UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10–K10-K
(Mark One)
xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES | | | | | |
| ☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 20172021
OR
oTRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
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| ☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-50976
HURON CONSULTING GROUP INC.
(Exact name of registrant as specified in its charter)
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Delaware | | 01-0666114 |
| (State or other jurisdiction of
incorporation or organization)
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(I.R.S.IRS Employer
Identification Number)
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550 West Van Buren Street
Chicago, Illinois
60607
(Address of principal executive offices and zip code)
(312) 583-8700
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
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| Title of each class | | Trading Symbol | | Name of each exchange on which registered |
| Common Stock, par value $0.01 per share | | HURN | | NASDAQ Global Select Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YesxNo o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YesoNox
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YesxNoo
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes xNoo
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of the Form 10-K or any amendment to this Form 10-K.x
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer x Accelerated Filer | ☒ | Accelerated filer o Filer | ☐ | Non-accelerated filero Filer | ☐ | Smaller reporting companyo |
Reporting
Company | ☐ | Emerging Growth Company | | | | |
| | | | | | Emerging growth companyo
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 726(b)) by the registered public accounting firm that prepared or issued its report. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso☐Nox
The aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 20172021 (the last business day of the registrant’s most recently completed second fiscal quarter) was approximately $934,900,000.$1,081,400,000.
As of February 21, 2018, 22,180,11917, 2022, 21,574,281 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
Documents Incorporated By Reference
Portions of the registrant’s definitive Proxy Statement to be filed with Securities and Exchange Commission within 120 days after the end of its fiscal year are incorporated by reference into Part III.
HURON CONSULTING GROUP INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2017
TABLE OF CONTENTS
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FORWARD-LOOKING STATEMENTS
In this Annual Report on Form 10-K, unless the context otherwise requires, the terms “Huron,” “Company,” “we,” “us” and “our” refer to Huron Consulting Group Inc. and its subsidiaries.
Statements in this Annual Report on Form 10-K that are not historical in nature, including those concerning the Company’s current expectations about its future requirements and needs,results, are “forward-looking” statements as defined in Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified by words such as “may,” “should,” “expects,” “provides,” “anticipates,” “assumes,” “can,” “will,” “meets,” “could,” “likely,” “intends,” “might,” “predicts,” “seeks,” “would,” “believes,” “estimates,” “plans,” “continues,” “guidance,” or “outlook,” or similar expressions. These forward-looking statements reflect our current expectations about our future requirements and needs, results, levels of activity, performance, or achievements. Some of the factors that could cause actual results to differ materially from the forward-looking statements contained herein include, without limitation: the impact of the COVID-19 pandemic on the economy, our clients and client demand for our services, and our ability to sell and provide services, including the measures taken by governmental authorities and businesses in response to the pandemic, which may cause or contribute to other risks and uncertainties that we face; failure to achieve expected utilization rates, billing rates, and the number of revenue-generating professionals; inability to expand or adjust our service offerings in response to market demands; our dependence on renewal of client-based services; dependence on new business and retention of current clients and qualified personnel; failure to maintain third-party provider relationships and strategic alliances; inability to license technology to and from third parties; the impairment of goodwill; various factors related to income and other taxes; difficulties in successfully integrating the businesses we acquire and achieving expected benefits from such acquisitions; risks relating to privacy, information security, and related laws and standards; and a general downturn in market conditions. These forward-looking statements involve known and unknown risks, uncertainties, and other factors, including, among others, those described under Item 1A. "Risk“Risk Factors,"” that may cause actual results, levels of activity, performance or achievements to be materially different from any anticipated results, levels of activity, performance, or achievements expressed or implied by these forward-looking statements. We disclaim any obligation to update or revise any forward-looking statements as a result of new information or future events, or for any other reason.
PART I
OVERVIEW
Huron is a global professional services firm committedconsultancy that collaborates with clients to achievingdrive strategic growth, ignite innovation and navigate constant change. Through a combination of strategy, expertise and creativity, we help clients accelerate operational, digital and cultural transformation, enabling the change our clients need to own their future. By embracing diverse perspectives, encouraging new ideas and challenging the status quo, Huron delivers sustainable results in partnership with its clients. for the organizations it serves.
We bring a depth of expertise in strategy, technology, operations, advisory services, and analytics to drive lasting and measurable results in the healthcare, higher education, life sciences and commercial sectors.
Huron isare headquartered in Chicago, Illinois, with additional locations in the United States in California, Colorado, the District of Columbia, Florida, Massachusetts, New York, Oregon, Texas, and Wisconsin and abroad in Canada, India, Saudi Arabia, Singapore, Switzerland, the United Arab Emirates, and the United Kingdom.Switzerland.
2017 Acquisitions
Pope Woodhead and Associates Limited
On January 9, 2017, we completed our acquisition of Pope Woodhead and Associates Limited ("Pope Woodhead"), a U.K.-based consulting firm providing market access capabilities to assist clients in developing value propositions for innovative medicines and technologies. The acquisition expands our life sciences strategy expertise and strengthens our ability to lead clients through complex payer and regulatory environments. Pope Woodhead's results of operations have been included in our consolidated financial statements and results of operations of our Business Advisory segment from the date of acquisition.
Innosight Holdings, LLC
On March 1, 2017, we completed our acquisition of Innosight Holdings, LLC ("Innosight"), a growth strategy firm focused on helping companies navigate disruptive change, enable innovation, and manage strategic transformation. Together with Innosight, we use our strategic, operational, and technology capabilities to help clients across multiple industries develop pioneering solutions to address disruption and achieve sustained growth. Innosight's results of operations have been included in our consolidated financial statements and results of operations of our Business Advisory segment from the date of acquisition.
ADI Strategies, Inc. (International)
On April 1, 2017, we completed our acquisition of the international assets of ADI Strategies, Inc. ("ADI Strategies") in Dubai and India. We acquired the U.S. assets of ADI Strategies in the second quarter of 2016. ADI Strategies is a leading enterprise performance management, risk management and business intelligence firm. The acquisition strengthens our technology and analytics competencies and expands our
global reach. The international results of operations of ADI Strategies have been included in our consolidated financial statements and results of operations of our Business Advisory segment from the date of acquisition.
Refer to Note 4 "Acquisitions" within our consolidated financial statements for further information on our recent acquisitions.
2017 Divestiture
Life Sciences Compliance and Operations
During the second quarter of 2017, we divested our Life Sciences Compliance and Operations practice ("Life Sciences C&O"), which was part of our broader Life Sciences practice within the Business Advisory segment. The sale of Life Sciences C&O did not meet the criteria for reporting separately as discontinued operations. Refer to Note 5 "Goodwill and Intangible Assets" within our consolidated financial statements for further information on the sale.
OUR SERVICES
We provide professional services through three operating segments: Healthcare, Business Advisory, and Education, and Business Advisory. Forwhich for the year ended December 31, 2017,2021, we derived 49%42%, 23%32%, and 28%26% of our consolidated revenues from these operating segments, respectively.
Effective January 1, 2022, we modified our operating model to expand and more deeply integrate our industry expertise with our digital, strategic and financial advisory capabilities. The new operating model will strengthen Huron’s go-to-market strategy, drive efficiencies that support margin expansion, and position the company to accelerate growth.
To align with the new operating model, effective with reporting for periods beginning January 1, 2022, we will begin reporting under the following three industries, which will be our reportable segments: Healthcare, Education and Business Advisory, respectively.
DuringCommercial. The Commercial segment will include all industries outside of healthcare and education, including, but not limited to, financial services and energy and utilities. In the second quarter of 2017, we reorganized our internal financialnew reporting structure, which management uses to assess performanceeach segment will include all revenue and allocate resources, by moving our Life Sciences practice fromcosts associated with engagements delivered in the respective industry segments. The new Healthcare and Education segments will include some revenue and Life Sciences segment tocosts historically reported in the Business Advisory segment. The remaining Educationsegment and Life Sciencesthe Healthcare segment is now referred to aswill include some revenue and costs historically reported in the Education segment. We will also provide revenue reporting across two principal capabilities: i) Consulting and Managed Services and ii) Digital. These changes will create greater transparency for investors by improving visibility into the core drivers of our business. While our consolidated results havewill not beenbe impacted, we have reclassifiedwill recast our historical segment information during 2022 for consistent presentation.
For further financial information on our segment results, refer tosee Part II—II - Item 7. "Management’s"Management's Discussion and Analysis of Financial Condition and Results of Operations”Operations" and Note 18 “Segment Information”19 "Segment Information" within the notes to our consolidated financial statements.
•Healthcare
Our Healthcare segment has a depth of expertise in strategyserves providers and innovation, care transformation, financial and operational excellence, technology and analytics, and leadership development. We servepayors including national and regional hospitals, and integrated health systems, academic medical centers, community hospitals, medical groups and medical groups.health plans. Our Healthcare professionals have a depth of expertise in business operations, including financial and operational improvement, care transformation, and revenue cycle managed services; organizational transformation; and digital, technology and analytic solutions. Most healthcare organizations are focused on changing the way care is delivered; establishing a sustainable business model centered around optimal cost structures, reimbursement models and financial strategies; evolving their digital, technology and analytic capabilities; and exceeding the expectations of their employees and patients. Our solutions help clients evolve and adapt to thethis rapidly changing healthcare environment to become a more nimble, efficient and achieve growth, optimizeconsumer-centric organization. We use our deep industry expertise to help clients solve a diverse set of business issues, including, but not limited to, optimizing financial and operational performance, enhance profitability, improve qualityimproving care delivery and clinical outcomes, and driveincreasing physician, patient and employee engagement across the enterprise.satisfaction, evolving organizational culture, and maximizing return on technology investments.
We help organizations transform and innovate the delivery model to focus on patient wellness by improving quality outcomes, minimizing care variation and fundamentally improving patient and population health. Our consultants partner with clients to help build and sustain today’s business to invest in the future by reducing complexity, improving operational efficiency and growing market share. We enable the healthcare of the future by identifying, integrating and optimizing technology investments to collect data that transforms care delivery and improves patient outcomes. We also develop future leaders capable of driving meaningful operational and organizational change and who transform the patient experience.
Education
Our Education segment provides management consulting and technology solutions to higher education institutions and academic medical centers to address challenges relating to business and technology strategy, financial management, operational and organizational effectiveness, research administration, and regulatory compliance.
Our institutional strategy, market research, budgeting and financial management, business operations and student lifecycle management solutions align missions with business priorities, improve quality and reduce costs institution-wide. Our technology strategy, enterprise applications, and analytic solutions transform and optimize operations, deliver time and cost savings, and enhance the student experience. Our research enterprise solutions assist clients in identifying and implementing institutional research strategy, optimizing clinical research operations, improving financial management and cost reimbursement, improving service to faculty, and mitigating risk compliance. Huron is a Platinum level member of the Oracle PartnerNetwork (OPN), a Workday Services Partner and a Gold level consulting partner with Salesforce.com.
•Business Advisory
Our Business Advisory segment provides services to largeworks with C-suite executives and middle marketbusiness unit and functional leadership across a diverse set of organizations, not-for-profit organizations, lending institutions, law firms, investment banks and private equity firms. We assist clients in a broad range of industries and across the spectrum fromincluding healthy, well-capitalized companies to organizations in transition, as well as creditors, equity owners and other key constituents.
This segment’s primary service lines include:
Enterprise Solutionsindustries, including healthcare, energy and Analytics. Our Enterprise Solutionsutilities, financial services, life sciences, industrials and Analytics professionals deliver technologymanufacturing, education, and analytic solutions that enable organizations to manage and optimize their financial performance, operational efficiency, and client or stakeholder experience. Our expertise in full-service enterprise performance management (EPM), enterprise resource planning (ERP), business intelligence and analytics, customer relationship management (CRM), and data management services helps clients identify and execute on business and technology strategies to drive results and gain a competitive advantage. Huron is a Platinum level member of the Oracle PartnerNetwork (OPN), a Workday Services Partner, and a Gold level consulting partner with Salesforce.com.
Business Advisory.public sector. Our Business Advisory professionals resolve complex business issueshave deep industry, functional and enhance client enterprise value through a suite of services including capital advisory, transaction advisory, operational improvement,technical expertise that they put forward when delivering our digital, technology and analytics, strategy and innovation and restructuring and turnaround, valuation,corporate finance services. In today’s disruptive environment, organizations must reimagine their historical strategies and dispute advisory. Wefinancial and operating models to sustain and advance their competitive advantage. Organizations also recognize the need to adopt technologies, automation and analytics to improve their operations or capital structures for businesses performing at less than optimal levels, assess the short-term and long-term prospects of potential acquisition and divestiture opportunities, and provide independent valuation and advisory services to assist clientscompete in making informed decisions for transaction, tax or litigation purposes. Securities transactions are handled by our registered broker-dealer, Huron Transaction Advisory LLC, a member of FINRA.
Strategy and Innovation.rapidly changing landscape. Our Strategy and Innovation professionals collaborate with clients across a range of industries to achieve repeatable business growth and innovation. Weexperts help organizations identifyacross industries with a variety of business challenges, including, but not limited to, embedding technology and analytics throughout their internal and customer-facing operations, developing insights into the needs of tomorrow’s customers to evolve their enterprise and business unit strategies, bringing new growth opportunities, build new venturesproducts to market, and capabilities,managing through stressed and accelerate organizational change.
distressed situations to create a viable path forward for stakeholders.•Education
Life Sciences.Our Life SciencesEducation segment serves public and private colleges and universities, academic medical centers, research institutes and other not-for-profit organizations. Our Education professionals providestrategic solutions to help pharmaceutical, medical device, and biotechnology companies deliver more value to patients, payers, and providers and comply with regulations. We advise clientshave a depth of expertise in strategy; business operations, including in the areas of corporatethe research enterprise and student lifecycle; digital, technology and analytic solutions; and organizational transformation. Our Education segment clients are increasingly faced with financial and/or demographic and enrollment challenges as well as increased competition. To remain competitive, organizations must challenge traditional operating and financial strategy, compliancemodels and reimagine strategic, operational and research-centered opportunities that advance their mission while strengthening their business models. We collaborate with clients to address these challenges and ensure they have a sustainable future. We combine our deep industry, functional and technical expertise to help clients solve their most pressing challenges, including, but not limited to, transforming business operations reimbursementwith technology; strengthening research strategies and access strategy, commercial contracting strategy, R&Dsupport services; evolving their organizational strategy; optimizing financial and product strategy commercial segmentation, fair market value analysis, lifecycle management, litigationoperational performance; and investigations, government pricingenhancing the student experience.
Huron is an Oracle partner, a Gold-level consulting partner with Salesforce.com and transparency reporting, auditinga Premium Partner with Salesforce.org, a Workday Services and monitoring,Software Partner, an Amazon Web Services consulting partner, a Silver-level system integrator with Informatica and overall business process improvement.
an SAP Concur implementation partner. We also partner with other technology organizations whose products and services support our core industries.OUR CLIENTS AND INDUSTRIES
We provide professional services to a wide variety of both financially sound organizations and distressed organizations including healthcare organizations, leading academic and research institutions, large and mid-sized companies, and governmental entities. In 2017, we served over 1,300 clients, including over 300 new clients.
Our clients are in a broad array oftransition across industries, including healthcare, education, pharmaceutical and medical device, financial services, energy and utilities, retail, aerospace, automotive, technology, telecommunications, consumer products, governmental, metalsindustrials and mining, engineeringmanufacturing, public sector and construction, hospitalityother commercial industries. Our clients span hospitals, health systems and gaming, logistics,academic medical centers; colleges, universities and manufacturing.research institutes; banks, asset managers, insurance companies and private equity firms; oil and gas and utilities companies, manufacturing organizations and the federal government. In 2021, we served over 1,900 clients, and our 10 largest clients accounted for approximately 19% of our consolidated revenues.
EMPLOYEESHUMAN CAPITAL RESOURCES AND MANAGEMENT
Our success depends on our ability to attract, engage, develop and developretain highly talented professionals byprofessionals. Our growth strategy depends on creating a work environment where employees are engaged and teams thrive and individuals are rewarded not only for their own contributions but also forand the success of our organization. To accomplish these goals, we focusWe are focused on advancing every facet of the employee lifecycleexperience, beginning with the recruiting process through post-employment or retirementretirement. We create a personalized experience for our people and empower them to ensure the employee experience is engagingmake a meaningful impact on our clients, our
communities, and impactful.one another. We have developed comprehensive programs incorporating training and developmentlearning opportunities, beginning with the onboarding process and continuing throughthroughout one’s career journey.journey to enable the professional development of our team. We provide a competitive total rewards package including robust benefits that tailorare tailored to the diverse needs of our employees and are refreshed regularly to maintain competitiveness. Our total rewards program has continuously helped Huron to be recognized as a Best Firm to Work For by Consulting magazine, including 2021 which marks our eleventh consecutive year earning this distinction. In addition to external recognitions, we monitor human capital-related internal metrics. Our leading measure is our quarterly employee population. Our commitmentengagement score, which was consistently in the high 70s throughout 2021 compared to corporate social responsibility is facilitated throughthe Glint Employee Engagement global benchmark of 74. In addition, we regularly review voluntary turnover across a number of key variables including business unit, performance achievement, geography, and demographics in order to assess the effectiveness of our Huron Helping Hands programemployee development and the Diversity and Inclusion council.total rewards programs.
Our employee population is divided into two groups: client-serving and support. As of December 31, 2017,2021, we had 3,0834,609 full-time employees,client service and support professionals, including 142168 client-serving managing directors. Our client-serving employees serveact as critical business advisors, collaborating with clients to help solve their most complex business problems. Our managing directors are the key drivers of growth in our business, generating new revenue streams from new and existing and new clients. TheyOur managing directors also enhance our market reputation by partneringworking closely with our clients as advisorsto address their most pressing challenges and engagement team leaders.ensuring high-quality delivery of our engagements. Internally, they createlead the creation of our intellectual capital, develop our people, and fosterare stewards of our culture. Our principals, senior directors, directors, and managers manage day-to-day client relationships and engagement teams, develop our people, nurture our culture, and oversee the delivery and quality of our work product. Our associates and analysts gather and organize data, conduct detailed analyses, evolve our culture and prepare presentations that synthesize and distill information to support recommendations we deliver to clients.
Our support employeesprofessionals include our senior management team as well as professionalsthose who provide sales support, methodology creation, software development, and corporate functions consisting of ourcorporate development, facilities, finance and accounting, human resources, information technology, legal, and marketing teams.marketing. These employeesprofessionals provide strategic direction for the enterprise and support that enables the success of our businesses and client-serving employees. At December 31, 2017,2021, our support professionals team was led by 2329 executives, managing directors, executives and corporate vice presidents.
In addition to our full-time client-serving employees, we engage contractorstemporary employees on an as-needed basisbasis. We primarily use this contingent workforce to provide unique skill sets that are not requiredengage talent with specialized skills and/or experience or to expand our capacity to be staffedable to deliver on client engagements or internal initiatives. We will continue to use temporary employees going forward as a full-time basis.key part of achieving our growth strategy.
Supporting our professionals'The ability to advance one’s career progression is critical to our employee retention and engagement. As part of our onboarding process, our learning and organizational effectivenessemployee experience team facilitates a robust and structured training curriculum for newly hired employeesemployees. We strive to help develop world class leaders and integrate them more effectively into the company. Leadership developmentare committed to providing programs are offered to recently promoted employees to support their transition to and success in a new role with broader responsibility. In addition to these milestone programs, we offer a variety ofopportunities that achieve this goal by focusing on key leadership development for those we deem capable of taking on broader roles in the organization.behaviors at all levels. We also provide a variety of continuing educationlearning opportunities, to all of our employees, including formal classroom environments, onlinethrough both individual on-demand courses and webinarsvirtual classroom environments, to further develop employees’ capabilitiesskills, including technical knowledge, peoplesoft skills, team dynamics, and coaching and developing others. We encourage our employees to enhance their professional skillscapabilities through outside coursesexternal learning opportunities that certify their technical skills and to pursue certain advanced degrees. Employees are assignedmatched with internal onboarding stewards, performance coaches, mentors, and in some cases sponsors to help them establish expectations that are reviewed regularly, including identifying opportunities for professional development, formal trainingfacilitate their growth and technical skill certifications.network of support.
Our total rewards philosophy focuses on rewarding and retaining our high performing employees. To accomplish this, we offer employees a competitive base salary, performance incentives, and robust, market-competitive benefits.
Our incentive compensation plan is designed to recognize and reward performance ofat both the organization and individuals and to ensure we properly recognize and retain our top performers.individual level. We take both practice and company financial performance into consideration in the determination of bonus pool funding. At the practice level, the annual bonus pool is funded based on achievement of its annual financial goals. TheOur board of directors then reviews and approves the total incentive compensation pool for all practices in the context of the company’sHuron’s overall financial performance. Individual bonus awards are based on the practice’s financial performance, individual bonus targets, and the individual’s performance as evaluated through our performance management process. The intent of the incentive compensation plan is to differentiate rewards based on individual performance, ensuring that our top performers for the year receive incentives that are commensurate with their contributions enabling us to retain them and continue to provide our clients with exceptional service.in a given year. The incentive compensation plan for our named executive officers is funded based on a blend of achievement of company-wide financial goals and strategic initiatives.
Managing directors’ individual compensation levels, including base salary and target incentive awards, are set to align with the value of their expected contributions to the organization.Huron, including collaboration across practices. As the key drivers of the organization’s success, their compensation is designed to include equity awards as a core component. The use of equity is intended to encourage retention, align the interests of our managing directors with shareholders, and help build wealth over a managing director's career at Huron through annual grants as well as stock price appreciation.
Our benefit programs are designed to be both comprehensive, competitive and tailoredpersonalized to the needs of our employee population, such as a paid time off policyemployees. We provide opportunities that allowsallow employees to focus and care for flexibility and a travel reward programtheir personal well-being which recognizes the significant travel commitment of our client-serving workforce. Our wellness benefits are aimed at encouraging employees to be aware of their current state of health and providing various tools and resources to focus
on their physical, financial, social, and emotional health given the demanding nature of thetheir work. Through these unique benefits, as well asIn addition, our health and welfare plans, retirement benefits, and stock purchase plan and other benefit programs, we provide a core sensefoundation of security to our employees.employees and their families.
Our corporate social responsibility effortsDiversity, Equity and Inclusion
Huron’s value of inclusion has been embedded across our organization since our founding and is fostered in our work environment every day. In 2020, we renewed our commitment to holding ourselves accountable by developing a five-year diversity and inclusion action plan to help build a more equitable society. Through our action plan in 2021, we continued to foster an inclusive culture, advanced diverse representation across all levels of the organization, expanded our community outreach and support, and performed a new pay equity study. Additionally, in 2021, the strategic measures included in the annual incentive program for our named executive officers were enhanced to include quantitative and qualitative measures against the progress towards the goals outlined in our five-year action plan. We will continue to execute and expand on our diversity and inclusion action plan in 2022 and beyond.
CORPORATE RESPONSIBILITY AND SUSTAINABILITY
We are designedfully committed to our expanded societal role in making a lasting, positive impact on our people, our clients, our communities and the environment. In 2021, we published our second Corporate Social Responsibility (CSR) report, highlighting the actions we have taken to support an individual’s charitable interests while also providing a venueour clients, our communities, our people and the environment. Our CSR report reflects our efforts in support of the United Nations Sustainable Development Goals (SDGs), particularly five goals that are integrally aligned with our values-driven culture and the work we do for our employeesclients: good health and well-being, quality education, gender equality, decent work and economic growth and climate action. We have and will continue to come together to make an impact in the communities in which we live and work. In addition, the Diversity and Inclusion council supports the needs ofsupport these goals through our growing employee population throughHuron Helping Hands program, employee resource groups, that provide corporate-wide educational opportunities, build awareness, celebratesustainability efforts, and corporate partnerships. As an addendum to our differences, develop mentoring relationships,2021 CSR report, we published our inaugural Sustainability Accounting Standards Board (SASB) index in line with SASB’s Professional & Commercial Services standards. Our SASB index provides further quantitative and ensure we are fosteringqualitative information regarding our data security programs, practices and policies, workforce diversity and engagement metrics, and our approach to promoting professional integrity and ethical behavior among our workforce, commensurate with best practices for professional services organizations.
For additional information on Huron’s commitment to a welcomingmore sustainable future, refer to our annual Corporate Social Responsibility report, which includes our SASB index, and engaging environment for all employees.is available on the investor relations website which is located at ir.huronconsultinggroup.com.
BUSINESS DEVELOPMENT AND MARKETING
Our business development and marketing activities are aimed at cultivating relationships, generating leads, and building a strong brand reputation with hospital, health system, and university administrators; offices of the C-suite;C-suite and senior level influencers and decision makers of middle market and large corporate organizations.organizations within our core industries. We believe excellent service delivery to clients is critical to building and maintaining relationships and sustaining and strengthening our brand reputation, and we emphasize the importance of high-quality client service to all of our employees.
Currently, we generate new business opportunities through the combination of relationships our managing directors have with individuals working in healthcare organizations, academicat our prospective clients and research institutions, and corporations, and marketing lead generation activities. We also view cross-sellingmarket-based collaboration between our employees as a key component in building our business. Often, the client relationship of a managing directoran employee in one area of our business leads to opportunities in another area. All of our managing directors understand their roles in ongoing relationship and business development, which is reinforced through our compensation and incentive programs. We actively seek to identify new business opportunities and frequently receive referrals and repeat business from past and current clients. In addition, to complement the business development efforts of our managing directors, we have dedicated business development professionals who are focused exclusively on developing client relationships and generating new business.
COMPETITION
The professional services industry is extremely competitive, highly fragmented, and constantly evolving. The industry includes a large number of participants with a variety of skills and industry expertise, including other strategy, business operations, technology, and financial advisory consulting firms; general management consulting firms; the consulting practices of major accounting firms; technical and economic advisory firms; regional and specialty consulting firms; consulting divisions of our technology partners; and the internal professional resources of organizations. We compete with a large number of service and technology providers in all of our segments. Our competitors vary, depending on the particular practiceindustry and expertise area, and we expect to continue to face competition from new market entrants.
We believe the principal competitive factors in our market include reputation, the ability to attract and retain top talent, and the capacity to manage engagements effectively to drive high value to clients.clients, and the ability to deliver measurable and sustainable results. There is also competition on price, although to a lesser extent due to the criticality of the issues that many of our services address. Some competitors have a greater geographic footprint, broader international presence, and more resources than we do, but we believe our reputation and ability to deliver high-value, quality service and measurable results to our clients across a balanced portfolio of services and to attract and retain employees with broad capabilities and deep industry expertise enable us to compete favorably in the professional services marketplace.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements, and other information with the Securities and Exchange Commission (the “SEC”). These filings are available on the SEC’s website at http://www.sec.gov.
Our Annual Reportwebsite is located at www.huronconsultinggroup.com, and our investor relations website is located at ir.huronconsultinggroup.com. We make our annual reports on Form 10-K, Quarterly Reportsquarterly reports on Form 10-Q, Current Reportscurrent reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act areof 1934 available through our website, free of charge, on the investor relations page of our website, www.huronconsultinggroup.com, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We provide information about our business and financial performance, including our corporate profile, on the Investor Relations page of our website. Additionally, we webcast our earnings calls and certain events we participate in with members of the investment community on the Investor Relations page of our website. Further corporate governance information, including our code of ethics, code of business conduct, corporate governance guidelines, and board committee charters, is also available on the Investor Relations page of our website. The content posted onof our websitewebsites is not incorporated by reference into this Annual Report on Form 10-K or in any other report or any other reports filed with, or furnished to, the SEC. Any materialsdocument we file with the SEC, mayand any references to our websites are intended to be read and copied at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC.inactive textual references only.
The following discussion of risk factors may be important to understanding the statements in this Annual Report on Form 10-K or elsewhere. The following information should be read in conjunction with Part II—Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes in this Annual Report on Form 10-K. Discussions about the important operational risks that our business encounters can be found in Part II—Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Risks Related to COVID-19
Our results of operations have been adversely affected and, in the future, could be materially adversely impacted by the coronavirus (COVID-19) pandemic.
The continuing impact of the COVID-19 pandemic has created significant volatility, uncertainty and disruption to the global economy. The pandemic has adversely impacted and, in the future, could materially adversely impact our business, operations and financial results. The extent to which the COVID-19 pandemic continues to impact our business, operations and financial results will depend on numerous evolving factors that we may not be able to accurately predict, including:
•the duration of the pandemic;
•the long-term efficacy of vaccines or treatments for COVID-19, including against new variants and the willingness of the population to take the vaccines;
•governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic, including quarantines, social distancing and other risk mitigating measures taken to prevent the spread of COVID-19;
•the effect on our clients and client demand for our services and solutions, including the impact on the healthcare and higher education industries which are areas of significant focus for our business;
•the health and welfare of our employees, including our senior management team, practice leaders and managing directors, and their ongoing ability to serve clients and manage operations if they contract COVID-19;
•the impact on our key third-party vendors;
•the effect on the businesses in which we have invested;
•our ability to sell and provide our services and solutions and maintain adequate utilization levels, including as a result of travel restrictions, shelter-in-place and quarantine orders and people working from home;
•the ability of our clients to pay for our services and solutions;
•any disruption to the internet and related systems, which may impact our ability to provide our services and solutions remotely, and increased vulnerability to hackers or third parties seeking to disrupt operations; and
•any closures of our clients’ offices and facilities.
Additionally, in some instances, clients have slowed down decision making, delayed planned work or are seeking to reduce the scope of current engagements or terminate existing agreements, which may continue. Any of these events could cause or contribute to the risks and uncertainties discussed below andcould materially adversely affect our business, financial condition, results of operations and/or stock price.
Risks Related to Human Capital Resources
An inability to retain our senior management team and other managing directors would be detrimental to the success of our business.
We rely heavily on our senior management team, our practice leaders, and other managing directors; our ability to retain them is particularly important to our future success. Given the highly specialized nature of our services, the senior management team must have a thorough understanding of our service offerings as well as the skills and experience necessary to manage an organization consisting of a diverse group of professionals. In addition, we rely on our senior management team and other managing directors to generate revenues and market our business. Further, our senior management’s and other managing directors’ personal reputations and relationships with our clients are a critical element in obtaining and maintaining client engagements. Although we enter into non-solicitation agreements with our senior management team and other managing directors, we generally do not enter into non-competition agreements. Accordingly, membersMembers of our senior management team and our other managing directors are not contractually prohibited from leavingcould choose to leave or joiningjoin one of our competitors and some of our clients could choose to use the services of that competitor instead of our services. If one or more members of our senior management team or our other managing directors leave and we cannot replace them with a suitable candidate quickly, we could experience difficulty in securing and successfully completing engagements and managing our business properly, which could harm our business prospects and results of operations.
Our inabilityIf we are unable to hire and retain talented people in an industry where there is great competition for talent it could have a serious negative effect on our prospects and results of operations.
Our business involves the delivery of professional services and is highly labor-intensive. Our success depends largely on our general ability to attract, develop, motivate, and retain highly skilled professionals. Further, we must successfully maintain the right mix of professionals with relevant experience and skill sets as we continue to grow, as we expand into new service offerings, and as the market evolves. The loss of a significant number of our professionals, the inability to attract, hire, develop, train, and retain additional skilled personnel, or failure to maintain the right mix of professionals could have a serious negative effect on us, including our ability to manage, staff, and successfully complete our existing engagements and obtain new engagements. Qualified professionals are in great demand, and we face significant
competition for both senior and junior professionals with the requisite credentials and experience. Our principal competition for talent comes from other consulting firms and accounting firms, as well as from organizations seeking to staff their internal professional positions. Many of these competitors may be able to offer significantly greater compensation and benefits or more attractive lifestyle choices, career paths, or geographic locations than we do.can offer. Therefore, we may not be successful in attracting and retaining the skilled consultants we require to conduct and expand our operations successfully. Increasing competition for these revenue-generating professionals may also significantly increase our labor costs, which could negatively affect our margins and results of operations.
Risks Related to Business Growth and Development
We may incur costs to support our business and the inability to effectively build a support structure for the business could have an adverse impact on our growth and profitability.
We have grown significantly since we commenced operations and have increased the number of our full-time professionals from 249 in 2002 to 4,609 as of December 31, 2021. Additionally, our considerable growth has placed demands on our management and our internal systems, procedures, and controls and will continue to do so in the future. To successfully manage growth, we must periodically adjust and strengthen our operating, financial, accounting, and other systems, procedures, and controls, which may increase our total costs and may adversely affect our gross profits and our ability to sustain profitability if we do not generate increased revenues to offset the costs. As a public company, our information and control systems must enable us to prepare accurate and timely financial information and other required disclosures. If we discover deficiencies in our existing information and control systems that impede our ability to satisfy our reporting requirements, we must successfully implement improvements to those systems in an efficient and timely manner.
In the fourth quarter of 2019, we began the implementation of a new enterprise resource planning (“ERP”) system designed to improve the efficiency of our internal operational, financial and administrative activities. In January 2021, we went live with the new ERP system, and we continue to progress with additional functionality and integrations. The full implementation of a new ERP system in its entirety, which will take place over several years, subjects us to inherent costs and risks including substantial capital expenditures, additional administration and operating expenses, potential disruption of our internal control structure, retention of sufficiently skilled personnel to implement and operate the new system, demand on management time, and other risks and costs of delays or difficulties in transition. Our system implementation may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, the difficulties with implementing a new ERP system may cause disruptions or have an adverse effect on our business operations, if not anticipated and appropriately mitigated.
Our international expansion could result in additional risks.
We operate both domestically and internationally, including in Canada, Europe, Asia, and the Middle East. Although historically our international operations have been limited, we intend to continue to expand internationally. Such expansion may result in additional risks that are not present domestically and which could adversely affect our business or our results of operations, including:
��compliance with additional U.S. regulations and those of other nations applicable to international operations;
•cultural and language differences;
•employment laws, including immigration laws affecting the mobility of employees, and rules and related social and cultural factors;
•losses related to start-up costs, lack of revenue, higher costs due to low utilization, and delays in purchase decisions by prospective clients;
•currency fluctuations between the U.S. dollar and foreign currencies;
•restrictions on the repatriation of earnings;
•potentially adverse tax consequences and limitations on our ability to utilize losses generated in our foreign operations;
•different regulatory requirements and other barriers to conducting business;
•different or less stable political and economic environments;
•greater personal security risks for employees traveling to or located in unstable locations; and
•civil disturbances or other catastrophic events.
Further, conducting business abroad subjects us to increased regulatory compliance and oversight. For example, we are subject to laws prohibiting certain payments to governmental officials, such as the Foreign Corrupt Practices Act, which increases the risk from our international operations relative to our competitors who do not operate outside the United States. A failure to comply with applicable regulations could result in regulatory enforcement actions as well as substantial civil and criminal penalties assessed against us and our employees.
In addition, expanding into new geographic areas and expanding current service offerings is challenging and may require integrating new employees into our culture as well as assessing the demand in the applicable market. If we cannot manage the risks associated with new service offerings or new locations effectively, we are unlikely to be successful in these efforts, which could harm our ability to sustain profitability and our business prospects.
The Company has significant operations in India, which presents additional risks.
We have significant operations in India, including more than 900 employees, which subjects the Company to various country-specific risks. For example, from time to time, India has experienced instances of civil unrest, terrorism and hostilities among neighboring countries. Terrorist attacks, military activity, rioting, or civil or political unrest in the future could influence the Indian economy and our operations by disrupting operations and communications and making travel within India more difficult and less desirable. As such, our operations and employees in India may be adversely affected by social and political uncertainties or change, military activity, health-related risks or acts of terrorism.
Additionally, India’s reputation for potential corruption and the challenges presented by India’s complex business environment may increase our risk of violating applicable anti-corruption and anti-bribery laws. We face the risk that we, our employees or any third parties we engage to do work on our behalf may take action determined to be in violation of anti-corruption laws in any jurisdiction in which we conduct business, including the Foreign Corrupt Practices Act, India’s Prevention of Money Laundering Act, 2002 and Indian Penal Code. If we violate applicable anti-corruption laws or our internal policies designed to ensure ethical business practices, we could face financial penalties and/or reputational harm that would negatively impact our financial condition and results of operations.
Further, India has experienced natural disasters such as earthquakes, tsunamis, floods, landslides and drought in the past few years. The extent and severity of these natural disasters determines their impact on the Indian economy. Such future disasters could have a negative impact on the Indian economy and the Company’s India-based employees, causing our business to suffer.
Additionally, since 1991, successive Indian governments have generally pursued policies of economic liberalization and financial sector reforms, including by significantly relaxing restrictions on the private sector. Nevertheless, the role of the Indian central and state governments in the Indian economy as producers, consumers and regulators has remained significant and there is no assurance that such liberalization policies will continue. A significant change in India’s policy of economic liberalization and deregulation or any social or political uncertainties could adversely affect business and economic conditions in India generally and our business and employees in particular.
Lastly, unfavorable fluctuations in the currency exchange rate between the U.S. dollar and Indian rupee could have a material adverse effect on our results of operations. As we continue to grow our operations in India, more of our expenses will be incurred in the Indian rupee. An increase in the value of the Indian rupee against the U.S. dollar, in which our revenue is primarily recorded, could increase costs for delivery of services and decrease the profitability of our engagements that utilize our employees in India.
Additional hiring, departures, and business acquisitions and dispositions, as well as other organizational changes could disrupt our operations, increase our costs or otherwise harm our business.
Our business strategy is dependent in part upon our ability to grow by hiring individuals or groups of individuals and by acquiring complementary businesses. However, we may be unable to identify, hire, acquire, or successfully integrate new employees and acquired businesses without substantial expense, delay, or other operational or financial obstacles. From time to time, we will evaluate the total mix of services we provide and we may conclude that businesses may not achieve the results we previously expected. Competition for future hiring and acquisition opportunities in our markets could increase the compensation we offer to potential employees or the prices we pay for businesses we wish to acquire. In addition, we may be unable to achieve the financial, operational, and other benefits we anticipate from any hiring or acquisition, as well as any disposition, including those we have completed so far. New acquisitions could also negatively impact existing practices and cause current employees to depart. Hiring additional employees or acquiring businesses could also involve a number of additional risks, including:
including the diversion of management’s time, attention, and resources from managing and marketing our Company;
the failure to retain key acquired personnel or existing personnel who may view the acquisition unfavorably;
the potential loss of clients of acquired businesses;
the need to compensate new employees while they wait for their restrictive covenants with other institutions to expire;
the potential need to raise significant amounts of capital to finance a transaction or the potential issuance of equity securities that could be dilutive to our existing stockholders;
increased costs to improve, coordinate, or integrate managerial, operational, financial, and administrative systems;
the potential assumption of liabilities of an acquired business;
the inability to attain the expected synergies with an acquired business;
the usage of earn-outs based on the future performance of our business acquisitions may deter the acquired company from fully integrating into our existing business;
and the perception of inequalities if different groups of employees are eligible for different benefits and incentives or are subject to different policies and programs; andprograms.
difficulties in integrating diverse backgrounds and experiences of consultants, including if we experience a transition period for newly hired consultants that results in a temporary drop in our utilization rates or margins.
All of our acquisitions have been accounted for as purchases, some of which involved purchase prices well in excess of tangible asset values, resulting in the creation of a significant amount of goodwill and other intangible assets. Under generally accepted accounting principles, we do not amortize goodwill or intangible assets acquired in a business combination that are determined to have indefinite useful lives, but instead review them annually (or more frequently if impairment indicators arise) for impairment. To the extent that we determine that such an asset has been impaired, we will write down its carrying value on our balance sheet and book a non-cash impairment charge in our statement of earnings. If, as a result of acquisitions or otherwise, the amount of intangible assets being amortized increases, so will our amortization charges in future periods.
Also, sellingSelling practices and shutting down operations present similar challenges in a service business. Dispositions not only require management’s time, but they can impair existing relationships with clients or otherwise affect client satisfaction, particularly in situations where the divestiture eliminates only part of the complement of consulting services provided to a client. Dispositions may also involve continued financial involvement, as we may be required to retain responsibility for, or agree to indemnify buyers against, liabilities related to a business sold. For example, in connection with
Additionally, effective January 1, 2022, we modified our operating model to report under three industries, which are our new reportable segments. The new operating model was designed to strengthen Huron's go-to-market strategy and support our growth. If we do not successfully implement this change to our operating model, our business and results of operation may be negatively impacted.
The healthcare and education industries are areas of significant focus for our business, and factors that adversely affect the salefinancial condition of these industries could consequently affect our business.
We derive a significant portion of our Huron Legal segmentrevenue from clients in the healthcare and education industries. As a result, our financial condition and results of operations could be adversely affected by conditions affecting these industries, both generally and those specific to Consilio, Inc.,the types of clients we serve in these industries, including hospitals and health systems, academic medical centers, and higher education institutions. The healthcare and education industries are highly regulated and are subject to changing political, legislative, regulatory, and other influences. Uncertainty in any of these areas could cause our clients to delay or postpone decisions to use our services. Existing and new federal and state laws and regulations affecting the healthcare and education industries could create unexpected liabilities for us, could cause us or our clients to incur additional costs, and could restrict our or our clients’ operations.
Our healthcare and education clients operate in highly regulated industries. Regulatory and legislative changes in these industries could reduce the demand for our services, decreasing our competitive position or potentially rendering certain of our service offerings obsolete, change client buying patterns or decision making or require us to make unplanned modifications to our service offerings, which was completed on December 31, 2015, we have contractually agreed to indemnify the buyer against certain liabilities.could require additional time and investment. If we fail to successfully address these risks,accurately anticipate the application of the laws and regulations affecting our ability to compete may be impairedclients and the industries they serve, if anticipated changes in regulation or regulatory uncertainty impact client buying patterns, or if such laws and regulations decrease our competitive position or limit the applicability of our service offerings, our results of operations mayand financial condition could be adversely affected.impacted. Similarly, certain of our healthcare and education clients may experience or anticipate experiencing financial distress or face complex challenges as a result of general economic conditions or operations-specific reasons. Such clients may not have the financial resources or stakeholder support to start new projects or to continue existing projects.
Specifically with respect to healthcare, many healthcare laws are complex and their application to us, our clients, or the specific services and relationships we have with our clients are not always clear. In addition, federal and state legislatures have periodically introduced programs to reform or amend the U.S. healthcare system at both the federal and state level, such as the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, and continue to consider further significant reforms. Due to the significant
implementation issues arising under these laws and potential new legislation, it is unclear what long-term effects they will have on the healthcare industry and in turn on our business, financial condition, and results of operations. Our failure to accurately anticipate the application of new laws and regulations, or our failure to comply with such laws and regulations, could create liability for us, result in adverse publicity and negatively affect our business.
Our goodwillThere are many factors that could affect the purchasing practices, operations, and, other intangible assets represent a substantial amountultimately, the operating funds of our total assets,healthcare and we may be required to recognize a non-cash impairment charge for these assets if the performance of one or more of our reporting units falls below our expectations.
Our total assets reflect a substantial amount of intangible assets, primarily goodwill. At December 31, 2017, goodwill and other intangible assets totaled $718.1 million, or 69%, of our total assets. Goodwill results from our acquisitions, representing the excess of the fair value of consideration transferred over the fair value of the net assets acquired. 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. Intangible assets other than goodwill represent purchased assets that lack physical substance but can be distinguished from goodwill. Our intangible assets primarily consist of customer relationships, trade names, customer contracts, technology and software, non-competition agreements, and publishing content, 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 2017.
During 2017, we recorded $253.1 million of non-cash goodwill impairment charges. As further explained in the following paragraphs, of the $253.1 million, $208.1 million related to our Healthcare reporting unit and $45.0 million related to our Enterprise Solutions and Analytics reporting unit which is included in our Business Advisory segment.
During the second quarter of 2017, we performed a goodwill impairment analysis for our Healthcare reporting unit as our Healthcare business had experienced a prolonged period of declining revenues, primarily driven by softness in our revenue cycle offering within our performance improvement solution. This softness was attributable to decreased demand for our services, the winding down of some of our larger projects, and a trend toward smaller projects, as well as fewer large integrated projects. In light of these challenges, several initiatives have been undertaken to improve the segment's financial performance, including repositioning our solutions to address the most critical needs of our clients, the expansion of our existing serviceseducation organizations, such as thosereimbursement policies for healthcare expenses, student loan policies or regulations, federal and state budgetary considerations, consolidation in our Studer Group, strategy, physicianeither industry, and technology offerings,regulation, litigation, and workforce reductions to better align resources with market demand. While the initiatives undertaken to improve the financial performance of our Healthcare segment began yielding some positive impacts, hospitals and health systems continued to face regulatory and funding uncertainty; therefore, we remained cautious about near-term growth. As we had previously disclosed in prior quarters, if the financial performance of our Healthcare segment continued to decline and did not meet our expectations,general economic conditions. In particular, we could be required to perform an interim impairment analysis with respect to our carrying value of goodwill for the Healthcare reporting unit prior to our usual annual test. Based on forecasts prepared in the second quarter of 2017 in connection with our quarterly forecasting cycle, we determined that the likely time frame to improve the financial results of this segment would take longer than originally anticipated. As such, we concluded, during the second quarter of 2017, that the fair value of the Healthcare reporting unit may have no longer exceeded its carrying value. In connection with the preparationmake unplanned modifications of our financial statements for the quarter ended June 30, 2017, we performed an interim impairment test on the Healthcare reporting unit. Based on the estimated fair value of the Healthcare reporting unit, we recorded a $208.1 million non-cash pretax goodwill impairment charge to reduce the carrying value of goodwill in our Healthcare reporting unit.
Our Enterprise Solutionsproducts and Analytics reporting unit was established with the acquisition of Blue Stone International, LLC in 2013. Since thatservices (which would require additional time we completed five additional business acquisitions within the reporting unit, most recently the acquisitions of the U.S. assets and international assets of ADI Strategies in May 2016 and April 2017, respectively. We record the assets acquired and liabilities assumed in business combinations, including identifiable intangible assets, at their estimated fair values as of the acquisition date, and goodwill is recorded as the excess of the fair value of consideration transferred, including any contingent consideration, over the fair value of the net assets acquired. Therefore, the initial accounting for an acquisition results in its fair value equaling its carrying value. As we have previously disclosed in prior quarters, due to this reporting unit’s relatively low headroom, in the event that the financial performance of the reporting unit did not meet our expectations during 2017,investment) or we could be required to take a non-cash impairment chargesuffer reductions in demand for our products and services as a result of any goodwill impairment test. Duringchanges in regulations affecting either industry, such as changes in the first three quartersway that healthcare organizations are paid for their services (e.g., based on patient outcomes instead of 2017,services provided).
In addition, state tax authorities have challenged the performancetax-exempt status of Enterprise Solutionssome hospitals and Analytics continued to reasonably meet our expectations. However, both revenues andother healthcare facilities claiming such status on the basis that they are operating margin duringas charitable and/or religious organizations. If the fourth quartertax-exempt status of 2017 fell shortany of our expectations resulting in a reduction in workforce within the reporting unit duringclients is revoked or compromised by new legislation or interpretation of existing legislation, that quarter. Further, in connection with our annual budget process for 2018,client’s financial health could be adversely affected, which coincided with our annual goodwill impairment test during the fourth quarter of 2017, we determined that the reporting unit's expected future revenue growth rates and operating margin would be lower than previously anticipated for this reporting unit. As a result, our goodwill impairment test indicated that the fair value of the Enterprise Solutions and Analytics reporting unit no longer exceeded its carrying value, and we recorded a $45.0 million non-cash pretax charge to write-off the entire carrying value of this reporting unit's goodwill during the fourth quarter of 2017.
The Life Sciences reporting unit has also been established primarily through recent business acquisitions: The Frankel Group Associates LLC in January 2014 and Pope Woodhead in January 2017. As discussed above, goodwill is recorded for such business acquisitions as the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed, resulting in the fair value equaling the carrying value at the acquisition date. Based on the results of our annual goodwill impairment test as of November 30, 2017, the Life Sciences reporting unit's fair value exceeded its carrying value by 14%. We will monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods.
Determining the fair value of a reporting unit requires us to make significant judgments, estimates, and assumptions. While we believe that the estimates and assumptions underlying our valuation methodology are reasonable, these estimates and assumptions could have a significantadversely impact on whether or not a non-cash goodwill impairment charge is recognized and also the magnitude of any such charge. 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 additional non-cash goodwill impairment charges.
Refer to “Critical Accounting Policies” within Part I - Item 2. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 5 “Goodwill and Intangible Assets” within the notes to our consolidated financial statements for further discussion of our business combinations, goodwill, intangible assets, and impairment tests performed in 2017.
Changes in capital markets, legal or regulatory requirements, and general economic or other factors beyond our control could reduce demand for our services, in which case our revenuessales, revenue, financial condition, and profitability could decline.results of operations.
A number of factors outsideMany of our control affect demandclient contracts are short-term in duration and may be terminated by our clients with little or no notice and without penalty, which may cause our operating results to be unpredictable and may result in unexpected declines in our utilization and revenues.
Our clients typically retain us on an engagement-by-engagement basis, rather than under fixed-term contracts, and many of our client contracts are 12 months or less in duration. The volume of work performed for any particular client is likely to vary from year to year, and a major client in one fiscal period may not require or may decide not to use our services. These include:
fluctuationsservices in U.S. and global economies;
any subsequent fiscal period. Moreover, a large portion of our new engagements comes from existing clients. Accordingly, the U.S.failure to obtain new large engagements or global financial markets and the availability, costs, and terms of credit;
changes in laws and regulations; and
other economic factors and general business conditions.
We are not able to predict the positivemultiple engagements from existing or negative effects that future events or changes to the U.S. or global economy, financial markets, or regulatory and business environment could have on our operations.
Changes in U.S. tax lawsnew clients could have a material adverse effect on the amount of revenues we generate.
In addition, a large portion of our business, cash flow, resultsengagement agreements can be terminated by our clients with little or no notice and without penalty. In client engagements that involve multiple engagements or stages, there is a risk that a client may choose not to retain us for additional stages of operations and financial conditions.an engagement or that a client will cancel or delay additional planned engagements. For clients in bankruptcy, a bankruptcy court could elect not to retain our interim management consultants, terminate our retention, require us to reduce our fees for the duration of an engagement, elect not to approve claims against fees earned by us prior to or after the bankruptcy filing, or subject previously paid amounts to be returned to the bankruptcy estate as preferential payments under the bankruptcy code.
We are subject to income and other taxesTerminations of engagements, cancellations of portions of the project plan, delays in the U.S. atwork schedule, or reductions in fees could result from factors unrelated to our services. When engagements are terminated or reduced, we lose the stateassociated future revenues, and federal level and also in foreign jurisdictions. Changes in applicable U.S. state, federal or foreign tax laws and regulations, or their interpretation and application, could materially affect our tax expense and profitability.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“2017 Tax Reform”), a tax reform bill which contains significant changes to corporate taxation, including a reduction in the current corporate federal income tax rate from 35% to 21%, additional limitations on the tax deductibility of interest, substantial changes to the taxation of foreign earnings, and modification or repeal of many business deductions and credits. The changes included in the 2017 Tax Reform are broad and complex. The final transition impact of the 2017 Tax Reform may differ materially from our current estimates due to, among other things, additional regulatory and interpretive guidance, as well as any statutory technical corrections that are subsequently enacted.
The 2017 Tax Reform, or any related, similar or amended legislation or other changes in U.S. federal income tax laws, could adversely affect the U.S. federal income taxation of our ongoing operations. Any such changes and related consequences could have a material adverse impact on our financial results.
If we are unable to manage fluctuations in our business successfully, we may not be able to sustain profitability.
We have grown significantly since we commenced operations and have increasedrecover associated costs or redeploy the number ofaffected employees in a timely manner to minimize the negative impact. In addition, our full-time professionals from 249 in 2002 to 3,083 as of December 31, 2017. Additionally, our considerable growth has placed demands on our management and our internal systems, procedures, and controls and will continue to do so in the near future. To successfully manage growth, we must periodically adjust and strengthen our operating, financial, accounting, and other systems, procedures, and controls, which could increase our costs and may adversely affect our gross profits and ourclients’ ability to sustain profitability if we do not generate increased revenues to offset the costs. As a public company, our informationterminate engagements with little or no notice and control systems must enable us to prepare accurate and timely financial information and other required disclosures. If we discover deficiencies in our existing information and control systems that impede our ability to satisfy our reporting requirements, we must successfully implement improvements to those systems in an efficient and timely manner.
Although we have generated positive earnings since we became a public company, we may not sustain profitability in the future. Additionally, the nature of our services and the general economic environment makewithout penalty makes it difficult to predict our future operating results. To sustain profitability,results in any particular fiscal period.
Our ability to maintain and attract new business depends upon our reputation, the professional reputation of our revenue-generating employees, and the quality of our services.
As a professional services firm, our ability to secure new engagements depends heavily upon our reputation and the individual reputations of our professionals. Any factor that diminishes our reputation or that of our employees, including not meeting client expectations or misconduct by our employees, could make it substantially more difficult for us to attract new engagements and clients. Similarly, because we must:obtain many of our new engagements from former or current clients or from referrals by those clients or by law firms that we have worked with in the past, any client that questions the quality of our work or that of our consultants could impair our ability to secure additional new engagements and clients.
attract, integrate,The consulting services industry is highly competitive and we may not be able to compete effectively.
The consulting services industry in which we operate includes a large number of participants and is intensely competitive. We face competition from other business operations and financial consulting firms, general management consulting firms, the consulting practices of major accounting firms, technical and economic advisory firms, regional and specialty consulting firms, consulting divisions of our technology partners, and the internal professional resources of organizations. In addition, because there are relatively low barriers to entry, we expect to continue to face additional competition from new entrants into the business operations and financial consulting industries. Competition in several of the sectors in which we operate is particularly intense as many of our competitors are seeking to expand their market share in these sectors. Many of our competitors have a greater national and international presence, as well as have a significantly greater number of personnel, financial, technical, and marketing resources. In addition, these competitors may generate greater revenues and have greater name recognition than we do. Some of our competitors may also have lower overhead and other costs and, therefore, may be able to more
effectively compete through lower cost service offerings. Our ability to compete also depends in part on the ability of our competitors to hire, retain, and motivate highly qualified professionals;skilled professionals, the price at which others offer comparable services, the ability of our competitors to offer new and valuable products and services to clients, and our competitors’ responsiveness to their clients. If we are unable to compete successfully with our existing competitors or with any new competitors, our financial results will be adversely affected.
achieveRisks Related to Information Technology
Our business is becoming increasingly dependent on information technology and maintain adequate utilizationwill require additional investments in order to grow and suitable billing ratesmeet the demands of our clients.
We depend on the use of sophisticated technologies and systems. Some of our practices provide services that are increasingly dependent on the use of software applications and systems that we do not own and could become unavailable. Moreover, our technology platforms will require continuing investments by us in order to expand existing service offerings and develop complementary services. For example, we have subscription-based offerings that require us to incur costs associated with upgrades and maintenance that could impact profit margins associated with those offerings and related services. Our future success depends on our ability to adapt our services and infrastructure while continuing to improve the performance, features, and reliability of our services in response to the evolving demands of the marketplace.
Adverse changes to our relationships with key third-party vendors, or in the business of our key third-party vendors, could unfavorably impact our business.
A portion of our services and solutions depend on technology or software provided by third-party vendors. Some of these third-party vendors refer potential clients to us, and others require that we obtain their permission prior to accessing their software while performing services for our revenue-generating professionals;clients. These third-party vendors could terminate their relationship with us without cause and with little or no notice, which could limit our service offerings and harm our financial condition and operating results. In addition, if a third-party vendor’s business changes, is reduced or fails to adapt to changing market demands, that could adversely affect our business. Moreover, if third-party technology or software that is important to our business does not continue to be available or utilized within the marketplace, or if the services that we provide to clients is no longer relevant in the marketplace, our business may be unfavorably impacted.
We could experience system failures, service interruptions, or security breaches that could negatively impact our business.
Our organization is comprised of employees who work on matters throughout the United States and overseas around the world. Our technology platform is a “virtual office” from which we all operate. We may be subject to disruption to our operating systems from technology events that are beyond our control, including the possibility of failures at third-party data centers, disruptions to the internet, natural disasters, power losses, and malicious attacks. In addition, despite the implementation of security measures, our infrastructure and operating systems, including the internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks, or other attacks by third parties seeking to disrupt operations or misappropriate information or similar physical or electronic breaches of security. While we have taken and are taking reasonable steps to prevent and mitigate the damage of such events, including implementation of system security measures, information backup, and disaster recovery processes, and where possible, obtaining insurance against such events, those steps may not be effective and there can be no assurance that any such steps can be effective against all possible risks. We will need to continue to invest in technology in order to achieve redundancies necessary to prevent service interruptions. Access to our systems as a result of a security breach, the failure of our systems, or the loss of data could result in legal claims or proceedings, liability, or regulatory penalties and disrupt operations, which could adversely affect our business and financial results.
Risks Related to Legal Matters
Our reputation could be damaged and we could incur additional liabilities if we fail to protect client and employee data through our own accord or if our information systems are breached.
We rely on information technology systems to process, transmit, and store electronic information and to communicate among our locations around the world and with our clients, partners, and employees. These locations include India, Canada, Switzerland, Singapore, and the United Kingdom, all of which have their own either recently updated or potential new data protection laws. The breadth and complexity of this infrastructure increases the potential risk of security breaches which could lead to potential unauthorized disclosure of confidential information.
In providing services to clients, we may manage, utilize, and store sensitive or confidential client or employee data, including personal data and protected health information. As a result, we are subject to numerous laws and regulations designed to protect this information, such as the U.S. federal and state laws governing the protection of health or other personally identifiable information, including the Health Insurance Portability and Accountability Act (HIPAA), and international laws such as the European Union's General Data Protection Regulation (GDPR), which went into effect in 2018. In addition, many states, U.S. federal governmental authorities and non-U.S. jurisdictions have adopted, proposed or are considering adopting or proposing, additional data security and/or data privacy statutes or regulations. Continued
governmental focus on data security and privacy may lead to additional legislative and regulatory action, which could increase the complexity of doing business. The increased emphasis on information security and the requirements to comply with applicable U.S. and foreign data security and privacy laws and regulations may increase our costs of doing business and negatively impact our results of operations.
expandThese laws and regulations are increasing in complexity and number. If any person, including any of our existing relationshipsemployees or third-party vendors, negligently disregards or intentionally breaches our established controls or contractual obligations with respect to client or employee data, or otherwise mismanages or misappropriates that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines, and/or criminal prosecution. We maintain certain insurance coverages for cybersecurity incidents through our directors and officers insurance policy, in amounts we believe to be reasonable and at a cost that is included in our general insurance premiums.
In addition, unauthorized disclosure of sensitive or confidential client or employee data, whether through systems failure, employee negligence, fraud, or misappropriation, could damage our reputation and cause us to lose clients and identify new clientstheir related revenue in needthe future.
Our engagements could result in professional liability, which could be very costly and hurt our reputation.
Our engagements typically involve complex analyses and the exercise of professional judgment. As a result, we are subject to the risk of professional liability. From time to time, lawsuits with respect to our work are pending. Litigation alleging that we performed negligently or breached any other obligations could expose us to significant legal liabilities and, regardless of outcome, is often very costly, could distract our management, could damage our reputation, and could harm our financial condition and operating results. We also face increased litigation risk as a result of an expanded workforce. In addition, certain of our services;
successfully resellengagements, including interim management engagements and securecorporate restructurings, involve greater risks than other consulting engagements. We are not always able to include provisions in our engagement agreements that are designed to limit our exposure to legal claims relating to our services. While we attempt to identify and mitigate our exposure with respect to liability arising out of our consulting engagements, these efforts may be ineffective and an actual or alleged error or omission on our part or the part of our client or other third parties in one or more of our engagements could have an adverse impact on our financial condition and results of operations. In addition, we carry professional liability insurance to cover many of these types of claims, but the policy limits and the breadth of coverage may be inadequate to cover any particular claim or all claims plus the cost of legal defense. For example, we provide services on engagements in which the impact on a client may substantially exceed the limits of our errors and omissions insurance coverage. If we are found to have professional liability with respect to work performed on such an engagement, we may not have sufficient insurance to cover the entire liability.
Our business could be materially adversely affected if we incur liability in connection with service offering innovation, including new or expanded service offerings.
We may grow our business through service offering innovation, including by entering into new or expanded lines of business beyond our core services. To the extent we enter into new or expanded lines of business, we may face new risks and uncertainties, including the possibility these new or expanded lines of business involve greater risks than our core services, that we have insufficient expertise to engage in such activities profitably or without incurring inappropriate amounts of risk, that the required investment of capital and other resources is greater than anticipated, and that we lose existing clients due to the perception that we are no longer focusing on our core business. Entry into new or expanded lines of business may also subject us to new laws and regulations with which we are not familiar and may lead to increased litigation and regulatory risk. For example, our recently launched Huron Managed Services business within the Healthcare industry provides revenue cycle managed services to hospitals and health systems. These services include the coding, preparation, submission and collection of claims for medical service to payers for reimbursement. Such claims are governed by U.S. federal and state laws. U.S. federal law provides civil liability to any persons that knowingly submit, or cause to be submitted, a claim to a payer, including Medicare, Medicaid and private health plans, seeking payment for any services or items that overbills or bills for services or items that have not been provided to the patient. U.S. federal law may also impose criminal penalties for intentionally submitting such false claims. In addition, federal and state law regulates the collection of debt and may impose monetary penalties for violating those regulations. In connection with these laws, we may be subjected to U.S. federal or state government investigations and possible penalties may be imposed upon us, false claims actions may have to be defended and private payers may file claims against us. Any investigation or proceeding related to these laws, even if unwarranted or without merit, may have a material adverse effect on our reputation, business, results of operations and financial condition.
Our intellectual property rights in our “Huron Consulting Group” name are important, and any inability to use that name could negatively impact our ability to build brand identity.
We believe that establishing, maintaining, and enhancing the “Huron Consulting Group” name and “Huron” brand is important to our business. We are, however, aware of a number of other companies that use names containing “Huron.” There could be potential trade name or service mark infringement claims brought against us by the users of these similar names and marks and those users may have trade name or service mark rights that are senior to ours. If another company were to successfully challenge our right to use our name, or if we were unable to prevent a competitor from using a name that is similar to our name, our ability to build brand identity could be negatively impacted.
Conflicts of interest could preclude us from accepting engagements thereby causing decreased utilization and revenues.
We provide services in connection with bankruptcy and other proceedings that usually involve sensitive client information and frequently are adversarial. In connection with bankruptcy proceedings, we are required by law to be “disinterested” and may not be able to provide multiple services to a particular client. In addition, our engagement agreement with a client or other business reasons may preclude us from accepting engagements from time to time with the client's competitors or adversaries. Moreover, in many industries in which we provide services, there has been a continuing trend toward business consolidations and strategic alliances. These consolidations and alliances reduce the number of companies that may seek our services and increase the chances that we will be unable to accept new engagements every year;as a result of conflicts of interest. If we are unable to accept new engagements for any reason, our consultants may become underutilized, which would adversely affect our revenues and results of operations in future periods.
maintainRisks Related to Financial Management and enhance our brand recognition; and
adapt quickly to meet changes in our markets, our business mix, the economic environment, the credit markets, and competitive developments.Performance
Our financial results could suffer if we are unable to achieve or maintain adequate utilization and suitable billing rates for our consultants.consultants, or if we are unable to deliver our services due to factors that disrupt travel to our client sites.
Our profitability depends to a large extent on the utilization and billing rates of our professionals. Utilization of our professionals is affected by a number of factors, including:
•the number and size of client engagements;
•the timing of the commencement, completion and termination of engagements, which in many cases is unpredictable;
•our ability to transition our consultants efficiently from completed engagements to new engagements;
•the hiring of additional consultants because there is generally a transition period for new consultants that results in a temporary drop in our utilization rate;
•unanticipated changes in the scope of client engagements;
•our ability to forecast demand for our services and thereby maintain an appropriate level of consultants; and
•conditions affecting the industries in which we practice as well as general economic conditions.
The billing rates of our consultants that we are able to charge are also affected by a number of factors, including:
•our clients’ perception of our ability to add value through our services;
•the market demand for the services we provide;
•an increase in the number of engagements in the government sector, which are subject to federal contracting regulations;
•introduction of new services by us or our competitors;
•our competition and the pricing policies of our competitors; and
•current economic conditions.
If we are unable to achieve and maintain adequate overall utilization as well as maintain or increase the billing rates for our consultants, our financial results could materially suffer. In addition,Traditionally, most of our consultants oftentimes performhaveperformed services at the physical locations of our clients. Starting in 2020 and in response to the proliferation of the coronavirus, substantially all of our services were delivered remotely. If thereour consultants are natural disasters, disruptionsunable to travel and transportationcontinue delivering services remotely or problemsif we are out of step with communications systems, our abilitya general market return to perform services for, and interact with, our clients at their physical locations may be negatively impacted which could have an adverse effect onin person service delivery, our business and results of operations.could be materially adversely affected.
Our quarterly results of operations have fluctuated in the past and may continue to fluctuate in the future as a result of certain factors, some of which may be outside of our control.
A key element of our strategy is to market our products and services directly to certain large organizations, such as health systems and acute care hospitals, and to increase the number of our products and services utilized by existing clients. The sales cycle for some of our products and services is often lengthy and may involve significant commitment of client personnel. As a consequence, the commencement date of a client engagement often cannot be accurately forecasted. As discussed below, certain of our client contracts contain terms that result in
revenue that is deferred and cannot be recognized until the occurrence of certain events. As a result, the period of time between contract signing and recognition of associated revenue may be lengthy, and we are not able to predict with certainty the period in which revenue will be recognized.
Certain of our contracts provide that some portion or all of our fees are at risk if our services do not result in the achievement of certain performance targets. To the extent that any revenue is contingent upon the achievement of a performance target, we only recognize revenue
upon client confirmation that the performance targets have been achieved. If a client fails to provide such confirmation in a timely manner, our ability to recognize revenue will be delayed.
Fee discounts, pressure to not increase or even decrease our rates, and less advantageous contract terms could result in the loss of clients, lower revenues and operating income, higher costs, and less profitable engagements. More discounts or write-offs than we expect in any period would have a negative impact on our results of operations.
Other fluctuations in our quarterly results of operations may be due to a number of other factors, some of which are not within our control, including:
•the timing and volume of client invoices processed and payments received, which may affect the fees payable to us under certain of our engagements;
•client decisions regarding renewal or termination of their contracts;
•the amount and timing of costs related to the development or acquisition of technologies or businesses; and
•unforeseen legal expenses, including litigation and other settlement gains or losses.
We base our annual employee bonus expense upon our expected annual adjusted earnings before interest, taxes, depreciation and amortization (“EBITDA”) for that year. If we experience lower adjusted EBITDA in a quarter without a corresponding change to our full-year adjusted EBITDA expectation, our estimated bonus expense will not be reduced, which will have a negative impact on our quarterly results of operations for that quarter. Our quarterly results of operations may vary significantly and period-to-period comparisons of our results of operations may not be meaningful. The results of one quarter should not be relied upon as an indication of future performance. If our quarterly results of operations fall below the expectations of securities analysts or investors, the price of our common stock could decline substantially.
Revenues from our performance-based engagements are difficult to predict, and the timing and extent of recovery of our costs is uncertain.
We have engagement agreements under which our fees include a significant performance-based component. Performance-based fees are contingent on the achievement of specific measures, such as our clients meeting cost-saving or other contractually-defined goals. The achievement of these contractually-defined goals may be subject to acknowledgment by the client and is often impacted by factors outside of our control, such as the actions of the client or other third parties. Because performance-based fees areTo the extent that any revenue is contingent revenues onupon the achievement of a performance target, we recognize such engagements, which are recognized when allrevenue using a process that requires us to make significant management judgments, estimates, and assumptions. While we believe that the estimates and assumptions we have used for revenue recognition criteria are met, are not certain and the timing of receipt is difficultreasonable, subsequent changes could have a material impact to predict and may not occur evenly throughout the year.our future financial results. The percentage of our revenues derived from performance-based fees for the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, was 4.9%10.1%, 8.9%9.2%, and 8.7%8.9%, respectively. A greater number of performance-based fee arrangements may result in increased volatility in our working capital requirements and greater variations in our quarter-to-quarter results, which could affect the price of our common stock. In addition, an increase in the proportion of performance-based fee arrangements may temporarily offset the positive effect on our operating results from an increase in our utilization rate until the related revenues are recognized.
The profitability of our fixed-fee engagements with clients may not meet our expectations if we underestimate the cost of these engagements.
When making proposals for fixed-fee engagements, we estimate the costs and timing for completing the engagements. These estimates reflect our best judgment regarding the efficiencies of our methodologies and consultants as we plan to deploy them on engagements. Any increased or unexpected costs or unanticipated delays in connection with the performance of fixed-fee engagements, including delays caused by factors outside our control, could make these contracts less profitable or unprofitable, which would have an adverse effect on our profit margin. For the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, fixed-fee engagements represented 46.7%44.2%, 47.4%41.4%, and 58.0%45.8%, of our revenues, respectively.
Our business is becoming increasingly dependent on information technology and will require additional investments in orderperformance might not be sufficient for us to grow and meet the demandsfull-year financial guidance that we provide publicly.
We provide full-year financial guidance to the public based upon our expectations regarding our financial performance. While we believe that our annual financial guidance provides investors and analysts with insight to our view of the Company’s future performance, such financial guidance is based on assumptions that may not always prove to be accurate and may vary from actual results. If we fail to meet the full-year financial guidance that we provide, or if we find it necessary to revise or suspend such guidance during the year, the market value of our clients.
We depend on the use of sophisticated technologies and systems. Some of our practices provide services that are increasingly dependent on the use of software applications and systems that we do not own andcommon stock could become unavailable. Moreover, our technology platforms will require continuing investments by us in order to expand existing service offerings and develop complementary services. Our future success depends on our ability to adapt our services and infrastructure while continuing to improve the performance, features, and reliability of our services in response to the evolving demands of the marketplace.
be adversely affected.
Adverse changesRisks Related to our relationships with key third-party vendors, or in the business of our key third-party vendors, could unfavorably impact our business.
A portion of our services and solutions depend on technology or software provided by third-party vendors. Some of these third-party vendors refer potential clients to us, and others require that we obtain their permission prior to accessing their software while performing services for our clients. These third-party vendors could terminate their relationship with us without cause and with little or no notice, which could limit our service offerings and harm our financial condition and operating results. In addition, if a third-party vendor’s business changes or is reduced, that could adversely affect our business. Moreover, if third-party technology or software that is important to our business does not continue to be available or utilized within the marketplace, or if the services that we provide to clients is no longer relevant in the marketplace, our business may be unfavorably impacted.
We could experience system failures, service interruptions, or security breaches that could negatively impact our business.
Our organization is comprised of employees who work on matters throughout the United States and overseas. Our technology platform is a “virtual office” from which we all operate. We may be subject to disruption to our operating systems from technology events that are beyond our control, including the possibility of failures at third-party data centers, disruptions to the Internet, natural disasters, power losses, and malicious attacks. In addition, despite the implementation of security measures, our infrastructure and operating systems, including the Internet and related systems, may be vulnerable to physical break-ins, hackers, improper employee or contractor access, computer viruses, programming errors, denial-of-service attacks, or other attacks by third parties seeking to disrupt operations or misappropriate information or similar physical or electronic breaches of security. While we have taken and are taking reasonable steps to prevent and mitigate the damage of such events, including implementation of system security measures, information backup, and disaster recovery processes, those steps may not be effective and there can be no assurance that any such steps can be effective against all possible risks. We will need to continue to invest in technology in order to achieve redundancies necessary to prevent service interruptions. Access to our systems as a result of a security breach, the failure of our systems, or the loss of data could result in legal claims or proceedings, liability, or regulatory penalties and disrupt operations, which could adversely affect our business and financial results.
Our reputation could be damaged and we could incur additional liabilities if we fail to protect client and employee data through our own accord or if our information systems are breached.
We rely on information technology systems to process, transmit, and store electronic information and to communicate among our locations around the world and with our clients, partners, and employees. The breadth and complexity of this infrastructure increases the potential risk of security breaches which could lead to potential unauthorized disclosure of confidential information.
In providing services to clients, we may manage, utilize, and store sensitive or confidential client or employee data, including personal data and protected health information. As a result, we are subject to numerous laws and regulations designed to protect this information, such as the U.S. federal and state laws governing the protection of health or other personally identifiable information, including the Health Insurance Portability and Accountability Act (HIPAA), and international laws such as the European Union Directive on Data Protection. In addition, many states, U.S. federal governmental authorities and non-U.S. jurisdictions have adopted, proposed or are considering adopting or proposing, additional data security and/or data privacy statutes or regulations. Continued governmental focus on data security and privacy may lead to additional legislative and regulatory action, which could increase the complexity of doing business. The increased emphasis on information security and the requirements to comply with applicable U.S. and foreign data security and privacy laws and regulations may increase our costs of doing business and negatively impact our results of operations.
These laws and regulations are increasing in complexity and number. If any person, including any of our employees, negligently disregards or intentionally breaches our established controls with respect to client or employee data, or otherwise mismanages or misappropriates that data, we could be subject to significant monetary damages, regulatory enforcement actions, fines, and/or criminal prosecution.
In addition, unauthorized disclosure of sensitive or confidential client or employee data, whether through systems failure, employee negligence, fraud, or misappropriation, could damage our reputation and cause us to lose clients and their related revenue in the future.
Our international expansion could result in additional risks.
We operate both domestically and internationally, including in Canada, Europe, Asia, and the Middle East. Although historically our international operations have been limited, we intend to continue to expand internationally. Such expansion may result in additional risks that are not present domestically and which could adversely affect our business or our results of operations, including:
compliance with additional U.S. regulations and those of other nations applicable to international operations;
cultural and language differences;
employment laws and rules and related social and cultural factors;
losses related to start-up costs, lack of revenue, higher costs due to low utilization, and delays in purchase decisions by prospective clients;
currency fluctuations between the U.S. dollar and foreign currencies, which are harder to predict in the current adverse global economic climate;
restrictions on the repatriation of earnings;
potentially adverse tax consequences and limitations on our ability to utilize losses generated in our foreign operations;
different regulatory requirements and other barriers to conducting business;
different or less stable political and economic environments;
greater personal security risks for employees traveling to or located in unstable locations; and
civil disturbances or other catastrophic events.
Further, conducting business abroad subjects us to increased regulatory compliance and oversight. For example, in connection with our international operations, we are subject to laws prohibiting certain payments to governmental officials, such as the Foreign Corrupt Practices Act. A failure to comply with applicable regulations could result in regulatory enforcement actions as well as substantial civil and criminal penalties assessed against us and our employees.Capital Resources
Our obligations under the Amended Credit Agreement are secured by a pledge of certain of the equity interests in our subsidiaries and a lien on substantially all of our assets and those of our subsidiary grantors. If we default on these obligations, our lenders may foreclose on our assets, including our pledged equity interest in our subsidiaries.
On March 31, 2015, weWe entered into a second amended and restated security agreement with Bank of America (the “Security Agreement”) and a second amended and restated pledge agreement (the “Pledge Agreement”) in connection with our entry into the Second Amended and Restated Credit Agreement, dated as of March 31, 2015 (as amended and restated, the “Amended Credit Agreement”). Pursuant to the Security Agreement and to secure our obligations under the Amended Credit Agreement, we granted our lenders a first-priority lien, subject to permitted liens, on substantially all of the personal property assets that we and the subsidiary grantors own. Pursuant to the Pledge Agreement, we granted our lenders a security interest in 100% of the voting stock or other equity interests in our domestic subsidiaries and 65% of the voting stock or other equity interests in certain of our foreign subsidiaries. If we default on our obligations under the Amended Credit Agreement, our lenders could accelerate our indebtedness and may be able to exercise their liens on the equity interests subject to the Pledge Agreement and their liens on substantially all of our assets and the assets of our subsidiary grantors, which would have a material adverse effect on our business, operations, financial condition, and liquidity. In addition, the covenants contained in the Amended Credit Agreement impose restrictions on our ability to engage in certain activities, such as the incurrence of additional indebtedness, certain investments, certain acquisitions and dispositions, and the payment of dividends.
Our indebtedness could adversely affect our ability to raise additional capital to fund our operations and obligations, expose us to interest rate risk to the extent of our variable-rate debt, and adversely affect our financial results.
At December 31, 2017,2021, we had outstanding indebtedness of $250 million principal amount of our 1.25% convertible senior notes due October 1, 2019, $105.0$230.0 million on our revolving line of credit that becomes due and payable in full upon maturity on March 31, 2020,September 27, 2024, and $4.9$2.8 million principal amount of our promissory note due March 1, 2024. Our ability to make scheduled payments of the principal, to pay interest, to make payments upon conversion, or to refinance our indebtedness, depends on our future performance. Our business may not continueIf we are unable to generate cash flow from operations in the future sufficient to satisfy our obligations under our current indebtedness and any future indebtedness, we may incur and to make necessary capital expenditures. If we are unable to generate such cash flow, we may be required to adopt one or more alternatives, such as reducing or delaying investments or capital expenditures, selling assets, refinancing, or obtaining additional equity capital on terms that may be onerous or highly dilutive. Our ability to refinance our current indebtedness or future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of these activities or engage in these activities on desirable terms, which could result in a default on the current indebtedness or future indebtedness.
The interest rates on our revolving line of credit and promissory note are linked to LIBOR. In 2017, the Financial Conduct Authority (FCA) in the U.K. announced that it would phase out LIBOR as a benchmark rate by the end of 2021. In March 2021, the ICE Benchmark Administration Limited, the administrator of LIBOR, extended the transition dates of certain LIBOR tenors (including all U.S. Dollar LIBOR tenors other than one-week and two-month U.S. Dollar LIBOR tenors) to June 30, 2023, after which LIBOR reference rates will cease to be provided. Despite this deferral, the LIBOR administrator has advised that no new contracts using U.S. Dollar LIBOR should be entered into after December 31, 2021. As a result of the discontinuance of LIBOR, the future method and rates used to calculate our interest rates and/or payments on our debt may result in interest rates and/or payments that are higher than, or that do not otherwise correlate over time with, the interest rates and/or payments that would have been applicable to our obligations if LIBOR was available in its current form, which could have a material adverse effect on our financial condition and results of operations. While we continue to take steps to mitigate the impact of the phase-out or replacement of LIBOR, such efforts may not prove successful. Furthermore, the U.S. or global financial markets may be disrupted as a result of the phase-out or replacement of LIBOR, which could also have a material adverse effect on our business, financial condition and results of operations.
In addition, our indebtedness, combined with our other financial obligations and contractual commitments, could have other important consequences. For example, it could:
exposeconsequences such as exposing us to the risk of increased interest rates because some of our borrowings are at variable interest rates;
make making us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse changes in government regulation;
limit or reducing our abilitycapacity to obtain additional financing and flexibility in planning for, or reacting to, changes in our business and our industry;
place us at a disadvantage compared to our competitors who have less debt or have better access to capital resources; and
require us to dedicate a larger portion of our cash from operations to service our indebtedness and thus reduce the level of cash for other purposes such as funding working capital, strategic acquisitions, capital expenditures, and other general corporate purposes.
industry. Any of these factors could materially and adversely affect our business, financial condition, and results of operations. In addition,
Risks Related to Asset Impairment
Our goodwill and other intangible assets represent a substantial amount of our total assets, and we may be required to recognize a non-cash impairment charge for these assets if the performance of one or more of our reporting units falls below our expectations.
Our total assets reflect a substantial amount of goodwill and other intangible assets. At December 31, 2021, goodwill and other intangible assets totaled $652.8 million, or 58%, of our total assets. Goodwill results from our acquisitions, representing the excess of the fair value of consideration transferred over the fair value of the net assets acquired. 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. Intangible assets other than goodwill represent purchased assets that lack physical substance but can be distinguished from goodwill. Our intangible assets primarily
consist of customer relationships, trade names, technology and software, non-competition agreements, and customer contracts, 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. During the year ended December 31, 2020, we incur additional indebtedness, the risksrecorded non-cash goodwill impairment charges totaling $59.8 million related to the Business Advisory segment. During 2021 and 2019, we did not record any non-cash goodwill impairment charges. No material impairment charges for intangible assets were recorded in 2021, 2020, or 2019.
Determining the fair value of a reporting unit requires us to make significant judgments, estimates, and assumptions. While we believe that the estimates and assumptions underlying our businessvaluation methodology are reasonable, these estimates and our ability to service or repay our indebtedness would increase.
The accounting method for convertible debt securities that may be settled in cash, such as our convertible notes,assumptions could have a material effectsignificant impact on our reported financial results.
Under GAAP,whether or not a non-cash goodwill impairment charge is recognized and also the magnitude of any such charge. The results of an entity must separately account for the debt component and the embedded conversion optionimpairment analysis are as of convertible debt instruments that may be settled entirely or partiallya point in cash upon conversion, such as our convertible notes, in a manner that reflects a company’s economic interest cost. The effect of the accounting treatment for such instrumentstime. There is no assurance that the valueactual future earnings or cash flows of such embedded conversion option wouldour reporting units will be treatedconsistent with our projections. We will monitor any changes to our assumptions and will evaluate goodwill as an original issue discount for purposesdeemed warranted during future periods. Any significant decline in our operations could result in additional non-cash goodwill impairment charges.
Refer to “Critical Accounting Policies and Estimates” within Part I - Item 7. “Management’s Discussion and Analysis of accounting for the debt componentFinancial Condition and Results of Operations” and Note 4 “Goodwill and Intangible Assets” within the notes and that original issue discount is amortized into interest expense over the term of the notes using an effective yield method. As a result, over the termto our consolidated financial statements for further discussion of our convertible notes, we will initially be required to record a greater amount of non-cash interest expense. Accordingly, we will report lower net income in our financial results because of the recognition of both the current period’s amortization of the debt discountbusiness combinations, goodwill, intangible assets, and our convertible notes’ coupon interest, which could adversely affect our reported or future financial results, the trading price of our common stock, and the trading price of our convertible notes.
Under certain circumstances, the shares of common stock underlying convertible debt instruments (such as our convertible notes) that may be settled entirely or partially in cash are reflected in earnings per share utilizing the treasury stock method, the effect of which is that such shares of common stock are not included in the calculation of diluted earnings per share except to the extent that the conversion value of the notes exceeds their principal amount at the end of the reporting period. Under the treasury stock method, for diluted earnings per share purposes, our convertible notes are accounted for as if the number of shares of common stock that would be necessary to settle such excess, if we elected to settle such excess in shares of common stock, are issued. The accounting standards in the future may not continue to permit the use of the treasury stock method. If we are unable to use the treasury stock method in accounting for the shares of common stock issuable upon conversion of our convertible notes, then our diluted earnings per share could be adversely affected.
In addition, if the conditional conversion feature of our convertible notes is triggered, even if holders do not elect to convert their convertible notes, we could be required under applicable accounting rules to reclassify all of the outstanding principal of our convertible notes as a current, rather than long-term, liability, which would result in a material reduction of our net working capital.impairment tests performed.
We may not have the ability to raise the funds necessary to pay the amount of cash due upon conversion of our convertible notes, if relevant, or the fundamental change repurchase price due when a holder submits its convertible notes for repurchase upon the occurrence of a fundamental change, and our debt may contain limitations on our ability to pay cash upon conversion or required repurchase of our convertible notes.
Upon the occurrence of a fundamental change as defined in the indenture governing our convertible notes, holders of our convertible notes may require us to repurchase, for cash, all or a portion of their convertible notes at a repurchase price equal to 100% of their principal amount, plus accrued and unpaid interest, if any. In addition, upon conversion of our convertible notes, we will be required to make cash payments in respect of our convertible notes being converted, including if the conditional conversion feature of our convertible notes is triggered, unless we elect to deliver solely shares of our common stock to settle such conversion.
We may not have sufficient financial resources, or may be unable to arrange financing, to pay the fundamental change repurchase price if holders of our convertible notes submit their convertible notes for purchase by us upon the occurrence of a fundamental change or to pay the amount of cash (if any) due if holders of our convertible notes surrender their convertible notes for conversion. In addition, the occurrence of a fundamental change may cause an event of default under agreements governing our or our subsidiaries’ indebtedness. Agreements governing any of our future debt may restrict our ability to make each of the required cash payments even if we have sufficient funds to make them. Furthermore, our ability to purchase our convertible notes or to pay cash (if any) due upon the conversion of our convertible notes may be limited by law or regulatory authorities. In addition, if we fail to repurchase our convertible notes or to pay the amount of cash (if any) due upon conversion of our convertible notes, we will be in default under the indenture. A default under the indenture or the fundamental change itself could also lead to a default under agreements governing our other indebtedness, which in turn may result in the acceleration of such other indebtedness we may then have outstanding. If the repayment of the other indebtedness were to be accelerated, we may not have sufficient funds to repay that indebtedness and to repurchase our convertible notes or to pay the amount of cash (if any) due upon conversion.
The fundamental change provisions associated with our convertible notes may delay or prevent an otherwise beneficial takeover attempt of us.
The fundamental change purchase rights, which will allow holders of our convertible notes to require us to repurchase all or a portion of their convertible notes upon the occurrence of a fundamental change, and the provisions requiring an increase to the conversion rate for conversions in connection with certain other circumstances may delay or prevent a takeover of us that might otherwise be beneficial to investors.
The convertible note hedge transactions and the warrant transactions may affect the value of our convertible notes and our common stock.
In connection with the pricing of our convertible notes, we entered into privately negotiated convertible note hedge transactions with affiliates of Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities as hedge counterparties. The convertible note hedge transactions collectively cover, subject to customary anti-dilution adjustments, the number of shares of common stock that initially underlie our convertible notes. We also entered into separate privately negotiated warrant transactions with the hedge counterparties relating to the same number of shares of our common stock, subject to customary anti-dilution adjustments.
We expect that the hedge counterparties and/or their affiliates may modify their hedge positions with respect to the convertible note hedge transactions and the warrant transactions from time to time by purchasing and/or selling shares of our common stock and/or our convertible notes in privately negotiated transactions and/or open market transactions or by entering into and/or unwinding various over-the-counter derivative transactionsincur impairment charges with respect to our common stock. This activity could also cause or prevent an increase or decreaseconvertible debt investment in Shorelight.
In 2014 and 2015, we invested $27.9 million, in the marketform of zero coupon convertible debt, in Shorelight Holdings, LLC (“Shorelight”), the parent company of Shorelight Education. In the first quarter of 2020, we invested an additional $13.0 million, in the form of 1.69% convertible debt with a senior liquidation preference. Our investment is carried at its fair value of $65.9 million as of December 31, 2021, with unrealized holding gains and losses reported in other comprehensive income. As of December 31, 2021, our common stock. In addition,investment in Shorelight is in an unrealized gain position. If the hedge counterparties and/or their affiliates may chooseinvestment were to engage in, or to discontinue engaging in, any of these transactions with or without notice at any time, and their decisions will be in their sole discretion and not within our control.
The hedge counterparties are financial institutions which will be subjectan unrealized loss position due to significant credit deterioration of Shorelight, we would recognize an allowance to decrease the carrying value of the investment to the riskfair value, which may be reversed in the event that onethe credit of Shorelight improves. As of December 31, 2021, we have not recognized any credit allowance on our investment. In the future, if there are adverse developments in Shorelight's business that may be the result of events within or bothoutside of the hedge counterparties might default under their respective convertible note hedge transactions. Upon a default by any hedge counterparty,Shorelight's control, we may suffer adverse tax consequences and more dilution than we currently anticipateincur impairment charges with respect to our common stock. We can provide no assurances as to the financial stability or viability of the hedge counterparties.
Our intellectual property rights in our “Huron Consulting Group” name are important, and any inability to use that nameconvertible debt investment, which could negativelymaterially impact our ability to build brand identity.results of operations.
We believe that establishing, maintaining, and enhancing the “Huron Consulting Group” name and "Huron" brand is important to our business. We are, however, aware of a number of other companies that use names containing “Huron.” There could be potential trade name or service mark infringement claims brought against us by the users of these similar names and marks and those users may have trade name or service mark rights that are senior to ours. If another company were to successfully challenge our right to use our name, or if we were unable to prevent a competitor from using a name that is similar to our name, our ability to build brand identity could be negatively impacted.
Our business performance might not be sufficient for us to meet the full-year financial guidance that we provide publicly.
We provide full-year financial guidance to the public based upon our expectations regarding our financial performance. While we believe that our annual financial guidance provides investors and analysts with insight to our view of the Company’s future performance, such financial guidance is based on assumptions that may not always prove to be accurate and may vary from actual results. If we fail to meet the full-year financial guidance that we provide, or if we find it necessary to revise such guidance during the year, the market value of our common stock could be adversely affected.General Risk Factors
Expanding our service offerings or number of officesmay involve additional risks and may not be profitable.
We may choose to develop new service offerings open new offices, or eliminate service offerings because of market opportunities or client demands. Developing new service offerings involves inherent risks, including:
•our inability to estimate demand for the new service offerings;
•competition from more established market participants;
•exposure to new legal and operational risks;
•a lack of market understanding; and
•unanticipated expenses to recruit and hire qualified consultants and to market our new service offerings.offerings; and
In addition, expanding into new geographic areas and expanding current•unanticipated challenges with service offerings is challenging and may require integrating new employees into our culture as well as assessing the demanddelivery.
Changes in the applicable market. If we cannot manage the risks associated with new
service offeringscapital markets, legal or new locations effectively, we are unlikely to be successful in these efforts, which could harm our ability to sustain profitability and our business prospects.
The healthcare industry is an area of significant focus for our business, and factors that adversely affect the financial condition of the healthcare industry could consequently affect our business.
We derive a significant portion of our revenue from clients in the healthcare industry. As a result, our financial condition and results of operations could be adversely affected by conditions affecting the healthcare industry generally and hospitals and health systems particularly. The healthcare industry is highly regulated and is subject to changing political, legislative, regulatory and other influences. Uncertainty in any of these areas could cause our clients to delay or postpone decisions to use our services. Existing and new federal and state laws and regulations affecting the healthcare industry could create unexpected liabilities for us, could cause us or our clients to incur additional costs, and could restrict our or our clients’ operations. Many healthcare laws are complex and their application to us, our clients, or the specific services and relationships we have with our clients are not always clear. In addition, federal and state legislatures have periodically introduced programs to reform or amend the U.S. healthcare system at both the federal and state level, such as the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act of 2010, and continue to consider further significant reforms. Due to the significant implementation issues arising under these laws and potential new legislation, it is unclear what long-term effects they will have on the healthcare industry and in turn on our business, financial condition, and results of operations. Our failure to accurately anticipate the application of new laws and regulations, or our failure to comply with such laws and regulations, could create liability for us, result in adverse publicity and negatively affect our business.
There are many factors that could affect the purchasing practices, operations, and, ultimately, the operating funds of healthcare organizations, such as reimbursement policies for healthcare expenses, federal and state budgetary considerations, consolidation in the healthcare industry, and regulation, litigation,requirements, and general economic conditions. In particular, weor other factors beyond our control could be required to make unplanned modifications of our products and services (which would require additional time and investment) or we could suffer reductions in demand for our products and services as a result of changes in regulations affecting the healthcare industry, such as changes in the way that healthcare organizations are paid for their services (e.g., based on patient outcomes instead of services provided). Furthermore, as a result of the 2016 election and the new presidential administration, there is an increased uncertainty surrounding the future of the Affordable Care Act and the regulation of the healthcare industry, and therefore healthcare organizations may wait to buy services such as ours until the regulatory environment is more certain.
In addition, state tax authorities have challenged the tax-exempt status of some hospitals and other healthcare facilities claiming such status on the basis that they are operating as charitable and/or religious organizations. If the tax-exempt status of any of our clients is revoked or compromised by new legislation or interpretation of existing legislation, that client’s financial health could be adversely affected, which could adversely impactreduce demand for our services, in which case our sales, revenue, financial condition,revenues and resultsprofitability could decline.
A number of operations.
Our ability to maintain and attract new business and talented personnel depends upon our reputation, the professional reputationfactors outside of our revenue-generating employees,control affect demand for our services. These include:
•fluctuations in U.S. and global economies;
•the U.S. or global financial markets and the qualityavailability, costs, and terms of our services.credit;
As a professional services firm, our ability to secure new engagements•changes in laws and retainregulations;
•political unrest, war, terrorism, geopolitical uncertainties, trade policies and attract talented personnel depends heavily upon our reputationsanctions, including the repercussions of an attack by Russia on Ukraine; and the individual reputations of our professionals. Any factor that diminishes our reputation or that of our employees, including not meeting client expectations or misconduct by our employees, could make it substantially more difficult for us to attract new engagements, clients,
•other economic factors and employees. Similarly, because we obtain many of our new engagements from former or current clients or from referrals by those clients or by law firms that we have worked with in the past, any client that questions the quality of our work or that of our consultants could impair our ability to secure additional new engagements and clients.general business conditions.
A significantFor example, some portion of our revenues is derived from a limited number of clients, and our engagement agreements, including those related to our largest clients, canthe services we provide may be terminatedconsidered by our clients with little or no notice and without penalty, which may cause our operating results to be unpredictable and may resultmore discretionary in unexpected declines in our utilization and revenues.
As a consulting firm, we have derived, and expect to continue to derive, a significant portion of our revenues from a limited number of clients. Our 10 largest clients accounted for approximately 19.5%, 28.8%, and 29.9% of our revenuesnature, as the demand for the years ended December 31, 2017, 2016,services may be impacted by economic slowdowns.We are not able to predict the positive or negative effects that future events or changes to the U.S. or global economy, financial markets, or regulatory and 2015, respectively. No single client accounted for more than 10% ofbusiness environment could have on our revenuesoperations.
Changes in 2017, 2016, or 2015. Our clients typically retain us on an engagement-by-engagement basis, rather than under fixed-term contracts. The volume of work performed for any particular client is likely to vary from year to year, and a major client in one fiscal period may not require or may decide not to use our services in any subsequent fiscal period. Moreover, a large portion of our new engagements comes from existing clients. Accordingly, the failure to obtain new large engagements or multiple engagements from existing or new clientsU.S. tax laws could have a material adverse effect on our business, cash flow, results of operations and financial condition.
We are subject to income and other taxes in the amountU.S. at the state and federal level and also in foreign jurisdictions. Changes in applicable U.S. state, federal or foreign tax laws and regulations, or their interpretation and application, could materially affect our tax expense and profitability.
Future changes in tax laws, treaties or regulations, and their interpretation or enforcement, may be unpredictable, particularly as taxing jurisdictions face an increasing number of revenuespolitical, budgetary and other fiscal challenges. Tax rates in the jurisdictions in which we generate.
In addition, almost alloperate may change as a result of macroeconomic and other factors outside of our engagement agreements can be terminated by our clientscontrol, making it increasingly difficult for multinational corporations like ourselves to operate with little or no notice and without penalty. In client engagements that involve multiple engagements or stages, there is a risk that a client may choose not to retain us for additional stages of an engagement or that a client will cancel or delay additional planned engagements. For clientscertainty about taxation in bankruptcy, a bankruptcy court could elect not
to retain our interim management consultants, terminate our retention, require us to reduce our fees for the duration of an engagement, or elect not to approve claims against fees earned by us prior to or after the bankruptcy filing.
Terminations of engagements, cancellations of portions of the project plan, delays in the work schedule, or reductions in fees could result from factors unrelated to our services. When engagements are terminated or reduced, we lose the associated future revenues, and we may not be able to recover associated costs or redeploy the affected employees in a timely manner to minimize the negative impact. In addition, our clients’ ability to terminate engagements with little or no notice and without penalty makes it difficult to predict our operating results in any particular fiscal period.
Our engagements could result in professional liability, which could be very costly and hurt our reputation.
Our engagements typically involve complex analyses and the exercise of professional judgment.many jurisdictions. As a result, we are subject tocould be materially adversely affected by future changes in tax law or policy (or in their interpretation or enforcement) in the risk of professional liability. From time to time, lawsuits with respect to our work are pending. Litigation alleging thatjurisdictions where we performed negligently or breached any other obligationsoperate, including the United States, which could expose us to significant legal liabilities and, regardless of outcome, is often very costly, could distract our management, could damage our reputation, and could harm our financial condition and operating results. In addition, certain of our engagements, including interim management engagements and corporate restructurings, involve greater risks than other consulting engagements. We are not always able to include provisions in our engagement agreements that are designed to limit our exposure to legal claims relating to our services. While we attempt to identify and mitigate our exposure with respect to liability arising out of our consulting engagements, these efforts may be ineffective and an actual or alleged error or omissionhave a material adverse effect on our part or the part of our client or other third parties in one or more of our engagements could have an adverse impact on our financial condition andbusiness, cash flow, results of operations. In addition, we carry professional liability insurance to cover many of these types of claims, but the policy limits and the breadth of coverage may be inadequate to cover any particular claim or all claims plus the cost of legal defense. For example, we provide services on engagements in which the impact on a client may substantially exceed the limits of our errors and omissions insurance coverage. If we are found to have professional liability with respect to work performed on such an engagement, we may not have sufficient insurance to cover the entire liability.
The consulting services industry is highly competitive and we may not be able to compete effectively.
The consulting services industry in which we operate includes a large number of participants and is intensely competitive. We face competition from other business operations, and financial consulting firms, general management consulting firms, the consulting practices of major accounting firms, regional and specialty consulting firms, and the internal professional resources of organizations. In addition, because there are relatively low barriers to entry, we expect to continue to face additional competition from new entrants into the business operations and financial consulting industries. Competition in several of the sectors in which we operate is particularly intense as many of our competitors are seeking to expand their market share in these sectors. Many of our competitors have a greater national and international presence,condition, as well as have a significantly greater number of personnel, financial, technical, and marketing resources. In addition, these competitors may generate greater revenues and have greater name recognition than we do. Some of our competitors may also have lower overhead and other costs and, therefore, may be able to more effectively compete through lower cost service offerings. Our ability to compete also depends in part on the ability of our competitors to hire, retain, and motivate skilled professionals, the price at which others offer comparable services, the ability of our competitors to offer new and valuable products and services to clients, and our competitors’ responsiveness to their clients. If we are unable to compete successfully with our existing competitors or with any new competitors, our financial results will be adversely affected.effective income tax rate.
Conflicts of interest could preclude us from accepting engagements thereby causing decreased utilization and revenues.
We provide services in connection with bankruptcy and other proceedings that usually involve sensitive client information and frequently are adversarial. In connection with bankruptcy proceedings, we are required by law to be "disinterested" and may not be able to provide multiple services to a particular client. In addition, our engagement agreement with a client or other business reasons may preclude us from accepting engagements from time to time with the client's competitors or adversaries. Moreover, in many industries in which we provide services, there has been a continuing trend toward business consolidations and strategic alliances. These consolidations and alliances reduce the number of companies that may seek our services and increase the chances that we will be unable to accept new engagements as a result of conflicts of interest. If we are unable to accept new engagements for any reason, our consultants may become underutilized, which would adversely affect our revenues and results of operations in future periods.
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| ITEM 1B. | UNRESOLVED STAFF COMMENTS. |
None.
As of December 31, 2017, our principal executive offices in Chicago, Illinois, consisted of approximately 134,000 square feet of office space, under a lease expiring September 2024. We have one five-year renewal option that will allow us to continue to occupy this office space until September 2029. This facility accommodates our executive team and corporate departments, as well as professionals in our practices.
Additionally, we occupy leased facilities for our other domestic and international offices, including those located in the following cities: Boston, Massachusetts; Buffalo, New York; Dallas, Texas; Denver, Colorado; Houston, Texas; Madison, Wisconsin; New York City, New York; Pensacola, Florida; Portland, Oregon; San Francisco, California; Washington, D.C.; Bangalore, India; Dubai, United Arab Emirates; London, United Kingdom; Luasanne, Switzerland; Riyadh, Saudi Arabia; Singapore; St. Ives, United Kingdom; and Toronto, Canada. We do not own any real property.estate or other physical properties. Our administrative and principal executive offices are located at 550 W. Van Buren Street, Chicago, Illinois 60607. We believe that our leasedoffice facilities are suitable and adequate for our business as it is presently conducted. See Note 5 “Leases” within the notes to meet our current needs and thatconsolidated financial statements for additional facilities are available for lease to meet future needs.information on our office facilities.
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| ITEM 3. | LEGAL PROCEEDINGS. |
The information required by this Item is incorporated by reference from Note 18 "Commitments, Contingencies and Guarantees" included within the notes to our consolidated financial statements of this Annual Report on Form 10-K.
From time to time, we are involved in legal proceedings and litigation arising in the ordinary course of business. As of the date of this Annual Report on Form 10-K, we are not a party to any litigation or legal proceeding that, in the current opinion of management, could reasonably be expected to have a material adverse effect on our financial position or results of operations. However, due to the risks and uncertainties inherent in legal proceedings, actual results could differ from current expected results.
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| ITEM 4. | MINE SAFETY DISCLOSURES. |
Not applicable.
PART II
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| | | | |
| ITEM 5. | MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES. |
Market Information
Our common stock is traded on Thethe NASDAQ Global Select Market under the symbol “HURN.” The following table sets forth, on a per share basis and for the periods indicated, the high and low sale prices for our common stock as reported by The NASDAQ Stock Market.
|
| | | | | | | |
| | High | | Low |
| 2016 | | | |
| First Quarter | $ | 60.00 |
| | $ | 46.00 |
|
| Second Quarter | $ | 62.34 |
| | $ | 54.14 |
|
| Third Quarter | $ | 65.00 |
| | $ | 57.23 |
|
| Fourth Quarter | $ | 60.64 |
| | $ | 41.20 |
|
| 2017 | | | |
| First Quarter | $ | 49.25 |
| | $ | 39.15 |
|
| Second Quarter | $ | 46.85 |
| | $ | 40.50 |
|
| Third Quarter | $ | 43.70 |
| | $ | 29.53 |
|
| Fourth Quarter | $ | 42.50 |
| | $ | 32.40 |
|
Holders
As of February 21, 2018,17, 2022, there were 486307 registered holders of record of Huron’s common stock. A number of Huron’s stockholders hold their shares in street name; therefore, the Company believes that there are substantially more beneficial owners of its common stock.
Dividends
We have not declared or paid dividends on our common stock since we became a public company. Our board of directors re-evaluates this policy periodically. Any determination to pay cash dividends will be at the discretion of the board of directors and will be dependent upon our
results of operations, financial condition, capital requirements, terms of our financing arrangements, and such other factors as the board of directors deems relevant. In addition, the amount of dividends we may pay is subject to the restricted payment provisions of our senior secured credit facility. See the Liquidity and Capital Resources section under Part II—Item 7. "Management's“Management's Discussion and Analysis of Financial Condition and Results of Operations"Operations” for further information on the restricted payment provisions of our senior secured credit facility.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item appears under Part III—Item 12. "Security“Security Ownership of Certain Beneficial Owners and Management and Related Stockholders Matters” included elsewhere in this Annual Report on Form 10-K.Matters.”
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Our Stock Ownership Participation Program, 2012 Omnibus Incentive Plan, and 2004 Omnibus Stock Plan, which was replaced by the 2012 Omnibus Incentive Plan, permit the netting of common stock upon vesting of restricted stock awards to satisfy individual tax withholding requirements. During the quarter ended December 31, 2017,2021, we reacquired 9,83216,654 shares of common stock with a weighted average fair market value of $40.28$50.19 as a result of such tax withholdings.
In October 2014,November 2020, our board of directors authorized a share repurchase program pursuant(the “2020 Share Repurchase Program”) permitting us to which we may, from time to time, repurchase up to $125$50 million of our common stock through December 31, 2021. During the third quarter of 2021, our board of directors authorized an extension of the 2020 Share Repurchase Program through December 31, 2022 and which expires on October 31, 2018 (the "Share Repurchase Program").increased the authorized amount from $50 million to $100 million. The amount and timing of the repurchases will beunder our share repurchase program is determined by management and will dependdepends on a variety of factors, including the trading price of our common stock, capacity under our line of credit facility, general market and business conditions, and applicable legal requirements.
The following table provides information with respect to purchases we made of our common stock during the fourth quarter ended December 31, 2021.
| | | | | | | | | | | | | | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price
Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (2) |
| October 1, 2021 – October 31, 2021 | | 850 | | | $ | 52.42 | | | — | | | $ | 34,745,565 | |
| November 1, 2021 – November 30, 2021 | | 14,660 | | | $ | 50.16 | | | — | | | $ | 34,745,565 | |
| December 1, 2021 – December 31, 2021 | | 97,279 | | | $ | 47.56 | | | 96,135 | | | $ | 30,171,684 | |
| Total | | 112,789 | | | $ | 47.94 | | | 96,135 | | | |
(1)The number of 2017.shares repurchased included 850 shares in October 2021, 14,660 shares in November 2021 and 1,144 shares in December 2021 to satisfy employee tax withholding requirements. These shares do not reduce the repurchase authority under the Share Repurchase Program.
(2)As of the end of the period.
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| | | | | | | | | | | | | | |
| Period | | Total Number of Shares Purchased (1) | | Average Price Paid Per Share | | Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs | | Dollar Value of Shares that May Yet Be Purchased under the Plans or Programs (2) |
| October 1, 2017 – October 31, 2017 | | 354 |
| | $ | 35.85 |
| | — |
| | $ | 35,143,546 |
|
| November 1, 2017 – November 30, 2017 | | — |
| | $ | — |
| | — |
| | $ | 35,143,546 |
|
| December 1, 2017 – December 31, 2017 | | 9,478 |
| | $ | 40.45 |
| | — |
| | $ | 35,143,546 |
|
| Total | | 9,832 |
| | $ | 40.28 |
| | — |
| | |
| | | | | |
(1)ITEM 6. | The number of shares repurchased for each period represents shares to satisfy employee tax withholding requirements. These shares do not reduce the repurchase authority under the Share Repurchase Program.[Reserved] |
| |
(2) | As of the end of the period. |
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ITEM 6. | SELECTED FINANCIAL DATA. |
We have derived the following selected consolidated financial data as of and for the years ended December 31, 2013 through 2017 from our consolidated financial statements. The following data reflects the business acquisitions that we have completed through December 31, 2017. The results of operations for acquired businesses have been included in our results of operations since the date of their acquisitions. See Note 4 "Acquisitions" within the notes to our consolidated financial statements for additional information regarding our acquisitions. The following data also reflects the classification of discontinued operations. See Note 3 "Discontinued Operations" within the notes to our consolidated financial statements for additional information regarding our discontinued operations. The information set forth below is not necessarily indicative of the results of future operations and should be read in conjunction with Item 7. "Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the Consolidated Financial Statements and related notes included elsewhere in this Annual Report on Form 10-K.
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| | | | | | | | | | | | | | | | | | | | |
Consolidated Statements of Operations (in thousands, except per share data): | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Revenues and reimbursable expenses: | | | | | | | | | | |
| Revenues | | $ | 732,570 |
| | $ | 726,272 |
| | $ | 699,010 |
| | $ | 627,686 |
| | $ | 538,128 |
|
| Reimbursable expenses | | 75,175 |
| | 71,712 |
| | 70,013 |
| | 73,847 |
| | 64,623 |
|
| Total revenues and reimbursable expenses | | 807,745 |
| | 797,984 |
| | 769,023 |
| | 701,533 |
| | 602,751 |
|
Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses) (1): | | | | | | | | | | |
| Direct costs | | 454,806 |
| | 437,556 |
| | 401,915 |
| | 384,277 |
| | 323,398 |
|
| Amortization of intangible assets and software development costs | | 10,932 |
| | 15,140 |
| | 16,788 |
| | 4,590 |
| | 2,660 |
|
| Reimbursable expenses | | 75,436 |
| | 71,749 |
| | 69,932 |
| | 73,855 |
| | 64,665 |
|
| Total direct costs and reimbursable expenses | | 541,174 |
| | 524,445 |
| | 488,635 |
| | 462,722 |
| | 390,723 |
|
| Operating expenses and other losses (gains), net: | | | | | | | | | | |
| Selling, general and administrative expenses | | 175,364 |
| | 160,204 |
| | 157,902 |
| | 132,799 |
| | 116,976 |
|
| Restructuring charges | | 6,246 |
| | 9,592 |
| | 3,329 |
| | 2,811 |
| | 305 |
|
| Litigation and other (gains) losses, net | | 1,111 |
| | (1,990 | ) | | (9,476 | ) | | (590 | ) | | (5,875 | ) |
Depreciation and amortization (1) | | 38,213 |
| | 31,499 |
| | 25,135 |
| | 15,451 |
| | 10,723 |
|
| Goodwill impairment charges | | 253,093 |
| | — |
| | — |
| | — |
| | — |
|
| Total operating expenses and other losses (gains), net | | 474,027 |
| | 199,305 |
| | 176,890 |
| | 150,471 |
| | 122,129 |
|
| Operating income (loss) | | (207,456 | ) | | 74,234 |
| | 103,498 |
| | 88,340 |
| | 89,899 |
|
| Other income (expense), net: | | | | | | | | | | |
| Interest expense, net of interest income | | (18,613 | ) | | (16,274 | ) | | (18,136 | ) | | (8,679 | ) | | (6,475 | ) |
| Other income (expense), net | | 3,565 |
| | 1,197 |
| | (1,797 | ) | | 400 |
| | 353 |
|
| Total other expense, net | | (15,048 | ) | | (15,077 | ) | | (19,933 | ) | | (8,279 | ) | | (6,122 | ) |
| Income (loss) from continuing operations before taxes | | (222,504 | ) | | 59,157 |
| | 83,565 |
| | 80,061 |
| | 83,777 |
|
| Income tax expense (benefit) | | (51,999 | ) | | 19,677 |
| | 21,670 |
| | 33,059 |
| | 32,200 |
|
| Net income (loss) from continuing operations | | (170,505 | ) | | 39,480 |
| | 61,895 |
| | 47,002 |
| | 51,577 |
|
| Income (loss) from discontinued operations, net of tax | | 388 |
| | (1,863 | ) | | (2,843 | ) | | 32,049 |
| | 14,856 |
|
| Net income (loss) | | $ | (170,117 | ) | | $ | 37,617 |
| | $ | 59,052 |
| | $ | 79,051 |
| | $ | 66,433 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Consolidated Statements of Operations (in thousands, except per share data): | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Net earnings (loss) per basic share: | | | | | | | | | | |
| Net income (loss) from continuing operations | | $ | (7.95 | ) | | $ | 1.87 |
| | $ | 2.80 |
| | $ | 2.10 |
| | $ | 2.31 |
|
| Income (loss) from discontinued operations, net of tax | | 0.02 |
| | (0.09 | ) | | (0.13 | ) | | 1.42 |
| | 0.67 |
|
| Net income (loss) | | $ | (7.93 | ) | | $ | 1.78 |
| | $ | 2.67 |
| | $ | 3.52 |
| | $ | 2.98 |
|
| Net earnings (loss) per diluted share: | | | | | | | | | | |
| Net income (loss) from continuing operations | | $ | (7.95 | ) | | $ | 1.84 |
| | $ | 2.74 |
| | $ | 2.05 |
| | $ | 2.26 |
|
| Income (loss) from discontinued operations, net of tax | | 0.02 |
| | (0.08 | ) | | (0.13 | ) | | 1.40 |
| | 0.66 |
|
| Net income (loss) | | $ | (7.93 | ) | | $ | 1.76 |
| | $ | 2.61 |
| | $ | 3.45 |
| | $ | 2.92 |
|
| Weighted average shares used in calculating net earnings (loss) per share: | | | | | | | | | | |
| Basic | | 21,439 |
| | 21,084 |
| | 22,136 |
| | 22,431 |
| | 22,322 |
|
| Diluted | | 21,439 |
| | 21,424 |
| | 22,600 |
| | 22,925 |
| | 22,777 |
|
|
| | | | | | | | | | | | | | | | | | | | |
Consolidated Balance Sheet Data (in thousands): | | As of December 31, |
| | 2017 | | 2016 | | 2015 | | 2014 | | 2013 |
| Cash and cash equivalents | | $ | 16,909 |
| | $ | 17,027 |
| | $ | 58,437 |
| | $ | 256,872 |
| | $ | 58,131 |
|
| Working capital | | $ | 51,828 |
| | $ | 44,314 |
| | $ | 96,966 |
| | $ | 307,978 |
| | $ | 98,394 |
|
| Total assets | | $ | 1,036,928 |
| | $ | 1,153,215 |
| | $ | 1,159,543 |
| | $ | 1,148,475 |
| | $ | 883,223 |
|
| Long-term debt, net of current portion | | $ | 342,507 |
| | $ | 292,065 |
| | $ | 307,376 |
| | $ | 320,413 |
| | $ | 141,421 |
|
Total stockholders’ equity (2) | | $ | 503,316 |
| | $ | 648,033 |
| | $ | 652,325 |
| | $ | 600,634 |
| | $ | 530,264 |
|
| |
(1) | Intangible asset amortization relating to customer contracts, certain client relationships, and software and amortization of software development costs are presented as a component of total direct costs. Depreciation and intangible assets amortization not classified as direct costs are presented as a component of operating expenses. |
| |
(2) | We have not declared or paid dividends on our common stock in the periods presented above. See Item 5. "Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities—Dividends." |
|
| | | | |
| ITEM 7. | MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. |
Management's Discussion and Analysis of Financial Condition and Results of Operations ("(“MD&A"&A”) should be read in conjunction with the information under Part II—Item 6. "Selected Financial Data," and our Consolidated Financial Statements and related notes appearing under Part II—Item 8. "Financial“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"“Risk Factors” and "Forward-Looking Statements"“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 2021, 2020, and 2019; and discusses those results of operations for 2021 compared to 2020. For a discussion of our results of operations for 2020 compared to 2019, 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, 2020, which was filed with the United States Securities and Exchange Commission on February 23, 2021. OVERVIEW
We areHuron is a global professional services firm committedconsultancy that collaborates with clients to achievingdrive strategic growth, ignite innovation and navigate constant change. Through a combination of strategy, expertise and creativity, we help clients accelerate operational, digital and cultural transformation, enabling the change our clients need to own their future. By embracing diverse perspectives, encouraging new ideas and challenging the status quo, Huron delivers sustainable results in partnership with its clients. We bring a depth of expertise in strategy, technology, operations, advisory services, and analytics to drive lasting and measurable results infor the healthcare, higher education, life sciences and commercial sectors.organizations it serves.
We provide our services and manage our business under three operating segments: Healthcare, Education,Business Advisory, and Business Advisory.Education. See Part I—Item 1. "Business—“Business—Overview—Our Services” and Note 1819 “Segment Information” within the notes to our consolidated financial statements for a discussion of our three segments.
Effective January 1, 2022, we modified our operating model to expand and more deeply integrate our industry expertise with our digital, strategic and financial advisory capabilities. The new operating model will strengthen Huron’s go-to-market strategy, drive efficiencies that support margin expansion, and position the company to accelerate growth.
To align with the new operating model, effective with reporting for periods beginning January 1, 2022, we will begin reporting under the following three industries, which will be our reportable segments: Healthcare, Education and Commercial. The Commercial segment will include all industries outside of healthcare and education, including, but not limited to, financial services and energy and utilities. In the new reporting structure, each segment will include all revenue and costs associated with engagements delivered in the respective industry segments. The new Healthcare and Education segments will include some revenue and costs historically reported in the Business Advisory segment and the Healthcare segment will include some revenue and costs historically reported in the Education segment. We will also provide revenue reporting across two principal capabilities: i) Consulting and Managed Services and ii) Digital. These changes will create greater transparency for investors by improving visibility into the core drivers of our business. While our consolidated results will not be impacted, we will recast our historical segment information during 2022 for consistent presentation.
Coronavirus (COVID-19)
The worldwide spread of COVID-19 beginning in 2020 has created significant volatility, uncertainty and disruption to the global economy. The pandemic had an unfavorable impact on aspects of our business, operations, and financial results, and caused us to significantly change the way we operate. Near the end of the first quarter of 2020, we suspended almost all business travel and our employees began working from their homes. While traditionally a majority of the work performed by our revenue-generating professionals occurred at client sites, the nature of the services we provide and enhanced available technology allows our revenue-generating professionals to effectively serve clients in a remote work environment. As federal, state and local government restrictions evolve, we continue to refine our comprehensive plan to return to our offices and client sites with our people’s safety and the needs of our clients guiding how we implement our phased transition. As of December 31, 2021, our employees continue to primarily work from their homes; however, most of our offices are open and we are providing our employees the flexibility to choose to work remotely, from our offices, or from client sites as needed and in accordance with recommended public health guidelines.
In each of our operating segments, we are working closely with our clients to support them and their ongoing business needs and provide relevant services to address their needs caused by the COVID-19 pandemic. However, since the beginning of the pandemic in 2020, some clients reprioritized and delayed projects which negatively impacted demand for certain offerings, particularly within our Healthcare and Education segments. Conversely, the COVID-19 pandemic strengthened demand for other services we provide, such as our cloud-based technology and analytics solutions within our Business Advisory segment and our restructuring and capital advisory solutions provided to organizations in transition also within our Business Advisory segment.
Beginning in the second quarter of 2021 and continuing through the end of 2021, we saw strengthened demand for services in all of our segments compared to the same prior year period. As a result, total revenues in the fourth quarter of 2021 increased 25.2% compared to the
fourth quarter of 2020, and full year 2021 revenues increased 7.3% compared to 2020. We expect continued revenue growth in 2022 compared to 2021.
In order to support our liquidity during the COVID-19 pandemic, we took proactive measures to increase available cash on hand including, but not limited to, borrowing under our senior secured credit facility in the first quarter of 2020 and reducing discretionary operating and capital spending. In the second, third and fourth quarters of 2020, we made repayments on our borrowings to reduce our total debt outstanding to pre-pandemic levels due to our ability to maintain adequate cash flows from operations and improved clarity around access to capital resources. In 2021, we borrowed under our credit facility primarily to fund our annual performance bonus payment in March 2021 and our acquisitions of businesses during the year. To further support our liquidity during the COVID-19 pandemic, we elected to defer the deposit of our employer portion of social security taxes beginning in April 2020 and through December 31, 2020, as provided for under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). These deferred payments, which totaled $12.2 million, were paid in full in the third quarter of 2021. See the “Liquidity and Capital Resources” section below for additional information on these items.
Enterprise Resource Planning System Implementation
In the fourth quarter of 2019, we began the implementation of a new cloud-based enterprise resource planning (“ERP”) system designed to improve the efficiency of our internal finance, human resources, resource planning, and administrative operations. In January 2021, we successfully went live with the new ERP system, and we continue to progress with additional functionality and integrations as scheduled. The implementation progressed on schedule and was not significantly impacted by the COVID-19 pandemic due to the ability of our implementation team to work and collaborate remotely and the enhanced technology and cloud-based nature of our new ERP system. We believe our investment in this new system will position our teams to drive efficiencies and provide more robust management reporting and data analytics to support future growth and the goals and vision of the company.
See Part II, Item 1A. “Risk Factors” of this Annual Report on Form 10-K for additional information on the potential impact the COVID-19 pandemic could have on our business, operations and financial results.
Acquisitions and Divestiture
During 2021, we completed the following acquisitions:
•Unico Solution, Inc. - On February 1, 2021, we completed the acquisition of Unico Solution, Inc. (“Unico Solutions”), a data strategy and technology consulting firm focused on helping clients enhance the use of their data to speed business transformation and accelerate cloud adoption. The acquisition expands our cloud-based technology offerings within the Business Advisory segment. The results of operations of Unico Solutions are included within the Business Advisory segment from the date of acquisition.
•Bad Rabbit, Inc. - On October 1, 2021, we completed the acquisition of the research administration software services team of Bad Rabbit, Inc. (“Bad Rabbit”). The results of operations of Bad Rabbit are included in our consolidated financial statements and results of operations of our Education segment from the date of acquisition.
•Whiteboard Communications Ltd. - On December 1, 2021, we completed the acquisition of Whiteboard Communications Ltd. (“Whiteboard”), a student enrollment advisory firm that helps colleges and universities with recruitment initiatives and financial aid strategies. The results of operations of Whiteboard are included in our consolidated financial statements and results of operations of our Education segment from the date of acquisition.
•Perception Health, Inc. - On December 31, 2021, we completed the acquisition of Perception Health, Inc. (“Perception Health”), a healthcare predictive analytics company focused on bringing data sources together for improved clinical and business decision-making. The results of operations of Perception Health will be included in our consolidated financial statements and results of operations of our Healthcare segment beginning January, 1, 2022.
The acquisitions of Unico Solutions, Bad Rabbit, Whiteboard and Perception Health are not significant to our consolidated financial statements individually or in the aggregate as of and for the year ended December 31, 2021.
On November 1, 2021, we completed the divestiture of our Life Sciences business to a third-party. The Life Sciences business, a reporting unit within the Business Advisory segment, provides commercial and research and development strategy, pricing and market access strategy solutions to customers in the life sciences industries. For the ten months ended October 31, 2021, Life Sciences revenues were $16.7 million. The Life Sciences business is not significant to our consolidated financial statements and does not qualify as a discontinued operation for reporting under GAAP.
How We Generate Revenues
A large portion of our revenues is generated by our full-time consultants who provide consulting and other professional services to our clients and are billable to our clients based on the number of hours worked.worked, services provided, or achieved outcomes. A smaller portion of our
revenues is generated by our other professionals, also referred to as full-time equivalents, some of whom work variable schedules as needed by our clients. Full-time equivalent professionals consist of our cultural transformation consultants from our Studer Group solution, which include coaches and their support staff specialized financefrom our Culture and operationalOrganizational Excellence solution, consultants who work variable schedules as needed by our clients, and our employees who provide software support and maintenance services to our clients. We translate the hours that these other professionals work on client engagements into a full-time equivalent measure that we use to manage our business. Another portion of our revenue is generated by our Healthcare Managed Services employees within our Healthcare segment. Our Healthcare Managed Services employees manage and provide revenue cycle billing, collections, insurance verification and change integrity services to clients. We refer to our billable consultants, full-time consultantsequivalents and other professionals collectivelyHealthcare Managed Services employees as revenue-generating professionals.
Revenues generated by our full-timebillable consultants are primarily driven by the number of consultants we employ and their utilization rates, as well as the billing rates we charge our clients. Revenues generated by our other professionals, or full-time equivalents, are largely dependent on the number of consultants we employ, their hours worked, and billing rates charged. Revenues generated by our coaches are largely dependent on the number of coaches we employ and the total value, scope, and terms of the consulting contracts under which they provide services, which are primarily fixed-fee contracts. Revenues generated by our Healthcare Managed Services employees are largely dependent on the total value, scope and terms of the related contracts.
We generate our revenues from providing professional services under four types of billing arrangements: fixed-fee (including software license revenue), time-and-expense, performance-based,; time-and-expense; performance-based; and software support, and maintenance and subscriptions.
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. It is the client’s expectation in these engagements that the pre-established fee will not be exceeded except in mutually agreed upon circumstances. 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. Contracts within our Studer GroupCulture and Organizational Excellence solution areinclude fixed-fee partner contracts with multiple deliverables,performance obligations, which primarily consist of coaching services, as well as seminars, materialsspeaking engagements, conferences, publications and software products (“Partner Contracts”). Revenues for coaching services and software products are generally recognized on a straight-line basis over the length of the contract. All other revenues under Partner Contracts, including speaking engagements, conferences and publications, are recognized at the time the service isgoods or services are provided.
Fixed-fee arrangements also include software licenses for our revenue cycle management software and research administration and compliance software. Licenses for our revenue cycle management software are sold only as a component of our consulting projects, and the services we provide are essential to the functionality of the software. Therefore, revenues from these software licenses are recognized over the term of the related consulting services contract. License revenue from our research administration and compliance software is generally recognized in the month in which the software is delivered.
Fixed-fee engagements represented 46.7%44.2%, 47.4%41.4%, and 58.0%45.8% of our revenues for the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, respectively.
Time-and-expense billing arrangements require the client to pay based on the number of hours worked by our revenue-generating professionals at agreed upon rates. Time-and-expense arrangements also include certain speaking engagements, conferences and publications purchased by our clients outside of Partner Contracts within our Studer Group solution.Culture and Organizational Excellence solution and the portion of our Healthcare Managed Services contracts that are billed under time-and-expense arrangements. We recognize revenues under time-and-expense billing arrangements as the related services or publications are provided. Time-and-expense engagements represented 43.0%39.2%, 38.7%43.4%, and 28.7%39.9% of our revenues in 2017, 2016,2021, 2020, and 2015,2019, respectively.
In performance-based fee 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 have performance-based engagements in which we earn a success fee when and if certain predefined outcomes occur. Often, performance-based fees supplement our time-and-expense or fixed-fee engagements. We do not recognize revenues under performance-based billing arrangements until all relatedby estimating the amount of variable consideration that is probable of being earned and recognizing that estimate over the length of the contract using a proportionate performance criteria are met.approach. Performance-based fee revenues represented 4.9%10.1%, 8.9%9.2%, and 8.7%8.9% of our revenues in 2017, 2016,2021, 2020, and 2015,2019, respectively. The level of performance-based fees earned may vary based on our clients’ risk sharing preferences and the mix of services we provide. Performance-based fee arrangements may cause significant variations in revenues, operating results, and average billing rates due to our level of execution and the timing of achievement of the performance-based criteria.
Clients that have purchased one of our software licenses can pay an annual fee for software support and maintenance. We also generate subscription revenue from our cloud-based analytic tools and solutions. Software support, and maintenance and subscription revenues are recognized ratably over the support or subscription period, which ranges from one to three years.period. These fees are generally billed in advance and included in deferred revenues until recognized. Software support and maintenance and subscription-based revenues represented 5.4%6.5%, 5.0%6.0%, and 4.6%5.4% of our revenues in 2017, 2016,2021, 2020, and 2015,2019, respectively.
Our quarterly results are impacted principally by our full-time consultants’ utilization rate, the billingbill rates we charge our clients, and the number of our revenue-generating professionals who are available to work, and the amount of performance-based fees recognized, which often vary significantly between quarters.work. 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.
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 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.
Reimbursable Expenses
Reimbursable expenses that are billed to clients, primarily relating to travel and out-of-pocket expenses incurred in connection with engagements, are included in total revenues and reimbursable expenses, and typically an equivalentexpenses. Under fixed-fee billing arrangements, we estimate the total amount of thesereimbursable expenses to be incurred over the course of the engagement and recognize the estimated amount as revenue using the proportionate performance approach, which is based on work completed to-date versus our estimates of the total services to be provided under the engagement. Under time-and-expense billing arrangements, we recognize reimbursable expenses as revenue as the related services are provided, using the right to invoice practical expedient. Reimbursable expenses are includedrecognized as expenses in total direct costs and reimbursable expenses. Reimbursable expenses also include subcontractors whothe period in which the expense is incurred. Subcontractors that are billed to our clients at cost.cost are also included in reimbursable expenses. When billings do not specifically identify reimbursable expenses, we allocate the portion of the billings equivalent to these expenses to reimbursable expenses.
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.
Total Direct Costs
Our most significant expenses are costs classified as total direct costs. These totalTotal direct costs primarily include salaries, performance bonuses, signing and retention bonuses, payroll taxes, and benefits for revenue-generating professionals, as well as commissions, technology costs, product and event costs, commissions, and fees paid to independent contractors that we retain to supplement our revenue-generating professionals, typically on an as-needed basis for specific client engagements. Direct costs also include share-based compensation, which represents the cost of restricted stock and performance-based share awards, granted to our revenue-generating professionals. Compensation expense for restricted stock awards and performance-based share awards is recognized ratably using either the straight-line attribution method or the graded vesting attribution method, as appropriate, over the requisite service period, which is generally three to four years. Total direct costs also include amortization of internally developed software costs and intangible assets primarily relatingrelated to customer contracts,technology and software, certain customer relationships, and technology and softwarecustomer contracts acquired in business combinations, and internally developed software costs.combinations.
Operating Expenses and Other Losses (Gains), Net
Our operating expenses include selling, general and administrative expenses, which consist primarily of salaries, performance bonuses, payroll taxes, benefits, and share-based compensation for our support personnel. Also included in operatingselling, general and administrative expenses are sales and marketing related expenses,is rent and other office related expenses, referred to as facilities expenses; sales and marketing related expenses; third-party professional fees,fees; recruiting and training expenses; and practice administration and meetings expenses. Other operating expenses include restructuring
charges, and litigation and other gains and losses. Other operating expenses includelosses, depreciation and certain amortization expenses not included in total direct costs.
Segment Results
Segment operating income consists of the revenues generated by a segment, less the direct costs of revenue and selling, general and administrative costsexpenses that are incurred directly by the segment. Unallocated costs include corporate costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment. These administrative function costs include corporate office support costs, office facility costs, costs relatingrelated to accounting and finance, human resources, legal, marketing, information technology, and company-wide business development functions, as well as costs related to overall corporate management.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected segment and consolidated operating results and other operating data. The results of operations for acquired businesses have been included in our results of operations since the date of their respective acquisition.
DuringIn conjunction with our continuous evaluation of the appropriate level of disaggregation of revenues as our business evolves and in consideration of a group hire of approximately 300 employees in our Healthcare Managed Services solution within our Healthcare segment in the second quarter of 2017,2021, we reorganizedbegan assessing our internal financial reporting structureoperating performance by movingthe following three employee types: billable consultants, full-time equivalents, and Healthcare Managed Services employees. The other operating data previously reported for the twelve months ended December 31, 2020 and 2019 was revised below to reflect this change. This change has no impact on our Life Sciences practice fromconsolidated total revenues or total revenues by segment.
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Segment and Consolidated Operating Results (in thousands): | | | | | |
| Healthcare: | | | | | |
| Revenues | $ | 377,577 | | | $ | 353,437 | | | $ | 399,221 | |
| Operating income | $ | 104,010 | | | $ | 94,925 | | | $ | 125,724 | |
| Segment operating income as a percentage of segment revenues | 27.5 | % | | 26.9 | % | | 31.5 | % |
| Business Advisory: | | | | | |
| Revenues | $ | 291,663 | | | $ | 267,361 | | | $ | 252,508 | |
| Operating income | $ | 48,236 | | | $ | 48,046 | | | $ | 49,695 | |
| Segment operating income as a percentage of segment revenues | 16.5 | % | | 18.0 | % | | 19.7 | % |
| Education: | | | | | |
| Revenues | $ | 236,400 | | | $ | 223,329 | | | $ | 225,028 | |
| Operating income | $ | 52,772 | | | $ | 47,503 | | | $ | 55,741 | |
| Segment operating income as a percentage of segment revenues | 22.3 | % | | 21.3 | % | | 24.8 | % |
| Total Company: | | | | | |
| Revenues | $ | 905,640 | | | $ | 844,127 | | | $ | 876,757 | |
| Reimbursable expenses | 21,318 | | | 26,887 | | | 88,717 | |
| Total revenues and reimbursable expenses | $ | 926,958 | | | $ | 871,014 | | | $ | 965,474 | |
| Statements of Operations reconciliation: | | | | | |
| Segment operating income | $ | 205,018 | | | $ | 190,474 | | | $ | 231,160 | |
| Items not allocated at the segment level: | | | | | |
| Other operating expenses | 131,372 | | | 135,255 | | | 140,285 | |
| Litigation and other losses (gains) | 173 | | | (150) | | | (1,196) | |
| Depreciation and amortization | 20,634 | | | 24,405 | | | 28,365 | |
Goodwill impairment charges (1) | — | | | 59,816 | | | — | |
| Total operating income (loss) | 52,839 | | | (28,852) | | | 63,706 | |
| Other income (expense), net | 27,197 | | | (5,021) | | | (11,215) | |
| Income (loss) from continuing operations before taxes | 80,036 | | | (33,873) | | | 52,491 | |
| Income tax expense (benefit) | 17,049 | | | (10,155) | | | 10,512 | |
| Net income (loss) from continuing operations | $ | 62,987 | | | $ | (23,718) | | | $ | 41,979 | |
| Earnings (loss) per share from continuing operations | | | | | |
| Basic | $ | 2.94 | | | $ | (1.08) | | | $ | 1.91 | |
| Diluted | $ | 2.89 | | | $ | (1.08) | | | $ | 1.87 | |
| | | | | | | | | | | | | | | | | |
| Year Ended December 31, |
| 2021 | | 2020 | | 2019 |
| Other Operating Data: | | | | | |
Number of billable consultants (at period end) (2): | | | | | |
| Healthcare | 869 | | | 820 | | | 890 | |
| Business Advisory | 1,116 | | | 1,051 | | | 930 | |
| Education | 901 | | | 737 | | | 756 | |
| Total | 2,886 | | | 2,608 | | | 2,576 | |
Average number of billable consultants (for the period) (2): | | | | | |
| Healthcare | 822 | | | 863 | | | 849 | |
| Business Advisory | 1,115 | | | 962 | | | 892 | |
| Education | 779 | | | 775 | | | 686 | |
| Total | 2,716 | | | 2,600 | | | 2,427 | |
Billable consultant utilization rate (3): | | | | | |
| Healthcare | 72.0 | % | | 69.0 | % | | 79.4 | % |
| Business Advisory | 69.1 | % | | 72.4 | % | | 72.5 | % |
| Education | 73.0 | % | | 70.3 | % | | 76.8 | % |
| Total | 71.1 | % | | 70.7 | % | | 76.1 | % |
Billable consultant average billing rate per hour (4): | | | | | |
| Healthcare | $ | 243 | | | $ | 227 | | | $ | 229 | |
Business Advisory (5) | $ | 198 | | | $ | 195 | | | $ | 201 | |
| Education | $ | 190 | | | $ | 187 | | | $ | 199 | |
Total (5) | $ | 209 | | | $ | 202 | | | $ | 211 | |
| Revenue per billable consultant (in thousands): | | | | | |
| Healthcare | $ | 305 | | | $ | 272 | | | $ | 328 | |
| Business Advisory | $ | 246 | | | $ | 264 | | | $ | 273 | |
| Education | $ | 253 | | | $ | 247 | | | $ | 285 | |
| Total | $ | 266 | | | $ | 262 | | | $ | 296 | |
Average number of full-time equivalents (for the period) (6): | | | | | |
| Healthcare | 153 | | | 187 | | | 230 | |
| Business Advisory | 52 | | | 30 | | | 14 | |
| Education | 53 | | | 52 | | | 47 | |
| Total | 258 | | | 269 | | | 291 | |
| Revenue per full-time equivalent (in thousands): | | | | | |
| Healthcare | $ | 518 | | | $ | 481 | | | $ | 504 | |
| Business Advisory | $ | 343 | | | $ | 455 | | | $ | 655 | |
| Education | $ | 743 | | | $ | 618 | | | $ | 617 | |
| Total | $ | 528 | | | $ | 504 | | | $ | 530 | |
Healthcare Managed Services(7): | | | | | |
| Total revenues (in thousands) | $ | 47,718 | | | $ | 28,663 | | | $ | 4,453 | |
| Average number of Healthcare Managed Services employees (for the period) | 382 | | | 91 | | | 14 | |
(1)The non-cash goodwill impairment charges are not allocated at the Educationsegment level because the underlying goodwill asset is reflective of our corporate investment in the segments. We do not include the impact of goodwill impairment charges in our evaluation of segment performance.
(2)Consists of our consulting professionals who provide consulting services and Life Sciencesgenerate revenues based on the number of hours worked.
(3)Utilization rate for our billable consultants is calculated by dividing the number of hours all of our billable consultants worked on client assignments during a period by the total available working hours for all of these consultants during the same period, assuming a forty-hour work week, less paid holidays and vacation days.
(4)Average billing rate per hour for our billable consultants is calculated by dividing revenues for a period by the number of hours worked on client assignments during the same period.
(5)The Business Advisory segment toincludes operations of Huron Eurasia India. Absent the impact of Huron Eurasia India, the average billing rate per hour for the Business Advisory segment. The remaining Educationsegment would have been $216, $213, and Life Sciences segment is now referred to as$228 for the Education segment. While ouryears ended December 31, 2021, 2020 and 2019, respectively.
Absent the impact of Huron Eurasia India, Huron's consolidated resultsaverage billing rate per hour would have not been impacted, we have reclassified our historical segment information$216, $209, and $220 for consistent presentation.
During 2015, we wound down the businesses within our All Other operating segment, which consisted of our public sector consulting practiceyears ended December 31, 2021, 2020 and our foreign consulting operations based in the Middle East. We did not generate any revenues from our All Other segment during 2016 and 2017. |
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Segment and Consolidated Operating Results (in thousands): | | | | | |
| Healthcare: | | | | | |
| Revenues | $ | 356,909 |
| | $ | 424,912 |
| | $ | 446,887 |
|
| Operating income | $ | 118,761 |
| | $ | 147,903 |
| | $ | 169,560 |
|
| Segment operating income as a percentage of segment revenues | 33.3 | % | | 34.8 | % | | 37.9 | % |
| Education: | | | | | |
| Revenues | $ | 167,908 |
| | $ | 149,817 |
| | $ | 134,009 |
|
| Operating income | $ | 40,318 |
| | $ | 38,310 |
| | $ | 32,246 |
|
| Segment operating income as a percentage of segment revenues | 24.0 | % | | 25.6 | % | | 24.1 | % |
| Business Advisory: | | | | | |
| Revenues | $ | 207,753 |
| | $ | 151,543 |
| | $ | 116,892 |
|
| Operating income | $ | 46,600 |
| | $ | 29,382 |
| | $ | 31,233 |
|
| Segment operating income as a percentage of segment revenues | 22.4 | % | | 19.4 | % | | 26.7 | % |
| All Other: | | | | | |
| Revenues | $ | — |
| | $ | — |
| | $ | 1,222 |
|
| Operating loss | $ | — |
| | $ | — |
| | $ | (1,718 | ) |
| Segment operating loss as a percentage of segment revenues | N/A |
| | N/A |
| | N/M |
|
| Total Company: | | | | | |
| Revenues | $ | 732,570 |
| | $ | 726,272 |
| | $ | 699,010 |
|
| Reimbursable expenses | 75,175 |
| | 71,712 |
| | 70,013 |
|
| Total revenues and reimbursable expenses | $ | 807,745 |
| | $ | 797,984 |
| | $ | 769,023 |
|
| Statements of Operations reconciliation: | | | | | |
| Segment operating income | $ | 205,679 |
| | $ | 215,595 |
| | $ | 231,321 |
|
| Items not allocated at the segment level: | | | | | |
| Other operating expenses | 120,718 |
| | 111,852 |
| | 112,164 |
|
| Litigation and other losses (gains), net | 1,111 |
| | (1,990 | ) | | (9,476 | ) |
| Depreciation and amortization | 38,213 |
| | 31,499 |
| | 25,135 |
|
Goodwill impairment charges (1) | 253,093 |
| | — |
| | — |
|
| Total operating income (loss) | (207,456 | ) | | 74,234 |
| | 103,498 |
|
| Other expense, net | 15,048 |
| | 15,077 |
| | 19,933 |
|
| Income (loss) from continuing operations before taxes | (222,504 | ) | | 59,157 |
| | 83,565 |
|
| Income tax expense (benefit) | (51,999 | ) | | 19,677 |
| | 21,670 |
|
| Net income (loss) from continuing operations | $ | (170,505 | ) | | $ | 39,480 |
| | $ | 61,895 |
|
| Earnings (loss) per share from continuing operations | | | | | |
| Basic | $ | (7.95 | ) | | $ | 1.87 |
| | $ | 2.80 |
|
| Diluted | $ | (7.95 | ) | | $ | 1.84 |
| | $ | 2.74 |
|
2019, respectively.
(6)Consists of coaches and their support staff within our Culture and Organizational Excellence solution, consultants who work variable schedules as needed by our clients, and full-time employees who provide software support and maintenance services to our clients.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Other Operating Data (excluding All Other): | | | | | |
Number of full-time billable consultants (at period end) (2): | | | | | |
| Healthcare | 778 |
| | 888 |
| | 1,037 |
|
| Education | 549 |
| | 468 |
| | 387 |
|
| Business Advisory | 809 |
| | 547 |
| | 397 |
|
| Total | 2,136 |
| | 1,903 |
| | 1,821 |
|
Average number of full-time billable consultants (for the period) (2): | | | | | |
| Healthcare | 796 |
| | 998 |
| | 1,085 |
|
| Education | 509 |
| | 437 |
| | 351 |
|
| Business Advisory | 740 |
| | 486 |
| | 334 |
|
| Total | 2,045 |
| | 1,921 |
| | 1,770 |
|
Full-time billable consultant utilization rate (3): | | | | | |
| Healthcare | 78.4 | % | | 77.1 | % | | 77.9 | % |
| Education | 72.8 | % | | 70.6 | % | | 74.6 | % |
| Business Advisory | 71.7 | % | | 73.1 | % | | 76.2 | % |
| Total | 74.5 | % | | 74.6 | % | | 76.9 | % |
Full-time billable consultant average billing rate per hour (4): | | | | | |
| Healthcare | $ | 206 |
| | $ | 210 |
| | $ | 217 |
|
| Education | $ | 213 |
| | $ | 219 |
| | $ | 216 |
|
Business Advisory (5) | $ | 193 |
| | $ | 208 |
| | $ | 245 |
|
| Total | $ | 203 |
| | $ | 212 |
| | $ | 222 |
|
| Revenue per full-time billable consultant (in thousands): | | | | | |
| Healthcare | $ | 295 |
| | $ | 300 |
| | $ | 313 |
|
| Education | $ | 291 |
| | $ | 293 |
| | $ | 317 |
|
| Business Advisory | $ | 268 |
| | $ | 293 |
| | $ | 335 |
|
| Total | $ | 284 |
| | $ | 297 |
| | $ | 318 |
|
Average number of full-time equivalents (for the period) (6): | | | | | |
| Healthcare | 213 |
| | 203 |
| | 179 |
|
| Education | 35 |
| | 38 |
| | 39 |
|
| Business Advisory | 20 |
| | 20 |
| | 12 |
|
| Total | 268 |
| | 261 |
| | 230 |
|
| Revenue per full-time equivalent (in thousands): | | | | | |
| Healthcare | $ | 576 |
| | $ | 614 |
| | $ | 604 |
|
| Education | $ | 564 |
| | $ | 572 |
| | $ | 587 |
|
| Business Advisory | $ | 464 |
| | $ | 453 |
| | $ | 418 |
|
| Total | $ | 566 |
| | $ | 596 |
| | $ | 591 |
|
| |
(1) | The non-cash goodwill impairment charges are not allocated at the segment level because the underlying goodwill asset is reflective of our corporate investment in the segments. We do not include the impact of goodwill impairment charges in our evaluation of segment performance. |
| |
(2) | (7)Consists of our full-time professionals who provide consulting services and generate revenues based on the number of hours worked. |
| |
(3) | Utilization rate for our full-time billable consultants is calculated by dividing the number of hours all of our full-time billable consultants worked on client assignments during a period by the total available working hours for all of these consultants during the same period, assuming a forty-hour work week, less paid holidays and vacation days. |
| |
(4) | Average billing rate per hour for our full-time billable consultants is calculated by dividing revenues for a period by the number of hours worked on client assignments during the same period. |
| |
(5) | The Business Advisory segment includes our India Enterprise Solutions and Analytics practice, formerly known as Rittman Mead Consulting Private Limited, a business that we acquired in July 2015. The average billing rate per hour for this practice is lower than our overall average billing rate per hour for the Business Advisory segment. Absent the impact of our India Enterprise Solutions and Analytics practice, the average billing rate per hour for Business Advisory for the years ended December 31, 2017, 2016, and 2015 would have been $233, $235, and $267, respectively.
|
| |
(6) | Consists of cultural transformation consultants within our Studer Group solution, which include coaches and their support staff, consultants who work variable schedules as needed by our clients, and full-time employees who provide software support and maintenance services to our clients. |
N/M - Not meaningful
N/A - Not applicable
employees who manage and provide revenue cycle billing, collections, insurance verification and change integrity services to our healthcare clients.
Non-GAAP Measures
We also assess our results of operations using certain non-GAAP financial measures. These non-GAAP financial measures differ from GAAP because the non-GAAP financial measures we calculate to measure earnings (loss) before interest, taxes, depreciation and amortization ("EBITDA"(“EBITDA”), adjusted EBITDA, adjusted EBITDA as a percentage of revenues, adjusted net income from continuing operations, and adjusted diluted earnings per share from continuing operations 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 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.
The reconciliations of these financial measures from GAAP to non-GAAP are as follows (in thousands, except per share amounts):
| | | | Year Ended December 31, | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2021 | | 2020 | | 2019 |
| Revenues | $ | 732,570 |
| | $ | 726,272 |
| | $ | 699,010 |
| Revenues | $ | 905,640 | | | $ | 844,127 | | | $ | 876,757 | |
| Net income (loss) from continuing operations | $ | (170,505 | ) | | $ | 39,480 |
| | $ | 61,895 |
| Net income (loss) from continuing operations | $ | 62,987 | | | $ | (23,718) | | | $ | 41,979 | |
| Add back: | | | | | | Add back: | |
| Income tax expense (benefit) | (51,999 | ) | | 19,677 |
| | 21,670 |
| Income tax expense (benefit) | 17,049 | | | (10,155) | | | 10,512 | |
| Interest expense, net of interest income | 18,613 |
| | 16,274 |
| | 18,136 |
| Interest expense, net of interest income | 8,150 | | | 9,292 | | | 15,648 | |
| Depreciation and amortization | 49,145 |
| | 46,639 |
| | 41,923 |
| Depreciation and amortization | 26,347 | | | 29,644 | | | 33,740 | |
| Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA) | (154,746 | ) | | 122,070 |
| | 143,624 |
| |
| Earnings before interest, taxes, depreciation and amortization (EBITDA) | | Earnings before interest, taxes, depreciation and amortization (EBITDA) | 114,533 | | | 5,063 | | | 101,879 | |
| Add back: | | | | | | Add back: | |
| Restructuring charges | 6,246 |
| | 9,592 |
| | 3,329 |
| |
| Litigation and other losses (gains), net | 1,111 |
| | (1,990 | ) | | (9,476 | ) | |
| Restructuring and other charges | | Restructuring and other charges | 12,401 | | | 21,374 | | | 1,855 | |
| Litigation and other losses (gains) | | Litigation and other losses (gains) | 198 | | | (150) | | | (1,196) | |
| Transaction-related expenses | | Transaction-related expenses | 1,782 | | | 1,132 | | | 2,680 | |
| Goodwill impairment charges | 253,093 |
| | — |
| | — |
| Goodwill impairment charges | — | | | 59,816 | | | — | |
| Other non-operating expense (income) | (696 | ) | | — |
| | — |
| |
| Unrealized gain on preferred stock investment | | Unrealized gain on preferred stock investment | — | | | (1,667) | | | — | |
| Losses (gains) on sales of businesses | | Losses (gains) on sales of businesses | (31,510) | | | 1,603 | | | — | |
| Foreign currency transaction losses (gains), net | (434 | ) | | (11 | ) | | 1,640 |
| Foreign currency transaction losses (gains), net | 419 | | | (31) | | | 160 | |
| Adjusted EBITDA | $ | 104,574 |
| | $ | 129,661 |
| | $ | 139,117 |
| Adjusted EBITDA | $ | 97,823 | | | $ | 87,140 | | | $ | 105,378 | |
| Adjusted EBITDA as a percentage of revenues | 14.3 | % | | 17.9 | % | | 19.9 | % | Adjusted EBITDA as a percentage of revenues | 10.8 | % | | 10.3 | % | | 12.0 | % |
| | | | Year Ended December 31, | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2021 | | 2020 | | 2019 |
| Net income (loss) from continuing operations | $ | (170,505 | ) | | $ | 39,480 |
| | $ | 61,895 |
| Net income (loss) from continuing operations | $ | 62,987 | | | $ | (23,718) | | | $ | 41,979 | |
| Weighted average shares - diluted | 21,439 |
| | 21,424 |
| | 22,600 |
| Weighted average shares - diluted | 21,809 | | | 21,882 | | | 22,507 | |
| Diluted earnings (loss) per share from continuing operations | $ | (7.95 | ) | | $ | 1.84 |
| | $ | 2.74 |
| Diluted earnings (loss) per share from continuing operations | $ | 2.89 | | | $ | (1.08) | | | $ | 1.87 | |
| Add back: | | | | | | Add back: | | | | | |
| Amortization of intangible assets | 35,027 |
| | 33,108 |
| | 28,696 |
| Amortization of intangible assets | 9,251 | | | 12,696 | | | 17,793 | |
| Restructuring charges | 6,246 |
| | 9,592 |
| | 3,329 |
| |
| Restructuring and other charges | | Restructuring and other charges | 12,401 | | | 21,374 | | | 1,855 | |
| Litigation and other losses (gains), net | 1,111 |
| | (1,990 | ) | | (9,476 | ) | Litigation and other losses (gains), net | 198 | | | (150) | | | (1,196) | |
| Transaction-related expenses | | Transaction-related expenses | 1,782 | | | 1,132 | | | 2,680 | |
| Goodwill impairment charges | 253,093 |
| | — |
| | — |
| Goodwill impairment charges | — | | | 59,816 | | | — | |
| Non-cash interest on convertible notes | 7,851 |
| | 7,488 |
| | 7,141 |
| Non-cash interest on convertible notes | — | | | — | | | 6,436 | |
| Other non-operating income, net | (696 | ) | | — |
| | — |
| |
| Tax effect | (91,557 | ) | | (18,942 | ) | | (11,698 | ) | |
| Tax expense related to the enactment of Tax Cuts and Jobs Act of 2017 | 8,762 |
| | — |
| | — |
| |
| Tax benefit related to "check-the-box" election | (2,728 | ) | | — |
| | (12,336 | ) | |
| Unrealized gain on preferred stock investment | | Unrealized gain on preferred stock investment | — | | | (1,667) | | | — | |
| Losses (gains) on sales of businesses | | Losses (gains) on sales of businesses | (31,510) | | | 1,603 | | | — | |
| Tax effect of adjustments | | Tax effect of adjustments | 1,742 | | | (23,199) | | | (7,200) | |
| Tax benefit related to “check-the-box” election | | Tax benefit related to “check-the-box” election | — | | | — | | | (736) | |
| Total adjustments, net of tax | 217,109 |
| | 29,256 |
| | 5,656 |
| Total adjustments, net of tax | (6,136) | | | 71,605 | | | 19,632 | |
| Adjusted net income from continuing operations | $ | 46,604 |
| | $ | 68,736 |
| | $ | 67,551 |
| Adjusted net income from continuing operations | $ | 56,851 | | | $ | 47,887 | | | $ | 61,611 | |
| Adjusted weighted average shares - diluted | 21,627 |
| | 21,424 |
| | 22,600 |
| Adjusted weighted average shares - diluted | 21,809 | | | 22,299 | | | 22,507 | |
| Adjusted diluted earnings per share from continuing operations | $ | 2.15 |
| | $ | 3.21 |
| | $ | 2.99 |
| Adjusted diluted earnings per share from continuing operations | $ | 2.61 | | | $ | 2.15 | | | $ | 2.74 | |
These non-GAAP financial measures include adjustments for the following items:
Amortization of intangible assets: We have excluded the effect of amortization of intangible assets from the calculation of adjusted net income from continuing operations presented above. Amortization of intangiblesintangible assets is inconsistent in its amount and frequency and is significantly affected by the timing and size of our acquisitions.
Restructuring and other charges: We have incurred charges due to the restructuring of various parts of our business, including restructuring charges related to the sale of the Life Sciences business in the fourth quarter of 2021 and the restructuring plan announced in the fourth quarter of 2020 to reduce operating costs to address the impact of the COVID-19 pandemic on our business. These restructuring charges have primarily consistedconsist of costs associated with office space consolidations, including thelease impairment charges and accelerated depreciation on lease-related property and equipment, and employee-related charges. Additionally, we have excluded the effect of certain leasehold improvements,a $0.8 million one-time charge incurred during the first quarter of 2020 related to redundant administrative costs in our corporate operations which is recorded within selling, general and severance charges.administrative expenses on our consolidated statement of operations. We have excluded the effect of the restructuring and other charges from our non-GAAP measures because the amount of each restructuring charge is significantly affected by the timing and size of the restructured business or component of a business.
Litigation and other losses (gains), net: We have excluded the effects of remeasurement losses and gains related to contingent acquisition liabilities and a litigation gain recorded in 2015 to permit comparability with periods that were not impacted by these items.
Litigation and other losses (gains), net: We have excluded the effects of litigation and other losses (gains), net which primarily relate to the remeasurement of our contingent consideration liabilities related to business acquisitions and litigation settlement losses and gains to permit comparability with periods that were not impacted by these items.
Transaction-related expenses: To permit comparability with prior periods, we excluded the impact of third-party legal and accounting fees incurred in 2021 and 2020 related to business acquisitions. We also excluded the impact of third-party legal and accounting fees incurred in 2019 related to the evaluation of a potential acquisition that ultimately did not consummate.
Goodwill impairment charges: We have excluded the effect of the goodwill impairment charges that occurredrecognized in 2017the first quarter of 2020 as these are infrequent events and their exclusion permits comparability with periods that were not impacted by such charges.
Non-cash interest on convertible notes: We incurincurred non-cash interest expense relating to the implied value of the equity conversion component of our Convertible Notes.Notes, which matured in October 2019. The value of the equity conversion component iswas treated as a debt discount and amortized to interest expense over the life of the Convertible Notes using the effective interest rate method. We excludeexcluded this non-cash interest expense that does not represent cash interest payments from the calculation of adjusted net income from continuing operations as management believes that this non-cash expense is not indicative of the ongoing performance of our business.
Other non-operating income, net: Unrealized gain on preferred stock investment: We have excluded the effect of an unrealized gain recognized in other income (expense), net in 2020 related to the fair value of our preferred stock investment in Medically Home Group, Inc. (“Medically Home”), as management believes that this gain is not indicative of the ongoing performance of our business and its exclusion permits comparability with prior periods.
Losses (gains) on sales of businesses: We have excluded the effect of non-operating incomelosses and expense itemsgains 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 other non-operating income, net for 2017 is primarily attributable2021 gain relates to a $0.9 million gain on the sale of our Life Sciences C&O, partially offset by a $0.3 million remeasurement loss recorded on a promissory note that was amendedbusiness within the Business Advisory segment in the fourth quarter of 2017.2021, and the 2020 loss primarily relates to the sale of our U.K. life sciences drug safety practice within the Business Advisory segment in the fourth quarter of 2020.
Foreign currency transaction losses (gains), net: We have excluded 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 timing and changes in foreign exchange rates.
Tax effect:effect of adjustments: The non-GAAP income tax adjustment reflects the incremental tax impact applicable to the non-GAAP adjustments.
Tax expense related to the enactment of Tax Cuts and Jobs Act of 2017 ("2017 Tax Reform"): We have excluded the impact of the 2017 Tax Reform, which was enacted in the fourth quarter of 2017, and is primarily due to the remeasurement of net deferred tax balances at the lower federal income tax rate, additional one-time income tax expense related to the transition tax on accumulated foreign earnings, and
withholding tax on outside basis differences due to our change in assertion for permanent reinvestment. The exclusion of the 2017 Tax Reform permits comparability with prior periods. Refer to Note 16 "Income Taxes" within the notes to the consolidated financial statements for additional information on the impact of the 2017 Tax Reform.
Tax benefit related to "check-the-box" election: We have excluded the effectspositive impact of a tax benefit, recorded in the third quarter of 2019, from recognizing a previously unrecognized tax benefit due to the expiration of statute of limitations on our "check-the-box" elections“check-the-box” election made in 2015 to treat certain wholly-owned foreign subsidiaries as disregarded entities for U.S. federal income tax purposes. In 2017, we recognized a previously unrecognized tax benefit from our "check-the-box" election made in 2014 due to the expiration of statute of limitations. In 2015, we made a "check-the-box" election to treat two of our wholly-owned foreign subsidiaries as disregarded entities for U.S. federal income tax purposes. The exclusion of thesethis discrete tax benefitsbenefit permits comparability with periods that were not impacted by these items. Refer to Note 16 “Income Taxes” within the notes to the consolidated financial statements for additional information on our "check-the-box" elections.this item.
Income tax expense, Interest expense, net of interest income, Depreciation and amortization: We have excluded 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. Included within the depreciation and amortization adjustment is the amortization of capitalized implementation costs of our ERP and other related software, which is included within selling, general and administrative expenses on our consolidated statement of operations.
Adjusted weighted average shares - diluted: As we reported a net loss for the year ended December 31, 2017,2020, GAAP diluted weighted average shares outstanding equals the basic weighted average shares outstanding for that period. For the year ended December 31, 2017,2020, the non-GAAP adjustments described above resulted in adjusted net income from continuing operations. Therefore, we included the dilutive common stock equivalents in the calculation of adjusted diluted weighted average shares outstanding for that period.
Year Ended December 31, 20172021 Compared to Year Ended December 31, 20162020
Revenues
Revenues increased $6.3$61.5 million, or 0.9%7.3%, to $732.6$905.6 million for the year ended December 31, 2017,2021, from $726.3$844.1 million for the year ended December 31, 2016. Revenues2020. The increase in revenues reflected strengthened demand for 2017 included $43.9 millionservices in all of our segments and the incremental revenues from our acquisitions, of Innosight and Pope Woodhead, which were completedas discussed below in the first quarter of 2017, and $13.9 million of incremental revenues due to the full year impact of our acquisitions of MyRounding and HSM Consulting, which were completed in the first and third quarters of 2016, respectively. Revenues for 2017 also included a full period impact of our acquisition of the U.S. assets of ADI Strategies and revenues from our acquisition of the international assets of ADI Strategies. These acquisitions were completed in May 2016 and April 2017, respectively, and have since been fully integrated into the Business Advisory segment.Segment Results.
Of the overall $6.3$61.5 million increase in revenues, $10.6$41.2 million was attributable to our full-time billable consultants, partially offset by a $4.3$19.1 million decrease in revenueswas attributable to our Healthcare Managed Services employees and $1.2 million was attributable to our full-time equivalents.
The increase in full-time billable consultant revenues was driven byattributable to an increase in demand for services in all of our segments, as discussed below in Segment Results. The overall increase in billable consultant revenues reflected overall increases in the average number of billable consultants, average billing rate, and consultant utilization rate in 2021 compared to 2020.
The increase in Healthcare Managed Services revenues was primarily attributable to an increase in demand for these services, which led to an increase in the average number of full-time billable consultants, partially offset by decreasesHealthcare Managed Services employees in 2021 compared to the averageprior year. At the beginning of the second quarter of 2021, we hired approximately 300 employees to expand our capacity to manage and provide revenue cycle billing, ratecollections, insurance verification and consultant utilization rate. As discussed belowchange integrity services to our healthcare clients. These employees are serving clients in Segment Results,our Healthcare Managed Services capability, including serving under a short-term contract with an existing client which we entered into in connection with this group hire.
The increase in full-time billable consultantequivalent revenues reflected our acquisitions of Innosight and Pope Woodhead, as well as strengthened demand for serviceswas attributable to an increase in full-time equivalent revenues in our Education and Business Advisory and Education segments, partially offset by decreased demand for services in our Healthcare segment.
Thea decrease in full-time equivalent revenues was primarily attributable to a decrease in the revenue from our Studer Group solution within our Healthcare segment, as discussed below in Segment Results.Results; and reflected an overall increase in revenue per full-time equivalent, partially offset by an overall decrease in the average number of full-time equivalents in 2021 compared to 2020.
In most of 2020 and the first quarter of 2021, the COVID-19 pandemic negatively impacted sales and elongated the sales cycle for new opportunities for certain services, particularly within our Healthcare and Education segments as some clients reprioritized or delayed certain projects. Subsequent to the first quarter of 2021, we saw an increase in our sales pipeline and the pace of signings in our Healthcare and Education businesses. While overall demand for our services in the first quarter of 2021 was negatively impacted by the COVID-19 pandemic, the overall demand for our services strengthened in 2021 compared to 2020 and we expect continued revenue growth in 2022 compared to 2021.
The COVID-19 pandemic has caused the need for many companies to accelerate their digital transformation to drive operational efficiencies, better engage with their customers, and make better data-driven decisions. This has resulted in strong demand for our digital, technology and analytic offerings, particularly within our Business Advisory segment. Indicative of our expectations for future growth in this capability, we continue to make investments in these offerings, both organically and through strategic acquisitions, such as our acquisitions of ForceIQ in 2020 and Unico Solutions and Perception Health in 2021, and through the addition of new offerings and solutions where we see strategic opportunities in the digital capability.
Total Direct Costs
Our total directDirect costs, includingexcluding amortization of intangible assets and software development costs, increased $13.0$44.3 million, or 2.9%7.5%, to $465.7$636.8 million for the year ended December 31, 20172021 from $452.7$592.4 million for the year ended December 31, 2016.2020. The overall $13.0$44.3 million increase in direct costs primarily related to a $17.5$32.5 million increase in salaries and related expenses for our revenue-generating professionals, which was largely driven by increased headcount from acquisitions and our continued investment in revenue-generating consultants in our cloud-based enterprise resource planning (ERP) implementation practices, partially offset by a decrease in salaries and related expenses in our Healthcare segment as a result of headcount reductions. Additional increases in direct costs included a $3.3 millionan overall increase in contractor expense and a $2.7headcount; an $8.0 million increase in signing and retention bonus expense for our revenue-generating professionals. All of these increases were partially offset by a $5.6 million decrease in performance bonus expense for our revenue-generating professionals, a $4.0 million decrease in intangible asset amortization expense,professionals; and a $1.2$3.4 million decreaseincrease in share-based compensationsigning, retention and other bonus expense for our revenue-generating professionals. As a percentage of revenues, our total direct costs slightly increased to 63.6%70.3% during 20172021 compared to 62.3%70.2% during 2016, primarily due to the items described above.2020.
Total direct costs for the year ended December 31, 20172021 included $10.9$3.8 million of amortization expense for intangible assets, primarily representing customer contracts and software acquired in business combinations, and internal software development costs and intangible assets, compared to $15.1$5.4 million of amortization expense in 2016. The $4.2 million decrease insame the prior year period. Intangible asset amortization expense was primarily attributableincluded within total direct costs related to the decreasing amortization expense oftechnology and software, certain customer relationships, and customer contracts acquired in connection with our Studer Group acquisition, due to the accelerated basis of amortization, and the customer contracts acquired as part of our acquisition of the U.S. assets of ADI Strategies which were fully amortized in 2016, partially offset
by the amortization of intangible assets acquired in the acquisitions of Innosight and HSM Consulting.business acquisitions. See Note 4 "Acquisitions" and Note 5 "Goodwill“Goodwill and Intangible Assets"Assets” within the notes to our consolidated financial statements for additional information abouton our intangible assets.
Operating Expenses and Other Gains,Losses (Gains), Net
Selling, general and administrative expenses increased $15.2$7.2 million, or 9.5%4.2%, to $175.4$177.9 million for the year ended December 31, 2017,2021, compared to $160.2$170.7 million for the year ended December 31, 2016. Selling, general and administrative expenses for 2017 included $14.52020. The $7.2 million from Innosight and Pope Woodhead. The overall increase of $15.2 million was primarily related to a $10.4$3.0 million increase in performance bonus expense for our support personnel, a $2.4 million increase in legal expense, a $2.1 million increase in software and data hosting expense, a $1.9 million increase in salaries and related expenses for our support personnel;personnel, a $2.7 million increase in facilities and other office-related expenses; a $2.0 million increase in travel related costs, largely related to the operations of our aircraft purchased in connection with our Innosight acquisition; a $1.4$1.7 million increase in third-party consulting expenses; a $1.0 million increase in promotion and sponsorship expenses;professional advisory expense, and a $0.9$1.6 million increase in signing, retention and retentionother bonus expense for our support personnel. The increase in legal expense and third-party professional advisory expense was primarily attributable to transaction-related expenses incurred with the acquisitions completed in 2021. These increases in selling, general and administrative expenses were partially offset by a $2.6$3.2 million decrease in performance bonus expenses for our support personnel,practice administration and meetings expense and a $1.1$1.4 million decrease in legal expenses, and a $1.0 million decrease in share-based compensation expense for our support personnel.office supplies expense. As a percentage of revenues, selling, general and administrative expenses increaseddecreased to 23.9%19.6% during 20172021 compared to 22.1%20.2% during 2016,2020, primarily due to revenue growth that outpaced the items described above.increase in salaries and related expenses for our support personnel and the decrease in practice administration and meetings expense.
Restructuring charges for the year ended December 31, 20172021 totaled $6.2$12.4 million, compared to $9.6$20.5 million for the year ended December 31, 2016. The $6.22020. On November 1, 2021, we completed the sale of our Life Sciences business, a reporting unit within the Business Advisory segment, to a third-party. In connection with the sale, we incurred $8.5 million of restructuring charges, consisting of $6.8 million of transaction-related employee payments, $0.9 million of third-party legal and professional advisory fees, and $0.8 million of accelerated amortization and depreciation on the operating lease right-of-use asset ("ROU") and fixed assets related to our London, U.K. office space, which we vacated as a result of the Life Sciences divestiture. In the ten months ended October 31, 2021, the Life Sciences business generated $16.7 million of revenue and is not significant to our consolidated financial statements. Additionally, in 20172021, we incurred $2.3 million of rent and related expenses, net of sublease income, and accelerated depreciation on furniture and fixtures for other previously vacated office spaces, $1.3 million of other employee-related expenses in our Business Advisory segment, and $0.2 million of third-party professional advisory fees related to the reorganization of our internal operating and financial reporting structure. See Note 19 "Segment Information" within the notes to our consolidated financial statements for more information on our segment reorganization that is effective in the first quarter of 2022.
In the fourth quarter of 2020, we announced a restructuring plan to reduce operating costs to address the impact of the COVID-19 pandemic on our business. The restructuring plan provided for a reduction in certain leased office spaces which included $3.7a portion of our principal executive office in Chicago, Illinois, and additional domestic locations. As a result, we recognized $13.2 million of non-cash lease impairment charges on the related operating lease ROU assets and fixed assets which we intend to sublease, and $0.7 million of accelerated amortization and depreciation on the related operating lease ROU assets and fixed assets we abandoned. The fourth quarter 2020 restructuring plan also included a reduction in workforce, which resulted in a $4.8 million restructuring charge for employee severance costs; of which $2.0 million related to workforce reductions to better align resources with market demand, of which $2.1our Education segment, $1.2 million related to our Healthcare segment, $1.1$1.0 million related to our Business Advisory segment, and $0.6 million related to our corporate operations. Additional restructuring charges recognized in 2020 include a $1.2 million accrual for the termination of a third-party advisor agreement in our Business Advisory segment and $0.4 million related to our corporate operations. The overall $6.2 million of restructuring charges also included $2.4 million of office space reductions, which primarily consisted of the accrual of remaining lease obligations, net of estimated sublease income, due to relocating our San Francisco office to a smaller space and consolidating our Chicago and New York offices, and accelerated depreciation on leasehold improvements in our San Francisco office. The $9.6 million of restructuring charges in 2016 primarily consisted of $7.3 million related to workforce reductions completed prior to the fourth quarter of which $5.8 million related to our Healthcare segment and $0.6 million related to our Business Advisory segment, both2020 to better align resources with market demand, and $0.9 million related to our corporate operations primarily to adjust our infrastructure to align with our Legal divestiture. The $9.6 million of restructuring charges also included $1.5 million related to updated lease accrual assumptions, primarily for our Washington, D.C. space vacated in the fourth quarter of 2014, and $0.8 million related to the wind down of our foreign operations based in the Middle East and other exit costs.demand. See Note 10 “Restructuring11“Restructuring Charges” within the notes to our consolidated financial statements for further discussion ofadditional information on our restructuring expenses.events.
Litigation and other losses (gains), net totaled a net loss of $1.1$0.2 million for the year ended December 31, 2017, compared2021, which primarily consisted of remeasurement losses to increase the fair value of our contingent consideration liability related to a business combination. Litigation and other gains, net totaled a gain of $2.0$0.2 million for the year ended December 31, 2016. The net loss in 2017 and2020, which consisted of a litigation settlement gain for the net gain in 2016 represent the changesresolution of a claim that was settled in the estimated fair valuesfirst quarter of our liabilities for contingent consideration related to business acquisitions. In connection with certain business acquisitions, we may be required to pay post-closing consideration to the sellers if specific financial performance targets are met over a number of years as specified in the related purchase agreements.2020. See Note 12 "Fair13 “Fair Value of Financial Instruments"Instruments” within the notes to our consolidated financial statements for additional information on the fair value of contingent consideration liabilities.
Depreciation and amortization expense increased $6.7decreased $2.6 million, or 21.3%10.7%, to $38.2$21.7 million for the year ended December 31, 2017,2021, from $31.5$24.3 million for the year ended December 31, 2016.2020. The increasedecrease was primarily attributable to decreasing amortization expense for intangible assetscustomer relationships acquired in business acquisitions due to the Innosight, Pope Woodhead,accelerated basis of amortization in prior periods, including the customer relationships acquired in our Studer Group acquisition; and ADI Strategiescustomer relationships acquired in other business acquisitions and an increasethat were fully amortized in amortizationprior periods; as well as a decrease in depreciation expense for a customer-related intangible asset acquired in the Studer Group acquisition.leasehold improvements and furniture and fixtures related to vacated office spaces. Intangible asset amortization expense included within operating expenses primarily relatesrelated to certain customer relationships, trade names, and non-competition agreements acquired in connection with our business acquisitions. See Note 4 "Acquisitions" and Note 5 "Goodwill“Goodwill and Intangible Assets"Assets” within the notes to our consolidated financial statements for additional information abouton our intangible assets.
During 2017,the first quarter of 2020, we recorded $253.1$59.8 million of non-cash pretax goodwill impairment charges. Of the $253.1 million, $208.1 millioncharges related to our HealthcareStrategy and Innovation and Life Sciences reporting unit and $45.0 million related to our Enterprise Solutions and Analytics reporting unit which is included inunits within our Business Advisory segment.segment; primarily related to the expected decline in sales, increased uncertainty in the backlog and a decrease in the demand for the services these reporting units provide, as a result of the COVID-19 pandemic. These charges arewere non-cash in nature and dodid not affect our liquidity or debt covenants. See the "Critical Accounting Policies" section below and Note 5 "Goodwill4 “Goodwill and Intangible Assets" within the notes to our consolidated financial statements for further discussion of these charges.
Operating Income (Loss)
Operating income decreased $281.7 million, to a loss of $207.5 million for the year ended December 31, 2017, from income of $74.2 million for the year ended December 31, 2016. The decrease is primarily attributable to the $253.1 million non-cash pretax goodwill impairment charges recorded in 2017. See the "Critical Accounting Policies" section below and Note 5 "Goodwill and Intangible Assets"Assets” within the notes to our consolidated financial statements for additional information abouton the charges.
Operating Income (Loss)
Operating income increased $81.7 million, to income of $52.8 million for the year ended December 31, 2021, from a loss of $28.9 million for the year ended December 31, 2020. This increase is primarily attributable to the $59.8 million non-cash pretax goodwill impairment charges.charges recognized in the first quarter of 2020 that related to our Business Advisory segment. The increase in operating income is also attributable to the increase in revenues and the decrease in restructuring charges for 2021 compared to 2020, partially offset by the increases in salaries and related expenses for our revenue-generating professionals, performance bonus expense for our revenue-generating professionals, and selling, general and administrative expenses in 2021 compared to 2020. Operating margin, which is defined as operating income (loss) expressed as a percentage of revenues, decreasedincreased to (28.3)5.8% in 2021 compared to (3.4)% in 2017 compared to 10.2% in 2016.2020. The decreaseincrease in operating margin was primarily attributable to the goodwill impairment charges as well as increasesrecognized in salaries2020, the decrease in restructuring charges and related expenses for both our revenue-generating professionals and support personnel.
Other Expense, Netthe increase in revenues in 2021 compared to 2020.
Total otherOther Income (Expense), Net
Interest expense, net of interest income decreased slightly$1.1 million to $15.0$8.2 million for the year ended December 31, 2017,2021 from $15.1$9.3 million for the year ended December 31, 2016. The decrease was2020, primarily attributable to lower levels of borrowing under our credit facility during 2021 compared to 2020. See Note 7 “Financing Arrangements” within the notes to our consolidated financial statements for additional information about our senior secured credit facility.
Other income, net totaled $35.3 million for the year ended December 31, 2021 and primarily consisted of a $2.4$31.5 million pre-tax gain recognized on the sale of our Life Sciences business in the fourth quarter of 2021 and a $4.2 million net unrealized gain in the market value of our investments that are used to fund our deferred compensation liability, compared toliability. Other income, net totaled $4.3 million for the year ended December 31, 2020 and primarily consisted of a $1.2$4.1 million net unrealized gain in 2016, as well asthe market value of our investments that are used to fund our deferred compensation liability; a $0.9$1.7 million unrealized gain in the fair value of our preferred stock investment in Medically Home Group, Inc.; and a $1.5 million loss on the sale of our Life Sciences Compliance and Operations solution ("LS C&O") within our Business Advisory segmentU.K. life sciences drug safety practice in the secondfourth quarter of 2017, and a $0.4 million increase in foreign currency transaction gains. These decreases were largely offset by a $2.3 million increase in interest expense, net of interest income due to higher levels of borrowings and higher interest rates under our credit facility during 2017 compared to 2016.2020. See Note 5 "Goodwill13 “Fair Value of Financial Instruments” within the notes to our consolidated financial statements for additional information on our preferred stock investment in Medically Home Group, Inc, and Intangible Assets"Note 3 "Acquisitions and Divestitures" within the notes to our consolidated financial statements for additional information on the sale of LS C&O.divestitures completed in 2021 and 2020.
Income Tax Expense (Benefit)
For the year ended December 31, 2017,2021, our effective tax rate was 23.4% as we recognized income tax benefit from continuing operations of $52.0 million on a loss from continuing operations of $222.5 million. For the year ended December 31, 2016, our effective tax rate was 33.3%21.3% as we recognized income tax expense from continuing operations of $19.7$17.0 million on income from continuing operations of $59.2$80.0 million. The effective tax rate for 20172021 was lessmore favorable than the statutory rate, inclusive of state income taxes, of 26.3% primarily due to the $65.0 million non-deductible portion of the goodwill impairment chargestax benefits related to the HealthcareCARES Act described below. The effective tax rate also reflected the positive impact of certain federal tax credits and Enterprise Solutions and Analytics reporting units recorded in 2017; $8.8 milliona discrete tax benefit recognized during the second quarter of discrete income tax expense2021 related to electing the enactment ofGlobal Intangible Low-Taxed Income (“GILTI”) high-tax exclusion retroactively for the 2017 Tax Reform in2018 tax year. On July 20, 2020, the fourth quarter of 2017;U.S. Treasury issued and $1.8 million of discrete tax expense for share-based compensationenacted final regulations related to the adoption of ASU 2016-09 ImprovementsGILTI that allow certain U.S. taxpayers to Employee Share-Based Payment Accounting. Referelect to Note 2 "Summary of Significant Accounting Policies" for additional information on the adoption of ASU 2016-09.exclude foreign income that is subject to a high effective tax rate from their GILTI inclusions. The GILTI high-tax exclusion is an annual election and is retroactively available. These unfavorable discretefavorable items were partially offset by a $2.7 millioncertain nondeductible business expenses and increases in our valuation allowance primarily due to increases in deferred tax benefitassets recorded in the third quarter of 2017 related to a previously unrecognized tax benefit from our 2014 "check-the-box" election.
On December 22, 2017, the President of the United States signed into law the Tax Cuts and Jobs Act (“2017 Tax Reform”), a tax reform bill which, among other items, reduces the current corporate federal income tax rate from 35% to 21% and moves from a worldwide tax system to a territorial system. The rate reduction is effective January 1, 2018. As a result of the enactment of the legislation in 2017, we have estimated the remeasurement of our net deferred taxes based on the new lower tax rate, as well as provided for additional one-time income tax expense estimates primarily related to the transition tax on accumulated foreign earnings and elimination of foreign tax credits for dividends that are subject to the 100 percent exemption in our consolidated financial statements ascredits.
For the year ended December 31, 2017. Our provisional analysis resulted in $8.8 million of additional income tax expense for the year ended December 31, 2017. Of the $8.8 million, $7.9 million related to the remeasurement of2020, our deferred tax balances at the lower federal income tax rate; $0.6 million related to the transition tax on accumulated foreign earnings, net of applicable foreign tax credits; and $0.3 million related to withholding tax on outside basis differences due to our change in assertion for permanent reinvestment. The impacts on our financial statements as a result of 2017 Tax Reform are considered preliminary and are based on the information that is currently available. These provisional results may be subject to future adjustments as additional analysis is anticipated based on technical corrections and regulatory interpretations to come. We expect to finalize the analysis as soon as practicable, but, in accordance with Staff Accounting Bulletin (“SAB”) No. 118, which was issued as a result of 2017 Tax Reform, not later than one year from the enactment date. Any changes to our provisional analysis will be included as an adjustment to tax expense or benefit in the period the amounts are determined.
As a result of the 2017 Tax Reform, and barring any unfavorable discrete items, we expect our 2018 effective tax rate to be lower than our historical effective tax rate, comprised of the lower 21% corporate federalwas 30.0% as we recognized an income tax rate,benefit from continuing operations of $10.2 million on a state blended tax rate, netloss from continuing operations of federal benefit, estimated to be between 4-8% depending on where we provide services, and any unfavorable impact due to limitations on the deductibility of executive compensation and meals and entertainment.
$33.9 million. The effective tax rate for 20162020 was lowermore favorable than the statutory rate, inclusive of state income taxes, of 26.5%, primarily due to valuation allowance reductions, certain credits and deductions, non-taxable income, andthe tax benefit related to the CARES Act described below, a discrete tax benefit for share-based compensation awards that vested primarily in the first quarter of 2020, the positive impact of certain federal tax credits and a tax benefit related to share-basednon-taxable gains on our investments used to fund our deferred compensation liability. These favorable items were partially offset by non-deductible business expenses. In 2016, we released certainincreases in our valuation allowancesallowance primarily relateddue to increases in deferred tax assets recorded for foreign tax credits, as we expect to have sufficient foreign source income to utilize these credits before their expiration.
Net Income (Loss) from Continuing Operations
Net income from continuing operations decreased by $210.0 million, to a net loss from continuing operationscertain nondeductible business expenses and the nondeductible portion of $170.5 million for the year ended December 31, 2017, compared to net income from continuing operations of $39.5 million for the year ended December 31, 2016. The decrease was primarily attributable to the $253.1 million non-cash pretax goodwill impairment charges recorded during the first quarter of 2020.
The CARES Act, which was signed into law on March 27, 2020, is an approximately $2 trillion emergency economic stimulus package in 2017.response to the COVID-19 outbreak, which among other items, includes income tax provisions relating to the net operating loss carryback period, options to defer payroll tax payments for a limited period and technical corrections to tax depreciation methods for qualified improvement property. As a result of the decreaseCARES Act, we recognized a $1.5 million tax benefit in net2020 related to the remeasurement of a portion of our income from continuing operations, diluted loss per share from continuing operationstax receivable for the federal net operating losses incurred in 2018 and 2020 that were carried back to prior year ended December 31, 2017 was $7.95 compared to diluted earnings per share from continuing operationsincome, both for a refund at the higher, prior year tax rate. As a result of $1.84 for 2016. The non-cash goodwill impairment charges had an $8.40 unfavorable impact on diluted earnings per share from continuing operationselecting the retroactive GILTI high-tax exlusion in 2017.
Discontinued Operations
Net income from discontinued operations for the year ended December 31, 2017 was2021, we recognized a $1.0 million tax benefit of which $0.4 million andrelated to carrying back our increased 2018 federal net operating loss to prior year income for a refund at the higher, prior year tax rate. During the third quarter of 2021, we recognized an additional tax benefit of $2.0 million, primarily related to updated lease assumptionsthe U.S. federal return to provision adjustments for vacated office spaces directly relatedcarrying back our increased 2020 federal net operating loss to prior year income for a refund at the sale of the Huron Legal segment. Net loss from discontinued operations for thehigher, prior year ended December 31, 2016 was $1.9 million and primarily related to obligations for former employees, legal fees, and updated lease assumptions for vacated office spaces directly related to the sale of the Huron Legal segment. tax rate.
See Note 3 "Discontinued Operations"17 “Income Taxes” within the notes to our consolidated financial statements for additional information on our discontinued operations.income tax expense (benefit).
EBITDANet Income (Loss) from Continuing Operations and Adjusted EBITDAEarnings (Loss) per Share
EBITDA decreased $276.8Net income from continuing operations increased by $86.7 million to a lossnet income from continuing operations of $154.7$63.0 million for the year ended December 31, 2017,2021, from earningsa net loss from continuing operations of $122.1$23.7 million for the year ended December 31, 2016.2020. This increase is primarily attributable to the $59.8 million non-cash pre-tax goodwill impairment charges related to our Business Advisory segment recognized in the first quarter of 2020 and the $31.5 million pre-tax gain on sale of our Life Sciences business in the fourth quarter of 2021, partially offset by the tax impact of these items, as well as the increase in revenues partially offset by the increases in direct costs and selling, general and administrative expenses discussed above. As a result of the increase in net income from continuing operations, diluted earnings per share from continuing operations for the year ended December 31, 2021 was $2.89 compared to a diluted loss per share from continuing operations of $1.08 for 2020. The gain on sale of our Life Sciences business in the fourth quarter of 2021 had a $1.09 favorable impact on diluted earnings per share from continuing operations in 2021 and the non-cash goodwill impairment charges had a $2.07 unfavorable impact on diluted earnings per share from continuing operations in 2020.
EBITDA and Adjusted EBITDA decreased $25.1
EBITDA increased $109.5 million or 19.3%, to $104.6$114.5 million in 2017for the year ended December 31, 2021, from $129.7$5.1 million in 2016.for the year ended December 31, 2020. The decreaseincrease in EBITDA was primarily attributable to the $59.8 million non-cash goodwill impairment charges related to our Business Advisory segment recognized in the first quarter of $253.12020; the $31.5 million recordedgain on sale of our Life Sciences business in 2017. The decrease in adjusted EBITDA was primarily due to the decreasefourth quarter of 2021; and the increase in segment operating income, as discussed below in Segment Results as well asbelow.
Adjusted EBITDA increased $10.7 million to $97.8 million in 2021 from $87.1 million in 2020. The increase in adjusted EBITDA was primarily attributable to the increase in segment operating income, partially offset by an increase in corporate expenses, primarily due to our acquisitionsexcluding the impact of Innosight and Pope Woodhead.restructuring charges on these items.
Adjusted Net Income from Continuing Operations and Adjusted Earnings per Share
Adjusted net income from continuing operations decreased $22.1increased $9.0 million or 32.2%, to $46.6$56.9 million for the year ended December 31, 2017,2021, compared to $68.7$47.9 million for the year ended December 31, 2016.2020. As a result of the decreaseincrease in adjusted net income from continuing operations, adjusted diluted earnings per share from continuing operations for 2017 was $2.15,$2.61 in 2021 compared to $3.21 for 2016.$2.15 in 2020.
Segment Results
Healthcare
Revenues
Healthcare segment revenues decreased $68.0increased $24.1 million, or 16.0%6.8%, to $356.9$377.6 million for the year ended December 31, 2017,2021, from $424.9$353.4 million for the year ended December 31, 2016. Revenues for 2017 included $13.9 million of incremental revenues2020. The overall increase was primarily due to the full year impactstrengthened demand for this segment's services
subsequent to the first quarter of 2021 and third quartersthe favorable comparison against 2020, which was more significantly impacted by the COVID-19 pandemic as some clients reprioritized and delayed certain projects as a result of 2016, respectively.the uncertainties surrounding the pandemic.
For the year ended December 31, 2017,2021, revenues from fixed-fee engagements,arrangements; time-and-expense engagements,arrangements; performance-based arrangements,arrangements; and software support, and maintenance and subscription arrangements represented 67.7%57.8%, 16.1%17.1%, 8.7%19.4%, and 7.5%5.7% of this segment’s revenues, respectively, compared to 68.9%57.3%, 11.6%16.5%, 13.5%19.6%, and 6.0%6.6%, respectively, in 2016.
Of the overall $68.0 million decrease in revenues, $65.5 million was attributable to a decrease in revenue from our full-time billable consultants, and $2.5 million was attributable to a decrease in revenue generated by our full-time equivalents.
The decrease in revenue attributable to our full-time billable consultants was primarily driven by decreased demand for our performance improvement solution and reflected decreases in the average number of full-time billable consultants and the average billing rate, partially offset by an increase in the consultant utilization rate.2020. Performance-based fee revenue was $30.9$73.4 million in 20172021, compared to $57.2$69.3 million in 2016.2020. The level of performance-based fees earned may vary based on our clients'clients’ risk sharing preferences and the mix of services we provide. Performance-based fee arrangements may also cause significant variations
Of the overall $24.1 million increase in revenues, operating results,$19.1 million was attributable to an increase in revenues from our Healthcare Managed Services employees and $15.6 million was attributable to an increase in revenues from our billable consultants, partially offset by a $10.5 million decrease in revenues from our full-time equivalents.
The increase in revenues attributable to our Healthcare Managed Services employees was primarily attributable to an increase in demand for these services, which led to an increase in the average number of managed services employees in 2021 compared to the prior year. At the beginning of the second quarter of 2021, we hired approximately 300 employees to expand our capacity to manage and provide revenue cycle billing, collections, insurance verification and change integrity services to our healthcare clients. These employees are serving clients in our Healthcare Managed Services capability, including serving under a short-term contract with an existing client which we entered into in connection with this group hire.
The increase in revenues attributable to our billable consultants reflected increases in the average billing rates due to our level of executionrate and the timingconsultant utilization rate, partially offset by a decrease in the average number of achievement ofbillable consultants during 2021 compared to the performance-based criteria.prior year.
The decrease in full-time equivalent revenues was primarily driven by a decreaseddecrease in demand for our Studer Group solutioncertain services and a decreased use of contractors and project consultants; and reflected a decrease in revenue per full-time equivalent, partially offset by an increase in the average number of full-time equivalents, partially offset by an increase in 2017revenue per full-time equivalent during 2021 compared to 2016.the same prior year period.
Operating Income
Healthcare segment operating income decreased $29.1increased $9.1 million, or 19.7%9.6%, to $118.8$104.0 million for the year ended December 31, 2017,2021, from $147.9$94.9 million for the year ended December 31, 2016.2020. The Healthcare segment operating margin, defined as segment operating income expressed as a percentage of segment revenues, increased to 27.5% in 2021 from 26.9% in 2020. The increase in this segment’s operating margin was primarily attributable to decreases in salaries and related expenses for our support personnel, contractor expense, practice administration and meetings expense, and restructuring charges. These increases to the segment operating margin were partially offset by an increase in performance bonus expense for our revenue-generating professionals, as a percentage of revenues.
Business Advisory
Revenues
Business Advisory segment revenues increased $24.3 million, or 9.1%, to $291.7 million for the year ended December 31, 2021, from $267.4 million for the year ended December 31, 2020, primarily related to strengthened demand for our cloud-based technology and analytics solutions and our strategy and innovation solutions. Revenues in 2021 included $14.3 million of incremental revenues from our acquisitions of ForceIQ and Unico Solutions, which were completed in November 2020 and February 2021, respectively.
For the year ended December 31, 2021, revenues from fixed-fee arrangements; time-and-expense arrangements; performance-based arrangements; and software support, maintenance and subscription arrangements represented 41.7%, 49.0%, 6.3%, and 3.0% of this segment's revenues, respectively, compared to 38.0%, 57.1%, 3.0%, and 1.9%, respectively, in 2020. Performance-based fee revenue for the year ended December 31, 2021 was $18.3 million compared to $8.1 million in 2020. The level of performance-based fees earned may vary based on our clients’ preferences and the mix of services we provide.
Of the overall $24.3 million increase in revenues, $19.9 million was attributable to an increase in revenues generated by our billable consultants and $4.4 million was attributable to an increase in revenues generated by our full-time equivalents. The increase in revenues from our full-time billable consultants reflected increases in the average number of billable consultants and the average billing rate, partially offset by a decrease in the consultant utilization rate in 2021 compared to 2020. The increase in revenues from our full-time equivalents was driven by an increased use of contractors and reflected an increase in the average number of full-time equivalents, partially offset by a decrease in revenue per full-time equivalent in 2021 compared to 2020.
On November 1, 2021, we completed the divestiture of the Life Sciences business to a third-party. The Life Sciences business, a reporting unit within the Business Advisory segment, provides commercial and research and development strategy, pricing and market access strategy solutions to customers in the life sciences industries. For the ten months ended October 31, 2021, Life Sciences revenues were $16.7 million. The Life Sciences business is not significant to our consolidated financial statements and does not qualify as a discontinued operation for reporting under GAAP.
Operating Income
Business Advisory segment operating income increased to $48.2 million for the year ended December 31, 2021, compared to $48.0 million for the year ended December 31, 2020. The Business Advisory segment operating margin decreased to 33.3% in 201716.5% for 2021 from 34.8% in 2016.18.0% for 2020. The decrease in this segment’s operating margin was primarily attributable to an increase, as a percentage of revenues,increases in restructuring charges, salaries and related expenses for both our support personnel and revenue-generating professionals and contractor expense, as well as an increase in contractor expenses,percentages of revenues; partially offset by decreasesa decrease in restructuring charges, performance bonus expense for our revenue-generating professionals, and intangible asset amortization expense, all as a percentage of revenues, in 2017 compared to 2016.professionals.
The first quarter 2020 non-cash goodwill impairment chargecharges related to our Healthcarethe Strategy and Innovation and Life Sciences reporting units within the Business Advisory segment, which are discussed above within the consolidated results, isare not allocated at the segment level because the underlying goodwill asset is reflective of our corporate investment in the segments.segment. We do not include the impact of goodwill impairment charges in our evaluation of segment performance. See the "Critical“Critical Accounting Policies" section belowPolicies and
Note 5 "Goodwill and Intangibles Assets" within the notes to our consolidated financial statements for further discussion of this charge and our most recent goodwill impairment test performed as of November 30, 2017. We will continue to evaluate goodwill for impairment during future periods. Any future significant decline in the performance of the Healthcare segment compared to our internal forecasts could result in another non-cash goodwill impairment charge.
Education
Revenues
Education segment revenues increased $18.1 million, or 12.1%, to $167.9 million for the year ended December 31, 2017, from $149.8 million for the year ended December 31, 2016.
For the year ended December 31, 2017, revenues from fixed-fee engagements, time-and-expense engagements, performance-based arrangements, and software support and maintenance and subscription arrangements represented 16.6%, 77.5%, 0.2%, and 5.7% of this segment’s revenues, respectively, compared to 14.4%, 78.9%, 0.7%, and 6.0%, respectively, during 2016.
Of the overall $18.1 million increase in revenues, $20.0 million was attributable to an increase in revenue generated by our full-time billable consultants, partially offset by a $1.9 million decrease in revenue generated by our full-time equivalents. The increase in revenues from our full-time billable consultants reflected an increase in the average number of full-time billable consultants and the consultant utilization rate, partially offset by a decrease in the average billing rate. The decrease in revenue from our full-time equivalents reflected decreases in the average number of full-time equivalents and revenue per full-time equivalent in 2017 compared to 2016.
Operating Income
Education segment operating income increased $2.0 million, or 5.2%, to $40.3 million for the year ended December 31, 2017, from $38.3 million for the year ended December 31, 2016. The Education segment operating margin decreased to 24.0% for 2017 from 25.6% for 2016. The decrease in this segment’s operating margin was primarily attributable to an increase in salaries and related expenses for our revenue-generating professionals, which was largely driven by our continued investment in revenue-generating consultants in our cloud-based enterprise resource planning (ERP) implementation practices, and performance bonus expenses for our revenue-generating professionals, all as a percentage of revenues, partially offset by a decrease in project costs.
Business Advisory
Revenues
Business Advisory segment revenues increased $56.2 million, or 37.1%, to $207.8 million for the year ended December 31, 2017, from $151.5 million for the year ended December 31, 2016. Revenues for 2017 included $43.9 million from our acquisitions of Innosight and Pope Woodhead, which were completed in the first quarter of 2017. Revenues for 2017 also included a full period impact of our acquisition of the U.S. assets of ADI Strategies and revenues from our acquisition of the international assets of ADI Strategies. These acquisitions were completed in May 2016 and April 2017, respectively, and have since been fully integrated into the Business Advisory segment.
For the year ended December 31, 2017, revenues from fixed-fee engagements, time-and-expense engagements, performance-based engagements, and software support and maintenance and subscription arrangements represented 34.8%, 61.4%, 2.1%, and 1.7% of this segment's revenues, respectively, compared to 19.8%, 74.6%, 4.1%, and 1.5%, respectively, in 2016. Performance-based fee revenue for the year ended December 31, 2017 was $4.5 million compared to $6.2 million in 2016. The level of performance-based fees earned may vary based on our clients’ preferences and the mix of services we provide. Performance-based fee arrangements may cause significant variations in revenues, operating results, and average billing rates due to our level of execution and the timing of achievement of the performance-based criteria.
The overall $56.2 million increase in revenues was primarily attributable to an increase in revenue generated by our full-time billable consultants. The increase in revenue from our full-time billable consultants was primarily driven by our acquisitions of Innosight, ADI Strategies, and Pope Woodhead, and reflected an increase in the average number of full-time billable consultants, partially offset by decreases in the average billing rate and consultant utilization rate.
Operating Income
Business Advisory segment operating income increased by $17.2 million, or 58.6%, to $46.6 million for the year ended December 31, 2017, compared to $29.4 million for the year ended December 31, 2016. Segment operating margin increased to 22.4% for 2017 from 19.4% for 2016. The increase in this segment’s operating margin was primarily attributable to decreases in performance bonus expense and share-based compensation for our revenue-generating professionals, as well as a decrease in contractor expense. These increases to operating margin were partially offset by increases in salaries and related expenses for our revenue-generating professionals; travel related costs,
largely related to the operations of our aircraft purchased in connection with our Innosight acquisition; third-party consulting expenses; and signing and retention bonus expense for our revenue-generating professionals, all as a percentage of revenues.
While the Business Advisory segment's revenues and operating income increased year-over-year, the Enterprise Solutions and Analytics practice within this segment experienced a decline in revenues and operating income in the fourth quarter of 2017 compared to the third quarter of 2017. During the first three quarters of 2017, the performance of Enterprise Solutions and Analytics continued to reasonably meet our expectations. However, both revenues and operating margin during the fourth quarter of 2017 fell short of our expectations resulting in a reduction in workforce within the reporting unit during that quarter. As a result, our goodwill impairment test conducted as of November 30, 2017, indicated that the fair value of the Enterprise Solutions and Analytics reporting unit no longer exceeded its carrying value, and we recorded a $45.0 million non-cash pretax goodwill impairment charge to write off the entire carrying value of this reporting unit's goodwill.
This non-cash goodwill impairment charge is not allocated at the segment level because the underlying goodwill asset is reflective of our corporate investment in the segments. We do not include the impact of goodwill impairment charges in our evaluation of segment performance. See the "Critical Accounting Policies" Estimates” section below and Note 5 "Goodwill and Intangibles Assets" within the notes to our consolidated financial statements for further discussion of this charge.
Year Ended December 31, 2016 Compared to Year Ended December 31, 2015
Revenues
Revenues increased $27.3 million, or 3.9%, to $726.3 million for the year ended December 31, 2016, from $699.0 million for the year ended December 31, 2015. Revenues for 2016 included $34.5 million from our acquisitions of MyRounding, ADI Strategies, and HSM Consulting, all of which were completed during 2016, and $19.3 million of incremental revenues due to the full year impact in 2016 of our acquisitions of Studer Group, which was completed mid-first quarter 2015, Rittman Mead India, which was completed at the beginning of the third quarter of 2015, and Cloud62, Inc. ("Cloud62"), which was completed at the beginning of the fourth quarter of 2015.
Of the overall $27.3 million increase in revenues, $20.6 million was attributable to our full-time equivalents and $6.7 million was attributable to our full-time billable consultants.
The increase in full-time equivalent revenues was primarily attributable to the full year impact of our acquisition of Studer Group, as well as overall growth of the Studer Group practice, and increased use of contractors and subscription revenue in the Business Advisory segment, largely due to our acquisition of ADI Strategies, and reflected an increase in the average number of full-time equivalents.
The increase in full-time billable consultant revenues was driven by an increase in the average number of full-time billable consultants, partially offset by decreases in the average billing rate and consultant utilization rate. As discussed below in Segment Results, this increase in revenue reflected our acquisitions and strengthened demand for our services in the Education and Business Advisory segments. These increases to revenue were partially offset by lower revenues from full-time billable consultants in our Healthcare segment, which was largely driven by decreases in revenue in our revenue cycle and cost and clinical solutions.
Total Direct Costs
Our total direct costs, including amortization of intangible assets and software development costs, increased $34.0 million, or 8.1%, to $452.7 million for the year ended December 31, 2016 from $418.7 million for the year ended December 31, 2015. The overall $34.0 million increase in direct costs primarily related to a $36.7 million increase in salaries and related expenses for our revenue-generating professionals, which was primarily driven by increased headcount from acquisitions and our ongoing cloud-based ERP investment, and a $1.6 million increase in technology expenses, partially offset by a $2.6 million decrease in share-based compensation expense for our revenue-generating professionals and a $1.7 million decrease in intangible asset amortization expense. As a percentage of revenues, our total direct costs increased to 62.3% during 2016 compared to 59.9% during 2015, primarily due to the items described above.
Total direct costs for the year ended December 31, 2016 included $15.1 million of amortization expense for intangible assets, primarily representing customer contracts and software acquired in business combinations, and internal software development costs, compared to $16.8 million of amortization expense in 2015. See Note 4 "Acquisitions" and Note 5 "Goodwill“Goodwill and Intangible Assets"Assets” within the notes to our consolidated financial statements for additional information abouton the goodwill impairment charges and our intangible assets.goodwill balances.
Operating Expenses and Other Operating GainsEducation
Selling, general and administrative expensesRevenues
Education segment revenues increased $2.3$13.1 million, or 1.5%5.9%, to $160.2$236.4 million for the year ended December 31, 2016, compared to $157.92021, from $223.3 million for the year ended December 31, 2015.2020. This segment's revenues were significantly impacted by the COVID-19 pandemic beginning in the third quarter of 2020 through the first half of 2021 as some clients reprioritized and delayed certain projects as a result of the uncertainties surrounding the pandemic. In the second half of 2021, demand for this segment's services strengthened, driving an overall increase was primarily related to a $4.8 million increase in salaries and related expensestotal revenues for our support personnel and a $1.3 million increase in share-based compensation expense for our support personnel, partially offset by a $1.4 million decrease in facilities and other office related expenses, a $1.1 million decrease in recruiting expenses, a $0.5 million decrease in severance expense, and a $0.8 million decrease in performance bonus expense for our support
personnel. As a percentage of revenues, selling, general and administrative expenses decreased to 22.1% during 2016full year 2021 compared to 22.6% during 2015, primarily due to the items described above.full year 2020. Revenues in 2021 included $0.6 million of incremental revenues from our acquisition of Whiteboard, which was completed in December 2021.
Restructuring charges forFor the year ended December 31, 2016 totaled $9.62021, revenues from fixed-fee arrangements; time-and-expense arrangements; and software support, maintenance and subscription arrangements represented 25.4%, 62.3%, and 12.3% of this segment’s revenues, respectively. Revenues from fixed-fee arrangements; time-and-expense arrangements; performance-based arrangements; and software support, maintenance and subscription arrangements represented 20.1%, 69.6%, 0.3%, and 10.0% of this segment's revenues, respectively, in 2020.
Of the overall $13.1 million increase in revenues, $7.3 million was attributable to our full-time equivalents and $5.8 million was attributable to our billable consultants. The increase in revenues from our full-time equivalents was primarily driven by an increase in software subscriptions, software support and maintenance, and data hosting revenues, partially offset by a decreased use of contractors and project consultants. The overall increase in full-time equivalent revenues reflected an increase in revenue per full-time equivalent in 2021 compared to $3.3the same prior year period. The increase in revenues from our billable consultants reflected increases in the consultant utilization rate, average billing rate, and the average number of billable consultants in 2021 compared to 2020.
Operating Income
Education segment operating income increased $5.3 million, or 11.1%, to $52.8 million for the year ended December 31, 2015. The $9.6 million of restructuring charges in 2016 primarily consisted of $7.3 million related to workforce reductions, of which $5.8 million related to our Healthcare segment and $0.6 million related to our Business Advisory segment, both to better align resources with market demand, and $0.9 million related to our corporate operations primarily to adjust our infrastructure to align with our Legal divestiture. The $9.6 million of restructuring charges also included $1.5 million related to updated lease accrual assumptions, primarily for our Washington, D.C. space vacated in the fourth quarter of 2014, and $0.3 million related to the wind down of our foreign operations based in the Middle East. The charges in 2015 consisted of $2.8 million related to workforce reductions to better align our resources with market demand and $0.5 million related to office exit costs primarily related to updated assumptions for the lease accrual of the Washington, D.C. space vacated in the fourth quarter of 2014. Of the overall $3.3 million pretax charge for 2015, $1.2 million related to our Healthcare segment, $1.1 million related to our All Other segment as we wound down our public sector consulting practice and our foreign consulting operations based in the Middle East, and $1.0 million related to our corporate operations. See Note 10 “Restructuring Charges” within the notes to our consolidated financial statements for further discussion of our restructuring expenses.
Litigation and other gains, net totaled $2.02021, from $47.5 million for the year ended December 31, 2016, compared2020. The Education segment operating margin increased to $9.5 million22.3% for the year ended December 31, 2015. The total gain of $2.0 million in 2016 represented net remeasurement gains related to changes in the fair value of contingent consideration liabilities incurred in connection with business acquisitions. The total gain of $9.5 million in 2015 consisted of a $9.2 million net gain2021 from litigation settlements and a $0.3 million remeasurement gain related to a decrease in the fair value of a contingent consideration liability incurred in connection with a business acquisition. During the fourth quarter of 2015, we settled two lawsuits brought by Huron, resulting in a gain of $10.0 million being recorded. We collected the $10.0 million in January 2016. During the second quarter of 2015, we recorded a net litigation accrual of $0.8 million related to the settlement of a legal claim.
Depreciation and amortization expense increased $6.4 million, or 25.3%, to $31.5 million21.3% for the year ended December 31, 2016, from $25.1 million for the year ended December 31, 2015.2020. The increase was primarily attributable to amortization expense for intangible assets acquired in the Studer Group acquisition, as well as amortization expense for intangible assets acquired in the Cloud62, ADI Strategies, and HSM Consulting acquisitions. Intangible asset amortization included within operating expenses primarily relates to customer relationships, non-competition agreements, and trade names acquired in connection with our business acquisitions.
Operating Income
Operating income decreased $29.3 million, or 28.3%, to $74.2 million for the year ended December 31, 2016, from $103.5 million for the year ended December 31, 2015. Operating margin, which is defined as operating income expressed as a percentage of revenues, decreased to 10.2% in 2016 compared to 14.8% in 2015. The decrease inthis segment's operating margin was primarily attributable to revenue growth that outpaced the increase in salaries and related expenses for our revenue-generating professionals, as well as a percentage of revenues, the decrease in litigation and other gains, net, andrestructuring charges. These increases to the increase in restructuring charges as a percentage of revenues,operating margin were partially offset by the decreaseincreases in share-based compensationperformance bonus expense for our revenue-generating professionals in 2016 compared to 2015.
Other Expense, Net
Total other expense, net decreased $4.9 million to $15.1 million for the year ended December 31, 2016, from $19.9 million for the year ended December 31, 2015. The decrease was primarily attributable to a $1.9 million decrease in interest expense, net, a $1.7 million decrease in foreign currency transaction losses, and a $1.2 million gain during 2016 from an increase in the market value of our investments that are used to fund our deferred compensation liability compared to a $0.2 million loss during 2015. The decrease in interest expense was due to lower levels of borrowings under our credit facility during 2016 compared to 2015.
Income Tax Expense
For the year ended December 31, 2016, our effective tax rate was 33.3% as we recognized income tax expense from continuing operations of $19.7 million on income from continuing operations of $59.2 million. For the year ended December 31, 2015, our effective tax rate was 25.9% as we recognized income tax expense from continuing operations of $21.7 million on income from continuing operations of $83.6 million. Our effective tax rate for 2016 was lower than the statutory rate, inclusive of state income taxes, primarily due to valuation allowance reductions, certain credits and deductions, non-taxable income, and a discrete tax benefit related to share-based compensation, partially offset by non-deductible business expenses. In 2016, we released certain valuation allowances primarily related to foreign tax credits, as we expect to have sufficient foreign source income to utilize these credits before their expiration. Our effective tax rate for 2015 was lower than the statutory rate, inclusive of state income taxes, primarily due to the impact of a tax election made in the fourth quarter of 2015 to classify two of our wholly-owned foreign subsidiaries as disregarded entities for U.S. federal income tax purposes (commonly referred to as a “check-the-box” election). As a result of this election, we realized an income tax benefit of $13.0 million, of which $0.7 million is unrecognized, resulting in a net recognized tax benefit of $12.3 million. See Note 16 "Income Taxes" within the notes to our consolidated financial statements for additional information related to our income tax expense.
Net Income from Continuing Operations
Net income from continuing operations was $39.5 million for the year ended December 31, 2016, compared to $61.9 million for the year ended December 31, 2015. The $22.4 million decrease in net income from continuing operations was primarily due to the decrease in operating income, partially offset by the decrease in other expense, net, as discussed above. As a result of the decrease in net income from continuing operations, partially offset by the reduction in diluted shares outstanding due to the share repurchases in the fourth quarter of 2015 and first quarter of 2016, diluted earnings per share from continuing operations for the year ended December 31, 2016 was $1.84 compared to $2.74 for 2015.
Discontinued Operations
Net loss from discontinued operations for the year ended December 31, 2016 was $1.9 million and primarily related to obligations for former employees, legal fees, and updated lease assumptions for vacated office space directly related to the sale of the Legal segment. Net loss from discontinued operations for the year ended December 31, 2015 was $2.8 million. See Note 3 "Discontinued Operations" within the notes to our consolidated financial statements for additional information about our discontinued operations.
EBITDA and Adjusted EBITDA
EBITDA decreased $21.6 million, or 15.0%, to $122.1 million for the year ended December 31, 2016, from $143.6 million for the year ended December 31, 2015. Adjusted EBITDA decreased $9.5 million, or 6.8%, to $129.7 million in 2016 from $139.1 million in 2015. The decrease in EBITDA was primarily due to the decrease in segment operating income, as discussed below in Segment Results, and the decrease in litigationsigning, retention and other gains. The decrease in Adjusted EBITDA was primarily due to the decrease in segment operating income, exclusive of restructuring charges.
Adjusted Net Income from Continuing Operations
Adjusted net income from continuing operations increased $1.2 million, or 1.8%, to $68.7 million for the year ended December 31, 2016, compared to $67.6 million for the year ended December 31, 2015. As a result of the increase in adjusted net income from continuing operations, coupled with the reduction in diluted shares outstanding due to the share repurchases in the fourth quarter of 2015 and first quarter of 2016, adjusted diluted earnings per share from continuing operations for 2016 was $3.21, compared to $2.99 for 2015.
Segment Results
Healthcare
Revenues
Healthcare segment revenues decreased $22.0 million, or 4.9%, to $424.9 million for the year ended December 31, 2016, from $446.9 million for the year ended December 31, 2015. Revenues for 2016 included $10.3 million from our acquisitions of MyRounding and HSM Consulting, both of which were completed during 2016, and $10.7 million of incremental revenues due to the full year impact in 2016 of our acquisition of Studer Group, which was completed mid-first quarter 2015.
For the year ended December 31, 2016, revenues from fixed-fee engagements, time-and-expense engagements, performance-based arrangements, and software support and maintenance and subscription arrangements represented 68.9%, 11.6%, 13.5%, and 6.0% of this segment’s revenues, respectively, compared to 75.7%, 7.2%, 11.7%, and 5.4%, respectively, in 2015.
Of the overall $22.0 million decrease in revenues, $39.2 million was attributable to a decrease in revenue from our full-time billable consultants, partially offset by a $17.2 million increase in revenue generated by our full-time equivalents.
The decrease in revenue attributable to our full-time billable consultants reflected decreases in the average number of full-time billable consultants, the average billing rate, and consultant utilization rate. This decrease in revenue was largely driven by a decrease in revenue in our revenue cycle and cost and clinical solutions compared to the prior year. Performance-based fee revenue was $57.2 million in 2016 compared to $52.3 million in 2015. Performance-based fee arrangements may cause significant variations in revenues, operating results, and average billing rates due to our level of execution and the timing of achievement of the performance-based criteria.
The increase in full-time equivalent revenues was primarily attributable to the full period impact of our acquisition of Studer Group, as well as overall growth of the Studer Group practice, and reflected increases in both the average number of full-time equivalents and revenue per full-time equivalent in 2016 compared to 2015.
Operating Income
Healthcare segment operating income decreased $21.7 million, or 12.8%, to $147.9 million for the year ended December 31, 2016, from $169.6 million for the year ended December 31, 2015. The Healthcare segment operating margin, defined as segment operating income expressed as a percentage of segment revenues, decreased to 34.8% in 2016 from 37.9% in 2015. The decrease in this segment’s operating margin was primarily attributable to an increase in salaries and related expenses for our revenue-generating professionals as a percentage of revenues, as well as increases in salaries and related expenses for our support personnel and restructuring charges, partially offset by a decrease in share-based compensationbonus expense for our revenue-generating professionals, as a percentagepercentages of revenues in 2016 compared to 2015.
Education
Revenues
Education segment revenues increased $15.8 million, or 11.8%, to $149.8 million for the year ended December 31, 2016, from $134.0 million for the year ended December 31, 2015. Revenues from fixed-fee engagements, time-and-expense engagements, performance-based arrangements, and software support and maintenance and subscription arrangements represented 14.4%, 78.9%, 0.7%, and 6.0% of this segment’s revenues, respectively, during 2016, compared to 24.8%, 68.9%, 0.4%, and 5.9% of this segment's revenues, respectively, during 2015.
Of the overall $15.8 million increase in revenues, $16.8 million was attributable to an increase in revenue generated by our full-time billable consultants, partially offset by a $1.0 million decrease in revenue attributable to our full-time equivalents. The overall increase in revenues was driven by strong demand across all practices within this segment. The increase in revenues from our full-time billable consultants reflected increases in the average number of full-time billable consultants and the average billing rate, partially offset by a decrease in the consultant utilization rate in 2016 compared to 2015. The decrease in revenue from our full-time equivalents reflected decreases in the average number of full-time equivalents and revenue per full-time equivalent in 2016 compared to 2015.
Operating Income
Education segment operating income increased $6.1 million, or 18.8%, to $38.3 million for the year ended December 31, 2016, from $32.2 million for the year ended December 31, 2015. The Education segment operating margin increased to 25.6% for 2016 from 24.1% for 2015. The increase in this segment’s operating margin was primarily attributable to decreases in project costs, contractor expense, and bonus expense for our revenue-generating professionals, partially offset by an increase in salaries and related expenses for our revenue-generating professionals.
Business Advisory
Revenues
Business Advisory segment revenues increased $34.7 million, or 29.6%, to $151.5 million for the year ended December 31, 2016, from $116.9 million for the year ended December 31, 2015. Revenues for 2016 included $24.2 million from our acquisitions of ADI Strategies, which was completed during 2016, and $8.6 million of incremental revenues due to the full year impact in 2016 of our acquisitions of Cloud62 and Rittman Mead India, which were completed in 2015.
Revenues from fixed-fee engagements, time-and-expense engagements, performance-based engagements, and software support and maintenance and subscription arrangements represented 19.8%, 74.6%, 4.1%, and 1.5% of this segment's revenues, respectively, during 2016 compared to 28.2%, 64.6%, 6.9%, and 0.3%, respectively, in 2015. Performance-based fee revenue for the year ended December 31, 2016 was $6.2 million, of which $5.3 million was generated by Huron Transaction Advisory LLC, our registered broker-dealer. Performance-based fee revenue for the year ended December 31, 2015 was $8.0 million, of which $5.2 million was generated by Huron Transaction Advisory LLC. The level of performance-based fees earned may vary based on our clients’ preferences and the mix of services we provide. Performance-based fee arrangements may cause significant variations in revenues, operating results, and average billing rates due to our level of execution and the timing of achievement of the performance-based criteria.
Of the overall $34.7 million increase in revenues, $30.5 million was attributable to an increase in revenue generated by our full-time billable consultants and $4.2 million was attributable to our full-time equivalents. The increase in revenue from our full-time billable consultants reflected an increase in the average number of full-time billable consultants, partially offset by decreases in the average billing rate and consultant utilization rate in 2016 compared to 2015. The increase in the average number of full-time billable consultants was primarily the result of our acquisitions of ADI Strategies and Cloud62. The increase in revenue from our full-time equivalents reflected increases in both the average number of full-time equivalents and revenue per full-time equivalent in 2016 compared to 2015.
revenues.
Operating Income
Business Advisory segment operating income decreased by $1.9 million, or 5.9%, to $29.4 million for the year ended December 31, 2016, compared to $31.2 million for the year ended December 31, 2015. Segment operating margin decreased to 19.4% for 2016 from 26.7% for 2015. The decrease in this segment’s operating margin was primarily attributable to increases in salaries and related expenses for our revenue-generating professionals as a percentage of revenues, as well as increases in contractor expenses and intangible asset amortization expense as a percentage of revenues. These decreases in margin were partially offset by revenue growth that outpaced the increase in performance bonus expense for our revenue-generating professionals. The overall decrease in this segment's operating margin reflects an increase in the Enterprise Solutions and Analytics practice revenue as a percentage of this segment's total revenue, as the recent growth of this practice, which has lower operating margins, outpaced the growth of the legacy Business Advisory and Life Sciences practices.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $16.9$20.8 million, $17.0$67.2 million, and $58.4$11.6 million at December 31, 2017, 2016,2021, 2020, and 2015,2019, respectively. As of December 31, 2017,2021, 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, | Cash Flows (in thousands): | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2021 | | 2020 | | 2019 |
| Net cash provided by operating activities | | $ | 99,795 |
| | $ | 129,243 |
| | $ | 167,855 |
| Net cash provided by operating activities | | $ | 17,987 | | | $ | 136,738 | | | $ | 132,220 | |
| Net cash used in investing activities | | (128,948 | ) | | (86,636 | ) | | (272,158 | ) | Net cash used in investing activities | | (20,143) | | | (42,034) | | | (35,002) | |
| Net cash provided by (used in) financing activities | | 28,821 |
| | (84,095 | ) | | (93,543 | ) | |
| Net cash used in financing activities | | Net cash used in financing activities | | (44,410) | | | (39,615) | | | (118,836) | |
| Effect of exchange rate changes on cash | | 214 |
| | 78 |
| | (589 | ) | Effect of exchange rate changes on cash | | 170 | | | 484 | | | 115 | |
| Net decrease in cash and cash equivalents | | $ | (118 | ) | | $ | (41,410 | ) | | $ | (198,435 | ) | |
| Net increase (decrease) in cash and cash equivalents | | Net increase (decrease) in cash and cash equivalents | | $ | (46,396) | | | $ | 55,573 | | | $ | (21,503) | |
Operating Activities
Net cash provided by operating activities totaled $99.8 million, $129.2 million, and $167.9 million for the years ended December 31, 2017, 2016, and 2015, respectively. 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. See Note 5 "Leases" within the notes to our consolidated financial statements for information on our contractual obligations related to our office space leases.
Net cash provided by operating activities decreased $118.8 million to $18.0 million in 2021 from $136.7 million in 2020. The decrease in net cash provided by operationsoperating activities in 20172021 compared to 20162020 was primarily attributable to lower net income, the collection of a $10.0 million settlement receivable in the first quarter of 2016, and a decrease in cash collections from clients, partially offset by decreased vendor and tax payments in 20172021 compared to 2016.
The decreasethe prior year, increases in payments for salaries and related expenses for our employees and the $12.2 million payment in the third quarter of 2021 of the employer's portion of social security taxes deferred from 2020, as provided for under the CARES Act. These decreases to net operating cash provided by operations in 2016 compared to 2015 was primarily attributable to lower net income, a decrease in cash collections from clients, and an increase in accounts payable payments to vendors, largelyflows were partially offset by a decrease in the amount paid for annual performance bonuses duringin the first quarter of 20162021 compared to the first quarter of 2015 and the collection of a settlement receivable in the first quarter of 2016.2020.
Investing Activities
Net cash used inOur investing activities was $128.9 million, $86.6 million, and $272.2 million for the years ended December 31, 2017, 2016, and 2015, respectively.
The useprimarily consist of cash in 2017 primarily consisted of $106.9 million for purchases of businesses and $24.4 million forcomplementary businesses; purchases of property and equipment, primarily related to computers and related equipment for our employees and leasehold improvements and purchase of furniture for office spaces; payments related to internally developed cloud-based software sold to our clients; and fixtures for new office spacesinvestments. Our investments include a convertible note investment in certain locations.Shorelight Holdings, LLC, a preferred stock investment in Medically Home Group, Inc., and investments in life insurance policies that are used to fund our deferred compensation liability.
The use of cash in 20162021 primarily consisted of $69.1$44.8 million for the purchases of businesses and $13.9businesses; $10.9 million for purchases of property and equipment.equipment; $4.9 million for payments related to internally developed software; and $1.2 million for contributions to our life insurance policies. These uses of cash from investing activities were partially offset by $41.3 million of cash received for the sale of the Life Sciences business within the Business Advisory segment in the fourth quarter of 2021.
The use of cash in 20152020 primarily consisted of $340.0$13.0 million for the purchase of an additional convertible debt investment in Shorelight
Holdings, LLC in the first quarter of 2020; $8.7 million for the purchases of businesses $18.6in the second half of 2020; $8.3 million for payments related to internally developed software; $8.1 million for purchases of property and equipment, and $15.4equipment; $2.5 million for the purchase of convertible debt investments in Shorelight Holdings, LLC (“Shorelight”). The use of cash in 2015 was partially offset by the net proceeds received of $108.5contributions to our life insurance policies; and $1.5 million for payments related to the saledivestiture of the Huron Legal segment in December 2015. See Note 3 "Discontinued Operations"our U.K. life sciences drug safety practice within the notes to our consolidated financial statements for information about the sale of the Huron LegalBusiness Advisory segment.
We estimate that cash utilized for purchases of property and equipment and software development in 20182022 will betotal approximately $15$20 million to $25 million; primarily consisting of software development costs, leasehold improvements and furniture and fixtures for certain office locations, and information technology related equipment to support our corporate infrastructure, software development costs, and leasehold improvements.infrastructure.
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.
Net cash provided byused in financing activities was $28.8increased by $4.8 million for the year ended December 31, 2017. to $44.4 million in 2021 from $39.6 million in 2020.
During 2017,2021, we borrowed $277.5$235.0 million under our senior secured credit facility, primarily to fund our acquisitions of Innosight and Pope Woodhead andoperations, including our annual performance bonus payment in the first quarter of 2021 and for the acquisitions completed in the fourth quarter of 2021. We made repayments on our credit facility of $240.7 million.
Net cash used in financing activities was $84.1$205.0 million for the year ended December 31, 2016. During 2016,during 2021. Additionally, we borrowed $200.0 million under our credit facility, primarily to fund the acquisitions of HSM Consulting and ADI Strategies and our annual performance bonus payment, and we made repayments on our credit facility of $224.0 million. We also repurchased and retired $55.3$64.6 million of our common stock under our 2020 Share Repurchase Program, as discussed below.
Net cash used in financing activitiesdefined below, and repurchased and retired $0.2 million of our common stock that was $93.5 million for the year endedaccrued as of December 31, 2015. 2021. We also reacquired $10.1 million of common stock as a result of tax withholdings upon vesting of share-based compensation.
During 2015,2020, we borrowed $314.0$283.0 million under our senior secured credit facility, all of which was in the first quarter of 2020, including $102.0$125.0 million forin March 2020 to maintain excess cash and support liquidity during the Studer Group acquisition,period of uncertainty created by the COVID-19 pandemic, as well as to fund our annual performance bonus payment. During 2020, we made repayments on our senior secured credit facility of $365.8$288.0 million due to our ability to maintain adequate cash flows from operations and improved clarity around access to capital resources during the COVID-19 pandemic, and repayments of $0.6 million on our promissory note due 2024. Additionally, we repurchased and retired $34.6$25.9 million of our common stock under our Share Repurchase Program.share repurchase programs, discussed below, and settled $1.2 million of share repurchases that were accrued as of December 31, 2019. We also reacquired $7.9 million of common stock as a result of tax withholdings upon vesting of share-based compensation.
Share Repurchase ProgramPrograms
We currently haveIn November 2020, our board of directors authorized a share repurchase program (the “2020 Share Repurchase Program”) permitting us to repurchase up to $50 million of our common stock through December 31, 2021. The 2020 Share Repurchase Program was authorized subsequent to the expiration of our prior share repurchase program (the “2015 Share Repurchase Program”) on October 31, 2020. The 2015 Share Repurchase Program permitted us to repurchase up to $125 million of our common stock through October 31, 2018 (the "Share2020. During the third quarter of 2021, our board of directors authorized an extension of the 2020 Share Repurchase Program"). TheProgram through December 31, 2022 and increased the authorized amount from $50 million to $100 million.The amount and timing of the repurchases will beunder our share repurchase programs is determined by management and will dependdepends 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. In 2015, we repurchased and retired 583,880 shares for $34.6 million, and in 2016, we repurchased and retired 982,192 shares for $55.3 million. No shares were repurchased under this program in 2017. As of December 31, 2017, $35.12021, $30.2 million remains available under the plan for share repurchases.
Financing Arrangements
At December 31, 2017,2021, we had $250 million principal amount of our 1.25% convertible senior notes outstanding, $105.0$230.0 million outstanding under our senior secured credit facility and $4.9$2.8 million outstanding under a promissory note, as discussed below.
1.25% Convertible Senior Notes
In September 2014, we issued $250.0 million principal amount of the Convertible Notes in a private offering. The Convertible Notes are senior unsecured obligations of the Company and will pay interest semi-annually on April 1 and October 1 of each year at an annual rate of 1.25%. The Convertible Notes will mature on October 1, 2019, unless earlier repurchased by the Company or converted in accordance with their terms.
Upon conversion, the Convertible Notes will be settled, at our election, in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. Our current intent and policy is to settle conversions with a combination of cash and shares of common stock with the principal amount of the Convertible Notes paid in cash, in accordance with the settlement provisions of the Indenture.
The initial conversion rate for the Convertible Notes is 12.5170 shares of our common stock per $1,000 principal amount of the Convertible Notes, which is equal to an initial conversion price of approximately $79.89 per share of our common stock.
In connection with the issuance of the Convertible Notes, we entered into convertible note hedge transactions and warrant transactions. The convertible note hedge transactions are intended to reduce the potential future economic dilution associated with the conversion of the Convertible Notes and, combined with the warrants, effectively raise the price at which economic dilution would occur from the initial conversion price of approximately $79.89 to approximately $97.12 per share.
For further information, see Note 7 “Financing Arrangements” within the notes to our consolidated financial statements. For a discussion of certain risks and uncertainties related to the Convertible Notes, see Part I—Item 1A. "Risk Factors.”
Senior Secured Credit Facility
The Company has a $500$600 million senior secured revolving credit facility, subject to the terms of a Second Amended and Restated Credit Agreement dated as of March 31, 2015, as amended to date (as amended and modified the "Amended Credit Facility"Agreement"), that becomes due and payable in full upon maturity on March 31, 2020.September 27, 2024. The Amended Credit Agreement provides the option to increase the revolving credit facility or establish term loan facilities in an aggregate amount of up to $100$150 million, subject to customary conditions and the approval of any lender whose commitment would be increased, resulting in a maximum available principal amount under the Amended Credit Agreement of
$600 $750 million. The initial borrowings under the Amended Credit Agreement were used to refinance borrowings outstanding under a prior credit agreement, and future borrowingsBorrowings under the Amended Credit Agreement may be used for working capital, capital expenditures, acquisitions of businesses, share repurchases, and general corporate purposes.
Fees and interest on borrowings vary based on our Consolidated Leverage Ratio (as defined in the Amended Credit Agreement). At our option, borrowings under the Amended Credit Agreement will bear interest at one, two, three or six-month LIBOR or an alternate base rate, in each case plus the applicable margin. The applicable margin will fluctuate between 1.25%1.125% per annum and 2.00%1.875% per annum, in the case of LIBOR borrowings, or between 0.25%0.125% per annum and 1.00%0.875% per annum, in the case of base rate loans, based upon our Consolidated Leverage Ratio at such time. Fees and interest on borrowings is paid on a monthly basis.
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 a requirement to pay all amounts outstanding 90 days prior to the Convertible Indebtedness Maturity Date (as defined in the Amended Credit Agreement) unless (1) the Convertible Indebtedness Maturity Date is waived or extended to a later date, (2) the Company can demonstrate (a) Liquidity (as defined in the Amended Credit Agreement) in an amount at least equal to the principal amount due on the Convertible Indebtedness Maturity Date, and (b) financial covenant compliance after giving effect to such payments and any additional indebtedness incurred on a pro forma basis, or (3) this requirement is waived by the Required Lenders (as defined in the Amended Credit Agreement).circumstances. 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) ranging from 3.25of 3.75 to 1.00; however, the maximum permitted Consolidated Leverage Ratio will increase to 4.00 to 1.00 to 3.75 to 1.00, depending onupon the measurement period,occurrence of certain Qualified Acquisitions (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 3.50 to 1.00. Consolidated EBITDA for purposes of the financial covenants is calculated on a continuing operations basis and includes adjustments to add back among other items, share-based compensation costs, non-cash goodwill impairment charges, share-based compensation costs, certain non-cash restructuring charges, and pro forma historical EBITDA for businesses acquired.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, 2017,2021 and December 31, 2020, we were in compliance with these financial covenants with acovenants. Our Consolidated Leverage Ratio as of 3.02December 31, 2021 was 1.73 to 1.00, and acompared to 1.94 to 1.00 as of December 31, 2020. Our Consolidated Interest Coverage Ratio as of 12.43December 31, 2021 was 18.43 to 1.00.1.00, compared to 12.51 to 1.00 as of December 31, 2020.
The Amended Credit Agreement contains restricted payment provisions, including a potential limit on the amount of dividends and share repurchases we may make.pay. Pursuant to the terms of the Amended Credit Agreement, if our Consolidated Leverage Ratio is greater than 3.00,3.25, the amount of dividends share repurchases, and other Restricted Payments (as defined in the Amended Credit Agreement) we may makepay is limited to an amount up to $50 million plus 50% of cumulative consolidated net income (as defined in the Amended Credit Agreement) from the closing date of the Amended Credit Agreement plus 50% of the net cash proceeds from equity issuances after the closing date of the Amended Credit Agreement.$25 million.
BorrowingsPrincipal borrowings outstanding under the Amended Credit Agreement at December 31, 20172021 and December 31, 2020 totaled $105.0 million.$230.0 million and $200.0 million, respectively. These borrowings carried a weighted average interest rate of 3.7%,2.7% at December 31, 2021 and 2.5% at December 31, 2020 including the impact of the interest rate swap in effect as of December 31, 2017 and described in Note 1112 “Derivative Instruments and Hedging Activity" within the notes to the consolidated financial statements. Borrowings outstanding under the Amended Credit Agreement at December 31, 2016 were $68.0 million and carried a weighted average interest rate of 2.5%, including the impact of the interest rate swap in effect as of December 31, 2016. The borrowing capacity under the revolving credit facility is reduced by any outstanding borrowings under the revolving credit facility and outstanding letters of credit. At December 31, 2017,2021 and 2020, we had outstanding letters of credit totaling $1.9$0.7 million and $1.6 million, respectively, which are primarily used as security deposits for our office facilities. As of December 31, 2017,facilities, and the unused borrowing capacity under the revolving credit facility was $393.1 million.$369.3 million and $398.4 million, respectively.
For further information, see Note7 “Financing Arrangements” within the notes to the consolidated financial statements. For a discussion of certain risks and uncertainties related to the Amended Credit Facility,Agreement, see Part I—Item 1A. "Risk“Risk Factors.”
Promissory Note due 2024
On June 30, 2017, in conjunction with our purchase of an aircraft related to the acquisition of Innosight, we assumed, from the sellers of the aircraft, a promissory note with an outstanding principal balance of $5.1 million. The principal balance of the promissory note is subject to scheduled monthly principal payments until the maturity date of March 1, 2024, at which time a final payment of $1.5 million, plus any accrued and unpaid interest, will be due. Under the terms of the promissory note, we will pay interest on the outstanding principal amount at a rate of one-month LIBOR plus 1.97% per annum. The obligations under the promissory note are secured pursuant to a Loan and Aircraft Security Agreement with Banc of America Leasing & Capital, LLC, which grants the lender a first priority security interest in the aircraft. At December 31, 2017,2021, the outstanding principal amount of the promissory note was $4.9 million. As of December 31, 2017,$2.8 million, and the aircraft had a carrying amount of $6.5$3.7 million. At December 31, 2020, the outstanding principal amount of the promissory note was $3.3 million, and the aircraft had a carrying amount of $4.4 million. Principal and interest payments for the promissory note are paid on a monthly basis. In the first quarter of 2022, we completed the sale of the aircraft to a third-party and used a portion of the sale proceeds to pay the remaining principal and unpaid interest on the promissory note. As a result of the sale, we no longer own any aircraft.
For further information, see Note 7 “Financing Arrangements” within the notes to the consolidated financial statements.
Future Needs
OurThroughout 2020 and into 2021, our primary financing need was to support our operations and maintain our liquidity during the COVID-19 pandemic. As such, we took proactive measures to increase available cash on hand, including, but not limited to, borrowing under our senior secured credit facility, reducing discretionary operating and capital expenses, and electing to defer the deposit of our employer portion of social security taxes as provided for under the CARES Act.
Given improved visibility to our project backlog and access to capital resources, our primary financing need has beennow returned to fundfunding 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 revolving credit facility and access to external capital resources will be adequate to fundsupport our current financing needs and long-term growth and capital needs arising from cash commitments and debt service obligations.strategy. Our ability to secure short-term and long-termadditional financing, if needed, in the future 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.
CONTRACTUAL OBLIGATIONS
The following table represents our significant obligations and commitments as of December 31, 2017 and the scheduled years of payments (in thousands).
|
| | | | | | | | | | | | | | | | | | | |
| | | | Payments Due by Period |
| | Total | | Less than 1 Year | | 1-3 Years | | 3-5 Years | | More than 5 Years |
Convertible senior notes—principal and interest (1) | $ | 256,250 |
| | $ | 3,125 |
| | $ | 253,125 |
| | $ | — |
| | $ | — |
|
Long-term bank borrowings—principal and interest (2) | 113,335 |
| | 3,704 |
| | 109,631 |
| | — |
| | — |
|
Promissory note—principal and interest (3) | 5,548 |
| | 656 |
| | 1,302 |
| | 1,290 |
| | 2,300 |
|
Operating lease obligations (4) | 99,960 |
| | 14,739 |
| | 25,710 |
| | 21,707 |
| | 37,804 |
|
Contingent consideration (5) | 22,828 |
| | 8,515 |
| | 12,513 |
| | 1,800 |
| | — |
|
Purchase obligations (6) | 12,533 |
| | 10,442 |
| | 2,091 |
| | — |
| | — |
|
Transition tax on accumulated foreign earnings (7) | 604 |
| | 48 |
| | 97 |
| | 97 |
| | 362 |
|
Deferred compensation (8) | 17,678 |
| | | | | | | | |
Uncertain tax positions (9) | 813 |
| | | | | | | | |
| Total contractual obligations | $ | 529,549 |
| | $ | 41,229 |
| | $ | 404,469 |
| | $ | 24,894 |
| | $ | 40,466 |
|
| |
(1) | In September 2014, we issued $250 million principal of 1.25% convertible senior notes due 2019. We will pay cash interest on the outstanding notes at an annual rate of 1.25% semi-annually on April 1 and October 1 of each year until October 1, 2019, at which time we will repay any accrued and unpaid interest and the principal amount of all outstanding notes. |
| |
(2) | The interest payments on long-term bank borrowings are estimated based on the principal amount outstanding and the interest rate in effect as of December 31, 2017. Actual future interest payments will differ due to changes in our borrowings outstanding and the interest rate on those borrowings, as the interest rate varies based on the fluctuations in the variable base rates and the spread we pay over those base rates pursuant to the Amended Credit Agreement. Refer to “Liquidity and Capital Resources” and Note 7 “Financing Arrangements” within the notes to our consolidated financial statements for more information on our outstanding borrowings. |
| |
(3) | The interest payments on the promissory note are estimated based on the principal amount outstanding, scheduled principal payments, and the interest rate in effect as of December 31, 2017. Actual future interest payments may differ due to changes in the principal amount outstanding and the interest rate on that principal amount, as the interest rate varies based on the fluctuations in the one-month LIBOR rate. Refer to “Liquidity and Capital Resources” and Note 7 “Financing Arrangements” within the notes to our consolidated financial statements for more information on the promissory note. |
| |
(4) | We lease our facilities under operating lease arrangements expiring on various dates through 2028, with various renewal options. We lease office facilities under non-cancelable operating leases that include fixed or minimum payments plus, in some cases, scheduled base rent increases over the term of the lease. |
| |
(5) | In connection with certain business acquisitions, we may be required to pay post-closing consideration to the sellers if specific financial performance targets are met over a number of years as specified in the related purchase agreements. As of December 31, 2017, the estimated fair value of the contingent consideration liability was $22.8 million. The maximum amount that may be paid under contingent consideration liabilities existing as of December 31, 2017 is $56.2 million. |
| |
(6) | Purchase obligations include agreements to purchase goods or services that are enforceable, are legally binding, and specify all significant terms, including fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximate timing of the transaction. Purchase obligations do not include agreements that are cancelable without penalty. |
| |
(7) | As a result of the 2017 Tax Reform, we are required to pay a one-time transition tax on our accumulated foreign earnings as of December 31, 2017, which were primarily generated by our operations in Canada. We have the option to pay this liability in installments over the next eight years as reflected in the table above, and the payments may be offset with certain foreign tax credits. |
| |
(8) | Included in deferred compensation and other liabilities on our consolidated balance sheet as of December 31, 2017 is a $17.7 million obligation for deferred compensation. The specific payment dates for the deferred compensation are unknown; therefore, the related balances have not been reflected in the “Payments Due by Period” section of the table. This deferred compensation liability is fully funded by corresponding deferred compensation plan assets. Refer to Note 14 “Employee Benefit and Deferred Compensation Plans” within the notes to our consolidated financial statements for more information on our deferred compensation plan. |
| |
(9) | Our liabilities for uncertain tax positions are classified as non-current. We are unable to reasonably estimate the timing of future payments as it depends on examinations by taxing authorities; as such, the related balance has not been reflected in the “Payments Due by Period” section of the table. |
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 areis 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,”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
Revenue is recognized when persuasive evidence of an arrangement exists, the related services are provided, the price is fixed or determinable, and collectability is reasonably assured. 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 (including software license revenue), time-and-expense, performance-based,; time-and-expense; performance-based; and software support, and maintenance and subscriptions. Determining the method and amount of revenue to recognize requires us to make judgments and estimates. 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 adjustments 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, as well as reimbursable expenses, we must make additional judgments and estimates as further described below.
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. 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. Contracts within our Studer Group solution are fixed-fee partner contracts with multiple deliverables, which primarily consist of coaching services, as well as seminars, materials and software products (“Partner Contracts”). Revenues for coaching services and software products are generally recognized on a straight-line basis over the length of the contract. All other revenues under Partner Contracts are recognized at the time the service is provided. Estimates of total engagement revenues and cost of services are monitored regularly during the term of the engagement. If our estimates indicate a potential loss, such loss is recognizedAny increased or unexpected costs or unanticipated delays in connection with the period in which the loss first becomes probable and reasonably estimable.
We also generate revenues from software licenses for our revenue cycle management software and research administration and compliance software. Licenses for our revenue cycle management software are sold only as a componentperformance of our consulting projects, and the services we provide are essential to the functionality of the software. Therefore, revenues from these software licenses are recognized over the term of the related consulting services contract. License revenue from our research administration and compliance software is generally recognized in the month in which the software is delivered.
Time-and-expense billing arrangements require the client to pay based on the number of hours worked by our revenue-generating professionals at agreed upon rates. Time-and-expense arrangements also include certain speaking engagements conferences, and publications purchased by our clients outside of Partner Contracts within our Studer Group solution. We recognize revenues under time-and-expense arrangements as the related servicescould make these contracts less profitable or publications are provided.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 have performance-based engagements in which we earn a success fee when and if certain predefined outcomes occur. We do not recognize revenuesrevenue under performance-based billing arrangements until all related performance criteriausing the following steps: 1) estimate variable consideration using a probability-weighted assessment of the fees to be earned, 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 met.
Clients that have purchased onemonitored throughout the life of each contract and are based on an assessment of our software licenses can pay an annual feeanticipated performance, historical experience, and other information available at the time. While we believe that the estimates and assumptions we used for software support and maintenance. We also generate subscription revenue from our cloud-based analytic tools and solutions. Software support and maintenance and subscription-based revenues are recognized ratably over the support or subscription period, which ranges from one to three years. These fees are billed in advance and included in deferred revenues until recognized.
We have arrangements with clients in which we provide multiple elements of services under one engagement contract. Revenues under these types ofrecognition for performance-based billing arrangements are allocated to each element based on the element’s fair value and recognized pursuant to the criteria described above.reasonable, subsequent changes could materially impact our results of operations.
Provisions are recorded for the estimated realization adjustments on all engagements, including engagements for which fees are subject to review by the bankruptcy courts. Expense reimbursements that are billable to clients are included in total revenues and reimbursable expenses, and typically an equivalentexpenses. Under fixed-fee billing arrangements, we estimate the total amount of reimbursable expenses are included in total direct coststo be incurred over the course of the engagement and reimbursable expenses. Reimbursable expenses are primarily recognizedrecognize the estimated amount as revenue inusing a proportionate performance approach, which is based on work completed to-date versus our estimates of the period in whichtotal services to be provided under the expense is incurred. Subcontractors that are billed to clients at cost are also included in reimbursable expenses.engagement. When billings do not specifically identify reimbursable expenses under any billing arrangement type, we allocate the portion of the billings equivalent to these expenses to reimbursable expenses.
Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services Any increased or deferred revenuesunexpected costs in the accompanying consolidated balance sheets. Revenues recognized for services performed but not yet billed to clients are recorded as unbilled services. Client prepayments and retainers are classified as deferred revenues and recognized over future periods as earned in accordance with the applicable engagement agreement.reimbursable expenses could impact our results of operations
Refer toSee Note 2 “Summary of Significant Accounting Policies” within the notes to the consolidated financial statements for anticipated changes toadditional information on our revenue recognition accounting policy upon adoptionpolicy.
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 the provision relates to fee adjustments and other discretionary pricing adjustments. To the extent the provision relates to a client’s inability to make required payments on accounts receivables, we record the provision to selling, general and administrative expenses.
Business Combinations
TheUpon our adoption of Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers which we retrospectively applied to all acquisitions in 2021, contract assets and contract liabilities acquired are recorded at their carrying value under Topic 606: Revenue from Contracts with Customers. Prior to adoption of ASU 2021-08, contract assets and contract liabilities were recognized at their estimated fair values as of the acquisition date. All other 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. Goodwill is recorded as the excess of the fair value of consideration transferred, including any contingent consideration, over the fairnet value of the net assets acquired.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.
See Note 4 "Acquisitions"3 “Acquisitions and Divestitures” within the notes to our consolidated financial statements for additional information regardingon our acquisitions.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 IntangiblesIntangible 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. At the timeAs of our November 30, 2017 annual goodwill impairment test,December 31, 2021, we had sixhave five reporting units with goodwill balances:units: Healthcare, Education, Business Advisory, Enterprise Solutions and Analytics, Strategy and Innovation, and Life Sciences.Enterprise Solutions and Analytics. The Business Advisory, Enterprise Solutions and Analytics, Strategy and Innovation, and Life SciencesEnterprise Solutions and Analytics reporting units, make up our Business Advisory operating segment.
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 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, a non-cash 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 have the option to bypass the qualitative assessment for any reporting unit and proceed directly to performing the quantitative goodwill impairment test.
For reporting units where we perform the quantitative test, we determine the fair value 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.
The following is a discussion of our goodwill impairment tests performed during 2017.
Second Quarter 2017 Goodwill Reallocation
In the second quarter of 2017, we reorganized our internal financial reporting structure, which management uses to assess performance and allocate resources, by moving our Life Sciences practice from the Education and Life Sciences reporting unit and segment to its own reporting unit within the Business Advisory segment. The remaining Education and Life Sciences segment is now referred to as the Education segment.
As a result of the reorganization, we reallocated $10.8 million of the goodwill balance associated with the previous Education and Life Sciences reporting unit to the new Life Sciences reporting unit based on the relative fair values of the Life Sciences reporting unit and the remaining Education reporting unit. The estimated fair values were determined using a combination of the income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting.
In conjunction with the goodwill reallocation, we performed a goodwill impairment test for the goodwill balances within our Education reporting unit and Life Sciences reporting unit as of June 1, 2017. Based on the results of the goodwill impairment test, we determined that the fair values of our Education reporting unit and Life Sciences reporting unit exceeded their carrying values. As such, we concluded there was no indication of goodwill impairment for either reporting unit at that time.
Second Quarter 2017 Goodwill Impairment Analysis
During the second quarter of 2017, we performed a goodwill impairment analysis for our Healthcare reporting unit as our Healthcare business had experienced a prolonged period of declining revenues, primarily driven by softness in our revenue cycle offering within our performance improvement solution. This softness was attributable to decreased demand for our services, the winding down of some of our larger projects, and a trend toward smaller projects, as well as fewer large integrated projects. In light of these challenges, several initiatives have been undertaken to improve the segment's financial performance, including repositioning our solutions to address the most critical needs of our clients, the expansion of our existing services such as those in our Studer Group, strategy, physician and technology offerings, and workforce reductions to better align resources with market demand. While the initiatives undertaken to improve the financial performance of our Healthcare segment began yielding some positive impacts, hospitals and health systems continued to face regulatory and funding uncertainty; therefore, we remained cautious about near-term growth. As we had previously disclosed in prior quarters, if the financial performance of our Healthcare segment continued to decline and did not meet our expectations, we could be required to perform an interim impairment analysis with respect to our carrying value of goodwill for the Healthcare reporting unit prior to our usual annual test. Based on forecasts prepared in the second quarter of 2017 in connection with our quarterly forecasting cycle, we determined that the likely time frame to improve the financial results of this segment would take longer than originally anticipated. As such, we concluded, during the second quarter of 2017, that the fair value of the Healthcare reporting unit may have no longer exceeded its carrying value. In connection with the preparation of our financial statements for the quarter ended June 30, 2017, we performed an interim impairment test on the Healthcare reporting unit.
Our interim goodwill impairment test indicated that the fair value of the Healthcare reporting was lower than its carrying value, which resulted in an impairment charge for the difference. To estimate the fair value of the Healthcare reporting unit, we relied on a combination of the income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting. Based on the estimated fair value of the Healthcare reporting unit, we recorded a $208.1 million non-cash pretax goodwill impairment charge to reduce the carrying value of goodwill in our Healthcare reporting unit. Refer to Note 5 “Goodwill and Intangible Assets" within the notes to the consolidated financial statements for additional information on our interim goodwill impairment analysis.
2017 Annual Goodwill Impairment Analysis
Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2017 on our six reporting units with goodwill balances: Healthcare, Education, Business Advisory, Enterprise Solutions and Analytics, Strategy and Innovation, and Life Sciences. We elected to bypass the qualitative assessment and proceeded directly to the quantitative goodwill impairment test.
For each reporting unit, we reviewed goodwill for impairment by comparing the fair value of the reporting unit to its carrying value, including goodwill. In estimating the fair value of each reporting unit, we relied on a combination of the income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting. Based on the results of the goodwill impairment test, we determined that the fair value of the Healthcare, Education, Business Advisory, Strategy and Innovation, and Life Sciences reporting units exceeded their carrying value by 40%, 120%, 115%, 33%, and 14%, respectively. As such, we concluded that there was no indication of goodwill impairment for these five reporting units. However, the results of the quantitative impairment test indicated that the fair value of the Enterprise Solutions and Analytics reporting unit did not exceed its carrying value. Based on the estimated fair value of the Enterprise Solutions and Analytics reporting unit, we recorded a $45.0 million non-cash pretax charge to reduce the carrying value of this reporting unit's goodwill to zero.
Our Enterprise Solutions and Analytics reporting unit was established with the acquisition of Blue Stone International, LLC in 2013. Since that time, we completed five additional business acquisitions within the reporting unit, most recently the acquisitions of the U.S. assets and international assets of ADI Strategies in May 2016 and April 2017, respectively. We record the assets acquired and liabilities assumed in business combinations, including identifiable intangible assets, at their estimated fair values as of the acquisition date, and goodwill is recorded as the excess of the fair value of consideration transferred, including any contingent consideration, over the fair value of the net assets acquired. Therefore, the initial accounting for an acquisition results in its fair value equaling its carrying value. As we have previously disclosed in prior quarters, due to this reporting unit’s relatively low headroom, in the event that the financial performance of the reporting unit did not meet our expectations during 2017, we could be required to take a non-cash impairment charge as a result of any goodwill impairment test. During the first three quarters of 2017, the performance of Enterprise Solutions and Analytics continued to reasonably meet our expectations. However, both revenues and operating margin during the fourth quarter of 2017 fell short of our expectations resulting in a reduction in workforce within the reporting unit during that quarter. Further, in connection with our annual budget process for 2018, which coincided with our annual goodwill impairment test during the fourth quarter of 2017, we determined that the reporting unit's expected future revenue growth rates and operating margin would be lower than previously anticipated for this reporting unit. As a result, our goodwill impairment test indicated that the fair value of the Enterprise Solutions and Analytics reporting unit no longer exceeded its carrying value, and we recorded a $45.0 million non-cash pretax charge to write off the entire carrying value of this reporting unit's goodwill.
In the income approach, used to calculate the fair value of all reporting units, we utilizedutilize a discounted cash flow analysis, which involves estimating the expected after-tax cash flows that will be generated by theeach reporting unit and then discounting those cash flows to present value, reflecting the relevant risks associated with theeach reporting unit and the time value of money. This approach requires the use of significant estimates and assumptions, including long-term projections of future cash flows, market conditions, taxforecasted revenue growth rates, reflecting anticipated tax reform,forecasted EBITDA margins, and discount rates reflecting the risk inherent in future cash flows for each reporting unit. In estimating future cash flows, we relied on internally generatedrates. Our forecasts for each reporting unitare based on historical experience, current backlog, expected market demand, and other industry information, and assumed a long-term annual revenue growth rate of 3.5% for all reporting units. Our discounted cash flow analysis assumed a weighted average cost of capital discount rate of 10.5% for the Healthcare, Education, and Life Sciences reporting units, 14.5% for the Business Advisory reporting unit, 13.0% for the Enterprise Solutions and Analytics reporting unit, and 15.0% for the Strategy and Innovation reporting unit.information.
In the market approach, we utilizedutilize the guideline company method, which involvedinvolves calculating valuationrevenue and 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. For each reporting unit, theseThese multiples are evaluated and adjusted based on specific characteristics of the reporting unitunits relative to the selected guideline companies and applied to the reporting unit'sunits' operating data to arrive at an indication of value.
The following is a discussion of our goodwill impairment test performed during 2021.
2021 Annual Goodwill Impairment Analysis
Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2021 for our five reporting units with goodwill balances: Healthcare, Education, Business Advisory, Strategy and Innovation, and Enterprise Solutions and Analytics. 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, 2020, 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 2021 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 considered the market-based valuation multiples used in the market approach within our prior quantitative analysis, which were derived from guideline companies, and noted that the valuation multiples generally increased over the past year. 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, 2021, and a quantitative goodwill impairment analysis was not necessary.
Determining the fair value of aany reporting unit requires us to make significant judgments, estimates, and assumptions. While we believe that the estimates and assumptions underlying our valuation methodology are reasonable, these estimates and assumptions could have a significant impact on whether or not a non-cash goodwill impairment charge is recognized and also the magnitude of any such charge. 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 continue to monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods. Any significant decline in our operations compared to our internal forecasts could result in additional non-cash goodwill impairment charges.
The Life Sciences reporting unit has also been established primarily through recent business acquisitions: The Frankel Group Associates LLC in January 2014 and Pope Woodhead in January 2017. As discussed above, goodwill is recorded for such business acquisitions as the excess of purchase price over the fair value of the tangible and identifiable intangible assets acquired and liabilities assumed, resulting in the fair value equaling the carrying value at the acquisition date. Based on the results of our annual goodwill impairment test as of November 30, 2017, the Life Sciences reporting unit's fair value exceeded its carrying value by 14%. We will monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods. In the event that the financial performance of the reporting unit does not meet our expectations during 2018, we may be required to perform an interim impairment analysis with respect to the carrying value of goodwill for this reporting unit prior to our annual test, and based on the outcome of that analysis,charges, which could be required to take a non-cash goodwill impairment charge as a result of any such test.
The table below presents, based on the goodwill impairment test performed as of November 30, 2017, the decrease in the fair value of our reporting units given a 100 basis point increase in the assumed discount rate or a 100 basis point decrease in the assumed long-term annual revenue growth rate. The table below excludes the Enterprise Solutions and Analytics reporting unit as its carrying value of goodwill was reduced to zero as a result of our 2017 annual goodwill impairment test and an increase in the assumed discount rate or a decrease in the assumed long-term growth rate would not result in a change to the non-cash impairment charge.
|
| | | | | | | | |
| | | Discount rate increased by 100 bps | | Long-term growth rate decreased by 100 bps |
| Healthcare: | | | | |
| Decrease in fair value | | $ | (46,700 | ) | | $ | (32,600 | ) |
| Percentage by which fair value exceeds carrying value | | 31 | % | | 33 | % |
| Education: | | | | |
| Decrease in fair value | | $ | (16,900 | ) | | $ | (12,600 | ) |
| Percentage by which fair value exceeds carrying value | | 106 | % | | 110 | % |
| Business Advisory: | | | | |
| Decrease in fair value | | $ | (2,200 | ) | | $ | (1,400 | ) |
| Percentage by which fair value exceeds carrying value | | 107 | % | | 110 | % |
| Strategy and Innovation: | | | | |
| Decrease in fair value | | $ | (5,500 | ) | | $ | (3,100 | ) |
| Percentage by which fair value exceeds carrying value | | 27 | % | | 30 | % |
| Life Sciences | | | | |
| Decrease in fair value | | $ | (2,100 | ) | | $ | (1,400 | ) |
| Percentage by which fair value exceeds carrying value | | 4 | % | | 7 | % |
The carrying valuesvalue of goodwill for each of our reporting units as of December 31, 2017 are2021 is as follows (in thousands):
|
| | | | |
| Reporting Unit | | Carrying Value of Goodwill |
| Healthcare | | $ | 428,729 |
|
| Education | | 102,829 |
|
| Business Advisory | | 16,094 |
|
| Enterprise Solutions and Analytics | | — |
|
| Strategy and Innovation | | 87,411 |
|
| Life Sciences | | 10,687 |
|
| Total | | $ | 645,750 |
|
| | | | | | | | |
| Reporting Unit | | Carrying Value
of Goodwill |
| Healthcare | | $ | 434,870 | |
| Education | | 121,570 | |
| Business Advisory | | 16,094 | |
| Strategy and Innovation | | 37,522 | |
| Enterprise Solutions and Analytics | | 10,823 | |
| Total | | $ | 620,879 | |
Intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill. Our intangible assets, net of accumulated amortization, totaled $72.3$31.9 million at December 31, 20172021 and primarily consist of customer relationships, trade names, customer contracts, technology and software, non-competition agreements, and publishing content,customer contracts, 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 2017.2021.
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.
SUBSEQUENT EVENT
On January 18, 2022, we completed the acquisition of AIMDATA, LLC, (“AIMDATA”), an advisory and implementation consulting services firm focused on strategy, technology and business transformation. The results of operations of AIMDATA will be included within our consolidated financial statements from the close date, and will be allocated among our three operating industries, which are our reportable segments, based on the engagements delivered by the business. AIMDATA revenues will be reported in our Digital capability. The acquisition of AIMDATA is not significant to our consolidated financial statements.
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| ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK. |
We are exposed to market risks primarily from changes in interest rates and changes in the market value of our investments.
Market Risk and Interest Rate Risk
The value of our Convertible Notes is exposed to interest rate risk. Generally, the fair value of our fixed interest rate Convertible Notes will increase as interest rates fall and decrease as interest rates rise. In addition, the fair value of our Convertible Notes is affected by our stock price. The carrying value of our Convertible Notes was $233.1 million as of December 31, 2017, which represents the liability component of the $250 million principal balance. The estimated fair value of our Convertible Notes at December 31, 2017 was $232.6 million, and was determined based on the quoted bid price of the Convertible Notes in an over-the-counter market as of the last day of trading for the year ended December 31, 2017, which was $93.031 per $100 principal amount. At December 31, 2016, the carrying value of our Convertible Notes was $224.1 million, and the estimated fair value of our Convertible Notes was $245.0 million, which was determined based on the quoted bid price of the Convertible Notes in an over-the-counter market as of the last day of trading for the year ended December 31, 2016, which was $98.007 per $100 principal amount.
Concurrent with the issuance of the Convertible Notes, we entered into separate convertible note hedge and warrant transactions. The convertible note hedge transactions are intended to reduce the potential future economic dilution associated with the conversion of the Convertible Notes and, combined with the warrants, effectively raise the price at which economic dilution would occur from the initial conversion price of approximately $79.89 to approximately $97.12 per share. Under the convertible note hedge transactions, we have the option to purchase a total of approximately 3.1 million shares of our common stock, which is the number of shares initially issuable upon conversion of the Convertible Notes in full, at a price of approximately $79.89, which corresponds to the initial conversion price of the Convertible Notes, subject to customary anti-dilution adjustments substantially similar to those in the Convertible Notes. Under the warrant transactions, the holders of the warrants have the option to purchase a total of approximately 3.1 million shares of our common stock at a price of approximately $97.12. If the average market value per share of our common stock for the reporting period exceeds the strike price of the warrants, the warrants will have a dilutive effect on our earnings per share.
We have exposure to changes in interest rates associated with borrowings under our bank credit facility, which has variable interest rates tied to LIBOR or an alternate base rate, at our option. At December 31, 2017,2021, we had borrowings outstanding under the credit facility totaling $105.0$230.0 million that carried a weighted average interest rate of 3.7%2.7% including the impact of the interest rate swapswaps described below. A hypothetical 100 basis point change in thisthe interest rate as of December 31, 2021 would have a $0.6$0.3 million effect on our pretax income on an annualized basis, including the effect of the interest rate swap.swaps. At December 31, 2016, our2020, we had borrowings outstanding under the credit facility totaled $68.0totaling $200.0 million andthat carried a weighted average interest rate of 2.5%, including the effectimpact of the interest rate swap described below. The outstanding borrowings atswaps. As of December 31, 20162020, these variable rate borrowings were fully hedged against changes in interest rates by ourthe interest rate swap,swaps, which hadhave a notional amount of $68.0 million at December 31, 2016.
On April 4, 2013, we entered into a forward amortizing interest rate swap agreement effective March 31, 2014 and ending August 31, 2017. We entered into this derivative instrument to hedge against$200.0 million. A hypothetical 100 basis point change in the interest rate risks ofwould have no impact on our variable-rate borrowings. The swap hadpretax income, on an initial notional amount of $60.0 million and amortized quarterly until April 2016. In April 2016,annualized basis, including the notional amount of this interest rate swap increased to $86.0 million and continued to amortize quarterly until it expired in August 2017. Under the termseffect of the interest rate swap agreement, we received from the counterparty interest on the notional amount based on one-month LIBOR and we paid to the counterparty a fixed rate of 0.985%.swaps.
On June 22, 2017, we entered into a forward interest rate swap agreement effective August 31, 2017 and ending August 31, 2022, with a notional amount of $50.0 million. We entered into this derivative instrument to continue to hedge against the interest rate risks of our variable-rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one-monthone month LIBOR and we pay to the counterparty a fixed rate of 1.900%.
On January 30, 2020, we entered into a forward interest rate swap agreement effective December 31, 2019 and ending December 31, 2024, with a notional amount of $50.0 million. We entered into this derivative instrument to further hedge against the interest rate risks of our
variable-rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month LIBOR and we pay to the counterparty a fixed rate of 1.500%.
On March 16, 2020, we entered into a forward interest rate swap agreement effective February 28, 2020 and ending February 28, 2025, with a notional amount of $100.0 million. We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month LIBOR and we pay to the counterparty a fixed rate of 0.885%.
We also have exposure to changes in interest rates associated with the promissory note assumed on June 30, 2017 in connection with our purchase of an aircraft, which has variable interest rates tied to LIBOR. At December 31, 2017,2021, the outstanding principal amount of the promissory note was $4.9$2.8 million and carried an interest rate of 3.2%2.1%. A hypothetical 100 basis point change in this interest rate would not have a de minimismaterial effect on our pretax income. At December 31, 2020 the outstanding principal amount of the promissory note was $3.3 million and carried an interest rate of 2.1%. A hypothetical 100 basis point change in the interest rate as of December 31, 2020 would not have had a material effect on our pretax income. In the first quarter of 2022, we completed the sale of the aircraft to a third-party and used a portion of the sale proceeds to pay the remaining principal and unpaid interest on the promissory note. As a result of the sale, we no longer own any aircraft.
2021. In March 2021, the ICE Benchmark Administration Limited, the administrator of LIBOR, extended the transition dates of certain LIBOR tenors (including all U.S. Dollar LIBOR tenors other than one-week and two-month U.S. Dollar LIBOR tenors) to June 30, 2023, after which LIBOR reference rates will cease to be provided. Our Amended Credit Agreement and interest rate swap agreements provide for any transitions away from LIBOR to a successor rate to be based on prevailing or equivalent standards.
We do not use derivative instruments for trading or other speculative purposes. From time to time, we invest excess cash in short-term marketable securities. These investments principally consist of overnight sweep accounts. Due to the short maturity of these investments, we have concluded that we do not have material market risk exposure.
We have a non-interest bearing1.69% convertible debt investment in Shorelight Holdings, LLC, a privately-held company, which we account for as an available-for-sale debt security. As such, the investment is carried at fair value with unrealized holding gains and losses excluded from earnings and reported in other comprehensive income. As of December 31, 2017,2021, the fair value of the investment was $39.9$65.9 million, with a total cost basis of $27.9$40.9 million. At December 31, 2016,2020, the fair value of the investment was $34.7$64.4 million, with a total cost basis of $27.9$40.9 million.
We have a preferred stock investment in Medically Home Group, Inc. (“Medically Home”), a privately-held company, which we account for as an equity security without a readily determinable fair value using the measurement alternative. As such, the investment is carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment. Any unrealized holding gains and losses resulting from observable price changes are recorded in our consolidated statement of operations. As of December 31, 2021 and 2020, the carrying value of the investment was $6.7 million, with a total cost basis of $5.0 million. Following our purchase, we have not identified any impairment of our investment. |
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| ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA. |
The Company’s Consolidated Financial Statements and supplementary data begin on page F-1 of this Annual Report on Form 10-K.
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| ITEM 9. | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE. |
None.
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| ITEM 9A. | CONTROLS AND PROCEDURES. |
Evaluation of Disclosure Controls and Procedures
Our management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of December 31, 2017.2021. Based on this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that, as of December 31, 2017,2021, our disclosure controls and procedures were effective in recording, processing, summarizing and reporting, on a timely basis, information required to be disclosed by us in the reports we file or submit under the Exchange Act, and such information is accumulated and communicated to management as appropriate to allow timely decisions regarding required disclosure.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) for the Company. Internal control over financial reporting is a process designed under the supervision of the Company’s Chief Executive Officer and Chief Financial Officer, and effected by the Company’s board of directors, management, and other personnel to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with GAAP and includes those policies and procedures that:
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(i) | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company; |
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(ii) | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and |
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(iii) | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements. |
(i)Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the Company;
(ii)Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with GAAP, and that receipts and expenditures of the Company are being made only in accordance with authorizations of management and directors of the Company; and
(iii)Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the Company’s assets that could have a material effect on the financial statements.
Due to its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In connection with the preparation of this report, our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of the internal control over financial reporting as of December 31, 20172021 using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control – Integrated Framework (2013). As a result of that evaluation, management concluded that our internal control over financial reporting was effective as of December 31, 2017.2021.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 20172021 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing on page F-2 of this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the three months ended December 31, 20172021 that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
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| ITEM 9B. | OTHER INFORMATION. |
None.
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| ITEM 9C. | DISCLOSURE REGARDING FOREIGN JURISDICTIONS THAT PREVENT INSPECTIONS. |
Not applicable.
PART III
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| ITEM 10. | DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE. |
Directors, Executive Officers, Promoters and Control Persons
The information required by this item is incorporated by reference from portions of our definitive proxy statement for our annual meeting of stockholders to be filed with the SEC pursuant to Regulation 14A by April 30, 2018May 2, 2022 (the “Proxy Statement”) under “Nominees to Board of Directors,” “Directors Not Standing For Election” and “Executive Officers.”
Compliance with Section 16(a) of the Exchange Act
The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Section“Delinquent Section 16(a) Beneficial Ownership Reporting Compliance.Reports.”
Code of Business Conduct and Ethics
We have adopted a Code of Business Conduct and Ethics (the “Code”) that is applicable to all of our employees, officers and directors. The Code is available on the Corporate Governance page of our investor relations website at ir.huronconsultinggroup.com.ir.huronconsultinggroup.com. If we make any amendments to or grant any waivers from the Code which are required to be disclosed pursuant to the Securities Exchange Act of 1934, we will make such disclosures on our website.
Corporate Governance
The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Board Meetings and Committees.”
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| ITEM 11. | EXECUTIVE COMPENSATION. |
Executive Compensation
The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Executive Compensation.”
Compensation Committee Interlocks and Insider Participation
The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Compensation Committee Interlocks and Insider Participation.”
Compensation Committee Report
The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Compensation Committee Report.”
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| ITEM 12. | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS. |
Securities Authorized for Issuance Under Equity Compensation Plans
The following table summarizes information with respect to equity compensation plans approved by shareholders as of December 31, 2017.2021. We do not have equity compensation plans that have not been approved by shareholders.
| | | | | | | | | | | | | | | | | |
| Plan Category | Number of Shares
to be Issued Upon
Exercise of
Outstanding Options | | Weighted Average
Exercise Price of
Outstanding Options | | Number of Shares Remaining Available for Future Issuance (excluding shares in 1st column) |
| Equity compensation plans approved by shareholders: | | | | | |
2004 Omnibus Stock Plan (1) | 10,805 | | | $ | 38.18 | | | — | |
2012 Omnibus Incentive Plan (2) | 81,785 | | | $ | 47.32 | | | 1,180,121 | |
Stock Ownership Participation Program (3) | — | | | N/A | | 283,206 | |
| Equity compensation plans not approved by shareholders | N/A | | N/A | | N/A |
| Total | 92,590 | | | $ | 46.25 | | | 1,463,327 | |
(1)Our 2004 Omnibus Stock Plan was approved by the existing shareholders prior to our initial public offering. Upon adoption of the 2012 Omnibus Incentive Plan, we terminated the 2004 Omnibus Stock Plan with respect to future awards and no further awards will be granted under this plan.
(2)Our 2012 Omnibus Incentive Plan was approved by our shareholders at our annual meeting held on May 1, 2012. Subsequent to the initial approval and through December 31, 2021, our shareholders have approved amendments to the 2012 Omnibus Incentive Plan to increase the number of shares authorized for issuance to 4.6 million shares, in the aggregate.
(3)Our Stock Ownership Participation Program was approved by our shareholders at our annual meeting held on May 1, 2015. Subsequent to the initial approval and through December 31, 2021, our shareholders have approved amendments to the Stock Ownership Participation Program to increase the number of shares authorized for issuance to 0.7 million shares, in the aggregate.
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| Plan Category | Number of Shares to be Issued Upon Exercise of Outstanding Options | | Weighted Average Exercise Price of Outstanding Options | | Number of Shares Remaining Available for Future Issuance (excluding shares in 1st column) | |
| Equity compensation plans approved by shareholders: | | | | | | |
2004 Omnibus Stock Plan (1) | 157,680 |
| | $ | 26.70 |
| | — |
| |
2012 Omnibus Incentive Plan (2) | 36,617 |
| | $ | 39.19 |
| | 1,273,361 |
| |
Stock Ownership Participation Program (3) | — |
| | $ | — |
| | 141,153 |
| |
| Equity compensation plans not approved by shareholders | N/A |
| | N/A |
| | N/A |
| |
| Total | 194,297 |
| | $ | 29.06 |
| | 1,414,514 |
| |
| |
(1) | Our 2004 Omnibus Stock Plan was approved by the existing shareholders prior to our initial public offering. Upon adoption of the 2012 Omnibus Incentive Plan, we terminated the 2004 Omnibus Stock Plan with respect to future awards and no further awards will be granted under this plan. |
| |
(2) | Our 2012 Omnibus Incentive Plan was approved by our shareholders at our annual meeting held on May 1, 2012. At our annual meeting held on May 2, 2014, our shareholders approved an amendment to the 2012 Omnibus Incentive Plan to increase the number of shares reserved for issuance thereunder by 850,000 shares. At our annual meeting held on May 5, 2017, our shareholders approved an amended and restated 2012 Omnibus Incentive Plan which increased the number of shares authorized for issuance by 804,000 shares. |
| |
(3) | Our Stock Ownership Participation Program was approved by our shareholders at our annual meeting held on May 1, 2015. |
Security Ownership of Certain Beneficial Owners and Management
The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Stock Ownership of Certain Beneficial Owners and Management.”
|
| | | | |
| ITEM 13. | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE. |
Certain Relationships and Related Transactions
The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Certain Relationships and Related Transactions.”
Director Independence
The information required by this item is incorporated by reference from portions of the Proxy Statement under “Nominees to Board of Directors,” “Directors Not Standing For Election,” and “Board Meetings and Committees.”
|
| | | | |
| ITEM 14. | PRINCIPAL ACCOUNTING FEES AND SERVICES. |
The information required by this item is incorporated by reference from a portion of the Proxy Statement under “Audit and Non-Audit Fees.”
PART IV
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| | | | |
| ITEM 15. | EXHIBITS AND FINANCIAL STATEMENT SCHEDULES. |
(a) Documents filed as part of this Annual Report on Form 10-K.
| |
1. | Financial Statements—Our independent registered public accounting firm’s report and our Consolidated Financial Statements are listed below and begin on page F-1 of this Form 10-K. |
1.Financial Statements—Our independent registered public accounting firm’s report and our Consolidated Financial Statements are listed below and begin on page F-1 of this Form 10-K.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Other Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
2.Financial Statement Schedules—The financial statement schedules required by this item are included in the Consolidated Financial Statements and accompanying notes.
| |
2. | Financial Statement Schedules—The financial statement schedules required by this item are included in the Consolidated Financial Statements and accompanying notes. |
3.Exhibit Index
| | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | Exhibit Description | Filed
herewith | Furnished
herewith | Incorporated by Reference |
| Form | Period
Ending | Exhibit | Filing Date |
| 3.1 | | | | 10-K | 12/31/2004 | 3.1 | 2/16/2005 |
| 3.2 | | | | 8-K | | 3.1 | 10/28/2015 |
| 4.1 | | | | S-1
(File No. 333-
115434) | | 4.1 | 10/5/2004 |
| 4.2 | | | | 10-K | 12/31/2019 | 4.2 | 2/26/2020 |
| 10.1 | | | | S-1
(File No. 333-
115434) | | 10.1 | 10/5/2004 |
| 10.2* | | | | S-8 | | 10.1 | 5/5/2010 |
| 10.3* | | | | 10-K | 12/31/2008 | 10.12 | 2/24/2009 |
| 10.4* | | | | 8-K | | 10.1 | 1/6/2017 |
| 10.5* | | | | 8-K | | 10.2 | 1/6/2017 |
| 10.6* | | | | 8-K | | 10.3 | 1/6/2017 |
| 10.7 | | | | 10-K | 12/31/2012 | 10.17 | 2/21/2013 |
| 10.8 | | | | 10-K | 12/31/2012 | 10.18 | 2/21/2013 |
| 10.9 | | | | 10-K | 12/31/2012 | 10.19 | 2/21/2013 |
| 10.10 | | | | 8-K | | 10.1 | 1/4/2013 |
|
| | | | | | | |
Exhibit Number | Exhibit Description | Filed herewith | Furnished herewith | Incorporated by Reference |
| Form | Period Ending | Exhibit | Filing Date |
| 2.1 | | | | 8-K | | 2.1 | 1/7/2016 |
| 3.1 | | | | 10-K | 12/31/2004 | 3.1 | 2/16/2005 |
| 3.2 | | | | 8-K | | 3.1 | 10/28/2015 |
| 4.1 | | | | S-1 (File No. 333- 115434) | | 4.1 | 10/5/2004 |
| 4.2 | | | | 8-K | | 4.1 | 9/16/2014 |
| 10.1 | | | | S-1 (File No. 333- 115434) | | 10.1 | 10/5/2004 |
| 10.2* | | | | S-8 | | 10.1 | 5/5/2010 |
| 10.3* | | | | 10-K | 12/31/2008 | 10.12 | 2/24/2009 |
| 10.4* | | | | 8-K | | 10.1 | 1/6/2017 |
| 10.5* | | | | 8-K | | 10.2 | 1/6/2017 |
| 10.6* | | | | 8-K | | 10.3 | 1/6/2017 |
| | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | Exhibit Description | Filed
herewith | Furnished
herewith | Incorporated by Reference |
| Form | Period
Ending | Exhibit | Filing Date |
10.11† | | | | 10-K | 12/31/2019 | 10.13 | 2/26/2020 |
| 10.12 | | | | 8-K | | 10.1 | 10/16/2019 |
| 10.13* | | | | 10-K | 12/31/2012 | 10.20 | 2/21/2013 |
| 10.14* | | | | 10-K | 12/31/2014 | 10.32 | 2/24/2015 |
| 10.15* | | | | 10-K | 12/31/2014 | 10.33 | 2/24/2015 |
| 10.16* | | | | 10-K | 12/31/2014 | 10.34 | 2/24/2015 |
| 10.17 | Second Amended and Restated Credit Agreement, dated as of March 31, 2015, among Huron Consulting Group Inc., as Borrower, certain subsidiaries as Guarantors, the Lenders Party Hereto and Bank of America, N.A., as Administrative Agent and Collateral Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, PNC Bank, Bank of Montreal and Key Bank National Association as Co-Documentation Agents, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC, as Joint Lead Arrangers and Joint Book Managers. | | | 8-K | | 10.1 | 4/2/2015 |
| 10.18 | | | | 8-K | | 10.2 | 4/2/2015 |
| 10.19 | | | | 8-K | | 10.3 | 4/2/2015 |
| 10.20* | | | | 10-K | 12/31/2020 | 10.23 | 2/23/2021 |
| 10.21* | | | | 10-K | 12/31/2019 | 10.34 | 2/26/2020 |
| 10.22 | | | | 8-K | | 10.1 | 3/6/2017 |
| 10.23 | | | | 10-Q | 9/30/2017 | 10.1 | 11/1/2017 |
| 10.24 | | | | 8-K | | 10.1 | 3/29/2018 |
|
| | | | | | | |
Exhibit Number | Exhibit Description | Filed herewith | Furnished herewith | Incorporated by Reference |
| Form | Period Ending | Exhibit | Filing Date |
| 10.7* | | | | 8-K | | 10.4 | 1/6/2017 |
| 10.8 | | | | 10-K | 12/31/2012 | 10.17 | 2/21/2013 |
| 10.9 | | | | 10-K | 12/31/2012 | 10.18 | 2/21/2013 |
| 10.10 | | | | 10-K | 12/31/2012 | 10.19 | 2/21/2013 |
| 10.11 | | | | 8-K | | 10.1 | 1/4/2013 |
| 10.12* | | | | 10-K | 12/31/2012 | 10.20 | 2/21/2013 |
| 10.13 | | | | 8-K | | 10.1 | 9/5/2014 |
| 10.14 | | | | 8-K | | 10.2 | 9/5/2014 |
| 10.15 | | | | 8-K | | 10.3 | 9/5/2014 |
| 10.16 | | | | 8-K | | 10.4 | 9/5/2014 |
| 10.17 | | | | 8-K | | 10.5 | 9/5/2014 |
| 10.18 | | | | 8-K | | 10.1 | 9/16/2014 |
| 10.19 | | | | 8-K | | 10.2 | 9/16/2014 |
| 10.20 | | | | 8-K | | 10.3 | 9/16/2014 |
|
| | | | | | | |
Exhibit Number | Exhibit Description | Filed herewith | Furnished herewith | Incorporated by Reference |
| Form | Period Ending | Exhibit | Filing Date |
| 10.21 | | | | 8-K | | 10.4 | 9/16/2014 |
| 10.22* | | | | 10-K | 12/31/2014 | 10.31 | 2/24/2015 |
| 10.23* | | | | 10-K | 12/31/2014 | 10.32 | 2/24/2015 |
| 10.24* | | | | 10-K | 12/31/2014 | 10.33 | 2/24/2015 |
| 10.25* | | | | 10-K | 12/31/2014 | 10.34 | 2/24/2015 |
| 10.26 | Second Amended and Restated Credit Agreement, dated as of March 31, 2015, among Huron Consulting Group Inc., as Borrower, certain subsidiaries as Guarantors, the Lenders Party Hereto and Bank of America, N.A., as Administrative Agent and Collateral Agent, JPMorgan Chase Bank, N.A., as Syndication Agent, PNC Bank, Bank of Montreal and Key Bank National Association as Co-Documentation Agents, and Merrill Lynch, Pierce, Fenner & Smith Incorporated and J.P. Morgan Securities LLC, as Joint Lead Arrangers and Joint Book Managers. | | | 8-K | | 10.1 | 4/2/2015 |
| 10.27 | | | | 8-K | | 10.2 | 4/2/2015 |
| 10.28 | | | | 8-K | | 10.3 | 4/2/2015 |
| 10.29* | | | | DEF 14A | | Appendix A | 3/20/2015 |
| 10.30* |
| | | DEF 14A | | Appendix A | 3/27/2017 |
| 10.31 |
| | | 8-K | | 10.1 | 3/6/2017 |
| 10.32 | | | | 10-Q | 9/30/2017 | 10.1 | 11/1/2017 |
| 21.1 | | X | | | | | |
| 23.1 | | X | | | | | |
| | | | | | | | | | | | | | | | | | | | | | | |
Exhibit
Number | Exhibit Description | Filed
herewith | Furnished
herewith | Incorporated by Reference |
| Form | Period
Ending | Exhibit | Filing Date |
| 10.25 | Amendment No. 4 of the Credit Agreement, the Pledge Agreement and the Security Agreement, dated as of September 27, 2019, by and among Huron Consulting Group Inc., as Borrower, certain subsidiaries, as Guarantors, and Bank of America, N.A., as Administrative Agent for and on behalf of the Lenders. | | | 8-K | | 10.1 | 10/3/2019 |
| 10.26* | | | | 10-Q | 3/31/2020 | 10.1 | 4/30/2020 |
| 10.27* | | | | DEF 14A | | Appendix A | 3/26/2020 |
| 10.28* | | | | 8-K | | 10.1 | 4/14/2021 |
| 10.29* | | | | DEF 14A | | Appendix A | 3/26/2021 |
| 10.30* | | | | 10-Q | 9/30/2021 | 10.1 | 11/2/2021 |
| 21.1 | | X | | | | | |
| 23.1 | | X | | | | | |
| 31.1 | | X | | | | | |
| 31.2 | | X | | | | | |
| 32.1 | | | X | | | | |
| 32.2 | | | X | | | | |
| 101.INS | Inline XBRL Instance Document - the instance document does not appear in the Interactive Data File because its XBRL tags are embedded within the Inline XBRL document. | X | | | | | |
| 101.SCH | Inline XBRL Taxonomy Extension Schema Document | X | | | | | |
| 101.CAL | Inline XBRL Taxonomy Extension Calculation Linkbase Document | X | | | | | |
| 101.LAB | Inline XBRL Taxonomy Extension Label Linkbase Document | X | | | | | |
| 101.PRE | Inline XBRL Taxonomy Extension Presentation Linkbase Document | X | | | | | |
| 101.DEF | Inline XBRL Taxonomy Extension Definition Linkbase Document | X | | | | | |
| 104 | Cover Page Interactive Data File (formatted as inline XBRL and contained in Exhibit 101) | X | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
|
| | | | | | | |
Exhibit
Number
* | Exhibit Description | Filed
herewith
| Furnished
herewith
| Incorporated by Reference |
Form | Period
Ending
| Exhibit | Filing Date |
31.1 | | X | | | | | |
31.2 | | X | | | | | |
32.1 | | | X | | | | |
32.2 | | | X | | | | |
101.INS | XBRL Instance Document. | X | | | | | |
101.SCH | XBRL Taxonomy Extension Schema Document. | X | | | | | |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document. | X | | | | | |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document. | X | | | | | |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document. | X | | | | | |
101.DEF | XBRL Taxonomy Extension Definition Linkbase Document. | X | | | | | |
|
| |
* | Indicates the exhibit is a management contract or compensatory plan or arrangement. |
| † | Pursuant to Regulation S-K 601(b)(10)(iv), certain exhibits to this Exhibit have been omitted. The Company agrees to furnish supplementally to the Securities and Exchange Commission, upon its request, a copy of any or all omitted exhibits. |
|
| | | | |
| ITEM 16. | FORM 10-K SUMMARY |
Not applicable.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
|
| | | | | | | | | | | | | |
| Huron Consulting Group Inc. | | | | |
| (Registrant) | | | | |
|
| | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | |
/s/ JamesJAMES H. RothROTH | | President, Chief Executive Officer and Director | | 2/28/201824/2022 |
| James H. Roth | | |
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints James H. Roth, John D. Kelly, and Diane Ratekin,Ernest W. Torain, Jr., and each of them, his or her true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments to this report, and to file the same, with all and any other regulatory authority, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he or she might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents or any of them, or their substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities indicated.
|
| | | | | | | | | | | | | |
| Signature | | Title | | Date |
| | |
| /s/ JAMES H. ROTH | | President, Chief Executive Officer and Director
(Principal Executive Officer) | | 2/28/201824/2022 |
| James H. Roth | | |
| | |
| /s/ JOHN F. MCCARTNEY | | Non-Executive Chairman of the Board | | 2/28/201824/2022 |
| John F. McCartney | | |
| | |
/s/ GEORGE E. MASSARO | | Vice Chairman of the Board | | 2/28/2018 |
George E. Massaro | | |
| | |
| /s/ JOHN D. KELLY | | Executive Vice President, Chief Financial Officer and Treasurer (Principal Financial and Accounting Officer) | | 2/28/201824/2022 |
| John D. Kelly | | |
| | |
/s/ JAMES D. EDWARDS | | Director | | 2/28/2018 |
James D. Edwards | | |
| | |
| /s/ H. EUGENE LOCKHART | | Director | | 2/28/201824/2022 |
| H. Eugene Lockhart | | |
| | |
/s/ JOHN S. MOODY | | Director | | 2/28/2018 |
John S. Moody | | |
| | |
| /s/ HUGH E. SAWYER | | Director | | 2/28/201824/2022 |
| Hugh E. Sawyer | | |
| | | | |
| /s/ EKTA SINGH-BUSHELL | | Director | | 2/24/2022 |
| Ekta Singh-Bushell | | |
| | |
| /s/ DEBRA ZUMWALT | | Director | | 2/28/201824/2022 |
| Debra Zumwalt | | |
HURON CONSULTING GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
|
| | | | |
| Page |
| (PCAOB ID 238) | F-2 |
Consolidated Balance Sheets at December 31, 20172021 and 20162020 | F-4 |
Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the years ended December 31, 2017, 2016,2021, 2020, and 20152019 | F-5 |
| F-5F-6 |
| F-6F-7 |
| F-7F-8 |
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Stockholders of Huron Consulting Group Inc.
Opinions on the Financial Statements and Internal Control over Financial Reporting
We have audited the accompanying consolidated balance sheets of Huron Consulting Group Inc. and its subsidiaries (the “Company”) as of December 31, 20172021 and 2016,2020, and the related consolidated statementstatements of operations and other comprehensive income (loss), statement of stockholders’ equity and statement of cash flows for each of the three years in the period ended December 31, 2017,2021, including the related notes (collectively referred to as the “consolidated financial statements”). We also have audited the Company's internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework(2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO).
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 20172021 and December 31, 2016,2020, and the results of theirits operations and theirits cash flows for each of the three years in the period ended December 31, 20172021 in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2017,2021, based on criteria established in Internal Control - Integrated Framework(2013) issued by the COSO.
Basis for Opinions
The Company's management is responsible for these consolidated financial statements, for maintaining effective internal control over financial reporting, and for its assessment of the effectiveness of internal control over financial reporting, included in Management'sManagement’s Report on Internal Control over Financial Reporting appearing under Item 9A. Our responsibility is to express opinions on the Company’s consolidated financial statements and on the Company's internal control over financial reporting based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) ("PCAOB")(PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also included performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide a reasonable basis for our opinions.
Definition and Limitations of Internal Control over Financial Reporting
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Critical Audit Matters
The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that (i) relates to accounts or disclosures that are material to the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.
Revenue Recognition – Fixed-Fee and Healthcare Performance-Based Billing Arrangements
As described in Notes 2 and 19 to the consolidated financial statements, in fixed-fee billing arrangements, which accounted for $400.1 million of revenues for the year ended December 31, 2021, the Company agrees to a pre-established fee in exchange for a predetermined set of professional services. As disclosed by management, under fixed-fee arrangements, revenues are recognized based upon work completed to date versus management’s estimates of the total services to be provided under the engagement. Additionally, the Company’s Healthcare practice enters into performance-based billing arrangements whereby fees are tied to the attainment of contractually defined objectives, as a result of adopting the Company’s recommendations, which accounted for $73.4 million of revenues for the year ended December 31, 2021. Under performance-based billing arrangements, revenue is recognized based on an estimate of variable consideration and work completed to date versus the estimates of the total services to be provided under the engagement. Variable consideration is estimated based on a probability-weighted assessment of the fees to be earned, net of a constraint to limit the amount that could be reversed when the uncertainty is resolved.
The principal considerations for our determination that performing procedures relating to revenue recognition under fixed-fee and Healthcare performance-based billing arrangements is a critical audit matter are the significant judgments by management when developing the estimates of revenue to be recognized for these billing arrangements, which in turn led to a high degree of auditor judgment, subjectivity and effort in performing procedures and evaluating audit evidence related to management’s significant assumptions related to work completed to date versus management’s estimates of the total services to be provided for fixed-fee and performance-based billing arrangements and the probability of attaining contractually defined objectives in performance-based billing arrangements.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process under fixed-fee and performance-based billing arrangements. These procedures also included, among others, testing the accuracy of the total contract amounts and evaluating the reasonableness of management’s assumption of work completed to-date versus management’s estimates of the total services to be provided by (i) inquiring with the Company’s employees regarding the expected remaining efforts for a sample of engagements, (ii) evaluating trends in past performance, and (iii) evaluating performance to date. Additionally, for performance-based billing arrangements, procedures included, among others (i) evaluating the reasonableness of management’s assumption of the probability of attaining the contractually defined objectives by inquiring with the Company’s employees regarding the expected remaining efforts and the probability weighting of variable consideration to be earned for a sample of engagements and by evaluating trends in past performance, (ii) evaluating the necessity of applying a constraint based upon consideration of the initial forecasts developed during project procurement, and (iii) evaluating performance to date towards the attainment of contractually defined objectives.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 28, 201824, 2022
We have served as the Company's auditor since 2002.
HURON CONSULTING GROUP INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
| | | | December 31, 2017 | | December 31, 2016 | | December 31, 2021 | | December 31, 2020 |
| Assets | | | | Assets | | | |
| Current assets: | | | | Current assets: | |
| Cash and cash equivalents | $ | 16,909 |
| | $ | 17,027 |
| Cash and cash equivalents | $ | 20,781 | | | $ | 67,177 | |
| Receivables from clients, net | 101,778 |
| | 94,246 |
| |
| Unbilled services, net | 57,618 |
| | 51,290 |
| |
| Receivables from clients, net of allowances of $8,827 and $7,680, respectively | | Receivables from clients, net of allowances of $8,827 and $7,680, respectively | 122,316 | | | 87,687 | |
| Unbilled services, net of allowances of $2,637 and $2,603, respectively | | Unbilled services, net of allowances of $2,637 and $2,603, respectively | 91,285 | | | 53,959 | |
| Income tax receivable | 4,039 |
| | 4,211 |
| Income tax receivable | 8,071 | | | 5,121 | |
| Prepaid expenses and other current assets | 10,951 |
| | 13,308 |
| Prepaid expenses and other current assets | 15,229 | | | 16,569 | |
| Total current assets | 191,295 |
| | 180,082 |
| Total current assets | 257,682 | | | 230,513 | |
| Property and equipment, net | 45,541 |
| | 32,434 |
| Property and equipment, net | 31,004 | | | 29,093 | |
| Deferred income taxes, net | 16,752 |
| | — |
| Deferred income taxes, net | 1,804 | | | 4,191 | |
| Long-term investment | 39,904 |
| | 34,675 |
| |
| Long-term investments | | Long-term investments | 72,584 | | | 71,030 | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | 35,311 | | | 39,360 | |
| Other non-current assets | 25,375 |
| | 24,814 |
| Other non-current assets | 68,191 | | | 62,068 | |
| Intangible assets, net | 72,311 |
| | 81,348 |
| Intangible assets, net | 31,894 | | | 20,483 | |
| Goodwill | 645,750 |
| | 799,862 |
| Goodwill | 620,879 | | | 594,237 | |
| Total assets | $ | 1,036,928 |
| | $ | 1,153,215 |
| Total assets | $ | 1,119,349 | | | $ | 1,050,975 | |
| Liabilities and stockholders’ equity | | | | Liabilities and stockholders’ equity | | | |
| Current liabilities: | | | | Current liabilities: | |
| Accounts payable | $ | 9,194 |
| | $ | 7,273 |
| Accounts payable | $ | 13,621 | | | $ | 648 | |
| Accrued expenses and other current liabilities | 20,144 |
| | 19,788 |
| Accrued expenses and other current liabilities | 22,519 | | | 14,874 | |
| Accrued payroll and related benefits | 73,698 |
| | 82,669 |
| Accrued payroll and related benefits | 139,131 | | | 133,830 | |
| Accrued contingent consideration for business acquisitions | 8,515 |
| | 1,985 |
| |
| Current maturities of long-term debt | | Current maturities of long-term debt | 559 | | | 499 | |
| Current maturities of operating lease liabilities | | Current maturities of operating lease liabilities | 10,142 | | | 8,771 | |
| Deferred revenues | 27,916 |
| | 24,053 |
| Deferred revenues | 19,212 | | | 28,247 | |
| Total current liabilities | 139,467 |
| | 135,768 |
| Total current liabilities | 205,184 | | | 186,869 | |
| Non-current liabilities: | | | | Non-current liabilities: | |
| Deferred compensation and other liabilities | 20,895 |
| | 24,171 |
| Deferred compensation and other liabilities | 43,458 | | | 47,131 | |
| Accrued contingent consideration for business acquisitions, net of current portion | 14,313 |
| | 6,842 |
| |
| Long-term debt, net of current portion | 342,507 |
| | 292,065 |
| Long-term debt, net of current portion | 232,221 | | | 202,780 | |
| Deferred lease incentives | 15,333 |
| | 10,703 |
| |
| Operating lease liabilities, net of current portion | | Operating lease liabilities, net of current portion | 54,313 | | | 61,825 | |
| Deferred income taxes, net | 1,097 |
| | 35,633 |
| Deferred income taxes, net | 12,273 | | | 428 | |
| Total non-current liabilities | 394,145 |
| | 369,414 |
| Total non-current liabilities | 342,265 | | | 312,164 | |
| Commitments and contingencies |
| |
| Commitments and contingencies | 0 | | 0 |
| Stockholders’ equity | | | | Stockholders’ equity | |
| Common stock; $0.01 par value; 500,000,000 shares authorized; 24,560,468 and 24,126,118 shares issued at December 31, 2017 and December 31, 2016, respectively | 241 |
| | 235 |
| |
| Treasury stock, at cost, 2,443,577 and 2,408,343 shares at December 31, 2017 and December 31, 2016, respectively | (121,994 | ) | | (113,195 | ) | |
| Common stock; $0.01 par value; 500,000,000 shares authorized; 24,364,814 and 25,346,916 shares issued, respectively | | Common stock; $0.01 par value; 500,000,000 shares authorized; 24,364,814 and 25,346,916 shares issued, respectively | 239 | | | 246 | |
| Treasury stock, at cost, 2,495,172 and 2,584,119 shares, respectively | | Treasury stock, at cost, 2,495,172 and 2,584,119 shares, respectively | (135,969) | | | (129,886) | |
| Additional paid-in capital | 434,256 |
| | 405,895 |
| Additional paid-in capital | 413,794 | | | 454,512 | |
| Retained earnings | 180,443 |
| | 351,483 |
| Retained earnings | 276,996 | | | 214,009 | |
| Accumulated other comprehensive income | 10,370 |
| | 3,615 |
| Accumulated other comprehensive income | 16,840 | | | 13,061 | |
| Total stockholders’ equity | 503,316 |
| | 648,033 |
| Total stockholders’ equity | 571,900 | | | 551,942 | |
| Total liabilities and stockholders’ equity | $ | 1,036,928 |
| | $ | 1,153,215 |
| Total liabilities and stockholders’ equity | $ | 1,119,349 | | | $ | 1,050,975 | |
The accompanying notes are an integral part of the consolidated financial statements.
HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
| | | | Year Ended December 31, | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2021 | | 2020 | | 2019 |
| Revenues and reimbursable expenses: | | | | | | Revenues and reimbursable expenses: | | | | | |
| Revenues | $ | 732,570 |
| | $ | 726,272 |
| | $ | 699,010 |
| Revenues | $ | 905,640 | | | $ | 844,127 | | | $ | 876,757 | |
| Reimbursable expenses | 75,175 |
| | 71,712 |
| | 70,013 |
| Reimbursable expenses | 21,318 | | | 26,887 | | | 88,717 | |
| Total revenues and reimbursable expenses | 807,745 |
| | 797,984 |
| | 769,023 |
| Total revenues and reimbursable expenses | 926,958 | | | 871,014 | | | 965,474 | |
Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses): | | | | | | Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses): | |
| Direct costs | 454,806 |
| | 437,556 |
| | 401,915 |
| Direct costs | 636,776 | | | 592,428 | | | 575,602 | |
| Amortization of intangible assets and software development costs | 10,932 |
| | 15,140 |
| | 16,788 |
| Amortization of intangible assets and software development costs | 3,803 | | | 5,366 | | | 5,375 | |
| Reimbursable expenses | 75,436 |
| | 71,749 |
| | 69,932 |
| Reimbursable expenses | 21,369 | | | 26,918 | | | 88,696 | |
| Total direct costs and reimbursable expenses | 541,174 |
| | 524,445 |
| | 488,635 |
| Total direct costs and reimbursable expenses | 661,948 | | | 624,712 | | | 669,673 | |
| Operating expenses and other losses (gains), net: | | | | | | Operating expenses and other losses (gains), net: | | | | | |
| Selling, general and administrative expenses | 175,364 |
| | 160,204 |
| | 157,902 |
| Selling, general and administrative expenses | 177,886 | | | 170,686 | | | 203,071 | |
| Restructuring charges | 6,246 |
| | 9,592 |
| | 3,329 |
| Restructuring charges | 12,401 | | | 20,525 | | | 1,855 | |
| Litigation and other losses (gains), net | 1,111 |
| | (1,990 | ) | | (9,476 | ) | |
| Litigation and other losses (gains) | | Litigation and other losses (gains) | 198 | | | (150) | | | (1,196) | |
| Depreciation and amortization | 38,213 |
| | 31,499 |
| | 25,135 |
| Depreciation and amortization | 21,686 | | | 24,277 | | | 28,365 | |
| Goodwill impairment charges | 253,093 |
| | — |
| | — |
| Goodwill impairment charges | — | | | 59,816 | | | — | |
| Total operating expenses and other losses (gains), net | 474,027 |
| | 199,305 |
| | 176,890 |
| Total operating expenses and other losses (gains), net | 212,171 | | | 275,154 | | | 232,095 | |
| Operating income (loss) | (207,456 | ) | | 74,234 |
| | 103,498 |
| Operating income (loss) | 52,839 | | | (28,852) | | | 63,706 | |
| Other income (expense), net: | | | | | | Other income (expense), net: | |
| Interest expense, net of interest income | (18,613 | ) | | (16,274 | ) | | (18,136 | ) | Interest expense, net of interest income | (8,150) | | | (9,292) | | | (15,648) | |
| Other income (expense), net | 3,565 |
| | 1,197 |
| | (1,797 | ) | |
| Total other expense, net | (15,048 | ) | | (15,077 | ) | | (19,933 | ) | |
| Other income, net | | Other income, net | 35,347 | | | 4,271 | | | 4,433 | |
| Total other income (expense), net | | Total other income (expense), net | 27,197 | | | (5,021) | | | (11,215) | |
| Income (loss) from continuing operations before taxes | (222,504 | ) | | 59,157 |
| | 83,565 |
| Income (loss) from continuing operations before taxes | 80,036 | | | (33,873) | | | 52,491 | |
| Income tax expense (benefit) | (51,999 | ) | | 19,677 |
| | 21,670 |
| Income tax expense (benefit) | 17,049 | | | (10,155) | | | 10,512 | |
| Net income (loss) from continuing operations | (170,505 | ) | | 39,480 |
| | 61,895 |
| Net income (loss) from continuing operations | 62,987 | | | (23,718) | | | 41,979 | |
| Income (loss) from discontinued operations, net of tax | 388 |
| | (1,863 | ) | | (2,843 | ) | |
| Loss from discontinued operations, net of tax | | Loss from discontinued operations, net of tax | — | | | (122) | | | (236) | |
| Net income (loss) | $ | (170,117 | ) | | $ | 37,617 |
| | $ | 59,052 |
| Net income (loss) | $ | 62,987 | | | $ | (23,840) | | | $ | 41,743 | |
| Net earnings (loss) per basic share: | | | | | | Net earnings (loss) per basic share: | | | | | |
| Net income (loss) from continuing operations | $ | (7.95 | ) | | $ | 1.87 |
| | $ | 2.80 |
| Net income (loss) from continuing operations | $ | 2.94 | | | $ | (1.08) | | | $ | 1.91 | |
| Income (loss) from discontinued operations, net of tax | 0.02 |
| | (0.09 | ) | | (0.13 | ) | |
| Loss from discontinued operations, net of tax | | Loss from discontinued operations, net of tax | — | | | (0.01) | | | (0.01) | |
| Net income (loss) | $ | (7.93 | ) | | $ | 1.78 |
| | $ | 2.67 |
| Net income (loss) | $ | 2.94 | | | $ | (1.09) | | | $ | 1.90 | |
| Net earnings (loss) per diluted share: | | | | | | Net earnings (loss) per diluted share: | | | | | |
| Net income (loss) from continuing operations | $ | (7.95 | ) | | $ | 1.84 |
| | $ | 2.74 |
| Net income (loss) from continuing operations | $ | 2.89 | | | $ | (1.08) | | | $ | 1.87 | |
| Income (loss) from discontinued operations, net of tax | 0.02 |
| | (0.08 | ) | | (0.13 | ) | |
| Loss from discontinued operations, net of tax | | Loss from discontinued operations, net of tax | — | | | (0.01) | | | (0.02) | |
| Net income (loss) | $ | (7.93 | ) | | $ | 1.76 |
| | $ | 2.61 |
| Net income (loss) | $ | 2.89 | | | $ | (1.09) | | | $ | 1.85 | |
| Weighted average shares used in calculating earnings per share: | | | | | | Weighted average shares used in calculating earnings per share: | | | | | |
| Basic | 21,439 |
| | 21,084 |
| | 22,136 |
| Basic | 21,439 | | | 21,882 | | | 21,993 | |
| Diluted | 21,439 |
| | 21,424 |
| | 22,600 |
| Diluted | 21,809 | | | 21,882 | | | 22,507 | |
| Comprehensive income (loss): | | | | | | Comprehensive income (loss): | |
| Net income (loss) | $ | (170,117 | ) | | $ | 37,617 |
| | $ | 59,052 |
| Net income (loss) | $ | 62,987 | | | $ | (23,840) | | | $ | 41,743 | |
| Foreign currency translation adjustments, net of tax | 1,602 |
| | 64 |
| | 1,817 |
| Foreign currency translation adjustments, net of tax | (925) | | | 348 | | | 99 | |
| Unrealized gain (loss) on investment, net of tax | 4,724 |
| | (97 | ) | | 4,435 |
| Unrealized gain (loss) on investment, net of tax | 1,169 | | | 1,323 | | | (702) | |
| Unrealized gain (loss) on cash flow hedging instruments, net of tax | 429 |
| | 63 |
| | (12 | ) | Unrealized gain (loss) on cash flow hedging instruments, net of tax | 3,535 | | | (3,546) | | | (956) | |
| Other comprehensive income | 6,755 |
| | 30 |
| | 6,240 |
| |
| Other comprehensive income (loss) | | Other comprehensive income (loss) | 3,779 | | | (1,875) | | | (1,559) | |
| Comprehensive income (loss) | $ | (163,362 | ) | | $ | 37,647 |
| | $ | 65,292 |
| Comprehensive income (loss) | $ | 66,766 | | | $ | (25,715) | | | $ | 40,184 | |
The accompanying notes are an integral part of the consolidated financial statements.
HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
| | | | | | | | | | | | | | | | | | | Common Stock | | Treasury Stock | | Additional
Paid-In
Capital | | Retained
Earnings | | Accumulated
Other
Comprehensive
Income | | Stockholders'
Equity |
| | Common Stock | | Treasury Stock | | Additional Paid-In Capital | | Retained Earnings | | Accumulated Other Comprehensive Income (Loss) | | Stockholders' Equity | | Shares | | Amount | | Shares | | Amount | |
| | Shares | | Amount | | Shares | | Amount | | |
| Balance at December 31, 2014 | 24,115,593 |
| | $ | 241 |
| | (2,109,316 | ) | | $ | (94,074 | ) | | $ | 442,308 |
| | $ | 254,814 |
| | $ | (2,655 | ) | | $ | 600,634 |
| |
| Comprehensive income | | | | | | | | | | | 59,052 |
| | 6,240 |
| | 65,292 |
| |
| Issuance of common stock in connection with: | | | | | | | | | | | | | | | | |
| Restricted stock awards, net of cancellations | 504,955 |
| | 5 |
| | (42,797 | ) | | (2,506 | ) | | 2,501 |
| | | | | | — |
| |
| Business acquisition | 28,486 |
| | — |
| | | | | | 2,204 |
| | | | | | 2,204 |
| |
| Share-based compensation | | | | | | | | | 22,484 |
| | | | | | 22,484 |
| |
| Shares redeemed for employee tax withholdings | | | | | (109,967 | ) | | (7,154 | ) | | | | | | | | (7,154 | ) | |
| Income tax benefit on share-based compensation | | | | | | | | | 3,456 |
| | | | | | 3,456 |
| |
| Share repurchases | (583,880 | ) | | (5 | ) | | | | | | (34,586 | ) | | | | | | (34,591 | ) | |
| Balance at December 31, 2015 | 24,065,154 |
| | $ | 241 |
| | (2,262,080 | ) | | $ | (103,734 | ) | | $ | 438,367 |
| | $ | 313,866 |
| | $ | 3,585 |
| | $ | 652,325 |
| |
| Comprehensive income | | | | | | | | | | | 37,617 |
| | 30 |
| | 37,647 |
| |
| Balance at December 31, 2018 | | Balance at December 31, 2018 | 24,418,252 | | | $ | 244 | | | (2,671,962) | | | $ | (124,794) | | | $ | 452,573 | | | $ | 196,106 | | | $ | 16,495 | | | $ | 540,624 | |
| Comprehensive income (loss) | | Comprehensive income (loss) | | 41,743 | | | (1,559) | | | 40,184 | |
| Issuance of common stock in connection with: | | | | | | | | | | | | | | | | Issuance of common stock in connection with: | |
| Restricted stock awards, net of cancellations | 390,348 |
| | 4 |
| | (70,419 | ) | | (4,508 | ) | | 4,504 |
| | | | | | — |
| Restricted stock awards, net of cancellations | 347,589 | | | 4 | | | 20,171 | | | 1,828 | | | (1,832) | | | — | |
| Exercise of stock options | 4,706 |
| | — |
| | | | | | 123 |
| | | | | | 123 |
| Exercise of stock options | 47,904 | | | 1 | | | 1,243 | | | 1,244 | |
| Share-based compensation | | | | | | | | | 17,929 |
| | | | | | 17,929 |
| Share-based compensation | | 22,854 | | | 22,854 | |
| Shares redeemed for employee tax withholdings | | | | | (88,414 | ) | | (4,953 | ) | | | | | | | | (4,953 | ) | Shares redeemed for employee tax withholdings | | (111,511) | | | (5,382) | | | (5,382) | |
| Income tax benefit on share-based compensation | | | | | | | | | 227 |
| | | | | | 227 |
| |
| Other capital contributions | | Other capital contributions | | 160 | | 160 | |
| Share repurchases | (982,192 | ) | | (10 | ) | | | | | | (55,255 | ) | | | | | | (55,265 | ) | Share repurchases | (210,437) | | | (2) | | | (14,217) | | | (14,219) | |
| Balance at December 31, 2016 | 23,478,016 |
| | $ | 235 |
| | (2,420,913 | ) | | $ | (113,195 | ) | | $ | 405,895 |
| | $ | 351,483 |
| | $ | 3,615 |
| | $ | 648,033 |
| |
| Balance at December 31, 2019 | | Balance at December 31, 2019 | 24,603,308 | | | $ | 247 | | | (2,763,302) | | | $ | (128,348) | | | $ | 460,781 | | | $ | 237,849 | | | $ | 14,936 | | | $ | 585,465 | |
| Comprehensive loss | | Comprehensive loss | | | | | | | | | | | (23,840) | | | (1,875) | | | (25,715) | |
| Issuance of common stock in connection with: | | Issuance of common stock in connection with: | |
| Restricted stock awards, net of cancellations | | Restricted stock awards, net of cancellations | 342,311 | | | 3 | | | 87,155 | | | 6,365 | | | (6,368) | | | — | |
| Exercise of stock options | | Exercise of stock options | 40,400 | | | — | | | 1,003 | | | 1,003 | |
| Share-based compensation | | Share-based compensation | | 24,998 | | | 24,998 | |
| Shares redeemed for employee tax withholdings | | Shares redeemed for employee tax withholdings | | (136,749) | | | (7,903) | | | (7,903) | |
| | Share repurchases | | Share repurchases | (425,164) | | | (4) | | | (25,902) | | | (25,906) | |
| Balance at December 31, 2020 | | Balance at December 31, 2020 | 24,560,855 | | | $ | 246 | | | (2,812,896) | | | $ | (129,886) | | | $ | 454,512 | | | $ | 214,009 | | | $ | 13,061 | | | $ | 551,942 | |
| Comprehensive income | | | | | | | | | | | (170,117 | ) | | 6,755 |
| | (163,362 | ) | Comprehensive income | | | | | | | | | | | 62,987 | | | 3,779 | | | 66,766 | |
| Issuance of common stock in connection with: | | | | | | | | | | | | | | | | Issuance of common stock in connection with: | |
| Restricted stock awards, net of cancellations | 399,248 |
| | 4 |
| | (58,211 | ) | | (3,953 | ) | | 3,949 |
| | | | | | — |
| Restricted stock awards, net of cancellations | 475,250 | | | 5 | | | 101,236 | | | 4,020 | | | (4,025) | | | — | |
| Business acquisition | 221,558 |
| | 2 |
| | | | | | 9,558 |
| | | | | | 9,560 |
| |
| Exercise of stock options | | Exercise of stock options | 23,403 | | | — | | | 804 | | | 804 | |
| Purchase of business | | Purchase of business | 74,671 | | | 1 | | | 3,322 | | | 3,323 | |
| Share-based compensation | | | | | | | | | 14,419 |
| | | | | | 14,419 |
| Share-based compensation | | 23,971 | | | 23,971 | |
| Shares redeemed for employee tax withholdings | | | | | (112,011 | ) | | (4,846 | ) | | | | | | | | (4,846 | ) | Shares redeemed for employee tax withholdings | | (197,189) | | | (10,103) | | | (10,103) | |
| Cumulative-effect adjustment from adoption of ASU 2016-09 | | | | | | | | | 435 |
| | (435 | ) | | | | — |
| |
| Cumulative-effect adjustment from adoption of ASU 2018-02 | | | | | | | | | | | (488 | ) | | | | (488 | ) | |
| Balance at December 31, 2017 | 24,098,822 |
| | $ | 241 |
| | (2,591,135 | ) | | $ | (121,994 | ) | | $ | 434,256 |
| | $ | 180,443 |
| | $ | 10,370 |
| | $ | 503,316 |
| |
| Share repurchases | | Share repurchases | (1,265,261) | | | (13) | | | (64,790) | | | (64,803) | |
| Balance at December 31, 2021 | | Balance at December 31, 2021 | 23,868,918 | | | $ | 239 | | | (2,908,849) | | | $ | (135,969) | | | $ | 413,794 | | | $ | 276,996 | | | $ | 16,840 | | | $ | 571,900 | |
The accompanying notes are an integral part of the consolidated financial statements.
HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Cash flows from operating activities: | | | | | |
| Net income (loss) | $ | 62,987 | | | $ | (23,840) | | | $ | 41,743 | |
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 25,978 | | | 30,222 | | | 34,405 | |
| Non-cash lease expense | 6,967 | | | 7,763 | | | 8,397 | |
| Lease impairment charges | — | | | 13,217 | | | 805 | |
| Share-based compensation | 25,857 | | | 24,081 | | | 24,213 | |
| Amortization of debt discount and issuance costs | 794 | | | 793 | | | 8,264 | |
| Goodwill impairment charges | — | | | 59,816 | | | — | |
| Allowances for doubtful accounts | 13 | | | 1,050 | | | 250 | |
| Deferred income taxes | 12,480 | | | (9,859) | | | 8,795 | |
| (Gain) loss on sales of businesses, excluding transaction costs | (32,824) | | | 1,603 | | | — | |
| Change in fair value of contingent consideration liabilities | 173 | | | — | | | (1,506) | |
| Change in fair value of preferred stock investment | — | | | (1,667) | | | — | |
| Other, net | (421) | | | (25) | | | (789) | |
| Changes in operating assets and liabilities, net of acquisitions and divestitures: | | | | | |
| (Increase) decrease in receivables from clients, net | (39,845) | | | 33,051 | | | (10,123) | |
| (Increase) decrease in unbilled services, net | (38,820) | | | 18,876 | | | (10,269) | |
| (Increase) decrease in current income tax receivable / payable, net | (2,723) | | | (3,662) | | | 4,442 | |
| (Increase) decrease in other assets | (2,670) | | | (11,972) | | | (144) | |
| Increase (decrease) in accounts payable and accrued liabilities | 10,394 | | | (7,786) | | | (6,884) | |
| Increase (decrease) in accrued payroll and related benefits | (2,636) | | | (1,169) | | | 30,339 | |
| Increase (decrease) in deferred revenues | (7,717) | | | 6,246 | | | 282 | |
| Net cash provided by operating activities | 17,987 | | | 136,738 | | | 132,220 | |
| Cash flows from investing activities: | | | | | |
| Purchases of property and equipment | (10,871) | | | (8,125) | | | (13,240) | |
| Investment in life insurance policies | (1,245) | | | (2,462) | | | (4,703) | |
| | | | | |
| Purchases of businesses, net of cash acquired | (44,819) | | | (8,701) | | | (2,500) | |
| Purchases of investment securities | — | | | (13,000) | | | (5,000) | |
| Capitalization of internally developed software | (4,889) | | | (8,272) | | | (10,312) | |
| | | | | |
| Proceeds from sale of property and equipment | 408 | | | 25 | | | 753 | |
| Divestitures of businesses, net of cash sold | 41,273 | | | (1,499) | | | — | |
| Net cash used in investing activities | (20,143) | | | (42,034) | | | (35,002) | |
| Cash flows from financing activities: | | | | | |
| Proceeds from exercises of stock options | 804 | | | 1,003 | | | 1,244 | |
| Shares redeemed for employee tax withholdings | (10,103) | | | (7,903) | | | (5,382) | |
| Share repurchases | (64,612) | | | (27,141) | | | (12,985) | |
| Proceeds from bank borrowings | 235,000 | | | 283,000 | | | 347,000 | |
| Repayments of bank borrowings | (205,499) | | | (288,574) | | | (192,515) | |
| Repayment of convertible notes | — | | | — | | | (250,000) | |
| Payments for debt issuance costs | — | | | — | | | (1,524) | |
| Payments for contingent consideration liabilities | — | | | — | | | (4,674) | |
| Net cash used in financing activities | (44,410) | | | (39,615) | | | (118,836) | |
| Effect of exchange rate changes on cash | 170 | | | 484 | | | 115 | |
| Net increase (decrease) in cash and cash equivalents | (46,396) | | | 55,573 | | | (21,503) | |
| Cash and cash equivalents at beginning of the period | 67,177 | | | 11,604 | | | 33,107 | |
| Cash and cash equivalents at end of the period | $ | 20,781 | | | $ | 67,177 | | | $ | 11,604 | |
| Supplemental disclosure of cash flow information: | | | | | |
| Non-cash investing and financing activities: | | | | | |
| Property and equipment expenditures and capitalized software included in accounts payable, accrued expenses and accrued payroll and related benefits | $ | 4,733 | | | $ | 1,178 | | | $ | 2,600 | |
| Contingent consideration related to purchases of businesses | $ | 1,800 | | | $ | 1,770 | | | $ | — | |
| Common stock issued related to purchase of business | $ | 3,323 | | | $ | — | | | $ | — | |
| Share repurchases included in accounts payable | $ | 191 | | | $ | — | | | $ | 1,234 | |
| Cash paid during the year for: | | | | | |
| Interest | $ | 7,976 | | | $ | 8,309 | | | $ | 7,971 | |
| Income taxes | $ | 8,449 | | | $ | 4,721 | | | $ | 1,429 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Cash flows from operating activities: | | | | | |
| Net income (loss) | $ | (170,117 | ) | | $ | 37,617 |
| | $ | 59,052 |
|
| Adjustments to reconcile net income (loss) to net cash provided by operating activities: | | | | | |
| Depreciation and amortization | 50,089 |
| | 46,816 |
| | 58,053 |
|
| Share-based compensation | 14,838 |
| | 16,577 |
| | 21,487 |
|
| Amortization of debt discount and issuance costs | 10,203 |
| | 9,609 |
| | 9,329 |
|
| Goodwill impairment charge | 253,093 |
| | — |
| | — |
|
| Allowances for doubtful accounts and unbilled services | 3,217 |
| | 4,250 |
| | 1,025 |
|
| Deferred income taxes | (53,753 | ) | | 1,189 |
| | 6,353 |
|
| (Gain) loss on sale of businesses | (931 | ) | | — |
| | 2,303 |
|
| Change in fair value of contingent consideration liabilities | 1,111 |
| | (1,990 | ) | | (1,126 | ) |
| Changes in operating assets and liabilities, net of acquisitions and divestitures: | | | | | |
| (Increase) decrease in receivables from clients | 1,650 |
| | 1,440 |
| | (2,836 | ) |
| (Increase) decrease in unbilled services | (4,332 | ) | | 2,443 |
| | 31,696 |
|
| (Increase) decrease in current income tax receivable / payable, net | 210 |
| | (4,410 | ) | | 8,818 |
|
| (Increase) decrease in other assets | (366 | ) | | 11,904 |
| | (14,742 | ) |
| Increase (decrease) in accounts payable and accrued liabilities | 3,732 |
| | (3,144 | ) | | 8,805 |
|
| Increase (decrease) in accrued payroll and related benefits | (10,966 | ) | | 3,044 |
| | (25,221 | ) |
| Increase (decrease) in deferred revenues | 2,117 |
| | 3,898 |
| | 4,859 |
|
| Net cash provided by operating activities | 99,795 |
| | 129,243 |
| | 167,855 |
|
| Cash flows from investing activities: | | | | | |
| Purchases of property and equipment, net | (24,402 | ) | | (13,936 | ) | | (18,571 | ) |
| Investment in life insurance policies | (1,826 | ) | | (2,035 | ) | | (5,804 | ) |
| Distributions from life insurance policies | 2,889 |
| | — |
| | — |
|
| Purchases of businesses, net of cash acquired | (106,915 | ) | | (69,133 | ) | | (339,966 | ) |
| Purchases of convertible debt investment | — |
| | — |
| | (15,438 | ) |
| Capitalization of internally developed software | (1,370 | ) | | (1,086 | ) | | (866 | ) |
| Proceeds from note receivable | 1,177 |
| | — |
| | — |
|
| Proceeds from sale of businesses, net of cash sold | 1,499 |
| | (446 | ) | | 108,487 |
|
| Net cash used in investing activities | (128,948 | ) | | (86,636 | ) | | (272,158 | ) |
| Cash flows from financing activities: | | | | | |
| Proceeds from exercises of stock options | — |
| | 123 |
| | — |
|
| Shares redeemed for employee tax withholdings | (4,846 | ) | | (4,953 | ) | | (7,154 | ) |
| Share repurchases | — |
| | (55,265 | ) | | (34,591 | ) |
| Proceeds from borrowings under credit facility | 277,500 |
| | 200,000 |
| | 314,000 |
|
| Repayments of debt | (240,745 | ) | | (224,000 | ) | | (365,750 | ) |
| Payments for debt issuance costs | (408 | ) | | — |
| | — |
|
| Payments for capital lease obligations | — |
| | — |
| | (48 | ) |
| Deferred acquisition payments | (2,680 | ) | | — |
| | — |
|
| Net cash provided by (used in) financing activities | 28,821 |
| | (84,095 | ) | | (93,543 | ) |
| Effect of exchange rate changes on cash | 214 |
| | 78 |
| | (589 | ) |
| Net decrease in cash and cash equivalents | (118 | ) | | (41,410 | ) | | (198,435 | ) |
| Cash and cash equivalents at beginning of the period | 17,027 |
| | 58,437 |
| | 256,872 |
|
| Cash and cash equivalents at end of the period | $ | 16,909 |
| | $ | 17,027 |
| | $ | 58,437 |
|
| Supplemental disclosure of cash flow information: | | | | | |
| Non-cash investing and financing activities: | | | | | |
| Property and equipment expenditures included in accounts payable and accrued expenses | $ | 1,567 |
| | $ | 4,461 |
| | $ | 2,089 |
|
| Promissory note assumed for purchase of property and equipment | $ | 5,113 |
| | $ | — |
| | $ | — |
|
| Contingent consideration related to business acquisitions | $ | 15,489 |
| | $ | 8,754 |
| | $ | 2,963 |
|
| Common stock issued related to business acquisitions | $ | 9,560 |
| | $ | — |
| | $ | 2,204 |
|
| Cash paid during the year for: | | | | | |
| Interest | $ | 9,068 |
| | $ | 6,470 |
| | $ | 9,274 |
|
| Income taxes | $ | 5,399 |
| | $ | 24,584 |
| | $ | 10,955 |
|
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
1. Description of Business
Huron is a global professional services firm committedconsultancy that collaborates with clients to achievingdrive strategic growth, ignite innovation and navigate constant change. Through a combination of strategy, expertise and creativity, we help clients accelerate operational, digital and cultural transformation, enabling the change our clients need to own their future. By embracing diverse perspectives, encouraging new ideas and challenging the status quo, Huron delivers sustainable results in partnership with its clients. for the organizations it serves.
We bring a depth of expertise in strategy, technology, operations, advisoryprovide our services and analyticsmanage our business under three operating segments: Healthcare, Business Advisory, and Education. See Note 19 “Segment Information” for a discussion of our three segments.
Effective January 1, 2022, we modified our operating model to expand and more deeply integrate our industry expertise with our digital, strategic and financial advisory capabilities. The new operating model will strengthen Huron’s go-to-market strategy, drive lastingefficiencies that support margin expansion, and measurable resultsposition the company to accelerate growth.
To align with the new operating model, effective with reporting for periods beginning January 1, 2022, we will begin reporting under the following three industries, which will be our reportable segments: Healthcare, Education and Commercial. The Commercial segment will include all industries outside of healthcare and education, including, but not limited to, financial services and energy and utilities. In the new reporting structure, each segment will include all revenue and costs associated with engagements delivered in the healthcare, higher education, life sciencesrespective industry segments. The new Healthcare and commercial sectors.Education segments will include some revenue and costs historically reported in the Business Advisory segment and the Healthcare segment will include some revenue and costs historically reported in the Education segment. We will also provide revenue reporting across two principal capabilities: i) Consulting and Managed Services and ii) Digital. These changes will create greater transparency for investors by improving visibility into the core drivers of our business. While our consolidated results will not be impacted, we will recast our historical segment information during 2022 for consistent presentation.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The accompanying consolidated financial statements reflect the financial position at December 31, 20172021 and 2016,2020, and the results of operations and cash flows for the years ended December 31, 2017, 2016,2021, 2020, and 2015.2019.
The consolidated financial statements include the accounts of Huron Consulting Group Inc. and its subsidiaries, all of which are wholly-owned. All intercompany balances and transactions have been eliminated in consolidation.
During the secondfirst quarter of 2017, we recorded a non-cash pretax goodwill impairment charge of $209.6 million related to our Healthcare reporting unit. During the fourth quarter of 2017, we identified that our calculation of the non-deductible portion of this goodwill impairment charge erroneously excluded a portion of goodwill that was related to an acquisition completed in 2008 that has since been divested. To correct this error, in the fourth quarter of 2017, we recorded a $1.5 million decrease to our non-cash pretax goodwill impairment charge with an offsetting $1.5 million increase to our goodwill balance. We also recorded a $1.5 million decrease to our income tax benefit with an offsetting $1.5 million increase to our deferred tax asset balance. This error had no impact on our consolidated net loss from continuing operations, and we concluded that the impact of the error was not material for the second, third, or fourth quarter financial statements, or the financial statements for the year ended December 31, 2017.
During the fourth quarter of 2017,2021, we identified an error on our previously reported consolidated balance sheetssheet as of June 30, 2017 and September 30, 2017 December 31, 2020
related to the classification ofbetween receivables from clients, unbilled services, and deferred tax assets and liabilities. We incorrectly netted $1.5 million of deferred tax liabilities related to certain jurisdictions with the deferred tax assets of unrelated jurisdictionsrevenues. Our consolidated balance sheet as of June 30, 2017 and September 30, 2017. This error has been corrected as
of December 31, 2017.2020 has been revised to reflect the correction of this error. The results of this correction on our consolidated balance sheet were a decrease in unbilled services of $7.2 million, an increase in receivables from clients of $0.7 million, and a decrease in deferred revenues of $6.5 million. This error had no impact on our consolidated statement of operations and weother comprehensive income and consolidated statements of cash flows for any current or prior period. We evaluated the materiality of this error from both quantitative and qualitative perspectives and concluded that the impact of the error was not material to the second and third quarter financial statements or the financial statements for the year ended December 31, 2017.
On December 31, 2015, we sold our Huron Legal segment to a third party. The operations of our Huron Legal segment have been classified as discontinued operations in our consolidated statements of operations for all periods presented. As of December 31, 2017 and 2016, no assets or liabilities of the disposed business remained on our consolidated balance sheet. See Note 3 "Discontinued Operations" for additional information on the divestiture of our Huron Legal segment.2020.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts that are reported in the consolidated financial statements and accompanying disclosures. Actual results may differ from these estimates and assumptions.
Revenue Recognition
Revenue is recognized when persuasive evidence of an arrangement exists, the related services are provided, the price is fixed or determinable, and collectability is reasonably assured. We generate the majoritysubstantially 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. A single contract could include one or multiple performance obligations. For those contracts that have multiple
performance obligations, we allocate the total transaction price to each performance obligation based on its relative standalone selling price,
which is determined based on our overall pricing objectives, taking into consideration market conditions and other factors.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Revenue is recognized when control of the goods and services provided are transferred to our customers and in an amount that reflects the consideration we expect to be entitled to in exchange for those goods and services using the following steps: 1) identify the contract, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue as or when we satisfy the performance obligations.
We typically satisfy our performance obligations for professional services over time as the related services are provided. The performance obligations related to software support and maintenance and subscriptions to our cloud-based analytic tools and solutions are typically satisfied evenly over the course of the service period. Other performance obligations, such as certain software licenses, speaking engagements, conferences, and publications, are satisfied at a point in time.
We generate our revenues under four4 types of billing arrangements: fixed-fee (including software license revenue), time-and-expense, performance-based,; time-and-expense; performance-based; and software support, and maintenance and subscriptions.
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. 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. Contracts within our Studer GroupCulture and Organizational Excellence solution areinclude fixed-fee partner contracts with multiple deliverables,performance obligations, which primarily consist of coaching services, as well as seminars, materialsspeaking engagements, conferences, publications and software products (“Partner Contracts”). Revenues for coaching services and software products are generally recognized on a straight-line basis over the length of the contract. All other revenues under Partner Contracts, including speaking engagements, conferences and publications, are recognized at the time the service isgoods or services are provided. Estimates of total engagement revenues and cost
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
of services are monitored regularly during the term of the engagement. If our estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable.
We also generate revenues from software licenses for our revenue cycle management software and research administration and compliance software. Licenses for our revenue cycle management software are sold only as a component of our consulting projects, and the services we provide are essential to the functionality of the software. Therefore, revenues from these software licenses are recognized over the term of the related consulting services contract. License revenue from our research administration and compliance software is generally recognized in the month in which the software is delivered.
Time-and-expense billing arrangements require the client to pay based on the number of hours worked by our revenue-generating professionals at agreed upon rates. Time-and-expense arrangements also include certain speaking engagements, conferences, and publication orderspublications purchased by our clients outside of Partner Contracts within our Studer Group solution.Culture and Organizational Excellence solution and the portion of our Healthcare Managed Services contracts that are billed under time-and-expense arrangements. We recognize revenues under time-and-expense arrangements as the related services or publications are provided.provided, using the right to invoice practical expedient which allows us to recognize revenue in the amount that we have a right to invoice based on the number of hours worked and the agreed upon hourly rates or the value of the speaking engagements, conferences or publications purchased by our clients.
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 have performance-based engagements in which we earn a success fee when and if certain predefined outcomes occur. We do not recognize revenuesrevenue under performance-based billing arrangements until all related performance criteria are met.using the following steps: 1) estimate variable consideration using a probability-weighted assessment of the fees to be earned, 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.
Clients that have purchased one of our software licenses can pay an annual fee for software support and maintenance. We also generate subscription revenue from our cloud-based analytic tools and solutions. Software support, and maintenance and subscription-basedsubscription revenues are recognized ratably over the support or subscription period, which ranges from one to three years.period. These fees are generally billed in advance and included in deferred revenues until recognized.
We have arrangements with clients in which we provide multiple elements of services under one engagement contract. Revenues under these types of arrangements are allocated to each element based on the element’s fair value and recognized pursuant to the criteria described above.
Provisions are recorded for the estimated realization adjustments on all engagements, including engagements for which fees are subject to review by the bankruptcy courts.
Expense reimbursements that are billable to clients are included in total revenues and reimbursable expenses, and typically an equivalentexpenses. Under fixed-fee billing arrangements, we estimate the total amount of reimbursable expenses to be incurred over the course of the engagement and recognize the estimated amount as revenue 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. Under time-and-expense billing arrangements we recognize reimbursable
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
expenses as revenue as the related services are included in total direct costs and reimbursable expenses.provided, using the right to invoice practical expedient. Reimbursable expenses are primarily recognized as revenueexpenses in the period in which the expense is incurred. Subcontractors that are billed to clients at cost are also included in reimbursable expenses. When billings do not specifically identify reimbursable expenses, we allocate the portion of the billings equivalent to these expenses to reimbursable expenses.
The payment terms and conditions in our customer contracts vary. Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferred revenues in the accompanying consolidated balance sheets. Revenues recognized for services performed but not yet billed to clients are recorded as unbilled services. Revenues recognized, but for which we are not yet entitled to bill because certain events, such as the completion of the measurement period or client approval, must occur, are recorded as contract assets and included within unbilled services. Client prepayments and retainers are classified as deferred revenues and recognized over future periods as earned in accordance with the applicable engagement agreement.
Capitalized Sales Commissions
Sales commissions earned by our sales professionals are considered incremental and recoverable costs of obtaining a contract with a customer. Sales commissions with an expected amortization period greater than one year are deferred and amortized on a straight-line basis over the period of the associated contract. We elected to apply the practical expedient to expense sales commissions as incurred when the expected amortization period is one year or less. Amortization expense is recorded to direct costs. During the years ended December 31, 2021, 2020, and 2019, we amortized $0.4 million, $0.4 million, and $0.3 million, respectively, of capitalized sales commissions. Unamortized sales commissions were $0.6 million and $0.7 million as of December 31, 2021 and 2020, respectively.
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 the provision relates to fee adjustments and other discretionary pricing adjustments. To the extent the provision relates to a client’s inability to make required payments on accounts receivables, we record the provision to selling, general and administrative expenses.
Direct Costs and Reimbursable Expenses
Direct costs and reimbursable expenses consist primarily of revenue-generating employee compensation and their related benefits and share-based compensation costs,costs; as well as technology costs, commissions, the cost of outside consultants or subcontractors assigned to revenue-generating activities, technology costs, other third-party costs directly attributable to our revenue-generating activities, and direct expenses to be reimbursed by clients. Direct costs and reimbursable expenses incurred on engagements are expensed in the period incurred.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Cash and Cash Equivalents
We consider all highly liquid investments, including overnight investments and commercial paper, with original maturities of three months or less to be cash equivalents.
Concentrations of Credit Risk
To the extent receivables from clients become delinquent, collection activities commence. No single client balance is considered large enough to pose a material credit risk. The allowances for doubtful accounts and unbilled services are based upon the expected ability to collect accounts receivable and bill and collect unbilled services. Management does not anticipate incurring losses on accounts receivable in excess of established allowances. See Note 1819 “Segment Information” for concentration of accounts receivable and unbilled services.
We hold our cash in accounts at multiple third-party financial institutions. These deposits, at times, may exceed federally insured limits. We review the credit ratings of these financial institutions, regularly monitor the cash balances in these accounts, and adjust the balances as appropriate. However, these cash balances could be impacted if the underlying financial institutions fail or are subject to other adverse conditions in the financial markets.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Long-term InvestmentInvestments
Our long-term investment consistsinvestments consist of our convertible debt investment in Shorelight Holdings, LLC. LLC (“Shorelight”) and preferred stock investment in Medically Home Group, Inc. (“Medically Home”).
We classified the convertible debt investment in Shorelight as available-for-sale at the time of purchase and reevaluate such classification as of each balance sheet date. The investment is carried at fair value with unrealized holding gains and losses reported in other comprehensive income. If the investment is in an unrealized loss position we assess whether the investment is other than temporarily impaired. We consider impairments to be other than temporary if they are relateddue to significant credit deterioration or if it is likelyof the investee, we will sellrecognize an allowance to decrease the security beforecarrying value of the recoveryinvestment to the fair value, which may be reversed in the event that the credit of its cost basis. We have not identified any other than temporary impairments for our convertible debt investment.an issuer improves. In the event there are realized gains and losses or declines in value judged to be other than temporary,credit allowances recognized, we will record the amount in earnings. We have not recognized any credit allowance on our convertible debt investment or realized gains or losses as of December 31, 2021. See Note 1213 “Fair Value of Financial Instruments” for furtheradditional information on our convertible debt investment.
We classified the preferred stock investment in Medically Home as an equity security without a readily determinable value at the time of purchase and reevaluate such classification as of each balance sheet date. We elected to apply the measurement alternative at the time of purchase and will continue to do so until the investment does not qualify to be so measured. Under the measurement alternative, the investment is carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for an identical or similar investment in Medically Home. Any unrealized holding gains and losses resulting from observable price changes are recorded in our consolidated statement of operations. Following our purchase, we have not identified any impairment of our investment. See Note 13 “Fair Value of Financial Instruments” for additional information on our preferred stock investment and the unrealized gain recognized in 2020.
Fair Value of Financial Instruments
See Note 1213 “Fair Value of Financial Instruments” for the accounting policies used to measure the fair value of our financial assets and liabilities that are measured at fair value on a recurring basis.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation of property and equipment is computed on a straight-line basis over the estimated useful lives of the assets. Software, computers, and related equipment are depreciated over an estimated useful life of two to four years. Furniture and fixtures are depreciated over five years. Aircraft are depreciated over ten years. Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the initial term of the lease.
Leases
We determine if an arrangement contains a lease and the classification of such lease at inception. As of December 31, 2021 and 2020, all of our material leases are classified as operating leases; we have not entered into any material finance leases. For all operating leases with an initial term greater than 12 months, we recognize an operating lease right-of-use (“ROU”) asset and operating lease liability. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
Operating lease ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date and provided by the administrative agent for our senior secured credit facility in determining the present value of lease payments. Operating lease ROU assets exclude lease incentives. We elected the practical expedient to combine lease and nonlease components. Certain lease agreements contain variable lease payments that do not depend on an index or rate. These variable lease payments are not included in the calculation of the operating lease ROU asset and operating lease liability; instead, they are expensed as incurred. Our leases may contain options to extend or terminate the lease, and we include these terms in our calculation of the operating lease ROU asset and operating lease liability when it is reasonably certain that we will exercise the option.
Operating lease expense is recognized on a straight-line basis over the lease term and recorded within selling, general and administrative expenses on our consolidated statement of operations. In accordance with our accounting policy for impairment of long-lived assets, operating lease ROU assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group to which the operating lease ROU asset is assigned may not be recoverable. We evaluate the recoverability of the asset group based on forecasted undiscounted cash flows. See Note 5 “Leases” for additional information on our leases, including the lease impairment charges recorded in 2020 and 2019.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Software Development Costs
We incur internal and external software development costs related to our cloud computing applications and software for internal use. We capitalize these software development costs incurred during the application development stage. Costs related to preliminary project activities and post implementation activities are expensed as incurred. Once the project is substantially complete and ready for its intended use, these costs are amortized on a straight-line basis over the technology's estimated useful life. Acquired technology assets are initially recorded at fair value and amortized on a straight-line basis over the estimated useful life.
We also incur internal and external software developmentDevelopment costs related to our software products that will be sold, leased, or otherwise marketed. We expense these software development costsmarketed are expensed until technological feasibility has been established. Thereafter, and until the software is available for general release to customers, these software development costs are capitalized and subsequently reported at the lower of unamortized cost or net realizable value. These capitalized development costs are amortized in proportion to current and future revenue for each product with an annual minimum equal to the straight-line amortization over the remaining estimated economic life of the product. We did not capitalize any development costs for this type of software during 2021 or 2020.
We classify capitalized software development costs, which primarily relate to cloud computing applications and software for internal use, as other non-current assets on our consolidated balance sheet. UnamortizedAs of December 31, 2021, gross capitalized software development costs were $2.0and related accumulated amortization was $33.6 million and $1.4$15.6 million, atrespectively. As of December 31, 20172020, gross capitalized software development costs and 2016,related accumulated amortization was $28.5 million and $10.6 million, respectively. During the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, we amortized $0.8$5.2 million, $1.1$4.7 million, and $1.0$3.0 million, respectively, of capitalized software development costs.
Implementation Costs Incurred in a Cloud Computing Arrangement
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amountsthe cloud computing arrangements, including employee payroll and related benefits and third party consulting costs, incurred during the application development stage of a project. These costs are amortized on a straight-line basis over the term of the hosting service contracts, including renewal periods we are reasonably certain to exercise, and recognized as a component of selling, general and administrative expenses on our consolidated statement of operations. As of December 31, 2021 gross capitalized implementation costs incurred in thousands, except per share amounts)
a cloud computing arrangement and related accumulated amortization were $6.5 million and $0.9 million, respectively. As of December 31, 2020, gross capitalized implementation costs incurred in a cloud computing arrangement were $5.4 million, which began amortizing in January 2021. Our capitalized implementation costs primarily relate to the implementation of a new enterprise resource planning (“ERP”) system during 2020 and 2021. In January 2021, we successfully went live with the new ERP system, and we continue to progress with additional functionality and integrations as scheduled. These capitalized costs are included as a component of prepaid expenses and other current assets and other non-current assets on our consolidated balance sheet.
Intangible Assets Other Than Goodwill
Identifiable intangible assets are amortized over their expected useful lives using a method that reflects the economic benefit expected to be derived from the assets or on a straight-line basis. We evaluate the recoverability of intangible assets periodically by taking into accountconsidering events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.
Impairment of Long-Lived Assets
Long-lived assets, including property and equipment, right-of-use assets, and intangible assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability may include significant unfavorable changes in business conditions, recurring losses, or a significant decline in forecasted operating results over an extended period of time. We evaluate the recoverability of long-lived assets based on forecasted undiscounted cash flows.
In connection with the goodwill impairment tests performed See Note 5 “Leases” and Note 11 “Restructuring Charges” for the Healthcareinformation on our operating lease right-of-use asset and Enterprise Solutions and Analytics reporting units in 2017, which resulted in non-cash goodwillfixed asset impairment charges we performed impairment tests on the long-lived assets allocated to the asset groups within the Healthcarerecorded in 2020 and Enterprise Solutions and Analytics reporting units. Based on the impairment tests performed, we concluded that the long-lived assets allocated to the asset groups were not impaired.2019. No material impairment charges for other long-lived assets were recorded in 2017, 2016,2021, 2020, or 2015.2019.
Goodwill
For acquisitions accounted for as a business combination, goodwill represents the excess of the cost over the fair value of the net assets acquired. We are required to test goodwill for impairment, at the reporting unit level, annually and when events or circumstances indicate the fair value of a reporting unit may be below its carrying value. 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. WeAs of December 31, 2021, we have six5 reporting units: Healthcare, Education, Business Advisory, Enterprise Solutions and Analytics, and Strategy and Innovation, and Life Sciences.Innovation. The Business Advisory, Enterprise Solutions and
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Analytics, and Strategy and Innovation and Life Sciences reporting units make up our Business Advisory operating segment. During the fourth quarter of 2021, we completed the divestiture of our Life Sciences business, which was a reporting unit within the Business Advisory segment.
We test goodwill for impairment 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.
In 2017,Pursuant to our policy, we performed threethe annual goodwill impairment test as of November 30, 2021 and determined that no impairment of goodwill existed as of that date. Further, we evaluated whether any events have occurred, or any circumstances have changed since November 30, 2021 that would indicate goodwill may have become impaired since our annual impairment test. Based on our evaluation as of December 31, 2021, we determined that no indications of impairment have arisen since our annual goodwill impairment test. In 2020, we performed two goodwill impairment tests: an interim impairment test on our Healthcare reporting unit in the second quarter of 2017; an interim impairment test on our EducationStrategy and Innovation and Life Sciences reporting units as a result of our segment reorganization in the secondfirst quarter of 2017;2020 and the annual impairment test on all reporting units with a goodwill balance in the fourth quarter of 2017.2020. As a result of these tests,the interim impairment test performed in the first quarter of 2020, we recorded total non-cash pretax goodwill impairment charges of $253.1$59.8 million. We did not identify any additional impairments during our annual impairment test performed in the fourth quarter of 2020. No goodwill impairment charges were recorded in 2016 or 2015.2019. See Note 5 "Goodwill4 “Goodwill and Intangible Assets"Assets” for additional information regardingon our interim and annual goodwill impairment tests, and the non-cash goodwill impairment charges recorded in 2017.2020.
Business Combinations
We use the acquisition method of accounting for business combinations. Each acquired company’s operating results are included in our consolidated financial statements starting on the date of acquisition. The purchase price is equivalent to the fair value of consideration transferred. TangibleUpon our adoption of Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers which we retrospectively applied to all acquisitions in 2021, contract assets and contract liabilities acquired are recorded at their carrying value under Topic 606: Revenue from Contracts with Customers. Prior to adoption of ASU 2021-08, contract assets and contract liabilities were recognized at their estimated fair values as of the acquisition date. All other assets tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. Goodwill is recognized for the excess of purchase price over the net fair value of tangible and intangible assets acquired and liabilities assumed. Contingent consideration, which is primarily based on the business achieving certain performance targets, is recognized at its fair value on the acquisition date, and changes in fair value are recognized in earnings until settled. Refer to Note 123 “Acquisitions and Divestitures” for additional information on our business acquisitions and refer to Note 13 “Fair Value of Financial Instruments” for furtheradditional information regarding our contingent acquisition liability balances.
Deferred Lease Incentives
We record the portion of the deferred lease incentive liability that we expect to recognize over a period greater than one year as a non-current liability. The non-current portion of the deferred lease incentive liability totaled $15.3 million and $10.7 million at December 31, 2017 and 2016, respectively, and was primarily generated from tenant improvement allowances and rent abatement. Deferred lease incentives are amortized on a straight-line basis over the life of the lease. The portion of the deferred lease incentive corresponding to the rent payments that will be paid within 12 months of the balance sheet date is classified as a current liability. We monitor the classification of such liabilities based on the expectation of their utilization periods.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Income Taxes
Current tax liabilities and assets are recognized for the estimated taxes payable or refundable, respectively, on the tax returns for the current year. We have elected to recognize the tax expense related to Global Intangible Low-Taxed Income ("GILTI") as a current period expense when incurred. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. 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. To the extent that deferred tax assets will not likely be recovered from future taxable income, a valuation allowance is established against such deferred tax assets.
Refer to Note 1617 "Income Taxes" for further information on the impact of the Tax Cuts and Jobs Act of 2017 ("2017 Tax Reform") enacted in the fourth quarter on our consolidated financial statements.regarding incomes taxes.
Share-Based Compensation
Share-based compensation cost is measured based on the grant date fair value of the respective awards. We generally recognize share-based compensation ratably using the straight-line attribution method; however, for those awards with performance criteria and graded vesting features, we use the graded vesting attribution method. It is our policy to account for forfeitures as they occur.
Sponsorship and Advertising Costs
Sponsorship and advertising costs are expensed as incurred. Such expenses for the years ended December 31, 2017, 2016,2021, 2020, and 20152019 totaled $6.6$4.3 million, $7.1$4.1 million, and $6.4$8.4 million, respectively, and are a component of selling, general and administrative expenses on our consolidated statement of earnings.
Convertible Senior Notes
In September 2014, we issued $250 million principal amount of 1.25% convertible senior notes due 2019 (the “Convertible Notes”) in a private offering. We have separated the Convertible Notes into liability and equity components. The carrying amount of the liability component was determined by measuring the fair value of a similar liability that does not have an associated convertible feature. The carrying value of the equity component representing the conversion option, which is recognized as a debt discount, was determined by deducting the fair value of the liability component from the proceeds of the Convertible Notes. The debt discount is amortized to interest expense using the effective interest method over the term of the Convertible Notes. The equity component will not be remeasured as long as it continues to meet the conditions for equity classification. Refer to Note 7 “Financing Arrangements” for further information regarding the Convertible Notes.operations.
Debt Issuance Costs
We amortize the costs we incur to obtain debt financing over the contractual life of the related debt using the effective interest method for non-revolving debt and the straight-line method for revolving debt. The amortization expense is included in interest expense, net of interest
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
income in our statement of earnings.operations. Unamortized debt issuance costs attributable to our revolving credit facility are included as a component of other non-current assets. Unamortized debt issuance costs attributable to our Convertible Notes are recorded as a deduction from the carrying amount of the debt liability.
Foreign Currency
Assets and liabilities of foreign subsidiaries whose functional currency is not the United States Dollar (USD) are translated into the USD using the exchange rates in effect at period end. Revenue and expense items are translated using the average exchange rates for the period. Foreign currency translation adjustments are included in accumulated other comprehensive income, which is a component of stockholders’ equity.
Foreign currency transaction gains and losses are included in other income, net on the consolidated statement of earnings.operations. We recognized $0.4 million of foreign currency transaction gainslosses in 2017, de minimis2021, less than $0.1 million of foreign currency transaction gains in 2016,2020, and $1.6$0.2 million of foreign currency transaction losses in 2015.2019.
Segment Reporting
Segments are defined as components of a company that engage in business activities from which they may earn revenues and incur expenses, and for which separate financial information is available and is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. OurAs of December 31, 2021, our chief operating decision maker manages the business under three3 operating segments, which are our reportable segments: Healthcare, Education,Business Advisory, and Business Advisory. DuringEducation. See Note 19 "Segment Information" for additional information on the secondsegment reorganization effective in the first quarter of 2017, we reorganized2022.
New Accounting Pronouncements
Recently Adopted
In January 2020, the Financial Accounting Standards Board ("FASB") issued ASU 2020-01, Investments - Equity Securities (Topic 321) - Investments - Equity Method and Joint Ventures (Topic 323), and Derivatives and Hedging (Topic 815) - Clarifying the Interactions between Topic 321, Topic 323, and Topic 815. ASU 2020-01 clarifies that an entity should consider observable transactions that require it to either apply or discontinue the equity method of accounting for the purpose of applying the measurement alternative in accordance with Topic 321. We elected to early adopt ASU 2020-10 effective January 1, 2021, which did not have any impact on our internalconsolidated financial statements.
In October 2020, the FASB issued ASU 2020-10, Codification Improvements. ASU 2020-10 situates all disclosure guidance within the appropriate disclosure section of the Codification and makes other improvements and technical corrections to the Codification. We adopted ASU 2020-10 effective January 1, 2021, which did not have any impact on our consolidated financial statements.
In October 2021, the FASB issued ASU 2021-08, Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers. The amendments of this ASU require entities to apply Topic 606 to recognize and measure contract assets and contract liabilities in a business combination. The amendments improve comparability after the business combination by providing consistent recognition and measurement guidance for revenue contracts with customers acquired in a business combination and revenue contracts with customers not acquired in a business combination. We elected to early adopt ASU 2021-08 in the fourth quarter of 2021 on a retrospective basis for all 2021 acquisitions, which had no impact on our consolidated financial statements.
Not Yet Adopted
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848): Facilitation of the Effects of Reference Rate Reform on Financial Reporting. In January 2021, the FASB clarified the scope of that guidance with the issuance of ASU 2021-01, Reference Rate Reform (Topic 848): Scope. Together, these ASUs provide optional expedients and exceptions for a limited period of time to ease the potential burden in accounting for, or recognizing the effects of, reference rate reform on financial reporting structure, which management usesunder GAAP. This standard is optional and may be applied by entities after March 12, 2020, but no later than December 31, 2022. We have certain debt instruments and related interest rate swaps that are indexed to assess performance and
LIBOR; as such, we are currently evaluating the potential impact this guidance will have on our consolidated financial statements.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
3. Acquisitions and Divestitures
allocate resources, by movingAcquisitions
2021
Unico Solution, Inc.
On February 1, 2021, we completed the acquisition of Unico Solution, Inc. (“Unico Solutions”), a data strategy and technology consulting firm focused on helping clients enhance the use of their data to speed business transformation and accelerate cloud adoption. The acquisition expands our Life Sciences practice from the Education and Life Sciences segment tocloud-based technology offerings within the Business Advisory segment. The remaining Education and Life Sciences segment is now referred to as the Education segment. While our consolidated results have not been impacted, we have reclassified our historical segment information for consistent presentation.
New Accounting Pronouncements
Recently Adopted
In February 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income. ASU 2018-02 allows entities to reclassify stranded tax effects resulting from the enactmentoperations of the 2017 Tax Cuts and Jobs Act ("2017 Tax Reform") from accumulated other comprehensive income to retained earnings. We adopted ASU 2018-02 upon issuance and reclassified $0.5 million of stranded tax effects, primarily related to our convertible debt investment, from accumulated other comprehensive income to retained earnings as of December 31, 2017. Refer to Note 16 "Income Taxes" for additional information on the 2017 Tax Reform.
In January 2017, the FASB issued ASU 2017-04, Intangibles-Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment. ASU 2017-04 eliminates Step 2 of the goodwill impairment test, which required us to determine the implied fair value of goodwill by allocating the reporting unit's fair value to each of its assets and liabilities as if the reporting unit was acquired in a business acquisition. Instead, the updated guidance requires an entity to perform its annual or interim goodwill impairment test by comparing the fair value of the reporting unit to its carrying value, and recognizing a non-cash impairment charge for the amount by which the carrying value exceeds the reporting unit's fair value with the loss not exceeding the total amount of goodwill allocated to that reporting unit. We adopted this ASU in the second quarter of 2017 on a prospective basis and applied the new guidance to our interim goodwill impairment tests performed in the second quarter of 2017 and our annual impairment test performed as of November 30, 2017. Refer to Note 5 “Goodwill and Intangible Assets” for additional information on our interim and annual goodwill impairment tests performed.
In March 2016, the FASB issued ASU 2016-09, Improvements to Employee Share-Based Payment Accounting. ASU 2016-09 simplifies several aspects of the accounting for share-based payment transactions, including the accounting for income taxes, classification of excess tax benefits on the statement of cash flows, and forfeitures. We adopted this guidance in the first quarter of 2017, at which time we began recognizing excess tax benefits and deficiencies as income tax benefit or expenseUnico Solutions are included in our consolidated financial statements and results of operations on a prospective basis. We recognized $1.8 million of net excess tax deficiencies as income tax expenseour Business Advisory segment from the date of acquisition.
Bad Rabbit, Inc.
On October 1, 2021 we completed the acquisition of the research administration software services team of Bad Rabbit, Inc. (“Bad Rabbit”). The results of operations of Bad Rabbit are included in our consolidated statementfinancial statements and results of operations of our Education segment from the date of acquisition.
Whiteboard Communications Ltd.
On December 1, 2021, we completed the acquisition of Whiteboard Communications Ltd. (“Whiteboard”), a student enrollment advisory firm that helps colleges and universities with recruitment initiatives and financial aid strategies. The results of operations of Whiteboard are included in our consolidated financial statements and results of operations of our Education segment from the date of acquisition.
Perception Health, Inc.
On December 31, 2021, we completed the acquisition of Perception Health, Inc. (“Perception Health”), a healthcare predictive analytics company focused on bringing data sources together for improved clinical and business decision-making. The results of operations of Perception Health will be included in our consolidated financial statements and results of operations of our Healthcare segment beginning January, 1, 2022.
The acquisitions of Unico Solutions, Bad Rabbit, Whiteboard and Perception Health are not significant to our consolidated financial statements individually or in the aggregate as of and for the year ended December 31, 2017. Additionally, upon adoption,2021. These acquisition were accounted for using the acquisition method of accounting. Contract assets and contract liabilities are recorded at their carrying value under Topic 606: Revenue from Contracts with Customers as we began classifying excess tax benefitsadopted ASU 2021-08 Business Combinations (Topic 805): Accounting for Contract Assets and Contract Liabilities from Contracts with Customers in the fourth quarter of 2021. All other tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as an operating activityof the acquisition date. The current acquisition date values of assets acquired and liabilities assumed of the Whiteboard and Perception Health acquisitions are considered preliminary and are based on the statementinformation that was available as of cash flows onthe dates of the acquisitions. We believe that the information provides a retrospective basis. As a result, we reclassified $0.9 millionreasonable basis for estimating the preliminary values of assets acquired and $3.6 millionliabilities assumed but certain items, such as the intangible assets valuations and the working capital adjustments, among other things, may be subject to change as additional information is received. Thus, the provisional measurements of excess tax benefits for the years ended December 31, 2016assets acquired, including goodwill, and 2015, respectively, from cash flows from financing activities to cash flows from operating activities on our statement of cash flows. We elected to account for share-based award forfeitures as they occur, and applied this accounting change on a modified retrospective basis as a cumulative-effect adjustment to retained earnings of $0.4 million during the first quarter of 2017.
In March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging: Contingent Put and Call Options in Debt Instruments. ASU 2016-06 clarifies that in assessing whether an embedded contingent put or call option is clearly and closelyliabilities assumed related to the debt host, an entity is requiredWhiteboard and Perception Health acquisitions are subject to perform onlychange. We expect to finalize the four-step decision sequencevaluations as soon as practicable, but not later than one year from the acquisition dates.
2020
B3i Analytics, LLC
On August 1, 2020, we completed the acquisition of B3i Analytics, LLC (“B3i Analytics”), a software firm that provides a software as a solution (“SaaS”) application to leverage internal and external data to help higher education institutions forecast research revenue. The results of operations of B3i Analytics are included in ASC 815-15-25-42 (as amended by the ASU). The entity does not have to separately assess whether the event that triggers its ability to exercise the contingent option is itself indexed only to interest rates or credit risk. We adopted these amendments in the first quarter of 2017 on a modified retrospective basis. The adoption of these amendments did not have any impact on our consolidated financial statements.
Not Yet Adopted
In August 2017, the FASB issued ASU 2017-12, Derivativesstatements and Hedging (Topic 815): Targeted Improvements to Accounting for Hedging Activities. The amendments to the guidance improve and simplify accounting rules for hedge accounting to better present the economic results of an entity’s risk management activitiesoperations of our Education segment from the date of acquisition.
ForceIQ, Inc.
On November 1, 2020, we completed the acquisition of ForceIQ, Inc. (“ForceIQ”), a Salesforce Industries partner focused on helping clients drive digital transformation and innovation at scale powered by the cloud. The acquisition expands our cloud-based technology offerings within the Business Advisory segment. The results of operations of ForceIQ are included in itsour consolidated financial statements and improveresults of operations of our Business Advisory segment from the disclosuresdate of hedging arrangements. Additionally, ASU 2017-12 simplifies the hedge documentation and effectiveness assessment requirements. The updated guidance is effective for us beginning January 1, 2019. We do not expect this guidance to have a material impact on our consolidated financial statements.
In March 2016, the FASB issued ASU 2016-02, Leases, which supersedes ASC Topic 840, Leases, and sets forth the principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record on the balance sheet a right-of-use asset and a lease liability, equal to the present value of the remaining lease payments, for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized based on an effective interest rate method or a straight-line basis over the term of the lease. ASU 2016-02 will be effective for us beginning January 1, 2019, with early adoption permitted. Entities are required to
acquisition.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
use a modified retrospective transition method for existing leases. We are currently evaluating the potential impact this guidance will have on our consolidated financial statements.
In January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities. The amendments to the guidance enhance the reporting model for financial instruments, which includes amendments to address aspects of recognition, measurement, presentation, and disclosure. The updated guidance is effective for us beginning January 1, 2018. We do not expect this guidance to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers, as a new Topic, ASC 606. The new revenue recognition standard provides a five-step analysis of transactions to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. In accordance with the new standard, we will adopt ASU 2014-09 on January 1, 2018 using the modified retrospective transition method, under which the new guidance will be applied to the current period presented in the financial statements and a cumulative-effect adjustment will be recorded as of the date of adoption. We are currently completing our analysis to determine the impact of ASC 606 on our consolidated financial statements, and expect the more impactful aspect of ASC 606 will relate to how we recognize revenue under performance-based fee billing arrangements. Currently, we recognize revenue under these arrangements once all related performance criteria are met and the amount to be recognized is fixed or determinable. However, upon adoption of the new standard, we will estimate these amounts and recognize the estimated amounts as services are performed over the contractual term of the engagements. The cumulative-effect adjustment will capture the amount of revenue we would have recognized on all outstanding performance-based fee billing arrangements under ASC 606 as of the adoption date, and record the difference as a cumulative-effect adjustment to retained earnings. Further, ASC 606 provides for certain practical expedients that we intend to use, including the option to expense contract acquisition costs as incurred if the contract term is one year or shorter. We also intend to use the as-invoiced practical expedient, which permits us to recognize revenue in the amount to which we have the right to invoice a customer if that amount corresponds to the value of the performance completed to date.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
3. Discontinued Operations
During 2015, we began evaluating strategic alternatives related to our Huron Legal segment, including the potential divestiture of the practice. On December 10, 2015, we entered into an agreement to sell Huron Legal to Consilio, Inc. ("Consilio"). Pursuant to this agreement, Consilio acquired substantially all of the assets and assumed certain liabilities of Huron Legal, and acquired all issued and outstanding equity interests in certain entities wholly owned by Huron. Huron Legal provided eDiscovery services, consulting services and contract management services related to law department management, information governance and compliance, legal discovery, litigation management, and legal analytics.
The sale closed on December 31, 2015, at which time we received proceeds of $110.1 million and recognized a pretax disposal loss of $2.3 million. The divestiture of the Huron Legal segment represented a strategic shift that had a major effect on our operations and financial results. As such, the operations of our Huron Legal segment have been classified as discontinued operations in our consolidated statements of operations for all periods presented. As of December 31, 2017 and 2016, no assets or liabilities of the disposed business remained on our consolidated balance sheets.
For the year ended December 31, 2017, we recognized income from discontinued operations, net of tax, of $0.4 million primarily related to updated lease assumptions for vacated office space directly related to the sale of the Huron Legal segment. For the year ended December 31, 2016, we recognized a loss from discontinued operations, net of tax, of $1.9 million, primarily related to obligations for former employees, legal fees, and updated lease assumptions for vacated office space directly related to the sale of the Huron Legal segment. The table below summarizes the operating results of Huron Legal for the year ended December 31, 2015. |
| | | |
| | Year Ended
December 31, 2015 |
| Revenues and reimbursable expenses: | |
| Revenues | $ | 139,430 |
|
| Reimbursable expenses | 3,148 |
|
| Total revenues and reimbursable expenses | 142,578 |
|
Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses): | |
| Direct costs | 95,247 |
|
| Amortization of intangible assets and software development costs | 233 |
|
| Reimbursable expenses | 3,153 |
|
| Total direct costs and reimbursable expenses | 98,633 |
|
| Operating expenses and other operating gain: | |
| Selling, general and administrative expenses | 20,640 |
|
Restructuring charges (1) | 13,341 |
|
| Other gain | (900 | ) |
| Depreciation and amortization | 9,605 |
|
| Total operating expenses and other operating gain | 42,686 |
|
| Operating income | 1,259 |
|
| Other expense, net | (13 | ) |
| Income from discontinued operations before taxes | 1,246 |
|
| Loss on disposal | (2,303 | ) |
| Total loss from discontinued operations before taxes | (1,057 | ) |
Income tax benefit (2) | 1,786 |
|
| Net loss from discontinued operations | $ | (2,843 | ) |
(1) During 2015, the Huron Legal segment incurred a $13.3 million restructuring charge. Of the $13.3 million, $6.1 million related to accelerated depreciation on assets disposed of as a result of the sale, $5.1 million related to employee costs incurred in connection with the sale, $1.1 million related to the accrual of our remaining lease obligations for vacated spaces, net of estimated sublease income, and $1.0 million related to severance costs incurred from prior workforce reductions.
| |
(2) | Refer to Note 16 "Income Taxes" for additional detail on the income tax benefit recognized for discontinued operations. |
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The table below summarizes the amounts reflected in our consolidated statements of cash flows that relate to the discontinued operations for the year ended December 31, 2015. |
| | | |
| | Year Ended
December 31, 2015 |
| Depreciation and amortization | $ | 15,974 |
|
| Share-based compensation | $ | 2,215 |
|
| Purchases of property and equipment | $ | 6,234 |
|
| Significant non-cash investing items of discontinued operations: | |
| Contingent consideration related to a business acquisition | $ | 900 |
|
In connection with the sale of Huron Legal, we entered into a transition services agreement ("TSA") with Consilio, under which we provided certain post-closing services, support, and facilities to Consilio to facilitate an orderly transfer of the Huron Legal business operations. Billings under the TSA, which we did not consider to be significant, were recorded as a reduction of the costs to provide the respective services, primarily in selling, general and administrative expenses in the consolidated statements of operations. Services under the TSA ended as of June 30, 2017. We have no continuing involvement with the Huron Legal segment.
4. Acquisitions
2017
Pope Woodhead and Associates Limited
On January 9, 2017, we completed our acquisition of Pope Woodhead and Associates Limited ("Pope Woodhead"), a U.K.-based consulting firm providing market access capabilities to assist clients in developing value propositions for innovative medicines and technologies. The acquisition expands our life sciences strategy expertise and strengthens our ability to lead clients through complex payer and regulatory environments. Pope Woodhead's results of operations have been included in our consolidated financial statements and the results of operations of our Business Advisory segment from the date of acquisition.
ADI Strategies, Inc.
On April 1, 2017, we completed our acquisition of the international assets of ADI Strategies, Inc. ("ADI Strategies") in Dubai and India. We acquired the U.S. assets of ADI Strategies in the second quarter of 2016. ADI Strategies is a leading enterprise performance management, risk management and business intelligence firm. The acquisition strengthens our technology and analytics competencies and expands our global reach. The international results of operations of ADI Strategies have been included in our consolidated financial statements and results of operations of the Business Advisory segment from the date of acquisition.
The acquisitions of ADI StrategiesB3i Analytics and Pope WoodheadForceIQ are not significant to our consolidated financial statements individually or in the aggregate as of and for the twelve months ended December 31, 2017.
Innosight Holdings, LLC
On March 1, 2017, we acquired 100% of the membership interests of Innosight Holdings, LLC ("Innosight"). Innosight is a growth strategy firm focused on helping companies navigate disruptive change and manage strategic transformation. Together with Innosight, we use our strategic, operational, and technology capabilities to help clients across multiple industries develop pioneering solutions to address disruption and achieve sustained growth.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The acquisition was accounted for using the acquisition method of accounting. Tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The current fair values of assets acquired and liabilities assumed are considered preliminary and are based on the information that is currently available. We believe that the information provides a reasonable basis for estimating the preliminary fair values of assets acquired and liabilities assumed, but certain items, such as working capital amounts, may be subject to change as additional information is received. Thus, the provisional measurements of fair value and goodwill are subject to change. We will finalize the valuation in the first quarter of 2018.
The acquisition date fair value of the consideration transferred for Innosight was $113.6 million, which consisted of the following:
|
| | | |
| Fair value of consideration transferred | |
| Cash | $ | 90,725 |
|
| Common stock | 9,560 |
|
| Contingent consideration liability | 12,050 |
|
| Net working capital adjustment | 1,272 |
|
| Total consideration transferred | $ | 113,607 |
|
We funded the cash component of the purchase price with cash on hand and borrowings of $89.0 million under our senior secured credit facility. We issued 221,558 shares of our common stock as part of the consideration transferred, with an acquisition date fair value of $9.6 million based on our common stock's closing price of $43.15 on the date of acquisition. The contingent consideration liability of $12.1 million represents the acquisition date fair value of the contingent consideration arrangement, pursuant to which we may be required to pay additional consideration to the sellers if specific financial performance targets are met over a four-year term. The maximum amount of contingent consideration that may be paid is $35.0 million. See Note 12 "Fair Value of Financial Instruments" for additional information on the valuation of contingent consideration liabilities.
The following table summarizes the preliminary allocation of the purchase price to the fair value of assets acquired and liabilities assumed as of the acquisition date. |
| | | |
| | March 1, 2017 |
| Assets acquired: | |
| Accounts receivable | $ | 7,752 |
|
| Unbilled services | 1,881 |
|
| Prepaid expenses and other current assets | 468 |
|
| Property and equipment | 419 |
|
| Intangible assets | 18,015 |
|
| Liabilities assumed: | |
| Accounts payable | 531 |
|
| Accrued expenses and other current liabilities | 894 |
|
| Accrued payroll and related benefits | 883 |
|
| Deferred revenues | 30 |
|
| Total identifiable net assets | 26,197 |
|
| Goodwill | 87,410 |
|
| Total purchase price | $ | 113,607 |
|
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the acquisition date. |
| | | | | |
| | Fair Value | | Useful Life in Years |
| Customer relationships | $ | 9,500 |
| | 6 |
| Trade name | 6,000 |
| | 6 |
| Customer contracts | 1,000 |
| | 1 |
| Non-compete agreements | 1,300 |
| | 5 |
| Favorable lease contract | 215 |
| | 1 |
| Total intangible assets subject to amortization | $ | 18,015 |
| | |
The weighted average amortization period for the identifiable intangible assets shown above is 5.6 years. Customer relationships and customer contracts represent the fair values of the underlying relationships and agreements with Innosight customers. The trade name represents the fair value of the brand and name recognition associated with the marketing of Innosight's service offerings. Non-compete agreements represent the value derived from preventing certain Innosight executives from entering into or starting a similar, competing business. The favorable lease contract represents the difference between the fair value and minimum lease obligations under the current outstanding lease. Goodwill is recognized for the excess of purchase price over the net fair value of assets acquired and liabilities assumed, and largely reflects the expanded market opportunities expected from combining the service offerings of Huron and Innosight, as well as the assembled workforce of Innosight. Goodwill recognized in conjunction with the acquisition of Innosight was recorded in the Business Advisory segment. Goodwill of $87.4 million is expected to be deductible for income tax purposes.
Innosight’s results of operations have been included in our unaudited consolidated statements of operations and results of operations of our Business Advisory segment from the date of acquisition. For the year ended December 31, 2017, revenues from Innosight were $34.3 million and operating loss was $0.9 million, which included $3.4 million of amortization expense for intangible assets acquired. 2020.
In connection with the acquisition of Innosight, we incurred $1.7 million of transaction and acquisition-related expenses. Of the $1.7 million of expense, $1.4 million was incurred in the first quarter of 2017 and $0.3 million was incurred in the second quarter in 2017. These costs are recorded in selling, general and administrative expenses.
The following unaudited supplemental pro forma information summarizes the combined results of operations of Huron and Innosight as though the companies were combined on January 1, 2016. |
| | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 |
| Revenues | $ | 741,695 |
| | $ | 769,114 |
|
| Net income (loss) from continuing operations | $ | (167,346 | ) | | $ | 42,760 |
|
| Net income (loss) from continuing operations per share - basic | $ | (7.79 | ) | | $ | 2.01 |
|
| Net income (loss) from continuing operations per share - diluted | $ | (7.79 | ) | | $ | 1.98 |
|
The historical financial information has been adjusted to give effect to pro forma adjustments consisting of intangible asset amortization expense, acquisition-related costs, interest expense, and the related income tax effects. The unaudited pro forma information above includes adjustments to include additional expense of $0.6 million and $11.4 million for the years ended December 31, 2017 and 2016, respectively. Additionally, the historical financial information has been adjusted to give effect to the shares issued as consideration. All of these adjustments are based upon currently available information and certain assumptions. Therefore, the pro forma consolidated results are not necessarily indicative of what our consolidated results of operations actually would have been had2019, we completed the acquisition on January 1, 2016.of an immaterial business in our Education segment. The historical results included in the pro forma consolidated results do not purport to project future results of operations of the combined companies nor do they reflect the expected realization of any cost savings or revenue synergies associated with the acquisition.
2016
MyRounding Solutions, LLC
On February 1, 2016, we completed the acquisition of MyRounding Solutions, LLC ("MyRounding"), a Denver, Colorado-based firm specializing in digital health solutions to improve patient care. The MyRounding applicationacquired business is designed to standardize, automate, and track rounding activity, allowing nurses and staff to improve the care and experience of patients in real time. The addition of MyRounding expands
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
the integration of our software and consulting solutions and strengthens our transformation services for healthcare providers. The results of operations of MyRounding have been included in our consolidated financial statements and the results of operations of our Healthcare segment from the date of acquisition.
ADI Strategies, Inc.
On May 1, 2016, we completed the acquisition of the U.S. assets of ADI Strategies, Inc. ("ADI Strategies"), a leading enterprise performance management, risk management, and business intelligence firm focused on implementing the Oracle enterprise application suite. The results of operations of ADI Strategies have been included in our consolidated financial statements and the results of operations of our Business Advisory segment from the date of acquisition.
Healthcare Services Management, Inc.
On August 1, 2016, we completed the acquisition of Healthcare Services Management, Inc. ("HSM Consulting"), a firm specializing in healthcare information technology and management consulting. The results of operations of HSM Consulting have been included in our consolidated financial statements and results of operations of our HealthcareEducation segment from the date of acquisition.
Divestitures
2021
Life Sciences
On November 1, 2021, we completed the divestiture of our Life Sciences business, a reporting unit within our Business Advisory segment to a third-party. In connection with the sale, we recorded a $31.5 million pre-tax gain which is included in other income, net on our consolidated statement of operations. The acquisitions of MyRounding, ADI Strategies, and HSM Consulting areLife Sciences business was not significant to our consolidated financial statements individually or inand did not qualify as a discontinued operation for reporting under GAAP. For the aggregate as of and for the twelveten months ended October 31, 2021, this business generated $16.7 million of revenues.
2020
U.K. Life Sciences Drug Safety Practice
On December 31, 2016.
2015
Studer Holdings, Inc.
On February 12, 2015,30, 2020, we acquired 100% of the outstanding stock of Studer Holdings, Inc. (“Studer Group”) from the existing shareholders in accordance with an Agreement and Plan of Merger dated January 26, 2015 (the “Merger Agreement”). Studer Group is a professional services firmsold our U.K. life sciences drug safety business that assists healthcare providers achieve cultural transformation to deliver and sustain improvement in clinical outcomes and financial results. The acquisition combines Healthcare’s performance improvement and clinical transformation capabilities with Studer Group’s Evidence-Based LeadershipSM framework to provide leadership and cultural transformation expertise for healthcare provider clients.
The acquisition date fair value of the consideration transferred for Studer Group was approximately $325.2 million, which consisted of the following: |
| | | |
| Fair value of consideration transferred |
| Cash | $ | 323,237 |
|
| Common stock | 2,204 |
|
| Net working capital adjustment | (255 | ) |
| Total consideration transferred | $ | 325,186 |
|
We funded the cash component of the purchase price with cash on hand and borrowings of $102.0 million under our senior secured credit facility. We issued 28,486 shares of our common stock as part of the consideration transferred, with an acquisition date fair value of $2.2 million based on the closing price of our stock of $77.35 on the date of acquisition.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The acquisition was accounted for using the acquisition method of accounting. Tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as of the acquisition date. The following table summarizes the allocation of the purchase priceLife Sciences reporting unit to the fair value of assets acquired and liabilities assumed as of the acquisition date. |
| | | |
| | February 12, 2015 |
| Assets acquired: | |
| Accounts receivable | $ | 14,906 |
|
| Prepaid expenses and other current assets | 1,385 |
|
| Deferred income tax asset | 4,335 |
|
| Property and equipment | 4,509 |
|
| Intangible assets | 97,500 |
|
| Liabilities assumed: | |
| Accounts payable | 760 |
|
| Accrued expenses and other current liabilities | 2,868 |
|
| Accrued payroll and related benefits | 1,574 |
|
| Deferred revenues | 2,449 |
|
| Deferred income tax liability | 21,263 |
|
| Other non-current liabilities | 1,211 |
|
| Total identifiable net assets | 92,510 |
|
| Goodwill | 232,676 |
|
| Total purchase price | $ | 325,186 |
|
The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the acquisition date. |
| | | | | |
| | Fair Value | | Useful Life in Years |
| Customer relationships | $ | 42,400 |
| | 9 |
| Customer contracts | 25,100 |
| | 4 |
| Trade name | 22,800 |
| | 5 |
| Technology and software | 3,900 |
| | 3 |
| Publishing content | 3,300 |
| | 3 |
| Total intangible assets subject to amortization | $ | 97,500 |
| | |
The weighted average amortization period for the identifiable intangible assets shown above is 6.3 years. Customer relationships and customer contracts represent the fair values of the underlying relationships and agreements with Studer Group customers. The trade name represents the fair value of the brand and name recognition associated with the marketing of Studer Group’s service offerings. Technology and software and publishing content represent the estimated fair values of Studer Group’s software and books that are sold to customers. Goodwill is recognized for the excess of purchase price over the net fair value of assets acquired and liabilities assumed, and largely reflects the expanded market opportunities expected from combining the service offerings of Huron and Studer Group, as well as the assembled workforce of Studer Group. Goodwill recognized in conjunction with the acquisition of Studer Group was recorded in the Healthcare segment. Goodwill of $119.5 million is expected to be deductible for income tax purposes.
Studer Group’s results of operations have been included in our consolidated statements of operations and other comprehensive income and results of operations of our Healthcare segment from the date of acquisition. For the year ended December 31, 2015, revenues from Studer Group were $79.9 million and operating income was $5.1 million, which included $21.3 million of amortization expense for intangible assets acquired.former employees. In connection with the acquisition of Studer Group,sale, we incurred $2.1recorded a $1.5 million of transaction and acquisition-related expenses, $0.9 million ofloss which were incurredis included in 2014, and $1.2 million of which were incurred in 2015. These costs are recorded in selling, general and administrative expenses in the period in which they were incurred.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The following unaudited supplemental pro forma information summarizes the combined results of operations for Huron and Studer Group for the twelve months ended December 31, 2015 as though the companies were combinedother income, net on January 1, 2014.
|
| | | | |
| | | Year Ended December 31, 2015 |
| Revenues | | $ | 709,813 |
|
| Net income from continuing operations | | $ | 63,600 |
|
| Net income from continuing operations per share - basic | | $ | 2.87 |
|
| Net income from continuing operations per share - diluted | | $ | 2.81 |
|
The historical financial information shown above has been adjusted to give effect to pro forma adjustments totaling $2.4 million of additional expense, which consist of intangible assets amortization expense, acquisition-related costs, interest expense, and the related income tax effects. The historical per share information has been adjusted to give effect to the shares issued as consideration. These adjustments are based upon currently available information and certain assumptions. Therefore, the pro forma consolidated results are not necessarily indicative of what our consolidated resultsstatement of operations actually would have been had we completed the acquisition on January 1, 2014.operations. The historical results included in the pro forma consolidated results do not purport to project future results of operations of the combined companies, nor do they reflect the expected realization of any cost savings or revenue synergies associated with the acquisition.
Sky Analytics, Inc.
Effective January 1, 2015, we completed the acquisition of Sky Analytics, Inc. ("Sky Analytics"), a Massachusetts-based provider of legal spend management software for corporate law departments. Sky Analytics' results of operations were included in the results of operations of our Huron Legal segment from the date of acquisition, and classified as discontinued operations upon the sale of the Huron Legal segment in the fourth quarter of 2015. Refer to Note 3 "Discontinued Operations" for additional detail on the sale of the Huron Legal segment.
Rittman Mead India
Effective July 1, 2015, we completed the acquisition of Rittman Mead Consulting Private Limited ("Rittman Mead India"), the India affiliate of Rittman Mead Consulting Ltd. Rittman Mead India is a data and analytics consulting firm that specializes in the implementation of enterprise performance management and analytics systems. Rittman Mead India's results of operations have been included in our consolidated financial statements and results of operations of our Business Advisory segment from the date of acquisition.
Cloud62, Inc.
Effective October 1, 2015, we completed the acquisition of Cloud62, Inc. ("Cloud62"), a New York-based consulting firm specializing in Salesforce.com implementations and related cloud-based applications. Cloud62's results of operations have been included in our consolidated financial statements and results of operations of our Business Advisory segment from the date of acquisition.
The acquisitions of Sky Analytics, Rittman Mead India, and Cloud62 wereU.K. life sciences drug safety practice was not significant to our consolidated financial statements individually or inand did not meet the aggregatecriteria for reporting separately as discontinued operations. In 2020, this business generated $2.3 million of and for the twelve months ended December 31, 2015.revenues.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
5.4. Goodwill and Intangible Assets
The table below sets forth the changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 20172021 and 2016. 2020. |
| | | | | | | | | | | | | | | | |
| | | Healthcare | | Education | | Business Advisory | | Total |
| Balance as of December 31, 2015: | | | | | | | | |
| Goodwill | | $ | 610,264 |
| | $ | 102,906 |
| | $ | 181,213 |
| | $ | 894,383 |
|
| Accumulated impairment losses | | — |
| | — |
| | (142,983 | ) | | (142,983 | ) |
| Goodwill, net as of December 31, 2015 | | $ | 610,264 |
| | $ | 102,906 |
| | $ | 38,230 |
| | $ | 751,400 |
|
Goodwill recorded in connection with business combinations (1) | | 26,538 |
| | — |
| | 21,824 |
| | 48,362 |
|
| Foreign currency translation | | — |
| | — |
| | 100 |
| | 100 |
|
| Balance as of December 31, 2016: | | | | | | | |
|
| Goodwill | | 636,802 |
| | 102,906 |
| | 203,137 |
| | 942,845 |
|
| Accumulated impairment losses | | — |
| | — |
| | (142,983 | ) | | (142,983 | ) |
| Goodwill, net as of December 31, 2016 | | $ | 636,802 |
| | $ | 102,906 |
| | $ | 60,154 |
| | $ | 799,862 |
|
Goodwill recorded in connection with business combinations (1) | | 8 |
| | 10,252 |
| | 88,183 |
| | 98,443 |
|
| Goodwill impairment charge | | (208,081 | ) | | — |
| | (45,012 | ) | | (253,093 | ) |
Goodwill reallocation (2) | | — |
| | (10,794 | ) | | 10,794 |
| | — |
|
Goodwill allocated to disposal of business (3) | | — |
| | — |
| | (568 | ) | | (568 | ) |
| Foreign currency translation | | — |
| | 465 |
| | 641 |
| | 1,106 |
|
| Balance as of December 31, 2017: | | | | | | | |
|
| Goodwill | | 636,810 |
| | 102,829 |
| | 302,187 |
| | 1,041,826 |
|
| Accumulated impairment losses | | (208,081 | ) | | — |
| | (187,995 | ) | | (396,076 | ) |
| Goodwill, net as of December 31, 2017: | | $ | 428,729 |
| | $ | 102,829 |
| | $ | 114,192 |
| | $ | 645,750 |
|
| |
(1) | Refer to Note 4 "Acquisitions" for additional information on the goodwill recorded in connection with business combinations. |
| |
(2) | In the second quarter of 2017, we reorganized our internal financial reporting structure, which management uses to assess performance and allocate resources, by moving our Life Sciences practice from the Education and Life Sciences segment to the Business Advisory segment. The remaining Education and Life Sciences segment is now referred to as the Education segment. The Life Sciences practice is a separate reporting unit for purposes of goodwill impairment testing. See Note 18 "Segment Information" for additional information on our reportable segments. |
| |
(3) | On June 16, 2017, we sold our Life Sciences Compliance and Operations practice ("Life Sciences C&O") to a third-party, and allocated a portion of goodwill within the Life Sciences reporting unit to the disposed business based on the relative fair values of Life Sciences C&O and the remaining reporting unit. The allocated goodwill of $0.6 million was written off and included in the gain on sale of Life Sciences C&O. The sale of Life Sciences C&O did not meet the criteria for reporting separately as discontinued operations. In connection with the sale, we recorded a $0.9 million gain which is included in other income, net in our consolidated statements of operations. |
Second Quarter 2017 Goodwill Impairment Charge | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | Healthcare | | Business
Advisory | | Education | | Total |
| Balance as of December 31, 2019: | | | | | | | | |
| Goodwill | | $ | 636,810 | | | $ | 302,057 | | | $ | 103,889 | | | $ | 1,042,756 | |
| Accumulated impairment losses | | (208,081) | | | (187,995) | | | — | | | (396,076) | |
| Goodwill, net as of December 31, 2019 | | $ | 428,729 | | | $ | 114,062 | | | $ | 103,889 | | | $ | 646,680 | |
Goodwill recorded in connection with a business combination (1) | | — | | | 7,507 | | | 495 | | | 8,002 | |
| Goodwill impairment charges | | — | | | (59,816) | | | — | | | (59,816) | |
| Foreign currency translation | | — | | | (629) | | | — | | | (629) | |
| Balance as of December 31, 2020: | | | | | | | | |
| Goodwill | | 636,810 | | | 308,935 | | | 104,384 | | | 1,050,129 | |
| Accumulated impairment losses | | (208,081) | | | (247,811) | | | — | | | (455,892) | |
| Goodwill, net as of December 31, 2020 | | $ | 428,729 | | | $ | 61,124 | | | $ | 104,384 | | | $ | 594,237 | |
Goodwill recorded in connection with business combinations (1) | | 6,141 | | | 3,315 | | | 17,186 | | | 26,642 | |
| | | | | | | | |
| | | | | | | | |
| Balance as of December 31, 2021: | | | | | | | | |
| Goodwill | | 642,951 | | | 312,250 | | | 121,570 | | | 1,076,771 | |
| Accumulated impairment losses | | (208,081) | | | (247,811) | | | — | | | (455,892) | |
| Goodwill, net as of December 31, 2021: | | $ | 434,870 | | | $ | 64,439 | | | $ | 121,570 | | | $ | 620,879 | |
During the second quarter of 2017, we performed a goodwill impairment analysis(1) See Note 3 “Acquisitions and Divestitures” for our Healthcare reporting unit as our Healthcareadditional information on business had experienced a prolonged period of declining revenues, primarily driven by softnesscombinations completed in our revenue cycle offering within our performance improvement solution. This softness was attributable to decreased demand for our services, the winding down of some of our larger projects,2021 and a trend toward smaller projects, as well as fewer large integrated projects. In light of these challenges, several initiatives were undertaken to improve the segment's financial performance, including repositioning our solutions to address the most critical needs of our clients, the expansion of our existing services such as those in our Studer Group, strategy, physician and technology offerings, and workforce reductions to better align resources with market demand. While these initiatives have yielded some positive impacts, hospitals and health systems continue to face regulatory and funding uncertainty; therefore, we remain cautious about near-term growth. As we had previously
2020.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
disclosed in prior quarters, if the financial performance of our Healthcare segment continued to decline and did not meet our expectations, we could be required to perform an interim impairment analysis with respect to our carrying value of goodwill for the Healthcare reporting unit prior to our usual annual test. Based on forecasts prepared in the second quarter of 2017 in connection with our quarterly forecasting cycle, we determined that the likely time frame to improve the financial results of this segment would take longer than originally anticipated. As such, we concluded, during the second quarter of 2017, that the fair value of the Healthcare reporting unit may have no longer exceeded its carrying value. In connection with the preparation of our financial statements for the quarter ended June 30, 2017, we performed an interim impairment test on the Healthcare reporting unit.
Our goodwill impairment test was performed by comparing the fair value of the Healthcare reporting unit with its carrying value and, in accordance with ASU 2017-04, which we adopted in the second quarter of 2017, recognizing an impairment charge for the amount by which the carrying value exceeded the fair value. To estimate the fair value of the Healthcare reporting unit, we relied on a combination of the income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting. Based on the estimated fair value of the Healthcare reporting unit, we recorded a $209.6 million non-cash pretax charge in the second quarter of 2017 to reduce the carrying value of goodwill in our Healthcare reporting unit. As discussed in Note 2 "Summary of Significant Accounting," during the fourth quarter of 2017, we identified that our calculation of the non-deductible portion of our goodwill impairment charge recorded in the second quarter of 2017 erroneously excluded a portion of goodwill that was related to an acquisition completed in 2008 and has since been divested. To correct this error, in the fourth quarter of 2017, we recorded a $1.5 million decrease to our non-cash pretax goodwill impairment charge related to our Healthcare reporting unit. The total non-cash pretax goodwill impairment charge recorded in 2017 related to our Healthcare reporting unit, including the adjustment in the fourth quarter of 2017, was $208.1 million.
In connection with the goodwill impairment test performed on the Healthcare reporting unit, we performed an impairment test on the long-lived assets allocated to the asset groups within the Healthcare reporting unit. Based on the impairment test performed, we concluded that the long-lived assets allocated to the asset groups within the Healthcare reporting unit were not impaired as of June 30, 2017.
Second Quarter 2017 Goodwill Reallocation
As a result of the segment reorganization in the second quarter of 2017, we reallocated $10.8 million of the goodwill balance associated with the previous Education and Life Sciences reporting unit to the new Life Sciences reporting unit based on the relative fair values of the Life Sciences reporting unit and the remaining Education reporting unit. The estimated fair values were determined using a combination of the income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting.
In conjunction with the goodwill reallocation, we performed a goodwill impairment test for the goodwill balances within our Education reporting unit and Life Sciences reporting unit as of June 1, 2017. Based on the results of the goodwill impairment test, we determined that the fair values of our Education reporting unit and Life Sciences reporting unit exceeded their carrying values. As such, we concluded that there was no indication of goodwill impairment for either reporting unit at that time.
20172021 Annual Goodwill Impairment Test
Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 20172021 for our sixfive reporting units with goodwill balances: Healthcare, Education, Business Advisory, Enterprise Solutions and Analytics, Strategy and Innovation, and Life Sciences.Enterprise Solutions and Analytics. We elected to bypass theperformed a qualitative assessment and proceeded directlyover all reporting units to determine if it was more likely than not the quantitative goodwill impairment test.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, we reviewed goodwill for impairmentwhich was as of November 30, 2020, including the key assumptions used within that analysis, the indicated fair values, and the amount by comparing thewhich those fair valuevalues 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 2021 compared to itsthe internal financial projections used, as well as specific outlooks for each reporting unit based on our most recent internal financial projections. We also considered the market-based valuation multiples used in the market approach within our prior quantitative analysis, which were derived from guideline companies, and noted that the valuation multiples generally increased over the past year. We also reviewed the current carrying value, including goodwill. In estimating the fair value of each reporting unit we relied on a combinationin comparison to the carrying values as of the income approachprior quantitative analysis. In addition, we considered various factors, including macroeconomic conditions, relevant industry and the market approach, utilizing the guideline company method, withtrends for each reporting unit, and other entity-specific events, that could indicate a fifty-fifty weighting. Based on the results of the goodwill impairment test, we determined thatpotential change in the fair value of our reporting units or the Healthcare, Education, Business Advisory, Strategy and Innovation, and Life Sciencescomposition 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 itstheir respective carrying value by 40%, 120%, 115%, 33%, and 14%, respectively.amounts. As such, we concluded that there was no indication of goodwill impairment for these five reporting units. However, the results of the quantitative impairment test indicated that the fair value of the Enterprise Solutions and Analytics reporting unit did not exceed its carrying value. Based on the estimated fair value of the Enterprise Solutions and Analytics reporting unit, we recorded a $45.0 million non-cash pretax charge to reduce the carrying value of this reporting unit's goodwill to zero.
Our Enterprise Solutions and Analytics reporting unit was established with the acquisition of Blue Stone International, LLC in 2013. Since that time, we completed five additional business acquisitions within the reporting unit, most recently the acquisitions of the U.S. assets and international assets of ADI Strategies in May 2016 and April 2017, respectively. We record the assets acquired and liabilities assumed in business combinations, including identifiable intangible assets, at their estimated fair values as of the acquisition date, and goodwill is recorded as the excess of the fair value of consideration transferred, including any contingent consideration, over the fair value of the net assets acquired. Therefore, the initial accounting for an acquisition results in its fair value equaling its carrying value. As we have previously disclosed in prior quarters, due to this reporting unit’s relatively low headroom, in the event that the financial performance of the reporting unit
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
did not meet our expectations during 2017, we could be required to take a non-cash impairment charge as a result of any goodwill impairment test. During the first three quarters of 2017, the performance of Enterprise Solutions and Analytics continued to reasonably meet our expectations. However, both revenues and operating margin during the fourth quarter of 2017 fell short of our expectations resulting in a reduction in workforce within the reporting unit during that quarter. Further, in connection with our annual budget process for 2018, which coincided with our annual goodwill impairment test during the fourth quarter of 2017, we determined that the reporting unit's expected future revenue growth rates and operating margin would be lower than previously anticipated for this reporting unit. As a result, our goodwill impairment test indicated that the fair value of the Enterprise Solutions and Analytics reporting unit no longer exceeded its carrying value, and we recorded a $45.0 million non-cash pretax charge to write off the entire carrying value of this reporting unit's goodwill.
In connection with the goodwill impairment test performed on the Enterprise Solutions and Analyticsfor our reporting unit, we performed an impairment test on the long-lived assets allocated to the asset groups within the Enterprise Solutions and Analytics reporting unit. Based on the impairment test performed, we concluded that the long-lived assets allocated to the asset groups within the Enterprise Solutions and Analytics reporting unit wereunits was not considered impaired as of November 30, 2017.2021, and a quantitative goodwill impairment analysis was not necessary.
Further, we evaluated whether any events have occurred or any circumstances have changed since November 30, 20172021 that would indicate any additional goodwill may have become impaired since our annual impairment test. Based on our evaluation as of December 31, 2017, which included the impact of the 2017 Tax Reform on our deferred tax balances and forecasted tax rates,2021, we determined that no indications of impairment have arisen since our annual goodwill impairment test.
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 additional non-cash goodwill impairment charges.
First Quarter 2020 Goodwill Impairment Charges
The worldwide spread of the COVID-19 pandemic in the first quarter of 2020 has created significant volatility, uncertainty and disruption to the global economy. From the onset of the COVID-19 pandemic, we closely monitored the impact it could have on all aspects of our business, including how we expect it to negatively impact our clients, employees and business partners. While the COVID-19 pandemic did not have a significant impact on our consolidated revenues in the first quarter of 2020, we expected it to have an unfavorable impact on sales, increase uncertainty in the backlog and negatively impact full year 2020 results. The services provided by our Strategy and Innovation and Life Sciences reporting units within our Business Advisory segment focus on strategic solutions for healthy, well-capitalized companies to identify new growth opportunities, which may be considered by our clients to be more discretionary in nature, and the duration of the projects within these practices are typically short-term. Therefore, at the onset of the COVID-19 pandemic in the U.S. and due to the uncertainty caused by the pandemic, we were cautious about near-term results for these two reporting units. Based on our internal projections and the preparation of our financial statements for the quarter ended March 31, 2020, and considering the expected decrease in demand due to the COVID-19 pandemic, during the first quarter of 2020 we believed it was more likely than not that the fair value of these two reporting units no longer exceeded their carrying values and performed an interim impairment test on both reporting units as of March 31, 2020.
Based on the estimated fair values of the Strategy and Innovation and Life Sciences reporting units, we recorded non-cash pretax goodwill impairment charges of $49.9 million and $9.9 million, respectively, in the first quarter of 2020. The $49.9 million non-cash pretax charge related to the Strategy and Innovation reporting unit reduced the goodwill balance of the reporting unit to $37.5 million. The $9.9 million non-cash pretax charge related to the Life Sciences reporting unit reduced the goodwill balance of the reporting unit to zero.
Our goodwill impairment test was performed by comparing the fair value of each of the Strategy and Innovation and Life Sciences reporting units with its respective carrying value and recognizing an impairment charge for the amount by which the carrying value exceeded the fair value. To estimate the fair value of each reporting unit, we relied on a combination of the income approach and the market approach with a fifty-fifty weighting.
In the income approach, we utilized a discounted cash flow analysis, which involved 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 that reflect the risk inherent in the future cash flows. In estimating
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
future cash flows, we relied on internally generated seven-year forecasts. Our forecasts are based on historical experience, current backlog, expected market demand, and other industry information.
In the market approach, we utilized the guideline company method, which involved calculating revenue 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 were evaluated and adjusted based on specific characteristics of the Strategy and Innovation and Life Sciences reporting units relative to the selected guideline companies and applied to the reporting units' operating data to arrive at an indication of value.
Intangible Assets
Intangible assets as of December 31, 20172021 and 20162020 consisted of the following:
| | | | | | | | | | | | | | | | | | | | | | | | | | | | | |
| | | | As of December 31, |
| | | | 2021 | | 2020 |
| | Useful Life
in Years | | Gross
Carrying
Amount | | Accumulated
Amortization | | Gross
Carrying
Amount | | Accumulated
Amortization |
| Customer relationships | 3 to 13 | | $ | 75,908 | | | $ | 53,421 | | | $ | 73,629 | | | $ | 56,232 | |
| Trade names | 6 | | 6,000 | | | 5,148 | | | 6,130 | | | 4,287 | |
| Technology and software | 2 to 5 | | 13,330 | | | 5,607 | | | 5,800 | | | 5,380 | |
| Non-competition agreements | 4 to 5 | | 2,020 | | | 1,347 | | | 2,090 | | | 1,541 | |
| Customer contracts | 1 | | 260 | | | 101 | | | 800 | | | 526 | |
| Total | | | $ | 97,518 | | | $ | 65,624 | | | $ | 88,449 | | | $ | 67,966 | |
|
| | | | | | | | | | | | | | | | | |
| | | | As of December 31, |
| | | | 2017 | | 2016 |
| | Useful Life in Years | | Gross Carrying Amount | | Accumulated Amortization | | Gross Carrying Amount | | Accumulated Amortization |
| Customer relationships | 4 to 13 | | $ | 106,195 |
| | $ | 51,588 |
| | $ | 89,279 |
| | $ | 34,827 |
|
| Trade names | 2 to 6 | | 29,016 |
| | 18,915 |
| | 22,930 |
| | 11,652 |
|
| Customer contracts | 1 to 4 | | 25,154 |
| | 24,751 |
| | 26,497 |
| | 21,295 |
|
| Technology and software | 3 to 5 | | 9,340 |
| | 5,098 |
| | 8,970 |
| | 2,667 |
|
| Non-competition agreements | 3 to 5 | | 5,163 |
| | 2,637 |
| | 3,685 |
| | 1,697 |
|
| Publishing content | 3 | | 3,300 |
| | 3,163 |
| | 3,300 |
| | 2,062 |
|
| Favorable lease contract | 3 | | 720 |
| | 425 |
| | 720 |
| | 203 |
|
| In-process technology | Indefinite | | — |
| | — |
| | 370 |
| | — |
|
| Total | | | $ | 178,888 |
| | $ | 106,577 |
| | $ | 155,751 |
| | $ | 74,403 |
|
Identifiable intangible assets with finite lives are amortized over their estimated useful lives. Customer relationships and customer contracts, as well as certain trade names and technology and software, are amortized on an accelerated basis to correspond to the cash flows expected to be derived from the assets. All other intangible assets with finite lives are amortized on a straight-line basis. In connection with the acquisition of MyRounding, we acquired in-process technology which was accounted for as an indefinite-lived intangible asset until the development of the technology was complete, which occurred in the first quarter of 2017. Upon completion, we reclassified the technology to definite-lived technology and software, and began amortizing the asset over a five-year useful life on a straight-line basis.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Intangible assets amortization expense was $35.0$9.3 million, $33.1$12.7 million, and $28.7$17.8 million for the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, respectively. The table below sets forth the estimated annual amortization expense for each of the five succeeding years for the intangible assets recorded as of December 31, 2017.2021.
|
| | | | |
| Year Ending December 31, | | Estimated Amortization Expense |
| 2018 | | $ | 23,936 |
|
| 2019 | | $ | 17,279 |
|
| 2020 | | $ | 12,116 |
|
| 2021 | | $ | 8,070 |
|
| 2022 | | $ | 6,092 |
|
| | | | | | | | |
| Year Ending December 31, | | Estimated
Amortization Expense |
| 2022 | | $ | 10,670 | |
| 2023 | | $ | 7,481 | |
| 2024 | | $ | 4,263 | |
| 2025 | | $ | 3,178 | |
| 2026 | | $ | 2,271 | |
Actual future amortization expense could differ from these estimated amounts as a result of future acquisitions, dispositions, and other factors.
6. Property5. Leases
We lease office space, data centers and Equipment, Net
Depreciation expense for property andcertain equipment was $13.3 million, $12.5 million, and $12.3 million forunder operating leases expiring on various dates through 2029, with various renewal options that can extend the years ended December 31, 2017, 2016, and 2015, respectively. Property and equipment, net at December 31, 2017 and 2016 consistedlease terms by one to ten years. Our operating leases include fixed payments plus, in some cases, scheduled base rent increases over the term of the following:lease. Certain leases require variable payments of real estate taxes, insurance and operating expenses. We exclude these variable payments from the measurements of our lease liabilities and expense them as incurred. We elected the practical expedient to combine lease and nonlease components. No lease agreements contain any residual value guarantees or
|
| | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 |
| Computers, related equipment, and software | $ | 46,216 |
| | $ | 48,607 |
|
| Leasehold improvements | 45,244 |
| | 38,502 |
|
| Furniture and fixtures | 16,434 |
| | 12,545 |
|
| Aircraft | 7,541 |
| | — |
|
| Assets under construction | 250 |
| | 294 |
|
| Property and equipment | 115,685 |
| | 99,948 |
|
| Accumulated depreciation and amortization | (70,144 | ) | | (67,514 | ) |
| Property and equipment, net | $ | 45,541 |
| | $ | 32,434 |
|
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
material restrictive covenants. As of December 31, 2021, we have not entered into any material finance leases. We sublease certain office spaces to third parties resulting from restructuring activities in certain locations.
7. Financing Arrangements
A summaryOperating lease right-of-use (“ROU”) assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group to which the operating lease ROU asset is assigned may not be recoverable. First, we test the asset group for recoverability by comparing the undiscounted cash flows of the asset group, which include expected future lease and nonlease payments under the lease agreement offset by expected sublease income, to the carrying amountsamount of the asset group. If the first step of the long-lived asset impairment test concludes that the carrying amount of the asset group is not recoverable, we perform the second step of the long-lived asset impairment test by comparing the fair value of the asset group to its carrying amount and recognizing a lease impairment charge for the amount by which the carrying amount exceeds the fair value. To estimate the fair value of the asset group, we rely on a discounted cash flow approach using market participant assumptions of the expected cash flows and discount rate.
Fourth Quarter 2020 Lease Impairment Charges
In the fourth quarter of 2020, we announced a restructuring plan to reduce operating costs to address the impact of the COVID-19 pandemic on our business. The restructuring plan provided for a reduction in certain leased office spaces which included a portion of our debt follows:principal executive office in Chicago, Illinois; the remaining portion of our Lake Oswego, Oregon office; our Boston, Massachusetts and Detroit, Michigan offices; and portions of our Denver, Colorado, New York City, New York, and Pensacola, Florida offices. As a result, we recognized $13.2 million of non-cash lease impairment charges, of which $9.1 million was allocated to the operating lease ROU assets and $4.1 million was allocated to the related fixed assets based on their relative carrying amounts. The $13.2 million of non-cash lease impairment charges was recognized in restructuring charges on our consolidated statement of operations. See Note 11 “Restructuring Charges” for additional information on our restructuring activities.
Fourth Quarter 2019 Lease Impairment Charge |
| | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 |
| 1.25% convertible senior notes due 2019 | $ | 233,140 |
| | $ | 224,065 |
|
| Senior secured credit facility | 105,000 |
| | 68,000 |
|
| Promissory note due 2024 | 4,868 |
| | — |
|
| Total long-term debt | $ | 343,008 |
| | $ | 292,065 |
|
Current maturities of debt (1) | (501 | ) | | — |
|
| Long-term debt, net of current portion | $ | 342,507 |
| | $ | 292,065 |
|
| |
(1) | The current maturities of debt are included as a component of accrued expenses and other current liabilities on our consolidated balance sheets. |
Below isDuring 2019, we exited a summaryportion of our Lake Oswego, Oregon office, the remaining portion of our Middleton, Wisconsin office, and an office in Houston Texas, which resulted in $0.8 million of non-cash lease impairment charges, of which $0.6 million was allocated to the operating lease ROU assets and $0.2 million was allocated to the leasehold improvements based on their relative carrying amounts. The $0.8 million of non-cash lease impairment charges were recognized in restructuring charges on our consolidated statement of operations. See Note 11 “Restructuring Charges” for additional information on our restructuring activities.
Fourth Quarter 2019 Lease Modification
In the fourth quarter of 2019, we entered into an amendment to the office lease agreement for our principal executive offices in Chicago, Illinois, which resulted in a non-cash gain on lease modification of $0.8 million. Among other items, this amendment i) extended the term of the scheduled remaining principallease from September 30, 2024 to September 30, 2029; ii) provided a renewal option to extend the lease for an additional five year period to September 30, 2034; iii) terminated the lease with respect to certain leased spaces previously vacated; iv) provided abatement of certain future base rent payments and our pro rata share of operating expenses and taxes; and v) provided a one-time cash payment from the lessor as an incentive.
Additional information on our debtoperating leases as of December 31, 2017.2021 and 2020 follows.
| | | | | | | | | | | | | | |
| | As of December 31, |
| Balance Sheet | | 2021 | | 2020 |
| Operating lease right-of-use assets | | $ | 35,311 | | | $ | 39,360 | |
| | | | |
| Current maturities of operating lease liabilities | | $ | 10,142 | | | $ | 8,771 | |
| Operating lease liabilities, net of current portion | | 54,313 | | | 61,825 | |
| Total lease liabilities | | $ | 64,455 | | | $ | 70,596 | |
|
| | | |
| | Principal Payments of Long-Term Debt |
| 2018 | $ | 501 |
|
| 2019 | $ | 250,515 |
|
| 2020 | $ | 105,529 |
|
| 2021 | $ | 544 |
|
| 2022 | $ | 559 |
|
| Thereafter | $ | 2,221 |
|
Convertible Notes
In September 2014, the Company issued $250 million principal amount of 1.25% convertible senior notes due 2019 (the “Convertible Notes”) in a private offering. The Convertible Notes are governed by the terms of an indenture between the Company and U.S. Bank National Association, as Trustee (the “Indenture”). The Convertible Notes are senior unsecured obligations of the Company and will pay interest semi-annually on April 1 and October 1 of each year at an annual rate of 1.25%. The Convertible Notes will mature on October 1, 2019, unless earlier repurchased by the Company or converted in accordance with their terms.
Upon conversion, the Convertible Notes will be settled, at our election, in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. Our current intent and policy is to settle conversions with a combination of cash and shares of common stock with the principal amount of the Convertible Notes paid in cash, in accordance with the settlement provisions of the Indenture.
The initial conversion rate for the Convertible Notes is 12.5170 shares of our common stock per $1,000 principal amount of the Convertible Notes, which is equal to an initial conversion price of approximately $79.89 per share of our common stock. The conversion rate will be subject to adjustment upon the occurrence of certain specified events but will not be adjusted for accrued and unpaid interest, except in certain limited circumstances described in the Indenture. Upon the occurrence of a “make-whole fundamental change” (as defined in the Indenture) the Company will, in certain circumstances, increase the conversion rate by a number of additional shares for a holder that elects to convert its Convertible Notes in connection with such make-whole fundamental change. Additionally, if the Company undergoes a “fundamental change” (as defined in the Indenture), a holder will have the option to require the Company to repurchase all or a portion of its Convertible Notes for cash at a price equal to 100% of the principal amount of the Convertible Notes being repurchased plus any accrued and unpaid interest. As discussed below, the convertible note hedge transactions and warrants, which were entered into in connection with the Convertible Notes, effectively raise the price at which economic dilution would occur from the initial conversion price of approximately $79.89 to approximately $97.12 per share.
Holders of the Convertible Notes may convert their Convertible Notes at their option at any time prior to July 1, 2019, only under the following circumstances:
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Lease Cost | | 2021 | | 2020 | | 2019 |
| Operating lease cost | | $ | 9,755 | | | $ | 11,045 | | | $ | 11,883 | |
Short-term leases (1) | | 225 | | | 229 | | | 322 | |
| Variable lease costs | | 3,765 | | | 1,693 | | | 3,656 | |
| Sublease income | | (1,660) | | | (1,973) | | | (2,638) | |
Net lease cost (2)(3) | | $ | 12,085 | | | $ | 10,994 | | | $ | 13,223 | |
| | | | | | |
during any calendar quarter (and only during such calendar quarter) commencing after(1)Includes variable lease costs related to short-term leases.
(2)Net lease cost includes $2.6 million, $0.3 million and $0.4 million for the years ended December 31, 2014 if,2021, 2020 and 2019, respectively, recorded as restructuring charges as they relate to vacated office spaces. See Note 11 “Restructuring Charges” for each of at least 20 trading days (whether or not consecutive) duringadditional information on our vacated office spaces.
(3)Net lease cost includes $0.2 million and $0.3 million for the 30 consecutive trading day period ending on,years ended December 31, 2020 and including,2019, respectively, related to vacated office spaces directly related to discontinued operations.
The table below summarizes the last trading day of the immediately preceding calendar quarter, the last reported sale price of the Company’s common stock for such trading day is equal to or greater than 130% of the applicable conversion price on such trading day;
during the five consecutive business day period immediately following any five consecutive trading day period (such five consecutive trading day period, the “measurement period”) in which, for each trading day of the measurement period, the “trading price” (as defined in the Indenture) per $1,000 principal amount of the Convertible Notes for such trading day was less than 98% of the product of the last reported sale price of the Company’s common stock for such trading day and the applicable conversion rate on such trading day; or
upon the occurrence of specified corporate transactions described in the Indenture.
On or after July 1, 2019 until the close of business on the second scheduled trading day immediately preceding the maturity date, a holder may convert all or a portion of its Convertible Notes, regardless of the foregoing circumstances.
We have separated the Convertible Notes into liability and equity components. The carrying amount of the liability component was determined by measuring the fair value of a similar liability that does not have an associated convertible feature, assumingremaining expected lease payments under our non-convertible debt borrowing rate. The carrying value of the equity component representing the conversion option, which is recognizedoperating leases as a debt discount, was determined by deducting the fair value of the liability component from the proceeds of the Convertible Notes. The debt discount is amortized to interest expense using an effective interest rate of 4.751% over the term of the Convertible Notes. As of December 31, 2017,2021.
| | | | | | | | |
| Future Lease Payments | | December 31,
2021 |
| 2022 | | $ | 12,575 | |
| 2023 | | 12,352 | |
| 2024 | | 11,648 | |
| 2025 | | 11,345 | |
| 2026 | | 10,522 | |
| Thereafter | | 14,462 | |
| Total operating lease payments | | $ | 72,904 | |
| Less: imputed interest | | (8,449) | |
Present value of operating lease liabilities | | $ | 64,455 | |
| | | | | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| Other Information | | 2021 | | 2020 | | 2019 |
| Cash paid for operating lease liabilities | | $ | 12,573 | | | $ | 11,307 | | | $ | 13,902 | |
| Operating lease right-of-use assets obtained in exchange for operating lease liabilities | | $ | 2,960 | | | $ | 1,456 | | | $ | 12,842 | |
| | | | | | |
| Weighted average remaining lease term - operating leases | | 6.1 years | | 7.0 years | | 7.7 years |
| Weighted average discount rate - operating leases | | 4.1 | % | | 4.3 | % | | 4.3 | % |
6. Property and Equipment, Net
Depreciation expense for property and equipment was $11.0 million, $12.2 million, and $13.0 million for the remaining lifeyears ended December 31, 2021, 2020 and 2019, respectively. During the years ended December 31, 2021, 2020 and 2019, we recognized an additional $0.4 million, $0.6 million, and $0.5 million, respectively, of the Convertible Notes is 1.8 years. The equity component will not be remeasured as long as it continues to meet the conditionsaccelerated depreciation expense for equity classification.
The transaction costsfixed assets related to the issuance of the Convertible Notes were separated into liability and equity components based on their relative values, as determined above. Transaction costs attributable to the liability component are recordedvacated office spaces. This accelerated depreciation expense is included as a deduction to the carrying amount of the liability and amortized to interest expense over the term of the Convertible Notes; and transaction costs attributable to the equity component are netted with the equity component of the Convertible Notes in stockholders’ equity. Total debt issuance costs were approximately $7.3 million, of which $6.2 million was allocated to liability issuance costs and $1.1 million was allocated to equity issuance costs.
As of December 31, 2017 and 2016, the Convertible Notes consisted of the following: restructuring charges. See Note 11“Restructuring Charges” for additional
|
| | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 |
| Liability component: | | | |
| Proceeds | $ | 250,000 |
| | $ | 250,000 |
|
| Less: debt discount, net of amortization | (14,668 | ) | | (22,520 | ) |
| Less: debt issuance costs, net of amortization | (2,192 | ) | | (3,415 | ) |
| Net carrying amount | $ | 233,140 |
| | $ | 224,065 |
|
Equity component (1) | $ | 39,287 |
| | $ | 39,287 |
|
| |
(1) | Included in additional paid-in capital on the consolidated balance sheet. |
The following table presents the amount of interest expense recognized related to the Convertible Notes for the periods presented.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Contractual interest coupon | $ | 3,125 |
| | $ | 3,125 |
| | $ | 3,125 |
|
| Amortization of debt discount | 7,851 |
| | 7,488 |
| | 7,141 |
|
| Amortization of debt issuance costs | 1,224 |
| | 1,201 |
| | 1,180 |
|
| Total interest expense | $ | 12,200 |
| | $ | 11,814 |
| | $ | 11,446 |
|
In connection with the issuance of the Convertible Notes, we entered into convertible note hedge transactions and warrant transactions. The convertible note hedge transactions are intended to reduce the potential future economic dilution associated with the conversion of the
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Convertible Notesinformation on our restructuring charges incurred in 2021, 2020 and combined with the warrants, effectively raise the price2019. Property and equipment, net at which economic dilution would occur from the initial conversion price of approximately $79.89 to approximately $97.12 per share. For purposesDecember 31, 2021 and 2020 consisted of the computationfollowing:
| | | | | | | | | | | |
| | As of December 31, |
| | 2021 | | 2020 |
| Computers, related equipment, and software | $ | 33,682 | | | $ | 27,943 | |
| Leasehold improvements | 40,336 | | | 39,952 | |
| Furniture and fixtures | 12,023 | | | 14,126 | |
| Aircraft | 6,800 | | | 7,667 | |
| Assets under construction | 1,113 | | | 502 | |
| Property and equipment | 93,954 | | | 90,190 | |
| Accumulated depreciation and amortization | (62,950) | | | (61,097) | |
| Property and equipment, net | $ | 31,004 | | | $ | 29,093 | |
In the first quarter of diluted earnings per share in accordance with GAAP, dilution will occur when the average share price of our common stock for a given period exceeds the conversion price of the Convertible Notes, which initially is equal to approximately $79.89 per share. The convertible note hedge transactions and warrant transactions are discussed separately below.
Convertible Note Hedge Transactions. In connection with the issuance of the Convertible Notes, the Company entered into convertible note hedge transactions whereby the Company has call options to purchase a total of approximately 3.1 million shares of the Company’s common stock, which is the number of shares initially issuable upon conversion of the Convertible Notes in full, at a price of approximately $79.89, which corresponds to the initial conversion price of the Convertible Notes, subject to customary anti-dilution adjustments substantially similar to those in the Convertible Notes. The convertible note hedge transactions are exercisable upon conversion of the Convertible Notes and will expire in 2019 if not earlier exercised. We paid an aggregate amount of $42.1 million for the convertible note hedge transactions, which was recorded as additional paid-in capital on the consolidated balance sheets. The convertible note hedge transactions are separate transactions and are not part of the terms of the Convertible Notes.
Warrants. In connection with the issuance of the Convertible Notes, the Company sold warrants whereby the holders of the warrants have the option to purchase a total of approximately 3.1 million shares of the Company’s common stock at a strike price of approximately $97.12. The warrants will expire incrementally on 100 different dates from January 6, 2020 to May 28, 2020 and are exercisable at each such expiry date. If the average market value per share of our common stock for the reporting period exceeds the strike price of the warrants, the warrants will have a dilutive effect on our earnings per share. We received aggregate proceeds of $23.6 million from2022, we completed the sale of the warrants, which was recorded as additional paid-in capital on the consolidated balance sheets. The warrants are separate transactions and are not partaircraft to a third-party. As a result of the termssale, we no longer own any aircraft.
7. Financing Arrangements
A summary of the Convertible Notes orcarrying amounts of our debt follows:
| | | | | | | | | | | |
| | As of December 31, |
| | 2021 | | 2020 |
| Senior secured credit facility | $ | 230,000 | | | $ | 200,000 | |
| Promissory note due 2024 | 2,780 | | | 3,279 | |
| Total long-term debt | $ | 232,780 | | | $ | 203,279 | |
| Current maturities of long-term debt | (559) | | | (499) | |
| Long-term debt, net of current portion | $ | 232,221 | | | $ | 202,780 | |
Below is a summary of the convertible note hedge transactions.
The Company recorded an initial deferred tax liabilityscheduled remaining principal payments of
$15.4 million in connection with theour debt
discount associated with the Convertible Notes and recorded an initial deferred tax assetas of
$16.5 million in connection with the convertible note hedge transactions. The deferred tax liability and deferred tax asset are included in deferred income taxes, net on the consolidated balance sheets.December 31, 2021. | | | | | |
| Principal Payments of Long-Term Debt |
| 2022 | $ | 559 | |
| 2023 | $ | 575 | |
| 2024 | $ | 231,646 | |
Senior Secured Credit Facility
The Company has a $500$600 million five-year senior secured revolving credit facility, subject to the terms of a Second Amended and Restated Credit Agreement dated as of March 31, 2015, as amended to date (as amended and modified the "Amended“Amended Credit Facility"Agreement”), that becomes due and payable in full upon maturity on March 31, 2020.September 27, 2024. The Amended Credit Agreement provides the option to increase the revolving credit facility or establish term loan facilities in an aggregate amount of up to $100$150 million, subject to customary conditions and the approval of any lender whose commitment would be increased, resulting in a maximum available principal amount under the Amended Credit Agreement of $600$750 million. The initial borrowings under the Amended Credit Agreement were used to refinance borrowings outstanding under a prior credit agreement, and future borrowings under the Amended Credit Agreement may be used for working capital, capital expenditures, acquisitions of businesses, share repurchases, and general corporate purposes.
Fees and interest on borrowings vary based on our Consolidated Leverage Ratio (as defined in the Amended Credit Agreement). At our option, borrowings under the Amended Credit Agreement will bear interest at one, two, three or six-month LIBOR or an alternate base rate, in each case plus the applicable margin. The applicable margin will fluctuate between 1.25%1.125% per annum and 2.00%1.875% per annum, in the case of LIBOR borrowings, or between 0.25%0.125% per annum and 1.00%0.875% per annum, in the case of base rate loans, based upon our Consolidated Leverage Ratio at such time.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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 a requirement to pay all amounts outstanding 90 days prior to the Convertible Indebtedness Maturity Date (as defined in the Amended Credit Agreement) unless (1) the Convertible Indebtedness Maturity Date is waived or extended to a later date, (2) the Company can demonstrate (a) Liquidity (as defined in the Amended Credit Agreement) inupon an amount at least equal to the principal amount due on the Convertible Indebtedness Maturity Date, and (b) financial covenant compliance after giving effect to such payments and any additional indebtedness incurred on a pro forma basis, or (3) this requirement is waived by the Required LendersEvent 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 loans and obligations under the Amended Credit Agreement are secured pursuant to a Second Amended and Restated Security Agreement and a Second Amended and Restated Pledge Agreement (the “Pledge Agreement”) with Bank of America, N.A. as collateral agent, pursuant to which the Company and the subsidiary guarantors grant Bank of America, N.A., for the ratable benefit of the lenders under
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
the Amended Credit Agreement, a first-priority lien, subject to permitted liens, on substantially all of the personal property assets of the Company and the subsidiary guarantors, and a pledge of 100% of the stock or other equity interests in all domestic subsidiaries and 65% of the stock or other equity interests in each “material first-tier foreign subsidiary” (as defined in the Pledge Agreement).
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) ranging from 3.25of 3.75 to 1.00; however the maximum permitted Consolidated Leverage Ratio will increase to 4.00 to 1.00 to 3.75 to 1.00, depending onupon the measurement period,occurrence of certain transactions, and (ii) a minimum Consolidated Interest Coverage Ratio (defined as the ratio of consolidated EBITDA to interest) of 3.50 to 1.00. Consolidated EBITDA for purposes of the financial covenants is calculated on a continuing operations basis and includes adjustments to add back among other items, share-based compensation costs, non-cash goodwill impairment charges, share-based compensation costs, certain non-cash restructuring charges, and pro forma historical EBITDA for businesses acquired.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, 2017,2021, we were in compliance with these financial covenants with a Consolidated Leverage Ratio of 3.021.73 to 1.00 and a Consolidated Interest Coverage Ratio of 12.4318.43 to 1.00.
Borrowings outstanding under the Amended Credit Agreement at December 31, 20172021 totaled $105.0$230.0 million. These borrowings carried a weighted average interest rate of 3.7%2.7%, including the impacteffect of the interest rate swapswaps described in Note 1112 “Derivative Instruments and Hedging Activity" that was in effect at December 31, 2017.Activity.” Borrowings outstanding under the Amended Credit Agreement at December 31, 20162020 were $68.0$200.0 million and carried a weighted average interest rate of 2.5%, including the impacteffect of the interest rate swap that was in effect at December 31, 2016.swaps. The borrowing capacity under the revolving credit facility is reduced by any outstanding borrowings under the revolving credit facility and outstanding letters of credit. At December 31, 2017,2021, we had outstanding letters of credit totaling $1.9$0.7 million, which are primarily used as security deposits for our office facilities. As of December 31, 2017,2021, the unused borrowing capacity under the revolving credit facility was $393.1$369.3 million.
Promissory Note due 2024
On June 30, 2017, in conjunction with our purchase of an aircraft related to the acquisition of Innosight, we assumed, from the sellers of the aircraft, a promissory note with an outstanding principal balance of $5.1 million. The principal balance of the promissory note is subject to scheduled monthly principal payments until the maturity date of March 1, 2024, at which time a final payment of $1.5 million, plus any accrued and unpaid interest, will be due. Under the terms of the promissory note, we will pay interest on the outstanding principal amount at a rate of one-monthone month LIBOR plus 1.97% per annum. The obligations under the promissory note are secured pursuant to a Loan and Aircraft Security Agreement with Banc of America Leasing & Capital, LLC, which grants the lender a first priority security interest in the aircraft. At December 31, 2017,2021, the outstanding principal amount of the promissory note was $4.9 million. As of December 31, 2017,$2.8 million, and the aircraft had a carrying amount of $6.5$3.7 million. At December 31, 2020, the outstanding principal amount of the promissory note was $3.3 million, and the aircraft had a carrying amount of $4.4 million. In the first quarter of 2022, we completed the sale of the aircraft to a third-party and used a portion of the sale proceeds to pay the remaining principal and unpaid interest on the promissory note. As a result of the sale, we no longer own any aircraft.
8. Capital Structure
Preferred Stock
We are authorized to issue up to 50,000,000 shares of preferred stock. Our certificate of incorporation authorizes our board of directors, without any further stockholder action or approval, to issue these shares in one or more classes or series, to establish from time to time the number of shares to be included in each class or series, and to fix the rights, preferences and privileges of the shares of each wholly unissued class or series and any of its qualifications, limitations or restrictions. As of December 31, 20172021 and 2016,2020, no such preferred stock has been approved or issued.
Common Stock
We are authorized to issue up to 500,000,000 shares of common stock, par value $.01 per share. The holders of common stock are entitled to one vote for each share held of record on each matter submitted to a vote of stockholders. Subject to the rights and preferences of the
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
holders of any series of preferred stock that may at the time be outstanding, holders of common stock are entitled to such dividends as our board of directors may declare. In the event of any liquidation, dissolution or winding-up of our affairs, after payment of all of our debts and liabilities and subject to the rights and preferences of the holders of any series of preferred stock that may at the time be outstanding, holders of common stock will be entitled to receive the distribution of any of our remaining assets.
9. Revenues
For the years ended December 31, 2021, 2020 and 2019 we recognized revenues of $905.6 million, $844.1 million,and$876.8 million, respectively. Of the $905.6 million recognized in 2021, we recognized revenues of $22.9 million from obligations satisfied, or partially satisfied, in prior periods, of which $14.6 million was primarily due to changes in the estimates of our variable consideration under performance-based billing arrangements and $8.3 million was primarily due to the release of allowances on unbilled services. Of the $844.1 million recognized in 2020, we recognized revenues of $12.2 million from obligations satisfied, or partially satisfied, in prior periods, of which $7.5 million was primarily due to changes in the estimates of our variable consideration under performance-based billing arrangements and $4.7 million was primarily due to the release of allowances on unbilled services. Of the $876.8 million recognized in 2019, we recognized revenues of $2.8 million from obligations satisfied, or partially satisfied, in prior periods due to the release of allowances on unbilled services. During 2019, we recognized a $1.0 million decrease to revenues due to changes in the estimates of our variable consideration under performance-based billing arrangements.
As of December 31, 2021, we had $100.0 million of remaining performance obligations under engagements with original expected durations greater than one year. These remaining performance obligations exclude obligations under contracts with an original expected duration of one year or less, variable consideration which has been excluded from the total transaction price due to the constraint, and performance obligations under time-and-expense engagements which are recognized in the amount invoiced. Of the $100.0 million of performance obligations, we expect to recognize approximately $55.2 million as revenue in 2022, $25.6 million in 2023, and the remaining $19.2 million thereafter. Actual revenue recognition could differ from these amounts as a result of changes in the estimated timing of work to be performed, adjustments to estimated variable consideration in performance-based arrangements, or other factors.
Contract Assets and Liabilities
The payment terms and conditions in our customer contracts vary. Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferred revenues in the consolidated balance sheets.
Unbilled services include revenues recognized for services performed but not yet billed to clients. Services performed that we are not yet entitled to bill because certain events must occur, such as the completion of the measurement period or client approval in performance-based engagements, are recorded as contract assets and included within unbilled services, net. The contract asset balance as of December 31, 2021 and 2020 was $23.7 million and $17.3 million, respectively. The $6.4 million increase primarily reflects timing differences between the completion of our performance obligations and the amounts billed or billable to clients in accordance with their contractual billing terms.
Client prepayments and retainers are classified as deferred revenues and recognized over future periods in accordance with the applicable engagement agreement and our revenue recognition policy. Our deferred revenues balance as of December 31, 2021and December 31, 2020 was $19.2 millionand$28.2 million respectively. The $9.0 million decrease primarily reflects timing differences between client payments in accordance with their contract terms and the completion of our performance obligations. For the year ended December 31, 2021, $27.6 million of revenues recognized were included in the deferred revenue balance as of December 31, 2020. For the year ended December 31, 2020, $25.1 million of revenues recognized were included in the deferred revenue balance as of December 31, 2019.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
9.10. Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period, excluding unvested restricted common stock. Diluted earnings per share reflects the potential reduction in earnings per share that could occur if securities or other contracts to issue common stock were exercised or converted into common stock under the treasury stock method. Such securities or other contracts include unvested restricted stock awards, outstanding common stock options, convertible senior notes, and outstanding warrants, to the extent dilutive. In periods for which we report a net loss from continuing operations, diluted weighted average common shares outstanding excludes all potential common stock equivalents as their impact on diluted net loss from continuing operations per share would be anti-dilutive.
Earnings (loss) per share under the basic and diluted computations are as follows:
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Net income (loss) from continuing operations | $ | 62,987 | | | $ | (23,718) | | | $ | 41,979 | |
| Loss from discontinued operations, net of tax | — | | | (122) | | | (236) | |
| Net income (loss) | $ | 62,987 | | | $ | (23,840) | | | $ | 41,743 | |
| | | | | |
| Weighted average common shares outstanding—basic | 21,439 | | | 21,882 | | | 21,993 | |
| Weighted average common stock equivalents | 370 | | | — | | | 514 | |
| Weighted average common shares outstanding—diluted | 21,809 | | | 21,882 | | | 22,507 | |
| | | | | |
| Net earnings (loss) per basic share: | | | | | |
| Net income (loss) from continuing operations | $ | 2.94 | | | $ | (1.08) | | | $ | 1.91 | |
| Loss from discontinued operations, net of tax | — | | | (0.01) | | | (0.01) | |
| Net income (loss) | $ | 2.94 | | | $ | (1.09) | | | $ | 1.90 | |
| | | | | |
| Net earnings (loss) per diluted share: | | | | | |
| Net income (loss) from continuing operations | $ | 2.89 | | | $ | (1.08) | | | $ | 1.87 | |
| Loss from discontinued operations, net of tax | — | | | (0.01) | | | (0.02) | |
| Net income (loss) | $ | 2.89 | | | $ | (1.09) | | | $ | 1.85 | |
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Net income (loss) from continuing operations | $ | (170,505 | ) | | $ | 39,480 |
| | $ | 61,895 |
|
| Income (loss) from discontinued operations, net of tax | 388 |
| | (1,863 | ) | | (2,843 | ) |
| Net income (loss) | $ | (170,117 | ) | | $ | 37,617 |
| | $ | 59,052 |
|
| Weighted average common shares outstanding—basic | 21,439 |
| | 21,084 |
| | 22,136 |
|
| Weighted average common stock equivalents | — |
| | 340 |
| | 464 |
|
| Weighted average common shares outstanding—diluted | 21,439 |
| | 21,424 |
| | 22,600 |
|
| Net earnings (loss) per basic share: | | | | | |
| Net income (loss) from continuing operations | $ | (7.95 | ) | | $ | 1.87 |
| | $ | 2.80 |
|
| Income (loss) from discontinued operations, net of tax | 0.02 |
| | (0.09 | ) | | (0.13 | ) |
| Net income (loss) | $ | (7.93 | ) | | $ | 1.78 |
| | $ | 2.67 |
|
| Net earnings (loss) per diluted share: | | | | | |
| Net income (loss) from continuing operations | $ | (7.95 | ) | | $ | 1.84 |
| | $ | 2.74 |
|
| Income (loss) from discontinued operations, net of tax | 0.02 |
| | (0.08 | ) | | (0.13 | ) |
| Net income (loss) | $ | (7.93 | ) | | $ | 1.76 |
| | $ | 2.61 |
|
The number of anti-dilutive securities excluded from the computation of the weighted average common stock equivalents presented above at December 31, 2021 and 2020 were as follows:
|
| | | | | | | | |
| | As of December 31, |
| | 2017 | | 2016 | | 2015 |
| Unvested restricted stock awards | 636 |
| | 2 |
| | 21 |
|
| Outstanding common stock options | 194 |
| | — |
| | — |
|
| Convertible senior notes | 3,129 |
| | 3,129 |
| | 3,129 |
|
| Warrants related to the issuance of convertible senior notes | 3,129 |
| | 3,129 |
| | 3,129 |
|
| Total anti-dilutive securities | 7,088 |
| | 6,260 |
| | 6,279 |
|
See Note 7 “Financing Arrangements” for further information on0.1 million and 1.1 million, respectively, and related to unvested restricted stock. The number of anti-dilutive securities excluded from the convertible senior notescomputation of the weighted average common stock equivalents presented above at December 31, 2019 were 3.1 million and warrants related to the warrants sold in conjunction with the issuance of our convertible senior notes.
We currently haveIn November 2020, our board of directors authorized a share repurchase program (the “2020 Share Repurchase Program”) permitting us to repurchase up to $50 million of our common stock through December 31, 2021. The 2020 Share Repurchase Program was authorized subsequent to the expiration of our prior share repurchase program (the “2015 Share Repurchase Program”) on October 31, 2020. The 2015 Share Repurchase Program permitted us to repurchase up to $125 million of our common stock through October 31, 2018 (the "Share2020. During the thirdquarter of 2021, our board of directors authorized an extension of the 2020 Share Repurchase Program"). TheProgram through December 31, 2022 and
increased the authorized amount from $50 million to $100 million.The amount and timing of the repurchases will beunder our share repurchase
programs is determined by management and will dependdepends 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. NoAll shares were repurchased under this program in 2017. In 2016,and retired are reflected as a reduction to our basic weighted average shares outstanding based on the trade date of the share repurchase.
During 2021, we repurchased and retired 982,1921,265,261 shares for $55.3$64.8 million andunder the 2020 Share Repurchase Program, including 3,820 shares for $0.2 million which settled in 2015,the first quarter of 2022. During 2020, we repurchased and retired 583,880313,998 shares for $34.6 million. As$20.9 million under the 2015 Share Repurchase Program and 111,166 shares for $5.0 million under the 2020 Share Repurchase Program. Additionally, during the first quarter of 2020, we settled the repurchase of 18,000 shares for $1.2 million that were accrued as of December 31, 2017, $35.12019. In 2019, we repurchased and retired 210,437 shares for $14.2 million remains available for share repurchases.
under the 2015 Share Repurchase Program, including the 18,000 shares
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
for $1.2 million which settled in the first quarter of 2020. As of December 31, 2021, $30.2 million remains available under the plan for share repurchases.
10.
11. Restructuring Charges
2021
In 2017,2021, we incurred $6.2$12.4 million of total pretax restructuring expense. ThisOf the $12.4 million pretax restructuring expense, primarily$8.5 million related to the divestiture of our Life Sciences business, a reporting unit within the Business Advisory segment. On November 1, 2021, we completed the sale of the Life Sciences business to a third-party, and recognized a $31.5 million pre-tax gain which is included within other income (expense), net on our consolidated statement of operations. For the ten months ended October 31, 2021, the Life Sciences business generated $16.7 million of revenue and is not considered significant to our consolidated financial statements.
The total pretax restructuring expense of $12.4 million recognized in 2021 consisted of the following charges:
Severance Employee Costs - We incurred $3.7$8.1 million of severanceemployee-related restructuring expense, as a result of which $6.8 million related to transaction-related employee payments made in connection with the divestiture of our Life Sciences businesses and $1.3 million related to other employee-related expenses in our Business Advisory segment.
Office space reductions - We incurred $3.1 million of restructuring expense related to office space reductions, of which $2.3 million related to rent and related expenses, net of sublease income, and accelerated depreciation on furniture and fixtures for previously vacated office spaces and $0.8 million related to accelerated amortization and depreciation on the operating lease ROU asset and fixed assets related to our London, U.K. office which we vacated in connection with the divestiture of our Life Sciences business.
Other - We incurred $1.2 million of other restructuring charges, of which $0.9 million related to third-party legal and professional advisory fees incurred in connection with the divestiture of our Life Sciences business and $0.2 million related to third-party advisory fees related to the reorganization of our internal operating and financial reporting structure. See Note 19 "Segment Information" for more information on our reorganization which is effective in the first quarter of 2022.
Of the total $12.4 million pretax restructuring charge, $7.9 million was recognized in the results of operations of our Business Advisory segment and $4.5 million was recognized in our corporate operations.
2020
In 2020, we incurred $20.5 million of total pretax restructuring expense. Of the $20.5 million pretax restructuring expense, $18.7 million related to the restructuring plan executed in the fourth quarter of 2020 to reduce operating costs to address the impact of the COVID-19 pandemic on our business. The total pretax restructuring expense of $20.5 million recognized in 2020 consisted of the following charges:
Employee Costs - We incurred $5.3 million of severance-related restructuring expense, of which, $4.8 million related to the fourth quarter 2020 restructuring plan and $0.4 million related to workforce reductions completed prior to the fourth quarter of 2020 to better align resources with market demand. Of the $3.7total $5.3 million $2.1of severance-related restructuring expense, $2.0 million related to our Education segment, $1.5 million related to our Healthcare segment, $1.1$1.0 million related to our Business Advisory segment, and $0.4$0.8 million related to our corporate operations.
Office exit costsspace reductions - We incurred $2.4$14.0 million of restructuring expense related to office exit costsspace reductions, which primarily related to the accrualfourth quarter 2020 restructuring plan. The fourth quarter 2020 restructuring plan provided for a reduction in certain leased office spaces which included a portion of our principal executive office in Chicago, Illinois; the remaining portion of our Lake Oswego, Oregon office; our Boston, Massachusetts and Detroit, Michigan offices; and portions of our Denver, Colorado, New York City, New York, and Pensacola, Florida offices. As a result, we recognized $13.2 million of non-cash lease obligations,impairment charges on the related operating lease ROU assets and fixed assets for those we intend to sublease, as well as $0.7 million of accelerated amortization and depreciation on the related operating lease ROU assets and fixed assets we abandoned. See Note 5 “Leases” for additional information on the long-lived asset impairment test performed in 2020. We also incurred $0.1 million related to rent and related expenses, net of estimated sublease income, duefor previously vacated office spaces.
Other - We incurred $1.2 million of other restructuring charges primarily related to relocatingan accrual for the termination of a third-party advisor agreement in our San Francisco office to a smaller space and consolidating our Chicago and New York offices, and accelerated depreciation on leasehold improvements for our San Francisco office.Business Advisory segment.
Of the $6.2total $20.5 million pretax restructuring charge, $2.1$14.8 million was related to our Healthcare segment, $1.1corporate operations, $2.2 million was related to our Business Advisory segment, and $2.9$2.0 million was related to our corporate operations.
In 2016, we incurred $9.6Education segment, and $1.5 million of pretax restructuring expense. This expense consisted of the following charges:
Severance - We incurred $7.3 million of severance expense as a result of workforce reductions, of which $6.4 million was related to our Healthcare and Business Advisory segments to better align our resources with market demand and $0.9 million was related to our corporate infrastructure as a result of our Huron Legal divestiture.
Office exit costs - We incurred $1.5 million of office exit costs primarily related to our Washington, D.C. space that we vacated in the fourth quarter of 2014. During the third quarter of 2016, we entered into a sublease agreement and adjusted our Washington, D.C. lease accrual to reflect the terms specified in the sublease agreement.
Other - We also incurred $0.8 million of restructuring expense related to the wind down of our foreign consulting operations based in the Middle East and other exit costs.
Of the $9.6 million pretax restructuring charge, $5.8 million was related to our Healthcare segment, $3.2 million was related to our corporate operations, and $0.6 million was related to our Business Advisory segment.
In 2015, we incurred $3.3 million of pretax restructuring expense. This expense primarily consisted of the following charges:
Severance - We incurred $2.8 million of severance expense as a result of workforce reductions to better align our resources with market demand.
Office exit costs - We incurred $0.5 million of office exit costs primarily related to updated assumptions for the lease accrual of the Washington, D.C. space vacated in the fourth quarter of 2014.
Of the $3.3 million pretax restructuring expense, $1.2 million was related to our Healthcare segment, $1.1 million was related to our All Other segment as we wound down our public sector consulting practice and our foreign consulting operations based in the Middle East, and $1.0 million was related to our corporate operations.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
2019
In 2019, we incurred $1.9 million of pretax restructuring expense. This expense primarily consisted of the following charges:
Employee Costs - We incurred $0.6 million of severance expense as a result of workforce reductions to better align resources with market demand and workforce reductions in our corporate operations.
Office space reductions - We incurred $1.2 million of restructuring expense related to office space reductions. During 2019, we exited a portion of our Lake Oswego, Oregon office resulting in a $0.7 million lease impairment charge on the related operating lease ROU asset and leasehold improvements and $0.2 million of accelerated depreciation on furniture and fixtures in that office. See Note 5 “Leases” for additional information on the long-lived asset impairment test performed in 2019. Additionally, during 2019, we exited the remaining portion of our Middleton, Wisconsin office and an office in Houston, Texas, resulting in restructuring charges of $0.4 million and $0.1 million, respectively, which primarily consisted of accelerated depreciation on furniture and fixtures in those offices. During the fourth quarter of 2019, we entered into an amendment to the lease of our principal executive office in Chicago, Illinois. Among other items, the amendment terminated the lease with respect to certain leased space which we previously vacated and subleased to a third-party. As a result of the amendment, we recognized a restructuring gain of $0.4 million. See Note 5 “Leases” for additional information on the amendment.
Of the $1.9 million pretax restructuring charge, $1.5 million related to our corporate operations, $0.3 million related to our Healthcare segment, and $0.1 million related to our Business Advisory segment.
The table below sets forth the changes in the carrying amount of our restructuring charge liability by restructuring type for the years ended December 31, 20172021 and 2016.2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Employee Costs | | Office Space Reductions | | Other | | Total |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| | | | | | | |
| Balance as of December 31, 2019 | $ | 68 | | | $ | 91 | | | $ | — | | | $ | 159 | |
Additions (1) (2) | 5,290 | | | — | | | 1,256 | | | 6,546 | |
| Payments | (2,907) | | | — | | | (363) | | | (3,270) | |
Adjustments (1) (2) | (4) | | | (7) | | | — | | | (11) | |
| Balance as of December 31, 2020 | 2,447 | | | 84 | | | 893 | | | 3,424 | |
Additions (1)(2) | 8,132 | | | — | | | 1,156 | | | 9,288 | |
| Payments | (9,993) | | | (84) | | | (1,482) | | | (11,559) | |
Adjustments (1)(2) | (13) | | | — | | | — | | | (13) | |
| Balance as of December 31, 2021 | $ | 573 | | | $ | — | | | $ | 567 | | | $ | 1,140 | |
|
| | | | | | | | | | | | | | | |
| | Employee Costs | | Office Space Reductions | | Other | | Total |
| Balance as of December 31, 2015 | $ | 2,323 |
| | $ | 6,379 |
| | $ | — |
| | $ | 8,702 |
|
Additions (1) | 9,082 |
| | 57 |
| | 585 |
| | 9,724 |
|
| Payments | (5,906 | ) | | (2,424 | ) | | (482 | ) | | (8,812 | ) |
Adjustments (1) | (317 | ) | | 1,765 |
| | 245 |
| | 1,693 |
|
| Non-cash items | — |
| | (4 | ) | | (324 | ) | | (328 | ) |
| Balance as of December 31, 2016 | 5,182 |
| | 5,773 |
| | 24 |
| | 10,979 |
|
Additions (1) | 3,859 |
| | 2,426 |
| | 110 |
| | 6,395 |
|
| Payments | (7,611 | ) | | (2,860 | ) | | 5 |
| | (10,466 | ) |
Adjustments (1) | (117 | ) | | (973 | ) | | (78 | ) | | (1,168 | ) |
| Non-cash items | (46 | ) | | (119 | ) | | (61 | ) | | (226 | ) |
| Balance as of December 31, 2017 | $ | 1,267 |
| | $ | 4,247 |
| | $ | — |
| | $ | 5,514 |
|
| |
(1) | (1)Additions and adjustments for the years ended December 31, 2017 and 2016 include a gain of $1.0 million and a charge of $2.0 million, respectively, related to updated lease assumptions for vacated offices spaces directly related to discontinued operations. Refer to Note 3 "Discontinued Operations" for additional information on our discontinued operations. |
As of December 31, 2017,2021 and 2020 include restructuring charges of $0.1 million and $0.2 million, respectively, related to office space reductions directly related to discontinued operations.
(2)Additions and adjustments exclude non-cash items related to vacated office spaces, such as lease impairment charges and accelerated depreciation on abandoned operating lease ROU assets and fixed assets, which are recorded as restructuring charges on our consolidated statements of operations.
All of the $0.6 million restructuring charge liability related to office space reductionsemployee costs at December 31, 2021 is expected to be paid in the next 12 months and is included as a component of $4.2accrued payroll and related benefits. Substantially all of the $0.6 million represented the present value of remaining lease payments, net of estimated sublease income, primarily for our vacated office spaces in Washington, D.C., Houston, Chicago, and San Francisco. Thisother restructuring charge liability at December 31, 2021 is expected to be paid in the next 12 months and is included as a component of accrued expenses and other current liabilities and deferred compensation and other liabilities. All
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in 2018. The restructuring charge liability related to employee costs is included as a component of accrued payroll and related benefits.thousands, except per share amounts)
11.12. Derivative Instruments and Hedging Activity
On April 4, 2013, we entered into a forward amortizing interest rate swap agreement effective March 31, 2014 which ended August 31, 2017. We entered into this derivative instrument to hedge against the interest rate risks of our variable-rate borrowings. The swap had an initial notional amount of $60.0 million and amortized quarterly until April 2016. In April 2016, the notional amount of this interest rate swap increased to $86.0 million and continued to amortize quarterly until it expired in August 2017. Under the terms of the interest rate swap agreement, we received from the counterparty interest on the notional amount based on one-month LIBOR and we paid to the counterparty a fixed rate of 0.985%.
On June 22, 2017, we entered into a forward interest rate swap agreement effective August 31, 2017 and ending August 31, 2022, with a notional amount of $50.0 million. We entered into this derivative instrument to continue to hedge against the interest rate risks of our variable-rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one-monthone month LIBOR and we pay to the counterparty a fixed rate of 1.900%.
On January 30, 2020, we entered into a forward interest rate swap agreement effective December 31, 2019 and ending December 31, 2024, with a notional amount of $50.0 million. We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month LIBOR and we pay to the counterparty a fixed rate of 1.500%.
On March 16, 2020, we entered into a forward interest rate swap agreement effective February 28, 2020 and ending February 28, 2025, with a notional amount of $100.0 million. We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month LIBOR and we pay to the counterparty a fixed rate of 0.885%.
We recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. We have designated these derivative instruments as cash flow hedges. Therefore, changes in the fair value of the derivative instruments are recorded to other comprehensive income (“OCI”) to the extent effective and reclassified into interest expense upon settlement. The ineffective portion of the change in fair value of the derivative instruments is recognized in interest expense. Our interest rate swap agreement was effective during the year ended December 31, 2017. As of December 31, 2017,2021, it was anticipated that less than $0.1$1.1 million of the accumulated other comprehensive income,losses, net of tax, currently recorded on our consolidated balance sheetin accumulated other comprehensive income will be reclassified into earnings within the next 12 months.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The table below sets forth additional information relating to our interest rate swaps designated as cash flow hedging instruments as of December 31, 20172021 and 2016.2020.
| | | | Fair Value (Derivative Asset and Liability) As of December 31, | | Fair Value (Derivative Asset and Liability)
As of December 31, |
| Balance Sheet Location | 2017 | | 2016 | Balance Sheet Location | 2021 | | 2020 |
| | Other non-current assets | $ | 581 |
| | $ | — |
| Other non-current assets | $ | 1,210 | | | $ | — | |
| Accrued expenses | $ | 48 |
| | $ | 54 |
| |
| Accrued expenses and other current liabilities | | Accrued expenses and other current liabilities | $ | 1,604 | | | $ | 2,100 | |
| Deferred compensation and other liabilities | | Deferred compensation and other liabilities | $ | 149 | | | $ | 3,297 | |
All of our derivative instruments are transacted under the International Swaps and Derivatives Association (ISDA) master agreements. These agreements permit the net settlement of amounts owed in the event of default and certain other termination events. Although netting is permitted, it is our policy to record all derivative assets and liabilities on a gross basis on our consolidated balance sheet.
We do not use derivative instruments for trading or other speculative purposes. Refer to Note 1314 “Other Comprehensive Income (Loss)” for additional information on our derivative instrument.
instruments.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
12.13. Fair Value of Financial Instruments
Certain of our assets and liabilities are measured at fair value. Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a fair value hierarchy for inputs used in measuring fair value and requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy consists of three levels based on the objectivity of the inputs as follows:
|
| | | | | | | |
| Level 1 Inputs | | Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date. |
| |
| Level 2 Inputs | | Quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means. |
| |
| Level 3 Inputs | | Unobservable inputs for the asset or liability, and include situations in which there is little, if any, market activity for the asset or liability. |
The tabletables below sets forth our fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis as of December 31, 20172021 and 2016.2020.
| | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
| December 31, 2021 | | | | | | | |
| Assets: | | | | | | | |
| Interest rate swap | $ | — | | | $ | 627 | | | $ | — | | | $ | 627 | |
| Convertible debt investment | — | | | — | | | 65,918 | | | 65,918 | |
| Deferred compensation assets | — | | | 39,430 | | | — | | | 39,430 | |
| Total assets | $ | — | | | $ | 40,057 | | | $ | 65,918 | | | $ | 105,975 | |
| Liabilities: | | | | | | | |
| Interest rate swaps | $ | — | | | $ | 1,170 | | | $ | — | | | $ | 1,170 | |
| Contingent consideration for business acquisition | — | | | — | | | 3,743 | | | 3,743 | |
| Total liabilities | $ | — | | | $ | 1,170 | | | $ | 3,743 | | | $ | 4,913 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Level 1 | | Level 2 | | Level 3 | | Total |
| December 31, 2020 | | | | | | | |
| Assets: | | | | | | | |
| | | | | | | |
| Convertible debt investment | $ | — | | | $ | — | | | $ | 64,364 | | | $ | 64,364 | |
| Deferred compensation assets | — | | | 34,056 | | | — | | | 34,056 | |
| Total assets | $ | — | | | $ | 34,056 | | | $ | 64,364 | | | $ | 98,420 | |
| Liabilities: | | | | | | | |
| Interest rate swaps | $ | — | | | $ | 5,397 | | | $ | — | | | $ | 5,397 | |
| Contingent consideration for business acquisition | — | | | — | | | 1,770 | | | 1,770 | |
| Total liabilities | $ | — | | | $ | 5,397 | | | $ | 1,770 | | | $ | 7,167 | |
|
| | | | | | | | | | | | | | | |
| | Level 1 | | Level 2 | | Level 3 | | Total |
| December 31, 2017 | | | | | | | |
| Assets: | | | | | | | |
| Interest rate swaps | $ | — |
| | $ | 533 |
| | $ | — |
| | $ | 533 |
|
| Promissory note | — |
| | — |
| | 1,078 |
| | 1,078 |
|
| Convertible debt investment | — |
| | — |
| | 39,904 |
| | 39,904 |
|
| Deferred compensation assets | — |
| | 17,786 |
| | — |
| | 17,786 |
|
| Total assets | $ | — |
| | $ | 18,319 |
| | $ | 40,982 |
| | $ | 59,301 |
|
| Liabilities: | | | | | | | |
| Contingent consideration for business acquisitions | $ | — |
| | $ | — |
| | $ | 22,828 |
| | $ | 22,828 |
|
| Total liabilities | $ | — |
| | $ | — |
| | $ | 22,828 |
| | $ | 22,828 |
|
| December 31, 2016 | | | | | | | |
| Assets: | | | | | | | |
| Promissory note | $ | — |
| | $ | — |
| | $ | 2,325 |
| | $ | 2,325 |
|
| Convertible debt investment | — |
| | — |
| | 34,675 |
| | 34,675 |
|
| Deferred compensation assets | — |
| | 16,408 |
| | — |
| | 16,408 |
|
| Total assets | $ | — |
| | $ | 16,408 |
| | $ | 37,000 |
| | $ | 53,408 |
|
| Liabilities: | | | | | | | |
| Interest rate swaps | $ | — |
| | $ | 54 |
| | $ | — |
| | $ | 54 |
|
| Contingent consideration for business acquisitions | — |
| | — |
| | 8,827 |
| | 8,827 |
|
| Total liabilities | $ | — |
| | $ | 54 |
| | $ | 8,827 |
| | $ | 8,881 |
|
Interest rate swaps: The fair values of our interest rate swaps were derived using estimates to settle the interest rate swap agreements, which are based on the net present value of expected future cash flows on each leg of the swapsswap utilizing market-based inputs and discount rates reflecting the risks involved.
Promissory note: As part of the consideration received See Note 12 "Derivative Instruments and Hedging Activity" for the sale ofadditional information on our Accounting Advisory practice on December 30, 2011, we received a $3.5 million promissory note payable over four years. During the fourth quarter of 2017, we amended and restated the note which established
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
scheduled annual principal payments, increased the interest rate reduced the outstanding principal amount by $0.5 million, and extended the maturity date to September 30, 2020. Additionally, at the closing of this amended promissory note, we received a $1.0 million principal payment. As a result of the amendment, we recorded a $0.3 million fair value remeasurement loss on the promissory note which is recorded in other income (expense), net in the consolidated statement of operations. The scheduled principal payments will be paid to us annually until the maturity date of September 30, 2020, at which time the remaining principal balance and any accrued interest is due. The fair value of the note is based on the net present value of the projected cash flows using a discount rate of 10%, which accounts for the risks associated with the amended note. This fair value measurement is based on significant inputs not observable in the market and thus represent Level 3 inputs. As of December 31, 2017, $0.5 million is recorded in prepaid expenses and other current assets and represents the present value of the payments expected to be received in the next 12 months, and the remaining $0.6 million is recorded in other non-current assets. As of December 31, 2017, there was $1.0 million principal amount outstanding under the promissory note.swaps.
The table below sets forth the changes in the balance of the promissory note for the years ended December 31, 2017 and 2016. |
| | | | |
| | | Promissory Note |
| Balance as of December 31, 2015 | | $ | 2,309 |
|
| Interest payments received | | (191 | ) |
| Change in fair value of promissory note | | 207 |
|
| Balance as of December 31, 2016 | | 2,325 |
|
| Interest payments received | | (185 | ) |
| Principal payments received | | (1,177 | ) |
| Change in fair value of promissory note | | 115 |
|
| Balance as of December 31, 2017 | | $ | 1,078 |
|
Convertible debt investment: In 2014 and 2015, we invested $27.9 million, in the form of zero coupon convertible debt (the “initial convertible notes”), in Shorelight Holdings, LLC (“Shorelight”), the parent company of Shorelight, Education, a U.S.-based company that partners with leading nonprofit universities to increase access to and retention of international students, boost institutional growth, and enhance an institution’s global footprint. TheIn the first quarter of 2020, we invested an additional $13.0 million, in the form of 1.69% convertible debt with a senior liquidation preference to the initial convertible notes will mature on July 1, 2020, unless converted earlier.(the “additional convertible note”); and amended our initial convertible notes to include a
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
coupon rate of 1.69% and extend the maturity date to January 17, 2024, which coincides with the maturity date of the additional convertible note.
To determine the appropriate accounting treatment for our investment, we performed a variable interest entity (“VIE”) analysis and concluded that Shorelight does not meet the definition of a VIE. We also reviewed the characteristics of our investment to confirm that the convertible notes are not in-substance common stock that would warrant equity method accounting. After we reviewed all of the terms of the investment, we concluded the appropriate accounting treatment to be that of an available-for-sale debt security.
The investment is carried at fair value with unrealized holding gains and losses excluded from earnings and reported in other comprehensive income. We estimatedestimate the fair value of our investment using a scenario-based approach in the form of a hybrid analysis that consists of a Monte Carlo simulation model and an expected return analysis. The conclusion of value for our investment is based on the probability-weighted assessment of both scenarios. The hybrid analysis utilizes certain assumptions including the assumed holding period through the maturity date of January 17, 2024, the applicable waterfall distribution at the end of the expected holding period based on the rights and privileges of the various instruments, cash flow projections discounted at athe risk-adjusted rate of 22.5% and certain assumptions related to24.0% as of December 31, 2021 and 2020, respectively; and the concluded equity volatility default probability,of 45.0% as of both December 31, 2021 and recovery rate,2020, all of which are Level 3 inputs. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of the investment, which would result in different impacts to our consolidated balance sheet and comprehensive income. Actual results may differ from our estimates. The fair value of the convertible debt investment is recorded in long-term investment.investments on our consolidated balance sheets.
The table below sets forth the changes in the balance of the convertible debt investment for the years ended December 31, 20172021 and 2016.2020. |
| | | | |
| | | Convertible Debt Investment |
| Balance as of December 31, 2015 | | $ | 34,831 |
|
| Change in fair value of convertible debt investment | | (156 | ) |
| Balance as of December 31, 2016 | | 34,675 |
|
| Change in fair value of convertible debt investment | | 5,229 |
|
| Balance as of December 31, 2017 | | $ | 39,904 |
|
| | | | | | | | |
| | Convertible Debt Investment |
| Balance as of December 31, 2019 | | $ | 49,542 | |
| Purchases | | 13,000 | |
| Change in fair value of convertible debt investment | | 1,822 | |
| Balance as of December 31, 2020 | | 64,364 | |
| | |
| Change in fair value of convertible debt investment | | 1,554 | |
| Balance as of December 31, 2021 | | $ | 65,918 | |
Deferred compensation assets: We have a non-qualified deferred compensation plan (the "Plan"“Plan”) for the members of our board of directors and a select group of our employees. The deferred compensation liability is fully funded by the Plan assets, which consist of life insurance policies maintained within a trust. The cash surrender value of the life insurance policies approximates fair value and is based on third-party broker statements which provide the fair value of the life insurance policies' underlying investments, which are Level 2 inputs. The cash surrender value of the life insurance policies is invested primarily in mutual funds. The Plan assets are included in other non-current assets on our
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
consolidated balance sheet.sheets. Realized and unrealized gains (losses) from the deferred compensation assets are recorded to other income (expense), net in our consolidated statements of operations.
Contingent consideration for business acquisitions: We estimate the fair value of acquisition-related contingent consideration using either a probability-weighted assessment of the specific financial performance targets being achievedmeasured or a Monte Carlo simulation model, as appropriate. These fair value measurements are based on significant inputs not observable in the market and thus represent Level 3 inputs. The significant unobservable inputs used in the fair value measurements of our contingent consideration are our measures of the estimated payouts based on internally generated financial projections on a probability-weighted basis and a discount rates,rate which typically reflectwas in a risk-free rate.range of 2.4% to 5.1% with a weighted average of 3.7% as of December 31, 2021 and was 2.4% as of December 31, 2020. The weighted average discount rate was calculated using the relative fair values of the contingent consideration as of December 31, 2021. The fair value of the contingent consideration is reassessed quarterly based on assumptions used in our latest projections and input provided by practice leaders and management. Any change in the fair value estimate is recorded in our consolidated statement of operations for that period. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of our contingent consideration liability, which would result in different impacts to our consolidated balance sheets and consolidated statements of operations. Actual results may differ from our estimates. Refer to Note 4 “Acquisitions” for information on the acquisitions completed
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in 2017, 2016, and 2015.thousands, except per share amounts)
The table below sets forth the changes in the balance of the contingent consideration for business acquisitions for the years ended December 31, 20172021 and 2016.2020. |
| | | | |
| | | Contingent Consideration for Business Acquisitions |
| Balance as of December 31, 2015 | | $ | 2,063 |
|
| Acquisitions | | 8,754 |
|
| Remeasurement of contingent consideration for business acquisitions | | (1,990 | ) |
| Balance as of December 31, 2016 | | 8,827 |
|
| Acquisitions | | 15,489 |
|
| Payments | | (2,938 | ) |
| Remeasurement of contingent consideration for business acquisitions | | 1,111 |
|
| Unrealized loss due to foreign currency translation | | 339 |
|
| Balance as of December 31, 2017 | | $ | 22,828 |
|
| | | | | | | | |
| | Contingent Consideration for Business Acquisitions |
| Balance as of December 31, 2019 | | $ | — | |
| Acquisition | | 1,770 | |
| Balance as of December 31, 2020 | | 1,770 | |
| Acquisition | | 1,800 | |
| Change in fair value of contingent consideration for business acquisition | | 173 | |
| Balance as of December 31, 2021 | | $ | 3,743 | |
Financial assets and liabilities not recorded at fair value on a recurring basis are as follows:
Preferred Stock Investment
In thefourth quarter of 2019, we invested $5.0 million, in the form of preferred stock, in Medically Home Group, Inc. (“Medically Home”), a healthcare technology-enabled services company. To determine the appropriate accounting treatment for our investment, we performed a VIE analysis and concluded that Medically Home does not meet the definition of a VIE. We also reviewed the characteristics of our investment to confirm that the preferred stock is not in-substance common stock that would warrant equity method accounting. After we reviewed all of the terms of the investment, we concluded the appropriate accounting treatment for our investment in Medically Home to be that of an equity security with no readily determinable fair value. We elected to apply the measurement alternative at the time of the purchase and will continue to do so until the investment does not qualify to be so measured. Under the measurement alternative, the investment is carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment in Medically Home. On a quarterly basis, we review the information available to determine whether an orderly and observable transaction for the same or similar equity instrument occurred, and remeasure the fair value of the preferred stock using such identified transactions, with changes in the fair value recorded to other income (expense), net in our consolidated statement of operations.
In October 2020, we recognized an unrealized gain of $1.7 million to increase the carrying amount of our preferred stock investment to $6.7 million, based on an observable price change of preferred stock with similar rights and preferences to our preferred stock investment issued by Medically Home, a Level 2 input. The unrealized gain of $1.7 million was recorded in other income (expense), net on our consolidated statement of operations. During the year ended December 31, 2021, there has been no impairment, nor any observable price change related to our investment. As of December 31, 2021 and 2020, the carrying amount of our preferred stock investment was $6.7 million.
Senior Secured Credit Facility
The carrying value of our borrowings outstanding under our senior secured credit facility is stated at cost. Our carrying value approximates fair value, using Level 2 inputs, as the senior secured credit facility bears interest at variable rates based on current market rates as set forth in the Amended Credit Agreement. Refer to Note 7 “Financing Arrangements” for additional information on our senior secured credit facility.
Promissory Note due 2024
The carrying value of our promissory note due 2024 is stated at cost. Our carrying value approximates fair value, using Level 2 inputs, as the promissory note bears interest at rates based on current market rates as set forth in the terms of the promissory note. Refer to Note 7 “Financing Arrangements” for additional information on our promissory note due 2024.
Convertible Notes
The carrying amountCash and estimated fair value of the Convertible Notes are as follows:
|
| | | | | | | | | | | | | | | |
| | December 31, 2017 | | December 31, 2016 |
| | Carrying Amount | | Estimated Fair Value | | Carrying
Amount | | Estimated
Fair Value |
| 1.25% convertible senior notes due 2019 | $ | 233,140 |
| | $ | 232,578 |
| | $ | 224,065 |
| | $ | 245,018 |
|
The differences between the $250 million principal amount of the Convertible NotesCash Equivalents and the carrying amounts shown above represent the unamortized debt discount and issuance costs. As of December 31, 2017 and 2016, the carrying value of the equity component of $39.3
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
million was unchanged from the date of issuance. Refer to Note 7 “Financing Arrangements” for additional information on our Convertible Notes. The estimated fair value of the Convertible Notes was determined based on the quoted bid price of the Convertible Notes in an over-the-counter market, which is a Level 2 input, on the last day of trading for the quarters ended December 31, 2017 and 2016.
Based on the closing price of our common stock of $40.45 on December 31, 2017, the if-converted value of the Convertible Notes was less than the principal amount.Other Financial Instruments
Cash and cash equivalents are stated at cost, which approximates fair market value. The carrying values of all other financial instruments not described above reasonably approximate fair market value due to the nature of the financial instruments and the short-term maturity of these items.
13.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
14. Other Comprehensive Income (Loss)
The table below sets forth the components of accumulated other comprehensive income (loss), net of tax for the years ended December 31, 2017, 2016,2021, 2020, and 2015.2019.
| | | | | | | | | | | | | | | | | | | | | | | |
| Foreign
Currency
Translation | | Available-for-
Sale
Investments | | Cash Flow Hedges (1) | | Total |
| Balance as of December 31, 2018 | $ | (665) | | | $ | 16,584 | | | $ | 576 | | | $ | 16,495 | |
| Foreign currency translation adjustment, net of tax of $0 | 99 | | | — | | | — | | | 99 | |
| Unrealized gain (loss) on investments: | | | | | | | |
| Change in fair value, net of tax of $185 | — | | | (702) | | | — | | | (702) | |
| Unrealized gain (loss) on cash flow hedges: | | | | | | | |
| Change in fair value, net of tax of $295 | — | | | — | | | (819) | | | (819) | |
| Reclassification adjustment into earnings, net of tax of $48 | — | | | — | | | (137) | | | (137) | |
| Balance as of December 31, 2019 | (566) | | | 15,882 | | | (380) | | | 14,936 | |
| Foreign currency translation adjustment, net of tax of $0 | 348 | | | — | | | — | | | 348 | |
| Unrealized gain (loss) on investments: | | | | | | | |
| Change in fair value, net of tax of $(499) | — | | | 1,323 | | | — | | | 1,323 | |
| Unrealized gain (loss) on cash flow hedges: | | | | | | | |
| Change in fair value, net of tax of $1,693 | — | | | — | | | (4,652) | | | (4,652) | |
| Reclassification adjustment into earnings, net of tax of $(388) | — | | | — | | | 1,106 | | | 1,106 | |
| Balance as of December 31, 2020 | (218) | | | 17,205 | | | (3,926) | | | 13,061 | |
| Foreign currency translation adjustment, net of tax of $0 | 157 | | | — | | | — | | | 157 | |
Reclassification adjustments into earnings, net of tax of $0(2) | (1,082) | | | — | | | — | | | (1,082) | |
| Unrealized gain (loss) on investments: | | | | | | | |
| Change in fair value, net of tax of $(385) | — | | | 1,169 | | | — | | | 1,169 | |
| Unrealized gain (loss) on cash flow hedges: | | | | | | | |
| Change in fair value, net of tax of $(641) | — | | | — | | | 1,606 | | | 1,606 | |
| Reclassification adjustment into earnings, net of tax of $(678) | — | | | — | | | 1,929 | | | 1,929 | |
| Balance as of December 31, 2021 | $ | (1,143) | | | $ | 18,374 | | | $ | (391) | | | $ | 16,840 | |
(1) The before tax amounts reclassified from accumulated other comprehensive income (loss) related to our cash flow hedges are recorded to interest expense, net of interest income.
(2) In connection with the divestiture of the Life Sciences business, which included a substantially complete liquidation of an investment within a foreign entity, we included $1.1 million of accumulated translation gains in the calculation of our gain on sale recorded within other income, net on our consolidated statement of operations. See Note 3 "Acquisitions and Divestitures" for additional information on the divestiture of the Life Sciences business in 2021.
|
| | | | | | | | | | | | | | | |
| | Foreign Currency Translation | | Available-for- Sale Investments | | Cash Flow Hedges (1) | | Total |
| Balance as of December 31, 2014 | $ | (2,334 | ) | | $ | (250 | ) | | $ | (71 | ) | | $ | (2,655 | ) |
| Foreign currency translation adjustment, net of tax of $0 | (403 | ) | | — |
| | — |
| | (403 | ) |
Reclassification adjustment into earnings, net of tax of $0 (2) | 2,220 |
| | — |
| | — |
| | 2,220 |
|
| Unrealized gain on investments, net of tax of $(2,709) | — |
| | 4,435 |
| | — |
| | 4,435 |
|
| Unrealized gain (loss) on cash flow hedges: | | | | | | | |
| Change in fair value, net of tax of $327 | — |
| | — |
| | (492 | ) | | (492 | ) |
| Reclassification adjustment into earnings, net of tax of $(320) | — |
| | — |
| | 480 |
| | 480 |
|
| Balance as of December 31, 2015 | (517 | ) | | 4,185 |
| | (83 | ) | | 3,585 |
|
| Foreign currency translation adjustment, net of tax of $0 | 64 |
| | — |
| | — |
| | 64 |
|
| Unrealized loss on investments, net of tax of $59 | — |
| | (97 | ) | | — |
| | (97 | ) |
| Unrealized gain (loss) on cash flow hedges: | | | | | | | |
| Change in fair value, net of tax of $122 | — |
| | — |
| | (179 | ) | | (179 | ) |
| Reclassification adjustment into earnings, net of tax of $(161) | — |
| | — |
| | 242 |
| | 242 |
|
| Balance as of December 31, 2016 | (453 | ) | | 4,088 |
| | (20 | ) | | 3,615 |
|
| Foreign currency translation adjustment, net of tax of $0 | 1,602 |
| | — |
| | — |
| | 1,602 |
|
| Unrealized gain on investments: | | | | | | | |
| Change in fair value, net of tax of $(998) | — |
| | 4,231 |
| | — |
| | 4,231 |
|
Reclassification adjustment into retained earnings (3) | — |
| | 493 |
| | — |
| | 493 |
|
| Unrealized gain (loss) on cash flow hedges: | | | | | | | |
| Change in fair value, net of tax of $(106) | — |
| | — |
| | 366 |
| | 366 |
|
| Reclassification adjustment into earnings, net of tax of $(46) | — |
| | — |
| | 69 |
| | 69 |
|
Reclassification adjustment into retained earnings (3) | — |
| | — |
| | (6 | ) | | (6 | ) |
| Balance as of December 31, 2017 | $ | 1,149 |
| | $ | 8,812 |
| | $ | 409 |
| | $ | 10,370 |
|
| |
(1) | The before tax amounts reclassified from accumulated other comprehensive income (loss) related to our cash flow hedges are recorded to interest expense, net of interest income. |
| |
(2) | In connection with the divestiture of Huron Legal, which included the sale of certain wholly-owned foreign subsidiaries, we reclassified $2.2 million of accumulated translation losses to net income from discontinued operations. |
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
| |
(3) | Upon adoption of ASU 2018-02, Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income, we reclassified $0.5 million of stranded tax effects, which resulted from the enactment of the 2017 Tax Reform, from accumulated other comprehensive income to retained earnings. Refer to Note 2 "Summary of Significant Accounting Policies" for additional information on the adoption of ASU 2018-02.
|
14.15. Employee Benefit and Deferred Compensation Plans
We sponsor a qualified defined contribution 401(k) plan covering substantially all of our employees. Under the plan, employees are entitled to make pretax, contributionspost-tax, and/or Roth post-tax contributions up to the annual maximums established by the Internal Revenue Service. We match an amount equal to the employees’ contributions up to 6% of the employees’ salaries.eligible earnings. Our matching contributions including those related to our discontinued operations, for the years ended December 31, 2017, 2016,2021, 2020, and 20152019 were $20.0$29.9 million, $19.4$25.1 million, and $17.6$22.8 million, respectively.
We have a non-qualified deferred compensation plan (the “Plan”) that is administered by our board of directors or a committee designated by the board of directors. Under the Plan, members of the board of directors and a select group of our employees may elect to defer the receipt of their director retainers and meeting fees or base salary and bonus, as applicable. Additionally, we may credit amounts to a participant’s deferred compensation account in accordance with employment or other agreements entered into between us and the participant. At our sole discretion, we may, but are not required to, credit any additional amount we desire to any participant’s deferred compensation account.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Amounts credited are subject to vesting schedules set forth in the Plan, employment agreement, or any other agreement entered into between us and the participant. The deferred compensation liability at December 31, 20172021 and 20162020 was $17.7$39.1 million and $16.4$34.3 million, respectively. This deferred compensation liability is fully funded by the Plan assets.
15.16. Equity Incentive Plans
In 2012, Huron adopted the 2012 Omnibus Incentive Plan (the “2012 Plan”), in order to increase the number of shares of common stock available as equity compensation to employees, non-employee directors, and independent contractors, and to make certain updates to reflect changes in market practices. The 2012 Plan which replaced, on a prospective basis, our 2004 Omnibus Stock Plan (the "2004 Plan") such that future grants will be granted under the 2012 Plan and any outstanding awards granted under the 2004 Plan that are cancelled, expired, forfeited, settled in cash, or otherwise terminated without a delivery of shares to the participant will not become available for grant under the 2012 Plan. The 2012 Plan permits the grant of stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares and other share-based or cash-based awards valued in whole or in part by reference to, or otherwise based on, our common stock. TheSubsequent to the initial approval of the 2012 Plan was amended on May 2, 2014and through December 31, 2021, our shareholders approved amendments to the 2012 Plan to increase the number of shares authorized for issuance by 850,000 shares. On May 5, 2017, an amendment and restatement ofto 4.6 million, in the 2012 Plan was approved by shareholders to increase the number of shares authorized for issuance by 804,000 shares.aggregate. As of December 31, 2017, approximately 1.32021, 1.2 million shares remain available for issuance under the 2012 Plan.
On May 1, 2015, we adopted the Stock Ownership Participation Program (the “SOPP”), which is available to Huron employees below the managing director level who do not receive equity-based awards as part of their normal compensation plan. Under the SOPP, eligible employees may elect to use after-tax payroll deductions or cash contributions, to purchase shares of the Company’s common stock on certain designated purchase dates. Employees who purchase stock under the SOPP are granted restricted stock equal to 25% of their purchased shares. Vesting of the restricted stock is subject to both a time-based vesting schedule and a requirement that the purchased shares be held for a specified holding period. TheSubsequent to the initial approval of the SOPP and through December 31, 2021, our shareholders approved amendments to the SOPP to increase the total number of shares availableauthorized for issuance underto 0.7 million, in the SOPP was 300,000.aggregate. Prior to adoptingthe adoption of the SOPP, the matching share grants and the employee purchased shares under the stock ownership participation program were governed by the 2012 Plan. As of December 31, 2017, approximately 0.12021, 0.3 million shares remain available for issuance under the SOPP.
It has been our practice to issue shares of common stock upon exercise of stock options and granting of restricted stock from authorized but unissued shares, with the exception of the SOPP under which shares are issued from treasury stock. Certain grants of restricted stock under the 2012 Plan may be issued from treasury stock at the direction of the Compensation Committee.
Share-based awards outstanding under our 2012 Plan and our 2004 Plan provide for a retirement eligibility provision, under which eligible employees who have reached 62 years of age and have completed seven years of employment with Huron will continue vesting in their share-based awards after retirement, subject to certain conditions. The Compensation Committee of the board of directors has the responsibility of interpreting the 2012 Plan and SOPP and determining all of the terms and conditions of awards made under the plans, including when the awards will become exercisable or otherwise vest. In 2013, the Compensation Committee amended certain share-based awards outstanding under our 2012 Plan and our 2004 Plan to provide for a retirement eligibility provision. Under this provision, eligible employees who have reached 62 years of age and have completed seven years of employment with Huron will continue vesting in their share-based awards after retirement, subject to certain conditions. This retirement eligibility provision will also apply to future awards granted to eligible employees under the 2012 Plan.
Total share-based compensation cost recognized for the years ended December 31, 2017, 2016,2021, 2020, and 20152019 was $14.8$25.9 million, $16.6$23.9 million, and $19.2$24.2 million, respectively, with related income tax benefits of $5.8$6.3 million, $6.4$5.4 million, and $7.6$5.3 million, respectively.respectively.The $25.9 million of share-based compensation cost recognized in 2021 included $1.9 million recorded to restructuring charges as it related to the modification of certain nonvested share-based compensation awards to accelerate vesting upon the completed sale of the Life Sciences business. As of
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
December 31, 2017,2021, there was $17.6$28.7 million of total unrecognized compensation cost related to nonvested share-based awards. This cost is expected to be recognized over a weighted average period of 2.22.4 years.
Restricted Stock Awards
The grant date fair values of our restricted stock awards are measured based on the fair value of our common stock at grant date and amortized into expense over the service period. Subject to acceleration under certain conditions, the majority of our restricted stock vests annually over four years.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The table below summarizes the restricted stock activity for the year ended December 31,
2017.2021. | | | | | | | | | | | Number of Shares | | Weighted
Average
Grant Date
Fair Value
(in dollars) |
| | Number of Shares | | Weighted Average Grant Date Fair Value (in dollars) | | 2012 Omnibus Incentive Plan | | Stock Ownership Participation Program | | Total | |
| | 2012 Omnibus Incentive Plan | | Stock Ownership Participation Program | | Total | | |
| Nonvested restricted stock at December 31, 2016 | 610 |
| | 12 |
| | 622 |
| | $ | 59.77 |
| |
| Nonvested restricted stock at December 31, 2020 | | Nonvested restricted stock at December 31, 2020 | 881 | | | 18 | | | 899 | | | $ | 51.12 | |
| Granted | 270 |
| | 14 |
| | 284 |
| | $ | 42.11 |
| Granted | 404 | | | 16 | | | 420 | | | $ | 53.84 | |
| Vested | (247 | ) | | (9 | ) | | (256 | ) | | $ | 57.80 |
| Vested | (369) | | | (16) | | | (385) | | | $ | 48.40 | |
| Forfeited | (72 | ) | | (4 | ) | | (76 | ) | | $ | 59.18 |
| Forfeited | (48) | | | (4) | | | (52) | | | $ | 52.67 | |
| Nonvested restricted stock at December 31, 2017 | 561 |
| | 13 |
| | 574 |
| | $ | 51.97 |
| |
| Nonvested restricted stock at December 31, 2021 | | Nonvested restricted stock at December 31, 2021 | 868 | | | 14 | | | 882 | | | $ | 53.51 | |
The aggregate fair value of restricted stock that vested during the years ended December 31, 2017, 2016,2021, 2020, and 20152019 was $11.1$19.8 million, $14.9$18.6 million, and $23.9$14.5 million, respectively. The weighted average grant date fair value per share of restricted stock granted during 20162020 and 20152019 was $56.28$58.13 and $66.21,$48.57, respectively.
Performance-based Share Awards
During 2017, 2016, and 2015, the Company granted performance-based share awards to our named executive officers and certain managing directors. The total number of shares earned by recipients of theseperformance-based share awards is contingent upon meeting practice specific and Company-widecompany-wide performance goals. Following the performance period, thecertain awards are subject to the completion of a service period, which is generally an additional one to threetwo years. TheThese earned awards vest on a graded vesting schedule over the service period. For certain performance awards, the recipients may earn additional shares of stock for performance achieved above the stated target. The grant date fair values of our performance-based share awards are measured based on the fair value of our common stock at grant date. Compensation cost is amortized into expense over the service period, including the performance period.
The table below summarizes the performance-based stock activity for the year ended December 31, 2017.2021. All nonvested performance-based stock outstanding at December 31, 20162021 and 20172020 was granted under the 2012 Omnibus Incentive Plan. | | | | | | | Number of
Shares | | Weighted
Average
Grant Date
Fair Value
(in dollars) |
| | Number of Shares | | Weighted Average Grant Date Fair Value (in dollars) | |
| Nonvested performance-based stock at December 31, 2016 | 239 |
| | $ | 58.47 |
| |
| Nonvested performance-based stock at December 31, 2020 | | Nonvested performance-based stock at December 31, 2020 | 519 | | | $ | 49.42 | |
Granted (1) | 328 |
| | $ | 42.75 |
| Granted (1) | 272 | | | $ | 53.75 | |
| Vested | (85 | ) | | $ | 61.66 |
| Vested | (191) | | | $ | 39.04 | |
Forfeited (2) | (129 | ) | | $ | 54.85 |
| Forfeited (2) | (162) | | | $ | 53.80 | |
Nonvested performance-based stock at December 31, 2017 (3) | 353 |
| | $ | 44.45 |
| |
Nonvested performance-based stock at December 31, 2021 (3) | | Nonvested performance-based stock at December 31, 2021 (3) | 438 | | | $ | 53.08 | |
| |
(1) | Shares granted in 2017 are presented at the stated target, which represents the base number of shares that could be earned. Actual shares earned may be below or, for certain grants, above the target based on the achievement of specific financial goals. |
| |
(2) | Forfeited shares include shares forfeited as a result of not meeting the performance criteria of the award as well as shares forfeited upon termination. |
(1)Shares granted in 2021 are presented at the stated target, which represents the base number of shares that could be earned. Actual shares earned may be below or, for certain grants, above the target based on the achievement of specific financial goals.
(2)Forfeited shares include shares forfeited as a result of not meeting the performance criteria of the award as well as shares forfeited upon termination.
(3)Of the 438,000 nonvested performance-based shares outstanding as of December 31, 2021, 383,167 shares were unearned and subject to achievement of specific financial goals. Once earned, the awards will be subject to time-based vesting according to the terms of the award. Based on 2021 financial results, approximately 189,161 of the 383,167 unearned shares will be forfeited in the first quarter of 2022.
The aggregate fair value of performance-based stock that vested during the years ended December 31, 2021, 2020, and 2019 was $9.8 million, $5.9 million, and $3.4 million, respectively. The weighted average grant date fair value per share of performance-based stock granted during 2020 and 2019 was $58.84 and $47.93, respectively.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
| |
(3) | Of the 353,000 nonvested performance-based shares outstanding as of December 31, 2017, approximately 316,000 shares were unearned and subject to achievement of specific financial goals. Once earned, the awards will be subject to time-based vesting according to the terms of the award. Based on 2017 financial results, approximately 235,000 of the 316,000 unearned shares will be forfeited in the first quarter of 2018. |
The aggregate fair value of performance-based stock that vested during the years ended December 31, 2017, 2016, and 2015 was $3.6 million, $3.0 million, and $6.5 million, respectively. The weighted average grant date fair value per share of performance-based stock granted during 2016 and 2015 was $55.52 and $66.63, respectively.
Stock Options
Prior to 2014, the Company granted stock option awards to certain named executive officers. No stock option awards were granted in 2017, 2016, or 2015. The exercise prices ofWe grant stock options areat exercise prices equal to the fair value of a share ofthe Company’s common stock on the date of grant. Subject to acceleration under certain conditions, our stock options vest annually over four years. AllOur stock options have a 10-year contractual term between 7 and 10 years.
The fair value of the options granted during 2021 were calculated using the Black-Scholes option pricing model using the following assumptions: | | | | | |
| 2021 |
| Black-Scholes option pricing model: | |
| Expected dividend yield | —% |
| Expected volatility | 40.0% |
| Risk-free rate | 0.9% |
| Expected option life (in years) | 4.75 years |
Expected volatility was based on our historical stock prices as we believe that our historical volatility provides the most reliable indication of future volatility and sufficient historical daily stock price observations are available. The risk-free interest rate was based on the rate of U.S. Treasury bills with an equivalent expected term of the stock options at the time of the option grant. The expected option life was estimated using the simplified method, which is a weighted average of the vesting term and the contractual term, to determine the expected term.The simplified method was used due to the lack of sufficient data available to provide a reasonable basis upon which to estimate the expected term.
Stock option activity for the year ended December 31, 20172021 was as follows: | | | | | | | | | | | | | | | | | | | | | | | |
| Number
of
Options
(in thousands) | | Weighted
Average
Exercise
Price
(in dollars) | | Weighted
Average
Remaining
Contractual
Term
(in years) | | Aggregate
Intrinsic
Value
(in millions) |
| Outstanding at December 31, 2020 | 66 | | | $ | 37.31 | | | 1.5 | | $ | 1.4 | |
| Granted | 50 | | | $ | 52.49 | | | | | |
| Exercised | (23) | | | $ | 34.34 | | | | | $ | 0.4 | |
| Forfeited or expired | — | | | | | | | |
Outstanding at December 31, 2021 (1) | 93 | | | $ | 46.25 | | | 4.1 | | $ | 0.3 | |
| Exercisable at December 31, 2021 | 43 | | | $ | 38.93 | | | 0.9 | | $ | 0.5 | |
|
| | | | | | | | | | | | |
| | Number of Options (in thousands) | | Weighted Average Exercise Price (in dollars) | | Weighted Average Remaining Contractual Term (in years) | | Aggregate Intrinsic Value (in millions) |
| Outstanding at December 31, 2016 | 194 |
| | $ | 29.06 |
| | 4.3 | | $ | 4.2 |
|
| Granted | — |
| | | | | | |
| Exercised | — |
| | | | | | |
| Forfeited or expired | — |
| | | | | | |
Outstanding at December 31, 2017 (1) | 194 |
| | $ | 29.06 |
| | 3.3 | | $ | 2.2 |
|
| Exercisable at December 31, 2017 | 194 |
| | $ | 29.06 |
| | 3.3 | | $ | 2.2 |
|
| |
(1) | Of the 194,000 outstanding options, approximately 157,000 were granted under the 2004 Omnibus Stock Plan, and the remaining 37,000 options were granted under the 2012 Omnibus Incentive Plan. |
No(1)Of the 93,000 outstanding options, approximately 11,000 were granted under the 2004 Omnibus Stock Plan, and the remaining 82,000 options were exercisedgranted under the 2012 Omnibus Incentive Plan.
The weighted average grant date fair value of stock options granted during 2021 was $18.42. No stock options were granted in 2017.2020 and 2019. The aggregate intrinsic value of options exercised during 20162020 and 2019 was $0.1 million. No$1.1 million and $1.6 million, respectively.
17. Income Taxes
The Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"), which was signed into law on March 27, 2020, is an approximately $2 trillion emergency economic stimulus package in response to the COVID-19 outbreak, which among other items, includes income tax provisions relating to net operating loss carryback period, options to defer payroll tax payments for a limited period and technical corrections to tax depreciation methods for qualified improvement property. During 2020, as a result of the CARES Act, we recognized a $1.5 million tax benefit related to the remeasurement of a portion of our income tax receivable for the federal net operating losses incurred in 2018 and 2020 that were exercisedcarried back to prior year income, both for a refund at the higher, prior year tax rate. As a result of electing the retroactive Global Intangible Low-Taxed Income (“GILTI”) high-tax exclusion in 2015.
the second quarter of 2021, we recognized a $1.0 million tax benefit of which $0.4 million related to carrying back our increased 2018 federal net operating loss to prior year income for a refund at the higher, prior year tax rate. During the third quarter of 2021, we recognized an additional tax benefit of $2.0 million, primarily related to the U.S. federal return to provision adjustments for carrying back our increased 2020 federal net operating loss to prior year income for a refund at the higher, prior year tax rate.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
16. Income Taxes
OnThrough December 22, 2017,31, 2020, we deferred $12.2 million of payroll tax payments, of which $6.1 million was expected to be paid in the Presidentfourth quarter of 2021 and $6.1 million was expected to be paid in the fourth quarter of 2022, and were included as components of accrued payroll and related benefits and deferred compensation and other liabilities on our consolidated balance sheet as of December 31, 2020. In the third quarter of 2021, all of the United States signed into law the Tax Cuts and Jobs Act (“2017 Tax Reform”), a tax reform bill which, among other items, reduces the current corporate federal income tax rate from 35% to 21% and moves from a worldwide tax system to a territorial system. The rate reduction is effective January 1, 2018. As a result of the enactment of the legislation in 2017, we have estimated the remeasurement of our net deferred taxes based on the new lower tax rate, as well as provided for additional one-time income tax expense estimates primarily related to the transition tax on accumulated foreign earnings and elimination of foreign tax credits for dividends that are subject to the 100 percent exemption in our consolidated financial statements as of and for the year ended December 31, 2017. Our provisional analysis resulted in $8.8$12.2 million of additional incomedeferred payroll tax expense for the year ended December 31, 2017. Of the $8.8 million, $7.9 million related to the remeasurement of our deferred tax balances at the lower federal income tax rate; $0.6 million related to the transition tax on accumulated foreign earnings, net of applicable foreign tax credits; and $0.3 million related to withholding tax on outside basis differences due to our change in assertion for permanent reinvestment. The impacts on our financial statements as a result of 2017 Tax Reform are considered provisional and are based on the information that is currently available. These provisional results may be subject to future adjustments as additional analysis is anticipated based on technical corrections and regulatory interpretations to come. We expect to finalize the analysis as soon as practicable, but, in accordance with Staff Accounting Bulletin (“SAB”) No. 118, which was issued as a result of 2017 Tax Reform, not later than one year from the enactment date. Any changes to our provisional analysis will be included as an adjustment to tax expense or benefit in the period the amounts are determined.payments were repaid.
The income tax expense for continuing operations for the years ended December 31, 2017, 2016,2021, 2020, and 2015 consists2019 consisted of the following:
| | | | Year Ended December 31, | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2021 | | 2020 | | 2019 |
| Current: | | | | | | Current: | | | | | |
| Federal | $ | (635 | ) | | $ | 15,726 |
| | $ | 4,806 |
| Federal | $ | (934) | | | $ | (2,480) | | | $ | 125 | |
| State | 545 |
| | 1,623 |
| | 2,380 |
| State | 1,974 | | | 168 | | | 2,014 | |
| Foreign | 2,040 |
| | 1,021 |
| | 350 |
| Foreign | 3,529 | | | 2,016 | | | (422) | |
| Total current | 1,950 |
| | 18,370 |
| | 7,536 |
| Total current | 4,569 | | | (296) | | | 1,717 | |
| Deferred: | | | | | | Deferred: | | | | | |
| Federal | (46,103 | ) | | 1,662 |
| | 12,450 |
| Federal | 10,951 | | | (7,414) | | | 7,467 | |
| State | (6,576 | ) | | (274 | ) | | 1,482 |
| State | 2,372 | | | (2,025) | | | 1,610 | |
| Foreign | (1,270 | ) | | (81 | ) | | 202 |
| Foreign | (843) | | | (420) | | | (282) | |
| Total deferred | (53,949 | ) | | 1,307 |
| | 14,134 |
| Total deferred | 12,480 | | | (9,859) | | | 8,795 | |
| Income tax expense for continuing operations | $ | (51,999 | ) | | $ | 19,677 |
| | $ | 21,670 |
| Income tax expense for continuing operations | $ | 17,049 | | | $ | (10,155) | | | $ | 10,512 | |
The components of income from continuing operations before taxes were as follows:
| | | | Year Ended December 31, | | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 | | 2021 | | 2020 | | 2019 |
| U.S. | $ | (221,137 | ) | | $ | 56,141 |
| | $ | 85,164 |
| U.S. | $ | 70,963 | | | $ | (35,054) | | | $ | 53,898 | |
| Foreign | (1,367 | ) | | 3,016 |
| | (1,599 | ) | Foreign | 9,073 | | | 1,181 | | | (1,407) | |
| Total | $ | (222,504 | ) | | $ | 59,157 |
| | $ | 83,565 |
| Total | $ | 80,036 | | | $ | (33,873) | | | $ | 52,491 | |
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
A reconciliation of the U.S. statutory income tax rate to our effective tax rate for continuing operations is as follows:
|
| | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Percent of pretax income from continuing operations: | | | | | |
| At U.S. statutory tax rate | 35.0 | % | | 35.0 | % | | 35.0 | % |
| State income taxes, net of federal benefit | 2.7 |
| | 1.7 |
| | 4.6 |
|
| Goodwill impairment charges | (10.2 | ) | | — |
| | — |
|
| U.S. federal rate change | (3.4 | ) | | — |
| | — |
|
| Transition tax on accumulated foreign earnings, net of credits | (0.3 | ) | | — |
| | — |
|
| Stock-based compensation | (0.8 | ) | | — |
| | — |
|
| Meals and entertainment | (0.3 | ) | | 1.1 |
| | 0.6 |
|
| Valuation allowance | (0.2 | ) | | (3.2 | ) | | 0.5 |
|
| Foreign source income | 0.1 |
| | (0.5 | ) | | 0.5 |
|
| Tax credits / Section 199 Deduction | 0.2 |
| | (1.1 | ) | | (1.0 | ) |
Net tax benefit related to “check-the-box” election (1) | 1.2 |
| | — |
| | (14.7 | ) |
| Other | (0.6 | ) | | 0.3 |
| | 0.4 |
|
| Effective income tax rate for continuing operations | 23.4 | % | | 33.3 | % | | 25.9 | % |
| |
(1) | In the fourth quarter of 2015, we made a tax election to classify two of our wholly-owned foreign subsidiaries as disregarded entities for U.S. federal income tax purposes (commonly referred to as a “check-the-box” election). As a result of this election, we realized an income tax benefit of $13.0 million, of which $0.7 million is unrecognized, resulting in a net recognized tax benefit of $12.3 million. Due to the expiration of statute of limitations, in the third quarter of 2017, we recognized a $2.7 million tax benefit, including the reversal of accrued interest and penalties, related to a previously unrecognized tax benefit from our "check-the-box" election made in 2014 to treat one of our wholly-owned foreign subsidiaries as a disregarded entity for U.S federal income tax purposes. |
The effective tax rate for discontinued operations in 2017 was 60.0%, based on tax expense of $0.6 million and pretax income from discontinued operations of $1.0 million, and was higher than the statutory tax rate primarily due to the settlement of foreign tax audits. The effective tax rate for discontinued operations in 2016 was (33.4)%, based on tax benefits of $0.9 million and a pretax loss from discontinued operations of $2.8 million, and was lower than the statutory tax rate primarily due to an increase in the valuation allowance for foreign tax credits. The effective tax rate for discontinued operations in 2015 was 169.0%, based on tax expense of $1.8 million and a pretax loss from discontinued operations of $1.1 million, and was higher than the statutory tax rate primarily due to the tax expense recognized from the sale of the Huron Legal segment. Refer to Note 3 "Discontinued Operations" for further detail on the sale of the Huron Legal segment.
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Percent of pretax income from continuing operations: | | | | | |
| At U.S. statutory tax rate | 21.0 | % | | 21.0 | % | | 21.0 | % |
| State income taxes, net of federal benefit | 5.2 | | | 4.4 | | | 6.1 | |
| Disallowed executive compensation | 1.2 | | | (2.8) | | | 2.0 | |
| Valuation allowance | 1.1 | | | (3.1) | | | (2.9) | |
| Meals and entertainment | 0.1 | | | (0.6) | | | 1.6 | |
| CARES Act net operating loss carryback | (3.8) | | | 4.4 | | | — | |
| Tax credits | (1.3) | | | 3.0 | | | (3.1) | |
| Realized investment gains/losses | (1.1) | | | 2.6 | | | (1.8) | |
| Stock-based compensation | (0.7) | | | 4.3 | | | (1.1) | |
| Foreign source income | (0.2) | | | 0.5 | | | (0.5) | |
| Deferred tax adjustments | (0.2) | | | 1.7 | | | 0.6 | |
| Goodwill impairment charges | — | | | (2.6) | | | — | |
| Unrecognized tax benefits | — | | | (2.0) | | | (0.4) | |
| Net tax benefit related to “check-the-box” election | — | | | — | | | (1.4) | |
| Other | — | | | (0.8) | | | (0.1) | |
| Effective income tax rate for continuing operations | 21.3 | % | | 30.0 | % | | 20.0 | % |
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The net deferred tax liabilitiesasset (liability) for continuing operations at December 31, 20172021 and 20162020 consisted of the following:
| | | | As of December 31, | | As of December 31, |
| | 2017 | | 2016 | | 2021 | | 2020 |
| Deferred tax assets: | | | | Deferred tax assets: | | | |
| Operating lease liabilities | | Operating lease liabilities | $ | 17,542 | | | $ | 19,617 | |
| Deferred compensation liability | | Deferred compensation liability | 10,331 | | | 9,002 | |
| Share-based compensation | $ | 5,674 |
| | $ | 10,151 |
| Share-based compensation | 8,062 | | | 7,579 | |
| Accrued payroll and other liabilities | 7,010 |
| | 10,004 |
| |
| Intangibles and goodwill | 2,137 |
| | — |
| |
| Deferred lease incentives | 4,352 |
| | 4,666 |
| |
| Convertible note hedge transactions | 250 |
| | 12,197 |
| |
| Revenue recognition | 1,586 |
| | 1,983 |
| |
| Restructuring charge liability | 1,104 |
| | 2,230 |
| |
| Net operating loss carry-forwards | 495 |
| | 92 |
| |
| Accrued payroll and payroll related liabilities | | Accrued payroll and payroll related liabilities | 5,645 | | | 3,745 | |
| Tax credits | 1,918 |
| | 1,804 |
| Tax credits | 1,828 | | | 1,773 | |
| Net operating loss carryforwards | | Net operating loss carryforwards | 1,243 | | | 944 | |
| Deferred payroll tax payments | | Deferred payroll tax payments | — | | | 3,235 | |
| Other | 882 |
| | 1,934 |
| Other | 2,009 | | | 3,278 | |
| Total deferred tax assets | 25,408 |
| | 45,061 |
| Total deferred tax assets | 46,660 | | | 49,173 | |
| Valuation allowance | (1,247 | ) | | (626 | ) | Valuation allowance | (2,876) | | | (2,112) | |
| Net deferred tax assets | 24,161 |
| | 44,435 |
| Net deferred tax assets | 43,784 | | | 47,061 | |
| Deferred tax liabilities: | | | | Deferred tax liabilities: | | | |
| Intangibles and goodwill | | Intangibles and goodwill | (24,375) | | | (12,956) | |
| Operating lease right-of-use assets | | Operating lease right-of-use assets | (9,837) | | | (11,079) | |
| Convertible debt investment | | Convertible debt investment | (6,604) | | | (6,219) | |
| Software development costs | | Software development costs | (6,071) | | | (6,054) | |
| Property and equipment | | Property and equipment | (2,730) | | | (3,007) | |
| Prepaid expenses | (1,229 | ) | | (2,500 | ) | Prepaid expenses | (2,137) | | | (2,708) | |
| Property and equipment | (4,031 | ) | | (2,933 | ) | |
| Intangibles and goodwill | — |
| | (60,411 | ) | |
| Convertible note discount | (3 | ) | | (11,586 | ) | |
| Convertible debt investment | (3,110 | ) | | (2,600 | ) | |
| Other | (133 | ) | | (38 | ) | Other | (2,499) | | | (1,275) | |
| Total deferred tax liabilities | (8,506 | ) | | (80,068 | ) | Total deferred tax liabilities | (54,253) | | | (43,298) | |
| Net deferred tax asset (liability) for continuing operations | $ | 15,655 |
| | $ | (35,633 | ) | Net deferred tax asset (liability) for continuing operations | $ | (10,469) | | | $ | 3,763 | |
As of December 31, 20172021 and 2016,2020, we had valuation allowances of $1.2$2.9 million and $0.6$2.1 million, respectively, primarily due to uncertainties relating to the ability to utilizerealize deferred tax assets recorded for foreign losses.losses and tax credits. The increase in valuation allowances in 20172021 primarily related to increases ofan increase in the valuation allowance for foreign losses and tax credits.
We have foreign net operating losses of $5.9 million which begin to expire in jurisdictions where the2027 and state net operating loss credits cannot be benefited and valuation allowances recorded on certain tax credits.
carryforwards of $4.9 million which will begin to expire in 2030, if not utilized. We have federal and state tax credit carry-forwardscarryforwards of $1.9$1.8 million which will begin to expire in 2022, and 2019, respectively. We have no federal net operating losses or state net operating loss carry-forwards as of December 31, 2017.if not utilized.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution.
A reconciliation of our beginning and ending amount of unrecognized tax benefits is as follows:
| | | | | | | | |
| | Unrecognized Tax Benefits |
| Balance at January 1, 2019 | | $ | 900 | |
| Decrease due to settlements of prior year tax positions | | (115) | |
| Decrease due to lapse of statute of limitations | | (735) | |
| Balance at December 31, 2019 | | 50 | |
| Additions based on tax positions related to prior years | | 694 | |
| Balance at December 31, 2020 | | 744 | |
| | |
| Balance at December 31, 2021 | | $ | 744 | |
|
| | | | |
| | | Unrecognized Tax Benefits |
| Balance at January 1, 2015 | | $ | 2,488 |
|
| Additions based on tax positions related to the current year | | 735 |
|
| Balance at December 31, 2015 | | 3,223 |
|
| Additions based on tax positions related to the current year | | 117 |
|
| Balance at December 31, 2016 | | 3,340 |
|
| Decrease due to lapse of statute of limitations | | (2,410 | ) |
| Decrease based on tax positions related to the prior year | | (117 | ) |
| Balance at December 31, 2017 | | $ | 813 |
|
As of both December 31, 2021 and 2020, we had $0.7 million of unrecognized tax benefits which would affect the effective tax rate of continuing operations if recognized. It is reasonably possible that approximately $0.1 million of the liability for unrecognized tax benefits at December 31, 2021 could decrease in the next twelve months primarily due to the expiration of statutes of limitations.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
As of December 31, 2017, we had $0.8 million of unrecognized tax benefits which would affect the effective tax rate of continuing operations if recognized.
As of December 31, 20172021 and 2016,2020, we had $0.1 million and $0.3less than $0.1 million, respectively, accrued for the potential payment of interest and penalties. Accrued interest and penalties are recorded as a component of provision for income taxes on our consolidated statement of earnings.operations.
We file income tax returns with federal, state, local and foreign jurisdictions. Tax years 20132018 through 20162020 are subject to future examinations by federal tax authorities. Tax years 20102015 through 20162020 are subject to future examinations by state and local tax authorities. Currently, the Company is not under audit by any tax authority. Our foreign income tax filings are subject to future examinations by the local foreign tax authorities for tax years 20102016 through 2016.2020. Currently, we are not under audit by any tax authority.
17.18. Commitments, Contingencies and Guarantees
Lease Commitments
We lease office space, data centers and certain equipment under non-cancelable operating lease arrangements expiring on various dates through 2028,2029, with various renewal options. Our principal executive offices located in Chicago, Illinois are under a lease expiring in September 2024. We have a five-year renewal option that will allow us to continue to occupy this office space until September 2029. Office facilities under operating leases include fixed or minimum payments plus, in some cases, scheduled base rent increases over the term of the lease. Certain leases require monthlyvariable payments of real estate taxes, insurance and other operating expenses applicable toexpenses. See Note 5 “Leases” for additional information on our leases, including the property. Some of theremaining expected lease payments under our operating leases contain provisions whereby the future rental payments may be adjusted for increases in operating expenses above the specified amount. Rent expense, including operating costs and taxes, for the years ended December 31, 2017, 2016, and 2015 was $14.3 million, $11.5 million, and $12.3 million, respectively. Future minimum rental commitments under non-cancelable leases and sublease income as of December 31, 2017,2021.
Litigation
Oaktree
On November 9, 2018, Huron Consulting Services LLC, a wholly owned subsidiary of Huron, was engaged by Oaktree Medical Centre LLC, a management services organization (“Oaktree”), to perform interim management and financial advisory services. As part of the services, a Huron employee was appointed by Oaktree’s board of directors to serve as Chief Restructuring Officer of Oaktree (the “CRO”). The engagement letter through which Oaktree retained Huron’s services (the “Engagement Letter”) states that all disputes or claims arising thereunder are as follows:subject to binding arbitration, disclaims special, consequential, incidental and exemplary damages and losses and caps liability to the fees paid for the portion of the engagement giving rise to any liability. On September 19, 2019, Oaktree and certain of its affiliates filed for Chapter 7 liquidation in the U.S. Bankruptcy Court for the Western District of North Carolina, with the cases subsequently transferred to the District of South Carolina. As a result of the bankruptcy filing, a Chapter 7 trustee was appointed to oversee the bankruptcy estates, at which time Huron’s services for Oaktree concluded.
In April 2021, Trustee’s counsel communicated in writing to Huron its intent to pursue various claims against Huron and the CRO, among others, on behalf of the bankruptcy estates related to the services carried out by Huron and the CRO during the engagement. |
| | | | | | | | |
| | | Operating Lease Obligations | | Sublease Income |
| 2018 | | $ | 14,739 |
| | $ | 1,316 |
|
| 2019 | | 13,444 |
| | 291 |
|
| 2020 | | 12,266 |
| | — |
|
| 2021 | | 11,298 |
| | — |
|
| 2022 | | 10,409 |
| | — |
|
| Thereafter | | 37,804 |
| | — |
|
| Total | | $ | 99,960 |
| | $ | 1,607 |
|
LitigationIn the Amended Complaint, the Trustee asserts that Huron and the CRO, among others, did not develop and implement a Chapter 11 restructuring plan on a timely basis and that their failure to do so led to significant damages. The Trustee seeks an unspecified amount of monetary damages in the Amended Complaint. We believe the Trustee’s allegations with respect to Huron and the CRO are without merit, and we are vigorously defending ourselves against the allegations raised in the Amended Complaint. On December 21, 2021, we filed a motion to dismiss all of the claims in the Amended Complaint; the motion remains pending. Notwithstanding the foregoing, given the inherent risk and uncertainty associated with all litigation, we cannot estimate the potential liability with respect to such allegations at this time.
From time to time, we are involved in legal proceedings and litigation arising in the ordinary course of business. As of the date of this Annual Report on Form 10-K, we are not a party to any litigation or legal proceeding or subject to any claim that, in the current opinion of management, could reasonably be expected to have a material adverse effect on our financial position or results of operations. However, due to the risks and uncertainties inherent in legal proceedings, actual results could differ from current expected results.
Guarantees
Guarantees in the form of letters of credit totaling $1.9$0.7 million and $4.8$1.6 million were outstanding at December 31, 20172021 and 2016,2020, respectively, primarily to support certain office lease obligations.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
In connection with certain business acquisitions, we may be required to pay post-closing consideration to the sellers if specific financial performance targets are met over a number of years as specified in the related purchase agreements. As of December 31, 20172021 and 2016,2020, the total estimated fair value of our outstanding contingent consideration liabilitiesliability was $22.8$3.7 million and $8.8$1.8 million, respectively.
To the extent permitted by law, our bylaws and articles of incorporation require that we indemnify our officers and directors against judgments, fines and amounts paid in settlement, including attorneys’ fees, incurred in connection with civil or criminal action or proceedings, as it relates to their services to us if such person acted in good faith. Although there is no limit on the amount of indemnification, we may have recourse against our insurance carrier for certain payments made.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
18.19. Segment Information
Segments are defined as components of a company that engage in business activities from which they may earn revenues and incur expenses, and for which separate financial information is available and is evaluated regularly by the chief operating decision maker, or decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker, who is our chief executive officer, manages the business under three3 operating segments, which are our reportable segments: Healthcare, Education, and Business Advisory.
During the second quarter of 2017, we reorganized our internal financial reporting structure, which management uses to assess performance and allocate resources, by moving our Life Sciences practice from the Education and Life Sciences segment to the Business Advisory, segment. The remaining Education and Life Sciences segment is now referred to as the Education segment. While our consolidated results have not been impacted, we have reclassified our historical segment information for consistent presentation.Education.
•Healthcare
Our Healthcare segment has a depth of expertise in strategyserves providers and innovation, care transformation, financial and operational excellence, technology and analytics, and leadership development. We servepayors including national and regional hospitals, and integrated health systems, academic medical centers, community hospitals, medical groups and medical groups.health plans. Our Healthcare professionals have a depth of expertise in business operations, including financial and operational improvement, care transformation, and revenue cycle managed services; organizational transformation; and digital, technology and analytic solutions. Most healthcare organizations are focused on changing the way care is delivered; establishing a sustainable business model centered around optimal cost structures, reimbursement models and financial strategies; evolving their digital, technology and analytic capabilities; and exceeding the expectations of their employees and patients. Our solutions help clients evolve and adapt to thethis rapidly changing healthcare environment to become a more nimble, efficient and achieve growth, optimizeconsumer-centric organization. We use our deep industry expertise to help clients solve a diverse set of business issues, including, but not limited to, optimizing financial and operational performance, enhance profitability, improve qualityimproving care delivery and clinical outcomes, and driveincreasing physician, patient and employee engagement across the enterprise.satisfaction, evolving organizational culture, and maximizing return on technology investments.
We help organizations transform and innovate the delivery model to focus on patient wellness by improving quality outcomes, minimizing care variation and fundamentally improving patient and population health. Our consultants partner with clients to help build and sustain today’s business to invest in the future by reducing complexity, improving operational efficiency and growing market share. We enable the healthcare of the future by identifying, integrating and optimizing technology investments to collect data that transforms care delivery and improves patient outcomes. We also develop future leaders capable of driving meaningful operational and organizational change and who transform the patient experience.
Education
Our Education segment provides management consulting and technology solutions to higher education institutions and academic medical centers. We partner with clients to address challenges relating to business and technology strategy, financial management, operational and organizational effectiveness, research administration, and regulatory compliance. Our institutional strategy, market research, budgeting and financial management, business operations and student lifecycle management solutions align missions with business priorities, improve quality and reduce costs institution-wide. Our technology strategy, enterprise applications, and analytic solutions transform and optimize operations, deliver time and cost savings, and enhance the student experience. Our research enterprise solutions assist clients in identifying and implementing institutional research strategy, optimizing clinical research operations, improving financial management and cost reimbursement, improving service to faculty, and mitigating risk compliance.
•Business Advisory
Our Business Advisory segment provides services to largeworks with C-suite executives and middle market, not-for-profitbusiness unit and functional leadership across a diverse set of organizations, lending institutions, law firms, investment banks, and private equity firms. We assist clients in a broad range of industries and across the spectrum fromincluding healthy, well-capitalized companies to organizations in transition, as well as creditors, equity owners, and other key constituents.across a broad range of industries, including healthcare, energy and utilities, financial services, life sciences, industrials and manufacturing, education, and the public sector. Our Business Advisory professionals resolve complex business issueshave deep industry, functional and enhance client enterprise value through a suite of services including capital advisory, transaction advisory, operational improvement,technical expertise that they put forward when delivering our digital, technology and analytics, strategy and innovation and restructuring and turnaround, valuation,corporate finance services. In today’s disruptive environment, organizations must reimagine their historical strategies and dispute advisory.financial and operating models to sustain and advance their competitive advantage. Organizations also recognize the need to adopt technologies, automation and analytics to improve their operations and compete in a rapidly changing landscape. Our Enterprise Solutionsexperts help organizations across industries with a variety of business challenges, including, but not limited to, embedding technology and Analyticsanalytics throughout their internal and customer-facing operations, developing insights into the needs of tomorrow’s customers to evolve their enterprise and business unit strategies, bringing new products to market, and managing through stressed and distressed situations to create a viable path forward for stakeholders.
•Education
Our Education segment serves public and private colleges and universities, academic medical centers, research institutes and other not-for-profit organizations. Our Education professionals deliverhave a depth of expertise in strategy; business operations, including in the areas of the research enterprise and student lifecycle; digital, technology and analytic solutionssolutions; and organizational transformation. Our Education segment clients are increasingly faced with financial and/or demographic and enrollment challenges as well as increased competition. To remain competitive, organizations must challenge traditional operating and financial models and reimagine strategic, operational and research-centered opportunities that enable organizations to manage and optimizeadvance their financial performance, operational efficiency, and client or stakeholder experience. Our Strategy and Innovation professionalsmission while strengthening their business models. We collaborate with clients acrossto address these challenges and ensure they have a range of industries to identify new growth opportunities, build new venturessustainable future. We combine our deep industry, functional and capabilities, and accelerate organizational change. Our Life Sciences professionals providestrategic solutionstechnical expertise to help pharmaceutical, medical device,clients solve their most pressing challenges, including, but not limited to, transforming business operations with technology; strengthening research strategies and biotechnology companies deliver more value to patients, payers,support services; evolving their organizational strategy; optimizing financial and providers,operational performance; and comply with regulations.enhancing the student experience.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Segment operating income consists of the revenues generated by a segment, less the direct costs of revenue and selling, general and administrative expenses that are incurred directly by the segment. Unallocated corporate costs include costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment. These administrative function costs
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
include costs for corporate office support, certain office facility costs, costs relatingrelated to accounting and finance, human resources, legal, marketing, information technology, and company-wide business development functions, as well as costs related to overall corporate management.
Effective January 1, 2022, we modified our operating model to expand and more deeply integrate our industry expertise with our digital, strategic and financial advisory capabilities. The new operating model will strengthen Huron’s go-to-market strategy, drive efficiencies that support margin expansion, and position the company to accelerate growth.
To align with the new operating model, effective with reporting for periods beginning January 1, 2022, we will begin reporting under the following three industries, which will be our reportable segments: Healthcare, Education and Commercial. The Commercial segment will include all industries outside of healthcare and education, including, but not limited to, financial services and energy and utilities. In the new reporting structure, each segment will include all revenue and costs associated with engagements delivered in the respective industry segments. The new Healthcare and Education segments will include some revenue and costs historically reported in the Business Advisory segment and the Healthcare segment will include some revenue and costs historically reported in the Education segment. We will also provide revenue reporting across two principal capabilities: i) Consulting and Managed Services and ii) Digital. These changes will create greater transparency for investors by improving visibility into the core drivers of our business. While our consolidated results will not be impacted, we will recast our historical segment information during 2022 for consistent presentation.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The tables below set forth information about our operating segments for the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, along with the items necessary to reconcile the segment information to the totals reported in the accompanying consolidated financial statements. We do not present financial information by geographic area because the financial results of our international operations are immaterial. not significant to our consolidated financial statements.
| | | | | | | | | | | | | | | | | |
| | Year Ended December 31, |
| | 2021 | | 2020 | | 2019 |
| Healthcare: | | | | | |
| Revenues | $ | 377,577 | | | $ | 353,437 | | | $ | 399,221 | |
| Operating income | $ | 104,010 | | | $ | 94,925 | | | $ | 125,724 | |
| Segment operating income as a percentage of segment revenues | 27.5 | % | | 26.9 | % | | 31.5 | % |
| Business Advisory: | | | | | |
| Revenues | $ | 291,663 | | | $ | 267,361 | | | $ | 252,508 | |
| Operating income | $ | 48,236 | | | $ | 48,046 | | | $ | 49,695 | |
| Segment operating income as a percentage of segment revenues | 16.5 | % | | 18.0 | % | | 19.7 | % |
| Education: | | | | | |
| Revenues | $ | 236,400 | | | $ | 223,329 | | | $ | 225,028 | |
| Operating income | $ | 52,772 | | | $ | 47,503 | | | $ | 55,741 | |
| Segment operating income as a percentage of segment revenues | 22.3 | % | | 21.3 | % | | 24.8 | % |
| Total Company: | | | | | |
| Revenues | $ | 905,640 | | | $ | 844,127 | | | $ | 876,757 | |
| Reimbursable expenses | 21,318 | | | 26,887 | | | 88,717 | |
| Total revenues and reimbursable expenses | $ | 926,958 | | | $ | 871,014 | | | $ | 965,474 | |
| | | | | |
| Segment operating income | $ | 205,018 | | | $ | 190,474 | | | $ | 231,160 | |
| Items not allocated at the segment level: | | | | | |
| Other operating expenses | 131,372 | | | 135,255 | | | 140,285 | |
| Litigation and other losses (gains) | 173 | | | (150) | | | (1,196) | |
| Depreciation and amortization | 20,634 | | | 24,405 | | | 28,365 | |
Goodwill impairment charges (1) | — | | | 59,816 | | | — | |
| Other income (expense), net | 27,197 | | | (5,021) | | | (11,215) | |
| Income (loss) from continuing operations before taxes | $ | 80,036 | | | $ | (33,873) | | | $ | 52,491 | |
(1)The goodwill impairment charges are not allocated at the segment level because the underlying goodwill asset is reflective of our corporate investment in the segments. We do not include the impact of goodwill impairment charges in our evaluation of segment performance.
| | | | | | | | | | | | | | | | | | | | |
| | | As of December 31, |
| Segment Assets: | | 2021 | | 2020 | | 2019 |
| Healthcare | | $ | 90,059 | | | $ | 40,217 | | | $ | 73,019 | |
| Business Advisory | | 57,738 | | | 38,402 | | | 59,315 | |
| Education | | 46,592 | | | 34,534 | | | 38,881 | |
Unallocated assets (1) | | 924,960 | | | 937,822 | | | 933,056 | |
| Total assets | | $ | 1,119,349 | | | $ | 1,050,975 | | | $ | 1,104,271 | |
(1)Unallocated assets include goodwill and intangible assets and our long-term investments, as management does not evaluate these items at the segment level when assessing segment performance or allocating resources. Refer to Note 4 “Goodwill and Intangible Assets” and Note 13 “Fair Value of Financial Instruments” for further information on these assets.
|
| | | | | | | | | | | |
| | Year Ended December 31, |
| | 2017 | | 2016 | | 2015 |
| Healthcare: | | | | | |
| Revenues | $ | 356,909 |
| | $ | 424,912 |
| | $ | 446,887 |
|
| Operating income | $ | 118,761 |
| | $ | 147,903 |
| | $ | 169,560 |
|
| Segment operating income as a percentage of segment revenues | 33.3 | % | | 34.8 | % | | 37.9 | % |
| Education: | | | | | |
| Revenues | $ | 167,908 |
| | $ | 149,817 |
| | $ | 134,009 |
|
| Operating income | $ | 40,318 |
| | $ | 38,310 |
| | $ | 32,246 |
|
| Segment operating income as a percentage of segment revenues | 24.0 | % | | 25.6 | % | | 24.1 | % |
| Business Advisory: | | | | | |
| Revenues | $ | 207,753 |
| | $ | 151,543 |
| | $ | 116,892 |
|
| Operating income | $ | 46,600 |
| | $ | 29,382 |
| | $ | 31,233 |
|
| Segment operating income as a percentage of segment revenues | 22.4 | % | | 19.4 | % | | 26.7 | % |
All Other: (1) | | | | | |
| Revenues | $ | — |
| | $ | — |
| | $ | 1,222 |
|
| Operating loss | $ | — |
| | $ | — |
| | $ | (1,718 | ) |
| Segment operating loss as a percentage of segment revenues | N/A |
| | N/A |
| | N/M |
|
| Total Company: | | | | | |
| Revenues | $ | 732,570 |
| | $ | 726,272 |
| | $ | 699,010 |
|
| Reimbursable expenses | 75,175 |
| | 71,712 |
| | 70,013 |
|
| Total revenues and reimbursable expenses | $ | 807,745 |
| | $ | 797,984 |
| | $ | 769,023 |
|
| | | | | | |
| Segment operating income | $ | 205,679 |
| | $ | 215,595 |
| | $ | 231,321 |
|
| Items not allocated at the segment level: | | | | | |
| Other operating expenses | 120,718 |
| | 111,852 |
| | 112,164 |
|
| Litigation and other losses (gains), net | 1,111 |
| | (1,990 | ) | | (9,476 | ) |
| Depreciation and amortization | 38,213 |
| | 31,499 |
| | 25,135 |
|
Goodwill impairment charges (2) | 253,093 |
| | — |
| | — |
|
| Other expense, net | 15,048 |
| | 15,077 |
| | 19,933 |
|
| Income (loss) from continuing operations before taxes | $ | (222,504 | ) | | $ | 59,157 |
| | $ | 83,565 |
|
| |
(1) | During 2015, we wound down the businesses within our All Other operating segment, which consisted of our public sector consulting practice and our foreign consulting operations based in the Middle East. We did not generate any revenues from our All Other segment during 2016 and 2017. |
| |
(2) | The goodwill impairment charges are not allocated at the segment level because the underlying goodwill asset is reflective of our corporate investment in the segments. We do not include the impact of goodwill impairment charges in our evaluation of segment performance. |
N/M – Not Meaningful
N/A – Not Applicable
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The following table illustrates the disaggregation of revenues by billing arrangements, employee types, and timing of revenue recognition, including a reconciliation of the disaggregated revenues to revenues from our three operating segments for the year ended December 31, 2021, 2020 and 2019.
In conjunction with our continuous evaluation of the appropriate level of disaggregation of revenues as our business evolves and in consideration of a group hire of approximately 300 employees in our Healthcare Managed Services solution within our Healthcare segment in the second quarter of 2021, we began assessing our operating performance by the following three employee types: billable consultants, full-time equivalents, and Healthcare Managed Services employees. The disaggregation of revenues by employee type previously reported for the twelve months ended December 31, 2020 and 2019 was revised below to reflect this change. This change has no impact on our consolidated total revenues or total revenues by segment.
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2021 |
| Healthcare | | Business Advisory | | Education | | Total |
| Billing Arrangements | | | | | | | |
| Fixed-fee | $ | 218,415 | | | $ | 121,648 | | | $ | 60,077 | | | $ | 400,140 | |
| Time and expense | 64,394 | | | 143,024 | | | 147,245 | | | 354,663 | |
| Performance-based | 73,360 | | | 18,296 | | | — | | | 91,656 | |
| Software support, maintenance and subscriptions | 21,408 | | | 8,695 | | | 29,078 | | | 59,181 | |
| Total | $ | 377,577 | | | $ | 291,663 | | | $ | 236,400 | | | $ | 905,640 | |
| | | | | | | |
Employee Type (1) | | | | | | | |
| Revenue generated by billable consultants | $ | 250,552 | | | $ | 273,680 | | | $ | 197,221 | | | $ | 721,453 | |
| Revenue generated by full-time equivalents | 79,307 | | | 17,983 | | | 39,179 | | | 136,469 | |
| Revenue generated by Healthcare Managed Services employees | 47,718 | | | — | | | — | | | 47,718 | |
| Total | $ | 377,577 | | | $ | 291,663 | | | $ | 236,400 | | | $ | 905,640 | |
| | | | | | | |
| Timing of Revenue Recognition | | | | | | | |
| Revenue recognized over time | $ | 373,148 | | | $ | 291,663 | | | $ | 236,058 | | | $ | 900,869 | |
| Revenue recognized at a point in time | 4,429 | | | — | | | 342 | | | 4,771 | |
| Total | $ | 377,577 | | | $ | 291,663 | | | $ | 236,400 | | | $ | 905,640 | |
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2020 |
| Healthcare | | Business Advisory | | Education | | Total |
| Billing Arrangements | | | | | | | |
| Fixed-fee | $ | 202,513 | | | $ | 101,561 | | | $ | 44,839 | | | $ | 348,913 | |
| Time and expense | 58,322 | | | 152,716 | | | 155,510 | | | 366,548 | |
| Performance-based | 69,316 | | | 8,059 | | | 695 | | | 78,070 | |
| Software support, maintenance and subscriptions | 23,286 | | | 5,025 | | | 22,285 | | | 50,596 | |
| Total | $ | 353,437 | | | $ | 267,361 | | | $ | 223,329 | | | $ | 844,127 | |
| | | | | | | |
Employee Type (1) | | | | | | | |
| Revenue generated by billable consultants | $ | 234,951 | | | $ | 253,747 | | | $ | 191,467 | | | $ | 680,165 | |
| Revenue generated by full-time equivalents | 89,823 | | | 13,614 | | | 31,862 | | | 135,299 | |
| Revenue generated by Healthcare Managed Services employees | 28,663 | | | — | | | — | | | 28,663 | |
| Total | $ | 353,437 | | | $ | 267,361 | | | $ | 223,329 | | | $ | 844,127 | |
| | | | | | | |
| Timing of Revenue Recognition | | | | | | | |
| Revenue recognized over time | $ | 349,676 | | | $ | 267,361 | | | $ | 223,007 | | | $ | 840,044 | |
| Revenue recognized at a point in time | 3,761 | | | — | | | 322 | | | 4,083 | |
| Total | $ | 353,437 | | | $ | 267,361 | | | $ | 223,329 | | | $ | 844,127 | |
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
|
| | | | | | | | | | | | |
| | | As of December 31, |
| Segment Assets: | | 2017 | | 2016 | | 2015 |
| Healthcare | | $ | 70,097 |
| | $ | 69,274 |
| | $ | 84,088 |
|
| Education | | 31,367 |
| | 33,094 |
| | 28,192 |
|
| Business Advisory | | 58,217 |
| | 43,151 |
| | 29,609 |
|
Unallocated assets (1) | | 877,247 |
| | 1,007,696 |
| | 1,017,654 |
|
| Total assets | | $ | 1,036,928 |
| | $ | 1,153,215 |
| | $ | 1,159,543 |
|
| | | | | | | | | | | | | | | | | | | | | | | |
| Year Ended December 31, 2019 |
| Healthcare | | Business Advisory | | Education | | Total |
| Billing Arrangements | | | | | | | |
| Fixed-fee | $ | 249,479 | | | $ | 100,635 | | | $ | 51,826 | | | $ | 401,940 | |
| Time and expense | 55,204 | | | 139,610 | | | 154,893 | | | 349,707 | |
| Performance-based | 71,051 | | | 6,856 | | | — | | | 77,907 | |
| Software support, maintenance and subscriptions | 23,487 | | | 5,407 | | | 18,309 | | | 47,203 | |
| Total | $ | 399,221 | | | $ | 252,508 | | | $ | 225,028 | | | $ | 876,757 | |
| | | | | | | |
Employee Type (1) | | | | | | | |
| Revenue generated by billable consultants | $ | 278,733 | | | $ | 243,350 | | | $ | 195,844 | | | $ | 717,927 | |
| Revenue generated by full-time equivalents | 116,035 | | | 9,158 | | | 29,184 | | | 154,377 | |
| Revenue generated by Healthcare Managed Services employees | 4,453 | | | — | | | — | | | 4,453 | |
| Total | $ | 399,221 | | | $ | 252,508 | | | $ | 225,028 | | | $ | 876,757 | |
| | | | | | | |
| Timing of Revenue Recognition | | | | | | | |
| Revenue recognized over time | $ | 390,884 | | | $ | 252,508 | | | $ | 223,673 | | | $ | 867,065 | |
| Revenue recognized at a point in time | 8,337 | | | — | | | 1,355 | | | 9,692 | |
| Total | $ | 399,221 | | | $ | 252,508 | | | $ | 225,028 | | | $ | 876,757 | |
| |
(1) | Unallocated assets includes goodwill and intangible assets and our convertible debt investment, as management does not evaluate these items at the segment level when assessing segment performance or allocating resources. Refer to Note 5 “Goodwill and Intangible Assets" and Note 12 "Fair Value of Financial Instruments" for further information on these assets. |
(1) Billable consultants consist of our consulting professionals who provide consulting services to our clients and are billable to our
clients based on the number of hours worked. Full-time equivalent professionals consist of leadership coaches and their support
staff within our Culture and Organizational Excellence solution, consultants who work variable schedules as needed by our clients,
and full-time employees who provide software support and maintenance services to our clients. Healthcare Managed Services
employees manage and provide revenue cycle billing, collections, insurance verification and change integrity services to healthcare
clients.
For the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, substantially all of our revenues and long-lived assets were attributed to or located in the United States.
At December 31, 20172021 and 2016,2020, no single client accounted for greater than 10% of our combined balance of receivables from clients, net and unbilled services, balances.net. During the years ended December 31, 2017, 2016,2021, 2020, and 2015,2019, no single client generated greater than 10% of our consolidated revenues.
19.
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
20. Valuation and Qualifying Accounts
The table below sets forth the changes in the carrying amount of our allowances for doubtful accounts and unbilled services and valuation allowance for deferred tax assets for the years ended December 31, 2017, 2016,2021, 2020, and 2015.2019. Allowances for doubtful accounts and unbilled services includes allowances for fee adjustments and other discretionary pricing adjustments as well as allowances related to clients' inability to make required payments on accounts receivable.
| | | | | | | | | | | | | | | | | | | | | | | |
| Beginning
balance | | Additions (1) | | Deductions | | Ending
balance |
| Year ended December 31, 2019: | | | | | | | |
| Allowances for doubtful accounts and unbilled services | $ | 22,241 | | | 69,979 | | | 73,552 | | | $ | 18,668 | |
| Valuation allowance for deferred tax assets | $ | 3,143 | | | 1 | | | 2,128 | | | $ | 1,016 | |
| Year ended December 31, 2020: | | | | | | | |
| Allowances for doubtful accounts and unbilled services | $ | 18,668 | | | 63,268 | | | 60,630 | | | $ | 21,306 | |
| Valuation allowance for deferred tax assets | $ | 1,016 | | | 1,160 | | | 64 | | | $ | 2,112 | |
| Year ended December 31, 2021: | | | | | | | |
| Allowances for doubtful accounts and unbilled services | $ | 21,306 | | | 9,852 | | | 15,363 | | | $ | 15,795 | |
| Valuation allowance for deferred tax assets | $ | 2,112 | | | 1,090 | | | 326 | | | $ | 2,876 | |
(1)Additions to allowances for doubtful accounts and unbilled services are charged to revenues to the extent the provision relates to fee adjustments and other discretionary pricing adjustments. To the extent the provision relates to a client’s inability to make required payments on accounts receivable, the provision is charged to operating expenses.
21. Subsequent Event
On January 18, 2022, we completed the acquisition of AIMDATA, LLC, (“AIMDATA”), an advisory and implementation consulting services firm focused on strategy, technology and business transformation. The results of operations of AIMDATA will be included within our consolidated financial statements from the close date, and will be allocated among our three operating industries, which are our reportable segments, based on the engagements delivered by the business. AIMDATA revenues will be reported in our Digital capability. The acquisition of AIMDATA is not significant to our consolidated financial statements.
|
| | | | | | | | | | | | | |
| | Beginning balance | | Additions (1) | | Deductions | | Ending balance |
| Year ended December 31, 2015: | | | | | | | |
| Allowances for doubtful accounts and unbilled services | $ | 14,129 |
| | 40,003 |
| | 37,246 |
| | $ | 16,886 |
|
| Valuation allowance for deferred tax assets | $ | 2,431 |
| | 1,212 |
| | 1,401 |
| | $ | 2,242 |
|
| Year ended December 31, 2016: | | | | | | | |
| Allowances for doubtful accounts and unbilled services | $ | 16,886 |
| | 48,901 |
| | 44,528 |
| | $ | 21,259 |
|
| Valuation allowance for deferred tax assets | $ | 2,242 |
| | 113 |
| | 1,729 |
| | $ | 626 |
|
| Year ended December 31, 2017: | | | | | | | |
| Allowances for doubtful accounts and unbilled services | $ | 21,259 |
| | 43,888 |
| | 40,648 |
| | $ | 24,499 |
|
| Valuation allowance for deferred tax assets | $ | 626 |
| | 793 |
| | 172 |
| | $ | 1,247 |
|
| |
(1) | Additions to allowances for doubtful accounts and unbilled services are charged to revenues to the extent the provision relates to fee adjustments and other discretionary pricing adjustments. To the extent the provision relates to a client’s inability to make required payments on accounts receivables, the provision is charged to operating expenses. Additions also include allowances acquired in business acquisitions, which were not material in any period presented. |
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
20. Selected Quarterly Financial Data (Unaudited)
|
| | | | | | | | | | | | | | | |
| | Quarter Ended |
| 2017 | Mar. 31 | | Jun. 30 | | Sep. 30 | | Dec. 31 |
| Revenues | $ | 188,849 |
| | $ | 181,418 |
| | $ | 176,376 |
| | $ | 185,927 |
|
| Reimbursable expenses | 16,950 |
| | 20,930 |
| | 17,982 |
| | 19,313 |
|
| Total revenues and reimbursable expenses | 205,799 |
| | 202,348 |
| | 194,358 |
| | 205,240 |
|
| Gross profit | 70,203 |
| | 64,981 |
| | 59,847 |
| | 71,540 |
|
| Operating income (loss) | 14,149 |
| | (200,575 | ) | | 6,098 |
| | (27,128 | ) |
| Net income (loss) from continuing operations | 5,155 |
| | (150,482 | ) | | 4,132 |
| | (29,310 | ) |
| Income (loss) from discontinued operations, net of tax | 143 |
| | 309 |
| | 238 |
| | (302 | ) |
| Net income (loss) | 5,298 |
| | (150,173 | ) | | 4,370 |
| | (29,612 | ) |
| Net earnings (loss) per basic share: | | | | | | | |
| Net income (loss) from continuing operations | $ | 0.24 |
| | $ | (7.00 | ) | | $ | 0.19 |
| | $ | (1.36 | ) |
| Income (loss) from discontinued operations, net of tax | 0.01 |
| | 0.01 |
| | 0.01 |
| | (0.02 | ) |
| Net income (loss) | $ | 0.25 |
| | $ | (6.99 | ) | | $ | 0.20 |
| | $ | (1.38 | ) |
| Net earnings (loss) per diluted share: | | | | | | | |
| Net income (loss) from continuing operations | $ | 0.24 |
| | $ | (7.00 | ) | | $ | 0.19 |
| | $ | (1.36 | ) |
| Income (loss) from discontinued operations, net of tax | 0.01 |
| | 0.01 |
| | 0.01 |
| | (0.02 | ) |
| Net income (loss) | $ | 0.25 |
| | $ | (6.99 | ) | | $ | 0.20 |
| | $ | (1.38 | ) |
| Weighted average shares used in calculating earnings per share: | | | | | | | |
| Basic | 21,239 |
| | 21,492 |
| | 21,505 |
| | 21,515 |
|
| Diluted | 21,474 |
| | 21,492 |
| | 21,622 |
| | 21,515 |
|
|
| | | | | | | | | | | | | | | |
| | Quarter Ended |
| 2016 | Mar. 31 | | Jun. 30 | | Sep. 30 | | Dec. 31 |
| Revenues | $ | 180,489 |
| | $ | 184,259 |
| | $ | 183,400 |
| | $ | 178,124 |
|
| Reimbursable expenses | 16,561 |
| | 18,982 |
| | 19,093 |
| | 17,076 |
|
| Total revenues and reimbursable expenses | 197,050 |
| | 203,241 |
| | 202,493 |
| | 195,200 |
|
| Gross profit | 65,180 |
| | 77,138 |
| | 71,131 |
| | 60,090 |
|
| Operating income | 14,376 |
| | 28,209 |
| | 23,240 |
| | 8,409 |
|
| Net income from continuing operations | 6,866 |
| | 16,139 |
| | 12,288 |
| | 4,187 |
|
| Income (loss) from discontinued operations, net of tax | (864 | ) | | (970 | ) | | 4 |
| | (33 | ) |
| Net income | 6,002 |
| | 15,169 |
| | 12,292 |
| | 4,154 |
|
| Net earnings per basic share: | | | | | | | |
| Net income from continuing operations | $ | 0.33 |
| | $ | 0.77 |
| | $ | 0.58 |
| | $ | 0.20 |
|
| Income (loss) from discontinued operations, net of tax | (0.05 | ) | | (0.05 | ) | | — |
| | — |
|
| Net income | $ | 0.28 |
| | $ | 0.72 |
| | $ | 0.58 |
| | $ | 0.20 |
|
| Net earnings per diluted share: | | | | | | | |
| Net income from continuing operations | $ | 0.32 |
| | $ | 0.76 |
| | $ | 0.57 |
| | $ | 0.19 |
|
| Income (loss) from discontinued operations, net of tax | (0.04 | ) | | (0.05 | ) | | — |
| | — |
|
| Net income | $ | 0.28 |
| | $ | 0.71 |
| | $ | 0.57 |
| | $ | 0.19 |
|
| Weighted average shares used in calculating earnings per share: | | | | | | | |
| Basic | 21,114 |
| | 21,061 |
| | 21,076 |
| | 21,083 |
|
| Diluted | 21,460 |
| | 21,376 |
| | 21,445 |
| | 21,473 |
|