Huron Consulting Group Inc. Price & Performance (HURN)

With me today are John Kelly, Chief Financial Officer and Ronnie Dale, our Chief Operating Officer. The fourth quarter of twenty twenty four produced record revenues before reimbursable expenses or RBR as our quarterly growth rate accelerated reflecting strong performance across all three operating segments, We also drove strong margin expansion over the prior year period and generated record cash flow from operations during the quarter. 2024 was another strong year for Huron. Consistent with the financial goals we established at our twenty twenty two Investor Day. In 2024, the execution of our integrated growth strategy drove record RBR and expanded our adjusted EBITDA margins for the fourth consecutive year. Led by strong growth in our Healthcare and Education segments, we achieved 9% RBR growth in 2024 over 2023 was on top of very strong growth of 20% in 2023 over 2022.

For the fourth consecutive year, we achieved high single digit or better RBR growth We continued to deliver on our commitments to expand our margins, and return capital to shareholders. In 2024, we meaningfully increased our adjusted EBITDA margin and adjusted diluted earnings per share. We generated record cash flows and we returned over $122,000,000 of capital to shareholders via share repurchases. Collectively, these results created significant value for our shareholders as our stock price increased 21% in 2024. These results were only possible because of our highly talented dedicated team and our clients who continue to engage Huron as their trusted partner. Our growth strategy has delivered another year of strong results demonstrating the solid foundation we've established under our integrated go to market model and collaborative culture. Now, we'll discuss our fourth quarter and full year 2024 performance, which along with our expectations for 2025. In the fourth quarter of twenty twenty four, Healthcare segment RBR grew 18% over the prior year quarter, reflecting strong demand across our performance improvement, revenue cycle managed services, and digital offerings On a full year basis, the Healthcare segment achieved record RBR of $756,000,000 growing 12% over 2023 which was on top of exceptionally strong growth of 26% in 2023 over 2022.

Demand was widespread across our broad array of offerings, including performance improvement, digital revenue cycle managed services, strategy and innovation, and people transformation. We expect to continue to broaden our portfolio to meet the expanding needs our healthcare clients and enhance the foundation from which we plan to continue to grow this segment. Now let me turn to commentary on the market. In recent calls, we've talked about declining provider margins across the healthcare industry mostly resulting from increases in labor and supply costs that outpaced revenue from volume increases. Many of our clients, those factors are likely to continue in 2025. The same time, many health systems have made significant strides in achieving clinical and operational efficiencies in recent years In fact, some of our hospital and health system clients had modest in certain cases robust margins in 2024. However, at both ends of the spectrum, and irrespective of today's financial performance, many healthcare organizations will likely need to take further actions to achieve or maintain financial sustainability in light of what we anticipate will be an increasingly dynamic regulatory environment and competitive landscape.

Potential challenges that may emerge include changes in clinical reimbursement models, changes to the federal funding levels for research, eligibility from Medicaid patients, and changes to an organization's tax exemption status. In addition, health systems are evaluating possible reductions in reimbursement for 340D eligible drugs which are discounted for providers that serve low income and uninsured patients, as well as the impacted tariffs they have on the cost of supplies and on supply chains. Our 2024 financial results growing sales pipeline and the breadth of our offerings in this segment reflect our ability to serve more stable growth, focused organizations in addition to those We believe those market dynamics create continued opportunities for our diverse healthcare portfolio as hospitals and health systems seek to optimize their operations while improving Our extensive set of offerings in performance improvement [indiscernible] managed services, people transformation, financial advisory and strategy and innovation collectively enhance our ability to help our clients meet these current challenges while strategically planning for a more sustainable future. Turning now to the Education segment. In the fourth quarter of twenty twenty four, Education segment RBR increased 15% over the prior year quarter, primarily driven by demand for our digital and strategy and operations offerings as well as incremental revenue delivered by gG and A our global plant refocused acquisition, which closed in the first quarter of twenty twenty four.

Annual RBR in the segment grew 10% compared to 2023 achieving record RBR of $474,000,000 For the full year, the increase in RBR was driven by our acquisition of GG and A and continued demand for our digital and strategy and operations offerings. In addition to the strategic and financial challenges we've discussed on prior calls, higher education is now facing a highly disruptive regulatory environment. We expect the most significant potential impact from anticipated reductions in federal research funding including a potential cap on indirect cost reimbursement rates As of today, it's still not entirely clear how these changes will evolve. But essentially, every research intensive institution is bracing for significant changes to overall research funding in some cases up to several hundred million dollars or more. Our higher education clients that have academic medical centers face the most potential disruption. These clients are focused on three core missions of teaching, research and clinical care. The financial impact of reduced research funding and lower indirect cost reimbursement rates will likely expand beyond the research enterprise as institutions are going to seek to maintain adequate funding for their research missions.

And research funding is only one area of potential disruption. Higher education institutions are also considering the impacts of changes to immigration policies deregulation at both the federal and regional accreditation levels and potential impacts to taxation of the largest endowments. These potential regulatory changes are having immediate impacts on our clients. We're focused on helping them shape their own institutional resilience strategies, that will sustain their operations while creating a stronger foundation for the future. Many of our clients are evaluating alternatives to respond to the more immediate impacts caused by the potential regulatory disruptions and quickly increase the financial resilience of their institutions. Others are evaluating the need to redesign their business models to support their longer term aspirations in a disrupted environment which we believe will create meaningful opportunities across our business [indiscernible] our strategy and operations, philanthropy and digital offerings. While the current uncertainties are extremely challenging for our clients, our long history of serving these institutions with our deep understanding of the industry and our broad set of capabilities positions us well to serve our clients no matter what changes they face. Our philanthropy, performs improvement in research offerings are just a few ways in which we're helping our clients sustain and improve their overall financial position and adjust their strategies for a new reality.

Turning to the Commercial segment. In the fourth quarter of twenty twenty four, Commercial segment RBR grew 6% over the prior year quarter driven by the addition of Axia Consulting to our portfolio, and continued demand for our financial advisory offerings, partially offset by a decline in our strategy and innovation offerings. Before I turn to our full year commercial results, I'd like to highlight our recent acquisition of Axia, was a leading provider of supply chain focused consulting and technology solutions. This acquisition expands our Oracle supply chain management offerings and broadens our technology portfolio with advanced Microsoft capabilities It also strengthens our change management capabilities helping empower clients to align their people and processes to support their digital first goals. We're thrilled to have the Axia team on board. Now let me turn back to our full year results. Full year 2024 Commercial segment RBR declined 1% year over year as macroeconomic uncertainty continued to persist causing some clients to be more cautious about starting large scale digital strategy and innovation engagements. Decline in full year RBR was driven by reduced demand for our strategy and innovation and digital offerings, partially offset by increases in our financial advisory business [indiscernible] driven by solid demand for both our financial services advisory and restructuring and turnaround offerings.

Similar to the healthcare and education industries, expect that clients in commercial industries will continue to face pressure from macroeconomic and geopolitical uncertainty as well as the evolving regulatory environment. Our financial advisory offerings achieved another year of solid growth in 2024, which we believe will carry into 2025 as market uncertainty and regulatory changes impact our clients, In addition, Axios supply chain offerings are well positioned to support our clients as they plan for and build more resilient supply chains to help mitigate the impact of increased tariffs, and changes in the geopolitical landscape. Clients seek to optimize and modernize their operations, technology will continue to play a critical role. Including the use of analytics, automation, and AI. While market factors created mixed demand for our commercial offerings in 2024, we remain cautiously optimistic about our prospects for 2025 based on our robust pipeline for our financial advisory and digital offerings and as we continue to build more industry depth and expand our core capabilities. In addition to our financial performance, I'm incredibly proud of our team and the attractive work environment they continue to foster within Huron. Established a strong collaborative culture that we believe is one of our greatest competitive advantages.

Because of Huron's unique culture we've been able to grow our leadership base to nearly two seventy Managing Directors and Principles and increase our total employee base to over 7,200 professional professionals globally as of December 31. In addition, our team's collective efforts culminated in numerous awards and recognitions including most recently being named a Best Place to Work by Glassdoor for the second year in a row. These recognitions and our strong financial results are a testament to our people and their passion for serving our clients, our communities I'm grateful for all they do for Huron and our stakeholders.

And now let me turn to our expectations and guidance for 2025 which contemplates our acquisition of Axia As well as the divestiture of our Stuttgart education business, closed on December 31. Our RBR guidance for the year And adjusted diluted earnings per share $6.8 to $7.6 Company wide, we're projecting 9% RVR growth at the midpoint for 2025, Billing on our recent momentum, we believe that the primary end markets in which we compete will continue to create growth opportunities for our broad portfolio of offerings. Our integrated growth strategy remains focused on leveraging our leading positions in healthcare and education, expanding our presence in commercial industries and growing the breadth of our digital capabilities, which collectively positions us us well to respond to market uncertainty and ongoing client demand as we pursue sustainable value for our shareholders. In terms of margins, at the midpoint of our 2025 guidance, we expect a 75 basis point improvement over 2024 Building upon the cumulative 300 basis point improvement achieved since 2020. Her leadership incentives are aligned with driving sustainable margin improvement while funding organic investments in our business and in our people to achieve our growth goals. Because of our continued progress expanding our margins in 2024, fueled by our ongoing pricing and efficiency initiatives we believe we remain on track to achieve our mid teen level adjusted EBITDA margin goal in 2025.

The midpoint of our guidance for adjusted diluted earnings per share is $7.2 an 11% increase over 2024 which was on top of a 43% increase achieved in 2023 over 2022. The 2025 235% higher than our 2020 adjusted EPS of $2.15 reflecting the compounding impact of our revenue growth margin expansion and returns to shareholders via share repurchases. We're proud of the growth we achieved in 2024 and we believe the strong foundation we built will help us continue to achieve top and bottom line growth into the future particularly in light of the disruption and uncertainties facing many of our clients. As we enter 2025, I'm excited about the opportunities ahead. Opportunities to build upon our deep client relationships a broader set of innovative offerings to address their rapidly evolving needs and enhance our competitive position. Opportunities to continue to drive sustainable revenue growth and margin expansion while further investing in our business and returning capital to shareholders. And opportunities for further growth and development for our people who are the heart of our business. Our future is bright and our business trajectory, financial strength collaborative culture position us very well to continue to create sustainable value for our shareholders.

And now let me turn it over to John for a more detailed discussion of our financial results. [indiscernible] 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, free cash flow. Our press release 10 ks and investor relations page on the Huron website have reconciliations of these non GAAP measures to the most comparable GAAP measures, along with a discussion of why management uses these non GAAP measures, and why management believes they provide useful information to investors, regarding our financial condition and operating results. Before discussing our financial results for the quarter, I'd like to discuss several housekeeping items. First, our fourth quarter results reflect the acquisition of Axia Consulting, which closed effective December 1 and as such one month of Axia's operating results are included within the commercial segment. Second, on December 31, we completed the divestiture of our [indiscernible] which primarily served the K-twelve education market. As such, our fourth quarter results do include the student education business. In 2024, Studer Education, which was included in the Healthcare segment, generated RBR of $13,700,000 Operating income for the Stuerto Education business including certain corporate expenses directly related to the Stuttler Education business, was immaterial for 2024.

As we further execute our growth strategy, we will continue to concentrate and drive the highest return for our shareholders. Lastly, as it relates to our revenue generating professional headcount metrics, we we have updated our earnings release to provide additional information about headcount by industry and capability breaking out managed services headcount separately, order to provide more detail to investors about our revenue generating professional headcount Now I will share some of the key financial results for the quarter and full year 2024. The fourth quarter of twenty twenty four produced record RBR of $388,400,000 up 14.5% from $339,200,000 in the same quarter of 2023, driven by solid growth across all three operating segments. For full year 2024, RBR was $1,490,000,000 up 9.1% from $1,360,000,000 in 2023, and top of strong growth of 20.3% in 2023 over 2022. Led by strong performance in our Healthcare and Education segments, we achieved record RBR in 2024 which also marked our fourth consecutive year of achieving high single digit or better RBR growth. Income for the fourth quarter of twenty twenty four was $34,000,000 or $1.84 per diluted share compared to net income of $2,800,000 or $0.15 per diluted share in the fourth quarter of twenty twenty three.

As a percentage of total revenues, net income increased to 8.5% in the fourth quarter of twenty twenty four compared to 0.8% in the fourth quarter of twenty twenty three. As a reminder, Q4 twenty twenty three net income in non cash unrealized loss net of tax or $1 per diluted earnings per share related to our investment in a hospital at home company. For full year 2024, net income was $116,600,000 or $6.27 per diluted share. This compares to net income of $62,500,000 or $3.19 per diluted share in 2023, As a percentage of total revenues, net income increased to 7.7% for full year 2024 compared to 4.5% in 2023. Net income for full year 2024 includes $11,100,000 litigation settlement gain net of tax related to a legal matter where Huron was the plaintiff. Net income for full year 2023 reflects the $19,400,000 non cash unrealized loss net of tax related to our investment in hospital at home company. Our effective income tax rate in the fourth quarter of twenty twenty four twenty seven point three percent which was less favorable than the statutory rate inclusive of state income taxes primarily due to certain non deductible expense items. On a full year basis, our effective tax rate for 2024 twenty four point three percent, which was more favorable than the statutory rate, inclusive of state income taxes, primarily due to a discrete tax benefit for share based compensation awards that vested during the year.

This favorable item was partially offset by certain non deductible Adjusted EBITDA was $56,800,000 in Q4 twenty or 14.6% of RBR compared to $41,400,000 in Q4 twenty twenty three, or 12.2% of RBR. For full year 2024, adjusted EBITDA as a percentage of RBR increased 120 basis points to 13.5% compared to 12.3% in 2023. The increase in full year adjusted EBITDA was primarily attributable to the increase in segment operating income in our Healthcare and Education segments partially offset by modest decrease in segment operating income in income in the Commercial segment and increased unallocated expenses to support the growth of our business. This was our fourth consecutive year of expanded adjusted EBITDA margins growing our adjusted EBITDA margins 300 basis points since 2020. Our progress demonstrates our commitment to our mid teen margin goal to set forth in our twenty twenty two Investor Day. Adjusted net income was $35,200,000 or $1.9 per diluted share in the fourth quarter of twenty twenty four, compared to $25,100,000 or $1.29 per diluted share in the fourth quarter of twenty twenty three. For the full year 2024 adjusted net income was $120,400,000 or a record $6.47 per share compared with $96,200,000 or $4.91 per share in 2023.

Now I'll discuss the performance of each of our operating segments. The Healthcare segment generated 52% of during the fourth quarter of twenty twenty four. This segment posted RVR of $202,300,000 up $30,300,000 or 17.6% from the fourth quarter of twenty twenty three, The increase in revenues in the quarter was driven by strong demand for our performance improvement revenue cycle managed services and digital offerings. On a full year basis, healthcare RBR increased 12.2% to a record $756,300,000.0 compared to $674,000,000 in 2023, which was on top of strong growth of 26% in 2023 The increase in RBR in 2024 driven by strong demand across our portfolio of offerings We experienced strong growth across both our consulting and managed services and digital capabilities in healthcare increasing 1213% over 2023, respectively. This growth is a testament to how our team can to address the evolving needs of our healthcare clients.

Operating income margin for Healthcare was 30.3% in Q3 twenty twenty four, compared to 25.9% in Q4 twenty twenty three. The increase in operating income margin was largely driven by RBR that out [indiscernible] in salaries and related expenses lower contractor expenses, partially offset by higher bonus expense for our revenue generating professionals as a percentage of RBR. On a full year basis, operating income margin was 27.6% in 2024, compared to 25.7% in 2023. The increase in operating income margin year over year was primarily due to a decrease in salaries and related expenses as a percentage of RBR and a decrease in contractor expenses partially offset by an increase in SG and A expense and bonuses as a percentage of RBR. The Education segment generated 31% of total company RBR during the fourth quarter of twenty twenty four. The Education segment posted RBR of $118,800,000 up $15,100,000 or 14.5% from the fourth quarter of twenty twenty three. RBR in the fourth quarter of twenty twenty four included $4,800,000 from our acquisition of GG and A, [indiscernible] The increase in revenues in the quarter was driven by demand for our digital strategy and operations offerings as well as incremental revenue delivered by gG and A. On a full year basis, Education segment RBR grew 10.4% year over year to a record $474,200,000 compared to $429,700,000 in 2023.

The increase in full year RBR includes $18,600,000 from our acquisition of GG and A and continued strong demand for our digital, and strategy and operations offerings. The operating income margin for Education was 22.4% for Q4 twenty twenty four compared to 21.2% for the same quarter in 2023.

The increase in operating income margin in the quarter was primarily driven by a decrease in compensation expense for our revenue generating professionals as a percentage of RBR and decreases in training and administration expense. All partially offset by increased compensation expense for our support personnel and capitalized software expense amortization related to the development of our next generation Research Suite software. A full year basis, operating income margin was relatively flat at 22.9% compared to 23.1% in 2023. The Commercial segment generated 17% of total company RBR during the fourth quarter of twenty twenty four, and grew 6.1% over the prior year period. Posting RBR of $67,300,000 compared to $63,500,000 in the fourth quarter of twenty twenty three.

The increase in RBR in the fourth quarter of twenty twenty four was driven by $3,100,000 of incremental revenue from our and strong demand for our financial advisory offerings partially offset by a decline in our strategy and innovation offerings. On a full year basis, Commercial segment RBR declined 1.1% to $255,600,000 in 2024 inclusive of our acquisition of Axia compared to $258,400,000 in 2023. The decline in full year revenues was driven by reduced demand for our strategy and innovation and digital offerings partially offset by an increase in our financial advisory offerings. Operating income margin for the Commercial segment was 17.8% for Q4 twenty twenty four, compared to 22.4% in the same quarter in 2023. The decline in operating income margin in the quarter was primarily driven by increases in compensation expense for our revenue generating professionals and contractor expenses as percentages of RBR partially offset by a decrease in segment restructuring charges. On a full year basis, Commercial segment operating income margin decreased to 20% compared to 21% in 2023, reflecting increased salaries Corporate expenses not allocated at the segment level and excluding restructuring charges were $47,800,000 in Q4 twenty twenty four, compared to $45,400,000 in Q4 twenty twenty three.

On allocated corporate expenses in the fourth quarter of twenty twenty four, and 2023 included a gain of $200,000 and expense of $3,200,000 respectively related to changes in the liability of our deferred compensation plan which is offset by the change in fair value of our investment assets used to fund that plan. Reflected in other income. Excluding the impact of the deferred compensation plan in both periods, Unallocated corporate expenses increased $5,700,000 primarily due to increases in compensation costs for our support personnel and software and data hosting expenses partially offset by a decrease in legal expenses. On a full year basis, corporate expenses not allocated at the segment level increased to $191,200,000 which included $5,200,000 of expense related to the deferred compensation plan compared to $175,200,000 in 2023 which included $5,500,000 of expense related to deferred compensation plan. Excluding the impact of the deferred compensation plan in both periods, unallocated corporate expenses increased $16,200,000 primarily driven by an increase in compensation costs and software and data hosting expenses. Now turning to the balance sheet and cash flows. Cash flow generated from operations for 2024 was a record $2.00 $1,000,000 We used $33,000,000 inclusive of internally developed software costs resulting in record free cash flow of $168,000,000 DSO came in at seventy six days for the fourth quarter of twenty compared to eighty six days for the third quarter of twenty twenty four and eighty seven days for the fourth quarter of twenty twenty three.

The decrease in DSO during the fourth quarter when compared to both periods reflects the impact of collections on certain larger healthcare education projects in alignment with their contractual payment schedules. Total debt as of 12/31/2024 three hundred and fifty seven point seven million dollars consisting entirely of our senior bank debt, And we finished the year with cash of $21,900,000 for net debt of $335,800,000 This was an $89,000,000 decrease in net debt compared to Q3 twenty twenty four. In addition, the fourth quarter of twenty twenty four included eight or approximately 151,000 shares. For full year 2024, we used $122,000,000 to repurchase approximately 1,200,000.0 shares.

Representing 6.6% of our outstanding shares as of the beginning of the year and we used $49,500,000 for strategic tuck in acquisitions.

Our leverage ratio is defined in our senior bank agreement was 1.4 times adjusted EBITDA as of 12/31/2024 compared to 1.6 times adjusted EBITDA as of 12/31/2023. Finally, let me turn to our expectations and guidance for 2020 which does contemplate the acquisition of Axia as well as the divestiture of Studer Education. For the full year 2025, we anticipate revenues before reimbursable expenses in a range of $1,580,000,000 to $1,660,000,000 reflecting a 9% year over year growth at the midpoint.

Adjusted EBITDA in a range of 14% to 14.5% of RVR reflecting a 75 basis point improvement over 2024 at the midpoint. And adjusted non GAAP EPS in a range of $6.8 to $7.6 reflecting an 11.3% increase over 2024 at the midpoint. We expect cash flows from operations to be in a range of $195,000,000 to $235,000,000 Capital expenditures are expected to be approximately $35,000,000 to $45,000,000 inclusive of cost to develop our market facing products and analytics tools. And free cash flows are expected to be in a range of 160 to $190,000,000 net of cash taxes and interest and excluding non cash stock compensation, Weighted average diluted share count for 2025 is expected to be in a range of 18,000,000 shares to 18,500,000.0 shares. Finally, with respect to taxes, you should assume an effective tax rate in the range of 28% to 30%. Which comprises the federal tax rate of 21%, a blended state tax rate of 6%, an incremental tax expense related to certain non deductible expense items partially offset by certain deductions and tax credits. The midpoint of the revenue range reflects 9% revenue growth over 2024. As Mark mentioned, our recent growth trajectory has highlighted the resilience in our business despite uncertainty in the market as we continue to achieve high single digit growth or better over the last four consecutive years.

Because of the market demand for our offerings, robust pipeline across our business, we believe we are well positioned to achieve growth in 2025 consistent with our financial objectives.

With regard to our Healthcare segment, we expect mid single digit revenue growth for the full year 2025 and we expect operating margins will be in a range of In the Education segment, we expect mid to upper single digit percentage revenue growth to the full year 2025 and we expect operating margins will be in a range of approximately 23% to 25%. Mark mentioned, we are in the midst of a highly dynamic regulatory environment that could drive significant changes to the higher education business model. Even with the rising uncertainties in the market, we believe we are well positioned to help our clients navigate the ongoing changes as they arise. In the Commercial segment, we expect to see growth in the low 20% range for 2025 which includes a full year of 21% to 23%. We expect unallocated corporate SG and A excluding the impact of the deferred compensation plan, to increase in the mid to upper single digit percentage range year over year.

Also in the first quarter consistent with prior years, we note the following items as it relates to expenses. The reset of wage basis for FICA, our four zero one match our annual merit and promotion wage increases go into a effect on January 1 an increase in stock compensation expense for restricted stock awards that will be granted in March, retirement eligible employees and an increase in practice administration and meeting expenses driven by several larger team meetings Based on these factors, we anticipate approximately 15% to 20% of our full year adjusted EBITDA and full year adjusted EPS to be generated during the first quarter. As a closing reminder, with respect to 2024 adjusted EBITDA, adjusted net income, and adjusted EPS there are several items that you will need to consider when reconciling these non GAAP measures to comparable GAAP measures. The reconciliation schedules that we included in our press release will help walk you through these reconciliations. Lastly, I want to remind everyone that we will be hosting an Investor Day on Tuesday, 03/25/2025. We hope you can join us in person in New York or via the virtual webcast.

Can register for the event on the Investor Relations page of the Huron website.

Operator?

Our first question comes from Andrew Nicholas of William Blair and Company.

Please go ahead, Andrew. Great.

Thank you and good afternoon.

I wanted to first ask a question on the regulatory backdrop. I think there was quite a bit of color there and thoughts on how dynamics or regulatory environment is. But I'm just maybe to simplify a little bit. I'm just curious is the pipeline which you referred to as robust, I think several times, Has that been affected by it yet or is there some concern that it would be a couple of quarters out. Just Any net impact that you've seen to date and whether or not that's positive or negative? Yes. Andrew, it's Mark.

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

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

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

Yes. I think probably just from a computational perspective, you have Axia in those numbers. So that probably is one factor in terms of the increase from 2% to the mid single digit range. I think beyond that, it continued to be a good quarter in the fourth quarter in terms of sales conversion, continued into the early part of the first quarter here. Is causing us to continue to add talent to our team to be able to address client needs.

I'd say within the healthcare business, particularly on both the performance improvement side as well as the Managed revenue cycle, Managed Services side, those are two places where we're adding a lot of resource resources. And then also within certain areas of our digital business, where we're seeing increased demand Great.

Thank you.

Thank you. Our next question comes from Tobey Sommer of Chorus Securities.

Please go ahead, Tobey.

Hi. It's Tyler Barish on for Toby. Just with the recent reduction and you mentioned that maybe medical research Bank, can you maybe just explain the puts and takes you see maybe for Huron on on the positive and negative side. Yes. So Tyler, the way that that would work is that essentially it's really a reduction in demand for our education clients because from our revenue for them because fewer research grants that are being actually processed and that's really what's happening right now. You look at the federal register and the number of grants that are actually being posted out there, it's slowing down significantly. So as they have less revenue, that's coming in to fund their research activities, it puts pressure on their overall financial institution from an institution from a financial perspective. So and then on top of that, if the grant for grant, they're getting fewer dollars into the organization. Again, So it's really a net reduction in revenue. So analogous to our healthcare business when they have margin pressure margins are not used in education, but the total revenue going down puts pressure on their ability to fund their activities. And so they'll need to think through what are the changes they need to do in their institution to be responsive to reductions in funding.

Hopefully that helps explain that dynamic. [indiscernible] Does. Thank you. I'm just following up on utilization. Maybe just give us some expectations for utilization will trend throughout the year? Sure, Tyler.

If you look at 2024, the way things progressed, there was really a steady ramp of improvement in utilization over the course of the year. In the fourth quarter, we're above 77% both for our consulting capability as well as our digital capability. As we turn the corner into the first quarter, I think our expectation is that you're going to continue to see strengthened utilization I think that's reflective of the demand that we're seeing and part of the reason utilization was lower in the first half twenty twenty four was we did have unusually or historically low attrition in the business. So that remains a factor that we'll have to watch into 2025. But if you make normalized assumptions there for 2025, we still think that we're going to have some nice year over year improvement in terms of utilization in the first half of the year versus 2024? And then just one final one. A lot of the different like managed care organizations are talking about higher medical costs in '25. Can you maybe just explain how that will impact your business, the healthcare side of your business?

Yes. Again, Tyler, I think it's a consequence of squeezed margins because of the value based card care contract, it's just costing you more to deliver against it. You're actually realizing fewer dollars on those contracts. So essentially, it's just again, it's it's been a longer term trend that we've seen in both health care and education in terms of the increasing cost levels relative to the revenue they're bringing in. So it's just another lever that's going to put pressure on those organizations. [indiscernible] Sure. Thank you. Our next question comes from Bill Sutherland of The Benchmark Company. Please go ahead, Bill.

Okay, thank you. Hey, guys. I think John, you said that '24 the operating margin benefited from lower employee expenses Can you provide color on that I think, Bill, in terms of what benefited margins in 2024 I think there was general good management of our expenses across the business, not necessarily employee expenses. The other lever that I would point to in terms of what really drove the strong margin improvement 2024 our really our effectiveness in terms of pricing and making sure that we were Billing a manner that reflects the value we're driving for our clients was a big factor in 2024 Scaling of our corporate SG and A, we've made investments over the years in our corporate Continued strong utilization of our global capabilities, I think was a factor So those were all things that we look at in terms of what really benefited 2024 terms of now, okay, going from 2024 to 2025, think there's still room to run on many of those factors. Consistent with the Last question from Tyler. I think that there's room for utilization to improve in 2025 on a full year basis from where it was at in 2024. So I think that could be another factor.

And then the final thing I'd point to is we've we have a number of initiatives within Huron right now to really effectively use our automation, analytics, AI tools to help us operate more efficiently And we've got expectations that that automation is going to help us continue to scale our scale our costs as well. Are you using some of your offshore for your corporate We do. Our global team supports our corporate needs as well.

John, did you mention how much ex is going to contribute to the commercial [indiscernible] this year? Yes. So if we think about 2025, I'd put the expectations, Bill, in a range of $35,000,000 to $40,000,000 in 2025. Keep in mind, there was about $3,000,000 in the fourth quarter. So think of that as incremental in the low $30,000,000 range. And then as I noted in my remarks, we did divest Studer Education during the year, which [indiscernible] about $14,000,000 in revenue last year. So the net of all that is $20,000,000 to $25,000,000 of probably inorganic growth That's baked into the guide.

And studios in healthcare, right?

Student education was in healthcare, yes.

Yeah. Yeah. Okay.

So Are you guys [indiscernible] the world's changing rapidly. And I was wondering if [indiscernible] I mean, it just seems to line up very well. For your capabilities for the most part. But I'm just thinking clients kind of holding back on work orders and implementations just for the moment. Is there a chance for a little bit of a just a short term air pocket Bill, a lot of so what we've seen so far is some of the larger digital initiatives that we have going on for systems implementations they're not stopping those projects. They've committed to dollars. They need them for the future. And there's a tremendous cost and impact to stop anything in the middle And so those are right now going on. We do see as an example just discussions about what is the response because right now it's not clear entirely. As an example, if there's an unpopular decision, you're seeing state AGs essentially filed lawsuits to basically put in temporary restraining orders. So some of these are going to work through the system here in the coming weeks. But at the end of the day, there's going to be a need for a lot of help in a short period of time to help clients reposition their businesses to be responsive not only to the current year financial impact but for the longer term.

So different than COVID as an example, just like in contrast, where you didn't have students there and it was a big shock or you took elective surgeries out of the healthcare system, those were also shocks but they were not necessarily always good for us. I feel like these are issues that play to our strengths based on the offerings that we have. And that's why we perhaps feel about truly helping our clients in a very challenging situation. That is a paramount focus for a lot of our people right now. Sure. Sure.

And last one, John, you You said for us to look for mid single top line growth in Healthcare. Any kind of what are your puts and takes as you kind of lay that number out there? So I think if you look at our revenue growth over the past several years in healthcare, it was 13% in 2024, 26% in 2023, twenty percent twenty twenty two. Obviously, it's just been a really strong run of growth there. [indiscernible] just given that it's our biggest business, a little bit of law, numbers and some of the growth that we've seen over the past few years, it was more prudent at the beginning of the year to go with a more cautious growth outlook to start. Would point out that that was also our guidance at the beginning of twenty twenty four and we ended up having a year where we were able to post double digit growth. Other factor that I'd point in that or point out Bill in that five mid single digit percent range.

Is That has the divestiture of student education embedded in it. So really kind of implied organic growth is a couple of points higher than that. I think in terms of what drives the upside there, we continue to see really strong demand for our performance improvement offerings. We continue to see really strong demand for our HMS managed services offerings. In digital as well from a lot of our clients that are investing in their digital infrastructure. It's been good for our strategy and financial advisory teams too. So I think those are all the things that to the extent that momentum would continue throughout the year like it was towards the end of last year, and that could drive us towards the upper end of the revenue guide. Okay. Okay.

Sounds good. Thanks, Bill.

Thank you. Next question. Comes from the line of Kevin Steinke of Barrington Research and Associates. Please go ahead, Kevin. Thanks.

So I guess in relation to an earlier question, but specific to commercial digital, I think last quarter you're talking about you felt like you were pretty well positioned for some Good growth in the commercial digital business in 2025. I think in your prepared comments, you kind of talked about cautious optimism. Kind of the way you're thinking about that business as we move into 2025, given some of the uncertainty in the environment, And just what is the overall pipeline in commercial digital look like [indiscernible] Kevin, this is John. I think from an overall perspective, we're very encouraged by the backlog coverage ratios that we see right now. The Commercial segment and that includes our digital business. So that's certainly something that gives us confidence If you look at the 20% plus growth, that we've talked about for the commercial segment in 2025 based on the guidance. That's about half from our Axia business. It's about half organic growth. And really the organic there is driven by our digital business and that's based on Some of the stability now we've seen in the pipeline and the backlog coverage that we have going into the year as well as What continues to be a robust environment for our financial advisory offerings within the commercial segments.

We put those two things together that's what really drives our confidence in the the 20% plus guided growth rate for 2025.

Okay, thanks. That's helpful. And also last quarter, you had talked about some Projects that had been a little slower to start up. I'm thinking specifically within education, It sounded like some client specific factors Have those projects started to catch up now or ramp up or is there anything to call out there on that No, Kevin, those did commence in the back half of last year into the fourth quarter. As we expected. We went through a lot of that ramp up period during the fourth quarter and I would describe those projects as now at run rate as we start the year here as we had expected last time we talked. Okay, great. And then just lastly, Mark, I believe in your prepared comments, you talked about plans to broaden your healthcare offering And I feel like you're already pretty broad and [indiscernible] services, but any comments on where you could potentially add or broaden out those services even more Yes, Kevin, I think there's a number of areas. I think our financial advisory services area has certainly areas for expansion that I think bring us more to the M and A as an example. Our managed services offering, which we continue to be very excited about and I think we're going to get continue to see momentum as well.

I think digital as well as payer. I think there is when you consider the size of The U. S. Provider [indiscernible] I think we have a lot more runway in the healthcare industry to just continue to broaden in adjacencies that we have today such and very strong client relationships that just set us up for continued expansion.

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

Thank you. Seeing no more questions in the queue, I'd like to turn the call back to Mr. Hussey. Sir? Thank you everyone for spending time with us this afternoon. We look forward to speaking with you again at our upcoming Investor Day on March 25 when we're going to share more about the continued evolution of our strategy and financial goals. That concludes today's conference call. Thank you everyone for your participation.