休倫諮詢集團 (HURN) 2026年第三季法說會：RBR 創新高並上修 EPS 財測指引

重點摘要

• Huron Consulting Group 公布 2026 年第三季可報銷費用前營收 (RBR) 達創紀錄的 4.825 億美元，較 2025 年第三季的 4.324 億美元成長 11.6%，三大營運部門全面實現成長。
• 調整後 EBITDA 達 7,730 萬美元，佔 RBR 的 16.0%，創下該公司八年來最高的單季調整後 EBITDA 利潤率。調整後稀釋每股盈餘 (EPS) 成長 24.8% 至 2.62 美元。
• 醫療保健業務 (Healthcare) RBR 成長 16.5%，創下 2.558 億美元的新高紀錄。有機成長率為 9%，而醫療保健託管服務 RBR 幾乎翻倍，並連續第三個季度實現超過 40% 的有機成長。
• 過去六個月內，數位能力預訂額中有超過 65% 涉及直接的 AI 範疇，或由 Huron 的 AI 工具顯著提升交付效能，高於 2025 年同期的約 50%。
• 截至 9 月 30 日止的六個月內，全公司預訂額年增超過 20%，主要由醫療保健與教育業務帶動。管理層表示，這些在手訂單與潛在案源將支持公司持續成長至 2027 年。
• Huron 縮窄了全年 RBR 預測區間至 18.55 億至 18.85 億美元，並將調整後 non-GAAP EPS 預測調升至 9.20 至 9.40 美元。全年自由現金流預測更新為 1.5 億至 1.7 億美元，主因是收款時程影響。

核心財務數據

截至 9 月 30 日，Huron 擁有 8.15 億美元債務、2,560 萬美元現金，淨債務為 7.894 億美元。其槓桿比率從 6 月 30 日的 2.8 倍調整後 EBITDA 降至 2.6 倍。

Huron 在第三季以 2,630 萬美元回購了約 17.3 萬股股票。今年累計回購總額達 2.349 億美元，約 170 萬股，平均每股價格為 136 美元。截至 10 月 31 日，庫藏股授權剩餘額度為 2.559 億美元。

業務與營運表現

醫療保健業務

醫療保健業務佔全公司 RBR 的 53%。該部門 RBR 成長 16.5% 至 2.558 億美元，其中包含併購 RelateCare 與 AXIOM 帶來的 1,670 萬美元。成長反映了市場對託管服務、績效改善、財務顧問及數位方案的需求。

該部門的營業利潤率為 30.5%，相較於去年同期的 30.9%。管理層將略微下降主因歸咎於薪酬成本上升以及整合 RelateCare 所產生的費用。

醫療保健託管服務仍是主要成長動力。RBR 年增近一倍，有機成長率更連續第三個季度超過 40%。管理層表示，成長動力相當廣泛，涵蓋新客戶、現有客戶的擴大合作、績效型收入以及更高的客戶業務量。RelateCare 還在患者就醫途徑、臨床營運與檢傷分類管理方面創造了交叉銷售的機會。

教育業務

教育業務佔總 RBR 的 29%。受數位與託管服務需求的推動，營收全數以有機方式成長 6.6% 至 1.380 億美元。

營業利潤率從 25.7% 擴展至 29.1%。營收成長超越薪酬增幅，同時支援人員與技術成本下降。管理層亦提及數位交付與專有工具的使用率提高及生產力上升。

需求仍集中在數據與技術現代化、AI 賦能營運以及更具永續性的營運模式。然而，教育諮詢業務的銷售轉化率仍慢於管理層預期。

商業業務

商業業務佔 RBR 的 18%。該部門營收成長 6.4% 至 8,880 萬美元，其中包含主要來自 Wilson Perumal 的 430 萬美元新增 RBR。有機成長呈低個位數，其中諮詢業務成長約 11%，但數位業務下滑 1%。

商業業務的營業利潤率從 16.4% 降至 13.9%，反映出較高的績效獎金以及在業務開發、領導力與交付人才方面投入的 220 萬美元投資。管理層稱這些投資是前瞻性的，旨在支持 2027 年的成長，特別是在金融服務、能源與公用事業、工業以及製造業領域。

管理層財務預測

管理層預計醫療保健業務全年成長將落在 15% 以上的中高區間，部門利潤率為 30%-32%。教育業務仍按計畫實現中高個位數成長，利潤率表現趨向甚至可能超越先前預測區間的上限。商業業務成長最終可能達到低雙位數，利潤率則接近先前 19%-21% 區間的下限。

風險與關注焦點

• 全年自由現金流預測反映出合約時程下的收款延遲，包括某個多年期專案的付款時程修訂，以及醫療保健績效型費用佔比上升。管理層預計相關營運資金將於 2027 年收回。
• 績效型合約預計將繼續在醫療保健營收中佔據高比例。管理層表示，該比例已在 2026 年移向 20% 出頭至中段區間，相較於歷史上的約 20%，這增加了營運資金需求。
• 商業數位業務營收下滑 1%，主因部分 AI 相關及其他專案結案與啟動的時間長於預期。商業部門的利潤率亦持續受到成長投資的影響。
• 高等教育客戶持續面臨招生、人口結構變遷、資金、成本及監管方面的壓力，而教育諮詢業務的銷售轉化率亦慢於預估。
• 醫療保健提供者面臨持續的人力與成本壓力、給付機制變更，以及預計將於 2027 年生效的更嚴格醫療補助 (Medicaid) 資格與給付規定。

分析師問答亮點

AI 需求與應用場景：管理層表示，在經歷 2025 年底和 2026 年初的觀望後，客戶在啟動 AI 專案方面變得更加主動。應用場景包括 AI 治理、數位分身、數據準備、ERP 相關效率提升、企業績效管理，以及醫療保健領域的臨床與行政應用。

預訂額與 2027 年能見度：過去六個月預訂額成長超過 20%，主由醫療保健與教育業務領頭。商業預訂額則呈中個位數成長。管理層表示，整體預訂額水準可支持第四季預測，並為 2027 年的成長奠定基礎。

醫療保健前景：管理層預計 2027 年對醫療提供者客戶而言將更具挑戰性，因為 Medicaid 的變革與《平價醫療法案》的投保壓力可能會增加未獲支付的醫療費用。公司認為這些情況應能支撐對績效改善與託管服務的需求。

託管服務利潤率：醫療保健託管服務的利潤率大致符合整體部門的平均水準。管理層將改善歸因於成果導向合約、全球交付資源、自動化、AI 以及更好的固定成本吸收效益。

利用率與生產力：管理層表示第三季的利用率水準具永續性，儘管已接近預期的高點。諮詢業務利用率為 76%，數位業務利用率則達 81%。隨著生產力計畫持續推進，Huron 預計營收成長速度將快於員工人數成長。

電話會議完整逐字稿

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完整財報電話會議逐字稿

管理層陳述

Operator

Good afternoon, and welcome to Huron Consulting Group's webcast to discuss financial results for the third quarter of 2026. [Operator Instructions] As a reminder, this conference call is being recorded.

Before we begin, I would like to point all of you to the disclosure at the end of the company's news release for information about any forward-looking statements that may be made or discussed on this call. The news release is posted on Huron's website. Please review that information along with the filings with the SEC for a disclosure of factors that may impact subjects discussed in this afternoon's webcast.

The company will be discussing 1 or more non-GAAP financial measures. Please look at the earnings release and on Huron's website for all of the disclosures required by the SEC, including reconciliation to the most comparable GAAP numbers.

And now I would like to turn the call over to Mike -- Mark Hussey, Chief Executive Officer and President of Huron Consulting Group.

Mr. Hussey, please go ahead.

C. Hussey

Good afternoon, and welcome to Huron Consulting Group's Third Quarter 2026 Earnings Call. With me today are John Kelly, our Chief Financial Officer; and Ronnie Dail, our Chief Operating Officer. We achieved record revenues before reimbursable expenses or RBR in the third quarter of 2026, reflecting 12% growth over the third quarter of 2025. Our third quarter performance was driven by organic growth across all 3 of our operating segments and double-digit percentage growth in both our Consulting and Managed Services and our Digital capabilities.

AI continues to drive demand for our digital services. In the trailing 6 months of 2026, greater than 65% of our Digital capability bookings involve direct AI scope, and delivery that was significantly enabled by our AI tools, and that was up from approximately 50% in the same period in 2025. Our third quarter results continue our strong multiyear performance and further demonstrate the consistent execution by our highly talented global team as well as the differentiation of our industry-focused proprietary offerings.

Combined with our year-to-date performance, our strong backlog and pipeline give us confidence to narrow our full year RBR guidance range and raise our earnings guidance. At the midpoint, our updated guidance continues to reflect year-over-year double-digit RBR growth and continued margin expansion while establishing a solid base for continued growth in 2027.

Now I'll share some additional insights into our third quarter performance. In the Healthcare segment, we achieved record RBR in the third quarter. RBR grew 16% (sic) [ 16.5% ] for the third quarter of 2025 (sic) [ 2026 ] and which was on top of 20% growth in Q3 2025 over Q3 of 2024. The increase in RBR in the quarter was driven by strong demand for our Managed Services, performance improvement, financial advisory, and digital offerings as well as incremental RBR from our acquisitions. Excluding the impact of the acquisitions, organic RBR growth for the Healthcare segment was 9% in Q3 2026 compared to Q3 2025.

Underlying market conditions remain favorable for driving strong demand for our Healthcare business. Healthcare systems and hospitals continue to operate in a challenging environment characterized by persistent cost and workforce pressures, evolving reimbursement models, and increasing expectations to improve access, outcomes, and the patient experience. Healthcare industry is also preparing for the next phase of the OBBBA, which takes effect in 2027 and includes stricter requirements related to Medicaid eligibility and reimbursement.

We believe the impending regulatory changes together with the broader structural challenges facing health care providers will drive continued demand for our Healthcare business. Our comprehensive portfolio of offerings across Consulting, Digital, and Managed Services positions us well to address each client's distinct challenges. We believe our multiyear track record of proven results, coupled with our proprietary data and methodologies and delivered by our highly experienced team provides a strong competitive advantage for Huron, so our clients build a more sustainable future for their organizations.

I'd also like to highlight the performance of our Healthcare Managed Services business, for which RBR nearly doubled the third quarter of 2026 compared to the third quarter of 2025. Q3 2026 marked the third consecutive quarter of 40% plus organic year-over-year revenue growth for this team. The strong steady growth is reflective of the recurring nature of this offering and our outcomes-based approach that consistently delivers meaningful, positive financial and operational results for our clients.

Beyond the impressive growth in financial performance, we're pleased with how this business has organically expanded into a broader scope of functional areas, enhanced through our acquisition of RelateCare earlier this year. Our Healthcare Managed Services team has also delivered with the highest quality, achieving a Net Promoter Score of 92, which far exceeds the industry benchmark and states the clear value that we're delivering for our clients.

Next turning to the Education segment. In the third quarter of 2026, Education RBR grew nearly 7% compared to the third quarter of 2025, driven by strong demand for our Digital and Managed Services offerings. Higher education institutions continue to navigate a broad array of pressures, including demographic headwinds, enrollment challenges, and cost and revenue pressures. Uncertainty also remains around research funding in the midst of growing regulatory complexity.

Institutions are also grappling with the risks and opportunities resulting from rapid advances in AI across their workflows and their learning environments. Increasingly, these challenges require institutions to simultaneously rethink their strategies and business models while preserving a clear focus on achieving their missions. We continue to see robust demand for digital transformation engagements as clients seek to modernize their data and technology foundations, build AI-enabled operations and create a more sustainable operating model.

As institutions make increasingly consequential decisions about their future, we believe the depth of our expertise, the breadth of our capabilities and the deep relationships built over decades provide Huron with a strong competitive advantage. We remain confident in our ability to help clients navigate this period of transformation, while continuing to build upon our competitive position in the education market.

Now moving to the Commercial segment. Third quarter Commercial RBR grew 6% (sic) [ 6.4% ] over the prior year quarter. The increase in RBR was driven by our Q3 2025 acquisition of Wilson Perumal as well as continued organic growth from our strategy offerings. Commercial organizations are navigating an increasingly complex operating environment marked by cost and productivity pressures, rapid advances in technology and AI, evolving customer expectations, and continued economic and regulatory uncertainty.

These challenges are increasingly interconnected, requiring partners that can bring together deep industry expertise across a wide array of capabilities. Similar to our Healthcare and Education businesses, we believe the growing breadth of our capabilities, along with an increasing depth of industry expertise, positions us well to help clients address these challenges with end-to-end solutions across our Commercial segment.

Over the past several years, we've strategically strengthened our Commercial business by investing in the expansion of our capabilities and industry expertise, and importantly, creating greater connectivity across our businesses. Wilson Perumal acquisition completed just over a year ago is a great example. Wilson Perumal's expertise in driving performance improvement through managing the strategic and operational impact of complexity on businesses complements our strategy, financial advisory, and digital offerings.

Together, we're creating a strategy to execution, value proposition to help our clients understand and reduce complexity that erodes value in their businesses. We've seen the benefits of the strategy in the market, greater collaboration across our teams is expanding how we engage with clients, strengthening our competitive differentiation, and creating new opportunities to serve them across a full range of needs. We believe this combination of deep industry expertise, broader capabilities, and a collaborative go-to-market approach provides a strong platform for continued growth in our Commercial segment.

Now let me turn to our outlook for the year. Today, we're updating our annual guidance by narrowing our RBR guidance range to a $30 million range of $1.855 billion to $1.885 billion, affirming our adjusted EBITDA guidance range of 14.5% to 15% and increasing and narrowing our adjusted non-GAAP EPS to a range of $9.20 to $9.40. We're pleased with our performance to date in 2026 and the midpoint of our RBR guidance reflects our expectation of continued strong growth in the fourth quarter, consistent with our backlog and pipeline.

We remain focused on advancing our growth strategy and executing with discipline to deliver strong financial performance for our business and for our shareholders. And now let me turn it over to John for a more detailed discussion of our financial results. John?

John Kelly

Thank you, Mark, and good afternoon, everyone. Before I begin, please note that I will be discussing non-GAAP financial measures, such as EBITDA, adjusted EBITDA, adjusted net income, adjusted EPS, and free cash flow. Our press release, 10-Q, and Investor Relations page on the Huron website have reconciliations of these non-GAAP measures to the most comparable GAAP measures, along with the discussion of why management uses these non-GAAP measures and why management believes they provide useful information to investors regarding our financial condition and operating results.

Before discussing our financial results for the quarter, I would like to discuss 1 housekeeping item: our Healthcare segment results do include a full quarter of operating results from our acquisition of RelateCare which closed in June of this year.

Now I'll share some of the key financial results for the third quarter. Third quarter of 2026 produced record RBR of $482.5 million, up 11.6% from $432.4 million in the same quarter of 2025. The increase in RBR for the quarter was driven by growth across all 3 operating segments, a double-digit percentage growth in both our Consulting and Managed Services and our Digital capabilities. Net income for the third quarter of 2026 was $28.4 million or $1.75 per diluted share compared to net income of $30.4 million or $1.71 per diluted share in the third quarter of 2025.

As a percentage of total revenues, net income decreased to 5.8% in the third quarter of 2026, and compared to 6.9% in the third quarter of 2025. Diluted earnings per share in the third quarter of 2026 reflects noncash credit loss recognized on our convertible debt investment in a third party, which had a $0.36 unfavorable impact on diluted earnings per share for the quarter. Our effective tax rate in the third quarter of 2026 was 32.9%, which is less favorable than the statutory rate, inclusive of state income taxes, primarily due to certain nondeductible expense items and the inability to recognize tax benefits related to the credit loss recognized on our convertible debt investment in the third party.

We now expect a full year effective tax rate between 27% and 29%. Adjusted EBITDA was $77.3 million in Q3 2026 or 16% of RBR compared to $67.4 million in Q3 2025, or 15.6% of RBR. The 16% adjusted EBITDA margin is our highest quarterly adjusted EBITDA margin in the last 8 years. Increase in adjusted EBITDA was primarily attributable to increases in Healthcare and Education segment operating income, excluding the impact of segment depreciation and amortization and segment restructuring charges, partially offset by an increase in certain unallocated corporate expenses.

The increase in adjusted EBITDA margin to 16% from 15.6% and in the prior year period is reflective of an increase in Education segment operating income margin, scaling of our unallocated SG&A expenses. Adjusted net income was $42.6 million or $2.62 per diluted share in Q3 2026 compared to $37.4 million or $2.10 per diluted share in the third quarter of 2025, growing adjusted diluted earnings per share by 24.8% year-over-year.

Now I'll discuss the performance of each of our operating segments. The Healthcare segment generated 53% of total company RBR during the third quarter of 2026. Segment posted record RBR of $255.8 million, up $36.2 million or 16.5% from the third quarter of 2025, driven by strong demand for our Managed Services, performance improvement, financial advisory and Digital offerings as well as incremental RBR from our acquisitions. RBR in the third quarter of 2026 included $16.7 million from our acquisitions of RelateCare and [ AXIOM. ]

Operating income margin for the Healthcare segment was 30.5% in Q3 2026 compared to 30.9% in Q3 2025. Slight decrease in segment operating income margin was primarily driven by an increase in total compensation expense as a percentage of RBR and includes the impact of the integration of RelateCare into our business. We have maintained strong margin performance in 2025 and into the first 9 months of 2026, reflective of the highly disciplined execution delivered by our Healthcare team. The Education segment generated 29% of total company RBR during the third quarter of 2026. Education segment RBR in the third quarter of 2026 was $138 million, up $8.6 million or 6.6% compared to the third quarter of 2025.

The increase in RBR was entirely organic and driven by strong demand for our Digital and Managed Services offerings. The operating income margin for Education increased to 29.1% for Q3 2026 compared to 25.7% for the third quarter of 2025. The increase was primarily driven by revenue growth that outpaced the increase in salaries and related expenses for our revenue-generating professionals and decreases in salaries and related expenses for our support personnel and technology costs.

The Commercial segment generated 18% of total company RBR during the third quarter of 2026. Commercial segment RBR was $88.8 million in Q3 2026, up $5.4 million or 6.4% from the third quarter of 2025. The increase in RBR reflects $4.3 million of incremental RBR primarily from our acquisition of Wilson Perumal, as well as strong demand for our strategy offerings. Operating income margin for the Commercial segment was 13.9% for Q3 2026 compared to 16.4% in the same quarter in 2025. The decrease was primarily driven by increases in performance bonus expenses, reflecting increased full year performance expectations for certain teams within the segment.

In addition to the increase in performance bonus expense, the decline in margin also reflects continued investment in key business development, leadership, and delivery talent that we expect to drive above company average growth in 2027. These growth-oriented investments totaled $2.2 million or 2.5% of segment RBR for Q4 (sic) [ Q3 ]. Corporate expenses not allocated at the segment level, excluding restructuring charges, were $58.7 million in Q3 2026 compared to $56.5 million in Q3 2025. Unallocated corporate expenses in the third quarter of 2026, included income of $200,000 compared to expense of $2.7 million in Q3 2025 related to the changes in the liability of our deferred compensation plan, which are offset by the change in fair value of the investment assets used to fund that plan reflected in other income.

Excluding the impact of the deferred compensation plan in both periods, unallocated corporate expenses increased approximately $5.1 million, primarily driven by increases in compensation costs for our support personnel, software and data hosting expenses, partially offset by a decrease in legal expenses.

Now turning to the balance sheet and cash flows. DSO came in at 83 days for the third quarter of 2026 compared to 79 days in the second quarter of 2026. The increase when compared to the second quarter of 2026, is primarily attributable to the impact of collections on certain Healthcare projects in alignment with the contractual payment schedules.

Cash flow from operations in the third quarter of 2026 was $57 million compared to $93.8 million in the prior year period. During the third quarter of 2026, we used $7.9 million to invest in capital expenditures, inclusive of internally developed software costs, resulting in free cash flow of $49.1 million. We now expect full year free cash flow to be in a range of $150 million to $170 million. Net cash taxes and interest and excluding noncash stock compensation. This update primarily reflects the timing of collections, including a revised payment schedule on a specific multiyear engagement and a higher mix of performance improvement projects with performance-based fee elements within our Healthcare segment during 2026.

We expect to collect working capital related to such projects in 2027 in accordance with our contractual terms. Our leverage ratio as defined in our senior bank agreement, was 2.6x adjusted EBITDA as of September 30, 2026 compared to 2.8x as of June 30, 2026. We remain confident that we are on track to achieving a leverage ratio between 2x and 2.5x by the end of 2026, in alignment with the capital allocation strategy outlined in our most recent Investor Day. Total debt as of September 30, 2026, was $815 million, consisting entirely of our senior bank debt. We finished the quarter with cash of $25.6 million for net debt of $789.4 million.

This was a $13.4 million decrease in net debt compared to Q2 2026, which incorporates the share repurchases made during the quarter. In the third quarter of 2026, we used $26.3 million to repurchase approximately 173,000 shares bringing our total year-to-date repurchases to $234.9 million or approximately 1.7 million shares, reflecting an average repurchase price of $136 per share. Year-to-date repurchases represent 10% of our common stock outstanding as of December 31, 2025.

As of October 31, 2026, $255.9 million remained available for share repurchases, inclusive of the $200 million increase authorized by our Board of Directors in October 2026. Finally, let me turn to our guidance for full year 2026. As Mark mentioned, today, we are updating our annual guidance by narrowing our RBR guidance to a range of $1.855 billion to $1.885 billion, affirming our adjusted EBITDA guidance range of 14.5% to 15%, and increasing and narrowing our adjusted non-GAAP EPS to a range of $9.20 to $9.40.

Thanks, everyone. I would now like to open the call to questions. Operator?

Operator

[Operator Instructions] Our first question comes from the line of Andrew Nicholas of William Blair.

分析師問答

Andrew Nicholas

To start with the Commercial, a little bit of a weaker quarter on an organic basis. Could you unpack what kind of businesses within that segment did during the quarter? And then maybe speak a little bit more to the investments that you described. Are there specific areas that you're focused on with those investments? And I guess, relatedly, are those investments in response to recent results or kind of[ proactive ] to spurring growth next year?

John Kelly

Yes. Andrew, I can start with just the question about the growth rate for the quarter. So from an organic perspective, Consulting overall was up about 11%. And we talked on the last call, about expecting the growth rate within Consulting to moderate from where it was earlier in the year. And that moderation primarily came from the restructuring and turnaround business where they add a couple of large assignments in the first half of the year that really drove above-average growth that normalized during the third quarter and landed more in this low double-digit percent range.

From a Digital perspective, it was down 1%, so roughly flat during the quarter. Our commentary there is, from a pipeline perspective, we see significant growth in terms of pipeline. We see good opportunities. We see continued opportunities as it relates to AI enablement projects or helping clients with AI use case projects just the execution on closing out some of those projects and getting them started was a little bit behind what our expectations were for the quarter, which led to the roughly flat results in the third quarter. The Digital part of the business is a bigger mix within commercial. So the net of all that was the low single-digit organic growth rate.

C. Hussey

Yes. Let me add on the second part of your question, Andrew. I think the -- these are not at all in response to anything in the quarter. In fact, if you turn the clock back a couple of years at least for the multiyear journey we've been building our Commercial business into a much more, call it, industry focused, enablement on an end-to-end basis. And so I mean, even turning back clock to like, AXIA, we did, which was more in the Digital area.

But more recently, if I answer your question specifically, we have now gotten to the time where the capability across the businesses for reaching the scale that the addition of deeper industry expertise in a number of the verticals makes a lot of sense for us because now we can leverage across the full set of capabilities we have, and so what you're seeing is some of the anticipation of growth in 2027, some of the investments where we're bringing in leaders to help us scale from an industry perspective.

Andrew Nicholas

Very helpful. And then you touched on it at various points during the prepared remarks also in response to my last question. But just broadly on pipeline development, any areas that are especially strong or accelerating or on the other side of the coin, softening a little bit relative to what you described last quarter. It sounds like general bookings are good. But any color there would be great.

John Kelly

Yes, Andrew, from a -- maybe I'll just start from an overall perspective. From an overall company-wide bookings perspective, for the trailing 6-month period ended September 30. Bookings were up 20% year-over-year -- over 20% year-over-year. I think the strength of those bookings, that's not only helpful in terms of delivering the fourth quarter guidance, but we also feel good that, that really helps set the table for the next leg of growth as we start to think about 2027.

In terms of the areas, I would say the majority of the bookings strength there was within the Healthcare and Education segment. And importantly, Digital within both of those segments was a key part of that. Within Healthcare, it was also broader in terms of performance improvement and the Managed Services offerings. And then on the Education side of the shop. I think the strength was really Digital and Managed Services. There was growth in terms of bookings for the Consulting part of the business, but we continue to see a little bit of a slower than we expected sales conversion rate within Consulting and Education.

And then from a Commercial perspective, that was more in the mid-single-digit range percent in terms of increase in bookings during the 6 months ended 9/30 versus a year ago. And what's in there, I'd say it was pretty well balanced between the different lines of business within the Commercial segment.

Operator

Our next question comes from the line of Tobey Sommer of Truist Securities.

Tobey Sommer

I wanted to ask a question about Healthcare and PI specifically. The order of the magnitude of change in terms of enrollment in insurance rules, the Affordable Care Act this year, that changed compared to the another leg down that is forecast in the Medicaid and the 340B drug pricing? Which year between this year and next is harder on your clients? Just trying to get a sense for what you may hear from them in the coming months or if we turn the calendar to '27?

C. Hussey

Tobey, I think you could say next year, we expect to be harder because what you're going to see is a lot of that Medicaid rolls to come back in the form of unreimbursed care. And you've got compounded by some of the ACA pressures that you've seen on enrollment. So I think it's been well expected for some period of time. But I think until you really get into it and see magnitude. So we expect '27 should be a very strong year from a Healthcare perspective, especially because now we will be into the new parts of the regulation that will take effect January 1.

Tobey Sommer

On Managed Services, maybe -- are there new services within there that you're expecting to offer your customers? Perhaps I'm kind of curious what the next modules of revenue cycle that you think the company is getting more receptivity and adoption from your customers to drive growth in '27 and '28?

C. Hussey

Well, I think the first thing to understand is that we have both end-to-end revenue cycle where we kind of lift and shift and re-badge their people and then execute under, call it, outcomes-based, performance-based contracts. But I would say an increasing number is on our point solutions that are on various parts of the revenue cycle. And then I would say with businesses like we just acquired with RelateCare, what you're seeing is an extension into some of the access areas.

And so I think there is quite a bit of adjacency that's still left to be -- left to be executed there. So I think really within, call it, both the traditional revenue cycle as well as getting into some of the access related clinical operations and just some of the triage management are definitely areas that we see really good opportunities.

Tobey Sommer

Last one for me. Margins in Managed Services going forward. Could you give us your outlook there kind of not just for the fourth quarter, but a little bit longer term and broad strokes, please?

John Kelly

Yes. Tobey, this is John. I would say, from our perspective, this has been 1 of the really great parts of our Managed Services business story over the past few years. We've seen steady margin improvement in that business. And when you think about our Healthcare Managed Services, the margin profile segment level for our Managed Services offering are generally in line with the overall segment average. They tend to be a little bit below the performance improvement, Consulting, which has its performance-based fee opportunities and above the Digital offerings, which tend to blend a little bit lower.

And when we first got into the Managed Services business, at this point, 7 years ago, that wasn't the expectation. We actually, at that point, were thinking that the Managed Services business would be high growth, which has proven to be, but that would blend in at a lower margin rate. So it's been a really positive change for us. In terms of what is unlocked that margin growth, I think it's a few things. But first and foremost, it's the outcomes-based approach that our teams take with our clients.

So we're very focused on delivering key financial and operational metrics for our clients and to the extent that we're successful in doing that. That creates opportunity for us to expand our revenue on those projects. But as well, our team has done a great job of taking advantage of our global resources. And then this is an area where I think across the entire company, when we look at the advancements we made in automation using AI. The team has also shown great leadership in those areas too.

So you put all those things together and plus just some nice scaling now of the fixed components of the SG&A for that business. It's proven to be really margin accretive to us, coupled with the strong growth rates that Mark highlighted in his remarks.

C. Hussey

And of course, the recurring nature.

John Kelly

Yes.

Operator

Our next question comes from the line of Bill Sutherland of StoneX Financial.

William Sutherland

I can't help but notice the sequential trend in headcount, professional headcount in Education down a bit in the 9 months and then a nice expansion in margin over the same 3 quarters. And just wondering about that relationship or whether there's other factors? And also how you're thinking about headcount planning for Education going forward?

John Kelly

Yes. So this is -- I'll touch on Education. I think it's a broader comment, though, really across the company too, right? The Education headcount was down. I think generally speaking, if you're looking sequentially, excluding Managed Services, our headcount was roughly flat across the entire business. And I think the story behind that is, during the quarter, we were able to hit our growth objectives for the quarter as well as keeping an eye on our fourth quarter expectations, really with the scale of the current team that we have.

And so some of that is utilization, and you see that in the increased utilization metrics in our report. But some of that is increased productivity from our teams, too. And I'd highlight a couple of different areas where we've seen that increased productivity, delivery of digital projects. I think that's a place where we've seen some fairly rapid advancement in terms of our efficiency, and delivering those projects. But then also the support teams that enable some of the revenue that we have through our proprietary tools and products, of which that's a key component of our Education business.

We've also seen increased productivity in that area, too. So I think that the combination of increased utilization plus higher per consultant productivity are really the 2 ingredients that drove our ability to both grow and to improve margins without necessarily adding the same amount of headcount. I do think you'll see us continue to add head count as we grow. But our expectation is we should be able to grow the top line as we start to think about our plans into next year at a faster pace than we're necessarily growing the headcount, primarily due to some of these initiatives we have around driving increased productivity.

William Sutherland

Got it. The -- I want to just go back to Commercial for a second, thinking about what you said about the investments you're making that you expect will take Commercial's growth above the company's average growth rate next year. And then also kind of like footing that to the situation with the pipeline. So is it -- I guess I'm sort of expecting this to be a case of some pipeline conversion that's been held up and then you'll have bookings that definitely support the cases that you're making for faster growth in '27. Is that about the right way to think about it?

C. Hussey

And I'd say, Bill, adding new pipeline as these layers come up to speed and are effectively getting into the market, and that normally takes some amount of time just to onboard kind of reacclimate with the other folks around understand the breadth of what our capabilities are. So there's always a slight delay between hitting the door on day 1 and when you're actually highly effective in the market. So based on the quality of the people that we're hiring, I feel highly confident that you'll see that acceleration.

The areas that we're building into are inherently good industry areas we've talked about in the past: financial services, energy utilities, industrials and manufacturing. Each of these have lots of good compelling opportunities, some in various parts of the business versus others. But yes, that's to me, I think you may not see it as of the end of Q3, but I certainly -- I think coming in at '27, that's our expectation.

William Sutherland

Okay. That makes sense. And then if I could sneak 1 more in. I'm thinking about what your clients are kind of grappling with adoption of different levels of AI for their whatever projects they are putting out there or trying to move into? And is it -- to what degree is it having an impact on the sales cycle, decision-making process or maybe the project implementation pace. Is there anything that you're noticing?

John Kelly

I think, Bill, we're -- I think we felt a little bit of maybe what was some hesitation on the part of clients towards the end of last year, early part of this year when that -- everyone was becoming aware of the rapid pace change with the technology and some clients wanting to make sure that whatever path, they were going down made sense in light of how the technology was evolving. I think as the year has progressed, a lot of the challenges that we've -- our clients are going through in their different industries, none of those are going away. And our clients continue to be under pressure there.

And so I think many of our clients at this point have taken more an approach of let's now start to chart the path forward, increasing confidence about how some of these tools can be used to help drive outcomes. There's a greater repository of use cases now and kind of proof of how you can use some of these tools to go and achieve some of those objectives. And I think at this point, you're seeing a little bit more assertiveness for many of our clients about now wanting to launch and wanting to -- whether that's taking advantage of some of the AI that's native to some of the big platforms that our clients implement to take advantage of that AI or whether it's working with some of the frontier firms to do more the stope building out -- bespoke building out of tools that sit on top of some of those platforms.

We see it in both ways, depending on the clients' preferences. But I think we see a shift towards more proactivity at this point versus maybe where we were a year ago.

C. Hussey

Maybe I'll Just quickly add -- go ahead, Bill.

William Sutherland

Yes. No, go ahead.

C. Hussey

I was going to just say, listen, I think the other thing we're seeing here is interesting traditional delivery of price where we've had strength as an example in the past, bringing in an AI component into what they're doing. And it really is, in many respects, automating, and accelerating speed to value for clients in important areas of their business. And so you can imagine like we've done a lot in enterprise performance management over the years. It's been a very important area that we have, very good strength across the commercial businesses and the addition of AI enablement into some of that delivery ends up being really impactful when you look across how it's deployed, like planning budgeting type approach to running the business. And so that's actually been accretive to us as well.

Operator

[Operator Instructions] Our next question comes from the line of Kevin Steinke of Barrington Research Associates.

Kevin Steinke

Just following up on the AI discussion. Wondering if you could possibly just give us the flavor as to some of the key themes or use cases that your clients are looking to deploy AI for, maybe touching on each of the segments?

C. Hussey

Yes, absolutely. Let me start again, just building on what I was just talking about from a commercial standpoint. So certainly from the range of AI governance and just the oversight of just management of the, call it the, strategy work is one that we see. But also then, I would say, when you look at it as an example, specific application like one is building out a digital twin as an example, to replicate more clients' environment and being able to kind of model around various scenarios within their environment.

Some of it is around the data and setting up integration of how you kind of get your data in shape to take advantage of that as well. I'd say in Education, it tends to be a little bit more operational focused right now. And so if you think about the implementation of ERP as an example, how do we bring either native capabilities or outside foundational elements to help them reduce costs and increase our effectiveness. And Healthcare is a little bit all over the map. I mean there's very strong demand in Healthcare. It's both the ranging from strategy to use cases across both the clinical and the administrative areas that can drive -- generally, the theme is around trying to generate returns.

Kevin Steinke

Okay. Got it. And with regard to the 40% plus organic growth you've seen with Healthcare Managed Services over the last few quarters here. I was just wondering how broad-based that's been from a client perspective? Are there a couple of larger deployments that have been driving that? Or is it broader than that? And also the same with regard to what you're seeing in the pipeline?

John Kelly

Kevin, it's broader than that. We certainly had our fair share of significant new logos that we've been able to add with larger scope that we've been able to take care of. But when I look at the growth we've seen this year, I wouldn't characterize it at all as highly concentrated to any specific new client relationships. We've had some of those, but we've also had expansion of where we're able to help our clients on some existing client relationships.

We've had achievement of some of the success metrics that we have in those projects that drive good outcomes. And then a lot of our clients that we partner with are growing as well and as they grow, we're helping them with larger and larger volumes. So you kind of put all those different dynamics together, growth at existing clients via adding new modules as well as just partnering along with that as they grow plus the adding of those new client relationships.

And I think increasingly, we're going to see the opportunity to, after our acquisition of RelateCare, to capture some synergies there as well in terms of clients that were RelateCare clients, where we're now able to also help them with revenue cycle managed services or vice versa, some of our Managed Services and Consulting clients from a performance improvement perspective are very interested in the offerings of RelateCare. So I think that's another factor of growth that we're really just scratching the surface on right now.

Kevin Steinke

Okay. Just lastly, with the midterm elections here, any particular themes that you're watching or your clients are watching from a policy perspective? And if not, I mean, that's okay too. Just curious if there's anything on that front?

C. Hussey

I would say, Kevin, there's an anticipation that even if there's a change in the party that's in charge of Congress that the policies that have been put out there are largely kind of baked from where we are right now. So I think at least in the short term, there's nothing that really is going to be the cavalry coming to the rescue from where some of the clients are facing the challenges right now. Certainly, over time, I think it will depend on how things go.

But if you take a step back and effectively with the size of Healthcare spending and the rate of increase, it is far beyond a political issue. It is really one that is kind of spans both sides of the political spectrum. And so in some respects, it doesn't matter because the ultimate drivers are more so just what are the real costs of delivering health care and all the access that goes along with it.

Operator

Our next question comes from the line of Steven Wahrhaftig of Wedbush Securities.

Steven Wahrhaftig

I kind of have a few topics that I want to talk on. So specifically for the demand drivers across all 3 segments, it seems like everything is sustainable and it's very durable, but they're kind of the same demand drivers that we've seen across the business over the past couple of quarters.

Are you starting to see the demand accelerate for your services as we start to head into fiscal year '27 and as clients start to rethink their budgets? Or is it kind of the same demand profile across each business?

C. Hussey

Steven, if you go back, I mean, a really long time. So I mean, if I just said, in summary, what's driving the business? It's constrained revenue in Healthcare and Education, whether it's from reimbursements that are under pressure or tuition and other kind of funding that has been -- through the governmental through pressure on research funding. And at the same time, you're seeing high cost inflation in general, both in many areas within health care, but also the investments have been made by higher education over the years and their administrative programs and other things that have just driven call it, an upside down relationship that is hard on profitability.

And so those are long-term kind of static trends. And that's why we feel -- so when we talk about our long-term growth outlook, with 80% of our business being in Healthcare and Education, those are very long-term kind of established drivers that don't vary with the broader economic environment either. I think on the Commercial side, it really depends on what area of the business because it ranges from restructuring turnaround capabilities, which have kind of a countercyclical area, but then we also have more increasing new performance improvement, investing in digital technology.

And that may be a little bit more industry-specific over time. But yes, I think '27 for that reason, we feel like the outlook for a projection consistent with the financial objectives that we've outlined is very much our expectation.

John Kelly

And maybe the -- a couple of things I would add in agreement with what Mark's commentary would be, one, those same pressures that Mark talked about, that is a big catalyst for Managed Services offerings. That's another way that our clients engage with us to achieve some of those same objectives to help to offset some of that pressure that they're under. And then the other one would be within the digital side of our business. I think our clients are very eager to capture some of the returns on their investments from an AI perspective.

And I think whether that's in the form of operating efficiencies, whether that's -- how do you use those tools to help drive growth? And our clients value propositions, I think that's another area where we see a lot of demand that's probably a new theme this year and then certainly into next year versus maybe a theme going back a couple of years. So -- and that's just some extra color there.

Steven Wahrhaftig

All right. Got it. And I kind of want to talk a little bit more about utilization because when we're looking at some of the utilization metrics across both the Managed Services and the Consulting businesses, both of them are up pretty materially year-over-year. We're looking at the Consulting business that was 76% and Digital at 81%.

Do you think that, that's going to be a sustainable clip that you can continue to execute against? Or do you think that this was more so onetime in nature and then it's going to start to return to the high 70s for Digital and then closer to the mid- to low 70s for Consulting?

John Kelly

I think it is sustainable where it's at there, Steven. I wouldn't call in expectations that from those levels you saw in the third quarter that there's a lot of upward movement from there. But I think we've always said, look, that high 70s is sweet spot. So I think there's a little bit of room on the consulting side. From a digital perspective, it was a little bit higher than that this quarter. But I mean, if you look at the trend now at this point, we've been able to sustain that for really the better part of the last 2 quarters.

So I think the team is doing a great job kind of optimizing how they're delivering on projects to really get us into that low 80% range. So I think we feel good about where we're at. I don't -- I wouldn't describe it as a onetime surge by any means. But it also is probably approaching the upper end of what we expect versus something that I would describe as having a lot of upward movement from that spot.

Steven Wahrhaftig

Okay. Understood. And then last question from me, specifically on the cash flow guidance because it was kind of a material downtick in the cash flow guidance to the $150 million to $170 million for fiscal year '26. And then you also attributed to the collection, specifically for some of the Healthcare projects that are in longer term. So do you expect this to just be a short-term impact? Or do you think the definite carry forward into fiscal year '27 where there might be some pressure on free cash flow going into next year?

John Kelly

No, I think it's just a timing impact. Everything that we described is all aligned with contractual terms. So it's not like seeing delinquency in payments or anything like that. I think it's when our Healthcare business particularly the performance improvement side of the Healthcare business is performing strong. They tend to have a heavier weighting towards performance-based fees.

And those are great projects for us. They are great opportunities for us to partner with our clients to drive great outcomes. But you do make a working capital investment in those projects sometimes. I think the weighting of projects that have performance-based fee is towards the higher end for us this year. And so that's creating a little bit of a timing gap in terms of cash flow into next year. But I think we've seen this cycle before. So it's not something that gives us pause. It's just a dynamic that shifts cash from 2026 into 2027.

Operator

Our next question comes from the line of Andrew Nicholas of William Blair.

Andrew Nicholas

Just 1 quick one, John. Just curious if you have any changes to segment level outlooks with just 1 quarter left, I wanted to make sure I asked that on the public call?

John Kelly

Andrew, no big changes. I'd say a little bit of extra color that I can give I think guided to mid-teen percent full year growth from a Healthcare perspective, I think we're probably trending a little bit higher there in terms of the higher mid-teens. And I think our margin objectives that we put out there, that 30% to 32%. I think we feel comfortable that we're landing within that range.

From an Education perspective, the mid- to upper single-digit guide that we put, I think we're on track for that. From a margin perspective, I'd say, if anything, we're off towards the upper end of that, if not higher than that from a margin perspective. Commercial for the full year, we described as low teens. That may end up being more in the low double-digit percent range. And then from a margin perspective, it's probably trending to the low end of the guidance that we put out there, the 19% to 21%. But to net all that keeps us on track with our consolidated guidance.

Operator

Our next question comes from the line of Tobey Sommer of Truist Securities.

Tobey Sommer

Within your business focused on -- or exposed to performance fees, does -- your commentary suggest that there's a outlook for an increased percentage of performance fees as we look out into '27, just if you could frame that a little bit, that would be helpful.

John Kelly

Yes, Tobey, I would say I would expect it to be continued high demand for performance-based fee contracts in the '27. So the way we framed it before is, oftentimes, if you look back over history, about 20% of the Healthcare segment's revenue has been under performance-based fee contracts. An example here would be 2024, we saw that shifts up pretty significantly towards the mid-20s percent range. And then it came back down in 2025 back towards the 20%. This year, it's another year we're shifting up towards the mid-20% range.

And I would say the indications as we now think about 2027. I don't know if I would call it higher than that at this point, but I think it feels to us that we would expect it to be consistently high like it was in 2026.

Operator

Seeing no more questions in queue. I'd like to turn the call back to Mr. Hussey. Sir?

C. Hussey

Well, thank you very much for spending time with us this afternoon. We look forward to speaking with you again in February when we announce our fourth quarter results. Have a good evening.

Operator

That concludes today's conference call. Thank you, everyone, for your participation.