Q2 2020 Huron Consulting Group Inc Earnings Call
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Ladies and gentlemen, please standby your conference call will begin momentarily once again. Please standby your conference call will begin momentarily. Thank you for your patience David Please continue to hold.
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Good afternoon, ladies and gentlemen.
And welcome to the human consulting groups webcast to discuss financial results for the second quarter 2020 at this time all conference call lines are any listen only mode. Later, we will conduct our question and answer session poor conference call participants and instructions will follow at that time as a reminder, this conference call you.
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 FCC.
See for a disclosure of factors that may impact subjects discussed in this afternoon's webcast. The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Hurons website for all of the disclosures required by the FCC, including reconciliations.
The most comparable GAAP numbers and now I'd like to turn the call over to Jim Roth, Chief Executive Officer of Huron Consulting group Mr. Rob. Please go ahead.
Good afternoon, and welcome to Huron consulting groups second quarter 2020 earnings call Me today is John Kelley, our Chief Financial Officer, and more costly, our president and Chief operating officer.
Our second quarter results were better than we anticipated revenue declining 1% over the prior year quarter.
This decline was driven by weakness in the health care business that was partially offset by solid growth in the business advisory and education segments.
Well the second quarter was better than our initial estimates we remain cautious about the second half of the year, given the economic uncertainties facing our clients, particularly in healthcare and education.
I will now share additional insight into our second quarter performance and the demand drivers for each of our businesses and then provide some color on our expectations for the remainder of 2020.
During the second quarter healthcare segment revenues declined 16% to compare to the prior year quarter.
As you have read most hospitals and health systems were severely impacted in March and April with virtually no elective non urgent surgeries performed when a crisis was at its worse.
Many of our clients began to see patient volumes return in May and June although most have not yet see in returned to pre coated volumes.
With some stability in their business, our healthcare clients began to Reengage our team in the latter part of the second quarter support them on more immediate priorities as they work through the financial and operational challenges that were exacerbated by the current environment.
Indicative of the market improvement utilization of the health care business started in the mid Sixtys earlier in the quarter and rose to the low seventys by the ended the quarter, although still well below historical levels.
While the slowdown during the quarter impacted all aspects of our health care business. There were several areas, where we were able to enhance revenue because of the ongoing crisis.
The most notable was our work with medically home in which we made a strategic investment last year.
For example, we partnered with medically home and one of our California based health system clients to establish a 250 bed virtual hospital in the home capability and just over eight weeks.
We are underway with similar work with additional health systems across the country with the pipeline continuing to develop as hospitals look for better and less expensive ways to serve acute patients in a covert 19 environment as well as evolve away care is delivered in the future.
We've also introduced several other new services in response to the pandemic, including coated 19 testing and contact Tracings advisory services for several large municipalities and other organizations.
Virtual care, including Tele health design implementation and optimization in response to the surge and remote patient encounters.
And recovery services that help hospitals to ramp up patient volumes safely reopen ambulatory critics and design operating room procedures focused on new corporate 19 protocols.
As the volatility of upon a pandemic continues we will continue to have limited visibility into our health care business as we move into the second half of 2020.
We were encouraged by the gradual increase in utilization as a second quarter progressed, but we remain cautious about estimating when growth and earnings will approach historical norms.
For our healthcare clients the current environment highlights the need to evolve core aspects of their business model, including care delivery supply chain technology infrastructure and the related economics, resulting from these collective changes.
Our broad set of offerings and nimble approach to the market. We believe we are well positioned to help our clients address their immediate needs, while working with them to create a pathway for a successful and sustainable future.
Our business Advisory segment achieved record revenues in the second quarter.
Revenues grew 13% over the second quarter of 2019, primarily driven by our technology and distressed advisory offerings.
Our technology offerings in the us in a business continue to see solid demand as the coated 19 crisis has highlighted the importance of digital transformation to modernize business operations and engage with customers and addressing the new economic realities.
We are encouraged by the strength of our digital technology and analytics services in the market and we believe that isn't a business will be one of the larger drivers of growth for Huron in the future.
Our legacy business Advisory practice has been and we'll continue to be the beneficiary of the financial distress facing many industries.
Driving solid demand for our restructuring and turnaround services.
We believe current market conditions will drive continued demand for these offerings for the foreseeable future.
We're also seeing gradual improvement in the pipeline for our strategy related offerings in the life Sciences and insight businesses.
As the global economy further establish stabilizes, we believe demand for our strategy services will increase probably the significant disruption taking place in the global economy.
Our education segment revenues increased 10% over the second quarter of 2019, primarily driven by growth in our student technology and research offerings.
The segment solid second quarter performance was primarily driven by the strength of existing backlog as we entered the covered 19 crisis.
Similar to healthcare business development activities and pipeline conversion for the education business were significantly impacted in the quarter driven by issues related to the pandemic.
Those limitations have hindered conversion of our pipeline as we entered the second half of the year.
Unlike healthcare many higher education institutions have not yet become the their path to recovery as they currently face tremendous uncertainty relating to bringing students faculty and staff back to campus in the fall.
There was significant variability among colleges and universities and proposed strategies for reopening campuses and providing instruction for the fall term.
Because of this uncertainty and well publicized recent volatility many of our clients are focused on immediacy of starting to fall semester.
That distraction like what we witnessed in health care in March and April limits, our visibility into the second half of the year.
To help our clients in the near term, we've developed several new services, including assisting with testing and contact tracing initiatives aimed at creating a safer environment on campus.
Helping identify and apply for coated 19 stimulus and other relief funds.
And identifying operational efficiencies and new budget models to better allocate scarce resources and prepare for new business model economics.
Due to the uncertainty about how the fall semester will play out across our client base, we do not expect to replicate our first half performance in higher education, and the second half of the year.
Like what we've experienced with our healthcare clients, we believe that demand will return as colleges and universities get past the immediate challenges.
A business model is going to be permanently changed and help higher education, and there will likely be a significant need for educational institutions to revise their operational financial technology strategies.
We believe these challenges will drive strong long term demand for our services.
I will now provide a few comments on our expectations for the remainder of 2020, and then let John provide greater detail when she walks the numbers.
Today, we are reestablishing full year guidance for 2020.
Our revenue guidance for the year.
He is now $820 million to $860 million.
We also expect adjusted EBITDA in a range of 9% to 10% of revenues and adjusted diluted earnings per share of $1.50 to $1.
Considering the challenging economic environment sure on had a solid first half.
Our education and business advisory segments performed at or above our expectations that we had established prior to the started the year.
The momentum of care, we established in 2019 carried into the beginning of 2020.
During what was hopefully the worst a pandemic and the second quarter, our team continued to support our clients remotely.
Ratably addressing their current challenges by helping them plan for the medium and longer term.
As I've mentioned throughout todays call our guidance reflects the limited visibility we have into the second half of the year stemming primarily from the uncertainty in the healthcare and education industries and our challenges in building a strong sales and business development pipeline in these businesses due to the near term disruption facing our clients.
With that said, our technology and distressed advisory offerings continue to see solid demand as clients in the commercial markets seek our services.
Compared to recent years, we have a much more balanced portfolio as our business Advisory segment continues to grow at a faster pace than our other businesses.
We believe we have the right client relationships nimble go to market capabilities and broad set of offerings across all of our segments to address our clients evolving needs today and in the future.
As of now we believe the market will continue to evolve in the near term to support our goal to keep our team together as we meet the anticipated demand of our clients as they stabilize and progress in their recovery.
Our corporate 19, and the economy take their course, we continue to believe that future opportunities for Huron will outweigh any short term disruptions to our pipeline.
We would not have been so well positioned to without the hard work dedication of the entire sure on team who have continued to demonstrate resilience and agility during a challenging time.
I have often mentioned that our culture is a is a core competitive differentiator and it is time during times like the last several months, where our culture truly shines.
As we move into the second half of the year. We are focused on advancing our long term strategy delivering the same high quality services to our clients and positioning this company to achieve our financial objectives of sustainable organic revenue growth and margin expansion overtime.
Now, let me turn it over to John for more detailed discussion of our financial results John.
Thank you Dan 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, you Investor Relations page on the here on web site at reconciliations of these non-GAAP measures to the most comparable GAAP measures along with a discussion of why management uses these non-GAAP measures like management believes they provide useful information to investors regarding our financial condition and operating results.
Also my comments today are all on a continuing operations basis.
Now, let me walk you through some of the key financial results for the quarter.
Revenues for the second quarter of 2020 were $217.9 million down 1.3% from $220.8 million in the same quarter of 2019.
The decline in revenues in the quarter was driven by the healthcare segment, partially offset by solid growth in the business advisory and education segments.
Net income was $13.6 million per 61 cents per diluted share in the second quarter of 2020 compared to $10.6 million or 47 cents per diluted share in the same quarter in the prior year.
Adjusted non-GAAP net income was $14.9 million.68 per diluted share in the second quarter 2020.
Turning to $17.1 million or 76 cents per diluted share in the same period of 2019.
Our effective tax rate in the second quarter of 2020 was 20.1% compared to 24.8% a year ago.
Our effective tax rate for Q2 of 2020 was more favorable than the statutory rate inclusive of state income taxes.
Primarily due to the current year to date pre tax losses, and the impact during the quarter of certain nondeductible business expenses, including the nondeductible portion of the first quarter goodwill impairment charges.
Based on the allocation of these expenses to the quarter in accordance with gap.
Effective tax rate also reflected the positive impact of certain federal tax credits.
Adjusted EBITDA was $27.5 million in Q2, 2020, or 12.6% of revenues compared to $29.2 million in Q2, 2019 or 13.2% of revenues.
Now I'll make a few comments about the performance of each of our operating segments.
The healthcare segment generated 39% of total company revenues during the second quarter of 2020.
The segment posted revenues of $85.4 million for the second quarter 2020.
Down $16.6 million or 16.3% from the second quarter of 2019.
This decrease in revenue reflects disruption to our new business pipeline and slower conversion of soft backlog during the quarter related to the ongoing covert Nike and Dennis.
Operating income margin for health care was 24.8% for Q2 2020 compared to 32.7% for the same quarter in 2019.
The quarter over quarter decline in margin was primarily due to the reduction in health care segment revenues.
The business Advisory segment generated 32% total company revenues during second quarter of 2020.
The segment posted record quarterly revenue was $7.5 million in Q2, 2020 up $8.2 million or 13.2% from the second quarter 2019.
Increase in revenue during the first quarter was primarily attributable to our technology and distressed advisory offerings.
The operating income margin for the business Advisory segment was 23.7% for Q2 2020 compared to 18.4% for the same quarter in 2019.
The quarter over quarter increase in margin is primarily due to revenue growth that outpaced expenses.
The education segment generated 29% of total company revenues during the second quarter of 2020.
Segment posted revenues of $62 million in Q2 2020.
$5.5 million per 9.7% from the second quarter of 2019.
The increase in revenue was driven by growth in our student technology and research offerings.
Operating income margin for education was 26% for Q2 2020 compared to 28.7% at the same quarter in 2019.
Quarter over quarter decline in margin was primarily due to increases in salaries bonuses and related expenses for our revenue generating professionals contractor space as a percentage of revenues.
Partially offset by decrease in travel expenses.
Other corporate expenses not allocated to segment level were $31.6 million in Q2, 2020, compared with $36.5 million in Q2 thousand 19.
The reduction in other corporate expenses was driven by reduced outside professional fees.
Reflecting increased fees in the prior year quarter related to diligence on an acquisition that did not ultimately kind of may.
Reduced facilities expenses reduced salary bonus and stock compensation expenses per our support personnel in general corporate savings across multiple expense categories.
These savings were partially offset by $3.1 million increase in the liability for our deferred compensation plan.
Which is offset in other income by the gain related to the increase in market value of asset these define that plan.
Now turning to the balance sheet and cash flows.
Yeah. So came in at 68 days, the second quarter of 2020 compared to 62 days for the first quarter of 2020, and 67 days for the second quarter 2019.
Total debt includes the $328 million in senior bank debt and a $4 million promissory note for total debt of $332 million.
We finished the quarter with cash of $83 million per net debt of $249 million.
This was a 52 million dollar decrease compared to Q1 2020.
Our leverage ratio as defined in our senior Bank agreement was approximately 2.6 times trailing 12 month adjusted EBITDA at the end of Q2 2020.
Fair to 3.5 times trailing 12 month adjusted EBITDA as of March 31 to 2020.
The decrease in our leverage ratio was driven by the reduction in borrowings in the second quarter as we repaid $120 million on a revolving line of credit.
Our net leverage ratio was 1.9 times trailing 12 months adjusted EBITDA as of June Thirtyth 2020, when the bank definition calculation is adjusted for cash on hand.
This compares to 2.6 times trailing 12 month adjusted EBITDA as of June Thirtyth 2019, when calculating in the same manner.
Cash flow generated from operations in the second quarter of 2020 was $58 million and we use $6 million, our cash to invest in capital expenditures inclusive of internally developed software costs, resulting in free cash flow of $52 million.
Given the ongoing cobot 19 pandemic, we will continue to proactively manage our cash the cash position to support our operations.
However through July we've not seen any material degradation in our cash collections and cash on hand has continued to increase.
We continue to believe that our internally generated liquidity together with our available cash and borrowing capacity will be adequate to support our immediate financing needs and investments in our long term growth strategy, including opportunistic tuck in M&A that may arise.
Finally, let me turn to our expectations and guidance for 2020.
For the full year 2020, we now anticipate revenues before reimbursable expenses in a range of $820 million to $860 million.
Adjusted EBITDA in a range of 9% to 10% of revenues.
And adjusted EPS in a range of $1.50 cents to $1.80 cents.
We expect cash flows from operations to be in a range of $60 million to $70 million.
Capital expenditures are expected to be approximately $16 million to $20 million and free cash flows are expected to be in a range of $40 million to $50 million net of cash taxes and interest in excluding noncash stock compensation.
We continue to expect our weighted average basic share count for 2020 to be 22.5 million shares.
In addition, we continue to assume an effective tax rate on a non-GAAP basis, excluding the tax impact of our Q1 goodwill impairment charges in the range of 28% to 30%, which comprises the federal tax rate 21%.
A blended state tax rate of 5% to 6% incremental tax expense related to certain nondeductible expense items.
Let me add some color to our guidance starting with revenue.
The midpoint of the revenue range reflects a 4% decline in revenue compared to 2019 revenue of $877 million.
Embedded in the guidance range, our expected performance based fees in the healthcare segment in a range of $40 million to $50 million.
Turning to the segments with regard to the healthcare segment, we expect a low double digit decline in revenue for 2020, and we expect operating margins will be approximately 25, 27%, reflecting the impact of the cobot 19 pandemic.
With the surgeon Cobot 19 cases in the U.S. and the pressure that places on the healthcare industry.
Uncertainty remains related to demand for our traditional healthcare offerings in the short term.
Financial and operating pressures created by the pandemic only exasperate the underlying challenges faced by hospitals and health systems, which we believe will bode well for our services over the medium and longer terms.
In the business Advisory segment, we expect to see mid single digit revenue growth for 2020, and we expect our operating margins in this segment to be in high teens.
We expect demand for our technology and restructuring offerings will continue to increase as the year progresses as clients a dress business model challenges.
<unk> increased demand will likely be partially offset by decreased demand for our strategic offerings in the short term.
So we remain optimistic about the medium and longer term drivers for these offerings.
And the education segment, we expect relatively flat revenues in 2020 compared to 2019, and we expect operating margins will be in the low 20% range.
As Jim mentioned, our higher education clients have and continue to face mask operational and financial pressure as they prepare for the fall term.
Our clients current focus is identifying the right path forward for their institutions to each students faculty and staff safe in the midst of the pandemic.
While we are helping support them in these efforts. We believe the current uncertainty will have an impact on segment revenues in the second half of the year.
Turning to the total company here as adjusted EBITDA margins is expected to be in a range of nine and 10% in revenues.
The decline of 250 basis points at the midpoint of guidance compared to 2019.
This margin decline reflects the impact revenues stemming from the ongoing pandemic and our previously stated intent to keep the here on team together. So that we are positioned to deliver on the strong demand, we expect as our clients stabilize and back to begin to address the mounting pressure they face.
With the recent resurgence of cobot 19 across the United States in the well publicized issues facing our healthcare and education clients.
Our guidance is cautious and reflects the uncertainty as to demand in the second half 2020.
We have reduced visibility into the back half of the year is our healthcare and education clients response, the day to day challenges they face in combating are managing through the pandemic.
On a turtle data indicate that our client facing consultants have on average utilized less vacation time during the first half of 2020 that would normally be anticipated, reflecting our teams focused on helping our clients transition through depends on that and worldwide travel restrictions.
Our guidance anticipates, a higher usage of Pts in the back half of the year.
Now, let me share a few final thoughts before we open the call the questions.
Given the continued uncertainty in the market.
We are pleased that our second quarter results were better than we had initially anticipated.
Our team rose to the challenge of selling and delivering our services and a remote environment, while developing innovative solutions to support our clients. During this period of hype of disruption.
We believe we are in its strong financial position to continue to manage through this uncertain period and sustain and build our business for the long term.
We remain committed to our long term financial strategy with a focus on positioning around to achieve sustainable organic growth and expand margins over time.
While we have reduced visibility into the back half of 2020.
We continue to believe our clients challenges our mounting.
From hospitals actively engaged in are preparing for a second surgeon coven 19 emissions, while rethinking how they deliver care from telehealth for other virtual care settings.
The education institutions concerned with bringing students safely back to school in the fall, while managing increased pressure on their value proposition to organizations across industries focused on how to evolve their business model digital strategy and related technologies to run and manage the business in a more remote environment.
We believe you're on is well positioned to help our clients address the unprecedented incredibly significant strategic operational and financial challenges.
We continue to expect demand for our services in the long term to be strong as our clients progress is our clients progressing the recovery.
Look to address the immediate issues they face and focused on the possibilities of what a future in a post pandemic rolled looks like.
Thanks, everyone I would now like to open the call for questions.
Operator.
Certainly ladies and gentlemen, if you have a question at this time. Please press Star then one on your Touchtone telephone. If your question has been answered and you'd like to remove yourself from the Q. Please press the pound key.
And our first question comes from the line of Andrew Nicholas from William Blair. Your question. Please.
Hi, guys good afternoon.
Yeah.
I appreciate all the color in the prepared remarks. The first question I had was was just related to second quarter results, obviously much better than than what you had contemplated on the first quarter earnings call just at a high level could you just kind of pinpoint that the top couple of things that outperformed your expectations and then.
Related Lee.
Can you give us some sense of how much that outperformance is more onetime in nature versus maybe a.
Hi, your expectations for maybe more persistent demand into the back half the year.
Standard this Jim I'll take a shot at that steel with John wants to add some color I guess the way they have to respond to that question after kind of go back to.
Late April when we issued our last.
Quarterly results and at that time there was.
Huge amount of uncertainty here in terms of how this is going to.
Hi, Pan out and at the time, the hospitals were really trying to keep their at the hospital clear for all corporate patients and so we looked at that scenario and we kind of assuming that healthcare would be.
I would be challenged education would be.
Equally challenge, particularly given the lower universities, we are beginning to send kids home for spring break.
And we weren't really sure what was going to happen on the commercial side things. So probably the easiest answer is that we things evolve in the second quarters will take on the commercial side of things.
The the practices, particularly the restructuring to turn on practice, but also very much. So yesterday I think performed better than we anticipated.
Largely particularly if say because we felt that a lot of clients saw the importance of heavy.
Digital transformation and in a lot of what do you estimate does it help clients.
Really become much more proficient in terms of digital capabilities with their clients, but with their customers. So so it's certainly the VA practice did well I think the big surprise for US was probably education.
But I think as we as John and I, both indicated in the call today.
What we saw in education was really in Q2 was the play out of some backlog that already existed.
Earlier in the year that was beginning to get played out.
And and.
So I think I think that probably that's the biggest total surprise for us was probably education.
We'll get to the commentary for the rest of the year and second to health care.
I think that.
Without without kind of tuck in the medical terminology I think the worst of it probably hit the hospitals in the March April timeframe that began to recover in may and we saw volumes begin to pick up we saw federal assistance begin to pick up.
And so I think so far it seems like at least for the hospitals that helps us use the worst of its true so.
I'd say the biggest surprises probably education.
By the strength of our our.
Commercial business in VA.
And I think healthcare probably performed largely as we thought it was going to John before we get to the rest of the year is that fair.
Jim I think Thats fair and then you got to great kind of overview by business. If I was going to I touched on this in our remarks and if I was going to maybe just look at it on more of a consolidated level, Andrew I'd say as far as what really changed during the quarter first our teams just data excellent job of working from remote and the are.
He said to burn through the backlog that we had entering the quarter by really that seamless transition was better than we even anticipated at that point in time and then the second thing I'd call to you that again as more of just a cross company concept is our teams are really innovative during the quarter on developing offerings that were responsive.
To covert 19 in the challenges our client base. So we had.
So.
Low teen revenue during the quarter that was the result of offerings that you were to go back to the beginning of year on probably weren't contemplated but that were very responsive to our clients situation plus some very tight management of expenses. So I'd say, it's really that combination of.
At doing excellent job of working from remote plus the innovation on to find new revenue streams that would help out our clients over the couple to really key characteristics across the company.
So sandy I'm going to probably not going to the second part of your question, which is really kind of how do we see that playing out second half an hour.
Well I apologize in advance for the kind of long response, but I think it's important one.
I think in terms of healthcare I think we've we've already weve a lot of the volumes of patient volumes are our recovery.
Quite back up to pre co. Good 19 volume levels, yet, but there, but there are approaching that.
And so that's good news for our healthcare clients, we're seeing a lot more movement towards profit performance improvement area of technology projects as they are certainly.
Dick picking our singles projects right now to encourage their financial recovery.
So that's that's.
Looking pretty well as well.
A lot of our.
Demand for kind of cold good related responses, particularly we mentioned medically home earlier, but other projects that are related to kind of helping test and.
Treat trace program.
Issues with the Kobin are also.
Taking place right now and we're spending a lot of timing of their hospital clients doing just that so I think and and I guess trying to just with the metric with managed services and care transformation. There also continues to be a lot of our clients positioning themselves for what they believed to be are going to be.
Changed but slightly improving economics over time the business models, obviously changing tele health is going to have a big impact of that but I think they're essentially worst of its overworking are now beginning to prepare for for the future.
And especially they can so our view for health care is that for the remainder of the second half will probably going to continue to see a slow.
But gradual increase in utilization and hopefully revenue as well. So we think the worst is probably over with and health care and.
I don't think it's going to be a big V shaped recovery, but we think there will be a recovery from certainly from the second quarter and we think it will be kind of slow gradual.
On education as we indicated in the call today, Education's really kind of in a very different boat I think for for a lot of our our clients. They sent the kids home and middle of March for spring break and they have never come back and now they're totally focused on.
On.
The fall and.
And they're focused on the fall in a way that I think it the way our hospitals were focused on themselves back in March and April Theres, a huge amount of uncertainty in terms of what's going to happen. So some of our projects have continued at a reasonable pace. Our strategy in operations business has continued our student related businesses continued our research businesses have continued.
Slightly lesser volumes I think our larger system implementation projects.
Our probably the one so were most excuse me the most impacted.
They were they were kind of pause for a little while probably in the second half in terms of the way they were going to progress, but now we're beginning to sea lice consumables as the shipment process for the larger systems projects are moving forward.
What it's done as it's caused a little bit of a push out in terms of our.
Our backlog and pipeline, but.
We will take some encouragement that those projects are now being put back on table and they're going through the procurement process.
Today and in the next couple along the way we thought they would have been going through through most of the second quarter. So there's going to be a delay in some of those bigger projects that will certainly have an impact on education third quarter.
But at this point in our hope would be that theres enough momentum and and all the activities across our education sector that we would that we hope to have begun to have.
More momentum and growth starting in the fourth quarter, but a lot of it will depend upon kind of what happens in the fall and.
And so we think we're just kind of that's one of the reasons, we're being cautious in education is largely the same reserving partially healthcare as well because we just don't know, but I think at this point, we need to be cautious on education, just to see how that plays out.
And then I think.
The probably the easiest will describe right now it's our business Advisory segment, which we believe it's going to continue to have growth as we mentioned the call, but there is some.
Sure some issues as shorter term weakness around some of the strategy areas in our life Sciences and the site is good but they both had.
Projects recently that have picked up.
That we believe will be beneficial for the future and then yes.
Hey, and.
And restructuring turnaround business.
We believe we're going to have a strong second part of the year.
So that's probably longer answer that you wanted but I hope it kind of it bifurcate the way things operated at for US in the second quarter and the way we're looking at the second half of the year.
No that that's all really really good second up all the questions here could you covered a bunch of them. So I appreciate that.
Maybe just just one follow up on education.
That kind of think about.
You talk about building momentum potentially with with better business generation in the fourth quarter.
Obviously, the big issue for these universities or it sounds like a big issue for the University that you're trying to figure out what's been happening with the fall semester do you feel like if we if we run into.
Second wave or whatever it may be that potentially put this spring semester at risk is is the fact that they've gone through this exercise for the fall semester, I'm mean that the impact on a relative basis could be less drastic for fourq here on him for the universities and in the Springer.
Just kind of thinking about if some of the worse could be path.
That.
Regardless of what happens in the first half I'm, having gone through this exercise in the third and fourth quarter.
Well one thing any to remember is is that majority of our education clients further larger research universities and may tend to have.
The financial wherewithal to kind of manage through.
Just to manage through some tougher times so we.
For our business, but.
I think the revenue will be there I think similar to what we saw in health care in the second quarter, where they were leadership was distracted because if there is some hospitals, we're seeing some leadership construction right now in education for the same reasons, because they're worried about just getting fall off to a launch.
But I think it but some of them frankly are contemplating the possibility that there won't be students on campus in sprint. So thats, a real possibility I'm not predicting that but it certainly is a possibility you part of the work that we're do we would be helping them get that point, where it would actually be effective. So that's an important part for us to acknowledge.
And that is whether its.
Thank you.
Whether its enhancing the access to cloud capabilities that can serve the faculty and students and staff.
More efficiently.
Whether it is just enhancing their world digit overall digital capabilities. These are all things that are that they actually had teed up.
Earlier, you know for per hour for execution by somebody hopefully house in the second half of year and now they are looking at those in saying well, maybe we're going to have a little bit of the delay, but we need them now more than ever. So that's what gives us comfort that this is really a matter of time, we just don't want to be too far ahead of the game predict when that time, it's going to be I do.
I think though that if the spring semester got compromised.
By not having students on campus that I don't think that it would affect that stat dressed.
Great that's really helpful. Thank you.
Thank you. Our next question comes in the line, though Tobey Sommer from Suntrust. Your question. Please.
Thanks, how are you thinking about.
Hiring talison.
It's a tricky thing with uncertain near term demand to try to build the the right capability to deliver your services over the medium term kind of two and three years out how are you going to thread that needle.
Hey, Tobey its John I can I can start and Jim Mark can provide color.
So from a hiring for selected throughout this entire period, we still bit hiring kind of.
People that we think.
Are going to be part of our strategy going forward or that are really differentiated talent that were not helped drive revenue for the company. So we never really hit the brakes on that because those are the pipe. The type of people that were going to need to continue to drive our the company forward, we have been more cautious I'd say on more general hiring.
Just given the uncertainty that we see from a revenue perspective.
I would say as we now progressed to the back half of the year.
The trend lines in our.
Yes in a business in the business advisory segments, our technology business as well as the distressed advisory business some very strong.
Client demand trend lines within those businesses. So I think you will see us hiring talent in those areas and to the extent that we have softness in some of the other areas of the business for reasons that Jim described.
I think our plan would be to be able to re purpose.
Our employees that have the right skill set to help out some of those other areas with a stronger demand. So I think the collaboration between our teams is really important I think you will see hiring for specialized talent and technology.
Technology and distressed advisory parts of the business and across the board to the extent there's talent out there that's differentiated thats really going to drive our strategy moving forward. We're still we're still looking at those opportunities.
How are you what are you expecting in terms of pricing and say that in terms of both bill right, Rick consult level as well as.
The the forum in what's your customers are are going to want to contract.
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Yes, I'll start.
Hi.
Go ahead.
Sorry.
No. Thank you.
Okay I'll start on the health care side, I'd say, we haven't seen any significant changes in pricing environment to your question. We have team clients with more interest in performance based fee arrangements, which probably reflects some of the financial strain that they are under now but the need to improve their.
Margins going forward.
Typically actually those those types of arrangements are attracted to us from margin perspective, So I'd say, that's probably the main thing we've seen on health care side.
I'm a business advisory perspective, the market's been quite robust again for the technology practice that yesterday practice, so there hasn't really been.
Tremendous pricing pressure there and then of course in the distressed market. There's lot of demand right now so if anything we've seen an improving.
Demand market there.
I'd say on the education side.
As our clients are working through this disruption that might be one area the business, where we see a little more competition on the pricing side, but even that I'd say is a little bit early at this point to call a full trend. That's just an observation based on what we've seen so far.
And.
With respect to the size of contract you did mention a little bit more perhaps contingent fee.
Am I right that we should associate that with the larger scale projects or is there not a relationship there.
I would say Toby it could be it certainly is something that you often associated with larger projects you can see them and kind of middle sized projects to to your point smaller sized projects you typically don't see that arrangement because it just not necessary.
Lower fee level, but it's kind of in that medium to larger project range than you do tend to see more performance based fees and typically it's within the performance improvement side of the business.
Okay. Thank you I'll get back into queue.
Thank you and as a reminder, ladies and gentlemen, if you have a question at this time. Please press Star then one our next question comes to mind of Kevin Stein from Barrington Research. Your question. Please.
Hi, I'm one of the to discuss.
A little more.
Okay.
Kind of.
For healthcare clients in patient volumes.
Bill that's often me in June.
No, but just curious if you're.
Seeing geographic area and those things.
Trends based on.
We are diverse.
Some cobot hot spots going on right now or.
Or.
Not in those areas where.
Thanks and cases now.
Kevin This is Jim I, we lost to a little bit the end, but I think I think your question was really about picking up patient volumes or whether we're now seeing any geographic concentrations.
Of areas.
And that's correct.
Okay Yeah.
I think.
I think we saw it was it just seemed to be pretty much national what Bakken.
April and May and I think now is.
I mean, it's certainly there are some hot spots in the southeast, but I don't think we're I think in general we're seeing a lot of the hospitals, even in the hot spots are still able to focus and concentrate their corporate patients and I don't think are having to clear house the way they anticipated having to do or the way. They did back in April and May So March and April so I'd.
I think I think it's not as much of an issue right now, even though that even though the virus, obviously continues to boom and a lot of places.
The use of ventilators is a lot less based on what they've learned and so I think I think the access to.
Non elective.
Surgeries again, it's dropped back at the normal levels yet but.
They're trying to get it up to 85 or 90% in some cases and I think when our standards in some cases, the margins and begin to come back nicely as well I don't think theres as much it's certainly not a national issue in to the extent that there's.
More localized issues, it's not widespread because are handling this kind of more surge differently than they did back in March and April.
Okay, Yeah that that kind of led into when I was going to next because I mean, you kind of units are already but.
You know daily covert cases in the us are actually.
Triple or even more than what they were baked in.
April and May say, but it sounds like hospitals, just aren't going into complete shutdown mode. Like they did back then and so.
You are not necessarily certainly seeing this.
Dramatic drop off in elective and other procedures like like you did before it sounds like.
That's correct I mean, I think again I'm not my area of expertise, but I think hospitals have quickly learned that this time around their handling things very differently and I suspect that if they knew today with the new back then what they know today it probably would have been a different situation, but we're all working on this so I think the hospitals are in better shape right now.
And the learning, who and where they can be having them I do know that in some of the hot spots. So for example in California, We roughly star medically home capabilities that we were able to stand up with virtual hospital that has a big impact and I think thats more and more of kind of what you're going to see hospitals begin to do as they try to get more.
Creative and innovative in your comes with the way they can deal with potential.
Waves of patients.
Yes, the comment I'll add to this is just that I think in the initial wage you saw a lot of hospital shutting down everything with their elective procedures and in doing that you had hospitals that really never had their ice user capacity and so there was a lot of impact to the system by virtue of taken out those elective procedures and then.
Now the element of patient volumes that getting back to where they were is partially related to the level of.
Comfort that patients have been actually engaging into hospital settings, and so thats, taking some time to get back in fact, our practice we are in health care.
Sure you need the knee replacement he's going to wait a little while and this is a good example of the kind of thing Okay goes really going to do things a little slower than normal for awhile.
The other thing that I think I'll point out as well is that.
The federal funding to support the post coded funding for hospitals has come through and has made a material difference for a lot of them. That's not the case in education, but I think if you go back and looked at I think I think in the end. When you go net net some of the losses assumable hospitals weren't as bad as they once thought after they perceived kind of though.
After they were able to get some of the additional funding in the federal government. So there's still struggling there's no question about that but I think there is slightly better shape than anticipated they might have been and pick it back in April in early may.
Okay, Great. That's that's helpful.
Yes, I wanted to talk about business advisory as well.
It sounds like the demand outlook.
Is pretty steady relative to what you saw in the first.
Although you know just looking at the mid single digit guidance.
You gave for the full year implies that there would.
The.
Slowdown in growth through the second half so I don't know Thats, just some conservatism or limited visibility or you're actually seeing some softer demand trends. There. So anymore commentary on I'll look for business advisory in the second half.
I think I can start I'll end with the mathematical answer then I'll I'll hand, it over to Mark for that some more business perspective, I think it's a couple of things I think I think first on their data really nice.
First half of the year like we said on the call. It was a record quarter in the second quarter sort of probably as you. Some caution about not extrapolating that record out into the third and fourth quarter, though we feel very good about what we see in the market and then the other item would just be the fourth quarter of 2019 was very strong for them and that represents.
More difficult comp. So I think it's really just I'm trying to be balanced and cautious given.
The great activity, we saw in the first half and potentially tougher comp by the time, we get the fourth quarter.
Yes, I think that's that's exactly right I think it is somewhat conservative because again the underlying trends that are driving those businesses nothing has really changed dramatically there and arguably even some of the areas. We saw some softness strategically there is a need for reviewing what your strategic positions were.
Coming into Kobe to now how are you going to emerge and recover so I'd like to think we're again, taking a fairly conservative stance on the outlook for business advisory.
And I'll say this is Jim just in general I, just think I mean, when we look at kind of the way. This is evolving over the last whatever it's been five months, we look at the the ups and downs in the economy and everything else, it's just hard for us to be.
Anything but conservative at this point in time, I think contributing the way we're looking at all of our businesses. So so we're trying to take what we think it's a realistic but probably conservative view and hope that things are materializing away it will be beneficial for our clients and beneficial for us.
Okay, Great and then.
So I wanted to talk about how last quarter you.
You laid out.
Three different scenarios optimistic based case and pessimistic would you say.
At this point or you know as well as you could pinpointed I guess that.
You're kind of tracking to the base case, which which assume kind of slowing uneven recovery due to sporadic resurgence in co bid I mean is that how you see a playing out and weaker third quarter and then starting to see some recovering a fourth quarter or just kind of how are you thinking about how.
That plays out relative to the scenarios you could do it.
Put out there.
Hey, Kevin It's John I can start just to get go back and give a little context on those scenarios I mean I was obviously very much at the beginning of this disruption that we've all been through and we really were trying to think about well different scenarios for our end markets.
How that might flow through to our business and it wasn't so one size fits all answer for here on it was an answer that varied by segment. So I'd say for the healthcare segment I'd say, we're trending sort of between the optimistic in the base case relative to those.
Thats perspective that we had at the ended the first quarter I'd say that yes optimistic part is the way that we see utilization rebound as the quarter improved in some of the activity we're seeing in our pipeline.
Whereas the actual performance in the second quarter. They were down mid June that's probably more aligned with the base that we had expected.
For the business Advisory segment, I think it's been trending towards the optimistic perspective overall versus what we expected the technology business and the distressed business has seen very strong demand. It was a record quarter during the second quarter. The one mitigating factor. There is I think our strategy team has been more like the base case, they've had a softer second quarter or anticipate.
And softer third quarter, but we still feel real good about their offerings in the medium and longer term and then on the education side, we are pretty explicit in the scenarios that we put out there that what would happen in this fall would be a big determinant about weather at least in the short term here from a timing perspective, whether it was going to be the base case or more.
Pessimistic case, so that I think it's a little bit TBD at this point based on what happens it schools are able to get back to campus I think that puts us more in line with the base case to the extent that the search continues in that are not able to get back to can't campus at least here in the short term from a timing perspective that might put us a little more in the.
In towards the pessimistic case.
Okay. That's that's excellent color I appreciate it that was all hit today. Thanks.
I.
Thank you see no more questions I'd like to turn the call back over to Mr. Ron for any further remarks.
Thank you very much for spending time with us. This afternoon, we look forward to speaking with you again in November when we announced our third quarter results have a baby.
Thank you ladies and gentlemen few participation in today's conference. This does conclude the program you may now disconnect good day.
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