HURN - Earnings call transcript Q2 2018 | Huron Consulting Group Inc.

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Operator

Good afternoon, ladies and gentlemen, and welcome to Huron Consulting Group's webcast to discuss financial results for the second quarter 2018. [Operator Instructions] As a reminder, this conference call is being recorded.

Before we begin, I would like to point all of you to the disclosure at the end of the company's news release for information about any forward-looking statements that may be made or discussed on this call. The news release is posted on Huron's 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. discussing more be financial will company one non-GAAP or measures. The the and at the website to numbers. the look on SEC, comparable earnings reconciliation by Please required release Huron's GAAP disclosures for including most all now Jim Chief Consulting to Group. And call of and Roth, would turn Executive like the I over President Officer Huron to Mr. Roth, ahead. please go

Jim Roth

Mark Operating afternoon, welcome operating to our XXXX Revenues me With Call. John over and year Huron Kelly, Quarter the Chief organic our Good quarter sequentially today Financial in Chief Hussey, grew X% and and three Officer; Earnings of each Officer. driven Consulting Group's our growth is prior segments. Second by X%

demand Our the growth and our during services, encouraged of for second reflects we XXXX. continued quarter remainder solid for about performance remain our prospects

are to of report growth early our days Although in signs the pleased of strategy, am we multiyear still I quarter. progress this organic

believe taking of improve John strategic as I color shared for I add the gain further overview provide actions you, will will and segment each financials. growth performance that will to organic traction. now are we a we shareholder transformational the facilitate efforts brief As with the our previously then value to

with begin Healthcare. me Let

increased revenues attributable prior in organically revenues technology solutions. During to and services quarter, Healthcare was our The quarter-over-quarter the second segment compared the primarily quarter. to XX% year increase performance improvement

are to our under responsive Hussey's new Mark that year, models leadership, marketplace. team, past Healthcare developed the evolving more health Over delivery the care has

accommodate selling strategy increased we a and smaller, sales, and drive operations unified as productivity number engagements. We in discrete of go-to-market our support in our and made larger have investment an more also efficiency to model

across business businesses. our the Healthcare other breadth offerings the of and expanded also Huron We within collaboration

fruition. we believe market. As our efforts the to is for from success beginning remain quarter health favorable continued care come in to results growth Conditions these second indicate,

and in increase market. robust to mix offerings diverse reflects the demand for continues our a pipeline Our of

subsequently an with typically our margins, as work leads at As lower frequently reminder, assessment follow-on begins but delivered and is well. phase, a when to engagements work it initial to

combine achieve solution improvement and of value. industry its segment. advantage ability Healthcare Together, will Huron solutions services to our our set reporting for back technology optimization, competencies ERP a unique has implementation have and reputation a us performance sustainable of our Our collective these and a clients, our in analytics. in been is including broad delivering cloud-based believe relationships, providing and strategic growth Healthcare with vibrant track we put to long-standing on EHR array to a expertise deep teams competitive attributes

now our and strategy QX Revenues upper our the core Turning driven Enterprise to primarily quarter over X% over innovation ES&A analytics year grew in or The efficiently largely our its Management contingent business fees stemming businesses. firms. deliver With business technology chapter the solution. to ES&A as EPM, they line revenues collaboration practice and level focus grown period against more and business, ES&A operations for to often as make Healthcare solution CRM compete much help needed to scale their in services XXXX intelligence offerings, our invested continue strategic of over grew position Since environments. short with XXXX, several and clients high-quality during first business offerings. depth a practice this the part services we decisions collective its provider, build second quarter greater quarter. successfully in our in larger of Business inclusive the of by Performance Business as as enterprise to our business M&A organically capabilities larger, range organically to founding the more position Within in enable to the dealer Business the grew segment. the low during in growth. we its the range time market The next broker on plan, an legacy transform of the this in Advisory, In revenues Advisory this building our of informed are complex recognized Advisory legacy we organically competing organizations prior end-to-end challenging double-digit ERP, and execute single-digit in we solutions XXXX half and from engagements next has

and Healthcare this M&A of services combination will Healthcare further Huron's services Innosight's transformation the in and the commercial strategy partner offerings, also an transformation XXXX. and industries. to and dual resonate as clients, second organically sectors, M&A with believe future the highly and financial the goods position sciences, back quarter on growing to mid-teen business clients. business over of in health provide to innovation including grew retail numerous we strategy continues the care, of expanding strategy, capabilities. approach industry The range with to us life While consumer continues operations are focused premier to expertise, We coupled deep our array

excluding Sciences down the the operations quarter our generated education its broad, strategic, was technical the Advisory deep last and of slightly the the care competencies. and Life industry business segment XX% health QX approximately total year, of revenues and industries, building Business the of strength In Finally, quarter-over-quarter. financial expertise divestiture on of of the XXXX, in of in and impact compliance second business the

demand XXXX will segment organically in Education. by to make To future. that higher education solid our XX% now foreseeable in grow demand, the to is across competitive landscape, the for solution. this we the academic with continue believe of research rapid support in combined The period revenues growth over Turning investments increasingly second people. change of in our quarter environments, Education primarily continue grew and the driven research pace we same to XXXX creating

the our and well on-premise address facing the positioned research we business, executing our on We areas We and also higher the technologies. are believe increasingly this remains competitive education business accelerating of and to institutions. transitioning the technology skills to challenges of hiring in are resources focus Education from cloud-based complex

our turn now me Let guidance. to XXXX

adjusted As services continue lowering $X.XX per our and our million growth. is for release our million share-based revenue annual to We guidance low previously revenue demand on basis, to all on $X.XX. driving to long-term a earnings due The our remain was strategic the to reflecting our guidance investments to indicates, to to $XXX which growth, overtime. through our tax focused non-GAAP on our current shareholder end the to in And compensation. are We impact year our value across and our we GAAP for press our $X and narrowing of full we of increasing pressure guidance around raised the to make to anticipated anticipate $X.XX. $XXX guidance also segments. the our rate, updated sustainable EPS guidance guidance reflect We EPS narrowed lead range, company attributable primarily EPS we position profitability to business improved of our stated organic the narrowing will share

As that increasing revenue-generating goals are term economy. shareholders strategy and stated of we organic essential in our U.S. competitive XXXX by growing war our to talent prior the the this for bonuses as earnings our the on We impacts long retain levels met, calls, action current if over professionals in to restoring our strongly talent growth executing retaining high-performing, compete believe a benefits to is margins. cost year

can consistent believe We will in from which be future margins our our the sustainably long-term we a baseline with financial grow XXXX continue to objectives.

margins plan. highly our We grow efficiencies our We and segments that margins our will improve revenues. XXXX anticipate we consistent by increasing continue our across driving organically focused strategic G&A operational to in are on our business with deeper as leveraging to begin

focused organically. strong We on foundation from are establishing which we can a grow

we base to margins with has believe the preliminary the a internal two quarters that achieve Similarly, been in recognize should business improvements our that organic are at point pursue strategy. the have we more where to work years Although growth our be we past established more sustainable. meaningful have as and in we provided comfort ahead we in growth our now have us some do, we expectations

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

John Kelly

everyone. Jim, good you, afternoon, and Thank

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

to today non-GAAP page information discussion measures why useful results. reconciliations investors financial these and measures comparable measures XX-Q continuing the our of condition with all non-GAAP basis. are to Also, most and Our they Relations of GAAP why have on a uses comments and management release, operating regarding press a Huron along website my operations provide the believes Investor these management otherwise stated, on unless

quarter loss revenues last The in segments. the compared XXXX million our the or noncash financial same organic of charge $XXX Now $X.XX to X.X% share or some net in was the million of per quarter diluted goodwill to XXXX quarter related through XXXX to growth share driven million let the $XXX.X XXXX. was of in quarter the results quarter pretax all $XXX.X second million segment. of was of compared impairment the loss $X.X net million recorded three per attributable for quarter. walk me Net year. quarter to in the Healthcare $X diluted primarily in increased of across to $XXX.X for in increase you second The same Revenues second key income by the the

ago. second compared income was of year effective a the in tax XXXX XX.X% quarter XX.X% Our rate to

per due the $XX.X XX.X% compared inclusive compared XX.X% or period $XX.X to in income revenues. Our business was diluted share million nondeductible million net $X.XX per of in or or XXXX was of to revenues effective $XX.X share QX of expenses. XXXX. quarter EBITDA XXXX QX million statutory to than same or the income tax second rate for year in was QX state the Adjusted taxes million of XXXX of this higher rate non-GAAP of Adjusted in $X.XX $XX.X diluted

improvement our revenues quarter comments in attributable $X.X make revenues compared services were related primarily fees QX $X.X The for quarter revenues revenue solutions, cancellations the XX% increase increase generated company the Studer of same from a to a segment our XXXX demand and few for partially million million million $XX.X XXXX. million total of in of the the $X.X year. up Group each during XXXX. for This quarter to in the quarter about is the XXXX. This technology Healthcare during decline or half to of Performance-based of by second last I'll of of segments. in primarily of offset operating second performance X.X% in first performance XXXX, posted the segment Now second

to expectation to growth the million performance-based that margin in full range XX.X% was outpaced was fees compared for revenue year-over-year The income operating for now is in quarter XXXX XX.X% primarily of year expenses. the same $XX in margin $XX million. XXXX. QX Operating increase to Our Healthcare attributable for

$X.X of and Business Advisory for by XXXX. Advisory percentage for year during The of total performance to million margin quarter We by same higher-margin generated be posted our segment primarily operating QX attributable as Business to in fees practice. a XXXX, reflects expect million revenues practice of quarter quarter. the full second $XX.X XX% XXXX XX% the related the Advisory XX.X% well as The legacy the of to segment X.X% the income margin in for segment in an in The as Healthcare XXXX. is Business and income million a operating the The in salaries earned XX.X% operating relatively improved range. quarter revenues of success in in Innosight QX low income company for was decrease for $XX.X quarter increase the compared compared increase expenses of a to margin second revenues

expect both expenses during of of future do in operating client generated segment achieve revenues Education we to year on was the for be we income to record an related the Advisory Business total salaries during the range. quarterly quarter the increase believe several segment XXXX. to XX% We margin full company cloud and XX% investments XX% The posted income the that continue million segment of expenses a for increase second The and XXXX to in compared sources an had revenue. segment in of investments same in compared for professionals in projects Education quarter quarter, to and our be transformational impact ongoing but and was for clients XX.X% QX QX to bill operating million. margin margin income attributable highlight XXXX. primarily to of The for for as operating engagements. promotion we success want rates revenue-generating $XX.X QX I our an develop XXXX, the quarter in XXXX to revenues XX.X% The XX% decrease for also made $XX.X percentage for marketing of revenues not this our These ensure will trend. strong referral in of

on scopes of benefit expect projects efforts We similar will with work. our that these projects future

XX% Education compared the $XX.X at segment full QX XX% corporate million $XX.X expect segment in million range. with the to margin XXXX. in QX be in year expenses were to allocated Other income not operating level We XXXX

to reflects senior the the promissory note million million Total million. impact the second compared million cash as credit where million, debt set of approximately $XXX of turning quarter cash We of with by for by million. the fourth as value certain decrease a net quarter secured EBITDA. agreement, total the QX be DSO year. be million XXXX and $XX for second the senior XX a recently Now the of our collected in leverage quarter amended to We debt in debt of The XXXX. came ratio the $XXX increase are net first activities $XXX.X compared comments, Consistent we debt the and XX first projects with debt and quarter notes, the DSO of expect $XXX.X scheduled in billings $XX.X provided to flows. leverage quarter fourth million to quarter. of Cash adjusted includes of contractually days in and days prior extended for during ended finished balance ratio, sheet of the from for of X.Xx X.Xx of XX $XX.X of end at quarter days $X XXXX. the for face half XXXX and convertible with of a $XXX.X of of million was defined in to XXXX bank below the end the operating occur our approximately

XXXX of stock year lower cash taxes to reflecting to now activities original We be during cash of grant expect for capital operating to and the $XX continue date the interest to for flow of cash full compensation. expenditures net a the expect awards expect million, at $XX our to year XX%, XX% we $XX Less million share-based rate noncash than free continue tax to of and $XX roughly year price. headwind We excluding the of $XXX million vesting effective million, from million. price

noted, we to our million. Jim raising full guidance as XXXX Finally, are $XXX million year $XXX to revenue

a $X earnings we adjusted per $X.XX $XX.X share million In earnings range range to per EBITDA guidance are addition, $XX $X.XX non-GAAP we updating $X.XX share $XX.X $XX basis, income share. per are our million million to and to our net to to per guidance million narrowing share. to non-GAAP to On to and adjusted

Our of growth. now earnings reflects the our our position well higher rate XXXX growth to the business to to are future investments discrete number in forecasted. in than for strategic company Healthcare the originally company the believe as as position continued We tax guidance to a the have stabilized support continue initiatives make we across business we in a accelerate and effective

value on highly are we margin and focused mentioned, through driving growth Jim As expansion. organic long-term shareholder

there schedules help call measures. these that to would to adjusted to respect reconciling Operator? and several included our consider income As EBITDA, release adjusted will we net when to GAAP will walk a EPS, you adjusted you comparable that Thanks, items everyone. in now need reconciliations. the are The through to reminder, non-GAAP these closing like measures with press open reconciliation questions. I

Operator

comes Blair. of from question first William The Instructions] [Operator Tim McHugh

Your line is open.

Tim McHugh

kind talk I I you at than time. you quarter that decisions in. guess higher made a what and where I talked I guess, of were bit first consistent a or just, little think it expected invested with the some expenses? off said maybe about Could just you expenses about you know guess, And was coming But you you more the expected areas I lot

opportunities come maybe thought levels and So investments? did point the up walk the this guess, spending you're us through at pace on the throughout which quarter? at I making process

John Kelly

Sure, John. I'll is Tim. This start.

add and to and are are these expenses we've growth expansion that we execute do driving future As as incremental business the evolved margin the represent going contribute and and has started over our to organic and current value on year time. ultimately investments to growth progressed believe strategy,

sales some Education, Within as Healthcare the investments segment, in we're team. and within well in related within Just resources client in as we've supporting Business Advisory infrastructure M&A and cloud Healthcare, resources examples making investing training. And assessments. we're invested resources for ES&A our then

So I time. believe to going our growth that going expand to margins and all are to these are over items lead revenue that

Tim McHugh

size that fund magnitude I quantify revenue just strength, just given all you, maybe with can the it those? guess think that can't I revenue? I guess, the amount the a a follow-up, bit you of surprising little of of probably

John Kelly

estimate we headwind during our note this EBITDA point of about basis basis total, the In year our Middle are four East the first the headwind full a that business. margin. year XX to we XX modest the half. incurred in approximately on operating first point items of to was these That months a also loss I'll probably prior sale

any more point. So losses we this to don't the East incur related to at expect Middle

Tim McHugh

And then sold second to drag as just what's on business you the in revenue the that now that quarter? one,

John Kelly

It's very dollars. months entire minimal, the X Tim. digit low The million very first single was for revenue

Operator

Our SunTrust. line comes next Sommer the of from Tobey of question

You proceed. may

Kwan Kim

This Tobey. Kim for is Kwan on

million quarter? income First, the statement the talk item litigation the could about for you on $X

John Kelly

of that those another adjustment you're together that earn-out we had looking fair probably then out. items We We of quarter. during settlement Yes. within really had a million during gain item to get that There's And for the $X an at. the components case two total And to legal a that million collected our quarter. value $X two adjusted related liability the the cash the $X.X million.

It's earn-out's every expect progress And or up down year. be exercise, Now that quarter. do to time. go probably we relates that, that's something through the that as it we that volatile as may over value likely fair we to the

Kwan Kim

likely on next use cash, quarters. the of And over is the of still reduction debt the use most four cash

below targeting you're X.X? that So

John Kelly

that I the It say remains back through half would definitely of the Kwan. is, priority the year. certainly

We quarter in payouts then next year shortly get end year. Xx bonus expect to our so but below thereafter. likely the by We'll during be expect of to we quarter, see the first have below during again that borrowings the increase you'll Xx an

Kwan Kim

it Education or you of Okay. Are And salary. year-over-year, in of on purely a just that's salary? higher result down increase is margin, said bonuses part the that that's expenses

John Kelly

resource to relates had really comment growth. decrease going salary to have some bill for say headcount success of quarter a year-over-year. types for future. of expect to That projects those that those foundation that's increase for in several projects the we primary large in build organic in And we those investments necessarily good as I'd made ensure significant during impacted repeat don't for We've increase the us we headcount a the going we then in rates when to the we items margins for think quarter clients on the our did projects. And be the was forward. and driver

Kwan Kim

year-over-year the second will annual lastly, is growth for hiring summer a plans X% or headcount consultant the the your the proxy And quarter growth? good rate of Okay. in season change

John Kelly

I good I'd speaking. proxy, a say from perspective, a that's headcount think growth generally

Operator

comes question Benchmark. Bill Sutherland of from next Our

Bill Sutherland

in the Roth, your the bit talk Jim a you you're can capabilities breadth Healthcare about bread-and-butter? beyond little increasing that

Jim Roth

Yes.

around through handle our probably business, very the are long has going a in about I'm capabilities most parts of in those couple cycle. as our that. you last of performance and that part it? best actually majority team And revenue ago but of one even a transformation. still the want of it business strictly years talk is So significant Mark business a were wasn't the work, our really Mark of dramatically that to Mark, very improvement reminder, changed let that that, to to prominent though handle that just the

Mark Hussey

successful pillars concept would they're to four has largely of to, Sure. what models solve. really Bill, market, in on go been that trying the really we've within have is really and very And of which Healthcare strategy, so describe the the Innosight delivery this innovation, of way problems whole based notion to how done side. client's I on we we bring flexible

to is patient of services, in and revenue the services value which in component experience, around cycle cost and technology Group, would together clinical. leadership and I really Our one a which perhaps traditional In by improvement, performance think been EHR success. those I which ways each then that follow-on our of it much which often bit is element unlock characterize areas, is bringing the then but different then Studer has to what market, ability is them around having to our is smaller for leading perfectly sets just a differentiate focus which flexible work stage sizes, also in well. engagement fine, more as the little And general, to is

kinds So That Healthcare. to continue the of pretty focus to outside in worked it's on which capability analytics those the of those And on mentioned be broker-dealer that evolution other the that. a actually are And we on the has applications, Healthcare the continues into well. ES&A then brought M&A actually in Healthcare sell and businesses being of gone practice, technical early Jim a spot also into then basis. the Healthcare. in collaborative on more bright our practice, of a advanced lot

Bill Sutherland

Studer, in Specifically a better just doing Is the quarter-over-quarter? second year-over-year quarter? they on issue this are

John Kelly

a bit your a about say say was, year-over-year Bill, ago. performing from we what QX. cancellations they're I'd the some perspective, no headwind From QX in line full a year there revenue the talked sequentially, with really a change related And little it the just expectations year they of perspective. for I'd point, is to to financial still during that do year did our better Yes. versus

Mark Hussey

Go ahead, Bill.

Bill Sutherland

rate kind I normalized for the was say, has to just going so cancel of there Studer?

Mark Hussey

Yes.

stabilized have Things comment. John's to color dramatically. some add me let So

the this business and delivery shifting market, in much starting hold we other when And the the that, going, Group is but what about as large where And Studer were we're worked really of Studer with market concept. only this flexible doing impact respects, take is And of same through some we're that as within some accelerate. really areas the and really settings. that systems they business. of it within more just in of very have pure like. we've talking year We many the as doing models in-sourcing business, outside very ago, have as market of as we this, like national think was the I a described largely some the is think in opportunities the attractive not but at well got, this acute acute look for the to pre-acute and well, the to really is we post-acute just continue

Bill Sutherland

And then just reimbursement curious much the the then the and in particularly a the kind or emerging like frozen the, sector of of general. to and the kind of last one. impact market. across more at side hospital place Kind I'm the relative issues are side how just that pressures the of status are they this curious leading moment? to in of the competitive kind inquiries little Is cost

Mark Hussey

No.

favorable pipeline business, I market been business. for our a are for the way in say playing good. that's think the uncertainties is the I would

continuing on I think there's pressure rising There's reimbursements. costs.

labor think, amount I I driving services. at don't all kinds to going any in for that's the of that, now the into just that solution there's right global our see the term. the There's nursing. that shortage short higher a change issues structural now there's that's right are And mean, at I going look of You of market staffing costs. care health needs

leading opportunities technology, to leadership, So say comprehensive and taking in in well a I businesses, as as our very in performance view and improvement strategy. are would of that's clients broad their

Operator

back for concluded this call. I'd time like Mr. the the have to allotted you. to over we Roth, conference turn

Jim Roth

us with you Have Thank time afternoon. our you October third quarter this spending We evening. for results. to a look when again good speaking forward with we in announce

Operator

call. Thank your That concludes you, everyone, today's participation. conference for

Huron Consulting (HURN) 1 Aug 182018 Q2 Earnings call transcript