Q4 2021 Huron Consulting Group Inc Earnings Call
Please continue to hold your conference call will begin momentarily.
[music].
Yes.
Good afternoon, ladies and gentlemen, and welcome to Huron consulting group's webcast to discuss financial results for the fourth quarter and full year 2021.
At this time all conference call lines are in 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 a disclosure of factors that may impact subjects discussed in this afternoon's webcast.
The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Hurons website for all of the disclosures required by the SEC, including 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 fourth quarter and full year 2021 earnings call with me today are Mark Hussey, our president and Chief operating Officer, and John Kelly, Our Chief Financial Officer.
Before I begin I would like to highlight that in our earnings release issued this afternoon, we introduced our new operating model and announced a corresponding changes to our segment reporting structure.
We placed supplemental materials on the Investor Relations section of the Huron website to provide additional detail on our new reporting structure and recast financial information, including unaudited summary financial information.
These supplemental materials should be reviewed in conjunction with our earnings call and not on a standalone basis.
Please note the segment reporting changes apply to the reporting periods beginning January one 2022.
In our fourth quarter results are consistent with prior reporting practices.
Before I provide additional insight into our fourth quarter and full year performance I wanted to briefly discuss our new operating model, which we believe will strengthen our go to market strategy and better positioned Huron to integrate our deep industry expertise with our strong digital strategy and financial advisory capabilities.
Today, we are introducing our business realignment and related segment reporting changes that we believe will strengthen our go to market strategy and competitive advantage to accelerate growth.
Drive efficiencies across our business and enhanced transparency for the investment community into the core drivers of our business.
This is the first material change to our operating model in nearly a decade, our markets have changed our clients and businesses business needs have changed and we are taking this important step to expand and more deeply integrate our industry focus with our digital strategy and financial advisory capabilities.
For Huron, our growth strategy and our business realignment are the means through which we will achieve two critical outcomes improved integration of our industry and capability expertise and more deeply embedding our digital offerings into our client engagements.
Mark will share more insight about our operating model in a few minutes, but I will now discuss our fourth quarter and full year 2021 performance along with our expectations for 2022.
In the fourth quarter and throughout the year, we continued delivering on our commitment to sustainable revenue growth and improved profitability.
Led by organic growth across all three operating segments annual revenues grew 7% and adjusted EBIT and EBIT margins improved 50 basis points over 2020.
These results demonstrate that our growth strategy is delivering a solid return on our organic and inorganic investments we managed successfully through the worst of the pandemic.
Positioning the company for continued growth and profitability.
On a full year basis healthcare segment revenues increased 7% over 2021.
In the fourth quarter of 2021 in the healthcare segment grew 22% over the prior year quarter reflective of the strength of demand for our performance improvement and managed services offerings.
Over the last three quarters of the year is the impact of the pandemic on our hospital and health system clients continued to wane, we experienced growing demand for our health care offerings. Despite the persistence of the Delta and I'm a prime variance.
During the past two years, the need to reduce costs and improve quality has been one of the primary challenges for our healthcare clients.
Those challenges have led to strong demand for our clinical and operational performance improvement offerings.
More recently, new challenges have arisen to the top of the agenda for our healthcare client base broadening demand for our historical services and creating opportunities for us to develop new offerings to address the changing healthcare market.
For example, labor issues, including employee burnout, among clinicians are having a material impact on hospitals and health systems.
Attracting and retaining employees and an increasing reliance on contract resources.
Added new pressure on healthcare margins.
This issue along with inefficiencies related to Covid safety protocols are likely to remain for the foreseeable future and are causing many hospitals to reevaluate how best to strengthen their financial position amidst these expense pressures.
While healthcare providers remain under immense pressure to attract and retain talent in this highly competitive labor market. Many are also focused on reevaluating the strategies to position their organizations for long term success.
Personalizing patient care and evolving the care delivery model into a more geographically distributed environment is at the forefront of many health systems strategies, especially as pharmacies private equity and other non traditional care providers seek to achieve greater market share.
Hospital systems are focused are also focused on advancing our digital platform to meet the needs of their patients clinicians employees and communities, including moving beyond the basics of telemedicine, which has become a staple of care delivery during the pandemic.
Collectively this environment has created significant demand for Huron across all of our businesses that work in the healthcare market.
With our comprehensive offerings spanning strategy operations digital and people transformation Huron is uniquely positioned to help our health care clients develop a strong strategic operational and digital foundation from which to achieve their mission.
We believe that the combination of our traditional offerings, new innovative digital and analytic solutions, including the acquisition of perception health and.
And the broader healthcare market tailwind will continue to create growth opportunities for our business.
Turning to the business advisory segment on a full year basis segment revenues grew 9% year over year.
In the fourth quarter of 2021 business Advisory segment revenues grew 18% over the prior year quarter, primarily attributable to strong demand for our financial advisory strategy and digital offerings.
Our digital and analytics offerings have been a solid driver of growth for Huron during the past two years, the criticality of having more robust digital capabilities continues to drive demand for our services across our core industries.
In recent years, we have invested in expanding our relationships and capabilities across the largest cloud providers, including but not limited to Oracle Salesforce and workday.
And we have significantly expanded our analytics offerings to provide deeper insights to our clients seeking ways to more effectively use and apply a wide array of data to inform better faster decision, making.
Our successes have been clear with continued growth in the financial services and energy and utilities industries as well as across the healthcare and education industries as.
As Mark will discuss shortly our new operating model will strengthen the integration of our digital capabilities into our core industries, providing more seamless delivery of our collective offerings and providing huron with greater growth opportunities.
Within the business Advisory segment, our strategy and M&A and M&A advisory offerings also performed well driven by organizations seeking to evolve their business to be more to more effectively compete in a post pandemic environment.
For full year 2021, the business advisory segment generated approximately 25% of its total revenues in the healthcare and education industries. We continue to believe we are most successful against our competition when we bring our deep industry expertise together with our broad set of capabilities that are most refer.
<unk> of our clients' needs.
That strategy is at the heart of our new integrated operating model.
Turning now to the education segment annual revenues in this segment grew 6% as compared to 2020.
In the fourth quarter of 2021.
Education segment revenues increased 41% over the prior year quarter, driven by the strength in demand for our services across the segment. Following the impacts of the pandemic that hit the education industry very hard in the second half of 2020 and early 2021.
The education business steadily grew quarter over quarter throughout the year we.
We have seen a resurgence in demand for all of our offerings in this segment and the level of demand outperformed our expectations.
Higher education institutions are turning to Huron as their trusted adviser given our stronger just given our strong reputation and market presence and deep industry expertise as they face a wide array of strategic operational and financial challenges the.
The issues and challenges in this industry are growing in complexity.
And we are well positioned to help our clients navigate what will surely be significant changes in the coming years.
Let me turn to our expectations and guidance for 2022.
Our revenue guidance for the year is $970 million to $1 3 billion with a midpoint of $1 billion.
We also expect adjusted EBITDA in a range of 11, 3% to 12, 3% of revenues and adjusted diluted earnings per share of $2 85 to $3 35.
Companywide, we are guiding to 10% revenue growth at the midpoint for 2022.
We believe the growth in demand we experienced in the second half of 2021 will continue and we are excited to build on that momentum in 2022.
In terms of margins at the midpoint of our 2022 guidance, we expect a 100 basis point improvement over 2021.
We remain focused on expanding margins, while investing in areas in our business with the greatest growth opportunities.
We continue to believe we have built a strong foundation from which we can sustainably grow revenues, while improving margins consistent with our long term financial objectives.
Finally, let me share my deepest appreciation for the entire Huron team. Our 2021 was financial results are only possible because of the commitment of our people to serving our clients our company and one another.
<unk> and dedication they have for the work we do is unmatched and I'm incredibly proud of the way we all work together to emerge from two tough years in such great shape.
We believe we are off to a strong start in 2022, and we are excited about our prospects for achieving our revenue and profitability goals for the year. Our markets are vibrant we are strategically and operationally well operationally well positioned and our new operating model creates an even stronger foundation for success in the future.
Now, let me turn it over to Mark to provide more color on our new operating model Mark.
Thanks, Jim as our press release indicates effective January one 2022, we've taken the next step in our strategy.
Notably, we're expanding on our strengths and our core industries, while more closely integrating our significant digital capabilities into a unified companywide platform. This new integrated operating model is matrix industry expertise and capability and built on our rapidly expanding global platform.
Arm.
By unifying our companywide resources focused on our two largest industries and aligning our capabilities across the enterprise, we expect to strengthen our go to market strategy accelerate revenue growth drive efficiencies that support margin expansion and in turn unlock meaningful shareholder value.
Specifically, we are aligning our industry offerings that historically resided across multiple businesses into a unified platform from which to more seamlessly go to market in the healthcare education and commercial sectors.
With a strengthened integration of our industry expertise, we believe will drive accelerated revenue growth across all of our offerings within those industries.
We're harnessing the power of our deep industry expertise, which has been the foundational to our historical success and will continue to be critical to our growth strategy.
Our core industries of healthcare education financial services and.
In energy and utilities are facing significant change, which creates meaningful growth opportunities for Huron the.
The changes to our operating model position us to better serve our clients and to capitalize on the significant market opportunities that lie ahead.
In terms of our capabilities. Our primary focus is bringing together the full breadth of our digital technology and analytics capabilities across the company into a common platform called digital or.
Our focus with digital is to accelerate growth and innovation and to drive efficiencies as we operate the team on a unified global basis.
Our collective organic and inorganic investments and technology assets over the past nine years have resulted in our digital technology and analytics offerings, representing nearly 40% of total company revenue in 2021.
Our operations in India have also grown substantially over the past seven years, and our India based employees now represent approximately 20% of our total employee population.
And our new model, we will leverage these investments to establish a much more scalable platform across technology services and products that will further promote growth innovation and margin expansion.
The operating model also places greater emphasis on our strategy and financial advisory capabilities.
Closely integrating these offerings with our focus on industry expertise, which we believe together differentiates our company in the market.
We're excited about this realignment because we believe it benefits all stakeholders first our clients will maintain the depth of our substantial industry expertise, while expanding and strengthening our presence in our core markets and we will build new competencies, including in digital technology and analytics to accelerate innovation and.
Improve client outcomes.
Second our employees.
Our new operating model, we will strengthen the way we work together to serve our clients, how we innovate collaborate and support each other as we create new career advancement opportunities that will help us attract and retain top talent.
And third the investment community.
We believe that this realignment will support the acceleration of organic revenue growth and the expansion of our operating margins.
Our new reporting structure, which John will talk about in a moment. We will also provide greater insight to investors on a comprehensive revenue and operating margin and our core industries as well as our consolidated revenue growth and our digital capabilities.
We'll be sharing more details at our company strategy and business realignment at our upcoming Investor day at the end of March.
Our management team and board are confident that this is the right time to make these changes our organization has grown to a point, where we need to take our go to market strategy and collaboration to the next level to capitalize on significant market opportunities ahead of us.
We believe the foundation, we're putting in place will enable sustainable revenue growth and enhanced margin expansion, while creating greater visibility into our business for our investors and now let me turn it to John for a more detailed discussion of our Q4 financial results and 2022 guidance John .
Thank you Mark 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-K, 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 during the fourth quarter, we completed the divestiture of our life Sciences business, which closed at the beginning of November and is included in our fourth quarter results as part of the business Advisory segment through the date of divestiture.
We closed our acquisition of Whiteboard higher education on December 1st quite Board is included in our fourth quarter financial results within the education segment from the date of acquisition.
Our recent acquisition of perception health closed on December 31, and as such does not included in our fourth quarter results.
The acquisitions of whiteboard perception health strengthen our deep industry expertise and education and health care sectors, respectively, while broadening our capabilities and students search data and analytics as we expand our offerings to serve our core end markets.
Now, let me walk you through some of the key financial results for the quarter.
Revenues for the fourth quarter of 2021 for a record of $248 3 million up 25, 2% from $198 3 million in the same quarter of 2020.
The increase in revenues in the quarter was driven by strong growth across all three operating segments.
Full year 2021 revenue was $905 6 million.
Seven 3% from $844 $1 million in 2020.
Similar to the quarter results. These full year results were our highest revenue to date and reflect growth in all three segments and increased demand for our services across industries. Following the initial impact of the pandemic.
Net income was $31 1 million or $1 45 per diluted share in the fourth quarter of 2021 compared to a net loss of $6 1 million or 28 cents per diluted share in the fourth quarter of 2020.
<unk> fourth quarter of 2021 included a $23 7 million gain net of tax related to the sale of our life Sciences business.
The fourth quarter of 2020, including the impact of restructuring and lease impairment charges of $13 $9 million net of tax taken to reduce our operating costs to address the impact of the pandemic on our business.
For full year 2021, net income was $63 million or $2 89 per diluted share. This.
This compares to net loss of $23 7 million or <unk>.
$1 <unk> per diluted share in 2020.
2020 included the pre tax goodwill impairment charge of $59 8 million taken in the first quarter.
Our effective income tax rate in the fourth quarter of 2021 was 24, 5%.
On a full year basis, our effective income tax rate for 2021 was 21, 3%.
Which is more favorable than the statutory rate inclusive of state income taxes.
Primarily due to tax benefits related to the cares Act.
Positive impact of certain federal tax credits.
And a discrete tax benefit recognized during the second quarter of 2021 related to electing the global intangible low taxed income or <unk>.
Gil team high tax exclusion retroactively for the 2018 tax year.
Adjusted EBITDA was $29 $3 million in Q4, 2021, or 11, 8% of revenues compared to $17 $1 million in Q4, 2020 or eight 6% of revenues.
For full year 2021, adjusted EBITDA as a percentage of revenues increased to 10, 8% compared to 10, 3% in 2020.
Adjusted non-GAAP net income was $17 2 million or <unk> 80 per diluted share in the fourth quarter of 2021 compared to $10 2 million or <unk> 45 per diluted share in the fourth quarter of 2020.
For the full year 2021, adjusted non-GAAP net income was $56 9 million or $2 61 per share compared with $47 9 million or $2 15 per share in 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 fourth quarter of 2021 and posted revenues of $103 7 million up $18 6 million or 21, 8% from the fourth quarter of 2020.
The increase in revenue reflects the strength of demand for our performance improvement related offerings. Following the initial impact of the COVID-19 pandemic on our business.
On a full year basis healthcare revenue increased six 8%.
Performance based fees for the full year 2021 were $73 4 million compared to $69 $3 million in 2020.
Operating income margin for healthcare was 24, 7% for Q4 2021 compared to 28, 3% for the same quarter in 2020.
The quarter over quarter decline in margin was primarily due to an increase in performance bonus expense for our revenue generating professionals as a percentage of revenues, partially offset by the decrease in restructuring charges taken in the fourth quarter of 2020.
On a full year basis operating margin was 27, 5% compared to 26, 9% in 2020.
The business Advisory segment generated 31% of total company revenues during the fourth quarter of 2021.
Posted revenues of $77 9 million up.
Up $12 million or 18, 2% from the fourth quarter of 2020.
Revenues for the fourth quarter of 2021 includes the inorganic contributions of $2 4 million from our acquisitions of course, IQ and Utica solution.
The quarter over quarter increase in revenue was primarily attributable to strong demand for our financial advisory strategy and digital offerings.
On a full year basis, the business Advisory segment revenues were $291 7 million and grew nine 1% year over year, driven by strong demand for our digital strategy offerings.
The operating income margin for the business Advisory segment was 14, 1% for Q4 2021 compared to 16, 3% for the same quarter in 2020.
The quarter over quarter decline in margin was primarily due to restructuring charges related to the divestiture of our life Sciences business during the quarter of.
Life Sciences restructuring charges had an approximate 800 basis point impact on business Advisory segment margin during the quarter.
On a full year basis operating margin was 16, 5% compared to 18% in 2020.
<unk> fourth quarter life Sciences restructuring charges had a 225 basis point impact on full year of business Advisory segment margins.
The education segment generated 27% of total company revenues during the fourth quarter of 2021 and posted record revenues of $66 7 million up $19 4 million.
A 41% from the fourth quarter of 2020, which was our low point for this practice during the pandemic.
Revenues for the fourth quarter of 2021, including $600000 from our acquisition of Whiteboard.
This increase in revenue reflects the strength of demand for our services across the segment, including our research strategy and operations students and digital offerings.
On a full year basis education segment revenues grew five 9% year over year, driven by strong demand for our research strategy and operations and student offerings.
The operating income margin for education was 23, 3% for Q4 2021 compared to 12, 1% for the same quarter in 2020.
The quarter over quarter increase in margin was primarily due to our revenue growth.
As well as a decrease in restructuring charges, partially offset by an increase in contractor expense as a percentage of revenues.
On a full year basis operating margin was 22, 3% compared to 21, 3% in 2020.
Okay.
Other corporate expenses not allocated at the segment level were $36 $8 million in Q4, 2021, compared with $47 4 million in Q4 2020.
The fourth quarter of 2021 included $1 $6 million of expense related to the increase in the liability of our deferred compensation plan.
Which is fully offset by the corresponding gain recorded as other income in the value of the assets used to fund this plan as well as $1 8 million in restructuring charges.
Fourth quarter of 2020 included $3 $1 million of expense related to the deferred compensation plan and.
$14 5 million of restructuring expense.
Adjusting for the impact of the deferred compensation plan and restructuring charges.
Year over year corporate expenses increased by $3 6 million for the fourth quarter of 2021.
This increase reflects increases in performance bonus expense and salaries and related expenses for support personnel as well as an increase in professional fees related to M&A activity during the quarter.
On a full year basis corporate expenses not allocated at the segment level increased five 5% over 2020, when adjusting for the impact of the deferred compensation plan and restructuring charges.
This increase reflects increases in salaries and related expenses performance bonus expense of retention bonuses for our support personnel and increases in professional fees related to M&A activity and software and data hosting expenses, all partially offset by decreases in share based compensation expense for our support personnel practice administration and meetings.
Expenses.
Now turning to the balance sheet and cash flows.
<unk> came in at 69 days for the fourth quarter of 2021 compared to 76 days for the third quarter of 2021 52 days for the fourth quarter of 2020.
The increase in cash flow and decrease in DSO during the fourth quarter when compared to the third quarter reflects the collection of working capital on certain larger health care and education projects during the quarter in accordance with contractual payment schedules the.
The increase in DSO compared to the fourth quarter of 2020 reflects several advanced payments by clients and relatively fewer large contracts with extended payment terms in the fourth quarter of last year.
We expect DSO to normalize to between 60 and 65 days in 2022.
Total debt includes the $230 million in senior bank debt and a $3 million promissory note for total debt of $233 million.
We finished the year with cash of $21 million for net debt of $212 million.
This was a $40 million decrease compared to Q3 2001.
Our leverage ratio as defined in our senior Bank agreement was approximately one seven times adjusted EBITDA as of December 31, 2021, compared to one nine times adjusted EBITDA as of December 31, 2020.
We achieved this leverage ratio of one seven times, while deploying $64 $6 million to repurchase shares approximately one 3 million shares and $45 million and strategic tuck in acquisitions during 2021.
From November of 2021, our board of directors authorized $100 million for share repurchases through the date of this call. We have repurchased approximately one 9 million shares for a total of $93 million.
Cash flow from operations for 2021 was $18 million and we used $16 million of our cash to invest in capital expenditures, resulting resulting in free cash flow of $2 million.
Adjusting for the impact of our life Sciences divestiture by excluding transaction related employee and third party costs as well as tax payments and net working capital adjustments, our free cash flow for the year was approximately $21 million.
This free cash flow yield is lower than our historical amounts, reflecting the record low DSO as of December 31 2020.
And the pull forward of certain cash receipts into the fourth quarter of 2022.
The repayment in 2021 of $12 million of 2020, if I could deferrals under the care Act.
And the DSO higher than our target of 60 days as of December 31, 2021, due to the impact of certain larger health care and education projects with extended contractual payment terms.
We expect our free cash flow yield to normalize to historical levels in 2022.
Before I turn to our guidance for the year, let me add some color to the reporting changes that align with our new operating model, Jim and Mark introduce this afternoon.
For the reporting period, beginning January one 2022, we'll change our reportable segments to healthcare education, and commercial aligning the operating segments to be inclusive of all revenue and costs associated with each industry.
This new reporting structure will result in some revenue and cost historically reported in the business Advisory segment cannot be reported in the healthcare and education industry segments for engagements delivered in those industries.
In addition, some revenues and costs historically reported in the education segment will now be reported in the health care industry segment.
We will also provide revenue reporting across our two principal capabilities.
Consulting and managed services and second digital.
These changes will create greater transparency into the core drivers of the business across the company.
As Jim mentioned, we have placed supplemental materials on the Investor Relations section of the <unk> website provide additional detail on our recap financial information.
Including unaudited summary, financial information and other data according to our new reporting segments.
Finally, let me turn to our expectations and guidance for 2022.
For the full year 2022, we anticipate Rev.
Revenues before Reimbursable expenses in range of $970 million to $1 $3 billion with a midpoint of $1 billion.
Adjusted EBITDA in a range of 11, 3% to 12, 3% of revenues.
And adjusted non-GAAP EPS in a range of $2 85 to $3 35.
We expect cash flows from operations to be in a range of $90 million to $110 million.
Capital expenditures are expected to be approximately 20% to $25 million.
And free cash flows are expected to be in a range of $70 million to $90 million net of cash taxes and interest and excluding noncash stock compensation.
Weighted average diluted share count for 2022 is expected to be $21 5 million.
Finally, with respect to taxes, you should assume an effective tax rate in the range of 20% to 30%, which.
Which comprises the federal tax rate of 21% of blended state tax rate of 5% to 6%.
And incremental tax expense related to certain nondeductible expense items.
Let me add some color to our guidance starting with revenue.
The midpoint of the revenue range reflects 10% revenue growth over 2021 revenue of $906 million.
The midpoint of guidance also assumes that the first quarter of 2022 revenues.
Will increase at a mid teens percentage level over the first quarter of 2021 with <unk>.
Sequential growth thereafter, as the year progresses.
With regard to our new healthcare industry segment.
We will begin reporting in 2022, we expect high single digit revenue growth for full year 2022, and we expect operating margins will be in a range of approximately 25% to 27% inclusive of digital offerings that will now be reported within the segment.
This compares to 26, 6% for full year 2021 on a recast basis.
And the new education industry segment, we expect mid to high teen percentage revenue growth for the full year 2022, and we expect operating margins will be in a range of approximately 23% to 25% inclusive of digital offerings that will now be reported within the segment.
This compares to 21, 6% for full year 2021 on a recast basis.
And the new commercial segment, we expect to see mid to high single digit percentage of revenue growth for 2022.
Our operating margins in this segment to be in a range of 19% to 21%.
This compares to 15, 7% for full year 2021 on a recast basis.
We expect unallocated corporate SG&A to increase at a mid to upper single digit percentage basis pro forma for full year 2022.
Prior to 2021.
As we incur some incremental costs to support revenue growth as well as an anticipated return of some travel and meeting expenses.
Turning to the total company <unk> adjusted EBITDA margin is expected to be in a range of 11, 3% to 12, 3% of revenues an increase of 100 basis points at the midpoint of guidance compared to 2021.
Also in the first quarter consistent with prior years, we note the following items as it relates to expenses.
We set a wage basis for FICA and our 401K match.
Our annual Merit and promotion wage increases go into effect on January one.
And an increase in stock compensation expense for restricted stock awards that will be granted in March to retirement eligible employees.
Based on these factors, we anticipate approximately 10% to 15% of our full year adjusted EBITDA and full year adjusted EPS to be generated during the first quarter.
As a closing reminder, with respect to 2021 adjusted EBITDA adjusted net income and adjusted EPS. There are several items that you will need to consider when reconciling these non-GAAP measures to comparable GAAP measures.
The reconciliation schedules that we included in our press release will help walk you through these reconciliations.
Thanks, everyone I would now like to turn the call back over to Jim before we open the call to questions. Jim. Thanks, John Let me provide a few final comments before we open it up for Q&A as we've as I've mentioned, our competitive positioning centers around our ability to bring our deep industry expertise and breadth of capabilities together to serve our clients the changes we.
Produced today will strengthen our go to market efforts accelerate growth and drive greater efficiencies that support margin expansion, which we believe will unlock meaningful value for our shareholders.
We believe we have a significant growth opportunity ahead of us and we are making these changes now to best positioned Huron to capitalize on that opportunity and advance our strategy.
To achieve our strategic and financial objectives, we're focused on accelerating growth in our core end markets broadening our offerings and capabilities advancing.
Our global digital technology and analytics platform expanding.
Expanding our growing commercial business and building a more sustainable base of revenue to drive consistent growth.
The future is bright for Huron and I look forward to sharing more with you about our strategy and our business realignment during our upcoming Investor day on March 29.
I encourage you to review the supplemental materials, we have placed on the Investor Relations page of the Huron website to provide additional context into our recast financial information.
With that I'd like to now open it up for questions operator.
Thank you Sir.
Ladies and gentlemen, if you have a question at this time. Please press star one key on your Touchtone telephone.
If your question has been answered or you wish to remove yourself from the queue. You may do so by pressing the pound key.
One moment for our first question.
Our first question comes from the line of Andrew Nicholas from William Blair. Please go ahead.
Hi, good afternoon, thanks for taking my questions.
A lot of great detail here in the prepared remarks I appreciate that I wanted to ask.
A bit more about about the new operating model specifically.
What it takes from an execution standpoint, I understand all the benefits and you walked through a lot of that in detail, but what are the two major operational lifts that are included in making this change where either different.
Manager structure is different kind of leadership roles for individuals if you could spend some time on that and maybe what you consider to be the major challenges in executing on this realignment that'd be helpful.
So Andrew this is Jim I'll start and maybe I'll have mark and John chime in a little bit. This is for us as it is a big change in the sense that first of all we're introducing a matrix structure. So that we really wanted to get.
All of our collective capabilities digital strategy financial advisory working in unison with our industry leadership so.
Before historically they've been more segmented.
And we certainly work together, we've talked about collaboration for a while but we didn't have the incentive models in place. We didn't have the true collaboration that we felt was needed to really accelerate the growth and be much more efficient about the way we brought those capabilities to market. So.
So the biggest change for us is really kind of a realignment where there is for everyone. In the company. We essentially have two types of focus that you have an industry alignment, but then you're also going to be part of a.
Our capability as well.
Everybody in the practice and the company is going to have kind of a dual reporting a relationship and I think that they're very focused on making sure that we bring to market those capabilities together as opposed to I think the way we did it historically, which was a little bit more separate so so we do have.
The head of our education industry.
Is the same person that ran education before acceptance now a broader education view the head of our health care business is also the same person that ran the healthcare practice before but now healthcare is broadened into a lot of other areas, where we are providing health care services before but are now doing it together so.
There is a substantial change for us, but we've been we've been kind of easing toward this for a while and then we really decided probably mid last year at the time was now to really align the organization to best take advantage of these things so.
<unk> been talking about this collectively throughout the practice and haven't been very heavily involved with all of our people in the company working this through during the last four or five months of 2021, and we can hit the road running at the beginning of 2022.
The only only thing I'll add is.
Jim has mentioned we talked about collaboration for a while now and.
The solutions that our clients require have evolved.
Teams have really done just an excellent job over the years working together and I think a big part of what we're doing with the operating model change is we're just making it easier and more seamless for them to be able to work together to get the right people to our clients the right projects.
We're really excited about it and make the last thing Andrew I'll come back just to make one more comment was reflective of what John said.
It's been apparent for a long time that the complexity of our clients' needs Werent worked structured the way that we restructured internally and what we've really tried to do was to create an environment internally within Huron, where it was much easier for us to respond to the kind of complex whether it be digital whether it be strategy with the financial or operational.
To really respond in a much more seamless way to their issues, which we're very integrated.
We in fact, historically have not been as integrated as we perhaps should have been so the new model will get us to the point, where it's much easier for us to be efficient in the way we.
We respond to and deliver our client requests.
Hope that clarifies a little bit.
That's very helpful.
Thank you and maybe.
As a follow up to that last comment.
<unk> talked about in your prepared remarks.
Improved revenue growth improved organic growth opportunities and efficiency as a consequence of this change are there any numbers that you can put around that or is that something that you plan to discuss at length in the investor day, maybe medium term growth targets or margin targets.
I think that is.
That is topics that we'll cover at the Investor to Andrew will provide a lot more a lot more detail there, but when we think about the opportunities that were.
Presented within our industry is right now just with the change that's going on in our industry and we think about the capabilities that we're really able to bring to bear.
That's the way that we're now bringing those together.
Youll notice the guidance for this year, we expect to be able to grow.
The double digit range around 10% this year.
We see some tailwind for the medium term here, where we think we're able to grow at that pace and then in terms of margin expansion you've heard us before talk about.
Pushing towards a mid teen.
Operating margin as a company and we think that this operating model is really going to facilitate that over the next few years and a very tangible way. So we're excited about providing more detail about that at the investor day at the end of the month, but its really pointing towards being able to sustainably grow at double digit pace and being able to expand those margins.
<unk> to the mid teen level over the next few years.
Great. Thank you that's helpful and I'll get back in the queue appreciate it.
Thank you our.
Our next question comes from the line of Tobey Sommer from choice. Please proceed.
Hey, good afternoon. This is Jasper bibb on for Tobey I was hoping you could speak to the utilization assumptions in your guidance I believe you previously talked about getting back to target utilization this year.
Fourth quarter was maybe 500 600 basis points below 2019.
Should we think about that utilization trends.
Do you think utilization could get close to 2019 levels by the end of the year.
So did answer that last part first Jasper, we absolutely do think that and you're right. Our expectations. If you were looking at the back half of the year, we expect to be more in the mid <unk>. We ended up back half of the year more in the low seventies and I'd say, there's really two primary factors that I think that the biggest one is probably.
<unk>.
With the growth opportunities that we see that you can see it starting to come through in the fourth quarter that are baked into our guidance for next year, we've been hiring aggressively and you can see that in the metrics.
That we've provided and so there is just naturally a little bit of a ramp time with consultants when you're hiring at the pace that we've been hiring and that has probably depressed utilization a little bit from what we might have expected at the beginning of the year and I think theres other pockets within our business where.
We feel really good when we look at the pipeline when we look at the inbound inquiries that we see coming in and we expect to have a ramp up in utilization and some of those parts of the business It didn't head.
And then some of those areas in that third and fourth quarter like we had expected, but just given the demand that we see given the.
Hot Labor market, that's out there right now we've decided that it makes sense to hold on to those resources.
So that we're ready to go when that demand comes to fruition and that the first part of 2022.
That makes sense and then can you just comment on what youre seeing as far as consulting wage trends and as you look at your 'twenty two guidance do you think thats kind of sufficiently offset with bill rate increases.
So we did we did contemplate that in terms of the guidance for this year and we do we are impacted by it where it is.
Market right now or at the hot labor market, particularly for many of our resources with technology scale that we're seeing a lot of demand for those resources right. Now. So we do expect there to be some impact and it was baked into our guidance I would say our view is that just given the general dynamics side. When we look at the demand we're seeing from our clients.
There's just not enough talent out there to service that demand, we expect that that's going to flow through via pricing and thats going to offset the majority of those wage increases.
But at the same time, we're also going to utilize our global delivery platform and again pursuant to your last question Jasper.
Utilization perspective, we really feel like we've got some room to run there. So we feel good about.
Increase thats.
And our margin guidance for the year and it is reflective of that.
Weak market that we see right now.
Okay got it and then.
Wanted to ask about the managed services business and how that fits in our new strategy plan to add.
I saw you labeled it consulting and managed services. So how did those businesses kind of fit together and how youre thinking about the next couple of years.
Yes, Youre right gas plant as we've talked about before oftentimes for US our managed service offerings are actually very correlated with our consulting offerings in many cases, it's a lead behind so after we've done our for example, our performance improvement project in healthcare part.
Part of what we're able to offer the client is ongoing managed services related to that revenue cycle afterwards, and we've had a lot of success and good execution for our clients in that regard. So our viewpoint was given that the size of the business right now.
Given that close correlation of our consulting that it made sense to present those two items.
Present, those two items together, but we're still very encouraged by the growth prospects in managed services just as the success, we've had with our clients and some of the demand we see from our clients are looking for ways to more sustainably and efficiently.
Ron certain parts of the business going forward with the expertise that we have.
I appreciate the detail there thanks for taking my questions guys.
Thank you.
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 Bill Sutherland from Benchmark Company. Please proceed.
Hey, everybody.
<unk> 90 times.
Wanted to just see.
Understand the digital.
Part of this a little bit better so.
Is that is the composition of it.
Largely.
Billable hour kind of revenue or is this more.
Licensing.
And that kind of fun.
Revenue.
It's bill it's John .
It's largely billable consultant revenue, but there is a component or components sorry that is.
Ongoing recurring revenue. So if you look at the split of whats the new digital capability that we're going to be reporting its about 80% billable consultant revenue related to implementation work that we do for our clients across industries, including healthcare education financial services energy and other commercial sectors and then about 20%.
Related to our software and analytics offerings, which have more of a recurring revenue attributed to them.
And.
One specific segment of question you mentioned commercial.
The target margin there.
<unk>.
For the year 'twenty mid point and.
That's up from did you say $15 seven.
I did and the thing to keep in mind. There is you do have the impact of the life Sciences divestiture restructuring charges in that $15 seven.
A couple of 100 basis point headwind on that 2021 margins that we would not expect to repeat in 2022.
And when you are talking about growth John year over year.
It's adjusted for much science.
We have not adjusted.
Anything for level so youre.
Copying against I'm, sorry go ahead.
It's all it's all.
With life Sciences in both periods. So we're comping against the base that have life sciences in it so in that regard the actual growth app's life sciences as a higher percentage.
Can you tell me, if there's a point or two.
Life Sciences revenue was.
Allowed 60 million for 2021.
That won't be repeating in 2020.
One 6%.
One six.
<unk>.
Okay.
Okay.
And.
I'm curious about the India.
Asset.
Is that.
As the industry focus there.
Kind of heavy one or more of your segments or is it pretty diversified.
Hey, Bill, it's Mark let me take that one.
Clearly, it's focused really in the digital capability around technology services and that will cover increase.
Increasingly broad industries that started in our commercial areas predominantly but we have a strong health care presence now supporting some of the managed services work we have.
Recently in the education, particularly on the products side of that business and increase in services.
It's actually going to be across the company and that's why from a global platform point of view it works quite well. So we really have the managed services piece, you've got technology products and services and then increasingly corporate shared services as well.
Mhm.
And.
Youre going to just keep your asset just entirely focused in India.
It's based in India. Once you have an infrastructure and were probably six or seven cities across the entire country, it's easier to just leverage that as a platform.
Serve other areas within the region, and we're not limiting ourselves, but right now with that investment in the infrastructure.
And the size that we have today, we have plenty of room to run within India before we think about other geographies. Although we can contracts from time to time, just based on more of subcontractor type of arrangements, if we get outside of India.
Yes.
For time zone.
Approach okay.
Sure.
I think.
The ones that came to mind, thanks again guys.
Good evening.
Thank you.
Our next question comes from the line of Kevin Spanky from Barrington Research. Please go ahead.
Hey, good afternoon.
So.
You talked about the new segment structure.
Making it easier.
In terms of collaborating.
Serve your clients.
Have you added any financial incentives for consultants to drive greater collaboration or do you think the.
The new structure, just kind of takes care of that.
By itself.
Hey, Kevin it's Mark.
We have definitely addressed incentives and we always have had cross practice collaboration incentives and they worked for quite a while and I think we just got to the place that the.
<unk> of those were just not sufficient to really get the level of opportunity in the market and so really as part of the reset of the operating model.
<unk> reset incentives across the organization as well.
That is what makes it really pretty seamless to work across the organization now Theres no barrier, that's created because of accounting revenue and we've set goals for people. Accordingly, So it's actually been quite collaborative in the planning process and then the incentive funding side as well.
We're expecting that to work quite well.
Alright, great.
And as I look at.
How those segments have been.
Reorganized here, we typically thought of.
Business Advisory is.
About 50% of its revenue coming for technology, and new commercial segment I guess.
The technology piece is going to come.
Come down and move more into health care looks like it could be just can you talk about the.
I don't even know if this is.
Relevant to you are on your radar, but it just looks like the technology mix in commercial goes down goes up in health care is there any strategic important implication to that I guess.
Well this is Jim.
Historically this is one of the one of the reasons.
We think one of the benefits.
No.
The new operating model and the reporting structure along with it is that we have historically we've had.
Digital capabilities provided by in our old practice <unk> that did a lot of work in health care and education, We had our education practice that had a lot of technology work that was that was actually done for healthcare clients and so we had kind of a mismatch of.
Of.
That work was being done and just it was kind of it was done because thats. The way. We had originally developed the practices kind of evolve that way and so we think the new model now is going to anything thats going to be digital.
Is going to be reported.
Im sorry anything with digital for example, in the healthcare and for our healthcare client of any kind is going to be reported under the health care segment and within the digital capability. So the reason we kind of looked at it right now as you provide two different ways of looking at our business. One of them is purely from an industry perspective, and one of them is going to be prudent from a capability perspective.
But you will be able to see the.
The collective amount of health care.
<unk> revenues that we have within digital will become much more evident than it ever was before and we just think it's a much better way for us to run the business. It's a much easier way for us to report it and I think we'll evolve we'll kind of get past some of the complexities that we had in our historical model.
Yes.
I'll just add.
So with the winter.
With the shift in segment reporting structure. It's true that we are now picking up digital offerings that were in the business Advisory segment and shifting notes over the health and education, but there was also a strategy offerings in distressed offerings that are shifting as well. So it's really just giving a total full view inclusive of all those things.
Strategy digital and financial advisory in all the segments and just to give like some perspective and then the new healthcare industry segment is going to be about 70% consulting about 30% digital that new education industry segment is going to be about 50% consulting and about 50%.
Is it all and commercial industry segment is going to be about.
Think of it like 40% consulting and about 60% digital so that's going to kind of be the split now as we move forward of digital and management consulting plus managed services in each of the industries.
Okay, Yeah, that's very helpful. Okay.
I don't know John you may have touched on this or maybe I missed it but just the margin guidance.
<unk>.
2022.
Obviously implies some healthy margin expansion, but.
Are there any meaningful investments baked into there and what kind of impact.
Would they be having on the margin outlook for next for this year.
There are there are so embedded in the expanded margin guidance for next year.
Think of it probably is.
50, plus basis points of investment across the business. That's in that plan right now on some of its in our digital areas as far as that.
Recurring revenue part of the business that we talked about related to products and analytics and then some of it is really just broadening some of our capabilities from op.
Management consulting and advisory perspective, so we have been making those investments and we'll continue to make those investments and those investments. We think are really key to the growth that we are able to produce in the back half of this year and that we're expecting next year. So it's going to be an important part of how we grow our business, but that 50 basis points.
It is embedded in the margin expansion that we've talked about.
<unk>.
Okay. Thanks, and just lastly, I wanted to ask about education, you mentioned that demand outperform your expectations in the fourth quarter.
And.
Guiding to some really healthy growth.
High teens in 2022.
What's the state of.
Large technology implementation projects moving forward and what are you seeing in the stool.
Student information.
Systems' market or.
Some of those projects starting to come to the fore as well.
Kevin This is Jim.
The reverse order.
<unk> work is definitely is picking up nicely.
And we expect that to be a very solid growth driver for us in the coming years. Many years in advance it's going to be a big business for us and we're really looking forward to that but yes. It's continues to pick up and is.
It's performing.
Quite well from our perspective.
More broadly in terms of just the overall you recall during the.
During most of certainly the end of 2020 and the earlier part of 2021, there was a slowdown in the ERP business and a lot of the digital business within our education for our education clients and.
Because they were as our clients. We're focused on are things that did begin to pick up nicely certainly in the second half of 2021, and we expect that to get kind of right back to where we were we kind of where we left off back in the pre Covid area are very strong growth. There is a lot of pent up demand and we are well positioned to address that demand.
Okay. Thanks for taking the questions. Thanks for all the detail.
Thank you.
As a reminder to ask a question you will need to press star one on your Touchtone telephone to withdraw your question. Please press the pound key.
I am showing no further questions in the queue at this time I would like to turn the call back over to Mr. Ross for closing remarks.
Thank you all for spending time with us on this kind of.
A little bit longer to get elongated call. This afternoon, we look forward to providing more detail when speaking with you at our Investor day at the end of March.
Good evening.
That concludes today's conference call. Thank you everyone for participating you may all disconnect.
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