Good afternoon and welcome to Huron Consulting Group's webcast to discuss Financial Results for the Fourth Quarter and Full Year 2022. At this time, all conference call lines are in a listen-only mode. Later we will conduct a 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 up 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 reconciliations 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 2022 earnings call. With me today are John Kelly, our Chief Financial Officer; and Ronnie Dail our Chief Operating Officer. It's a pleasure to be with you for my first earnings call as CEO and it's tremendous honor to lead this great company. I greatly enjoyed working side by side with Jim Roth over the last 11 years. I want to thank him for his leadership and partnership and I look forward to continuing to work with him on our Board and in his role serving our clients. I also look forward to engaging with all of you in the months and years ahead as we continue to build our company to create exceptional shareholder value. Turning to our results. We achieved record revenues in the fourth quarter and full year 2022, growing revenues 26% and 25%, respectively. Revenue growth for both the fourth quarter and the full year was strong across all three operating segments bolstered by continued growth in our digital capability. Our digital capability grew a record 41% in 2022 and digital revenue reached nearly $0.5 billion. Our full year adjusted EBITDA margins improved 80 basis points over the prior year, reflecting solid progress toward our objective of returning to mid-teen EBITDA margins by 2025. We believe the momentum we established in 2022 provides a solid foundation for continued growth and profitability as well as continued deployment of our cash flow to drive returns for our shareholders. Market demand remains solid in our healthcare and education businesses, strengthening our leading market positions in these large and challenged sectors of the economy. Our presence in the commercial industries continues to expand led by our digital capability, which represented 44% of our company-wide revenue in 2022.…

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 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. Now let me walk you through some of the key financial results for the fourth quarter and full year 2022. Revenues for the fourth quarter of 2022 were a record $313.7 million, up 26.3% from $248.3 million in the same quarter of 2021. The increase in revenues in the quarter was driven by strong growth across all three operating segments and across our Digital, Consulting and Managed Services capabilities. For full year 2022 revenue was $1.132 billion, up 25% from $905.6 million in 2021. Similar to the quarter results, we achieved record company-wide revenues in 2022 reflecting the ongoing demand for our portfolio of offerings across segments in our strategically aligned operating model. Net income for the fourth quarter of 2022 was $17.1 million, or $0.85 per diluted share, compared to net income of $31.1 million, or $1.45 per diluted share in the fourth quarter of 2021. As a reminder Q4 2021, net income includes a $23.7 million gain net of tax from the sale of our life sciences business in the fourth quarter of 2021. For full year 2022, net income was $75.6 million, or $3.64 per diluted share. This compares to net income of $63 million, or $2.89 per diluted share in 2021. As a reminder 2022 net income includes an unrealized…

Thank you. [Operator Instructions] Our first question comes from the line of Tobey Sommer of Truist Securities. Please go ahead, Tobey.

Thank you. I want to start out in the health care-related businesses, how would you compare and contrast growth in the opportunity sort of demand signals you're seeing for the PI service versus the other services that you go to market with for those customers?

Hey, Tobey, it's Mark. I think you would prioritize that digital and performance improvement is very often tied together. And then increasingly, it is going to be outside of that in terms of some of the other areas that prior to our operating model had not perhaps been in the Healthcare segment. So it really, I would say is, both a digital and a performance improvement are the main drivers of the Healthcare segment.

Yeah, this is John. I'll just add some color that from a – we talked last call at the end of the third quarter about from a pipeline perspective, and then a backlog perspective, we had a really strong quarter of sales in the third quarter last year, and that continued into the fourth quarter, and a lot of that was performance improvement. And I think that, that reflected some of the financial pressures that our clients are under from financial perspective right now that are really our performance improvement offerings are quite responsive too. So I think we've continued to see strong demand there and we expect that to be a key driver in 2023. And then for – like Mark said from a digital perspective, we really haven't seen a slowdown in our clients investing in their digital infrastructure. And I think that's for a lot of reasons, including just a focus on operational efficiency, a focus on patient access and engagement with consumers. And then also the risks are out there, with data security at this point really wanting to upgrade to get to a more secure cloud-based environment.

Thank you. That's helpful. Given the performance last year and your midpoint of your guidance ranges for this year, how do you feel like you're set up to hit your multiyear financial goals laid out at Investor Day?

Tobey, we – I think we feel very good about those multiyear goals. What we described at our Investor Day, was the expectation that over the five-year period starting in 2022 that we'd be able to grow the top line at a compound growth rate of 10%. And so we're able to start off at a pace that was faster than that in 2022, with a 25% growth. And as you can see based on our guidance for 2023, we're confident that we're going to be able to continue that growth trajectory in this year with guidance that was aligned with what we talked about in our Investor Day. And there's nothing as we look out over the longer term that gives us hesitation. In fact, I think we continue to feel optimistic about our opportunities to grow at a pace faster than what we talked about at that Investor Day.

Yeah. And Tobey, the thing I would add to that that's helping. I mean certainly, the new operating model has really brought our go-to-market together to be more effective in driving solutions to clients that really are reflecting the full range of what we do that's certainly a positive. I think from a margin point of view again, the incentive plan and the model that we have now that is focused on a much more integrated global enterprise gives us a lot of opportunities for driving increased efficiency. And then the last comment I'd make about our portfolio. When you look across everything we do today, there really is no one single thread that's accounting for everything. We've got a very broad base of demand across a lot of different things that we do and that just gives a lot more ways to win and have stability across the business. So we have a great degree of confidence in our ability to achieve the objectives we set for us.

And last one for me. With the rapid growth the generation of cash and sort of modest debt, since it feels like the company is just sort of on its toes right now front foot so to speak, do you see a need to or an opportunity to add something via acquisition maybe in the digital realm to keep the momentum going?

We're always looking at the market. And I think we talked about again going back to our Investor Day from last March that accretive M&A is part of our longer-term growth strategy. And to your point, I think the financial results and cash flow and strong balance sheet are all factors that enable us to have the capacity to do that. Our focus remains on our organic growth. And so when we do scan the market from an M&A perspective, we're really looking at things that we feel like when we add them to the portfolio will further fuel that organic growth in the out years after the acquisition. And so that's the primary filter from a financial perspective we look at from an M&A perspective.

And maybe the comment I'll add is that, while we didn't do that much in a later part of 2022, it was not because we weren't looking. We're continually in the market and especially the track record that we have in working with various partners that end up joining us has been a great methodology of increasing organic growth in a very low cost way. So if there's something a little bit more transformative obviously I think we're very -- you can see from our investor objectives, we're very careful about focusing on returns for shareholders. Not to say that we won't do it, but I think we have a great discipline on what we think will create value.

Thank you.

Thank you. Our next question comes from the line of Andrew Nicholas of William Blair & Company. Your question please, Andrew.

Hi. Good afternoon. Thanks for taking my questions. I wanted to touch on headcount first and foremost, it looks like Healthcare head count was up pretty significantly quarter-over-quarter if my numbers are correct there. Just curious, if you could spend some time on where that hiring is concentrated, it is more kind of some catch-up hiring to capture some of this performance improvement demand acceleration? And then maybe, if you could speak to headcount growth expectations for 2023 and your ability to service the current pipeline?

Sure Andrew, this is John. First at the metrics that you asked about the headcount within our healthcare business that's primarily our managed services headcount within healthcare where we've been continuing to scale up our personnel related to client interest in that area. That's the primary driver behind that metric. But beyond that we're absolutely also hiring from a performance improvement perspective just based on the demand that we see in the market. If you'll recall, if you go back to earlier in the year that was an area where the utilization was a little bit lighter than our historical norms and that really ramped up as we got into the fourth quarter. So the step one was to make sure that we're utilizing our current resources. But now as we move forward we're certainly in the market hiring from a headcount perspective in that part of the business. I'd say overall when you look at 2023, I think the general rule of thumb historically would be to say that head count tends to fluctuate in line with revenue. And while that's true, I think we did do a lot of capacity building in 2022. So my expectation is that you're going to see us use some of that capacity that we built in 2022 first and then we will be adding additional heads beyond that to hit our revenue goals. So I think the relationship will be that the headcount growth will likely outpace the headcount -- the revenue growth will likely outpace the head count growth in 2023 for that reason.

Makes sense. I know that's the way that you've been describing it the past couple of quarters, so I just wanted to make sure that was still the plan. And then my follow-up on commercial, really, really strong growth both sequentially and year-over-year. You touched on it a little bit, but I was hoping you could spend a bit more time on the puts and takes under the hood there. Was restructuring or the legacy business, advisory business especially strong in the quarter is the strategy capability weaker or strengthening a little bit? Just if you could unpack the pieces of growth a bit more in the fourth quarter and how you're thinking about next year that would be helpful.

Sure Andrew. This is John again. I'd say that the primary areas of strength in that growth in the fourth quarter where our commercial digital offerings as well as the restructuring and turnaround/financial advisory offerings in the commercial industry starting with the latter one from a financial advisory perspective, things got very busy. I'd say starting really towards the end of the third quarter, but that continued at a very high pace in the fourth quarter. And so that team was very busy and surpassed really our expectations in terms of the revenue during the fourth quarter. The commercial digital team has really had a full year of tremendous growth and that -- we saw that continue into the fourth quarter. From a strategy perspective, I'd say that that was more steady during the quarter and relatively steady with the prior year. And I think as we look at that part of the business I think some of the uncertainty that we've seen in the macro has probably been a little bit of a headwind for that business throughout 2022 and into the fourth quarter. But as we look towards 2023 we're actually feeling good about the pipeline for that business as well and for their ability to add to our growth in 2023.

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

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

Thank you. Hi, Mark. Hi, John. I wanted to just follow-up on that Commercial segment question with -- just wanted to see how Innosight's doing that was you think the only case in the puzzle that was having a little bit of a headwind?

Yes, Bill, this is Mark. Innosight had a more flat end of the year. And as John said some of the macro uncertainty played a little bit into that, but the outlook is good for Innosight. They've got good strength across their portfolio. And so I think, I have good expectations for Innosight in terms of their ability to continue driving growth and expanding the business.

Great. In education do you -- I'm kind of interested in the constraints to growth if there are any? I mean just based on the low double-digit guide. You can -- I mean is hiring an issue if the client is kind of in a place where they can work at the level of implementation that you might want to do for them? And then what's the status of the student system cycle? Is that really starting to make a difference in your backlog?

So Bill let me try to take the beginning of the question. I'll have John jump in as well. I don't -- 48% I'd love to say there's a new growth rate but -- and it really was broad across everything we do. So it really wasn't just in the implementation areas. And we certainly saw the digital number which we talked about was also equally strong. Hiring has not been an issue for us. I mean I'm not going to sit here and say we aren't working really hard at that level of growth to keep up with what we're doing, but we're able to do it. And so as we look ahead I think again just -- it's a reflection of some of the challenges that are going on in the industry. And there's -- the breadth I think of that portfolio is perhaps the strength is that we do so many different things for our education clients that we are serving at all different ranges of the market. And then we're just really well positioned to continue to have that growth. Student life cycle again continues to have good progress and momentum. And I think it's just got a good trajectory outlook, but that really was not necessarily the leader across everything we did this year but it has a tremendously positive outlook.

Yes. And I'll add Bill if you look at the guidance range at the midpoint we've called the low double-digit percentage growth for education, which probably is just acknowledging that 48% was exceptional for the year and being a little bit more measured particularly this early in the year about the outlook for 2023. But if you were to think about the higher end of the revenue guidance range that would certainly be the scenario where probably isn't going to be 48% again, but where we have stronger growth coming from that education team just based on the demand that we see within that market. And from a student perspective, we are seeing nice growth in that area. I know that that historically has been an area where -- it's been taking a little bit of time I think just in terms of the buying cycle for clients. And oftentimes the student technology implementation is on the back end of the finance and HR and limitations. But we're now getting to the point in the cycle where we're seeing both at some of our large research institutions, our clients now implementing those tools as well as a growing business that we have with some of the smaller institutions in that space. So, we feel good about our progress in that part of the business and we continue to believe if you look out over the next few years that that's going to be a major area of growth for Huron.

And then just one more. I just got off a call with a health care IT company that's talking about the client base the hospitals -- and essentially just some added restraint in how they're managing capital allocation and in some cases, freezes. And I know that this -- UPI is the kind of thing they want to do right now because of the ROI. But I'm thinking about more of your cloud implementations there and where there may not be a rapid ROI. I'm just curious if you're seeing any holdbacks in terms of those projects.

So, Bill we have not seen a major pullback. We've seen a relatively steady amount of demand in that area and so it has been beyond just ERP, it's also been in the sales force area. It's really in the health care industry right now. You've got a lot of hospitals and health systems that are really hurting from a margin -- all the margin pressures that have happened. But you have others who are actually playing offense and investing in their business to continue to address the competitive pressures that they have from many different angles within the market. So, at this point, I would say there's nothing that leads us to believe that we're not going to continue to see a relatively solid steady stream of demand going forward.

Great. Thank you both.

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

Hey, good afternoon Mark and John. I wanted to ask about the adjusted EBITDA margin guidance for 2023 implying expansion in the range of 40 to 90 basis points and maybe John what's baked into that in terms of -- I think you mentioned some increasing cost in terms of travel and the resumption of more normal activities as well as what sort of investments you're making and how that all factors into the margin outlook?

Sure Kevin. It's John. I'm happy to take that one. I think when we look at that range of margin expansion for the year, I think the largest positive drivers are going to be continued increased utilization. I think as we size that up in our plans for the year we view that to be a 50 to 75 basis point margin opportunity alone from a utilization perspective. And then also as we continue to grow we feel good about the corporate infrastructure that we've built and that there's good opportunity to scale that as well and to drive more of those segment level operating income dollars down to the bottom-line and so that's probably another 50 to 75 basis point opportunity. I think that going the other direction, there's a couple of factors. One, we do continue to make investments in the business. I think you'll see us make some OpEx investments in some of our products and analytic analytical tools this year as we continue to build those out both from a standalone, recurring revenue sales perspective but also to help enable our consulting and managed services solutions. And then also, our Digital business has been growing at a very fast pace. And as we've talked about in previous calls our Digital margins are probably more in the 20% range. Our consulting managed services margins tend to blend in the upper 20% range. And so with that faster pace of growth that we got from Digital that creates a little bit of mix pressure. But the net of all that is our anticipation of the 40 to 90 basis points of improvement that you referenced.

Hey Kevin, I'm going to add one thing to what John said, which is well articulated. And that is the change we made in our incentive plan in 2022, which for the first time broke out part of the bonus compensation to be tied to margin and improvement. And so, it's changed to some degree the culture around, pricing around contribution margins and just the tightening up of the business in many different areas. And that is a tailwind that I think will benefit us as we come into the year. That really is not clearly reflected in what John said. So we think that gives us great confidence in our ability to achieve our EBITDA margin guidance.

Okay. Great. Thank you. I just also wanted to ask about -- I'm sorry if I missed it earlier, but is there -- is this a significant spike in the utilization rate on the consulting site in the fourth quarter and you called out there an improvement in utilization being a driver of margin expansion this year. It looks like Digital still has room to come up, but just what kind of led to that spike on the consulting side? And does that kind of more normalize in the 70s, or is that rate more sustainable?

So that spike that you saw in the fourth quarter really came from two primary areas, they came from our performance improvement consulting area within healthcare and then from the financial advisory area really across the business. So that's what really drove it. I think from a longer-term perspective, it's probably reasonable to think about it, on the consulting side is more in the upper 70s. The reality is though we weren't operating there the full year. So we're looking at the opportunity to expand margins on a full year basis that remains a significant opportunity for us. On the Digital side, the US utilization on the Digital team was actually in the upper-70s during the fourth quarter. And the overall metric was brought lower by our global resources and particularly kind of at the more junior levels there. And what that reflects is the investments we've been making in the back half of the year. So we've been onboarding, a significant number of junior consultants in our global operations that we expect to become big enablers of margin expansion in 2023, but it was a little bit of a headwind to the metric and to margins in 2022.

Okay. Great. And then, just lastly I wanted to ask about pricing. And I know there's, been some inflationary headwinds in terms of compensation but, just your ability to mitigate that with price increases? And is that also a factor in your ability to improve margins going forward?

Yeah. Kevin, it's John again. From an inflation perspective, I'd say, we saw the most pressure in 2021. And I think that that began to normalize throughout 2022. And we expect that to continue into 2023, even with some of the pressure that we saw in 2021 and residual pressure thereafter we have been successful at passing that through in terms of our rates and our projects. So we feel good about that. I think some of the challenges we had in 2021 and earlier in 2022 was really just sometimes the timing lag between, client pricing and the labor impact. But I think that we're expecting that to be from an inflationary perspective more of a neutral in 2023. If you look at that margin guide and you look towards the upper-end, I think there is opportunity from a pricing perspective even beyond, kind of the inflation aspect of things and that's something that we're working on and where we think that there's potential for upside. And if we look back at the end of the year, we were able to deliver more at the upper-end of that range. I get a feeling pricing, would be something that contributed to that improvement.

Okay. Great. And thanks for taking my questions and congratulations on the strong results.

Thank you.

Thank you, Kevin.

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

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

So that concludes today's conference call. Thank you everyone for your participation.