ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
This Management's Discussion and Analysis of Financial Condition and Results of Operations ( “ MD&A ” ) should be read in conjunction with our Consolidated Financial Statements and related notes appearing under Part II—Item 8. “ Financial Statements and Supplementary Data. ” The following MD&A contains forward-looking statements and involves numerous risks and uncertainties, including, without limitation, those described under Part I—Item 1A. “ Risk Factors ” and “ Forward-Looking Statements ” of this Annual Report on Form 10-K. Actual results may differ materially from those contained in any forward-looking statements.
The following information summarizes our results of operations for 2025, 2024 and 2023; and discusses those results of operations for 2025 compared to 2024. For a discussion of our results of operations for 2024 compared to 2023 refer to Part II—Item 7. “ Management’s Discussion and Analysis of Financial Condition and Results of Operations ” of the Annual Report on Form 10-K for the year ended December 31, 2024, which was filed with the United States Securities and Exchange Commission on February 25, 2025.
OVERVIEW
Huron is a global professional services firm that partners with clients to put possible into practice by creating sound strategies, optimizing operations, accelerating digital transformation, and empowering businesses to own their future. By embracing diverse perspectives, encouraging new ideas and challenging the status quo, we create sustainable results for the organizations we serve.
We provide our services and products and manage our business under three operating segments: Healthcare, Education and Commercial. We also provide revenue reporting across two principal capabilities: i) Consulting and Managed Services and ii) Digital. See Part I—Item 1. “Business—Overview—Our Services” and Note 19 “Segment Information” within the notes to our consolidated financial statements for a discussion of our segments and capabilities.
COMPONENTS OF OPERATING RESULTS
Total Revenues
Revenues before Reimbursable Expenses
Revenues before reimbursable expenses are primarily generated by our employees who provide consulting and other professional services to our clients and are billable to our clients based on the number of hours worked, services provided, or achieved outcomes. We refer to these employees as our revenue-generating professionals. Revenues before reimbursable expenses are primarily driven by the number of revenue-generating professionals we employ as well as the total value, scope, and terms of the consulting contracts under which they provide services. We also engage independent contractors to supplement our revenue-generating professionals on client engagements as needed.
We generate our revenues before reimbursable expenses from providing professional services and software products under the following four types of billing arrangements: fixed-fee; time-and-expense; performance-based; and software support, maintenance and subscriptions.
• Fixed-fee: In fixed-fee billing arrangements, we agree to a pre-established fee in exchange for a predetermined set of professional services. We set the fees based on our estimates of the costs and timing for completing the engagements.
• Time-and-expense: Under time-and-expense billing arrangements, we invoice our clients based on the number of hours worked by our revenue-generating professionals at agreed upon rates. Time-and-expense arrangements also include speaking engagements, conferences and publications purchased by our clients.
• Performance-based: In performance-based billing arrangements, fees are tied to the attainment of contractually defined objectives. We enter into performance-based engagements in essentially two forms. First, we generally earn fees that are directly related to the savings formally acknowledged by the client as a result of adopting our recommendations for improving operational and cost effectiveness in the areas we review. Second, we earn a success fee when and if certain predefined outcomes occur. Often, performance-based fees supplement our fixed-fee or time-and-expense engagements. The level of performance-based fees earned may vary based on our clients’ risk sharing preferences and the mix of services we provide.
• Software support, maintenance and subscriptions: We generate subscription revenue from our cloud-based analytic tools and solutions including our cloud-based revenue cycle management software and research administration and compliance software. Additionally, clients that have purchased one of our software licenses can pay an annual fee for software support and maintenance. Software support, maintenance and subscription revenues are recognized ratably over the support or subscription period. These fees are generally billed in advance and included in deferred revenues until recognized as revenue.
Time-and-expense engagements do not provide us with a high degree of predictability as to performance in future periods. Unexpected changes in the demand for our services can result in significant variations in utilization and revenues and present a challenge to optimal
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hiring and staffing. Moreover, our clients typically retain us on an engagement-by-engagement basis, rather than under long-term recurring contracts. The volume of work performed for any particular client can vary widely from period to period.
Our quarterly results are impacted principally by the total value, scope, and terms of our client contracts, the number of our revenue-generating professionals who are available to work, our revenue-generating professionals' utilization rate, and the bill rates we charge our clients. Our utilization rate can be negatively affected by increased hiring because there is generally a transition period for new professionals that results in a temporary drop in our utilization rate. Our utilization rate can also be affected by seasonal variations in the demand for our services from our clients. For example, during the third and fourth quarters of the year, vacations taken by our clients can result in the deferral of activity on existing and new engagements, which would negatively affect our utilization rate. The number of business work days is also affected by the number of vacation days taken by our consultants and holidays in each quarter. We typically have fewer business work days available in the fourth quarter of the year, which can impact revenues during that period.
Reimbursable Expenses
Reimbursable expenses that are billed to clients, primarily relating to travel and out-of-pocket expenses incurred in connection with client engagements, are included in total revenues. We manage our business on the basis of revenues before reimbursable expenses, which we believe is the most accurate reflection of our services because it eliminates the effect of reimbursable expenses that we bill to our clients at cost.
Operating Expenses
Our most significant expenses are costs classified as direct costs. Direct costs primarily consist of compensation costs for our revenue-generating professionals, which includes salaries, performance bonuses, share-based compensation, signing and retention bonuses, payroll taxes and benefits. Direct costs also include fees paid to independent contractors that we retain to supplement our revenue-generating professionals, typically on an as-needed basis for specific client engagements, and technology costs, product and event costs, and commissions. Direct costs exclude amortization of intangible assets and software development costs and reimbursable expenses, both of which are separately presented in our consolidated statements of operations.
Selling, general and administrative expenses primarily consists of compensation costs for our support personnel, which includes salaries, performance bonuses, share-based compensation, signing and retention bonuses, payroll taxes, benefits and deferred compensation expense attributable to the change in market value of our deferred compensation liability. Changes in the market value of our deferred compensation liability are offset with the changes in market value of the investments that are used to fund our deferred compensation liability, which are recorded within other income (expense), net. Also included in selling, general and administrative expenses are third-party professional fees, software licenses and data hosting expenses, rent and other office-related expenses, sales and marketing-related expenses, recruiting and training expenses, and practice administration and meeting expenses.
Other operating expenses include restructuring charges, other gains and losses, depreciation expense, and amortization expense related to internally developed software costs and intangible assets acquired in business combinations.
Segment Results
Segment operating income consists of the revenues generated by a segment, less operating expenses that are incurred directly by the segment. Unallocated corporate expenses not allocated at the segment level include costs related to administrative functions that are performed in a centralized manner, as well as restructuring charges, depreciation and amortization, and interest expense that are not attributable to a particular segment. The administrative function costs include corporate office support costs, office facility costs, costs related to accounting and finance, human resources, legal, marketing, information technology, and company-wide business development functions, and costs related to overall corporate management.
Non-GAAP Measures
We also assess our results of operations using the following non-GAAP financial measures: earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, adjusted EBITDA as a percentage of revenues before reimbursable expenses, adjusted net income, and adjusted diluted earnings per share. These non-GAAP financial measures differ from GAAP because they exclude a number of items required by GAAP, each discussed below. These non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flows, or liquidity prepared in accordance with GAAP. Our non-GAAP financial measures may be defined differently from time to time and may be defined differently than similar terms used by other companies, and accordingly, care should be exercised in understanding how we define our non-GAAP financial measures.
Our management uses the non-GAAP financial measures to gain an understanding of our comparative operating performance, for example when comparing such results with previous periods or forecasts. These non-GAAP financial measures are used by management in their financial and operating decision making because management believes they reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons. Management also uses these non-GAAP financial measures when publicly providing our business
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outlook, for internal management purposes, and as a basis for evaluating potential acquisitions and dispositions. We believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating Huron’s current operating performance and future prospects in the same manner as management does and in comparing in a consistent manner Huron’s current financial results with Huron’s past financial results.
These non-GAAP financial measures include adjustments for the following items:
Amortization of intangible assets: We exclude the effect of amortization of intangible assets from the calculation of adjusted net income, as it is inconsistent in its amount and frequency and is significantly affected by the timing and size of our acquisitions.
Restructuring charges: We have incurred charges due to restructuring various parts of our business. These restructuring charges have primarily consisted of costs associated with office space consolidations, including lease impairment charges and accelerated depreciation on lease-related property and equipment, and employee severance charges. We exclude the effect of the restructuring charges from our non-GAAP measures to permit comparability with periods that were not impacted by these items. We do not include normal, recurring, cash operating expenses in our restructuring charges.
2024 litigation settlement gain: In the second quarter of 2024, we settled a litigation matter in which Huron was the plaintiff for $15.0 million, on a pre-tax basis. This $15.0 million settlement gain was recorded as a component of other gains, net on our consolidated statement of operations. We have excluded from our non-GAAP measures $11.7 million, which is the value of the settlement gain that exceeds the third-party legal costs of $3.3 million incurred during 2024 specific to this litigation matter, as this net gain is not indicative of the ongoing performance of our business. Third-party legal costs incurred for this litigation matter in 2023 were $4.0 million. Our third-party legal expenses are recorded as a component of selling, general and administrative expenses on our statement of operations.
Other losses (gains), net: We exclude the effects of other losses and gains, which primarily relate to changes in the estimated fair value of our liabilities for contingent consideration related to business acquisitions and litigation settlement losses and gains, excluding the 2024 litigation settlement gain presented separately, to permit comparability with periods that are not impacted by these items. These items are recorded as a component of other losses (gains), net on our consolidated statement of operations.
Transaction-related expenses : We exclude the impact of third-party advisory, legal, and accounting fees and other corporate costs incurred directly related to the evaluation and/or consummation of business acquisitions to permit comparability with prior periods as these costs are inconsistent in their amount and frequency and are significantly affected by the timing and size of our acquisitions.
Unrealized losses (gains) on long-term investments, net: We exclude the effect of unrealized losses and gains related to our long-term investments, which include non-cash credit related impairment charges on our convertible debt investment in Shorelight Holdings, LLC and changes in the fair value of our equity investment in a hospital-at-home company arising from observable price changes or impairment charges. These unrealized losses and gains are included as a component of other income (expense), net on our consolidated statement of operations. We believe these unrealized losses and gains are not indicative of the ongoing performance of our business and their exclusion permits comparability with prior periods.
Losses (gains) on sales of businesses: We exclude the effect of non-operating losses and gains recognized as a result of sales of businesses as they are infrequent, management believes that these items are not indicative of the ongoing performance of our business, and their exclusion permits comparability with periods that were not impacted by such items. The 2024 gain relates to the divestiture of our Studer Education practice in the fourth quarter of 2024.
Foreign currency transaction losses (gains), net: We exclude the effect of foreign currency transaction losses and gains from the calculation of adjusted EBITDA because the amount of each loss or gain is significantly affected by changes in foreign exchange rates.
Tax effect of adjustments: The non-GAAP income tax adjustment reflects the incremental tax impact applicable to the non-GAAP adjustments.
Income tax expense, interest expense, net of interest income, depreciation and amortization: We exclude the effects of income tax expense, interest expense, net of interest income, and depreciation and amortization in the calculation of EBITDA, as these are customary exclusions as defined by the calculation of EBITDA to arrive at meaningful earnings from core operations excluding the effect of such items. We include, within the depreciation and amortization adjustment, the amortization of capitalized implementation costs of our enterprise resource planning (ERP) system and other related software, which is included within selling, general and administrative expenses in our consolidated statements of operations.
Revenue-Generating Professionals
Our revenue-generating professionals consist of our full-time consultants who generate revenues based on the number of hours worked; full-time equivalents, which consists of coaches and their support staff within the culture and organizational excellence solution, consultants who work variable schedules as needed by clients, and full-time employees who provide software support and maintenance services to clients;
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and our Managed Services professionals who provide revenue cycle management and research administration managed services and outsourcing at our healthcare, education and research-focused clients.
Utilization Rate
The utilization rate of our revenue-generating professionals is calculated by dividing the number of hours our billable consultants worked on client assignments during a period by the total available working hours for these billable consultants during the same period. Available working hours are determined by the standard hours worked by each billable consultant, adjusted for part-time hours, and U.S. standard work weeks. Available working hours exclude local country holidays and vacation days. Utilization rates are presented for our revenue-generating professionals who primarily bill on an hourly basis. We do not present utilization rates for our Managed Services professionals as most of the revenues generated by these employees are not billed on an hourly basis.
RESULTS OF OPERATIONS
Executive Highlights
Highlights from the year ended December 31, 2025 include the following:
• Revenues before reimbursable expenses increased 11.9% to $1.66 billion in 2025 from $1.49 billion in 2024.
• Net income as a percentage of total revenues was 6.2% in 2025, compared to 7.7% in 2024. Results for 2025 include $7.7 million of non-cash impairment charges, net of tax, related to our convertible debt investment in a third-party. Results for 2024 include an $11.1 million litigation settlement gain, net of tax, related to a completed legal matter in which Huron was the plaintiff.
• Adjusted EBITDA as a percentage of revenues before reimbursable expenses increased to 14.3% in 2025 from 13.5% in 2024.
• Diluted EPS was $5.84 for 2025, compared to $6.27 for 2024. Results for 2025 include the non-cash impairment charge related to our convertible debt investment in a third-party, which had an unfavorable $0.43 impact on diluted earnings per share for the year. Results for 2024 include the litigation settlement gain related to a completed legal matter in which Huron was the plaintiff, which had a favorable impact of $0.60 on diluted earnings per share in 2024.
• Adjusted diluted EPS increased 21.0% to $7.83 for 2025, compared to $6.47 for 2024.
• Returned $166.2 million to shareholders by repurchasing 1,166,077 shares of our common stock in 2025.
Revenues before reimbursable expenses increased $176.8 million, or 11.9%, to $1.66 billion for the year ended December 31, 2025 from $1.49 billion for the year ended December 31, 2024. The overall increase in revenues before reimbursable expenses reflects strength in demand for our Consulting and Managed Services capabilities within all three of our segments, as well as continued strength in demand for our Digital capabilities within our Commercial and Education segments. The increase includes $86.0 million of incremental revenues before reimbursable expenses from our acquisitions completed since December 31, 2023. These increases were partially offset by a decrease in demand for our Digital capability within our Healthcare segment. Excluding the $86.0 million of incremental revenues before reimbursable expenses from our acquisitions and $13.7 million of revenues before reimbursable expenses in 2024 generated by the Studer Education business, which we divested at the end of 2024, revenues before reimbursable expenses grew 7.1% organically.
Revenues before reimbursable expenses within our Consulting and Managed Services capability increased 13.1% to $976.9 million in 2025, compared to $863.9 million in 2024; and reflected strengthened demand in all three of our segments. The increase includes $38.2 million of incremental revenues before reimbursable expenses from our acquisitions of Eclipse Insights, Treliant, Advancement Resources, WP&C, GG+A and Halpin. The utilization rate within our Consulting capability increased to 75.7% in 2025, compared to 73.6% in 2024.
Revenues before reimbursable expenses within our Digital capability increased 10.2% to $686.0 million in 2025, compared to $622.2 million in 2024; and reflected strengthened demand in our Commercial and Education segments, partially offset by a decrease in demand in our Healthcare segment. The increase includes $47.8 million of incremental revenues before reimbursable expenses from our acquisitions of AXIA Consulting, Inc (“AXIA Consulting”) and AXIOM. The utilization rate within our Digital capability increased to 78.2% in 2025, compared to 76.0% in 2024.
Our total number of revenue-generating professionals, excluding Managed Services professionals, increased 13.1% to 5,307 as of December 31, 2025, compared to 4,694 as of December 31, 2024, as a result of the acquisitions completed since December 31, 2024 and hiring to support the overall increase in demand for our services. The number of Managed Services professionals increased 46.3% to 2,239 as of December 31, 2025 from 1,530 as of December 31, 2024. We proactively plan and manage the size and composition of our workforce and take actions as needed to address changes in the anticipated demand for our services as employee compensation costs are the most significant portion of our operating expenses.
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Net income decreased $11.6 million, or 9.9%, to $105.0 million, or 6.2% of total revenues, for the year ended December 31, 2025 from $116.6 million, or 7.7% of total revenues, for the same period last year. Results for 2025 include $7.7 million of non-cash impairment charges, net of tax, related to our convertible debt investment in a third-party. Results for 2024 include an $11.1 million litigation settlement gain, net of tax, related to a completed legal matter in which Huron was the plaintiff. As a result of the decrease in net income, and partially offset by a reduction in diluted shares outstanding resulting from share repurchases made under our share repurchase plan, diluted earnings per share decreased 6.9% to $5.84 for 2025, compared to $6.27 for 2024. Adjusted diluted earnings per share, which excludes the impact of the non-cash impairment charges in 2025 and the litigation settlement gain in 2024, increased 21.0% to $7.83 for 2025 from $6.47 for 2024.
Adjusted EBITDA increased $36.3 million, or 18.1%, to $237.5 million, or 14.3% of revenues before reimbursable expenses, in 2025, compared to $201.2 million, or 13.5% of revenues before reimbursable expenses, in 2024.
During 2025, we deployed $166.2 million of capital to repurchase 1,166,077 shares of our common stock, representing 6.6% of our common stock outstanding as of December 31, 2024.
Summary of Results
The following tables set forth, for the periods indicated, selected segment and consolidated operating results and other operating data, including non-GAAP measures.
Segment and Consolidated Operating Results
(in thousands, except per share amounts):
Year Ended December 31,
Healthcare:
Revenues before reimbursable expenses
Operating income
Segment operating income as a percentage of segment revenues before reimbursable expenses
Education:
Revenues before reimbursable expenses
Operating income
Segment operating income as a percentage of segment revenues before reimbursable expenses
Commercial:
Revenues before reimbursable expenses
Operating income
Segment operating income as a percentage of segment revenues before reimbursable expenses
Total Huron:
Revenues before reimbursable expenses
Reimbursable expenses
Total revenues
Items not allocated at the segment level:
Unallocated corporate expenses
Other losses (gains), net
Restructuring charges
Depreciation and amortization
Operating income
Other income (expense), net
Income before taxes
Income tax expense
Net income
Earnings per share
Basic
Diluted
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Segment and Consolidated Operating Results
(in thousands, except per share amounts):
Year Ended December 31,
Other Operating Data:
Number of revenue-generating professionals by segment (at period end):
Healthcare
Education
Commercial (1)(2)
Total (excluding Managed Services)
Managed Services (3)
Total
Revenues before reimbursable expenses by capability:
Consulting and Managed Services (4)
Digital
Total
Number of revenue-generating professionals by capability (at period end):
Consulting
Managed Services (3)
Digital
Total
Utilization rate by capability (5) :
Consulting
Digital
(1) The majority of our revenue-generating professionals within our Commercial segment can provide services across all of our industries, including healthcare and education.
(2) The increase in the number of revenue-generating professionals within our Commercial segment includes our acquisition of Treliant in 2025. This acquisition added approximately 180 revenue-generating professionals, of which approximately 65 are consultants who work variable schedules as needed by clients.
(3) We have separately presented the total number of revenue-generating professionals within our Managed Services capabilities of our Healthcare and Education segments. Our Healthcare Managed Services professionals provide revenue cycle billing, collections, insurance verification and change integrity services to clients. Our Education Managed Services professionals provide research administration managed services and outsourcing at our education and research-focused clients.
The number of Managed Services professionals within our Healthcare segment was 2,117, 1,420 and 924 as of December 31, 2025, 2024 and 2023, respectively.
The number of Managed Services professionals within our Education segment was 122, 110 and 126 as of December 31, 2025, 2024 and 2023, respectively.
(4) Managed Services capability revenues before reimbursable expenses within our Healthcare segment was $90.1 million, $77.5 million and $70.1 million for the years ended 2025, 2024 and 2023, respectively.
Managed Services capability revenues before reimbursable expenses within our Education segment was $29.3 million, $28.2 million and $29.6 million for the years ended 2025, 2024 and 2023, respectively.
(5) Utilization rates are presented for our revenue-generating professionals who primarily bill on an hourly basis. We do not present utilization rates for our Managed Services professionals as most of the revenues generated by these employees are not billed on an hourly basis.
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Non-GAAP Measures
Reconciliation of Net Income to EBITDA and Adjusted EBITDA
Year Ended December 31,
Revenues before reimbursable expenses
Reimbursable expenses
Total revenues
Net income
Net income as a percentage of total revenues
Add back:
Income tax expense
Interest expense, net of interest income
Depreciation and amortization
EBITDA
Add back:
Restructuring charges
2024 litigation settlement gain
Other losses (gains), net
Transaction-related expenses
Unrealized losses on long-term investments, net
Gain on sale of business
Foreign currency transaction losses (gains), net
Adjusted EBITDA
Adjusted EBITDA as a percentage of revenues before reimbursable expenses
Reconciliation of Net Income to Adjusted Net Income and Adjusted Diluted Earnings per Share
Year Ended December 31,
Net income
Weighted average shares - diluted
Diluted earnings per share
Add back:
Amortization of intangible assets
Restructuring charges
2024 litigation settlement gain
Other losses (gains), net
Transaction-related expenses
Unrealized losses on long-term investments, net
Gain on sale of business
Tax effect of adjustments
Total adjustments, net of tax
Adjusted net income
Adjusted weighted average shares - diluted
Adjusted diluted earnings per share
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Year Ended December 31, 2025 Compared to Year Ended December 31, 2024
Revenues before Reimbursable Expenses
Revenues before reimbursable expenses by segment and capability for the years ended December 31, 2025 and 2024 were as follows:
Revenues before Reimbursable Expenses (in thousands)
Year Ended
December 31,
Increase / (Decrease)
Segment:
Healthcare
Education
Commercial
Total revenues before reimbursable expenses
Capability:
Consulting and Managed Services
Digital
Total revenues before reimbursable expenses
Revenues before reimbursable expenses increased $176.8 million, or 11.9%, to $1.66 billion for the year ended December 31, 2025 from $1.49 billion for the year ended December 31, 2024. The overall increase in revenues before reimbursable expenses reflects strength in demand for our Consulting and Managed Services capabilities within all three of our segments, as well as continued strength in demand for our Digital capabilities within our Commercial and Education segments. The increase includes $86.0 million of incremental revenues before reimbursable expenses from our acquisitions completed since December 31, 2023. These increases were partially offset by a decrease in demand for our Digital capability within our Healthcare segment. Excluding the $86.0 million of incremental revenues before reimbursable expenses from our acquisitions and $13.7 million of revenues before reimbursable expenses in 2024 generated by the Studer Education business, which we divested at the end of 2024, revenues before reimbursable expenses grew 7.1% organically. Additional information on our revenues before reimbursable expense by segment follows.
• Healthcare revenues before reimbursable expenses increased $81.3 million, or 10.7%, driven by continued strength in demand for our performance improvement, financial advisory, revenue cycle managed services and strategy and innovation solutions within our Consulting and Managed Services capability. These increases were partially offset by a decrease in revenues before reimbursable expenses due to the divestiture of our Studer Education practice in the fourth quarter of 2024 and a decrease in revenues before reimbursable expenses for our technology and analytics services within our Digital capability. The Studer Education business generated $13.7 million of revenues before reimbursable expenses in 2024. Revenues before reimbursable expenses for the year ended December 31, 2025 included $14.5 million of incremental revenues before reimbursable expenses from our recent acquisitions of Eclipse Insights, AXIA Consulting and AXIOM.
The number of revenue-generating professionals, excluding Managed Services professionals, within our Healthcare segment grew 22.6% to 1,493 as of December 31, 2025, compared to 1,218 as of December 31, 2024. Our acquisitions of Eclipse Insights and AXIOM in 2025 added approximately 75 revenue-generating professionals.
• Education revenues before reimbursable expenses increased $26.0 million, or 5.5%, driven by strengthened demand for our strategy and operations and research solutions within our Consulting and Managed Services capability and software products within our Digital capability, as well as $9.9 million of incremental revenues from our recent acquisitions of Advancement Resources, GG+A, AXIA Consulting and Halpin.
The number of revenue-generating professionals, excluding Managed Services professionals, within our Education segment grew 0.4% to 1,145 as of December 31, 2025, compared to 1,141 as of December 31, 2024.
• Commercial revenues before reimbursable expenses increased $69.5 million, or 27.2%, which reflects $61.6 million of incremental revenues before reimbursable expenses from our recent acquisitions of AXIA Consulting, Treliant and WP&C and continued strength in demand for our technology and analytics services within our Digital capability. These increases were partially offset by decreases in demand for our strategy and innovation and financial advisory solutions within our Consulting and Managed Services capability.
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The number of revenue-generating professionals within our Commercial segment, the majority of which provide services across all of our industries, grew 14.3% to 2,669 as of December 31, 2025, compared to 2,335 as of December 31, 2024. Our acquisitions of Treliant and WP&C in 2025 added approximately 210 revenue-generating professionals.
Operating Expenses
Operating expenses for the year ended December 31, 2025 increased $167.6 million, or 12.4%, over the year ended December 31, 2024.
Operating expenses and operating expenses as a percentage of revenues before reimbursable expenses were as follows:
Operating Expenses (in thousands, except amounts as a percentage of revenues before reimbursable expenses)
Year Ended December 31,
Increase / (Decrease)
Direct costs
Reimbursable expenses
Selling, general and administrative expenses
Other losses (gains), net
Restructuring charges
Depreciation and amortization
Total operating expenses
Direct Costs
Direct costs increased $112.4 million, or 11.1%, to $1.12 billion for the year ended December 31, 2025 from $1.01 billion for the year ended December 31, 2024. The $112.4 million increase primarily related to a $99.0 million increase in compensation costs for our revenue-generating professionals, an $8.7 million increase in contractor expenses, and a $3.0 million increase in technology costs. The $99.0 million increase in compensation costs reflects our investment to grow our talented team to meet increased market demand and is primarily attributable to an $87.2 million increase in salaries and related expenses driven by the recent acquisitions, hiring to support the overall increase in demand for our services, and annual salary increases that went into effect in the first quarter of 2025, as well as a $6.3 million increase in performance bonus expense, a $4.4 million increase in signing, retention and other bonus expense, and a $1.0 million increase in share-based compensation expense. As a percentage of revenues before reimbursable expenses, direct costs decreased to 67.5% during 2025, compared to 68.0% during 2024, primarily attributable to revenue growth that outpaced the increase in performance bonus expense for our revenue-generating professionals.
Reimbursable Expenses
Reimbursable expenses are billed to clients at cost and primarily relate to travel and out-of-pocket expenses incurred in connection with client engagements. These expenses are also included in total revenues. We manage our business on the basis of revenues before reimbursable expenses, which we believe is the most accurate reflection of our services because it eliminates the effect of reimbursable expenses that are also included as a component of operating expenses.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased by $31.4 million, or 10.9%, to $318.0 million for the year ended December 31, 2025 from $286.7 million for the year ended December 31, 2024. The $31.4 million increase primarily related to an $18.5 million increase in non-payroll costs and a $12.5 million increase in salaries and related expenses for our support personnel. The $18.5 million increase in non-payroll costs was primarily driven by a $7.3 million increase in software and data hosting expenses, a $4.3 million increase in third-party professional fees, a $2.6 million increase in promotion and marketing expenses, a $1.5 million increase in recruiting costs, a $1.4 million increase in business insurance costs, and a $1.2 million increase in severance expenses. These increases to non-payroll costs were partially offset by a $2.1 million decrease in bad debt expense and a $1.5 million decrease in legal expenses. The increase in third-party professional fees and business insurance costs were primarily driven by our programmatic acquisition activity. As a percentage of revenues before reimbursable expenses, selling, general and administrative expenses decreased to 19.1% during 2025, compared to 19.3% during 2024. This decrease was primarily attributable to revenue growth that outpaced the increase in compensation costs for our support personnel.
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Other Losses (Gains), Net
Other losses (gains), net totaled a net loss of $3.1 million for the year ended December 31, 2025 and a net gain of $14.2 million for the year ended December 31, 2024. The $3.1 million of other losses, net for the year ended December 31, 2025 primarily consisted of net remeasurement charges to increase the fair value of our contingent consideration liabilities related to business combinations. The $14.2 million of other gains, net for the year ended December 31, 2024 primarily consisted of a pre-tax $15.0 million litigation settlement gain for a completed legal matter in which Huron was the plaintiff and $0.5 million of net remeasurement gains to decrease the fair value of our contingent consideration liabilities related to business combinations.
See Note 13 “Fair Value of Financial Instruments” within the notes to our consolidated financial statements for additional information on the fair value of contingent consideration liabilities.
Restructuring Charges
Restructuring charges for the year ended December 31, 2025 were $9.1 million, compared to $9.9 million for the year ended December 31, 2024. The $9.1 million of restructuring charges recognized in 2025 primarily consisted of $3.8 million of severance-related expenses; $3.1 million of rent and related expenses, net of sublease income, for our previously vacated office spaces; $1.4 million of accelerated depreciation and amortization on the related fixed assets and right-of-use operating lease assets recognized when we abandoned our office spaces in Pensacola, Florida and Boston, Massachusetts; and a $0.7 million non-cash lease impairment charge driven by updated sublease assumptions for a previously vacated office space.
During 2024, we exited our office space previously occupied by GG+A and a portion of our office space in New York, New York resulting in non-cash impairment charges of $1.4 million and $1.2 million, respectively, on the related right-of-use operating lease assets and fixed assets. Additionally, we exited the remaining portion of our office space in Denver, Colorado resulting in $0.5 million of accelerated depreciation and amortization on the related fixed assets and right-of-use operating lease assets we abandoned. Furthermore, in the fourth quarter of 2024, we completed the divestiture of our Studer Education practice and incurred $1.3 million of restructuring charges, consisting of $1.0 million of transaction-related employee payments and $0.3 million of third-party legal and professional advisory fees. Restructuring charges incurred in 2024 also included $2.3 million of severance-related expenses unrelated to the divestiture; $2.3 million of rent and related expenses, net of sublease income, for previously vacated office spaces; and $0.8 million related to non-cash lease impairment charges driven by updated sublease assumptions for our previously vacated office spaces.
Depreciation and Amortization
Depreciation and amortization expense increased $6.8 million, or 27.4%, to $31.6 million for the year ended December 31, 2025, compared to $24.8 million for the year ended December 31, 2024. The $6.8 million increase in depreciation and amortization expense was primarily attributable to increases in amortization of intangible assets acquired in business acquisitions and internally developed software.
Operating Income
Operating income increased $9.8 million, or 5.8% , to $178.6 million for the year ended December 31, 2025 from $168.8 million for the year ended December 31, 2024. Operating margin, which is defined as operating income expressed as a percentage of revenues before reimbursable expenses, decreased to 10.7% for 2025, compared to 11.4% for 2024.
Operating income and operating margin for each of our segments as well as unallocated corporate expenses were as follows:
Segment Operating Income (in thousands, except operating margin percentages)
Year Ended December 31,
Increase / (Decrease)
Healthcare
Education
Commercial
Unallocated Corporate Expenses (in thousands)
Unallocated corporate expenses
• Healthcare operating income increased $46.7 million, or 22.3%, primarily due to the increase in revenues before reimbursable expenses, as well as decreases in salaries and related expenses for our support personnel, bad debt expense, and practice administration and meetings expenses; partially offset by increases in compensation costs for our revenue-generating professionals and technology expenses. The increases in compensation costs for our revenue-generating professionals were primarily driven by an increase in headcount and annual salary increases that went into effect in the first quarter of 2025, as well as increases in
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performance bonus expense, signing, retention and other bonus expense, and share-based compensation expense. Healthcare operating margin increased to 30.5% from 27.6% primarily due to the decreases in salaries and related expenses for our support personnel, bad debt expense, and practice administration and meetings expenses, and revenue growth that outpaced the increase in salaries and related expenses for our revenue-generating professionals.
• Education operating income increased $4.7 million, or 4.3%, primarily due to the increase in revenues before reimbursable expenses; partially offset by increases in compensation costs for our revenue-generating professionals and support personnel, amortization of internally developed software, contractor expenses, practice administration and meeting expenses, promotion and marketing expenses, and project costs. The increases in compensation costs for our revenue-generating professionals and support personnel were primarily driven by an increase in headcount and annual salary increases that went into effect in the first quarter of 2025, partially offset by a decrease in performance bonus expense for our revenue-generating professionals. Education operating margin decreased to 22.6% from 22.9% primarily driven by the increases in amortization of internally developed software, salaries and related expenses for our support personnel, contractor expenses, practice administration and meetings expenses, projects costs and promotion and marketing expenses, all as percentages of revenues before reimbursable expenses; partially offset by revenue growth that outpaced the increase in salaries and related expenses for our revenue-generating professionals and the decrease in performance bonus expense for our revenue-generating professionals.
• Commercial operating income increased $4.7 million, or 9.1%, primarily due to the increase in revenues before reimbursable expenses, partially offset by increases in compensation costs for our revenue-generating professionals, contractor expenses, salaries and related expenses for our support personnel and restructuring charges. The increase in compensation costs for our revenue-generating professionals was primarily due to the increased headcount, driven by our acquisitions of AXIA Consulting and Treliant, annual salary increases that went into effect in the first quarter of 2025, and increases in performance bonus expense and signing, retention and other bonus expense. Commercial operating margin decreased to 17.2% from 20.0% primarily driven by the increases in salaries and related expenses for our revenue-generating professionals and contractor expenses, as percentages of revenues before reimbursable expenses; partially offset by revenue growth that outpaced the increase in performance bonus expense for our revenue-generating professionals.
• Unallocated corporate expenses increased $26.4 million, or 13.8%, primarily due to increases in compensation costs for our support personnel, software and data hosting expenses, third-party professional fees, business insurance costs, promotion and marketing expenses, and practice administration and meeting expenses. The increase in compensation costs for our support personnel was primarily driven by an increase in headcount, annual salary increases that went into effect in the first quarter of 2025 and an increase in deferred compensation expense attributable to the change in the market value of our deferred compensation liability. The increases in third-party professional fees and business insurance costs were primarily driven by our programmatic acquisition activity.
Other Income (Expense), Net
Interest expense, net of interest income increased $8.9 million to $34.2 million for the year ended December 31, 2025 from $25.3 million for the year ended December 31, 2024, which was primarily attributable to higher levels of borrowing and higher interest rates under our senior secured credit facility in 2025 compared to 2024. See “Liquidity and Capital Resources” below and Note 7 “Financing Arrangements” within the notes to our consolidated financial statements for additional information about our senior secured credit facility.
Other income (expense), net totaled expense of $9.3 million for the year ended December 31, 2025, compared to income of $10.5 million for the year ended December 31, 2024. In 2025, we recognized pre-tax $10.4 million of non-cash credit-related impairment charges related to our convertible debt investment in a third-party and non-cash impairment charges of $5.0 million on our equity investment in a hospital-at-home company. These losses were partially offset by a $5.7 million gain recognized for the market value of our investments that are used to fund our deferred compensation liability and $0.4 million of foreign currency transaction gains. In 2024, we recognized a $4.6 million gain for the market value of our investments that are used to fund our deferred compensation liability, a $3.6 million gain related to the divestiture of our Studer Education practice, and $2.1 million of foreign currency transaction gains. The gains recognized in 2025 and 2024 related to the market value of our investments that are used to fund our deferred compensation liability were offset with deferred compensation expense attributable to the change in the market value of our deferred compensation liability which is recognized as a component of selling, general and administrative expenses on our consolidated statements of operations.
See Note 3 “Acquisitions and Divestitures” within the notes to our consolidated financial statements for additional information on the divestiture completed in 2024, Note 12 “Derivative Instruments and Hedging Activity” within the notes to our consolidated financial statements for additional information on our foreign exchange forward contracts, Note 13 “Fair Value of Financial Instruments” within the notes to our consolidated financial statements for additional information on our convertible debt and equity investments, and Note 15 “Employee Benefit and Deferred Compensation Plans” within the notes to our consolidated financial statements for additional information on our deferred compensation plan.
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Income Tax Expense
For the year ended December 31, 2025, our effective tax rate was 22.2% as we recognized income tax expense of $30.0 million on income of $135.1 million. The effective tax rate of 22.2% was more favorable than the statutory rate, inclusive of state income taxes, of 26.0%, primarily due to a discrete tax benefit for share-based compensation awards that vested during the year. This favorable item was partially offset by certain nondeductible expense items.
For the year ended December 31, 2024, our effective tax rate was 24.3% as we recognized income tax expense of $37.4 million on income of $154.0 million. The effective tax rate of 24.3% was more favorable than the statutory rate, inclusive of state income taxes, of 26.0%, primarily due to a discrete tax benefit for share-based compensation awards that vested during the year. This favorable item was partially offset by certain nondeductible expense items.
See Note 17 “Income Taxes” within the notes to our consolidated financial statements for additional information on our income tax expense.
Net Income and Earnings per Share
Net income decreased $11.6 million, or 9.9%, to $105.0 million for the year ended December 31, 2025 from $116.6 million for the year ended December 31, 2024. Net income for 2025 includes $7.7 million of non-cash impairment charges, net of tax, related to our convertible debt investment in a third-party. Net income for 2024 includes an $11.1 million litigation settlement gain, net of tax, related to a completed legal matter in which Huron was the plaintiff. Diluted earnings per share for the year ended December 31, 2025 decreased to $5.84, compared to $6.27 for the year ended December 31, 2024, driven by the decrease in net income, partially offset by a reduction in diluted shares outstanding resulting from share repurchases made under our share repurchase plan. The non-cash credit-related impairment charges on our convertible debt investment had an unfavorable $0.43 impact on diluted EPS for the year ended December 31, 2025, while the litigation settlement gain related to a completed legal matter in which Huron was the plaintiff had a favorable impact of $0.60 on diluted earnings per share for the prior year period.
EBITDA and Adjusted EBITDA
EBITDA decreased $3.3 million, or 1.6%, to $201.8 million for the year ended December 31, 2025 from $205.0 million for the year ended December 31, 2024. The decrease in EBITDA was primarily attributable to the increase in unallocated corporate expenses, excluding the impact of the change in the market value of our deferred compensation liability; the pre-tax $15.0 million litigation settlement gain recognized in 2024 for a completed legal matter in which Huron was the plaintiff; the pre-tax $10.4 million of non-cash credit-related impairment charges recognized in 2025 related to our convertible debt investment in a third-party; and the $5.0 million of non-cash impairment charges recognized on our equity investment in a hospital-at-home company in 2025. These decreases were partially offset by the increases in segment operating income for all three of our segments, excluding segment depreciation and amortization.
Adjusted EBITDA increased $36.3 million, or 18.1% , to $237.5 million for the year ended December 31, 2025 from $201.2 million for the year ended December 31, 2024. The increase in adjusted EBITDA was primarily attributable to the increases in segment operating income for all three of our segments, excluding the impact of segment depreciation and amortization and segment restructuring charges; partially offset by the increase in unallocated corporate expenses, excluding the impacts of the change in the market value of our deferred compensation liability and transaction-related expenses.
Adjusted Net Income and Adjusted Earnings per Share
Adjusted net income increased $20.4 million, or 16.9% , to $140.8 million for the year ended December 31, 2025, compared to $120.4 million for the year ended December 31, 2024. As a result of the increase in adjusted net income, as well as a reduction in diluted shares outstanding resulting from share repurchases made under our share repurchase plan, adjusted diluted earnings per share increased to $7.83 in 2025, compared to $6.47 in 2024.
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LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $24.5 million, $21.9 million, and $12.1 million at December 31, 2025, 2024, and 2023, respectively. As of December 31, 2025, our primary sources of liquidity are cash on hand, cash flows from our U.S. operations, and borrowing capacity available under our credit facility.
Cash Flows (in thousands):
Year Ended December 31,
Net cash provided by operating activities
Net cash used in investing activities
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase in cash and cash equivalents
Operating Activities
Our operating assets and liabilities consist primarily of receivables from billed and unbilled services, accounts payable and accrued expenses, accrued payroll and related benefits, operating lease obligations and deferred revenues. The volume of services rendered and the related billings and timing of collections on those billings, as well as payments of our accounts payable and salaries, bonuses, and related benefits to employees affect these account balances. Our purchase obligations primarily consist of payments for software and other information technology products to support our business and corporate infrastructure.
Net cash provided by operating activities decreased $7.9 million to $193.4 million in 2025 from $201.3 million in 2024. The decrease in net cash provided by operating activities primarily related to an increase in payments for salaries and related expenses for our revenue-generating professionals, an increase in payments for selling, general and administrative expenses, a $15 million litigation settlement received in 2024 for a completed legal matter in which Huron was the plaintiff, an increase in the amount paid for annual performance bonuses in the first quarter of 2025 compared to the first quarter of 2024, and an increase in payments for contractor expenses; largely offset by an increase in cash collections in 2025 compared to the prior year.
Investing Activities
Our investing activities primarily consist of purchases of complementary businesses; purchases of property and equipment, primarily related to computers and related equipment for our employees and leasehold improvements and furniture and fixtures for office spaces; payments related to internally developed cloud-based software sold to our clients; and investments. Our investments include a convertible note investment in Shorelight Holdings, LLC, an equity investment in a hospital-at-home company, and investments in life insurance policies that are used to fund our deferred compensation liability.
Net cash used in investing activities was $145.8 million for 2025 which primarily consisted of $111.6 million for purchases of businesses; $20.6 million for payments related to internally developed software to advance our Education and Healthcare software products; $10.4 million for purchases of property and equipment, primarily related to purchases of computers and related equipment and leasehold improvements for certain office spaces; and $3.2 million for contributions to our life insurance policies.
Net cash used in investing activities was $79.7 million for 2024 which primarily consisted of $49.5 million for purchases of businesses; $23.9 million for payments related to internally developed software to advance our Healthcare and Education software products; $8.7 million for purchases of property and equipment, primarily related to purchases of computers and related equipment and leasehold improvements for certain office spaces; and $2.6 million for contributions to our life insurance policies. These uses of cash for investing activities were partially offset by $4.7 million of cash received related to the divestiture of our Studer Education practice in the fourth quarter of 2024.
We estimate that cash utilized for purchases of property and equipment and software development in 2026 will total approximately $30 million to $40 million; primarily consisting of leasehold improvements and furniture and fixtures for certain office locations, information technology-related equipment to support our corporate infrastructure, and software development costs.
Financing Activities
Our financing activities primarily consist of borrowings and repayments under our senior secured credit facility, share repurchases, shares redeemed for employee tax withholdings upon vesting of share-based compensation, and payments for contingent consideration liabilities related to business acquisitions. See “Financing Arrangements” below for additional information on our senior secured credit facility.
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Net cash used in financing activities was $45.0 million in 2025. The net borrowings of $153.3 million during 2025 were primarily used to fund our operations, including our annual performance bonus payments in the first quarter of 2025, and our programmatic business acquisitions. The aggregate borrowings and repayments during 2025 include the $400 million term loan proceeds received in the third quarter of 2025 under the Amended Credit Agreement, which were used to repay outstanding borrowings under the Third Amended and Restated Credit Agreement (the “Existing Credit Agreement”). In conjunction with the closing of the Amended Credit Agreement, we paid $3.1 million of debt issuance costs. See “Financing Arrangements” below for additional information on the Amended Credit Agreement. Additionally, during 2025, we paid $166.7 million for the settlement of share repurchases and we reacquired $33.6 million of common stock as a result of tax withholdings upon vesting of share-based compensation. These uses of cash for financing activities were partially offset by $5.1 million of cash received from stock option exercises in 2025.
Net cash used in financing activities was $111.6 million in 2024. During 2024, we borrowed $743.5 million and made repayments on our borrowings of $709.8 million. The borrowings and repayments during 2024 include the $275.0 million term loan proceeds received under the Existing Credit Agreement in the first quarter of 2024, which were used to repay borrowings under the revolver in the first quarter of 2024. The net borrowings of $33.7 million were primarily used to fund our operations, including our annual performance bonus payments in the first quarter of 2024. Additionally, in 2024, we paid $123.0 million for the settlement of share repurchases and we reacquired $22.1 million of common stock as a result of tax withholdings upon vesting of share-based compensation. We also made payments of $1.4 million for debt issuance costs related to the term loan established under the Existing Credit Agreement. These uses of cash for financing activities were partially offset by $1.8 million of cash received from stock option exercises in 2024.
Share Repurchase Program
In November 2020, our board of directors authorized a share repurchase program permitting us to repurchase up to $50 million of our common stock through December 31, 2021. Subsequently, our board of directors authorized extensions of the share repurchase program through December 31, 2026 and increased the authorized amount to $700 million, of which $99.0 million remained available as of December 31, 2025. In the first quarter of 2026, our board of directors authorized a further increase to the authorized amount under the share repurchase program from $700 million to $900 million. The amount and timing of repurchases under the share repurchase program were and will continue to be determined by management and depend on a variety of factors, including the trading price of our common stock, capacity under our credit facility, general market and business conditions, and applicable legal requirements.
Financing Arrangements
At December 31, 2025, we had $511.0 million outstanding under our Amended Credit Agreement, as discussed below.
The company has a $700 million Revolver and a $400 million Term Loan, subject to the terms of the Amended Credit Agreement, both of which mature on July 30, 2030. The Term Loan is subject to scheduled quarterly amortization payments of $5.0 million which began September 30, 2025 and continue through the maturity date of July 30, 2030, at which time the outstanding principal balance and all accrued interest will be due. The Amended Credit Agreement amended and restated the Existing Credit Agreement in its entirety.
Fees and interest on borrowings under the Amended Credit Agreement vary based on our Consolidated Leverage Ratio (as defined in the Amended Credit Agreement). At our option, these borrowings will bear interest at one, three or six month Term SOFR or an alternate base rate, in each case plus the applicable margin. The applicable margin will fluctuate between 1.250% per annum and 1.875% per annum, in the case of Term SOFR borrowings, or between 0.250% per annum and 0.875% per annum, in the case of base rate loans, based upon our Consolidated Leverage Ratio at such time.
Amounts borrowed under the Amended Credit Agreement may be prepaid at any time without premium or penalty. We are required to prepay the amounts outstanding under the Amended Credit Agreement in certain circumstances, including upon an Event of Default (as defined in the Amended Credit Agreement). In addition, we have the right to permanently reduce or terminate the unused portion of the commitments provided under the Amended Credit Agreement at any time.
The Amended Credit Agreement contains usual and customary representations and warranties; affirmative and negative covenants, which include limitations on liens, investments, additional indebtedness, and restricted payments; and two quarterly financial covenants as follows: (i) a maximum Consolidated Leverage Ratio (defined as the ratio of debt to consolidated EBITDA) of 3.75 to 1.00; however the maximum permitted Consolidated Leverage Ratio will increase to 4.25 to 1.00 upon the occurrence of a Qualified Acquisition (as defined in the Amended Credit Agreement), and (ii) a minimum Consolidated Interest Coverage Ratio (defined as the ratio of consolidated EBITDA to interest) of 3.00 to 1.00. Consolidated EBITDA for purposes of the financial covenants is calculated on a continuing operations basis and includes adjustments to add back non-cash goodwill impairment charges, share-based compensation costs, certain non-cash restructuring charges, pro forma historical EBITDA for businesses acquired, and other specified items in accordance with the Amended Credit Agreement. For purposes of the Consolidated Leverage Ratio, total debt is on a gross basis and is not netted against our cash balances. At December 31, 2025 and December 31, 2024, we were in compliance with these financial covenants. Our Consolidated Leverage Ratio as of December 31, 2025 was 1.93 to 1.00, compared to 1.39 to 1.00 as of December 31, 2024. Our Consolidated Interest Coverage Ratio as of December 31, 2025 was 8.12 to 1.00, compared to 10.50 to 1.00 as of December 31, 2024.
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The Amended Credit Agreement contains restricted payment provisions, including a potential limit on the amount of dividends we may pay. Pursuant to the terms of the Amended Credit Agreement, if our Consolidated Leverage Ratio is greater than 3.50, the amount of dividends and other Restricted Payments (as defined in the Amended Credit Agreement) we may pay is limited to an amount up to $50 million.
Borrowings outstanding under the Amended Credit Agreement at December 31, 2025 totaled $511.0 million, consisting of $121.0 million outstanding under the Revolver and $390.0 million outstanding under the Term Loan.
Borrowings outstanding under the Existing Credit Agreement at December 31, 2024 totaled $357.7 million, consisting of $93.0 million outstanding under the senior secured revolving credit facility of the Existing Credit Agreement and $264.7 million outstanding under the senior secured term loan facility of the Existing Credit Agreement.
These borrowings carried a weighted average interest rate of 5.3% at December 31, 2025 and 4.7% at December 31, 2024 including the impact of the interest rate swaps described in Note 12 “Derivative Instruments and Hedging Activity" within the notes to the consolidated financial statements.
The borrowing capacity under the Revolver is reduced by any outstanding borrowings under the agreement and outstanding letters of credit. At both December 31, 2025 and 2024, we had outstanding letters of credit totaling $0.4 million, which are used as security deposits for our office facilities. As of December 31, 2025 and 2024, the unused borrowing capacity under the Revolver was $578.6 million and $506.6 million, respectively.
Refer to Note 7 “Financing Arrangements” within the notes to the consolidated financial statements for additional information on our senior secured credit facility. For a discussion of certain risks and uncertainties related to the Amended Credit Agreement, see Part I—Item 1A. “Risk Factors.”
Future Financing Needs
Our primary financing need is to fund our long-term growth. Our growth strategy is to expand our service offerings, which may require investments in new hires, acquisitions of complementary businesses, possible expansion into other geographic areas, and related capital expenditures.
We believe our internally generated liquidity, together with our available cash and the borrowing capacity available under our senior secured credit facility will be adequate to support our current financing needs and long-term growth strategy. Our ability to secure additional financing in the future, if needed, will depend on several factors, including our future profitability, the quality of our accounts receivable and unbilled services, our relative levels of debt and equity, and the overall condition of the credit markets.
OFF-BALANCE SHEET ARRANGEMENTS
We are not a party to any material off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our significant accounting policies are discussed in Note 2 “Summary of Significant Accounting Policies” within the notes to our consolidated financial statements. We regularly review our financial reporting and disclosure practices and accounting policies to ensure that our financial reporting and disclosures provide accurate information relative to the current economic and business environment. The preparation of financial statements in conformity with GAAP requires management to make assessments, estimates, and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Critical accounting policies and estimates are those policies and estimates that we believe present the most complex or subjective measurements and have the most potential to impact our financial position and operating results. While all decisions regarding accounting policies and estimates are important, we believe that there are five accounting policies and estimates that could be considered critical: revenue recognition, allowances for doubtful accounts and unbilled services, business combinations, carrying values of goodwill and other intangible assets, and accounting for income taxes.
Revenue Recognition
We generate substantially all of our revenues from providing professional services to our clients. We also generate revenues from software licenses, software support and maintenance and subscriptions to our cloud-based analytic tools and solutions, speaking engagements, conferences, and publications.
Our revenue is generated under four types of billing arrangements: fixed-fee; time-and-expense; performance-based; and software support, maintenance and subscriptions. Determining the method and amount of revenue to recognize requires us to make judgments and estimates.
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Specifically, multiple performance obligation arrangements require us to allocate the total transaction price to each performance obligation based on its relative standalone selling price, for which we rely on our overall pricing objectives, taking into consideration market conditions and other factors. Provisions are recorded for the estimated realization on all engagements, including engagements for which fees are subject to review by the bankruptcy courts. We continually evaluate our estimates of the provisions based on available information and experiences. Additionally, when accounting for fixed-fee and performance-based billing arrangements, we must make additional judgments and estimates as further described below.
In fixed-fee billing arrangements for professional services, we agree to a pre-established fee in exchange for a predetermined set of professional services. We set the fees based on our estimates of the costs and timing for completing the engagements. We generally recognize revenues under fixed-fee billing arrangements using a proportionate performance approach, which is based on work completed to date versus our estimates of the total services to be provided under the engagement. Estimates of total engagement revenues and cost of services are monitored regularly during the term of the engagement. Any increased or unexpected costs or unanticipated delays in connection with the performance of these engagements could make these contracts less profitable or unprofitable.
In performance-based billing arrangements, fees are tied to the attainment of contractually defined objectives. We enter into performance-based engagements in essentially two forms. First, we generally earn fees that are directly related to the savings formally acknowledged by the client as a result of adopting our recommendations for improving operational and cost effectiveness in the areas we review. Second, we earn a success fee when and if certain predefined outcomes occur. We recognize revenue under performance-based billing arrangements using the following steps: 1) estimate variable consideration using either the expected value method or the most likely amount method, as appropriate, 2) apply a constraint to the estimated variable consideration to limit the amount that could be reversed when the uncertainty is resolved (the “constraint”), and 3) recognize revenue of estimated variable consideration, net of the constraint, based on work completed to date versus our estimates of the total services to be provided under the engagement. Our estimates are monitored throughout the life of each contract and are based on an assessment of our anticipated performance, historical experience, and other information available at the time. While we believe that the estimates and assumptions we use for revenue recognition for performance-based billing arrangements are reasonable, subsequent changes could materially impact our results of operations.
See Note 2 “Summary of Significant Accounting Policies” within the notes to the consolidated financial statements for additional information on our revenue recognition accounting policy.
Allowances for Doubtful Accounts and Unbilled Services
We maintain allowances for doubtful accounts and for services performed but not yet billed based on several factors, including the estimated cash realization from amounts due from clients, an assessment of a client’s ability to make required payments, and the historical percentages of fee adjustments and write-offs by age of receivables and unbilled services. The allowances are assessed by management on a regular basis. These estimates may differ from actual results. If the financial condition of a client deteriorates in the future, impacting the client’s ability to make payments, an increase to our allowance might be required or our allowance may not be sufficient to cover actual write-offs.
We record the provision for doubtful accounts and unbilled services as a reduction in revenue. To the extent we write-off accounts receivable due to a client’s inability to pay, the charge is recognized as a component of selling, general and administrative expenses.
Business Combinations
We use the acquisition method of accounting for business combinations . The assets acquired and liabilities assumed in a business combination, including identifiable intangible assets, are recorded at their estimated fair values as of the acquisition date, with the exception of contract assets and liabilities which are recognized and measured in accordance with our revenue recognition accounting policy described in Note 2 “Summary of Significant Accounting Policies” within the notes to the consolidated financial statements . Goodwill is recorded as the excess of the fair value of consideration transferred, including any contingent consideration, over the net value of the assets acquired and liabilities assumed. We base the fair values of identifiable intangible assets on detailed valuations that require management to make significant judgments, estimates, and assumptions, such as the expected future cash flows to be derived from the intangible assets, discount rates that reflect the risk factors associated with future cash flows, and estimates of useful lives.
We measure and recognize contingent consideration at fair value as of the acquisition date. We estimate the fair value of contingent consideration based on either a probability-weighted assessment of the specific financial performance targets being achieved or a Monte Carlo simulation model, as appropriate. These fair value measurements require the use of significant judgments, estimates, and assumptions, including financial performance projections and discount rates. The fair value of the contingent consideration is reassessed quarterly based on assumptions used in our latest financial projections and input provided by practice leaders and management, with any change in the fair value estimate recorded in earnings in that period. Increases or decreases in the fair value of contingent consideration liabilities resulting from changes in the estimates or assumptions could materially impact the financial statements.
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See Note 3 “Acquisitions and Divestiture” within the notes to our consolidated financial statements for additional information on our acquisitions and Note 13 “Fair Value of Financial Instruments” within the notes to our consolidated financial statements for additional information on our contingent consideration liabilities.
Carrying Values of Goodwill and Other Intangible Assets
We test goodwill for impairment, at the reporting unit level, annually and whenever events or circumstances make it more likely than not that an impairment may have occurred. We perform our annual goodwill impairment test as of November 30 and monitor for interim triggering events on an ongoing basis. A reporting unit is an operating segment or one level below an operating segment (referred to as a component) to which goodwill is assigned when initially recorded. We assign goodwill to reporting units based on our integration plans and the expected synergies resulting from the acquisition. As of December 31, 2025, we have three reporting units: Healthcare, Education, and Commercial.
Under GAAP, we have the option to first assess qualitative factors to determine whether the existence of current events or circumstances would lead to a determination that it is more likely than not that the fair value of one or more of our reporting units is greater than its carrying value. If we determine it is more likely than not that the fair value of a reporting unit is greater than its carrying value, no further testing is necessary. However, if we conclude otherwise, then we are required to perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying value of the reporting unit. If the fair value of the reporting unit is less than its carrying value, an impairment charge is recorded in an amount equal to that difference with the loss not to exceed the total amount of goodwill allocated to the reporting unit.
We determine the fair value of our reporting units using a combination of the income approach and the market approach. For a company such as ours, the income and market approaches will generally provide the most reliable indications of fair value because the value of such companies is dependent on their ability to generate earnings.
In the income approach, we utilize a discounted cash flow analysis, which involves estimating the expected after-tax cash flows that will be generated by each reporting unit and then discounting those cash flows to present value, reflecting the relevant risks associated with each reporting unit and the time value of money. This approach requires the use of significant estimates and assumptions, including forecasted revenue growth rates, forecasted EBITDA margins, and discount rates. Our forecasts are based on historical experience, current backlog, expected market demand, and other industry information.
In the market approach, we utilize the guideline company method, which involves calculating EBITDA multiples based on operating data from guideline publicly traded companies. Multiples derived from guideline companies provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for a company. These multiples are evaluated and adjusted based on specific characteristics of the reporting units relative to the selected guideline companies and applied to the reporting units' operating data to arrive at an indication of value.
The following is a discussion of the goodwill impairment test performed during 2025.
Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2025 for our three reporting units: Healthcare, Education, and Commercial. We performed a qualitative assessment over all reporting units to determine if it was more likely than not the respective fair values of these reporting units were less than their carrying amounts, including goodwill.
For our qualitative assessment, we considered the most recent quantitative analysis performed for each reporting unit, which was as of November 30, 2024, including the key assumptions used within that analysis, the indicated fair values, and the amount by which those fair values exceeded their carrying amounts. One of the key assumptions used within the prior quantitative analysis was our internal financial projections; therefore, we considered the actual performance of each reporting unit during 2025 compared to the internal financial projections used, as well as specific outlooks for each reporting unit based on our most recent internal financial projections. We also reviewed the current carrying value of each reporting unit in comparison to the carrying values as of the prior quantitative analysis. In addition, we considered various factors, including macroeconomic conditions, relevant industry and market trends for each reporting unit, and other entity-specific events, that could indicate a potential change in the fair value of our reporting units or the composition of their carrying values. Based on our assessments, we determined that it was more likely than not that the fair values for each of our reporting units exceeded their respective carrying amounts. As such, the goodwill for our reporting units was not considered impaired as of November 30, 2025, and a quantitative goodwill impairment analysis was not necessary.
The results of an impairment analysis are as of a point in time. There is no assurance that the actual future earnings or cash flows of our reporting units will be consistent with our projections. We will monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods. Any significant decline in our operations could result in non-cash goodwill impairment charges.
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The carrying value of goodwill for each of our reporting units as of December 31, 2025 is as follows (in thousands):
Reporting Unit
Carrying Value
of Goodwill
Healthcare
Education
Commercial
Total
Intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill. Our intangible assets, net of accumulated amortization, totaled $72.9 million at December 31, 2025 and primarily consist of customer relationships, technology and software, trade names, customer contracts, and non-competition agreements, all of which were acquired through business combinations. We evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable. No impairment charges for intangible assets were recorded in 2025.
Income Taxes
Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated future taxes to be paid. In determining our provision for income taxes on an interim basis, we estimate our annual effective tax rate based on information available at each interim period. Changes in applicable U.S. state, federal or foreign tax laws and regulations, or their interpretation and application, could materially affect our tax expense.
Deferred tax assets and liabilities are recorded for future tax consequences attributable to temporary differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. These deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. Deferred tax assets are reduced by a valuation allowance when, in management’s opinion, it is more likely than not that some portion or the entire deferred tax asset will not be realized. Factors considered in making this determination include the period of expiration of the tax asset, planned use of the tax asset, tax planning strategies and historical and projected taxable income as well as tax liabilities for the tax jurisdiction in which the tax asset is located. Valuation allowances will be subject to change in each future reporting period as a result of changes in one or more of these factors.
Our tax positions are subject to income tax audits by federal, state, local, and foreign tax authorities. A tax benefit from an uncertain position may be recognized in the financial statements only if it is more likely than not that the position is sustainable, based on its technical merits. We measure the tax benefit recognized as the largest amount of benefit which is more likely than not to be realized upon settlement with the taxing authority. The estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts and circumstances existing at that time. We believe that positions taken on our tax returns are fully supported. However, final determinations of prior year tax positions upon settlement with the taxing authority could be materially different from estimates. The outcome of these final determinations could have a material impact on our provision for taxes, net income, or cash flows in the period in which that determination is made.
NEW ACCOUNTING PRONOUNCEMENTS
Refer to Note 2 “Summary of Significant Accounting Policies” within the notes to the consolidated financial statements for information on new accounting pronouncements.
