Good afternoon, ladies and gentlemen, and welcome to the Huron Consulting Group’s Webcast to Discuss Financial Results for the Second Quarter 2020. [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’d like to turn the call over to Jim Roth, Chief Executive Officer of Huron Consulting Group. Mr. Roth, please go ahead.

Good afternoon, and welcome to Huron Consulting Group’s Second Quarter 2020 Earnings Call. With me today is John Kelly, our Chief Financial Officer; and Mark Hussey, our President and Chief Operating Officer. Our second quarter results were better than we anticipated, with revenue declining 1% over the prior year quarter. This decline was driven by weakness in the Healthcare business that was partially offset by solid growth in the Business Advisory and Education segments. While the second quarter was better than our initial estimates, we remain cautious about the second half of the year given the economic uncertainties facing our clients, particularly in Healthcare and Education. I will now share additional insight into our second quarter performance and the demand drivers for each of our businesses and then provide some color on our expectations for the remainder of 2020. During the second quarter, Healthcare segment revenues declined 16% compared to the prior year quarter. As you’ve read, most hospitals and health systems were severely impacted in March and April, with virtually no elective or nonurgent surgeries being performed when the crisis was at its worse. Many of our clients began to see patient volumes return in May and June, although most have not yet seen a return to pre-COVID volumes. With some stability in their business, our health care clients began to reengage our team in the latter part of the second quarter to support them on more immediate priorities as they work through the financial and operational challenges that were exacerbated by the current environment. Indicative of the market improvement, utilization of the Healthcare business started in the mid-60s earlier in the quarter and rose to the low 70s by the end of the quarter, although still well below historical levels. While the slowdown during the quarter impacted all…

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-Q 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. Also, 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 second quarter of 2020 were $217.9 million, down 1.3% from $220.8 million in the same quarter of 2019. The decline in revenues in the quarter was driven by the Healthcare segment, partially offset by solid growth in the Business Advisory and Education segments. Net income was $13.6 million or $0.61 per diluted share in the second quarter of 2020 compared to $10.6 million or $0.47 per diluted share in the same quarter in the prior year. Adjusted non-GAAP net income was $14.9 million or $0.68 per diluted share in the second quarter of 2020 compared to $17.1 million or $0.76 per diluted share in the same period of 2019. Our effective tax rate in the second quarter of 2020 was 20.1% compared to 24.8% a year ago. Our effective tax rate for Q2 of 2020 was more favorable than the statutory rate, inclusive of state income taxes, primarily due to the current year-to-date pretax losses and the impact during the quarter of certain nondeductible business expenses, including the nondeductible portion of the first quarter goodwill impairment charges based on the allocation of these expenses to…

[Operator Instructions] And our first question comes from the line of Andrew Nicholas from William Blair. Your question please.

Hi, guys. Good afternoon. Appreciate all the color in the prepared remarks. The first question I had was just related to second quarter results, obviously, much better than what you had contemplated on the first quarter earnings call. Just at a high level, could you just kind of pinpoint the top couple of things that outperformed your expectations? And then relatedly, can you give us some sense of how much that outperformance is more onetime in nature versus maybe a higher expectation for maybe more persistent demand into the back half of the year?

So Andrew, this is Jim. I’ll take a shot at that and see if John wants to add some color. I guess the way that I have to respond to that question, you have to kind of go back to late April when we issued our last quarterly results. And at that time, there was a huge amount of uncertainty in terms of how this is going to pan out. And at the time, the hospitals were really trying to keep the hospital clear for all kinds of COVID patients. And so we looked at that scenario, and we kind of assumed that health care would be would be challenged. That Education would be equally challenged, particularly given that a lot of universities were beginning to send kids home for spring break, and we weren’t really sure what was going to happen on the commercial side of things. So probably the easiest answer is that the way things evolved in the second quarter is I think on the commercial side of things, the practices, particularly the restructuring and turnaround practice but also very much so ES&A, I think, performed better than we anticipated, largely, particularly for ES&A because we felt that a lot of clients saw the importance of having a digital transformation and a lot of what ES&A does is help clients really become much more proficient in terms of digital capabilities with their clients – with their customers. So certainly, the BA practice did well. I think the big surprise for us was probably Education, and – but I think as we – as John and I both indicated in the call today, what we saw in Education was really, in Q2, was the play out of some backlog that already existed earlier in the year. That was beginning to get played out, and so I think probably that’s the biggest total surprise for us, was probably Education. We’ll get to the commentary for the rest of the year in a second. For Healthcare, I think that without kind of talking in the medical terminology, I think the worst of it probably hit the hospitals in the March, April time frame and then began to recover in May, and we saw volumes begin to pick up. We saw federal assistance begin to pick up. And so I think, so far, it seems like, at least for the hospitals and health systems, the worst of it’s through. So I’d say the biggest surprise is probably Education followed by the strength of our commercial business in BA. And I think Healthcare probably performed largely as we thought it was going to. John, before we get to the rest of the year, is that fair?

Jim, I think that’s fair, and I think that’s a great kind of overview by business. If I was going to – I touched on this in our remarks. If I was going to maybe just look at it on more of a consolidated level, Andrew, I’d say, as far as what really changed during the quarter, first, our teams just did an excellent job of working from remote. And our ability to burn through the backlog that we had entering the quarter by – really that seamless transition was better than we even anticipated at that point in time. And then the second thing I’d call to that, again, is more of just a cross-company concept is our teams are really innovative during the quarter, developing offerings that were responsive to COVID-19 and the challenges our clients face. So we had low teen revenue during the quarter. That was the result of offerings that, if you were going to go back to the beginning of the year, probably weren’t contemplated but that we’re very responsive to on our client situation, plus some very tight management of expenses. So I’d say it’s really that combination of doing an excellent job of working from remote plus the innovation to find new revenue streams that would help out our clients and see where there are a couple of the really key characteristics across the company.

So Andrew, I’m going to probably now go to the second part of your question, which is really kind of how do we see that playing out in the second half. And I think we’ll apologize in advance for the kind of long response, but I think it’s an important one. I think in terms of health care, I think we’ve already – a lot of the volumes, the patient volumes are recovering. They’re not quite back up to pre-COVID-19 volume levels yet, but they’re approaching that. And so that’s good news for our health care clients. We’re seeing a lot more movement towards in our performance improvement area, the technology projects as they’re certainly taking on some of those projects right now to encourage their financial recovery. So that’s working pretty well as well. The – a lot of our demand for kind of COVID-related responses, particularly we mentioned Medically Home earlier, but other projects that are related to kind of helping test and treat and trace program issues with COVID are also taking place right now, and we’re spending a lot of time with our hospital clients doing just that. So I think – and I guess, finally, just with managed services and care transformation, there also continues to be a lot of our clients position themselves for what they believe to be are going to be changed but slightly improving economics over time. The business model is obviously changing. Telehealth is going to have a big impact of that. But I think they’re sensing the worst of it’s over. They’re now beginning to prepare for the future and as best as they can. So our view for health care is that, for the remainder of the second half, we’re probably going to continue to see a slow…

No, that’s all really, really good. I’m checking off all the questions here because you covered a bunch of them, so I appreciate that. Maybe just one follow-up on Education. As I kind of think about – you talk about building momentum potentially with better business generation in the fourth quarter. Obviously, the big issue for these universities or it sounds like a big issue for these universities is they’re trying to figure out what’s going to happen with the fall semester. Do you feel like if we run into a second wave or whatever, it may be that potentially puts the spring semester at risk? Is the fact that they’ve gone through this exercise for the fall semester mean that the impact on a relative basis could be less drastic for Huron and for these universities in the spring? Or just kind of thinking about if some of the worst could be past it regardless of what happens in the first half having gone through this exercise in the third and fourth quarter.

Well, one thing you need to remember is that majority of our education clients are the larger research universities, and they tend to have the financial wherewithal to kind of manage through. They got endowments to manage through some tougher times. So we – for our business, that – I think the revenue will be there. I think similar to what we saw in health care in the second quarter, where our leadership was distracted because of the urgency in the hospitals, we’re seeing some leadership distraction right now in education for the same reasons because they’re worried about just getting fall off to a launch. But I think – and some of them, frankly, are contemplating the possibility that there won’t be students on campus in the spring. I mean that’s a real possibility. I’m not predicting that, but it certainly is a possibility. And part of the work that we’re doing would be helping them get that to the point where it would actually be effective. And so I think that’s an important part for us to acknowledge, and that is whether it’s making – whether it’s enhancing the access to cloud capabilities so that they can serve the faculty and the students and the staff more efficiently, whether it is just enhancing their overall digital capabilities. These are all things that are – that they actually have teed up earlier for our – for execution by somebody, hopefully, us in the second half of the year. And now they’re looking at those and saying, well, maybe we’re going to have a little bit of a delay, but we need them now more than ever. So that’s what gives us comfort that this is really a matter of time. We just don’t want to be too far ahead of the game and predict when that time is going to be. I do think, though, that if the spring semester got compromised by not having students on campus that I don’t think that it would affect us that drastically.

Great. That’s really, really helpful. Thank you.

Thank you. Our next question comes from the line of Tobey Sommer from SunTrust. Your question please.

How are you thinking about hiring talent? And it’s a tricky thing with uncertain near-term demand to try to build the right capability to deliver your services over the medium term kind of two and three years out. How are you going to thread that needle?

Tobey, it’s John. I can start, and Jim and Mark can provide color. So from a hiring perspective, throughout this entire period, we’ve still been hiring kind of people that we think are going to be part of our strategy going forward that are really differentiated talent that are going to help drive revenue for the company. So we never really hit the breaks on that because those are the type of people that we’re going to need to continue to drive the company forward. We have been more cautious, I’d say, on more general hiring just given the uncertainty that we see from a revenue perspective. I would say, as we now progress through the back half of the year, the trend lines in our ES&A business, in the Business Advisory segment, our technology business as well as the distressed advisory business, some very strong client demand trend lines within those businesses. So I think you will see us hiring talent in those areas. And to the extent that we have softness in some of the other areas of the business for reasons that Jim described, I think our plan would be to be able to repurpose our employees that have the right skill set to help out in some of those other areas where there’s stronger demand. So I think the collaboration between our teams is really important. I think you will see hiring for specialized talent in the technology and distressed advisory parts of the business and across the board, to the extent there’s talent out there that’s differentiated, that’s really going to drive our strategy moving forward, we’re still looking at those opportunities.

How are you – what are you expecting in terms of pricing? And I say that in terms of both bill rate consultant level as well as the form in which your customers are going to want to contract, 40 to 50?

Yes. I’ll start on the healthcare side. Go ahead, Tobey. Sorry.

No, no. Thank you.

Okay. I’ll start on the health care side. I’d say we haven’t seen any significant changes in the pricing environment. To your question, we have seen clients with more interest in performance-based fee arrangements, which probably reflects some of the financial strain that they’re under now, but they need to improve their margins going forward. Typically, actually, those types of arrangements are attractive to us from a margin perspective. So I’d say that’s probably the main thing we’ve seen on the health care side. From a Business Advisory, perspective, the market has been quite robust, again, for the technology practice, the ES&A practice. So there hasn’t really been tremendous pricing pressure there. And then, of course, in the distressed market, there’s a lot of demand right now. So if anything, we’ve seen an improving demand market there. I’d say on the education side, as our clients are working through this disruption, that might be one area of the business where we see a little more competition on the pricing side. But even that, I’d say it’s a little bit early at this point to call a full trend. That’s just an observation based on what we’ve seen so far.

And with respect to the size of contracts, you did mention a little bit more perhaps contingent fee. Am I right that we should associate that with the larger scale projects? Or is there not a relationship there?

I would say, Tobey, it could be – it certainly is something that you often associate with larger projects. You can see them in kind of middle-sized projects too. To your point, smaller sized projects, you typically don’t see that arrangement because it’s just not necessary at a lower fee level, but it’s kind of in that medium to larger project range that you do tend to see more performance-based fees, and typically, it’s within the performance improvement side of the business.

Okay. Thank you. I’ll get back in the queue.

Thank you. [Operator Instructions] Our next question comes from the line of Kevin Steinke from Barrington Research. Your question please.

Hi. I wanted to discuss maybe a little more kind of broadly about your health care clients seeing patient volumes build back up in May and June. But just curious if you’re seeing geographic vary and those patient trends based on where some COVID hotspots going on right now or [indiscernible] not in those areas where there are still spikes in cases now.

Kevin, this is Jim. We lost you a little bit at the end, but I think your question was really about picking up patient volumes and whether we’re now seeing any geographic concentrations of areas. And...

That’s correct.

Okay. Yes. And I think we saw – it was – it seemed to be pretty much national back in April and May. And I think now is – I mean, certainly, there are some hotspots in the southeast, but I don’t think we’re – I think in general, we’re seeing a lot of the hospitals, even in the hotspots, are still able to focus and concentrate their COVID patients and I don’t think are having to clear house the way they anticipated having to do it the way they did back in April and May, so – or March and April. So I think it’s not as much of an issue right now, even though the virus obviously continues to loom in a lot of places. I think the use of ventilators is a lot less based on what they’ve learned. And so I think the access to nonelective surgeries – again, it’s not back at the normal levels yet, but they’re trying to get it up to 85% or 90% in some cases. And I think when – our understanding is, in some cases, the margins have begun to come back a little bit nicely as well. But I don’t think there’s as much – it’s certainly not a national issue, and to the extent that there’s more localized issues, it’s not widespread because they’re handling this kind of more surge differently than they did back in March and April.

Okay. Yes. That kind of led into what I was going to ask next because – I mean you kind of answered it already, but daily COVID cases in the U.S. are actually triple or even more than what they were back in April and May, say, but it sounds like hospitals just aren’t going into complete shutdown mode like they did back then. And so you’re not necessarily seeing this dramatic drop-off in elective and other procedures like you did before, it sounds like.

That’s correct. I mean, I think – again, it’s not my area of expertise, but I think hospitals have clearly learned that this time around, they’re handling things very differently. And I suspect that if they knew today – if they knew back then what they know today, it probably would have been a different situation. But we’re all learning on this. So I think the hospitals are in better shape right now, and they’re learning who and where they can be having them. I do know that in some of the hotspots, so for example, even California, we referenced our Medically Home capabilities that we were able to stand up the virtual hospital. That has a big impact, and I think that’s more and more kind of what you’re going to see hospitals begin to do as they try to get more creative and innovative in terms of the way they can deal with potential waves of patients.

Yes. The comment I’ll add to this is just that I think in the initial waves, you saw a lot of hospitals shutting down everything with their elective procedures. And in doing that, you had hospitals that really never had their ICUs at capacity. And so there was a lot of impact to the system by virtue of taking out those elective procedures. And I think now the element of patient volumes not getting back to where they were is partially related to the level of comfort that patients have in actually engaging into hospital settings, and so that’s taken some time to get back. In fact, our practice here in health care, sure, he needs a knee replacement. He’s going to wait a little while, and this is a good example of the kind of thing that I think is really going to keep things a little slower than normal for a while.

The other thing that I think I’ll point out as well is that the federal funding, just post-COVID funding for hospitals has come through and has made a material difference for a lot of them. That’s not the case in education. But I think if you go back and look at – I think in the end, when you go net-net, some of the losses for some of the hospitals weren’t as bad as they once thought after they received kind of – after they were able to get some of the additional funding from the federal government. So they’re still struggling, there’s no question about that. But I think they’re in slightly better shape than they anticipated. They might have been in the thick of it back in April and early May.

Okay. Great. That’s helpful. I wanted to talk about business advisory as well. It sounds like the demand outlook is pretty steady relative to what you saw in the first half, although just looking at the mid-single-digit guidance you gave for the full year implies that there would be a slowdown in growth in the second half. So I don’t know if that’s just some conservatism or limited visibility or you’re actually seeing some softer demand trends there. Just any more commentary on outlook for business advisory in the second half?

I think I can start, Kevin, with the mathematical answer, then I’ll hand it over to Mark for the some more business perspective. I think it’s a couple of things. I think first, they had a really nice first half of the year. Like we said on the call, it was a record quarter in the second quarter. So there probably is just some caution about not extrapolating that record out into the third and fourth quarter, though, we feel very good about what we see in the market. And then the other item would just be the fourth quarter of 2019 was very strong for them, and that represents a more difficult comp. So I think it’s really just trying to be balanced and cautious given the great activity we saw in the first half and potentially a tougher comp by the time we get to the fourth quarter.

Yes. I think that’s exactly right. I think it is somewhat conservative because again, the underlying trends that are driving those businesses, nothing has really changed dramatically there. And arguably, even some of the areas we saw some softness strategically, there is a need for reviewing what your strategic positions were coming into COVID and now how are you going to emerge and recover. So I’d like to think we are, again, taking a fairly conservative stance on the outlook for business advisory.

And also – it’s Jim. Just in general, I just think, I mean, when we look at kind of the way this is evolving over the last, whatever it’s been, 5 months and we look at the ups and downs in the economy and everything else, it’s just hard for us to be anything but conservative at this point in time I think in terms of the way we’re looking at all of our businesses. So we’re trying to take what we think is a realistic but probably conservative view and hope that things materialize in a way that will be beneficial for our clients and beneficial for us.

Okay. Great. And then – so I wanted to talk about how last quarter you laid out three different scenarios, optimistic, base case and pessimistic. Would you say at this point as well as you could pinpoint it, I guess, that you’re kind of tracking to the base case, which assume kind of a slow and uneven recovery due to sporadic resurgences in COVID? I mean is that how you see it playing out, a weaker third quarter and then starting to see some recovery in the fourth quarter? Or just kind of how are you thinking about how that plays out relative to the scenarios you had put out there?

Kevin, it’s John. I can start. Just to give – go back and give a little context on those scenarios. I mean that was obviously very much at the beginning of this disruption that we’ve all been through. And we really were trying to think about what different scenarios for our end markets and how that might flow through to our business. And it wasn’t just a one size fits all answer for Huron, it was an answer that varied by segment. So I’d say for the health care segment, I’d say we’re trending sort of between the optimistic in the base case relative to those – that perspective that we had at the end of the first quarter. I’d say that the optimistic part is the way that we’ve seen utilization rebound as the quarter improved and some of the activity we’re seeing in our pipeline, whereas the actual performance in the second quarter, they were down mid-June. That’s probably more in line with the base that we had expected. For the Business Advisory segment, I think it’s been trending towards the optimistic perspective overall versus what we expected. The technology business and the distressed business have seen very strong demand. It was a record quarter during the second quarter. The one mitigating factor there is, I think, for our strategy team, it’s been more like the base case. They’ve had a softer second quarter. We’re anticipating a softer third quarter, but we still feel real good about their offerings in the medium and longer term. And then on the Education side, we were pretty explicit in the scenarios that we put out there that what would happen this fall would be a big determinant about whether – at least in the short term here from a timing perspective, whether it was going to be the base case or a more pessimistic case. And so that, I think, is a little bit TBD at this point based on what happens. I think that if schools are able to get back to campus, I think that, that puts us more in line with the base case. To the extent that the surge continues and that they’re not able to get back to campus, at least during the short term. From a timing perspective, that might put us a little more in the – towards the pessimistic case.

Okay. That’s excellent color. I appreciate it. That was all I had today. Thanks.

Thank you. Seeing no more questions, I’d like to turn the call back over to Mr. Roth for any further remarks.

Thank you very much for spending time with us this afternoon. We look forward to speaking with you again in November when we announce our third quarter results. Have a great day.

Thank you, ladies and gentlemen, for your participation in today’s conference. This does conclude the program. You may now disconnect. Good day.