Huron Consulting Group Inc. (HURN) Earnings

Management highlights

- AI Growth Opportunities * AI is driving accelerating demand for Huron's digital services: first half 2026 digital bookings grew over 20% YoY, with over 60% of bookings including direct AI scope or AI-enabled delivery, up from 35% in first half 2025. * Huron embeds industry-specific proprietary data and expertise into AI solutions to deliver faster, higher-value client outcomes; for example, the AI-enabled clinical intelligent automation tool compresses clinical assessment timelines from days/weeks to hours, expanding implementation and margin opportunities. * AI expands Huron's addressable market, with offerings ranging from AI strategy and governance to full transformation and managed services, delivered in partnership with Anthropic, Microsoft and AWS. Management is bullish that AI will be a significant contributor to long-term growth. - Segment Market Tailwinds * Healthcare: Persistent financial pressure on health care providers (rising labor, supply and drug costs outpacing reimbursements, and the upcoming implementation of the $1 trillion+ 10-year OBBA federal spending cut) is driving strong demand for Huron's performance improvement, managed services, digital and advisory offerings. Healthcare managed services grew 64% YoY in Q2 2026 (43% organic), driven by its differentiated outcome-based pricing, strong client retention, recurring revenue and higher margins than traditional models. The Q2 2026 acquisition of AI-enabled patient access managed services provider RelateCare expanded Huron's end-to-end patient journey offerings. * Education: Persistent industry pressures (declining enrollments, falling research revenue, net tuition pressure, rising operating costs) are driving demand for enterprise transformation, technology and AI solutions from Huron. AI-enabled research administration tools have expanded the segment's differentiated offerings, driving accelerating growth in Q2 2026. * Commercial: Growing operational complexity for global commercial clients is driving demand for integrated transformational solutions. The segment represented 21% of total H1 2026 RBR, with a balanced portfolio of offerings that performs well across cyclical and countercyclical environments, supporting durable growth and market expansion. - Financial Operational Highlights * Q2 2026 net income was $31.2 million ($1.91 per diluted share), up from $19.4 million ($1.09 per diluted share) YoY, with net margin expanding to 6.6% from 4.7% YoY. Adjusted EPS grew 30.2% YoY to $2.46 per diluted share. * Adjusted EBITDA was $72.6 million (15.6% of RBR), up from $60.6 million (15.1% of RBR) YoY, marking continued margin expansion aligned with medium-term goals. * Cash flow from operations was $120.5 million, with free cash flow of $111.3 million after $9.1 million in capital expenditures. DSO improved to 79 days from 82 days in Q1 2026. * The company repurchased $53.1 million in shares in Q2 2026, bringing year-to-date repurchases to $208.6 million (1.6 million shares, ~9% of beginning-of-year outstanding shares). Net debt fell $26.8 million quarter-over-quarter to $802.8 million, with the leverage ratio improving to 2.8x from 3.1x.

Guidance

- Full year 2026 RBR guidance was increased and narrowed to $1.85 billion to $1.89 billion, representing 12% RBR growth at the midpoint compared to full year 2025. This includes ~$30 million in incremental RBR from the RelateCare acquisition. - Adjusted EBITDA margin guidance is maintained at 14.5% to 15% of RBR, which represents a 50 basis point increase over 2025 at the midpoint. - Full year 2026 adjusted non-GAAP EPS guidance was increased to $9 to $9.40, representing 17% growth at the midpoint compared to 2025. RelateCare is expected to be accretive to 2026 adjusted EPS by ~$0.10. - Full year 2026 free cash flow guidance is maintained at $180 million to $220 million, with a projected free cash flow yield of nearly 10% based on a $120 share price. - Segment-level full year 2026 guidance updated to: Healthcare RBR growth in the mid-teens percentage range, with operating margins of 30% to 32%; Education RBR growth in the mid- to upper-single-digit percentage range (up from prior mid-single-digit guidance), with operating margins of 24% to 26%; Commercial RBR growth maintained at the low-teen percentage range, with operating margins of 19% to 21%. - Unallocated corporate expenses (excluding restructuring and deferred compensation impacts) are expected to increase in the low-double-digit percentage range YoY, driven by acquisition costs, functional reclassification, and growth-related investments in technology, sales and recruiting. - The full year weighted average diluted share count is projected to be 16.6 million to 16.8 million, reflecting accelerated 2026 share repurchases. The company remains on track to reach a target leverage ratio of 2x to 2.5x by end of 2026. - Management reaffirmed medium-term goals of 15% to 17% adjusted EBITDA margin by 2029, annual double-digit revenue growth, and doubling adjusted EPS between 2024 and 2029, with increasing confidence in hitting these targets based on 2026 year-to-date performance.

Segment performance

Huron recorded total Q2 2026 revenue before reimbursable expenses (RBR) of $465.6 million, a 15.7% year-over-year (YoY) increase, with 10.8% organic RBR growth. All three operating segments delivered growth, with the following performance: 1. Healthcare: Generated $232.3 million in RBR, accounting for 50% of total company RBR. This represents a 17.4% YoY increase, with $10.1 million of incremental RBR from recent acquisitions and 12% organic growth ex-acquisitions. Operating income margin remained flat at 30.1% YoY, maintaining strong 30%+ margin performance from 2025. 2. Education: Generated $139.4 million in RBR, accounting for 30% of total company RBR. This represents a 7.8% YoY increase, driven by strong demand for digital and managed services offerings. Operating income margin expanded to 26.8% from 25% YoY, driven by revenue growth outpacing salary expense growth and lower project costs. 3. Commercial: Generated $94 million in RBR, accounting for 20% of total company RBR. This represents a 24.6% YoY increase, with $9.2 million of incremental RBR from recent acquisitions and 12.2% organic growth ex-acquisitions. Operating income margin expanded significantly to 21% from 16.6% YoY, driven by lower contractor and support personnel costs and revenue growth outpacing revenue-generator salary growth. The company's standalone digital capability grew Q2 2026 RBR 9% YoY and sequentially, reaching a record RBR level, with strong double-digit growth in digital within Healthcare.

Risks & headwinds

Management did not explicitly outline material new risks or operational failures in this earnings call. The call only references pre-disclosed industry pressures that actually drive demand for Huron's services (healthcare provider financial strain, higher education enrollment and revenue pressure, commercial operational complexity), which management frames as growth opportunities rather than downside risks.

Analyst Q&A

• Q: With utilization at historically high levels, what is Huron's hiring outlook for the rest of 2026, and what is a steady-state optimal utilization range for the current business mix? /

  A: Management confirms the company is actively hiring, targeting utilization in the upper 70% range (current utilization exceeded 80% in Q2). Full year consulting headcount growth is expected to land in the upper single-digit percentage range, lower than projected revenue growth, with potential for additional back-half hiring to build capacity for 2027 growth. Steady-state optimized utilization for the current mix is 77% to 79%, which accommodates variation across different service lines with differing utilization profiles.

• Q: Is the recent acceleration in bookings broad-based across segments and offerings, and what explains the sequential decline in Education segment headcount? /

  A: The bookings acceleration is broad-based across industries, service lines, and digital offerings, with managed services as a particularly strong contributor that has a much stronger pipeline than a year ago. The sequential Education headcount decline is due to excess consulting capacity the segment carried entering 2026, after 2025 industry disruption from research funding and regulatory changes suppressed utilization. That excess capacity has been absorbed as demand has accelerated in 2026, explaining both the lower current headcount and rising utilization.

• Q: Is AI-driven demand incremental to Huron's prior organic growth targets, or is it displacing existing technology work? /

  A: Not all AI demand is incremental, as some client technology budget is reallocated to AI projects, but AI has opened significant new opportunities for Huron thanks to its existing trusted client relationships and industry expertise. To date, there has been no material negative price compression from AI, and the gradual, sustained enterprise adoption of AI expected over time will create long-term growth opportunities. AI also enables Huron to deploy its existing IP and expertise in new ways, expanding the firm's overall addressable market beyond pre-AI projections.

• Q: Where does AI create the most internal efficiency and margin expansion opportunities across Huron's business? /

  A: The biggest near-term efficiency gain is in healthcare client assessment work, which historically was a low-margin 8-12 week process preceding performance improvement engagements. AI has compressed this timeline dramatically, eliminating low-margin work while improving client outcomes. AI is also being deployed across internal processes (contracting, billing/collections, sales research) to streamline overhead, and embedded into existing managed services and software products to improve margins. Management expects significant unrecognized AI-driven margin expansion ahead, which supports the long-term target of 15% to 17% adjusted EBITDA margin.

• Q: What is Huron's M&A strategy going forward, and what types of targets is it pursuing? /

  A: Huron will continue its long-standing programmatic M&A strategy of targeting 2% to 4% annual growth from acquisitions, focused on small-to-mid-sized proprietary deals that fill capability gaps, are immediately accretive, and complement existing in-house talent. The firm maintains a high bar for deals given its current share price, and will avoid large transformational M&A that carries higher integration risk. The recent RelateCare acquisition fits this strategy perfectly, and management will continue this approach into the second half of 2026 and 2027.