Q3 2024 Huron Consulting Group Inc Earnings Call
Good afternoon and welcome to here on Consulting Group's webcast to discuss financial results for the third quarter, 2024.
Speaker Change: At this time, all conference call lines are on a listen-only mode. Later we will conduct a question and answer session for conference call participants and instructions we'll follow at that time.
Speaker Change: 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 full-looking statements that may be made or discussed on this call.
Speaker Change: The news release is posted on Huron's website.
Speaker Change: Please review that information along with the FILENTS with the SEC for disclosure of factors that may impact subjects discussed in this afternoon's webcast.
Speaker Change: The company will be discussing one or more non-gap financial measures.
Speaker Change: Please look at the earnings release and on here on's website for all of the disclosures required by the SEC including reconciliations to the most comparable gap numbers.
Speaker Change: and now I would like to turn the call over to Mark Hussey. Chief Executive Officer and President of Huron Consulting Group. Mr. Hussey, please go ahead.
Mark Hussey: Good afternoon and welcome to here on Consulting Roots 3rd Order 2024 Learning School. With me today is John Kelly, Cartier Financial Officer.
Mark Hussey: We're running growth in the third quarter of 2024, or 3% over the prior year period, which reflect as a typical comparison against the exceptionally strong growth of 26% in 2023 of 2023 compared to a Q3 of 2022.
Mark Hussey: We also saw the shifting of some project work from the third order to the fourth order of 20.4.
Mark Hussey: Despite these timing factors, our healthcare and education segments continue their long-trap record of consistent growth since the beginning of 2021. Reflecting the fundamental challenges that continue to drive demand for our services in each of these industries.
Mark Hussey: A commercial segment also rebounded well, achieving 12% sequential growth in the third quarter or the second quarter of 2024.
Mark Hussey: Well, a revenue growth rate in the quarter was more modest than in recent quarters. We experienced a record sales quarter achieving the highest quarter of the bookings company live in our history.
Mark Hussey: Strong sales conversion across all three operating segments in the third quarter, positioned as well to deliver on our Android guidance.
Mark Hussey: Our sales pipeline also continues to remain robust into the fourth order, laying the foundation for its continued growth in 2025.
Mark Hussey: We're also very pleased with our team's execution against our Marge and Advanced Petitionists to record as our adjusted to the time margins increased to 140 basis points and adjusted EPS increased 21% over the prior year quarter.
Mark Hussey: The Marching Improvement Reflex continued execution on our pricing initiatives, careful management of expenses, and continued build-out of low-walt delivery capabilities.
Mark Hussey: We've also deployed AI and automation capabilities to help our teams to deliver their work more occasionally.
Mark Hussey: I'll also note that our incentives are directly tied to the treatment of Martin Gold's War of the Get-A-Ride. For each of our teams, as business units and Martin Gold's are reflected as a measure in managing director and principal performance score cards.
Mark Hussey: Our Roberts today, Panics Planning Margins, gives us confidence and our ability to achieve the 100 basis point increase at the midpoint of a fully year 2024 for these guidance.
Mark Hussey: He also believe that the ample runway ahead for further market expansion has been implemented multiple drivers of efficiency across our business.
Mark Hussey: I'll now hear some additional insights into our third course performance.
Mark Hussey: In the health care segments, Sir Court of Representatives before reimbursement expenses for RDR, through two percent from the Criter of your Court.
Mark Hussey: For our healthcare business, the third quarter of 2023 was a record quarter at that time for our VR, growing 36% over 2023-22.
Mark Hussey: The increase in our YAH in the third quarter of 2024 was primarily driven by continued strength and demand for managed services and digital offerings.
Mark Hussey: Our performance improvement is this was up slightly in the third quarter, despite the typical year over here comparison and our pipeline remains robust for these offerings.
Mark Hussey: The healthcare provider market remains pirated. The strongest systems perform as well, investing for growth, improving their competitive positions, while many weaker systems are struggling to maintain margins and to face the ongoing challenges impacting the industry.
Mark Hussey: Remedy growth ranks as the top strategic initiative for the majority of healthcare leaders. While the credit rating agencies continue to highlight the available reimbursement and cost-rends challenging the sustainability of positive cash flows and margins.
Mark Hussey: Our portfolio of our rings is relevant to hospital and health systems at both ends of the performance spectrum.
Mark Hussey: Give the bread and bread our offerings. We'll all position the serve of our clients no matter where they are in the economic cycle.
Mark Hussey: The advances we're making at our health care business continue to both expand or exist in capabilities and have new offerings which positions us very well for continued growth.
Mark Hussey: And I'll be bringing to life the range of these marked dynamics with a couple of examples. Organizations in financial distress have historically been one of our strongest target partners.
Mark Hussey: With a clear leader with an unmasked track referred to quickly reducing costs in increasing cash flows, dissolved budget challenges.
Mark Hussey: Increasingly, we're also seeing financially stable clients engage our performance improvement team as they evolve their operating models and clinical operations to deliver more effectively on their missions.
Mark Hussey: Our performance improvement offerings are perfectly suited to deliver both sustainable operating improvements and demonstrable ROI in these types of environments, and we see significant opportunities to continue serving our clients as they face current and emerging challenges.
Mark Hussey: As I noted earlier, many healthcare leaders are focused on growth and expansion. Over the past decade, we have broadened our portfolio to include strategy and innovation, expansive digital capabilities, and care transformation offerings to help clients define and execute their growth strategies.
Mark Hussey: For our financially healthy clients, we are actively collaborating with them to define their strategies and operating models for the future.
Mark Hussey: helping them execute on the digital transformation and care model redesign investments needed to deliver on those strategies and positioning their organizations to move from good to great.
Mark Hussey: One example of this work is how we're supporting growth initiatives for a regional health system which is actively pursuing acquisitions.
Mark Hussey: The examples describe opposite ends of the market in terms of performance and scale. Many hospitals and health systems are somewhere in between, focusing on shoring up their financial results and operations while seeking to advance their competitive advantage and pursue opportunities to expand in their markets.
Mark Hussey: We expect these divergent market dynamics to persist and be a driver of broad demand for our business, as demonstrated by our strong sales conversion in the third quarter.
Mark Hussey: As we look ahead, we don't anticipate significant changes in reimbursement rates or cost trends that will materially improve the operating environment for hospitals and health systems. As a result, we believe favorable demand tailwinds for our healthcare segment will continue.
Mark Hussey: Education segment RBR grew 9% in the third quarter of 2024 over the prior year quarter, driven by incremental revenue generated by our GG&A acquisition, as well as increased demand for our technology services and software product offerings within our digital capability.
Mark Hussey: Our education business has also had a track record of strong organic growth over many years. In the third quarter, our organic revenue growth slowed slightly, driven by delays in project starts that we believe are short-term and attributable to factors that are unique to those clients.
Mark Hussey: Our sales pipeline remains solid across our education offerings, and the underlying needs of our clients remain robust, reflecting the significant challenges facing the higher education industry today.
Mark Hussey: I'd like to highlight a few of the challenges that are driving demand for our business starting with enrollment trends.
Mark Hussey: Undergraduate enrollment peaked in 2011, and has been steadily declining ever since. In 2025, the population of high school graduates is expected to peak, and steadily decline for the next 12 years and beyond, further accelerating the long-term rate of decline.
Mark Hussey: Although these demographics have been widely anticipated for many years, the industry has been further challenged by the more recent decline in the perceived value of a four-year college degree, as well as the perceived lack of affordability of obtaining a degree.
Mark Hussey: Since the beginning of the pandemic in 2020, the percentage of high school graduates considering a four-year degree has meaningfully declined from roughly two-thirds of high school graduates to just over half, which further pressures future enrollment trends.
Mark Hussey: Last week, higher education institutions reported their steepest decline in first-year enrollments since the pandemic.
Mark Hussey: Similar to the healthcare provider industry, the higher education market has also diverged with many smaller tuition-dependent institutions struggling financially as they fail to achieve their enrollment goals.
Mark Hussey: Although the large public institutions and elite private universities are largely achieving their enrollment goals, they face a myriad of other issues related to their high-cost structures, data technology capabilities, and complex research enterprises.
Mark Hussey: Research is a critical yet costly priority for higher education institutions as it represents well over 25% of the revenues for the majority of the top 100 research universities.
Mark Hussey: As universities grapple with how to optimize their research revenue, the efficiency of their research operations, Chiron is the market leader in consulting advanced services and digital solutions for the risk, compliance, and research administration needs.
Mark Hussey: As an example, our Huron Research Suite is the leading software solution in the market for research administration software.
Mark Hussey: are here on research suite clients who use or are in the process of implementing our grants module, receive approximately one-third of all federal funding from the NIH.
Mark Hussey: Digital transformation also remains a key priority for our higher education clients.
Mark Hussey: Many leading institutions are leveraging data technology to make faster and better decisions while investing in digital solutions to streamline and modernize their administrative and research operations and to differentiate the student experience.
Mark Hussey: We expect the complex challenges facing the industry will continue to create a favorable demand environment for a deep industry expertise and strong consulting, managed services, and digital capabilities for many years to come.
Speaker Change: Now let me turn to the commercial segment. In the third quarter of 2024, commercial segment RBR declined 3% over the prior year quarter and grew 12% sequentially compared to the second quarter of this year.
Speaker Change: The decline in commercial RBR was driven by our financial advisory and strategy and innovation offerings.
Speaker Change: partially offset by an increase in demand for our digital offerings.
Speaker Change: The third quarter of 2023 was the high-water mark for our distressed financial advisory business and included $5.5 million of contingent fees.
Speaker Change: excluding the impact of the distressed financial advisory success the commercial segment grew approximately 5%.
Speaker Change: In the third quarter, our commercial digital offerings rebounded from the softer demand we experienced in the second quarter, with RBR growing 9% sequentially.
Speaker Change: We see signs of continued solid demand for IT services in 2025, including Gartner's recent increase to its 2025 projections for IT services spending, which is now anticipated to grow 9% in 2025.
Speaker Change: Our sales pipeline strengthened in the third quarter as we continue to see clients investing in technology solutions to drive growth and efficiency in their businesses, and we believe we're well-positioned for stronger growth in this business in 2025.
Speaker Change: While the commercial segment is the smallest of our three segments today, it represents a significant growth opportunity for our business in the coming years, with our digital capabilities currently representing about two-thirds of the segment's revenue.
Speaker Change: Within the commercial segment, our teams have increased the level of collaboration across our digital and advisory capabilities to enhance our competitive advantage and strengthen the foundation from which we can grow in the future.
Speaker Change: For example, our distressed financial advisory team recently partnered with our digital team bringing together skills needed to preserve all the technology-related IP for a client in bankruptcy.
Speaker Change: Our strategy and innovation and digital teams are collaborating to reshape how our clients are going to market, deliver their products and services to accelerate growth, as they transform their operations to lower costs and increase speed and agility.
Speaker Change: At OneClient, we're implementing generative AI and intelligent document processing to drive efficiency and create more capacity for the client teams to deliver on higher value initiatives.
Speaker Change: We see continued opportunities for organic growth and talking acquisitions that will enhance the solid foundation. We've already built
Speaker Change: And as we further build the commercial segment, we expect our collaborative operating model, which helps us accelerate growth in our healthcare and education segments, will also help us unlock greater value across the industries and capabilities within our commercial segment.
Speaker Change: Now let me turn to our outlet for the year.
Speaker Change: As our press release indicates, we're narrowing our annual RBR guidance to $1.47 billion to $1.49 billion, maintaining the midpoint of $1.48 billion.
Speaker Change: We continue to expect our adjusted EBITDA margin to be in a range of 13 to 13.5% of RVR.
Speaker Change: And I'm fortunate to work with such a talented team of people that share our passion for helping clients and successfully growing this company.
Speaker Change: Without their efforts, none of this would be possible.
Speaker Change: And collectively, we remain focused on advancing our growth strategy and delivering upon our long-term financial goals in 2025 and beyond.
Speaker Change: And now let me turn it over to John for a more detailed discussion about financials. John? Thank you, Mark, and good afternoon, everyone.
John Kelly: Before I begin, please note that I will be discussing non-GAAP financial measures such as EBITDA, Adjusted EBITDA, Adjusted Net Income, Adjusted EPS, and Pre-Cash Flow.
John Kelly: Our press release, 10Q, Investor Relations page on the U.R. website have reconciliations of these non-GAAP measures to the most comparable GAAP measures along with the discussion of why management uses these non-GAAP measures, why management believes they provide useful information to investors regarding our financial condition and operating results.
John Kelly: Before discussing our financial results for the quarter, I'd like to discuss two housekeeping items.
John Kelly: First, we have historically and will continue to discuss our revenue in terms of revenue before reimbursable expenses, which excludes reimbursable expenses that are passed through items to our clients.
John Kelly: In order to ensure that this distinction is clear in our remarks, we will now refer to our revenue as either Revenue Before Reimbursable Expenses, or RBR, as you heard referenced by Mark.
John Kelly: Second, I want to make a comment on revenue generating professional headcount growth.
John Kelly: Our year-over-year income growth of 10% as of September 30th included the expansion of our India-based health care managed services team.
John Kelly: excluding the impact of the India-based managed services team growth at count through 2%.
John Kelly: Now we'll share some of the key financial results from the third quarter.
John Kelly: The increase in RBR for the quarter was driven by solid growth in our education and healthcare segments, partially offset by our commercial segments, which was down year-over-year, but posted solid growth compared to the second quarter of 2024.
John Kelly: Net income for the third quarter of 2024 was $27.1 million, or $1.47 per diluted share, compared to net income of $21.5 million, or $1.10 per diluted share in the third quarter of 2023.
John Kelly: As a percentage of total revenues, net income increased to 7.2% in the third quarter of 2024, compared to 5.9% in the third quarter of 2023.
John Kelly: The increase in net income was driven by revenues that outpaced expenses.
John Kelly: Our effective income tax rate in the third quarter of 2024 was 27.8%, which is less favorable than the statutory rate inclusive of state income taxes, primarily due to certain non-deductible expense items.
John Kelly: partially offset by a discrete tax benefit related to non-taxable gains on the investments used to fund our deferred compensation liability.
John Kelly: The increase in adjusted EBITDA for the quarter was primarily due to increases in education, healthcare, and commercial segment operating income.
John Kelly: The just net income was $31.1 million.
John Kelly: For $1.68 per diluted share in Q3 2024.
John Kelly: In the first nine months of 2024, adjusted diluted earnings per share grew 26% over the same period in the prior year.
John Kelly: Now let's discuss the performance of each of our operating segments.
John Kelly: Healthcare segment generated 49% of total company RBR during the third quarter of 2024.
John Kelly: This segment posted RBR of $183.1 million, up $4 million, or 2.2% from the third quarter of 2023.
John Kelly: The increase in RBR in the quarter reflects continued strong demand for our managed services and digital offerings, which grew 16% to 11% respectively over the prior year quarter.
John Kelly: Operating income margin for healthcare was 27.1% in Q3 2024, compared to 26.2% in Q3 2023. The increase in margin was primarily due to a decrease in contractor expenses.
John Kelly: Partly offset by increases in compensation costs for our revenue generating professionals as a percentage of RBR.
John Kelly: The education segment generated 33% of portable company RBR during the third quarter of 2024.
John Kelly: The education segment boasts an RBR of $121 million, up $10 million, or 9% from the third quarter of 2023.
John Kelly: RBR in the third quarter of 2024 included 5.7 million dollars for our acquisition of DGNA.
John Kelly: The increase in RBR in the quarter was driven by the GG&A acquisition, as well as increased demand for our technology services and software product offerings within our digital capability.
John Kelly: The operating income margin for education was 24.1% for Q3 2024 compared to 23.9% for the same quarter in 2023.
John Kelly: The increase in operating income margin in the quarter is primarily driven by a decrease in contractor expenses.
John Kelly: Revenue growth that outpaced the increase in compensation costs for revenue-generating professionals.
John Kelly: The decrease in RBR was driven by our financial advisory and strategy and innovation offerings partially offset by an increase in demand for our digital offerings.
John Kelly: The third quarter of 2023 included $5.6 million of contingent fees for our financial advisory team compared to only $600,000 of such fees in 2024.
John Kelly: Operating income margin for the commercial segment was 24.5% for Q3 2024, compared to 22.7% for the same quarter in 2023.
John Kelly: The increase in operating income margins was driven by decreases in contractor expenses
John Kelly: Compensation costs for our revenue-generating professionals as percentages of RBR.
John Kelly: Unallocated corporate expenses in the third quarter of 2024 included $2.3 million of expense related to the increase in the liability of our deferred compensation plan.
John Kelly: compared to income of $1 million in the third quarter of 2023.
John Kelly: excluding the impact of the Deferred Compensation Plan in both periods.
John Kelly: Now turning to the balance sheet and cash flows.
John Kelly: Cash flow from operations in the third quarter of 2024 was $85.2 million.
John Kelly: In the quarter, we used $7.6 million to invest in capital expenditures inclusive of internally developed software costs, resulting in a free cash flow of $77.6 million in Q3 2024.
John Kelly: Total debt as of September 30, 2024 was $443.1 million, consisting entirely of our senior bank debt, but we finished the quarter with cash of $18.5 million, or net debt of $424.6 million.
John Kelly: This was a $69.4 million decrease in that debt compared to Q2 of 2024.
John Kelly: In addition, in the third quarter, we used $7.3 million to repurchase approximately 66,000 shares.
John Kelly: In the first nine months of 2024, we used $140 million to repurchase approximately 1.1 million shares, representing 5.8% of our common stock outstanding as of December 31, 2023.
John Kelly: As of September 30, 2024, $83 million remained available for share repurchases under a current share repurchase authorization.
John Kelly: Finally, let me turn to our guidance for the full year 2024.
John Kelly: We're narrowing our revenues before reimbursable expenses guidance to a range of $1.47 billion to $1.49 billion, maintaining the midpoint of $1.48 billion.
John Kelly: We are maintaining our adjusted EBITDA as a percentage of the RBR range of 13% to 13.5% of revenues.
John Kelly: And we are narrowing and increasing our Adjusted Polluted Earnings Per Share guidance to a range of $6 to $6.20.
Speaker Change: Thank you everyone. I would now like to open the call to questions. Operator?
Speaker Change: Thank you. Ladies and gentlemen, if you have a question at this time, please press star one one 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 star one one again.
Speaker Change: Our first question.
Speaker Change: comes from the line of Andrew Nicholas of William Blair and Company. Your line is open to Andrew.
Andrew Nicholas: Thank you and good afternoon. I appreciate you taking my questions. First one I wanted to ask was just on the fourth quarter implied guidance.
Andrew Nicholas: Looks like.
Andrew Nicholas: a pretty nice sequential acceleration in year-over-year growth.
Andrew Nicholas: Thank you.
Speaker Change: Obviously, the comp gets quite a bit easier.
Speaker Change: Looking back to fourth quarter 23 versus what you've had so far this year, so just kind of.
Speaker Change: Looking for any more color on what gives you confidence in that acceleration besides the comp and also, you know, maybe what it says about.
Speaker Change: 2025 growth or the achievability of the top line targets that you outlined a few years ago at Investor Day, just looking at those comparisons getting much easier in 2025 than what they've been throughout this year.
John Kelly: Sure Andrew, this is John. I can start Marcus, go ahead with any...
Marcus: color commentary. I think the number one thing that gives us confidence about the guide for the fourth quarter and the midpoint of the guide in the fourth quarter is really the sales conversion activity that we saw during the third quarter. As Mark noted, it was a record high
Marcus: That was really strong across the company, particularly strong in our health care business. So that's primarily what gives us confidence.
Marcus: In terms of the spread between the third quarter and the fourth quarter this year, you know, it's kind of interesting dynamics during the quarter. I'd say the timing of
Marcus: conversion of some of those opportunities was a little bit later during the quarter than maybe what we anticipated at the beginning of the quarter. So some projects kicked off a little bit later.
Marcus: But the actual win rate and the value and deal that we won was actually quite a bit stronger than what we anticipated and so the net of that was a little bit softer and the third quarter than probably what we anticipated as of the last call but gives us that confidence for the fourth quarter.
Marcus: I think this feels like a really good foundation. Obviously, it's a little early to be giving 2025 guidance.
Marcus: But as opposed to the trend line last year, where you saw sequentially between the third quarter and the fourth quarter a decrease, our expectation is this year between the third quarter and the fourth quarter, you're going to see a ramping up of revenue.
Marcus: And, you know, a lot of these projects that we sold are certainly things that continue on in 2025, so that gives us confidence about the leaping off point, if you will, in the first quarter of next year.
Speaker Change: Yeah, and the only thing I would tell you, again, back to the demand backdrop, it's very favorable right now across.
Speaker Change: Certainly health care, education, and as we indicated, we're seeing some of the commercial digital areas solidify, and we're optimistic that they will contribute to 2025 as we turn in the quarter.
Speaker Change: I think John did a good job of explaining all the dynamics that led us to feeling good about the four-year rule.
Andrew Nicholas: Great. Thank you. Appreciate the insights. And then for my follow-up question, John , you mentioned in your prepared remarks that had count growth excluding...
Andrew Nicholas: Some of the India-based hiring for managed services was up 2%. Do you feel like, broadly speaking,
Andrew Nicholas: You're in a good spot in terms of matching talent to pipeline, or is there some incremental hiring that you're planning to do in any region, really, over the course of the next couple quarters to capture some of this really strong sales conversion that you're alluding to?
Mark Hussey: Andrew, we feel good about...
Speaker Change: consulting and digital utilization. It was in the upper 75% range. I think that means that we've got a little extra capacity there to deliver on the growth.
Speaker Change: But by the same token, we've been, our team's been able to be very effective in the market finding talent. So to the extent that we need to now ramp up into the fourth quarter, the beginning of next year, I think we feel very confident in our ability to get the people that we need to deliver on our projects.
Speaker Change: Great, thank you.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Toby Sommer of Truist Securities. Please go ahead, Toby.
Speaker Change: Hey, good afternoon, guys. This is Jasper Bevon for Tobii. I just want to ask about the healthcare segment, hoping you can maybe stratify at least directionally what you're seeing in growth rates and utilization for the PI strategy and digital offerings.
Speaker Change: And separately to the extent there is, I guess, changing mix in that segment doesn't have any implications on your margins for the next couple quarters.
Speaker Change: Sure, sure Jasper. I'll start with the last part first. We're not, you know, I think the year-to-date margins that you've seen are trending towards the upper end of the guidance that we put out at the beginning of the year, towards the 27% range, and that's...
Speaker Change: How we expect to land the year. We expect to end towards, for the full year, towards the upper end of that range, which implies steady, if not improving, margins in the fourth quarter. So we feel good about that. To your question about the revenue mix...
Speaker Change: During the quarter, we noted in Mark's comments, PI was up a little bit during the quarter, but that was off from what was a very difficult comparison last year. The growth this particular quarter really came from our digital business as well as our managed services business.
Speaker Change: But when we talk about the pipeline activity that we say converted during the quarter, the sales conversion, that was where it's very well-balanced, including
Speaker Change: A couple of meaningful projects from a performance improvement perspective, as well as just kind of continued broad demand there, some meaningful digital transformation projects within the space.
Speaker Change: So I think the overall theme would be continued balance within the segment, and from a margin perspective, we feel good about the way we're operating and the trend line that we've been on.
Speaker Change: So then maybe calling up on margin, just, you know, the long-term target, mid-teens, if it's on margin in 25, do you still think that?
Speaker Change: Well, 15% margin range would be achievable next year based on what you're seeing and utilization rates in your sales pipeline for that.
Speaker Change: We feel like we've got continued runway on that on that ramp and so it just take
Speaker Change: The size of the steps we've been taking the past few years, you apply that to this upcoming year, which to us feels very achievable at this point, you get into that 14% plus, you know, a range that's in the mid-team range there.
Speaker Change: I would say, Jasper, that one thing to keep in mind is the margin improvement that we've had this year, our year-to-date utilization is still sort of in that mid-to-late period.
Speaker Change: 75% range, you know, 74, 75% when you look at blended for the nine months, and there's still room to run on that metric from our perspective. So we feel really good that we've been able to take the steps that we've taken this year with utilization.
Speaker Change: Quite frankly, not being fully optimized, as we talked about in earlier calls.
Speaker Change: We've had lower attrition, historically lower attrition this year, so we've been managing through that. That's put a little bit of pressure on the utilization metric, but to us, that's a very tangible lever as we think about next year to be able to continue the trajectory that we've been on. So, the confidence that we have in that remains strong at this point.
Speaker Change: Appreciate the detail there. Thanks for taking the questions.
Speaker Change: Thank you. Our next question comes from the line of Bill Sutherland of the Benchmark Company. Your question please, Bill.
Bill Sutherland: Thanks. Hey, guys. I was just looking at the utilization numbers in the fourth quarter of last year, and I know that you guys have indicated that you felt like you've seen...
Bill Sutherland: better utilization than the second half this year, year over year, and you certainly did in 3Q, but
Speaker Change: How do I think about the fourth quarter comp, if you will? And is there a seasonal build to the utilization in digital, or does that just happen, you know?
Speaker Change: without a real basis.
Speaker Change: Hey Bill, I would not describe it necessarily as seasonal. You know, things happen in the business throughout the year that we then adjust to to try to, over the longer term, you know, make sure we're achieving our utilization targets. I think that's what you see as opposed to necessarily seasonality. You're right that at the comparison point
Speaker Change: to the fourth quarter of last year, where it was...
Speaker Change: pushing 80% overall, it was over 80% from a digital perspective, that not I don't know that we would say at this point that we'll get all the way there in the fourth quarter of this year. I think we do have the expectation that it will sequentially improve from what we posted in the third quarter. So I think you're going to see a continued amount of improvement there.
Speaker Change: sequentially.
Speaker Change: It's possible that it could reach the levels that it was at in the fourth quarter last year, but that was a pretty high water mark, so I don't know for sure that we'll get all the way up there.
Speaker Change: Sure, that makes sense. You'll notice that in commercial, the head count is down a little bit sequentially, and you clearly had the firepower there.
Speaker Change: to realize the new business.
Speaker Change: And so how should we think how you set up for the fourth quarter and into next year? Is that likely to increase headcount again?
Speaker Change: I think it's aligned with our growth. Yes, Bill. Again, there's a little bit of room to run there from a utilization perspective.
Speaker Change: So I think, uh...
Speaker Change: Yes.
Speaker Change: In the short term, that can help us grow as new project volume comes in. But then as you look a little bit longer term, based on the growth expectations that we have, I would expect to see that count go up within the commercial segment. In terms of our positioning, exiting the quarter, I think that our team has done an excellent job within commercial.
Speaker Change: matching our resources with our demand over the course of the year, making sure that
Speaker Change: You know, we've been cautious at our hiring as we've navigated through some of the market uncertainties that we talked about in previous calls. So I think our team, I think we're in a really well-positioned, I think our talent, our headcount is well-positioned to support our growth in the fourth quarter, but we're also operating efficiently, so we feel good about that.
Speaker Change: And then last for me, maybe an update on the
Speaker Change: M&A environment and kind of how your pipeline is doing.
Mark Hussey: Yeah, Bill, this is Mark. The M&A pipeline actually is quite robust for us, and we have been a little bit more quiet the last couple of years because of M&A, but
Mark Hussey: As I've indicated before, we believe that we will have some inorganic contribution over time to what we do. We see lots of opportunities.
Mark Hussey: still in
Mark Hussey: opportunities that we look at.
Mark Hussey: are not necessarily coming through.
Mark Hussey: Bye.
Mark Hussey: sell-side books that were just circulated to us, companies for sale, where we're actually working with people in the market, where there are opportunities that we see and...
Mark Hussey: our success rate on those over time or the probably the 30 some-odd that we've done over the last, you know, decade or more.
Mark Hussey: have largely worked out really, really well. And those are the ones that create additional growth or organic growth opportunities together. You saw us a little bit less active on share repurchase in the quarter. We certainly feel like we've got some good opportunities out of us.
Speaker Change: Mm-hmm, great. Thank you both.
Speaker Change: Thank you. Once again, to ask a question, please press star 11 on your touchtone telephone. Again, that's star 11 on your touchtone telephone to ask a question.
Speaker Change: Our next question...
Speaker Change: comes from the line of Kevin Steinke of Barrington Research Associates.
Speaker Change: Your question, please, Kevin.
Kevin Steinke: Thank you.
Kevin Steinke: So, when you were talking about earlier your confidence in that the fourth quarter ramp up, you mentioned the strong sales conversion. You also mentioned in your prepared remarks some project work that had shifted from the third quarter to fourth quarter.
Kevin Steinke: I just was wondering if you could maybe give us an idea as to how meaningful that shift is. I don't know if you could put a rough number on it or not, but I'm just kind of curious about that and where that might have occurred.
John Kelly: Hey Kevin, it's John. I put that in a 5 to 10 million dollar range is how I describe it. I go back to the answer that we discussed a little bit earlier during this session of the shifting really related to
John Kelly: new work that came in over the course of the quarter where the expectation kind of heading into the quarter is to when those deals would close and get started ended up
John Kelly: being a little bit later in the quarter than what we initially anticipated, so I'd say it's in that neighborhood of five to ten million dollars that
John Kelly: shift it out of the third quarter. But the good news from our perspective
John Kelly: was really the volume of wind that we had during the quarter.
John Kelly: The win rate that we experienced in the quarter was actually higher and so
John Kelly: That's what gives us confidence that it's not going to slip out the back end of the fourth quarter as well. We feel like the run rates that we're experiencing now towards the end of this quarter
Speaker Change: Okay, good. And also in your prepared remarks, you talked about
Speaker Change: Some delays in the education segment on certain projects due to just kind of client specific internal issues
Speaker Change: Is that some of the project work you're referring to that got...
Speaker Change: That kind of macro uncertainty.
Speaker Change: But it sounds like the conversion is starting to pick up there. So I guess is it fair to say that you know.
Speaker Change: Much of the client base that maybe you would had been delaying.
Speaker Change: Delaying some work has now gained comfort and and as you know.
Speaker Change: Hum.
Speaker Change: Comfortable with moving forward.
In this environment.
Mark Hussey: Yeah, Kevin This is mark I wouldn't I wouldn't characterize it that when we think that based on.
Speaker Change: After our <unk>.
Speaker Change: The softness we highlighted in Q2, you saw Q3 as the inflection point, where the pipeline start to rebuild and we saw some softness we saw the sequential improvements that we highlighted and when we and we believe that it will.
Speaker Change: Post election, and coming into 'twenty five there's a collective view that things are going to solidify so we're seeing data points that give us.
Speaker Change: Further confidence.
<unk>, we'd like to see the pipeline filled a little bit more but at this point, we think the.
Speaker Change: The signs are pointing green and up versus kind of sideways or down. So we feel good about what the potential is in our 2025 growth outlook.
Speaker Change: Okay.
Speaker Change: Oh, that's helpful again, thanks for taking the questions and I'll turn it back over.
Speaker Change: Alright.
Speaker Change: Seeing no more questions in the queue I'd like to turn the call back to Mr. Hussey.
Mark Hussey: 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.
Speaker Change: That concludes today's conference call.
Speaker Change: Thank you everyone for your participation.
Speaker Change: Yeah.
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Speaker Change: Sure.
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Speaker Change: Yes.
Speaker Change: Okay.
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Speaker Change: Okay.
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Speaker Change: Yes.
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Speaker Change: Good afternoon, and welcome to Huron consulting group's webcast to discuss financial results for the third quarter 2024.
Speaker Change: At this time all conference call lines are on a listen only mode. Later, we will conduct a question and answer session for conference call participants and instructions will follow at that time.
Speaker Change: 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.
Speaker Change: The news release is posted on Hurons website.
Speaker Change: 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.
Speaker Change: The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on <unk> website for all of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers.
Speaker Change: And now I would like to turn the call over to Mark <unk>, Chief Executive Officer, and President of Huron Consulting group. Mr. Huseby. Please go ahead.
Mark Hussey: Good afternoon, and welcome to Huron consulting group's third quarter 2024 earnings call with me today is John Kelly, our Chief Financial Officer.
Mark Hussey: Revenue growth in the third quarter of 2024.
Four 3% over the prior year period.
Mark Hussey: Which reflected a difficult comparison against the exceptionally strong growth of 26% in Q3 of 2023 compared to Q3 of 2022.
Mark Hussey: We also saw the shifting of some project work from the third quarter to the fourth quarter of 2024.
Mark Hussey: Despite these timing factors are healthcare and education segments continued their long track record of consistent growth since the beginning of 2021, reflecting the fundamental challenges that continue to drive demand for our services in each of these industries. Our commercial segment also rebounded well achieving 12% sequential growth.
Mark Hussey: Third quarter or the second quarter of 2024.
Mark Hussey: While our revenue growth rate in the quarter was more modest than in recent quarters, we experienced a record sales quarter, achieving our highest quarterly bookings companywide in our history.
Mark Hussey: Strong sales conversion across all three operating segments in the third quarter positions us well to deliver on our annual revenue guidance.
Mark Hussey: Our sales pipeline also continues to remain robust into the fourth quarter laying the foundation for continued growth in 2025.