Q1 2020 Earnings Call
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Ladies and gentlemen, please continue to hold your conference call will begin momentarily.
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And welcome to Huron consulting groups webcast to discuss financial results for the first quarter 2020 at this time all conference call lines are on in listen only mode. Later, we'll conduct a question answer session for comp that's called 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 Hurons website. Please review that information.
Along with the filings with the S easy for disclosure of factors that may impact subjects.
Gotcha and this afternoon's webcast.
The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on humans West side for all of the disclosures required by the FCC, including reconciliation to the most comparable GAAP numbers and now I would like to turn the call over to Jim Brock.
Chief executive off to sort of human consulting group Mr. Roth. Please go ahead.
Good afternoon, and welcome to Huron consulting groups first quarter 2020 earnings call with me today is John Kelly, Our Chief Financial Officer, and more costly, our president and Chief operating officer.
But again I'd like to highlight that Weve.
Play supplemental materials on our web site at IR Dot Huron consulting group Dot com provide additional detail about what we believe impacts the impacts to huron could be related to the cool.
But 19 endemic.
You supplemental materials should be reviewed in conjunction with our earnings call and not on a standalone basis.
[laughter] less than two months ago, we reported the best year insurance industry, we discuss how excited we were about our prospects for 2020.
That excitement and confidence in our future was driven by the significant challenges impacting our clients the strength of our offerings and the deep expertise within our incredibly talented team.
Well momentum we established in 2019 continued into the first quarter 2020 <unk>.
We started the year strong with solid performance during the first quarter driven by organic revenue growth across all three operating segments.
Needless to say that during the past two months or clients businesses have been deeply impacted by the cold good 19 pandemic unrelated economic deterioration.
Well these events should yield strong demand for sure on business in the future macroeconomic factors have created significant uncertainty in the near term.
During today's call I will depart from our traditional approach to earnings calls in order to provide greater detail about how the cobot 19 crisis will impact Huron right. The rest of 2020.
And to provide some initial thoughts on demand drivers for our business over the medium to longer term.
Let me start with very brief overview of course quarter.
Sure on delivered 9% revenue growth in the first quarter driven by organic growth across all three operating segments, reflecting the momentum from 2019 that continued into the current year.
During the first quarter healthcare segment revenues grew 2% compared to the prior year quarter.
The quarter over quarter growth was primarily attributable to growth in our performance improvement solutions.
In March we began to see a sizable slowdown in new work as our clients began to prepare for an anticipated surge in coated 19 patients.
As I will explain shortly we expect the slowdown to be temporary as hospitals will emerge into a very different operating environment.
Revenues in our business Advisory segment grew 10% over Q1, 2019, primarily driven by the us in a and business advisory practices.
Isn't a recorded its highest revenue during the quarter hi ever revenue during the quarter.
Education segment revenues in Q1, 2020 grew nearly 20% over the same period in 2019 as this business also recorded.
Its highest ever revenue during the quarter.
The strong quarter over quarter growth was driven by solid demand demand across all solutions than the segment.
We are proud of our first quarter results, but we recognize that our view of the future is more critical too.
Pesters at this stage.
I will now provide an overview of how we see the rest of the you're playing out for the company and each of our practices.
Well hurons adjustment to working remotely has been nearly seamless.
Cobot 19 disruption has not been easy for many of our clients.
In the first quarter Huron generated more than 70% of its revenue in the healthcare and education industries end markets that have been significantly disruptive.
Our clients in those markets respond to evolve following recent events will have a meaningful impact demand for our services.
As we indicated in our press release, we are withdrawing our 2020 annual revenue and earnings guidance due to limited visibility into our pipeline in the near term.
We now believe our Q2 2020 revenues will be approximately 10 to 15.
The percent lower than the second quarter of 29 team.
We don't know how the ethic of how the macroeconomic environment will evolve.
Nor do we know how quickly the economy will resume as government restrictions are lifted.
We do however have a sense of what the short term headwinds may look like and we have an emerging perspective on new opportunities that we believe are likely to generate favorable demand procure on when the economy begins to return to a more normal state.
I will now briefly described the potential headwind means and medium to longer term opportunities in each segment.
Additional color as to how we believe demand procure on services may evolve the second half of this year and into 2021.
There are three primary factors, one of which is negative and two of which are potentially positive for our business that could impact our revenue opportunities as the economy stabilizes.
Well first factor is increasing financial constraints of our clients.
Many industries are far worse financial position when they were when it started the year.
Substantial curtailment of revenue Andorra significant operating losses may inhibit demand for consulting services.
The second factor relates to the challenging operating but operating environment for our clients and whether extreme financial hardships could cause clients turned to Huron help address fundamental concerns about the sustainability of their business models, particularly clients in healthcare and education industries.
The third factor is the evolving strategic landscape for each of our clients as we all know with every crisis comes opportunity in some clients may turn into Huron to take advantage of market dislocations.
The competitive landscape across nearly.
Every industry is going to evolve and changing industry conditions have historically led increased demand for consulting services.
Hey, any short term disruptions to our pipeline.
In our healthcare segment or hospital and health system clients are on the front lines in the fight against over 19 and are appropriately focused on treating patients and managing the disruption to their businesses.
The economic impact for every hospital has been severe largely attributable to the cancellation of higher margin elective procedures and less favorable payer mix stemming from the surgeon unemployment.
And lower volumes for higher for high margin services.
While there has been and we'll continue to be budgetary.
Relief from the federal government, most hospitals will face significant financial pressures and of material lower materially lower margins for the foreseeable future.
These pressures should produce demand for hurons performance improvement services.
As their healthcare clients move into recovery, we anticipate that our clients' needs to evolve there need to evolve their care delivery models will increase.
The surge and tele medicine, and the need to deliver care outside the four walls of the hospital creates opportunities for Sharon.
As health system sought to quickly build capacity in anticipation of a surge of cobot 90 patients.
We have.
I've been contracted by several health systems implement medically homes virtual hospital level methodology.
More broadly we have brought to market a robust set of recovery services for our health system clients integrating services from all of our practices to support a broad range of needs for hospital and health system clients.
Only when the pandemic an economy stabilize with the two impact on our healthcare clients become apparent.
There was an urgent.
Need to rethink their businesses and care delivery models, while assessing the significant and still uncertain financial impact.
And my discussions with leadership from numerous health systems. The question is not when they can get back to normal, but rather what does the new normal look like.
With our deep industry expertise and broad set of strategic financial operational and technology focused offerings. We believe we are well positioned to help our clients maneuver review of all the recovery period.
Turning to our business Advisory segment Understandably, our strategy focused offerings and are in a site and life Sciences businesses, we've seen a temporary decline in demand as clients focus on unit act immediate actions needed to manage through that pandemic and volatility in the global economy.
Given the uncertainty in the near term for our strategy focused offerings. During the first quarter, we reported a goodwill impairment charge for our insight and life Sciences reporting units within the business Advisory segment.
There was no impact on going up.
Ratios revenues cash flows or financial covenant compliance due to the goodwill impairment charge.
While the impairment charge reflects the lack of near term visibility. We believe we have a strong set of transformational strategy capabilities that will continue to differentiate your on in the market.
And are well positioned to support our clients as they transition into recovery plan.
Our SNA business after a very strong first quarter continued to see solid demand through April.
However, it limited visibility into the second half of year leads us to be cautious in predicting future demand.
As businesses are forced to rethink.
Our work gets done they will need to leverage technology to modernize their operations and engage with their customers in response to their evolving competitive landscape.
We believe these factors will drive.
Continued demand for our SNA services.
We expect our legacy business advisory.
There has been discussion about the need for transformation and a higher education and it seems to have occurred overnight.
While this would have been it's conceivable two months ago as of today at a single US College or University is offering classes on campus.
Transition to online delivery of curriculum has been spotty, particularly as it relates to the quality of content and delivery.
Similar to healthcare the covered 19 crisis has decimated the operating budgets for most universities.
The winning question now is whether the fall semester will proceed on campus for online.
Courses are taught on campus, but will not be business as usual with most campuses reluctant to bring a full complement the students into cramp dorms and equally reluctant to have those same studies.
Now large lecture hall.
At the start of key school on campus is the third we will be costly three cents institution to deliver the quality that students expect and there could be meaningful reductions intuition associated with online courses.
So what does this mean for Huron.
During the past two months, we've seen some larger technology opportunities of deferred some per key month others indefinitely.
We've also seen numerous new engagements focused on helping evaluate strategic and operational options as clients strive to manage the significant financial pressures.
Similar to healthcare each university will emerge in at worst financial and operational shape. When they started the year in all will face a very different competitive landscape.
The opportunities for us could be significant subject only to potential funding constraints for universities and face of deteriorated business model.
As I mentioned earlier client decisions the higher consultants will be based on urgency of their current conditions desire to be strategic restructuring, we're assessing new opportunities and availability of funding.
We believe the changes required for higher education institutions to compete in the new environment will create strong demand for our services and in the long term, especially in the large public and private research universities, which are at the core of our business.
While we have withdrawn guidance today, we hope to be in a position to reinstate annual guidance, when we announce or second quarter results.
We make a few few final comments.
One thing that did not change in the first four months of this year is our team nimbleness and commitment to our clients as we seamlessly transition to our remote work environment in early March.
I'm incredibly proud.
Our people have come together accrete to creatively serve our clients and support each other during this period.
We continue to engage their clients and deliver our services with the same high quality standards, albeit remotely and we're collaborating in new ways to develop new offerings to meet the rapidly evolving needs of our clients in this unique operating environment.
During the first quarter, we took swift action to enhance our financial position.
We're also taking this opportunity to evolve our own delivery model.
Historically, our people spent the vast majority of their time either at clients or working remotely. So the transition to work from home has not been overly disruptive.
Our clients have now seeing how effective we can be working remotely in certain circumstances and this perspective will likely have a significant longer term benefits for Huron as our clients get increase.
Similarly comfortable with our ability to deliver services remotely.
While we are intently focused on managing through this period of uncertainty. We're also focused on the long term.
When action you do not hear me mention relates to our people.
Our strong culture has unified us through the work from home period and our goal. During this period is to continue to keep the here on team together.
Our clients are facing significant disruption mounting financial and operational pressures that we believe will drive strong demand for our services with the economy stabilizes and we will need our team to deliver on this anticipated demand.
While there are many uncertainties in the near term we remain confident in our long term strategy, our ability to adjust to evolving market conditions, the depth of our industry expertise and breadth of our offerings.
And our mission driven team and collaborative culture that sits at the heart of our company.
These attributes coupled with significant disruption facing our clients and end markets bode well for the feature of this company.
We believe that we are well positioned strategically financially and operationally take advantage of opportunities that will result from the quite current crisis.
This call.
Company has come together better than ever before working across businesses service lines and administrative units to help address new needs in the market.
I have seen a level of innovation and creativity across our teams that have developed market facing services in a very short period of time.
I want to thank our entire team for all they have done during this unprecedented time.
We have demonstrated an incredible amount of budget.
How long you walk you through some of the key financial results from the corridor.
Revenues for the first quarter of 2020 or $222.6 million up 8.9 per cent from $204.4 million in the same quarter a few thousand 19.
Increasing revenues of the quarter, we've driven by organic growth across all three operating side.
Net loss was 42.3 million.
Dollars for $1.94 cents per diluted share in the first quarter of 2020 inclusive of the 59.8 million dollar pretax good while impairment charge compared to net income or $3.4 million for 15 cents per liddy chair in the same.
Bordering the prior year.
Adjusted noun gap net income was $9.8 million for 44 cents per diluted share in the first quarter of 2020 compared to $8.9 million for 40 cents per diluted sharing the same period of 2019.
Given the lack of visibility in the near term for our strategy focused offering as a result of the co get 19th had done that.
We concluded that the carrying values of our strategy and innovation in life Sciences reporting it exceeded their fair value as of March 31st.
S. US we recorded a $59.8 million noncash pretax good while impairment charge in the first quarter of 2020.
Is denoted with our transformational strategy offering highly talented team.
I believe our insight in life sciences businesses, her well positioned to support our clients.
They transitioning into recovery planning following the near term it back to totally 19.
Are effective income tax rate in the first quarter of 2020 was 21%.
Did 29% a year ago.
Are effective tax rate for Q. want it 2020 with less favorable than the statutory rape inclusive of state income taxes.
Primarily due to incremental tax expense on certain nondeductible business expenses.
Now deductible losses on the investment to use to fund our deferred compensation plan and that nondeductible component for our good well apparently charges.
These unfavorable items were partially offset by discrete tax benefits for sherbet compensation awards that bested during the quarter and the Remeasurement of a portion of our income tax receivable as a result of the enactment <unk>.
Just to keep it up with 19.0 a million dollars in Q. on 2020 or 8.5% a rabbit.
18 point to a million. Thank you want a few thousand 19 or 8.8% of rabbits.
No I'll make a few comments about the formants of each other operating.
Health care segment generated 43% of total company revenues during the first quarter of 2020.
The segment posted revenues of $95.6 million for the first quarter of 2020 up $1.9 million for 2% from the first quarter of 2019.
Well not significant to the results of the first quarter business development activity and pipeline converging for our health care business, where significantly impacted in the latter part of the first quarter driven by the impact of covert 19 on our healthcare provider client base.
Operating income margin for health care was 25.2% for Q. on a 2020.
Compared to 29.7% for the same quarter in 2019.
The quarter over a quarter declining margin is primarily due to an increase in salaries and related expenses and sharebased compensation expense revenue generating professionals, both as a percentage of revenues.
As a reminder, our first quarter results included a practice why leadership meeting in February and the annual resetting of our wage basis for certain fringe items like the employer portion of Ficus hackers are four o. one k. match.
The business Advisory segment generated 29% a total company rather it is during the first quarter of 2020.
Segment posted revenues of $64.9 billion in Q. on 2020.
Up $6.1 million for 10.4% from the first quarter of 2019.
The increase in revenue during the first quarter was primarily attributable yesterday and business advisory practices.
The operating income margin for the business advisory segments was 15.2% for Q1 is 2020.
16.3% the same quarter in 2019.
The quarter of a quarter declining margin, that's primarily due to risk restructuring card recorded in the for a quarter of 2020 or.
So the termination of a third party adviser in it.
As well as increases and sharebased compensation expense and salaries and related expenses for revenue generated professionals and increasing contractor expenses.
As a percentage of revenue.
He's decrease it to the segments operating margin were partially offset by decreasing decreases and promotion and marketing expenses.
Signing retention another bonus expenses for our revenue generating professionals.
The education segment generated 28 per cent of total company Rodneys during the first quarter of 2020.
Segment, those revenues of $62.1 million and Q. on 2020.
$10.2 million for 19.6% from the first quarter of 2019.
The increase the revenue was driven by grow across all solutions and decided.
The operating income margin for education was 21.1% for Q1 of 2020.
24.3% for the same quarter in 2019.
The quarter over a quarter decline and margin was primarily due to increases and contractor expenses.
Expenses related to an all practiced leadership meeting, which was not held in 2019.
Salaries on a related expenses for our revenue generating professionals, all as a percentage of revenue.
Other corporate expenses not allocated at the segment level for $27.1 million, if you want to 2020.
$36.6 million, if you want to 2019.
Note that this decrease include the year over year variants of $6.8 million relate to the change in value of our deferred compensation liability.
Which is offset by the corresponding loss recorded his other income.
Lady to the decline value be assets used to find that land.
Excluding the this impact.
The 2.7 million dollar decrease on allocated corporate costs.
It was primarily attributable to lower bonus expense for our support personnel decrease in certain technology expenses that are now reflected as a component of segment operating margin.
Lower facilities expenses.
Lower other general and administrative expenses, partially offset by an increase in salaries are related expenses for support personnel.
Now turning to the balance sheet in cash flow.
Yeah. So came in at 62 days for the first quarter of 2020, consistent with the fourth quarter of 2019.
Total that includes the $448 million senior bank debt and a 4 million dollar promissory note for total debt for $452 million.
There's the quarter with cast of $151 million for net debt of $301 million.
This was a 105 million dollar increase compared to queue for 2019.
The first quarter reflects the payment of our annual bonuses.
Leverage ratio is defined in our senior Bank agreement was approximately 3.5 times trailing 12 month adjusted EBITDA at the end of Q1 2020.
The 1.6 times trailing 12 month adjusted EBITDA as of December 31st 2019.
Increase our leverage ratio was driven by the increase in borrowings in the first quarter to enhance our cats position.
Or net leverage ratio was 2.3 times trailing 12 months. He did as of March 31st 2020, when the bank definition calculation is adjusted for cash on hand.
This compares to 2.9 times trailing 12 monkey that out as of March 31st 2019, when calculating in the same manner.
Our immediate financing needed to score operations during the Cobin 19, pandemic, which is created significant volatility and uncertainty and the economy unknown potential impacts and the credit markets.
As such in abundance of caution during the first quarter of 2020, we proactively took steps to maximize cash on hand and.
Including but not limited to borrowing under our senior suffered credit facility.
Reducing discretionary operating capital expenditures closely managing our receivables and collections and thoughtfully managing our payable for vendors.
Rape role, we have not seen any material degradation or cash collection.
Cash on hand has increased throughout them on the payroll.
A long term financing the has and continues to be to fund the growth of our business.
Growth strategy is focused on strengthening the competitive advantages within our core businesses.
Also expanding are offering complementary capabilities for n. market.
If the oldest growth will need to continue to fund investment in areas such as new hires.
Acquisitions, a complimentary businesses or other capital related expenditures.
During this period of uncertainty, we believe our internally generated liquidity together with our available cash and borrowing capacity will be adequate to support our immediate financing needs and our long term growth strategy.
Capital use an operations in the first quarter of 2020 was $56 million and we use $3.9 million of our cash to invest in capital expenditures inclusive the internally developed software caught resulting in free cash flow negative $60 million.
Due to the uncertainties regarding the duration of the impact of the Kobe 19 pandemic, we're with drawing or previously announced full year 2020 guides.
Jim mentioned, we hope to be in a position to reinstate annual guides, when they announced or second quarter results.
Driven by the impact of the pandemic, yeah, uncertainties in the global economy are significant and limit or visibility in the short term.
And then describe a few moments ago, we will continue to manage our financial position to sustain build our business for the long term.
We started the year with a strong balance sheet and overall financial position that we believe coupled with expense management practices, we've put in place.
<unk> as well as we like other businesses, whether this ongoing store.
Even with the current uncertainty we face I watch reiterate our commitment to our long term financial strategy.
We remain focused on positioning you're on to achieve our sustainable organic growth strategy and expanding margins overtime.
Like Jim I to watch the bank on incredibly talented team for the nimbleness creativity and dedication to our clients.
Which is a lot of to continue to act as trusted advisers and sort of our clients. During this time.
Now let me share a few final thought before we open the file the question [noise].
2019 was a strong here for your across all facets of our business, including financially.
That momentum carried into the first quarter of 2020 as our clients challenges continued to drive demand for our business.
If you mention because of Koby 19, and the broader economic environment clients challenges will likely only be exasperated.
Driven by the passion for survey and make any difference for our clients and our business or teams are collaborating using this time to really find ways server clients and our new normal environment.
<unk>, new off rainy and accelerate our strategy.
Because of our transformational offerings and the disruption taking place in her and markets. We believe that we are well positioned to take advantage of the strong demand anticipate and the economy stayed alive.
Thanks, everyone, Oh now like to open the call off the question operator.
Thank you.
Ladies and gentlemen, and it should have a question at this time. Please stop one on your touched on telephone.
Question has an answer to your wish to immerse yourself in the queue. You may do so by pressing the pound key.
One moment for our first question.
[noise]. Our first question comes from Toby Sohmer from Central Please go ahead.
Hey, good afternoon, Mrs. Jasper been around for Toby I was hoping you could speak to have a stimulus measures put in place for hospitals and universities.
Maybe shaping customer and decision making at this stage.
But this is Jim Jasper I think it's you know at this point the amount, there's a little bit on certain right now about the financial.
Deterioration has been pretty significant and I think most of our clients feel that they're all expecting something to calm, but I don't think any of them are expected to cover the poor subset of financial deficit that occurred over the last couple of months or so so I think they're all looking at it as something that's gonna be necessary and may actually come in waves over time, but I think nobody.
<unk> as being it's kind of doing be sufficient to help sold on the gap. That's developed so we view.
One of the reasons why we view.
<unk>.
<unk> services be relatively strong as this involved.
Make some tough decisions because the financial situations just like computers. So clearly.
Clearly will be some federal funding how much there is remains uncertain, but I think well this week on.
Uncertain.
But there are still going to be a negative hole at the end of mechanical pair for that.
Thanks him and I want to ask about healthcare demand and yeah, while there might be quite a bit of opportunity with hospitals on the other side of this are you anticipating like challenges at assisted living providers or no larger urgent care networks can be an area of increased opportunity as well.
So we you know over the last three or four years, we've increased our our healthcare practices complete.
Increased its spoke scope than spectrum across a broader array as a health care arena.
Oh It is still a vast majority of our work is done in hospitals and all systems, but you know the hospitals and health systems are changing a lot you know can smell. So there will be some opportunities for other areas, but I don't think big you know <unk>, which for the foreseeable future majority's or work will still be request pools and whole systems.
Getting new businesses some of them, even retail you know certainly tele medicine, and all kinds of businesses don't think getting into we'll shoot certainly see some expansion of our scope in that area. In addition, you know we're also doing work for non hospitals and health systems.
That could be that can be position led groups, there's all kinds of new entries into the market and so we're increasingly working with some of those but I'm at this stage still a majority of my work will be health care about hospitals and health systems.
Okay last one for me with respect to be Enventis relationship have you seen any in fact there.
No no no one's going going going strong and you know, we've not seen any easier and faster.
No okay <unk>, thank God, you're gonna questions.
The that they managed services contract continues to.
Proceed very well you know that's been a real areas drink during the quarter. So that everything is going well as far as the contract that we have right now.
And you.
Thank you I'm next question comes from Bill Sutherland from the Benchmark Company. Please go ahead.
Thanks to everybody.
<unk> I'm interested in.
And.
What your visibility is right now as far as the professional ranks and.
I know you want to keep.
You know you want to keep that in place two degrees you can but are you considering furloughs.
How are you thinking about the normal hiring.
Caveats, where you know quickly.
But the.
And recruiting in the in the third quarter.
<unk>.
Okay. Good luck, Yeah, <unk> Hey, Bill. This is Mark let me, let me to burn than I have John continue on How're you doing good. Thanks.
Good good yeah. So you know we're we're fortunate in that we've had a very healthy backlog that has come into you know the year. We continue to add to that and I think you know look I think through the second quarter. We've given some idea of what our parameters were looking through there and then I think we're in a place where we just have to see how things are going to shake.
We're optimistic what that might be and are strong intention is to try to do everything we can to keep our team together just like we said on the call because we feel like it's just a matter of when if additional demand is going to come into play. So I think it's too early to say, but I would say right now things like furloughs or not something that we're we're content.
Just just to be clear, we don't feel like we're at that place based on a liquidity at our expense management that we're in pretty good shirt thin.
John or Jim anything you'd add to that.
<unk>.
This is John <unk> I'll, just add no you are viewpoint and you know Jim touched on it in in that prepared remarks or viewpoint is that we're going to be quite busy on the other end of this is a lot of that challenges on our clients are facing yeah. We think are we're going to be well positioned to help them with those.
Challenges and so we want to maintain that capacity to.
Serve that need want things began to normalize I will say that in terms of new hiring that's an area, where we're being more conservative right now for the most part to the extent that we have.
Needs in different parts of the business, we're using existing team members on that's where we've had some really great collaboration quite frankly between the teams where we've been sharing resources amongst the team to serve needs as opposed to incremental hiring at this point just given the lack his ability from Rodney perspective created by the current.
Uncertainty.
So as as part of the impairment of Stretchy in life Science groups was where they downsized.
Mm.
No no okay <unk>.
So as I think about your broad thing you know you're broadbrush kind of look at.
<unk> revenue.
We should at least a stab at it.
The.
<unk>.
You think about.
The challenges of utilization and.
Greater turnover I assume projects should we think about you but.
Probably more impacted than the 10% to 15% a year.
<unk>.
First stab at for revenue.
So bill that that 10% to 15%. It's just to clarify what that is that it is we look at the second quarter and we compare our expectations for the second quarter of 2022 are actual revenue for 2019, that's where we expect.
The t. at 10% to 15% decline in the second quarter.
As we noted in some of the supplement for materials that we put out our expectation is that we'll be able to offset about half of that revenue shortfall with.
Various cost savings items.
Oh, I'm, sorry, I didn't get the supplemental stuff open I went to the site.
Okay, Oh I'll go find that.
I think that's yeah, that's it for me.
Thanks, everybody.
<unk>.
Thank you I'm next question comes from Kevin Psyche from Barrington Research. Please go ahead.
[noise] Hi, good afternoon, I'm, just wondering if in the short term or even over the next.
Couple quarter's here, there's been any ways that you've been able to help your.
Healthcare clients with actual response and planning.
For their their response to the [noise] coded pandemic.
Yeah, Jim you want to dig in Oregon.
Serving redoing <unk> yeah.
Kevin It's you know I think one of the things. We we alluded to this was just the nibble notes of our team in a very short period of time.
Spawning to what really rapidly became you know a very broad crisis across all of our healthcare clients. There were those clients that actually had the true surge in covert patients in there were others that we're.
Dealing with cancellation of elective procedures, which put a lot of pressure on their margins in the short term kind of irrespective of what the you know the variation. The geography has been there's been are very broad financial impact and we have really Marshall I would say collectively <unk> resource we have to help in in a variety.
Different passions, one from you know what and how do we access the federal funds in the <unk> to be able to to compensate for some of the the short term we have a gateway that's helping <unk> basically as helped us with some engagements there we have a team that with medically home is setting up.
Virtual hospital beds, which essentially takes care outside the four walls to the hospital in a very rapid fashion, it's helping set up additional capacity to know even to a covert 19 playbook. How do you manage your way through this financially operationally et cetera, and that's all leading to now how do you actually reading.
Gauge you know as this starts to get back to some level of normality, you're starting to see some places schedule elective surgeries again, but there are a tremendous amount of questions in terms of the business model that are relevant for all of our people. How do you bring your work <unk> force back when do you do that you bring them all at the same time in different roles, what's the rolling tell us health.
And ER Tele medicine. So there's just these are the kinds of things are just to have created a very dynamic an attractive environment for for the health care practice and Jim I know you spoke into a lot of leaders as well maybe you can at some color.
Yeah, I think the only thing I would add to that was too would be to call me Mark talks about the cold Medicine thing I think you know one of the issues is that there's no question I told medicine that it's going to be important factor is things move on.
<unk> like what does that mean on normal to bring different you in terms of kind of facilities and it'll be needed it's likely it'll create different economics for the hospitals there may be different compensation.
As for uncle clinicians.
Nurses on for positions. So there's just a lot of uncertainty. So it's nice when people talk about the fact that Telemanagement I'm sure your head and do more and more now, but the reality is lots and lots of pretty uncertain future as well. So we're beginning to help some acquaintance begin to think through what the economics are you know [noise] the.
Labor structure is going to look like the compensation structure is going to look like this is this a lot of things that are happening very quickly. So that was one month mentioned the merging pressures and that's probably the more immediate area that we're beginning to help with as they anticipate.
Pretty significant deficits that would not anticipated.
Months ago, and the last thing I'll I'll say it was just don't think this is brought to wipe. The fact that there needs to be a fair amount of kind of asset rationalization here. If people are gonna be less inclined to go into the hospital for the foreseeable future for a variety of reasons.
That means they're not necessarily could even go into clinics and it was built up so all this kind of creates a very different environments. We're helping a lot of our clients think too well the strategic and operational and ultimately the financial issues that are associated with all this transition.
Kevin Let me just throw a couple more in there because I think they're really relevant I mean, even in in New York, where you know labs are basically under just complete overflow pumping them through some of how they work in that environment to to address the capacity constraints are yes, an 18 are in.
Team every single one of our practices, who touches the healthcare clad in their own respective way has come together to to help respond in that way. So I didn't <unk>, our yesterday practice it set up sales worst contact centres literally like it a couple of days in a very rapid fashion. So there's been just gonna extraordinary response Ah, but by the car.
And with our vendor partners as well.
Okay. That's helpful. Thanks.
I I was able to pull up the <unk>.
Presentation have on your website here and.
The the scenarios base case optimists, good optimistic pessimistic.
You know eyes, and I was curious about your.
Meant that you would hope to.
Reinstate annual games following second quarter results so is that.
Kind of the base case scenario in.
You know what what would lead you to make that statement that you think you can would be able to reinstate guy into at that point.
<unk>, Okay, maybe I'll start.
Oh, you started Gunn I'm sure you'll have something to the second I mean, I guess it a couple of comments that it'd be obviously things that have all very quickly over the last month and a half for two months and and you know if the reason we laid out the three scenarios is because we really that's really kind of the way that we're looking at how working a position our company to prepare for different scenarios.
I think you know by by the end of July when we wouldn't be offering her her next at least they're stuck or or released a second quarter earnings we well we should have to be five months left in the in the in the year at that stage and I think you know good or bad we should have m- clearer picture, not maybe not clear, but a clearer picture.
At that stage that should be able to help.
Let us provide some additional guidance up on stage.
Yeah, and I would just that Kevin you know probably whatever this scenario is at that point in time, obviously those scenarios would just to you know give give insight into the way. We're looking at different ways can unfold you know one thing for certain is that you know actual reality will probably be something in between any of those and I think.
No matter, what the no matter how it does unfold I think you know our expectation like Jim said getting the amount of time there'll be lucky near at that point is that we'll be able to get guidance.
And it in the July call.
Okay, all right got it and then.
I was curious.
<unk>.
We didn't see sequential increase in S.G.N.A. expenses in the first core.
Versus the fourth quarter, given some of the fringe expenses, you talked about and you know is that a reflection of.
Some cost reductions already being implemented or what what was going on there.
That that's right.
I say, it's a combination of.
Some of the some of the reduction that just as we kind of cycled into a new budget year, even absent. The Kobe 19 situation there were certain areas, where you know we it it makes them cots cutting into the year and then add the quarter progressed.
And you know you start to see somebody.
Unknown do not certainly that was created by Kobe 19, we pause on certain discretionary spending items at that point until we could get to you know spot, where we had better visibility. So I'd say, it's a little bit yeah, what we expected heading into the year just as we you know try to keep our hasina expenses tight so that we can you know.
Back into businesses, but then adds a quarter did progress on there was some additional belt tightening just get in the.
Issues created by the Kobe 19 situation.
Okay. Thanks, I'll leave it at that for now thank you.
Thank you.
Question comes from answer a necklace from William Blair. Please go ahead.
Hi, good afternoon.
Just wanted to talk a little.
Hi, I'm, assuming you could talk a little bit about the project work that you previously expected in the second quarter.
And if I'm thinking about kind of the shortfall maybe versus your previous expectations. How much of that would you characterize it it's a delay or a slowdown versus you know project work being cancelled altogether.
Hey, Andrew It's John I can start you know I would say every quarter the way to think about it is we never enter a quarter with you know 100% of the backlog already solved with a quarter. So there's always some expectation that there's going to be a new business development pipeline conversion.
Numbers for a quarter and so I think it's <unk>.
The decrease for flax is I continued burn or the backlog that we have just getting house. He wants to transition to work from L. is then but a slowdown about pipeline conversion into specifically answer a question I think the majority of situations. We've seen at this point. If then delays referrals yeah. If you think about the environment.
In a health care of space, there's there's still a lot at projects that were.
In the pipeline in the first quarter that our expectation is eventually to classes and a half a circle back and viewer that they're going to want to circle back and do because they're really strategically important at the client.
Do you think about the situation in March and April our client needed shift the focus to emergency response management. So <unk> in many of those cases they differed some of those project in some cases, they were fairly well defined about when those might pop back up at a later time in other cases, it's more T.V.D., but our expectation.
That is actually they're going to come back around what we don't have visibility too at this point is you know exactly what that time is going to be in a lot of that would be driven by things in a macro environment that you know at this point, it's just too early to cause <unk> and out.
Yeah, and any of this gym I wouldn't just add to that a couple of things. We you know we've been talking internally. We we we we look for the financial and operational strategically technology issues that were they've seen acquiring it's before all this happened you know none of them have gotten better most of them have gotten worse, so I I agree with John <unk>.
You know there have been seemed to <unk> <unk> <unk> a variety of reasons one of which is you know a lot of our clients aren't working on site either so it's maybe a little bit hard for them to pull together to do some of this work and other times. They just send look it's just not the time to starting to pick a project. So we we really haven't seen that in any cancellations, but we have.
<unk> and and I think you know our senses and even now toward the end of April as things or is there. Some of our clients are beginning to think about the the entry into the <unk>. The mode. I think some of these projects I think we'll come back to life. So that's why we make this comment that I think what we can't predict how long this kind of.
This going on well will last but we think once it begins to pick back up that's when we take the demands will promote.
So we feel.
What about where we're position right now I think we just have to wait out and see you know how long because you know how long the B.B.C. is particularly the hospitals in some respects at worst had it worse than a couple of March and April and may be getting back to a little bit more normal in in in May and June.
These kind of have the reverse situation, where they were okay for a little while but now they're having to faces issues about whether they want to have probably gave up and there's some you know programs in an hour trying to wonder whether they have something fall. So there's just there's just a lot of uncertainty and our clients and some of them are reluctant to take bigger projects until they can wow.
I think you'll get a little bit more clearly in their own operating environments in the interim yeah. We are still gonna we've got new working every one of the businesses I mean week throughout this whole process. So things are still moving there just maybe slightly slower paced and they tend to visibility that we have and what would normally building. The building backlog has just has come down a little bit while we.
<unk>.
Yeah. That's a helpful color. Thank you and then how should we think about performance based fees are contingencies in this environment thinking about kind of revenue cycle businesses as one aspect to that and and how declining patient volumes might might.
Impact that that business if at all in in the next couple of quarters.
I would say Andrew that yeah I think.
Coming out of it.
If you if you think of our health care clients being under.
I'm, a significant amount of financial distress in meeting performance improvement project.
I'll get them, how close budgetary gaps things of that nature oftentimes performance based the end up being a component of that because that really does a nice job of you know kinda matching the outcome with the amount that that the client pay so I think that coming out of it you know that would probably be.
One of the types of contracts that you'll see us have within our performance improving area and that you know that may become of increasing important in the meantime that is you know potentially another timing factor for the jobs. We already have is you know a lot of those performance page the contracts you know could.
Measurement certain object is and when you've had this dramatic shift over the.
Past couple of month, you last elective type procedures less elective surgeries more focus on to meet the Kobe 19 response that is something that could impact temporarily from a tiny perspective, some of those metrics that used to measure perform his face to the project I'm. So in some cases that make you long gave the amount of time.
Next to you reach the original objectives, but I'd say coming out of that you know, we'll probably see more contracts that have that element to it is our clients look to you know shore up financial issues coming out of the crisis.
Understood. Thank you.
Thank you.
Next question comes from Kevin Psyche from parents and research. Please go ahead.
Hi, Thanks, just a couple of follow ups here.
Do you have any sense as to how that 10% to 15% decline that you talked about in the second quarter would break down by my segments.
He Kevin it's Johnny I'd say.
We'll probably see the majority of that shortfall coming from the healthcare segments.
Yeah, I think that's the segment that's kinda than most acutely impacted from a new business development perspective in the near term here related to decoded 19 crisis in our clients need to focus on that response on site I think that's where I'll see the majority of it from a business advisory perspective.
You may see it there too as we talked about the strategy businesses in the near term here have been impacted by some of the disruption that's been created by coping 19, I'd say probably from an education perspective, that's going to be the area, where I would say in second quarter, you'll you'll probably see.
<unk>.
The least impact.
Okay. Thank you and there's this one last one you talked about how the.
Transition to.
Online delivery of education or classes has been spotty at universities and that that might be kind of the delivery method even going into.
The next school year is there any way you can assist your clients with improving their ability to provide a an on online education platform.
Kevin is being there there is but it's it's not an easy thing to do you know the I think there was a missile sites that you could just kind of Tucson, and do it pushes you tube or something else in some schools in some parts of schools have done this from doing it for awhile and actually quite good at it and others.
Just having to do it right now either don't have the technology or just don't have you can't just can't just take what you would normally do in class and put it on line. So it's a it's it's a much more difficult process. One thing most people recognize them to really do gooding to get it to the point, where the quality of delivery curriculum is the system with.
What the wishes brand and consistent with school students expectations for the price. Okay. There's a there's a pretty big gap right. There I think we're we're we're there are <unk> that help with that online programs were not necessarily likely to get into that space, but we will help them sort out strategically help us.
To do it I really want example, where we are beginning to work with some of our clients is that you know some of those schools. If you can get it right you can actually love with your brand to use it as rubber make generator wasted you haven't done before it really part of expand the scope beyond just the people that you would normally has on campus. So that's one area where there were.
Clients are are are looking for opportunities, but you've got to get the quality of aquatic.
Liable and good first then I think most people would admit that it's not quite there yet.
Okay. Thank you very much.
Thank you.
Seeing that there are no more questions I'd like to tend to called back to Mr. Roth for closing remarks.
Well. Thank you for spending time with this this afternoon, we look forward to speaking with you again in July and outside our second quarter results ever been able to.
Ladies and gentlemen, this conclusion today's conference call. Thank you for participating.
Yeah.
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Good afternoon, ladies and gentlemen, and welcome to your on consulting groups webcast to discuss financial results for the first quarter 2020.
Time, all conference call line.
Listen only mode. Later, we'll conduct a question answer session for conference call.
Instructions will follow at that time.
As a reminder, this conference call this man recorded.
Well, we begin I would like to point all of you to the disclosure.
<unk> knees news release for information about any forward looking statements that may be made or discuss this cool.
The news releases set up here once website. Please review that information along with the filings with the easy for disclosure of factors that may impact subjects discussed in this afternoon Swepco.
The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release add on Hurons website for all of the disclosures required by the FCC, including reconciliations to the most comparable GAAP numbers and now I would like to turn the call over to Jim Roth Chief Executive Officer, If you weren't consulting group.
Mr. Rob. Please go ahead.
Good afternoon, and welcome to <unk> consulting groups first quarter 2020 earnings call with me today as John Kelly, Our Chief Financial Officer, Mark <unk>, Our President and Chief operating Officer.
I'd again I'd like to highlight that we have placed supplemental materials on our website at <unk> Dot Huron consulting group Dot com provide additional detail about what we believe impacts.
Sure on could be related to the cobot 19 endemic.
Supplemental materials should be reviewed in conjunction with our earnings call and not on a standalone basis.
[laughter] less than two months ago, we recorded the best year insurance industry, we discuss how excited we were about our prospects for 2020.
That excitement and confidence in our future was driven by the significant challenges impacting our clients strength of our offerings and the deep expertise within our incredibly talented team.
Well, that's when we established in 29 team continued to the first quarter 20 quite.
We started the year strong solid performance straight at first quarter, driven by organic revenue growth across all three operating segments.
Needless to say a during the past two months.
Clients businesses have been deeply impacted by the corporate 19, and Denmark and related economic deterioration.
Well these events should yield strong demand for hurons business in the future macroeconomic factors have created significant uncertainty in the near term.
During today's call I will depart from our traditional approach to earnings calls in order to provide greater detail about how the cobot 19 crisis, what impact your I'm sorry, the rest of 2020.
And it provides the initial thoughts on demand drivers for our business over the medium longer term.
When you start with a very brief overview of of course quarter.
Sure on delivered 9% rubbing to grow and of course quarter driven by organic growth across all three operating segments, reflecting the momentum from 2019, a continued into the current year.
During the first quarter health care segment revenues grew 2% compared to the prior year quarter.
Quarter over quarter growth was primarily attributable to growth in our performance improvement solutions.
In March we began to see a sizable slowdown in new work as our clients began to prepare for an anticipated surge in cold at 19 patients.
I will explain shortly we expect to slow down to be temporary hospitals will emerge into a very different operating environment.
Revenues in our business Advisory segment grew 10% over Q1, 2019, primarily driven by the yesterday and business advisory practices.
Yes, and they recorded its highest revenue during the quarter hi ever revenue during the quarter.
Education segment revenues in Q1, 2020 grew nearly 20% over the same period in 2000 Nike.
This business also recorded its highest ever revenue during the quarter.
Strong quarter over quarter growth was driven by solid <unk> demand across all solution and then the segment.
We are proud about first quarter results, but we recognize that our view of the future is more critical to investors at this stage.
I will now provide an overview of how we see the rest of the you're playing out for the company and each of our practices.
Well sure runs adjustment to working remotely has been nearly seen whats. The Corbett 19 disruption is not easy for many of our clients.
In the first quarter Shiran generated more than 70% of its revenue in the healthcare and education industries end markets that have been significantly disruptive.
Our clients in those markets respond to evolve following recent events will have a meaningful impact demand for our services.
As we indicated in our press release, we are withdrawing our 2020 annual revenue and earnings guidance due to limited visibility into our pipeline in the near term.
We now believe our Q2 2020 revenues will be approximately 10% to 15% lower than the second quarter 20 Nike.
We don't know how do you have to other how the macroeconomic environment will evolve.
Nor do we know how quickly the economy. It will resume its government restrictions are lifted.
We do however have a sense of what the short term headwinds may look like and we have an emerging perspective, new opportunities that we believe are likely to generate favorable demand for sure on when the economy begins to return to a more normal state.
I will now briefly describe the potential headwinds and medium to longer term opportunities in each segment provide additional color as to how we believe demand for sure on services may have all the second half of this year and into 2021.
There are three primary factors, one of which is negative and two of which are potentially positive for our business that could impact our revenue opportunities as the economy stabilizes.
Of course factor is the increasing financial constraints of our clients.
Many industries are far worse financial position than they were when it started the year.
Substantial could tell no, but rather the endorsed significant operating losses may inhibit demand for consulting services.
The second factor relates to the challenging operating but operating environment for our clients and weather extremes financial hardships could cause choirs turned to cure on help address fundamental concerns about the sustainability of their business models.
Kicked really clients in healthcare and education industries.
Third factor is the evolving strategic landscape each of our clients as we all know every crisis comes opportunity.
Clients may turn to Huron to take advantage of market dislocations.
Competitive landscape across nearly every industry is going to evolve and changing industry conditions have historically led increased demand what consulting services.
We've already seen all three of these factors come into play during the month of April and May have resulted in some deferrals of anticipated work, but also some new strategic an operation operational engagements.
And of course, there was previously sold work that is ongoing and new work that has originating in the normal course of business.
Together, while these three factors play out differently across our client base, we believe that future opportunities procure on <unk> outweigh any short term disruptions to our pipeline.
In our health care segment or hospital and health system clients are on the front line in the fight against Corbin 19, and are appropriately focused on treating patients and managing the disruption to their businesses.
The economic impact for every hospital has been severe largely attributable to the cancellation of higher margin elective procedures.
That's favorable pair mix stemming from the surge and unemployment.
And lower volumes were higher for high margin services.
Well there has been and we'll continue to be budgetary relief from the federal government.
Most hospitals will face significant financial pressures in a material lower materially lower margins for the foreseeable future.
These pressures should produce demand the hurons performance improvement services.
As their healthcare clients moving to recovery, we anticipate that our clients' needs to evolve there needs to evolve their care delivery models will increase.
The surgeon Tele medicine, and the need to deliver care outside the core walls of the hospital creates opportunities for sure.
As health system sought to quickly build capacity in anticipation of a surge of cold at Nike patients.
We have been contracted by several health systems implement medically homes virtual hospital at all and methodology.
More broadly we have brought to market a robust set recovery services for our health system clients integrating services from all of our practices to support a broad range of needs for our hospital and health system clients.
Only when the pandemic, an economy stabilized with a tool impact than our healthcare clients because parents.
There was an urgent need to rethink their businesses and care delivery models, while assessing the significant it's still uncertain financial impact.
My discussions with leadership from numerous health system. A question is not when they can get back to normal, but rather what does the new normal look like.
Deep industry expertise and broad set of strategic financial operational technology focused offerings. We believe we are well positioned to help our clients maneuver review of all the recovery period.
Turning to our business Advisory segment Understandably, our strategy focused offerings that are in a site and life Sciences businesses has seen a temporary decline in demand as clients focused on them either act immediate actions needed to manage through that pandemic and volatility in the global economy.
Given the uncertainty in the near term for our strategy focused offerings. During the first quarter, we recorded a goodwill impairment charge for our in a site life Sciences reporting units within the business Advisory segment.
There is no impact of ongoing operations revenues cash flows or financial covenant compliance due to the goodwill impairment charge.
Well the impairment charge reflects the lack of near term visibility. We believe we have a strong set of transformational strategy capabilities that will continue to differentiate your on in the market.
And are well positioned to support our clients as they transition into recovery plan.
Our estimate business after a very strong first quarter continued to see solid demand through April.
However, it limited visibility in the second half of the year leads us to be cautious in predicting future demand.
As businesses are forced to rethink our work gets done they will need to leverage technology to modernize their operations and engage with their customers response to their evolving competitive landscape.
We believe these factors will drive continued demand for our yesterday services.
We expect our legacy business advisory will continue to see strong demand for that restructuring and turnaround services through the remainder of the year due to the challenging financial conditions.
With a significant pressures facing all industries in our broad array of services strategy, and our insight and life sciences businesses to technology and operations and our EPS in a business advisory practices. We believed that there will be ample opportunity for growth ahead of this segment.
Let me begin to stabilize.
Turning to education for years, there has been discussion about the need for transformation in higher education and it seems to have occurred overnight.
Well this would have been it's conceivable two months ago as of today at a single U.S. College or University is offering classes like campus.
Transitioned to online delivery of curriculum has been spotty, particularly as it relates to the quality of content and delivery.
Similar to healthcare the covered 19 crisis has decimated the operating budgets for most universities.
The women question now is whether the fall semester will proceed on campus or online.
Questions are taught on campus will not be business as usual most campuses reluctant to bring a full complement the students into cramped dorms and equally reluctant to have those same students in a large lecture hall.
At the start of <unk> school like campuses, the third will be costly three since it's a fusion to deliver the quality that students expect and there could be meaningful reductions intuition associated online courses.
So what does this mean for Huron during the past two months, we've seen some larger technology opportunities that deferred some per month others indefinitely.
We've also seen numerous new engagements focused on helping evaluate strategic and operational options as clients strive to manage the significant financial pressures.
Similar to healthcare, each university will emerge and our worst financial and operational shape. When they started the year in all will face a very different competitive landscape.
The opportunities for us could be significant subject only to potential funding constraints for universities, let's face it deteriorated business model.
As I mentioned earlier client decisions the higher consultants will be based on urgency of their current conditions desire to be strategic restructuring or assessing new opportunities and availability of funding.
We believe the changes required for higher education institutions to compete in the new environment will create strong demand for our services and in the long term, especially in the large public and private research universities, which are at the core of our business.
While we have withdrawn guidance today, we hope to be in a position to reinstate annual guidance, when we announced our second quarter results.
We make a few few final comments.
One thing that did not change in the first four months of this year, because our team nimbleness and commitment to our clients as we seamlessly transition to a remote.
Environment in early March I.
Im incredibly proud our people have come together accrete to creatively serve our clients that support each other during this period.
We continue to engage their clients and lever our services with the same high quality standards, albeit remotely and we're collaborating in new ways to develop new offerings meet the rapidly evolving needs of our clients in this unique operating environment.
During the first quarter, we took swift action to enhance our financial position.
We're also taking this opportunity to evolve our own delivery model.
Historically, our people stable vast majority of their time either at clients are working remotely. So the transition to work from home has not been overly disruptive.
Our clients have now seeing how effective we can be working remotely in certain circumstances and this perspective will likely have a significant longer term benefits for Karen as our clients get increasingly comfortable with our ability to deliver services remotely.
Well, we're intently focused on managing through this period of uncertainty. We're also focused on the long term.
One action you did not here you mentioned relates to our people.
Our strong culture has unified us through the work from home period and our goal. During this period if that continue to keep Huron team together.
Our clients are facing significant disruption mounting financial and operational pressures that we believe will drive strong demand for our services with the economy stabilizes and we will need our team to deliver on this anticipated demand.
While there are many uncertainties in the near term we remain confident in our long term strategy, our ability to adjust to evolving market conditions, the depth of our industry expertise and breadth of our offerings.
And our mission driven team and collaborative culture that sits at the heart of our company.
These attributes coupled with significant disruption facing our clients and end markets bode well for the future of this company.
We believe that we're well positioned strategically financially and operationally take advantage of opportunities that will result from the quite current crisis.
This company has come together better than ever before working across businesses service lines and administrative units help address new needs in the market.
I have seen a level of innovation and creativity across our teams that have developed market facing services.
Very short period of time.
I want to thank our entire team for all they have done during this unprecedented time.
We have demonstrated an incredible amount of agility and creativity, while also remaining focused on supporting our clients our company each other.
Now, let me turn it over to John for more detailed discussion of our financial results John.
Thank you Jim and good afternoon, everyone.
Before I begin please note that I'll be discussing non-GAAP financial measures such as EBITDA adjusted EBITDA adjusted net income adjusted EPS and free cash flow.
Our press release 10-Q, Investor Relations page on the DRAM website have reconciliations of these non-GAAP measures to the most comparable GAAP measures along with a discussion of why management uses these non-GAAP measures. The why management believes that provides useful information to investors.
Regarding our financial condition in operating results.
Also in my comments today are all on continuing operations base.
Now, let me walk you through some of the key financial results for the quarter.
Revenues for the first quarter of 2020.
For $222.6 million.
8.9% from $204.4 million in the same quarter of 2019.
The increase in revenues in the quarter was driven by organic growth across all three operating segment.
Net loss was $42.3 million or $1.94 cents per diluted share in the first quarter 2020.
Most of the $59.8 million pretax goodwill impairment charge compared to net income of $3.4 million or 15 cents per diluted share in the same quarter in the prior year.
Adjusted non-GAAP net income was $9.8 million for 44 cents per diluted share in the first quarter of 2020.
Her to $8.9 million or 40 cents per diluted share the same period of 2019.
Given the lack of visibility in the near term for our strategy focused offerings as a result of the co. Good Nike had done.
We concluded that the carrying values of our strategy and innovation and life Sciences reporting unit exceeded their fair value as of March 30 Onest.
As such we recorded a 59.8 million dollar noncash pretax goodwill impairment charge in the first quarter 2020.
As Jim noted with our transformational strategy offering highly talented team.
We believe are in a site in life Sciences businesses are well positioned to support our client.
They transitioning into recovery planning following the near term impact with Cobot Nike.
Our effective income tax rate in the first quarter of 2020 was 21%.
Added 29% year ago.
Our effective tax rate for Q1 of 2020 with less favorable than the statutory rate inclusive of state income taxes.
Primarily due to incremental tax expense on certain nondeductible expenses.
Not deductible losses on the investments needed to fund our deferred compensation plan and that nondeductible component of our goodwill impairment charges.
These unfavorable items were partially offset by discrete tax benefits for share based compensation awards that bested during the quarter and a remeasurement of a portion of our income tax receivable as a result of the enactment of the cares that.
Adjusted EBITDA was $19.8 million in Q1, 2020 or 8.5% of revenue.
18.0 million in Q1 of 2018 or 8.8% of revenues.
Now I'll make a few comments about warrants of each of our operating.
Health care segment generated 43% of total company revenues during first quarter 2020.
The segment posted revenues of $95.6 million for the first quarter of 2020.
$1.9 million or 2% from the first quarter of 2019.
Well not significant to the result of the first quarter business development activity and pipeline conversion for our health care business were significantly impacted in the latter part of the first quarter driven by the impact of Coven 19 on our healthcare provider client base.
Operating income margin for health care with 25.2% for Q1 of 2020.
Compared to 29.7% for the same quarter in 2018.
The quarter over quarter decline in margin was primarily due to an increase in salaries and related expenses and share based compensation expense.
Our revenue generating professionals, both as a percentage of revenues.
As a reminder, our first quarter results included a practice why leadership meeting in February.
Annual resetting of our ways basis for certain fringe items like the employer portion of FICA taxes, and our oral one k. match.
The business Advisory segment generated 29% total company revenues during the first quarter 2020.
The segment posted revenues of $64.9 million in Q1 2020.
Up $6.1 million for 10.4% from the first quarter 2019.
The increase in revenue during the first quarter was primarily attributable yesterday and business advisory practices.
The operating income margin for the business Advisory segment was 15.2% for Q1 of 2020.
Hard to 16.3% at the same quarter in 2019.
The quarter over quarter declining margin was primarily due to restructuring charge recorded in the first quarter of 2020. So the termination of a third party advisory agreement.
As well as increases and share based compensation expense and salaries and related expenses for our revenue generated professionals and an increase in contractor expenses.
As a percentage of revenue.
These decreases to the segment's operating margin were partially offset by decrease and decreases and promotion and marketing expenses.
Signing retention and other bonus expenses for our revenue generating professional.
The education segment generated 28% of total company revenues during the first quarter 2020.
Segment posted revenues of $62.1 million in Q1 2020.
$10.2 million for 19.6% from the first quarter 2019.
The increase in revenue was driven by growth across all solution to the segment.
The operating income margin for education was 21.1% for Q1 of 2020.
24.3% for the same quarter in 2019.
The quarter over quarter decline in margin was primarily due to increases in contractor expenses.
Expenses related to an all practice leadership meeting, which was not held in 2019.
In salaries and related expenses for our revenue generating professionals, all as a percentage of revenues.
Other corporate expenses not allocated at the segment level or $27.1 million in Q1 of 2020.
$36.6 million in Q1 of 2019.
Note that this decrease include the year over year variant of $6.8 million related to the change in value of our deferred compensation liability.
Which is offset by the corresponding loss recorded as other income.
Related to the decline in value the assets used to fund that plan.
Excluding this impact.
The $2.7 million decrease in unallocated corporate costs.
Was primarily attributable to lower bonus expense for our support personnel decrease in certain technology expenses that are now reflected as a component segment operating margin.
Lower facility expenses.
And lower other general and administrative expenses, partially offset by an increase in salary related expenses first for personnel.
Now turning to the balance sheet and cash flow.
Yes. So came in at 62 days for the first quarter 2020, consistent with the fourth quarter of 2019.
Total debt includes the $448 million senior bank debt in a $4 million promissory note for total debt of $452 million.
We finished the quarter with Caf $151 million for net debt of $301 million.
This was a 105 million dollar increase compared to Q4 2019.
First quarter reflect the payment of our annual bonuses.
Our leverage ratio is defined in our senior Bank agreement was approximately 3.5 times trailing 12 month adjusted EBITDA at the end of Q1 2020.
Compared to 1.6 times trailing 12 month adjusted EBITDA as of December 30, Onest 2019.
The increase our leverage ratio was driven by the increase in borrowing in the first quarter to enhance our cash position.
Our net leverage ratio was 2.3 times trailing 12 month EBITDA as of March 30, Onest 2020.
When the bank definition calculation is adjusted for cash on hand.
This compares to 2.9 times trailing 12 month EBITDA as of March 31st 2019, when calculating in the same manner.
Our immediate financing need for operations during the Cobot 19, pandemic, which has created significant volatility and uncertainty in the economy unknown potential impacts and the credit markets.
As such in an abundance of caution during the first quarter at 2020, we proactively took steps to maximize cash on hand.
Including but not limited to borrowing under our senior secured credit facility.
Reducing discretionary operating capital expenditures closely managing our receivables and collection.
And thoughtfully managing our payables to vendors.
Through April we have not seen any material degradation and our cash collection.
The cash on hand has increased throughout the month of April.
Our long term financing the has and continues to be to fund the growth of our business.
Our growth strategy is focused on strengthening the competitive advantages within our core businesses, while also expanding our offerings into complementary capabilities for end markets.
If you will this growth will need to continue to fund investments in areas such as new hires.
Acquisitions of complementary businesses or other capital related expenditures.
During this period of uncertainty, we believe our internally generate liquidity together with our available cash and borrowing capacity will be adequate to support our immediate financing needs and our long term growth strategy.
Cash flow used in operations in the first quarter 2020 was $56 million and we used $3.9 million of our cash to invest in capital expenditures inclusive of internally developed software costs, resulting in free cash flow of negative $60 million.
Due to the uncertainty regarding duration of the impact of the Kogut Nike and pandemic.
We are withdrawing our previously announced full year 2020 guidance.
Jim mentioned, we hope to be in a position to reinstate annual guidance when we announce our second quarter results.
There might be impacted a pandemic.
Certainty than the global economy are significant and limit our visibility in the short term.
As I described a few moments ago, we'll continue to manage our financial position to sustain build our business for the long term.
We started the year with a strong balance sheet and overall financial position that we believe coupled with expense management practices, we have put in place.
Position us well as we like other businesses, whether this ongoing star.
Even with the current uncertainty we face I watched reiterate our commitment to our long term financial strategy.
We remain focused on positioning Huron to achieve our sustainable organic growth strategy and expanding margins over time.
Like Jim I too want the bank are incredibly talented team for the nimbleness creativity and dedication to our clients.
Which has allowed us to continue to act as trusted advisors and serve our clients. During this time.
Now let me share a few final thought before we open the call question.
2019, with a strong year for Huron across all facets of our business, including financially.
That momentum carried into the first quarter of 2020 as our clients challenges continued to drive demand for our business.
As Jim mentioned because of coping 19 in the broader economic environment.
Clients challenges will likely only be exasperated.
Driven by their passion for serving and making a difference for our clients in our business. Our teams are collaborating and using this time creatively find ways to serve our clients in our new normal environment.
New offerings and accelerate our strategy.
Because of our transformational offerings and the disruption taking place our end market.
We believe that we are well positioned to take advantage of the strong demand, we anticipate and the economy stabilizes.
Thanks, everyone I would now like to open the call up the question.
Operator.
Thank you.
Ladies and gentlemen, if you have a question at this time. Please press star one on your touched on telephone.
A question has been asked what are you wish to emerge itself from the Q you may do so by pressing the pound key.
One moment for our first question.
Our first question comes from Tobey Sommer from Suntrust. Please go ahead.
Hey, good afternoon, Mrs. Jasper Bev on for Toby.
Hoping you could speak to how the stimulus measures put in place for hospitals and universities.
Maybe shaping customer decision, making at this stage.
But this is Jim Jasper.
I think it's at this point the amount, there's a little bit uncertain right now we have the financial.
Deterioration has been pretty significant and I think most of our clients feel that they all expecting something to come but I don't think any of them are expected to cover the collective set of financial.
Deficit in occurred over the last couple of months or so so.
I think they're all looking at it it's something that's going to be necessary and it may actually come in waves overtime, but I think nobody's viewing it as being.
That's kind of going be sufficient to help fill that gap that's developed so we view.
That's one of the reasons why we view the chance of us.
As our demand plus services being relatively.
The strong business of all that they're going have to make some tough decisions with the financial situations just like agree there so.
Clearly will be some federal funding how much there is remains uncertain, but I think what is important uncertain.
The fact that there are still going to be a negative hole at the end of mechanical care for that.
Thanks, and then I wanted to ask about healthcare demand and while there might be a quite a bit of opportunity with hospitals on the other side to that.
Are you anticipating like challenges at assisted living providers or that larger urgent care networks to be an area of increased opportunity as well.
Well, we over the last three or four years, we've increased our our health care practices.
As on has increased its that spoke scope than spectrum across a broader array of the healthcare arena.
Reality is still a vast majority of our work is done in hospitals and health system, but the hospital health systems are changing a lot.
So there will be some opportunities for other areas, but I don't think I think still for at least for the foreseeable future majority of our work will still be hospitals and health systems as they getting new businesses some of them even retail.
Certainly telemedicine is all kinds of businesses will be getting into.
We'll certainly see some expansion of our scope in that area. In addition, we're also doing work or non hospitals and health systems elected the private equity that could be physician led groups. There's all kinds of new entrants into the market and so we're increasingly working with some of those but at this stage still a majority of our work will be healthcare to the hospitals and health.
Systems.
Okay last one from me with respect to reinvent this relationship have you seen any impact there.
No no we don't want is ongoing and going going strong.
And now, but we've not seen in the immediate impact there.
Okay, great. Thanks for taking the questions.
The that the managed services contract continues to.
Proceed very well on Ben.
Real.
Areas strength during the quarter, so thats everything has gone well as far as the contract that you have right now.
Thank you.
Thank you next question comes from Bill Sutherland from the Benchmark Company. Please go ahead.
Thanks, everybody.
[music].
I'm interested in.
In.
Your visibility is right now as far as the professional ranks and.
I know you want to keep.
You know you want to keep that in place to degrees you can but are you considering furloughs and how are you thinking about the normal hiring.
Cadence where what the.
With the.
Especially recruiting in the in the third quarter.
Hey, Bill I'll take that one.
Okay, good, but yes, Hey, Bill this is Mark let me, let me turn than I have John continue on how are you doing.
Thanks.
Good good yes. So we're fortunate in that we've had a very healthy backlog that has come into the year. We continue to add to that and I think look I think through the second quarter Weve given some idea of what our parameters were looking through there and then I think we're at a place where we just have to see how things are going to share.
Gout, we're optimistic on what that might be and our strong intention is to try to do everything we can to keep our team together just like we said on the call because we feel like.
It's just a matter of when not if additional demand is going to come into play. So I think it's too early to say, but I would say right now things like furloughs are not something that we're we're contemplating just just to be clear we don't feel like we're at that place based on our liquidity at our expense management that we're in pretty good share than.
John or Jim anything you'd add to that.
This is John I'll, just add on our viewpoint.
And Jim touched on it in in the prepared remarks, our viewpoint is that I'm going to be quite busy.
The other ended this is a lot of the challenges on the our clients are pacing, we think or we're going to be well positioned to help them what those challenges and so we want to maintain that capacity to serve that need once things began to normalize I will say that Tom in terms of new hiring that's an area where we're being.
More conservative right now for the most power to the extent that we have.
Needs in different parts of the business, we're using existing team members I'll network Thats really great collaboration quite frankly between the teams where we've been sharing resources amongst the team to serve need as opposed to incremental hiring at this point just given the lack of visibility from revenue perspective created by the current.
Certainly.
So as part of the impairment of strategy in life Science groups was where they downsized.
No no okay. Okay.
So as I think about your broad base your broad brush kind of look at Directionally in revenue.
Appreciate at least a stab at it.
[laughter] the.
The.
When you think about the.
The challenges of utilization and.
The greater turnover I assume projects.
Should we think about EBITDA.
Probably more impacted than the 10% to 15% that year.
Taking a.
First stab at for revenue.
So bill that that on the 15% just to clarify what that is that.
As we look at the second quarter, and we compare our expectations for the second quarter.
2020 through our actual revenue for 2019, that's where we expect on the T. at 10% to 15% decline in the second quarter.
As we noted in some of the supplement for material that we put out our expectation is that we'll be able to offset about half of that revenue shortfall with various cost savings items.
Oh, I'm, sorry, I didn't get the supplemental step open type I went to the site, but okay I'll go find that.
Okay.
[music].
Thanks that's.
Yes, that's it for me.
Thanks, everybody.
Thank though.
Thank you next question comes from Kevin. Thank you from Barrington Research. Please go ahead.
Hi, good afternoon.
Just wondering if.
In the short term or even over the next.
No.
A couple quarters here, there's been any ways that you've been able to how youre.
Healthcare clients with.
Actual response and planning.
For their their response to the.
Hi, good pandemic.
Yeah, Jim you want to dig into art can elaborate on serving what we're doing.
Yeah, Kevin Mark Kevin. It's you know I think one of the things we alluded to this was just the nimbleness of our team in a very short period of time responding to what really rapidly became very broad crisis across all of our healthcare clients. There were those clients that actually had a true surge in covered patients in there.
Or others that were.
Dealing with.
Cancellation of elective procedures, which put a lot of pressure on their margins and the short term kind of irrespective of what the variation. The geography has been there's been a very broad financial impact and we have really marshaled I would say collectively everywhere resource we have to help and a variety of different fashions one for.
You know what and how do we access the federal funds in the carriers acted to be able to to compensate for some of the short term we have a gateway that's helping them and basically has helped us with some engagements. There we have a team that with medically home is setting up virtual hospital beds.
Which essentially takes care outside the four walls of the hospital in a very rapid fashion is helping set up additional capacity to now even to covert 19 playbook. How do you manage your way through this financially operationally et cetera, and that's all leading to now how do you actually Reengage I'm you know as this.
Starts to get back to some level of normality, you're starting to see some places schedule elective surgeries again, but there are a tremendous amount of questions in terms of the business model that are relevant for all of our people. How do you bring your work force back when do you do that you bring them all at the same time in different roles, what's the role Tele health and Tele medicine.
So theres just.
These are the kinds of things that just have created a very dynamic in attractive environment for the healthcare practice.
Jim I know you've spoken to a lot of leaders as well maybe you can add some color.
Yes, I think the only thing I would add to that was would be to call Mark talked about the telemedicine thing I think one of the issue is that there's no question that telemedicine, it's going to be important.
Factor as things move on the question is what is our meeting on global has a big different view in terms of kind of facilities that will be needed. It's likely will create different economics for the hospitals there may be different compensation.
Well just for both clinicians third nurses on for positions. So there's just a lot of uncertainty. So it's nice when people talk about the fact that telemedicine is kind of come surgeon head into more and more now, but we already is what's on thats, a pretty uncertain future as well. So we're beginning to help some clients begin to think through what the economics are low.
Yeah.
The labor.
Structure is going to look like the compensation structures going to look like is this a lot of things that are happening very quickly. So that was one mark mentioned that margin pressures and that's probably the more immediate area that we're beginning to help with as they anticipate.
Please with the deficit that was not anticipated.
Three months ago, and lastly, I'll I'll say it was just don't think this was brought to life. The fact that there needs to be.
Okay fair amount of kind of asset.
Rationalization here.
People are going to be less.
Decline to go into the hospital.
For the foreseeable future for a variety of reasons, what does that mean, there in the sort of get even gone clinics that have recently been built up. So all this kind of creates a very different environment. We're talking a lot of our clients think through both the strategic and operational and ultimately the financial issues associated with all this transition.
Kevin Let me just throw a couple more in there that because I think they're really relevant I mean, even in New York, where labs are basically under just complete overflow helping them through some of how they work in that environment to to address the capacity constraints are yesterday team our insights.
Team every single one of our practices, who touches the healthcare client in their own respective way has come together to help respond in that way so like into our yesterday practice, it's set up salesforce contact centers literally like it a couple of days in a very rapid fashion. So there has been just a an extraordinary response.
By the company and with our vendor partners as well.
Okay. That's helpful. Thanks.
I was able to pull up the.
Presentation, you have on your website here and.
The scenarios base case optimistic at optimistic or pessimistic.
Hi, guys and I was curious about your.
Statement that you would hope to.
Reinstate annual guidance following second quarter results so is that.
Kind of the base case scenario in.
What what would lead you to make that statement that you think you can would be able to reinstate guidance at that point.
Kevin can you maybe I'll start.
Yes, let me start in John Im sure you add something in the second.
So a couple of comments said to be obviously things have evolved very quickly over the last month and after two months and Anne.
The reason we laid out the three scenarios is because we really that's really kind of the way that we're looking at how we're going to position our company and prepare for different scenarios.
I think.
You know by by the end of July when we would be operating our next.
Release of SEC are really the second quarter earnings. We we should have to be five months left in the than the year at that stage and I think good or bad we should have a clearer picture about maybe maybe not clear, but a clear picture at that stage that should be able to help.
Now, let us provide some additional guidance at that stage.
And I would just that Kevin probably whatever that scenario as at that point in time, obviously those scenarios were just too.
Good.
Insight into the way, we're looking at different ways can unfold.
One thing.
Certain is that you know actual reality will probably be something in between any of those and I think no matter what the.
No matter, how it does unfold I think our expectation like Jim said, given the amount of time there'll be lucky near that point that we'll be able to get guidance.
And it in the July call.
Okay, Alright got it and then.
I was curious.
That we didnt see.
Sequential increase in SGN, a expenses in the first quarter.
Versus the fourth quarter, given some of the fringe expenses you talked about in.
It was that a reflection of.
Some cost reductions already being implemented or what was going on there.
That that's right.
Kevin I'd say at the combination of.
Some of the some of the reduction.
That just as we kind of recycled into a new budget year, even absent the cobot 19 situation on there were certain areas where.
We it it makes them cots heading into the year in that at the quarter for grass.
And you know you started to see some of the.
Unknowns and uncertainty that was created by Kogan 19.
We paused on certain discretionary spending items that point until we get to that spot we had better visibility. So I'd say, it's a little bit of what we'd expected heading into the year just as we.
Try to keep our ESG is tight so that we can invest back into businesses, but then as the quarter. Good progress on there are some additional belt tightening just given the.
Visibility issues created by the cobot nature situation.
Okay. Thanks, I'll leave it at that for now thank you.
Thank you.
Our next question comes from Antero Nicolas from William Blair. Please go ahead.
Hi, good afternoon.
I'm, just wondering tip to talk a little.
I was hoping you could talk little bit about the project work that you previously expected in the second quarter and if I'm thinking about kind of the shortfall maybe versus your previous expectations. How much of that would you characterize it is a delay or a slowdown versus.
Project work being cancelled altogether.
Hey, Andrew it's John I can start.
I would say every quarter the way to think about it is we never enter a quarter with 100% of the backlog already sold for the quarter. So there's always some expectation that theres going to be on new business development pipeline conversion on to hit the numbers for a quarter and so I think it's what.
The decrease reflects is a continued burn of the backlog that we have just given how seeing what's the transition to work for Mel is then.
A slowdown of that pipeline conversion at that specifically answer your question I think the majority of situations Weve seen at this point has been delays for deferrals. If you think about the environment in.
Healthcare space.
Yes, there's still a lot it projects that were.
In the pipeline in the first quarter that our expectation is eventually to clients are going have to circle back and viewer that theyre going to want to circle back into it because it really strategically important to client, but do you think about the situation in March and April.
Our client we did shift their focus to emergency response management. So in many of those cases they differ some of those projects in some cases, there were fairly well defined about when those might pop back up at a later time in other cases, it's more TBD, but our expectation is that actually theyre going to come back around.
And what we don't have visibility to at this point is exactly what that time is going to be and a lot of that will be driven by things in the macro environment that at this point, it's just too early to call that the how things will pan out.
Yes ended as Jim I would just add to that couple of things. We've we've been talking internally we call. It if we look for the financial and operational strategic and technology issues that were.
Seeing our clients before all this happened none of them has gotten better most of them have gotten worse. So.
I agree with Johns comment Matt is there have been some deferrals make deferrals are there.
All righty of reasons, one of which is a lot of our clients aren't working on site either and so it's maybe a little bit have pulled together to do some of this work.
And other times I, just said, but that's just not the time to start a bigger projects. So we really haven't seen any cancellations, but we have seen some deferrals and and I think.
Our senses and even now toward the end of April as things are is assumed to where clients are beginning to think about the the entry into the mark to mode. I think some of these projects.
I think we'll come back to life. So that's why we made this comment that I think what we can't predict is how long this kind of period of.
The slowdown will last but we think once it begins to pick back up that's when we took the demands will promote so we feel.
We feel good about where we're positioned right now and I think we just have to wait and see how long because you know how long the urgency is particularly the hospitals in some respect club at worst had at worst a couple of March and April and may be getting back to little bit more normal in Denmark in May and June University is kind of have the reverse situation, where they were okay.
A little while but now having faces issues about whether they want to have we'll probably give up and there's some.
Programs that are now we're trying to wonder whether they have something fall. So there's just there's just a lot of and certainly our clients. Some of them are reluctant to take on.
Bigger projects until they can.
So I think we'll get a little bit more clarity of their own operating environment in the interim we are still getting we've got new work and every one of the businesses every week throughout this whole process. So things are still moving there just moving at a slightly slower paced and low end the visibility that we havent what would normally build the at building backlog has just has come down a little bit while we.
Well the amount.
Got it that's helpful color. Thank you and then how should we think about performance based fees are contingent fees in this environment.
Thinking about kind of revenue cycle businesses as one aspect to that and how declining patient volumes might might impact that that business. If at all in the next couple of quarters.
I would say Andrew that I think coming out of it.
If you if you think of our healthcare clients being under.
A significant amount of financial distress and needing performance improvement project.
To help get them outflows budgetary gaps things of that nature oftentimes performance based fees end up being a component of that.
Because that really does a nice job.
Matching the outcome with the amount that that the client pay so I think that coming out of it that will probably be.
One of the types of contracts that you'll see us have within our performs a proven area and that that may become of increasing importance.
In the meantime that is potentially another timing factor for the jobs. We already have is a lot of those performance based fee contracts on crude measurement certain objectives and when you've had this dramatic shift over the.
Past couple of months.
You are less elective type procedures less elective surgeries more focus on immediate cobot 19 response that is something that could impact temporarily from a timing perspective. Some of those metrics that you measure performance based fee projects I'm. So in some cases that may elongate the amount of time it takes to reach the.
Original objectives.
But I'd say coming out of that.
We'll probably see more contracts that have that element to it is our clients look too.
You know shore up financial issues coming out of the crisis.
Understood. Thank you.
Thank you.
Your next question comes from Kevin. Thank you from Barrington Research. Please go ahead.
Hi, Thanks, just a couple of follow ups here.
Do you have any sense as to how that.
10% to 15% decline that you talked about in the second quarter would break down by by segment.
Hey, Kevin It's John you I'd say.
We'll probably see the majority of that shortfall coming from the healthcare segment.
I think thats the segment, that's kind of been most acutely impacted from a new business development perspective in the near term here related to.
The covert 19 crisis and our clients need to focus on that response, I think thats, where we see the majority of it from a business advisory perspective, you may see at their Q on as we talked about strategy businesses in the near term here have been impacted by.
Some of the disruption that's been created by Cobot 19, I'd say, probably from an education perspective, that's going to be the.
Area, where I would say in second quarter, I'm still you'll probably see.
The least impact.
Okay. Thank you and this one last one you talked about how the.
Transition to.
Online delivery.
Of education or classes has been spotty.
At universities and that that might be kind of the delivery method even going into.
The next.
School year is there any way you can assist your clients.
With improving their ability to provide an on online education platform.
Kevin This is Jim.
There there is but it's it's not an easy thing to do.
I think there was an initial sense. If you could just kind of Tucson, and do it pushes you tube or something else in some schools in some parts of schools have done this been doing it for a while actually quite good at it and others that are just having to do it right now either don't want to technology or just don't have we can't just can't just take what you're normally do in class and put it online so.
It's a it's a much more difficult process.
One thing most people recognize and to really be waiting to get it good to the point, where the quality of the delivery of quick one was consistent with what the unit wishes brand and consistent with total students expectations for the price for pain. There is there's a pretty big gap right. There I think we're we're there are.
In terms of that help with that online program. This will not necessarily likely to get into that space, but we will help them sort out strategic will help us to do it I'll give you. One example, where we are beginning to work with some of our clients who is that.
Some of those schools. If you can get it right you can actually leverage your branded use that as revenue generator ways that you haven't done before it really kind of expand the scope beyond just the people that you would normally have on campus. So thats, one area, where the where clients are.
Looking for opportunities, but you've got to get the quality of aquatic.
Reliable and and good first then I think most people would admit that it's not.
Okay. Thank you very much.
Thank you.
Seeing that there are no more questions I'd like to turn the call back to Mr. Roth for closing remarks.
Well. Thank you 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.
Ladies and gentlemen. This concludes today's conference call. Thank you for participation you may now disconnect.