Huron Consulting Group Inc.

Good afternoon and welcome to Huron Consulting Group's webcast to discuss the financial results for the second quarter 2025. At this time, all conference call lines are on a listen only mode. Later, we will conduct a question and answer session for conference call participants 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 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 on Huron's website for all of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers. And now I'd like to turn the call over to Mark Hussey, Chief Executive Officer and President of Huron Consulting Group. Mr. Hussey, please proceed.

Good afternoon and welcome to Huron Consulting Group's second quarter 2025 earnings call. With me today are John Kelly, our Chief Financial Officer and Ronnie Dale, our Chief Operating Officer. Revenues before reimbursable expenses or RBR in the quarter grew 8% over the second quarter of 2024, including organic RBR growth across all three operating segments. RBR in the second quarter of 2025 was a record high for our business. Growth in our core markets continues to reflect strong demand for our services, health systems, universities and commercial businesses adapt to regulatory and macroeconomic pressures while evolving our business models for success in the future. Clients continue to seek our deep industry expertise, present capabilities and proven track record of delivering results to help them achieve a more sustainable path forward in the face of significant market disruption. The current demand environment, coupled with our strong client relationships, provides us confidence in our outlook for continued growth in 2025 as reflected in our updated annual guidance. I'll now share some additional insights into our second quarter performance. In the healthcare segment, second quarter RBR grew 4% over the prior year quarter, excluding the results for student education, which we divested at the end of 2024. Healthcare segment RBR grew 6% over the second quarter of 2024. The increase in RBR in the quarter was driven by continued strong demand for our performance improvement and services, financial advisory and strategy and innovation offerings, partially offset by a decrease in our digital offerings within healthcare. The passage of the One Big Beautiful Bill Act earlier this month brought some clarity, the anticipated reductions in federal spending on healthcare. The cuts in Medicaid funding are projected to reduce federal spending on healthcare by over a trillion dollars over the next decade and are expected to result in a significant increase in patients without health insurance coverage. In response, hospitals and health systems are acting with urgency to prepare for margin declines anticipated in the coming years, while addressing current financial pressures driven primarily by costs that continue to increase at a faster rate than reimbursements. Within the current legislation, many hospitals and health systems will face reductions in the supplemental payments that states have made to healthcare providers to augment low Medicaid reimbursement rates. The expected increase in the uninsured population has been estimated to be up to 10 million people, which will increase the cost of uncompensated care for most hospitals. As hospitals and health systems address their budget gaps and position their business for a more sustainable future, returning to Huron because of our decades long track record of delivering significant, measurable and sustainable financial benefits. In this environment, demand remains strong for our performance improvement, financial advisory and strategy and innovation offerings as reflected in our RBR growth and our solid pipeline. On demand for our digital offerings within healthcare remains solid. We have seen slower sales conversions in certain areas within our pipeline for larger digital transformation engagements. We believe this to be a temporary pause as our clients focus on their immediate priorities to address their financial situations. As we mentioned on prior earnings calls, the breadth of our capabilities, we believe we are well positioned across a full range of market conditions to address the wide array of opportunities and changes. We believe we are facing challenges facing our hospital, physician group and health system clients both now and in the future, which we believe will drive continued growth for our healthcare segment. We also add some perspective to the recent acquisition we announced in the healthcare segment. At the end of the second quarter, we acquired Eclipse Insights to strengthen our performance improvement offerings. We partnered with Eclipse Insights in the market for several years. This acquisition strengthens Huron's mid-revenue cycle expertise, enhancing our ability to support providers across the full revenue cycle continuum. From patient intake and care delivery to documentation, billing and reimbursements. Eclipse Insights brings deep experience in charge capture optimization, clinical documentation, coding, and NILES management and revenue strategy. Key areas that have direct impact on hospital financial performance. Turning to education, education segment RBR grew 5% in the second quarter of 2025 over the prior year quarter driven by strong demand for our strategy and operations offerings and increased demand for our research software product offerings. We achieved record education segment RBR in the quarter. The team continues to execute exceptionally well in the ongoing dynamic regulatory landscape. The recent legislation brought some clarity for taxation of endowment earnings. However, in most other areas, universities and research institutes remain in a period of heightened uncertainty. The impact to our broad client base is highly variable and institutions are closely monitoring involving regulatory environment and assessing the magnitude, timing and strategic implications of potential scenarios that will affect them. The industry continues to face the prospect of lower indirect reimbursement rates for research grants, reduced federal support for research grants and contracts. Anticipated declines in enrollment numbers from international and domestic students and potential reductions in federal financial aid. As such, our clients continue to strategically prepare for a variety of future scenarios while preemptively taking action to position their organizations for the best possible outcome and a sustainable future. This environment led to a record level of sales conversion for our education segment during the quarter. A performance improvement offerings in education remain in high demand as clients seek opportunities to reduce costs, optimize their operations and strengthen their financial positions. Demand for our digital offerings continues to be robust as clients view investments in their technology infrastructures to be foundational to driving enterprise-wide operating efficiencies. In research, many clients are focused on optimizing their research strategies to align with their mission and to retain their research faculty. In addition, they're increasingly turning to our software products and managed services offerings to optimize their research administration operations. As tuition and government revenue sources are pressured, institutions are increasingly focused on optimizing fundraising strategies to grow philanthropic support. Our advancement fundraising offerings are well positioned to address these evolving needs. A comprehensive and balanced portfolio allows us to serve our clients across the full spectrum of challenges and opportunities that they are facing in the current landscape. The needs of our clients are wide ranging and we believe we remain best positioned to serve them in this uncertain environment given the breadth of our diverse offerings and our deep understanding of the industry and our clients institutions. And now let me turn to the commercial segment. In the second quarter of 2025, we also achieved record RVR in the commercial segment. Commercial segment RVR grew 28% over the prior year quarter. The increase was driven by the incremental RVR from our acquisition of Axia and strong demand for our digital offerings, excluding the acquisition of Axia, a commercial digital capability RVR grew 23% over the prior year quarter. Building upon the strengths of our digital financial advisory and strategy capabilities, our growth strategy in the commercial segment is focused on increasing the depth of our industry expertise, while broadening our offerings and market reach, primarily seeking opportunities that are highly complementary to our current portfolio. The strategy has led to continued growth in the commercial segment during a challenging market environment. As our global clients navigate through the broader macro economic environment, they're turning to here on to advance their competitive positions, drive operational efficiency and leverage data to make better, faster decisions. For example, we're working closely with one of our vendor partners in Europe to bring our deep enterprise performance management experience to serve large multinational clients. Many of these large complex companies are upgrading their technologies to improve the quality and speed of planning, scenario modeling and the data integration needed to make faster decisions and operate more effectively today's volatile and dynamic environment. As part of our programmatic M&A strategy, we're also investing in organically to execute a commercial industry strategy. Earlier this month, we acquired Trelliant, a leading advisory partner to the financial services industry with relationships with some of the top financial organizations in the world. Trelliant brings decades of specialized expertise in areas such as risk management, compliance, operations, financial crimes and fraud. Reminding Trelliant's offerings that here on existing industry specific digital capabilities creates a more comprehensive portfolio to help our clients address their complex challenges of balancing growth, operational efficiency and automation with robust risk management that complies with the most stringent regulations. We have a solid track record of expanding our commercial portfolio to include a creative offerings and capabilities building upon our core commercial industries of focus in financial services, industrial manufacturing, energy and utilities in the public sector. We believe that our focus strategy and discipline investments will continue to foster our competitive advantage and support the achievement of our medium term financial targets in this segment. And now let me turn to our outlet for the year. Inclusive of our recent acquisitions, today we're increasing our RVR guidance to a range of 1.64 billion to 1.68 billion, which represents an increase of 12% at the midpoint of our guidance when compared to our full year 2024 results. Maintaining our adjusted EBITDA margin guidance range of .0% to .5% of RVR and increasing our adjusted non-GAAP EPS guidance to a range of $7.30 to $7.70, which represents an increase of 16% at the midpoint as compared to full year 2024. Released with the progress we've made in executing our organic growth strategy in the first half of 2025, especially given the challenges posed by the current macro economic environment. In parallel, we continue to advance our programmatic M&A strategy, containing a disciplined focus on delivering upon our stated goal of adding 2% to 4% in organic growth annually. In parallel, we are committed to driving continued sustainable margin expansion fueled by our ongoing pricing and efficiency initiatives. We believe our outlook for 2025 reflects the strong foundation we've built, the ongoing market tailwinds for our business and continued solid execution of our growth strategy, consistent with the medium term financial goals we established at our investor day in March. Our strong first half of 2025 performance, our pipeline of emerging opportunities and the strengthened outlook are only possible because of our deep industry expertise, broad portfolio of offerings, and are highly talented and collaborative team. Disruption facing our clients and primary and markets is substantial stemming from the ongoing market uncertainty and regulatory environment, as well as the rapidly evolving competitive landscape. We continue to believe this disruption creates significant opportunities for long term growth for here on. And now let me turn it over to John for a more detailed discussion about financial.

Thank you, Mark and good afternoon everyone. Before I begin, please note that I will be discussing non gap financial measures such as EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS, and free cash flow. Our press release, 10Q, the investor relations page on the Huron website, reconciliations of these non gap measures to the most comparable gap measures, along with the discussion of why management uses these non gap measures, and by management believes they provide useful information to investors regarding our financial condition and operating results. Before discussing our financial results for the quarter, I'd like to discuss several housekeeping items. First, our second quarter 2025 results in the healthcare segment exclude the operating results from the student education business, which was divested on December 31st, 2024. Second, our second quarter results in the education segment reflect a full quarter of operating results from the acquisitions of advancement resources in Halpin, both of which closed in March 2025. Third, our acquisition of Eclipse Insights closed on June 24th, and as such, a partial period of their operating results are included within the healthcare segment. Operating results of Eclipse were not material to our second quarter results. Finally, our acquisition of Trelliant, which closed in July, is not included in our second quarter results. The results of Trelliant will begin to be included in the third quarter within the commercial segment. Now I'll share some of the key financial results from the second quarter. RVR for the second quarter of 2025 was $402.5 million, up .3% from $371.7 million in the same quarter of 2024. Organic RVR, which excludes the RVR generated by all acquisitions completed subsequent to the second quarter of 2024, was .2% over the prior quarter driven by growth across all three operating segments. As Mark mentioned, we achieved record RVR in the quarter, crossing the $400 million mark for the first time. None of this would be possible without our incredible team and their dedication to our clients, our business, and each other. Net income for the second quarter of 2025 was $19.4 million, $1.09 per diluted share compared to net income of $37.5 million, $2.03 per diluted share in the second quarter of 2024. For the percentage of total revenues, net income decreased to .7% in the second quarter of 2025 compared to .8% in the second quarter of 2024. Net income for the second quarter of 2025 includes an $8.2 million non-cash impairment charge, net of tax, related to our convertible debt investment in a third party. Net income for the second quarter of 2024 includes an $11.1 million litigation settlement gain, net of tax, related to a completed legal matter in which you're on with the plaintiff. Our effective income tax rate in the second quarter of 2025 was 29.9%, was higher than the statutory rate, primarily due to the establishment of evaluation of violence for deferred tax asset recorded as the result of the capital loss on our investment in a hospital or home company, as well as certain non-deductible expense items. These unfavorable items were partially offset by a tax benefit related to non-taxable gains on our investments used to fund our deferred compensation liability. We now expect an effective tax rate in the range of 25 to 27% for the full year. Just the debito was $60.6 million in Q2 2025, or .1% of RBR compared to $55.7 million, or 15% of RBR in Q2 2024. The increase in adjusted EBITDA for the quarter was primarily due to increases in segment operating income for all three operating segments, excluding the impact of segment depreciation and amortization and segment restructuring charges, partially offset by the increase in unallocated corporate expenses, excluding the impact of the change in the market value of our deferred compensation liability to transaction related expenses. Adjusted net income was $33.7 million, or $1.89 per diluted share in Q2 2025 compared to $18.5 million, or $1.68 per diluted share in the second quarter of 2024, resulting in a .5% increase in adjusted diluted earnings per share over Q2 2024. Now, let's discuss the performance of each of our operating segments. The healthcare segment generated 49% of total company RBR during the second quarter of 2025. The segment posted RBR of $197.8 million, up $7.7 million, or .1% from the second quarter of 2024. The second quarter of 2024 included $3.5 million of RBR from the student education business, which was divested in 2024. Excluding the results for student education, healthcare segment Q2 RBR grew 6% over the second quarter of 2024. The increase in RBR in the quarter was driven by continued strong demand for our performance improvement, managed services, financial advisory, and strategy and innovation offerings. Partially offset by a decrease in our digital offerings within healthcare and a decrease in RBR due to the divestiture of our student education practice. The inorganic RBR contribution from our acquisitions was immaterial in the second quarter of 2025. Operating income margin for healthcare was .2% in Q2 2025 compared to .1% in Q2 2024. The increase in margin was primarily due to decreases in bad debt expense, salaries and related expenses for our support personnel. Partially offset by an increase in contractor expenses as a percentage of RBR. The education segment generated 32% of total company RBR during the second quarter of 2025. The education segment posted record RBR of $129.3 million, up $6.5 million, or .3% from the second quarter of 2024. The increase in RBR in the quarter was driven by strong demand for our strategy and operations offerings, increased demand for our software and product offerings within our digital capability. The inorganic RBR contribution from our acquisitions was $2.2 million in the second quarter of 2025. The operating income margin for education was 25% in Q2 2025 compared to .1% the same quarter in 2024. The commercial segment generated 19% of total company RBR during the second quarter of 2025, posted record RBR of $75.4 million, up $16.6 million, or .2% from the second quarter of 2024. The increase in RBR was driven by $12.3 million incremental RBR for our acquisition of Axia, strong demand for our digital offerings. Operating income margin for the commercial segment was .6% for Q2 2025 compared to .3% for the same quarter in 2024. The increase in operating income margin is primarily attributable to revenue growth that outpaced the increases in compensation costs for our revenue generated professionals, partially offset by an increase in contractor expenses as a percentage of RBR. Corporate expenses not allocated at the segment level, and excluding corporate restructuring charges, $54.3 million in Q2 2025 compared to $45.6 million in Q2 2024. Unallocated corporate expenses in the second quarter of 2025, including $3.7 million of expense related to the increase in the liability of our deferred compensation plan, compared to $700,000 of expense in the second quarter of 2024. These amounts are offset by the change in market value of the investment assets used to fund that plan, which is reflected in other income expense. Excluding the impact of our deferred compensation plan in restructuring expense in both periods, unallocated corporate expenses increased $5.8 million in the second quarter of 2025, primarily driven by increases in salaries and related expenses for our support personnel and legal expenses and third party professional fees related to M&A activity during the quarter. Now turning to the balance sheet and cash flows. Cash flow from operations in the second quarter of 2025 was $80 million. During the quarter, we used $6.3 million to invest in capital expenditures, inclusive of internally developed software costs, resulting in free cash flow of $73.7 million. We continue to expect full year free cash flow to be in a range of positive $160 million to $190 million, net of cash taxes and interest, excluding non-cash stock compensation. DSO came in at 78 days for the second quarter of 2025, compared to 81 days for the second quarter of 2024. The decrease in DSO reflects the impact of collections on certain larger health care and education projects in alignment with their contractual payment schedules. Total debt as of June 30th, 2025 was $657.8 million, consisting entirely of our senior bank debt. We finished the quarter with cash of $61 million, net debt of $596.8 million. This was a $43.9 million increase in net debt compared to Q1 2025, primarily due to the share repurchases and acquisition payments during the quarter. Our leverage ratio is defined in our senior bank agreement as 2.5 times adjusted even up as of June 30th, 2025, compared to 2.2 times adjusted even up as of June 30th, 2024. Continue to expect our year-end leverage ratio to be approximately two times full year adjusted even up. In the second quarter, we used $61 million to repurchase approximately 430,000 shares, bringing our total -to-date share repurchases to $133.9 million and approximately 938,000 shares, representing .3% of our common stock outstanding as of December 31st, 2024. As of June 30th, 2025, $131.3 million was made available for share repurchases under the current share repurchase authorization from our Board of Directors. Since December 31st, 2021, we have repurchased approximately 5.7 million shares under our share repurchase program, returning over $500 million of capital to our shareholders. Today we announce that, effective with the closing on July 30th, we have amended and restated our credit facility. We extended the maturity date on the facility to 2030 and increased our borrowing capacity to $1.1 billion on favorable pricing terms to provide additional flexibility to support the anticipated growth in our business as well as our capital allocation strategy. We remain committed to deploying capital in a balanced way, including the capital to share, returning capital to shareholders and executing strategic tuck-in acquisitions while maintaining our debt levels within our target leverage ratio. Finally, let me turn to our guidance for the full year 2025. As Mark mentioned, inclusive of our recent acquisitions, today we are increasing our RVR guidance to a range of $1.64 billion to $1.68 billion, maintaining our adjusted EBITDA guidance range of 14% to .5% of RVR, and increasing our adjusted non-GAAP EPS to a range of $7.30 to $7.70. Now let me provide some additional color into these numbers. Before consideration of our recent acquisitions of Eclipse and Trellion, we are narrowing and increasing the midpoint of our previous RVR guidance to a range of $1.62 billion to $1.66 billion, effectively narrowing to the upper half of our original guidance range. We are pleased with our first half's performance, -to-date sales conversions, and pipeline of emerging opportunities. We believe we will continue to be well positioned to help our clients address the increased strategic, financial, and operational pressures facing our businesses. This pressure is particularly acute for our healthcare provider clients, and is driving increased demand for our performance improvement, management services, financial advisory, and strategy and innovation offerings in the healthcare segment. We expect our recent acquisitions of Eclipse and Trellion to collectively add approximately $20 million of RVR in the second half of 2025. As such, inclusive of these acquisitions, we now expect full-year consolidated RVR to be in the range of $1.64 billion to $1.68 billion. We expect approximately half of this acquisition RVR to be in our healthcare segment and about half in our commercial segment. We expect a net adjusted EBITDA from these acquisitions as a percentage of RVR to be in a range consistent with our overall consolidated margin guidance, inclusive of certain expenses to integrate the businesses that we do not expect to repeat in 2026. With regard to adjusted EPS, we expect a net impact of Eclipse and Trellion to be neutral for the remainder of 2025, reflecting those incremental integration expenses over the next two quarters. We expect Eclipse and Trellion to be adjusted EPS accretive individually and in the aggregate in 2026. Finally, let me provide updated segment-level guidance, inclusive of the Eclipse and Trellion acquisitions. With regard to our healthcare segment, we now expect upper single-digit percentage revenue growth for full year 2025. We now expect operating margins will be in a range of approximately 28 to 30%. In the education segment, we continue to expect mid to upper single-digit percentage revenue growth for the full year 2025. Operating margins will be in a range of approximately 23 to 25%. In the commercial segment, we now expect to see growth in the -20% range for 2025, which includes a full year of AXIA and our recent acquisition of Trellion. We expect our operating margins in this segment will be in a range of approximately 18 to 20%, reflecting the full year revenue mix shift towards our digital offerings and Trellion integration expenses, as discussed earlier. We expect the mix shift to be more balanced between consulting and digital in the commercial segment, starting in the second half of 2025. We do not expect the incremental Trellion integration expenses to extend beyond 2025. Thanks everyone. I would now like to open the call to questions. Operator.