Good afternoon, and welcome to Huron Consulting Group's webcast to discuss financial results for the first quarter 2024. [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. The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Huron's 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 Mr. Mark Hussey, Chief Executive Officer and President of Huron Consulting Group. Mr. Hussey, please go ahead.

Good afternoon, and welcome to Huron Consulting Group's First Quarter 2024 Earnings Call. With me today are John Kelly, our Chief Financial Officer; and Ronnie Dail, our Chief Operating Officer. Our first quarter revenue -- I'm sorry, our first quarter results reflect our ongoing focus on achieving consistent revenue growth and margin expansion. Revenues grew 12% over the first quarter of 2023, driven by strong growth in our Healthcare segment as well as continued growth in our Education segment, which furthers the segment's multiyear growth trajectory. Our strong growth in the first quarter of 2023 was achieved on top of strong growth in the year ago quarter with Q1 2023 growth of 22% over the first quarter of 2022. Our first quarter results also demonstrate our commitment to delivering on the growth strategy and financial goals shared at our 2022 Investor Day, consisting of low double-digit annual revenue growth and expanding our adjusted EBITDA margins to mid-teen levels, leading to an annual high-teen percentage adjusted EPS growth. We believe achieving our financial goals together with a balanced capital deployment strategy that prioritizes moderate leverage, share repurchase and targeted M&A will drive strong returns for our shareholders over time. I'll now share some additional insight into the progress we've made on our strategy while providing color into our first quarter performance. As a reminder, to achieve our goals, we're committed to executing against 5 strategic pillars. The first pillar of our strategy is to continue accelerating growth in our largest industries, health care and education, where we're focused on building upon our leading competitive positions. In the Healthcare segment, first quarter revenues grew 21% over the prior year quarter. The increase in revenues in Q1 of 2024 was driven by strong broad-based demand across our performance improvement, digital, strategy and innovation…

Thank you, Mark, and good afternoon, everyone. Before I begin, please note that I will be discussing non-GAAP financial measures, such as EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS and free cash flow. Our press release, 10-Q and Investor Relations page on the Huron website have reconciliations of these non-GAAP measures to the most comparable GAAP measures, along with the discussion of why management uses these non-GAAP measures and why management believes they provide useful information to investors regarding our financial condition and operating results. Before discussing our financial results for the quarter, I'd like to acknowledge housekeeping items. First, our first quarter results reflect the acquisition of GG+A, which closed on March 1. And as such, 1 month of GG+A's operating results are included within the Education segment. Second, in conjunction with the continued refinement of our operating model, we reclassified certain revenue-generating professionals within our Digital capability from our Healthcare and Education segments to our Commercial segment, reflecting the flexibility of these professionals to provide services across all of our industries, inclusive of health care and education. We have provided supplemental materials to provide additional details to this reclassification, which are posted on the Investor Relations section of our website. Now I will share some of the key financial results for the first quarter. Revenues for the first quarter of 2024 were $356 million, up 12% from $317.9 million in the same quarter of 2023. The increase in revenues for the quarter was driven by strong growth in our Healthcare segment and continued growth in our Education segment. Net income for the first quarter of 2024 was $18 million or $0.95 per diluted share compared to net income of $13.4 million or $0.68 per diluted share in the first quarter of 2023. Our effective income tax rate…

[Operator Instructions] One moment for our first question, which comes from the line of Andrew Nicholas of William Blair & Company.

I wanted to start on the Healthcare segment's growth. Really strong quarter on that front. Mark, you alluded to kind of broad-based demand across that segment. But I was hoping you could unpack where the growth rates fit across PI, digital, strategy and innovation, financial adviser. Just kind of getting a sense for under the hood kind of where the strength is, if there is a rotation between the different segments as the end market seems to get a bit healthier with time. That would be really helpful to kind of understand.

Yes. John, why don't you give some color into some of the trends by area?

Yes, I'm happy to do that. I'll start there, and then Mark, you can give the color commentary. From a breakout within the Healthcare business, continue to see a lot of strength, Andrew, within our consulting part of the business, and particularly our performance improvement part of the business. Year-over-year, that was up north of 20% between the 2 years. So consistent with Mark's comments, that's a part of the business where even though year-over-year we've seen some improvement in the industry in terms of average profit margins and things like that, there's still a number of clients that are facing financial strain right now, and we see continued demand for those types of projects. From a Digital perspective, we continue to see really good growth overall, high-teen growth from a Digital perspective. I think that's reflective of really the other part of the market where we see clients that have reached more financial stability now turning around and really starting to execute on some of their investment plans, which oftentimes includes improving the digital infrastructure. So we've seen good growth there. And then you referenced as well strategy and financial advisory. Those are 2 smaller basis of revenue within the business but areas that are really performing well. And so from a percentage perspective, they're up, call it, north of 25% year-over-year. But they're starting from a smaller base. But I think those are both areas where we see a lot of demand with our clients right now in terms of working on the strategies as well as starting to think about balance sheet considerations where our financial advisory team plays really well with those clients. So hopefully, that gives some color.

Yes. And I would say, Andrew, my comment on the mixed view of margins within the sector. It really depends a little bit on market-specific situations. But I would tell you that collectively, it's some -- in those systems that are having performance improvement issues, there are also aspects that address every one of the businesses. So it's not as if performance improvement is only on one side and not on the other. So it really is just maybe leaning more heavily on one side of that mix. And I'd say our power in the market right now is really our ability to bring that team together very collectively in coordination and seamlessly across each client situation, which has really enabled us to differentiate and have a very strong offering for the clients in terms of driving value.

And maybe, Andrew, I'll jump in with one last point as it relates to the strategy business and as it relates to our healthy financial advisory business. The percentages probably aren't as helpful to think of. But if you look at a year ago at this time, those were low single-digit million-dollar businesses for us that now are operating more in the mid-teens million-dollar level. And we continue to see -- we're investing in that growth that we've seen and continue to see demand trajectory like that. So that's an area within the portfolio that we're pretty excited about in terms of adding growth to business.

That's really helpful. I guess I would have thought maybe a little bit more of a rotation, but it sounds like everything is still very much hitting on all cylinders. Appreciate that. And then maybe for my follow-up on the margin front, pretty encouraged by the margin expansion even with a little bit lower utilization in the quarter and some really strong head count growth. So can you talk about kind of the ability to expand margins despite lower utilization? And then somewhat relatedly, I think it's up about 20 basis points year-over-year in the first quarter. You stuck to the full year margin expansion guidance. So what dynamics allow you to expect maybe more margin expansion on a year-over-year basis through the rest of the year and in the second half as opposed to the start of the year?

Sure, Andrew, I can start there. We had a few items during the quarter that were not expected to repeat as the year goes on that adds some extra expense. So we're actually very pleased with the 20 basis points of margin expansion in the quarter given that we had some of those expenses. And one such item was one of our larger teams had a practice meeting during the quarter. We typically do one of those a year, not necessarily the same team every year, but the corresponding large event like that was during the fourth quarter of this year. It was during the first quarter this year. So that was a little bit of an unfavorable comparison. That alone had about a 70 basis point impact on margins during the quarter. We also, as I referenced in my remarks, had some deal-related expenses that came through during the quarter. You're aware of the closing of the GG+A acquisition. We had some onetime items related to earn-out valuations that also came through during the quarter. And then one final item that we referenced was we did have an uptick in legal expenses during the quarter that we're not expecting to repeat at that level as the year goes on. So there were some headwinds during the quarter related to some of those factors that are either things that have been adjusted out like the fair value -- the earn-out fair value adjustments and then onetime-type items that we don't expect to repeat later in the quarter. So despite the 20 basis points of improvement during the first quarter, that's what gives us confidence that we'll be able to accelerate that margin expansion as the year goes on.

Our next question comes from the line of Tobey Sommer of Truist Securities.

This is Jasper Bibb on for Tobey. Can you maybe frame for us what's assumed for Healthcare performance improvement growth in your '24 guidance? And maybe I missed it in the earlier discussion about different practice groups within Healthcare, but how is Studer Group doing right now?

Yes. So from a performance improvement perspective during the year, I think that's an area of the business where the guidance initially at the beginning of the year called more mid- to upper single-digit growth within that business just because they had such a record performance in 2023. Obviously, we're off to a good start in that business with the growth that I described in the first quarter that's outpacing that. So that's an area where there's potential for upside as the year goes on. But these assumptions were relatively conservative in the original plan. And then as far as the people business go, the Studer Group business that you referred to, that's an area of the business where we're planning for modest, call it, low single-digit growth during the year.

Got it. That's helpful. I guess maybe stepping back, any thoughts on the FTC's move to ban noncompetes and what that might mean for your business?

Yes. This is Mark. We're -- at this point, first of all, we all know it's going to get litigated. So I don't think we really know the outcome for several months. But having said that, we are not overly concerned about it in our business. It's certainly something we use and manage all the time, and candidly, might be more of an opportunity as an example for us. But it's not something that right now is paramount in terms of our concern list.

Got it. Last one for me, like head count growth came in a lot faster than we expected this quarter, and maybe some of that was GG+A, but how should we think about the pace of head count adds and the corresponding impact on utilization over the balance of the year?

Yes. There's a couple of things to think of as you think about the head count because you referenced you've got the addition of GG+A, which is -- think of that as about 100 FTEs. We've also been building out our managed services capabilities from a global delivery perspective. I'm using our India team as a base there. And so we've had some more aggressive head count adds there as we continue to win new assignments in that area and build out that part of our business, but that tends to skew to a lower expense item than in some other areas. And then the other thing that's probably in the numbers is we had really record low attrition during the first quarter this year. And that's on top of what was low attrition in 2023 as well. So I think it's all those factors that you see, generally low attrition environment, and then some focused adds in some of the areas that we're investing for growth.

Our next question comes from the line of Bill Sutherland of Benchmark.

Mark and John, I just want to make sure I got the speaker on. Can you hear me?

Yes. Sounds good.

Good. Cool. So just to follow up, I guess, on that head count question. It was particularly strong in Healthcare quarter-on-quarter. I think it was like 11%. So I guess all those factors, John, you just referred to apply to Healthcare. Is there any other color, particularly for the segment? And then how do we think about kind of sequentially for the rest of the year, the head count trend there?

Well, to the broader point, so a lot of the head count growth that you see there, Bill, is the additions to our managed services team during -- over the course of the past year. I will say when it comes through the numbers, this is an area where we continue to see excellent growth potential business. So it's definitely still an area of the business where we're hiring, we're adding talent in order to meet the needs of our clients and continue to grow for the remainder of the year. And so from a modeling perspective, I think when you look at it longer term over the course of the year, I think it's still safe to think of an expectation that head count growth is going to ultimately kind of land in line with revenue growth for the year. I think that's a safe assumption. Now there may be areas as the year progresses where we do some additional investments. So there may be areas where we end up with higher utilization and a little bit less head count add. But generally speaking, I think thinking of head count percentage growth and revenue percent growth is probably being the same for the remainder of the year, the way we look at it.

Okay. I know utilization can bounce around quarter-to-quarter. Pretty big moves in Digital and Consulting, Digital up, Consulting down. Consulting I assume, is basically just catching up with the hiring, including the acquisition. I'm not sure what their utilizations were. But is that fair to say? And then on Digital, is that sustainable?

I'll offer 2 things, Bill, on the Consulting side. There was a little bit of pressure on the utilization metric related to the acquisition just in the first month by onboarding some of those employees. Again, the low attrition environment in general is another factor that we have a very low attrition environment that can put a little bit of pressure on the utilization metric. From a Digital perspective, I think that we actually have room to improve that metric as the year goes from where it landed in the first quarter. So it was up year-over-year. It was actually down a little bit sequentially, if you look at the fourth quarter versus the first quarter. So we think that there's more room to run on that metric. And the final point I made when we're talking about expenses earlier, I referenced the large team meeting that we had that was about 70 basis points of expense during the quarter. That also has a utilization impact. And we don't want a [ precision ] around it. I think we estimate that the impact for the Consulting utilization related to that was about 1.5%. So I think that that's not clearly a significant kind of onetime item that you'd see in the first quarter.

Got it. The -- what's -- did you guys talk about this in the prepared remarks? I had to step away for a second. Kind of the -- your thoughts on capital allocation now that you've done a significant share buyback. I know you're going to moderate, but how are you looking at perhaps the M&A environment? Does there seem to be good opportunities? Or are you going to watch and see at this point?

Bill, it's Mark. We like the M&A pipeline we have. And we've always had a pretty picky set of opportunities that we pursue often. We're getting to know them, sometimes working in the market together. But often, that's a precursor for us to move to the next step of an acquisition. We've looked at a lot of companies over the last year. And I would just say we continue to look at really good opportunities that we feel good about. I do think they get in tuck-in type category, but the range of size could be a little bit bigger than GG+A and can skew a little bit smaller than that, but I think that we continue to be -- obviously, you can't time exactly when those happen, but I would expect us to be more active through the balance of the year.

Our next question coming from the line of Kevin Steinke of Barrington Research Associates.

So you talked about some continuing caution from clients in the Commercial segment about moving forward with digital and strategy and innovation projects. I believe on your last call, the fourth quarter call, you talked about some -- seeing some signs that those areas could pick up in 2024. Is that still the case? Or do you think clients have become a little more cautious over the last 3 months or so here?

Kevin, it's John. I'll -- we absolutely still see indications that suggest it could pick up as 2024 goes on. When we actually look at the size of the pipeline and some of the opportunities of the pipeline, we're really encouraged by it. There are some great projects in there. And I guess the underlying theme there is there's a lot of need and demand for our clients for the services that we provide. I think what is ended up being a little bit of a cautionary factor or the mix signal is, I think, because of some of the general macroeconomic uncertainty that's in the market right now, you do see clients that are just a little bit more hesitant to get a project started, a little bit more deliberate in how they pace out projects and things about that. And so that's kind of what we're fighting through. But in terms of the needs that are out there in the market, we definitely see that. And from our perspective, it's really just kind of a matter of when, not a matter if in terms of that coming back. But we're definitely going through a period right now where there's a little bit of uncertainty.

I think it's well said. I think it's the inflationary environment, the economy. But when you look at the election year, obviously, is on the minds of several of our clients as well. But I think that John said it right. The pipeline is actually pretty good. It's more a matter of how does the timing play out with respect to specific opportunities. But we're definitely getting our share of that and feeling good about our offerings and being competitive in the market.

Okay. And then also on Commercial, you mentioned continued growth in financial advisory. Is that an area as hot as it has been? I know you're going to be coming up against some more difficult comparisons here, but is that slowing at all or as strong as it's been or strengthening? Just kind of wondering directionally how that's trending.

I think it's -- so the context I'd give, Kevin, is last year that business was really white hot in terms of demand and in terms of a record revenue sort of year. I think the growth rate has moderated or we expect it to moderate from what we saw last year, but it still was a robust demand environment. There's still a significant amount of inquiries for our services in that area. And our team is still adding quite frankly, a significant amount of success on some of those opportunities. So when that business is performing well, it's really high margin part of our portfolio. And we continue to feel very good about prospects of that business as the year goes on, even if it's not growing at the kind of really high rate that it was growing in 2023 in a record year.

Okay. And then just lastly, any -- I know you reiterated the full year 2024 revenue guidance, but any change at the segment level in terms of the growth outlook in each segment that gets you to that consolidated number?

I think it's probably a little too early to adjust the guidance here, Kevin. Obviously, the Healthcare business is off to a great start. Continue to feel really good about the pipeline there. So I think that might be an area where you could expect to see potentially a little bit of upside. And the first quarter for the Commercial segment was a little bit slower. That was more flat during the quarter. So that might be where you'd see a little bit of pressure on the growth rate. But we'll continue to execute throughout the year, and I would anticipate by the time we get to the next call, we can refine that a little bit. But those will be maybe in broad strokes where we see a little bit of increased demand versus where it's been a little bit softer.

Okay. Lastly, John, I don't know if you called out the dollar amount of the legal expenses that you don't expect to recur after the first quarter.

So there's always some level of legal expense in our SG&A. But I described, Kevin, the amount that was above and beyond will be the normal run rate, will be a couple of million dollars.

[Operator Instructions] Our next question comes from the line of Moshe Katri of Wedbush Securities.

Congrats on very, very strong results. I believe -- I think Huron is the only company in the space that's actually recruiting. So what's embedded in terms of organic head count growth in your calendar '24 guidance? That's my first question.

In terms of the guidance, so our revenue growth rate for the year from a projection perspective, the midpoint guidance was around 10%. And the range around that was 7% to 13%. So in terms of us expanding our talent pool during the year, we're expecting that to basically be of a similar trajectory as the revenue growth. So around that 10% range.

Understood. And then there's lots of questions about visibility. But then if I had to kind of look at visibility for Healthcare, Education and Commercial now versus early calendar '24, let's say, 3 months ago, has that changed, improved, got worse? How do you -- how would you kind of define it?

I would say within the Healthcare segment, it's improved during the quarter in a couple of different aspects. We've had some really nice opportunities in the pipeline. We've had some strong conversion of those opportunities, sales conversion into backlog. And so I think those things have improved visibility. And then we also have projects that have performance-based fee elements to that to the extent that we're able to successfully deliver for our clients. And I think our teams are executing very strongly at some of those projects, which gives us confidence that there's the potential for some revenue upside related to those projects as the year goes on. So I think Healthcare being an area where it's improved I think Education is very consistent with where we were 3 months ago. And I think that -- which is a positive story for us. We continue to see strong demand there and really broad-based demand across our different offerings. But I think that's been fairly consistent. And then Commercial might be the one where the size of the pipeline continues to be robust. But in terms of visibility in the short term, that's where we've seen a little bit slower conversion, particularly on some of the digital projects. And I described there as maybe an area where there's a little bit more caution than maybe where we were 3 months ago.

Yes. One addition on that is when you look at our financial advisory offerings, which we talked a little bit about, tend to have a very, very short sales cycle. I mean literally could be within a week to when an engagement might start. So those are the kind of things in that environment where it's kind of a balance to some of the other areas that we've seen a little bit of delay in decision-making or projects that are just pushed off.

Yes. Understood. And then -- so basically, the pipeline in Digital is strong, but it's just not converting. Is that the right way to look at it? Or not converting on time?

In Commercial, yes. I'd say in the other parts of the business, it's either stronger or -- Healthcare has been stronger. Education has been fairly consistent. I'd say in Commercial for Digital is the area where good-looking pipeline but where the conversion has just been slower than maybe historical norms.

And then final question about your India operation. Can we get some -- maybe some transparency in terms of their head count? Maybe where was it a year ago? And what do you expect it to be during the next year or 2?

So from a total head count perspective, it's roughly 28% of our total workforce is in India. And the 3 areas that are most prominently delivered by our global team in India is our Digital business, which has about 1,000 of those employees; our Managed Services business, which has, call it, 500 or 600 of those employees; and then we do support our corporate enterprise with our team members in that location as well, which makes up the remainder of the head count. And from a growth perspective, that's been an area that's been growing very strongly. If you were to go a little further back than just last year, it's grown significantly. Five years ago, it was probably low hundreds in terms of employees that we had there up to the 2,000 rough number that we have now in India. I'd say year-over-year, it was still a strong growth area, but I think just matured a little bit, I'd say, over the course of the past year.

Thank you. Seeing no more questions in the queue, I'd like to turn the call back to Mr. Hussey.

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

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