Our last presentation of the day. My name is Marc Riddick. I am a senior analyst with Sidoti & Company, and I thank you for joining the Sidoti September Small-Cap Virtual Conference. Our next presenting company is Huron Consulting Group. The ticker is HURN. Joining us today is John Kelly, Chief Financial Officer. Before we begin, just a reminder that we will have some time for Q&A after prepared remarks. If you would like to submit a question, there is no need to wait until the end. If you would like to do so, just click on the Q&A prompt at the bottom of your screen and feel free to submit questions at any point during the presentation. We will get to as many as we can. With no further ado, we can turn the call over to John.
Thank you, John, for joining us today, and thank you for joining us again, coming back after end of the year. Thank you.
Yes. Thank you, Marc. Thanks for having us and inviting us to present, and thanks for the series of really good meetings we have been able to have today. Very much appreciated. Thanks to everyone else as well for joining to listen to the presentation. I will go through a few slides here, try to keep my remarks relatively brief so that we can have plenty of time for Q&A, but definitely will take the opportunity just to give a little bit of perspective on Huron and the markets that we are in. Moving forward, have the all-important safe harbor language here, flip through that, and then get to the introductory slide here. I will start a little bit with who we are. Huron, I will not read all the words here, but we are a global professional services firms.
The real punchline from that top section is we do help our clients solve some of their most complex challenges and achieve their most ambitious goals, as it says.
I think the key takeaway from that, from my perspective is, this is a topic that comes up in a lot of investor conversations, where if you are thinking of a scale, if you are thinking of at one end of the scale, projects that the client views to be discretionary or maybe interesting investments, if we have got the budget to be able to fund it on one end of the spectrum, versus projects that really are addressing what are the most pressing priorities of the leadership teams at our clients, the most strategic items on their agenda, the ones that quite frankly relate to existential risks in some cases to the degree that there is financial pressures or things of that nature. We are much more over on that end of the spectrum in terms of what we are doing for our clients.
Quite frankly, oftentimes, negative scenarios, disruption, financial pressure, regulatory pressure, things like that are actually what drive the demand for our needs. We will talk a little bit more about our industries, but we are in some industries where that is really prevalent. Speaking of those industries, if you look at the lower left-hand portion of the slide, you can see about 50% of our revenue comes from the healthcare industry, about 30% of our revenue comes from the education industry, about 20% of our revenue comes from commercial, which is really everything excluding healthcare and education. What do we mean when we say healthcare? Because that could potentially be something that is interpreted differently by different stakeholders. For us, healthcare are not for profit healthcare providers. So think hospitals, health systems, academic medical centers. Education, what do we mean by that? Another industry that is potentially broad.
For us, it is higher education, then further drilling down in that, it is really the top 200 research universities in the U.S. So not necessarily some of the smaller institutions, not institutions that maybe are more satellite campuses or regional campuses. We are typically dealing more with the larger flagship type universities, big state systems, some of the more prestigious private universities. That is really the sweet spot for our clients, I will talk more about the types of things that we do in those industries in a second. Then if you pivot over to the right-hand of the slide, we are getting towards the end of 2026 here, but this is the comparison of 2025 back to 2024, our last completed year, and we are really proud of the results that we had in 2025, 12% RBR growth, revenue before reimbursable expenses compared to 2024.
We were able to increase our margins by 80 basis points, our adjusted EBITDA margins. We increased our adjusted diluted earnings per share by 21%. Then equally encouraging when you look at the part of the table below is that that growth was broad-based across the different components of our business. We are now getting towards the end of 2026. If you look at the midpoint of our 2026 guidance, so on top of these results from 2025, we are expecting revenue to be up another 12% at the midpoint of our guidance this year versus 2025. We are expecting to expand our margins by another 50 basis points from 14.25% adjusted EBITDA margins in 2025 to 14.75% at the midpoint in 2026.
We expect our adjusted earnings per share at the midpoint, all of these metrics have been at the midpoint, to be $9.20, which would be a 17.5% increase in adjusted EPS in 2026 versus 2025 on top of the 21% that we were able to deliver last year. Obviously, we are pleased with those results and the continued momentum in our business. That is who we are and a snapshot of our recent financial performance. I would like to talk a little bit more about our underlying strategy and how that translates into what are the midterm financial goals that we have provided at our most recent investor day at the beginning of last year. The number one element that I call to our strategy is really expanding our leading position in our two most prominent markets, healthcare and education. A few comments about those industries.
They share similar characteristics from the perspective that they are both going through significant financial strain right now. They are both highly regulated industries, so there is a lot of complexity that comes from that. They both, in many cases, have clients who have underinvested in their technology infrastructure over time and find themselves at a point where they need to pivot, and they need to be modernizing their tech stack, especially if their aspiration is to be able to take advantage of some of the more advanced technology that is out there, like AI. An important thing to just double underscore when we talk about this is that financial strain component, and sometimes for newer investors to the story, this can be something that is a little bit confusing on the surface when you hear, okay, there is a lot of financial pressure in not-for-profit healthcare.
There is a lot of financial pressure at the big universities. Those are your clients. Is that a bad thing for Huron? The reality is, it is that pressure that our clients are feeling that really drives a lot of demand for our services. A big part of what we do across healthcare and education, in particular in healthcare, at the heart of what we do, is performance improvement work. That is when you have clients who have found themselves in a position where their margins are below where they need them to be to be sustainable, in terms of being able to meet their cash obligations. Maybe it is in order to meet bondholder covenants or things of that nature.
Our offerings are very ROI, outcomes-based driven to go to those clients and find the path to be able to help them restore their margins and help them get to more solid footing so that they can do the things they want to do, which is invest in their mission. Other thing I would point out on this first one, just because it is so important, neither of these industries are hobbies to Huron. These are industries that have been focus areas of ours, education since the very beginning of the company, healthcare only a few years later. We have made the investments over time into the talent, the tools, the know-how to really be able to deliver for our clients on their most pressing priorities within these industries.
Our clients will tell us that's something different than other consulting firms that perhaps dabble in the industries or it's part of a broader group of not-for-profits or something like that. For us, this is our day job, focusing on these industries, and it shows in terms of the credentials that we've been able to establish there and the outcomes that we've been able to drive for our clients. Our viewpoint is that there's going to be continued spending over the next couple of years by our clients in these industries to stabilize themselves financially, to make investments in their technology infrastructure, and to deal with what, in many cases, are increasing complexity related to regulation, data security, patient safety, aspects like that that are core to their missions. We believe that our suite of offerings are best positioned to continue growing within those markets.
Number two on this page is growing our business in commercial industries. That's our smallest segment right now. As I alluded to, that's 20% of our total revenue. A couple things to understand about that. Even though the name sounds more of a general everything outside of healthcare and education, we do have industries of focus within that segment between financial services, energy and utilities, industrials and manufacturing. That makes up the majority of our revenue within that segment. We believe the playbook that we've developed over time in healthcare and education is similar to the playbook that we are developing and will continue to develop in the commercial space in those industry segments, sectors in particular.
I think something that investors would find interesting about the commercial space is there really aren't that many consulting firms that have the breadth of capabilities that we have, and we've built out those capabilities primarily focusing on the healthcare and education industries. But the other firms that tend to have the same breadth of capabilities are the big scaled firms. So think like your Big Four type firms. The reality is the sweet spot in terms of client size for those types of scaled firms tend to be your Fortune 500, your clients that ultimately for those firms represent $10 million, $20 million, $30 million plus sort of annual revenue opportunities. What that means is there's a whole segment of clients below that threshold that really don't get served as well by some of those other competitors. They're below the sweet spot for those competitors.
But these aren't small clients. These are $5 billion, $10 billion revenue clients that have complex needs just like some of those bigger clients, and quite frankly, don't get served the same way by some of those scaled players. Our unique coupling of our capabilities with our ability to be very nimble within those client markets of that size, the $5 billion- $10 billion revenue size, we think is a competitive advantage and something that gives us confidence that this is a white space where we can continue to grow that segment. I'll talk more about our digital capability in a second as it relates to AI. But make no mistake, the lines are blurring.
Almost every project at this point has some sort of digital aspect to it, and we believe that the capabilities that we've invested in over time are a big part of our differentiator really across industries. We've been able to expand our margins every year, really going back to 2020. We've been able to take nice stair steps from what I think were 10.3% margins, adjusted EBITDA margins back in 2020, to a midpoint of guidance this year that's 14.75%. I'll talk a little bit about the levers that I think give us continued confidence to achieve our goals of pushing that up even further over the next couple of years. From a balance sheet perspective, we're a strong free cash flow conversion business. About 75% of our annual adjusted EBITDA converts to free cash flow.
An important thing to note about our business that may be different than some other companies you look at is we do not make any adjustment for stock-based compensation. We believe that's a real expense of the business, and we include that in our adjusted EBITDA metrics. We think that's the right thing to do, but it is part of the reason why we have a higher free cash flow yield than maybe some other firms that you see out there. That's the story from a strategic perspective. How we translated that into our investor day in terms of goals, we expect to have low double-digit percent total RBR growth annually between now and 2029.
We gave some further detail on that we expect about 2%-4% of that to come from acquisitions, and for the organic component to be 6%-8%. We expect our adjusted EBITDA margin by 2029 to be in a range of 15%-17%. We're knocking at the door of the lower end of the range there, but have confidence that we'll be able to get to the midpoint or above in that range with continued ratable improvement each year. I've already talked about continued strong free cash flow conversion. If we do those things and allocate our capital wisely, our expectation is that we'll be able to double our adjusted EPS from 2024 levels in 2029. That's on top of having tripled our earnings per share in the window between 2021 and 2025. A little bit about AI, as this has obviously been the topic of the day in the industry.
We view AI as an opportunity for Huron, and I'm going to quickly go through what I believe are the five points that make it an opportunity for us. One, we have a significant amount of proprietary data related to the projects, the hundreds of projects that we've done, particularly in the healthcare and education industry over time. We see AI as the opportunity for us to take the collective knowledge and IP from those projects and to be able to more easily enable those for our consultants in the field to continue to drive value for our clients using our proprietary data in a way that's easier to access and drive impact for our clients.
Using that data, and we're already seeing this, it's able to help us, say, during the assessment phase of a project for a client, more quickly identify where there might be greater benefits for the client and how do we get to those benefits more quickly. Those are what we're using the tools for, and from our point of view, that's an opportunity to accelerate our revenue to the extent that we use those tools to help us find those benefits for the clients. AI services themselves for our clients, the third item here. There's a little bit of a narrative at the beginning of the year that you're going to plug in AI and it's going to solve all your clients' problems.
To be clear, AI is a powerful tool with a ton of potential, but to actually get to scaled ROI, to actually get to some of the financial benefits our clients are looking for, particularly when you've got sensitive data, when you've got mission-critical objectives where accuracy is paramount, it takes a lot of work to get there, and our clients are telling us they need a trusted advisor to help them deploy these tools in a way that will get those benefits. We think that's a net new service market for us. The AI has provided us the opportunity to expand our partnerships. You see some of them listed here. We've got new partnerships where we're working. We still take more of an agnostic view in terms of helping our clients deploy the solutions that work best for them.
Entering now into new partnerships with new vendors, we think, is another way for us to expand our growth. Finally, we are deploying AI internally. We think it's helping us deliver more efficiently for our clients. We think it's helping us serve our internal stakeholders more efficiently in terms of SG&A. We put all those things together in our perspective, particularly if you look at the statistic that's in the upper right-hand corner there, where 67% of our revenue already comes from outcomes-based projects for our clients. We think AI is going to be a net enabler for us, and our teams are excited about the opportunity to continue to deploy it in client use cases. I've already talked about our financial algorithm.
Again, double-digit top-line growth, continued ratable margin expansion, strong free cash flow conversion, and the expectation of strength in EPS, so I won't spend more time on that. I think a natural question could be as it relates to revenue growth, what gives us confidence that we continue to grow? Healthcare, education, the key industries that I mentioned in commercial, these are all huge markets. When we look at any of our individual businesses and the amount of spending our clients are going to have to do in those areas, we don't see any cap on our growth in these markets in terms of our ability to continue to expand our wallet share, help our clients in new ways, and grow into what are these complicated, disrupted environments.
I will not go deep on these slides, just given the time and wanting to save time for questions, but there is really two elements to our growth. There is that market view, but then there is also the talent view. Another important thing if you are a professional services firm to be able to reliably grow is to have the right talent at the right time in evolving areas, and we feel like we have a great story there. We have, by industry standards, very low turnover of our consultants, and we have a really strong internal talent pipeline engine. Our engagement from our consultants is very strong. These are all the bedrocks or, I am sorry, rather the data that you get when you have a strong culture.
What that does to us is it limits turnover, it has a healthy organic talent promotion engine, and it makes it an attractive place to people to land. When we talk about our growth objectives, we are going to need to continue to have a supply of talent to do that, and we have a ton of confidence based on the culture of the firm that we are going to be well-positioned for that. I will not dwell on this, but it is just an overview of some of the awards that we are very proud, many of these being self-reported by our own people in terms of the metrics that were used to determine, including being on Glassdoor's Best Places to Work place, which that is amongst all companies, and we are very proud of that one. In terms of margin, we have made great progress.
I think we still see room to run in terms of utilization, in terms of scaling the fixed components of our SG&A, and then really in terms of delivery excellence, whether that is using automation, whether that is using our offshore resources, whether that is having discipline around how we deploy on projects. If we bid a fixed-fee project that assumed we would have a nice leveraged pyramid in terms of how we delivered, making sure that we have got discipline around doing that, making sure if scope changes on a project, that we are working with our clients to ensure that that is recognized in the contract. Those are all the things that we can do that we think will continue to put margin points on the board.
Quite frankly, we do not need to be perfect in all of those in order to get to our margin objectives. If anything, kind of the objectives that we have identified over-solve the goals that we have, and the balancing factor, of course, is always investing back in the business to keep organic growth going. I think I have already talked a lot about free cash flow. I would say our general principle for capital allocation is balance between share buybacks and tuck-in M&A, with the goal of always landing leverage at the end of the year in the low two range. So between two and 2.5. That is kind of our North Star in terms of how much capital we have to deploy, and then we expect to have a balanced deployment approach.
With that, Marc, I will turn it back over to you to make sure we have some time for questions as I kind of leave it on this closing slide, but that is the quick story about Huron.
Thank you very much. As a reminder, folks, if you would like to ask a question, just click on the Q&A prompt at the bottom of your screen. We do have a couple that are already in, so I want to start there maybe. We had a question around the historical mix. Maybe talk a little bit about where that mix has come from over the last five years or so, and how you envision how that might change between the mix of healthcare, education, and the broader commercial component.
Yeah. Marc, I'll break that into two dimensions. I'll talk quickly about our capabilities and then, of course, the segments in the industry. It's actually been relatively steady. If you go back, like, 10 years, we were probably more like two-thirds healthcare. So it was a little bit heavier weighting. We've had some really good growth from our education and commercial segments over that time that's balanced that out. But for the past few years, something in the neighborhood of 50, 30, 20 has been pretty consistent. As our CEO, Mark Hussey, often says, look, we see great opportunity in the commercial markets. We think over time, having that balanced third leg in the stool in terms of some of the demand drivers and some of those other industries that I mentioned is important. So we've been growing well there.
The problem has been, and of course, I'm saying that facetiously, the other parts of the business have been growing too. So we haven't really moved the needle in terms of mix because we've had such strong growth across all three segments. But I wouldn't be surprised over time if you saw some more growth in the commercial segment just because those are big markets, and we're sort of in a position now where we think we've got the opportunity to take some market share within that part of the market. In terms of capabilities, the one thing I'd highlight is managed services, particularly in healthcare, has been a growing part of the pie for us.
If you take into consideration the RelateCare acquisition that we did in June, as well as during the first part of the year, we had 43% growth in our healthcare managed services business. Pro forma, we think that's actually going to be about 20% of the healthcare segment when we get to next year, which is a big change from where it was. The other part of the story that I think is maybe underappreciated is it's a really good margin part of the business, too.
When we first moved into managed services, our expectation was that margins would be a little bit more modest, but our team has really executed there in terms of outcomes-based contracts, taking advantage of our global team and automations, and that part of the business now has margins that are kind of in line with the healthcare segment, which is our leading segment in terms of margin. That mix shift is both good from a growth perspective, a recurring revenue perspective, but then also beneficial from an overall margin mix perspective, too.
Great. You touched on some of the keys as far as demand drivers and highlighted by performance improvement goals. Maybe you could touch a little bit about how we are seeing that evolve in the segments in particular, but maybe some of the key drivers that are leading the catalyst for Huron.
Yeah. In both education and healthcare, that 80% of our revenue, that has always been our sweet spot, and quite frankly, it is the part of the business that gets you those deep relationships with senior leadership teams there, where you are really able to demonstrate that you understand their business and their objectives when you are working on those performance improvement projects. What I would say is, if you look 10 years ago, it felt like the pressures on healthcare were maybe a little more episodic, a little more volatile in our own results. You could kind of see ups and downs over time. I think the environment for the past five years, and that I do not see a big change coming, is the pressures are just relentless for our healthcare providers. There is nonstop pressure on reimbursement rates. Costs continue to escalate.
You have got new regulatory aspects going into place that are creating work requirements, for example, for Medicaid programs, reductions in terms of volumes and subsidies for the Affordable Care Act plans, pressure on 340B pharmacy, which is like specialty pharmacy subsidies for safety net hospitals. All those things are new, net new to a story that was already pressurized. We see that being a continued driver of demand for us. Then in education, whether it is reduced enrollments of U.S. students because of the declining birth rates over the past 18 years, whether-
Right.
it's reduced flow of international students, research funding cuts, new expenses related to the running of big athletic programs, all those things create the conditions where our clients need help trying to balance the books.
It's an interesting conversation, even particularly on the education side there. Maybe we want to shift gears because you certainly spent some time on the AI slide and really appreciated the detail that was included there. Maybe talk a little bit about client receptivity to some of the deployment, and maybe some of the leading areas where clients are maybe most active and most receptive on AI deployment at current spots.
Yeah. I think there's really two aspects there, Marc. There's one aspect is we're now seeing clients, particularly ones that have under-invested in their technology stacks are actually taking the plunge with some of those big cloud-based platforms because that's the path to get governed, well-curated data that can then turn on further AI functionality. Some of what we're seeing our clients investing in, some of the hot areas, are kind of basic infrastructure. I think then, and then those tools themselves are baking in AI native functionality that then really it's about the employee experience, the customer experience. How do you get the interactions with those tools to be much more intuitive and native versus- kind of more difficult to interact with tools.
I would say then, what we're seeing are AI-specific use cases, and that's often involving some of those frontier partners, and that can be around dynamic planning, for example, in the office of the CFO. Look, I still need to have a formal planning system because that's how it runs through our balance sheet, our cash flows, things like that, but I need a broader set of parameters to do scenario analysis, and I want that to be AI-driven. We're seeing CFOs invest in that. In the hospital settings, there's all kinds of processes that are heavy labor-intensive, manual. For example, the patient referral intake process would be one.
The coding of your services and a little bit of that back and forth with the payers, that's another one that's conducive to using AI to try to automate things and try to ultimately allow you to run your business more efficiently in an environment where your resources are very constrained.
Excellent. We have a couple of minutes, but we do have another question here from the audience. Can you talk a little bit about the current M&A pipeline, and how you balance those opportunities vis-a-vis share repurchases? I'll add on maybe if you could share any thoughts on current valuations and the quality of the pipeline that you're seeing out there today.
Yeah. I'd say the pipeline remains robust. We've been more selective this year, in part because we do look at things holistically, and where our share price was in the earlier part of the year, it was very difficult for us to not take advantage and be opportunistic about that opportunity that was there with our own share price. So we ended up doing a little bit heavier weighting towards the share buybacks this year. The reality is that did put pressure on models for deals, when you had sellers who maybe weren't necessarily adjusted to what had happened from a valuation perspective, and you had this great opportunity in your own stock.
Our stock price has partially recovered from them. We think there's still more room to go. What buybacks don't do for you, though, is add talent, and the pipeline is strong. We did five deals back last year. We've done one deal this year. I think the sweet spot is probably somewhere in between there going forward, and I could definitely see 2027 being a year where you see us get more active in terms of the deals that are coming through. In terms of the valuation expectations, Marc, I don't know. I think as our valuation has kind of restored, I think as time has gone on and people have kind of adjusted a little bit to what's been some of the impact on valuations.
I think the gap that maybe three or four months ago felt like it was pretty wide, I feel like that's getting more now within reasonable bounds, and that can be something that helps us execute on more M&A as we head into next year.
Excellent. Well, I want to thank you for joining us, and I want to thank all of our participants for joining us today and leave you a moment for closing remarks if you'd like.
All right. Well, thank you, Marc, and thank you to everybody who participated. We remain very bullish about the opportunities that our markets are providing us. The reality is that we're primarily focused in industries where our clients are going through some turbulent times and need help from kind of that trusted advisor that has the experience and has delivered over many years for clients in those industries. And really, we think some of the AI tools that are out there now, if anything, it helps us extend our advantage within those industries. And we continue to be excited about what we see going on in the market, and are always open to conversations to anybody who'd like to learn a little bit more about the things that we're doing here at Huron.
Excellent. Well, thank you so much for joining us today. I thank all of our participants. Everybody have a wonderful and productive remainder of the day. Take care.
Thanks, Marc. Thanks, everyone.