Huron Consulting Group Inc.

Good afternoon and welcome to Huron Consulting Group's webcast to discuss financial results for the second quarter of 2026. At this time, all conference call lines are in 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 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 second quarter 2026 earnings call. With me today are John Kelly, our Chief Financial Officer, and Ronnie Dail, our Chief Operating Officer. Led by strong organic growth across all three operating segments, we achieved record revenues before reimbursable expenses, or RBR, in the second quarter of 2026, increasing 16% compared to the second quarter of 2025. that included record RBR across both our consulting, advanced services, and our digital capabilities. We're pleased with this meaningful step up in our RBR growth trajectory, our continued margin expansion, plus cash flow from operations delivered in the quarter. In addition, client bookings were up across all three segments during the first half of the year with an acceleration during the second quarter. Our strong first half performance coupled with the continued strength of our backlog and pipeline reinforce our confidence in increasing our full-year RBR and earnings guidance, building upon our strong track record of consistent growth and margin expansion since 2021. Before I turn to our second quarter performance, let me provide some additional insights on how AI is creating growth opportunities and adding value to our business. Increasingly, organizations are turning to Huron to understand how the rapidly evolving AI and technology landscape drive growth and operational improvement. Our teams are focused on helping clients address critical business priorities while executing shoulder to shoulder with them to integrate technology, including frontier AI models, and to redesign workflows and operating processes to help drive and sustain tangible outcomes and improve financial returns. AI is driving demand for our digital services. In the first half of 2026, total bookings for our digital capability increased by more than 20% compared to the same period a year ago, and greater than 60% of those bookings have either direct AI scope for our clients or will have delivery that is significantly enabled by our AI tools. This is a significant increase in mix, as such projects represented approximately 35% of our total bookings in the first half of 2025. We're increasingly confident that AI represents a significant revenue growth opportunity for our digital capability. Continue to embed our deep industry expertise and proprietary data and insights into our AI-enabled solutions, strengthening the differentiation of our offerings and enhancing tangible outcomes delivered to our clients. One good example of how AI is driving value in our healthcare business is our clinical intelligent automation solution which gives healthcare organizations a scalable way to combine their trusted data with Huron's proprietary data and expertise to drive clearer decisions and stronger financial performance. Specifically, this AI-enabled tool captures our proprietary data and insights, analytic methods, consulting playbooks, and then compresses the time to deliver insightful recommendations for clinical-related performance improvement opportunities to just hours rather than days or weeks. As a result, we're able to identify even greater financial benefits even faster for our clients, creating new and expanded opportunities for our implementation services and increasing both our revenue and margin opportunities. AI continues to expand our addressable market as we offer new, innovative AI services and solutions to our clients, both our own proprietary solutions as well as those we deliver with our technology partners such as Atrophic, Microsoft, and AWS. Those engagements range from AI strategy, governance, and data modernization to AI pilots, AI implementation, and managed services via point solutions and end-to-end transformation. Our views on AI and its potential impact on Huron remain bullish as we believe AI will prove to be a significant contributor to our future growth. We're confident that our collective strategic, financial, operational, and digital offerings, all enabled by AI, will continue to yield positive revenue growth and margin expansion as evidenced by our continued strong backlog and pipeline. Now I'll share some additional insight into our second quarter performance. The healthcare segment. Second quarter, RBR grew 17% over the prior year quarter. reflecting strong demand for our healthcare managed services, performance improvement, strategy, financial advisory, and digital offerings, as well as incremental RBR from our acquisitions. Excluding the impact of the acquisitions, organic growth for the healthcare segment was 12% in Q2 2026 compared to Q2 2025. A significant portion of the healthcare provider market continues to be financially challenged, which in turn leads to continued growth tailwinds for our business. The OBVBA legislation is estimated to reduce federal healthcare spending by over $1 trillion over the next 10 years. The more meaningful regulations are only beginning to take effect for hospitals and health systems. As these new regulations take effect, we expect strong demand for our portfolio of offerings to continue as many organizations assess the likely financial and operational impacts on their businesses into 2027 and beyond. In combination with the ongoing trends of labor, supplies, and pharmaceutical costs that are rising faster than reimbursements, we believe the operating environment for the healthcare industry will yield solid demand for performance improvement, strategy, digital, financial advisory, and managed services offerings, which we expect will continue to provide significant growth opportunities in years ahead. In addition to strengthen our consulting offerings, we've also seen strong growth in our healthcare managed services capability, which grew 64% in Q2 2026 compared to Q2 2025, led by 43% organic growth. Clients are increasingly turning to Huron for managed services because of our differentiated expertise, consistent delivery of financial benefit, and our continued investments in AI and automation. Managed Services Business is built upon delivering increased net revenue to our clients, higher cash flow yield, greater patient throughput, and improved patient collections. Like the majority of our performance improvement offerings, our pricing arrangements for managed services are designed around outcome-based models. Proven results are driving both strength in demand for our services, exceptional client retention, and recurring revenue for turn-on, as well as higher margins and traditional managed services models. To further enhance our managed services offerings, in the second quarter, we acquired RelateCare, a leading provider of AI-enabled clinical and patient access managed services solutions. Together, we strengthen our services around the patient journey by improving access and throughput, elevating patient and clinician experiences, and delivering measurable operational and financial performance. As healthcare organizations navigate and increasingly complex regulatory and operating environment, we believe our deep client relationships, differentiated expertise, comprehensive portfolio and outcomes-driven model position us to sustain strong performance in the healthcare segment. Very next in the education segment, in the second quarter of 2026, we saw an acceleration of our growth rate as the education segment RBR grew 8% compared to the second quarter of 2025, driven by strong demand for our digital and managed services offerings. Universities and colleges continue to face significant market pressures stemming from multiple factors, including declining enrollments, reduced research revenue, pressure on net tuition, increasing operating costs, and a challenging regulatory environment. These pressures create demand for our differentiated set of offerings. Given the opportunities and challenges facing the higher education industry, University leaders are moving beyond incremental solutions, pursuing broader enterprise transformation initiatives that modernize operating models, improve student outcomes, and leverage technology, data, analytics, and AI to drive better decisions and greater efficiency. Market disruption facing higher education is creating continued opportunities for our education segment to continue to enhance our comprehensive portfolio of strategy, operations, technology, and research offerings to help Institutions navigate these challenges and advance their missions. For example, we're further differentiating our offerings through innovative solutions, such as AI-enabled research administration tools, which are designed to enhance compliance and propose toward quality control and reduce administrative backlogs. Dron's well-established reputation, long history of proven results, and deep client relationships make us one of the most trusted advisors to the industry. which we believe will drive future growth in this business as we address the comprehensive needs of our higher education clients. In the commercial segment, second quarter RBR grew 25% over the prior quarter, collecting incremental RBR from our acquisitions as well as strong demand for our financial advisory and strategy offerings. Excluding the impact of acquisitions, RBR in Q2 2026 grew 12% organically over the second quarter of 2025. The increasing level of complexity in the operating environment for commercial organizations is driving global demand for transformational solutions that can bridge strategy, performance improvement, and technology execution. We intend to invest organically in targeted acquisitions, expand our capabilities, and deepen our expertise in our core industries within commercial, creating a platform that represented 21% of our total business RBR in the first half of 2026. Our balanced portfolio of offerings, still relevant in both cyclical and counter-cyclical demand cycles, has improved the durability of growth while expanding our addressable market as we add new capabilities in this segment. I believe the combination of our industry expertise and our capabilities all going to market together in an integrated operating model creates a differentiated value proposition for our clients that will help drive continued growth Thank you all for joining us today. and approved the financial return on their technology investments. We've seen the benefits of these investments build over time, including in the second quarter when we achieved record RBR. Our digital business in the healthcare segment achieved strong double digit percentage growth in the second quarter as clients increased their investments in modernized digital platforms and data foundations, as well as distinct AI and automation projects. Based on our backlog and pipeline, We expect to see continued double-digit growth in healthcare in the back half of the year. In addition to our data management, analytics and automation, and AI offerings, the first half of 2026 compared to the same period last year, we've seen strong growth in our ERP, student information system, advisory services, and spend management offerings. As clients continue to advance their digital transformations, better position themselves to adapt in a more competitive AI-enabled market. We believe our operations-led data and AI-enabled offerings position our digital capability to remain a key beneficiary of ongoing digital modernization across our core markets for the foreseeable future. And now let me turn to our outlook for the year. Inclusive of the acquisition of RelayCare, today we're increasing and narrowing our RBR guidance to a range of $1.85 billion to $1.89 billion, which represents an increase of 12% at the midpoint of our guidance compared to our full year 2025 results. Maintaining our adjusted EBITDA margin guidance range of 14.5% to 15% of RVR, which represents a 50 basis point increase over full year 2025 at the midpoint of our guidance range. And we're increasing our adjusted non-GAAP EPS guidance to a range of $9 to $9.40, which represents an increase of 17% at the midpoint compared to full year We believe our updated outlook for 2026 reflects the ongoing market tailwinds for our business and the continued solid execution of our growth strategy will enable us to achieve the medium-term financial goals shared at our last investor day. And let me close by sharing that we're proud to have a track record over the last several years of consistently achieving RBR growth that has met or exceeded many firms in the professional services industry. Our business momentum continues as reflected by our strong pipeline and bookings conversions in the quarter. In addition, we've built a multi-year track record of expanding our margins by executing against multiple operating levers inclusive of AI. Coupled with the benefits of scale stemming from a growing revenue base, which is expected to be double that of 2021, these factors collectively increase our confidence that we can continue to expand are adjusted EBITDA margins consistent with our stated goal of 15-17% by 2029. And finally, our strong free cash flow allows us to continue to strategically deploy capital in a balanced way while achieving our leverage target by the end of the year. We believe in disciplined execution against our algorithm for value creation, achieving low double-digit revenue growth, consistent margin expansion, strong cash flow, and balanced capital deployment Positions as well to meet or exceed our adjusted EPS goals will ultimately drive significant value creation for our shareholders. Finally, our continued financial performance and confidence in our 2026 outlook are only made possible because of our highly talented global team. Their commitment to our clients, our business, and their ability to adapt to the many changes in the business environment is a testament to the strength of our culture and furthers our ability to attract top talent to support our growth momentum while driving our business forward through continuous innovation and distinctive client service. Now let me turn it over to John for a more detailed discussion of our financial plans. John? Thank you, Mark, and good afternoon, everyone.

Before I begin, please note that I'll be discussing non-GAAP financial measures, such as EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS, and free cash flow. 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 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. Before discussing our financial results, I would like to discuss one housekeeping item. Our healthcare segment results do include a partial quarter of operating results from our acquisition of Erlay Care, which closed on June 3rd. Now I'll share some of the key financial results for the second quarter of 2026. Second quarter of 2026 produced record RBR of $465.6 million, up 15.7% from $402.5 million in the same quarter of 2025, driven by growth across all three operating segments, including 10.8% organic RBR growth in the quarter. Net income for the second quarter of 2026 was $31.2 million, or $1.91 per diluted share, compared to net income of $19.4 million, or $1.09 per diluted share in the second quarter of 2025. As a percentage of total revenues, net income increased to 6.6% in the second quarter of 2026, compared to 4.7% in the second quarter of 2025. Our effective tax rate in the second quarter of 2026 was 27.2%. It was less favorable than the statutory rate inclusive of state income taxes, primarily due to certain non-deductible expense items and the inability to recognize tax benefits related to certain foreign and capital losses, partially offset by a tax benefit related to non-taxable gains on the investments used to fund our deferred compensation liability. Our expectation for a full year effective tax rate The increase in adjusted EBITDA was primarily attributable to the increase in segment operating income for all three of our segments, including segment depreciation and amortization and segment restructuring charges, partially offset by an increase in certain unallocated corporate expenses. We are pleased with our continued margin expansion in the quarter, consistent with our median term financial goals. Just net income was $40.2 million, or $2.46 per diluted share in the second quarter of 2026, compared to $33.7 million, for $1.89 per diluted share in the second quarter of 2025, growing adjusted EPS 30.2% year-over-year. Now I'll discuss the performance of each of our operating segments. The healthcare segment generated 50% of company RVR during the second quarter of 2026. The segment posted record RVR of $232.3 million, up $34.5 million for 17.4% from the second quarter of 2025, driven by strong demand for our healthcare managed services, performance improvement, strategy, financial advisory, and digital offerings. RVR in the second quarter of 2026 included $10.1 million of incremental RVR from our acquisitions of RelayCare, Eclipse Insights, and Axiom. Operating income margin for the healthcare segment remained relatively flat at 30.1% in Q2 2026 compared to Q2 2025. Operating income margins increased nearly 300 basis points during the first half of 2025 compared to the same period of 2024, reflective of very strong 2025 margin performance in the segment. We're pleased that we've been able to maintain strong margin performance in the first half of 2026, with the segment benefiting from healthy utilization and Elizabeth Bruner. The education segment generated 30% of total company RBR during the second quarter of 2026. Education segment RBR from the second quarter of 2026 was $139.4 million, up $10.1 million, 7.8% from the second quarter of 2025. The increase in RBR in the quarter primarily attributable to strong demand for our digital and managed services offerings. The operating income margin for education was 26.8% for Q2, 2026 compared to 25% for the same quarter in 2025. The increase was primarily driven by revenue growth that outpaced the increase in salaries and related expenses for our revenue generating professionals and the decrease in project costs partially offset by an increase in performance bonus expense. Commercial segment generated 20% of total company RBR during the second quarter of 2026. Commercial segment RBR grew $18.6 million, or 24.6% to $94 million in Q2 2026, compared to $75.4 million in the second quarter of 2025. The increase in RBR reflects $9.2 million of incremental RBR from our acquisitions of Treliant and Wilson-Paramol, as well as strong demand for our financial advisory and strategy offerings. Excluding the impact of acquisitions, commercial RBR in Q2 2026 grew 12.2% organically from the prior year period. Operating income margin for the commercial segment grew to 21% for Q2 2026 compared to 16.6% for the same quarter in 2025. The increase in operating income margin was primarily driven by decreases in contractor expenses, salaries, and related expenses for our support personnel, as well as revenue growth that outpaced an increase in salaries and related expenses for our revenue generating professionals, partially offset by increases in performance bonus expense and share-based compensation expense for our revenue generating professionals as percentages of RBR. Corporate expenses not allocated at the segment level including restructuring charges for $65.4 million in Q2 2026 compared to $54.3 million in Q2 2025. Unallocated corporate expenses in the second quarter of 2026 and 2025 include expense of $6.1 million and $3.7 million, 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 at both periods, unallocated corporate expenses increased $8.7 million, which included approximately $2 million of costs that had been reclassified from our operating segments in 2026, a bucket of a shift to centralized support for certain sales and operations functions. The remaining increase in unallocated corporate expenses reflect increases in compensation costs for our support personnel and software and data hosting expenses. Now turning to the balance sheet and cash flows. Cash flow from operations in the second quarter of 2026 was $120.5 million, or $80.1 million in the prior year period. During the second quarter of 2026, we used $9.1 million to invest in capital expenditures, inclusive of internally developed software costs, resulting in free cash flow of $111.3 million. We continue to expect full-year free cash flow to be in a range of $180 million to $220 million, that of cash taxes and interest and excluding non-cash stock compensation. We believe our robust free cash flow generation remains a highly compelling aspect of our financial model. Please note that the midpoint of our free cash flow guidance, an updated full-year weighted average diluted share count expectation, would produce expected free cash flow per share of nearly $12, or a free cash flow yield per share of nearly 10% based on a stock price of $120. The ESO came in at 79 days for the second quarter of 2026 compared to 82 days for the first quarter of 2026. The decrease when compared to the first quarter is primarily attributable to the impact of collection of certain healthcare and education projects in alignment with the contractual payment schedules. During the second quarter of 2026, we used $53.1 million to repurchase approximately 438,000 shares. bringing our total year-to-date repurchases to $208.6 million for approximately 1.6 million shares, representing 9% of our outstanding shares as of the beginning of the year. Total debt as of June 30th, 2026 was $834 million, consisting entirely of our senior bank debt. We finished the quarter with cash of $31.2 million for net debt of $802.8 million. This was a $26.8 million decrease in that debt compared to Q1, 2026, even after consideration of the share of purchases and acquisition payments made during the quarter. Our leverage ratio is defined in our senior bank agreement as 2.8 times adjusted EBITDA as of June 30th, 2026, compared to 3.1 times as of March 31st, 2026. We remain committed to achieving a learned ratio between two and two and a half times by the end of 2026 in alignment with the capital allocation strategy outlined at our most recent investor day. Summary, we are encouraged by the acceleration of organic RBR growth during the first half of 2026 when compared to 2025, our continued margin expansion trajectory driven by continued strong operating income performance by our healthcare segment and meaningful operating income percentage improvements in our education and commercial segments. Compounding impact of this revenue growth and adjusted EBITDA margin percentage expansion, along with the impact of our share repurchase program drove the 30% increase in adjusted earnings per share during the second quarter of 2026. Finally, let me turn to our guidance for the full year of 2026. As Mark mentioned, inclusive of our recent acquisitions, Today we are increasing and narrowing our RBR guidance to a range of $1.85 billion to $1.89 billion, maintaining our adjusted EBITDA margin guidance of 14.5% to 15% of RBR, and increasing our adjusted non-GAAP EPS guidance to a range of $9 to $9.40. Our strong first half performance continued strength of our backlog and pipeline to provide us confidence in increasing our full-year RBR and earnings guidance. How do we provide some additional color into these numbers? We expect the acquisition of RelayCare to add approximately $30 million of RBR in 2026. We expect the adjusted EBITDA from this acquisition as a percentage of RBR to be in a range consistent with our overall consolidated margin guidance, inclusive of certain expenses to relate to integrate the business that we do not expect to repeat in 2027. We also expect related care to be accreted to 2026 adjusted EPS by approximately $0.10. For full year 2026, we now expect healthcare segment RBR growth to be in the mid-teen percentage range with healthcare segment operating income margins remaining in a range of approximately 30% to 32%. We now expect education segment RBR growth for full year 2026 to be in the mid to upper single digit percentage range and education segment operating income margins to be in a range of 24 to 26%. We continue to expect commercial segment RBR growth for full year 2026 to be in the low team percentage range and commercial segment operating income margins to be in a range of 19 to 21%. We now expect unallocated corporate expenses Excluding restructuring charges and the impact of our deferred compensation plan, we increased in the low double-digit percentage range for full year 2026 when compared to full year 2025, reflecting the impact of our relate care acquisition, reclassification of certain sales and operations support expenses from our operating segments, and increases in technology, sales and marketing, and recruiting expenses to support our top-line growth. Finally, we now expect our full-year weighted average diluted share counts to be in a range of 16.6 million shares, 16.8 million shares, reflecting the accelerated share repurchases during 2026. At our investor day in March of 2025, we discussed our belief that Huron is well-positioned for continued RBR growth based on the strength of our position in large, flex, regulated end markets. Your ability of demand for our services in a variety of different economic cycles and the attractive platform we have built to recruit and retain market-relevant talent. We also discussed our confidence in continued margin expansion as a result of increased consultant utilization, pricing realization as a result of our outcomes-based offerings, and increased operational efficiency. We're pleased with our progress since our Investor Day, as reflected in our updated full-year outlook are increasingly encouraged about our ability to deliver on our medium-term financial goals of annual double-digit percentage revenue growth, expansion of adjusted EBITDA margins into the 15% to 17% range, and doubling our adjusted EPS between 2024 and 2029. Thanks, everyone. I would now like to open the call to questions.