the home I.
I think there's there are.
Examples where it's much better for the for the patient in the caregivers. So is it doesn't it's not it's not applicable in all circumstances, but when it is applicable I think the some significant cost and quality opportunities and so medically home is really trying to work with the hospitals and to go back and basically say, if there's an opportunity for us to effectively treat.
Patient at home, let's work together. So this is not competing with the hospitals is working with the hospitals to deliver this type of service too.
In the patients home and so I think this is inevitable in terms of the direction that this is going to be going.
Scaling this business is hard and medically homes. We think has a model thats really thats really well thought out and has already been began to indicate the fact that they can in fact scale and we're going to actually thats part of our role as really to be helping them scale the business and be pulled together the infrastructure, that's going to be necessary to do that.
Okay great.
In terms of the adjusted EBITDA margin guidance. It just came down a touch on the high end, John just any any thoughts on.
No that piece of the guidance.
Attributed to really two main factors Kevin first we do continue to higher at a very strong pace reflected the demand that we see.
Really across our markets. So I think the way it's working out this year, we've been adding that head count and a strong case I think we all that head count is helping to drive revenue that's at least covering the cost of those heads, but we're probably not at full utilization and full incremental margins rate on that hiring yet. So I think that has a little bit of a dampening effect on the 20.
19 full year margins.
And then secondly, just probably a little bit a mix in there to talk about the business Advisory segment I'd say for looking from overall perspective, yes, now has grown at a faster pace on them, what we anticipate beginning of the year.
In in a site you I mentioned data.
Tough comp in the third quarter, this year and potentially in the fourth quarter as well. So I'd say that is net of all that is put a little bit of pressure on the margins and that's why we brought the midpoint of the EBITDA margin percent guidance down by that 10 basis points.
Okay, great Okay great.
Thanks for taking the questions I saw ahead. Thank you.
Thank you and our next question comes from.
Andrew Nicholas with William Blair. Your line is open.
Hi, good afternoon.
Just wanted to touch a little bit first on healthcare.
Hoping you could provide a little bit more color on the makeup of growth in the period I know you mentioned a few times the strength and performance improvement drove the good quarter, but if you could maybe speak to revenue cycle and studer and some of the other pieces of that business and how they performed in the period.
Sure Andrew I can start Genmark in had any color to it.
I'd say from performance performance improvement was certainly the strongest.
Strongest business within our healthcare segment during the quarter. They had a really nice growth year over year I would characterize that growth within the performance improvement as.
Balanced amongst the different offerings within performance improvement on certainly from a.
Revenue cycle perspective continues to remain a robust market. We continue to have some nice growth in that area, but like we talked about on prior calls on its more than just revenue cycle really across the board within performance improvement, we're seeing solid demand.
Really within all the different areas of that offering I would say Studer group was generally in line with the expectations that we set out to gain year and then our technology group.
Was down.
A couple million box during the quarter.
I'll take that Theres anything.
Structural about that we think it was just a little bit softer quarter I'm always look at the opportunity in the pipeline, we feel good about that business and where it's trending.
But it was really certainly the offerings within performance improvement that drove the growth in the quarter.
Great. That's helpful. Thank you and then just in terms of stepping back and looking at the business.
As a whole any any comment that you'd make and kind of decides the projects you're seeing.
Both in the quarter and looking at your existing pipeline.
Phil.
Trending towards smaller projects. It has a whole are there other bigger pieces that you are seeing pop up just any update there would be helpful.
So it's certainly still.
Smaller jobs that lease while we saw several years ago from a performance improvement a perspective I think as Weve discussed as your evolve on those there have been some medium sized to larger size jobs that we've seen as dark clients as.
Yes had demand for our services in those areas. So I'd say, it's been modestly trending a little bit higher but I'd say, we're still an environment, where the jobs are on average a much smaller than there were several years ago.
Got it and then just last one from me just in terms of fourth quarter guidance is the revenue cycle when.
With Adventist embedded in there at all or is the fact that hasn't officially tenet been signed you mean that could be an area of upside.
So it is it's embedded in the guidance Andrew.