Q2 2021 Huron Consulting Group Inc Earnings Call
[music].
And good afternoon, ladies and gentlemen, and welcome to the Huron consulting group's webcast to discuss financial results for the second quarter 'twenty 'twenty 1.
At this time of all comp.
All lines are in a listen only mode. Later, we will conduct a question answer session for conference call participants and instructions will follow at that time as a reminder of this conference call is being recorded.
Before we begin I would like to point out so all of you sort of the disclosure at the end of the company's news.
And for its calls 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 SEC for a disclosure of factors that may impact subjects discussed and this afternoon's web.
Cost.
And the company will be discussing 1 or more non-GAAP financial measures.
Please look at the earnings release and on Huron website for all of the disclosures required by the SEC, including reconciliations of the most comparable GAAP numbers.
And now I would like to turn the call over to Jim.
Newsreels, Chief Executive Officer of Huron Consulting group Mr. Roth. Please go ahead.
Good afternoon, and welcome to Huron consulting group's second quarter 2021 earnings call with me today are John Kelly, Our Chief Financial Officer, and Mark Hussey, our President and Chief operating Officer.
Roth spend a few minutes, putting our second quarter results in the context as it will provide important insight into how we see things evolving for the rest of the year.
Prior to the start of the pandemic. We finished 2019 with strong performance across all 3 operating segments and we entered 2020.
I'd like to each of that momentum continuing.
At the midpoint of our initial guidance range for 2020.
We anticipated a growth rate of 5% when we believed at the time that the market demand for our services and our investments and growth will enable us to exceed that target.
As we have discussed.
With my prior calls with the onset of the pandemic and early 2020. The healthcare segment was negatively impacted immediately and the education segment was negatively impacted our quarter. The later, while the business Advisory segment achieved strong growth through most of 2020, Despite global economic challenges.
Just on the 2021, when we released our first quarter results, we shared our belief of the education and healthcare segments reached their pandemic revenue low watermarks during the fourth quarter of 2020, and the first quarter of 2021, respectively.
We also share that we saw an increase and our sales.
Turning blind and the pace of signings and our healthcare and education business, which gave us further confidence and our ability to meet our updated full year performance expectations.
With that context, and the second quarter of 2021 revenues grew 6% year over year and 13.
18% sequentially, reflecting the strength of the recovery and our healthcare and education segments.
We anticipate the tailwind that we experienced and the second quarter will continue across all segments, including and business advisory and further demonstrating that our pre pandemic growth trajectory has.
The return and that we believe we have established the foundation for strong growth through the remainder of 2021.
I will now share additional insight into our second quarter performance and then provide some color and our expectations for the remainder of 2021.
During the second quarter healthcare segment.
And as grew 19% over the prior year quarter reflective of the strength of the recovery for our offerings and the healthcare industry and strong performance and a revenue cycle managed services business.
As we anticipated utilization improved over the first quarter of 2021 and the pipeline of assessments for.
For our performance improvement offerings continues to build given the financial pressures facing hospitals and health systems.
As previously discussed during the second quarter, we continued to invest and our revenue cycle and managed services offerings. As we believe this business will be and ongoing source of growth for Huron.
In addition, we recently on boarded the leadership of of West Coast Academic Health system, which is now our third revenue cycle managed services contract.
As hospitals and health systems navigate challenging financial train.
Our comprehensive offerings spanning consulting and managed services and outsourcing and our pre.
And the ability to achieve cost savings and yield improvement for all clients will continue to be attractive to the healthcare to the healthcare market.
Turning to the business Advisory segment and the second quarter of 2021 business Advisory segment revenues were flat compared to the prior year quarter.
Driven.
Another quarter of double digit growth across our digital technology and analytics and strategy offerings.
That growth was offset by lower revenues and our distressed advisory and life sciences businesses reflective of the difficult comparisons and the second quarter of 2020.
The primary growth driver and.
And Brian is the ongoing demand for digital transformation stemming from the altered post pandemic environment that has emerged across industries and.
Our digital and analytics offerings have been deployed and numerous commercial sectors and they have also strength in Huron <unk> competitive advantage and our core industry verticals.
And the.
As we've been indicating during the past 2 years the investments we have made and continue to make throughout the business Advisory segment are providing 2 key benefits to Huron for.
The investments are enhancing our ability to provide a broader array of technology financial and operational capabilities and new.
And geographies.
Second these investments are also yielding and success and achieving new collaborative work within our healthcare and education segments.
Electively, we're excited about how these investments will continue to enable us to achieve our financial objectives.
Turning now to the education.
<unk> segment and the second quarter of 2021 education segment revenues declined 7% over the prior year quarter reflective of the difficult comparisons and the second quarter of 2020, which as of that time had not been impacted by the pandemic.
Sequentially Education segment revenues grew.
The industry percent over the first quarter of 2021, driven by record demand and our research strategy and operations and student offerings.
As we've indicated there was strong demand for our technology related services and 2019, and early 2020, and many large universities halted or.
And for toward their systems implementation efforts until they have more clarity as to how long it would take to return to a more normal environment.
We believe that time is now and in recent months, we have seen an increase and our pipeline for technology related opportunities.
We anticipate that the second half of the year will show continuous.
This improvement and revenue coming from cloud implementations, adding to the strength and demand for the remainder of our education offerings.
Before I turn to our outlook for the remainder of the year I would like to make a few comments about our team.
The last year, we had to make strategic decisions about our people and the duration.
<unk> of the pandemic.
We didn't know how long the pandemic with last nor did we have of full understanding of how deeply it would eventually impact our health and education businesses.
What we did note is that we had and continue to have an incredibly talented team of people that would not be easily replaceable.
If we made a material reduction and our head count.
During the pandemic, we believe that retaining our people was and the best interest of our shareholders and critical to sustaining our culture and supporting the growth we anticipated as our clients' businesses began to stabilize.
We believe that those decisions are reflective.
<unk> and the strong revenue growth this quarter and will yield positive results for our shareholders in terms of improved margins and a robust workforce that is ready to meet the anticipated high demand for our services as the economy continues to rebuild.
We believe that evidence of those improvements and revenue growth and profitability.
And we will continue to materialize and more normalized levels of utilization during the second half of this year and in the subsequent years as demand returns across all segments.
Finally, let me turn to our outlook for the year.
As our press release indicates we are increasing and narrowing our annual revenue guidance.
<unk>, $2.875 million to $905 million.
We're also narrowing our adjusted EBITDA guidance to a range of 10, 8% to 11, 3% of revenues and narrowing our adjusted diluted earnings per share to a range of $2.40 to $2.70.
We raised our revenue guidance.
To reflect the anticipated recovery and demand for our healthcare and education offerings and the second half of the year.
As well as continued growth and the business Advisory segment.
Across all 3 segments, we believe the market recovery presents strong tailwind for demand for our business.
Through the hard work and dedication of.
Of our teams. We believe we are well positioned to take advantage of these market opportunities with our deep client relationships industry expertise and extensive technology capabilities.
And I remain enthusiastic about our prospects for 2021, and we are committed to returning Huron for sustainable organic growth and increased.
<unk> profitability.
Now, let me turn it over to John for a more detailed discussion of the financial results John.
Thank you Jen and good afternoon, everyone.
Before I begin. Please note that I will be discussing non-GAAP financial measures, such and EBITDA adjusted EBITDA adjusted net income adjusted.
And free cash flow.
Our press release, 10-Q, and Investor Relations page on the Huron website have reconciliations of these non-GAAP measures to the most comparable GAAP measures.
Along with the discussion of why management uses these non-GAAP measures and why management believes they provide useful information to investors regarding our financial.
Condition and operating results.
Also unless otherwise stated 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 2021 for $230.1 million up.
Up 5.6% from 2.
And EPS $17.9 million from the same quarter of 2020.
The decrease and the increase in revenues and the quarter was driven by growth and our healthcare and business advisory segments, partially offset by a year over year decline in revenues and the education segment.
And there is not significantly impacted by the pandemic until the second half.
For 2020.
Education segment revenues grew sequentially 14, 3% compared to the first quarter of 2021.
Net income was $12.8 million for 59 per diluted share and the second quarter of 2021 compared to $13.6 million of 61.
<unk> per diluted share and the same quarter and the prior year.
Our effective income tax rate and the second quarter of 2021 of <unk>.
21, 3% compared to 21% 1 year ago.
Our effective tax rate for Q2 of 2021.
It was more favorable than the statutory rate inclusive of the state.
Taxes, primarily due to a discrete tax benefit.
2 of lacking the guilty high tax exclusion retroactively to an earlier period.
This favorable tax benefit was partially offset by certain nondeductible expenses.
Adjusted EBITDA was $25.6 million and Q2.2021.
For 11, 1% of revenues compared to $27.5 million and Q2.2020 of 12, 6% of revenues.
The adjusted non-GAAP net income was $15.1 million of 69 cents per diluted share and the second quarter of 2021.
Compared to $14.9 million.
<unk> income of <unk> 68 per diluted share and the same period of 2020.
Now I'll make a few comments about the performance of each of our operating segments.
The healthcare segment generated 44% of total company revenues during the second quarter of 2021.
The segment posted revenues of $101.4 million.
For the second quarter of 2021.
Up $16 million or 18, 7% from the second quarter of 2020.
The increase in revenue primarily reflects increased demand for both of our performance improvement and revenue cycle managed services offerings.
Operating income margin for health care with.
27, 3% for Q2.2021 compared to 24, 8% for the same quarter in 2020.
The increase and margin over the prior year quarter is primarily attributable to higher utilization.
Well as decreases in salaries and related expense for our support personnel and contractor expense partially.
And by increases and performance bonus expense and signing retention and other bonus expense for our revenue generating professionals as a percentage of revenues.
Let me interject, 1 housekeeping item.
As our revenue cycle managed services business continues to grow and scale, we have provided metrics and our 10-Q to provide additional color.
Color into the portion of our business.
We will also file a supplemental 8-K, which provides the historical recasting of our metrics.
This revised presentation.
The business Advisory segment generated 31% of total company revenues during the second quarter of 2021.
The segment posted revenues of $70.9.
$9 million and Q2, 2021 up <unk> $4 million per 0.6% from the second quarter of 2020.
Revenues for the second quarter of 2021 included $4.3 million from our acquisitions of force IQ and Unica solution.
The quarter over quarter increase and revenue was driven by our digital technology.
And the analytics and strategy offerings, partially offset by decreases and our distressed offerings and life Sciences business.
The operating income margin for the business Advisory segment was 22% for Q2.2021 compared to 23, 7% at the same quarter of 2020.
The quarter.
<unk> quarter decline and margin was primarily due to increases in salaries and related expenses for our revenue generating professionals and contractor expenses as a percentage of revenues, partially offset by decrease and performance bonus expense.
The education segment generated 25% of total company revenue during the second quarter of 2020.
Quarter over.
The segment posted revenues of $57.9 million, and Q2.2021 down of $4.2 million for 6.7% from the second quarter of 2020.
The decline in revenue reflects a difficult prior year comparison as our education segment did not experience significant revenue impact from the pandemic.
Third quarter of last year.
The decrease reflects the decline in our technology implementation revenues, partially offset by increases and our research strategy and operations and student offerings.
The operating income margin for education was 23, 8% for Q2, and 2021 compared to 26% for the same quarter.
And in 2020.
The quarter over quarter decline and margin was primarily due to increases and performance bonus expense and signing retention and other bonus expense for our revenue generating professionals and technology expenses, partially offset by decreases and contractor promotion and marketing expenses as a percentage of revenues.
And until the other.
The other corporate expenses not allocated at the segment level for $34.3 million and Q2.2021, compared with $31.6 million and Q2.2020.
Unallocated corporate expenses and the second quarter of 2021 include $2.1 million of expense related to the increase liabilities.
Ability of our deferred compensation plan.
Which is fully offset and other income by the corresponding gain and assets used to fund that plan.
Unallocated corporate expenses and the second quarter of 2020 included $3.9 million of similar expense related to our deferred compensation plan.
Excluding the impact of the deferred compensation plan.
Periods.
And for $4 million increase and on.
The allocated expense primarily relates to increases in salaries bonuses and related expense for our support personnel legal expenses restructuring expenses travel expenses and software and data hosting expenses for the.
The first 6 months of 2000.
And and bolt on other corporate expenses not allocated at the segment level to modestly decreased.
Compared to the same period and 2020, when excluding the impact of the deferred compensation plan and restructuring charges.
Now turning to the balance sheet and cash flows.
DSO came in at 73 days for the second quarter of 2021.
Compared to 64 days for the first quarter of 2021, and 68 days for the second quarter of 2020 the.
The increase in DSO during the quarter is related to the ramp up and revenue as the quarter progressed as well as certain larger healthcare and education projects with contractual payment schedules, where we anticipate the bill and collect and first half revenue.
'twenty, 1 and the second half of the year.
We continue to expect DSO to normalize to around 60 days over the course of 2021.
Total debt includes the $265 million and senior bank debt and of $3 million promissory note for total debt of $268 million.
We finished the quarter with cash of.
<unk> million dollars for net debt of $255 million, our leverage ratio as defined in our senior Bank agreement was approximately 2.8 times adjusted EBITDA as of June 32021.
Third to 2.6 times adjusted EBITDA at the end of Q2.2020.
We expect the finished the year with the leverage ratio of below.
13, 2 times EBITDA.
Cash flow generated from operations and the second quarter of 2021 was $21 million and we used $6 million of our cash to invest and capital expenditures inclusive of internally developed software costs, resulting in free cash flow of $15 million.
We used $23.8 million of our cash.
Cash to repurchase shares of our common stock during the quarter, bringing the year to date total up to $35.2 million.
Finally, let me turn now to our expectations and guidance for 2021.
As Jim noted, we are raising and narrowing our full year of 2021 revenue guidance to $875 million to 900.
<unk>.
And the increasing our revenue guidance, primarily reflects the ongoing recovery and our healthcare and education segments and.
Continued growth of our business Advisory segment.
In addition, we are narrowing our full year adjusted EBIT guidance to be in the range of 10, 8% to 11, 3% of revenues and.
And we are narrowing.
For the full year adjusted non-GAAP diluted earnings per share guidance to be and a range of $2.40 to $2.70.
Finally, we expect our full year effective tax rate to be and the low 20% range. Thanks.
And thanks, everyone I would now like to open up the call the questions operator.
Thank you ladies.
And if you have a question at this time. Please press Star then the 1 key on your Touchtone telephone. If your question has been answered all of you wish to remove yourself from the queue. You may do so by pressing the pound key 1 moment for our first question. Please.
Our first question comes from the line of Tobey Sommer.
And so Jeff of true of Securities. Your question. Please.
Hey, good evening it's.
Yes for <unk> on for Tobey I wanted to ask about what's still in the pipeline for healthcare performance improvement and as we move into <unk> healthcare utilization is kind of rebounding towards pre COVID-19 levels.
Thank you will have.
It will be pretty soon on some of these larger projects <unk> been pursuing for a few quarters.
Josh and as Jim.
The.
The portfolio of opportunities that we have from US is really I think it's pretty consistent I think we've kind of gotten away from these really large projects that are having a big impact and I think just.
The visibility I think the normal performance improvement opportunities, we have right now.
And are reasonably consistent.
And with what we've seen in the last year or so absent the.
And the kind of shortfall that we had during the pandemic, but the reality is the summer we got from large health systems that are kind of tend to be.
Having the the larger projects, depending upon how much cost reduction or revenue cycle work needs to be done, but I think.
Our expectation is that things have really kind of have now gotten back to the kind of pace that we had before and that the issues that we're seeing within the healthcare industry.
Our.
Going to be very conducive to having additional.
The growth for us and this practice, we feel great about the way that the the.
The industry's evolving from our perspective of the pressures that we've been talking about in the healthcare industry are very significant.
The changes that have transpired because of COVID-19.
Our the way that they have to respond to that are very significant and we feel it's created a really good opportunity for us. So we have a healthy.
Our portfolio of opportunities ahead of us that we think are going to reflect of the kind of.
The kind of revenue for Huron that we think will be very positive and all.
GAAP per I'll, just add that.
And we.
We talked last call about how.
We had confidence that we had seen the low point from a healthcare perspective, and the first quarter of 2021 and that was based on a couple of those projects that we've been talking about and the pipeline did close towards the end of the first.
<unk> and <unk>.
Early part of the second quarter and that trend line continues for the quarter progressed, we continue to have nice conversion on projects of our pipeline as you alluded to and you can see that and our utilization rate and.
And I would say, we're still in an environment right now as we talked about during the first quarter, where we're doing a lot of assessment work and so a lot of the fats and work that doesn't valve.
Investment in terms of margin, but from a opportunity perspective, and an outlook perspective, as we think about the back half of the end of 2022, it's very encouraging for us because it gives us good visibility too.
So some meaningful work and the pipeline.
Thank you our next.
Next question comes from Andrew Nicholas of William Blair. Your line is open.
Hi, good afternoon.
First question and that I have is just from the revenue and earnings cadence.
Do you expect for the rest of this year.
And indirectly if there was anything kind of 1 time and the second quarter.
Zone.
The reason I ask is because it looks to me like at the mid point of guidance for the second half run rate is a bit lower than what you saw and the second quarter. So if you could just help me square those 2 things up that'd be helpful.
Yes, I think the way I would generally look at it Andrew is yes, I think the.
The acceleration of revenue and.
And the second quarter related to a recovery was probably a little bit ahead of pace of.
What we would of <unk>.
Planned at the beginning of the year.
And as we look out for the back half of the year I wouldn't necessarily described of the deceleration is probably more of just if you take kind of the quarter that we produced in the second.
And we think Thats, a pretty reasonable way of thinking about the third quarter and the fourth quarter based on what we see at this point and time in terms of.
And any 1 off type things and you look at the healthcare.
Billing rate and stay up a little bit higher during the quarter and we did have some performance improvement contracts, where we hit the milestones during the quarter on.
The quarter that the bill rate will normalize as we get towards the back half of the year of little bit from where it was and the first quarter, but and that.
I don't think I would describe it as we're thinking of any sort of deceleration as we get into the back half of the year.
Makes sense and then.
Changing gears little bit I was hoping you could kind of talk about the hiring environment.
<unk> the.
The competitiveness of recruiting across your various businesses right now and then maybe relatedly any thoughts on employee retention levels at Huron relative to last year or even pre COVID-19 levels. Thank you.
And it is Jim.
So I can make.
The next couple of comments the.
The we are we're doing well and hiring people and the competitive environment has certainly gotten.
And that's it up and the web.
6 months, or so, particularly and the technology areas and so that's the part where we're seeing a lot of competition.
So.
So I think this is this is not unusual for.
It's really true across I think all of professional services and even beyond professional services. So I think there's really nothing new that we're experiencing from a from a turnover of perspective.
Things are higher than they were last year, but I think if you normalize 2020 and 2021, they're probably for.
And pretty consistent with our historical turnover trends so so.
And we're kind of we're <unk>.
Try not to overreact to the higher turnover right now, although we're aware of I think we suspect that our turnover rates. Even this year are probably lower than a lot of others that we've seen or heard about.
And having said that.
For us through all of this stuff, whether it's super recruitment retention is a major focus of what we're doing right now and we hear the same stories I think that everybody else hears about lots of people wanting to move and shift jobs or have a different perspective, and what they want to do.
For their careers and.
And we're taking all of that very.
And so I'm curious we were spending a lot of time talking to our people.
We are.
And we're doing the best we can to kind of.
And manage through a period of time, where a lot of people have very different perspective, some people can't wait to get back to the out for some others.
Never want to come back at all and so I think it's just it's of probably.
Very seamless trying times in terms of managing.
The overall.
Personnel and trying to get everybody through a pandemic and still stay focused on what we need to do we feel part of the other problem has been that and we've been pretty busy and so there is also the point and time now where people.
1 of the stress from Covid influence for us from doing a lot of work and so all of this is really tough for us to manage its probably a long way, though of saying that I think we're coming out of this we have we have proven to be of very attractive place for people to come to want to work with.
We're certainly having some turnover, but I think it's again less and probably the average.
Average for a lot of our peers and we feel very good about the environment into which we are recruiting so.
Our challenges on the go forward basis, I think will not be having enough people.
It's just going to be managing what is right now clearly the slightly more to stay.
Unstable.
Environment for personnel and we've typically had but I think I'm confident that over time, and this was going to even out and that the.
The culture, we have here is going to remain very attractive for people not just to be recruited into happens day, we've actually seen people that have loved Huron and come back because I realize.
Good of price of is here. So we feel good about this but make no question about it as a.
It's a difficult environment to be working.
That's helpful I'll, let others jump the queue. Thank you.
Thank you. Our next question comes from Bill Sutherland of the Benchmark Company. Your line is open.
Okay.
Thanks, everybody.
Curious about the new revenue.
The operating detail on your own.
What do you call yet the healthcare managed services and please.
So I think it would be helpful and just have a little history on the build out of this group.
I think there's maybe I'm wrong, but I think Jim mentioned, the third deal I think that's where it is for logs and then kind of also curious about.
In terms of <unk> with the average number of employees jumping to $4.31.
For <unk> and the revenue only doubling.
The.
Should imply I guess.
Sure.
Okay. So thats, an average number of employees that would be more in the <unk> I guess with the new.
Opportunity and kind of curious what that means with revenues for that group.
So I can I can start.
And so if you think about the history of our.
Services offering.
We had our first contract managed services perspective at all.
Large client back in the fourth quarter of 2019 is when we started that business and we announced that at the time.
And so really.
That kind of progressed throughout the course of 2010.
And then we announced last quarter that.
We have done a group hire.
And April of this quarter, we announced that the subsequent event last quarter and they were adding about 300 people onto this business and.
As it relates to that particular transaction and when we became aware of a group of employees with.
'twenty and skills and.
The revenue cycle operations that are becoming available and we knew that we had a bunch of different opportunities to deploy those individuals as well as for continue to provide transition services for that client.
And like all of those employees and so at the beginning of the quarter. That's why we made the large higher of 300 employees that you see that.
That drives the increase and head count in terms of revs.
The revenue per head count on a little bit of of different skill set for that second group of employees. So that's the way to kind of see the difference and blend I think and the call last year and I'm sorry last quarter. We described our expectation from revenue related to that group of individuals to be around $10 million.
Of which.
A decent amount of that came through during the second quarter here and then as Jim just alluded to now and this call. We've in fact engage with the third client in terms of managed services and these clients are all.
And of different sizes, but theres a common theme there were.
And they come to us really help them all.
Operator.
Operating revenue cycle, but to really help.
And prove the revenue cycle and part of what we do and we have these types of offerings is a lot of the best practices that we deploy when we have of consulting project to help raise the performance level of revenue cycles with this managed services option its really an opportunity for us to partner with the client.
All make those practices.
This is from of consulting project stick and to make them sustainable over time, and I think that's proven to be a really attractive model to some of our different clients.
Expectation is that increase when you look at the metric Bell from Q1, and Q2 that really reflects the onboarding of the 3 hundreds of employees at the beginning of the quarter I wouldn't necessarily expect that to be the trend that youre going to see that.
Jump up again at the same 1 of the next quarter and fact as I look out towards the back half of the year. My expectation is that the revenue run rate that you see.
Be generally in line that second quarter revenue run rate with what we see and the back half of the year, but I think beyond that we feel like this offering is really resonating with our clients and.
Invitation and there is that over time, we're going to see that number go up both in terms of heads and in terms of revenue as we onboard additional clients.
Moving forward with this offering.
So the utilization of the 300 and that's what I'm trying to figure out just given the step down in the.
As I have just.
And do a simple minded revenue.
And the per employee.
I would say the utilization was for this group of request. So they are not billable consultants and although it's not like guidance. The same sort of utilization calculation that you would see for our full time billable consultants and they're more of alarming I am certain activities on behalf of our clients.
And I would say, though for the we didn't have very much and the way of any downtime from the.
Ftes this quarter of tariff the Ftes, where we're highly utilized.
This quarter on the <unk>.
And so we've mentioned.
If it's if it's something you could say.
Look.
Lions for 300.
And kept that decline.
At the client where the transition from yes.
I would say this quarter of high portion of the revenue.
That they worked on for the high portion of the deliverables of war and factor that client with.
With that said our expectation is that we'll be able to deploy.
And these resources more broadly and other clients as to timing for it and we still expect there to be revenue from that client comments for the back half of the year.
Given the skills, the 15 has and that they bring to our portfolio of that they bring to our team. Our expectation is that we're going to be able to deploy them all.
And further.
First of all of the year. The other thing and I think we might have mentioned the last call, but it bears repeating.
Of the skill set this is.
The skills that we can bring to the performance improvement projects as well and and oftentimes in the past and we've had a need for some of these skills and all.
And the subcontract and in some cases to bring the men and now having.
Having the skill set and how should we think this could be a nice supplement and margin enhancer to some of our performance improvement projects.
So when you're contracting for these.
What are the key terms.
And I guess.
And the other thing I'll ask and then I'll get off of.
Have you build for some level of go to market.
The focus.
On this opportunity.
Absolutely absolutely yes.
I think it's a big focus area and the reason we do is because.
Our clients are telling us because of a scenario where they really appreciate partnership they appreciate.
US being able to bring the skills to them and to be able to help them sustain.
Okay.
Top revenue cycle performance. So it's a it's definitely an area that we've.
Our work and our go to market sales and I can't remember what was the first part of your question.
Just kind of curious about the the.
And the typical sort of contract.
Like the <unk>.
The.
<unk>.
And the state term of it and.
And whether it's.
Perhaps the performance enhancements.
Yes.
I would say bill that the typical contract term would be or.
Over the longer period of time for its usually a more.
Steady relationship.
The expected to be recurring revenue over a period of time of multiyear contract where.
In order to really make it work it becomes kind of a more <unk>.
<unk> and component of the operations of our client and its recurring revenue to us all and Thats the way it work with the FERC client that we announced in 2019.
And with the client that Jim referenced today.
With all of that said there can also be interim sort of work that this team can do that isn't necessarily under a long term project, but to the extent that the client is going through the transition where theyre, making changes and their operations and they could use these skills to bridge the gap and could also see work like this but I would say that the heart of the business model for this will be long term multiyear relationships whatever.
Our recurring revenue element to them.
Okay. Thanks for all of the color.
I'll jump off thanks.
Thanks Bill.
Thank you. Our next question comes from Kevin Stein of.
Barrington Research. Please go ahead.
Hi.
I wanted to ask.
<unk>.
Question about the outlook for the second half just a little bit differently.
On your first quarter call.
Talked about.
<unk> sequential revenue growth on a quarterly basis.
And both healthcare and education for the.
For the year I guess with the straw.
Stronger than expected or faster than expected recovery and healthcare and education is that.
All of possibility or something you can see potentially happening at least.
Towards the upper end of your guidance range that is sequential.
<unk> growth through the rest of the year and both of those segments.
I'll I'll start of education, Kevin and the absolutely still the same scenario that we're expecting sequential revenue improvement throughout the year.
As it relates to healthcare I think thats still possible that we could have sequential revenue improvements from that.
And 1.4.
And that we posted this year and to your point that will probably be.
And when you get towards like the upper half of the guidance range at that point, but I will say that the revenue acceleration came a little bit quicker this quarter than maybe what we'd anticipated among the lab talked about it. So I wouldn't certainly the ramp they saw between Q1 and Q2 I wouldn't expect the ramp like that going into Q3 and Q4.
I think that as we.
And we looked out towards the back half of the year. If you think about the guidance for at <unk>.
This level that we produced in Q2.
It's pretty close without the level of that we're expecting and the back half of the year. So I think thats, probably a reasonable way of looking at it for the healthcare part of the business and I would also add Kevin referred to the.
And the tailwind that we have.
The healthcare and education were down pretty significantly as Youre aware during the pandemic and I think really now with.
Our sense is that in both of those industries are.
Our clients are really well prepared to to.
To deal with whatever comes down the pipe.
Kind of as the pandemic evolves.
I think the issue is that they are facing a very different environment that the pre pandemic and thats why we feel strong about the.
The kind of demand thats going to be for our services and both of those industries and the very different operating environment for our clients and Theyre looking to us for both strategic and operational and financial and technology.
Now and to choose.
And at a pace that we feel is very good and it will be supportive of growth for the rest of the year.
Yes, great.
Your last comment.
The kind of plays right into what my next question was going to be and Thats.
<unk>.
Obviously youre seeing.
I guess work coming back here that that may have been delayed during the pandemic, but.
And as the changed the operating environment.
Due to the pandemic.
It may be.
And that causing clients to move ahead with other types of work that they might not have.
The prior to the pandemic or.
Move forward with projects that they may have.
You may have not had as much urgency prior of the pandemic.
And as overall urgency to move forward with some of these initiatives and increase increased due to the current environment.
I think the weight of the way I would answer that is as the projects that tended to get and I'll talk about health and education kind of together because there is there are some similarities the projects that tended to get deferred where the technology projects. So those are the ones that were kind of on the shelf ready to go and the clients of kind of committed to them.
And then and then when the pandemic hit it just it was just going to be too hard to pull off something that can really be very disruptive within a company.
I'm sorry within in the organization. So those got deferred and I think we're now beginning the Sudan, which really come back nicely right now.
And then the remainder of the kind of the non technology portion of it.
The part that's more around management consulting and I think what we're seeing is that there is just there is so much that has happened and the last 15 or 16 months that have impacted the.
The the <unk>.
Both the revenue side the cost side the strategic positioning.
The environment for our clients.
And I think we have seen I think and both healthcare and education, particularly of that have been hit so hard and we're seeing just the different kind of project, where we are we're having things that are in many cases being a lot more strategic a lot more forward looking in terms of how we're really going to make the business case of successful and what is now a very challenging.
The environment for them. So it's just it's been a very interesting time and that's why we feel good about the way things are evolving for us. It was just it was certainly heard on our entire team.
2 have gone through.
The last 15 or 16 months, but we've stayed very close to our clients our relationships.
The clients have made a big difference and having them have confidence in us that they can help us we can help them rather.
The successful in the future, but it's a very different.
Strategic and operating environment for our clients and we're glad to be helping them try to navigate through this right now.
Okay. That's helpful and just lastly, I wanted to ask about.
Just the narrowing of the.
Adjusted EBITDA margin guidance range on the top and.
Guidance Avi is still obviously still implies nice.
The year over year margin expansion.
Expansion, but can you just kind of touch on.
The factors behind the narrowing of the range.
Sure, Kevin and I think I'd, probably look at it. Despite the 3 factors that caused us and you look at the midpoint. The midpoint was 11, 25% now it's 11 zero percent as far as kind of that.
The decrease in the midpoint of the pipeline to 3 factors. The first 1 really being we have incurred some additional expenses during the first half of the year. Our view is that they are probably transitory expenses I don't think theyre going to be or at least the impact on margin and will be transitory kind of.
The business environment has really picked up and.
There's obviously been a lot of competition to secure resources.
Theres been some extra expenses incurred with that just kind of getting up and running there I think our viewpoint is that eventually all of those types of expenses and up making their way over to the pricing side as well. So I don't think that's the long term factor, but I think kind of and that the startup of that.
We've had here with things kind of Relaunching this year.
And that's been a factor second is really the mix and so we're excited like we talked about earlier on the call about our managed services business and the opportunity for that to provide some really nice revenue growth and recurring revenue into the future. It does the wind down a little bit lower margin. So if you look.
The position of the revenue this year I would say theres, a little bit of a mix factor and there as well as our technology businesses, which tend to blend in and AD load at lower margin <unk> also.
Expected to be strong growth for the year. So I think thats a factor and then the final thing I would point to is.
Obviously.
Part of what we do is making investments.
But I'd say, we continue to make those investments Inc.
For the first half of this year and some of those some of those areas, where we've invested the dollars I think our expectation is that we're probably going to start to see on the revenue come through and the back half of the year, but nonetheless, it's probably been a net investment and when you look at it from a full year perspective, and so it's kind of a good in terms of supporting growth.
And for the future, but probably a little bit of a headwind from a margin perspective during the year.
All right.
Okay, Great makes sense that's helpful. Thanks for taking the questions.
Thank you. Our next question comes from Josh Vogel of Sidoti and company. Please go ahead.
Yeah.
Thank you and good afternoon guys.
The first question I had is.
Can you give the thoughts or maybe quantify.
The conversion rate today across the 3 businesses how it compares from pre pandemic and I also want to get a sense.
If youre seeing an urgency of pent up demand.
And that's driving client agenda today is it across all segments or what.
What services and particular, thank you.
I think if we.
Starting with the conversion of weight to success. So I don't I don't think of is that different than we've historically had I don't.
Think there's any notable difference and our conversion rate.
Clients.
I don't know if we have exact statistics on that but I don't think theres anything materially different from.
And the pent up demand is.
I think is.
As a couple of things I mean, there was.
And I.
Kind of go back and the reason I started my script.
At the beginning of credit provides some context I wanted to remind everybody and we remind ourselves frankly that when we started 2020, we were really the.
Practices are really on a ton of significance.
Uptick and if for you and as.
And we were kind.
And about the business is back then we knew that the issues that we're going to be drive and our clients even back pre pandemic, we're going to be issues around digital transformation and trying to be competitive and a much more challenging environment and so on.
And now you fast forward and I think what's driving the pent up demand.
Is that.
All of our clients, whether it be health and education or any of our commercial clients have also seen now this incredible urgency to.
To become much more.
Transformative and their use of technology to deliver their goods and services and <unk>.
And and communicate with their clients for their.
<unk> or the patients for their students and so.
And that has accelerated dramatically because of what happened to COVID-19 and the realize the realization that theyre going to continue to have to do that so that was 1 part of the pent up demand and the other part I think we're seeing is and again this is true across our commercial and health and education segments.
<unk> is that it's just a very different environment for people.
Post pandemic for so called post pandemic for for these organizations to be strategically thinking about what it's going to take for them to be successful and the future. The level of competition is different and the things that they have to focus on and are different and so you put it all together.
It's been a it's sort of a challenging time for a lot of our clients and I think they are looking to us to help them through this process.
I think of lot of them have also had people and their own businesses that have been kind of stressed out gives them all of that they've gone through so we hear a lot of and a lot of occasions that the bandwidth of our clients have.
Together and.
And an all time low to be able to deal with some of these issues and the magnitude of the issues that they're facing.
Very substantive and you put that together and there is a strong need for outside of assistance and I think thats, where we come in so I think the pent up demand is very consistent and very <unk>.
Noticeable right now.
And this for us and and Thats 1 of the reasons, we feel good about how things are credit evolved for this company.
I appreciate those insights and <unk>.
Thinking about the increases and the sales pipeline and signings, especially in healthcare and education I'm just curious.
The size and scope of those engagements how they compare.
And 2.
Q4, and what Youre seeing are these potentially large multiyear engagements or the smaller maybe piece and all they want to do.
1 thing first and then move on to the other you know how does it how does the bookings.
So I think I think what we saw during the pandemic was I think.
A pretty.
That's a pretty significant lack of desire to have larger and longer term prospects from a lot of our clients. So it's just too hard too.
And to kind of manage that with everything else that what's going on and if they're at their own organizations.
I think what we're seeing now is the probably the size and.
And the duration of the projects are probably beginning to pick up again and it will probably be.
At least as.
As equal to as they were before the pandemic and in some cases, maybe even more and we don't think we really keep track of of the duration and size of projects.
But my guess is that.
There are.
And there's just a lot more.
There is a lot more stress within our client environment and there.
A lot of these issues are not things that can be.
Managed overnight I think you combine that with the fact that we had during the last.
The year, we had projects that were probably a little bit more piecemeal just so they could manage.
And some easier they are now realizing that they can they now need to take on more significant projects that will have longer durations and be of a more significant size and thats kind of what we're seeing right now.
Alright, great. Thank you and just lastly, thinking about capital allocation over the back half of the year, you mentioned getting the leverage ratio.
All.
Likely be below 2 times.
How active do you think youll remain on the buyback front and outside of the.
The internal investments and interest how do we think about capital allocation and general.
Yes, I would probably still think of it as a pretty balanced approach I think.
Priority number 1 where we can get leverage back down to.
<unk>.
Yes.
And 2 times range of below but I think by the same token our expectations for free cash flow and the back of the year will allow for us to both achieve that objective, but also.
And to buy back shares and probably.
And there is potential for a tuck in strategic type of M&A.
The activity as well and nothing imminent there, but in terms of the.
The potential for things like you saw in the first quarter of this year you saw in the fourth quarter of last year I think that that's part of our.
And the growth strategy as well, so I'd say the power.
Looking out over the next 6 months I would probably expect a pretty deploy a balanced balance deployment approach.
Alright, great. Thank you for taking my questions.
Thank you we have a follow up from Tobey Sommer of true of Securities. Your line is open.
Yes, thanks for taking the follow up just a question on margin like how should we think about SG&A costs coming back from here and.
And do you think theres an opportunity to keep the margin there just based on being able to operate leaner less real estate et cetera.
I do I think Jeff, but I think if you if you go back to the beginning of the year.
And we kind of.
To science and savings initiatives of which a healthy component of that was related to SG&A.
And at the end of last year, but we said at the time don't interpret that as expenses are going to go straight down because of the other areas, where we expect particularly of things ramp up in terms of.
The recruiting.
And things of that.
Volume coming back that we expect there to be incremental travel expenses and things like.
That once we get to the back half of the year and that therefore, it'd probably be sort of the flat story I think that's still going to be the case and and my remarks I noted we are.
Excluding kind of that the.
And the.
Items like the deferred compensation plan and restructuring expenses flat during the first half of the year I think there was some timing items that kind of.
Skewed some of the expenses into the second quarter versus the first quarter, but I don't think thats. The trend line I think when you look at kind of the back half of the year My expectation for corporate SG&A is that it will likely be somewhere in between where it was and the first quarter and where it was and the second quarter.
And that and when you couple that with the growth we're expecting in the back half of the year.
To say the guidance calls for double digit growth and the back half of this year versus the back half of last year and you should definitely get some nice leverage of the SG&A and the back half of the year as well as we're expecting utilization to continue to ramp up.
From where it is right now so are our expectation is that you should see stronger margins and the.
The back half of the year versus the.
The year to date amount.
Yes.
I appreciate the color of our last question for me with respect to the of research parts of the business you think some of the funds that the buyer and administration for components of science and research could kind of boost the medium term outlook, there and if that ends up flowing through.
Yes, I think it will boost the medium and long term.
Part of our business. So we've had I think record results recently and our research area and.
And even before any of the at what's kind of announced so we feel good about what's happening. It's just a it's a very difficult business for our clients to manage and we happen to have the incredible.
Depth and that area and experience and being able to do that so we're seeing more and more opportunities where we're having to.
To help manage to help our clients manage the business Theyre all of <unk>.
Wanted to increase the research enterprise and we are well prepared to help them manage through that.
Thanks for taking the questions.
Seeing no more questions I'd like to turn the call back over to Mr. Roth.
Thank you for spending time with US. This afternoon, we look forward to speaking with you again in November when we announce our third quarter results have a good evening.
And that concludes today's conference call.
Thank you everyone for your participation.
Yes.
Yes.
And.
Yes.
Yes.
[music].
[music].
Yeah.
[music].
[music].
And good afternoon.
Ladies and gentlemen, and welcome to the Huron consulting group's webcast to discuss financial results for the second quarter 2021at.
At this time of all conference call all lines are in a listen only mode. Later, we will conduct a question answer session for conference call participants and instructions will follow at that time.
As a reminder of this conference call is being recorded before.
Before we begin I would like to point out so all of your sort of the disclosure at the end of the Companys 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 SEC for a disclosure of factors that may impact subjects discussed and this afternoon's webcast.
The company will be discussing 1 or more non-GAAP financial measures.
Please look at the earnings release and on <unk> website.
Right for all the disclosures required by the SEC, including reconciliations of the most comparable GAAP numbers.
And now I would like to turn the call over to Jim Roth, Chief Executive Officer of Huron Consulting group. Mr. Roth. Please go ahead.
Good afternoon, and welcome to Huron consulting group second quarter.
Quarter 2021 earnings call with me today are John Kelly, Our Chief Financial Officer, and Mark Hussey, our President and Chief operating Officer.
I'd like to spend a few minutes, putting our second quarter results in the context as it will provide important insights into how we see things evolving for the rest of the year.
Prior to the start of the pandemic. We finished 2019 with strong performance across all 3 operating segments and we entered 2020 with much of that momentum continuing.
At the midpoint of our initial guidance range for 2020, we anticipated a growth rate of 5%.
And when we believed at the time of the market demand for our services and our investments and growth will enable us to exceed that target.
As we have discussed on prior calls with the onset of the pandemic and early 2020. The healthcare segment was negatively impacted immediately and the education segment was negatively.
The impact in a quarter later, while the business Advisory segment achieved strong growth through most of 2020, despite global economic challenges.
Turning to 2021, when we released our first quarter results, we shared our belief that the education and healthcare segments reached their pandemic revenue.
The new low watermarks during the fourth quarter of 2020, and first quarter of 2021, respectively.
We also share that we saw an increase and our sales pipeline and the pace of signings and our healthcare and education business.
Which gave us further confidence and our ability to meet our updated full year performance.
Performance expectations.
With that context, and the second quarter of 2021 revenues grew 6% year over year, and 13% sequentially, reflecting the strength of the recovery and our healthcare and education segments.
We anticipate the tailwind that we experienced.
And the second quarter will continue across all segments, including and business advisory further demonstrating that our pre pandemic growth trajectory has returned and we believe we have established the foundation for strong growth through the remainder of 2021.
I will now share additional.
All insight into our second quarter performance and then provide some color on our expectations for the remainder of 2021.
During the second quarter healthcare segment revenues grew 19% over the prior year quarter reflective of the strength of the recovery for our offerings and the healthcare industry and strong performance.
Revenue cycle managed services business.
As we anticipated utilization improved over the first quarter of 2021 and the pipeline of assessments for our performance improvement offerings continues to build given the financial pressures facing hospitals and health systems.
As previously discussed during.
During the second quarter, we continued to invest and our revenue cycle and managed services offerings. As we believe this business will be and ongoing source of growth for Huron.
In addition, we recently on boarded the leadership of our West Coast Academic Health system, which is now our third revenue cycle managed services contract.
And as hospitals and health systems navigate challenging financial train all.
Our comprehensive offerings spanning consulting and managed services and outsourcing and our proven ability to achieve cost savings and yield improvement for our clients will continue to be attractive to the healthcare to the healthcare market.
Turning to the business Advisory segment and the second quarter of 2021 business Advisory segment revenues were flat compared to the prior year quarter.
Driven by another quarter of double digit growth across our digital technology and analytics and strategy offerings.
That growth was offset by lower revenues and our distressed.
<unk> advisory and life Sciences businesses reflective of the difficult comparisons and the second quarter of 2020.
The primary growth driver in this segment is the ongoing demand for digital transformation stemming from the altered post pandemic environment that has emerged across industries.
Our.
It all and analytics offerings have been deployed and numerous commercial sectors and they have also strength in Huron as competitive advantage and our core industry verticals.
As we've been indicating during the past 2 years the investments we have made and continue to make throughout the business advisory segment are providing.
Our digital key benefits to Huron.
First the investments are enhancing our ability to provide a broader array of technology financial and operational capabilities and new industries and geographies.
These investments are also yielding success and achieving new collaborative work within our healthcare and education.
The 2 segments.
Collectively we are excited about how these investments will continue to enable us to achieve our financial objectives.
Turning now to the education segment and the second quarter of 2021 Education segment revenues declined 7% over the prior year quarter reflective of the.
Locations comparisons and the second quarter of 2020, which as of that time had not been impacted by the pandemic.
Sequentially Education segment revenue grew 14% over the first quarter of 2021, driven by record demand and our research strategy and operations and student offerings.
Difficult as we've indicated there was strong demand for our technology related services and 2019, and early 2020, and many large universities halted or deferred their systems implementation efforts until they have more clarity as to how long it would take to return to a more normal environment.
We believe that time is.
And in recent months, we have seen an increase and our pipeline for technology related opportunities.
We anticipate that the second half of the year will show continuous improvement and revenue coming from cloud implementations, adding to the strength and demand for the remainder of our education offerings.
Before I.
Now for our outlook for the remainder of the year I would like to make a few comments about our team.
Last year, we had to make strategic decisions about our people and the duration of the pandemic.
We didn't know how long the pandemic with last nor did we have of full understanding of how deeply it would eventually impact our health and education.
Churns.
What we did now is that we had and continue to have an incredibly talented team of people that would not be easily replaceable. If we made a material reduction and our head count.
During the pandemic, we believe that retaining our people was and the best interest of our shareholders and critical.
To sustaining our culture and supporting the growth we anticipated as our clients' businesses began to stabilize.
We believe that those decisions are reflected and the strong revenue growth this quarter and will yield positive results for our shareholders in terms of improved margins and a robust workforce that is ready to meet the.
<unk> paid high demand for our services as the economy continues to rebuild.
We believe that evidence of those improvements from revenue growth and profitability, we will continue to materialize and more normalized levels of utilization during the second half of this year and into subsequent years as demand returns across all segments.
We anticipate.
Finally, let me turn to our outlook for the year as our press release indicates we are increasing and narrowing our annual revenue guidance to $875 million to $905 million.
We're also narrowing our adjusted EBITDA guidance to a range of 10, 8% to 11, 3%.
So the news and narrowing our adjusted diluted earnings per share to a range of $2.40 to $2.70.
We raised our revenue guidance to reflect the anticipated recovery and demand for our healthcare and education offerings and the second half of the year as.
And as well as continued growth and the business Advisory segment.
Across all 3 segments, we believe the market recovery presents strong tailwind for demand for our business through.
Through the hard work and dedication of our teams. We believe we are well positioned to take advantage of these market opportunities with our deep client relationships industry expertise and extensive technology capable.
<unk> of growth.
And I remain enthusiastic about our prospects for 2021, and we are committed to returning huron to sustainable organic growth and increased profitability.
Now, let me turn it over to John for a more detailed discussion of the financial results John.
Thank you Jen and good afternoon, everyone.
Before I begin. Please note that I will be discussing non-GAAP financial measures such as EBITDA adjusted EBITDA adjusted net income adjusted EPS and free cash flow.
Our press release, 10-Q, and Investor Relations page on the Huron website have reconciliations of these non-GAAP measures to the most comparable GAAP measures.
<unk>.
Along with the discussion of why management uses these non-GAAP measures and why.
<unk> management believes they provide useful information to investors regarding our financial condition and operating results.
Also unless otherwise stated 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.
Revenue for the second quarter of 2021 for $231 million.
Up 5.6% from $217.9 million and the same quarter of 2020.
The decrease and the increase in revenues and the quarter was driven by growth and our healthcare and business advisory.
<unk> segments.
Partially offset by a year over year decline in revenues and the education segment, which.
Which was not significantly impacted by the pandemic until the second half of 2020.
Education segment revenues grew sequentially 14, 3% compared to the first quarter of 2021.
Net income was $12.8 million for 59 per diluted share and the second quarter of 2021 compared to $13.6 million for 61 per diluted share and the same quarter and the prior year.
Our effective income tax rate and the second quarter of 2021 was 21, 3% compared.
3rd% to 21% 1 year ago.
Our effective tax rate for Q2 of 2021.
It was more favorable than the statutory rate inclusive of state income taxes, primarily due to a discrete tax benefit related to the electing the guilty of high tax exclusion retroactively to an earlier period.
This favorable.
And we'll tax benefit was partially offset by certain nondeductible expenses.
Adjusted EBITDA was $25.6 million and Q2, 2021, or 11, 1% of revenues compared to $27.5 million and Q2.2020 of 12, 6% of revenues.
Adjusted non-GAAP net.
Was $15.1 million of 69 cents per diluted share and the second quarter of 2021.
Third to $14.9 million for 68 per diluted share in the same period of 2020.
Now I'll make a few comments about the performance of each of our operating segments.
Net income segment generated 44% of total company revenues during the second quarter of 2021.
The segment posted revenues of $101.4 million for the second quarter of 2021.
Up $16 million or 18, 7% from the second quarter of 2020 the.
The increase in revenue.
The health primarily reflects increased demand for both our performance improvement and revenue cycle managed services offerings.
Operating income margin for healthcare was 27, 3% for Q2.2021 compared to 24, 8% for the same quarter in 2020.
The increase and margin over the prior year quarter.
And is primarily attributable to higher utilization.
As well as decreases in salaries and related expense for our support personnel and contractor expense, partially offset by increases the performance bonus expense and signing retention and other bonus expense for our revenue generating professionals as a percentage of revenues.
Let me interject, 1 housekeeping items.
As our revenue cycle of managed services business continues to grow and scale, we have provided metrics and our 10-Q to provide additional color into this portion of our business.
We will also file a supplemental 8-K, which provides the historical recasting of our metrics to reflect this revised presentation.
The business Advisory segment generated 31% of total company revenues during the second quarter of 2021.
The segment posted revenues of $70.9 million, and Q2, 2021 up <unk> $4 million per <unk>, 6% from the second quarter of 2020.
Revenue for the second quarter of 2021.
<unk> included $4.3 million from our acquisitions of force IQ and Unica solution.
The quarter over quarter increase and revenue was driven by our digital technology and analytics and strategy offerings.
We offset by decreases and our distressed offerings and life Sciences business.
The operating income margin for the business.
Business Advisory segment was 22% for Q2.2021 compared to 23, 7% at the same quarter of 2020.
The quarter over quarter decline and margin was primarily due to increases in salaries and related expenses for our revenue generating professionals and contractor expenses as a percentage of revenues partially.
Partially offset by a decrease and performance bonus expense.
And the education segment generated 25% of total company revenue strength second quarter of 2021.
The segment posted revenues of $57.9 million and Q2.2021 down of $4.2 million of 6.7% from the second quarter.
Order of 2020.
The decline in revenue reflects a difficult prior year comparison as our education segment did not experience significant revenue impact from the pandemic until the third quarter of last year.
The decrease reflects the decline in our technology implementation revenues, partially offset by increases and our research strategy and operations and.
And student offerings.
The operating income margin for education was 23, 8% for Q2.2021 compared to 26% for the same quarter of 2020.
Quarter over quarter decline and margin was primarily due to increases and performance bonus expense and signing retention and other bonus expense for our revenue generating profession.
And <unk> and technology expenses, partially offset by decreases and contractor promotion and marketing expenses as a percentage of revenues.
Other corporate expenses not allocated at the segment level for $34.3 million and Q2.2021.
And with $31.6 million and Q.
Q2.2020.
Unallocated corporate expenses and the second quarter of 2021 include $2.1 million of expense related to the increased liability of our deferred compensation plan.
Which is fully offset and other income and a corresponding gain and assets used to fund that plan.
Unallocated corporate expenses and the second.
And the 'twenty included $3.9 million of similar expense related to our deferred compensation plan.
Excluding the impact of the deferred compensation plan in both periods of <unk>.
For $4 million increase and other unallocated expense, primarily relates to increases in salaries bonuses and related expense for us.
Support personnel legal expenses restructuring expenses travel expenses and software and data hosting expenses for.
For the first 6 months of 2021 other corporate expenses not allocated at the segment level to modestly decreased compared to the same period and 2020, when excluding the impact of the deferred compensation.
And to plan and restructuring charges.
Now turning to the balance sheet and cash flows the.
And also came in at 73 days for the second quarter of 2021 compared to 64 days for the first quarter of 2021, and 68 days for the second quarter of 2020 the.
The increase in DSO during the quarter is related to the ramp up and revenue.
Sensation quarter progressed, as well as certain larger healthcare and education projects with contractual payment schedules, where we anticipate the bill and collect and first half revenues and the second half of the year.
We continue to expect DSO to normalize to around 60 days over the course of 2021.
Total debt includes the 2.
And $65 million and senior bank debt and of $3 million promissory note for total debt of $268 million and <unk>.
Finished the quarter with cash of $13 million for net debt of $255 million, our leverage ratio defined in our senior Bank agreement was approximately 2.8 times adjusted EBITDA.
232021.
Compared to 2.6 times adjusted EBITDA at the end of Q2.2020.
The finished the year with the leverage ratio of below 2 times EBITDA.
Cash flow generated from operations and the second quarter of 2021 was $21 million and we used $6 million of our cash to invest in cash.
As of expenditures inclusive of internally developed software costs, resulting in free cash flow of $15 million.
We used $23.8 million of our cash to repurchase shares of our common stock during the quarter, bringing the year to date total up to $35.2 million.
Finally, let me turn now to our expectations.
Capital guidance for 2021.
As Jim noted, we are raising and narrowing our full year of 2021 and revenue guidance to $875 million to $905 million the <unk>.
Increasing our revenue guidance, primarily reflects the ongoing recovery and our healthcare and education segments.
<unk> growth and our business Advisory segment.
In addition, we are narrowing our full year adjusted EBIT guidance to be and a range of 10, 8% to 11, 3% of revenues and.
And we are narrowing our full year adjusted non-GAAP diluted earnings per share guidance to be and a range of $2.40 to $2.70.
Finally, we expect our full year effective.
The tax rate to be in the low 20% range.
Thanks, everyone I would now like to open up the call to questions operator.
Thank you ladies and gentlemen, if you have a question at this time. Please press Star then the 1 key on your Touchtone telephone. If your question has been answered all you wish to remove yourself from the queue you.
And so by pressing the pound key 1 moment for our first question. Please.
Our first question comes from the line of Tobey Sommer of true of Securities. Your question. Please.
Hey, good evening, it's the Jasper Bibb on for Tobey.
Wanted to ask about what's still in the pipeline.
Healthcare performance improvement.
And we move into <unk> healthcare utilization is kind of rebounding towards pre COVID-19 levels.
Do you think youll have no visibility pretty soon on some of these larger projects <unk> been pursuing for a few quarters.
Josh and as Jim.
And I think the.
And for all your of opportunities that we have from US is really I think it's pretty consistent I think we've kind of gotten away from these really large projects that are having a big impact and I think just having I think the abnormal performance improvement opportunities we have right now.
And are reasonably consistent.
And with what we've seen and the last.
Portrait year, so absent the kind of the shortfall that we had during the pandemic, but the reality is the summer we have from large health systems that are kind of tend to be larger projects, depending upon how much cost reduction or revenue cycle work needs to be done, but I think.
Our expectation is that we're.
Is it really kind of now gotten back to the kind of pace that we had before and that the issues that we're seeing within the healthcare industry are.
And are going to be very conducive to having additional.
Growth for Us and this practice, we feel good about the way that the the.
The industry's evolving from RBC.
And our perspective of the pressures that we've been talking about in the healthcare industry are very significant.
The changes that have transpired because of COVID-19 and the way the they have to respond to that are very significant and we feel it's created a really good opportunity for us. So we have a healthy.
Portfolio of opera.
Think of these ahead of US that we think are going to reflect the kind of.
And the kind of revenue for Huron that we think will be very positive and ally gas for I'll just add that.
And we.
And we talked last call about how.
And we had confidence that we had seen the low.
Low point from a healthcare perspective, and the first quarter of 2021 and that was based on a couple of those projects that we've been talking about the pipeline did close towards the end of the first quarter and answer the early part of the second quarter and.
And that trend line continues for the quarter progressed and continued at that conversion on projects of our pipeline as you alluded to you can see that and our utilization.
And right and.
And I would say, we're still in an environment right now as we talked about during the first quarter, where we're doing a lot of assessment work and so a lot of assessment work that doesn't valve some investment in terms of margin, but from a opportunity perspective, and the outlook perspective, as we think about the back half of the end of 2022 very encouraging for us because.
And that gives us good visibility too.
And so some meaningful work and the pipeline.
Thank you. Our next question comes from Andrew Nicholas of William Blair. Your line is open.
Hi, good afternoon.
First question and that I have is just from the revenue.
Revenue and earnings cadence.
That you expect for the rest of this year.
And and indirectly if there was anything kind of 1 time and the second quarter.
The reason I ask is because it looks to me like at the mid point of guidance for the second half run rate is a bit lower than what you saw and the <unk>.
And quarter. So if you could just help me square those 2 things up that'd be helpful.
Yes, I think the way I would generally look at it Andrew is yes, I think the acceleration of revenue and.
And the second quarter related to a recovery was probably a little bit ahead of pace of.
What we would of <unk>.
Planned at the bid.
Beginning of the year.
And as we look out for the back half of the year I wouldn't necessarily described of the deceleration is probably more just the could take kind of the quarter that we produce and the second quarter, we think thats, a pretty reasonable way of thinking about the third quarter and the fourth quarter based on what we see at this point and time in terms of.
And a 1 off type things and when you look.
Look at the healthcare.
Billing rate and CF below the higher during the quarter and we did have some performance improvement contracts, where we hit the milestones during the quarter. So I think that the bill rate will normalize as we get towards the back half of the year of little bit from where it was in the first quarter, but.
And I don't think I would describe it as we're thinking of any sort of decelerate.
Celebration as we get into the back half of the year.
Makes sense and then.
Changing gears little bit I was hoping you could kind of talk about the hiring environment.
The competitiveness of recruiting across your various businesses right now and then maybe relatedly any thoughts on employee.
The retention levels at Huron relative to last year or even pre COVID-19 levels. Thank you.
And it is Jim.
Just from a couple of comments the.
We are we're doing well and hiring people and the competitive environment has certainly gotten.
Ratchet up in the <unk>.
Last 6 months, or so, particularly and the technology areas and so that's the part where we're seeing a lot of competition.
So I think this is this is not unusual for.
It's really true across I think all of professional services and even beyond professional services. So I think there's really nothing new that we're experiencing.
From a from a turnover perspective.
Things are higher than they were last year, but I think if you normalize 2020, and 2021, they're probably for us pretty consistent with our historical turnover trends. So so.
And we're kind of we're trying not to overreact to the higher turnover right now though.
And we're aware of it I think we suspect that our term of rates. Even this year are probably lower than a lot of others that we've seen or heard about.
And having said that though I mean, all of this stuff whether it's super.
Retention is a major focus of what we're doing right now and we hear the same stories I think that everybody else hears.
About lots of people wanting to move and shift jobs or have a different perspective, and what they want to do.
For their careers and.
And we're taking all of that very seriously and we're spending a lot of time talking to our people.
We're we're doing the best we can to kind of.
Manage through a period of time.
And a lot of people have very different perspective, some people can't wait to get back to the out for some others.
Never want to come back at all and so I think it's just it's probably 1 of the most trying times in terms of managing.
The overall.
Personnel and trying to get everybody through of Panther.
<unk> and.
Still stay focused on what we need to do we feel part of the other problem has been that and we've been pretty busy and so there is also the point and time now where people are feeling stressed from COVID-19, they're feeling stressed from doing a lot of work and so all of this is really tough for us to manage its probably a long way, though of saying that I think we're coming.
And out of this we have we have proven to be of very attractive place for people to come to want to work. We're certainly having some turnover, but I think it's again less than probably the average for a lot of our peers and we feel very good about the environment into which we are recruiting.
Our challenges on the go.
<unk> basis, I think will not be having enough people.
Just going to be managing what is right now clearly of slightly more to stay.
Unstable.
The environment for personnel and we've typically had.
And I'm confident that over time, and this is going to even out and that.
For the culture. We have here is going to remain very attractive for people not just to be recruited into happens day, we've actually seen people that have loved Huron and come back and I realized how good a good of.
The price of is here. So we feel good about this but make no question about it as a.
It's a difficult environment to be working.
I'll, let others jump the queue. Thank you.
Thank you. Our next question comes from Bill Sutherland of the Benchmark Company. Your line is open.
Thanks, everybody.
Curious about the new revenue on the.
The new operating detail on your.
What do you call yet the healthcare managed services and place. So I think it would be helpful to just have a little history on the build out of this group.
And there's maybe I'm wrong, but I think Jim mentioned, the third deal I think that's where it is for logs and then kind of also curious about.
In terms of <unk>.
That's helped with the average number of employees jumping to $4.31.
For <unk> and the revenue only double range.
The should imply I guess.
That's an average number of employees that would be more and <unk> I guess with the new.
The opportunity in.
And kind of curious what that means for revenues for that group.
So I can I can start.
And so if you think about the history of our managed services offering.
And we had our first contract managed service perspective at all.
All of large client back and the fourth quarter of 2019 is when we start on.
And that business and we announced that at the time.
And so really.
And that kind of progressed throughout the course of 2020, and then we announced last quarter that.
We have done a group hire.
And April of this quarter, we announced that the subsequent event last quarter and they were adding about.
People onto this business and.
And as it relates to that particular transaction and we became aware of a group of employees with certain skills and.
The revenue cycle operations that are becoming available and we knew that we had a bunch of different opportunities to deploy those individuals as wireless.
All of US for continued provide transition services for that client.
And like all of those employees and so of the began the quarter. That's when we made the large higher of 300 employees that you see that drive the increase and head count in terms of.
Revenue per head count and a little bit of of different skill set for that second group of employees. So that's the way to kind of see the difference and.
Blend I think and the call last year and I'm, sorry last quarter. I think we described our expectation from revenue related to that group of individuals to be around $10 million.
Of which.
A decent amount of that came through during the second quarter here and then as Jim just alluded to now and this call. We've in fact engage with the third client in terms of managed services.
<unk> and these clients are all.
All of different sizes, but theres, a common theme there where the.
And they come to us really help them.
Operate the revenue cycle, but to really help.
And prove the revenue cycle and part of what we do and we have these types of offerings is a lot of the best practices that we deploy when we have of consulting.
<unk> project to help raise the performance level of revenue cycles with the managed services option its really an opportunity for us to partner with the client to help make those practices from a consulting project stick and to make them sustainable over time and I think that's proven to be a really attractive model to some of our different clients. So my expectation is that increase when you look at the metrics.
The Bill from Q1, and Q2 that really reflects the onboarding of the 3 hundreds of employees at the beginning of the quarter I wouldn't necessarily expect that to be the trend that youre going to see that jump up again at the same 1 of the next quarter and fact as I look out towards the back half of the year. My expectation is that the revenue run rate that you see.
Probably be generally in line that second.
And the run rate with what we see and the back half of the year, but I think beyond that we feel like this offering is really resonating with our clients and our expectation areas of that overtime. We are going to see that number go up both in terms of heads and in terms of revenue.
And our board additional clients.
Moving forward with this offering.
Quarter, 1 so the.
And the utilization of the 300, and that's what I'm trying to figure out just given the step down in the.
As I, just do a super minded revenue.
The per employee.
I would say the utilization was for this group of employees. So they are not billable consultants and so it's.
Like it's the same sort of utilization calculation that you would see for our full time billable consultants and they're more performing I am certain activities on behalf of our clients I.
I would say, though for the we didn't have very much of the way of any downtime from the.
Ftes this quarter of tariff the ftes were for highly utilized.
It's not like that.
This quarter on the clients that we've mentioned.
If it's if it's something you can say.
And what portion of the 300 were kept count decline.
At the client where the transition from.
Yes.
I would say this quarter of high portion of the revenue.
That they worked on for the high portion of the deliverables were in fact of that client with that said our expectation is that we'll be able to deploy these resources more broadly and other clients.
Moving forward, we still expect there to be revenue from that client on it for the back.
But given the skills. The 15 has and what they bring to our portfolio of that they bring to our team. Our expectation is that we're going to be able to deploy them on further clients throughout the year. The other thing and I think we might have mentioned the last call, but it bears repeating.
The skill set this is.
Skills that we can bring to the performance improvement.
Half of the ex as well and and oftentimes in the past and we've had a need for some of the skills and on the <unk>.
And the subcontract and in some cases to bring them in and now having the skill set and how should we think this can be a nice supplement and margin enhancer to some of our performance improvement projects.
So when you're contracting for these.
What are the key terms.
And I guess and the other thing and I'll ask and they don't get all.
Have you built for some level of go to market for.
Focus on this opportunity.
Absolutely absolutely yes. It is.
We think it's a big focus area and the reason we do is because.
Science of.
Telling us that the scenario, where they really appreciate partnership they appreciate.
<unk> bring the skills to them and to be able to help them sustain.
Top revenue cycle performance. So it's all.
It's definitely an area that we.
Our work and our go to market sales and I can't remember what was the first part of your question.
Just.
Kind of curious about the kind.
The typical sort of contract.
Mike.
And the.
The term of it.
And.
Whether it's cash.
And some performance enhancements.
I would say build at the tip.
Typical contract term would be.
Over the longer period of time, it's usually a more steady.
Steady relationship, where we expect it to be recurring revenue over a period of time of multiyear contract where.
In order to really make it work it becomes kind of a more.
And permanent component of the operations.
Of our client and its recurring revenue to us.
And the way it works with the FERC client that we announced in 2019 and.
And with the client that Jim referenced today with all of that said if there can also be interim sort of work that this team can do that isn't necessarily under a long term project, but to the extent that the client is going through the transition where theyre, making changes and their operations.
Operations and they could use the skills to bridge the gap and could also see work like this but I would say that the heart of the business model for this will be long term multi year relationships that have a recurring revenue element to them.
Great. Thanks for all of the color.
I'll jump off thanks.
Thanks Bill.
Thank you our next.
Question comes from Kevin Stein of.
Barrington Research. Please go ahead.
Hi.
Wanted to ask.
Question about the outlook for the second half just a little bit differently.
On your first quarter call.
Talked about.
<unk> sequential revenue growth on a quarterly basis.
And both healthcare and education for the remainder of the year I guess with the.
The stronger than expected or faster than expected recovery and healthcare and education is that.
Bill of.
Possibility or something.
You can see potentially happening and at least for.
Towards the upper end of your guidance range and it is sequential growth through the rest of the year and both of those segments.
I'll start with education, and Kevin and Theyre, absolutely still the same scenario that we're expecting sequential revenue.
And the improvement throughout the year.
As it relates to healthcare I think that's still possible that we could have sequential revenue improvement from the.
$101.4 million that we posted this year and to your point that would probably be.
And when you get towards the upper half of the guidance range at that point, but I will say that the revenue acceleration came a little bit quicker this quarter that may.
What we'd anticipated among the lab talked about it so I wouldn't certainly the ramp that you saw between Q1 and Q2 when you expect the ramp like that going into Q3, and Q4, I think that as we looked out towards the back half of the year. If you think about the guidance, where we were at the.
This level that we produced in Q2.
Pretty close without the level of.
That we're expecting and the back half of the year. So I think thats, probably a reasonable way of looking at it for the healthcare part of the business and.
I would also add Kevin.
<unk> to the kind of the tailwind that we have and.
Healthcare and education were down pretty significantly as you are aware during the pandemic and I think really now.
Our sense.
Senses that and both of those industries.
Our clients are really well prepared to 2.
And to deal with whatever comes down the Pike Mount as the pandemic evolves.
The issue is that they are facing a very different environment that the pre pandemic and thats why we feel strong about the.
The kind of demand thats going.
And B for our services and both of those industries and just the very different operating environment for our clients and Theyre looking to us for both strategic and operational and financial and technology issues.
And at a pace that we feel is very good and it will be supportive of growth for the rest of the year.
Yes, Craig.
Your last comment.
Comment.
The kind of plays right into my next question was going to be and Thats.
Obviously, youre seeing I guess work coming back here.
That may have been delayed during the pandemic, but.
And as the change the operating environment.
Due to the pandemic.
Mick maybe.
Is it causing clients too.
Move ahead with other types of work that day.
And might not have prior to the pandemic or.
Move forward with projects that they may have.
You may have not had as much urgency prior of the tandem.
And <unk>.
Overall urgency to move forward with some of these initiatives and increase increased due to the current environment.
So I think the weight of the way I would answer that is the projects that tended to get and I'll talk about health and education kind of together because there is there are some similarities.
The projects that tended to get deferred where the technology projects. So those are the ones that were kind of on the shelf ready to go and in the clients of kind of committed to them.
And then and then when the pandemic hit it just it was just going to be too hard to pull off something that can really be very disruptive within a company.
Sorry within in the organization.
<unk> so those GAAP deferred I think we're now beginning to see the and what's really come back nicely right now.
And then the remainder of the kind of the non technology portion of it the part that's more around the management consulting and I think what we're seeing is that there is just there is so much that has happened and the last 15 or 16 months that have impacted.
And the.
And the both the revenue side the cost side, the strategic positioning the compare.
Competitive environment for our clients and I think we have seen I think and both healthcare and education, particularly of better been hit so hard and we're seeing just the different kind of project, where we are we're having things that are.
And in many cases being a lot more strategic a lot more forward looking in terms of how we're really going to make the business case successful and what is now a very challenging environment for them. So it's just it's been a really interesting time and Thats why we feel good about the way things are evolving for us. It was just it was certainly heard on our entire.
To our team.
And 2 have gone through.
This is the last 15 or 16 months, but we've stayed very close to our clients our relationships with our clients have made a big difference and having them have confidence in us that they can help us we can help them rather.
The successful in the future, but it's a very different.
Strategic and operating environment for our clients and we're glad to be helping them try to navigate through this right now.
Okay. That's helpful and just lastly.
Wanted to ask about.
Just the narrowing of the adjusted.
EBITDA margin guidance range on the top and.
Guidance all of you still obviously still implies nice.
Year over year margin expansion, but can you just kind of touch on.
The factors behind the narrowing of the range.
Sure Kevin.
And probably.
Look at it despite the 3 factors that caused us if you look at the midpoint. The midpoint was 11.22, 5% now it's 11% as far as kind of that.
Decrease taking the midpoint of that price point to 3 factors. The first 1 really being we have incurred some additional expenses during the first half of the year our view.
Or is that Theyre, probably transitory expenses I don't think theyre going to be or at least their impact on margin will be transitory.
Kind of at the business environment has really picked up and.
And that's obviously been a lot of competition to secure resources.
And theres been some extra expenses incurred with that.
Kind of getting up and running there.
I think our viewpoint is that eventually all of those type of expenses and up making their way over to the pricing side as well. So I don't think thats. The long term factor, but I think kind of and the startup that we've had here with things kind of re launching this year.
And that's been a factor second is really the mix and so we're excited like we talked about earlier on the call about.
Our managed services business and the opportunity for that to provide some really nice revenue growth and recurring revenue into the future. It does blend and a little bit lower margin. So if you look at the composition of the revenue. This year I would say theres, a little bit of a mix factor and there as well as our technology businesses, which tend to blend and AD load at lower margins. They are also.
So our.
And are expected to be strong growth for the year. So I think thats the factor and then the final thing I point of view is.
Obviously.
Part of what we do is making investments, but I'd say, we've continued to make those investments.
And for the first half of this year and some of those some of those areas, where we've invested the dollars I think our expectation and that will probably going to start.
Hard to see on the revenue come through and the back half of the year, but nonetheless, it's probably been of net investment when you look at it from a full year perspective, and so it's kind of a good in terms of supporting growth into the future, but probably a little bit of a headwind from the margin perspective during the year.
Okay.
Okay, Great makes sense that's helpful.
Thanks for taking the questions.
Thank you. Our next question comes from Josh Vogel of Sidoti and company. Please go ahead.
Thank you and good afternoon guys.
The first question I had items.
Can you give thoughts or maybe quantify.
Hi.
The conversion rate today across the 3 businesses how it compares from pre pandemic and I also want to get a sense.
And if youre seeing urgency of pent up demand.
And that's driving client and agenda today is it across all segments or what.
And what services in particular.
And thank you.
I think if you're talking about the conversion rate to success and I don't I don't think of that different than we've historically had I don't think theres any notable difference and our conversion rate from.
Clients.
I don't know if we have exact.
Statistics around that but.
I don't think there's anything materially different.
The pent up demand is.
I think.
As a couple of things I mean, there was.
And I kind of go back and the reason I started my script.
At the beginning of credit provides some context I wanted to remind everybody and we remind ourselves frankly that when we started.
<unk> 2020, we were really the the practices, we're really on a significant.
Uptick and if for you and as we were kind of thinking about the business is back then we knew that the issues that we're going to be driving our clients even back pre pandemic.
We're going to be issues around digital transformation.
<unk> and trying to be competitive and a much more challenging environment and so now you fast forward and I think what's driving the pent up demand is that all of our clients, whether it be health and education or any of our commercial clients have also seen now this incredible urgency to.
To become much more.
Sure.
Transformative and their use of technology to deliver their goods and services and.
And and.
And the communicate with their clients or their customers or the patients for their students and so that has accelerated dramatically because of what happened in COVID-19 and the realized the realization that theyre going to continue.
Continue to have to do that so that was 1 part of the pent up demand and the other part I think we are seeing is and again. This is true across our commercial and health and education segments is that it's just a very different.
<unk> for people.
Post pandemic, where so-called post pandemic for.
For these organizations.
And has to be strategically thinking about what it's going to take for them to be successful and the future for the level of competition is different and the things that they have to focus on are different and so you put it all together.
It's been sort of challenging time for a lot of our clients and I think they are looking to us to help them through this process.
I think of lot of them have also had.
People and their own businesses that have been kind of stressed out gives them all of that they've gone through so we hear a lot of and a lot of occasions that the bandwidth of our clients have has had and an all time low to be able to deal with some of these issues and the magnitude of the issues that they're facing and are very substantive and you put that together and there is a strong.
Strong need for outside assistance, and I think Thats, where we come in so I think the pent up demand is very consistent and very.
Noticeable right now for us and and Thats 1 of the reasons, we feel good about how things are going to evolve for this company.
I appreciate those insights and.
And thinking about the increases and the sales pipeline and signings, especially in healthcare and education and I'm just curious.
And the size and scope of those engagements how they compare even too.
Q4, and what Youre seeing are these potentially large.
LTE year engagements or the smaller may be piecemeal.
They want to do.
1 thing first and then move on and other you know how does it how does the booking.
I think what we saw during the pandemic was I think of problem.
<unk>.
A pretty significant lack of desire to have larger and longer term projects from a lot of our clients and it's just too hard.
2.2.
To kind of manage that with everything else that was going on at their own organizations.
I think what we're seeing now is the probably the size and the duration of the projects are probably the beginning to pick up again and it will probably be.
And at least as.
<unk> is equal to as they were before the pandemic and.
And in some cases, maybe even more and I don't think we really keep track of of the duration and size of projects.
But my guess is that.
There are theres, just a lot more.
There's a lot more stress within our client environment and they are.
Think of lot of these issues are not things that can be.
Managed overnight and I think you combine that with the fact that we had during the last year.
The year, we had projects that were probably a little bit more piecemeal just so they could manage the easier. They are now realizing that they can they now need to take on more significant projects that will have longer durations and be of a more significant size and thats kind of what we're seeing right now.
And.
Alright, great. Thank you and just lastly, thinking about capital allocation over the back half of the year, you mentioned getting the leverage ratio.
I will likely be below 2 times.
How active do you think you will remain on the buyback front and outside of.
Just the internal investments and just how we think about capital.
Capital allocation and general.
Josh I would probably still think of it as a pretty balanced approach and I think.
The number 1 where we can get leverage back down to.
The 2 times range or below but I think by the same token our expectations for free cash flow and the back of the year will allow for.
The bulk of achieve that objective, but also.
And to buy back shares and probably.
And there's potential for tuck in strategic type of M&A activity as well and nothing imminent there, but in terms of all.
The potential for things like you saw in the first quarter of this year is all in the fourth quarter of last year, I think that thats part of our.
<unk>.
The growth strategy as well, so I would say if I were looking.
Looking out over the next 6 months I would probably expect a pretty deploy a balanced balance deployment approach.
Alright, great. Thank you for taking my questions.
Thank you we have a follow up from Tobey Sommer of true of Securities.
Your line is open.
Yes, thanks for taking the follow up just a question on margins like how should we think about SG&A cost coming back from here and do you think theres an opportunity the keeps on margin there just based on being able to operate the NEMA are less real estate et cetera.
I do have you Jeff but.
I think if you if you go back to the beginning of the year.
And we kind of.
To science and savings initiatives of which a healthy component of that was related to SG&A.
At the end of last year, but we said at the time don't interpret that as expenses are going to go straight down because of the other areas, where we expect particularly of things ramp.
Amp up in terms of.
The recruiting.
And things of that.
Volume coming back that we expect there to be incremental travel expenses and things like that once we get for the back half of the year and that therefore, it'd probably be sort of the flat story I think that's still going to be the case and and.
And my remarks, I noted we are.
Excluding Canada the.
The.
Items like the deferred compensation plan and restructuring it's been flat during the first half of the year I think there were some timing items that kind of skewed some of the expenses into the second quarter versus the first quarter, but I don't think thats. The trend line I think when you look at kind of the back half of the year my expectation for corporate SG&A is that it will likely.
Likely be somewhere in between where it was and the first quarter and where it was and the second quarter.
And that and when you couple that with the growth we're expecting in the back half of the year.
Obviously, the guidance calls for double digit growth and the back half of this year versus the back half of last year and you should definitely get some nice leverage of the SG&A.
And the back half of the year as well as we're expecting utilization to continue to ramp up.
From where it is right now so are our expectation is that you should see stronger margins and the back half of the year versus the.
The year to date.
Yes.
I appreciate the color of our last question for me with respect to the of research parts.
Parts of the business do you think some of the funds that the by the administration for kind of put the science and research could kind of boost the medium term outlook, there and if that upon the ends up flowing through.
Yes, I think it will boost the medium and long term.
Part of our business. So we've had I think record results recently and our.
Our research area and Thats, even before any of that was kind of announced so we feel good about what's happening and system. It's a very difficult business for our clients to manage and we happen to have the incredible depth and that area and experienced and being able to do that so we're seeing more and more opportunities where we're having.
To help manage.
And just help our clients manage the business. They are all wanting to increase the research enterprise and we are well prepared to help them manage through that.
Thanks for taking the questions.
Seeing no more questions I'd like to turn the call back over to Mr. Roth.
Thank you for spending.
Time with US. This afternoon, we look forward to speaking with you again in November when we announce our third quarter results have a good evening.
And that concludes today's conference call.
Thank you everyone for your participation.