Q3 2021 Huron Consulting Group Inc Earnings Call

November 2, 2021

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Good afternoon, ladies and gentlemen, and welcome to Huron consulting group's webcast to discuss financial results for the third quarter 2021.

At this time all conference call lines are on a listen only mode.

Later, we will conduct a question and answer session for our conference call participants and instructions will follow at that time.

As a reminder, this conference call is being recorded.

Before we begin I would like to point all of you to the disclosure at the end of the 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 disclosure of factors that may impact subjects discussed in this afternoon's webcast.

The company will be discussing discussing one or more non-GAAP financial measures.

Please look at the earnings release and on Hurons website for all of the disclosures required by the S.

S E C.

Reconciliation to 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's third quarter 2021 earnings call with me today are John Kelly, Our Chief Financial Officer, and Mark Hussey, our President and Chief operating Officer.

Third quarter revenues grew 9% year over year, driven by growth across all three operating segments.

Solid growth coming off the heels of significant pandemic related impact on our two largest industries demonstrates the solid foundation of talent, we've built to deliver our services.

Our pipeline remains robust and we are focused on converting sales opportunities to enable a strong start in 2022.

I will now provide additional insight into our third quarter performance and then provide color on our expectations for the remainder of 2021.

During the third quarter healthcare segment revenues grew 6% over the prior year quarter reflective of the continued recovery for our offerings in the health care industry as the pandemic appears to be waning.

As a reminder from our prior earnings call. The strong second quarter revenue in the health care business included the achievement of certain performance based milestones, which came earlier in the year than we had anticipated.

In the third quarter, the delayed timing of certain project start dates and minor pauses and other projects related to the Delta variance Serge.

Create a modest headwind to our overall year over year growth in.

In the third quarter. However, we were able to start work on several significant new projects and we continued to build a robust pipeline and experienced near pre pandemic demand for our assessments and our performance improvement business.

The buildup of our pipeline is consistent with the challenges many hospitals and health systems are facing at this stage of the pandemic.

Notably increased labor costs inefficiencies and clinical services due to COVID-19 related restrictions.

And importantly, significant morale issues, among the physician and nursing staff that are leading to higher turnover and shorting and staffing shortages.

None of these issues are likely to ebb in the coming year, which will likely lead to increased pressure on margins across our entire client base.

We believe that these attributes will enable us to accelerate growth in the fourth quarter and into 2022.

In summary, our full year expectations for this business remain consistent with our previously communicated outlook.

Yeah.

Amidst these industry pressures, we are well positioned to help our clients navigate the current challenges, while providing strategic operational and technology services that prepare them for success and are still rapidly changing health care environment.

Our health care business has evolved in recent years in anticipation of the changing landscape for many of our clients.

For example, historically, our health care business focused predominantly on revenue cycle and cost improvement.

Today in addition to our traditional performance improvement offerings, we have evolved to add extensive capabilities for clinical transformation strategy clinical and administrative technologies and analytics.

Our clients are looking for a comprehensive set of offerings from an experienced team and our 200 plus team of healthcare consultants provide a full suite of capabilities that help our clients address challenges that are more intense and potentially more disruptive than any other time in recent history.

Turning to the business Advisory segment in the third quarter of 2021 business Advisory segment revenues grew 6% over the prior year quarter.

This growth was driven by our digital technology, and analytics and strategy offerings, which together grew nearly 20% quarter over quarter.

That growth was offset by lower revenues in our distressed advisory business reflective of the difficult comparisons to the third quarter of 2020.

And lower revenues in our life Sciences business.

We expect our distressed advisory offerings will achieve solid growth in the fourth quarter with.

With the signing of new engagements and the anticipated closing of several broker dealer success fees.

This segment, which focuses primarily on serving the commercial sector did not experience a material downturn in demand during the pandemic.

Although off although our strategy business was challenged in 2020 demand has picked up significantly this year, including the most recent quarter.

Our technology business, which is the largest business within the business Advisory segment.

Has continued to perform well over the past 18 months in the third quarter was no exception.

The growth of our commercial business and the continued expansion of our technology and analytic offerings.

Our anticipated to lead to double digit growth during the coming years in this segment.

During the third quarter, we announced our intent to sell our life Sciences practice and I'd like to provide some color into our rationale for the divestiture.

During a recent refresh of our five year enterprise strategy, we concluded that our best opportunities for growth and margin expansion lie in areas outside of our life Sciences commercial strategy pricing and market access practice.

Accordingly, we commenced a process to divest to divest this business to concentrate our resources in the areas that represent the best growth opportunities for Huron.

Going forward Hereon will continue to serve the life sciences industry to our Interstate digital and business advisory capabilities.

Turning now to the education segment in the third quarter of 2021 Education segment revenues grew 18% over the prior year quarter, driven by strong demand for our student research and strategy offerings.

During the third quarter. We also saw our pipeline for our technology related offerings begin to convert giving us confidence that revenue stemming from our cloud implementations will continue to strengthen in the fourth quarter and into 2022.

The array of changes taking place in this industry has and will continue to create significant opportunities for Huron.

The need to efficiently manage a complicated decentralized educational institution is driving demand across our full spectrum of administrative research and academic offerings.

In addition technology continues to play a substantive role in changing the way education is delivered and administered.

Our highly experienced team is well prepared to help our clients address the challenges that are endemic across the higher education industry.

Institutions, both large and small compete in this rapidly evolving environment.

The historical trajectory for this business yielded five years of double digit revenue growth that streak ended with the pandemic, which proved to be too much of a headwind to sustain the historical strong performance.

We suspect that the pandemic would exacerbate the many challenges facing educational institutions.

And that the trajectory of the revenue growth in our education business would return when the challenging circumstances began to wane.

And we were correct on that front.

Third quarter showed strong showed strength across our strategy and operations research and student offerings, and we won some meaningfully meaningful new ERP engagements. After a brief while in the past 18 months.

Our backlog and pipeline provide us with confidence that historical growth rates of return for this business.

Let me now turn to our outlook for the year.

As our press release indicates we are narrowing our annual revenue guidance.

Two 885 to 905 million, increasing the midpoint by 5 million to $8 $95 million.

We are also.

We are also are forming our adjusted EBITDA guidance in a range of 10, 8% to 11, 3% of revenues and narrowing our adjusted diluted earnings per share to a range of $2 53 to $2 63 inch.

Increasing the midpoint to $2 58.

While our business strengthens as the pandemic begins to wane our updated guidance reflects the continued momentum we anticipate in our business driven by the market demand for our services.

Now, let me turn it over to John for a more detailed discussion of the financial results.

Thank you Jim and good afternoon, everyone.

Before I begin please note that I'll be discussing non-GAAP financial measures such as EBITDA adjusted EBITDA adjusted net income adjusted EPS and free cash flow.

Our press release, 10-Q, and Investor Relations page on the Huron website have reconciliations of these non-GAAP measures to the most comparable GAAP measures along with a discussion of why management uses these non-GAAP measures 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.

Also the divestiture of our life Sciences business, the closing of which we announced this morning is included in our results for the quarter and the business Advisory segment.

Now, let me walk you through some of the key financial results for the quarter.

Revenues for the third quarter of 2021 for $224 million up nine 1% from $205 3 million in the same quarter of 2020.

The increase in revenues in the quarter was driven by growth across all three operating segments.

Net income was $13 $7 million or <unk> 64 per diluted share in the third quarter of 2021 compared to $11 1 million or 50 SaaS per diluted share in the same quarter in the prior year.

Our effective income tax rate in the third quarter of 2021 was 12, 5% compared to 17, 7% one year ago.

Our effective tax rate for Q3 of 2021 was more favorable than the statutory rate.

Using our state income taxes, primarily due to discrete tax benefits for U S. Federal return to provision adjustments related to the 2020 corporate income tax return.

Adjusted EBITDA was $26 $4 million in Q3, 2021, or 11, 8% of revenues compared to $23 6 million in Q3 of 2020 or 11, 5% of revenues.

Adjusted non-GAAP net income of $16 $8 million or <unk> 78 per diluted share in the third quarter of 2021 compared to $13 million or <unk> 59 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.

The healthcare segment generated 42% of total company revenues during the third quarter of 2021. This segment posted revenues of $92 8 million for the third quarter of 2021.

Up $5 4 million or six 2% from the third quarter of 2020.

The increase in revenue primarily reflects increased demand for both our performance improvement and revenue cycle managed services offerings.

Operating income margin for healthcare was 32, 6% in Q3 2021 compared to 29, 3% the same quarter in 2020.

The increase in margin over the prior year quarter was primarily attributable to a decrease in performance bonus expense year over year.

The business Advisory segment generated 31% of total company revenues during the third quarter of 2021.

The segment posted revenues of $70 million in Q3, 2021 up $3 9 million or five 9% from the third quarter of 2020.

Revenues for the third quarter of 2021, including $4 5 million from our acquisitions of <unk> IQ and unit cost solution.

Revenues for the third quarter of 2021 also included $5 1 million from our life Sciences practice, which was divested during the fourth quarter of 2021.

The quarter over quarter increase in revenue was driven by our strategy and digital technology and analytics offerings.

The operating income margin for business Advisory segment was 14, 1% for Q3 2021 compared to 16, 3% for the same quarter in 2020.

The quarter over quarter decline in margin was primarily due to increases in salaries and related expenses for our revenue generating professionals in contractor expense as percentages of revenues.

The operating margin also reflects the timing of success fees from our broker dealer, which had fewer success fees in the third quarter than we anticipate in the fourth quarter.

These decreases were partially offset by a decrease in performance bonus expense for our revenue generating professionals.

The education segment generated 27% of total company revenues during the third quarter of 2021.

The segment posted revenues of $61 $2 million in Q3, 2021 up $9 3 million or 18% from the third quarter of 2020.

The increase in revenue reflects increased demand for our student research and strategy offerings.

The operating income margin for education was flat at 24, 2% in the third quarter of 2021, when compared to the same quarter in 2020.

Other corporate expenses not allocated at the segment level were $31 $4 million in Q3, 2021, compared with $29 million in Q3 2020.

Unallocated corporate expenses in the third quarter of 2021, including $400000 of income related to the decreased liability of our deferred compensation plan, which is fully offset in other income by the corresponding loss in assets used to fund that plan.

Unallocated corporate expenses in the third quarter of 2020.

Included $1 $8 million of similar expense related to our deferred compensation plan exclude.

Excluding the impact of the deferred compensation plan in both periods the $4 $6 million increase in allocated expense primarily relates to increases in share based compensation and salaries and related expenses for our support resources.

Restructuring charges software and data hosting expenses and legal expenses, partly offset by a decrease in performance bonus expense for our support resources.

Year over year third quarter increase in stock compensation expense, primarily reflects a reduction in expense related to our long term incentive plan for executive officers and the third quarter of 2020 due to revised projections related to the pandemic at that time.

Now turning to the balance sheet and cash flows.

DSO came in at 76 days for the third quarter of 2021 compared to 73 days for the second quarter of 2021, and 62 days for the third quarter of 2020.

The increase in DSO during the quarter.

It related to a slight increase in working capital primarily due to certain larger health care and education projects with contractual payment schedules, where we anticipate to bill and collect the fourth quarter of 2021 and in some cases, the first quarter of 2022, coupled with a decrease in revenue during the quarter compared to the second quarter of two <unk>.

'twenty one.

We expect DSO to normalize to around 65 days over the remainder of 2021.

Total debt includes the $260 million in senior bank debt and a $3 million promissory note for total debt of $263 million. We finished the quarter with cash of $11 million for net debt of $252 million.

Our leverage ratio as defined in our senior Bank agreement was approximately two seven times adjusted EBITDA as of September 32021.

Compared to two one times adjusted EBITDA at the end of Q3 2020.

We expect to finish the year with a leverage ratio below two times.

Adjusted EBITDA.

Cash flow generated from operations in the third quarter of 2021 was $33 $8 million and we used $4 $6 million of our cash to invest in capital expenditures.

<unk> of internally developed software costs, resulting in free cash flow of $29 $2 million.

During the third quarter, we repaid $12 million and company portion FICA taxes related to 2020 dynamic deferred under the cares Act.

We used $25 million of our cash to repurchase shares of our common stock during the quarter, bringing the year to date total up to $60 $2 million.

We now expect free cash flow for the full year 2021 to be at the low end of our original guidance range of $55 to $75 million.

We anticipate our conversion of adjusted EBITDA to free cash flow in 2021 to be lower than our historical average due to an unusually low DSO of 52 days as of December 31, 2020.

Which pulled some cash receipts that would have normally occurred in the first quarter of this year into the fourth quarter of last year.

Slightly higher than normal DSO expected as of December 31, 2021, due to contractual payment schedules on certain larger health care and education segment projects the.

The previously mentioned 2021 repayment of deferred company portion of FICA taxes from 2020 related to the cares Act.

And the anticipated ramp in revenue for the fourth quarter of 2021.

We expect our conversion of adjusted EBITDA to free cash flow to normalize to historical levels in 2022.

Finally, let me turn to our expectations and guidance for 2021.

As Jim noted, we are narrowing our full year 2021 revenue guidance to $885 million to $905 million raising the midpoint to $895 million.

In addition, we are reaffirming our full year adjusted EBIT percentage guidance to be in 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 in a range of $2 53.

To $2 63.

Raising the midpoint to $2 58.

Finally, we expect our full year effective tax rate to be in the low 20% range.

Our updated guidance is inclusive of the impact of the divestiture of our life Sciences practice.

Looking beyond 2021 full year 2022 revenues will reflect the impact of the sale of the life Sciences business. However, we do not expect any significant impact related to the sale on our adjusted EBITDA margin percentage are adjusted earnings per share after consideration of corporate savings related to the transaction.

As well as the anticipated use of the transaction proceeds.

We will continue to execute our balanced capital allocation strategy with the proceeds received from the sale as well as our free cash flow in the fourth quarter.

We currently intend to use the net proceeds to reduce borrowings purchase shares under our current share repurchase authorization and execute strategic tuck in acquisitions.

Thanks, everyone.

I would now like to open the call to questions operator.

Thank you Sir.

As a reminder to ask a question you would need to press star one on your telephone so which are your question. Please press pataki.

Please standby, while we compile the Q&A roster.

I show. Our first question comes from the line of Tobey Sommer from Truest. Please go ahead.

Hey, good afternoon. This is jasper bibb on for Tobey. So I just wanted to ask if you could provide a bit more color on sales conversion and health care and education. When you discuss your new wins there in the in the prepared remarks, but did sales conversion improved through the quarter, given what I assume would be a favorable backdrop of students back on campus.

And following Covid cases.

Yes, Jessica this is Jim Yes, we are in the third quarter, we did begin to see.

Education, probably more than health care, but I think we're certainly seeing a decent conversion of.

The backlog.

We're expecting that.

That to continue in both practice in health care and education I think it was more evident in the third quarter.

In the education practice, but in both practices, we're expecting some some solid conversion of the backlog that we've been talking about.

And I think the underlying the underlying reason for both cases are the ones that we articulated during the during the prepared remarks and that is that the business environment for our clients with both of those industries is still pretty challenged.

We expect it to play out well for us.

Sure.

<unk> I'll add.

And with regards to the education segment, something we've talked about on earlier calls is that we had seen a return to pre pandemic levels of sales activity related to our research offerings, our strategy offerings and we discussed that probably just due to the sheer size of some of the technology projects that that pipeline had been a little slower to open up.

I think we've seen now, particularly during the quarter, we've seen that pipeline start to open back up.

So we feel good about the opportunities that we've been able to secure during during the year and during the third quarter as well as what the pipeline looks like as we transition into 2022 on the technology side as well.

Yeah, that's great and then the third quarter chop pretty significant head count groceries to September what was driving that was there a group hire and narrow or is that just your new graduates joining the company any color would be great.

It's a it's really a negative wasn't as much.

Group higher I would say Jasper, it's it's definitely much more organic hiring. So you do have some new hires campus hires that you referred to but it's also been experienced hires and really that growth we've seen it across the business healthcare business advisory and education and I would suggest that in all three of those segments that <unk>.

Our growth is reflective of some of those trend lines that we've seen in the pipeline that we discussed.

Okay last question for me on <unk>.

Segment level, you talked about demand for the core P&I rationale practices in health care and education, but we're still 400 basis points below 2019 utilization in the quarter. So so what practices like in each segment would you say are still dragging on that overall utilization figure at this point.

Is your question about health care or education.

Just across the business.

What kind of practices are keeping utilization down for the entire company.

Yes, so I would say in education as John was just indicating in our in our ERP area we knew.

We've been saying all along that that was going to be a little bit slow in picking up we are seeing those conversions come through we made the comment back in 2020 that we knew we felt strongly that this day would come when demand would be pretty robust.

That we would be had we made decisions of our head count back then we would have had trouble meeting demand right now and so.

The fact that we held onto those people, which was absolutely. The right thing to do is now turning out to be a smart thing because the demand is picking up very nicely, but the utilization the lower utilization in our historical norms. As a result of the fact that we have held on a business of people while the business is picking up and that's frankly true in healthcare as well.

I think in both cases, if you look at the last nine months of 2021 you.

You will see that our utilization was less than our historical averages certainly in 2019 and before that and really what that was was just some excess capacity that we knew would be needed. When the markets began to pick up the markets are clearly picking up and I think youre going to start seeing some changes in those utilization.

Amounts.

This quarter and beyond.

I'll just I'll just add Jasper.

In addition to that bigger picture perspective from Jim as we referenced on the healthcare side.

There were a couple of projects that got going a little bit later during the quarter than what we had initially anticipated so that created a little bit of a lower utilization pocket during the quarter and then as Jim was referring to both in education and really within <unk>.

Particularly related technology businesses within the business Advisory segment.

When you see that head count growth that you see in the numbers and see that commentary during the quarter was just a natural amount of time there to get new hires.

And stimulated before there's really just a ramp before they get going on billable projects and so I think youre seeing some of that too with such high hiring volumes some of that ramp impact was a little bit of a dampener on utilization during the quarter.

Yes, I appreciate the detail thanks for taking the questions guys.

Yes.

Thank you I show. Our next question comes from the line of Andrew Nicholas from William Blair. Please go ahead.

Thanks, and good afternoon.

Thank you taking my questions.

First one I actually think that I asked something quite similar last quarter, but I think it's still tactical and that's just with respect to the hiring environment I hear a lot about.

Wage pressures difficulty opening finding.

Staff for consultants for open positions. So I just wanted to get your temperature on that dynamic within the business.

And really the extent to which the tightening labor market is having any impact on your hiring whether its to date or even your expectations for next year.

Andrew This is Jim.

It's a real thing I mean, there's no question about it and I think we talked to our clients we talk to our competitors.

This is a real thing Thats, just I wish I wish it was otherwise, but it is not.

There is a tightening in the labor market. There is the transition that we've all been reading about.

Is it affecting US yes. It is it if you compare our turnover for example to 2020, it's higher obviously this year than it was last year, which I think is true across the board. If you even out the last two years, our turnover has been about the same but the hiring market is one where we.

We are able to get people that's not that's not an issue. There is some price there is some compensation pressure. There's no question about that but I think it's all for US it's all still within the reasonable range of what we planned for and considered and so it's there it's not having zero impact, but it's not it's not.

That's the biggest impact for us that we're worried but we feel we'd go back we talk about this all the time.

We are we are we have a very strong and good culture here I think people know about that and when we try and recruit into this business people really no understood I understand that we have something different here and people want to have.

Want to work in that kind of environment. So we're very proud of that I think that.

That culture, which is always important becomes hugely important at a time like this when people are making decisions that have different options to choose from so so long way of saying it is having an impact but I think it's not so material that it's going to we're not.

It's not dramatically affecting our our financial results, nor our ability to meet the.

Market demand in any significant way, maybe I'll just add to that Andrew from a margin perspective to Jim's point I think in the long run.

We think it will all fit within the parameters of our margin objectives I think in the short run.

When we look across the landscape.

Tightening labor market not just to drive thing I think we see that across all.

All of the professional services firms that we talk to and so understanding that we do expect that to actually flow through to pricing on the pricing side.

But that just doesn't happen overnight and so the reality is that will take a little bit of time for that to flow through pricing a lot of the revenue that we're working now with sold in earlier periods and we have existing agreements and so.

It will sequencing over time and you'll start to see some of the funding on the other side on the pricing side. So I think thats why we view it to be in the short term, although a bit of a headwind to our margin expansion, but we're more optimistic in the longer term.

That's helpful. Thank you and then.

My follow up.

Bit of a bigger picture question, Jim I think you.

You mentioned in your prepared remarks.

The life Sciences divestiture was at least in part due to was a result of a five year strategy processor planning exercise and I was just wondering if there's any other kind of major takeaways from that exercise or from that process that you would be willing to share just thinking about as this company continues to evolve.

Over the next several years thank you.

Yes, so yes, we are.

Strategy processes is still we're still working through it but we're still going to continue to focus on our core industry verticals, which have been really helpful.

As we've indicated a very strong technology base that we are.

I think it is.

It isn't very much in demand in the market right now and so I think our ability to apply.

Our strategy and operations and technology business.

Those industry verticals that were the strongest in I think is going to be a major part of our go forward strategy for the next five years.

We look at the industries that we serve and there are plenty of room for growth and expansion in terms of kind of our ability to serve those businesses.

It's clearly a competitive environment out there for us and so we recognize that so every time, we go to that we ask ourselves the question.

What's our right to win and we focus very clearly on making sure that we have a very good answer to that when we try to serve our clients.

And right now among our biggest industries, obviously health care and education, but also financial services and energy oil and gas are amongst some of the ones that we have for a strong presence through and right now we're very deepened relationships in those businesses and that we anticipate in our strategy to continue to focus on those.

And we will continue to very much focus on the strength and depth of our technology competencies to be able to deliver to those industries as well. So collectively I think it's going to be applying our industry focus with new technology capabilities and we're very confident that's going to lead us to the growth and margin improvement that we're in.

Looking forward.

Great. Thanks, so much.

Thank you as a reminder to ask a question you would need to press star one on your telephone to withdraw your question. Please press the pound key.

I show. Our next question comes from the line of Kevin Spanky from Barrington Research. Please go ahead.

Hey, good afternoon.

Just.

Looking out over the next several quarters in 2022 here.

I know youre not providing guidance at this time for next year, but I'm just trying to.

Frame up how we should think about margins moving into next year and margin expansion given.

The growth in your technology services, which tend to blend in a little bit lower margin and then.

Are you seeing additional travel expenses coming back.

We should think about being a meaningful factor going into next year and.

We talked about wage inflation too. So just can you maybe frame that up.

As we kind of think about.

Margin expansion in the near term and also longer term.

Sure. Kevin This is John and just to give a little context, you said at the beginning of the year that we expected it to really be a two year process to get our margin levels back to what we saw prior to the pandemic, so thinking that at 12% range.

Meaning that we would expect to be at 12% plus level really in full year 2022, and so while to your point, we're not giving guidance on next year and our operating operating plan is still being developed we believe that scenario is still very much intact.

We've been having adding heads to fuel growth, but we expect utilization of those heads to return to historic levels. In 2022, obviously in 2021 were below those historical bonds for most of the year as we ramp back up from the pandemic, but beyond utilization as our combined technology businesses start to reach increasing level of.

Scale, we believe that there will be.

Significant margin enhancement opportunities related to a few factors our global delivery capabilities.

Efficiencies from automation and accelerators that we developed for our offerings, particularly with <unk>.

Our core industries that Jim referenced.

Increased SG&A efficiency, and then the firming client pricing market that I referred to earlier, so now in an embedded headwind I guess when you think about those positives.

The wage pressure that we talked about a little bit a little bit earlier, but overall when we look at the opportunities from the scale from that technology business.

We're very encouraged about the trend lines that we see moving forward to expand even beyond that 12% and you start to get past.

22% to 2023.

So thats kind of the bigger picture.

Eric I should view that I can give you on that Kevin.

Alright, Thanks, that's helpful.

So are your people.

Getting back on the road more.

How much do you think travel expenses come down over the long term relative to where they were before or do they I mean, whats kind of whats the model look like going forward.

Travel.

So.

As a reminder, the majority of our travel is really billable onto our clients and so that the majority of the travel doesn't necessarily flow through to our bottom line because we're typically reimbursed for it but as a point of reference we probably had about $2 million Bucks more travel this quarter than we did a year ago.

This time, so we're already seeing some of that pickup and some.

Year over year margin expansion that we had this quarter was already net of an increase.

About $2 million for the quarter. So I would expect I think our modeling and our expectations are is that that is going to continue to ramp, particularly as we get into next year.

But in the context of some of the other factor that I provided I think that we see a greater upside opportunity to expand our margins and kind of that element of expenses, which we think will be able to absorb.

Some of the margin enhancing opportunities that I referred to.

Alright good.

Yes.

When we think about.

You mentioned, some just some delayed projects start ups related to the Delta variant.

How much of a headwind should we think about that having been in the third quarter and does that largely come back.

Our startup than in the fourth quarter.

Kevin that was probably low single digit millions in terms of what the impact on the health care business was during the third quarter.

And our expectation based on what we see now is that the majority of that will be out of the system by the time, we get to the fourth quarter.

Okay, Great and then.

Should we think about.

I don't believe you disclosed it but.

<unk> from the life Sciences divestiture is that kind of.

Should we think about in line with the revenues the business generated or any other kind of.

Yardstick, we can use to think about that.

Yes, so so we havent disclose and we're not going disclose the specifics around around the sale price, but I think our revenue metric as a good way to think about it and.

The evaluation that we're able to get was accretive in terms of in terms of our revenue multiple.

Alright. Thank you thanks for taking the questions.

Thank you.

I show. Our next question comes from the line of Josh Vogel from Sidoti. Please go ahead.

Yes. Good afternoon, guys. Thank you for taking my questions.

Looking at digital Tech and analytics I know, it's a big chunk of the VA business and and John you gave some color here already I guess I was just a little surprised by the segments margin compression.

Given that you saw 20% growth in those types of offerings can you just remind me like what the margin profile is on that work relative to other non digital tech and analytics related offerings I know distress was a big piece last year.

Some color around that please thanks.

Sure Josh So when you think about.

At the segment the revenue composition that segment about half technology offerings, it's about 30% of our strategy business and it's about 20% our distress business in terms of revenue.

And from a margin blend perspective for this year, we guided to around 20% margins.

At this point, we're thinking it's going to be that that was the original guide was around 20% at this point, we're thinking it will finish the year in that high teens.

And the.

The technology part of that business has really been kind of mid to upper teens.

It's also where we think we've got the greatest opportunity for margin expansion going forward in light of those comments that I gave earlier on in terms of opportunities directly relate to that technology business.

And we're confident with the scale, we're getting in that business, what the industry differentiation, we have with the maturing of our <unk>.

Offshore platform in India, We now have 1000 employees supporting primarily that business in India.

We think that there's going to be some nice opportunities for those margins to ramp up over the coming years.

But thats, where the current blend is and then of course, the strategy and distressed businesses.

Blending higher to get to the overall kind of targeted average for the segment.

Alright, great and I just have another one here I understand it could fluctuate from quarter to quarter, but I wanted to get a handle on the health care managed services employees.

Q3 revenue was down couple of hundred case sequentially, but head count was up about 50%. So whats your utilization rate. There change you feel fully staffed here or I guess, another way to asking what's a good number that you're targeting given the opportunities you see in the marketplace. Today is it's a business stepped up to meet existing engagements only or ahead.

New ones you see coming in the pipeline. Thank you.

So right now that the team is busy with the projects that we have so we don't really have any pockets of unutilized resources at least at any material expense within that business and that's a nice feature of that business is.

We think that we have the ability to ramp that business up depending on when those opportunities come through.

I think right now I would describe that team is busy and we're actively in market seeking other opportunities and we believe that it's an attractive offering for our clients and when we get to that point.

I think we've got the capacity to.

Transitioning to new projects and start to ramp up the headcount really scale that business up as we need to over time.

Now I would describe the head count in there with.

Within reason as being right sized for that amount of revenue that you see Josh coming through during the quarter.

Alright, great well, thanks for the insights.

Thank you.

Seeing no more questions in the queue 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 February when we announce our fourth quarter results have a good evening.

This concludes today's conference call. Thank you for participating you may now disconnect.

Yeah.

Okay.

Yes.

Okay.

Yes.

Okay.

Yes.

Okay.

[music].

Okay.

Yes.

And.

[music].

Good afternoon, ladies and gentlemen, and welcome to Huron consulting group's webcast to discuss financial results for the third quarter 2021.

At this time all conference call lines are on a listen only mode.

Later, we will conduct a question and answer session for our conference call participants and instructions will follow at that time.

As a reminder, this conference call is being recorded.

Before we begin I would like to point all of you to the disclosure at the end of the company's news release for information about any forward looking statements that may be made or discussed on this call.

The news release is posted on Hurons website.

Please review that information along with the filings with the FCC for disclosure of factors that may impact subjects discussed in this afternoon's webcast.

The company will be discussing discussing one or more non-GAAP financial measures.

Please look at the earnings release and on Hurons website for all of the disclosures required by the U.

S E C.

Reconciliation to 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.

Third quarter revenues grew 9% year over year, driven by growth across all three operating segments.

Solid growth coming off the heels of significant pandemic related impact on our two largest industries demonstrates the solid foundation of talent, we are built to deliver our services.

Our pipeline remains robust and we are focused on converting sales opportunities to enable a strong start in 2022.

I will now provide additional insight into our third quarter performance and then provide color on our expectations for the remainder of 2021.

In the third quarter, the delayed timing of certain project start dates and minor pauses and other projects related to the Delta variance surge created a modest headwind to our overall year over year growth.

In the third quarter. However, we were able to start work on several significant new projects and we continue to build a robust pipeline and experienced near pre pandemic demand for our assessments and our performance improvement business.

The buildup of our pipeline is consistent with the challenges many hospitals and health systems are facing at this stage of the pandemic.

Notably increased labor costs, and inefficiencies and critical services due to COVID-19 related restrictions.

And importantly, significant morale issues, among the physician and nursing staff that are leading to higher turnover and shorting and staffing shortages.

None of these issues are likely to ebb in the coming year, which will likely lead to increased pressure on margins across our entire client base.

We believe that these attributes will enable us to accelerate growth in the fourth quarter and into 2022.

In summary, our full year expectations for this business remain consistent with our previously communicated outlook.

Our healthcare business has evolved in recent years in anticipation of the changing landscape for many of our clients for.

For example, historically are a health care business focused predominantly on revenue cycle and cost improvement.

Turning to the business Advisory segment in the third quarter of 2021 business Advisory segment revenues grew 6% over the prior year quarter.

This growth was driven by our digital technology, and analytics and strategy offerings, which together grew nearly 20% quarter over quarter.

That growth was offset by lower revenues in our distressed advisory business reflective of the difficult comparisons to the third quarter of 2020.

And lower revenues in our life Sciences business.

We expect our distressed advisory offerings will achieve solid growth in the fourth quarter with the signing of new engagements and the anticipated closing of several broker dealer success fees.

This segment, which focuses primarily on serving the commercial sector did not experience a material downturn in demand during the pandemic.

Although our strategy business was challenged in 2020 demand has picked up significantly this year, including the most recent quarter.

Our technology business, which is the largest business within the business Advisory segment.

<unk> has continued to perform well over the past 18 months in the third quarter was no exception.

The growth of our commercial business and a continued expansion of our technology and analytic offerings.

<unk> are anticipated to lead to double digit growth during the coming years in this segment.

During the third quarter, we announced our intent to sell our life Sciences practice and I'd like to provide some color into our rationale for the divestiture.

During our recent refresh of our five year enterprise strategy, we concluded that our best opportunities for growth and margin expansion lie in areas outside of our life Sciences commercial strategy pricing and market access practice.

Accordingly, we commenced a process to divest to divest this business to concentrate our resources in the areas that represent the best growth opportunities for Huron.

Going forward <unk> will continue to serve the life sciences industry through our inner site digital and business advisory capabilities.

Turning now to the education segment in the third quarter of 2021 Education segment revenues grew 18% over the prior year quarter, driven by strong demand for our students research and strategy offerings.

During the third quarter. We also saw our pipeline for our technology related offerings begin to convert given us confidence that revenue stemming from our cloud implementations will continue to strengthen in the fourth quarter and into 2022.

The array of changes taking place in this industry has and will continue to create significant opportunities for Huron.

The need to efficiently manage a complicated decentralized educational institution is driving demand across our full spectrum of administrative research and academic offerings.

In addition technology continues to play a substantive role in changing the way education is delivered and administered.

Our highly experienced team is well prepared to help our clients address the challenges that are endemic across the higher education industry is.

Institutions, both large and small compete in this rapidly evolving environment.

We suspect that the pandemic would exacerbate the many challenges facing educational institutions.

And that the trajectory of the revenue growth in our education business would return when the challenging circumstances began to wane.

And we were correct on that front.

Third quarter showed strong showed strength across our strategy and operations research and student offerings, and we werent some meaningfully meaningful new ERP engagements. After a brief while in the past 18 months.

Our backlog and pipeline provide us with confidence that historical growth rates of return for this business.

Let me now turn to our outlook for the year.

As our press release indicates we are narrowing our annual revenue guidance.

Two 885 to 905 million, increasing the midpoint by 5 million to $8 $95 million.

We are also.

We're also affirming our adjusted EBITDA guidance in a range of 10, 8% to 11, 3% of revenues and narrowing our adjusted diluted earnings per share to a range of $2 53 to $2 63 <unk>.

Increasing the midpoint to $2 58.

But our business strengthened as the pandemic begins to wane. Our updated guidance reflects the continued momentum we anticipate in our business driven by the market demand for our services.

Now, let me turn it over to John for a more detailed discussion of the financial results.

Thank you Jim and good afternoon, everyone.

Before I begin please note that I'll be discussing non-GAAP financial measures such as EBITDA adjusted EBITDA adjusted net income adjusted EPS and free cash flow.

Regarding our financial condition and operating results.

Also unless otherwise stated my comments today are all on a continuing operations basis.

Also the divestiture of our life Sciences business, the closing of which we announced this morning is included in our results for the quarter and the business Advisory segment.

Now, let me walk you through some of the key financial results for the quarter.

Revenues for the third quarter of 2021 or $224 million up nine 1% from $205 3 million in the same quarter of 2020.

The increase in revenues in the quarter was driven by growth across all three operating segments.

Net income was $13 7 million or <unk> 64 per diluted share in the third quarter of 2021 compared to $11 1 million or <unk> 50 per diluted share in the same quarter in the prior year.

Our effective income tax rate in the third quarter of 2021 was 12, 5% compared to 17, 7% one year ago.

Our effective tax rate for Q3 of 2021 was more favorable than the statutory rate inclusion of state income taxes, primarily due to discrete tax benefits for U S. Federal return to provision adjustments related to the 2020 corporate income tax return.

Adjusted EBITDA was $26 $4 million in Q3, 2021, or 11, 8% of revenues compared to $23 6 million in Q3 of 2020 or 11, 5% of revenues.

Adjusted non-GAAP net income of $16 8 million or <unk> 78 per diluted share in the third quarter of 2021 compared to $13 million of <unk> 59 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.

The healthcare segment generated 42% of total company revenues during the third quarter of 2021. This segment posted revenues of $92 8 million for the third quarter of 2021.

$5 4 million or six 2% from the third quarter of 2020.

The increase in revenue primarily reflects increased demand for both our performance improvement and revenue cycle managed services offerings.

Operating income margin for healthcare was 32, 6% in Q3 2021 compared to 29, 3% for the same quarter in 2020.

The increase in margin over the prior year quarter was primarily attributable to a decrease in performance bonds expense year over year.

The business Advisory segment generated 31% of total company revenues during the third quarter of 2021.

The segment posted revenues of $70 million in Q3, 2021 up $3 9 million or five 9% from the third quarter of 2020.

Revenues for the third quarter of 2021, including $4 5 million from our acquisitions of <unk> IQ and unit cost solution.

Revenues for the third quarter of 2021 also included $5 1 million from our life Sciences practice, which was divested during the fourth quarter of 2021.

The quarter over quarter increase in revenue was driven by our strategy and digital technology and analytics offerings.

The operating income margin for the business Advisory segment was 14, 1% for Q3 2021 compared to 16, 3% for the same quarter in 2020.

The quarter over quarter decline in margin was primarily due to increases in salaries and related expenses for our revenue generating professionals and contractor expenses as percentages of revenues.

The operating margin also reflects the timing of success fees from our broker dealer, which had fewer success fees in the third quarter than we anticipate in the fourth quarter.

These decreases were partially offset by a decrease in performance bonus expense for our revenue generating professionals.

The education segment generated 27% of total company revenues during the third quarter of 2021.

The segment posted revenues of $61 $2 million in Q3, 2021 up $9 3 million or 18% from the third quarter of 2020 the.

The increase in revenue reflects increased demand for our student research and strategy offerings.

The operating income margin for education was flat at 24, 2% in the third quarter of 2021, when compared to the same quarter in 2020.

Other corporate expenses not allocated at the segment level were $31 4 million in Q3, 2021, compared with $29 million in Q3 2020.

Unallocated corporate expenses in the third quarter of 2021 include $400000 of income related to the decreased liability of our deferred compensation plan, which is fully offset in other income by the corresponding loss in assets used to fund that plan.

Unallocated corporate expenses in the third quarter of 2020 included $1 $8 million of similar expense related to our deferred compensation plan.

By a decrease in performance bonus expense for our support resources.

Now turning to the balance sheet and cash flows.

DSO came in at 76 days for the third quarter of 2021 compared to 73 days for the second quarter of 2021, and 62 days for the third quarter of 2020.

The increase in DSO during the quarter.

'twenty one.

We expect DSO to normalize to around 65 days over the remainder of 2021.

Our leverage ratio as defined in our senior Bank agreement was approximately two seven times adjusted EBITDA as of September 32021.

Compared to two one times adjusted EBITDA at the end of Q3 2020.

We expect to finish the year with a leverage ratio below two times.

Adjusted EBITDA.

Cash flow generated from operations in the third quarter of 2021 was $33 $8 million and we used $4 $6 million of our cash to invest in capital expenditures inclusive of internally developed software costs, resulting in free cash flow of $29 $2 million.

During the third quarter, we repaid $12 million and company portion.

Taxes related to 2020 that and the deferred under the cares Act.

We used $25 million of our cash to repurchase shares of our common stock during the quarter, bringing the year to date total up to $62 million.

We now expect free cash flow for the full year 2021 to be at the low end of our original guidance range of $55 to $75 million and.

We anticipate our conversion of adjusted EBITDA to free cash flow in 2021 to be lower than our historical average due to an unusually low DSO of 52 days as of December 31, 2020.

Which pulled some cash receipts that would have normally occurred in the first quarter of this year into the fourth quarter of last year.

Slightly higher than normal DSO expected as of December 31, 2021, due to contractual payment schedules on certain larger health care and education segment projects the.

The previously mentioned 2021 repayment of deferred company portion of FICA taxes from 2020 related to the cares Act.

And the anticipated ramp in revenue for the fourth quarter of 2021.

We expect our conversion of adjusted EBITDA to free cash flow to normalize to historic levels in 2022.

Finally, let me turn to our expectations and guidance for 2021.

As Jim noted, we are narrowing our full year 2021 revenue guidance to $885 million to $905 million raising the midpoint to $895 million.

In addition, we are reaffirming our full year adjusted EBITDA percentage guidance to be in a range of 10, 8% to 11, 3% of revenues.

And we are narrowing our full year adjusted non-GAAP diluted earnings per share guidance to be in a range of $2 53.

To $2 63.

Raising the midpoint to $2 58.

Finally, we expect our full year effective tax rate to be in the low 20% range.

Our updated guidance is inclusive of the impact of the divestiture of our life Sciences practice.

As well as the anticipated use of the transaction proceeds.

We will continue to execute our balanced capital allocation strategy with the proceeds received from the sale as well as our free cash flow in the fourth quarter.

We currently intend to use the net proceeds to reduce borrowings purchase shares under our current share repurchase authorization and execute strategic tuck in acquisitions.

Thanks, everyone.

I would now like to open the call to questions operator.

Thank you Sir.

As a reminder to ask a question you would need to press star one on your telephone so which are your question. Please press pataki.

Please standby, while we compile the Q&A roster.

I show. Our first question comes from the line of Tobey Sommer from <unk>. Please go ahead.

Hey, good afternoon. This is jasper bibb on for Tobey. So I just wanted to ask if you could provide a bit more color on sales conversion and health care and education. When you discuss your new wins there in the in the prepared remarks did sales conversion improved through the quarter, given what I assume would be a favorable backdrop of students back on campus.

And following Covid cases.

Yes, Jessica this is Jim Yes, we are in the third quarter, we did begin to see.

In education, probably more than healthcare, but I think we're certainly seeing a decent conversion of.

The backlog.

We're expecting that.

That to continue in both practice in health care and education I think it was more evident in the third quarter.

In the education practice in both practices, we're expecting some solid conversion of the backlog that we've been talking about.

And I think the underlying the underlying reason for both cases are the ones that we articulated during the during the prepared remarks and that is that the.

Business environment for our clients with both of those industries are still pretty challenged.

We expect that to play out well for us.

Jeff I'll add.

And with regard to the education segment, something we've talked about on earlier calls is that we had seen a return to pre pandemic levels of sales activity related to our research offerings, our strategy offerings and we discussed that probably just due to the sheer size of some of the technology projects that that pipeline had been a little slower to open up.

I think we've seen now, particularly during the quarter, we have seen that pipeline start to open back up.

Yeah, that's great and then the third quarter saw a pretty significant head count groceries to September what was driving that was there a group hire and narrow or is that just your new graduates joining the comp any color would be great.

It's a it's really a mix it wasn't as much.

Group higher I would say Jasper, it's definitely much more organic hiring so you do have some new hires campus hires that you referred to but it's also been experienced hires and really that growth, we're seeing across the business, our healthcare business advisory and education and I would suggest that in all three of those segments that.

Our growth is reflective of some of those trend lines that we've seen in the pipeline that we discussed.

Okay last question for me on <unk>.

Segment level, you talked about demand for the core P&I are asking of practices in health care and education, but we're still 400 basis points below 2019 utilization in the quarter. So so what practices like in each segment would you say are still dragging on that overall utilization figure at this point.

Is your question about health care or education.

Just across the business.

What kind of practices are keeping utilization down for the entire company.

Yes, so I would say in education as John was just indicating in our in our kind of ERP area, we knew.

We've been saying along that that was going to be a little bit slow in picking up we are seeing those conversions come through we made the comment back in 2020 that we knew we felt strongly that this day would come when demand would be pretty robust and.

That we would be had we made decisions of our head count back then we would have had trouble meeting demand right now and so.

The fact that we hold onto those people, which was absolutely. The right thing to do is now turning out to be a smart thing because the demand is picking up very nicely, but the utilization the lower utilization than historical norms. As a result of the fact, we upheld on a business of people while the business is picking up and that's frankly true in healthcare as well.

I think in both cases, if you look at the last nine months of 2021 Youll.

You'll see that our utilization was less than our historical averages certainly in 2019 and before that and really what that was just some excess capacity that we knew would be needed. When the markets began to pick up the markets are clearly picking up and I think youre going to start seeing some changes in those utilization.

Amounts.

This quarter and beyond.

I'll just I'll just add Jasper.

In addition to that bigger picture perspective from Jim.

We referenced on the health care side.

Particularly the technology businesses within the business Advisory segment.

When you see that head count growth that you see in the numbers and you see that commentary during the quarter. There was just a natural amount of time there to get new hires.

<unk> has stimulated before doesn't really just a ramp before they get going on billable projects and so I think youre seeing some of that too with such high hiring volumes some of that ramp impact was a little bit of a dampener on utilization during the quarter.

Yes, I appreciate the detail thanks for taking the questions guys.

Thank you I show. Our next question comes from the line of Andrew Nicholas from William Blair. Please go ahead.

Thanks, and good afternoon I appreciate you taking my questions.

First one I actually think that I asked something quite similar last quarter, but I think it's still tactical and that's just with respect to the hiring environment I hear a lot about wage pressures difficulty opening finding.

Staff for consultants for open positions. So I just wanted to get your temperature on that dynamic within the business.

And really the extent to which the tightening labor market is having any impact on your hiring whether its to date or even your expectations for next year.

Andrew This is Jim.

It's a real thing I mean, there's no question about it I mean, if we talk to our clients we talk to our competitors.

This is a real thing Thats, just I wish I wish it was otherwise, but it is not.

There is a tightening in the labor market. There is the transition that we've all been reading about.

And is it affecting US yes. It is is it if you compare our turnover for example to 2020, it's higher obviously this year than it was last year, which I think is true across the board. If you even out the last two years, our turnover has been about the same but the hiring market is one where.

For us that we're worried but we feel we'd go back we talked about this all the time.

We are we are we have a very strong and good culture here I think people know about that and when we try to recruit into this business people really know and understood understand that we have something different here and people want to have.

Want to work in that kind of environment. So we're very proud of that I think that.

It's not dramatically affecting our financial results for nor our ability to meet the mark.

Market demand in any significant way, maybe I'll just add to that Andrew from a margin perspective to Jim's point I think in the long run.

We think it will all fit within the parameters of our margin objectives I think in the short run.

When we look across the landscape.

Tightening labor market, that's not just to drive thing I think we see that across.

All the professional services firms that we talk to and so understanding that we do expect that to actually flow through to pricing on the pricing side, but.

But that just doesn't happen overnight and so the reality is it will take a little bit of time for that to flow through pricing a lot of the revenue that we're working now with sold in earlier periods and we have existing agreements and so it.

They will sequence and over time, you'll start to see some of the firming and the other side on the pricing side. So I think thats why we view it to be in the short term, although a bit of a headwind to our margin expansion, but we're more optimistic in the longer term.

That's helpful. Thank you and then.

My follow up.

Bit of a bigger picture question, Jim I think you mentioned in your prepared remarks that the life Sciences divestiture was at least in part due to <unk> was a result of a five year strategy processor planning exercise and I was just wondering if there's any other kind of major takeaways from that exercise or from that process.

You would be willing to share just thinking about as this company continues to evolve over the next several years. Thank you.

Yes, so yes, I mean, our strategy processes is still we're still working through it but we're still going to continue to focus on our core industry verticals, which have been really helpful. We have as we've indicated a very strong technology base that we are.

I think it is.

It isn't very much in demand in the market right now and so I think our ability to apply.

Our strategy and operations and technology business to those to those industry verticals that were the strongest in I think is going to be a major part of our go forward strategy for the next five years.

We look at.

The industries that we serve and there are plenty of room for growth and expansion in terms of kind of our ability to serve those businesses.

It's clearly a competitive environment out there for us and so we recognize that so every time, we go to that we ask ourselves. The question, what's our right to win and we focus very clearly on making sure that we have a very good answer to that when we try to serve our clients.

I think right now among our biggest industry is obviously health care and education, but also financial services and energy oil and gas are amongst some of the ones that we have very strong presence through and right now we're very deepened relationships in those businesses and that we anticipate in our strategy to continue to focus on those.

We'll continue to very much focus on the strength and depth of our technology competencies to be able to deliver to those industries as well so collectively I think.

It's going to be.

Klein, our industry focus with new technology capabilities, and we're very confident that's going to lead us to the growth and margin improvement that we're looking for.

Great. Thanks, so much.

Thank you al.

As a reminder to ask a question you would need to press star one on your telephone.

Your question. Please press the pound key.

I show. Our next question comes from the line of Kevin Spanky from Barrington Research. Please go ahead.

Hey, good afternoon.

Just.

Kind of looking out over the next several quarters in 2022 here.

I know youre not providing guidance at this time for next year, but I'm just trying to frame.

Karim up how we should think about margins moving into next year and margin expansion given.

The growth in your technology services.

Tend to blend in a little bit lower margin than our.

Or are you seeing additional travel expenses coming back.

That we should think about being a meaningful factor going into next year and.

We talked about wage inflation to suggest.

And maybe frame that up.

We kind of think about.

Margin expansion in the near term and also longer term.

Sure sure Kevin This is John and just to give a little context, we said at the beginning of the year that we expected it to really be a two year process to get our margin levels back to what we saw prior to the pandemic, so thinking that at 12% range.

Meaning that we would expect to be at 12% plus level really in full year 2022.

So while to your point, we're not giving guidance on next year and our operating operating plan is still being developed we believe that scenario is still very much intact.

We've been adding adding heads to fuel growth, but we expect utilization of those heads to return to historic levels. In 2022, obviously in 2021 were below those historical norms for most of the year as we ramp back up from the pandemic, but beyond utilization as our combined technology businesses start to reach increasing level.

Scale, we believe that there'll be.

Significant margin enhancement opportunities related to a few factors our global delivery capabilities.

<unk> from automation and accelerators that we developed for our offerings, particularly with <unk>.

In our core industries that Jim referenced increased.

Increased SG&A efficiency, and then the firming client pricing market that I referred to earlier, so now in an embedded headwind I guess when you think about those positives.

The wage pressure that we talked about a little bit a little bit earlier, but overall when we look at the opportunities from the scale from that technology business.

We're very encouraged about the trend lines that we see moving forward <unk>.

Next add even beyond that 12% that you start to get past.

22 into 2023.

So thats kind of the bigger picture.

Eric I should view that I can give you on that Kevin.

Alright, Thanks, that's helpful.

So are your people.

Getting back on the road more.

How much do you think travel expenses come down over the long term relative to where they were before or do they I mean, whats kind of whats the model look like going forward, which Greg to treble.

So.

As a reminder, the majority of our travel is really billable dawn to our clients and so the majority of the travel doesn't necessarily flow through to our bottom line because we're typically reimbursed for it but as a point of reference we probably had about $2 million Bucks more travel this quarter than we did a year ago.

At this time, so we're already seeing some of that pickup and some.

Year over year margin expansion that we had this quarter was already net of an increase.

About $2 million for the quarter. So I would expect I think our modeling and our expectations are is that that is going to continue to ramp, particularly as we get into next year.

But in the context of some of the other factor that I provided I think that we see a greater upside opportunity to expand our margins.

Kind of that element of expenses, which we think will be able to absorb.

Some of the margin enhancing opportunities that I referred to.

Alright good.

Yes.

When we think about.

You.

And some just some delayed projects start ups related to the Delta variant.

How much of a headwind should we think about that having been in the third quarter.

Does that largely to come back.

Our startup in the fourth quarter.

I mean that was probably low single digit millions in terms of what the impact on the health care business was during the third quarter and our expectation based on what we see now is that the majority of that will be out of the system by the time, we get to the fourth quarter.

Okay, Great and then.

Should we think about.

I don't believe you disclosed it but.

Proceeds from the life Sciences divestiture is that kind of.

Should we think about in line with the revenues of the business generated or any other kind of.

Nerds stick, we can use to think about that.

Yes, so so we havent disclose and we're not going to disclose the specifics around around the sale price, but I think our revenue metric as a good way to think about it.

The evaluation that we're able to get was accretive in terms of in terms of our revenue multiple.

Alright. Thank you thanks for taking the questions.

Thank you.

I show. Our next question comes from the line of Josh Vogel from Sidoti. Please go ahead.

Yes. Good afternoon, guys. Thank you for taking my questions.

Some color around that please thanks.

Sure Josh So when you think about.

At the segment the revenue composition in the segments about half technology offerings, it's about 30% of our strategy business and it's about 20%.

Our distressed business in terms of revenue.

And from a margin blend perspective for this year, we guided to around 20% margins.

At this point, we're thinking it's going to be that that was the original guide was around 20% at this point, where they can it will finish the year in that high teens.

And the that.

Technology part of that business has really been kind of mid to upper teens.

But that's also where we think we've got the greatest opportunity for margin expansion going forward in light of those comments that I gave earlier on in terms of opportunities directly relate to that technology business.

And we're confident with the scale, we're getting in that business with the industry differentiation, we have with the maturing of our offshore platform in India. We now have 1000 employees supporting primarily that business in India.

We think that there's going to be some nice opportunities for those margins to ramp up over the coming years.

But thats, where the current blend is and then of course, the strategy and distressed businesses.

Blending higher to get to the overall kind of target average for the segment.

Alright, great and I just have another one here I understand it can fluctuate from quarter to quarter, but I wanted to get a handle on the health care managed services employees.

We saw Q3 revenue was down couple of hundred K sequentially, but head count was up about 50%. So whats the utilization rate. There change you feel fully staffed here or I guess, another way to asking what's a good number that you are targeting given the opportunities you see in the marketplace. Today is it's a business stepped up to meet existing engagements only or <unk>.

Head of new ones, you see coming in the pipeline. Thank you.

So right now that the team is busy with the projects that we have so we don't really have any pockets of unutilized resources at least out to any material extent within that business and that's a nice feature of that business is.

We think that we have the ability to ramp that business up depending on when those opportunities come through.

I think right now I'll describe that team is busy and we're actively in market seeking other opportunities and we believe that an attractive offering for our clients and we'll get to that point.

I think we've got the capacity to.

Transitioning into new projects and start to ramp up the headcount to really scale that business up as we need to over time.

Right now I would describe the head count in there with.

Within reason as being right sized for that amount of revenue that you see Josh coming through during the quarter.

Alright, great well, thanks for the insights.

Thank you.

Seeing no more questions in the queue I would like to turn the call back over to Mr. Roth.

Thank you for spending time with US this afternoon, and we look forward to speaking with you again in February when we announce our fourth quarter results have a good evening.

This concludes today's conference call. Thank you for participating you may now disconnect.

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