Good afternoon, and welcome to Huron Consulting Group’s Webcast to Discuss Financial Results for the Fourth Quarter and Full-year of 2023. [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 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 2023 Earnings Call. With me today are John Kelly, our Chief Financial Officer; and Ronnie Dale, our Chief Operating Officer. Driven by strong growth across all three operating segments in 2023, we achieved record revenues and expanded our operating margins for the third consecutive year. Our fourth quarter performance was consistent with our expectations, culminating in record financial performance for full-year 2023. Revenues in the fourth quarter and full-year 2023 grew 8% and 20%, respectively. In 2023, our consulting and managed services capability, which represents over half of our revenues, grew 23%, while our digital capability grew 17%, achieving revenue that is approaching $600 million and represented 43% of our revenues across all three operating segments. Full-year adjusted EBITDA margins improved 70 basis points over the prior year, reflecting continued progress toward our objective of returning to mid-teen EBITDA margins by 2025, and our strong cash flow enabled us to return $124 million to shareholders via share repurchases in 2023 while maintaining a strong financial position. Our financial performance demonstrates the strength of the foundation we have established under our integrated go-to-market model to continue delivering on our medium-term investor objectives. Our deep industry expertise and leading market positions in health care and education, our expanding presence in commercial industries, and our growing portfolio of digital capabilities positions us well to meet or exceed our medium-term financial objectives or low double-digit revenue growth and increased profitability. Now I will discuss our fourth quarter and full-year 2023 performance along with our expectations for 2024. In the fourth quarter of 2023, Healthcare segment revenue grew 12% over the prior year quarter, reflecting the strong demand across our digital strategy and innovation, performance improvement and financial advisory offerings. On a full-year…

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. The press release, 10-K and Investor Relations page on Huron’s 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. I would first like to touch on two housekeeping items before discussing our financial results for the quarter. First, earlier this month, we announced our intent to acquire GG&A. We expect that transaction to close in the first quarter of 2024, and as such, it is not included in our fourth quarter results. The acquisition of GG&A will strengthen our industry expertise and expand our consulting offerings to help our mission-driven clients build and accelerate their philanthropic programs. Second, let me provide a brief comment on a note in our press release. GAAP net income includes a non-cash unrealized loss of $19.4 million, net of tax, during the quarter related to our investment in a hospital-at-home company. As a reminder, in 2019, we invested $5 million in a hospital-at-home company as a strategic investment that has annually produced meaningful implementation projects for our Healthcare segment. In the first quarter of 2022, we recognized a non-cash unrealized gain on this investment of $19.8 million, net of tax, based on the valuation established around the financing that closed that quarter. In the fourth quarter of 2023, the company recorded a non-cash impairment loss of $19.4 million, net of tax, on the investment, essentially reversing the 2022 gain based on the valuation established in the new round of…

[Operator Instructions] Our first question comes from the line of Tobey Sommer of Truist Securities.

I was curious if you could speak to your medium-term financial targets laid out at Investor Day. It has been, I don’t know, for exactly at the midpoint between when you gave them and when they’ll ultimately be rendered. But how do you feel about those, in particular, the EBITDA margin figure?

Tobey, it is John. So we feel good about our progress against those medium-term financial objectives that we established in our Investor Day back in 2022. Certainly, I think if you are looking at it from the perspective of EBITDA dollars and adjusted EPS, we feel like we are pacing ahead of the projections that we talked about during that Investor Day. I think the mix has maybe been a little bit different than what we might have projected at that point in time. The growth has been much stronger. So we talked about low double-digit growth, and our growth has actually been in excess of 20% in the past couple of years. And related to that growth, we needed to continue to invest in our talent and our team to build out the resources to be able to deliver on that growth. And I think that is put a little bit of pressure on the margin percent. So the net-net has us ahead in terms of the EBITDA dollars and in terms of the adjusted EPS, but the mix has probably been a little bit different. I think going forward from where we are at, we still feel good about our ability to beat those revenue objectives. And I think we feel really good about our guidance for 2024 from a margin perspective. And our focus will be on meeting or beating those margin percent objectives for 2024 which, at the top end, would be in the low-13% range. And if we are able to continue to execute and have a similar sort of step next year, I think that will get us comfortably into kind of that 14%-plus range for the mid-teen range at that point in time. But that is kind of the outlook halfway through.

Yes. Maybe, Tobey, I will add one or two to that. Just to say when you look at the drivers, say, okay, what is it that we do that enables us to achieve those things. We have made really good progress on utilization. We have room to run there. The pricing work that we have been doing is probably not fully baked in yet to everything we are doing across the enterprise. Our global delivery model continues to expand and then just continuing to scaling our corporate SG&A. So we have got a lot of levers still that we are pretty confident in. As John said, it is just the growth is some headwinds, but we think we are going to get there. It will probably be in that 14%-plus range into 2025.

How long do you think your hospital customers -- what are you hearing from them in terms of how long they expect activity to remain at elevated levels and therefore, some of them are doing fine from a profitability perspective before that activity level normalizes? And maybe in the context of that answer, you could speak to what you are seeing from an assessment perspective in your PI offering?

Sure, Tobey. This is Mark. I will keep are lose my voice holds up. As I noted in the script, we started to see some improvement across the industry toward the latter half of 2023. There really is, I would say, a mixed story coming into 2024. So you have those systems, I think, that have actually done a pretty good job of recovering. And we are seeing them continuing to spend, but the spending on the growth aspect of what they are trying to do. They are trying to enhance their traditional platforms and things that are perhaps more pros that could up in nature. And we have repositioned our portfolio very well to be able to play both on the up and down aspects of that. But having said that, there are still a number of clients. And we are quite busy on a number of assessments coming into 2020 for those clients who are still facing underwing challenges. So by no means do we think that demand is going to run out of the cycle here. We feel that 2024, we will be just continuing to evolve, that is kind of reflected in the pipeline.

Right. Yes, that is right, Mark. If we look at the pipeline, what gives us confidence in our guidance for the year and the continued growth really is an evolving mix where we have got still plenty of projects in the pipeline that relate to clients that are going through some level of financial stream and our seeking performance improvement health. But now we are seeing increased pipeline activity related to some of our other offerings, which, as Mark said, are more pro cyclical like our strategy offerings, our non-distressed financial advisory offerings and then critically, really, the digital offerings, which I think a lot of clients at this point are now seeking to invest funds in their technology platforms and really try to modernize those to help them operate more efficiently, to help them better get actionable insight from their data to protect their data, to automate many processes as possible in a high labor cost environment. So we are seeing a nice mix of projects right now that really reflect both dynamics going on in the market.

Okay. Two things for me, and I will get back to the queue. Could you speak to why expand liquidity now? And then John, if you could, what is the inorganic contribution to EBITDA and EPS in the initial guidance? .

Sure, Tobey. So the first question about why expanding the borrowing capacity now, it really just have to do with the significant growth we have seen in the company over the past couple of years. When we first entered into our $600 million revolving credit facility that was really designed to support 3.7 times EBITDA leverage, so our trailing 12-month bank definition of EBITDA. And having seen our EBITDA practically double since 2021 that is significantly tied to our capacity on the $600 million revolver. So really adding the $275 million term loan that just kind of gets us back to the capacity that we originally had on a leverage basis given the much bigger size of the company now. So from our perspective, in terms of capital deployment strategy with that extra capacity, I think it is the same messaging. I think you are going to see some mix of strategic tuck-in acquisitions as a result of our programmatic M&A process as well as continued targeted share buybacks. But we just felt like, given our increased size, that we needed some more capacity. And then as far as GG&A on the guidance, I commented from a revenue perspective, given it is a partial year, kind of high-teen million-dollar revenue, I would expect that to flow through at the same percent as our overall corporate EBITDA percentage just given that there will be some transition-type expenses during the first year. And then from an EPS perspective, it is accretive. But in this first partial year, it is pretty minimal from an EBS perspective.

Our next question comes from the line of Andrew Nicholas of William Blair & Company.

I want to double-back on the margin conversation, a pretty good expansion that you expect here in 2024. I think, Mark, you highlighted a few things where there is more room to run between utilization and pricing and the delivery model. I’m just wondering if there is any way to maybe split up the 70 or 80 basis points of expansion across some of those drivers. Like, what is the primary set of drivers in 2024? And maybe related to that, how much of this is maybe expecting a pullback in head count growth and some improved utilization as we progress through the year.

Andrew, I don’t know if I would describe it as all pullback and head count growth. I think what you will probably see from a head count growth perspective in the base case this year is the head count growth will be generally in line with revenue growth. I think in terms of the breakout of that 70 basis points of improvement, between the key things that Mark mentioned, utilization, pricing and then SG&A leverage that is actually more than 70 basis points of improvement that we are expecting. And then on the flip side of that, we do expect to continue to invest in our business, continuing to add talent in new areas to keep the growth going. So I think the initiatives that we have underway actually contribute more than 70 basis points margin improvement, and then we do expect to invest some of that back in the business. So think of those investments as 100 basis points of investment. So if you are thinking of them, okay, between 150 basis points to 200 basis points of operational efficiency improvement, I would say that that is about split 50/50 between some of our pricing and utilization objectives as well as continued global deployment of our India team and then just some of the natural scaling of SG&A that we expect to experience this year.

Great. That is helpful. And then you mentioned, I think, briefly some pickup in Innosight and some of the strategy pieces. Can you unpack that a little bit more? And are there particular end markets where that is strongest and how much of that recovery are you baking in for 2024?

Yes. Andrew, it is Mark. I would say that in 2023, what we saw for Innosight, a little bit slower start to the year, but really what we were very excited to see was very good strength in the health care market and really in conjunction with working across our teams, so very, very much kind of integrated into our overall delivery. At the same time, some of the industrial areas that we have had great strength had a little bit quieter year. But coming into 2024, we feel like they have a very strong pipeline across both sides of that business, and we are excited about just the good recovery into 2024.

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

Guys, another terrific year in the books. I was curious on the refi, John. Did you mention kind of how to think about interest expense with the change?

The change is really pretty minimal, Bill. If you think about the funds flow on it, we added a $275 million term loan, but then we used the proceeds from that term loan to immediately pay down the revolver. So it is really about adding capacity. There will be some minimal incremental expense related to just the fees of establishing that as well as now some more unused fees on the revolving credit facility, but that will be pretty minimal in the scheme of things.

Okay. I wasn’t sure if there was - I don’t think you mentioned if there is any change in rates.

So Bill, there is a 50 basis point additional spread on the term that we just think is more reflective of the market right now versus when we were able to lock in the revolving credit facility. But again, probably, in the scheme of things, that will be pretty minimal. We did also, in the early first quarter, do an interest rate swap that we are able to lock in some more short-term savings versus the silver spot rate right now. That largely offsets any of that additional expense in 2024.

Okay. John, when you were talking about the drivers for the 2023 segment results, it was interesting, on Education, you mentioned digital. And then for the year, there was the other parts of the business that seem to be important. Was digital just kind of the centerpiece of the fourth quarter or am I reading too much into it? And I’m curious how you are thinking about the offerings in Education contributing to 2024’s outlook.

The fourth quarter, it was broad-based demand, Bill. I would say that the leader in the clubhouse though was the digital offerings during the fourth quarter, which is why we highlighted it. But our consulting offering as well as our managed service offerings, which is a smaller base of revenue right now, they also had healthy growth during the fourth quarter. And then if you pivot towards 2024, again, I think it is going to be a broad-based story in the Education business. Clearly, from a digital perspective, we see clients investing in what many institutions right now are dated, legacy technology infrastructure that really needs to get modernized to help those universities meet their missions. But then even beyond the digital side, on the consulting side, you’d probably see it quite a bit down in the headlines, a lot of the pressure that universities are under. And so some of our offerings that help our university partners enroll students, from a philanthropic perspective that help them with their fundraising and then help them minimize risk and efficiently manage their research function. Those are all things that are very important to our education clients right now. So I think the growth we expect to see is pretty balanced across those areas.

Yes. And I will just add research as well. Research has been a very important part of our portfolio, continues to be the area that clients pay a lot of attention to because it is so important, not only to the revenues but to their risk management around the research enterprise. So I think it is been a very fine story. You may have quarters where one is a little bit ahead of another. But I would just say, from a demand backdrop, it is been a very consistent demand across all of them.

Right. No, it certainly has. And finally, I was just curious, as you look at your head count plans this year, are you weighting it heavily towards offshore? Is it going to be this kind of the same kind of mix?

I think it is going to be a similar mix to our total head count, Bill.

Okay. So that is not part of the 150 to 200 bps.

So there is continued increased utilization out of the team, the global delivery team in India as part of the margin story. But if you look at our head count as of 12/31/2023, it is about 70% in North America and about 30% in India. When we look at our head count modeling for the year, I don’t think we expect any big shift in that percentage. It could be a little bit more weighted towards India, but it will be modest. I think it is going to be pretty balanced.

[Operator Instructions] Next question comes from the line of Kevin Steinke of Barrington Research Associates.

So I just wanted to ask about the Education segment, certainly another strong year, a solid fourth quarter. We did see a sequential dip in revenue fourth quarter versus third quarter. I guess we have kind of gotten spoiled by these continually sequential increases, although it is kind of flattened out third quarter versus second quarter. But is there anything to note there in terms of timing of projects or anything that might have led to that sequential change fourth quarter versus third quarter?

Kevin, it is largely just related to business days and holidays during the fourth quarter. We see it across the entire business. There is always less effective business days in the fourth quarter than there are in other quarters. Within Education, just based on our client schedules, sometimes that can be even a little bit more pronounced, and that is all that you are seeing. As I said in my remarks, we are expecting low-teens growth for next year, so we feel good about the growth trajectory in the Education segment.

Okay. Great. So just following up on the GG&A acquisition, maybe just a little more color on what attracted you to that business and how it fits in. And I guess just lastly, in the Education segment, so I’m assuming it predominantly serves education institutions, but you also mentioned health care and nonprofit, just also trying to get a sense for the business mix there.

Yes, Kevin, this is Mark. We are very excited about the GG&A acquisition, that John Clear is joining us as well and continue to be very active in the market. You noted correctly that their position in education, they actually do serve not profit much more broadly. And also on a global basis, they have clients in Europe as well. And so as an example, what we believe will be the pitch here is, obviously, philanthropy is a huge lever within higher education to drive their revenue. But at the same time, it really gives an opportunity for us to bring some of our digital solutions and enablement to advancement function, it is just been a great area of momentum for us from a sales force point of view. And we think the combination of that, their expertise around the whole advancement function will be highly accretive to us. So we think it is well positioned. And then at the same time, because of our operating model that really enables us to bring solutions across lines. We feel that as we have opportunities, whether it is in health care or even outside of health care, not-for-profit more generally, we will have nearly very full ability to take advantage of the full scope and scale of that acquisition.

Okay. Great. John, I think when you are talking about the progression towards the mid-teens margin target by 2025, you mentioned mix has been maybe a little bit different than you would have expected. Were you referring to a mix of digital versus consulting? Or what was that comment targeted at?

Thanks for asking, Kevin. And to clarify, I was more referring to the mix to get to the increase in adjusted EBITDA dollars and adjusted EPS that we have seen. And now that is, at this point, pacing significantly ahead of our Investor Day targets. And the path to getting to those increased EBITDA dollar amount and increased EPS amount, the mix has been a little bit more towards higher growth than what we had initially projected with a little bit of pressure on the margin percent just as we have been investing in our team to deliver that growth. So I was speaking about the two levers of revenue growth versus margin percent in getting to the nice results we have had from an increased EBITDA dollars and adjusted EPS.

Okay. Understood. And then lastly, you mentioned continued ramp or greater utilization of your staff in India as one of the margin drivers going forward. Can you just update us on utilization there and plans to build out the team there, et cetera?

So Kevin, I think, John, I will tag team on this one. So let me just tell you, I think from a from an expansion standpoint, we are really happy with how that team has been built out. And the way we do this is not in an offshore capability, we really run the business truly on a global integrated basis by each service line. So our team in India and our team in the U.S., we consider part of one unit line team, and their goal is to optimize their performance in the market together. So at the time, we continue to expand that to other areas of service line. We have had a small team, as an example, in our business advisory practice doing some consulting support around financial advisory engagement, has had great success and impact. But more broadly, in terms of just the utilization numbers and sales, let me ask John to just give you an update.

Yes. Kevin, that is been a really great story for us as the year has progressed. So as you may recall, at the end, we have made some targeted investments in our team in India to really build out our capacity there in anticipation of growth. And part of that investment was we experienced some lower utilization in the back half of last year and into really the first quarter of this year. We have seen that utilization steadily increase over the course of the year. And by the time we got to the fourth quarter, it is very much in line with our overall utilization, which I would note, for the fourth quarter, was in the 78% to 79% range overall as a company, which is really one of the strongest utilization metrics we posted that I can remember and definitely gives us encouragement about the margins heading into next year as we expect to continue to operate at roughly that level heading into 2024.

And seeing no more questions in the queue, I would like to turn the call back to Mr. Hussey.

Thank you very much for joining us this afternoon. We look forward to speaking with you again in April when we announce our first quarter results. Have a good evening.

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