Huron Consulting Group Inc.

Good afternoon and welcome to Huron Consulting Group's webcast to discuss financial results for the third quarter 2025. At this time, all conference call lines are in a listen-only mode. Later, we will conduct our 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 any forward-looking statements that may be made or discussed on this call. The news release is posted on Huron's website. Please review that information along with the filings with the SEC for a disclosure of factors that may impact subjects discussed in this afternoon's webcast. The company will be discussing one or more non-GAAP financial measures. Please look at the earnings release and on Huron's website for all of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers. And now, I would like to turn the call over to Mark Hussey, Chief Executive Officer and President of Huron Consulting Group. Mr. Hussey, please go ahead.

Good afternoon and welcome to Huron Consulting Group's third quarter 2025 earnings call. With me today are John Kelly, our Chief Financial Officer, and Ronnie Dale, our Chief Operating Officer. Our third quarter performance was strong, driven by growth across all three operating segments. Company-wide revenues before reimbursable expenses, or RVR, grew 17% in the third quarter, including 10% organic growth. reflecting a robust demand environment for our services and strong execution by our teams. We're also pleased with our continued margin expansion and earnings per share growth in the third quarter, consistent with our financial goals. The combination of our deep industry expertise and breadth of capabilities has positioned us as a partner of choice for our clients as they continue to face persistent financial challenges and regulatory disruption. We believe strong demand across our core end markets positions us well to achieve our full year 2025 RVR and earnings guidance of establishing a solid base for continued growth in 2026. I'll now share some additional insights into our third quarter performance. In the healthcare segment, we achieved record RVR during the third quarter, growing 20% over the third quarter of 2024. Organic healthcare segment, RVR, grew 19% over the third quarter of 2024, excluding the results of our recent acquisition of Eclipse Insights, as well as the student education business, which was divested at the end of 2024. The increase in RVR in the quarter was driven by broad-based demand across the entire segment, including our performance improvement, financial advisory, revenue cycle managed services, strategy and innovation, and digital offerings. Third quarter RBR or healthcare consulting and managed services capability through 27% over the third quarter of 2024. Demand for our performance improvement offerings remains robust across the market. And we believe this is the strongest environment for our performance improvement offerings we have seen. In addition to record revenue growth, we've also seen continued strong pipeline and sales conversion continuing at high levels in the third quarter and through the first month of the fourth quarter. Primary driver of demand for our healthcare offerings is continued margin pressure for our healthcare provider clients. A proven track record of delivering demonstrable ROI for our clients sets us apart from our competitors and positions Huron as a go-to trusted partner for organizations experiencing financial strain. Our performance improvement solutions have consistently delivered improved revenue and cash flow yield, reduced operating costs, and improved patient experience among key operating and financial metrics in addition to those. Increasingly, our performance improvement engagements have a broader scope, integrating our strategy, financial advisory, and digital offerings to better and more uniquely address our clients' challenges. And this has led to an increase in the average size of our healthcare engagements. Hospitals and health systems continue to prepare for reduced funding and decreases in insured patient volumes, driven by shifts in the Medicaid reimbursement model. At the same time, pressures persist to improve access and evolve care delivery models in the face of workforce shortages. The combination of these factors creates an unsustainable operating environment for many organizations. And with the combination of these factors, health care providers are increasingly turning to Huron to evaluate their strategic, financial, and operational options to strengthen their competitive positions. We continue to expand the use of AI and automation across our offerings to drive value creation for our clients and increase the efficiency of our service delivery. We're increasingly advising our clients on how to govern and deploy the rapidly expanding array of AI and automation solutions available to them, while partnering with them to deploy solutions that will yield demonstrable results and value. We highlight an example within our Revenue Cycle Managed Services business, which has delivered 20% RVR growth in the first three quarters of 2025 compared to the year-to-date Q3 period last year. Revenue Cycle Managed Services can be delivered in conjunction with our consulting offerings or sold as a standalone offering, depending on the client's needs. Revenue Cycle Managed Services drive improved revenue cycle yield and cost savings for our clients, and they're complementary to our revenue cycle consulting capability. Among many other AI and automation use cases, we've established and deployed machine learning models that have helped us lower our costs while boosting collections for clients. The breadth of our offerings and our strong reputation in the market, along with our ability to deliver tangible results to our clients positions us well to capitalize on robust market demand as our clients address the ongoing financial pressures on margins and the changing regulatory and technology landscape. Turning to education, segment RVR also achieved a record, growing 7% in the third quarter of 2025 over the prior year quarter. The increase in RVR in the quarter was driven by strong demand for our strategy and operations, research, and digital offerings. Our education team has done a terrific job supporting our clients and sustaining our growth trajectory during this unprecedented time in the higher education industry. Many colleges and universities are managing the impact of declines in research funding and lower enrollment of both domestic and international students, as well as overall policy uncertainty. That tuition pricing pressure persists students and parents seek affordable education and job training alternatives and similar to our healthcare clients our education clients are navigating through disruption and a strained financial environment as a result returning to huron for help our comprehensive set of offerings including performance improvement spans the entire university making huron a trusted partner of choice for clients looking for a partner who can comprehensively address these issues continue to see robust demand for digital transformation projects and have been very pleased with our team's win rate in this area throughout the year. Our clients' investments in digital transformation are driven by the need to modernize their data and technology foundations and take advantage of newer technologies, including AI and automation. One area that's particularly ripe for AI and automation is research administration. We've seen this validated by the success of the solutions that we've developed to date that enable administrative staff to focus on greater value-added activities, such as research compliance or managing more awards. Let me share an example. We developed an AI offering to automate the input and processing of data across thousands of grants, drastically reducing the setup time and freeing up research and administration capacity. While we're actively delivering these AI solutions to our clients directly, We can also incorporate the functionality into our research-managed services offerings to optimize our delivery and support growth. Approving credentials, breadth of offerings, and deep client relationships have positioned us very well to serve our education and research clients as they navigate this period of hype disruption. We believe our strong positioning and competitive advantage in this industry will drive continued growth consistent with the goals that we discussed at our investor day earlier this year. Now let me turn to the commercial segment. In the third quarter of 2025, we also achieved record RBR. Commercial segment RBR grew 27% over the prior year quarter. The increase in RBR was driven by our acquisitions of Axia and Treliant, as well as continued organic growth from our commercial digital business. This growth was partially offset by lower demand for our strategy and financial advisory offerings during the quarter. I will note that for both our strategy and financial advisory offerings, we've seen an inflection point in market demand and saw improved sales conversion over the course of the third quarter and into October. Our commercial digital business has continued to grow despite a more challenging demand environment. And we further integrated our strategy and operations expertise across our consulting and digital capabilities, which has strengthened our competitive advantage and positioned us to drive above average growth during the course. During the quarter, we acquired Wilson Parable & Company, a leading strategy and operations consulting firm serving the commercial markets. We believe the combination of InnoCite's long-term strategy and innovation offerings and Wilson Parable's strategic execution and operations-focused offerings creates a more comprehensive platform for our clients to realize more immediate financial savings that can help drive transformation while they refine their strategies to deliver sustainable growth. As we shared at our investor day, another pillar of our commercial strategy was to further integrate our commercial offerings to enhance our go-to-market strategy. We've seen significant advancement in this area, including several key wins that demonstrate our competitive advantage. For example, we're one of the leading partners focused on helping CFOs transform their finance organizations to become more impactful strategic partners in their business through our advanced enterprise performance management capabilities. We've built upon these competencies by aligning our strategy consulting, data, AI, and automation expertise with our cloud EPM offerings to compete and win against some formidable incumbents and competitors. We're also leveraging AI and advanced analytics to further enhance our competitive advantage while delivering increased value to our clients. For example, combining their deep manufacturing expertise with their data, AI, and broader technology capabilities to leverage predictive modeling for preventive maintenance, which has resulted in significant savings for one of our manufacturing clients. While we remain at the early stages of execution of our integrated commercial strategy, our industry and capability strengths are already proving to be differentiated in our key end markets and offerings of focus. Now let me turn to our outlook for the year. Today we're updating our annual guidance by narrowing our RVR guidance to a range of $1.65 billion to $1.67 billion, affirming our adjusted EBITDA guidance range of 14% to 14.5% of RVR, and increasing our adjusted non-GAAP EPS to a range of $7.50 to $7.70. Midpoint of our RBR guidance reflects strong year-over-year growth in the fourth quarter, so we expect the underlying demand for our offerings across all segments will continue. In 2025, we demonstrate our ability to sustain accelerated RBR growth and margin expansion despite a more challenging macroeconomic and regulatory environment. A market-tested strategy and durable, balanced portfolio of offerings coupled with disciplined execution continues to deliver strong financial performance for our business and our shareholders. Now let me turn it over to John for a more detailed discussion of our financial results. John?

Thank you, Mark, and good afternoon, everyone. Before I begin, please note that I will be discussing non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS, and free cash flow. Our press release, 10Q, an investor relations page on the Huron website, have reconciliations of these non-GAAP measures to the most comparable GAAP measures. Along with the discussion of why management uses these non-GAAP measures, why management believes they provide useful information to investors regarding our financial condition and operating results. Before discussing our financial results for the quarter, I'd like to discuss several housekeeping items. First, our third quarter 2025 results in the healthcare segment exclude the operating results from the student education business, which was divested on December 31st, 2024. Our healthcare segment results do include a full quarter of operating results from our acquisition of Eclipse Insights, which had closed in June of this year. And finally, we closed on the acquisitions of Treliant and Wilson-Paramol in July and September of 2025, respectively. Commercial segment results for the third quarter of 2025 do include the results of Trelyant and Wilson-Paramount starting from the dates of their respective acquisitions. Now I will share some of the key financial results from the third quarter. RBR for the third quarter of 2025 was a record $432.4 million, up 16.8% from $370 million in the same quarter of 2024. Organic RBR which excludes the RBR generated by all acquisitions completed subsequent to the third quarter of 2024, and the RBR generated by the student education business in the third quarter of 2024, for 10.2% over the prior year quarter, led by 18.6% organic RBR growth in our healthcare segment. As Mark mentioned, we achieved another quarter of record RBR, reflects robust market demand for our offerings, and is a testament to our highly talented and dedicated teams and their ability to deliver high-quality, innovative offerings to our clients. Net income for the third quarter of 2025 was $30.4 million for $1.71 per diluted share, compared to net income of $27.1 million for $1.47 per diluted share in the third quarter of 2024. As a percentage of total revenues, net income decreased to 6.9% in the third quarter of 2025, compared to 7.2% in the third quarter of 2024. Our effective income tax rate in the third quarter of 2025 is 28.7%. It's higher than the statutory rate, inclusive of state income taxes, primarily due to certain non-deductible expense items. We now expect an effective tax rate in the range of 23 to 25%. for the full year. Adjusted EBITDA was $67.4 million in Q3 2025 for 15.6% of RBR compared to $54.9 million for 14.8% of RBR in Q3 2024. The increase in adjusted EBITDA for the quarter was primarily due to increases in healthcare and education segment operating income excluding the impact of segment depreciation and amortization and segment restructuring charges, partially offset by an increase in unallocated corporate expenses, excluding the impact of the change in the market value of our deferred compensation liability and transaction-related expenses, and decreased commercial segment operating income. Adjusted net income was $37.4 million, $2.10 per diluted share in Q3 2025 compared to $31.1 million for $1.68 per diluted share in the third quarter of 2024, resulting in a 25% increase in adjusted diluted earnings per share over Q3 2024. Now I'll discuss the performance of each of our operating segments. The healthcare segment generated 51% of total company RBR during the third quarter of 2025. This segment posted record RBR of $219.5 million, up $36.4 million, for 19.9% from the third quarter of 2024. Third quarter of 2025 included an inorganic contribution of $6.5 million of RBR from our acquisitions, while 2024 included $3.4 million of RBR from the student education business, which was divested in 2024. Excluding the impact of these items, our organic growth rate in the healthcare segment was 18.6% in the third quarter of 2025 compared to the same period in the prior year. The increase in RBR in the quarter was driven by broad-based demand across all of our offerings in the segment and led by strong growth in our performance improvement, financial advisory, and revenue cycle managed services offerings. Operating income margin for healthcare was 30.9% in Q3 2025 compared to 27.1% in Q3 2024. The increase in margin was primarily due to revenue growth that outpaced an increase in salaries and related expenses for our revenue generating professionals and a decrease in salaries and related expenses for our support personnel. We now expect full-year operating income margin for the healthcare segment to be in the 29 to 31% range. The education segment generated 30% of total company RBR during the third quarter of 2025. The education segment posted record RBR of $129.4 million, up $8.4 million, or 6.9% from the third quarter of 2024. The increase in RBR in the quarter was driven by strong demand for our strategy and operations, research, and digital offerings. The inorganic RBR contribution from our acquisitions was $2.2 million in the third quarter of 2025. The operating income margin for education was 25.7% for Q3 2025, compared to 24.1% for the same quarter in 2024. The increase in margin was primarily due to revenue growth that outpaced an increase in compensation costs for our revenue-generating professionals. The commercial segment generated 19% of total company RBR during the third quarter of 2025 and posted a record RBR of $83.4 million, up $17.5 million, or 26.6% from the third quarter of 2024. The increase in RBR was driven by $19.6 million of incremental RBR from our acquisitions of Axia, Treliance, and Wilson Paramo. Operating income margin for the commercial segment was 16.4% for Q3 2025, compared to 24.5% for the same quarter in 2024. Decline in margin in the quarter was primarily driven by increases in salaries and related expenses for our revenue-generated professionals contractor expenses as percentages of RBR. The decline in margin is reflective of an increased mix shift toward our digital offerings during the quarter, as well as the transition period for certain acquisitions that we expect to become accretive in 2026. We expect our operating margins in this segment to be in a range of approximately 16 to 18% for full year 2025, reflecting these factors. As Mark mentioned, for both our strategy and financial advisory offerings, we've seen an inflection point and saw improved sales conversion over the course of the third quarter and into October. Corporate expenses not allocated at the segment level and excluding corporate restructuring charges were $56.5 million in Q3 2025 compared to $46.8 million in Q3 2024. On allocated corporate expenses in the third quarter of 2025, included $2.7 million of expense related to the increase in the liability of our deferred compensation plan compared to $2.3 million of expense in the third 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. Excluding the impact of the deferred compensation plan and restructuring expense in both periods, Unallocated corporate expenses increased $9.3 million in the third quarter of 2025, primarily driven by increases in salaries and related expenses for our support personnel, software and data hosting expenses, and legal and third-party professional expenses related to our programmatic acquisition activity during the quarter. Now turning to the balance sheet and cash flows. Cash flow from operations in the third quarter of 2025 was $93.8 million. During the quarter, we used $8.5 million to invest in capital expenditures, inclusive of internally developed software costs, resulting in free cash flow of $85.3 million. We expect full-year free cash flow to be in a range of $165 million to $185 million net of cash taxes and interest in excluding non-cash stock compensations. DSO came in at 76 days for the third quarter of 2025, compared to 78 days for the second quarter of 2025, and compared to 86 days for the third quarter of 2024. The decrease in DSO reflects the impact of collections on certain larger healthcare and education projects in alignment with the contractual payment schedules. Total debt as of September 30th, 2025 was $611 million. consisting entirely of our senior bank debt. We finished the quarter with cash of $23.9 million for net debt of $587.1 million. This was a $9.7 million decrease in net debt compared to Q2 2025, which incorporates the share of repurchases and acquisition payments made during the quarter. Our leverage ratio is defined in our senior bank agreement. was 2.3 times adjusted EBITDA as of September 30, 2025, compared to 1.9 times adjusted EBITDA as of September 30, 2024. We continue to expect our year-end leverage ratio to be approximately 2.0 times full-year adjusted EBITDA. In the third quarter, we used $18.6 million to repurchase approximately 147,000 shares bringing our total year-to-date share repurchases to $152.5 million and approximately 1,085,000 shares, representing 6.1% of our common stock outstanding as of December 31st, 2024. As of September 30th, 2025, $112.6 million remained available for share repurchases under the current share repurchase authorization from our Board of Directors. Finally, let me turn to our guidance for the full year 2025. As Mark mentioned, today we are updating our annual guidance by narrowing our RBR guidance to a range of $1.65 billion to $1.67 billion, affirming our adjusted EBITDA guidance range of 14% to 14.5% of RBR, and increasing our adjusted non-GAAP EPS to a range of $7.50 to $7.70. Thanks, everyone. I would now like to open the call to questions. Operator?