Earnings Call Transcript - HURN Q1 2022

Operator, Operator

Good afternoon, ladies and gentlemen, and welcome to Huron Consulting Group's webcast to discuss the financial results for the first quarter 2022. As a reminder, this conference call is being recorded. Before we begin, I would like to point all of you to the disclosure at the end of the company's news release for information about any forward-looking statements that may be made or discussed on this call. The news release is posted on Huron's website. Please review that information along with the filings with the SEC for a disclosure of factors that may impact subjects discussed in this afternoon's webcast. The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Huron's website for all of the disclosures required by the SEC, including reconciliations to the most comparable GAAP numbers. And now I would like to turn the call over to Jim Roth, Chief Executive Officer of Huron Consulting Group. Mr. Roth, please go ahead.

Jim Roth, CEO

Good afternoon, and welcome to Huron Consulting Group's First Quarter 2022 Earnings Call. With me today are John Kelly, our Chief Financial Officer; and Mark Hussey, our President and Chief Operating Officer. Our strong first quarter results reflect the continued momentum that started early in 2021 and has now expanded across all three of our operating segments. Revenues grew 28% over the prior year quarter, reflective of the strong demand in each of our core industries. In addition, our digital revenues increased 36% in the first quarter of 2022 over the same period in 2021, reflecting solid demand for improved integration of technology and analytics into our clients' business operations. As we've shared on previous earnings calls, our strong results further demonstrate that we are delivering on our commitment to sustainable revenue growth and improved profitability. As we will discuss in a few minutes, demand for our services across industries remains strong, and we are strategically and operationally well-positioned to take advantage of the vibrant market ahead. I will now share some additional insight into our first quarter performance. During the first quarter, Healthcare segment revenues grew 27% over the prior year quarter. The increase in revenues in Q1 of 2022 was driven by strength in demand for our performance improvements, revenue cycle managed services, and digital offerings. We've mentioned on recent investor calls the ongoing challenges facing the healthcare industry. It's worth reiterating the primary challenges facing our clients, as we expect these challenges to continue for the foreseeable future. We see the most difficult challenge as the strained cost structure stemming from dramatic increases in labor costs. High turnover, increased compensation for clinical and administrative staff, and a heavy reliance on contract labor have pushed costs well in excess of the trend in reimbursement rates. These factors, coupled with employee burnout, worsening payer mix, and inconsistent volume recovery, have all contributed to increased financial pressures for much of our client base. We expect these pressures will continue to drive increased demand for our performance improvement, strategy, and people-related offerings. In addition, healthcare providers are focused on evolving their care delivery models, including by establishing virtual care in the home. Through our exclusive partnership with Medically Home, we have successfully implemented the hospital-at-home model for numerous health systems to help them create competitive differentiation, expand consumer choice, and increase their growth potential. The opportunities to treat patients at home are part of a broader trend in digital transformation among healthcare providers. As reflected in the strong growth in our digital offerings, we are providing the data, analytics, and technology to help our clients achieve growth and scale in their business models while helping them stay competitive amidst an increasing array of nontraditional participants in the healthcare market. Our deep subject matter expertise and our consistent ability to transform our clients' businesses and deliver measurable improved outcomes position us to address the demand in the market today and the growing market opportunity in the years to come. Turning now to the Education segment. In the first quarter of 2022, Education segment revenues grew 57% over the prior year quarter, driven by strong broad-based demand across all of our offerings in this segment. Education segment revenues grew 20% sequentially over the fourth quarter of 2021, highlighting the continued momentum in demand for our services in the education industry. As we indicated in our recent Investor Day, over 75% of higher education institutions are seeking to change the way they do business following the pandemic. These changes include transitioning to the cloud, executing plans to ensure future financial sustainability, expanding the research enterprise, and seeking better ways to serve the student population while attracting new students in a demographically challenged environment. Our Investor Day created an opportunity for us to provide greater insight into aspects of our education industry capabilities that we believe are underappreciated among the investor community. We are bringing to market offerings that are in high demand as our client base makes long-awaited changes to the way they operate their business. In particular, many of our large research university clients are having to make significant investments in upgrading their digital capabilities and improving the efficiency with which they manage their academic and research operations. With our team of over 1,000 employees focused exclusively in the education industry, we have a distinct competitive advantage and are well-positioned to help our clients achieve their goals with our strong strategy and operations, research, student, and digital capabilities. Turning to the Commercial segment. In the first quarter of 2022, Commercial segment revenues grew 3% over the prior year quarter, driven by strong demand for our digital and strategy offerings in the commercial industries, particularly in financial services. The increase in revenues from our digital offerings was partially offset by the decrease in revenues from the divestiture of our Life Sciences business in the fourth quarter of 2021 and lower demand in our financial advisory capabilities. Excluding the impact of the Life Sciences business, the Commercial segment grew 12% in Q1 2022 over the prior year quarter. Our digital and strategy capabilities continue to perform well, leveraging our deep industry expertise and distinct reputation as we build market share in the large and growing commercial market, most notably in the financial services and energy and utilities industries. Our digital offerings in the commercial markets grew 23% in the first quarter of 2022 as compared to the same period a year ago, further demonstrating the strong demand for our technology and analytics-related services. We've established a strong set of offerings, building a solid foundation from which we believe we can further accelerate growth in this segment. Finally, let me turn to our outlook for the year. We typically do not adjust our annual guidance after the first quarter. However, our strong first quarter results and the demand across all of our operating segments lead us to increase our annual revenue and earnings guidance. As our press release indicates, we are increasing and narrowing our annual revenue guidance to $1 billion to $1.05 billion. We are also maintaining our adjusted EBITDA guidance in a range of 11.25% to 12.25% of revenues, and increasing and narrowing our adjusted diluted earnings per share in a range of $3 to $3.40. We are raising our revenue guidance to reflect the current and anticipated demand for our services across all segments. As we mentioned at our recent Investor Day, to achieve our strategic and financial objectives including delivering strong revenue growth and margin expansion, we are focused on accelerating growth in healthcare and education, growing our presence in the commercial industries, advancing our integrated digital platform, building a more sustainable base of revenue to drive consistent growth, and strategically deploying capital to accelerate our strategy and return capital to our shareholders. We believe we have a significant growth opportunity ahead of us, and we are well-positioned to capitalize on that opportunity. Market conditions remain favorable for our core offerings, and we believe that we will continue to achieve strong results consistent with the outlook we described in our Investor Day presentation and our commentary today. Now let me turn it over to John Kelly for a more detailed discussion of our financial results.

John Kelly, CFO

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. Now let me walk you through some of the key financial results for the quarter. Revenues for the first quarter of 2022 were $260 million, up 28% from $203.2 million in the same quarter of 2021. The increase in revenues in the quarter was driven by growth across all three operating segments, reflective of the significant growth opportunities in each of our core industries. In addition, revenue within our digital capability increased 36% in the first quarter of 2022 over the same period in 2021, reflecting increased demand across all of our core industries as our clients continue their digital transformation. Net income was $26.9 million or $1.27 per diluted share in the first quarter of 2022, compared to $5.4 million or $0.24 per diluted share in the same quarter in the prior year. The increase in net income includes an unrealized gain of $19.8 million net of tax for our investment in Medically Home. As Jim mentioned, we are focused on growing and serving clients who are establishing acute care delivered in the home via our exclusive partnership with Medically Home. Our effective income tax rate in the first quarter of 2022 was 29.6% compared to 22.1% one year ago. Our effective tax rate for Q1 of 2022 was less favorable than the statutory rate, inclusive of state income taxes, primarily due to tax expense related to non-deductible losses on our investments used to fund our deferred compensation liability and certain non-deductible expense items. Adjusted EBITDA was $22.1 million in Q1 2022 or 8.5% of revenues, compared to $16.5 million in Q1 2021 or 8.1% of revenues. Adjusted non-GAAP net income was $10.3 million or $0.49 per diluted share in the first quarter of 2022, compared to $7.8 million or $0.35 per diluted share in the same period in 2021. Now I'll make a few comments about the performance of each of our operating segments. The Healthcare segment generated 47% of total company revenues during the first quarter of 2022. This segment posted revenues of $121.9 million for the first quarter of 2022, up $25.9 million or 27% from the first quarter of 2021. Revenues for the first quarter of 2022 included $600,000 from our acquisition of Perception Health. The increase in revenue in the quarter reflects strong demand across our consulting and managed services and digital capabilities within the segment. Our consulting and managed services capability within Healthcare grew by 25% year-over-year during the first quarter, primarily reflecting increased demand for our performance improvement offerings. Our digital capability in Healthcare grew by 31%, reflecting increased demand for our EHR and ERP offerings. Operating income margin for Healthcare was 23% for Q1 2022 compared to 24.8% for the same quarter in 2021. The quarter-over-quarter decrease in margin percentage was primarily attributable to increased salaries and wages for our revenue-generating professionals, inclusive of higher performance bonuses, reflective of our full year expectations. As a reminder, our first quarter results also included the annual resetting of our wage basis for certain fringe items like the employer portion of FICA taxes and our 401(k) match. The Education segment generated 31% of total company revenues during the first quarter of 2022. The segment posted record revenues of $80.7 million in Q1 2022, up $29.3 million or 57.1% from the first quarter of 2021. Revenues in the first quarter of 2022 included $2.3 million from our acquisition of Whiteboard. The increase in revenue reflects the continued strong demand for all of our offerings across the segment. The continued demand for our offerings is further demonstrated by the Education segment's 20% sequential growth in the first quarter of 2022 over the record fourth quarter of 2021. The operating income margin for Education was 17.7% for Q1 2022 compared to 16.6% for the same quarter in 2021. The quarter-over-quarter increase in margin was primarily due to revenue growth that outpaced increases in payroll costs, partially offset by an increase in contractor expenses as a percentage of revenues. The Commercial segment generated 22% of total company revenues during the first quarter of 2022. The segment posted revenues of $57.5 million in Q1 2022, up $1.6 million or 2.9% from the first quarter of 2021. Revenues for the first quarter of 2022 included $1 million of inorganic contributions from our acquisitions of Unico Solution and AIMDATA. The increase in revenues reflects strengthened demand for our digital offerings, partially offset by a decrease in revenues due to the divestiture of our Life Sciences business, which generated $4.7 million in the first quarter of 2021. Our digital offerings in the commercial markets grew 23% in the first quarter of 2022 as compared to the same period a year ago. Operating income margin for the Commercial segment was 21.2% for Q1 2022 compared to 17.6% for the same quarter in 2021. The quarter-over-quarter increase in margin was primarily due to the decrease in expenses driven by the divestiture of our Life Sciences business, partially offset by increases in contractor expenses and payroll costs for our support personnel as a percentage of revenues. Let me provide some additional color on our capabilities before I turn to other corporate expenses. Our Consulting and Managed Services and digital capabilities both achieved strong growth in the first quarter. On a full-year basis, we expect the Consulting and Managed Services capability to generate operating income margin in the upper 20% range and the digital capability to generate operating margin in the high-teen percentage range. Turning to corporate expenses. Corporate expenses not allocated at the segment level were $33.5 million in Q1 2022 compared with $28.9 million in Q1 2021. Unallocated corporate expenses in the first quarter of 2022 included a $2.6 million reduction of expense related to the decrease in liability to participants in our deferred compensation plan, which is fully offset by the corresponding loss in other income related to the decrease in value of the assets used to fund that plan. Conversely, unallocated corporate expenses in the first quarter of 2021 reflected an increase of expense of $800,000 related to the deferred compensation plan. Absent the impact of our deferred compensation plan in both periods, the $8 million increase in unallocated corporate expenses are primarily due to an increase in payroll costs, including increases in salary and related expenses, performance bonus expense, and share-based compensation expense for our support personnel. The overall increase in unallocated corporate expenses also includes an increase in non-payroll costs, primarily for legal fees and software and data hosting costs. We expect our quarterly run rate for corporate expenses to be in the low to mid-$30 million range for the remainder of the year. Now turning to the balance sheet and cash flows. DSO came in at 75 days from the first quarter of 2022 compared to 69 days for the fourth quarter of 2021 and 64 days for the first quarter of 2021. We continue to expect DSO to normalize to between 60 and 65 days in 2022 as we collect in several large projects that have contractual payment schedules extending into the second and third quarters of the year. We finished the quarter with borrowings on our revolving credit facility of $335 million and with cash of $10 million, for net debt of $325 million. This was a $113 million increase compared to Q4 2021 as the first quarter reflects the payment of our annual bonuses. The first quarter also included $24.1 million of share repurchases or approximately 527,000 shares under our current authorization of up to $200 million, of which $106 million in repurchases were made available as of March 31, 2022. Despite the significant outflows for annual bonus payments and share repurchases, our leverage ratio, as defined in our senior bank agreement, was approximately 2.2x adjusted EBITDA as of March 31, 2022, compared to 2.6x adjusted EBITDA at the end of Q1 2021. Cash flow used in operations in the first quarter of 2022 was $79 million, and we used $6 million of our cash to invest in capital expenditures, inclusive of internally developed software costs, resulting in free cash flow of negative $85 million. Finally, let me turn to our expectations and guidance for 2022. As Jim noted, we are raising and narrowing our full year 2022 revenue guidance to $1 billion to $1.05 billion. The increase in our revenue guidance primarily reflects the strong momentum across our business and the significant growth opportunities in each of our core industries. In addition, we are reaffirming our full year adjusted EBITDA guidance to be in a range of 11.25% to 12.25% of revenues, and we're increasing our full year adjusted non-GAAP diluted earnings per share guidance to be in a range of $3 to $3.40. Finally, we continue to expect our full year effective tax rate to be in the range of 28% to 30%. We continue to expect to deploy our free cash flow consistent with the guidelines shared in our Investor Day presentation, with 25% to 50% directed towards share repurchases and 50% to 75% towards debt paydown or tuck-in M&A.

Operator, Operator

Our first question comes from Tobey Sommer of Truist Securities.

Jasper Bibb, Analyst

This is Jasper Bibb on for Tobey. The first quarter was a much stronger start to the year than the prior expectations for a back half-weighted guide. I just wanted to ask, did you see growth accelerate later in the quarter? And is there anything to call out as far as new large projects or success fees?

John Kelly, CFO

I can take that one, Jasper. I think the growth was fairly steady over the course of the quarter. There were no one-time big fees or anything like that. I’d say in the normal course of our business, we’re always signing new projects and some of them are larger in size, but I’d say that’s kind of a normal thing. But in terms of the first quarter, I think it was a demand that we saw strengthening as the quarter progressed and as a result of just good balance really across the different industries as well as the capabilities including a good mix of projects, including some which were larger size, but nothing unusual during the quarter that led to the larger revenue number other than just solid demand.

Jasper Bibb, Analyst

Okay. And then how should we think about the cadence of utilization rates that's assumed in the updated guidance? Do you still think you could get to that historical 75%, 76% range by the end of this year?

John Kelly, CFO

We do. We do think that. You can tell when you look at our headcount stats, Jasper, we've been in a mode where we've been hiring a lot of people. That was the back half of last year into the first quarter this year, and we've been hiring that talent to meet the demand that we see in the market. But naturally, there is a little bit of a ramp with that talent to get them fully up and utilized in our projects. So I think you saw some of that drag on the metrics during the first quarter. But certainly, as the year progresses, our expectation is that metric is going to tighten up and that we'll be able to get back to those historical levels.

Jasper Bibb, Analyst

Okay. And then I just want to ask about new bookings activity. How does the pipeline look today? And maybe you could contrast that for us versus how things looked at the start of the year when your customers were dealing with a bit more uncertainty related to COVID?

Jim Roth, CEO

Jasper, this is Jim. As John mentioned, we have experienced a steady increase in demand as the year has gone on. At this point, there are no significant issues for us. Demand has remained consistent, and we see this across all our segments. We feel optimistic about the year's outlook at this stage. While we remain cautious about projecting too far ahead given the current global situation, we are confident in the demand we are observing. The fact that this demand is evident across nearly all our service lines and businesses provides us with assurance that this trend will indicate solid demand for the future as well.

John Kelly, CFO

Yes, I agree with that, Jim. I've said quantitatively, we're pleased with the growth during the first quarter. We're pleased with the guiding growth for 2022. And the thing that gives us a lot of confidence is when we look at that pipeline and we look at the backlog, we're at or above our historical coverage ratios across most of the business at this time of the year. So that gives us confidence about the trend line that we've been able to project in the guidance for the year.

Jasper Bibb, Analyst

Last one for me. Some of the other professional services firms have described kind of in-year compensation adjustments as they try to keep pace with wage inflation. Have you seen that at all so far this year? Or do you think you are where you need to be from a wage perspective to stick to requisite talent?

John Kelly, CFO

From a wage perspective, Jasper, we’ve been monitoring that very closely going all the way back now really to the first half of last year. And so we’ve been proactive along those lines along the way up to this point. So we feel good that we’ve made adjustments along the way and that we’re very competitive from a pay perspective. And the rate compensation levels that we’re at right now, they’re all baked into the guidance that we’ve had out there, and there’s really no change in that at this point versus the initial outlook that we gave in February. So we feel good that we’ve been making those adjustments as we’ve been going along and that those adjustments are reflected in the guide.

Operator, Operator

Our next question comes from Andrew Nicholas of William Blair.

Andrew Nicholas, Analyst

First question I had was just actually combining some of Jasper's questions there. In terms of the hiring environment, it sounds like you're competitive on the wage front, so no concerns there, but was attrition kind of normalizing in the quarter, at least relative to some elevated levels for the industry, I think, as a whole last year? And just overall thoughts on kind of hitting hiring targets this year given what seems to be a really, really constructive backdrop for demand and seemingly a ton of work to do. Just wondering how confident you are in your ability to staff those projects appropriately?

Jim Roth, CEO

Andrew, this is Jim. I'll attempt to answer your question. Regarding retention, during most of the pandemic, especially in the first half of 2021, we experienced lower-than-average attrition. However, in late 2021 and early 2022, we faced higher-than-normal attrition. Currently, things seem to have stabilized, and our attrition rates are aligning more closely with pre-pandemic levels. We're optimistic about this, especially along with the adjustments we made in compensation. In terms of turnover, we feel things are improving and returning to familiar levels. As for hiring, we are encountering some challenges because our demand and supply are somewhat mismatched right now, but we anticipate an increase in our utilization numbers. As John mentioned, we have been actively hiring, and there is strong demand across nearly all our businesses. Our hiring efforts are in full swing, supported by our solid company culture and the momentum we’ve built over the years. While we're being aggressive in recruiting, we are also focused on returning to our historical utilization metrics. We are comfortable with the targets we’ve set in our guidance. We have spent considerable time discussing recruitment and the integration of new hires into existing projects. However, it will be challenging for a while due to the current environment. Despite this, we believe we are managing well, and our teams have been effective in deploying and training new staff. Overall, we feel positive about our situation, even though it requires a significant amount of effort, especially considering the current demand we’re experiencing.

Andrew Nicholas, Analyst

Great. That's really helpful. And then for my follow-up, I just wanted to hone in on Q1 results a little bit further. Obviously, really, really strong growth, loose kind of extrapolating over the course of the next couple of quarters, if that is the case.

John Kelly, CFO

Andrew, it's John. I would say it was modestly better than our expectations going into the year. We felt good at the beginning of the year about our backlog and our pipeline and the comments we are getting from clients out in the market. So we felt good about our trajectory, a little bit better as we now start to move towards the remainder of the year. We're in the ray that we gave in guidance, though mathematically, we're basically calling for the back nine months of this year versus the back nine months of 2021 to be up overall, the midpoint of roughly 10%, around 10% and the third quarter, so the next couple of quarters. And then we were a little bit more cautious on the fourth quarter, primarily just because it was a very strong fourth quarter last year. So it's a little bit of a tougher comp. But also it's just so early in the year. And typically, we wouldn't be raising guidance this early, but we felt like we were able to do so based on the strength of the first quarter. But given that it's still only early May, we still have the remaining nine months of the year.

Jim Roth, CEO

And Andrew, this is Jim. I’ll just add to what John said, and that is, yes, we were a little bit surprised. It’s interesting because the demand can be quantified, to a large extent. The part that we try to focus on, though, is what’s causing the demand. And I think the answer to that question is probably the most important thing because that’s what gives us comfort as to where things are going in the future. And we saw the last year has been really tough for providers for some of the reasons I outlined in my script early on. And in education, some of the same thing. I think there are both those two businesses – those two industries went through a tremendous amount of challenges during the pandemic, and we saw that once the pandemic began to ease, we saw the demand for our services growing much quicker. So it’s a very significant kind of front to center on so many of our clients right now, and that’s what’s driving our demand. So we’re not that surprised at the reasons for it. But we anticipated a solid growth this year, and we kind of predicted that earlier on. But I think even the levels we saw in Q1 probably surprised us a little bit. And we do feel pretty good about the way things are evolving for the rest of the year.

Operator, Operator

Thank you. Our next question comes from Bill Sutherland of Benchmark Company.

Bill Sutherland, Analyst

Well, guys, the growth in Education, of course, was particularly outsized. And I'm curious if there were any mix changes that kind of were part of the acceleration?

John Kelly, CFO

The mix was very strong across the entire segment, maintaining the trend we observed at the end of last year. Reflecting back on 2021, we had discussed that even early in the second quarter last year and definitely in the third and fourth quarters, we felt optimistic about the growth in digital, based on market insights and deals we had finalized that were set to ramp up. We are now witnessing the anticipated effects of that; there remains strong demand in the research and strategy areas of the business, and we're starting to see the run rate from last year in a much more robust digital environment.

Bill Sutherland, Analyst

Are there any noticeable changes in deal sizes in Healthcare and Education, or are they pretty much the same?

John Kelly, CFO

I think they're pretty much the same. There's a mix of small-sized jobs, medium-sized jobs, and there are some larger ones too in both of those segments.

Bill Sutherland, Analyst

Since the full year guidance suggests a relatively stable performance for the remainder of the year, does this mean you expect to see some benefits in utilization moving forward?

John Kelly, CFO

Yes, from our perspective, we are hopeful that by the end of the year we will be closer to the top end of our range rather than the midpoint. However, since it is still early, it's wise for us to exercise some caution regarding the fourth quarter. Our expectation is that, based on the demand trends we are observing in the market, we can improve as the year progresses and aim for the higher end of the range instead of just the midpoint.

Jim Roth, CEO

We want to find a balance and not get overly enthusiastic about the asset. We feel confident about the demand, but we want to be cautious regarding external events and not assume that we won’t be significantly affected by anything.

Bill Sutherland, Analyst

Sure. I was curious about the status or profile, and I should have reviewed what was discussed on Investor Day.

Jim Roth, CEO

Yes, we are at different stages. Our first engagement in this area began when COVID hit, around April 2020. I believe we should have performed better in helping them develop this, as each system operates at its own pace. Some want to be very aggressive with a large number of virtual beds, while others are more conservative as they assess their market and how it aligns with their operations. However, we have a growing business in this area and are optimistic about the overall concept of the hospital as well.

Bill Sutherland, Analyst

And are you all just curiously classifying it in terms of two groups, consulting or digital?

John Kelly, CFO

Likely home, work, and in consulting.

Operator, Operator

Our next question comes from Kevin Steinke of Barrington Research.

Kevin Steinke, Analyst

Just wondering, as we look at the increased revenue guidance, if there's any meaningful change we should think about at all?

John Kelly, CFO

Yes, Kevin, I think the way I would think about it is at this point, we expect the Healthcare segment to be low double-digit growth for the full year. We expect the Education segment to be low 20% range for the full year. And then probably similar expectations to what we had as of the February call for the commercial business.

Kevin Steinke, Analyst

I know it's still early regarding the operating model changes you mentioned in your last call and at the Investor Day, but are you observing anything in how the business is operating now that could indicate a strengthening? It would be helpful to have some tangible evidence of how those operating model changes are benefiting your company.

Mark Hussey, President and COO

Kevin, it's Mark. When you consider the demand in the current quarter, I would say it's mostly unrelated to the operating model since we just launched it. However, it's important to note that we have been collaborating in our business for many years, which predates the operating model. Therefore, it's not surprising that we're seeing positive results, but I wouldn’t directly link them to the new model. From an operations perspective, we have now launched it widely and it's performing well. For example, our global team in India surpassed 1,000 employees this quarter, which is a significant milestone for us, considering we started with around 30 or 40 in 2015. This growth is substantial and remains a crucial part of our future. Our Global Products team, consisting of about 400 employees, has been accelerating development of some of our largest differentiated software products, all of which is progressing positively. Additionally, our Global Analytics team is dedicated to driving data insights and innovation. We believe we are just beginning to tap into significant opportunities for continued growth and margin expansion, which also creates broader opportunities for our employees. Overall, we feel everything is on a very good track right now.

Jim Roth, CEO

Kevin, this is Jim. I completely agree with Mark. In fact, I want to add that while we can't specifically attribute revenues to this, our main goal is to better integrate our capabilities for our clients instead of working in the isolated silos we had before. I believe this approach is proving to be effective. Although these are more qualitative observations, we've noticed many more people collaborating across boundaries, which wasn't as common previously, and there’s a lot of enthusiasm around it. Having our first quarter results in the new reporting segment available in real time is helping everyone understand how this will contribute to growth, the evolution of our initiatives, and the development of our capabilities. This has been quite significant. It’s certainly challenging and there will be issues to address, but from my perspective, it’s going very well and will be crucial for achieving our goals in the medium and long term. I'm optimistic about how it's progressing.

Kevin Steinke, Analyst

Okay. And I guess lastly, I wanted to ask about the challenges that you talked about your healthcare clients facing with labor cost pressures and reliance on outside staffing firms and the like. I mean is there anything you can do specifically to help them address those challenges or that you're kind of mixing into your offerings as you approach them?

Jim Roth, CEO

Well, Kevin, I think there’s a lot that we can do. I mean the problem, as always, and it certainly is true in healthcare now, but frankly, it’s true in a lot of other places that you bump up against, they’ve got their own financial objectives that they’re trying to get at. And as you just go back and try to achieve those financial objectives, you bump up against kind of cultural issues that they have about what kind of organization it is. And so I think it’s just kind of from a – we help them not just identify ways to narrow the gap between the increase in costs and the revenues that are coming in at a much lower pace. We’re trying to close that gap. We’re trying to find ways that will be culturally acceptable and operationally acceptable. And a lot of what we do is we do that through technology in some part, but we also have them strategically go back and kind of look at everything that they’re doing and trying to figure out, can we keep doing the same things in the same way. So it’s a block-by-block evaluation, but – and it’s not easy. I think one of the things that’s really come across hard is that – I mean we’ve talked about some of these challenges even pre-pandemic. And then pandemic hit and you had like this whipsaw where you had a ton of COVID-related costs come on early, and then you have some COVID relief coming in. But now I think the biggest issue that they’re facing, as I indicated, was they just have a compensation base that’s rising much, much faster than reimbursement trends, and that has everyone concerned because there are no easy answers for that. And that’s why – that’s one of the reasons driving our demand right now.

Operator, Operator

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

Jim Roth, CEO

Thank you all for spending time with us this afternoon. We look forward to speaking with you again in July when we announce our second quarter results. Have a good evening.

Operator, Operator

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