Good afternoon and welcome to Huron Consulting Group's Webcast to discuss Financial Results for the Fourth Quarter and Full Year 2024. At this time, all conference call lines are on a listen-only mode. Later, we will conduct our question-and-answer session for conference call participants, and instructions will follow at that time. As a reminder, this conference call is being recorded. Before we begin, I would like to point all of you to the disclosure at the end of the Company's news release for information about any forward-looking statements that may be made or discussed on this call. The news released 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 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 fourth quarter and full year 2024 earnings call. With me today are John Kelly, our Chief Financial Officer, and Ronnie Dale, our Chief Operating Officer. The fourth quarter of 2024 produced record revenues before reimbursable expenses or RBR, as our quarterly growth rate accelerated, reflecting strong performance across all three operating segments. We also drove strong margin expansion over the prior year period, and generated record cash flow from operations during the quarter. 2024 was another strong year for Huron. Consistent with the financial goals we established at our 2022 Investor Day. In 2024, the execution of our integrated growth strategy drove record RBR, and expanded our adjusted EBITDA margins for the fourth consecutive year. Led by strong growth in our Healthcare and Education segments. We achieved 9% RBR growth in 2024 over 2023, which was on top of very strong growth of 20% in 2023, over 2022. For the fourth consecutive year, we achieved high single-digit or better RBR growth. We continued to deliver on our commitments, to expand our margins and return capital to shareholders. In 2024, we meaningfully increased our adjusted EBITDA margin and adjusted diluted earnings per share. We generated record cash flows and we returned over $122 million of capital to shareholders via share repurchases. Collectively, these results created significant value for our shareholders as our stock price increased 21% in 2024. These results were only possible, because of our highly talented and dedicated team, and our clients who continue to engage Huron as their trusted partner. Our growth strategy has delivered another year of strong results, demonstrating the solid foundation we've established under our integrated go-to-market model, and collaborative culture. Now, we'll discuss our fourth quarter and full year 2024 performance, along with our expectations for…

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-K and Investor Relations Page on the Huron website, have reconciliations of these non-GAAP measures, to the most comparable GAAP measures, along with a discussion of why management uses these non-GAAP measures, and why management believes they provide useful information to investors, regarding our financial condition and operating results. Before discussing our financial results for the quarter, I'd like to discuss several housekeeping items. First, our fourth quarter results reflect the acquisition of AXIA Consulting, which closed effective December 1 and as such, one month of AXIA's operating results, are included within the Commercial segment. Second, on December 31, we completed the divestiture of our Studer Education business, which primarily served the K12 education market. As such, our fourth quarter results do include the Studer Education business. In 2024, Studer Education, which was included in the healthcare segment, generated RBR of $13.7 million. Operating income for the Studer Education business, including certain corporate expenses directly related to the Studer Education business, was immaterial for 2024. As we further execute our growth strategy, we will continue to concentrate our resources and investments in areas that align with our market focus, and drive the highest return for our shareholders. Lastly, as it relates to our revenue generating professional headcount metrics, we have updated our earnings release to provide additional information, about headcount by industry and capability. Breaking out Managed Services headcount separately in order to provide more detail to investors, about our revenue generating professional headcount growth. Now I will share some of the key financial results for the quarter, and full year 2024. The…

Thank you. [Operator Instructions] One moment for our first question, please. Our first question comes from Andrew Nicholas of William Blair & Company. Please go ahead, Andrew.

Great. Thank you and good afternoon. I wanted to first ask a question on the regulatory backdrop. I think there was quite a bit of color there, and thoughts on how dynamic the regulatory environment is. But I'm just maybe to simplify a little bit, I'm just curious, is the pipeline, which you referred to as robust, I think several times, has that been affected by it yet? Or is there some concern that it would be, a couple quarters out, just kind of any net impact that you've seen to-date and whether or not that's positive or negative?

Yes, Andrew, it's Mark. We have not to-date seen really any significant clients reprioritize spending, although it's something that we watch at the same time. We also know that given the scope of everything that's going on right now, they need our help. So I think you've kind of framed around maybe if things really start to go the other way, we feel like our guidance range captures the downside. At the same time, we think there's probably upside as well. And I think, it's just changing so rapidly on any given day, it's hard to predict exactly how it will evolve. But it's at this point, we feel like we're as well positioned as we can be given the range of uncertainties that are going on just, because of the breadth of what we do to help them in every part of their business.

And Andrew, I'll just add, from looking at our data perspective, when we look at our backlog coverage, when we look at our pipeline, they all remain very, very strong through the date of the call today. So that's something that gives us a lot of confidence. And then exactly as Mark said, really both within healthcare and education, while it is a dynamic environment and there are frequent changes, many of our offerings really within healthcare and education, are quite responsive to some of the challenges that our clients are seeing. So we feel good about the opportunity there, to really help our clients navigate the change. And one final point would be, if you look at where we made some investments during 2024, first with the GG+A acquisition focused on global philanthropy, and then with the AXIA acquisition focused on supply chain technology, we're really happy that we added talent in those areas, because those feel as we had in 2025, like two areas where we're seeing increasing need from our clients for help. So that's something that also was encouraging to us.

Helpful, thank you. And then maybe for my follow-up, I believe last quarter, John, maybe you mentioned a 2% increase in headcount growth outside of managed services and now it looks like that comparable number is up to the mid-single-digit level. Just kind of curious where you're leaning in, in terms of headcount growth and maybe if there's any thoughts on that plan for 2025 as well?

Yes, I think probably just from a computational perspective, you have AXIA in those numbers. So that probably is one factor in terms of the increase from 2% to the mid-single-digit range. I think beyond that, it continued to be a good quarter in the fourth quarter in terms of sales conversion. That's continued into the early part of the first quarter here. And so that is causing us to continue to add talent to our team, to be able to address client needs. I'd say within the healthcare business, particularly on both the performance improvement side, as well as the managed revenue cycle, managed services side. Those are two places where we're adding a lot of resources, and then also within certain areas of our digital business where we're seeing increased demand.

Great, thank you.

Thank you. Our next question comes from Tobey Sommer of Truist Securities. Please go ahead, Tobey.

Hi, it's Tyler Barishaw on for Tobey. Just with the recent reduction and you mentioned maybe Medical Research bank, can you maybe just explain the puts and takes as you see, maybe for Huron on the positive and negative side?

Yes. So Tyler, the way that would work is that essentially it's really a reduction in demand for our education clients from our revenue for them. Because as they get fewer research grants that are being actually processed, and that's really what's happening right now. If you look at the Federal Register, and the number of grants that are actually being posted out there, it's slowing down significantly. So as they have less revenue that's coming in to fund their research activities, it puts pressure on their overall financial institution, institution from a financial perspective. And then on top of that, if the reimbursement rates on indirect expenses are lowered, it just means grant for grant, they're getting fewer dollars into the organization again. So it's really a net reduction in revenue. So analogous to our healthcare business, when they have margin pressure, margins are not used in education. But the total revenue going down puts pressure on their ability to fund their activities. And so they'll need to think through what are the changes they need to do in their institution to be responsive to reductions in funding. Hopefully that helps explain that dynamic.

Yes, it does. Thank you. And just following up on utilization, can you maybe just give us some expectations for how utilization will turn throughout the year?

Sure. Tyler. If you look at 2024, the way things progressed, there was really a steady ramp of improvement in utilization over the course of the year. In the fourth quarter, we were above 77% both for our consulting capability as well as our digital capability. As we turn the corner into the first quarter, I think our expectation is that you're going to continue to see strengthened utilization. I think that's reflective of the demand that we're seeing. And part of the reason utilization was lower in the first half of 2024 was we did have unusually or historically low attrition in the business. So that remains a factor that we'll have to continue to watch into 2025. But if you make normalized assumptions there for 2025, we still think that we're going to have some nice year-over-year improvement in terms of utilization in the first half of the year versus 2024.

Then just one final one. A lot of the different, like managed care organizations are talking about higher medical costs in '25. You maybe just explain how that will impact your business, the healthcare side of your business?

Yes. Again, Tyler, I think it's a consequence of squeeze margins, because if you have a value based care contract just costing you more to deliver against it, you're actually realizing fewer dollars on those contracts. So essentially it's just, again, it's been a longer term trend that we've seen in both healthcare and education in terms of the increasing cost levels relative to the revenue they're bringing in. So it's just another lever that's going to put pressure on those organizations.

Okay. Thank you so much.

Sure.

Thank you. Our next question comes from Bill Sutherland of The Benchmark Company. Please go ahead, Bill.

Okay. Thank you. Hi guys. I think, John, you said that '24, the operating margin benefited from lower employee expenses. Can you color provide color on that?

I think, Bill, in terms of what benefited margins in 2024, I think there was general good management of our expenses across the business, not necessarily employee expenses. The other levers that I would point to in terms of what really drove the strong margin improvement in 2024, really our effectiveness in terms of pricing, and making sure that we were billing in a manner that reflects the value we're driving for our clients, was a big factor in 2024 scaling of our corporate SG&A. As we've made investments over the years in our corporate infrastructure, to really allow us to scale as we grow. I think that was another factor. Continued strong utilization of our global capabilities I think was a factor. So those were all things that we look at in terms of what really benefited 2024 in terms of now. Okay. Going from 2024 to 2025, I think there's still room to run on many of those factors. I think, consistent with the last question from Tyler, I think that there's room for utilization to improve in 2025 on a full year basis, from where it was at in 2024. So I think that could be another factor. And then the final thing, I'd point to is we have another number of initiatives within Huron right now, to really effectively use our automation, analytics, AI tools, to help us operate more efficiently. And we've got expectations that that automation is going to help us, continue to scale our cost as well. Are you using some of your offshore for your corporate?

We do. Our global team supports our corporate needs as well. John, did you mention how much AXIA is going to contribute to the commercial growth this year?

Yes. So if we think about 2025, I put the expectations, Bill, in a range of $35 million to $40 million in 2025. Keep in mind there was about $3 million in the fourth quarter. So think of that as incremental in the low $30 million range. And then as I noted in my remarks, we did divest student education during the year, which was about $14 million in revenue last year. So the net of all that is $20 million to $25 million of probably inorganic growth that's baked into the guide.

And students in healthcare, right?

Student education was in healthcare, yes. Yes.

Okay. So are you guys, you know this. The world's changing rapidly and I was wondering if. I mean, it just seems to line up very well for your capabilities for the most part. But I'm just thinking, are clients kind of holding back on work orders, and implementations just for the moment? Is there a chance for a little bit of a, just a short-term air pocket?

Bill a lot of. So what we've seen so far is some of the larger digital initiatives that we have going on for systems implementations. They're not stopping those projects. They've committed to dollars. They need them for the future. And there's a tremendous cost and impact to stop anything in the middle. And so those are right now going on. We do see as an example just discussions about what is the response, because right now it's not clear entirely. As an example, if there's an unpopular decision, you're seeing state AGs essentially file lawsuits to basically put in temporary restraining orders. So some of these are going to work through the system here in the coming weeks. But at the end of the day there's going to be a need, for a lot of help in a short period of time, to help clients reposition their businesses to be responsive not only to the current year financial impact, but for the longer term. So, different than COVID as an example, just like in contrast where you didn't have students there, and it was a big shock or you took elective surgeries out of the healthcare system. Those were also shocks, but they were not necessarily always good for us. I feel like these are issues that play to our strengths, based on the offerings that we have. And that's why we perhaps feel we're watching it carefully. But we don't have any material concerns. We're mainly concerned about truly helping our clients in a very challenging situation. That is a paramount focus for a lot of our people right now.

Sure, sure. The last one, John, you said for us to look for mid-single top line growth in healthcare. Kind of what are your puts and takes as you lay that number out there?

So I think, if you look at our revenue growth over the past several years in healthcare was 13% in 2024, 26% in 2023, 20% in 2022. Obviously it's just been a really strong run of growth there. So just given that it's our biggest business, a little bit of law, large numbers and some of the growth that we've seen over the past few years, thought it was more prudent at the beginning of the year, to go with a more cautious growth outlook to start. I would point out that that was also our guidance at the beginning of 2024, and we ended up having a year where we were able to post double-digit growth. Other factor that I'd point in that point out Bill, in that five, mid-single-digit percent range, is that has the divestiture of student education embedded in it. So really kind of the implied organic growth, is a couple of points higher than that. I think in terms of, what drives the upside there. We continue to see really strong demand for our performance improvement offerings. We continue to see really strong demand for our HMS managed services offerings, in digital as well from a lot of our clients that are investing in their digital infrastructure. It's been good for our strategy and financial advisory teams too. So I think those are all the things that to the extent that momentum would continue throughout the year, like it was towards the end of last year that could drive us towards the upper end of the revenue guide.

Okay. Okay, sounds good, thanks.

Thanks Bill.

Thank you. [Operator Instructions] Our next question comes from the line of Kevin Steinke of Barrington Research Associates. Please go ahead, Kevin.

Thanks. So I guess in relation to an earlier question, but specific to commercial digital, I think last quarter you're talking about you felt like you were pretty well positioned for some good growth in the commercial digital business in 2025. I think in your prepared comments you kind of talked about cautious optimism. Is that kind of the way you're thinking about that business as we move into 2025, given some of the uncertainty in the environment? And just what does the overall pipeline in commercial digital look like?

Yes. Kevin, this is John. I think from an overall perspective, we're very encouraged by the backlog coverage ratios that we see right now in the Commercial segment, and that includes our digital business. So that's certainly something that gives us confidence. If you look at the 20 plus percent growth that we've talked about for the Commercial segment in 2025, based on the guidance that's about half from our AXIA business. It's about half organic growth, and really the organic there is driven by our digital business. And that's based on some of the stability now we've seen in the pipeline and the backlog coverage that we have going into the year, as well as what continues to be a robust environment for our financial advisory offerings within the Commercial segments. We put those two things together, and that's what really drives our confidence in the 20% plus guided growth rate for 2025.

Okay. Thanks, that's helpful. And also last quarter you had talked about some projects that had been a little slower to start up. I'm thinking specifically within education. It sounded like some client specific factors. Have those projects started to catch up now, or ramp up or, or is there anything to call out there on that front?

No, Kevin, those did commence in the back half of last year into the fourth quarter, as we expected. We went through a lot of that ramp up period during the fourth quarter, and I would describe those projects as now at run rate, as we start the year here, as we had expected last time we talked.

Okay. Great. And then just lastly, Mark, I believe in your prepared comments you talked about plans to broaden your healthcare offering. And I feel like, you're already pretty broad in your healthcare services, but any comments on where you could potentially add, or broaden out those services even more?

Yes, Kevin, I think there's a number of areas. I think our financial advisory services area has certainly areas for expansion that I think bring us more, to the strategic and advisory areas of M&A as an example. Our managed services offering, which we continue to be very excited about, and I think we're going to continue to see momentum as well. I think digital as well as payer, I think there is. When you consider the size of the U.S. provider market, I think we have a lot more runway in the healthcare industry, to just continue to broaden and adjacencies that we have today, such deep and very strong client relationships that just - set us up for continued expansion.

Okay. Sounds great. I'll turn it back over. Thank you.

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

Thank you, everyone for spending time with us this afternoon. We look forward to speaking with you again, at our upcoming Investor Day on March 25, when we're going to share more about the continued evolution of our strategy and financial goals. Have a good evening.

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