Good afternoon, ladies and gentlemen, and welcome to Huron Consulting Group's webcast to discuss financial results for the Fourth Quarter and Full-Year 2017. [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 Jim Roth, Chief Executive Officer and President of Huron Consulting Group. Mr. Roth, please go ahead.

Good afternoon, and welcome to Huron Consulting Group's fourth quarter and full-year 2017 earnings call. With me today are John Kelly, our Chief Financial Officer; and Mark Hussey, our Chief Operating Officer. Our fourth quarter results were slightly below our expectations, with mixed results across segments. We have made significant progress in the operational turnaround of our Healthcare business, and the Education segment performed well throughout the year and finished the fourth quarter consistent with our expectations. Finally, the Business Advisory segment had a softer fourth quarter. I will now share some additional insight into our fourth quarter and full-year performance and our expectations for 2018. On a full-year basis, Healthcare segment revenues declined 16%, over 2016. The year-over-year decline was primarily attributable to a reduction in performance improvement revenue, stemming, in part, from the roll-off of some larger engagements, and to a lesser extent, softness in our Studer Group business, primarily in the middle of the year. Healthcare revenues in Q4 2017 declined approximately 6% over the same period in 2016, but grew 20% sequentially over Q3 2017. The sequential growth was driven by our performance improvement business where demand strengthened due to the ongoing financial pressures impacting our clients and a broader disruption taking place across the healthcare provider industry. Utilization increased in the fourth quarter to 84% achieving the highest rate in four years. The changes we made during 2017 to accelerate the operational turnaround of our healthcare business have positioned us to be more responsive to changing market conditions. Among other initiatives this includes efforts to better equip the healthcare business to compete across a wider spectrum of engagement sizes and durations as we have developed more flexible delivery models. In addition, we have enhanced the level of collaboration across all of our service lines, while…

Thank you, Jim 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 in investor relations page on the Huron website have reconciliations of these non-GAAP measures to the most comparable GAAP measures along with a discussion of why management uses these non-GAAP measures and why management believes they provide useful information to investors regarding our financial condition and operating results. Also, unless otherwise stated, my comments today are all on a continuing operations basis. Now, let me walk you through some of the key financial results for the quarter. Revenues for the fourth quarter of 2017 were $185.9 million, up 4.4% from $178.1 million in the same quarter of 2016. Revenues in the fourth quarter of 2017 reflect our acquisitions of Pope Woodhead and Innosight, which in aggregate generated $9.8 million of revenues during the quarter. Fourth-quarter 2017 revenues also included revenues from our acquisition of the international business of ADI Strategies, which has been fully integrated into our business. Net loss was $29.3 million or $1.36 per diluted share in the fourth quarter of 2017, compared to net income of $4.2 million or $0.19 per diluted share in the same quarter in the prior year. The decline in net income over the prior year period reflects the goodwill impairment charge related to the ES&A business, which I’ll come back to in a few minutes. On a full-year basis, net loss was $170.5 million or $7.95 per diluted share in 2017, compared to net income of $39.5 million or $1.84 per diluted share in 2016. The decline in net income over the prior year period reflects the goodwill impairment charges related to the healthcare…

Thank you. [Operator Instructions] Okay, and our first question is from the line of Tim McHugh with William Blair and Company. Your line is open.

Thanks. Can you just elaborate on the bonus increase as it relates to margins, can you quantify how much of that market margin drag is that and I guess give us some context for what level of performance is assumed, I guess by that bonus increase, and I’m trying to understand if revenue growth does continue to improve in healthcare, do your shareholders see that or does they need to see bonus accruals continue to go up?

Hi Tim, this is John. I’ll start by saying, I don't think we are getting into specifically quantifying the dollar amount, but the significant majority of the decline in EBITDA margin from the 2017 EBITDA margin rate for the 2018 EBITDA margin is related to those bonus adjustments. And I think, the context to think about it then is, and we don’t expect it to increase going into the future and we don't expect it to be a headwind margin beyond 2018, rather over the past couple of years, some of our teams, particularly within the healthcare practice, due to not hitting their financial targets have lower than expected bonus funding or lower than their target bonus funding and the decision was that going into 2018 that the right long-term move was to make sure that their plan was attainable and they could get back to full bonus funding in 2018. And that’s why the lower margins in 2018 were the flat.

Okay. And then just on healthcare, I guess obviously the fourth quarter has shown improvement, but can you elaborate a little bit more on what you saw exiting the quarter and here in 2018, I guess the guidance I understand you don't have this in second half, but it would imply maybe the strength you did not see in the fourth quarter, you haven't seen that continue as we move into 2018, so any more color there would be helpful.

Hi Tim, it is Mark. So, let me just offer that. I think we’ve seen a continuation at least a stabilization perhaps, some things in the fourth quarter helped a little bit. I think we had talked about in our third quarter call, little bit of contingent slipping from Q3 into Q4, but I would just say in general we're seeing continued pressures within the markets, and well I think the predictability is perhaps the bigger factor. I think that there’s nothing that’s changed that has made the environment to easier to operate in from a healthcare provider standpoint.

Tim, this is Jim. I want to make one of the comments back on your other question about bonuses, and just to be clear that when we say that the bonuses would be paid out if the plan, if their 2018 plans are achieved and I just want to remind you that our plans are higher than guidance.

Okay. And then lastly on the kind of the business advisory segment, where there turnovers, 9-month [ph] turnover within the staff or other market trends, you think they kind of just stay or it was kind of a soft quarter lumpiness that we may see from time-to-time, but are there any other kind of structural changes in terms of the workforce, the demand environment, and so forth that make you kind of question the performance of that business?

Tim, we don't see anything structural like that. The softness in the fourth quarter is really driven by business, the legacy business advisory practice, NSA and DS&A and it is a little bit of a different story in each. I would say within the legacy business advisory practice there were some contingent fees that we had hoped to hit in the fourth quarter that we didn’t and that was part of the issue there. From a NSA perspective, that business can be lumpy and we knew that going in. It turned out that the fourth quarter was a softer quarter than what the expected, but as we turn the corner into the first quarter, we think that they are going to rebound from that level in the fourth quarter and then really from an ES&A practice perspective they had a softer quarter, we don't think it’s anything structural in the market, but they have been growing at a rapid pace. They had a slowdown in revenue during the fourth quarter and that hit them from a margins perspective as well.

Okay, thank you.

Thank you. Our next question comes from the line of Tobey Sommer with SunTrust. Your line is open.

Thanks. From a balance sheet perspective, what would leverage to look like kind of when it seasonally peaks after the bonus payout and then given the cash ops and debt pay down what would be expect it to be towards year-end?

Toby, we would expect in the first quarter to peak somewhere around 3.5 to 3.6 times and then we expect it to come down below three, likely to the mid-upper twos by the time we get to the fourth quarter.

Okay. I think Jim, you alluded to a five-year plan. Is there any thought about sharing some of the details of that eventually externally with investors?

We may at some point Toby. I think we're still at the point where we’re - we’ve got some, we’ve got a corporatewide strategic framework that we’ve put together and we’re now kind of bringing that down to the practices. We will have more to say on this as time goes on. It is very, it has been a very significant part of what we have been working on. Really sends the early summer of 2017, and I suspect that we will have more to share at some point in time. Part of it will be of course competitively sensitive. Other parts will be appropriate for discussion. But we have internal - both strategic expectations for where the strategy can take us and we also have our own financial expectations where it will take us between now and 2022, and we have been spending a lot of time building that with our teams. This wasn’t just something that was top down, it was very, very much involved with all the practices and now we are just continuing to refine it and put some more detail around some of the practice related issues and then it will be complete from our end. But we’re already executing against the essence of it right now and we feel very good about it as do our people.

Could you comment on your plans for headcounts in the segments in 2018 and anything you can see at this point regarding bill rates and bill rate increased realizations? Thanks.

Tobey from a headcount perspective we do expect headcount to grow modestly across all the businesses next year. If you look at the first quarter results in healthcare, 84.5% utilization for the fourth of 2017 that is running really hot at 84.5%. So, we certainly think we can run that business north of 80, but 84.5 might be high, so we expect to have some modest increase in headcount there. Education, we still expect to grow, heading next year into the mid-to-upper single digits, so we expect it to be headcount growth there, and relates the same in business advisory on probably the slower pace than what we have seen over the past few years in business advisory as headcount has significantly via both acquisition and some stronger organic growth, but we still expect headcount to grow. And then from a bill rate perspective, our expectations are that bill rates will be relatively consistent with what we saw in 2017.

Thanks. Last question for me, could you describe the sales funnel for healthcare? You already made a comment kind of where we sit, I guess, relative to the back-half visibility or lack thereof. But curious about particularly in the performance improvement area, what that looks like?

Sure, Tobey. I think the best way to describe it is, it continues to be, I would say, generally robust. I would say, some of the areas of strength right now have shifted a little bit more toward the revenue cycle side and away from some of the cost in clinical just which had been relatively hot the other way around if you look back three or four, five quarters ago. We continue to see lots of demand in the technology optimization side of the needs of the market. And I would say, with Studer Group, we have a fairly normal looking pipeline consistent with really the kinds of things that we saw in the latter half of 2017?

Thank you very much.

Thank you. Our next question comes from the line of Bill Sutherland with Benchmark. Your line is open.

Thank you. Really, I'm just down to one question. I'm just and I might have missed the prepared comment on this. But the impairment that you're taking in ES&A, I think, it's all related to ES&A. Could we can get a - could I get a little more color on - I’m sure it’s in the K, but just the necessity and what it - what it's for?

Sure, Bill. Yes, and the conformities all within ES&A. That - if you think about the evolution of the ES&A practice, it's been to a series of five acquisitions over the past four years on. And so, from an accounting perspective and this has been disclosed in our 10-Ks all along. It's always had very narrow headroom just the way the accounting works. When you do the acquisition, the majority of the purchase price goes on the balance sheet is goodwill. It's always been very tight. During the fourth quarter, as we've commented, results were softer in ES&A practice, and we lowered in the 2018 plan our growth expectations, though we do still expect the practice to grow organically in 2018. So really as a result of the combination of those factors, we did the accounting test that was required during the fourth quarter, came to the conclusion that the goodwill was impaired.

Okay. And then so if the forecasts don't - obviously, don't drop another notch in latter periods, you won't be able to risk at further impairments?

That - that's right. In fact, the goodwill impairment charge eliminated the goodwill in that business unit, so there will not be a risk of additional [Multiple Speakers].

Okay. All righty. Well, that really was my last question. Thank you.

Thank you. Our next question is from the line of Kevin Steinke with Barrington Research. Your line is open.

HI. Just following up on healthcare discussion a little bit here, the sequential strength you saw in the fourth quarter combined with the lower visibility heading into 2018. Is that, I guess, someone a function of just the fact that you're working on smaller shorter projects. And so therefore, some of the strength in the fourth quarter is maybe going to roll off fairly quickly. I'm just trying to get a sense of this part of the dynamic there?

Kevin, I would characterize it that. When we start projects and this is really what Jim was alluding to in terms of some of the smaller engagements. Often, we're starting with a little bit smaller scope and they're leading to additional opportunities for work. And those are things that you just don't call out of the gate as confidently. We think that's really a dynamic of how the markets buying. They have been less focus on some of the integrated engagements a little bit more starting with one solution and potentially going to the next on a more sequential basis. So, the good news is that, ultimately, I think, we've got longer touch points with our clients and opportunities to extend into other areas of work. But if you look at it historically versus when we had large integrating engagements with lots of backlog, this is inherently less visibility. And so, in that context, we're tending to be just more cautious about our outlook.

Yes, Kevin, this is Jim. I’m just going to add a little bit of color to Mark's comments. The lack of visibility doesn't - it is just different than what we've had before and there’s the cautiousness. But the reality is, if you look at our education practice, which really doesn't have great visibility either and never has still has solid organic growth expectations has been doing well for a while. It's just - I think, the nature of that business has always been the same. We're going to have smaller projects, but there tend to be much longer durations. We've got some projects in education that we never left the client in 10 years, 11 years, in one case I think 14 years. So, I'm not predicting that for healthcare, but I don't think that the lack of visibility is necessarily bad, it's just different than what we've had before. And as worse as we continue to go through this transition in healthcare, where we've gone from that small number of large engagements to a large number of small engagements, we're just being cautious in terms of extrapolating what we see as kind of a real near-term strength as we saw in the fourth quarter and taking that too far out until we begin to see these trends develop more further and we get convinced that they’re sustainable.

Okay, all right. That makes a lot of sense. And you I think mentioned that the sequential improvement in healthcare was driven by performance improvement. So, is it possible to segment that further between, say, cost in clinical and revenue cycle relative to how they both performed?

Kevin, we’re actually increasingly managing them collectively as a team in a performance improvement overall approach. And so, really is - it's perhaps a little bit less meaningful. But I'd say directionally, we did see revenue cycle in general certainly to strengthen in the fourth quarter of last year, but I would not really be able to quantify for you.

Okay, that's fair enough. In terms of Innosight, you mentioned the softer quarter. But you expect them to rebound in 2018. What - do you have specific growth expectations for - at Innosight practice itself? I mean, is that expected to kind of grow in line with the rest of the segment, or how are you thinking about that?

I think for 2018, we expect our growth rate in Innosight to probably be in the lower double-digit range. So, we are expecting some solid growth from them. I think the part that, Kevin, they've been now with us for 10 months, 11 months, and I think we've been really encouraged by the way that their strategic approach resonates with some clients and some really interesting projects. And I think that they’re competitively they've been doing very well. So, I - we still have a good 2018, and I think we'll have some solid organic growth from that practice this year.

Okay, great. And then on the - in the education practice, I believe you said that the outlook for 2018 is 25% to 26% operating margin, which implies some pretty good margin expansion versus 2017. So, I'm just wondering what you’re factoring in there in terms of the margin improvement?

So, Kevin, we called out a couple of years ago when we made the cloud resources investment. And so initially that was a net cost and then we had a period in 2016, when that business was growing fast basically a break-even. I mean, we're at a point now where the margins from the cloud business are expanding as we expected them to when we initially invested in the business. So, I think that's really what you're seeing on its net positive at this point, the expansion that we see in the margins versus the fact that it's growing fast and still lens in at a little bit lower rate than the rest of the practice.

Okay, good. Do you expect the growth in education to be fairly broad-based across your various practices, or you expect that to be led by technology, or just how you’re viewing that?

Kevin, this is Jim. I think it'll be pretty broad-based. It - really the growth in this business has been pretty broad-based over the last two or three years, and I expect that to continue in 2018.

Okay. Thanks for taking my questions.

Thank you.

And thank you. And this concludes our Q&A session. I would like to turn the call back to Mr. Jim Roth.

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