Huron Consulting Group Inc.

Good afternoon and welcome to Huron Consulting Group's webcast to discuss financial results for the first quarter of 2026. 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 first quarter 2026 earnings call. With me today are John Kelly, our Chief Financial Officer, and Ronnie Dale, our Chief Property Officer. I'll begin by noting that the execution of our growth strategy continues to deliver performance consistent with the financial goals outlined for 2025 and yesterday. Revenues before reimbursable expenses, or RVR, increased 12% in the first quarter of 2026, compared to the first quarter of 2025, driven by growth across the healthcare, education, and commercial segments, including record RBR performance in healthcare. During the quarter, we also continued our trajectory of margin expansion, reflecting disciplined execution by our highly talented team. Encouraged by the strong start to the year and strength of our pipeline and backlog, we're affirming our annual RBR and margin guidance. We continue to believe we are well-positioned to serve as our clients' trusted advisor if they involve their business models and organizations to succeed in challenging markets and an increasingly complex AI-enabled world. We remain focused on executing against the market tailwinds driving demand for our business and further strengthening our competitive position to enhance our ability to best serve our clients and achieve our financial goals. I'll now share some additional insight into our first quarter performance. In the healthcare setting, first quarter RVR grew 14% over the prior year quarter, reflecting strong demand for our performance improvement, revenue cycle banded services, financial advisory, and strategy offerings, as well as incremental RVR growth in the integration of our acquisitions. Excluding the impact of the acquisitions, organic growth for the healthcare segment was 10% in Q1 2026 as compared to Q1 2025. As we've discussed in prior earnings calls, health care providers are operating amidst a convergence of competitive and regulatory pressures that continue to impact financial performance and drive the need to redesign care delivery models. Finding reimbursements, rising operational costs, and labor shortages intensifying the need for stronger cash flow cost optimization and greater operational flexibility health systems are facing a period of rapid transformation driven by advancements in technologies developing and executing an ai strategy amidst the rapid pace of change has become an increasingly important issue for the growing number of our clients Providers are increasingly seeking trusted partners with deep industry expertise that can help them integrate technology, workforce, and operating model changes into cohesive, executable strategies that deliver near-term financial benefit while positioning their organizations for sustainable growth, improved margins, and long-term competitive advantage. We see significant opportunities for evaluating and integrating a broad and growing number of applications and use cases for AI and digital tools, across clinical, administrative, and financial workflows in our clients' complex operating environments. Our ability to help clients address enduring and new challenges and opportunities is at the heart of the growth strategy for our healthcare business. As we rapidly expand and integrate our AI capabilities across our healthcare offerings, we believe our distinctive operational and technology expertise, along with innovative new solutions and partnerships, position us well to continue our growth trajectory. Turning next to the education segment, in the first quarter of 2026, education segment RVR grew 4% compared to the first quarter of 2025, driven by strong demand for our digital offerings. Higher education institutions are experiencing uneven demand on domestic students and a significant decline in international students. Amidst that backdrop, institutions are contending with rising operating costs, funding declines, high regulatory scrutiny, and further erosion of public confidence and the value of a traditional four-year degree. These dynamics are forcing higher education leaders to confront fundamental questions about scale, academic portfolio mix, cost structure, and long-term financial sustainability. We believe our strong market position in higher education provides the opportunity to serve as an experienced partner that can help our clients move beyond incremental actions for more integrated strategic transformation. Universities are prioritizing solutions that deliver near-term financial improvement while modernizing operating models for administrative workflows and academic offerings. To accomplish this, clients are building the enabling infrastructure to improve efficiency, decision-making, and the student experience while increasingly leveraging AI. We believe our strong client relationships, deep industry expertise, AI capabilities, and comprehensive portfolio of offerings have positioned us to continue to serve as a partner of choice for our clients as they address these ongoing challenges. In the commercial segment, first quarter RBR grew 22% over the prior year quarter, blocking strong demand for our financial advisory and strategy offerings. The increase in RBR in the quarter also included incremental RBR from our acquisitions of Reliance and Wilson Parable, excluding the impact of acquisitions, RBR in Q1 2026 grew 8% organically over the first quarter of 2025. Commercial industries are navigating heightened complexity driven by persistent cost inflation, global supply chain realignments, geopolitical, and regulatory uncertainty, and continuously evolving customer and employee expectations. At the same time, companies are accelerating the adoption of AI-enabled, data-driven operating models to include agility, productivity, and decision-making. These forces are driving the band for comprehensive solutions that integrate strategy and operations, financial advisory, and digital and AI transformation. We continue to invest in expanding our offerings to address rapidly changing needs of our global client base, and those investments have delivered more durable growth in our commercial business in recent quarters. We'll continue to deepen our industry expertise and expand our ability to deliver differentiated end-to-end solutions to enhance our competitive advantage and best address the growing needs of our clients. Through the first quarter, our views on AI and its potential impact on Huron remain bullish. as we believe it will be a significant contributor to future growth, margin expansion, and shareholder value. Multiple third-party research providers forecast that the AI services market will grow into double digits over the next several years, and we believe we're well positioned to help our clients plan and execute their AI strategies and take advantage of this rapidly growing market opportunity. We have substantially increased our investment in AI capabilities and will continue to deploy them throughout our offerings, operations, building upon our industry and functional knowledge. Beyond AI, the fundamental market tailwinds propelling growth in our business remain to create opportunities across all three operating segments. We believe our ability to bring together our strategy, operations, technology, and people-related offerings, redesigned core business functions and processes of integrating advanced technologies will continue to position us for long-term growth. Now let me turn to our outlook for the year. Today, we are affirming our 2026 guidance for RBR, adjusted EBITDA margin, and adjusted diluted earnings per share. They're strong first quarter results. I'm increasingly encouraged about our prospects for the year. We remain committed to driving long-term shareholder value, continued execution of our growth strategy, which has delivered consistent RBR growth and margin expansion since 2022. Our discipline capital allocation strategy is funded both programmatic M&A, and since December 31st of 2022, repurchase of 5 million shares for 25% of our common stock outstanding. We believe there is significantly more value to be unlocked by our strategy, particularly as we leverage our collaborative entrepreneurial culture to compete and win today's rapidly evolving technological and competitive landscape. In summary, we believe our strong competitive positions in healthcare and education enable us to leverage our expertise and powerful portfolio of consulting, managed services, and digital capabilities. We also believe our size and scale in commercial markets enables us to be nimble and aggressive with an integrated operating model that amplifies our impact across consulting, digital, and managed services capabilities. Driven by the velocity of change and complexity facing our clients, We're well positioned to continue to execute upon our growth strategy and achieve our stated financial goals for low double-digit revenue growth, margin expansion, and disciplined deployment of our strong free cash flow. None of this would be possible without our strong, collaborative culture and our innovative and dedicated team to continue to be the heart and soul of our company. With that, let me now turn it over to John for 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, and 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 conditions, and operating results. Now we'll share some of the key financial results for the first quarter of 2026. First quarter of 2026 produced RBR of $443.7 million, up 12.1% from $395.7 million in the same quarter of 2025, driven by growth across all three operating segments. Net income for the first quarter of 2026 was $23.2 million for $1.34 per diluted share compared to net income of $24.5 million for $1.33 per diluted share in the first quarter of 2025. As a percentage of total revenues, net income declined to 5.1% in the first quarter of 2026 compared to 6.1% in the first quarter of 2025, reflecting a higher effective tax rate during the first quarter of 2026. Our effective income tax rate in the first quarter of 2026 was 14.1%, which is more favorable than the statutory rate, inclusive of state income taxes, primarily due to a discrete tax benefit for share-based compensation awards that vested during the quarter, partially offset by certain non-deductible expense items. Our effective income tax rate in the first quarter of 2025 was negative 14.4%, as we recognize an income tax benefit on our pre-tax income driven by the discrete tax benefit for share-based compensation awards that lasted during the quarter. The increase in effective tax rate during the first quarter of 2026 was anticipated in the 2026 guidance that we provided in February, and our expectation for a full-year effective tax rate between 28 and 30% remains unchanged. Adjusted EBITDA was $50.6 million in Q1 2026 for 11.4% of RBR, compared to $41.5 million in Q1 2025 for 10.5% of RBR. The increase in adjusted EBITDA was primarily attributable to the increase in segment operating income for all three segments, excluding segment depreciation and amortization and segment restructuring charges, partially offset by an increase in certain unallocated corporate expenses. Adjusted net income was $30 million for $1.73 per diluted chair in the first quarter of 2026, compared to $31.1 million for $1.68 per diluted chair in the first quarter of 2025. Now I'll discuss the performance of each of our operating segments. Healthcare segment generated 51% total company RBR during the first quarter of 2026. This segment posted record RBR of $225.2 million, up $26.7 million for 13.5% from the first quarter of 2025. The increase in RBR in the quarter was driven by strong demand for our performance improvement, revenue cycle managed services, financial advisory, and strategy offerings. RVR in the first quarter of 2026 included $7.3 million of incremental RVR from our acquisitions of Eclipse Insights, the consulting services division of Axiom Systems. Operating income margin for the healthcare segment was flat at 28.4% in both Q1 2026 and Q1 2025. The education segment generated 29% of the total company RVR during the first quarter of 2026. Education segment RBR in the first quarter of 2026 was $127.5 million, up $4.7 million, 3.8% from the first quarter of 2025. RBR in the first quarter of 2026 included an inorganic RBR contribution of $600,000 from acquisitions that closed in the first quarter of 2025. The operating income margin for education was 21.6% for Q1 2026 compared to 18.8% in the same quarter in 2025. The increase in operating income margin in the quarter is primarily driven by decreases in compensation costs for our revenue-generating professionals, practice, administration, and meeting expenses. The commercial segment generated 20% of total company RBR during the first quarter of 2026, It grew 22.3% over the prior year period, hosting RBR of $91 million for Q1 2026, compared to $74.5 million in the first quarter of 2025. The increase in RBR in the first quarter of 2026 was driven by increased demand for our financial advisory and strategy offerings, and included $11 million of incremental RBR from our acquisitions of Treliant and Wilson Parallel. Operating income margin for the commercial segment was 16.4% for Q1, 2026, compared to 15.2% in the same quarter in 2025. The increase in operating income margin in the quarter is primarily driven by decreases in contractor expenses and salaries and related expenses for our support personnel, as well as revenue growth that outpaced the increase in performance bonus expense for our revenue generating professionals, partially offset by an increase salaries and related expenses for our revenue-generating professionals as a percentage of RBR. Corporate expenses not allocated at the segment level and excluding restructuring charges were $60 million in Q1 2026, compared to $52.4 million in Q1 2025. Unallocated corporate expenses in the first quarter of 2026 and 2025 included income of $1.2 million and $900,000, respectively, related to changes in the liability of our deferred compensation plan, which is offset by the change in fair value of the investment assets used to fund that plan, reflected in other expense. Excluding the impact of the deferred compensation plan in both periods, unallocated corporate expenses increased $7.9 million, primarily due to increases in compensation costs for our support personnel software and data hosting expenses. Increase in compensation costs for our support personnel includes approximately $2 million of costs that have been reclassified from our operating segments in 2026, reflective of a shift to centralized support for certain sales and operations functions.