Earnings Call Transcript
Huron Consulting Group Inc. (HURN)
Earnings Call Transcript - HURN Q2 2022
Operator, Operator
Good afternoon, ladies and gentlemen. Welcome to Huron Consulting Group's webcast to discuss the financial results for the Second Quarter 2022. This conference call is being recorded. Before we begin, please refer 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 available on Huron's website. We encourage you to review that information along with the filings with the SEC for details on factors that may influence the topics discussed in today's webcast. The company will be talking about one or more non-GAAP financial measures. Please check the earnings release and Huron's website for all the required SEC disclosures, including reconciliations to the most comparable GAAP figures. 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 Second Quarter 2022 Earnings Call. With me today are John Kelly, our Chief Financial Officer; and Mark Hussey, our President. In the second quarter, we continue to experience strong demand across three operating segments, enabling us to achieve 19% revenue growth over the prior year quarter and record quarterly revenues. Our Digital capability grew 47% over the prior year quarter, reflecting ongoing strong demand for our technology and analytics offerings across the healthcare, education, and commercial industries. Despite uncertainties in the macro environment, we anticipate continued demand across all of our operating segments for the remainder of the year, leading us to raise and narrow our full-year revenue and earnings guidance. I’ll now share some additional insights into our second quarter performance. During the second quarter, healthcare segment revenues grew 12% over the prior year quarter. The increase in revenues was driven by strong demand for our health system clients for our digital and revenue cycle managed services offerings. Digital capabilities revenues in healthcare grew 53% over the prior year quarter, reflective of the ongoing demand for enhanced technology and analytics offerings across the provider industry. While many hospitals received CARES Act funding to help address the significant losses incurred during the pandemic, that federal support is now largely gone. What remains for many health systems, particularly academic medical centers, are significantly higher labor costs, ongoing supply chain issues, and, more recently, higher debt financing and capital costs. Collectively, these factors are contributing to dramatically lower margins that are not expected to dissipate in the near future. While trying to offset spiraling operational costs, our hospital and health system clients continue to seek new sources of revenue and opportunities to optimize their operations, including through the use of technology and automation. With our broad array of offerings, we are well-positioned to provide strategic, operational, financial, and digital solutions to help them achieve a more sustainable future in this complex healthcare environment. Turning now to the education segment, in the second quarter of 2022, the education segment achieved record quarterly revenues growing 46% over the prior year quarter. The increase in second quarter revenues was driven by strong broad-based demand across all of our offerings, highlighted by 44% growth in our education digital capabilities. There are numerous reasons for the continued strong growth of our education business; I will mention a few of the primary drivers. First, there's been a significant increase in demand for our digital solutions, particularly a cloud-based ERP business. This demand is partly reflective of delays in starting new implementations stemming from the pandemic. More broadly, it's an indicator that the education industry as a whole is in the early stages of its own digital transformation, including much-needed enhancements to core administrative student and CRM systems. Second, our research business has been very strong, reflecting our clients’ challenges managing complicated portfolios of clinical and federally funded research. Third, in recent years, we expanded our portfolio of strategy and operations offerings. The investments we've made in talent in this part of our business have enabled us to offer a wider array of services to the education industry at a point in time when traditional university operating models are increasingly at risk. Finally, in our student business, our investments in Whiteboard higher education in the fourth quarter of 2021 have enabled us to increase the number of clients for our student solutions and deepen our education industry relationships, achieving the strategic goals we set forth as part of that transaction. To support this strong demand across the segment, we continue to make investments in our people. We are accelerating the hiring of resources, particularly in our digital capability to support the backlog and anticipated demand for our ERP offerings. We have established a strong Training and Development Program, which, when combined with our deep industry functional expertise, provides us with additional leverage to achieve our strong growth goals in this segment. Turning to the commercial segment, in the second quarter of 2022, commercial segment revenues grew 3% over the prior year quarter, driven by strong demand for our digital offerings across commercial industries. The increase in second quarter revenues from our digital offerings was partly offset by a decrease in demand for our financial advisory offerings, as well as a decrease in revenues associated with our Life Sciences business, which we sold in the fourth quarter of 2021. Excluding the Life Sciences business, the commercial segment grew 13% in the second quarter of 2022 over the prior year quarter. Digital offerings in the commercial markets grew 45% in the second quarter of 2022 compared to the same period a year ago, further demonstrating the strong demand for technology and analytics-related services across the commercial industries. Demand for our digital offerings in the commercial segment is coming primarily from the financial services, energy, and utilities industries, where each industry is facing new competitive entrants as these markets evolve. These market attributes are fueling strong demand for our digital transformation services, and our deep industry expertise has provided us with an increasing competitive advantage. So in addition to key investments we are making in education, we continue to invest in hiring and training resources to support increased demand in the commercial industries. We believe these investments will further position us for accelerated growth in this segment. Finally, let me turn to our outlook for the year. As our press release indicates, we are increasing and narrowing our annual revenue guidance to $1.04 billion to $1.08 billion. We are also raising and narrowing our adjusted EBITDA guidance in a range of 11.5% to 12% of revenues, and our adjusted diluted earnings per share in a range of $3.15 to $3.45. We are raising our revenue and earnings guidance to reflect the current and anticipated demand for our services across all segments. While we are cognizant of the challenges in the US and global economies, we believe that the underlying demand for our offerings will continue to be strong throughout the remainder of the year. We are encouraged by our growing pipeline and backlog for 2023. Among the key reasons for our belief in continued growth is the extent of the transformation that has taken place in our core industries, where we have deep relationships and a tremendous amount of relevant experience. Our clients are operating in a challenging environment, and in circumstances like this, they tend to rely on experts who have the confidence to help them achieve their desired strategic and financial goals. In turn, we remain focused on delivering on our commitment to sustainable revenue growth and improved profitability. Our first half results demonstrate our ability to achieve our financial objectives. The market remains vibrant for our offerings, and we anticipate demand across industries to continue as our clients' businesses face myriad strategic, operational, and digital challenges and opportunities. Before I turn it over to John, I'd like to make a few comments. First, as we execute our CEO transition, we are excited to have Ronnie Dail promoted into the Chief Operating Officer role. Most recently, Ronnie led our healthcare performance improvement business unit, the largest business within Huron. In his new role, he will be responsible for ensuring operational excellence across the company while supporting our strategy of achieving consistent revenue growth and improved profitability. We look forward to working with Ronnie in his new role. Second, the strong results we achieved in the first half of the year are only possible because of the hard work of our incredible team. They have demonstrated a tremendous amount of dedication to our clients, our company, and to each other during a highly challenging time throughout the pandemic. I'm extremely proud of the team we have built and the culture we have fostered together, and I look forward to growing the company with the most talented team in the business. Now I'm going to turn it over to John for a more detailed discussion about financial strength.
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 second quarter of 2022 were $273.3 million, up 18.8% from $230.1 million in the same quarter of 2021. The increase in revenues in the quarter was driven by growth across all three operating segments, starting with a strong demand for our digital offerings across all industries. Revenue within our digital capability increased 47% in the second quarter of 2022 over the same period in 2021. In addition, revenues reflect continued strong demand for our consulting and managed services offerings within the education segment, which grew 47% in the second quarter of 2022 over the same period in 2021. Net income was $13.9 million, or $0.66 per diluted share in the second quarter of 2022, compared to $12.8 million, or $0.59 per diluted share in the same quarter in the prior year. Our effective income tax rate in the second quarter of 2022 was 36% compared to 21.3% one year ago. Our effective tax rate for Q2 2022 was less favorable than the statutory rate, including those state income taxes, primarily due to tax expense related to nondeductible losses on our investments used to fund our deferred compensation liability, reflecting the broader investment market conditions during the second quarter. The earnings per share impact of the tax expense related to these nondeductible losses was $0.06 during the quarter. Adjusted EBITDA was $33.2 million in Q2 2022, or 12.2% of revenues, compared to $25.6 million in Q2 2021, or 11.1% of revenues. Adjusted non-GAAP net income was $17.5 million, or $0.83 per diluted share in the second quarter of 2022, compared to $15.1 million, or $0.69 per diluted share in the same period of 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 second quarter of 2022. The segment posted revenues of $128.5 million for the second quarter of 2022, up $13.7 million, or 12% from the second quarter of 2021. Revenues from the second quarter of 2022 included $1.2 million from our acquisition of Perception Health. The increase in revenue in the quarter reflects strong demand for our digital offerings, as well as our revenue cycle managed services offerings. The digital capability in healthcare improved by 53%, reflecting increased demand for our electronic health record and ERP offerings. Operating income margin for healthcare was 23.6% for Q2 2022 compared to 26.6% for the same quarter in 2021. The quarter-over-quarter decrease in margin percentage is primarily attributable to the mix impact of the strength of our digital offerings during the quarter. We still expect full year healthcare industry margins to be in a range of 24% to 26%. The education segment generated 32% of total company revenues during the second quarter of 2022. The segment posted record revenues of $88.2 million in Q2 2022, up $27.8 million, or 45.9% from the second quarter of 2021. Revenues in the second quarter of 2022 included $1.9 million from our acquisition of Whiteboard. The increase in revenue reflects the continued strong demand for all of our offerings across the segment, including digital capability growth in the education segment of 44%. The continued demand for our offerings is further demonstrated by the education segment’s 9% sequential growth in the second quarter of 2022 over the previous record first quarter of 2022. The operating income margin for education was 24.6% for Q2 2022 compared to 23.4% for the same quarter in 2021. The quarter-over-quarter increase in margin was primarily due to revenue growth that outpaced our corresponding cost to deliver during the quarter. We now expect full year education industry margins to be in the range of 22% to 24%, reflecting our investments in headcount growth and cloud-based technology training that we expect to drive continued strong growth for this industry into 2023. The commercial segment generated 21% of total company revenues during the second quarter of 2022. This segment posted revenues of $56.6 million in Q2 2022, up $1.7 million, or 3.1% from the second quarter of 2021. Revenues for the second quarter of 2022 included $900,000 of inorganic contributions from our acquisition of AIMDATA. The increase in revenues reflects continued strong demand for our digital offerings, partially offset by a decrease in demand for our financial advisory offerings, as well as declining revenues due to the divestiture of our life sciences business. In the second quarter of 2021, the life sciences business generated revenues of $5 million. Our digital offerings in the commercial markets grew 45% in the second quarter of 2022, as compared to the same period a year ago. The operating income margin for the commercial segment was 21% for Q2 2022, compared to 20.1% for the same quarter of 2021. We now expect full year commercial industry margins to be in a range of 22% to 24%, reflecting favorable mix of revenue within our commercial technology offerings. Corporate expenses not allocated to segment level were $29.9 million in Q2 2022, compared with $34.3 million in Q2 2021. Unallocated corporate expenses in the second quarter of 2022 included a $5 million reduction of expense related to the decrease in liability to participants in our deferred compensation plan, which was 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 second quarter of 2021 reflected an increase of expense of $2.1 million related to the deferred compensation plan. Absent the impact of our deferred compensation plan in both periods, unallocated corporate expenses increased $2.6 million, which is primarily due to increases in salaries and related expenses for our support personnel and leadership meetings during the quarter, partially offset by a decrease in legal fees. Now turning to the balance sheet and cash flows. DSO came in at 81 days for the second quarter of 2022, compared to 75 days for the first quarter of 2022 and 73 days for the second quarter of 2021. We expect DSO to be between 70 and 75 days for the remainder of 2022 as we collect on several large projects that have contractual payment schedules extending into the back half of the year. We finished the quarter with borrowings on a revolving credit facility of $342 million and cash of $12 million, resulting in net debt of $330 million. The second quarter also included $28.3 million of share repurchases, or approximately 498,000 shares under our current authorization of up to $200 million. $78 million remained available for repurchases as of June 30, 2022. Our leveraged ratio, defined in our senior bank agreement, was approximately 2.2x adjusted EBITDA as of June 30, 2022, compared to 2.8x adjusted EBITDA at the end of Q2 2021. Cash flow generated from operations in the second quarter of 2022 was $29 million, and we used $5 million of our cash to invest in capital expenditures, inclusive of internally developed software costs, resulting in free cash flow of $24 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 be in the range of $1.04 billion to $1.08 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 narrowing our full-year adjusted EBITDA guidance to be in the range of 11.5% to 12% of revenues and raising and narrowing our full-year adjusted non-GAAP diluted earnings per share guidance to be in a range of $3.15 to $3.45. Finally, we expect our full-year effective tax rate to be in a range of 29% to 31%. Thanks, everyone. I'd now like to open up the call to questions.
Operator, Operator
Our first question comes from Tobey Sommer of Truist Securities.
Tobey Sommer, Analyst
Recruiting, retention, and headcount growth. How do you think the back half shapes up in terms of compared to the trends year-to-date that we already have on the books?
John Kelly, CFO
Toby, this is John. I can start. From a headcount perspective, we continue to expect to see our headcount increase into the back half of the year, reflecting expectations for continued revenue growth, and really getting us prepared for 2023 based on the pipeline and the backlog that we see right now. We're confident that we're going to have continued revenue growth in 2023, so really getting a team in place from that perspective. But you also asked about attrition, and as we said on earlier calls, the attrition rate is really kind of stabilized from where it was in 2021. But all that said, it's still higher than it was in periods prior to the pandemic. It's still a tight labor market, but we've definitely seen it come down from where it was in 2021.
Tobey Sommer, Analyst
Thanks for the question regarding the healthcare side of performance improvement. Can you describe what large projects typically look like in terms of size? Also, have you noticed any changes in your customers' preferences concerning the formats they use for contracting?
John Kelly, CFO
Hey, Tobey, I can start on that. From a job size perspective, we really haven't seen a material shift in either the size of the jobs in the performance improvement area in healthcare or the mix between fixed fee and contingent. That's been relatively stable over the past few years. Depending on the size of the system we're working on and the size of the scope, that can be a project in the upper single-digit million range, or even in double-digit millions is the potential depending on the size of the project for the client.
Tobey Sommer, Analyst
Okay, and on the education business, I've noticed that in the news, more sort of really small liberal arts schools merging into larger schools. Is that something that drives any demand for your services, either directly or indirectly, or just sort of a symptom of the stress that the industry is under?
Jim Roth, CEO
Hey, Tobey, this is Jim. The trend you're identifying is absolutely a trend. There are more. I think there's not nearly as many as I think many of us once thought that there would be when the pandemic hit. I think some of the federal funding is also dropping off with some of the educational industries. To answer your question directly, though, yes, we have been involved in some of these mergers or integrations. It does vary, though for our kind of service we're providing at this point in time, it's not a material amount. We have been asked and typically, we get asked by a larger, perhaps more healthy institution that's interested in taking over a smaller, less profit one, and that's typically what we played. But in the scheme of things, it hasn't amounted to any real material revenue from an M&A type of perspective.
Tobey Sommer, Analyst
Okay, and then one more on the digital offerings. Some of the headline technologies out there, the motherships and software firms have described slightly longer sales cycles. Some of them have reported the point is... could there be any change in appetite among your customer set for greenlighting new deployments and new engagements?
John Kelly, CFO
Hey, Tobey, it’s John. You broke up a little bit during the question, but I think the question was about some of the platforms having reported longer sales cycles. We've seen some isolated cases here or there where we've seen a little bit of that, but from an overall perspective, in terms of our pipeline and our backlog, it has not been a big factor in our portfolio.
Jim Roth, CEO
Yes. I think I would say, it's maybe a little different than you're asking, Tobey. But as I indicated, I do think some of the strength in our digital business, particularly in education right now, and to some extent in healthcare, also less on the commercial side, has really been things that have now freed up. The sales cycles are beginning to come through because there was some hesitancy during the pandemic. You saw that in our revenues during the pandemic. What you're seeing some of the strength right now is that some of those things are beginning to pick up again and we expect that trend to continue for quite some time to come.
Tobey Sommer, Analyst
Okay, I hope you have a detailed question just John in the numbers. The other loss, other income loss was a little bit bigger than I had anticipated. Could you give a little bit more color into that? I apologize, you already touched on it in the prepared remarks. I joined the call a little late.
John Kelly, CFO
That, Tobey, is just total comp plan. We have a deferred comp plan for our employees that is funded by market assets. So think, stocks, things like that. During the second quarter, when the broader macro market went down considerably, we had it's a net zero to our P&L, it reduced our corporate expenses by about $5 million, but then we have the offsetting loss of the assets that we use to fund the plan by about $5 million. So it is net zero, other than the tax impact. The loss on the assets is not tax-deductible for us. Therefore, we did incur some extra income tax expense, which I quantified in my remarks is about $0.06. That's what you see in other income.
Operator, Operator
Our next question comes from the line of Andrew Nicholas of William Blair and Company.
Andrew Nicholas, Analyst
Thanks, and good afternoon. I want to first ask a question on education and the sustainability of growth there. Obviously, two really good quarters in a row, I'm not expecting 40% plus growth forever. But is this a business that can gladly grow mid-teens in your view? And as we look ahead to next year, is there anything particularly lumpy to call out from the first half that would make it especially difficult to compare? Sounds like there was a bit of pent-up demand from delayed projects that came through in the first half, so just looking to get any additional color you can provide there.
Jim Roth, CEO
Andrew, this is Jim. We're looking at, first of all, as we indicated, the growth in the first quarter and second quarter was very broad-based across the whole segment, and we expect that to continue for the rest of the year. We feel really good about the underlying reasons for the growth that I went through many of those in my comments and I don't see them really changing. We've certainly had a freeing up of some of the larger ERP projects that are beginning to kick in right now. Many of those larger projects are going to continue to roll out over the next three, four, or five years. We expect that there will continue to be pretty strong demand for education services for quite some time. It's not going to be certainly at the percentages we filled in the last two quarters, but it's going to be quite strong in the coming years.
Andrew Nicholas, Analyst
That's helpful, thank you. And then I guess you partially answered this question right there. But in terms of the growing pipeline for 2023, is it more of the same in terms of what you saw in the first half? Is it being broad-based and across the various sub-segments within each practice? Or are there particular pockets of strength that we might not even be seeing yet in the numbers?
Jim Roth, CEO
I think the portfolio mix is going to look relatively similar in 2023. The one exception is that I think the studio has been a little bit subdued despite the great performance, but I think that's going to really begin to pick up in 2023. Beyond that, if we look across the board at our strategy and operations, our digital practice, our research, they're all really doing well, and I expect that to continue.
Operator, Operator
Our next question comes from the line of Bill Sutherland of Benchmark.
Bill Sutherland, Analyst
Thanks. I was curious if you've noticed any candidates coming from the Big Four, considering there's some uncertainty in their business plans. Are you seeing any candidates in that regard?
Mark Hussey, President
Hey, Bill. It’s Mark. There's always been a flow on that front. But I would say there's been no material change as a result of some of the recent discussions that have happened about the changes there. Certainly something to keep an eye on, and we anticipate perhaps is a potential, but nothing that we've seen today.
Bill Sutherland, Analyst
Okay, the recession, if it begins to take on a little bit more impact in the economy. How should we think about your commercial segment in that scenario?
Jim Roth, CEO
Yes, Bill. I think our commercial segment has been focused on financial services and energy and utilities. I think we're sensitive at this point in time that there could be a drop-off in that. We've seen in the last year in our business advisory segment that there's been a drop-off. But I don't think at this stage that we're seeing any weaknesses that give us major concern at this point in time.
Mark Hussey, President
Bill, I just wanted to add that it's a little bit sector-specific based on how those particular sectors are being affected by the broader economy. So energy and utilities have been performing well for us, and we had a little bit of one in financial services where there's more impact. I think that mix will continue to be one that we'll watch, but we haven't really seen anything, as Jim said.
John Kelly, CFO
And maybe what I would add, though, is our distress business has actually been one of the more subdued areas of our business in the early part of this year and last year. In that scenario, we're seeing an increased pipeline and inquiries, so that might actually be something that in a down market might go up quite a bit, as we saw during the first half of 2020. Additionally, a lot of our clients have already started to make significant investments in cloud-based technology. Part of why they're doing that is to automate many of those business processes, especially in this tight labor market. The indications we see from our clients suggest that there's a premium on trying to automate and get to the cloud. We're still seeing good demand and strong inbound inquiries related to our commercial technology and the trends in that market.
Bill Sutherland, Analyst
John, remind me how big the turnaround bankruptcy business is.
John Kelly, CFO
To clarify, how big is it?
Bill Sutherland, Analyst
Yes. It's about 5% of our consolidated revenues. Okay. And then, last for me, was that you, John, is the guidance, as I just level out the revenue from the second quarter levels for the segments? I get to the top end of the year revenue guidance. So maybe is there any color you can provide as far as what the midpoint implies?
John Kelly, CFO
Yes, so when we looked at the guidance, Bill, we are pleased with the growth we've had during the first half of the year. Frankly, it's been outpaced even our initial planning assumptions at the beginning of the year. When we look out for the back half of the year, we still expect to post strong year-over-year growth numbers. Right now, when we look at the third quarter, our expectation is that we'll have growth in that 20% range year-over-year for the third quarter. The comparison gets a little tougher as you move on to the fourth quarter, and you're probably looking at high single-digit to low double digits for the fourth quarter, at least based on what we see now. Of course, we're still closing pipeline there. So at the midpoint, we just wanted to keep a little bit of conservatism in there from a midpoint perspective, just given uncertainty in the broader general market, even though we haven't seen it in our pipeline yet. If you look at the midpoint of guidance, we expect from an industry perspective, healthcare to be up in the mid-teen range, education to be up in the mid-30% range, and the commercial industry to be up in the mid-single digit range. If you strip out the Life Sciences impact, that probably falls into the low double-digit range. Additionally, if we're looking at digital, we expect it to be for the full year at a 30% year-over-year growth rate, and for consulting and managed services in the low double-digit range portfolio. All those numbers I gave are for full-year, year-over-year percentages.
Bill Sutherland, Analyst
Got it. Thanks for all that. And the other question I was thinking about was the visibility you have with your backlog at a moment in time. Are the project durations about the same? Are they getting a little longer? I know they typically in healthcare, the duration went down two years ago, just curious if there's a direction there.
Jim Roth, CEO
Yes. I think there's no noticeable difference really at the durations, though I think it's just pretty much the same. We have some projects that certainly go on over multiple years. We also have a lot of projects where you have one scope of work and you complete it before getting a second scope of work and a follow-on beyond that. That happens often, but from our backlog perspective, that's only one chunk of it. So I don't think there's really been any dramatic changes in the duration of events that we have going on right now.
Operator, Operator
Our next question comes from Kevin Steinke of Barrington Research.
Kevin Steinke, Analyst
Hi, thanks. I am Kevin Steinke, Barrington Research. I just wanted to ask about the balance of growth in the quarter. In the first quarter, it was fairly balanced growth between digital and then the consulting and managed services piece, whereas growth was more weighted towards digital in the second quarter. I don't know if there's anything to read into that if it's just kind of a quarter-to-quarter fluctuation that'll kind of even out as we move throughout the year.
John Kelly, CFO
Hey, Kevin. It's John. I think it's more of just a quarter-to-quarter fluctuation. I wouldn't read anything from a broader trend perspective into that. Part of it was the digital business just had a tremendous quarter in terms of growth that exceeded even our own expectations. As we look out into our forecast for the remainder of the year, we expect to see some nice growth coming from the consulting side of the business as well into that balance out a little bit more as the second half of the year progresses.
Kevin Steinke, Analyst
Okay, understood. Just wanted to ask about labor inflation. Have you seen any pickup there? I know you are implementing some price increases this year to offset inflation. Maybe just talk about if those increases are keeping pace with inflation, and the acceptance of those increases across your client base.
Mark Hussey, President
Hey, Kevin, it’s Mark. Labor inflation is one that, again, it's been out there for a while. While the headline inflation numbers perhaps say something bigger, it's not like they started overnight. We've had market adjustments and staying competitive throughout this, which is how we've been able to increase our headcount by 21% in a year. At the same time, as we go through the pricing that we sold, obviously, there's always a little bit of a lag. Generally speaking, it's been something that our clients have not really highlighted in our conversations; demand is still there. It's still a very competitive market overall, in terms of just competitors who show up for hot pursuits, but we're holding our ground and are able to achieve the things that we want to achieve in the marketplace. At this point, we have healthy confidence in the outlook.
Kevin Steinke, Analyst
Okay, great. Lastly, I just wanted to ask you about an element of the guidance. Obviously, revenue guidance range, you narrowed the adjusted EBITDA margin guidance range, not necessarily an increase there, but the narrowing. Could you talk about the factors behind that change in the margin guidance relative to the revenue guidance?
John Kelly, CFO
It's just a balance of factors there. On the one hand, growth is outpacing our initial assumptions, which is a good thing, because that's given us some additional scale on our corporate SG&A. From an overall utilization perspective, we're not where we want to be yet, but we've seen the ramp start to pick up in the second quarter; it's up about 200 basis points sequentially from the first quarter to the second quarter. That trend line is going well from a segment perspective. On the flip side of that, we are making investments in the business. We talked in our Investor Day about every year the reality is probably from an OpEx perspective; we're going to be investing 50 to 100 basis points. We're at the upper end of that right now, we're probably closer to the 100 basis points, if not even a little bit over, both in terms of building the headcount ramp needed to support this year's growth, but also next year's growth as well as some of our training initiatives to get those employees ready to be deployed on the projects where we see demand. That's definitely a factor that's pushing the other way. Also, a lot of our businesses returning to normal from a travel perspective; travel to clients is not back to where it was yet, but business development is and we had a lot, as we noted in our prepared remarks, we had a leadership meeting during the quarter. Some expenses are coming back too, which we always expected and was baked into our guide for the year. However, as you know, business is picking up, and we've been seeing more of that. The net-net remains at the midpoint an expectation that margins will increase by 100 basis points this year versus last year. But those are some pluses and minuses that net out to that 100 basis point increase.
Operator, Operator
Our next question comes from the line of Tobey Sommer of Truist Securities.
Tobey Sommer, Analyst
Thank you. I had a follow-up on the Big Four, potential split up some news. The first question would be where do you most directly compete with the Big Four? And while I heard your answer, I haven't really noted any change. If we change the question and said, do you expect a potential split and news of it to drive any changes in the industry and for Huron? If so, what do you anticipate?
Jim Roth, CEO
Tobey, this is Jim. I think in terms of where we compete the most, I'd say it varies. I'd say that our digital solutions are going to compete the most with not just the Big Four, but also Accenture and places like that. But it's mostly in our digital solutions. Every business has a different set of competitive peers. By and large, we'd compete with the Big Four in our digital area, particularly in healthcare, more than other industry verticals. That being said, we have robust competition across the board, so something we've been used to. Going back to your second part of the question, at this stage, I don't think that if something happens within the Big Four, it's going to play out over time. I don't think there will be any material change, either in the business or in our community, in terms of attracting other people. There will be some movement, but I don't think it'll be enough to significantly affect our competitive positioning or our ability to recruit. We feel good about both of them right now, regardless of what happens with any Big Four transaction. We will just carry on as if it's business as usual. If something changes, we'll deal with it then, but I think it will probably be good for us but not in any massive material way that would show up in our results.
Operator, Operator
Thank you. Seeing no more questions, I'd like to turn the call back over to Mr. Roth.
Jim Roth, CEO
Thank you for spending time with us this afternoon. We look forward to speaking with you again in November 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. You may disconnect.