Huron Consulting Group Inc
NASDAQ:HURN
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Huron Consulting Group Inc
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Good afternoon, ladies and gentlemen and welcome to the Huron Consulting Group's webcast to discuss financial results for the third quarter 2020. At this time, all conference call lines are in a listen-only mode. Later, we will conduct a question-and-answer session for conference participant 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 to the disclosure at the end of the company's news release for information about any forward-looking statements that may be made or discussed on this call. The news release is posted on Huron's website. Please review that information along with the filings with the SEC for a disclosure of factors that may impact subjects discussed in this afternoon's webcast.
The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Huron's website for all of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers.
And now I would like to turn the call over to Jim Roth, Chief Executive Officer of Huron Consulting Group. Mr. Roth, please go ahead.
Good afternoon and welcome to Huron Consulting Group's third quarter 2020 earnings call. With me today are John Kelly, our Chief Financial Officer and Mark Hussey, our President and Chief Operating Officer.
Our third quarter revenues were in line with our expectations, declining 6% over the prior year quarter while margins and cash flow were better than we anticipated. Continued proactive cost management efforts companywide delivered significant savings in the third quarter and has enabled us to increase our full year 2020 adjusted EBITDA and adjusted EPS guidance. John and I will provide more color around our updated guidance in a few minutes.
Growth in the business advisory segment reflected solid demand for our distressed advisory offerings and increased focus among our commercial clients on using technology and analytics to improve their operations. As has been well documented, the ongoing pandemic has continued to create both disruption and opportunities for our clients in healthcare and education industries. In response to market impacts of the ongoing pandemic, our team measures to fortify our financial position while continuing to meet our clients' evolving needs.
We continue to execute on our five-year strategy to drive profitable growth which generated solid results in 2019 and at the beginning of 2020. Our priorities remain focused on actions that will position Huron for a return to growth following the pandemic. And the strong foundation we have built over the last several years has provided us with flexibility to weather current challenges. Our performance in the market and our financial position allow us to continue to capitalize on emerging opportunities for growth, including our recent acquisition of ForceIQ.
I will now share additional insight into our third quarter performance and the demand drivers for each of our businesses and then provide some color on our expectations for the remainder of 2020. During the third quarter, healthcare segment revenues declined 13% from year ago [ph] quarter. Utilization increased quarter-over-quarter into the low 70s and demand among our health system and academic medical center clients has enabled us to build a healthy sales pipeline. We remain cautiously optimistic about performance in this segment, primarily due to intense margin pressures in the industry resulting from lower volumes, changes in payor mix and increased costs related to telehealth and other service delivery models.
Hospital patient volumes have recovered in the past three to four months, but in most cases remain below pre-COVID levels. The primary questions facing our clients are when will volumes return to historical levels and what changes post-COVID will most dramatically impact their fundamental business models. Driven by these questions, our pipeline is building based on clients reaching out to us to help position them for a very different strategic and financial future.
Business advisory segment revenues grew 6% over the third quarter of 2019, primarily driven by our digital, technology and analytics and distressed advisory offerings. The impacts of the COVID-19 pandemic continue to result in significant challenges for our commercial clients, driving solid demand for our restructuring and turnaround services. In addition, nearly every company has seen the need to accelerate their digital transformation as they rethink how work gets done to drive operational efficiencies, better engage with their customers and make better data-driven decisions. This has resulted in strong demand for our digital, technology and analytic offerings.
Our ES&A and legacy business advisory practices have seen strong demand throughout the COVID period and the third quarter was no exception. We continue to believe demand for our distressed advisory and technology offerings will continue to see solid demand in the fourth quarter as well [indiscernible]. Indicative of our expectations for future growth in our digital technology and analytic offerings, today we announced the closing of our acquisition of ForceIQ which strengthens our Salesforce and V3locity capabilities within the ES&A business.
ForceIQ excels in helping clients rethink how they digitally approach and interact with customers at scale. Together with our existing Salesforce business, ForceIQ enhances our position as one of the leading Salesforce industries partners. ForceIQ also brings to Huron additional depth and experience in healthcare technology having provided digital innovation to some of the largest payor organizations.
Our education segment revenues declined 9% over the third quarter of 2019, which is the first time segment revenues have declined in 22 consecutive quarters. Strong growth in the first half of the year was fueled by [indiscernible] prior to the COVID-19 pandemic. In the second and third quarters of this year, we worked through some of our prior backlog while business development activities and pipeline conversion were significantly impacted as our clients were focused on bringing students safely back to campus and transitioning to higher quality online learning for the fall term.
Many higher education institutions faced significant revenue declines from lower enrollments and reduced funding as states cut their annual budgets. These challenges are putting immense pressure on colleges and universities to evaluate the sustainability of their business models. Our education clients face a classic set of challenges, including how to balance immediate operational issues while strategically managing for the long term. There is also an increasing recognition among our clients that the longer term business of higher education will not resemble historical norms, necessitating a new strategic and [indiscernible] that accommodates what is likely to be a very different type of demand for traditional academic offerings.
Similar to healthcare, technological advancements will play a critical role in achieving that vision and sustainable long term success. With our deep industry knowledge and breadth of capabilities, we are uniquely positioned to help our education clients address these increasingly complex issues and help their organizations achieve sustainable future.
Before I turn to our outlook for 2020, let me break with tradition and share a few comments about 2021, something we typically do not do prior to February. We are now in the eighth month of managing this company within the constraints and opportunities that the pandemic has presented. Our team has done an incredible job of serving clients and supporting each other during this time. Collectively, we are focused on returning our company to growth and we are aggressively working to do so in 2021, including through the continued execution of our five-year strategy.
As we plan for a return to companywide growth amidst ongoing uncertainty among our clients and dramatic market disruptions, we recently took proactive measures to manage our cost base, including adjusting our workforce in targeted areas of our business, delaying merit increases to employee salaries for the entire company, reducing our real estate footprint and exiting a non-core business within our life sciences practice. We finished 2019 with strong results and we had solid momentum across our business during the first quarter of the year, which we believe positioned us well for another year of strong organic growth.
The workforce related actions we took last week better align our delivery capacity in certain businesses with the demand we currently anticipate for our services while still providing us with the capacity we need to fuel growth as the market stabilizes. We believe these proactive measures will strengthen our financial position amidst the ongoing disruption and create a foundation from which we can grow and expand margins in 2021 despite the ongoing economic uncertainty in the market.
Now let me turn to our outlook for the year. We are increasing the midpoint and narrowing the range of our annual revenue guidance to $835 million to $855 million and increasing our adjusted EBITDA guidance to a range of 10% to 10.5% of revenues. We now expect adjusted diluted earnings per share in a range of $1.95 to $2.15.
The economic environment in 2020 has demonstrated the importance of our commercial businesses to our overall portfolio. These businesses are well-positioned to address our clients' technology strategy and operational needs as most commercial sectors respond to the emergence of very different business models. We are excited about the continued growth of these businesses and we expect them to continue to perform well in 2021. There is no doubt that our growth in the healthcare and education industries remains a critical element of our future success.
We are working closely with our clients to address the near term operational issues that hospitals and universities are facing. The driver of future growth across all three of our segments will be working with our clients to ensure that they have sustainable business models and that they are appropriately positioned from a strategic, operational and technology perspective for what is clearly going to be a very different environment when the pandemic eases. For those challenges, no other firm is better prepared than Huron.
Now let me turn it over to John for a more detailed discussion of our financial results. John?
Thank you Jim and good afternoon everyone. Before I begin, please note that I will be discussing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS and free cash flow. Our press release, 10-Q and Investor Relations page on the Huron website have reconciliations of these non-GAAP measures to the most comparable GAAP measures, along with a discussion of why management uses these non-GAAP measures and why management believes they provide useful information to investors regarding our financial condition and operating results.
Also, my comments today are all on a continuing operations basis. Our recent acquisition of ForceIQ is not included in our third quarter financial results. ForceIQ will be included in the business advisory segment beginning in the fourth quarter of 2020.
Now let me walk you through some of the key financial results for the quarter. Revenues for the third quarter of 2020 were $205.3 million, down 6.4% from $219.3 million in the same quarter of 2019. The decline in revenues in the quarter was driven by the healthcare and education segments, partially offset by organic growth in our digital, technology and analytics and distressed advisory offerings within the business advisory segment.
Net income was $11.1 million or $0.50 per diluted share in the third quarter of 2020 compared to $13.7 million or $0.61 per diluted share in the same quarter in the prior year. The decline in net income was driven by the reduction in revenue in the quarter. Adjusted non-GAAP net income was $13 million or $0.59 per diluted share in the third quarter of 2020 compared to $17.7 million or $0.79 per diluted share in the same period of 2019.
Our effective income tax rate in the third quarter of 2020 was 17.7% compared to 15% a year ago. Our effective tax rate for Q3 of 2020 was more favorable than the statutory rate inclusive of state income taxes, primarily due to the current year-to-date pretax losses and the impact during the quarter of certain nondeductible business expenses, including the nondeductible portion of goodwill impairment charges based on the allocation of these expenses through the quarter in accordance with GAAP. The effective tax rate also reflected the positive impact of certain federal tax credits.
Adjusted EBITDA was $23.6 million in Q3 2020 or 11.5% of revenues, compared to $28.8 million in Q3 2019 or 13.1% of revenues.
Now I will make a few comments about the performance of each of our operating segments. The healthcare segment generated 43% of total company revenues during the third quarter of 2020. This segment posted revenues of $87.4 million for the third quarter of 2020, down $12.6 million or 12.6% from the third quarter of 2019. The decrease in revenue reflects the impact of the ongoing COVID-19 pandemic on our new business pipeline and related slower conversion of soft backlog during the quarter. Operating income margin for healthcare was 29.3% for Q3 2020 compared to 32.9% for the same quarter in 2019. The quarter-over-quarter decline in margin was primarily due to a decrease in billable consultant utilization.
The business advisory segment generated 32% of total company revenues during the third quarter of 2020. The segment posted revenues of $66 million in Q3 2020, up $3.5 million or 5.6% from the third quarter of 2019. The increase in revenue during the third quarter was primarily attributable to our technology and distressed advisory offerings. The operating income margin for the business advisory segment was 16.3% for Q3 2020 compared to 19.1% for the same quarter in 2019. The quarter-over-quarter decline in margin was primarily due to increases in performance bonus expense for our revenue-generating professionals, reflecting the year-to-date performance in our digital, technology and analytics and distressed advisory businesses, as well as lower utilization and bill rates in our strategy practices.
The education segment generated 25% of total company revenues during the third quarter of 2020. Segment posted revenues of $51.9 million in Q3 2020, down $4.9 million or 8.7% in the third quarter of 2019. The decrease in revenue reflects the impact of the ongoing COVID-19 pandemic on our new business pipeline and related slower conversion of soft backlog during the quarter. The operating income margin for education was 24.2% for Q3 2020 compared to 25.4% for the same quarter in 2019. The quarter-over-quarter decline in margin was primarily due to lower billable consultant utilization during the quarter.
Other corporate expenses not allocated at the segment level were $29 million in Q3 2020 compared with $32.3 million in Q3 2019. The reduction in other corporate expenses was driven by reduced salaries, bonus and stock compensation expenses for our support personnel, outside professional fees, reduced facilities expenses and general corporate savings across multiple expense categories. These savings were partially offset by $1.8 million increase in the liability for our deferred compensation plan, which was offset in other income by the gain related to the increase in market value of assets used to fund that plan.
Now turning to the balance sheet and cash flows. DSO came in at 62 days for the third quarter of 2020 compared to 68 days for the second quarter of 2020 and 70 days for the third quarter 2019. Total debt includes the $248 million in senior bank debt and a $3 million promissory note for total debt of $251 million. We finished the quarter with cash of $75 million for net debt of $176 million. This was a $73 million decrease compared to Q2 2020.
Our leverage ratio, as defined in our senior bank agreement, was approximately 2.1 times trailing 12 month adjusted EBITDA at the end of Q3 2020 compared to 2.6 times trailing 12 month adjusted EBITDA as of June 30, 2020. The decrease in our leverage ratio was driven by the reduction in borrowings in the third quarter as we repaid $80 million on our revolving line of credit. Our net leverage ratio was 1.5 times trailing 12 month adjusted EBITDA as of September 30, 2020, when the bank definition calculation is adjusted for cash on hand. This compares to two times trailing 12 month adjusted EBITDA as of September 30, 2019 when calculating in the same manner.
Cash flow generated from operations in the third quarter of 2020 was $76 million and we used $3 million of our cash to invest in capital expenditures, inclusive of internally developed software costs, resulting in free cash flow of $73 million. Our free cash flow in the quarter was better than we anticipated, driven by the reduction in DSO in the quarter and continued proactive cost management efforts companywide. Given the ongoing COVID-19 pandemic, we continue to proactively manage our cash position to support our operations. Through September, we have not seen any material degradation in our cash collections and our net debt has continued to decrease.
As Jim mentioned, we recently took proactive measures to manage our cost base driving annualized run rate savings of approximately $25 million. These savings will be generated in two primary areas. First, in certain areas of our business, given the ongoing pandemic and continued broader economic uncertainty, demand for our services has not yet returned to the levels we had anticipated earlier in the year. As such, we recently executed a targeted reduction in force in our corporate support personnel and certain parts of our business that have been most impacted by the disruption in the market.
Second, we have a plan to reduce our real estate footprint while remaining in substantially all of our current geographies. In addition, we also have implemented certain cost avoidance measures, including delayed merit increases for all employees in 2021 that, we believe, will drive further savings.
Lastly, consistent with our long term strategy, we are ending the life sciences drug safety offering, a small non-core part of our life sciences practice. This business is small and then exit, which we anticipate to occur in the fourth quarter, will allow us to focus our investment in areas that are more aligned to our commercial strategy and where we see the greatest growth opportunities. We believe these proactive measures will strengthen our financial position amidst the ongoing disruption and create a foundation from which we can grow and expand our margins in 2021.
Finally, let me turn to our expectations and guidance for 2020. As Jim noted, we are increasing the midpoint and narrowing the range of our full year 2020 revenue guidance to $835 million to $855 million, inclusive of our recent acquisition of ForceIQ. In addition, we are raising our full year adjusted EBITDA guidance to be in a range of 10% to 10.5% of revenues and now anticipate an increase in full year adjusted non-GAAP diluted earnings per share in a range of $1.95 to $2.15. We now expect our full year effective tax rate to be approximately 25% and cash flows from operations for the year to be in a range of $100 million to $110 million. We expect capital expenditures for the year, inclusive of internally developed software costs, to be approximately $16 million to $20 million and free cash flow for the year to be in a range of $80 million to $90 million, net of cash taxes and interest and excluding non-cash stock compensation.
In closing, we are taking a disciplined approach to investing in opportunities for profitable growth while managing our costs where we can and we believe are creating a foundation from which we can grow and expand margins in 2021.
Thanks everyone. I would now like to open the call up to questions. Operator?
[Operator Instructions]. Our first question comes from the line of Andrew Nicholas from William Blair. Please proceed.
Hi. Good afternoon. With respect to the restructuring plan, I was just hoping you can share a bit more detail on where you are focusing headcount changes? And at what level of the firm? And then also, was this something you would be kind of putting for a couple quarters? Or has something materially changed about that the demand picture or the pipeline that led you to make a decision last week?
John, do you want to take the first part of that? And I will take the second part.
That sounds good, Jim. So Andrew, it's approximately in total, it's approximately 140 roles that were eliminated. It's approximately 60 roles in both healthcare and education. Approximately 10 roles from our strategy and life sciences business in the business advisory segment. And then approximately 20 roles in our corporate team. So that's kind of the breakout for most of the teams.
I don’t know if, Jim, you want to get a little bit of color around kind of the decision process related to those reductions?
Yes. Andrew, so we have had probably three points during the course of last eight months where we said that we are going to be making decisions about how, if at all, to adjust our headcount. And the first one was relatively early in the process. And again, this was back in March, April, early May timeframe when hospitals were hit the hardest at that point in time. And we, along with some others, thought that this would have a chance of may be easing in the summer and so we had adopted to keep most of our people.
And then in the next timeframe was probably in the June, July timeframe where again we, based on our kind of quarterly forecasts and again we had some modest hope that things were beginning to ease with respect to the pandemic and that we thought we would be able to -- that things would begin to return to normal, hopefully later in the fall. Not completely normal, but just ease some of the major challenges the hospital clients were having.
I think as the summer rolled on, it became increasingly apparent particularly in September as we started developing our September forecast that things were not going to be back to anywhere close to normal during this current calendar year. And that's really when we decided to say, rather than get into a guessing game in terms of when it is going to return to normal, our sense at this point in time as we just -- there are certain things that are stabilizing and certainly at parts of our company that are doing very well. And there is other that are still reacting to some of the changes that are taking place in the market. So it was really mostly in September and early October, we began to plan for a possible more protracted impact of the virus on our clients. And that's when we made our decisions.
Got it. That's helpful. Thank you. And then just as a follow-up on a separate topic. I was wondering if there is any more you could say on the ForceIQ acquisition in terms of the size of the company? What it would mean in terms of revenue contribution, if anything material? And then maybe a little bit color on how you hope to leverage that acquisition within your exiting practices and the areas where its capabilities are most complementary?
Sure. Andrew, I can start with the financial parameters and then I will probably hand it over to Mark Hussey to get some perspective on how it fits into the ES&A platform. So from our financial parameters perspective, our expectation is that next year, it will be a high single digit revenue contribution to the company. During the fourth quarter this year, we probably expect $1 million to $2 million of revenues, something like that. And then from a margin profile perspective, we are thinking it will be very similar to the ES&A practice, sort of in the mid to upper teens on EBITDA contribution perspective. And in all periods, the fourth quarter this year and on the full year next year, we expect it to be accretive from an EPS perspective.
Mark, I don’t know if you can provide some commentary on how it fits with the ES&A team?
Yes. Sure. I am happy to do that. So Andrew, V3locity is built natively on the Salesforce platform and it's the leading provider of industry-specific solutions for mobile software. And it is actually quite focused in areas that we are already working in, so areas like health, insurance, energy and utility. So it's a good play for us to take our Salesforce practice and continue to evolve it to a very industry-focused solution.
We had had some experience working with these folks in the marketplace. So it was one of those deals that basically was not in the book but came along. It just made sense for us to align more closely. And so we are pretty excited about what it means for the Salesforce part of the practice.
Great. Thank you. And then if you don’t mind me squeezing one more in. On kind of the implied fourth quarter guidance, at least on the topline, it looks like a sequential decline, maybe of $5 million or so. I was wondering if you could unpack that sequential decline a little bit in terms of what you are expecting from each of the segments? I assume it’s mostly additional pressure in the education segment. But any other color would be helpful. Thank you.
Sure. Andrew, I can take that one. It's actually, if you are looking sequentially third quarter versus fourth quarter, you are correct. It's probably some more sequential pressure in education. But then there is a little bit of pressure on the other two segments as well, really just based on the calendar. And so we are probably being a little bit cautious there. But if you look at it from a business days perspective, there is actually two less business day in the fourth quarter than the third quarter, which is insignificant. You have also got the holidays baked into the fourth quarter.
And then the final piece is, there has been, we are below where we would usually be pacing from a PTO perspective at this time during the year. It's been a rough year for our people with the travel restrictions and just all the effort it's taking to be delivering from a remote perspective. And we are expecting that during the fourth quarter there is going to be some catch-up on PTO in conjunction with the holidays and it's already short by a couple of days. So that's just kind of naturally across the business, it creates a little pressure. But the majority of it, we do expect to sequentially come from education, as you suggested.
Makes sense. Thanks a lot.
[Operator Instructions]. Our next question comes from the line of Kevin Steinke with Barrington Research. Your line is now open.
Hi. Good afternoon. So I wanted to ask about you mentioned margin and cash flow better than expected. You had talked [ph] offsetting about 50% of the revenue decline with cost reductions. Maybe just can you talk about how or why that trended more favorably than you had initially planned?
Kevin, I can jump in on that. It was an improvement during the third quarter versus what we had expected. And I think what really drove it, for the most part, was very cautious expense management across the firm, really across all three segments as well as our corporate areas. And I characterize that as reduced spending on headcount, careful management of third-party spend and then just some natural spend savings related to the environment right now, like reduced travel and marketing meetings and things like that.
I would say that was the primary driver coupled with revenue probably being modestly better than what we had expected for the third quarter. So the combination of those two things produced higher EBITDA quarter than what we had anticipated. I would probably quantify the expense part of that is about $8 million of additional savings versus what we had projected. And then there was nice flow-through of that from a cash flow perspective, coupled with the decrease in DSO from 68 days down to 62 days which we really didn’t model that in. We modeled steady DSO for the remainder of the year. So that was a really nice pickup for us to get those six sales in the door during the quarter.
Okay. Great. That's helpful. And just wondering, when you think about the education segment, we have talked about students going back to campus being kind of a swing factor in the fall [indiscernible] how that’s impacted your client base in terms of kind of the mix growth having [indiscernible] or not having them there, I guess?
Kevin, it is Jim. I will take that one. You broke up a little bit. So I think I heard most of the question, though. I think, there is obviously a lot of uncertainty with our clients right now. On the one hand, despite a couple of disruptions along the way, they are proceeding with the fall semester, sometimes having kids away more than they wanted. I think the technology is generally considered to be better now than it was back in the spring semester. So I think they are getting through.
I would describe most of the universities are getting through this process, although with probably fewer students than then expected and a much higher cost base than they had expected. So the world is not ending, from our clients' perspective. I think there are probably some uncertainties. But I would say, even back, it used to be a worst case for a lot of our clients and that would be having nobody on campus in the spring. It probably wouldn’t be that bad right now. It wouldn't be great, but it wouldn't be terrible. And so I think they could manage through it right now.
The issue that I think a lot of our clients are really facing and this is where we are really getting a lot of traction with our clients right now is they are kind going past this and they are beginning to look at the fall of 2021 and trying to figure out, like what does the world looks like at that point for them, what can they expect in terms of student demand, what can they expect in terms of pricing. Are there going to be nontraditional entrance into the market? What about the technology that's going to be required to deliver something?
So there is a lot of uncertainty about their overall business model. And I think they are getting more and more confident that they can actually get through the current year. But I think there is a lot of very valid worries about what higher ed is going to look like in the fall of 2021. And that's where a lot of our focus has been right now.
And then the last thing I will say is that, one of the things that had been deferred a little bit for us in terms of some of the schools deferring some of their ERP cloud implementations, I think they are now seeing the importance of having that kind of capability with their students, with their alumni, with their staff on a go forward basis. So even though there have been some deferral of some of those engagements that we would normally have expected that during 2020, I do think we will see a resumption of some of those in the coming calendar year.
Okay. Great. And did you generate any meaningful what you would call kind of COVID response to revenue in healthcare during the quarter? I know I think you had called it out for the second quarter. But just wondering specific to the third quarter, if you would categorize anything as such?
We did, Kevin. We had similar areas to what we talked about last quarter. We had laboratory testing and tracing capacity consulting project work. We had technology projects that helped our clients with telemedicine needs. And then we had work-related to Medically Home implementation. So all those factors were still relevant this quarter at a similar level to what we would have described in the second quarter.
Okay. And with your kind of plan to downsize the real estate footprint, is that contemplating some sort of partial hybrid work from home, remote type arrangement going forward? Or is that just more in response to the kind of the softer demand right now?
Kevin. I can take that one. As we spend a lot of time, we talked to our people and tried to figure out what they are going to feel most comfortable with in whatever kind of evolves from here and then we looked at our own, did a fair amount of evaluation of our usage of our existing space. And I think we don’t know exactly what's going to happen. We all know that I think it's very unlikely that we all go back to working exactly like we did prior to COVID. I also don't think it's feasible that we are all going to stay home forever.
So there is this middle ground. And I think it's pretty much the middle ground that we are contemplating when we started modeling out what we think our space needs are going to be. And so that's what's enabled us to go back and redo some of our footprint.
John, anything you want to add to that?
No. I think that’s well said, Jim. I think we will describe this as outside the normal realm of CapEx that we have in sort of any year. But I think we will be deploying some CapEx dollars to reconfigure some of our floor plans to allow for more of a collaborative teaming environment and hotelling type of environments to facilitate more of that flexible model that you referenced. But I think that's probably the big piece of it. But I think Jim explained how we looked at it from a people perspective.
Okay. That’s all I had for now. Thanks for taking the questions.
Thanks Kevin.
Thank you. Our next question comes from the line of Tobey Sommer from Truist Securities. Your line is now open.
Hi. Thank you. I was wondering if you could talk about some of the gating factors for getting more traction in the healthcare practice and momentum for new projects? I was just kind of curious how to put into context, specifically I had in mind, the rebound in elective procedures and kind of what outside metric we may want to look at with respect to hospitals and what kind of conditions are best for you to be ramping new projects? Thanks.
So Tobey, this is Jim. I will give a partial answer to a complicated question. For starters, the volumes are certainly going to be an important part of that. But as we indicated in the early part of the script, there is a lot of factors. Volumes are one and they are not clearly where they are needed to be. I think most places aren't expecting them to return to pre-COVID levels for some time. So that puts margin pressure on the hospitals. That's number one.
What I think is kind of still a relatively unbalanced economic recovery has put a lot of pressure on the payor side of things because you are having more and more people that are now on Medicaid and that also puts pressure on the margins. You have got the transition to telehealth and how much of the normal patient encounters that includes is going to be well above what it used to be, even though it will be well below what it peaked at back in March and April.
So have got all those factors coming in and I think it just creates a lot and actually just the overall provision of care at this point in time is more expensive than it used to be because of all the processes they have to take that they have to put through. So you put it altogether and there is just a lot of concern over the margins and the ability to kind of continue to do what they need to do. So you can look at one of those trends, I think, for better or for worse, in the future and try to figure out what's going to happen. But I think collectively, we envision that this is going to more and more margin pressure across the board in healthcare. And I think that those trends tend to be good for us.
We have some very specific programs that we are initiating that our goal, above and beyond, just our normal performance improvement capabilities where we really are trying to help our clients define what is the business model going to look like and try to develop clinical designs that they can achieve and still make reasonable margins in the future. And so that’s where a lot of our discussions are taking place. And I will say that it's somewhat similar to what we are seeing in higher ed. And that is, I think the future, even if the pandemic were to ease, the future is still going to be sufficiently different where they really have to take a very serious look at their business model on a go forward basis. And even if volumes were miraculously to revisit the historical levels, the business is still going to be the same and they are still going to have make some adjustments. That environment tends to bode well for Huron in the services we provide.
And Jim, I will just add to the commentary to say, our pipeline is actually quite strong right now. In fact, it's as big as we have seen it in recent time. And the majority of that pipeline is the type of projects we do in performance improvement that help clients that are under financial stress. So that's what we anticipated when this started and what we knew based on the situation our clients are dealing with. And another comment I would make just to give extra color is and we talked about earlier in the call that we did have some headcount reductions in healthcare practice. None of those were within the PI part of our healthcare business, just based on the demand we see in the pipeline there.
And it's a mix again of the financial distress offerings. The pipeline related to Medically Home implementation is quite strong. And then from a nontraditional perspective and this is what Jim was touching on from a care transformation perspective and really doing a deeper dive at a lot of health systems on their cost structure and how they operate their business, we are seeing increased demand for those things. So it's unfolding as we had anticipated as far as the viewpoint that a lot of clients are needing help in those areas right now.
Thank you. That dovetails into my next question. And that was going to be, could you comment on bill rates and where you are seeing closing out the year and whether you have, how you would characterize pricing momentum as you enter next year?
I will maybe take that one by segment, Tobey. So from a healthcare perspective, it was a particularly legally strong quarter in the third quarter with bill rates being in excess of $250. I don't know that I would forecast after the fourth quarter. But it is indicative of a market right now where we are working with client from a performance-based fee perspective and having arrangements where it's more contingent-based so that the client get to see the actual savings before they pay us for them. And I think that that's something that's attractive to the clients, but it still preserves our bill rate on those types of projects. So I think it's still going to be a relatively strong bill rate environment for healthcare. Though I wouldn't necessarily count on $250-plus again for the fourth quarter.
From an education perspective, we did see a dip in bill rate there, mid-180s. And I would say, that does reflect a part of the business right now where it's very competitive. There has been a slowdown in conversion of some of the projects in the pipeline and competitors have become more aggressive in that area. I don't necessarily forecast a further decline in the bill rate. But you might see bill rates in that general area for some time at this point.
And then from a business advisory perspective, I would say, I think the bill rates that we experienced this quarter are probably reasonable bill rate to think about for the foreseeable future. We continue to have very strong bill rates in our distressed advisory practice, given the demand there. It’s a competitive environment for the technology practice but it's, at the same time, an environment where there is robust demand. So I would say, bill rates are pretty steady there. And then on the consulting side, the bill rates were a little bit lower during the third quarter. We probably expect there to be some rebound from a strategic perspective, strategy consulting perspective, in upcoming quarters.
Thank you. And does the pipeline that you described as being high, I guess particularly in healthcare and performance improvement, how does that inform your view as to the future bill rates and profitability of the segment? Is there any kind of difference between the current complexion what you reported in the third quarter within the segment and what the margin and pricing profile looks like in the pipeline?
I think from a pricing perspective, I think again it was a good pricing quarter in the third quarter in healthcare. So that might moderate a little bit. I think we do expect, over time, our utilization to improve on some of those projects that are in the pipeline. And that should be on something that helps our EBITDA margin. We are kind of year-to-date, it was a strong margin during the quarter because of those bill rates, but year-to-date, we are more in the 26% range in healthcare.
And I think that’s the metric where I look at the year-to-date 26%-plus for that to improve over time. It probably won't happen overnight in the fourth quarter or even during the first or second quarter of 2021. Ad this point, we will likely still see some utilization at a lower rate than what's been historically as we ramp up to meet that demand. But the expectation, based on what we see now in the pipeline and what we expect, is that that utilization will take up as the year goes on and that you will see healthier margins in that business as the year progresses in 2021.
Toney, this is Jim. I will just add one thing to John's comments. Market share is always kind of a hard thing to truly kind of gauge effectively in our business. Now having said that, our sense is that we have, throughout all this, throughout the last eight months, our sense is, we have lost any market share. We probably gained some. I think the billing rates, the steadiness of the bill rates probably reflects some of that. The intensity and complexity of the issues that our clients are facing really puts the focus on firms that have the experience to address these needs. And I think that's really where we are very well positioned.
So I think the revenue pressure we had is less from a competitive perspective, is our sense and more from just an ability for our clients to take on additional work at this point in time while they have either been busy dealing with the COVID crisis back or for hospitals back in earlier in the spring and universities this fall in terms of having students on campus. But I feel really good about the way that this is materializing for us because there is an absolute premium on firms that really know the business well, particularly when you are dealing such complicated and to some extent strategic issues that are facing the clients. They really want somebody that knows the business well. And that's where we have got such great experience and credentials.
Thank you.
Thank you. Our next question comes from the line of Bill Sutherland from The Benchmark Company. Your line is now open.
Thanks and good evening guys. Most of mine have been asked. But I was wondering if you could get a little more granular on education just in terms of maybe the direction of the pipeline and other activity as you think about that based on research administration, technology and strategy and ops?
So I will give kind of a general comment. John, you can maybe support it by numbers, if necessary. I think research has been relatively strong throughout. There was a period of time when a lot of the research couldn’t be done just because people really weren't allowed on campus. I think researchers were able to begin coming back to campus quicker than students. And so that part of the business, for the most part, I think has stabilized. And I think throughout this whole thing, research particularly biomedical research is going to end up having, I think, an even bigger future than they would otherwise would have pre-COVID. So research is pretty steady.
The S&O, strategy and operations, business also is very steady. I think the intensity of the work that they are doing there practically around clients wanting to readjust their strategic view or more importantly and more frequently they are now looking to kind of do two or three or four trials of trying to develop a budget model that’s actually going to work for them in the future based on the new reality. So that business has actually continued to do well as well.
The technology part of it is the one where I think earlier in the year, certainly pre-COVID, we had anticipated some larger cloud implementations starting midyear. And that's where things have been delayed a little bit. And so I think that's beginning to pick up. Certainly the clients are not totally dormant and we have won a couple that will likely get started in the first quarter. But I think that's where you are going to start seeing. In fact, I think once they understand that they can actually deal with the fall semester and it's not going to be terrible I think they are going to begin luckily focusing on how to begin to go back and get back on track with their technology strategy. And my guess is, that will begin starting in the first or second quarter.
And I add to that, Jim, that similar to healthcare, the pipeline in education is as robust as it's been. Perhaps a record but certainly in recent times. And that, I think, not only do we feel good about that as we transition to more of a normalization of the operating environment in education and the reality that there is a lot of projects right now that are pent up that need to completed. But in talking with our teams, when we look longer term, clearly they are having some delays in 2020, given everything that's gone on in the higher ed environment.
But we know, at our client base, which as a reminder, is typically the top 150 research universities in the U.S., that those projects still need to get done. And ultimately, even if they are delayed, we feel very strongly that they are still going to come through. And just commenting on something Jim mentioned earlier, we feel very good about win rate on the projects that have closed during this period of time.
So we continue to feel good about our competitive position and the volume of work that's there in the pipeline supports it. So we feel good on where the business is trending over the longer run. It's just been a very disruptive period in the short run for higher ed for reasons that I think we all understand.
Got. That's helpful. John, does the fourth quarter guidance or the implied guidance reflect any of the anticipated benefits of restructuring in terms of the cost structure?
Only to a very minimal extent, Bill. They are still going to be, we expect that the majority of actions related to the office space will happen by the end of fourth quarter, though some of that office space may move into the first quarter. And from an employee perspective, any employee that was impacted has been notified. Those employees will still be providing service in many cases through midway through the fourth quarter. So the impact is going to be minimal from a fourth quarter operating results perspective.
Okay. That’s all I got. Thanks guys.
[Operator Instructions]. Our next question comes from the line of Kevin Steinke from Barrington Research. Your line is now open.
Hi. I just had one follow-up. Just wondering as it relates to your healthcare clients. How they are reacting to preparing for the COVID surge we are seeing in the fall here? And if that's impacted the pace of your pipeline conversion at all?
Kevin, I think if you go back and you look at the anticipated pace that happened when the COVID was first hitting back in March and April, I mean it was devastating. They basically shut down everything just to make room for actual or potential COVID patients. And certainly, even though in the scheme of things, it's been a relatively short period of time, the reality is, there is just an incredible knowledge gained in terms of how better to treat COVID patients. So you have got several that impacts our hospitals in several ways.
Number one, the length of stay is dramatically less than it used to be. The severity of illnesses that are coming in are less. That's partly a result of the fact that they have a younger population that is getting more and more increasingly getting the virus. But I think the biggest issue is that they just have learned how to deal with it much better. There have also been found ways to kind of cordon off the COVID patients so that you actually can keep, to the extent possible, keep the rest of the hospital trying to operate as normal as can be.
And so I think that even with the current trends and even with the increase in recent hospitalizations, I don't think this is going to have anything close to the kind of devastating impact that it had on hospitals back earlier in the spring.
So one other point that I will mention is that I think the healthcare clients in general benefited from a lot more financial support back in the spring than university clients are getting right now. And that may become a political issue post-election, I don't know for sure. But I think it's interesting that we really found that the federal support for a lot of the hospitals actually eased some of what appeared at one point to be huge, huge deficits, actually enabled most of them to close to breakeven and some actually to make some money. So I think it's a long way of saying, I think the current situation is going to be handled much better than they were able to handle it back in March, April and May.
Okay. That's helpful. Thank you very much.
Thank you. There is no more questions in the queue. I would like to turn the call back over to Mr. Roth.
Thank you. And I want to thank all of our employees of Huron for staying focused and representing this company so well amidst clearly adverse and unusual conditions. I am very fortunate to be able to work with such innovative, collaborative and talented colleagues every day at work. As is our normal practice, during the fourth quarter, we will be conducting outreach with our shareholders regarding matters of corporate governance and hope to connect with you as part of this process before our next call in February. We encourage all shareholders to contact us if you have questions or wish to provide feedback. Thank you for joining the call this afternoon and we look forward to our next call in February. Have a nice evening.
That concludes today's conference call. Thank you everyone for your participation.