2
0
1
7
A
N
N
U
A
L
R
E
P
O
R
T
HURON | 2017 ANNUAL REPORT
VISION
To empower our clients, our people, and the
communities we serve to OWN THEIR FUTURE.
MISSION
To enable organizations to improve fundamental
performance, reinvent their business, generate new
growth platforms, and lead their people through
TRANSFORMATIONAL CHANGE.
2017 ANNUAL REPORT | HURON
VALUES
INTEGRITY
COLLABORATION
We value authenticity and honesty.
We commit to working with respect
We do the right thing regardless of
and transparency, and recognize we
the consequences.
are better together than apart.
IMPACT
EXCELLENCE
We are passionate about making a
We strive to excel and continually exceed
difference and take initiative to have
the expectations of our clients and our
a lasting impact on the organizations
people, holding each other accountable
and communities we serve.
for our actions and outcomes.
INTELLECTUAL CURIOSITY
INCLUSION
As lifelong learners, we explore and
We embrace different
encourage new ideas, and challenge
perspectives and draw on
the status quo.
the strength of our diversity.
HUMILITY
While confident in our abilities, we
realize that our current knowledge
is but a fraction of what we have yet
to learn, discover and create.
HURON | 2017 ANNUAL REPORT
A LETTER FROM THE CHIEF EXECUTIVE OFFICER AND PRESIDENT
Largely driven by technology and
globalization, the pace and breadth of
change has never been more significant.
I frequently hear clients speak of the
disruption taking place in their industries
and the need for transformation as they
define their path to achieve long-term
success in rapidly evolving markets.
Huron is no exception. The changes taking place in our industry and
in the industries we serve are acute. Our need for ongoing change
does not negate our past success. Instead, it is the sign of a vibrant
firm that recognizes the need for continual change as we aspire to
achieve more – for ourselves and our shareholders.
2017 ANNUAL REPORT | HURON
JAMES H. ROTH
Chief Executive Officer
and President
Our 2017 Performance
2017 was a challenging year for Huron, driven
by further revenue declines in our healthcare
segment. While we are disappointed in our
overall financial performance in 2017, we
made tremendous progress in repositioning
this company for a return to organic growth.
Healthcare segment revenues in 2017
declined 16 percent from 2016. The
year-over-year decline was primarily
attributable to a reduction in revenue within
our performance improvement solution,
stemming in part from the roll-off of some
larger engagements and, to a lesser extent,
softness in our Studer Group business.
Revenue and utilization grew sequentially in
the fourth quarter, driven by strengthening
demand for our services due to the ongoing
financial pressures impacting the industry.
The changes we made throughout 2017 to
accelerate the operational turnaround of
our healthcare business have positioned
us to be more responsive to changing
market conditions. Among other initiatives,
this includes an enhanced level of
collaboration across all of our service lines.
Our professionals are leveraging our core
competencies and deep expertise in new
and creative ways that are resonating with
our clients as they confront the challenges
of their own rapidly changing and highly
competitive environment. In addition, our
efforts have better equipped the healthcare
business to compete across a wider spectrum
of engagement sizes and durations as we have
developed more flexible delivery models.
HURON | 2017 ANNUAL REPORT
The education segment achieved organic
revenue growth of 12 percent in 2017 over
2016, driven by strong performance in our
technology and strategy and operations
businesses. We remain well positioned for
growth in this segment as higher education
institutions are focused on responding
to changes in student expectations and
increased public scrutiny. Our clients face
challenges to increase their ability to respond
to cost pressures in light of increased
competition, changing student demographics
and reduced funding, which are driving
disruption across the education industry.
and global operations, driving increased
collaboration across these businesses.
The business advisory segment grew
revenues 37 percent year-over-year, driven by
inorganic growth from our acquisitions of Pope
Woodhead and Innosight and organic growth
led primarily by the ES&A business.
Our acquisition of Pope Woodhead, a United
Kingdom-based market access firm, expanded
our global presence of strategy and market
access offerings, which enables us to meet the
demands of the complex, global and highly
regulated life sciences industry.
We are investing in and empowering our people to think and
act in new ways to create their own future and shape the future
of the institutions we serve. Ultimately, we will help build even
stronger organizations, individuals and communities that can
thrive in environments of rapid change.
The business advisory segment now
comprises four businesses: our enterprise
solutions and analytics, or ES&A, business,
our legacy business advisory business, our
strategy and innovation business and our life
sciences business. The realignment of these
businesses was driven by the commonalities
among our client base in this segment, which
predominantly consists of for-profit clients,
often in global markets, in contrast to our
healthcare and education businesses, which
primarily serve not-for-profit and domestic
clients. The business advisory segment
also aligns our largest strategy capabilities
During the first quarter of 2017, we also
acquired Innosight, a leading strategy and
innovation firm that was co-founded by Clayton
Christensen. Innosight’s strategy and innovation
expertise combined with Huron’s legacy
operational and industry competencies position
us to help our clients transform as they strive to
strengthen their business today while creating
growth opportunities to drive future success.
Our Strategic Transformation
I recognize that the past few years have been
challenging for Huron and our shareholders.
We do not accept our recent performance
2017 ANNUAL REPORT | HURON
as the new normal for our business. Since
the sale of our legal consulting practice in
2015, we have been shaping this company
into a more integrated, competitive operating
business, and in 2017, we took the next step
in this evolution.
We have carefully defined the plan to achieve
our vision in a new, five-year enterprise-level
strategy. We believe we have the portfolio
of services and collaborative, competitive
spirit we need to become the premier
transformation partner to our clients. Our
strategy sets out to further unlock the value
that we believe exists across our company,
building on our competitive advantage of
deep cross-practice collaboration. Our team
has wholeheartedly embraced our new,
unified sense of purpose and our well-defined
strategic roadmap as we strive to drive long-
term shareholder value through sustainable
organic growth and increased profitability.
Strategic Priorities to
Drive Shareholder Value
ACHIEVE SUSTAINABLE ORGANIC GROWTH
We are committed to returning this company
to sustainable growth over the long term.
Today, we believe we have all of the
foundational pieces in our portfolio that we
need to achieve our strategy and return to
long-term growth. From strategy setting
to execution, we can fulfill our mission
of enabling organizations to improve
fundamental performance, reinvent
their business, generate new growth
platforms and lead their people through
transformational change.
In addition, over the last several years, we
have removed the historical silos that existed
across our organization to better enable
collaboration and improve the execution of an
organic growth strategy. In 2017, the business
advisory segment generated approximately 21
percent of its total revenues in the healthcare
and education industries.
DRIVE MARGIN EXPANSION
We are highly focused on improving our margins
and believe 2018 will be a baseline from which
we can sustainably grow margins consistent
with our long-term financial objectives. To
achieve these objectives, we believe we can
further leverage the corporate platform already
in place and manage our cost structure,
consistent with our strategic priorities.
Beyond leveraging corporate SG&A, we
believe we can also expand our margins
at the segment level. We are focused on
managing our portfolio of offerings, investing
in areas that generate the highest return and
enhancing the profitability of our more mature
offerings. We are continuously innovating our
delivery models, driving increased flexibility
and efficiency in the way we operate.
DEPLOY CAPITAL STRATEGICALLY
In the near term, we will deploy capital to
pay down our outstanding debt. However,
our strategy remains that we will continue to
enhance long-term shareholder value through
strategic investment and capital deployment.
We will continue to make investments in our
business to accelerate organic growth. For
example, in 2017, our cloud-based technology
services, where we have been investing for
long-term growth in recent years, performed
HURON | 2017 ANNUAL REPORT
well, enabling us to establish a position of
strength in our cloud offerings as market
demand remains strong.
INVEST IN OUR PEOPLE
Our new unifying strategic foundation begins
with our vision – to empower our clients, our
people and the communities we serve to own
their future. This common purpose is what the
entire Huron team is aspiring and committing
to, together.
We are investing in and empowering our
people to think and act in new ways to create
their own future and shape the future of
the institutions we serve. Ultimately, we
will help build even stronger organizations,
individuals and communities that can thrive in
environments of rapid change.
Opportunity Lies Ahead
I view 2017 as an important transition year
where we redefined our strategic direction,
created a unified sense of purpose and
secured the commitment of our employees
through a new vision, mission, set of values
and modified brand positioning designed
to align with our strategy. Having a strong
purpose- and values-driven culture, our
team has rallied around our unifying strategic
foundation and is clearly excited by the
opportunities that lie ahead, as am I.
We are enthusiastic about our prospects in
2018 as we begin to execute our strategy.
We are focused on returning this company
to sustainable organic growth and increased
profitability consistent with the high
expectations that all of us at Huron share
with each of you.
James H. Roth
Chief Executive Officer and President
2017 ANNUAL REPORT | HURON
Financial & Operating Highlights
Year Ended December 31
In thousands, except for earnings per share
2013
2014
2015
2016
2017
Revenues (before reimbursable expenses)
$538,128
$627,686
$699,010
$726,272
$732,570
Operating Income (Loss)
$89,899
$88,340
$103,498
$74,234
$(207,456)
Operating Margin(1)
16.7%
14.1%
14.8%
10.2%
-28.3%
Net Income (Loss) from Continuing Operations
$51,577
$47,002
$61,895
$39,480
$(170,505)
Income (Loss) from Discontinued Operations, Net of Tax
$14,856
$32,049
$(2,843)
$(1,863)
$388
Net Income (Loss)
$66,433
$79,051
$59,052
$37,617
$(170,117)
Diluted Earnings (Loss) Per Share from Continuing Operations
$2.26
$2.05
$2.74
$1.84
$(7.95)
Diluted Earnings (Loss) Per Share
$2.92
$3.45
$2.61
$1.76
$(7.93)
Return on Assets(2)
8.2%
8.0%
Return on Equity(3)
13.7%
13.7%
4.8%
9.4%
3.3%
5.9%
-15.0%
-29.7%
(1) Operating margin is defined as operating income expressed as a percentage of revenues.
(2) Return on assets is calculated by dividing net income by average total assets. The average total assets for the years ended December 31, 2013, 2014,
2015, 2016, and 2017 were $809.5 million, $989.5 million, $1,226.2 million, $1,148.8 million, and $1,130.7 million, respectively.
(3) Return on equity is calculated by dividing net income by average total stockholders’ equity. The average total stockholders’ equity for the years ended
December 31, 2013, 2014, 2015, 2016, and 2017 were $484.9 million, $576.9 million, $627.4 million, $634.5 million, and $571.9 million, respectively.
Revenues
in millions
$627.7
$538.1
$699.0
$726.3
$732.6
2013
2014
2015
2016
2017
Note: The financial and operating information presented above is on a continuing operations basis, unless otherwise noted.
HURON | 2017 ANNUAL REPORT
Board of Directors & Executive Team
BOARD OF DIRECTORS
John F. McCartney (1)
Non-Executive Chairman
of the Board
Board of Directors
Datatec Limited
Transco, Inc.
George E. Massaro (3)
Vice Chairman of the Board
Board of Directors
Charles River Laboratories
John S. Moody (1, 2)
President
Parkside Capital
Chairman of the Board
EXECUTIVE TEAM
James H. Roth
Chief Executive Officer,
President and Director
Four Corners Property Trust, Inc.
Vice Chairman of the Board
Potlatch Corporation
C. Mark Hussey
Executive Vice President
and Chief Operating Officer
Board of Directors
Hines Global REIT
Chairman of the Board of Trustees
St. John’s School
John D. Kelly
Executive Vice President,
Chief Financial Officer
and Treasurer
Diane E. Ratekin
Executive Vice President,
General Counsel and
Corporate Secretary
James H. Roth
Chief Executive Officer
and President
Board of Directors
Keypath Education Holdings, LLC
Shorelight Holdings LLC
Hugh E. Sawyer
Chief Executive Officer
President and Director
Regis Corporation
Board of Directors
JHT Holdings, Inc.
Debra Zumwalt (2, 3)
Vice President and General Counsel
Stanford University
Board of Directors
Exponent, Inc.
Academy of Art University
Board of Trustees
American University of Afghanistan
James D. Edwards (3)
Board of Directors
Crawford & Company
Board of Trustees
CF Foundation
H. Eugene Lockhart (1, 2)
Senior Advisor
General Atlantic LLC
Chairman
MissionOG LLC
Board of Directors
Metro Bank PLC
Vice Chairman of the Board
Virginia State Council of
Higher Education
Committees: (1) Audit, (2) Compensation, (3) Nominating and Corporate Governance
Board of Directors and Executive Team as of February 8, 2018.
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10–K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2017
OR
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)
Delaware
(State or other jurisdiction of
incorporation or organization)
01-0666114
(I.R.S. Employer
Identification Number)
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:
Title of each class
Common Stock, par value $0.01 per share
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
No
No
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
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. Yes
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 Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes
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.
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting 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.
No
No
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
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.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
The aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 2017 (the last business day of the registrant’s
most recently completed second fiscal quarter) was approximately $934,900,000.
As of February 21, 2018, 22,180,119 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
No
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
PART I
Item 1.
Business
Item 1A.
Risk Factors
Item 1B.
Unresolved Staff Comments
Item 2.
Item 3.
Item 4.
PART II
Item 5.
Item 6.
Item 7.
Item 7A.
Item 8.
Item 9.
Item 9A.
Item 9B.
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
PART IV
Item 15.
Item 16.
SIGNATURES
Properties
Legal Proceedings
Mine Safety Disclosures
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
Quantitative and Qualitative Disclosures About Market Risk
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Controls and Procedures
Other Information
Directors, Executive Officers and Corporate Governance
Executive Compensation
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
Form 10-K Summary
Page
1
5
16
16
17
17
17
19
21
47
48
48
48
49
49
49
50
50
50
51
54
55
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, 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,” 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: 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 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.
ITEM 1.
BUSINESS.
OVERVIEW
PART I
Huron is a global professional services firm committed to achieving 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 in the healthcare, higher
education, life sciences and commercial sectors.
Huron is 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.
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
1
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, Education, and Business Advisory. For the year ended
December 31, 2017, we derived 49%, 23%, and 28% of our revenues from Healthcare, Education, and Business Advisory, respectively.
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.
For further financial information on our segment results, refer to Part II—Item 7. "Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and Note 18 “Segment Information” within the notes to our consolidated financial statements.
Healthcare
Our Healthcare segment has a depth of expertise in strategy and innovation, care transformation, financial and operational excellence,
technology and analytics, and leadership development. We serve national and regional hospitals and integrated health systems, academic
medical centers, community hospitals, and medical groups. Our solutions help clients evolve and adapt to the rapidly changing healthcare
environment and achieve growth, optimize performance, enhance profitability, improve quality and clinical outcomes, and drive physician,
patient, and employee engagement across the enterprise.
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 large and middle market 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 from healthy,
well-capitalized companies to organizations in transition as well as creditors, equity owners and other key constituents.
2
This segment’s primary service lines include:
•
•
•
•
Enterprise Solutions and Analytics. Our Enterprise Solutions and Analytics professionals deliver technology 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. Our Business Advisory professionals resolve complex business issues and enhance client enterprise value
through a suite of services including capital advisory, transaction advisory, operational improvement, restructuring and turnaround,
valuation, and dispute advisory. We improve 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 clients 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. Our Strategy and Innovation professionals collaborate with clients across a range of industries to
achieve repeatable business growth and innovation. We help organizations identify new growth opportunities, build new ventures
and capabilities, and accelerate organizational change.
Life Sciences. Our Life Sciences professionals provide strategic solutions to help pharmaceutical, medical device, and
biotechnology companies deliver more value to patients, payers, and providers and comply with regulations. We advise clients in
the areas of corporate and financial strategy, compliance and operations, reimbursement and access strategy, commercial
contracting strategy, R&D and product strategy commercial segmentation, fair market value analysis, lifecycle management,
litigation and investigations, government pricing and transparency reporting, auditing and monitoring, and overall business process
improvement.
OUR CLIENTS AND INDUSTRIES
We provide professional services to a wide variety of both financially sound 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 of industries, including healthcare, education, pharmaceutical and medical device, financial services, energy
and utilities, retail, aerospace, automotive, technology, telecommunications, consumer products, governmental, metals and mining,
engineering and construction, hospitality and gaming, logistics, and manufacturing.
EMPLOYEES
Our success depends on our ability to attract, engage, and develop highly talented professionals by creating a work environment where
employees and teams thrive and individuals are rewarded not only for their own contributions but also for the success of our organization. To
accomplish these goals, we focus on every facet of the employee lifecycle beginning with the recruiting process through post-employment or
retirement to ensure the employee experience is engaging and impactful. We have developed comprehensive programs incorporating
training and development opportunities beginning with the onboarding process and continuing through one’s career journey. We provide a
competitive total rewards package including benefits that tailor to the needs of our employee population. Our commitment to corporate social
responsibility is facilitated through our Huron Helping Hands program and the Diversity and Inclusion council.
Our employee population is divided into two groups: client-serving and support. As of December 31, 2017, we had 3,083 full-time employees,
including 142 client-serving managing directors. Our client-serving employees serve 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 existing and new clients. They enhance our market reputation by partnering with clients as advisors and engagement
team leaders. Internally, they create our intellectual capital, develop our people, and foster our culture. Our senior directors, directors, and
managers manage day-to-day client relationships, develop our people, and oversee the delivery and quality of our work product. Our
associates and analysts gather and organize data, conduct detailed analyses, and prepare presentations that synthesize and distill
information to support recommendations we deliver to clients. Our support employees include our senior management team as well as
professionals who provide sales support, methodology creation, software development, and corporate functions consisting of our facilities,
finance and accounting, human resources, information technology, legal, and marketing teams. These employees provide strategic direction
and support that enables the success of our client-serving employees. At December 31, 2017, our support team was led by 23 managing
directors, executives and corporate vice presidents.
3
In addition to our full-time client-serving employees, we engage contractors on an as-needed basis to provide unique skill sets that are not
required to be staffed on a full-time basis.
Supporting our professionals' career progression is critical to our employee retention and engagement. As part of our onboarding process,
our learning and organizational effectiveness team facilitates a robust and structured training curriculum for newly hired employees to help
develop and integrate them more effectively into the company. Leadership development 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 of leadership development for those we deem capable of taking on broader roles in the organization. We also provide a variety
of continuing education opportunities to all of our employees, including formal classroom environments, online courses, and webinars to
further develop employees’ capabilities including technical knowledge, people skills, team dynamics and coaching and developing others. We
encourage our employees to enhance their professional skills through outside courses that certify their technical skills and to pursue certain
advanced degrees. Employees are assigned internal performance coaches to help them establish expectations that are reviewed regularly,
including identifying opportunities for professional development, formal training and technical skill certifications.
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 benefits.
Our incentive compensation plan is designed to recognize and reward performance of both the organization and individuals and to ensure we
properly recognize and retain our top performers. 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. The board of directors then reviews and approves the total incentive compensation pool for all practices in the context of the
company’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. The incentive compensation plan for our named executive officers is funded based on a blend of achievement of 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. 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 and tailored to the needs of our employee population, such as a paid time off
policy that allows for flexibility and a travel reward program 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 given the demanding nature of the work. Through these unique benefits, as well as our health and welfare plans, retirement
benefits, stock purchase plan, and other benefit programs, we provide a core sense of security to our employees.
Our corporate social responsibility efforts are designed to support an individual’s charitable interests while also providing a venue for our
employees 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 of our growing employee population through employee resource groups that provide corporate-wide educational
opportunities, build awareness, celebrate our differences, develop mentoring relationships, and ensure we are fostering a welcoming and
engaging environment for all employees.
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; and senior level influencers and decision makers
of middle market and large corporate organizations. We believe excellent service delivery to clients is critical to building and maintaining
relationships and our brand reputation, and we emphasize the importance of 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, academic and research institutions, and corporations, and marketing lead generation activities. We also
view cross-selling as a key component in building our business. Often, the client relationship of a managing director 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.
4
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
consulting firms; general management consulting firms; the consulting practices of major accounting firms; technical and economic advisory
firms; regional and specialty consulting firms; 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 practice 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. 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 attract and retain employees with broad capabilities and deep industry
expertise enable us to compete favorably in the professional services marketplace.
AVAILABLE INFORMATION
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or
furnished pursuant to Section 13(a) or 15(d) of the Exchange Act are available 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.
The content posted on our website is not incorporated by reference into this report or any other reports filed with, or furnished to, the SEC.
Any materials we file with the SEC may 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.
ITEM 1A. RISK FACTORS.
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.”
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 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, members of our
senior management team and our other managing directors are not contractually prohibited from leaving or joining 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 inability to hire and retain talented people in an industry where there is great competition for talent 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
5
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. 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.
Additional hiring, departures, business acquisitions and dispositions 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:
•
•
•
•
•
•
•
•
•
•
•
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;
the perception of inequalities if different groups of employees are eligible for different benefits and incentives or are subject to
different policies and programs; and
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, selling 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 the sale of our Huron Legal segment to Consilio, Inc., which was completed on December 31,
2015, we have contractually agreed to indemnify the buyer against certain liabilities. If we fail to successfully address these risks, our ability
to compete may be impaired and our results of operations may be adversely affected.
6
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 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 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. 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 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 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.
7
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
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 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 revenues and profitability could decline.
A number of factors outside of our control affect demand for our services. These include:
•
•
•
•
fluctuations in U.S. and global economies;
the U.S. 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 positive 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 laws could have a material adverse effect on our business, cash flow, results of operations and financial
conditions.
We are subject to income and other taxes in the U.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.
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 increased the number of 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 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.
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 make it difficult to predict our future operating results. To sustain
profitability, we must:
•
•
attract, integrate, retain, and motivate highly qualified professionals;
achieve and maintain adequate utilization and suitable billing rates for our revenue-generating professionals;
8
•
•
•
•
expand our existing relationships with our clients and identify new clients in need of our services;
successfully resell engagements and secure new engagements every year;
maintain 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.
Our financial results could suffer if we are unable to achieve or maintain adequate utilization and suitable billing rates for our
consultants.
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, our consultants oftentimes perform services at the physical locations of our clients. If there
are natural disasters, disruptions to travel and transportation or problems with communications systems, our ability to perform services for,
and interact with, our clients at their physical locations may be negatively impacted which could have an adverse effect on our business and
results of operations.
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
9
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 are contingent, revenues on such
engagements, which are recognized when all revenue recognition criteria are met, are not certain and the timing of receipt is difficult to
predict and may not occur evenly throughout the year. The percentage of our revenues derived from performance-based fees for the years
ended December 31, 2017, 2016, and 2015, was 4.9%, 8.9%, and 8.7%, 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, and 2015, fixed-fee engagements represented 46.7%, 47.4%, and 58.0% of
our revenues, respectively.
Our business is becoming increasingly dependent on information technology and will require additional investments in order to
grow and meet 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. 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.
10
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 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;
11
•
•
•
•
•
•
•
•
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.
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, we 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 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, we had outstanding indebtedness of $250 million principal amount of our 1.25% convertible senior notes due October
1, 2019, $105.0 million on our revolving line of credit that becomes due and payable in full upon maturity on March 31, 2020, and $4.9 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 continue 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.
In addition, our indebtedness, combined with our other financial obligations and contractual commitments, could have other important
consequences. For example, it could:
•
•
expose us to the risk of increased interest rates because some of our borrowings are at variable interest rates;
make us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and
adverse changes in government regulation;
12
•
•
•
limit our ability 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.
Any of these factors could materially and adversely affect our business, financial condition, and results of operations. In addition, if we incur
additional indebtedness, the risks related to our business 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, could have a
material effect on our reported financial results.
Under GAAP, an entity must separately account for the debt component and the embedded conversion option of convertible debt instruments
that may be settled entirely or partially 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 instruments is that the value of such embedded conversion option
would be treated as an original issue discount for purposes of accounting for the debt component of 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 term 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 discount 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.
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.
13
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 transactions with respect to our common stock. This activity could also cause or prevent an increase or decrease in the market
value of our common stock. In addition, the hedge counterparties and/or their affiliates may choose 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 subject to the risk that one or both of the hedge counterparties might default
under their respective convertible note hedge transactions. Upon a default by any hedge counterparty, we may suffer adverse tax
consequences and more dilution than we currently anticipate 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 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.
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.
Expanding our service offerings or number of offices 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;
a lack of market understanding; and
unanticipated expenses to recruit and hire qualified consultants and to market our new service offerings.
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
14
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 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, and general economic conditions. In particular, we 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 impact demand for our services, our sales, revenue, financial condition, and results of operations.
Our ability to maintain and attract new business and talented personnel 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 and retain and attract talented personnel 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,
clients, 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.
A significant portion of our revenues is derived from a limited number of clients, and our engagement agreements, including those
related to our largest clients, can 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.
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 revenues for the years ended December 31, 2017, 2016,
and 2015, respectively. No single client accounted for more than 10% of our revenues 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 clients could have a material adverse effect on the amount of
revenues we generate.
In addition, almost all of our engagement 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 an
engagement or that a client will cancel or delay additional planned engagements. For clients in bankruptcy, a bankruptcy court could elect not
15
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. 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. 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 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.
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, 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.
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.
PROPERTIES.
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.
16
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. We believe that our leased facilities are adequate to meet our current needs and that additional facilities are available for
lease to meet future needs.
ITEM 3.
LEGAL PROCEEDINGS.
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 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.
ITEM 4.
MINE SAFETY DISCLOSURES.
Not applicable.
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
PART II
Market Information
Our common stock is traded on The 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.
2016
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
2017
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
High
Low
$
$
$
$
$
$
$
$
60.00
62.34
65.00
60.64
49.25
46.85
43.70
42.50
$
$
$
$
$
$
$
$
46.00
54.14
57.23
41.20
39.15
40.50
29.53
32.40
As of February 21, 2018, there were 486 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 Discussion and Analysis of
Financial Condition and Results of Operations" for further information on the restricted payment provisions of our senior secured credit
facility.
17
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item appears under Item 12. "Security Ownership of Certain Beneficial Owners and Management and
Related Stockholders Matters” included elsewhere in this Annual Report on Form 10-K.
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, we reacquired 9,832 shares of common stock with a weighted average fair
market value of $40.28 as a result of such tax withholdings.
In October 2014, our board of directors authorized a share repurchase program pursuant to which we may, from time to time, repurchase up
to $125 million of our common stock and which expires on October 31, 2018 (the "Share Repurchase Program"). The amount and timing of
the repurchases will be determined by management and will depend on a variety of factors, including the trading price of our common stock,
capacity under our line of credit, 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 of 2017.
Period
October 1, 2017 – October 31, 2017
November 1, 2017 – November 30, 2017
December 1, 2017 – December 31, 2017
Total
(1)
(2)
Total Number
of Shares
Purchased (1)
Average Price
Paid Per Share
354
$
— $
9,478
9,832
$
$
35.85
—
40.45
40.28
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)
— $
— $
— $
—
35,143,546
35,143,546
35,143,546
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.
As of the end of the period.
18
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.
Consolidated Statements of Operations
(in thousands, except per share data):
Revenues and reimbursable expenses:
Revenues
Reimbursable expenses
2017
Year Ended December 31,
2015
2014
2016
2013
$ 732,570
$ 726,272
$ 699,010
$ 627,686
$ 538,128
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
Amortization of intangible assets and software development costs
Reimbursable expenses
454,806
437,556
401,915
384,277
323,398
10,932
75,436
15,140
71,749
16,788
69,932
4,590
73,855
2,660
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
Litigation and other (gains) losses, net
Depreciation and amortization (1)
Goodwill impairment charges
Total operating expenses and other losses (gains), net
Operating income (loss)
Other income (expense), net:
Interest expense, net of interest income
Other income (expense), net
Total other expense, net
Income (loss) from continuing operations before taxes
Income tax expense (benefit)
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
6,246
1,111
38,213
253,093
474,027
(207,456)
9,592
(1,990)
31,499
—
199,305
74,234
3,329
(9,476)
25,135
—
176,890
103,498
2,811
(590)
15,451
—
305
(5,875)
10,723
—
150,471
122,129
88,340
89,899
(18,613)
(16,274)
(18,136)
(8,679)
(6,475)
3,565
1,197
(1,797)
400
353
(15,048)
(15,077)
(19,933)
(8,279)
(6,122)
(222,504)
(51,999)
(170,505)
59,157
19,677
39,480
83,565
21,670
61,895
388
(1,863)
(2,843)
80,061
33,059
47,002
32,049
83,777
32,200
51,577
14,856
$ (170,117) $ 37,617
$
59,052
$
79,051
$
66,433
19
Consolidated Statements of Operations
(in thousands, except per share data):
Net earnings (loss) per basic share:
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Net earnings (loss) per diluted share:
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Weighted average shares used in calculating net earnings
(loss) per share:
2017
Year Ended December 31,
2015
2014
2016
$
$
$
$
(7.95) $
0.02
(7.93) $
(7.95) $
0.02
(7.93) $
1.87
(0.09)
1.78
1.84
(0.08)
1.76
$
$
$
$
2.80
(0.13)
2.67
2.74
(0.13)
2.61
$
$
$
$
2.10
1.42
3.52
2.05
1.40
3.45
$
$
$
$
2013
2.31
0.67
2.98
2.26
0.66
2.92
Basic
Diluted
21,439
21,439
21,084
21,424
22,136
22,600
22,431
22,925
22,322
22,777
Consolidated Balance Sheet Data
(in thousands):
Cash and cash equivalents
Working capital
Total assets
Long-term debt, net of current portion
Total stockholders’ equity (2)
2017
2016
As of December 31,
2015
16,909
$
$
51,828
$ 1,036,928
342,507
$
503,316
$
17,027
$
$
44,314
$ 1,153,215
292,065
$
648,033
$
58,437
$
$
96,966
$ 1,159,543
307,376
$
652,325
$
2014
256,872
$
$
307,978
$ 1,148,475
320,413
$
600,634
$
2013
58,131
98,394
883,223
141,421
530,264
$
$
$
$
$
(1)
(2)
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.
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."
20
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") 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 Statements and Supplementary Data." The following MD&A contains forward-looking statements and involves
numerous risks and uncertainties, including, without limitation, those described under Part I—Item 1A. "Risk Factors" and "Forward-Looking
Statements" of this Annual Report on Form 10-K. Actual results may differ materially from those contained in any forward-looking statements.
OVERVIEW
We are a global professional services firm committed to achieving 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 in the healthcare,
higher education, life sciences and commercial sectors.
We provide our services and manage our business under three operating segments: Healthcare, Education, and Business Advisory. See Part
I—Item 1. "Business—Overview—Our Services” and Note 18 “Segment Information” within the notes to our consolidated financial statements
for a discussion of our three segments.
How We Generate Revenues
A large portion of our revenues is generated by our full-time consultants who provide consulting services to our clients and are billable to our
clients based on the number of hours worked. 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 finance and
operational consultants, 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. We refer
to our full-time consultants and other professionals collectively as revenue-generating professionals.
Revenues generated by our full-time 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.
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, 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 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.
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%, 47.4%, and 58.0% of our revenues for the years ended December 31, 2017, 2016, and 2015,
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. We recognize revenues under time-and-
expense billing arrangements as the related services or publications are provided. Time-and-expense engagements represented 43.0%,
38.7%, and 28.7% of our revenues in 2017, 2016, and 2015, respectively.
21
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 related performance criteria are met. Performance-based fee revenues represented 4.9%,
8.9%, and 8.7% of our revenues in 2017, 2016, and 2015, 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. These fees are billed in advance and
included in deferred revenues until recognized. Software support and maintenance and subscription-based revenues represented 5.4%,
5.0%, and 4.6% of our revenues in 2017, 2016, and 2015, respectively.
Refer to Note 2 “Summary of Significant Policies” for anticipated changes to our revenue recognition accounting policy upon adoption of
Accounting Standards Update 2014-09 Revenue from Contracts with Customers effective January 1, 2018.
Our quarterly results are impacted principally by our full-time consultants’ utilization rate, the billing rates we charge our clients, 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. 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 equivalent amount of these expenses are included
in total direct costs and reimbursable expenses. Reimbursable expenses also include subcontractors who are billed to our clients at cost.
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 total 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, 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 intangible assets, primarily relating to customer contracts, certain customer relationships, and
technology and software acquired in business combinations, and internally developed software costs.
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 operating expenses are sales and
marketing related expenses, rent and other office related expenses, professional fees, recruiting and training expenses, restructuring
22
charges, and litigation and other gains and losses. Other operating expenses include 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 costs 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 relating 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.
23
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.
During the second quarter of 2017, we reorganized our internal financial reporting structure 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.
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.
Year Ended December 31,
2016
2015
2017
$
$
$
$
$
$
$
$
$
$
$
$
$
$
356,909
118,761
33.3%
167,908
40,318
24.0%
207,753
46,600
22.4%
$
$
$
$
$
$
424,912
147,903
34.8%
149,817
38,310
25.6%
151,543
29,382
19.4%
$
$
$
$
$
$
446,887
169,560
37.9%
134,009
32,246
24.1%
116,892
31,233
26.7%
— $
— $
N/A
— $
— $
N/A
1,222
(1,718)
N/M
732,570
75,175
807,745
205,679
120,718
1,111
38,213
253,093
(207,456)
15,048
(222,504)
(51,999)
(170,505)
(7.95)
(7.95)
$
$
$
$
$
$
726,272
71,712
797,984
215,595
111,852
(1,990)
31,499
—
74,234
15,077
59,157
19,677
39,480
1.87
1.84
$
$
$
$
$
$
699,010
70,013
769,023
231,321
112,164
(9,476)
25,135
—
103,498
19,933
83,565
21,670
61,895
2.80
2.74
Segment and Consolidated Operating Results (in thousands):
Healthcare:
Revenues
Operating income
Segment operating income as a percentage of segment revenues
Education:
Revenues
Operating income
Segment operating income as a percentage of segment revenues
Business Advisory:
Revenues
Operating income
Segment operating income as a percentage of segment revenues
All Other:
Revenues
Operating loss
Segment operating loss as a percentage of segment revenues
Total Company:
Revenues
Reimbursable expenses
Total revenues and reimbursable expenses
Statements of Operations reconciliation:
Segment operating income
Items not allocated at the segment level:
Other operating expenses
Litigation and other losses (gains), net
Depreciation and amortization
Goodwill impairment charges (1)
Total operating income (loss)
Other expense, net
Income (loss) from continuing operations before taxes
Income tax expense (benefit)
Net income (loss) from continuing operations
Earnings (loss) per share from continuing operations
Basic
Diluted
24
Other Operating Data (excluding All Other):
Number of full-time billable consultants (at period end) (2):
Healthcare
Education
Business Advisory
Total
Average number of full-time billable consultants (for the period) (2):
Healthcare
Education
Business Advisory
Total
Full-time billable consultant utilization rate (3):
Healthcare
Education
Business Advisory
Total
Full-time billable consultant average billing rate per hour (4):
Healthcare
Education
Business Advisory (5)
Total
Revenue per full-time billable consultant (in thousands):
Healthcare
Education
Business Advisory
Total
Average number of full-time equivalents (for the period) (6):
Healthcare
Education
Business Advisory
Total
Revenue per full-time equivalent (in thousands):
Healthcare
Education
Business Advisory
Total
Year Ended December 31,
2016
2015
2017
778
549
809
2,136
796
509
740
2,045
78.4%
72.8%
71.7%
74.5%
206
213
193
203
295
291
268
284
213
35
20
268
576
564
464
566
$
$
$
$
$
$
$
$
$
$
$
$
888
468
547
1,903
998
437
486
1,921
77.1%
70.6%
73.1%
74.6%
210
219
208
212
300
293
293
297
203
38
20
261
614
572
453
596
$
$
$
$
$
$
$
$
$
$
$
$
1,037
387
397
1,821
1,085
351
334
1,770
77.9%
74.6%
76.2%
76.9%
217
216
245
222
313
317
335
318
179
39
12
230
604
587
418
591
$
$
$
$
$
$
$
$
$
$
$
$
(1)
(2)
(3)
(4)
(5)
(6)
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.
Consists of our full-time professionals who provide consulting services and generate revenues based on the number of hours worked.
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.
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.
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.
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
25
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"), 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):
Revenues
Net income (loss) from continuing operations
Add back:
Income tax expense (benefit)
Interest expense, net of interest income
Depreciation and amortization
Earnings (loss) before interest, taxes, depreciation and amortization
(EBITDA)
Add back:
Restructuring charges
Litigation and other losses (gains), net
Goodwill impairment charges
Other non-operating expense (income)
Foreign currency transaction losses (gains), net
Adjusted EBITDA
Adjusted EBITDA as a percentage of revenues
2017
Year Ended December 31,
2016
$
$
732,570
(170,505)
$
$
726,272
39,480
$
$
2015
699,010
61,895
(51,999)
18,613
49,145
(154,746)
6,246
1,111
253,093
(696)
(434)
104,574
$
19,677
16,274
46,639
122,070
9,592
(1,990)
—
—
(11)
129,661
$
21,670
18,136
41,923
143,624
3,329
(9,476)
—
—
1,640
139,117
14.3%
17.9%
19.9%
$
26
Net income (loss) from continuing operations
Weighted average shares - diluted
Diluted earnings (loss) per share from continuing operations
Add back:
Amortization of intangible assets
Restructuring charges
Litigation and other losses (gains), net
Goodwill impairment charges
Non-cash interest on convertible notes
Other non-operating income, net
Tax effect
Tax expense related to the enactment of Tax Cuts and Jobs Act of 2017
Tax benefit related to "check-the-box" election
Total adjustments, net of tax
Adjusted net income from continuing operations
Adjusted weighted average shares - diluted
Adjusted diluted earnings per share from continuing operations
$
$
$
$
These non-GAAP financial measures include adjustments for the following items:
Year Ended December 31,
2016
2015
2017
(170,505) $
21,439
(7.95) $
39,480
21,424
1.84
$
$
35,027
6,246
1,111
253,093
7,851
(696)
(91,557)
8,762
(2,728)
217,109
46,604
21,627
2.15
$
$
33,108
9,592
(1,990)
—
7,488
—
(18,942)
—
—
29,256
68,736
21,424
3.21
$
$
61,895
22,600
2.74
28,696
3,329
(9,476)
—
7,141
—
(11,698)
—
(12,336)
5,656
67,551
22,600
2.99
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 intangibles is inconsistent in its amount and frequency and is
significantly affected by the timing and size of our acquisitions.
Restructuring charges: We have incurred charges due to the restructuring of various parts of our business. These restructuring charges have
primarily consisted of costs associated with office space consolidations, including the accelerated depreciation of certain leasehold
improvements, and severance charges. We have excluded the effect of the restructuring 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.
Goodwill impairment charges: We have excluded the effect of the goodwill impairment charges that occurred in 2017 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 incur non-cash interest expense relating to the implied value of the equity conversion component
of our Convertible Notes. The value of the equity conversion component is treated as a debt discount and amortized to interest expense over
the life of the Convertible Notes using the effective interest rate method. We exclude 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: We have excluded the effect of other non-operating income and expense items 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 attributable to a
$0.9 million gain on the sale of Life Sciences C&O, partially offset by a $0.3 million remeasurement loss recorded on a promissory note that
was amended in the fourth quarter of 2017.
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: 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
27
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 effects of our "check-the-box" elections 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
these discrete tax benefits 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.
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.
Adjusted weighted average shares - diluted: As we reported a net loss for the year ended December 31, 2017, GAAP diluted weighted
average shares outstanding equals the basic weighted average shares outstanding for that period. For the year ended December 31, 2017,
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, 2017 Compared to Year Ended December 31, 2016
Revenues
Revenues increased $6.3 million, or 0.9%, to $732.6 million for the year ended December 31, 2017, from $726.3 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, 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.
Of the overall $6.3 million increase in revenues, $10.6 million was attributable to our full-time billable consultants, partially offset by a $4.3
million decrease in revenues attributable to our 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 full-time billable consultant revenues reflected our acquisitions of Innosight and Pope Woodhead, as well as strengthened demand for
services in our Business Advisory and Education segments, partially offset by decreased demand for services in our Healthcare segment.
The 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.
Total Direct Costs
Our total direct costs, including amortization of intangible assets and software development costs, increased $13.0 million, or 2.9%, to $465.7
million for the year ended December 31, 2017 from $452.7 million for the year ended December 31, 2016. The overall $13.0 million increase
in direct costs primarily related to a $17.5 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 million increase in contractor
expense and a $2.7 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, and a $1.2 million decrease in share-based compensation expense for our revenue-
generating professionals. As a percentage of revenues, our total direct costs increased to 63.6% during 2017 compared to 62.3% during
2016, primarily due to the items described above.
Total direct costs for the year ended December 31, 2017 included $10.9 million of amortization expense for intangible assets, primarily
representing customer contracts and software acquired in business combinations, and internal software development costs, compared to
$15.1 million of amortization expense in 2016. The $4.2 million decrease in amortization expense was primarily attributable to the decreasing
amortization expense of customer contracts acquired in 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
28
by the amortization of intangible assets acquired in the acquisitions of Innosight and HSM Consulting. See Note 4 "Acquisitions" and Note 5
"Goodwill and Intangible Assets" within the notes to our consolidated financial statements for additional information about our intangible
assets.
Operating Expenses and Other Gains, Net
Selling, general and administrative expenses increased $15.2 million, or 9.5%, to $175.4 million for the year ended December 31, 2017,
compared to $160.2 million for the year ended December 31, 2016. Selling, general and administrative expenses for 2017 included $14.5
million from Innosight and Pope Woodhead. The overall increase of $15.2 million was primarily related to a $10.4 million increase in salaries
and related expenses for our support 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 million
increase in third-party consulting expenses; a $1.0 million increase in promotion and sponsorship expenses; and a $0.9 million increase in
signing and retention bonus expense for our support personnel. These increases were partially offset by a $2.6 million decrease in
performance bonus expenses for our support personnel, a $1.1 million decrease in legal expenses, and a $1.0 million decrease in share-
based compensation expense for our support personnel. As a percentage of revenues, selling, general and administrative expenses
increased to 23.9% during 2017 compared to 22.1% during 2016, primarily due to the items described above.
Restructuring charges for the year ended December 31, 2017 totaled $6.2 million, compared to $9.6 million for the year ended December 31,
2016. The $6.2 million of restructuring charges in 2017 included $3.7 million related to workforce reductions to better align resources with
market demand, of which $2.1 million related to our Healthcare segment, $1.1 million related to 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, 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 $0.8 million related to the wind down of our
foreign operations based in the Middle East and other exit costs. See Note 10 “Restructuring Charges” within the notes to our consolidated
financial statements for further discussion of our restructuring expenses.
Other gains (losses), net totaled a net loss of $1.1 million for the year ended December 31, 2017, compared to a net gain of $2.0 million for
the year ended December 31, 2016. The net loss in 2017 and the net gain in 2016 represent the changes in the estimated fair values 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. See Note 12 "Fair Value of Financial 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 $6.7 million, or 21.3%, to $38.2 million for the year ended December 31, 2017, from $31.5
million for the year ended December 31, 2016. The increase was primarily attributable to amortization expense for intangible assets acquired
in the Innosight, Pope Woodhead, and ADI Strategies acquisitions, and an increase in amortization expense for a customer-related intangible
asset acquired in the Studer Group acquisition. Intangible asset amortization included within operating expenses primarily relates 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 and Intangible Assets" within the notes to our consolidated financial statements for additional information
about our intangible assets.
During 2017, we recorded $253.1 million of non-cash goodwill impairment charges. 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. These charges are non-cash in nature and do not affect our liquidity or debt covenants. See the "Critical Accounting
Policies" section below and Note 5 "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" within the notes
to our consolidated financial statements for additional information about the non-cash goodwill impairment charges. Operating margin, which
is defined as operating income (loss) expressed as a percentage of revenues, decreased to (28.3)% in 2017 compared to 10.2% in 2016.
The decrease in operating margin was primarily attributable to the goodwill impairment charges, as well as increases in salaries and related
expenses for both our revenue-generating professionals and support personnel.
29
Other Expense, Net
Total other expense, net decreased slightly to $15.0 million for the year ended December 31, 2017, from $15.1 million for the year ended
December 31, 2016. The decrease was primarily attributable to a $2.4 million gain on the market value of our investments that are used to
fund our deferred compensation liability, compared to a $1.2 million gain in 2016, as well as a $0.9 million gain on the sale of our Life
Sciences Compliance and Operations solution ("LS C&O") within our Business Advisory segment in the second 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. See
Note 5 "Goodwill and Intangible Assets" within the notes to our consolidated financial statements for additional information on the sale of LS
C&O.
Income Tax Expense
For the year ended December 31, 2017, 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%
as we recognized income tax expense from continuing operations of $19.7 million on income from continuing operations of $59.2 million. The
effective tax rate for 2017 was less favorable than the statutory rate, inclusive of state income taxes, primarily due to the $65.0 million non-
deductible portion of the goodwill impairment charges related to the Healthcare and Enterprise Solutions and Analytics reporting units
recorded in 2017; $8.8 million of discrete income tax expense related to the enactment of the 2017 Tax Reform in the fourth quarter of 2017;
and $1.8 million of discrete tax expense for share-based compensation related to the adoption of ASU 2016-09 Improvements to Employee
Share-Based Payment Accounting. Refer to Note 2 "Summary of Significant Accounting Policies" for additional information on the adoption of
ASU 2016-09. These unfavorable discrete items were partially offset by a $2.7 million tax benefit 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 as of and 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 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 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 federal income tax rate, a state blended tax rate, net 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.
The 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.
Net Income (Loss) from Continuing Operations
Net income from continuing operations decreased by $210.0 million, to a net loss from continuing operations 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 in 2017. As a result of the
decrease in net income from continuing operations, diluted loss per share from continuing operations for the year ended December 31, 2017
was $7.95 compared to diluted earnings per share from continuing operations of $1.84 for 2016. The non-cash goodwill impairment charges
had an $8.40 unfavorable impact on diluted earnings per share from continuing operations in 2017.
30
Discontinued Operations
Net income from discontinued operations for the year ended December 31, 2017 was $0.4 million and primarily related to updated lease
assumptions for vacated office spaces directly related to the sale of the Huron Legal segment. 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 spaces directly related to the sale of the Huron Legal segment. See Note 3 "Discontinued Operations" within
the notes to our consolidated financial statements for additional information on our discontinued operations.
EBITDA and Adjusted EBITDA
EBITDA decreased $276.8 million, to a loss of $154.7 million for the year ended December 31, 2017, from earnings of $122.1 million for the
year ended December 31, 2016. Adjusted EBITDA decreased $25.1 million, or 19.3%, to $104.6 million in 2017 from $129.7 million in 2016.
The decrease in EBITDA was primarily attributable to the non-cash goodwill impairment charges of $253.1 million recorded in 2017. The
decrease in adjusted EBITDA was primarily due to the decrease in segment operating income, as discussed below in Segment Results, as
well as an increase in corporate expenses primarily due to our acquisitions of Innosight and Pope Woodhead.
Adjusted Net Income from Continuing Operations
Adjusted net income from continuing operations decreased $22.1 million, or 32.2%, to $46.6 million for the year ended December 31, 2017,
compared to $68.7 million for the year ended December 31, 2016. As a result of the decrease in adjusted net income from continuing
operations, adjusted diluted earnings per share from continuing operations for 2017 was $2.15, compared to $3.21 for 2016.
Segment Results
Healthcare
Revenues
Healthcare segment revenues decreased $68.0 million, or 16.0%, to $356.9 million for the year ended December 31, 2017, from $424.9
million for the year ended December 31, 2016. Revenues for 2017 included $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.
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 67.7%, 16.1%, 8.7%, and 7.5% of this
segment’s revenues, respectively, compared to 68.9%, 11.6%, 13.5%, and 6.0%, 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. Performance-based fee revenue was $30.9 million in 2017 compared to $57.2 million in
2016. 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 also 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 decrease in full-time equivalent revenues was primarily driven by a decreased demand for our Studer Group solution and reflected a
decrease in revenue per full-time equivalent, partially offset by an increase in the average number of full-time equivalents in 2017 compared
to 2016.
Operating Income
Healthcare segment operating income decreased $29.1 million, or 19.7%, to $118.8 million for the year ended December 31, 2017, from
$147.9 million for the year ended December 31, 2016. The Healthcare segment operating margin, defined as segment operating income
expressed as a percentage of segment revenues, decreased to 33.3% in 2017 from 34.8% in 2016. The decrease in this segment’s
operating margin was primarily attributable to an increase, as a percentage of revenues, in salaries and related expenses for both our
support personnel and revenue-generating professionals, as well as an increase in contractor expenses, partially offset by decreases 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.
The non-cash goodwill impairment charge related to our Healthcare segment discussed above within the consolidated results 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" section below and
31
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,
32
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" 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 and Intangible Assets" within the notes to our
consolidated financial statements for additional information about our intangible assets.
Operating Expenses and Other Operating Gains
Selling, general and administrative expenses increased $2.3 million, or 1.5%, to $160.2 million for the year ended December 31, 2016,
compared to $157.9 million for the year ended December 31, 2015. This overall increase was primarily related to a $4.8 million increase in
salaries and related expenses 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
33
personnel. As a percentage of revenues, selling, general and administrative expenses decreased to 22.1% during 2016 compared to 22.6%
during 2015, primarily due to the items described above.
Restructuring charges for the year ended December 31, 2016 totaled $9.6 million, compared to $3.3 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 $2.0 million for the year ended December 31, 2016, compared to $9.5 million 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 gain 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 million for the year ended December 31, 2016, from $25.1
million for the year ended December 31, 2015. 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 in operating margin was primarily attributable to the increase in salaries and
related expenses for our revenue-generating professionals as a percentage of revenues, the decrease in litigation and other gains, net, and
the increase in restructuring charges as a percentage of revenues, partially offset by the decrease in share-based compensation 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.
34
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
litigation 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.
35
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 compensation expense for our revenue-generating professionals as a percentage 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.
36
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 million, $17.0 million, and $58.4 million at December 31, 2017, 2016, and 2015, respectively. As of
December 31, 2017, 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):
Net cash provided by operating activities
Net cash used in investing activities
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Operating Activities
2017
Year Ended December 31,
2016
2015
$
$
99,795
$
129,243
$
(128,948)
28,821
214
(86,636)
(84,095)
78
(118) $
(41,410) $
167,855
(272,158)
(93,543)
(589)
(198,435)
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, 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.
The decrease in cash provided by operations in 2017 compared to 2016 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 2017 compared to 2016.
The decrease in 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, largely offset by a decrease in the amount paid for annual
performance bonuses during the first quarter of 2016 compared to the first quarter of 2015 and the collection of a settlement receivable in the
first quarter of 2016.
Investing Activities
Net cash used in 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 use of cash in 2017 primarily consisted of $106.9 million for purchases of businesses and $24.4 million for purchases of property and
equipment, primarily related to leasehold improvements and purchase of furniture and fixtures for new office spaces in certain locations.
The use of cash in 2016 primarily consisted of $69.1 million for purchases of businesses and $13.9 million for purchases of property and
equipment.
The use of cash in 2015 primarily consisted of $340.0 million for purchases of businesses, $18.6 million for purchases of property and
equipment, and $15.4 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 $108.5 million for the sale of the Huron Legal segment in December 2015. See Note
3 "Discontinued Operations" within the notes to our consolidated financial statements for information about the sale of the Huron Legal
segment.
37
We estimate that cash utilized for purchases of property and equipment and software in 2018 will be approximately $15 million, primarily
consisting of information technology related equipment to support our corporate infrastructure, software development costs, and leasehold
improvements.
Financing Activities
Net cash provided by financing activities was $28.8 million for the year ended December 31, 2017. During 2017, we borrowed $277.5 million
under our credit facility, primarily to fund our acquisitions of Innosight and Pope Woodhead and our annual performance bonus payment, and
made repayments on our credit facility of $240.7 million.
Net cash used in financing activities was $84.1 million for the year ended December 31, 2016. During 2016, 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 million of our common stock under
our Share Repurchase Program, as discussed below.
Net cash used in financing activities was $93.5 million for the year ended December 31, 2015. During 2015, we borrowed $314.0 million
under our credit facility, including $102.0 million for the Studer Group acquisition, made repayments on our credit facility of $365.8 million,
and repurchased and retired $34.6 million of our common stock under our Share Repurchase Program.
Share Repurchase Program
We currently have a share repurchase program permitting us to repurchase up to $125 million of our common stock through October 31,
2018 (the "Share Repurchase Program"). The amount and timing of the repurchases will be determined by management and will depend on
a variety of factors, including the trading price of our common stock, capacity under our credit facility, general market and business
conditions, and applicable legal requirements. 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, $35.1 million remains available for share repurchases.
Financing Arrangements
At December 31, 2017, we had $250 million principal amount of our 1.25% convertible senior notes outstanding, $105.0 million outstanding
under our senior secured credit facility, and $4.9 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 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"), that becomes due
and payable in full upon maturity on March 31, 2020. 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 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
38
$600 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% per annum and 2.00% per annum, in the case of
LIBOR borrowings, or between 0.25% per annum and 1.00% per annum, in the case of base rate loans, based upon our Consolidated
Leverage Ratio at such time.
Amounts borrowed under the Amended Credit Agreement may be prepaid at any time without premium or penalty. We are required to prepay
the amounts outstanding under the Amended Credit Agreement in certain circumstances, including 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). 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 3.25 to 1.00 to 3.75 to 1.00,
depending on the measurement period, 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,
non-cash restructuring charges, and pro forma historical EBITDA for businesses acquired. At December 31, 2017, we were in compliance
with these financial covenants with a Consolidated Leverage Ratio of 3.02 to 1.00 and a Consolidated Interest Coverage Ratio of 12.43 to
1.00.
The Amended Credit Agreement contains restricted payment provisions, including a potential limit on the amount of dividends and share
repurchases we may make. Pursuant to the terms of the Amended Credit Agreement, if our Consolidated Leverage Ratio is greater than
3.00, the amount of dividends, share repurchases, and other Restricted Payments (as defined in the Amended Credit Agreement) we may
make 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.
Borrowings outstanding under the Amended Credit Agreement at December 31, 2017 totaled $105.0 million. These borrowings carried a
weighted average interest rate of 3.7%, including the impact of the interest rate swap in effect as of December 31, 2017 and described in
Note 11 “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, we had
outstanding letters of credit totaling $1.9 million, which are primarily used as security deposits for our office facilities. As of December 31,
2017, the unused borrowing capacity under the revolving credit facility was $393.1 million.
For further information, see Note 7 “Financing Arrangements” within the notes to the consolidated financial statements. For a discussion of
certain risks and uncertainties related to the Amended Credit Facility, see Part I—Item 1A. "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, the outstanding principal amount of the promissory note was $4.9 million. As of December 31, 2017, the aircraft had a
carrying amount of $6.5 million.
For further information, see Note 7 “Financing Arrangements” within the notes to the consolidated financial statements.
39
Future Needs
Our primary financing need has been to fund our 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, the borrowing capacity available under our
revolving credit facility, and access to external capital resources will be adequate to fund our long-term growth and capital needs arising from
cash commitments and debt service obligations. Our ability to secure short-term and long-term financing 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.
40
CONTRACTUAL OBLIGATIONS
The following table represents our significant obligations and commitments as of December 31, 2017 and the scheduled years of payments
(in thousands).
Total
Less than
1 Year
Payments Due by Period
1-3 Years
3-5 Years
More than
5 Years
Convertible senior notes—principal and interest (1)
Long-term bank borrowings—principal and interest (2)
Promissory note—principal and interest (3)
Operating lease obligations (4)
Contingent consideration (5)
Purchase obligations (6)
Transition tax on accumulated foreign earnings (7)
Deferred compensation (8)
Uncertain tax positions (9)
Total contractual obligations
$
$
256,250
113,335
5,548
99,960
22,828
12,533
604
17,678
813
529,549
$
$
3,125
3,704
656
14,739
8,515
10,442
48
$
253,125
109,631
1,302
25,710
12,513
2,091
97
— $
—
1,290
21,707
1,800
—
97
—
—
2,300
37,804
—
—
362
$
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.
41
OFF-BALANCE SHEET ARRANGEMENTS
We are not a party to any material off-balance sheet arrangements.
CRITICAL ACCOUNTING POLICIES
Management’s discussion and analysis of financial condition and results of operations are based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our
significant accounting policies are discussed in Note 2 “Summary of Significant Accounting Policies,” within the notes to our consolidated
financial statements. We regularly review our financial reporting and disclosure practices and accounting policies to ensure that our financial
reporting and disclosures provide accurate information relative to the current economic and business environment. The preparation of
financial statements in conformity with GAAP requires management to make assessments, estimates, and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well
as the reported amounts of revenues and expenses during the reporting period. Critical accounting policies are those policies 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 are important, we believe that there are five accounting policies 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 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 our revenues from providing professional services under four types of
billing arrangements: fixed-fee (including software license revenue), 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 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 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
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 services or publications are provided.
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
revenues under performance-based billing arrangements until all related performance criteria are met.
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-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 of arrangements are allocated to each element based on the element’s fair value and recognized pursuant to the criteria
described above.
42
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 equivalent amount of reimbursable expenses are included in total direct costs and reimbursable expenses.
Reimbursable expenses are primarily recognized as revenue 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.
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. Client prepayments and retainers are classified as deferred revenues and recognized over future periods as earned in
accordance with the applicable engagement agreement.
Refer to Note 2 “Summary of Significant Policies” for anticipated changes to our revenue recognition accounting policy upon adoption of
Accounting Standards Update 2014-09 Revenue from Contracts with Customers effective January 1, 2018.
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
The assets acquired and liabilities assumed in a business combination, including identifiable intangible assets, are recorded at their
estimated fair values as of the acquisition date. 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. 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"
within the notes to our consolidated financial statements for additional information regarding our acquisitions.
Carrying Values of Goodwill and Other Intangibles 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 time of our November 30, 2017 annual goodwill impairment test, we had six reporting units
with goodwill balances: Healthcare, Education, Business Advisory, Enterprise Solutions and Analytics, Strategy and Innovation, and Life
Sciences. The Business Advisory, Enterprise Solutions and Analytics, Strategy and Innovation, and Life Sciences 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
43
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.
44
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 utilized a discounted cash flow analysis, which involves
estimating the expected after-tax cash flows that will be generated by the reporting unit and then discounting those cash flows to present
value reflecting the relevant risks associated with the 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, tax rates reflecting anticipated tax reform,
and discount rates reflecting the risk inherent in future cash flows for each reporting unit. In estimating future cash flows, we relied on
internally generated forecasts for each reporting unit 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.
In the market approach, we utilized the guideline company method, which involved calculating valuation 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, these multiples are evaluated and adjusted based
on specific characteristics of the reporting unit relative to the selected guideline companies and applied to the reporting unit's operating data
to arrive at an indication of value.
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
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 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.
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, could be required to take a non-cash
goodwill impairment charge as a result of any such test.
45
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
Percentage by which fair value exceeds carrying value
Education:
Decrease in fair value
Percentage by which fair value exceeds carrying value
Business Advisory:
Decrease in fair value
Percentage by which fair value exceeds carrying value
Strategy and Innovation:
Decrease in fair value
Percentage by which fair value exceeds carrying value
Life Sciences
Decrease in fair value
Percentage by which fair value exceeds carrying value
$
$
$
$
$
(46,700)
31%
(16,900)
106%
(2,200)
107%
(5,500)
27%
(2,100)
4%
$
$
$
$
$
The carrying values of goodwill for each of our reporting units as of December 31, 2017 are as follows (in thousands):
Reporting Unit
Healthcare
Education
Business Advisory
Enterprise Solutions and Analytics
Strategy and Innovation
Life Sciences
Total
(32,600)
33%
(12,600)
110%
(1,400)
110%
(3,100)
30%
(1,400)
7%
Carrying Value
of Goodwill
$
$
428,729
102,829
16,094
—
87,411
10,687
645,750
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 million at December 31, 2017 and 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.
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.
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.
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.
46
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.
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.
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, we had borrowings outstanding under the credit facility totaling
$105.0 million that carried a weighted average interest rate of 3.7% including the impact of the interest rate swap described below. A
hypothetical 100 basis point change in this interest rate would have a $0.6 million effect on our pretax income, on an annualized basis,
including the effect of the interest rate swap. At December 31, 2016, our borrowings outstanding under the credit facility totaled $68.0 million
and carried a weighted average interest rate of 2.5%, including the effect of the interest rate swap described below. The outstanding
borrowings at December 31, 2016 were fully hedged against changes in interest rates by our interest rate swap, which had 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 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-month LIBOR and we pay to the counterparty a fixed rate of 1.900%.
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, the outstanding principal amount of the
promissory note was $4.9 million and carried an interest rate of 3.2%. A hypothetical 100 basis point change in this interest rate would have a
de minimis effect on our pretax income.
47
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 bearing convertible debt investment in 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, the fair value of the investment was $39.9 million, with a total cost basis of $27.9
million. At December 31, 2016, the fair value of the investment was $34.7 million, with a total cost basis of $27.9 million.
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.
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
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. Based on this evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of December 31, 2017, 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:
(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, 2017 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.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2017 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.
48
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, 2017 that has materially affected, or is reasonably likely to materially affect, our
internal control over financial reporting.
ITEM 9B. OTHER INFORMATION.
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
Directors, Executive Officers, Promoters and Control Persons
PART III
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, 2018 (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 16(a) Beneficial
Ownership Reporting Compliance.”
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. 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.”
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.”
49
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.
We do not have equity compensation plans that have not been approved by shareholders.
Plan Category
Equity compensation plans approved by shareholders:
2004 Omnibus Stock Plan (1)
2012 Omnibus Incentive Plan (2)
Stock Ownership Participation Program (3)
Equity compensation plans not approved by shareholders
Total
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)
157,680
36,617
$
$
— $
N/A
194,297
$
26.70
39.19
—
N/A
29.06
—
1,273,361
141,153
N/A
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.”
50
PART IV
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.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Other Comprehensive Income
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
Financial Statement Schedules—The financial statement schedules required by this item are included in the Consolidated Financial
Statements and accompanying notes.
Exhibit Index
Exhibit Description
Purchase Agreement, dated as of December 10,
2015, by and among Huron Consulting Group
Inc., Huron Consulting Services LLC, Huron
Consulting Group Holdings LLC, and Consilio,
Inc.
Third Amended and Restated Certificate of
Incorporation of Huron Consulting Group Inc.
Amended and Restated Bylaws of Huron
Consulting Group Inc.
Specimen Stock Certificate.
Indenture (including Form of Note) with respect
to the Company’s 1.25% Convertible Senior
Notes due 2019, dated as of September 10,
2014, between Huron Consulting Group Inc. and
U.S. Bank National Association, as trustee.
Office Lease, dated December 2003, between
Union Tower, LLC and Huron Consulting
Services LLC (formerly known as Huron
Consulting Group LLC).
Amended and Restated Huron Consulting
Group Inc. 2004 Omnibus Stock Plan.
Huron Consulting Group Inc. Deferred
Compensation Plan as Amended and Restated
effective January 1, 2009.
Senior Management Agreement by and between
Huron Consulting Group Inc. and John D. Kelly.
Amended and Restated Senior Management
Agreement by and between Huron Consulting
Group Inc. and James H. Roth.
Senior Management Agreement by and between
Huron Consulting Group Inc. and C. Mark
Hussey.
Filed
herewith
Furnished
herewith
Incorporated by Reference
Period
Ending
Form
8-K
Exhibit
2.1
Filing Date
1/7/2016
10-K
12/31/2004
8-K
S-1
(File No. 333-
115434)
8-K
S-1
(File No. 333-
115434)
S-8
3.1
3.1
4.1
2/16/2005
10/28/2015
10/5/2004
4.1
9/16/2014
10.1
10/5/2004
10.1
5/5/2010
10-K
12/31/2008
10.12
2/24/2009
8-K
8-K
8-K
10.1
10.2
1/6/2017
1/6/2017
10.3
1/6/2017
51
2.
3.
Exhibit
Number
2.1
3.1
3.2
4.1
4.2
10.1
10.2*
10.3*
10.4*
10.5*
10.6*
Exhibit
Number
10.7*
10.8
10.9
10.10
10.11
10.12*
10.13
10.14
10.15
10.16
10.17
10.18
10.19
10.20
Exhibit Description
Senior Management Agreement by and between
Huron Consulting Group Inc. and Diane E.
Ratekin.
First Amendment to Lease by and between
Huron Consulting Services LLC and Union
Tower, LLC, dated August 23, 2004.
Second Amendment to Lease by and between
Huron Consulting Services LLC and Union
Tower, LLC, dated March 14, 2007.
Third Amendment to Lease by and between
Huron Consulting Services LLC and Union
Tower, LLC, dated April 2, 2010.
Fourth Amendment to Lease by and between
Huron Consulting Services LLC and Union
Tower, LLC, dated December 31, 2012.
Form of the Huron Consulting Group Inc. 2012
Omnibus Incentive Plan Restricted Stock
Agreement.
Purchase Agreement, dated as of September 4,
2014, between Huron Consulting Group Inc. and
Merrill Lynch, Pierce, Fenner & Smith
Incorporated and J.P. Morgan Securities LLC,
as Representatives of the several Initial
Purchasers.
Base Convertible Bond Hedge Transaction
Confirmation, dated as of September 4, 2014,
by and between Huron Consulting Group Inc.
and Bank of America, N.A.
Base Convertible Bond Hedge Transaction
Confirmation, dated as of September 4, 2014,
by and between Huron Consulting Group Inc.
and J.P. Morgan Securities LLC, as an agent for
JPMorgan Chase Bank, National Association,
London Branch.
Base Issuer Warrant Transaction Confirmation,
dated as of September 4, 2014, by and between
Huron Consulting Group Inc. and Bank of
America, N.A.
Base Issuer Warrant Transaction Confirmation,
dated as of September 4, 2014, by and between
Huron Consulting Group Inc. and J.P. Morgan
Securities LLC, as an agent for JPMorgan
Chase Bank, National Association, London
Branch.
Additional Convertible Bond Hedge Transaction
Confirmation, dated as of September 10, 2014,
by and between Huron Consulting Group Inc.
and Bank of America, N.A.
Additional Convertible Bond Hedge Transaction
Confirmation, dated as of September 10, 2014,
by and between Huron Consulting Group Inc.
and J.P. Morgan Securities LLC, as an agent for
JPMorgan Chase Bank, National Association,
London Branch.
Additional Issuer Warrant Transaction
Confirmation, dated as of September 10, 2014,
by and between Huron Consulting Group Inc.
and Bank of America, N.A.
Filed
herewith
Furnished
herewith
Incorporated by Reference
Period
Ending
Form
8-K
Exhibit
10.4
Filing Date
1/6/2017
10-K
12/31/2012
10.17
2/21/2013
10-K
12/31/2012
10.18
2/21/2013
10-K
12/31/2012
10.19
2/21/2013
8-K
10.1
1/4/2013
10-K
12/31/2012
10.20
2/21/2013
10.1
9/5/2014
10.2
9/5/2014
10.3
9/5/2014
10.4
9/5/2014
10.5
9/5/2014
10.1
9/16/2014
10.2
9/16/2014
10.3
9/16/2014
8-K
8-K
8-K
8-K
8-K
8-K
8-K
8-K
52
Exhibit
Number
10.21
10.22*
10.23*
10.24*
10.25*
10.26
10.27
10.28
10.29*
10.30*
10.31
10.32
Exhibit Description
Additional Issuer Warrant Transaction
Confirmation, dated as of September 10, 2014,
by and between Huron Consulting Group Inc.
and J.P. Morgan Securities LLC, as an agent for
JPMorgan Chase Bank, National Association,
London Branch.
Form of the Huron Consulting Group Inc. 2012
Omnibus Incentive Plan Restricted Stock
Agreement (Stock Ownership Participation
Program).
Form of the Huron Consulting Group Inc. 2012
Omnibus Incentive Plan Performance Stock Unit
Agreement.
Form of the Huron Consulting Group Inc. 2012
Omnibus Incentive Plan Stock Option
Agreement.
Form of the Huron Consulting Group Inc. 2012
Omnibus Incentive Plan NEO Performance
Stock Unit Agreement.
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.
Second Amended and Restated Security
Agreement, dated as of March 31, 2015.
Second Amended and Restated Pledge
Agreement, dated as of March 31, 2015.
Huron Consulting Group Inc. Stock Ownership
Participation Program.
Huron Consulting Group Inc. 2012 Omnibus
Incentive Plan, as amended and restated
effective May 1, 2017.
Amendment No. 1 of the Second Amended and
Restated Credit Agreement, dated as of
February 28, 2017, 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.
Amendment No. 2 of the Second Amended and
Restated Credit Agreement, dated as of October
24, 2017, 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.
Filed
herewith
Furnished
herewith
Incorporated by Reference
Period
Ending
Form
8-K
Exhibit
10.4
Filing Date
9/16/2014
10-K
12/31/2014
10.31
2/24/2015
10-K
12/31/2014
10.32
2/24/2015
10-K
12/31/2014
10.33
2/24/2015
10-K
12/31/2014
10.34
2/24/2015
8-K
10.1
4/2/2015
8-K
8-K
DEF 14A
DEF 14A
10.2
10.3
4/2/2015
4/2/2015
Appendix A
3/20/2015
Appendix A
3/27/2017
8-K
10.1
3/6/2017
10-Q
9/30/2017
10.1
11/1/2017
21.1
23.1
List of Subsidiaries of Huron Consulting Group
Inc.
Consent of PricewaterhouseCoopers LLP.
X
X
53
Exhibit
Number
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
Exhibit Description
Certification of the Chief Executive Officer,
pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Financial Officer,
pursuant to Rule 13a-14(a)/15d-14(a), as
adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
Certification of the Chief Executive Officer,
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
Certification of the Chief Financial Officer,
pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
XBRL Instance Document.
XBRL Taxonomy Extension Schema Document.
XBRL Taxonomy Extension Calculation
Linkbase Document.
XBRL Taxonomy Extension Label Linkbase
Document.
XBRL Taxonomy Extension Presentation
Linkbase Document.
XBRL Taxonomy Extension Definition Linkbase
Document.
Incorporated by Reference
Furnished
herewith
Form
Period
Ending
Exhibit
Filing Date
Filed
herewith
X
X
X
X
X
X
X
X
X
X
*
Indicates the exhibit is a management contract or compensatory plan or arrangement.
ITEM 16.
FORM 10-K SUMMARY
Not applicable.
54
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.
SIGNATURES
Huron Consulting Group Inc.
(Registrant)
Signature
/s/ James H. Roth
James H. Roth
President, Chief Executive Officer and Director
Title
Date
2/28/2018
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, 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
/s/ JAMES H. ROTH
James H. Roth
Title
President, Chief Executive Officer and Director
(Principal Executive Officer)
/s/ JOHN F. MCCARTNEY
Non-Executive Chairman of the Board
John F. McCartney
/s/ GEORGE E. MASSARO
Vice Chairman of the Board
George E. Massaro
/s/ JOHN D. KELLY
John D. Kelly
/s/ JAMES D. EDWARDS
James D. Edwards
/s/ H. EUGENE LOCKHART
H. Eugene Lockhart
/s/ JOHN S. MOODY
John S. Moody
/s/ HUGH E. SAWYER
Hugh E. Sawyer
/s/ DEBRA ZUMWALT
Debra Zumwalt
Executive Vice President, Chief Financial Officer and
Treasurer (Principal Financial and Accounting Officer)
Director
Director
Director
Director
Director
55
Date
2/28/2018
2/28/2018
2/28/2018
2/28/2018
2/28/2018
2/28/2018
2/28/2018
2/28/2018
2/28/2018
HURON CONSULTING GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2017 and 2016
Consolidated Statements of Operations and Other Comprehensive Income for the years ended December 31, 2017, 2016, and 2015
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2017, 2016, and 2015
Consolidated Statements of Cash Flows for the years ended December 31, 2017, 2016, and 2015
Notes to Consolidated Financial Statements
Page
F-2
F-3
F-4
F-5
F-6
F-7
F-1
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 as of December 31, 2017 and
2016, and the related consolidated statement 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, 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, 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, 2017 and December 31, 2016, and the results of their operations and their cash flows for each of the three years in the period
ended December 31, 2017 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, 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'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") 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.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 28, 2018
We have served as the Company's auditor since 2002.
F-2
HURON CONSULTING GROUP INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
Assets
Current assets:
Cash and cash equivalents
Receivables from clients, net
Unbilled services, net
Income tax receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Deferred income taxes, net
Long-term investment
Other non-current assets
Intangible assets, net
Goodwill
Total assets
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable
Accrued expenses and other current liabilities
Accrued payroll and related benefits
Accrued contingent consideration for business acquisitions
Deferred revenues
Total current liabilities
Non-current liabilities:
Deferred compensation and other liabilities
Accrued contingent consideration for business acquisitions, net of current portion
Long-term debt, net of current portion
Deferred lease incentives
Deferred income taxes, net
Total non-current liabilities
Commitments and contingencies
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
Treasury stock, at cost, 2,443,577 and 2,408,343 shares at December 31, 2017 and December 31, 2016,
respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2017
December 31,
2016
$
$
$
$
$
$
$
16,909
101,778
57,618
4,039
10,951
191,295
45,541
16,752
39,904
25,375
72,311
645,750
1,036,928
9,194
20,144
73,698
8,515
27,916
139,467
20,895
14,313
342,507
15,333
1,097
394,145
17,027
94,246
51,290
4,211
13,308
180,082
32,434
—
34,675
24,814
81,348
799,862
1,153,215
7,273
19,788
82,669
1,985
24,053
135,768
24,171
6,842
292,065
10,703
35,633
369,414
241
235
(121,994)
434,256
180,443
10,370
503,316
1,036,928
$
(113,195)
405,895
351,483
3,615
648,033
1,153,215
The accompanying notes are an integral part of the consolidated financial statements.
F-3
HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
Revenues and reimbursable expenses:
Revenues
Reimbursable expenses
Total revenues and reimbursable expenses
Direct costs and reimbursable expenses (exclusive of depreciation and amortization
shown in operating expenses):
Direct costs
Amortization of intangible assets and software development costs
Reimbursable expenses
Total direct costs and reimbursable expenses
Operating expenses and other losses (gains), net:
Selling, general and administrative expenses
Restructuring charges
Litigation and other losses (gains), net
Depreciation and amortization
Goodwill impairment charges
Total operating expenses and other losses (gains), net
Operating income (loss)
Other income (expense), net:
Interest expense, net of interest income
Other income (expense), net
Total other expense, net
Income (loss) from continuing operations before taxes
Income tax expense (benefit)
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Net earnings (loss) per basic share:
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Net earnings (loss) per diluted share:
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Weighted average shares used in calculating earnings per share:
Basic
Diluted
Comprehensive income (loss):
Net income (loss)
Foreign currency translation adjustments, net of tax
Unrealized gain (loss) on investment, net of tax
Unrealized gain (loss) on cash flow hedging instruments, net of tax
Other comprehensive income
Comprehensive income (loss)
Year Ended December 31,
2016
2015
2017
$
$
732,570
75,175
807,745
$
726,272
71,712
797,984
454,806
10,932
75,436
541,174
175,364
6,246
1,111
38,213
253,093
474,027
(207,456)
(18,613)
3,565
(15,048)
(222,504)
(51,999)
(170,505)
388
(170,117) $
(7.95) $
0.02
(7.93) $
(7.95) $
0.02
(7.93) $
21,439
21,439
(170,117) $
1,602
4,724
429
6,755
(163,362) $
$
$
$
$
$
$
$
437,556
15,140
71,749
524,445
160,204
9,592
(1,990)
31,499
—
199,305
74,234
(16,274)
1,197
(15,077)
59,157
19,677
39,480
(1,863)
37,617
1.87
(0.09)
1.78
1.84
(0.08)
1.76
21,084
21,424
37,617
64
(97)
63
30
37,647
$
$
$
$
$
$
$
699,010
70,013
769,023
401,915
16,788
69,932
488,635
157,902
3,329
(9,476)
25,135
—
176,890
103,498
(18,136)
(1,797)
(19,933)
83,565
21,670
61,895
(2,843)
59,052
2.80
(0.13)
2.67
2.74
(0.13)
2.61
22,136
22,600
59,052
1,817
4,435
(12)
6,240
65,292
The accompanying notes are an integral part of the consolidated financial statements.
F-4
HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
Common Stock
Treasury Stock
Shares
Amount
Shares
Amount
Additional
Paid-In
Capital
Retained
Earnings
Accumulated
Other
Comprehensive
Income (Loss)
Stockholders'
Equity
Balance at December 31, 2014
24,115,593
$
241
(2,109,316) $ (94,074) $ 442,308
$ 254,814
$
(2,655) $
600,634
Comprehensive income
Issuance of common stock in
connection with:
Restricted stock awards, net of
cancellations
Business acquisition
Share-based compensation
Shares redeemed for employee tax
withholdings
Income tax benefit on share-based
compensation
Share repurchases
59,052
6,240
65,292
504,955
28,486
5
—
(42,797)
(2,506)
(109,967)
(7,154)
(583,880)
(5)
2,501
2,204
22,484
3,456
(34,586)
—
2,204
22,484
(7,154)
3,456
(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
Issuance of common stock in
connection with:
Restricted stock awards, net of
cancellations
Exercise of stock options
Share-based compensation
Shares redeemed for employee tax
withholdings
Income tax benefit on share-based
compensation
Share repurchases
37,617
30
37,647
390,348
4,706
4
—
(70,419)
(4,508)
(88,414)
(4,953)
(982,192)
(10)
4,504
123
17,929
227
(55,255)
—
123
17,929
(4,953)
227
(55,265)
Balance at December 31, 2016
23,478,016
$
235
(2,420,913) $ (113,195) $ 405,895
$ 351,483
$
3,615
$
648,033
Comprehensive income
Issuance of common stock in
connection with:
Restricted stock awards, net of
cancellations
Business acquisition
Share-based compensation
Shares redeemed for employee tax
withholdings
Cumulative-effect adjustment from
adoption of ASU 2016-09
Cumulative-effect adjustment from
adoption of ASU 2018-02
(170,117)
6,755
(163,362)
399,248
221,558
4
2
(58,211)
(3,953)
(112,011)
(4,846)
3,949
9,558
14,419
435
(435)
(488)
—
9,560
14,419
(4,846)
—
(488)
Balance at December 31, 2017
24,098,822
$
241
(2,591,135) $ (121,994) $ 434,256
$ 180,443
$
10,370
$
503,316
The accompanying notes are an integral part of the consolidated financial statements.
F-5
HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation and amortization
Share-based compensation
Amortization of debt discount and issuance costs
Goodwill impairment charge
Allowances for doubtful accounts and unbilled services
Deferred income taxes
(Gain) loss on sale of businesses
Change in fair value of contingent consideration liabilities
Changes in operating assets and liabilities, net of acquisitions and divestitures:
(Increase) decrease in receivables from clients
(Increase) decrease in unbilled services
(Increase) decrease in current income tax receivable / payable, net
(Increase) decrease in other assets
Increase (decrease) in accounts payable and accrued liabilities
Increase (decrease) in accrued payroll and related benefits
Increase (decrease) in deferred revenues
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment, net
Investment in life insurance policies
Distributions from life insurance policies
Purchases of businesses, net of cash acquired
Purchases of convertible debt investment
Capitalization of internally developed software
Proceeds from note receivable
Proceeds from sale of businesses, net of cash sold
Net cash used in investing activities
Cash flows from financing activities:
Proceeds from exercises of stock options
Shares redeemed for employee tax withholdings
Share repurchases
Proceeds from borrowings under credit facility
Repayments of debt
Payments for debt issuance costs
Payments for capital lease obligations
Deferred acquisition payments
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of the period
Cash and cash equivalents at end of the period
Supplemental disclosure of cash flow information:
Non-cash investing and financing activities:
Property and equipment expenditures included in accounts payable and accrued expenses
Promissory note assumed for purchase of property and equipment
Contingent consideration related to business acquisitions
Common stock issued related to business acquisitions
Cash paid during the year for:
Interest
Income taxes
Year Ended December 31,
2016
2015
2017
$
(170,117) $
37,617
$
59,052
50,089
14,838
10,203
253,093
3,217
(53,753)
(931)
1,111
1,650
(4,332)
210
(366)
3,732
(10,966)
2,117
99,795
(24,402)
(1,826)
2,889
(106,915)
—
(1,370)
1,177
1,499
(128,948)
—
(4,846)
—
277,500
(240,745)
(408)
—
(2,680)
28,821
214
(118)
17,027
16,909
1,567
5,113
15,489
9,560
9,068
5,399
$
$
$
$
$
$
$
$
$
$
$
$
$
$
46,816
16,577
9,609
—
4,250
1,189
—
(1,990)
1,440
2,443
(4,410)
11,904
(3,144)
3,044
3,898
129,243
(13,936)
(2,035)
—
(69,133)
—
(1,086)
—
(446)
(86,636)
123
(4,953)
(55,265)
200,000
(224,000)
—
—
—
(84,095)
78
(41,410)
58,437
17,027
$
4,461
8,754
$
— $
$
— $
58,053
21,487
9,329
—
1,025
6,353
2,303
(1,126)
(2,836)
31,696
8,818
(14,742)
8,805
(25,221)
4,859
167,855
(18,571)
(5,804)
—
(339,966)
(15,438)
(866)
—
108,487
(272,158)
—
(7,154)
(34,591)
314,000
(365,750)
—
(48)
—
(93,543)
(589)
(198,435)
256,872
58,437
2,089
—
2,963
2,204
6,470
24,584
$
$
9,274
10,955
The accompanying notes are an integral part of the consolidated financial statements.
F-6
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 committed to achieving 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 in the healthcare, higher
education, life sciences and commercial sectors.
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, 2017 and 2016, and the results of
operations and cash flows for the years ended December 31, 2017, 2016, and 2015.
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 second 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, we identified an error on our previously reported consolidated balance sheets as of June 30, 2017 and
September 30, 2017 related to the classification of 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 jurisdictions as of June 30, 2017 and September 30,
2017. This error has been corrected as of December 31, 2017. This error had no impact on our statement of operations, and we 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.
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 majority of our revenues from providing professional services under
four types of billing arrangements: fixed-fee (including software license revenue), 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 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
F-7
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 orders purchased by our clients outside of Partner Contracts within our Studer Group solution. We recognize revenues under
time-and-expense arrangements as the related services or publications are provided.
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
revenues under performance-based billing arrangements until all related performance criteria are met.
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-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 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 equivalent amount of reimbursable expenses are included in total direct costs and reimbursable expenses.
Reimbursable expenses are primarily recognized as revenue 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.
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. Client prepayments and retainers are classified as deferred revenues and recognized over future periods as earned in
accordance with the applicable engagement agreement.
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, as well as 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.
F-8
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 18 “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.
Long-term Investment
Our long-term investment consists of our convertible debt investment in Shorelight Holdings, LLC. We classified the investment 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 related to
significant credit deterioration or if it is likely we will sell the security before the recovery of its cost basis. We have not identified any other
than temporary impairments for our convertible debt investment. In the event there are realized gains and losses or declines in value judged
to be other than temporary, we will record the amount in earnings. See Note 12 “Fair Value of Financial Instruments” for further information on
our convertible debt investment.
Fair Value of Financial Instruments
See Note 12 “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.
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 development costs related to our software products that will be sold, leased, or otherwise
marketed. We expense these software development costs 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 classify capitalized software development costs as other non-current assets on our consolidated balance sheet. Unamortized capitalized
software development costs were $2.0 million and $1.4 million at December 31, 2017 and 2016, respectively. During the years ended
December 31, 2017, 2016, and 2015, we amortized $0.8 million, $1.1 million, and $1.0 million, respectively, of capitalized software
development costs.
F-9
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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 account
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 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 for the Healthcare and Enterprise Solutions and Analytics reporting units in 2017,
which resulted in non-cash goodwill impairment charges, we performed impairment tests on the long-lived assets allocated to the asset
groups within the Healthcare 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. No impairment charges for long-lived assets were recorded in
2017, 2016, or 2015.
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. 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. We have six reporting units: Healthcare, Education, Business
Advisory, Enterprise Solutions and Analytics, Strategy and Innovation, and Life Sciences. The Business Advisory, Enterprise Solutions and
Analytics, Strategy and Innovation, and Life Sciences reporting units make up our Business Advisory operating 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, we performed three goodwill impairment tests: an interim impairment test on our Healthcare reporting unit in the second quarter of
2017; an interim impairment test on our Education and Life Sciences reporting units as a result of our segment reorganization in the second
quarter of 2017; and the annual impairment test on all reporting units in the fourth quarter of 2017. As a result of these tests, we recorded
total non-cash pretax goodwill impairment charges of $253.1 million. No goodwill impairment charges were recorded in 2016 or 2015. See
Note 5 "Goodwill and Intangible Assets" for additional information regarding our interim and annual goodwill impairment tests, and the non-
cash goodwill impairment charges recorded in 2017.
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. 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 12 “Fair Value of Financial
Instruments” for further 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.
F-10
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. 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 16 "Income Taxes" for 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.
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, and 2015
totaled $6.6 million, $7.1 million, and $6.4 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.
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
income in our statement of earnings. 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 statement of earnings. We recognized $0.4 million of
foreign currency transaction gains in 2017, de minimis foreign currency transaction gains in 2016, and $1.6 million of foreign currency
transaction losses in 2015.
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. Our chief operating decision maker manages
the business under three operating segments, which are 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
F-11
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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.
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 enactment 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 expense in our consolidated statements of operations on a
prospective basis. We recognized $1.8 million of net excess tax deficiencies as income tax expense in our consolidated statement of
operations for the year ended December 31, 2017. Additionally, upon adoption, we began classifying excess tax benefits as an operating
activity on the statement of cash flows on a retrospective basis. As a result, we reclassified $0.9 million and $3.6 million of excess tax benefits
for the years ended December 31, 2016 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 closely related to the debt host, an entity is
required to perform only the four-step decision sequence 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, Derivatives 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 activities in its financial statements and improve the disclosures 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
F-12
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.
F-13
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
Reimbursable expenses
Total revenues and reimbursable expenses
Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating
expenses):
Direct costs
Amortization of intangible assets and software development costs
Reimbursable expenses
Total direct costs and reimbursable expenses
Operating expenses and other operating gain:
Selling, general and administrative expenses
Restructuring charges (1)
Other gain
Depreciation and amortization
Total operating expenses and other operating gain
Operating income
Other expense, net
Income from discontinued operations before taxes
Loss on disposal
Total loss from discontinued operations before taxes
Income tax benefit (2)
Net loss from discontinued operations
$
$
139,430
3,148
142,578
95,247
233
3,153
98,633
20,640
13,341
(900)
9,605
42,686
1,259
(13)
1,246
(2,303)
(1,057)
1,786
(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.
F-14
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.
Depreciation and amortization
Share-based compensation
Purchases of property and equipment
Significant non-cash investing items of discontinued operations:
Contingent consideration related to a business acquisition
Year Ended
December 31, 2015
$
$
$
$
15,974
2,215
6,234
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 Strategies and Pope Woodhead 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.
F-15
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
Common stock
Contingent consideration liability
Net working capital adjustment
Total consideration transferred
$
$
90,725
9,560
12,050
1,272
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.
Assets acquired:
Accounts receivable
Unbilled services
Prepaid expenses and other current assets
Property and equipment
Intangible assets
Liabilities assumed:
Accounts payable
Accrued expenses and other current liabilities
Accrued payroll and related benefits
Deferred revenues
Total identifiable net assets
Goodwill
Total purchase price
March 1, 2017
7,752
1,881
468
419
18,015
531
894
883
30
26,197
87,410
113,607
$
$
F-16
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.
Customer relationships
Trade name
Customer contracts
Non-compete agreements
Favorable lease contract
Total intangible assets subject to amortization
Fair Value
9,500
6,000
1,000
1,300
215
18,015
$
$
Useful Life in
Years
6
6
1
5
1
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. 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.
Revenues
Net income (loss) from continuing operations
Net income (loss) from continuing operations per share - basic
Net income (loss) from continuing operations per share - diluted
Year Ended
December 31,
2017
2016
$
$
$
$
741,695
$
(167,346) $
(7.79) $
(7.79) $
769,114
42,760
2.01
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 had we completed the acquisition on
January 1, 2016. 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 application 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
F-17
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 Healthcare segment from the date of acquisition.
The acquisitions of MyRounding, ADI Strategies, and HSM Consulting are not significant to our consolidated financial statements individually
or in the aggregate as of and for the twelve months ended December 31, 2016.
2015
Studer Holdings, Inc.
On February 12, 2015, 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 firm 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
Common stock
Net working capital adjustment
Total consideration transferred
$
$
323,237
2,204
(255)
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.
F-18
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 price to
the fair value of assets acquired and liabilities assumed as of the acquisition date.
February 12, 2015
Assets acquired:
Accounts receivable
Prepaid expenses and other current assets
Deferred income tax asset
Property and equipment
Intangible assets
Liabilities assumed:
Accounts payable
Accrued expenses and other current liabilities
Accrued payroll and related benefits
Deferred revenues
Deferred income tax liability
Other non-current liabilities
Total identifiable net assets
Goodwill
Total purchase price
$
$
14,906
1,385
4,335
4,509
97,500
760
2,868
1,574
2,449
21,263
1,211
92,510
232,676
325,186
The following table sets forth the components of identifiable intangible assets acquired and their estimated useful lives as of the acquisition
date.
Customer relationships
Customer contracts
Trade name
Technology and software
Publishing content
Total intangible assets subject to amortization
Fair Value
Useful Life in
Years
9
4
5
3
3
42,400
25,100
22,800
3,900
3,300
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. In connection with the acquisition of Studer Group, we incurred $2.1 million of transaction and acquisition-related expenses, $0.9
million of which were incurred 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.
F-19
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 combined on January 1, 2014.
Revenues
Net income from continuing operations
Net income from continuing operations per share - basic
Net income from continuing operations per share - diluted
Year Ended
December 31, 2015
$
$
$
$
709,813
63,600
2.87
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 results of operations actually would have been had we completed the acquisition on January 1, 2014. 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 were not significant to our consolidated financial statements individually
or in the aggregate as of and for the twelve months ended December 31, 2015.
F-20
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
5. 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, 2017 and
2016.
Balance as of December 31, 2015:
Goodwill
Accumulated impairment losses
Goodwill, net as of December 31, 2015
Goodwill recorded in connection with business combinations (1)
Foreign currency translation
Balance as of December 31, 2016:
Goodwill
Accumulated impairment losses
Goodwill, net as of December 31, 2016
Goodwill recorded in connection with business combinations (1)
Goodwill impairment charge
Goodwill reallocation (2)
Goodwill allocated to disposal of business (3)
Foreign currency translation
Balance as of December 31, 2017:
Goodwill
Accumulated impairment losses
Goodwill, net as of December 31, 2017:
Healthcare
Education
Business
Advisory
Total
$
$
$
$
$
$
$
$
610,264
—
610,264
26,538
—
102,906
—
102,906
—
—
636,802
102,906
—
$
636,802
8
(208,081)
—
—
—
—
102,906
10,252
—
(10,794)
—
465
$
$
$
181,213
(142,983)
38,230
21,824
100
203,137
(142,983)
60,154
88,183
(45,012)
10,794
(568)
641
894,383
(142,983)
751,400
48,362
100
942,845
(142,983)
799,862
98,443
(253,093)
—
(568)
1,106
636,810
(208,081)
102,829
—
302,187
(187,995)
1,041,826
(396,076)
$
428,729
$
102,829
$
114,192
$
645,750
(1)
(2)
(3)
Refer to Note 4 "Acquisitions" for additional information on the goodwill recorded in connection with business combinations.
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.
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
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 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
F-21
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.
2017 Annual Goodwill Impairment Test
Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2017 for 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 its
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
F-22
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 Analytics 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 were not impaired as of November 30, 2017.
Further, we evaluated whether any events have occurred or any circumstances have changed since November 30, 2017 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, 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.
Intangible Assets
Intangible assets as of December 31, 2017 and 2016 consisted of the following:
As of December 31,
2017
2016
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
106,195
29,016
25,154
9,340
5,163
3,300
720
—
178,888
$
$
51,588
18,915
24,751
5,098
2,637
3,163
425
—
106,577
$
$
89,279
22,930
26,497
8,970
3,685
3,300
720
370
155,751
$
$
34,827
11,652
21,295
2,667
1,697
2,062
203
—
74,403
Useful Life
in Years
4 to 13
2 to 6
1 to 4
3 to 5
3 to 5
3
3
Indefinite
$
$
Customer relationships
Trade names
Customer contracts
Technology and software
Non-competition agreements
Publishing content
Favorable lease contract
In-process technology
Total
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.
F-23
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Intangible assets amortization expense was $35.0 million, $33.1 million, and $28.7 million for the years ended December 31, 2017, 2016, and
2015, 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.
Year Ending December 31,
Estimated
Amortization Expense
2018
2019
2020
2021
2022
$
$
$
$
$
23,936
17,279
12,116
8,070
6,092
Actual future amortization expense could differ from these estimated amounts as a result of future acquisitions, dispositions, and other
factors.
6. Property and Equipment, Net
Depreciation expense for property and equipment was $13.3 million, $12.5 million, and $12.3 million for the years ended December 31, 2017,
2016, and 2015, respectively. Property and equipment, net at December 31, 2017 and 2016 consisted of the following:
Computers, related equipment, and software
Leasehold improvements
Furniture and fixtures
Aircraft
Assets under construction
Property and equipment
Accumulated depreciation and amortization
Property and equipment, net
As of December 31,
2017
2016
$
$
46,216
45,244
16,434
7,541
250
115,685
(70,144)
45,541
$
$
48,607
38,502
12,545
—
294
99,948
(67,514)
32,434
F-24
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
7. Financing Arrangements
A summary of the carrying amounts of our debt follows:
1.25% convertible senior notes due 2019
Senior secured credit facility
Promissory note due 2024
Total long-term debt
Current maturities of debt (1)
Long-term debt, net of current portion
As of December 31,
2017
2016
233,140
105,000
4,868
343,008
(501)
342,507
$
$
$
224,065
68,000
—
292,065
—
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 is a summary of the scheduled remaining principal payments of our debt as of December 31, 2017.
2018
2019
2020
2021
2022
Thereafter
Convertible Notes
Principal Payments of
Long-Term Debt
$
$
$
$
$
$
501
250,515
105,529
544
559
2,221
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:
F-25
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
•
•
•
during any calendar quarter (and only during such calendar quarter) commencing after December 31, 2014 if, for each of at least
20 trading days (whether or not consecutive) during the 30 consecutive trading day period ending on, and including, 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, assuming our non-
convertible debt borrowing rate. 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 an effective interest rate of 4.751% over the term of the Convertible Notes. As of
December 31, 2017, the remaining life of the Convertible Notes is 1.8 years. The equity component will not be remeasured as long as it
continues to meet the conditions for equity classification.
The transaction costs 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 recorded 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:
Liability component:
Proceeds
Less: debt discount, net of amortization
Less: debt issuance costs, net of amortization
Net carrying amount
Equity component (1)
As of December 31,
2017
2016
$
$
$
250,000
(14,668)
(2,192)
233,140
39,287
$
$
$
250,000
(22,520)
(3,415)
224,065
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.
Contractual interest coupon
Amortization of debt discount
Amortization of debt issuance costs
Total interest expense
Year Ended December 31,
2016
2015
2017
$
$
3,125
7,851
1,224
12,200
$
$
3,125
7,488
1,201
11,814
$
$
3,125
7,141
1,180
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
F-26
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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 purposes of the computation 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 from 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 part of the terms of the Convertible Notes or
the convertible note hedge transactions.
The Company recorded an initial deferred tax liability of $15.4 million in connection with the debt discount associated with the Convertible
Notes and recorded an initial deferred tax asset 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.
Senior Secured Credit Facility
The Company has a $500 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 Credit Facility"), that becomes
due and payable in full upon maturity on March 31, 2020. 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 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 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% per annum and 2.00% per annum, in the case of
LIBOR borrowings, or between 0.25% per annum and 1.00% per annum, in the case of base rate loans, based upon our Consolidated
Leverage Ratio at such time.
Amounts borrowed under the Amended Credit Agreement may be prepaid at any time without premium or penalty. We are required to prepay
the amounts outstanding under the Amended Credit Agreement in certain circumstances, including 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). 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
F-27
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 3.25 to 1.00 to 3.75 to 1.00,
depending on the measurement period, 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,
non-cash restructuring charges, and pro forma historical EBITDA for businesses acquired. At December 31, 2017, we were in compliance
with these financial covenants with a Consolidated Leverage Ratio of 3.02 to 1.00 and a Consolidated Interest Coverage Ratio of 12.43 to
1.00.
Borrowings outstanding under the Amended Credit Agreement at December 31, 2017 totaled $105.0 million. These borrowings carried a
weighted average interest rate of 3.7%, including the impact of the interest rate swap described in Note 11 “Derivative Instruments and
Hedging Activity" that was in effect at December 31, 2017. 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 that was in effect
at 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, we had outstanding letters of credit totaling $1.9 million, which
are primarily used as security deposits for our office facilities. As of December 31, 2017, the unused borrowing capacity under the revolving
credit facility was $393.1 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-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, the outstanding principal amount of the promissory note was $4.9 million. As of December 31, 2017, the aircraft had a
carrying amount of $6.5 million.
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, 2017 and 2016, 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
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.
F-28
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
9. 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:
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Weighted average common shares outstanding—basic
Weighted average common stock equivalents
Weighted average common shares outstanding—diluted
Net earnings (loss) per basic share:
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Net earnings (loss) per diluted share:
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Year Ended December 31,
2016
2015
2017
$
$
$
$
$
$
(170,505) $
388
(170,117) $
21,439
—
21,439
(7.95) $
0.02
(7.93) $
(7.95) $
0.02
(7.93) $
39,480
(1,863)
37,617
21,084
340
21,424
1.87
(0.09)
1.78
1.84
(0.08)
1.76
$
$
$
$
$
$
61,895
(2,843)
59,052
22,136
464
22,600
2.80
(0.13)
2.67
2.74
(0.13)
2.61
The number of anti-dilutive securities excluded from the computation of the weighted average common stock equivalents presented above
were as follows:
Unvested restricted stock awards
Outstanding common stock options
Convertible senior notes
Warrants related to the issuance of convertible senior notes
Total anti-dilutive securities
As of December 31,
2016
2017
2015
636
194
3,129
3,129
7,088
2
—
3,129
3,129
6,260
21
—
3,129
3,129
6,279
See Note 7 “Financing Arrangements” for further information on the convertible senior notes and warrants related to the issuance of
convertible notes.
We currently have a share repurchase program permitting us to repurchase up to $125 million of our common stock through October 31,
2018 (the "Share Repurchase Program"). The amount and timing of the repurchases will be determined by management and will depend on
a variety of factors, including the trading price of our common stock, capacity under our credit facility, general market and business
conditions, and applicable legal requirements. No shares were repurchased under this program in 2017. In 2016, we repurchased and retired
982,192 shares for $55.3 million, and in 2015, we repurchased and retired 583,880 shares for $34.6 million. As of December 31, 2017, $35.1
million remains available for share repurchases.
F-29
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
10. Restructuring Charges
In 2017, we incurred $6.2 million of pretax restructuring expense. This expense primarily consisted of the following charges:
Severance - We incurred $3.7 million of severance expense as a result of workforce reductions to better align resources with market demand.
Of the $3.7 million, $2.1 million related to our Healthcare segment, $1.1 million related to our Business Advisory segment, and $0.4 million
related to our corporate operations.
Office exit costs - We incurred $2.4 million of office exit costs primarily related to 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 for our San Francisco office.
Of the $6.2 million pretax restructuring charge, $2.1 million was related to our Healthcare segment, $1.1 million was related to our Business
Advisory segment, and $2.9 million was related to our corporate operations.
In 2016, we incurred $9.6 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.
F-30
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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, 2017 and 2016.
Employee Costs
Office Space
Reductions
Other
Total
Balance as of December 31, 2015
$
2,323
$
6,379
$
— $
Additions (1)
Payments
Adjustments (1)
Non-cash items
Balance as of December 31, 2016
Additions (1)
Payments
Adjustments (1)
Non-cash items
9,082
(5,906)
(317)
—
5,182
3,859
(7,611)
(117)
(46)
57
(2,424)
1,765
(4)
5,773
2,426
(2,860)
(973)
(119)
585
(482)
245
(324)
24
110
5
(78)
(61)
Balance as of December 31, 2017
$
1,267
$
4,247
$
— $
8,702
9,724
(8,812)
1,693
(328)
10,979
6,395
(10,466)
(1,168)
(226)
5,514
(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, our restructuring charge liability related to office space reductions of $4.2 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. This restructuring charge liability is included as a component of accrued expenses and other current liabilities and
deferred compensation and other liabilities. All of the $1.3 million restructuring charge liability related to employee costs at December 31,
2017 is expected to be paid in 2018. The restructuring charge liability related to employee costs is included as a component of accrued
payroll and related benefits.
11. 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-month LIBOR and we pay to the counterparty a fixed rate of 1.900%.
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, it was anticipated that less than $0.1 million of the accumulated other comprehensive income,
net of tax, currently recorded on our consolidated balance sheet will be reclassified into earnings within the next 12 months.
F-31
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, 2017 and 2016.
Balance Sheet Location
Other non-current assets
Accrued expenses
Fair Value (Derivative Asset and Liability)
As of December 31,
2017
2016
$
$
581
48
$
$
—
54
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 13 “Other Comprehensive Income (Loss)” for
additional information on our derivative instrument.
F-32
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
12. 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 table 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, 2017 and 2016.
Level 1
Level 2
Level 3
Total
December 31, 2017
Assets:
Interest rate swaps
Promissory note
Convertible debt investment
Deferred compensation assets
Total assets
Liabilities:
Contingent consideration for business acquisitions
Total liabilities
December 31, 2016
Assets:
Promissory note
Convertible debt investment
Deferred compensation assets
Total assets
Liabilities:
Interest rate swaps
Contingent consideration for business acquisitions
Total liabilities
$
$
$
$
$
$
$
$
— $
533
$
— $
—
—
—
— $
— $
— $
— $
—
—
— $
— $
—
— $
—
—
17,786
18,319
$
— $
— $
— $
—
16,408
16,408
54
—
54
$
$
$
1,078
39,904
—
40,982
22,828
22,828
$
$
$
2,325
$
34,675
—
37,000
$
— $
8,827
8,827
$
533
1,078
39,904
17,786
59,301
22,828
22,828
2,325
34,675
16,408
53,408
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 swaps utilizing market-based inputs and discount
rates reflecting the risks involved.
Promissory note: As part of the consideration received for the sale of 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
F-33
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.
The table below sets forth the changes in the balance of the promissory note for the years ended December 31, 2017 and 2016.
Balance as of December 31, 2015
Interest payments received
Change in fair value of promissory note
Balance as of December 31, 2016
Interest payments received
Principal payments received
Change in fair value of promissory note
Balance as of December 31, 2017
Promissory Note
2,309
(191)
207
2,325
(185)
(1,177)
115
1,078
$
$
Convertible debt investment: In 2014 and 2015, we invested $27.9 million, in the form of zero coupon convertible debt, 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. The notes will mature on July 1, 2020, unless converted earlier.
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 estimated the fair value of our investment using a Monte Carlo simulation model, cash flow projections discounted at a risk-
adjusted rate, and certain assumptions related to equity volatility, default probability, and recovery rate, 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.
The table below sets forth the changes in the balance of the convertible debt investment for the years ended December 31, 2017 and 2016.
Balance as of December 31, 2015
Change in fair value of convertible debt investment
Balance as of December 31, 2016
Change in fair value of convertible debt investment
Balance as of December 31, 2017
Convertible Debt Investment
$
$
34,831
(156)
34,675
5,229
39,904
Deferred compensation assets: We have a non-qualified deferred compensation plan (the "Plan") for the members of our board of directors
and a select group of our employees. The deferred compensation liability is 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
F-34
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
consolidated balance sheet. 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 achieved 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 discount rates, which typically reflect a risk-
free rate. 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 in 2017, 2016, and
2015.
The table below sets forth the changes in the balance of the contingent consideration for business acquisitions for the years ended
December 31, 2017 and 2016.
Balance as of December 31, 2015
Acquisitions
Remeasurement of contingent consideration for business acquisitions
Balance as of December 31, 2016
Acquisitions
Payments
Remeasurement of contingent consideration for business acquisitions
Unrealized loss due to foreign currency translation
Balance as of December 31, 2017
Financial assets and liabilities not recorded at fair value are as follows:
Senior Secured Credit Facility
Contingent Consideration for
Business Acquisitions
$
$
2,063
8,754
(1,990)
8,827
15,489
(2,938)
1,111
339
22,828
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 amount 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 Notes 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
F-35
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.
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. 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, and 2015.
Foreign
Currency
Translation
Available-for-
Sale
Investments
Cash Flow
Hedges (1)
Total
Balance as of December 31, 2014
$
(2,334) $
(250) $
(71) $
Foreign currency translation adjustment, net of tax of $0
Reclassification adjustment into earnings, net of tax of $0 (2)
Unrealized gain on investments, net of tax of $(2,709)
Unrealized gain (loss) on cash flow hedges:
Change in fair value, net of tax of $327
Reclassification adjustment into earnings, net of tax of $(320)
Balance as of December 31, 2015
Foreign currency translation adjustment, net of tax of $0
Unrealized loss on investments, net of tax of $59
Unrealized gain (loss) on cash flow hedges:
Change in fair value, net of tax of $122
Reclassification adjustment into earnings, net of tax of $(161)
Balance as of December 31, 2016
Foreign currency translation adjustment, net of tax of $0
Unrealized gain on investments:
Change in fair value, net of tax of $(998)
Reclassification adjustment into retained earnings (3)
Unrealized gain (loss) on cash flow hedges:
Change in fair value, net of tax of $(106)
Reclassification adjustment into earnings, net of tax of $(46)
Reclassification adjustment into retained earnings (3)
(403)
2,220
—
—
—
(517)
64
—
—
—
(453)
1,602
—
—
—
—
—
—
—
4,435
—
—
4,185
—
(97)
—
—
4,088
—
4,231
493
—
—
—
—
—
—
(492)
480
(83)
—
—
(179)
242
(20)
—
—
—
366
69
(6)
(2,655)
(403)
2,220
4,435
(492)
480
3,585
64
(97)
(179)
242
3,615
1,602
4,231
493
366
69
(6)
Balance as of December 31, 2017
$
1,149
$
8,812
$
409
$
10,370
(1)
(2)
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.
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.
F-36
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. 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 contributions 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. Our matching contributions, including those
related to our discontinued operations, for the years ended December 31, 2017, 2016, and 2015 were $20.0 million, $19.4 million, and $17.6
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.
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, 2017 and 2016 was $17.7 million and $16.4 million,
respectively. This deferred compensation liability is funded by the Plan assets.
15. 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 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, 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. The 2012 Plan was
amended on May 2, 2014 to increase the number of shares authorized for issuance by 850,000 shares. On May 5, 2017, an amendment and
restatement of the 2012 Plan was approved by shareholders to increase the number of shares authorized for issuance by 804,000 shares. As
of December 31, 2017, approximately 1.3 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. The initial number of shares available for issuance under the SOPP was 300,000. Prior to
adopting 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 0.1 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.
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, and 2015 was $14.8 million, $16.6 million,
and $19.2 million, respectively, with related income tax benefits of $5.8 million, $6.4 million, and $7.6 million, respectively. As of
F-37
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
December 31, 2017, there was $17.6 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 2.2 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.
The table below summarizes the restricted stock activity for the year ended December 31, 2017.
Number of Shares
Stock Ownership
Participation
Program
2012 Omnibus
Incentive Plan
Total
Nonvested restricted stock at December 31, 2016
Granted
Vested
Forfeited
Nonvested restricted stock at December 31, 2017
610
270
(247)
(72)
561
12
14
(9)
(4)
13
Weighted
Average
Grant Date
Fair Value
(in dollars)
622
284
$
$
(256) $
(76) $
574
$
59.77
42.11
57.80
59.18
51.97
The aggregate fair value of restricted stock that vested during the years ended December 31, 2017, 2016, and 2015 was $11.1 million, $14.9
million, and $23.9 million, respectively. The weighted average grant date fair value per share of restricted stock granted during 2016 and
2015 was $56.28 and $66.21, 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 these awards is contingent upon meeting practice specific and Company-wide
performance goals. Following the performance period, the awards are subject to the completion of a service period, which is generally an
additional one to three years. The 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. All nonvested performance-based
stock outstanding at December 31, 2016 and 2017 was granted under the 2012 Omnibus Incentive Plan.
Nonvested performance-based stock at December 31, 2016
Granted (1)
Vested
Forfeited (2)
Nonvested performance-based stock at December 31, 2017 (3)
Weighted
Average
Grant Date
Fair Value
(in dollars)
Number of
Shares
$
239
328
$
(85) $
(129) $
$
353
58.47
42.75
61.66
54.85
44.45
(1)
(2)
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.
Forfeited shares include shares forfeited as a result of not meeting the performance criteria of the award as well as shares
forfeited upon termination.
F-38
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 of stock options are equal to the fair value of a share of common stock on the date of grant. Subject to
acceleration under certain conditions, our stock options vest annually over four years. All stock options have a 10-year contractual term.
Stock option activity for the year ended December 31, 2017 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, 2016
194
$
29.06
4.3
$
4.2
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2017 (1)
Exercisable at December 31, 2017
—
—
—
194
194
$
$
29.06
29.06
3.3
3.3
$
$
2.2
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 options were exercised in 2017. The aggregate intrinsic value of options exercised during 2016 was $0.1 million. No options were
exercised in 2015.
F-39
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
16. Income Taxes
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 as of and 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 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.
The income tax expense for continuing operations for the years ended December 31, 2017, 2016, and 2015 consists of the following:
Current:
Federal
State
Foreign
Total current
Deferred:
Federal
State
Foreign
Total deferred
Income tax expense for continuing operations
Year Ended December 31,
2016
2015
2017
$
$
(635) $
545
2,040
1,950
(46,103)
(6,576)
(1,270)
(53,949)
(51,999) $
15,726
1,623
1,021
18,370
1,662
(274)
(81)
1,307
19,677
$
$
4,806
2,380
350
7,536
12,450
1,482
202
14,134
21,670
The components of income from continuing operations before taxes were as follows:
U.S.
Foreign
Total
2017
Year Ended December 31,
2016
2015
$
$
(221,137) $
(1,367)
(222,504) $
56,141
3,016
59,157
$
$
85,164
(1,599)
83,565
F-40
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:
Percent of pretax income from continuing operations:
At U.S. statutory tax rate
State income taxes, net of federal benefit
Goodwill impairment charges
U.S. federal rate change
Transition tax on accumulated foreign earnings, net of credits
Stock-based compensation
Meals and entertainment
Valuation allowance
Foreign source income
Tax credits / Section 199 Deduction
Net tax benefit related to “check-the-box” election (1)
Other
Effective income tax rate for continuing operations
Year Ended December 31,
2016
2015
2017
35.0%
2.7
(10.2)
(3.4)
(0.3)
(0.8)
(0.3)
(0.2)
0.1
0.2
1.2
(0.6)
23.4%
35.0%
1.7
—
—
—
—
1.1
(3.2)
(0.5)
(1.1)
—
0.3
33.3%
35.0%
4.6
—
—
—
—
0.6
0.5
0.5
(1.0)
(14.7)
0.4
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.
F-41
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The net deferred tax liabilities for continuing operations at December 31, 2017 and 2016 consisted of the following:
Deferred tax assets:
Share-based compensation
Accrued payroll and other liabilities
Intangibles and goodwill
Deferred lease incentives
Convertible note hedge transactions
Revenue recognition
Restructuring charge liability
Net operating loss carry-forwards
Tax credits
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Prepaid expenses
Property and equipment
Intangibles and goodwill
Convertible note discount
Convertible debt investment
Other
Total deferred tax liabilities
Net deferred tax asset (liability) for continuing operations
As of December 31,
2017
2016
5,674
7,010
2,137
4,352
250
1,586
1,104
495
1,918
882
25,408
(1,247)
24,161
(1,229)
(4,031)
—
(3)
(3,110)
(133)
(8,506)
15,655
$
$
10,151
10,004
—
4,666
12,197
1,983
2,230
92
1,804
1,934
45,061
(626)
44,435
(2,500)
(2,933)
(60,411)
(11,586)
(2,600)
(38)
(80,068)
(35,633)
$
$
As of December 31, 2017 and 2016, we had valuation allowances of $1.2 million and $0.6 million, respectively, primarily due to uncertainties
relating to the ability to utilize deferred tax assets recorded for foreign losses. The increase in valuation allowances in 2017 primarily related
to increases of net operating losses in jurisdictions where the net operating loss credits cannot be benefited and valuation allowances
recorded on certain tax credits.
We have federal and state tax credit carry-forwards of $1.9 million which 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.
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:
Balance at January 1, 2015
Additions based on tax positions related to the current year
Balance at December 31, 2015
Additions based on tax positions related to the current year
Balance at December 31, 2016
Decrease due to lapse of statute of limitations
Decrease based on tax positions related to the prior year
Balance at December 31, 2017
F-42
Unrecognized Tax Benefits
2,488
735
3,223
117
3,340
(2,410)
(117)
813
$
$
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, 2017 and 2016, we had $0.1 million and $0.3 million 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.
We file income tax returns with federal, state, local and foreign jurisdictions. Tax years 2013 through 2016 are subject to future examinations
by federal tax authorities. Tax years 2010 through 2016 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 2010 through 2016.
17. Commitments, Contingencies and Guarantees
Lease Commitments
We lease office space under non-cancelable operating lease arrangements expiring on various dates through 2028, 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 monthly
payments of real estate taxes, insurance and other operating expenses applicable to the property. Some of the 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, are
as follows:
2018
2019
2020
2021
2022
Thereafter
Total
Litigation
Operating
Lease
Obligations
Sublease
Income
$
$
14,739
13,444
12,266
11,298
10,409
37,804
99,960
$
$
1,316
291
—
—
—
—
1,607
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 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 million and $4.8 million were outstanding at December 31, 2017 and 2016,
respectively, primarily to support certain office lease obligations.
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 and 2016,
the total estimated fair value of our contingent consideration liabilities was $22.8 million and $8.8 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.
F-43
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
18. 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 three 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.
•
Healthcare
Our Healthcare segment has a depth of expertise in strategy and innovation, care transformation, financial and operational
excellence, technology and analytics, and leadership development. We serve national and regional hospitals and integrated health
systems, academic medical centers, community hospitals, and medical groups. Our solutions help clients evolve and adapt to the
rapidly changing healthcare environment and achieve growth, optimize performance, enhance profitability, improve quality and
clinical outcomes, and drive physician, patient, and employee engagement across the enterprise.
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 large and middle market, 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 from
healthy, well-capitalized companies to organizations in transition as well as creditors, equity owners, and other key constituents.
Our Business Advisory professionals resolve complex business issues and enhance client enterprise value through a suite of
services including capital advisory, transaction advisory, operational improvement, restructuring and turnaround, valuation, and
dispute advisory. Our Enterprise Solutions and Analytics professionals deliver technology and analytic solutions that enable
organizations to manage and optimize their financial performance, operational efficiency, and client or stakeholder experience. Our
Strategy and Innovation professionals collaborate with clients across a range of industries to identify new growth opportunities,
build new ventures and capabilities, and accelerate organizational change. Our Life Sciences professionals provide strategic
solutions to help pharmaceutical, medical device, and biotechnology companies deliver more value to patients, payers, and
providers, and comply with regulations.
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
F-44
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
include costs for corporate office support, office facility costs, costs relating 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.
The tables below set forth information about our operating segments for the years ended December 31, 2017, 2016, and 2015, 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 our international operations are immaterial.
Healthcare:
Revenues
Operating income
Segment operating income as a percentage of segment revenues
Education:
Revenues
Operating income
Segment operating income as a percentage of segment revenues
Business Advisory:
Revenues
Operating income
Segment operating income as a percentage of segment revenues
All Other: (1)
Revenues
Operating loss
Segment operating loss as a percentage of segment revenues
Total Company:
Revenues
Reimbursable expenses
Total revenues and reimbursable expenses
Segment operating income
Items not allocated at the segment level:
Other operating expenses
Litigation and other losses (gains), net
Depreciation and amortization
Goodwill impairment charges (2)
Other expense, net
$
$
$
$
$
$
$
$
$
$
$
Year Ended December 31,
2016
2015
2017
356,909
118,761
33.3%
167,908
40,318
24.0%
207,753
46,600
$
$
$
$
$
$
424,912
147,903
34.8%
149,817
38,310
25.6%
151,543
29,382
$
$
$
$
$
$
446,887
169,560
37.9%
134,009
32,246
24.1%
116,892
31,233
22.4%
19.4%
26.7%
— $
— $
N/A
— $
— $
N/A
1,222
(1,718)
N/M
732,570
75,175
807,745
205,679
120,718
1,111
38,213
253,093
15,048
$
$
$
726,272
71,712
797,984
215,595
$
$
$
699,010
70,013
769,023
231,321
111,852
112,164
(1,990)
31,499
—
15,077
59,157
$
(9,476)
25,135
—
19,933
83,565
Income (loss) from continuing operations before taxes
$
(222,504)
$
(1)
(2)
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.
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
F-45
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Segment Assets:
Healthcare
Education
Business Advisory
Unallocated assets (1)
Total assets
As of December 31,
2016
2017
2015
$
70,097
31,367
58,217
877,247
$ 1,036,928
$
69,274
33,094
43,151
1,007,696
$ 1,153,215
$
84,088
28,192
29,609
1,017,654
$ 1,159,543
(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.
For the years ended December 31, 2017, 2016, and 2015, substantially all of our revenues and long-lived assets were attributed to or located
in the United States.
At December 31, 2017 and 2016, no single client accounted for greater than 10% of our combined receivables and unbilled services
balances. During the years ended December 31, 2017, 2016, and 2015, no single client generated greater than 10% of our consolidated
revenues.
19. 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, and 2015.
Year ended December 31, 2015:
Allowances for doubtful accounts and unbilled services
Valuation allowance for deferred tax assets
Year ended December 31, 2016:
Allowances for doubtful accounts and unbilled services
Valuation allowance for deferred tax assets
Year ended December 31, 2017:
Allowances for doubtful accounts and unbilled services
Valuation allowance for deferred tax assets
Beginning
balance
Additions (1)
Deductions
Ending
balance
$
$
$
$
$
$
14,129
2,431
16,886
2,242
21,259
626
40,003
1,212
48,901
113
43,888
793
37,246
1,401
44,528
1,729
40,648
172
$
$
$
$
$
$
16,886
2,242
21,259
626
24,499
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.
F-46
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
20. Selected Quarterly Financial Data (Unaudited)
2017
Revenues
Reimbursable expenses
Total revenues and reimbursable expenses
Gross profit
Operating income (loss)
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Net earnings (loss) per basic share:
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Net earnings (loss) per diluted share:
Net income (loss) from continuing operations
Income (loss) from discontinued operations, net of tax
Net income (loss)
Weighted average shares used in calculating earnings per share:
Basic
Diluted
2016
Revenues
Reimbursable expenses
Total revenues and reimbursable expenses
Gross profit
Operating income
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Net earnings per basic share:
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Net earnings per diluted share:
Net income from continuing operations
Income (loss) from discontinued operations, net of tax
Net income
Weighted average shares used in calculating earnings per share:
Basic
Diluted
$
$
$
$
$
$
$
$
$
$
Mar. 31
Jun. 30
Sep. 30
Dec. 31
Quarter Ended
188,849
16,950
205,799
70,203
14,149
5,155
143
5,298
0.24
0.01
0.25
0.24
0.01
0.25
$
$
$
$
$
$
181,418
20,930
202,348
64,981
(200,575)
(150,482)
309
(150,173)
(7.00) $
0.01
(6.99) $
(7.00) $
0.01
(6.99) $
176,376
17,982
194,358
59,847
6,098
4,132
238
4,370
0.19
0.01
0.20
0.19
0.01
0.20
$
$
$
$
$
185,927
19,313
205,240
71,540
(27,128)
(29,310)
(302)
(29,612)
(1.36)
(0.02)
(1.38)
(1.36)
(0.02)
(1.38)
21,239
21,474
21,492
21,492
21,505
21,622
21,515
21,515
Quarter Ended
Mar. 31
Jun. 30
Sep. 30
Dec. 31
180,489
16,561
197,050
65,180
14,376
6,866
(864)
6,002
0.33
(0.05)
0.28
0.32
(0.04)
0.28
$
$
$
$
$
184,259
18,982
203,241
77,138
28,209
16,139
(970)
15,169
0.77
(0.05)
0.72
0.76
(0.05)
0.71
$
$
$
$
$
183,400
19,093
202,493
71,131
23,240
12,288
4
12,292
0.58
—
0.58
0.57
—
0.57
$
$
$
$
$
178,124
17,076
195,200
60,090
8,409
4,187
(33)
4,154
0.20
—
0.20
0.19
—
0.19
21,114
21,460
21,061
21,376
21,076
21,445
21,083
21,473
F-47
LIST OF SUBSIDIARIES OF HURON CONSULTING GROUP INC.
(as of December 31, 2017)
EXHIBIT 21.1
Name
Huron Consulting Group Holdings LLC
Huron Consulting Services LLC
Huron Consulting South East Asia PTE. LTD.
Huron Solutions FZ-LLC
Huron Consulting Saudi Limited
Huron Saudi Limited
Huron Management Services LLC
Huron Demand LLC
Conseillers Huron Canada Limitée
Huron Technologies Inc.
Huron Transaction Advisory LLC
Studer Holdings, Inc.
The Studer Group, LLC
Huron Eurasia India Private Limited
Pope Woodhead and Associates
Innosight Holdings, LLC
Innosight International, LLC
Innosight Consulting Asia Pacific PTE. LTD.
Innosight Consulting SARL
Innosight Consulting, LLC
Huron Aviation One LLC
Huron Aviation Two LLC
Jurisdiction of Organization
Delaware
Delaware
Singapore
United Arab Emirates—Dubai
Saudi Arabia
Saudi Arabia
Delaware
Delaware
Canada
Delaware
Delaware
Delaware
Florida
India
England and Wales
Delaware
Delaware
Singapore
Switzerland
Delaware
Delaware
Delaware
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23.1
We hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-119697, 333-137107,
333-166542, 333-181445, 333-196397, 333-204353, and 333-218108) of Huron Consulting Group Inc. of our report dated February 28, 2018
relating to the financial statements and the effectiveness of internal control over financial reporting, which appears in this Form 10-K.
/s/ PricewaterhouseCoopers LLP
Chicago, IL
February 28, 2018
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER,
PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.1
I, James H. Roth, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Huron Consulting Group Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
February 28, 2018
By:
/S/ JAMES H. ROTH
James H. Roth
President and Chief Executive Officer
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER,
PURSUANT TO RULE 13a-14(a)/15d-14(a), AS ADOPTED PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 31.2
I, John D. Kelly, certify that:
1.
I have reviewed this Annual Report on Form 10-K of Huron Consulting Group Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the
period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to
us by others within those entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, 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;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s
most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is
reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s Board of Directors (or persons performing the equivalent
functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are
reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date:
February 28, 2018
By:
/S/ JOHN D. KELLY
John D. Kelly
Executive Vice President,
Chief Financial Officer and Treasurer
CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER,
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report of Huron Consulting Group Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, James H. Roth, President
and Chief Executive Officer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company for the periods presented therein.
Date:
February 28, 2018
By:
/S/ JAMES H. ROTH
James H. Roth
President and Chief Executive Officer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been
provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon
request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-K and shall
not be considered filed as part of the Form 10-K.
CERTIFICATION OF THE CHIEF FINANCIAL OFFICER,
PURSUANT TO 18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report of Huron Consulting Group Inc. (the “Company”) on Form 10-K for the year ended
December 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, John D. Kelly, Executive Vice
President, Chief Financial Officer and Treasurer of the Company, hereby certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, that:
1. The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2. The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company for the periods presented therein.
Date:
February 28, 2018
By:
/S/ JOHN D. KELLY
John D. Kelly
Executive Vice President,
Chief Financial Officer and Treasurer
A signed original of this written statement required by Section 906, or other document authenticating, acknowledging, or otherwise
adopting the signature that appears in typed form within the electronic version of this written statement required by Section 906, has been
provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon
request.
The foregoing certification is being furnished to the Securities and Exchange Commission as an exhibit to the Form 10-K and shall
not be considered filed as part of the Form 10-K.
Company Information
Corporate Office
Huron Consulting Group Inc.
550 W. Van Buren Street
Chicago, IL 60607
312-583-8700
www.huronconsultinggroup.com
Media Contact
Sarah K. McHugh
Director, External Communications
312-880-2624
smchugh@huronconsultinggroup.com
Investor Relations
John D. Kelly
Executive Vice President,
Chief Financial Officer
and Treasurer
312-583-8722
investor@huronconsultinggroup.com
Corporate Secretary
Diane E. Ratekin
Executive Vice President,
General Counsel and
Corporate Secretary
312-880-3131
corporatesecretary@
huronconsultinggroup.com
Transfer Agent
Computershare
P.O. BOX 505000
Louisville, KY 40233-5000
312-588-4990
www.computershare.com/investor
Stock Market Information
Common Stock is traded on
the NASDAQ Global Select Market
under the symbol HURN
Independent Accountants
PricewaterhouseCoopers LLP
One North Wacker Drive
Chicago, IL 60606
Annual Meeting of Stockholders
11:00 a.m. CDT, Friday, May 4, 2018
Huron Consulting Group Inc.
550 W. Van Buren Street, Suite 1700
Chicago, IL 60607
Stock Performance
Huron Consulting Group Inc.
The NASDAQ Composite Index
Peer Group Index
$300
$250
$200
$150
$100
$50
$0
2012
2013
2014
2015
2016
2017
Value of Investment
Huron Consulting Group Inc.
$100.00
$186.02
$203.00
$176.31
$150.34
$120.07
20%
2012
2013
2014
2015
2016
2017 % Return
The NASDAQ Composite Index
$100.00
$138.32
$156.85
$165.84
$178.28
$228.63
129%
Peer Group Index
$100.00
$140.94
$145.29
$142.87
$180.20
$186.31
86%
The above graph and table compare the cumulative
total shareholder return on our common stock
from December 31, 2012 through December 31,
2017, against the cumulative total shareholder
return of the NASDAQ Composite Index and the
stocks making up an industry peer group. The peer
group is comprised of the following companies:
CRA International, Inc., FTI Consulting, Inc., ICF
International, Inc., Korn/Ferry International, Navigant
Consulting, Inc., and Resources Connection, Inc.
The graph and table assume a $100 investment
in Huron Consulting Group Inc. common stock,
The NASDAQ Composite Index, and an index
of our peer group on December 31, 2012, and
any dividends are assumed to be reinvested.
Form 10-K
Huron Consulting Group Inc. will provide to any
investor, without charge, a copy of its annual
report (which includes the Company’s Annual
Report on Form 10-K as filed with the United
States Securities and Exchange Commission).
Copies of all the exhibits as filed with the
Securities and Exchange Commission will also be
provided without charge upon specific request.
Requests can be made via the Company’s
website at www.huronconsultinggroup.com.
Forward-Looking Statements
Statements in this Annual Report that are not historical
in nature, including those concerning the Company’s
current expectations about its future requirements
and needs, 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,”
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: 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 Factors” in our
Annual Report on Form 10-K for the year ended
December 31, 2017, 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.
LinkedIn.com/company/HuronConsulting
Facebook.com/HuronConsulting
Twitter.com/Huron
1-866-229-8700
huronconsultinggroup.com
© 2018 Huron Consulting Group Inc. and affiliates. All rights reserved. Huron is a management consulting firm and not a CPA firm, and does not
provide attest services, audits, or other engagements in accordance with standards established by the AICPA or auditing standards promulgated
by the Public Company Accounting Oversight Board (“PCAOB”). Huron is not a law firm; it does not offer, and is not authorized to provide, legal
advice or counseling in any jurisdiction.