T
R
O
P
E
R
L
A
U
N
N
A
I
I
I
2
0
2
0
A
N
N
U
A
L
R
E
P
O
R
T
H
U
R
O
N
A LET TER FROM THE CHIEF EXECUTIVE OFFICER
Among the hallmarks of a successful
company are the existence of a highly
talented team, a continued focus on
innovation and a strong collaborative
culture. When those attributes are present,
the odds of successfully navigating
challenging times increases dramatically.
2020 was one of those years where those
attributes were critical, and Huron’s
collective strengths helped the company
navigate a difficult and tumultuous year.
V
I
T
R
O
P
E
R
L
A
U
N
N
A
0
2
0
2
N
O
R
U
H
Navigating Disruption
Supporting Our People
In 2020, we remained focused on executing our
vision of empowering our clients, our people and the
communities we serve to help them own their future
and enable them to be successful in an increasingly
challenging social and economic environment.
Supporting Our Clients
Our teams continued to support our clients as they
simultaneously addressed current challenges,
many of which were exacerbated by the pandemic,
while also looking forward and preparing for
an uncertain future. We were agile and acted
quickly, introducing creative and innovative
solutions to support our clients as they respond
to and recover from the global pandemic.
Throughout the year, we helped hospitals and health
systems increase bed capacity to serve COVID-19
patients, and we created free resources for use by
any organization to identify and apply for stimulus
funding and benefits. Our efforts also helped safely
bring patients, students and employees back to
hospitals, school and work. With more work to be
done to recover from the pandemic, we continue to
work side by side with our clients and communities
to help prepare them for a sustainable future.
The health and safety of our people and clients
is our top priority. This priority has been and will
continue to be steadfast long after the pandemic
is over.
In early March, our team effectively transitioned to a
remote work environment. The seamless transition
confirmed the strong operational, financial and
cultural foundation we built over the last several
years, enabling our business and people to weather
the challenges brought on by the pandemic.
We know the toll of the pandemic on our people has
been significant. We made every effort to ensure our
people had the proper tools to successfully work
from home, including providing additional financial,
health and childcare benefits to all team members.
We also further invested in our collaborative culture,
which continues to be a primary component of our
competitive advantage.
In 2020, we reinforced our commitment to investing
in our people and our communities by ensuring
we have an inviting, equitable and inclusive work
environment. We also reaffirmed our commitment
to diversity, equity and inclusion by establishing
an action plan that builds on our strong foundation
of fighting racism and inequality. Through our
action plan, we will continue to foster an inclusive
culture that encourages diversity, advances diverse
representation across all levels of the organization
and expands our community outreach and support.
We were agile and acted
quickly, introducing creative
and innovative solutions to
support our clients as they
respond to and recover from
the global pandemic.”
Supporting Our Communities
With the impacts of the pandemic being deep
and widespread, our team quickly adapted our
approach to community outreach. Through Huron
Helping Hands, our companywide philanthropic
program, our team found ways to continue
to give back to the communities in which we
live and work. Beyond financial donations, we
also donated meals to frontline workers and
collaborated to make masks to protect individuals
against COVID-19. Masks were distributed
to both our employees as well as to nonprofit
organizations in the communities we serve.
I am incredibly proud of how all 3,800 members of
our Huron team have supported one another and
our clients under such difficult circumstances.
Challenges Create
Opportunities
Companywide revenues declined 4% in 2020
compared to 2019, reflecting the challenges
that the pandemic presented to our two largest
industry verticals: healthcare and education.
Our strategic focus on expanding our offerings
in commercial markets and the progress we
made in recent years proved to be beneficial in
2020, highlighting the benefits of the increased
diversification in our portfolio. The success of
our growing focus on commercial markets was
reflected in our Business Advisory segment,
which performed strongly during the year and
now represents 32% of total company revenues.
V
2
0
2
0
A
N
N
U
A
L
R
E
P
O
R
T
H
U
R
O
N
James H. Roth
CHIEF EXECUTIVE OFFICER
I
V
T
R
O
P
E
R
L
A
U
N
N
A
0
2
0
2
N
O
R
U
H
Healthcare segment revenues in 2020 declined
done to drive operational efficiencies, better
12% over 2019. With the ongoing health crisis, our
engage with their customers and make better
hospital and health system clients faced significant
data-driven decisions. Our services focusing on
disruption in their business. As a post-COVID-19
strategy and innovation, business operations,
environment comes into focus, our healthcare
and digital transformation and analytics enable
clients are increasingly responding to evolving care
us to help our clients achieve the transformation
delivery models and technological advancements
they need to successfully achieve their strategic,
that are rapidly changing the healthcare industry.
financial and operational objectives.
Dramatic increases in telehealth and the use
of clinical analytics are necessitating changes
Education segment revenues were generally
in our clients’ business models. Huron’s deep
flat in 2020 compared to 2019, following five
industry expertise and portfolio of capabilities
straight years of solid growth. There is an
are well-suited to meet these needs, including
increasing recognition among our clients that
transforming care delivery, achieving supply
the longer-term business of higher education
chain efficiency, leveraging technology across
will not resemble historical norms, necessitating
clinical and administrative settings, and
a new strategic and operational vision that
applying intelligent automation and analytics.
accommodates what is likely to be substantial
changes in demand for traditional academic
The Business Advisory segment achieved revenue
offerings. With our deep industry knowledge and
growth of 6% in 2020 over 2019, driven by strong
breadth of capabilities, we are uniquely positioned
growth in our digital, technology and analytics
to help our higher education clients address
and distressed advisory offerings. Nearly every
these increasingly complex issues and help their
company will need to rethink how work gets
organizations achieve a sustainable future.
V
I
I
2
0
2
0
A
N
N
U
A
L
R
E
P
O
R
T
H
U
R
O
N
In summary, our clients are facing significant
We are thrilled to have welcomed the ForceIQ
disruption and mounting financial and operational
team to Huron as we build upon our collective
pressures that we believe will drive strong demand
Salesforce strengths and deepen our healthcare
for our services as the economy stabilizes, and
payor expertise.
we believe we are well-positioned strategically,
financially and operationally to take advantage of
these opportunities as they arise.
Building
Our Business
For The Future
We have also invested in programs, benefits and
resources to help our team grow and thrive while
also fostering our unique culture. To further align
our people within the organization, in 2020, we
established Huron’s leadership principles. At Huron,
leadership starts on day one. With a common
language for understanding what leadership
means within our company and how to incorporate
those principles into each individual’s professional
While we have navigated the near-term disruption,
actions, we are best positioned to further develop
our focus has consistently been on positioning
Huron for the long term. We are committed to
executing on our strategic priorities to drive
shareholder value: achieving sustainable organic
growth, driving margin expansion, strategically
deploying capital and investing in our people.
our leadership culture while strengthening our
ability to achieve our enterprise strategy.
The investments we made in our business in 2020
will help us advance our strategy and strengthen our
competitive advantage, setting a new foundation
for long-term growth. While there remain some
In 2020, we continued to execute on our five-
uncertainties in the near term, we remain confident
year strategy. We prioritized organic and inorganic
in our long-term strategy, our ability to adjust to
investments that will strengthen and expand our
evolving market conditions, and the strength of our
capabilities, including the acquisition of ForceIQ.
mission-driven team and collaborative culture that
sits at the heart of our company.
James H. Roth
CHIEF EXECUTIVE OFFICER
I
I
I
V
T
R
O
P
E
R
L
A
U
N
N
A
0
2
0
2
N
O
R
U
H
Huron’s Leadership Principles
Our Leadership Principles are a living expression of our
culture and growth aspirations and a critical component
to our future success. Most importantly, we believe that
our Leadership Principles put into action every day by each
member of the Huron team will greatly enhance our ability
to achieve our vision of empowering our clients, our people
and the communities we serve to own their future.
Great Leaders...
Know
themselves.
Earn and
foster trust.
Are curious
and have a
growth mindset.
Are bold and brave
in their thinking
and their actions.
Set clear goals
and achieve them.
Lead like an
entrepreneur.
Spark
positivity.
Know it’s not
about them.
Insist on the
highest standards.
I
I
X
X
2
2
0
0
2
2
0
0
A
A
N
N
N
N
U
U
A
A
L
L
R
R
E
E
P
P
O
O
R
R
T
T
H
H
U
U
R
R
O
O
N
N
Financial and Operating Highlights
Y E A R E N D E D D E C E M B E R 3 1
(In thousands, except for earnings per share)
2016
2017
2018
2019
2020
Revenues (before reimbursable expenses)
$726,272
$732,570
$795,125
$876,757
$844,127
Operating Income
$74,234 $(207,456)
$52,096
$63,706
$(28,852)
Operating Margin(1)
10.2%
-28.3%
6.6%
7.3%
-3.4%
Net Income (Loss) from Continuing Operations
$39,480 $(170,505)
$13,944
$41,979
$(23,718)
Income (Loss) from Discontinued Operations, net of tax
$(1,863)
$388
$(298)
$(236)
$(122)
Net Income (Loss)
$37,617 $(170,117)
$13,646
$41,743
$(23,840)
Diluted Earnings (Loss) Per Share from Continuing Operations
$1.84
$(7.95)
$0.63
$1.87
$(1.08)
Diluted Earnings (Loss) Per Share
$1.76
$(7.93)
$0.62
$1.85
$(1.09)
Return on Assets(2)
3.3%
-15.0%
1.3%
3.8%
-2.1%
Return on Equity(3)
5.9%
-29.7%
2.6%
7.4%
-4.3%
(1) Operating margin is defined as operating income (loss) 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, 2016,
2017, 2018, 2019, and 2020 were $1,148.8 million, $1,130.7 million, $1,045.7 million, $1,104.4 million, and $1,113.6 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, 2016, 2017, 2018 2019, and 2020 were $634.5 million, $571.9 million, $520.0 million, $566.3 million, and $550.6 million, respectively.
Revenues
I N M I L L IO N S
$726.3
$732.6
$795.1
$876.8
$844.1
2016
2017
2018
2019
2020
Note: The financial and operating information presented above is on a continuing operations basis, unless otherwise noted.
X
T
R
O
P
E
R
L
A
U
N
N
A
0
2
0
2
N
O
R
U
H
Board of Directors & Executive Team
B O A R D O F DI R E C T O R S
E X EC U T I V E T E A M
John F. McCartney (1, 3)
Non-Executive Chairman
of the Board
Board of Directors
Datatec Limited
James H. Roth
Chief Executive Officer
Board of Directors
Keypath Education Holdings, LLC
Shorelight Holdings LLC
Lurie Children’s Pediatric
Anesthesia Associates
H. Eugene Lockhart (1, 2, 4)
Chairman
MissionOG LLC
Board of Directors
Metro Bank PLC
Community Choice Financial
Hugh E. Sawyer (1)
Debra L. Zumwalt (2, 3, 4)
Vice President and
General Counsel
Stanford University
Board of Directors
Exponent, Inc.
Board of Trustees
American University of
Afghanistan
Ekta Singh-Bushell (2, 3, 4)
Board of Directors
NET 1 UEPS Technologies, Inc.
Design Brands Inc.
TTEC Holdings, Inc.
DataTec Limited
James H. Roth
Chief Executive Officer
and Director
C. Mark Hussey
President and
Chief Operating Officer
John D. Kelly
Executive Vice President,
Chief Financial Officer
and Treasurer
Ernest W. Torain, Jr.
Executive Vice President,
General Counsel and
Corporate Secretary
Committees: (1) Audit, (2) Compensation, (3) Nominating and Corporate Governance, (4) Technology Committee
Board of Directors and Executive Team as of March 1, 2020.
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, 2020
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
(IRS 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
Trading Symbol
HURN
Name of each exchange on which registered
NASDAQ Global Select Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes x No o
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o No x
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 x No o
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes x No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company,
or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging
growth company" in Rule 12b-2 of the Exchange Act.
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. o
Indicate by check mark whether the registrant has filed a report on and attestation to its management's assessment of the effectiveness of its internal
control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 726(b)) by the registered public accounting firm that
prepared or issued its report. x
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ☐ No x
The aggregate market value of the registrant’s common stock held by non-affiliates as of June 30, 2020 (the last business day of the registrant’s
most recently completed second fiscal quarter) was approximately $992,600,000.
As of February 16, 2021, 22,768,479 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
Documents Incorporated By Reference
Portions of the registrant’s definitive Proxy Statement to be filed with Securities and Exchange Commission within 120 days after the end of its fiscal
year are incorporated by reference into Part III.
HURON CONSULTING GROUP INC.
ANNUAL REPORT ON FORM 10-K
FOR FISCAL YEAR ENDED DECEMBER 31, 2020
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
15
15
15
15
15
17
19
41
42
42
42
43
43
43
43
44
44
45
48
49
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 results, are “forward-looking” statements as defined in Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”) and the Private Securities Litigation Reform Act of 1995. Forward-looking statements are identified by words
such as “may,” “should,” “expects,” “provides,” “anticipates,” “assumes,” “can,” “will,” “meets,” “could,” “likely,” “intends,” “might,” “predicts,”
“seeks,” “would,” “believes,” “estimates,” “plans,” “continues,” “guidance,” or “outlook,” or similar expressions. These forward-looking
statements reflect our current expectations about our future requirements and needs, results, levels of activity, performance, or
achievements. Some of the factors that could cause actual results to differ materially from the forward-looking statements contained herein
include, without limitation: the impact of the COVID-19 pandemic on the economy, our clients and client demand for our services, and our
ability to sell and provide services, including the measures taken by governmental authorities and businesses in response to the pandemic,
which may cause or contribute to other risks and uncertainties that we face; failure to achieve expected utilization rates, billing rates, and the
number of revenue-generating professionals; inability to expand or adjust our service offerings in response to market demands; our
dependence on renewal of client-based services; dependence on new business and retention of current clients and qualified personnel;
failure to maintain third-party provider relationships and strategic alliances; inability to license technology to and from third parties; the
impairment of goodwill; various factors related to income and other taxes; difficulties in successfully integrating the businesses we acquire
and achieving expected benefits from such acquisitions; risks relating to privacy, information security, and related laws and standards; and a
general downturn in market conditions. These forward-looking statements involve known and unknown risks, uncertainties, and other factors,
including, among others, those described under Item 1A. “Risk 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 consultancy that collaborates with clients to drive strategic growth, ignite innovation and navigate constant change. Through
a combination of strategy, expertise and creativity, we help clients accelerate operational, digital and cultural transformation, enabling the
change they need to own their future. By embracing diverse perspectives, encouraging new ideas and challenging the status quo, Huron
creates sustainable results for the organizations it serves.
We are headquartered in Chicago, Illinois, with additional locations in the United States and abroad in Canada, India, Singapore, Switzerland,
and the United Kingdom.
OUR SERVICES
We provide professional services through three operating segments: Healthcare, Business Advisory, and Education, which for the year ended
December 31, 2020, we derived 42%, 32%, and 26% of our consolidated revenues from these operating segments, respectively.
•
Healthcare
Our Healthcare segment serves national and regional hospitals, integrated health systems, academic medical centers, community
hospitals, and medical groups. Our Healthcare professionals have a depth of expertise in business operations, including financial
and operational improvement, care transformation, and revenue cycle managed services; organizational transformation; and digital,
technology and analytic solutions. Most healthcare organizations are focused on changing the way care is delivered; establishing a
sustainable business model centered around optimal cost structures, reimbursement models and financial strategies; and evolving
their digital, technology and analytic capabilities. Our solutions help clients adapt to this rapidly changing healthcare environment to
become a more agile, efficient and consumer-centric organization. We use our deep industry expertise to help clients solve a
diverse set of business issues, including, but not limited to, optimizing financial and operational performance, improving care
delivery and clinical outcomes, increasing physician, patient and employee satisfaction, evolving organizational culture, and
maximizing return on technology investments.
1
•
Business Advisory
Our Business Advisory segment works with C-suite executives, boards, and business unit and functional leadership across a
diverse set of organizations, including healthy, well-capitalized companies to organizations in transition, and across a broad range
of industries, including life sciences, financial services, healthcare, education, energy and utilities, industrials and manufacturing,
and the public sector. Our Business Advisory professionals have deep industry, functional and technical expertise that they put
forward when delivering our digital, technology and analytics, strategy and innovation and corporate finance and restructuring
services. In today’s disruptive environment, organizations must reimagine their historical strategies and financial and operating
models to sustain and advance their competitive advantage. Organizations also recognize the need to adopt technologies,
automation and analytics to improve their operations and compete in a rapidly changing environment. Our experts help
organizations across industries with a variety of business challenges, including, but not limited to, embedding technology and
analytics throughout their internal and customer-facing operations, developing insights into the needs of tomorrow’s customers in
order to evolve their enterprise and business unit strategies, bringing new products to market, and managing through stressed and
distressed situations to create a viable path forward for stakeholders.
•
Education
Our Education segment serves public and private colleges and universities, academic medical centers, research institutes and
other not-for-profit organizations. Our Education professionals have a depth of expertise in strategy and innovation; business
operations, including the research enterprise and student lifecycle; digital, technology and analytic solutions; and organizational
transformation. Our Education segment clients are increasingly faced with financial and/or demographic challenges as well as
increased competition. To remain competitive, organizations must challenge traditional operating and financial models and
reimagine strategic, operational and research-centered opportunities that advance their mission while strengthening their business
models. We collaborate with clients to address these challenges and ensure they have a sustainable future. We combine our deep
industry, functional and technical expertise to help clients solve their most pressing challenges, including, but not limited to,
transforming business operations with technology; strengthening research strategies and support services; evolving their
organizational strategy; optimizing financial and operational performance; and enhancing the student lifecycle.
Huron is an Oracle partner, a Gold-level consulting partner with Salesforce.com and a Premium Partner with Salesforce.org, a Workday
Services and Software Partner, an Amazon Web Services consulting partner, a Silver-level system integrator with Informatica and an SAP
Concur implementation partner.
OUR CLIENTS AND INDUSTRIES
We provide services to both financially sound organizations and organizations in transition across industries, including healthcare, education,
life sciences, financial services, energy and utilities, industrials and manufacturing, public sector and other commercial industries. Our clients
span hospitals, health systems and academic medical centers; colleges, universities and research institutes; banks, asset managers,
insurance companies and private equity firms; pharmaceuticals, biotechnology and medical device companies, oil and gas and utilities
companies, manufacturing organizations and the federal government. In 2020, we served over 1,700 clients.
HUMAN CAPITAL RESOURCES AND MANAGEMENT
Our success depends on our ability to attract, engage, develop and retain highly talented professionals. Our growth strategy depends on
creating a work environment where employees can shape their future and where individuals are rewarded for their own contributions and the
success of our organization. We are focused on advancing every facet of the employee experience, beginning with the recruiting process
through post-employment or retirement. We create a personalized experience for our people and empower them to make a meaningful
impact on our clients, our communities, and one another. We have developed comprehensive programs incorporating learning opportunities,
beginning with the onboarding process and continuing throughout one’s career journey to enable the professional development of our team.
We provide a competitive total rewards package including robust benefits that are tailored to the diverse needs of our employees and are
refreshed regularly to maintain competitiveness. Our total rewards program has continuously helped Huron be recognized as a Best Firm to
Work For by Consulting magazine, including in 2020. In addition to external recognitions, we monitor our human capital resources through
internal metrics. Our leading measure is our quarterly employee engagement score, which was consistently in the low 80s throughout 2020
compared to the Glint Employee Engagement global benchmark of 72. In addition, we review voluntary turnover across a number of key
variables including practice area, performance, geography, and demographics in order to assess the effectiveness of our employee
development and total rewards programs.
Our employee population is divided into two groups: client-serving and support professionals. As of December 31, 2020, we had 3,807 full-
time employees, including 169 client-serving managing directors. Our client-serving employees act 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 revenue streams from existing and new clients. Our managing directors also enhance our market reputation by partnering with
clients as advisors and engagement team leaders. Internally, they create our intellectual capital, develop our people, and are stewards of our
2
culture. Our principals, senior directors, directors, and managers manage day-to-day client relationships, develop our people, nurture our
culture, and oversee the delivery and quality of our work product. Our associates and analysts gather and organize data, conduct detailed
analyses, and prepare presentations that synthesize and distill information to support recommendations we deliver to clients.
Our support professionals include our senior management team as well as those who provide sales support, methodology creation, software
development, and corporate functions consisting of our corporate development, facilities, finance and accounting, human resources,
information technology, legal, and marketing teams. These employees provide strategic direction for the enterprise and support that enables
the success of our businesses and client-serving employees. At December 31, 2020, our support professionals team was led by 30 managing
directors, executives and corporate vice presidents.
In addition to our full-time client-serving employees, we engage temporary employees on an as-needed basis. We primarily use this
contingent workforce to engage talent with specialized skills and/or experience or to expand our capacity to be able to deliver on client
engagements or internal initiatives. We will continue to use temporary employees going forward as a key part of achieving our growth
strategy.
The ability to advance one’s career is critical to our employee retention and engagement. As part of our onboarding process, our employee
experience team facilitates a robust and structured curriculum for newly hired employees to develop and onboard into the company. We
strive to develop world class leaders and are committed to providing programs and opportunities that achieve this goal by focusing on key
leadership attributes at all levels. We also provide a variety of learning opportunities, through online and virtual classroom environments, 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 external learning opportunities that certify their technical skills and
to pursue certain advanced degrees. Employees are matched with internal onboarding stewards, performance coaches, and mentors to
facilitate their growth and network of support.
Our total rewards philosophy focuses on rewarding and retaining our high performing employees. To accomplish this, we offer employees a
competitive base salary, performance incentives, and robust, market-competitive benefits.
Our incentive compensation plan is designed to recognize and reward performance of both the organization and individuals and to ensure we
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. Our board of directors
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, which
enables Huron 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 company-wide financial goals and strategic initiatives.
Managing directors’ individual compensation levels, including base salary and target incentive awards, are set to align with the value of their
expected contributions to the organization, including collaboration across practices. As the key drivers of the organization’s success, their
compensation is designed to include equity awards as a core component. The use of equity is intended to encourage retention, align the
interests of our managing directors with shareholders, and help build wealth over a managing director's career at Huron through annual
grants as well as stock price appreciation.
Our benefit programs are designed to be comprehensive, competitive and personalized to the needs of our employees. We provide
opportunities that allow employees to focus and care for their personal well-being which are aimed at providing tools and resources to focus
on their physical, financial, social, and emotional health given the demanding nature of their work. In addition, our health and welfare plans,
retirement benefits, and stock purchase plan provide a core foundation of security to our employees and their families.
DIVERSITY, EQUITY AND INCLUSION
Huron’s value of inclusion has been embedded across our organization since our founding and is fostered in our work environment every
day. In 2020, we renewed our commitment to holding ourselves accountable by defining a diversity and inclusion action plan to help build a
more equitable society. Through our action plan we will continue to foster an inclusive culture, advance diverse representation across all
levels of the organization, expand our community outreach and support, perform pay equity studies, and strengthen our vendor processes.
CORPORATE RESPONSIBILITY AND SUSTAINABILITY
We are fully committed to our expanded societal role in making a lasting, positive impact on our people, our clients, our communities and the
environment. In 2020, we refocused our corporate social responsibility efforts to align with five of the United Nation’s Sustainable
Development Goals (SDGs): promoting good health and well-being, quality education, gender equality, decent work and economic growth
and climate action. We have and will continue to support these goals through our Huron Helping Hands program, employee resource groups
3
and corporate partnerships. In addition, our focus on these goals carries through in the work we do each day. From healthcare and life
sciences to education and other not-for-profit institutions, we serve clients in industries that have a significant impact on the health, well-
being, and development of our communities.
For additional information on Huron’s commitment to a more sustainable future, refer to our 2020 Corporate Social Responsibility report,
which includes our Sustainability Accounting Standards Board (SASB) index, and is available on the investor relations website which is
located at ir.huronconsultinggroup.com.
BUSINESS DEVELOPMENT AND MARKETING
Our business development and marketing activities are aimed at cultivating relationships, generating leads, and building a strong brand
reputation with health systems, hospitals, 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 sustaining and strengthening our brand reputation, and we emphasize the importance of high-quality client
service to all of our employees.
Currently, we generate new business opportunities through the combination of relationships our managing directors have with individuals
working at our prospective clients and marketing lead generation activities. We also view market-based collaboration between our managing
directors 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.
COMPETITION
The professional services industry is extremely competitive, highly fragmented, and constantly evolving. The industry includes a large number
of participants with a variety of skills and industry expertise, including other strategy, business operations, technology, and financial advisory
consulting firms; general management consulting firms; the consulting practices of major accounting firms; technical and economic advisory
firms; regional and specialty consulting firms; consulting divisions of our technology partners; and the internal professional resources of
organizations. We compete with a large number of service and technology providers in all of our segments. Our competitors vary, depending
on the particular 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, the capacity to manage
engagements effectively to drive high value to clients, and the ability to deliver measurable and sustainable results. There is also competition
on price, although to a lesser extent due to the criticality of the issues that many of our services address. Some competitors have a greater
geographic footprint, broader international presence, and more resources than we do, but we believe our reputation and ability to deliver
high-value, quality service and measurable results to our clients across a balanced portfolio of services and attract and retain employees with
broad capabilities and deep industry expertise enable us to compete favorably in the professional services marketplace.
AVAILABLE INFORMATION
We file annual, quarterly and current reports, proxy statements, and other information with the Securities and Exchange Commission (the
“SEC”). These filings are available on the SEC’s website at http://www.sec.gov.
Our website is located at www.huronconsultinggroup.com, and our investor relations website is located at ir.huronconsultinggroup.com. We
make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 available through our website, free of charge, as
soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.
We provide information about our business and financial performance, including our corporate profile, on the Investor Relations page of our
website. Additionally, we webcast our earnings calls and certain events we participate in with members of the investment community on the
Investor Relations page of our website. Further corporate governance information, including our code of ethics, code of business conduct,
corporate governance guidelines, and board committee charters, is also available on the Investor Relations page of our website. The content
of our websites is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the
SEC, and any references to our websites are intended to be inactive textual references only.
4
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.”
Risks Related to COVID-19
Our results of operations have been adversely affected and, in the future, could be materially adversely impacted by the
coronavirus (COVID-19) pandemic.
The worldwide spread of the COVID-19 pandemic has created significant volatility, uncertainty and disruption to the global economy. The
pandemic is adversely impacting and, in the future, could materially adversely impact our business, operations and financial results. The
extent to which the COVID-19 pandemic impacts our business, operations and financial results will depend on numerous evolving factors that
we may not be able to accurately predict, including:
•
•
•
•
•
•
•
•
•
•
•
the duration of the pandemic;
the effective distribution of vaccines or treatments for COVID-19 and the willingness of the population to take the vaccines;
governmental, business and individuals’ actions that have been and continue to be taken in response to the pandemic, including
quarantines, social distancing and other risk mitigating measures taken to prevent the spread of COVID-19;
the effect on our clients and client demand for our services and solutions, including the impact on the healthcare and higher
education industries which are areas of significant focus for our business;
the health and welfare of our employees, including our senior management team, practice leaders and managing directors, and
their ongoing ability to serve clients and manage operations if they contract COVID-19;
the impact on our key third-party vendors;
the effect on the businesses in which we have invested;
our ability to sell and provide our services and solutions and maintain adequate utilization levels, including as a result of travel
restrictions, shelter-in-place and quarantine orders and people working from home;
the ability of our clients to pay for our services and solutions;
any disruption to the internet and related systems, which may impact our ability to provide our services and solutions remotely, and
increased vulnerability to hackers or third parties seeking to disrupt operations; and
any closures of our clients’ offices and facilities.
Additionally, in some instances, clients have slowed down decision making, delayed planned work or are seeking to reduce the scope of
current engagements or terminate existing agreements, which may continue. Any of these events could cause or contribute to the risks and
uncertainties discussed below and could materially adversely affect our business, financial condition, results of operations and/or stock price.
Risks Related to Human Capital Resources
An inability to retain our senior management team and other managing directors would be detrimental to the success of our
business.
We rely heavily on our senior management team, our practice leaders, and other managing directors; our ability to retain them is particularly
important to our future success. Given the highly specialized nature of our services, the senior management team must have a thorough
understanding of our service offerings as well as the skills and experience necessary to manage an organization consisting of a diverse
group of professionals. In addition, we rely on our senior management team and other managing directors to generate 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. Members of our senior management team and our other managing directors
5
could choose to leave or join 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 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 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.
Risks Related to Business Growth and Development
We may incur costs to support our business and the inability to effectively build a support structure for the business could have an
adverse impact on our growth and profitability.
We have grown significantly since we commenced operations and have increased the number of our full-time professionals from 249 in 2002
to 3,807 as of December 31, 2020. 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 may increase our total costs and may
adversely affect our gross profits and our ability to sustain profitability if we do not generate increased revenues to offset the costs. As a
public company, our information and control systems must enable us to prepare accurate and timely financial information and other required
disclosures. If we discover deficiencies in our existing information and control systems that impede our ability to satisfy our reporting
requirements, we must successfully implement improvements to those systems in an efficient and timely manner.
In the fourth quarter of 2019, we began the implementation of a new enterprise resource planning (“ERP”) system designed to improve the
efficiency of our internal operational, financial and administrative activities. In January 2021, we went live with the new ERP system, and we
continue to progress with additional functionality and integrations. The full implementation of a new ERP system in its entirety, which will take
place over several years, subjects us to inherent costs and risks including substantial capital expenditures, additional administration and
operating expenses, potential disruption of our internal control structure, retention of sufficiently skilled personnel to implement and operate
the new system, demand on management time, and other risks and costs of delays or difficulties in transition. Our system implementation
may not result in productivity improvements at a level that outweighs the costs of implementation, or at all. In addition, the difficulties with
implementing a new ERP system may cause disruptions or have an adverse effect on our business operations, if not anticipated and
appropriately mitigated.
Our international expansion could result in additional risks.
We operate both domestically and internationally, including in Canada, Europe, Asia, and the Middle East. Although historically our
international operations have been limited, we intend to continue to expand internationally. Such expansion may result in additional risks that
are not present domestically and which could adversely affect our business or our results of operations, including:
•
•
•
•
•
compliance with additional U.S. regulations and those of other nations applicable to international operations;
cultural and language differences;
employment laws, including immigration laws affecting the mobility of employees, and rules and related social and cultural factors;
losses related to start-up costs, lack of revenue, higher costs due to low utilization, and delays in purchase decisions by prospective
clients;
currency fluctuations between the U.S. dollar and foreign currencies;
6
•
•
•
•
•
•
restrictions on the repatriation of earnings;
potentially adverse tax consequences and limitations on our ability to utilize losses generated in our foreign operations;
different regulatory requirements and other barriers to conducting business;
different or less stable political and economic environments;
greater personal security risks for employees traveling to or located in unstable locations; and
civil disturbances or other catastrophic events.
Further, conducting business abroad subjects us to increased regulatory compliance and oversight. For example, we are subject to laws
prohibiting certain payments to governmental officials, such as the Foreign Corrupt Practices Act, which increases the risk from our
international operations relative to our competitors who do not operate outside the United States. A failure to comply with applicable
regulations could result in regulatory enforcement actions as well as substantial civil and criminal penalties assessed against us and our
employees.
In addition, expanding into new geographic areas and expanding current service offerings is challenging and may require integrating new
employees into our culture as well as assessing the demand in the applicable market. If we cannot manage the risks associated with new
service offerings or new locations effectively, we are unlikely to be successful in these efforts, which could harm our ability to sustain
profitability and our business prospects.
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
potential assumption of liabilities of an acquired business; the inability to attain the expected synergies with an acquired business; and the
perception of inequalities if different groups of employees are eligible for different benefits and incentives or are subject to different policies
and programs.
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.
Our ability to maintain and attract new business depends upon our reputation, the professional reputation of our revenue-
generating employees, and the quality of our services.
As a professional services firm, our ability to secure new engagements depends heavily upon our reputation and the individual reputations of
our professionals. Any factor that diminishes our reputation or that of our employees, including not meeting client expectations or misconduct
by our employees, could make it substantially more difficult for us to attract new engagements and clients. Similarly, because we 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.
The consulting services industry is highly competitive and we may not be able to compete effectively.
The consulting services industry in which we operate includes a large number of participants and is intensely competitive. We face
competition from other business operations and financial consulting firms, general management consulting firms, the consulting practices of
major accounting firms, technical and economic advisory firms, regional and specialty consulting firms, consulting divisions of our technology
partners, and the internal professional resources of organizations. In addition, because there are relatively low barriers to entry, we expect to
continue to face additional competition from new entrants into the business operations and financial consulting industries. Competition in
7
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.
Risks Related to Industry and Customer Concentration
The healthcare and education industries are areas of significant focus for our business, and factors that adversely affect the
financial condition of these industries could consequently affect our business.
We derive a significant portion of our revenue from clients in the healthcare and education industries. As a result, our financial condition and
results of operations could be adversely affected by conditions affecting these industries, both generally and those specific to the types of
clients we serve in these industries, including hospitals and health systems, academic medical centers, and higher education institutions. The
healthcare and education industries are highly regulated and are subject to changing political, legislative, regulatory, and other influences.
Uncertainty in any of these areas could cause our clients to delay or postpone decisions to use our services. Existing and new federal and
state laws and regulations affecting the healthcare and education industries could create unexpected liabilities for us, could cause us or our
clients to incur additional costs, and could restrict our or our clients’ operations.
Our healthcare and education clients operate in highly regulated industries. Regulatory and legislative changes in these industries could
reduce the demand for our services, decreasing our competitive position or potentially rendering certain of our service offerings obsolete,
change client buying patterns or decision making or require us to make unplanned modifications to our service offerings, which could require
additional time and investment. If we fail to accurately anticipate the application of the laws and regulations affecting our clients and the
industries they serve, if anticipated changes in regulation or regulatory uncertainty impact client buying patterns, or if such laws and
regulations decrease our competitive position or limit the applicability of our service offerings, our results of operations and financial condition
could be adversely impacted. Similarly, certain of our healthcare and education clients may experience or anticipate experiencing financial
distress or face complex challenges as a result of general economic conditions or operations-specific reasons. Such clients may not have the
financial resources or stakeholder support to start new projects or to continue existing projects.
Specifically with respect to healthcare, many healthcare laws are complex and their application to us, our clients, or the specific services and
relationships we have with our clients are not always clear. In addition, federal and state legislatures have periodically introduced programs to
reform or amend the U.S. healthcare system at both the federal and state level, such as the Patient Protection and Affordable Care Act and
the Health Care and Education Reconciliation Act of 2010, and continue to consider further significant reforms. Due to the significant
implementation issues arising under these laws and potential new legislation, it is unclear what long-term effects they will have on the
healthcare industry and in turn on our business, financial condition, and results of operations. Our failure to accurately anticipate the
application of new laws and regulations, or our failure to comply with such laws and regulations, could create liability for us, result in adverse
publicity and negatively affect our business.
There are many factors that could affect the purchasing practices, operations, and, ultimately, the operating funds of healthcare and
education organizations, such as reimbursement policies for healthcare expenses, student loan policies or regulations, federal and state
budgetary considerations, consolidation in either 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 either 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).
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.
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 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.
8
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
to retain our interim management consultants, terminate our retention, require us to reduce our fees for the duration of an engagement, elect
not to approve claims against fees earned by us prior to or after the bankruptcy filing, or subject previously paid amounts to be returned to the
bankruptcy estate as preferential payments under the bankruptcy code.
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.
Risks Related to Information Technology
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. For example, we
have subscription-based offerings that require us to incur costs associated with upgrades and maintenance that could impact profit margins
associated with those offerings and related services. Our future success depends on our ability to adapt our services and infrastructure while
continuing to improve the performance, features, and reliability of our services in response to the evolving demands of the marketplace.
Adverse changes to our relationships with key third-party vendors, or in the business of our key third-party vendors, could
unfavorably impact our business.
A portion of our services and solutions depend on technology or software provided by third-party vendors. Some of these third-party vendors
refer potential clients to us, and others require that we obtain their permission prior to accessing their software while performing services for
our clients. These third-party vendors could terminate their relationship with us without cause and with little or no notice, which could limit our
service offerings and harm our financial condition and operating results. In addition, if a third-party vendor’s business changes, is reduced or
fails to adapt to changing market demands, that could adversely affect our business. Moreover, if third-party technology or software that is
important to our business does not continue to be available or utilized within the marketplace, or if the services that we provide to clients is no
longer relevant in the marketplace, our business may be unfavorably impacted.
We could experience system failures, service interruptions, or security breaches that could negatively impact our business.
Our organization is comprised of employees who work on matters throughout the United States and overseas. 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.
Risks Related to Legal Matters
Our reputation could be damaged and we could incur additional liabilities if we fail to protect client and employee data through our
own accord or if our information systems are breached.
We rely on information technology systems to process, transmit, and store electronic information and to communicate among our locations
around the world and with our clients, partners, and employees. These locations include Canada, the United Kingdom, Switzerland,
Singapore, and India, all of which have their own either recently updated or potential new data protection laws. The breadth and complexity of
9
this infrastructure increases the potential risk of security breaches which could lead to potential unauthorized disclosure of confidential
information.
In providing services to clients, we may manage, utilize, and store sensitive or confidential client or employee data, including personal data
and protected health information. As a result, we are subject to numerous laws and regulations designed to protect this information, such as
the U.S. federal and state laws governing the protection of health or other personally identifiable information, including the Health Insurance
Portability and Accountability Act (HIPAA), and international laws such as the European Union's General Data Protection Regulation (GDPR),
which went into effect in 2018. In addition, many states, U.S. federal governmental authorities and non-U.S. jurisdictions have adopted,
proposed or are considering adopting or proposing, additional data security and/or data privacy statutes or regulations. Continued
governmental focus on data security and privacy may lead to additional legislative and regulatory action, which could increase the complexity
of doing business. The increased emphasis on information security and the requirements to comply with applicable U.S. and foreign data
security and privacy laws and regulations may increase our costs of doing business and negatively impact our results of operations.
These laws and regulations are increasing in complexity and number. If any person, including any of our employees or third-party vendors,
negligently disregards or intentionally breaches our established controls or contractual obligations with respect to client or employee data, or
otherwise mismanages or misappropriates that data, we could be subject to significant monetary damages, regulatory enforcement actions,
fines, and/or criminal prosecution. We maintain certain insurance coverages for cybersecurity incidents through our directors and officers
insurance policy, in amounts we believe to be reasonable and at a cost that is included in our general insurance premiums.
In addition, unauthorized disclosure of sensitive or confidential client or employee data, whether through systems failure, employee
negligence, fraud, or misappropriation, could damage our reputation and cause us to lose clients and their related revenue in the future.
Our engagements could result in professional liability, which could be very costly and hurt our reputation.
Our engagements typically involve complex analyses and the exercise of professional judgment. As a result, we are subject to the risk of
professional liability. From time to time, lawsuits with respect to our work are pending. Litigation alleging that we performed negligently or
breached any other obligations could expose us to significant legal liabilities and, regardless of outcome, is often very costly, could distract
our management, could damage our reputation, and could harm our financial condition and operating results. We also face increased
litigation risk as a result of an expanded workforce. In addition, certain of our 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.
Our business could be materially adversely affected if we incur liability in connection with service offering innovation, including
new or expanded service offerings.
We may grow our business through service offering innovation, including by entering into new or expanded lines of business beyond our core
services. To the extent we enter into new or expanded lines of business, we may face new risks and uncertainties, including the possibility
these new or expanded lines of business involve greater risks than our core services, that we have insufficient expertise to engage in such
activities profitably or without incurring inappropriate amounts of risk, that the required investment of capital and other resources is greater
than anticipated, and that we lose existing clients due to the perception that we are no longer focusing on our core business. Entry into new
or expanded lines of business may also subject us to new laws and regulations with which we are not familiar and may lead to increased
litigation and regulatory risk. For example, our recently launched Huron Managed Services business provides revenue cycle managed
services to hospitals and health systems. These services include the coding, preparation, submission and collection of claims for medical
service to payers for reimbursement. Such claims are governed by U.S. federal and state laws. U.S. federal law provides civil liability to any
persons that knowingly submit, or cause to be submitted, a claim to a payer, including Medicare, Medicaid and private health plans, seeking
payment for any services or items that overbills or bills for services or items that have not been provided to the patient. U.S. federal law may
also impose criminal penalties for intentionally submitting such false claims. In addition, federal and state law regulates the collection of debt
and may impose monetary penalties for violating those regulations. In connection with these laws, we may be subjected to U.S. federal or
state government investigations and possible penalties may be imposed upon us, false claims actions may have to be defended and private
payers may file claims against us. Any investigation or proceeding related to these laws, even if unwarranted or without merit, may have a
material adverse effect on our business, results of operations and financial condition.
10
Our intellectual property rights in our “Huron Consulting Group” name are important, and any inability to use that name could
negatively impact our ability to build brand identity.
We believe that establishing, maintaining, and enhancing the “Huron Consulting Group” name and “Huron” brand is important to our
business. We are, however, aware of a number of other companies that use names containing “Huron.” There could be potential trade name
or service mark infringement claims brought against us by the users of these similar names and marks and those users may have trade name
or service mark rights that are senior to ours. If another company were to successfully challenge our right to use our name, or if we were
unable to prevent a competitor from using a name that is similar to our name, our ability to build brand identity could be negatively impacted.
Conflicts of interest could preclude us from accepting engagements thereby causing decreased utilization and revenues.
We provide services in connection with bankruptcy and other proceedings that usually involve sensitive client information and frequently are
adversarial. In connection with bankruptcy proceedings, we are required by law to be “disinterested” and may not be able to provide multiple
services to a particular client. In addition, our engagement agreement with a client or other business reasons may preclude us from accepting
engagements from time to time with the client's competitors or adversaries. Moreover, in many industries in which we provide services, there
has been a continuing trend toward business consolidations and strategic alliances. These consolidations and alliances reduce the number of
companies that may seek our services and increase the chances that we will be unable to accept new engagements 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.
Risks Related to Financial Management and Performance
Our financial results could suffer if we are unable to achieve or maintain adequate utilization and suitable billing rates for our
consultants, or if we are unable to deliver our services due to factors that disrupt travel to our client sites.
Our profitability depends to a large extent on the utilization and billing rates of our professionals. Utilization of our professionals is affected by
a number of factors, including:
•
•
•
•
•
•
•
the number and size of client engagements;
the timing of the commencement, completion and termination of engagements, which in many cases is unpredictable;
our ability to transition our consultants efficiently from completed engagements to new engagements;
the hiring of additional consultants because there is generally a transition period for new consultants that results in a temporary
drop in our utilization rate;
unanticipated changes in the scope of client engagements;
our ability to forecast demand for our services and thereby maintain an appropriate level of consultants; and
conditions affecting the industries in which we practice as well as general economic conditions.
The billing rates of our consultants that we are able to charge are also affected by a number of factors, including:
•
•
•
•
•
•
our clients’ perception of our ability to add value through our services;
the market demand for the services we provide;
an increase in the number of engagements in the government sector, which are subject to federal contracting regulations;
introduction of new services by us or our competitors;
our competition and the pricing policies of our competitors; and
current economic conditions.
If we are unable to achieve and maintain adequate overall utilization as well as maintain or increase the billing rates for our consultants, our
financial results could materially suffer. Traditionally, most of our consultants have performed services at the physical locations of our clients.
Starting in 2020 and in response to the proliferation of the coronavirus, substantially all of our services were delivered remotely. If our
11
consultants are unable to continue delivering services remotely or if we are out of step with a general market return to in person service
delivery, our business could be materially adversely affected.
Our quarterly results of operations have fluctuated in the past and may continue to fluctuate in the future as a result of certain
factors, some of which may be outside of our control.
A key element of our strategy is to market our products and services directly to certain large organizations, such as health systems and acute
care hospitals, and to increase the number of our products and services utilized by existing clients. The sales cycle for some of our products
and services is often lengthy and may involve significant commitment of client personnel. As a consequence, the commencement date of a
client engagement often cannot be accurately forecasted. As discussed below, certain of our client contracts contain terms that result in
revenue that is deferred and cannot be recognized until the occurrence of certain events. As a result, the period of time between contract
signing and recognition of associated revenue may be lengthy, and we are not able to predict with certainty the period in which revenue will
be recognized.
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. To the extent that any revenue is contingent upon the achievement of a
performance target, we recognize such revenue using a process that requires us to make significant management judgments, estimates, and
assumptions. While we believe that the estimates and assumptions we have used for revenue recognition are reasonable, subsequent
changes could have a material impact to our future financial results. The percentage of our revenues derived from performance-based fees
for the years ended December 31, 2020, 2019, and 2018, was 9.2%, 8.9%, and 6.1%, 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
12
profit margin. For the years ended December 31, 2020, 2019, and 2018, fixed-fee engagements represented 41.4%, 45.8%, and 47.4%, of
our revenues, respectively.
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 or suspend such guidance during the year, the market value of our
common stock could be adversely affected.
Risks Related to Capital Resources
Our obligations under the Amended Credit Agreement are secured by a pledge of certain of the equity interests in our subsidiaries
and a lien on substantially all of our assets and those of our subsidiary grantors. If we default on these obligations, our lenders
may foreclose on our assets, including our pledged equity interest in our subsidiaries.
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 a security interest in 100% of the voting stock or other equity interests in our domestic subsidiaries and
65% of the voting stock or other equity interests in certain of our foreign subsidiaries. If we default on our obligations under the Amended
Credit Agreement, our lenders could accelerate our indebtedness and may be able to exercise their liens on the equity interests subject to the
Pledge Agreement and their liens on substantially all of our assets and the assets of our subsidiary grantors, which would have a material
adverse effect on our business, operations, financial condition, and liquidity. In addition, the covenants contained in the Amended Credit
Agreement impose restrictions on our ability to engage in certain activities, such as the incurrence of additional indebtedness, certain
investments, certain acquisitions and dispositions, and the payment of dividends.
Our indebtedness could adversely affect our ability to raise additional capital to fund our operations and obligations, expose us to
interest rate risk to the extent of our variable-rate debt, and adversely affect our financial results.
At December 31, 2020, we had outstanding indebtedness of $200.0 million on our revolving line of credit that becomes due and payable in
full upon maturity on September 27, 2024, and $3.3 million principal amount of our promissory note due March 1, 2024. Our ability to make
scheduled payments of the principal, to pay interest, or to refinance our indebtedness, depends on our future performance. If we are unable
to generate cash flow from operations sufficient to satisfy our obligations under our current indebtedness and any future indebtedness, 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 dilutive. Our ability to refinance our current indebtedness or
future indebtedness will depend on the capital markets and our financial condition at such time. We may not be able to engage in any of
these activities or engage in these activities on desirable terms, which could result in a default on the current indebtedness or future
indebtedness.
The interest rates on our revolving line of credit and promissory note are linked to LIBOR. In 2017, the Financial Conduct Authority (FCA) in
the U.K. announced that it would phase out LIBOR as a benchmark rate by the end of 2021. It is unclear whether new methods of calculating
LIBOR will be established such that it continues to exist after 2021, or whether different benchmark rates will develop. If LIBOR ceases to
exist, the method and rates used to calculate our interest rates and/or payments on our debt may result in interest rates and/or payments that
are higher than, or that do not otherwise correlate over time with, the interest rates and/or payments that would have been applicable to our
obligations if LIBOR was available in its current form, which could have a material adverse effect on our financial condition and results of
operations. While we continue to take steps to mitigate the impact of the phase-out or replacement of LIBOR, such efforts may not prove
successful. Furthermore, the U.S. or global financial markets may be disrupted as a result of the phase-out or replacement of LIBOR, which
could also have a material adverse effect on our business, financial condition and results of operations.
In addition, our indebtedness, combined with our other financial obligations and contractual commitments, could have other important
consequences such as exposing us to the risk of increased interest rates because some of our borrowings are at variable interest rates;
making us more vulnerable to adverse changes in general U.S. and worldwide economic, industry, and competitive conditions and adverse
changes in government regulation; or reducing our capacity to obtain additional financing and flexibility in planning for, or reacting to, changes
in our business and our industry. Any of these factors could materially and adversely affect our business, financial condition, and results of
operations.
13
Risks Related to Asset Impairment
Our goodwill and other intangible assets represent a substantial amount of our total assets, and we may be required to recognize a
non-cash impairment charge for these assets if the performance of one or more of our reporting units falls below our expectations.
Our total assets reflect a substantial amount of goodwill and other intangible assets. At December 31, 2020, goodwill and other intangible
assets totaled $614.7 million, or 58%, of our total assets. Goodwill results from our acquisitions, representing the excess of the fair value of
consideration transferred over the fair value of the net assets acquired. We test goodwill for impairment at the reporting unit level, annually
and whenever events or circumstances make it more likely than not that an impairment may have occurred. Intangible assets other than
goodwill represent purchased assets that lack physical substance but can be distinguished from goodwill. Our intangible assets primarily
consist of customer relationships, trade names, customer contracts, technology and software, and non-competition agreements, all of which
were acquired through business combinations. We evaluate our intangible assets for impairment whenever events or changes in
circumstances indicate that the carrying amount of the assets may not be recoverable. During the year ended December 31, 2020, we
recorded non-cash goodwill impairment charges totaling $59.8 million related to the Company’s Business Advisory segment. During 2019
and 2018, we did not record any non-cash goodwill impairment charges. No material impairment charges for intangible assets were recorded
in 2020, 2019, or 2018.
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 7. “Management’s Discussion and Analysis of Financial Condition and Results of
Operations” and Note 4 “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.
We may incur impairment charges with respect to our convertible debt investment in Shorelight.
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. In the first quarter of 2020, we invested an additional $13.0 million, in the form of 1.69% convertible
debt with a senior liquidation preference. Our investment is carried at its fair value of $64.4 million as of December 31, 2020, with unrealized
holding gains and losses reported in other comprehensive income. As of December 31, 2020, our investment in Shorelight is in an unrealized
gain position. If the investment were to be in an unrealized loss position due to significant credit deterioration of Shorelight, we would
recognize an allowance to decrease the carrying value of the investment to the fair value, which may be reversed in the event that the credit
of Shorelight improves. As of December 31, 2020, we have not recognized any credit allowance on our investment. In the future, if there are
adverse developments in Shorelight's business that may be the result of events within or outside of Shorelight's control, we may incur
impairment charges with respect to our convertible debt investment, which could materially impact our results of operations.
General Risk Factors
Expanding our service offerings may involve additional risks and may not be profitable.
We may choose to develop new service offerings or eliminate service offerings because of market opportunities or client demands.
Developing new service offerings involves inherent risks, including:
•
•
•
•
•
•
our inability to estimate demand for the new service offerings;
competition from more established market participants;
exposure to new legal and operational risks;
a lack of market understanding;
unanticipated expenses to recruit and hire qualified consultants and to market our new service offerings; and
unanticipated challenges with service delivery.
14
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.
For example, some portion of the services we provide may be considered by our clients to be more discretionary in nature, as the demand for
the services may be impacted by economic slowdowns. We are not able to predict the positive or negative effects that future events or
changes to the U.S. or global economy, financial markets, or regulatory and 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
condition.
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.
Future changes in tax laws, treaties or regulations, and their interpretation or enforcement, may be unpredictable, particularly as taxing
jurisdictions face an increasing number of political, budgetary and other fiscal challenges. Tax rates in the jurisdictions in which we operate
may change as a result of macroeconomic and other factors outside of our control, making it increasingly difficult for multinational
corporations like ourselves to operate with certainty about taxation in many jurisdictions. As a result, we could be materially adversely
affected by future changes in tax law or policy (or in their interpretation or enforcement) in the jurisdictions where we operate, including the
United States, which could have a material adverse effect on our business, cash flow, results of operations, financial condition, as well as our
effective income tax rate.
ITEM 1B. UNRESOLVED STAFF COMMENTS.
None.
ITEM 2.
PROPERTIES.
We do not own any real estate or other physical properties. Our administrative and principal executive offices are located at 550 W. Van
Buren Street, Chicago, Illinois 60607. We believe that our office facilities are suitable and adequate for our business as it is presently
conducted. See Note 5 “Leases” within the notes to our consolidated financial statements for additional information on our office facilities.
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.
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES.
Market Information
Our common stock is traded on the NASDAQ Global Select Market under the symbol “HURN.” As of February 16, 2021, there were 325
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.
15
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.
Securities Authorized for Issuance Under Equity Compensation Plans
The information required by this item appears under Part III—Item 12. “Security Ownership of Certain Beneficial Owners and Management
and Related Stockholders Matters.”
Purchases of Equity Securities by the Issuer and Affiliated Purchasers
Our Stock Ownership Participation Program, 2012 Omnibus Incentive Plan, and 2004 Omnibus Stock Plan, which was replaced by the 2012
Omnibus Incentive Plan, permit the netting of common stock upon vesting of restricted stock awards to satisfy individual tax withholding
requirements. During the quarter ended December 31, 2020, we reacquired 2,475 shares of common stock with a weighted average fair
market value of $42.97 as a result of such tax withholdings.
In November 2020, our board of directors authorized a share repurchase program (the “2020 Share Repurchase Program”) permitting us to
repurchase up to $50 million of our common stock through December 31, 2021. The 2020 Share Repurchase Program was authorized
subsequent to the expiration of our prior share repurchase program (the “2015 Share Repurchase Program”) on October 31, 2020. The 2015
Share Repurchase Program permitted us to repurchase up to $125 million of our common stock through October 31, 2020. The amount and
timing of repurchases under both share repurchase programs were determined by management and depended 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.
The following table provides information with respect to purchases we made of our common stock during the quarter ended December 31,
2020.
Period
October 1, 2020 – October 31, 2020
November 1, 2020 – November 30, 2020
December 1, 2020 – December 31, 2020
Total
Total Number
of Shares
Purchased (1)
1,496
52,402
59,743
113,641
$
$
$
$
Average Price
Paid Per Share
40.06
45.18
45.21
45.13
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)
— $
52,402
58,764
$
$
111,166
—
47,630,710
44,974,137
(1) The number of shares repurchased included 1,496 shares in October 2020 and 979 shares in December 2020 to satisfy employee tax
withholding requirements. No shares were repurchased in November 2020 to satisfy employee tax withholding requirements. These
shares do not reduce the repurchase authority under the Share Repurchase Program.
(2) As of the end of the period.
16
ITEM 6.
SELECTED FINANCIAL DATA.
We have derived the following selected consolidated financial data as of and for the years ended December 31, 2016 through 2020 from our
consolidated financial statements. The following data reflects the business acquisitions that we have completed through December 31, 2020.
The results of operations for acquired businesses have been included in our results of operations since the date of their acquisitions. See
Note 3 “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.
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
2020
Year Ended December 31,
2018
2017
2019
2016
$ 844,127
$ 876,757
$ 795,125
$ 732,570
$ 726,272
26,887
88,717
82,874
75,175
71,712
Total revenues and reimbursable expenses
871,014
965,474
877,999
807,745
797,984
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
592,428
575,602
521,537
454,806
437,556
5,366
26,918
5,375
88,696
4,247
82,923
10,932
75,436
15,140
71,749
Total direct costs and reimbursable expenses
624,712
669,673
608,707
541,174
524,445
Operating expenses and other losses (gains), net:
Selling, general and administrative expenses
170,686
203,071
180,983
175,364
160,204
Restructuring charges
Litigation and other losses (gains), net
Depreciation and amortization (1)
Goodwill impairment charges
20,525
(150)
24,277
59,816
1,855
(1,196)
28,365
—
3,657
(2,019)
34,575
—
Total operating expenses and other losses (gains), net
275,154
232,095
217,196
6,246
1,111
38,213
253,093
474,027
9,592
(1,990)
31,499
—
199,305
74,234
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
(28,852)
63,706
52,096
(207,456)
(9,292)
(15,648)
(19,013)
(18,613)
(16,274)
4,271
4,433
(7,862)
3,565
1,197
(5,021)
(11,215)
(26,875)
(15,048)
(15,077)
(33,873)
(10,155)
(23,718)
(122)
52,491
10,512
41,979
25,221
11,277
13,944
(222,504)
(51,999)
(170,505)
59,157
19,677
39,480
(236)
(298)
388
(1,863)
Net income (loss)
$ (23,840) $ 41,743
$
13,646
$ (170,117) $
37,617
17
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:
2020
Year Ended December 31,
2018
2017
2019
2016
$
$
$
$
(1.08) $
(0.01)
(1.09) $
(1.08) $
(0.01)
(1.09) $
1.91
(0.01)
1.90
1.87
(0.02)
1.85
$
$
$
$
0.64
(0.01)
0.63
0.63
(0.01)
0.62
$
$
$
$
(7.95) $
0.02
(7.93) $
(7.95) $
0.02
(7.93) $
1.87
(0.09)
1.78
1.84
(0.08)
1.76
Basic
Diluted
Consolidated Balance Sheet Data
(in thousands):
Cash and cash equivalents
Working capital (2)
Total assets
Long-term debt, net of current portion (2)
Total stockholders’ equity (3)
21,882
21,882
21,993
22,507
21,706
22,058
21,439
21,439
21,084
21,424
2020
2019
As of December 31,
2018
2017
2016
67,177
$
43,644
$
$ 1,057,476
202,780
$
551,942
$
11,604
$
20,192
$
$ 1,104,271
208,324
$
585,465
$
$
$
33,107
$ (185,374) $
$ 1,049,532
53,853
$
540,624
$
16,909
51,828
$ 1,036,928
342,507
$
503,316
$
17,027
$
44,314
$
$ 1,153,215
292,065
$
648,033
$
(1)
Intangible asset amortization relating to customer contracts, certain client relationships, and technology and software and amortization of
certain software development costs are presented as a component of total direct costs. Depreciation and amortization not classified as
direct costs are presented as a component of operating expenses.
(2) Our Convertible Notes with a principal amount of $250.0 million were classified as short-term debt on our consolidated balance sheet at
December 31, 2018 as they had a maturity date of October 1, 2019. Upon maturity, we refinanced the outstanding notes with the
borrowing capacity available under our revolving credit facility, which is classified as long-term debt on our consolidated balance sheet.
Refer to the “Liquidity and Capital Resources” section under Part II—Item 7. “Management's Discussion and Analysis of Financial
Condition and Results of Operations” and Note 7 “Financing Arrangements” within the notes to our consolidated financial statements for
more information on our outstanding borrowings.
(3) 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.”
18
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.
The following information summarizes our results of operations for 2020, 2019, and 2018; and discusses those results of operations for 2020
compared to 2019. For a discussion of our results of operations for 2019 compared to 2018, refer to Part II—Item 7. "Management’s
Discussion and Analysis of Financial Condition and Results of Operations" of the Annual Report on Form 10-K for the year ended
December 31, 2019, which was filed with the United States Securities and Exchange Commission on February 26, 2020.
OVERVIEW
Huron is a global consultancy that collaborates with clients to drive strategic growth, ignite innovation and navigate constant change. Through
a combination of strategy, expertise and creativity, we help clients accelerate operational, digital and cultural transformation, enabling the
change they need to own their future. By embracing diverse perspectives, encouraging new ideas and challenging the status quo, Huron
creates sustainable results for the organizations it serves.
We provide our services and manage our business under three operating segments: Healthcare, Business Advisory, and Education. See Part
I—Item 1. “Business—Overview—Our Services” and Note 19 “Segment Information” within the notes to our consolidated financial statements
for a discussion of our three segments.
Coronavirus (COVID-19)
The worldwide spread of the COVID-19 pandemic in 2020 has created significant volatility, uncertainty and disruption to the global economy.
This pandemic has had an unfavorable impact on aspects of our business, operations, and financial results, and has caused us to
significantly change the way we operate. Near the end of the first quarter of 2020, we suspended almost all business travel and our
employees began working from their homes. While traditionally a majority of the work performed by our revenue-generating professionals
occurred at client sites, the nature of the services we provide and enhanced available technology allows our revenue-generating
professionals to effectively serve clients in a remote work environment. As state and local governments ease their restrictions, we continue to
refine our comprehensive plan to return to our offices and client sites with our people’s safety and the needs of our clients guiding how we
implement our phased transition. As of December 31, 2020, our employees continue to primarily work from their homes.
In each of our operating segments, we are working closely with our clients to support them and their ongoing business needs and provide
relevant services to address their needs caused by the COVID-19 pandemic. However, as some clients reprioritized and delayed projects as
a result of the pandemic, demand for certain offerings has been negatively impacted, particularly within our Healthcare and Education
segments. Revenues in the first half of 2020 increased 3.6% compared to the same prior year period, while revenues in the second half of
2020 declined 10.6% compared to the same prior year period, resulting in a full year revenue decline of 3.7% in 2020 compared to full year
2019. In addition to the impact on 2020 revenues, the COVID-19 pandemic negatively impacted sales and elongated the sales cycle for new
opportunities for certain services, particularly within our Healthcare and Education segments. Given the uncertainties around the duration of
the COVID-19 pandemic, we continue to remain cautious about revenue growth for the first half of 2021.
The COVID-19 pandemic has strengthened demand for other services we provide, such as our cloud-based technology and analytics
solutions within our Business Advisory segment and our restructuring and capital advisory solutions provided to organizations in transition
also within our Business Advisory segment.
In order to support our liquidity during the COVID-19 pandemic, we took proactive measures to increase available cash on hand including,
but not limited to, borrowing under our senior secured credit facility in the first quarter of 2020 and reducing discretionary operating and
capital spending. In each quarter subsequent to the first quarter of 2020, we made repayments on our borrowings to reduce our total debt
outstanding due to our ability to maintain adequate cash flows from operations and improved clarity around access to capital resources. To
further support our liquidity during the COVID-19 pandemic, we elected to defer the deposit of our employer portion of social security taxes
beginning in April 2020 and through the end of the year, which we expect to pay in equal installments in the fourth quarters of 2021 and 2022,
as provided for under the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Act. See the “Liquidity and Capital Resources”
section below for additional information on these items.
Fourth Quarter 2020 Restructuring Plan
In the fourth quarter of 2020, we announced a restructuring plan to reduce operating costs to address the impact of the COVID-19 pandemic
on our business. The restructuring plan, which was substantially complete in the fourth quarter of 2020, provided for a reduction in certain
19
leased office spaces and a reduction in workforce of approximately 125 employees; and resulted in an aggregate restructuring charge,
including non-cash lease impairment charges, of $18.7 million.
The reduction in leased office spaces includes a portion of our principal executive office in Chicago, Illinois, as well as certain other office
space in the U.S, which resulted in the recognition of $13.2 million of non-cash lease impairment charges on the related operating lease right-
of-use (“ROU”) assets and fixed assets that we intend to sublease, as well as $0.7 million of accelerated amortization and depreciation on the
related operating lease ROU assets and fixed assets we intend to abandon. The reduction in workforce resulted in a $4.8 million restructuring
charge related to cash employee severance costs; of which $2.0 million related to our Education segment, $1.2 million related to our
Healthcare segment, $1.0 million related to our Business Advisory segment, and $0.6 million related to our corporate operations.
We do not expect to incur additional significant employee severance costs or non-cash lease impairment charges in 2021 related to the fourth
quarter 2020 restructuring plan. However, any significant decline in the estimated amount or delayed timing of sublease income used in the
calculation of each non-cash lease impairment charge could result in additional non-cash lease impairment charges through the end of the
lease terms. We expect approximately $2.5 million of ongoing lease-related costs to be reflected as restructuring charges in 2021. As a result
of the reduction in workforce, we expect to realize annualized savings of approximately $21.0 million related to employee salaries and related
benefits. As a result of the reduction in leased office space, we expect to realize annualized savings of approximately $1.0 million in lease-
related expense.
First Quarter 2020 Goodwill Impairment Charges
The services provided by our Strategy and Innovation and Life Sciences reporting units within our Business Advisory segment focus on
strategic solutions for healthy, well-capitalized companies to identify new growth opportunities, which may be considered by our clients to be
more discretionary in nature, and the duration of the projects within these practices are typically short-term. Therefore, at the onset of the the
COVID-19 pandemic in the U.S. and due to the uncertainty caused by the pandemic, we were cautious about near-term results for these two
reporting units. Based on our internal projections and the preparation of our financial statements for the quarter ended March 31, 2020, and
considering the expected decrease in demand due to the COVID-19 pandemic, during the first quarter of 2020 we believed it was more likely
than not that the fair value of these two reporting units no longer exceeded their carrying values and performed an interim goodwill
impairment test on both reporting units. Based on the estimated fair values of the Strategy and Innovation and Life Sciences reporting units,
we recorded non-cash pretax goodwill impairment charges of $49.9 million and $9.9 million, respectively. The non-cash goodwill impairment
charge related to the Strategy and Innovation reporting unit reduced the goodwill balance of the reporting unit to $37.5 million as of March 31,
2020. The non-cash goodwill impairment charge related to the Life Sciences reporting unit reduced the goodwill balance to zero as of March
31, 2020. During the same time, we did not identify any indicators that would lead us to believe that the fair values of our Healthcare,
Education, and Business Advisory reporting units would not exceed their carrying values.
Additionally, during the second and third quarters of 2020, we did not identify any indicators that would lead us to believe that the fair values
of our reporting units would not exceed their carrying values. Pursuant to our policy, we performed our annual goodwill impairment test as of
November 30, 2020 on all reporting units with goodwill balances and concluded that the fair value of all reporting units exceeded their
carrying values. See the “Critical Accounting Policies” section below and Note 4 “Goodwill and Intangible Assets” within the notes to our
consolidated financial statements for additional information on the goodwill impairment tests performed in 2020.
Enterprise Resource Planning System Implementation
In the fourth quarter of 2019, we began the implementation of a new cloud-based enterprise resource planning (“ERP”) system designed to
improve the efficiency of our internal finance, human resources, resource planning, and administrative operations. In January 2021, we
successfully went live with the new ERP system, and we continue to progress with additional functionality and integrations as scheduled. The
implementation progressed on schedule and has not been significantly impacted by the COVID-19 pandemic due to the ability of our
implementation team to work and collaborate remotely and the enhanced technology and cloud-based nature of our new ERP system. We
believe our investment in this new system will position our teams to drive efficiencies and provide more robust management reporting and
data analytics to support future growth and the goals and vision of the company.
See Part II, Item 1A. “Risk Factors” of this Annual Report on Form 10-K for additional information on the potential impact the COVID-19
pandemic could have on our business, operations and financial results.
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
coaches and their support staff from our Culture and Organizational Excellence solution, consultants who work variable schedules as needed
by our clients, employees who provide managed services in our Healthcare segment, 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
20
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. Revenues generated by our Managed Services solution are dependent on the total value,
scope and terms of the related contracts.
We generate our revenues from providing professional services under four types of billing arrangements: fixed-fee (including software license
revenue); time-and-expense; performance-based; and software support, 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 Culture and Organizational Excellence solution include fixed-fee
partner contracts with multiple performance obligations, which primarily consist of coaching services, as well as speaking engagements,
conferences, publications and software products (“Partner Contracts”). Revenues for coaching services and software products are generally
recognized on a straight-line basis over the length of the contract. All other revenues under Partner Contracts, including speaking
engagements, conferences and publications, are recognized at the time the goods or services are provided.
Fixed-fee arrangements also include software licenses for our revenue cycle management software and research administration and
compliance software. Licenses for our revenue cycle management software are sold only as a component of our consulting projects, and the
services we provide are essential to the functionality of the software. Therefore, revenues from these software licenses are recognized over
the term of the related consulting services contract. License revenue from our research administration and compliance software is generally
recognized in the month in which the software is delivered.
Fixed-fee engagements represented 41.4%, 45.8%, and 47.4% of our revenues for the years ended December 31, 2020, 2019, and 2018,
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 Culture and Organizational Excellence solution. We recognize
revenues under time-and-expense billing arrangements as the related services or publications are provided. Time-and-expense
engagements represented 43.4%, 39.9%, and 41.2% of our revenues in 2020, 2019, and 2018, respectively.
In performance-based fee billing arrangements, fees are tied to the attainment of contractually defined objectives. We enter into performance-
based engagements in essentially two forms. First, we generally earn fees that are directly related to the savings formally acknowledged by
the client as a result of adopting our recommendations for improving operational and cost effectiveness in the areas we review. Second, we
have performance-based engagements in which we earn a success fee when and if certain predefined outcomes occur. Often, performance-
based fees supplement our time-and-expense or fixed-fee engagements. We recognize revenues under performance-based billing
arrangements by estimating the amount of variable consideration that is probable of being earned and recognizing that estimate over the
length of the contract using a proportionate performance approach. Performance-based fee revenues represented 9.2%, 8.9%, and 6.1% of
our revenues in 2020, 2019, and 2018, respectively. The level of performance-based fees earned may vary based on our clients’ risk sharing
preferences and the mix of services we provide.
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, maintenance and subscription revenues are
recognized ratably over the support or subscription period. These fees are generally billed in advance and included in deferred revenues until
recognized. Software support and maintenance and subscription-based revenues represented 6.0%, 5.4%, and 5.3% of our revenues in
2020, 2019, and 2018, respectively.
Our quarterly results are impacted principally by our full-time consultants’ utilization rate, the bill rates we charge our clients, and the number
of our revenue-generating professionals who are available to work. Our utilization rate can be negatively affected by increased hiring because
there is generally a transition period for new professionals that results in a temporary drop in our utilization rate. Our utilization rate can also
be affected by seasonal variations in the demand for our services from our clients. For example, during the third and fourth quarters of the
year, vacations taken by our clients can result in the deferral of activity on existing and new engagements, which would negatively affect our
utilization rate. The number of business work days is also affected by the number of vacation days taken by our consultants and holidays in
21
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. Under fixed-fee billing arrangements, we estimate the total amount
of reimbursable expenses to be incurred over the course of the engagement and recognize the estimated amount as revenue using the
proportionate performance approach, which is based on work completed to-date versus our estimates of the total services to be provided
under the engagement. Under time-and-expense billing arrangements, we recognize reimbursable expenses as revenue as the related
services are provided, using the right to invoice practical expedient. Reimbursable expenses are recognized as expenses 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.
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 technology costs,
product and event costs, commissions, and fees paid to independent contractors that we retain to supplement our revenue-generating
professionals, typically on an as-needed basis for specific client engagements. Direct costs also include share-based compensation, which
represents the cost of restricted stock and performance-based share awards granted to our revenue-generating professionals. Compensation
expense for restricted stock awards and performance-based share awards is recognized ratably using either the straight-line attribution
method or the graded vesting attribution method, as appropriate, over the requisite service period, which is generally three to four years.
Total direct costs also include amortization of internally developed software costs and intangible assets primarily related to technology and
software, certain customer relationships, and customer contracts acquired in business combinations.
Operating Expenses and Other Losses (Gains), Net
Our operating expenses include selling, general and administrative expenses, which consist primarily of salaries, performance bonuses,
payroll taxes, benefits, and share-based compensation for our support personnel. Also included in selling, general and administrative
expenses is rent and other office related expenses, referred to as facilities expenses; sales and marketing related expenses; professional
fees; recruiting and training expenses; and practice administration and meetings expenses. Other operating expenses include restructuring
charges, other gains and losses, 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 expenses 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.
22
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.
Segment and Consolidated Operating Results (in thousands):
Healthcare:
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
Education:
Revenues
Operating income
Segment operating income 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 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
Year Ended December 31,
2019
2018
2020
$
$
$
$
$
$
$
$
$
$
$
$
353,437
94,925
26.9 %
267,361
48,046
18.0 %
223,329
47,503
21.3 %
844,127
26,887
871,014
190,474
135,255
(150)
24,405
59,816
(28,852)
5,021
(33,873)
(10,155)
(23,718)
(1.08)
(1.08)
$
$
$
$
$
$
$
$
$
$
$
$
399,221
125,724
31.5 %
252,508
49,695
19.7 %
225,028
55,741
24.8 %
876,757
88,717
965,474
231,160
140,285
(1,196)
28,365
—
63,706
11,215
52,491
10,512
41,979
1.91
1.87
$
$
$
$
$
$
$
$
$
$
$
$
364,763
108,060
29.6 %
236,185
50,625
21.4 %
194,177
48,243
24.8 %
795,125
82,874
877,999
206,928
122,276
(2,019)
34,575
—
52,096
26,875
25,221
11,277
13,944
0.64
0.63
23
Other Operating Data:
Number of full-time billable consultants (at period end) (2):
Healthcare
Business Advisory
Education
Total
Average number of full-time billable consultants (for the period) (2):
Healthcare
Business Advisory
Education
Total
Full-time billable consultant utilization rate (3):
Healthcare
Business Advisory
Education
Total
Full-time billable consultant average billing rate per hour (4):
Healthcare
Business Advisory (5)
Education
Total (5)
Revenue per full-time billable consultant (in thousands):
Healthcare
Business Advisory
Education
Total
Average number of full-time equivalents (for the period) (6):
Healthcare
Business Advisory
Education
Total
Revenue per full-time equivalent (in thousands):
Healthcare
Business Advisory
Education
Total
Year Ended December 31,
2019
2018
2020
820
1,051
737
2,608
863
962
775
2,600
890
930
756
2,576
849
892
686
2,427
813
813
621
2,247
807
769
589
2,165
69.0 %
72.4 %
70.3 %
70.7 %
79.4 %
72.5 %
76.8 %
76.1 %
81.7 %
73.8 %
76.6 %
77.5 %
$
$
$
$
$
$
$
$
$
$
$
$
246
195
187
208
295
264
247
269
278
30
52
360
356
455
618
402
$
$
$
$
$
$
$
$
$
$
$
$
231
201
199
211
331
273
285
297
244
14
47
305
485
655
617
513
$
$
$
$
$
$
$
$
$
$
$
$
209
215
202
209
307
293
289
297
219
22
39
280
536
484
601
541
(1) The non-cash goodwill impairment charges are not allocated at the segment level because the underlying goodwill asset is reflective of our
corporate investment in the segments. We do not include the impact of goodwill impairment charges in our evaluation of segment performance.
(2) Consists of our full-time professionals who provide consulting services and generate revenues based on the number of hours worked.
(3) Utilization rate for our full-time billable consultants is calculated by dividing the number of hours all of our full-time billable consultants worked on
client assignments during a period by the total available working hours for all of these consultants during the same period, assuming a forty-
hour work week, less paid holidays and vacation days.
(4) Average billing rate per hour for our full-time billable consultants is calculated by dividing revenues for a period by the number of hours worked
on client assignments during the same period.
(5) The Business Advisory segment includes operations of Huron Eurasia India. Absent the impact of Huron Eurasia India, the average billing rate
per hour for the Business Advisory segment would have been $213, $228, and $246 for the years ended December 31, 2020, 2019 and 2018,
respectively.
Absent the impact of Huron Eurasia India, Huron's consolidated average billing rate per hour would have been $215, $220, and $218 for the
years ended December 31, 2020, 2019 and 2018, respectively.
(6) Consists of coaches and their support staff within our Culture and Organizational Excellence solution, consultants who work variable schedules
as needed by our clients, employees who provide managed services in our Healthcare segment, and full-time employees who provide software
support and maintenance services to our clients.
24
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 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):
2020
Year Ended December 31,
2019
$
$
844,127
(23,718)
$
$
876,757
41,979
$
$
2018
795,125
13,944
(10,155)
9,292
29,644
5,063
21,374
(150)
1,132
59,816
(1,667)
1,603
(31)
87,140
$
10,512
15,648
33,740
101,879
1,855
(1,196)
2,680
—
—
—
160
105,378
$
11,277
19,013
38,822
83,056
3,657
(2,019)
—
—
—
5,807
475
90,976
10.3 %
12.0 %
11.4 %
Revenues
Net income (loss) from continuing operations
Add back:
Income tax expense (benefit)
Interest expense, net of interest income
Depreciation and amortization
Earnings before interest, taxes, depreciation and amortization
(EBITDA)
Add back:
Restructuring and other charges
Litigation and other gains, net
Transaction-related expenses
Goodwill impairment charges
Unrealized gain on preferred stock investment
Losses on sales of businesses
Foreign currency transaction losses (gains), net
Adjusted EBITDA
Adjusted EBITDA as a percentage of revenues
$
25
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 and other charges
Litigation and other gains, net
Transaction-related expenses
Goodwill impairment charges
Non-cash interest on convertible notes
Unrealized gain on preferred stock investment
Losses on sales of businesses
Tax effect of adjustments
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:
2020
Year Ended December 31,
2019
2018
(23,718) $
21,882
(1.08) $
41,979
22,507
1.87
$
$
12,696
21,374
(150)
1,132
59,816
—
(1,667)
1,603
(23,199)
—
—
71,605
47,887
22,299
2.15
$
$
17,793
1,855
(1,196)
2,680
—
6,436
—
—
(7,200)
—
(736)
19,632
61,611
22,507
2.74
$
$
13,944
22,058
0.63
23,955
3,657
(2,019)
—
—
8,232
—
5,807
(9,487)
1,749
—
31,894
45,838
22,058
2.08
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 and other charges: We have incurred charges due to the restructuring of various parts of our business, including the
restructuring plan announced in the fourth quarter of 2020 to reduce operating costs to address the impact of the COVID-19 pandemic on our
business. Restructuring charges have primarily consisted of costs associated with office space consolidations, including lease impairment
charges and accelerated depreciation on lease-related property and equipment, and severance charges. Additionally, we have excluded the
effect of a $0.8 million one-time charge incurred during the first quarter of 2020 related to redundant administrative costs in our corporate
operations which is recorded within selling, general and administrative expenses on our consolidated statement of operations. We have
excluded the effect of the restructuring charges and other charges from our non-GAAP measures to permit comparability with periods that
were not impacted by these items.
Litigation and other gains, net: We have excluded the effects of litigation and other gains, net which primarily consist of net remeasurement
gains related to contingent acquisition liabilities and litigation settlement losses and gains to permit comparability with periods that were not
impacted by these items.
Transaction-related expenses: To permit comparability with prior periods, we excluded the impact of third-party legal and accounting fees
incurred in 2020 related to the acquisitions of ForceIQ, Inc., which closed effective November 1, 2020, and Unico Solution, Inc., which closed
effective February 1, 2021. See Note 3 “Acquisitions” within the notes to our consolidated financial statements and the “Subsequent Event”
section below for additional information on these acquisitions. We also excluded the impact of third-party legal and accounting fees incurred
in 2019 related to the evaluation of a potential acquisition that ultimately did not consummate.
Goodwill impairment charges: We excluded the effect of the goodwill impairment charges recognized in the first quarter of 2020 as these are
infrequent events and their exclusion permits comparability with periods that were not impacted by such charges.
Non-cash interest on convertible notes: We incurred 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 was treated as a debt discount and amortized to interest
expense over the life of the Convertible Notes using the effective interest rate method. We excluded 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.
26
Unrealized gain on preferred stock investment: We have excluded the effect of an unrealized gain recognized in 2020 related to the fair value
of our preferred stock investment in Medically Home Group, Inc. (“Medically Home”), which is included as a component of other income
(expense), net, as management believes that this gain is not indicative of the ongoing performance of our business and its exclusion permits
comparability with prior periods. See Note 13 “Fair Value of Financial Instruments” within the notes to our consolidated financial statements
for additional information on our preferred stock investment in Medically Home.
Losses on sales of businesses: We have excluded the effect of non-operating losses recognized as a result of sales of businesses as they
are infrequent, management believes that these items are not indicative of the ongoing performance of our business, and their exclusion
permits comparability with periods that were not impacted by such items. The 2020 loss primarily relates to the sale of our U.K. life sciences
drug safety practice within the Business Advisory segment in the fourth quarter of 2020; and the 2018 loss relates to the sale of our Middle
East practice within the Business Advisory segment in the second quarter of 2018.
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 of adjustments: The non-GAAP income tax adjustment reflects the incremental tax impact applicable to the non-GAAP
adjustments.
Tax expense related to the enactment of Tax Cuts and Jobs Act of 2017 (“2017 Tax Reform”): We have excluded the impact of the 2017 Tax
Reform, which was enacted in the fourth quarter of 2017. The net tax expense recorded in 2018 was due to a valuation allowance for foreign
tax credits and an adjustment to our withholding tax on outside basis differences due to our change in assertion for permanent reinvestment,
which were partially offset by U.S. federal return to provision adjustments related to 2017 Tax Reform items on our 2017 corporate tax return.
The exclusion of the 2017 Tax Reform impact permits comparability with periods that were not impacted by this item.
Tax benefit related to "check-the-box" election: We have excluded the positive impact of a tax benefit, recorded in the third quarter of 2019,
from recognizing a previously unrecognized tax benefit due to the expiration of statute of limitations on our “check-the-box” election made in
2015 to treat certain wholly-owned foreign subsidiaries as disregarded entities for U.S. federal income tax purposes. The exclusion of this
discrete tax benefit permits comparability with periods that were not impacted by this item. Refer to Note 17 “Income Taxes” within the notes
to the consolidated financial statements for additional information.
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, 2020, GAAP diluted weighted
average shares outstanding equals the basic weighted average shares outstanding for that period. For the year ended December 31, 2020,
the non-GAAP adjustments described above resulted in adjusted net income from continuing operations. Therefore, we included the dilutive
common stock equivalents in the calculation of adjusted diluted weighted average shares outstanding for that period.
Year Ended December 31, 2020 Compared to Year Ended December 31, 2019
Revenues
Revenues decreased $32.6 million, or 3.7%, to $844.1 million for the year ended December 31, 2020, from $876.8 million for the year ended
December 31, 2019. Revenues in 2020 were negatively impacted by the COVID-19 pandemic as some clients reprioritized or delayed certain
projects, primarily in our Healthcare and Education segments. Conversely, the COVID-19 pandemic strengthened demand for other services
we provide, such as our cloud-based technology and analytics solutions within our Business Advisory segment and our restructuring and
capital advisory solutions provided to organizations in transition in our Business Advisory segment.
Of the overall $32.6 million decrease in revenues, $20.3 million was attributable to our full-time billable consultants and $12.3 million was
attributable to our full-time equivalents.
The decrease in full-time billable consultant revenues was attributable to decreased demand for services in our Healthcare and Education
segments, partially offset by strengthened demand for services in our Business Advisory segment, as discussed below in Segment Results.
The overall decrease in full-time billable consultant revenues reflected overall decreases in the consultant utilization rate and average billing
rate, partially offset by an overall increase in the average number of full-time billable consultants in 2020 compared to 2019.
The decrease in full-time equivalent revenues was attributable to a decrease in full-time equivalent revenues in our Healthcare segment,
partially offset by increases in full-time equivalent revenues in our Business Advisory and Education segments, as discussed below in
Segment Results; and reflected an overall decrease in revenue per full-time equivalent, partially offset by an overall increase in the average
number of full-time equivalents.
27
In 2020, the COVID-19 pandemic negatively impacted sales and elongated the sales cycle for new opportunities for certain services,
particularly within our Healthcare and Education segments where some clients reprioritized or delayed certain projects. Given the
uncertainties around the duration of the COVID-19 pandemic, we continue to remain cautious about revenue growth in the first half of 2021.
The COVID-19 pandemic has caused the need for many companies to accelerate their digital transformation to drive operational efficiencies,
better engage with their customers, and make better data-driven decisions. This has resulted in strong demand for our digital, technology and
analytic offerings, particularly within our Business Advisory segment. Indicative of our expectations for future growth in this segment, we
continue to make investments in these offerings, both organically and through strategic acquisitions, such as our acquisitions of ForceIQ in
November 2020 and Unico Solutions in February 2021, and new offerings and capabilities within this segment where we see strategic
opportunities.
Total Direct Costs
Direct costs, excluding amortization of intangible assets and software development costs, increased $16.8 million, or 2.9%, to $592.4 million
for the year ended December 31, 2020 from $575.6 million for the year ended December 31, 2019. The overall $16.8 million increase in
direct costs primarily related to a $27.1 million increase in salaries and related expenses for our revenue-generating professionals, which was
largely driven by increased headcount in all of our segments and primarily reflected hiring that occurred prior to the COVID-19 pandemic, as
well as a $2.9 million increase in technology expenses and a $2.3 million increase in share-based compensation expense for our revenue-
generating professionals. These increases were partially offset by an $8.0 million decrease in performance bonus expense for our revenue-
generating professionals, a $4.5 million decrease in signing, retention and other bonus expense for our revenue-generating professionals,
and a $2.3 million decrease in product and event costs. As a percentage of revenues, our direct costs increased to 70.2% during 2020
compared to 65.7% during 2019, primarily due to the increase in salaries and related expenses for our revenue-generating professionals,
partially offset by the decrease in performance bonus expense for our revenue-generating professionals, as a percentage of revenues.
Total direct costs included $5.4 million of amortization expense for internal software development costs and intangible assets for both years
ended December 31, 2020 and 2019. Intangible asset amortization included within total direct costs related to technology and software,
certain customer relationships, and customer contracts acquired in connection with our business acquisitions. See Note 4 “Goodwill and
Intangible Assets” within the notes to our consolidated financial statements for additional information on our intangible assets.
Operating Expenses and Other Gains, Net
Selling, general and administrative expenses decreased $32.4 million, or 15.9%, to $170.7 million for the year ended December 31, 2020,
compared to $203.1 million for the year ended December 31, 2019. The $32.4 million decrease primarily related to an $11.9 million decrease
in promotion and marketing expenses, a $5.1 million decrease in performance bonus expense for our support personnel, a $3.2 million
decrease in training expenses, a $3.2 million decrease in practice administration and meetings expenses, a $2.3 million decrease in facilities
expenses, a $2.2 million decrease in third-party consulting expenses, a $1.8 million decrease in recruiting expenses, a $1.7 million decrease
in share-based compensation expense for our support personnel, and a $1.1 million decrease in legal expenses. The decreases in promotion
and marketing expenses, training expenses, practice administration and meetings expenses, and recruiting expenses primarily related to the
cancellation or delay of in-person meetings and events and business travel due to the COVID-19 pandemic. The decrease in share-based
compensation expense primarily related to a decrease in the expected funding of performance-based share awards for executive officers.
The decrease in legal expenses was primarily due to third-party transaction-related expenses related to the evaluation of a potential
acquisition in the second quarter of 2019 that ultimately did not consummate. As a percentage of revenues, selling, general and
administrative expenses decreased to 20.2% during 2020 compared to 23.2% during 2019, primarily due to the decreases in promotion and
marketing expenses, performance bonus expense for our support personnel and training expenses, all as percentages of revenues.
Restructuring charges for the year ended December 31, 2020 totaled $20.5 million, compared to $1.9 million for the year ended
December 31, 2019. In the fourth quarter of 2020, we announced a restructuring plan to reduce operating costs to address the impact of the
COVID-19 pandemic on our business. The restructuring plan provided for a reduction in certain leased office spaces which included a portion
of our principal executive office in Chicago, Illinois; the remaining portion of our Lake Oswego, Oregon office; our Boston, Massachusetts and
Detroit, Michigan offices; and portions of our Denver, Colorado, New York City, New York, and Pensacola, Florida offices. As a result, we
recognized $13.2 million of non-cash lease impairment charges on the related operating lease right-of-use (“ROU”) assets and fixed assets
which we intend to sublease, and $0.7 million of accelerated amortization and depreciation on the related operating lease ROU assets and
fixed assets we intend to abandon. The non-cash lease impairment charges include an estimate of future sublease income. Any significant
decline in the estimated amount or delayed timing of sublease income could result in additional non-cash lease impairment charges. See
Note 5 “Leases” within the notes to our consolidated financial statements for additional information on our leases. The restructuring plan
announced in the fourth quarter of 2020 also included a reduction in workforce, which resulted in a $4.8 million restructuring charge for
employee severance costs; of which $2.0 million related to our Education segment, $1.2 million related to our Healthcare segment, $1.0
million related to our Business Advisory segment, and $0.6 million related to our corporate operations. As of December 31, 2020, $2.4 million
of the $4.8 million restructuring charge related to employee severance costs remained outstanding and is expected to be paid in the first
quarter of 2021. We expect approximately $2.5 million of ongoing lease-related costs to be reflected as restructuring charges in 2021. As a
28
result of the reduction in workforce, we expect to realize annualized savings of approximately $21.0 million related to employee salaries and
related benefits. As a result of the reduction in leased office space, we expect to realize annualized savings of approximately $1.0 million in
lease-related expense. Additional restructuring charges recognized in 2020 include a $1.2 million accrual for the termination of a third-party
advisor agreement in our Business Advisory segment and $0.4 million related to workforce reductions completed prior to the fourth quarter of
2020 to better align resources with market demand.
During 2019, we exited a portion of our Lake Oswego, Oregon office resulting in a $0.7 million lease impairment charge on the related
operating lease ROU asset and leasehold improvements and $0.2 million of accelerated depreciation on furniture and fixtures in that office.
Additionally, during 2019, we exited the remaining portion of our Middleton, Wisconsin office and an office space in Houston, Texas, resulting
in restructuring charges of $0.4 million and $0.1 million, respectively, which primarily related to accelerated depreciation on related furniture
and fixtures in those offices. During the fourth quarter of 2019, we entered into an amendment to the lease of our principal executive offices in
Chicago, Illinois. Among other items, the amendment terminated the lease with respect to certain leased space which we previously vacated
and currently sublease to a third-party. As a result of the amendment, we recognized a restructuring gain of $0.4 million. See Note 5 “Leases”
within the notes to our consolidated financial statements for additional information on our leases. Additional restructuring charges during 2019
included $0.6 million related to workforce reductions to better align resources with market demand and workforce reductions in our corporate
operations. See Note 11 “Restructuring Charges” within the notes to our consolidated financial statements for additional information on our
restructuring events.
Litigation and other gains, net totaled a gain of $0.2 million for the year ended December 31, 2020, which consisted of a litigation settlement
gain for the resolution of a claim that was settled in the first quarter of 2020. Litigation and other gains, net totaled a net gain of $1.2 million
for the year ended December 31, 2019, which primarily consisted of $1.5 million of remeasurement gains to decrease the estimated fair value
of our liabilities for contingent consideration payments related to business acquisitions, partially offset by a $0.4 million litigation loss accrual
related to the legal claim that was subsequently settled during the first quarter of 2020. 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 13 “Fair Value of Financial Instruments” within the notes to our consolidated financial
statements for additional information on the fair value of contingent consideration liabilities.
Depreciation and amortization expense decreased $4.1 million, or 14.4%, to $24.3 million for the year ended December 31, 2020, from $28.4
million for the year ended December 31, 2019. The decrease was primarily attributable to a decrease in amortization expense for the trade
name acquired in our Studer Group acquisition that was fully amortized in the fourth quarter of 2019; decreasing amortization expense for
customer relationships due to the accelerated basis of amortization in prior periods, including the customer relationships acquired in our
Studer Group acquisition; and customer relationships acquired in other business acquisitions that were fully amortized in prior periods.
Intangible asset amortization included within operating expenses for the years ended December 31, 2020 and 2019 primarily related to
certain customer relationships, trade names and non-competition agreements acquired in connection with our business acquisitions. See
Note 4 “Goodwill and Intangible Assets” within the notes to our consolidated financial statements for additional information on our intangible
assets.
During the first quarter of 2020, we recorded $59.8 million of non-cash pretax goodwill impairment charges related to our Strategy and
Innovation and Life Sciences reporting units within our Business Advisory segment primarily related to the expected decline in sales,
increased uncertainty in the backlog and a decrease in the demand for the services these reporting units provide as a result of the COVID-19
pandemic. These charges are non-cash in nature and do not affect our liquidity or debt covenants. The non-cash goodwill impairment charge
related to the Strategy and Innovation reporting unit reduced the goodwill balance of the reporting unit to $37.5 million as of March 31, 2020.
The non-cash goodwill impairment charge related to the Life Sciences reporting unit reduced the goodwill balance to zero as of March 31,
2020. Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2020 on all reporting units with goodwill
balances and concluded that the fair value of each reporting unit exceeded its carrying value. See the “Critical Accounting Policies” section
below and Note 4 “Goodwill and Intangible Assets” within the notes to our consolidated financial statements for additional information on the
goodwill impairment tests performed in 2020.
Operating Income (Loss)
Operating income decreased $92.6 million, to an operating loss of $28.9 million for the year ended December 31, 2020, from operating
income of $63.7 million for the year ended December 31, 2019. This decrease is primarily attributable to the $59.8 million non-cash pretax
goodwill impairment charges related to our Business Advisory segment that were recognized in the first quarter of 2020, the decrease in
revenues, the increase in salaries and related expenses for our revenue-generating professionals, and the increase in restructuring charges;
partially offset by the decrease in selling, general and administrative expenses as discussed above. See the “Critical Accounting Policies”
section below and Note 4 “Goodwill and Intangible Assets” within the notes to our consolidated financial statements for additional information
on the non-cash goodwill impairment charges. Operating margin, which is defined as operating income (loss) expressed as a percentage of
revenues, decreased to (3.4)% in 2020 compared to 7.3% in 2019. The decrease in operating margin was primarily attributable to the
goodwill impairment charges recognized in 2020 and the increases in salaries and related expenses for our revenue-generating professionals
29
and restructuring charges. These decreases to the operating margin were partially offset by the decrease in selling, general and
administrative expenses, as a percentage of revenues.
Total Other Expense, Net
Interest expense, net of interest income decreased $6.4 million to $9.3 million for the year ended December 31, 2020 from $15.6 million for
the year ended December 31, 2019, primarily due to the maturity of our Convertible Notes on October 1, 2019, partially offset by higher levels
of borrowing under our credit facility in 2020 compared to 2019. See the “Liquidity and Capital Resources” section below and Note 7
“Financing Arrangements” within the notes to our consolidated financial statements for additional information on our Convertible Notes and
credit facility.
Other income, net totaled $4.3 million for the year ended December 31, 2020 and primarily consisted of a $4.1 million net gain related to the
increase in the market value of our investments that are used to fund our deferred compensation liability; a $1.7 million unrealized gain
related to the increase in the fair value of our preferred stock investment in Medically Home Group, Inc.; and a $1.5 million loss on sale of
business recorded in the fourth quarter of 2020. On December 30, 2020, we sold our U.K. life sciences drug safety practice that was part of
the Life Sciences reporting unit within our Business Advisory segment to former employees. The sale did not meet the criteria for reporting
separately as discontinued operations. In 2020, this practice generated $2.3 million of revenue and was not significant to our consolidated
financial statements. See Note 13 “Fair Value of Financial Instruments” within the notes to our consolidated financial statements for additional
information on our preferred stock investment in Medically Home Group, Inc. Other income, net totaled $4.4 million for the year ended
December 31, 2019 and primarily consisted of a $4.5 million net gain related to the increase in the market value of our investments that are
used to fund our deferred compensation liability.
Income Tax Expense (Benefit)
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES
Act”), a nearly $2 trillion emergency economic stimulus package in response to the COVID-19 outbreak, which among other items, includes
income tax provisions relating to a five-year net operating loss carryback period and technical corrections to tax depreciation methods for
qualified improvement property. During 2020, as a result of the CARES Act, we recognized a $1.5 million tax benefit related to the
remeasurement of a portion of our income tax receivable for the federal net operating loss incurred in 2018 and the expected federal net
operating loss in 2020 that will be carried back to prior year income, both for a refund at the higher, prior year tax rate.
For the year ended December 31, 2020, our effective tax rate was 30.0% as we recognized an income tax benefit from continuing operations
of $10.2 million on a loss from continuing operations of $33.9 million. For the year ended December 31, 2019, our effective tax rate was
20.0% as we recognized income tax expense from continuing operations of $10.5 million on income from continuing operations of $52.5
million.
The effective tax rate for 2020 was more favorable than the statutory rate, inclusive of state income taxes, of 26.5%, primarily due to the tax
benefit related to the CARES Act described above, a discrete tax benefit for share-based compensation awards that vested primarily in the
first quarter of 2020, the positive impact of certain federal tax credits and a tax benefit related to non-taxable gains on our investments used
to fund our deferred compensation liability. These favorable items were partially offset by increases in our valuation allowance primarily due
to increases in deferred tax assets recorded for foreign tax credits, certain nondeductible business expenses and the nondeductible portion of
the goodwill impairment charges recorded during the first quarter of 2020.
The effective tax rate for 2019 was more favorable than the statutory rate, inclusive of state income taxes, of 25.9%, primarily due to federal
and state tax credits, a tax benefit related to the change in valuation allowance primarily due to realizing deferred tax assets recorded for
foreign tax credits, and a tax benefit related to non-taxable gains on our investments used to fund our deferred compensation liability. These
favorable items were partially offset by additional tax expense related to disallowed executive compensation.
See Note 17 “Income Taxes” within the notes to our consolidated financial statements for additional information on our income tax expense
(benefit).
Net Income (Loss) from Continuing Operations and Earnings (Loss) per Share
Net income from continuing operations decreased by $65.7 million to a net loss from continuing operations of $23.7 million for the year ended
December 31, 2020, from net income from continuing operations of $42.0 million for the year ended December 31, 2019. This decrease is
primarily attributable to the $59.8 million non-cash goodwill impairment charges related to our Business Advisory segment recognized in the
first quarter of 2020; the decrease in revenues; the increase in salaries and related expenses for our revenue-generating professionals; and
the increase in restructuring charges in 2020 compared to 2019, primarily related to the $18.7 million of restructuring charges recognized in
the fourth quarter of 2020; partially offset by the decrease in selling, general and administrative expenses in 2020 compared to 2019 and the
related tax impact of these items. Diluted loss per share from continuing operations for the year ended December 31, 2020 was $1.08
compared to diluted earnings per share from continuing operations of $1.87 for 2019. The non-cash goodwill impairment charges and the
30
restructuring charges related to the fourth quarter 2020 restructuring plan had unfavorable impacts on our diluted earnings per share from
continuing operations of $2.07 and $0.63, respectively.
EBITDA and Adjusted EBITDA
EBITDA decreased $96.8 million to $5.1 million for the year ended December 31, 2020, from $101.9 million for the year ended December 31,
2019. The decrease in EBITDA was primarily attributable to the non-cash goodwill impairment charges of $59.8 million recognized in the first
quarter of 2020, the decrease in revenues, and the increases in salaries and related expenses for our revenue-generating professionals and
restructuring charges in 2020 compared to 2019; partially offset by the decrease in selling, general and administrative expenses in 2020
compared to 2019.
Adjusted EBITDA decreased $18.2 million to $87.1 million in 2020 from $105.4 million in 2019. The decrease in adjusted EBITDA was
primarily attributable to the decrease in revenues and increase in salaries and related expenses for our revenue-generating professionals in
2020 compared to 2019; partially offset by the decrease in selling, general and administrative expenses, excluding transaction-related
expenses related to the evaluation of acquisitions, in 2020 compared to 2019.
Adjusted Net Income from Continuing Operations and Adjusted Earnings per Share
Adjusted net income from continuing operations decreased $13.7 million to $47.9 million for the year ended December 31, 2020, compared to
$61.6 million for the year ended December 31, 2019. As a result of the decrease in adjusted net income from continuing operations, adjusted
diluted earnings per share from continuing operations was $2.15 in 2020 compared to $2.74 in 2019.
Segment Results
Healthcare
Revenues
Healthcare segment revenues decreased $45.8 million, or 11.5%, to $353.4 million for the year ended December 31, 2020, from $399.2
million for the year ended December 31, 2019, primarily due to the negative impact of the COVID-19 pandemic on demand for our services
within this segment, as some clients reprioritized and delayed certain projects as a result of the uncertainties surrounding the pandemic.
For the year ended December 31, 2020, revenues from fixed-fee arrangements; time-and-expense arrangements; performance-based
arrangements; and software support, maintenance and subscription arrangements represented 57.3%, 16.5%, 19.6%, and 6.6% of this
segment’s revenues, respectively, compared to 62.5%, 13.8%, 17.8%, and 5.9%, respectively, in 2019. Performance-based fee revenue was
$69.3 million in 2020, compared to $71.1 million in 2019. The level of performance-based fees earned may vary based on our clients’ risk
sharing preferences and the mix of services we provide.
Of the overall $45.8 million decrease in revenues, $26.3 million was attributable to a decrease in revenues from our full-time billable
consultants and $19.5 million was attributable to our full-time equivalents. The decrease in revenues attributable to our full-time billable
consultants reflected a decrease in the consultant utilization rate, partially offset by increases in the average billing rate and the average
number of full-time billable consultants in 2020 compared to 2019. The decrease in revenues attributable to our full-time equivalents reflected
a decrease in revenue per full-time equivalent, partially offset by an increase in the average number of full-time equivalents in 2020 compared
to 2019.
Operating Income
Healthcare segment operating income decreased $30.8 million, or 24.5%, to $94.9 million for the year ended December 31, 2020, from
$125.7 million for the year ended December 31, 2019. The Healthcare segment operating margin, defined as segment operating income
expressed as a percentage of segment revenues, decreased to 26.9% in 2020 from 31.5% in 2019. The decrease in this segment’s operating
margin was primarily attributable to an increase in salaries and related expenses for our revenue-generating professionals; partially offset by
decreases in performance bonus expense for our revenue-generating professionals, product and event costs, and contractor expenses, all as
percentages of revenues.
Business Advisory
Revenues
Business Advisory segment revenues increased $14.9 million, or 5.9%, to $267.4 million for the year ended December 31, 2020, from $252.5
million for the year ended December 31, 2019, primarily related to strengthened demand for our cloud-based technology and analytics
solutions and our restructuring and capital advisory solutions provided to organizations in transition.
31
For the year ended December 31, 2020, revenues from fixed-fee arrangements; time-and-expense arrangements; performance-based
arrangements; and software support, maintenance and subscription arrangements represented 38.0%, 57.1%, 3.0%, and 1.9% of this
segment's revenues, respectively, compared to 39.9%, 55.3%, 2.7%, and 2.1%, respectively, in 2019. Performance-based fee revenue for
the year ended December 31, 2020 was $8.1 million compared to $6.9 million in 2019. The level of performance-based fees earned may vary
based on our clients’ preferences and the mix of services we provide.
Of the overall $14.9 million increase in revenues, $10.4 million was attributable to an increase in revenues generated by our full-time billable
consultants and $4.5 million was attributable to an increase in revenues generated by our full-time equivalents. The increase in revenues
from our full-time billable consultants reflected an increase in the average number of full-time billable consultants, partially offset by a
decrease in the average billing rate in 2020 compared to 2019. The increase in revenues from our full-time equivalents was driven by an
increased use of contractors and reflected an increase in the average number of full-time equivalents, partially offset by a decrease in
revenue per full-time equivalent in 2020 compared to 2019.
Operating Income
Business Advisory segment operating income decreased by $1.6 million, or 3.3%, to $48.0 million for the year ended December 31, 2020,
compared to $49.7 million for the year ended December 31, 2019. The Business Advisory segment operating margin decreased to 18.0% for
2020 from 19.7% for 2019. The decrease in this segment’s operating margin was partially attributable to a higher percentage of this
segment's revenues derived from our lower margin solutions in 2020 compared to 2019. Additionally, the decrease in this segment’s
operating margin was attributable to overall increases in performance bonus expense for our revenue-generating professionals, contractor
expenses, restructuring charges, and share-based compensation expense for our revenue-generating professionals, as percentages of
revenues; partially offset by overall decreases in promotion and marketing expenses and signing, retention and other bonus expense for our
revenue-generating professionals. The restructuring charges within the Business Advisory segment in 2020 primarily related to the
termination of a third-party advisor agreement.
The non-cash goodwill impairment charges related to the Strategy and Innovation and Life Sciences reporting units within the Business
Advisory segment, which are discussed above within consolidated results, are not allocated at the segment level because the underlying
goodwill asset is reflective of our corporate investment in the segment. 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 4 “Goodwill and Intangible Assets” within
the notes to our consolidated financial statements for additional information on the goodwill impairment charges and our goodwill balances.
Education
Revenues
Education segment revenues decreased $1.7 million, or 0.8%, to $223.3 million for the year ended December 31, 2020, from $225.0 million
for the year ended December 31, 2019. The decrease in revenues was primarily related to the negative impact of the COVID-19 pandemic on
demand for our on-premise technology consulting solutions, largely offset by an increase in demand for our cloud-based technology and
analytics solutions and strategy and research consulting solutions in the first half of 2020.
For the year ended December 31, 2020, revenues from fixed-fee arrangements; time-and-expense arrangements; performance-based
arrangements; and software support, maintenance and subscription arrangements represented 20.1%, 69.6%, 0.3%, and 10.0% of this
segment’s revenues, respectively. Revenues from fixed-fee arrangements; time-and-expense arrangements; and software support,
maintenance and subscription arrangements represented 23.0%, 68.8%, and 8.2% of this segment's revenues, respectively, in 2019.
Of the overall $1.7 million decrease in revenues, $4.4 million was attributable to a decrease in revenues generated by our full-time billable
consultants, partially offset by a $2.7 million increase in revenues generated by our full-time equivalents. The decrease in revenues from our
full-time billable consultants reflected decreases in the consultant utilization rate and average billing rate; partially offset by an increase in the
average number of full-time billable consultants in 2020 compared to 2019. The increase in the average number of full-time billable
consultants primarily related to hiring that occurred prior to the COVID-19 pandemic. The increase in revenues from our full-time equivalents
was primarily driven by an increase in software subscriptions and data hosting revenues; and reflected an increase in the average number of
full-time equivalents in 2020 compared to 2019.
Operating Income
Education segment operating income decreased $8.2 million, or 14.8%, to $47.5 million for the year ended December 31, 2020, from $55.7
million for the year ended December 31, 2019. The Education segment operating margin decreased to 21.3% for 2020 from 24.8% for
2019. 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 well as increases in restructuring charges and technology expenses. These decreases to the operating
margin were partially offset by decreases in performance bonus expense for our revenue-generating professionals and promotion and
marketing expenses, as percentages of revenues.
32
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents were $67.2 million, $11.6 million, and $33.1 million at December 31, 2020, 2019, and 2018, respectively. As of
December 31, 2020, 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 used in financing activities
Effect of exchange rate changes on cash
Net increase (decrease) in cash and cash equivalents
Operating Activities
2020
Year Ended December 31,
2019
2018
$
$
136,738
$
132,220
$
(42,034)
(39,615)
484
(35,002)
(118,836)
115
55,573
$
(21,503) $
101,658
(18,562)
(66,690)
(208)
16,198
Net cash provided by operating activities totaled $136.7 million and $132.2 million for the years ended December 31, 2020 and 2019,
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 increase in cash provided by operating activities in 2020 compared to 2019 was primarily attributable to a decrease in selling, general
and administrative expenses in 2020 compared to 2019 and the deferral of $12.2 million of our employer portion of social security taxes as
provided for under the CARES Act. These increases to cash provided by operating activities were partially offset by a decrease in cash
collections from clients, which was driven by a decrease in revenues, an increase in payments to employees for salaries and related benefits
in 2020 compared to 2019, and an increase in the amount paid for annual performance bonuses in the first quarter of 2020 compared to the
first quarter of 2019. Of the $12.2 million of social security taxes deferred, we expect to pay $6.1 million in the fourth quarter of 2021 and the
remaining $6.1 million in the fourth quarter of 2022.
Investing Activities
Net cash used in investing activities was $42.0 million and $35.0 million for the years ended December 31, 2020 and 2019, respectively.
The use of cash in 2020 primarily consisted of $13.0 million for the purchase of of an additional convertible debt investment in Shorelight
Holdings, LLC in the first quarter of 2020; $8.7 million for purchases of businesses in the second half of 2020; $8.3 million for payments
related to internally developed software; $8.1 million for purchases of property and equipment, primarily related to purchases of computers
and related equipment and leasehold improvements and furniture for certain office spaces; $2.5 million for contributions to our life insurance
policies which fund our deferred compensation plan; and $1.5 million for payments related to the divestiture of our U.K. life sciences drug
safety practice within the Business Advisory segment.
The use of cash in 2019 primarily consisted of $13.2 million for purchases of property and equipment, primarily related to purchases of
computers and network equipment and leasehold improvements for new office spaces in certain locations; $10.3 million for payments related
to internally developed software; $5.0 million for a purchase of preferred stock securities of Medically Home Group, Inc. in the fourth quarter
of 2019; $4.7 million for contributions to our life insurance policies which fund our deferred compensation plan; and $2.5 million for the
purchase of a business in the third quarter of 2019.
We estimate that cash utilized for purchases of property and equipment and software development in 2021 will total approximately $15 million
to $20 million; primarily consisting of information technology related equipment to support our corporate infrastructure, leasehold
improvements for certain office locations, and software development costs.
Financing Activities
Net cash used in financing activities was $39.6 million and $118.8 million for the years ended December 31, 2020 and 2019, respectively.
33
During 2020, we borrowed $283.0 million under our credit facility, all of which was in the first quarter of 2020, including $125.0 million in
March 2020 to maintain excess cash and support liquidity during the period of uncertainty created by the COVID-19 pandemic, as well as to
fund our annual performance bonus payment. During 2020, we made repayments on our credit facility of $288.0 million due to our ability to
maintain adequate cash flows from operations and improved clarity around access to capital resources during the COVID-19 pandemic, and
repayments of $0.6 million on our promissory note due 2024. Additionally, we repurchased and retired $25.9 million of our common stock
under our share repurchase programs, discussed below, and settled $1.2 million of share repurchases that were accrued as of December 31,
2019.
During 2019, we borrowed $347.0 million under our credit facility, of which $217.0 million was used to repay a portion of the $250.0 million
outstanding principal on our Convertible Notes in the fourth quarter of 2019. The remaining $33.0 million outstanding principal on our
Convertible Notes was repaid with cash on hand. During 2019, we also made repayments on our credit facility of $192.5 million. Additionally,
we repurchased and retired $14.2 million of our common stock under our share repurchase program discussed below, of which $1.2
million settled in the first quarter of 2020. During 2019, we paid $10.0 million to the sellers of certain business acquisitions for achieving
specified financial performance targets in accordance with the related purchase agreements. Of the total $10.0 million paid, $4.7 million is
classified as a cash outflow from financing activities and represents the amount paid up to the initial fair value of contingent consideration
liability recorded as of the acquisition date. The remaining $5.3 million is classified as a cash outflow from operating activities.
Share Repurchase Programs
In November 2020, our board of directors authorized a share repurchase program (the “2020 Share Repurchase Program”) permitting us to
repurchase up to $50 million of our common stock through December 31, 2021. The 2020 Share Repurchase Program was authorized
subsequent to the expiration of our prior share repurchase program (the “2015 Share Repurchase Program”) on October 31, 2020. The 2015
Share Repurchase Program permitted us to repurchase up to $125 million of our common stock through October 31, 2020. The 2020 Share
Repurchase Program and 2015 Share Repurchase Program are collectively known as the “Share Repurchase Programs.” The amount and
timing of repurchases under the Share Repurchase Programs were and will continue to be determined by management and depend on a
variety of factors, including the trading price of our common stock, capacity under our credit facility, general market and business conditions,
and applicable legal requirements.
In 2020, we repurchased and retired 425,164 shares for $25.9 million under the Share Repurchase Programs. Additionally, in the first quarter
of 2020, we settled the repurchase of 18,000 shares for $1.2 million that were accrued as of December 31, 2019. As of December 31, 2020,
$45.0 million remained available for share repurchases under the 2020 Share Repurchase Program.
Financing Arrangements
At December 31, 2020, we had $200.0 million outstanding under our senior secured credit facility and $3.3 million outstanding under a
promissory note, as discussed below.
Senior Secured Credit Facility
The Company has a $600 million senior secured revolving credit facility, subject to the terms of a Second Amended and Restated Credit
Agreement dated as of March 31, 2015, as amended to date (as amended and modified the "Amended Credit Agreement"), that becomes
due and payable in full upon maturity on September 27, 2024. The Amended Credit Agreement provides the option to increase the revolving
credit facility or establish term loan facilities in an aggregate amount of up to $150 million, subject to customary conditions and the approval
of any lender whose commitment would be increased, resulting in a maximum available principal amount under the Amended Credit
Agreement of $750 million. 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 1.125% per annum and 1.875% per annum, in the case of
LIBOR borrowings, or between 0.125% per annum and 0.875% per annum, in the case of base rate loans, based upon our Consolidated
Leverage Ratio at such time.
Amounts borrowed under the Amended Credit Agreement may be prepaid at any time without premium or penalty. We are required to prepay
the amounts outstanding under the Amended Credit Agreement in certain circumstances. In addition, we have the right to permanently
reduce or terminate the unused portion of the commitments provided under the Amended Credit Agreement at any time.
The Amended Credit Agreement contains usual and customary representations and warranties; affirmative and negative covenants, which
include limitations on liens, investments, additional indebtedness, and restricted payments; and two quarterly financial covenants as follows:
(i) a maximum Consolidated Leverage Ratio (defined as the ratio of debt to consolidated EBITDA) of 3.75 to 1.00; however, the maximum
permitted Consolidated Leverage Ratio will increase to 4.00 to 1.00 upon the occurrence of certain Qualified Acquisitions (as defined in the
34
Amended Credit Agreement), and (ii) a minimum Consolidated Interest Coverage Ratio (defined as the ratio of consolidated EBITDA to
interest) of 3.50 to 1.00. Consolidated EBITDA for purposes of the financial covenants is calculated on a continuing operations basis and
includes adjustments to add back non-cash goodwill impairment charges, share-based compensation costs, certain non-cash restructuring
charges, pro forma historical EBITDA for businesses acquired, and other specified items in accordance with the Amended Credit Agreement.
For purposes of the Consolidated Leverage Ratio, total debt is on a gross basis and is not netted against our cash balances. At
December 31, 2020 and December 31, 2019, we were in compliance with these financial covenants. Our Consolidated Leverage Ratio as of
December 31, 2020 was 1.94 to 1.00, compared to 1.64 to 1.00 as of December 31, 2019. Our Consolidated Interest Coverage Ratio as of
December 31, 2020 was 12.51 to 1.00, compared to 15.29 to 1.00 as of December 31, 2019. The increase in our Consolidated Leverage
Ratio as of December 31, 2020 compared to December 31, 2019 was driven by decreased profitability in 2020 compared to 2019, as
discussed in the “Results of Operations” section above.
The Amended Credit Agreement contains restricted payment provisions, including a potential limit on the amount of dividends we may pay.
Pursuant to the terms of the Amended Credit Agreement, if our Consolidated Leverage Ratio is greater than 3.25, the amount of dividends
and other Restricted Payments (as defined in the Amended Credit Agreement) we may pay is limited to an amount up to $25 million.
Principal borrowings outstanding under the Amended Credit Agreement at December 31, 2020 and December 31, 2019 totaled $200.0 million
and $205.0 million, respectively. These borrowings carried a weighted average interest rate of 2.5% at December 31, 2020 and 3.0% at
December 31, 2019 including the impact of the interest rate swap described in Note 12 “Derivative Instruments and Hedging Activity" within
the notes to the consolidated financial statements. 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, 2020 and 2019, we had outstanding letters of
credit totaling $1.6 million and $1.7 million, respectively, which are primarily used as security deposits for our office facilities, and the unused
borrowing capacity under the revolving credit facility was $398.4 million and $393.3 million, respectively.
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 Agreement, 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 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, 2020, the outstanding principal amount of the promissory note was $3.3 million, and the aircraft had a carrying amount of $4.4
million. At December 31, 2019, the outstanding principal amount of the promissory note was $3.9 million, and the aircraft had a carrying
amount of $5.1 million.
For further information, see Note 7 “Financing Arrangements” within the notes to the consolidated financial statements.
Future Needs
Our current primary financing need is to support our operations during the COVID-19 pandemic. The pandemic has created significant
volatility and uncertainty in the economy, which could limit our access to capital resources and could increase our borrowing costs. In order to
support our liquidity during the pandemic, we took proactive measures to increase available cash on hand, including, but not limited to,
borrowing under our senior secured credit facility in the first quarter of 2020 and reducing discretionary operating and capital expenses. To
further support our liquidity, we elected to defer the deposit of our employer portion of social security taxes beginning in April 2020 and
through the end of the year, which we expect to pay in equal installments in the fourth quarters of 2021 and 2022, as provided for under the
CARES Act. Our long-term 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, and the borrowing capacity available
under our revolving credit facility will be adequate to support our current financing needs and long-term growth strategy. Our ability to secure
additional financing, if needed, in the future will depend on several factors, including our future profitability, the quality of our accounts
receivable and unbilled services, our relative levels of debt and equity, and the overall condition of the credit markets.
35
CONTRACTUAL OBLIGATIONS
The following table represents our significant obligations and commitments as of December 31, 2020 and the scheduled years of payments
(in thousands).
Payments Due by Period
Total
2021
2022-2023
2024-2025
$
$
6,518
558
11,572
15,954
6,094
$
13,035
1,229
23,506
8,399
6,094
204,888
1,655
22,052
2,297
—
$
Thereafter
—
—
24,613
—
—
Long-term bank borrowings—principal and interest (1) $
Promissory note—principal and interest (2)
Operating lease obligations (3)
Purchase obligations (4)
Deferred employer payroll taxes (5)
Deferred compensation (6)
Uncertain tax positions (7)
Total contractual obligations
$
224,441
3,442
81,743
26,650
12,188
34,250
765
383,479
$
40,696
$
52,263
$
230,892
$
24,613
(1) 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, 2020. 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.
(2) 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, 2020. 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.
(3) We lease our facilities under operating lease arrangements expiring on various dates through 2029, 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. Refer to Note 5 “Leases” within the notes to our consolidated financial statements for
more information on our operating lease obligations.
(4) 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.
(5) As allowed under the provisions of the CARES Act enacted in the first quarter of 2020, we elected to defer the deposit of our employer
portion of social security tax payments beginning in April 2020 through December 31, 2020. As of December 31, 2020, we deferred
$12.2 million of such payments, which we expect to pay in equal installments in the fourth quarters of 2021 and 2022.
(6)
Included in deferred compensation and other liabilities on our consolidated balance sheet as of December 31, 2020 is a $34.3 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 funded by
corresponding deferred compensation plan assets. Refer to Note 15 “Employee Benefit and Deferred Compensation Plans” within the
notes to our consolidated financial statements for more information on our deferred compensation plan.
(7) Our liabilities for uncertain tax positions are classified as non-current and includes the accrual of potential payment of interest and
penalties. We are unable to reasonably estimate the timing of future payments as it depends on examinations by taxing authorities; as
such, the related balance has not been reflected in the “Payments Due by Period” section of the table.
OFF-BALANCE SHEET ARRANGEMENTS
We are not a party to any material off-balance sheet arrangements.
36
CRITICAL ACCOUNTING POLICIES
Management’s discussion and analysis of financial condition and results of operations is based upon our consolidated financial statements,
which have been prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”). Our
significant accounting policies are discussed in Note 2 “Summary of Significant Accounting Policies” within the notes to our consolidated
financial statements. We regularly review our financial reporting and disclosure practices and accounting policies to ensure that our financial
reporting and disclosures provide accurate information relative to the current economic and business environment. The preparation of
financial statements in conformity with GAAP requires management to make assessments, estimates, and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements, as well
as the reported amounts of revenues and expenses during the reporting period. Critical accounting policies 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 accounting for income taxes.
Revenue Recognition
We generate substantially all of our revenues from providing professional services to our clients. We also generate revenues from software
licenses; software support and maintenance and subscriptions to our cloud-based analytic tools and solutions; speaking engagements;
conferences; and publications. A single contract could include one or multiple performance obligations. For those contracts that have multiple
performance obligations, we allocate the total transaction price to each performance obligation based on its relative standalone selling price,
which is determined based on our overall pricing objectives, taking into consideration market conditions and other factors.
Revenue is recognized when control of the goods and services provided are transferred to our customers and in an amount that reflects the
consideration we expect to be entitled to in exchange for those goods and services using the following steps: 1) identify the contract, 2)
identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the
contract, and 5) recognize revenue as or when we satisfy the performance obligations.
We typically satisfy our performance obligations for professional services over time as the related services are provided. The performance
obligations related to software support and maintenance and subscriptions to our cloud-based analytic tools and solutions are typically
satisfied evenly over the course of the service period. Other performance obligations, such as certain software licenses, speaking
engagements, conferences, and publications, are satisfied at a point in time.
We generate our revenues under four types of billing arrangements: fixed-fee (including software license revenue); time-and-expense;
performance-based; and software support, 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 Culture and Organizational Excellence solution include fixed-fee
partner contracts with multiple performance obligations, which primarily consist of coaching services, as well as speaking engagements,
conferences, publications and software products (“Partner Contracts”). Revenues for coaching services and software products are generally
recognized on a straight-line basis over the length of the contract. All other revenues under Partner Contracts, including speaking
engagements, conferences and publications, are recognized at the time the goods or services are 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 Culture and Organizational Excellence solution. We recognize
revenues under time-and-expense arrangements as the related services or publications are provided, using the right to invoice practical
expedient which allows us to recognize revenue in the amount that we have a right to invoice based on the number of hours worked and the
agreed upon hourly rates or the value of the speaking engagements, conferences or publications purchased by our clients.
37
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 recognize
revenue under performance-based billing arrangements using the following steps: 1) estimate variable consideration using a probability-
weighted assessment of the fees to be earned, 2) apply a constraint to the estimated variable consideration to limit the amount that could be
reversed when the uncertainty is resolved (the “constraint”), and 3) recognize revenue of estimated variable consideration, net of the
constraint, based on work completed to-date versus our estimates of the total services to be provided under the engagement.
Clients that have purchased one of our software licenses can pay an annual fee for software support and maintenance. We also generate
subscription revenue from our cloud-based analytic tools and solutions. Software support, maintenance and subscription revenues are
recognized ratably over the support or subscription period. These fees are generally billed in advance and included in deferred revenues until
recognized.
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. Under fixed-fee billing
arrangements, we estimate the total amount of reimbursable expenses to be incurred over the course of the engagement and recognize the
estimated amount as revenue using a proportionate performance approach, which is based on work completed to-date versus our estimates
of the total services to be provided under the engagement. Under time-and-expense billing arrangements we recognize reimbursable
expenses as revenue as the related services are provided, using the right to invoice practical expedient. Reimbursable expenses are
recognized as expenses 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.
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 3 “Acquisitions”
within the notes to our consolidated financial statements for additional information on our acquisitions and Note 13 “Fair Value of Financial
Instruments” within the notes to our consolidated financial statements for additional information on our contingent consideration liabilities.
38
Carrying Values of Goodwill and Other Intangible Assets
We test goodwill for impairment, at the reporting unit level, annually and whenever events or circumstances make it more likely than not that
an impairment may have occurred. We perform our annual goodwill impairment test as of November 30 and monitor for interim triggering
events on an ongoing basis. A reporting unit is an operating segment or one level below an operating segment (referred to as a component)
to which goodwill is assigned when initially recorded. We assign goodwill to reporting units based on our integration plans and the expected
synergies resulting from the acquisition. As of December 31, 2020, we have six reporting units: Healthcare, Education, Business Advisory,
Strategy and Innovation, Enterprise Solutions and Analytics, and Life Sciences. The Business Advisory, Strategy and Innovation, Enterprise
Solutions and Analytics, 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
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.
In the income approach, we utilize a discounted cash flow analysis, which involves estimating the expected after-tax cash flows that will be
generated by each reporting unit and then discounting those cash flows to present value, reflecting the relevant risks associated with each
reporting unit and the time value of money. This approach requires the use of significant estimates and assumptions, including forecasted
revenue growth rates, forecasted EBITDA margins, and discount rates. Our forecasts are based on historical experience, current backlog,
expected market demand, and other industry information.
In the market approach, we utilize the guideline company method, which involves calculating revenue and EBITDA multiples based on
operating data from guideline publicly traded companies. Multiples derived from guideline companies provide an indication of how much a
knowledgeable investor in the marketplace would be willing to pay for a company. These multiples are evaluated and adjusted based on
specific characteristics of the reporting units relative to the selected guideline companies and applied to the reporting units' operating data to
arrive at an indication of value.
The following is a discussion of our goodwill impairment tests performed during 2020.
First Quarter 2020 Goodwill Impairment Test
The worldwide spread of the COVID-19 pandemic in the first quarter of 2020 has created significant volatility, uncertainty and disruption to
the global economy. From the onset of the COVID-19 pandemic, we closely monitored the impact it could have on all aspects of our
business, including how we expect it to negatively impact our clients, employees and business partners. While the COVID-19 pandemic did
not have a significant impact on our consolidated revenues in the first quarter of 2020, we expected it to have an unfavorable impact on
sales, increase uncertainty in the backlog and negatively impact full year 2020 results. The services provided by our Strategy and Innovation
and Life Sciences reporting units within our Business Advisory segment focus on strategic solutions for healthy, well-capitalized companies to
identify new growth opportunities, which may be considered by our clients to be more discretionary in nature, and the duration of the projects
within these practices are typically short-term. Therefore, at the onset of the COVID-19 pandemic in the U.S. and due to the uncertainty
caused by the pandemic, we were cautious about near-term results for these two reporting units. Based on our internal projections and the
preparation of our financial statements for the quarter ended March 31, 2020, and considering the expected decrease in demand due to the
COVID-19 pandemic, during the first quarter of 2020 we believed it was more likely than not that the fair value of these two reporting units no
longer exceeded their carrying values and performed an interim impairment test on both reporting units as of March 31, 2020.
Our goodwill impairment test was performed by comparing the fair value of each of the Strategy and Innovation and Life Sciences reporting
units with its respective carrying value and recognizing an impairment charge for the amount by which the carrying value exceeded the fair
value. To estimate the fair value of each reporting unit, we relied on a combination of the income approach and the market approach, as
discussed above, with a fifty-fifty weighting.
39
Based on the estimated fair values of the Strategy and Innovation and Life Sciences reporting units, we recorded non-cash pretax goodwill
impairment charges of $49.9 million and $9.9 million, respectively, in the first quarter of 2020. The $49.9 million non-cash pretax charge
related to the Strategy and Innovation reporting unit reduced the goodwill balance of the reporting unit to $37.5 million. The $9.9 million non-
cash pretax charge related to the Life Sciences reporting unit reduced the goodwill balance of the reporting unit to zero.
Concurrently with the goodwill impairment tests performed over the Strategy and Innovation and Life Sciences reporting units, we evaluated
whether any indicators existed that would lead us to believe that the fair values of our Healthcare, Education, and Business Advisory
reporting units would not exceed their carrying values. Our Enterprise Solutions and Analytics reporting unit did not have a goodwill balance
as of March 31, 2020. Based on our internal projections, consideration of the impact of the COVID-19 pandemic on these reporting units, and
review of the amounts by which the fair values of these reporting units exceeded their carrying values in the most recent quantitative goodwill
impairment analysis performed, we did not identify any indicators that would lead us to believe that the fair values of these reporting units
would not exceed their carrying values as of March 31, 2020.
2020 Annual Goodwill Impairment Analysis
Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2020 on our five reporting units with goodwill
balances: Healthcare, Education, Business Advisory, Strategy and Innovation, and Enterprise Solutions and Analytics. 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 the reporting unit, we relied on a combination of the income approach and the market approach, as
discussed above, with a fifty-fifty weighting. Based on the results of the goodwill impairment test, we determined the fair value of the
Healthcare, Education, Business Advisory, Strategy and Innovation, and Enterprise Solutions and Analytics reporting units exceeded their
carrying value by 42%, 132%, 584%, 29%, and 146%, respectively. As such, we concluded that there was no indication of goodwill
impairment for these five reporting units. Further, we determined that neither a 100 basis point decrease in the estimated long-term growth
rate nor a 100 basis point increase in the discount rate for each reporting unit would have resulted in an indication of goodwill impairment for
any of the reporting units.
Determining the fair value of any 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 impairment charge is recognized and also the magnitude of such charge. The results of an
impairment analysis are as of a point in time. There is no assurance that the actual future earnings or cash flows of our reporting units will be
consistent with our projections. We will continue to monitor any changes to our assumptions and will evaluate goodwill as deemed warranted
during future periods. Any significant decline in our operations compared to our internal forecasts could result in additional non-cash goodwill
impairment charges, which could be material.
The carrying value of goodwill for each of our reporting units as of December 31, 2020 is as follows (in thousands):
Reporting Unit
Healthcare
Education
Business Advisory
Strategy and Innovation
Life Sciences
Enterprise Solutions and Analytics
Total
Carrying Value
of Goodwill
$
$
428,729
104,384
16,094
37,522
—
7,508
594,237
Intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill. Our intangible assets, net
of accumulated amortization, totaled $20.5 million at December 31, 2020 and primarily consist of customer relationships, trade names,
technology and software, non-competition agreements, and customer contracts, all of which were acquired through business combinations.
We evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable. No impairment charges for intangible assets were recorded in 2020.
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.
40
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.
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.
SUBSEQUENT EVENT
On January 7, 2021, we entered into an agreement to acquire Unico Solution, Inc. (“Unico Solutions”), a data strategy and technology
consulting firm focused on helping clients enhance the use of their data to speed business transformation and accelerate cloud adoption. The
acquisition expands our cloud-based technology offerings within the Business Advisory segment. The results of operations of Unico Solutions
will be included within the Business Advisory segment from the close date, February 1, 2021. The acquisition of Unico Solutions is not
significant to our consolidated financial statements.
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
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, 2020, we had borrowings outstanding under the credit facility totaling
$200.0 million that carried a weighted average interest rate of 2.5% including the impact of the interest rate swaps described below. As of
December 31, 2020, these variable rate borrowings were fully hedged against changes in interest rates by the interest rate swaps, which
have a notional amount of $200.0 million as of December 31, 2020. A hypothetical 100 basis point change in the interest rate as of December
31, 2020 would have no impact on our pretax income, on an annualized basis, including the effect of the interest rate swaps. At December
31, 2019, our borrowings outstanding under the credit facility totaled $205.0 million which carried a weighted average interest rate of 3.0%,
including the effect of the interest rate swap in effect and described below. A hypothetical 100 basis point change in the interest rate as of
December 31, 2019, would have had a $1.6 million effect on our pretax income, on an annualized basis, including the effect of the interest
rate swap.
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 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%.
On January 30, 2020, we entered into a forward interest rate swap agreement effective December 31, 2019 and ending December 31, 2024,
with a notional amount of $50.0 million. We entered into this derivative instrument to further hedge against the interest rate risks of our
variable-rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional
amount based on one month LIBOR and we pay to the counterparty a fixed rate of 1.500%.
On March 16, 2020, we entered into a forward interest rate swap agreement effective February 28, 2020 and ending February 28, 2025, with
a notional amount of $100.0 million. We entered into this derivative instrument to further hedge against the interest rate risks of our variable-
rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount
based on one month LIBOR and we pay to the counterparty a fixed rate of 0.885%.
We also have exposure to changes in interest rates associated with the promissory note assumed on June 30, 2017 in connection with our
purchase of an aircraft, which has variable interest rates tied to LIBOR. At December 31, 2020, the outstanding principal amount of the
promissory note was $3.3 million and carried an interest rate of 2.1%. A hypothetical 100 basis point change in this interest rate would not
have a material effect on our pretax income. At December 31, 2019 the outstanding principal amount of the promissory note was $3.9 million
41
and carried an interest rate of 3.7%. A hypothetical 100 basis point change in the interest rate as of December 31, 2019 would not have had
a material effect on our pretax income.
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
concluded that we do not have material market risk exposure.
We have a 1.69% convertible debt investment in Shorelight Holdings, LLC, a privately-held company, which we account for as an available-
for-sale debt security. As such, the investment is carried at fair value with unrealized holding gains and losses excluded from earnings and
reported in other comprehensive income. As of December 31, 2020, the fair value of the investment was $64.4 million, with a total cost basis
of $40.9 million. At December 31, 2019, the fair value of the investment was $49.5 million, with a total cost basis of $27.9 million.
We have a preferred stock investment in Medically Home Group, Inc. (“Medically Home”), a privately-held company, which we account for as
an equity security without a readily determinable fair value using the measurement alternative. As such, the investment is carried at cost
minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar
investment. Any unrealized holding gains and losses resulting from observable price changes are recorded in our consolidated statement of
operations. As of December 31, 2020, the carrying value of the investment was $6.7 million, with a total cost basis of $5.0 million. At
December 31, 2019 the carrying value and total cost basis of the investment was $5.0 million. Following our purchase, we have not identified
any impairment of our investment. In October 2020, we recognized an unrealized gain of $1.7 million on our preferred stock investment
resulting from an observable price change of preferred stock with similar rights and preferences to our preferred stock investment issued by
Medically Home.
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, 2020. Based on this evaluation, our Chief Executive Officer
and Chief Financial Officer have concluded that, as of December 31, 2020, 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.
42
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, 2020 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, 2020.
The effectiveness of the Company’s internal control over financial reporting as of December 31, 2020 has been audited by
PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report appearing on page F-2 of this
Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There has been no change in our internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the
Exchange Act) during the three months ended December 31, 2020 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, 2021 (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
Not applicable.
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 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.”
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
43
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, 2020.
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)
34,208
31,785
$
$
— $
N/A
65,993
$
35.55
39.19
—
N/A
37.31
—
930,920
347,941
N/A
1,278,861
(1) Our 2004 Omnibus Stock Plan was approved by the existing shareholders prior to our initial public offering. Upon adoption of the 2012
Omnibus Incentive Plan, we terminated the 2004 Omnibus Stock Plan with respect to future awards and no further awards will be
granted under this plan.
(2) Our 2012 Omnibus Incentive Plan was approved by our shareholders at our annual meeting held on May 1, 2012. Subsequent to the
initial approval and through December 31, 2020, our shareholders have approved amendments to the 2012 Omnibus Incentive Plan to
increase the number of shares authorized for issuance to 3.9 million shares, in the aggregate.
(3) Our Stock Ownership Participation Program was approved by our shareholders at our annual meeting held on May 1, 2015.
Subsequent to the initial approval and through December 31, 2020, our shareholders have approved amendments to the Stock
Ownership Participation Program to increase the number of shares authorized for issuance to 0.7 million shares, in the aggregate.
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.”
44
ITEM 15.
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Documents filed as part of this Annual Report on Form 10-K.
PART IV
1.
2.
3.
Exhibit
Number
3.1
3.2
4.1
4.2
10.1
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9
10.10
Financial Statements—Our independent registered public accounting firm’s report and our Consolidated Financial Statements are listed
below and begin on page F-1 of this Form 10-K.
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets
Consolidated Statements of Operations and Other Comprehensive Income (Loss)
Consolidated Statements of Stockholders’ Equity
Consolidated Statements of Cash Flows
Notes to Consolidated Financial Statements
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
Third Amended and Restated Certificate of
Incorporation of Huron Consulting Group Inc.
Amended and Restated Bylaws of Huron Consulting
Group Inc.
Specimen Stock Certificate.
Description of Securities.
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.
Senior Management Agreement by and between Huron
Consulting Group Inc. and Diane E. Ratekin.
Transitional Retirement 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.
Filed
herewith
Furnished
herewith
Form
10-K
8-K
Incorporated by Reference
Period
Ending
12/31/2004
Exhibit
3.1
Filing Date
2/16/2005
3.1
4.1
10/28/2015
10/5/2004
12/31/2019
4.2
10.1
2/26/2020
10/5/2004
10.1
5/5/2010
S-1
(File No. 333-
115434)
10-K
S-1
(File No. 333-
115434)
S-8
10-K
12/31/2008
10.12
2/24/2009
8-K
8-K
8-K
8-K
8-K
10.1
1/6/2017
10.2
1/6/2017
10.3
1/6/2017
10.4
1/6/2017
10.1
9/16/2019
10-K
12/31/2012
10.17
2/21/2013
10-K
12/31/2012
10.18
2/21/2013
45
Incorporated by Reference
Period
Ending
12/31/2012
Exhibit
10.19
Filing Date
2/21/2013
10.1
1/4/2013
Form
10-K
8-K
10-K
12/31/2019
10.13
2/26/2020
8-K
10.1
10/16/2019
10-K
12/31/2012
10.20
2/21/2013
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
10.2
10.3
4/2/2015
4/2/2015
DEF 14A
Appendix A 3/20/2015
DEF 14A
DEF 14A
Appendix A 3/27/2017
Appendix A 3/22/2019
10-K
12/31/2019
10.3
2/26/2020
8-K
10.1
3/6/2017
Exhibit
Number
10.11
10.12
10.13†
10.14
10.15*
10.16*
10.17*
10.18*
10.19
10.20
10.21
10.22*
10.23*
10.24*
10.25*
10.26*
10.27
Exhibit Description
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.
Fifth Amendment to Lease by and between Huron
Consulting Services LLC and Union Tower, LLC, dated
December 1, 2013.
Sixth Amendment to Lease by and between Huron
Consulting Services LLC and Onni Van Buren Chicago
LLC, dated October 3, 2019.
Form of the Huron Consulting Group Inc. 2012
Omnibus Incentive Plan Restricted Stock Agreement.
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. Stock Ownership
Participation Program, as amended effective December
1, 2020.
Huron Consulting Group Inc. 2012 Omnibus Incentive
Plan, as amended and restated effective May 1, 2017.
Amendment to the Huron Consulting Group Inc.
Amended and Restated 2012 Omnibus Incentive Plan.
Huron Consulting Group Inc. 2012 Omnibus Incentive
Plan, as amended and restated effective February 13,
2020.
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.
Filed
herewith
Furnished
herewith
X
46
Exhibit
Number
10.28
10.29
10.30
10.31*
10.32*
10.33*
21.1
23.1
31.1
31.2
32.1
32.2
101.INS
101.SCH
101.CAL
101.LAB
101.PRE
101.DEF
104
Exhibit Description
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.
Amendment No. 3 of the Credit Agreement, dated as of
March 23, 2018, 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. 4 of the Credit Agreement, the Pledge
Agreement and the Security Agreement, dated as of
September 27, 2019, by and among Huron Consulting
Group Inc., as Borrower, certain subsidiaries, as
Guarantors, and Bank of America, N.A., as
Administrative Agent for and on behalf of the Lenders.
Senior Management Agreement by and between Huron
Consulting Group Inc. and Ernest W. Torain, Jr.
Amendment to the Huron Consulting Group Inc. 2012
Omnibus Incentive Plan.
Amendment to the Huron Consulting Group Inc. Stock
Ownership Participation Program.
List of Subsidiaries of Huron Consulting Group Inc.
Consent of PricewaterhouseCoopers LLP.
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.
Inline XBRL Instance Document - the instance
document does not appear in the Interactive Data File
because its XBRL tags are embedded within the Inline
XBRL document.
Inline XBRL Taxonomy Extension Schema Document
Inline XBRL Taxonomy Extension Calculation Linkbase
Document
Inline XBRL Taxonomy Extension Label Linkbase
Document
Inline XBRL Taxonomy Extension Presentation
Linkbase Document
Inline XBRL Taxonomy Extension Definition Linkbase
Document
Cover Page Interactive Data File (formatted as inline
XBRL and contained in Exhibit 101)
Filed
herewith
Furnished
herewith
Incorporated by Reference
Form
10-Q
Period
Ending
9/30/2017
Exhibit
10.1
Filing Date
11/1/2017
8-K
8-K
10.1
3/29/2018
10.1
10/3/2019
10-Q
3/31/2020
10.1
4/30/2020
DEF 14A
DEF 14A
Appendix A 3/26/2020
Appendix B 3/26/2020
X
X
X
X
X
X
X
X
X
X
X
X
X
Indicates the exhibit is a management contract or compensatory plan or arrangement.
*
† Pursuant to Regulation S-K 601(b)(10)(iv), certain exhibits to this Exhibit have been omitted. The Company agrees to furnish supplementally
to the Securities and Exchange Commission, upon its request, a copy of any or all omitted exhibits.
47
ITEM 16.
FORM 10-K SUMMARY
Not applicable.
48
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
Chief Executive Officer and Director
Title
Date
2/23/2021
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 Ernest W. Torain, Jr., and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and
resubstitution, for him and in his 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 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
/s/
JOHN F. MCCARTNEY
John F. McCartney
/s/
JOHN D. KELLY
John D. Kelly
/s/ H. EUGENE LOCKHART
H. Eugene Lockhart
/s/ HUGH E. SAWYER
Hugh E. Sawyer
/s/ EKTA SINGH-BUSHELL
Ekta Singh-Bushell
/s/ DEBRA ZUMWALT
Debra Zumwalt
Date
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
2/23/2021
Title
Chief Executive Officer and Director
(Principal Executive Officer)
Non-Executive Chairman of the Board
Executive Vice President, Chief Financial Officer and
Treasurer (Principal Financial and Accounting Officer)
Director
Director
Director
Director
49
HURON CONSULTING GROUP INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets at December 31, 2020 and 2019
Consolidated Statements of Operations and Other Comprehensive Income (Loss) for the years ended December 31, 2020, 2019,
and 2018
Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2020, 2019, and 2018
Consolidated Statements of Cash Flows for the years ended December 31, 2020, 2019, and 2018
Notes to Consolidated Financial Statements
Page
F-2
F-5
F-6
F-7
F-8
F-9
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 (the “Company”) as of
December 31, 2020 and 2019, and the related consolidated statements of operations and other comprehensive income (loss), of
stockholders’ equity and of cash flows for each of the three years in the period ended December 31, 2020, 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, 2020, 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, 2020 and 2019, and the results of its operations and its cash flows for each of the three years in the period
ended December 31, 2020 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, 2020, based on
criteria established in Internal Control - Integrated Framework (2013) issued by the COSO.
Change in Accounting Principle
As discussed in Note 2 to the consolidated financial statements, the Company changed the manner in which it accounts for leases as of
January 1, 2019.
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.
F-2
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that
were communicated or required to be communicated to the audit committee and that (i) relate to accounts or disclosures that are material to
the consolidated financial statements and (ii) involved our especially challenging, subjective, or complex judgments. The communication of
critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by
communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to
which they relate.
Revenue Recognition – Fixed-Fee and Healthcare Performance-Based Billing Arrangements
As described in Notes 2 and 19 to the consolidated financial statements, in fixed-fee billing arrangements, which accounted for $348.9 million
of revenues for the year ended December 31, 2020, the Company agrees to a pre-established fee in exchange for a predetermined set of
professional services. As disclosed by management, under fixed-fee arrangements, revenues are recognized based upon work completed to
date versus management’s estimates of the total services to be provided under the engagement. Additionally, the Company’s Healthcare
practice enters into performance-based billing arrangements whereby fees are tied to the attainment of contractually defined objectives, as a
result of adopting the Company’s recommendations, which accounted for $69.3 million of revenues for the year ended December 31, 2020.
Under performance-based billing arrangements, revenue is recognized based on an estimate of variable consideration and work completed
to date versus the estimates of the total services to be provided under the engagement. Variable consideration is estimated based on a
probability-weighted assessment of the fees to be earned, net of a constraint to limit the amount that could be reversed when the uncertainty
is resolved.
The principal considerations for our determination that performing procedures relating to revenue recognition under fixed-fee and Healthcare
performance-based billing arrangements is a critical audit matter are the significant judgment by management when developing the estimates
of revenue to be recognized for these billing arrangements, which in turn led to a high degree of auditor judgment, subjectivity and effort in
performing procedures and evaluating audit evidence related to management’s significant assumptions related to work completed to date
versus management’s estimates of the total services to be provided for fixed-fee and performance-based billing arrangements and the
probability of attaining contractually defined objectives in performance-based billing arrangements.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to the revenue recognition process
under fixed-fee and performance-based billing arrangements. These procedures also included, among others, testing the accuracy of the
total contract amounts and evaluating the reasonableness of management’s assumption of work completed to-date versus management’s
estimates of the total services to be provided by (i) inquiring with the Company’s employees regarding the expected remaining efforts for a
sample of engagements, (ii) evaluating trends in past performance, and (iii) evaluating performance to date. Additionally, for performance-
based billing arrangements, procedures included, among others (i) evaluating the reasonableness of management’s assumption of the
probability of attaining the contractually defined objectives by inquiring with the Company’s employees regarding the expected remaining
efforts and the probability weighting of variable consideration to be earned for a sample of engagements and by evaluating trends in past
performance, (ii) evaluating the necessity of applying a constraint based upon consideration of the initial forecasts developed during project
procurement, and (iii) evaluating performance to date towards the attainment of contractually defined objectives.
Goodwill Impairment Assessments - Strategy and Innovation and Life Sciences Reporting Units
As described in Notes 2 and 4 to the consolidated financial statements, the Company’s consolidated goodwill balance was $594.2 million as
of December 31, 2020, of which $37.5 million and $0.0 million are attributed to the Strategy and Innovation and Life Sciences reporting units,
respectively. Management performs its annual goodwill impairment test as of November 30, or when events or circumstances indicate the fair
value of a reporting unit may be below its carrying value. Fair value is estimated using a combination of the income approach, utilizing a
discounted cash flow analysis, and the market approach, utilizing the guideline company method, with a fifty-fifty weighting. As disclosed by
management, the determination of fair value using the income approach requires the use of significant estimates and assumptions, including
forecasted revenue growth rates, forecasted EBITDA margins and discount rates. The determination of fair value using the market approach
requires the use of revenue and EBITDA multiples, as applicable, based on operating data from guideline publicly traded companies. If the
fair value of the reporting unit is less than its carrying value, a non-cash impairment charge is recorded in an amount equal to that difference
with the loss not to exceed the total amount of goodwill allocated to the reporting unit. Based on internal projections and considering the
expected decrease in demand due to the COVID-19 pandemic, during the first quarter of 2020 management believed it was more likely than
not that the fair value of the Strategy and Innovation and Life Sciences reporting units no longer exceeded their carrying values and
performed an interim impairment test on both reporting units as of March 31, 2020. As a result of the first quarter impairment tests,
management recorded a partial impairment charge of $49.9 million for the Strategy and Innovation reporting unit and a full impairment charge
of $9.9 million for the Life Sciences reporting unit. As a result of the annual impairment assessment for the Strategy and Innovation reporting
unit, management concluded that there is no indication of goodwill impairment.
F-3
The principal considerations for our determination that performing procedures relating to the goodwill impairment assessments of the
Strategy and Innovation and Life Sciences reporting units is a critical audit matter are the significant judgment by management when
developing the fair value measurements of the reporting units, which in turn led to a high degree of auditor judgment, subjectivity and effort in
performing procedures and evaluating audit evidence related to management's significant assumptions related to forecasted revenue growth
rates, forecasted EBITDA margins, discount rates, and revenue and EBITDA multiples, as applicable. In addition, the audit effort involved the
use of professionals with specialized skill and knowledge.
Addressing the matter involved performing procedures and evaluating audit evidence in connection with forming our overall opinion on the
consolidated financial statements. These procedures included testing the effectiveness of controls relating to management’s goodwill
impairment assessments, including controls over the determination of the fair value of the Strategy and Innovation and Life Sciences
reporting units. These procedures also included, among others (i) testing management’s process for developing the fair value estimates of
the reporting units, (ii) evaluating the allocation of assets and liabilities to the reporting units, (iii) evaluating the appropriateness of the income
and market approaches, (iv) testing the completeness and accuracy of the underlying data used in the income and market approaches, and
(v) evaluating the significant assumptions used by management related to forecasted revenue growth rates, forecasted EBITDA margins,
discount rates, and revenue and EBITDA multiples, as applicable. Evaluating management’s assumptions related to forecasted revenue
growth rates and forecasted EBITDA margins involved evaluating whether the assumptions used by management were reasonable
considering (i) the current and past performance of the reporting unit, (ii) the actions necessary to achieve future forecasts, (iii) the
consistency with external market data, and (iv) whether these assumptions were consistent with evidence obtained in other areas of the
audit. Professionals with specialized skill and knowledge were used to assist in the evaluation of the income approach and the discount rates,
as well as the selection and calculation of revenue and EBITDA multiples, as applicable.
/s/ PricewaterhouseCoopers LLP
Chicago, Illinois
February 23, 2021
We have served as the Company's auditor since 2002.
F-4
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 of allowances of $7,680 and $8,907, respectively
Unbilled services, net of allowances of $2,603 and $2,994, respectively
Income tax receivable
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Deferred income taxes, net
Long-term investments
Operating lease right-of-use assets
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
Current maturities of long-term debt
Current maturities of operating lease liabilities
Deferred revenues
Total current liabilities
Non-current liabilities:
Deferred compensation and other liabilities
Accrued contingent consideration for business acquisitions
Long-term debt, net of current portion
Operating lease liabilities, net of current portion
Deferred income taxes, net
Total non-current liabilities
Commitments and contingencies
Stockholders’ equity
Common stock; $0.01 par value; 500,000,000 shares authorized; 25,346,916 and 25,144,764 shares issued at
December 31, 2020 and December 31, 2019, respectively
Treasury stock, at cost, 2,584,119 and 2,425,430 shares at December 31, 2020 and December 31, 2019,
respectively
Additional paid-in capital
Retained earnings
Accumulated other comprehensive income
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 31,
2020
December 31,
2019
$
$
$
$
$
$
$
67,177
86,966
61,181
5,121
16,569
237,014
29,093
4,191
71,030
39,360
62,068
20,483
594,237
1,057,476
648
14,874
133,830
499
8,771
34,748
193,370
45,361
1,770
202,780
61,825
428
312,164
11,604
116,571
79,937
2,376
14,248
224,736
38,413
1,145
54,541
54,954
52,177
31,625
646,680
1,104,271
7,944
18,554
141,605
529
7,469
28,443
204,544
28,635
—
208,324
69,233
8,070
314,262
246
247
(129,886)
454,512
214,009
13,061
551,942
1,057,476
$
(128,348)
460,781
237,849
14,936
585,465
1,104,271
The accompanying notes are an integral part of the consolidated financial statements.
F-5
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 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
Loss from discontinued operations, net of tax
Net income (loss)
Net earnings (loss) per basic share:
Net income (loss) from continuing operations
Loss from discontinued operations, net of tax
Net income (loss)
Net earnings (loss) per diluted share:
Net income (loss) from continuing operations
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 (loss)
Comprehensive income (loss)
Year Ended December 31,
2019
2018
2020
$
$
844,127
26,887
871,014
$
876,757
88,717
965,474
592,428
5,366
26,918
624,712
170,686
20,525
(150)
24,277
59,816
275,154
(28,852)
(9,292)
4,271
(5,021)
(33,873)
(10,155)
(23,718)
(122)
(23,840) $
(1.08) $
(0.01)
(1.09) $
(1.08) $
(0.01)
(1.09) $
21,882
21,882
(23,840) $
348
1,323
(3,546)
(1,875)
(25,715) $
575,602
5,375
88,696
669,673
203,071
1,855
(1,196)
28,365
—
232,095
63,706
(15,648)
4,433
(11,215)
52,491
10,512
41,979
(236)
41,743
1.91
(0.01)
1.90
1.87
(0.02)
1.85
21,993
22,507
41,743
99
(702)
(956)
(1,559)
40,184
$
$
$
$
$
$
$
$
$
$
$
$
$
$
795,125
82,874
877,999
521,537
4,247
82,923
608,707
180,983
3,657
(2,019)
34,575
—
217,196
52,096
(19,013)
(7,862)
(26,875)
25,221
11,277
13,944
(298)
13,646
0.64
(0.01)
0.63
0.63
(0.01)
0.62
21,706
22,058
13,646
(1,814)
7,772
167
6,125
19,771
The accompanying notes are an integral part of the consolidated financial statements.
F-6
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
Stockholders'
Equity
Balance at December 31, 2017
24,098,822
$
241
(2,591,135) $ (121,994) $ 434,256
$ 180,443
$
10,370
$
503,316
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
Cumulative-effect adjustment from
adoption of ASU 2014-09
13,646
6,125
19,771
279,430
40,000
3
—
5,986
387
(390)
937
17,770
(86,813)
(3,187)
2,017
—
937
17,770
(3,187)
2,017
Balance at December 31, 2018
24,418,252
$
244
(2,671,962) $ (124,794) $ 452,573
$ 196,106
$
16,495
$
540,624
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
Other capital contributions
Share repurchases
41,743
(1,559)
40,184
347,589
47,904
4
1
20,171
1,828
(111,511)
(5,382)
(210,437)
(2)
(1,832)
1,243
22,854
160
(14,217)
—
1,244
22,854
(5,382)
160
(14,219)
Balance at December 31, 2019
24,603,308
$
247
(2,763,302) $ (128,348) $ 460,781
$ 237,849
$
14,936
$
585,465
Comprehensive loss
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
342,311
40,400
3
—
87,155
6,365
(136,749)
(7,903)
Share repurchases
(425,164)
(4)
(23,840)
(1,875)
(25,715)
(6,368)
1,003
24,998
(25,902)
—
1,003
24,998
(7,903)
(25,906)
Balance at December 31, 2020
24,560,855
$
246
(2,812,896) $ (129,886) $ 454,512
$ 214,009
$
13,061
$
551,942
The accompanying notes are an integral part of the consolidated financial statements.
F-7
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
Non-cash lease expense
Lease impairment charges
Share-based compensation
Amortization of debt discount and issuance costs
Goodwill impairment charges
Allowances for doubtful accounts and unbilled services
Deferred income taxes
Losses on sales of businesses
Change in fair value of contingent consideration liabilities
Change in fair value of preferred stock investment
Other, net
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
Purchases of businesses, net of cash acquired
Purchase of investment securities
Capitalization of internally developed software
Proceeds from note receivable
Proceeds from sale of property and equipment
Divestitures 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 bank borrowings
Repayments of bank borrowings
Repayment of convertible notes
Payments for debt issuance costs
Payments for contingent consideration liabilities
Net cash used in financing activities
Effect of exchange rate changes on cash
Net increase (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 and capitalized software included in accounts payable, accrued
expenses and accrued payroll and related benefits
Contingent consideration related to business acquisitions
Share repurchases included in accounts payable
Cash paid during the year for:
Interest
Income taxes
Year Ended December 31,
2019
2018
2020
$
(23,840) $
41,743
$
13,646
30,222
7,763
13,217
24,081
793
59,816
1,050
(9,859)
1,603
—
(1,667)
(25)
33,051
18,876
(3,662)
(11,972)
(7,786)
(1,169)
6,246
136,738
(8,125)
(2,462)
(8,701)
(13,000)
(8,272)
—
25
(1,499)
(42,034)
1,003
(7,903)
(27,141)
283,000
(288,574)
—
—
—
(39,615)
484
55,573
11,604
67,177
$
1,178
1,770
$
$
— $
34,405
8,397
805
24,213
8,264
—
250
8,795
—
(1,506)
—
(789)
(10,123)
(10,269)
4,442
(144)
(6,884)
30,339
282
132,220
(13,240)
(4,703)
(2,500)
(5,000)
(10,312)
—
753
—
(35,002)
1,244
(5,382)
(12,985)
347,000
(192,515)
(250,000)
(1,524)
(4,674)
(118,836)
115
(21,503)
33,107
11,604
$
2,600
$
— $
$
1,234
8,309
4,721
$
$
7,971
1,429
$
$
39,311
—
—
18,818
10,313
—
657
10,717
5,807
381
—
—
(10,509)
(11,094)
(2,607)
(1,361)
(8,212)
35,481
310
101,658
(8,936)
(2,037)
(215)
—
(6,069)
1,040
—
(2,345)
(18,562)
937
(3,187)
—
204,300
(259,801)
—
(1,385)
(7,554)
(66,690)
(208)
16,198
16,909
33,107
2,358
212
—
8,887
3,349
$
$
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
F-8
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 consultancy that collaborates with clients to drive strategic growth, ignite innovation and navigate constant change. Through
a combination of strategy, expertise and creativity, we help clients accelerate operational, digital and cultural transformation, enabling the
change they need to own their future. By embracing diverse perspectives, encouraging new ideas and challenging the status quo, Huron
creates sustainable results for the organizations it serves.
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, 2020 and 2019, and the results of
operations and cash flows for the years ended December 31, 2020, 2019, and 2018.
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.
On January 1, 2019, we adopted Accounting Standard Update (“ASU”) 2016-02, Leases, as a new Topic, ASC 842, which superseded ASC
Topic 840, Leases, and sets forth the principles for the recognition, measurement, presentation, and disclosure of leases for 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 using an effective
interest rate method or on a straight-line basis over the term of the lease. In July 2018, the Financial Accounting Standards Board (“FASB”)
issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provided an optional transition method that allowed entities to
initially apply ASC 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings on the
adoption date. We adopted ASC 842 effective January 1, 2019 on a modified retrospective basis for existing leases using the transition
method allowed by ASU 2018-11, which had no impact on our consolidated financial statements in the prior periods presented. Upon
adoption, we recorded $56.5 million of operating lease right-of-use assets on our consolidated balance sheet, with an off-setting $56.5 million
net increase in total liabilities on our consolidated balance sheet. The adoption of ASU 2016-02 had no impact on our consolidated statement
of operations. Refer to our leases policy below for additional information.
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
We generate substantially all of our revenues from providing professional services to our clients. We also generate revenues from software
licenses; software support and maintenance and subscriptions to our cloud-based analytic tools and solutions; speaking engagements;
conferences; and publications. A single contract could include one or multiple performance obligations. For those contracts that have multiple
performance obligations, we allocate the total transaction price to each performance obligation based on its relative standalone selling price,
which is determined based on our overall pricing objectives, taking into consideration market conditions and other factors.
Revenue is recognized when control of the goods and services provided are transferred to our customers and in an amount that reflects the
consideration we expect to be entitled to in exchange for those goods and services using the following steps: 1) identify the contract, 2)
identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the
contract, and 5) recognize revenue as or when we satisfy the performance obligations.
We typically satisfy our performance obligations for professional services over time as the related services are provided. The performance
obligations related to software support and maintenance and subscriptions to our cloud-based analytic tools and solutions are typically
satisfied evenly over the course of the service period. Other performance obligations, such as certain software licenses, speaking
engagements, conferences, and publications, are satisfied at a point in time.
We generate our revenues under four types of billing arrangements: fixed-fee (including software license revenue); time-and-expense;
performance-based; and software support, maintenance and subscriptions.
F-9
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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 Culture and Organizational Excellence solution include fixed-fee
partner contracts with multiple performance obligations, which primarily consist of coaching services, as well as speaking engagements,
conferences, publications and software products (“Partner Contracts”). Revenues for coaching services and software products are generally
recognized on a straight-line basis over the length of the contract. All other revenues under Partner Contracts, including speaking
engagements, conferences and publications, are recognized at the time the goods or services are 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 Culture and Organizational Excellence solution. We recognize
revenues under time-and-expense arrangements as the related services or publications are provided, using the right to invoice practical
expedient which allows us to recognize revenue in the amount that we have a right to invoice based on the number of hours worked and the
agreed upon hourly rates or the value of the speaking engagements, conferences or publications purchased by our clients.
In performance-based billing arrangements, fees are tied to the attainment of contractually defined objectives. We enter into performance-
based engagements in essentially two forms. First, we generally earn fees that are directly related to the savings formally acknowledged by
the client as a result of adopting our recommendations for improving operational and cost effectiveness in the areas we review. Second, we
have performance-based engagements in which we earn a success fee when and if certain predefined outcomes occur. We recognize
revenue under performance-based billing arrangements using the following steps: 1) estimate variable consideration using a probability-
weighted assessment of the fees to be earned, 2) apply a constraint to the estimated variable consideration to limit the amount that could be
reversed when the uncertainty is resolved (the “constraint”), and 3) recognize revenue of estimated variable consideration, net of the
constraint, based on work completed to-date versus our estimates of the total services to be provided under the engagement.
Clients that have purchased one of our software licenses can pay an annual fee for software support and maintenance. We also generate
subscription revenue from our cloud-based analytic tools and solutions. Software support, maintenance and subscription revenues are
recognized ratably over the support or subscription period. These fees are generally billed in advance and included in deferred revenues until
recognized.
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. Under fixed-fee billing
arrangements, we estimate the total amount of reimbursable expenses to be incurred over the course of the engagement and recognize the
estimated amount as revenue using a proportionate performance approach, which is based on work completed to-date versus our estimates
of the total services to be provided under the engagement. Under time-and-expense billing arrangements we recognize reimbursable
expenses as revenue as the related services are provided, using the right to invoice practical expedient. Reimbursable expenses are
recognized as expenses in the period in which the expense is incurred. Subcontractors that are billed to clients at cost are also included in
reimbursable expenses. When billings do not specifically identify reimbursable expenses, we allocate the portion of the billings equivalent to
these expenses to reimbursable expenses.
The payment terms and conditions in our customer contracts vary. Differences between the timing of billings and the recognition of revenue
are recognized as either unbilled services or deferred revenues in the consolidated balance sheets. Revenues recognized for services
performed but not yet billed to clients are recorded as unbilled services. Revenues recognized, but for which we are not yet entitled to bill
because certain events, such as the completion of the measurement period or client approval, must occur, are recorded as contract assets
and included within unbilled services. Client prepayments and retainers are classified as deferred revenues and recognized over future
periods as earned in accordance with the applicable engagement agreement.
F-10
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Capitalized Sales Commissions
Sales commissions earned by our sales professionals are considered incremental and recoverable costs of obtaining a contract with a
customer. Sales commissions with an expected amortization period greater than one year are deferred and amortized on a straight-line basis
over the period of the associated contract. We elected to apply the practical expedient to expense sales commissions as incurred when the
expected amortization period is one year or less. Amortization expense is recorded to direct costs. During the years ended December 31,
2020, 2019, and 2018, we amortized $0.4 million, $0.3 million, and $0.2 million, respectively, of capitalized sales commissions. Unamortized
sales commissions were $0.7 million and $0.8 million as of December 31, 2020 and 2019, respectively.
Allowances for Doubtful Accounts and Unbilled Services
We maintain allowances for doubtful accounts and for services performed but not yet billed based on several factors, including the estimated
cash realization from amounts due from clients, an assessment of a client’s ability to make required payments, and the historical percentages
of fee adjustments and write-offs by age of receivables and unbilled services. The allowances are assessed by management on a regular
basis. These estimates may differ from actual results. If the financial condition of a client deteriorates in the future, impacting the client’s
ability to make payments, an increase to our allowance might be required or our allowance may not be sufficient to cover actual write-offs.
We record the provision for doubtful accounts and unbilled services as a reduction in revenue to the extent the provision relates to fee
adjustments and other discretionary pricing adjustments. To the extent the provision relates to a client’s inability to make required payments
on accounts receivables, we record the provision to selling, general and administrative expenses.
Direct Costs and Reimbursable Expenses
Direct costs and reimbursable expenses consist primarily of revenue-generating employee compensation and their related benefits and
share-based compensation costs; as well as technology costs, commissions, the cost of outside consultants or subcontractors assigned to
revenue-generating activities, 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.
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 19 “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 Investments
Our long-term investments consist of our convertible debt investment in Shorelight Holdings, LLC (“Shorelight”) and preferred stock
investment in Medically Home Group, Inc. (“Medically Home”).
We classified the convertible debt investment in Shorelight as available-for-sale at the time of purchase and reevaluate such classification as
of each balance sheet date. The investment is carried at fair value with unrealized holding gains and losses reported in other comprehensive
income. If the investment is in an unrealized loss position due to significant credit deterioration of the investee, we recognize an allowance to
decrease the carrying value of the investment to the fair value, which may be reversed in the event that the credit of an issuer improves. In
the event there are realized gains and losses or credit allowances recognized, we will record the amount in earnings. We have not
recognized any credit allowance on our convertible debt investment or realized gains or losses as of December 31, 2020. See Note 13 “Fair
Value of Financial Instruments” for additional information on our convertible debt investment.
We classified the preferred stock investment in Medically Home as an equity security without a readily determinable value at the time of
purchase and reevaluate such classification as of each balance sheet date. We elected to apply the measurement alternative at the time of
F-11
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
purchase and will continue to do so until the investment does not qualify to be so measured. Under the measurement alternative, the
investment is carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions
for an identical or similar investment in Medically Home. Any unrealized holding gains and losses resulting from observable price changes are
recorded in our consolidated statement of operations. Following our purchase, we have not identified any impairment of our investment. See
Note 13 “Fair Value of Financial Instruments” for additional information on our preferred stock investment and the unrealized gain recognized
in 2020.
Fair Value of Financial Instruments
See Note 13 “Fair Value of Financial Instruments” for the accounting policies used to measure the fair value of our financial assets and
liabilities that are measured at fair value on a recurring basis.
Property and Equipment
Property and equipment are recorded at cost, less accumulated depreciation. Depreciation of property and equipment is computed on a
straight-line basis over the estimated useful lives of the assets. Software, computers, and related equipment are depreciated over an
estimated useful life of two to four years. Furniture and fixtures are depreciated over five years. Aircraft are depreciated over ten years.
Leasehold improvements are amortized over the lesser of the estimated useful life of the asset or the initial term of the lease.
Leases
We determine if an arrangement contains a lease and the classification of such lease at inception. As of December 31, 2020 and 2019, all of
our material leases are classified as operating leases; we have not entered into any material finance leases. For all operating leases with an
initial term greater than 12 months, we recognize an operating lease right-of-use (“ROU”) asset and operating lease liability. Leases with an
initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis
over the lease term.
Operating lease ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to
make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date
based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental
borrowing rate based on the information available at the lease commencement date and provided by the administrative agent for our senior
secured credit facility in determining the present value of lease payments. Operating lease ROU assets exclude lease incentives. We elected
the practical expedient to combine lease and nonlease components. Certain lease agreements contain variable lease payments that do not
depend on an index or rate. These variable lease payments are not included in the calculation of the operating lease ROU asset and
operating lease liability; instead, they are expensed as incurred. Our leases may contain options to extend or terminate the lease, and we
include these terms in our calculation of the operating lease ROU asset and operating lease liability when it is reasonably certain that we will
exercise the option.
Operating lease expense is recognized on a straight-line basis over the lease term and recorded within selling, general and administrative
expenses on our consolidated statement of operations. In accordance with our accounting policy for impairment of long-lived assets,
operating lease ROU assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of
the asset group to which the operating lease ROU asset is assigned may not be recoverable. We evaluate the recoverability of the asset
group based on forecasted undiscounted cash flows. See Note 5 “Leases” for additional information on our leases, including the lease
impairment charges recorded in 2020 and 2019.
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.
Development costs related to software products that will be sold, leased, or otherwise marketed are expensed until technological feasibility
has been established. Thereafter, and until the software is available for general release to customers, these software development costs are
capitalized and subsequently reported at the lower of unamortized cost or net realizable value. These capitalized development costs are
amortized in proportion to current and future revenue for each product with an annual minimum equal to the straight-line amortization over the
remaining estimated economic life of the product. We did not capitalize any development costs for this type of software during 2020 or 2019.
F-12
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
We classify capitalized software development costs, which primarily relate to cloud computing applications and software for internal use, as
other non-current assets on our consolidated balance sheet. As of December 31, 2020, gross capitalized software development costs and
related accumulated amortization was $28.5 million and $10.6 million, respectively. As of December 31, 2019, gross capitalized software
development costs and related accumulated amortization was $21.5 million and $5.9 million, respectively. During the years ended
December 31, 2020, 2019, and 2018, we amortized $4.7 million, $3.0 million, and $1.4 million, respectively, of capitalized software
development costs.
Implementation Costs Incurred in a Cloud Computing Arrangement
We incur costs to implement cloud computing arrangements that are service contracts. We capitalize certain costs associated with the
implementation of the cloud computing arrangements, including employee payroll and related benefits and third party consulting costs,
incurred during the application development stage of a project. These costs are amortized on a straight-line basis over the term of the hosting
service contracts, including renewal periods we are reasonably certain to exercise. As of December 31, 2020, capitalized implementation
costs incurred in a cloud computing arrangement were $5.4 million and related to the ongoing implementation of a new enterprise resource
planning (“ERP”) system during 2020. These costs are included as a component of prepaid expenses and other current assets and other
non-current assets, and are expected to begin amortizing on January 1, 2021 when the ERP system is placed in service. In 2019, we
capitalized an immaterial amount of costs to implement cloud computing arrangements that are service contracts.
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 considering events or
circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.
Impairment of Long-Lived Assets
Long-lived assets, including property and equipment, right-of-use assets, and intangible assets, are reviewed for impairment whenever
events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Events relating to recoverability
may include significant unfavorable changes in business conditions, recurring losses, or a significant decline in forecasted operating results
over an extended period of time. We evaluate the recoverability of long-lived assets based on forecasted undiscounted cash flows. See Note
5 “Leases” and Note 11 “Restructuring Charges” for information on our operating lease right-of-use asset and fixed asset impairment charges
recorded in 2020 and 2019. No material impairment charges for other long-lived assets were recorded in 2020, 2019, or 2018.
Goodwill
For acquisitions accounted for as a business combination, goodwill represents the excess of the cost over the fair value of the net assets
acquired. We are required to test goodwill for impairment, at the reporting unit level, annually and when events or circumstances indicate the
fair value of a reporting unit may be below its carrying value. We perform our annual goodwill impairment test as of November 30 and monitor
for interim triggering events on an ongoing basis. A reporting unit is an operating segment or one level below an operating segment (referred
to as a component) to which goodwill is assigned when initially recorded. We assign goodwill to reporting units based on our integration plans
and the expected synergies resulting from the acquisition. 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 2020, we performed two goodwill impairment tests: an interim impairment test on our Strategy and Innovation and Life Sciences reporting
units in the first quarter of 2020 and the annual impairment test on all reporting units with a goodwill balance in the fourth quarter of 2020. As
a result of the interim impairment test performed in the first quarter of 2020, we recorded total non-cash pretax goodwill impairment charges
of $59.8 million. We did not identify any additional impairments during our annual impairment test performed in the fourth quarter of 2020. No
goodwill impairment charges were recorded in 2019 or 2018. See Note 4 “Goodwill and Intangible Assets” for additional information on our
interim and annual goodwill impairment tests, and the non-cash goodwill impairment charges recorded in 2020.
Business Combinations
We use the acquisition method of accounting for business combinations. Each acquired company’s operating results are included in our
consolidated financial statements starting on the date of acquisition. The purchase price is equivalent to the fair value of consideration
transferred. Tangible and identifiable intangible assets acquired and liabilities assumed are recorded at fair value as of the acquisition date.
F-13
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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 3 “Acquisitions” for additional
information on our business acquisitions and refer to Note 13 “Fair Value of Financial Instruments” for additional information regarding our
contingent acquisition liability balances.
Income Taxes
Current tax liabilities and assets are recognized for the estimated taxes payable or refundable, respectively, on the tax returns for the current
year. We have elected to recognize the tax expense related to Global Intangible Low-Taxed Income ("GILTI") as a current period expense
when incurred. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be
recovered or settled. To the extent that deferred tax assets will not likely be recovered from future taxable income, a valuation allowance is
established against such deferred tax assets. Refer to Note 17 "Income Taxes" for further information regarding incomes taxes.
Share-Based Compensation
Share-based compensation cost is measured based on the grant date fair value of the respective awards. We generally recognize share-
based compensation ratably using the straight-line attribution method; however, for those awards with performance criteria and graded
vesting features, we use the graded vesting attribution method. It is our policy to account for forfeitures as they occur.
Sponsorship and Advertising Costs
Sponsorship and advertising costs are expensed as incurred. Such expenses for the years ended December 31, 2020, 2019, and 2018
totaled $4.1 million, $8.4 million, and $7.9 million, respectively, and are a component of selling, general and administrative expenses on our
consolidated statement of operations.
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. The Convertible Notes matured on October 1, 2019, and the outstanding principal and accrued interest were paid in full at
that time. At issuance, we 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 was 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 was amortized to interest expense
using the effective interest method over the term of the Convertible Notes. The equity component was not remeasured as it continued 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 operations. Unamortized debt issuance costs attributable to our revolving credit facility are included as a
component of other non-current assets. Unamortized debt issuance costs attributable to our Convertible Notes were 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 USD using the
exchange rates in effect at period end. Revenue and expense items are translated using the average exchange rates for the period. Foreign
currency translation adjustments are included in accumulated other comprehensive income, which is a component of stockholders’ equity.
Foreign currency transaction gains and losses are included in other income, net on the consolidated statement of operations. We recognized
less than $0.1 million of foreign currency transaction gains in 2020, $0.2 million of foreign currency transaction losses in 2019, and $0.5
million of foreign currency transaction losses in 2018.
F-14
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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 our reportable segments: Healthcare, Business Advisory, and Education.
New Accounting Pronouncements
Recently Adopted
In June 2016, the FASB issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial
Instruments which provides a new current expected credit loss model to account for credit losses on certain financial assets, including trade
receivables. That model requires an entity to estimate lifetime credit losses based on relevant historical information, adjusted for current
conditions and reasonable and supportable forecasts that could affect the collectability of the reported amount. The ASU also makes targeted
amendments to the current impairment model for available-for-sale debt securities, which includes requiring the recognition of an allowance
rather than a direct write-down of the investment, which may be reversed in the event that the credit of an issuer improves. We adopted ASU
2016-13 effective January 1, 2020, which did not have a material impact on our consolidated financial statements.
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure
Requirements for Fair Value Measurement, which modifies certain disclosure requirements related to fair value measurements. We adopted
ASU 2018-13 effective January 1, 2020, which had no impact on the amounts reported on our consolidated financial statements. We updated
our disclosures within the notes to our consolidated financial statements as required by ASU 2018-13.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12
simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740, Income Taxes, related to the
approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax
liabilities for outside basis differences. The new guidance also simplifies other aspects of the accounting for franchise taxes and enacted
changes in tax laws or tax rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. On January 1,
2020, we elected to early adopt ASU 2019-12 on a modified retrospective basis for those amendments that are not applied on a prospective
basis. The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.
3. Acquisitions
During 2019 and 2018, we completed no acquisitions that were significant to our consolidated financial statements individually or in the
aggregate. Below is a summary of the acquisitions completed in 2020.
2020
B3i Analytics, LLC
On August 1, 2020, we completed the acquisition of B3i Analytics, LLC (“B3i Analytics”), a software firm that provides a software as a solution
(“SaaS”) application to leverage internal and external data to help higher education institutions forecast research revenue. The results of
operations of B3i Analytics are included in our consolidated financial statements and results of operations of our Education segment from the
date of acquisition.
ForceIQ, Inc.
On November 1, 2020, we completed the acquisition of ForceIQ, Inc. (“ForceIQ”), a Salesforce Industries partner focused on helping clients
drive digital transformation and innovation at scale powered by the cloud. The acquisition expands our cloud-based technology offerings
within the Business Advisory segment. The results of operations of ForceIQ are included in our consolidated financial statements and results
of operations of our Business Advisory segment from the date of acquisition.
The acquisitions of B3i Analytics and ForceIQ are not significant to our consolidated financial statements individually or in the aggregate as of
and for the year ended December 31, 2020.
F-15
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
4. Goodwill and Intangible Assets
The table below sets forth the changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2020 and
2019.
Healthcare
Business
Advisory
Education
Total
Balance as of December 31, 2018:
Goodwill
Accumulated impairment losses
Goodwill, net as of December 31, 2018
Goodwill recorded in connection with a business combination (1)
Foreign currency translation
Balance as of December 31, 2019:
Goodwill
Accumulated impairment losses
Goodwill, net as of December 31, 2019
Goodwill recorded in connection with business combinations (2)
Goodwill impairment charges
Foreign currency translation
Balance as of December 31, 2020:
Goodwill
Accumulated impairment losses
Goodwill, net as of December 31, 2020:
$
$
$
$
$
$
$
636,810
(208,081)
428,729
—
—
636,810
(208,081)
428,729
—
—
—
$
$
$
301,700
(187,995)
113,705
—
357
302,057
(187,995)
114,062
7,507
(59,816)
(629)
636,810
(208,081)
428,729
$
308,935
(247,811)
61,124
$
102,829
—
102,829
1,060
—
103,889
—
103,889
495
—
—
104,384
—
104,384
$
$
$
$
1,041,339
(396,076)
645,263
1,060
357
1,042,756
(396,076)
646,680
8,002
(59,816)
(629)
1,050,129
(455,892)
594,237
(1) On September 30, 2019, we completed the acquisition of a business in our Education segment. The results of operations of the acquired
business is included in our consolidated financial statements and results of operations of our Education segment from the date of
acquisition. This acquisition is not significant to our consolidated financial statements.
(2) Refer to Note 3 “Acquisitions” for additional information on business combinations completed in 2020.
First Quarter 2020 Goodwill Impairment Charges
The worldwide spread of the COVID-19 pandemic in the first quarter of 2020 has created significant volatility, uncertainty and disruption to
the global economy. From the onset of the COVID-19 pandemic, we closely monitored the impact it could have on all aspects of our
business, including how we expect it to negatively impact our clients, employees and business partners. While the COVID-19 pandemic did
not have a significant impact on our consolidated revenues in the first quarter of 2020, we expected it to have an unfavorable impact on
sales, increase uncertainty in the backlog and negatively impact full year 2020 results. The services provided by our Strategy and Innovation
and Life Sciences reporting units within our Business Advisory segment focus on strategic solutions for healthy, well-capitalized companies to
identify new growth opportunities, which may be considered by our clients to be more discretionary in nature, and the duration of the projects
within these practices are typically short-term. Therefore, at the onset of the COVID-19 pandemic in the U.S. and due to the uncertainty
caused by the pandemic, we were cautious about near-term results for these two reporting units. Based on our internal projections and the
preparation of our financial statements for the quarter ended March 31, 2020, and considering the expected decrease in demand due to the
COVID-19 pandemic, during the first quarter of 2020 we believed it was more likely than not that the fair value of these two reporting units no
longer exceeded their carrying values and performed an interim impairment test on both reporting units as of March 31, 2020.
Based on the estimated fair values of the Strategy and Innovation and Life Sciences reporting units, we recorded non-cash pretax goodwill
impairment charges of $49.9 million and $9.9 million, respectively, in the first quarter of 2020. The $49.9 million non-cash pretax charge
related to the Strategy and Innovation reporting unit reduced the goodwill balance of the reporting unit to $37.5 million. The $9.9 million non-
cash pretax charge related to the Life Sciences reporting unit reduced the goodwill balance of the reporting unit to zero.
Our goodwill impairment test was performed by comparing the fair value of each of the Strategy and Innovation and Life Sciences reporting
units with its respective carrying value and recognizing an impairment charge for the amount by which the carrying value exceeded the fair
F-16
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
value. To estimate the fair value of each reporting unit, we relied on a combination of the income approach and the market approach with a
fifty-fifty weighting.
In the income approach, we utilized a discounted cash flow analysis, which involved estimating the expected after-tax cash flows that will be
generated by each reporting unit and then discounting those cash flows to present value, reflecting the relevant risks associated with each
reporting unit and the time value of money. This approach requires the use of significant estimates and assumptions, including forecasted
revenue growth rates, forecasted EBITDA margins, and discount rates that reflect the risk inherent in the future cash flows. In estimating
future cash flows, we relied on internally generated seven-year forecasts. Our forecasts are based on historical experience, current backlog,
expected market demand, and other industry information.
In the market approach, we utilized the guideline company method, which involved calculating revenue multiples based on operating data
from guideline publicly traded companies. Multiples derived from guideline companies provide an indication of how much a knowledgeable
investor in the marketplace would be willing to pay for a company. These multiples were evaluated and adjusted based on specific
characteristics of the Strategy and Innovation and Life Sciences reporting units relative to the selected guideline companies and applied to
the reporting units' operating data to arrive at an indication of value.
Concurrently with the goodwill impairment tests performed over the Strategy and Innovation and Life Sciences reporting units, we evaluated
whether any indicators existed that would lead us to believe that the fair values of our Healthcare, Education, and Business Advisory
reporting units would not exceed their carrying values. Based on our internal projections, consideration of the impact of the COVID-19
pandemic on these reporting units, and review of the amounts by which the fair values of these reporting units exceeded their carrying values
in the most recent quantitative goodwill impairment analysis performed, we did not identify any indicators that would lead us to believe that it
was more likely than not that the fair values of these reporting units would not exceed their carrying values as of March 31, 2020.
In connection with the goodwill impairment tests performed on the Strategy and Innovation and Life Sciences reporting units as of March 31,
2020, we performed impairment tests on the long-lived assets allocated to the asset groups of the Strategy and Innovation and Life Sciences
reporting units. Based on the impairment tests performed, we concluded that the long-lived assets allocated to the asset groups were not
impaired as of March 31, 2020. We did not identify any indicators that would lead us to believe that the carrying values of the long-lived
assets allocated to our other asset groups may not be recoverable as of March 31, 2020.
2020 Annual Goodwill Impairment Test
Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2020 on our five reporting units with goodwill
balances: Healthcare, Education, Business Advisory, Strategy and Innovation, and Enterprise Solutions and Analytics. 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 the 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 the fair
value of the Healthcare, Education, Business Advisory, Strategy and Innovation, and Enterprise Solutions and Analytics reporting units
exceeded their carrying value by 42%, 132%, 584%, 29%, and 146%, respectively. As such, we concluded that there is no indication of
goodwill impairment for these five reporting units.
In the income approach, we utilized a discounted cash flow analysis, which involved estimating the expected after-tax cash flows that will be
generated by each reporting unit and then discounting those cash flows to present value, reflecting the relevant risks associated with each
reporting unit and the time value of money. This approach requires the use of significant estimates and assumptions, including forecasted
revenue growth rates, forecasted EBITDA margins, and discount rates that reflect the risk inherent in the future cash flows. In estimating
future cash flows, we relied on internally generated ten-year forecasts. Our forecasts are based on historical experience, current backlog,
expected market demand, and other industry information.
In the market approach, we utilized the guideline company method, which involved calculating revenue and EBITDA multiples based on
operating data from guideline publicly traded companies. Multiples derived from guideline companies provide an indication of how much a
knowledgeable investor in the marketplace would be willing to pay for a company. These multiples were evaluated and adjusted based on
specific characteristics of each of the reporting units relative to the selected guideline companies and applied to the reporting units' operating
data to arrive at an indication of value.
F-17
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Further, we evaluated whether any events occurred or any circumstances changed since November 30, 2020 that would indicate goodwill
may have become impaired since our annual impairment test. Based on our evaluation as of December 31, 2020, we determined that no
indications of impairment arose 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 non-cash goodwill impairment charges.
Intangible Assets
Intangible assets as of December 31, 2020 and 2019 consisted of the following:
As of December 31,
2020
2019
Useful Life
in Years
3 to 13
5 to 6
5
5
2
$
$
Gross
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Accumulated
Amortization
73,629
6,130
5,800
2,090
800
88,449
$
$
56,232
4,287
5,380
1,541
526
67,966
$
$
87,577
28,930
5,694
2,220
800
125,221
$
$
61,882
25,894
4,321
1,447
52
93,596
Customer relationships
Trade names
Technology and software
Non-competition agreements
Customer contracts
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.
Intangible assets amortization expense was $12.7 million, $17.8 million, and $24.0 million for the years ended December 31, 2020, 2019, and
2018, 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, 2020.
Year Ending December 31,
Estimated
Amortization Expense
2021
2022
2023
2024
2025
$
$
$
$
$
8,624
6,401
3,768
956
175
Actual future amortization expense could differ from these estimated amounts as a result of future acquisitions, dispositions, and other
factors.
5. Leases
We lease office space, data centers and certain equipment under operating leases expiring on various dates through 2029, with various
renewal options that can extend the lease terms by one to ten years. Our operating leases include fixed payments plus, in some cases,
scheduled base rent increases over the term of the lease. Certain leases require variable payments of real estate taxes, insurance and
operating expenses. We exclude these variable payments from the measurements of our lease liabilities and expense them as incurred. We
elected the practical expedient to combine lease and nonlease components. No lease agreements contain any residual value guarantees or
material restrictive covenants. As of December 31, 2020, we have not entered into any material finance leases. We sublease certain office
spaces to third parties resulting from restructuring activities in certain locations.
Operating lease right-of-use (“ROU”) assets are reviewed for impairment whenever events or changes in circumstances indicate that the
carrying amount of the asset group to which the operating lease ROU asset is assigned may not be recoverable. First, we test the asset
group for recoverability by comparing the undiscounted cash flows of the asset group, which include expected future lease and nonlease
payments under the lease agreement offset by expected sublease income, to the carrying amount of the asset group. If the first step of the
F-18
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
long-lived asset impairment test concludes that the carrying amount of the asset group is not recoverable, we perform the second step of the
long-lived asset impairment test by comparing the fair value of the asset group to its carrying amount and recognizing a lease impairment
charge for the amount by which the carrying amount exceeds the fair value. To estimate the fair value of the asset group, we rely on a
discounted cash flow approach using market participant assumptions of the expected cash flows and discount rate.
Fourth Quarter 2020 Lease Impairment Charges
In the fourth quarter of 2020, we announced a restructuring plan to reduce operating costs to address the impact of the COVID-19 pandemic
on our business. The restructuring plan provided for a reduction in certain leased office spaces which included a portion of our principal
executive office in Chicago, Illinois; the remaining portion of our Lake Oswego, Oregon office; our Boston, Massachusetts and Detroit,
Michigan offices; and portions of our Denver, Colorado, New York City, New York, and Pensacola, Florida offices. As a result, we recognized
$13.2 million of non-cash lease impairment charges, of which $9.1 million was allocated to the operating lease ROU assets and $4.1 million
was allocated to the related fixed assets based on their relative carrying amounts. The $13.2 million of non-cash lease impairment charges
was recognized in restructuring charges on our consolidated statement of operations. See Note 11 “Restructuring Charges” for additional
information on our restructuring activities.
Fourth Quarter 2019 Lease Impairment Charge
During 2019, we exited a portion of our Lake Oswego, Oregon office, the remaining portion of our Middleton, Wisconsin office, and an office
in Houston Texas, which resulted in $0.8 million of non-cash lease impairment charges, of which $0.6 million was allocated to the operating
lease ROU assets and $0.2 million was allocated to the leasehold improvements based on their relative carrying amounts. The $0.8 million of
non-cash lease impairment charges were recognized in restructuring charges on our consolidated statement of operations. See Note 11
“Restructuring Charges” for additional information on our restructuring activities.
Fourth Quarter 2019 Lease Modification
In the fourth quarter of 2019, we entered into an amendment to the office lease agreement for our principal executive offices in Chicago,
Illinois, which resulted in a non-cash gain on lease modification of $0.8 million. Among other items, this amendment i) extended the term of
the lease from September 30, 2024 to September 30, 2029; ii) provided a renewal option to extend the lease for an additional five year period
to September 30, 2034; iii) terminated the lease with respect to certain leased spaces previously vacated; iv) provided abatement of certain
future base rent payments and our pro rata share of operating expenses and taxes; and v) provided a one-time cash payment from the lessor
as an incentive.
Additional information on our operating leases as of December 31, 2020 and 2019 follows.
Balance Sheet
Operating lease right-of-use assets
Current maturities of operating lease liabilities
Operating lease liabilities, net of current portion
Total lease liabilities
Lease Cost
Operating lease cost
Short-term leases (1)
Variable lease costs
Sublease income
Net lease cost (2)(3)(4)
Includes variable lease costs related to short-term leases.
(1)
As of December 31,
2020
2019
39,360 $
8,771 $
61,825
70,596 $
Year Ended December 31,
2020
2019
11,045 $
229
1,693
(1,973)
10,994 $
54,954
7,469
69,233
76,702
11,883
322
3,656
(2,638)
13,223
$
$
$
$
$
(2) Net lease cost includes $0.3 million and $0.4 million for the years ended December 31, 2020 and 2019, respectively, recorded as
restructuring charges as they relate to vacated office spaces. See Note 11 “Restructuring Charges” for additional information on our
vacated office spaces.
F-19
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(3) Net lease cost includes $0.2 million and $0.3 million for the years ended December 31, 2020 and 2019, respectively, related to vacated
office spaces directly related to discontinued operations.
(4) Rent expense, including operating expenses, real estate taxes and insurance, recorded under ASC 840 for the year ended December
31, 2018 was $15.1 million.
The table below summarizes the remaining expected lease payments under our operating leases as of December 31, 2020.
Future Lease Payments
2021
2022
2023
2024
2025
Thereafter
Total operating lease payments
Less: imputed interest
Present value of operating lease liabilities
December 31,
2020
11,572
11,764
11,742
11,182
10,870
24,613
81,743
(11,147)
70,596
$
$
$
Other Information
Cash paid for operating lease liabilities
Operating lease right-of-use assets obtained in exchange for operating lease liabilities
Weighted average remaining lease term - operating leases
Weighted average discount rate - operating leases
6. Property and Equipment, Net
Year Ended December 31,
2019
2020
$
$
11,307
1,456
$
$
7.0 years
4.3 %
13,902
12,842
7.7 years
4.3 %
Depreciation expense for property and equipment was $12.2 million, $13.0 million, and $13.4 million for the years ended December 31, 2020,
2019 and 2018, respectively. During the years ended December 31, 2020, 2019 and 2018, we recognized an additional $0.6 million,
$0.5 million, and $0.5 million, respectively, of accelerated depreciation expense for fixed assets related to vacated office spaces. This
accelerated depreciation expense is included as a component of restructuring charges. See Note 11 “Restructuring Charges” for additional
information on our restructuring charges incurred in 2020, 2019 and 2018. Property and equipment, net at December 31, 2020 and 2019
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,
2020
2019
27,943
39,952
14,126
7,667
502
90,190
(61,097)
29,093
$
$
50,251
44,323
16,273
7,667
250
118,764
(80,351)
38,413
$
$
F-20
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:
Senior secured credit facility
Promissory note due 2024
Total long-term debt
Current maturities of long-term debt
Long-term debt, net of current portion
As of December 31,
2020
2019
200,000
3,279
203,279
(499)
202,780
$
$
$
205,000
3,853
208,853
(529)
208,324
$
$
$
Below is a summary of the scheduled remaining principal payments of our debt as of December 31, 2020.
2021
2022
2023
2024
Convertible Notes
Principal Payments of
Long-Term Debt
$
$
$
$
499
559
575
201,646
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 were governed by the terms of an indenture between the Company and U.S. Bank National
Association, as Trustee (the “Indenture”). The Convertible Notes were senior unsecured obligations of the Company and paid interest semi-
annually on April 1 and October 1 of each year at an annual rate of 1.25%. The Convertible Notes matured on October 1, 2019. Upon
maturity, we refinanced $217.0 million of the principal amount of the outstanding Convertible Notes with the borrowing capacity available
under our revolving credit facility and funded the remaining $33.0 million principal payment with cash on hand.
Prior to maturity, upon conversion, the Convertible Notes would have been 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 intent and policy was to settle conversions with a
combination of shares of common stock with the principal amount of the Convertible Notes paid in cash, in accordance with the settlement
provisions of the indenture.
Upon issuance, we separated the Convertible Notes into liability and equity components. The carrying value of the equity component
representing the conversion option, which was 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 was amortized to interest expense using an effective interest rate
of 4.751% over the term of the Convertible Notes. The equity component was not remeasured as it continued 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. Transaction costs attributable to the liability component were 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 were
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.
F-21
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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,
2018
2019
2,344
6,436
947
9,727
$
$
3,125
8,232
1,245
12,602
$
$
In connection with the issuance of the Convertible Notes, we entered into convertible note hedge transactions and warrant transactions. The
convertible note hedge transactions were intended to reduce the potential future economic dilution associated with the conversion of the
Convertible Notes and, combined with the warrants, effectively raised the price at which economic dilution would occur from the initial
conversion price of approximately $79.89 to approximately $97.12 per share. The convertible note hedge transactions expired in the third
quarter of 2019. The holders of the warrants had the option to purchase an initial total of approximately 3.1 million shares of the Company’s
common stock at a strike price of approximately $97.12. The warrants expired in the second quarter of 2020. If the average market value per
share of our common stock for the reporting period exceeded the strike price of the warrants, the warrants would have had a dilutive effect on
our earnings per share. The warrants were separate transactions and were not part of the terms of the Convertible Notes or the convertible
note hedge transactions.
Senior Secured Credit Facility
The Company has a $600 million senior secured revolving credit facility, subject to the terms of a Second Amended and Restated Credit
Agreement dated as of March 31, 2015, as amended to date (as amended and modified the “Amended Credit Agreement”), that becomes
due and payable in full upon maturity on September 27, 2024. The Amended Credit Agreement provides the option to increase the revolving
credit facility or establish term loan facilities in an aggregate amount of up to $150 million, subject to customary conditions and the approval
of any lender whose commitment would be increased, resulting in a maximum available principal amount under the Amended Credit
Agreement of $750 million. The initial borrowings under the Amended Credit Agreement were used to refinance borrowings outstanding
under a prior credit agreement, and future borrowings under the Amended Credit Agreement may be used for working capital, capital
expenditures, acquisitions of businesses, share repurchases, and general corporate purposes.
Fees and interest on borrowings vary based on our Consolidated Leverage Ratio (as defined in the Amended Credit Agreement). At our
option, borrowings under the Amended Credit Agreement will bear interest at one, two, three or six-month LIBOR or an alternate base rate, in
each case plus the applicable margin. The applicable margin will fluctuate between 1.125% per annum and 1.875% per annum, in the case of
LIBOR borrowings, or between 0.125% per annum and 0.875% per annum, in the case of base rate loans, based upon our Consolidated
Leverage Ratio at such time.
Amounts borrowed under the Amended Credit Agreement may be prepaid at any time without premium or penalty. We are required to prepay
the amounts outstanding under the Amended Credit Agreement in certain circumstances, including upon an Event of Default (as defined in
the Amended Credit Agreement). In addition, we have the right to permanently reduce or terminate the unused portion of the commitments
provided under the Amended Credit Agreement at any time.
The 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
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) of 3.75 to 1.00; however the maximum
permitted Consolidated Leverage Ratio will increase to 4.00 to 1.00 upon the occurrence of certain transactions, and (ii) a minimum
Consolidated Interest Coverage Ratio (defined as the ratio of consolidated EBITDA to interest) of 3.50 to 1.00. Consolidated EBITDA for
purposes of the financial covenants is calculated on a continuing operations basis and includes adjustments to add back non-cash goodwill
impairment charges, share-based compensation costs, certain non-cash restructuring charges, pro forma historical EBITDA for businesses
acquired, and other specified items in accordance with the Amended Credit Agreement. For purposes of the Consolidated Leverage Ratio
F-22
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
total debt is on a gross basis and is not netted against our cash balances. At December 31, 2020, we were in compliance with these financial
covenants with a Consolidated Leverage Ratio of 1.94 to 1.00 and a Consolidated Interest Coverage Ratio of 12.51 to 1.00.
Borrowings outstanding under the Amended Credit Agreement at December 31, 2020 totaled $200.0 million. These borrowings carried a
weighted average interest rate of 2.5%, including the effect of the interest rate swaps described in Note 12 “Derivative Instruments and
Hedging Activity.” Borrowings outstanding under the Amended Credit Agreement at December 31, 2019 were $205.0 million and carried a
weighted average interest rate of 3.0%, including the effect of the interest rate swap outstanding at the time and described in Note 12
“Derivative Instruments and Hedging Activity.” 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, 2020, we had outstanding letters of credit
totaling $1.6 million, which are primarily used as security deposits for our office facilities. As of December 31, 2020, the unused borrowing
capacity under the revolving credit facility was $398.4 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 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, 2020, the outstanding principal amount of the promissory note was $3.3 million, and the aircraft had a carrying amount of $4.4
million. At December 31, 2019, the outstanding principal amount of the promissory note was $3.9 million, and the aircraft had a carrying
amount of $5.1 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, 2020 and 2019, 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.
9. Revenues
For the years ended December 31, 2020, 2019 and 2018 we recognized revenues of $844.1 million, $876.8 million, and $795.1 million,
respectively. Of the $844.1 million recognized in 2020, we recognized revenues of $12.2 million from obligations satisfied, or partially
satisfied, in prior periods, of which $7.5 million was primarily due to changes in the estimates of our variable consideration under
performance-based billing arrangements and $4.7 million was primarily due to the release of allowances on unbilled services as a result of
securing contract amendments. Of the $876.8 million recognized in 2019, we recognized revenues of $2.8 million from obligations satisfied,
or partially satisfied, in prior periods due to the release of allowances on unbilled services as a result of securing contract amendments.
During 2019, we recognized a $1.0 million decrease to revenues due to changes in the estimates of our variable consideration under
performance-based billing arrangements. Of the $795.1 million recognized in 2018, we recognized revenues of $10.8 million from obligations
satisfied, or partially satisfied, in prior periods, of which $7.2 million was due to changes in the estimates of our variable consideration under
performance-based billing arrangements and $3.6 million was primarily due to the release of allowances on unbilled services due to securing
contract amendments.
As of December 31, 2020, we had $60.2 million of remaining performance obligations under engagements with original expected durations
greater than one year. These remaining performance obligations exclude obligations under contracts with an original expected duration of
F-23
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
one year or less, variable consideration which has been excluded from the total transaction price due to the constraint, and performance
obligations under time-and-expense engagements which are recognized in the amount invoiced. Of the $60.2 million of performance
obligations, we expect to recognize approximately $39.2 million as revenue in 2021, $10.4 million as revenue in 2022, and the remaining
$10.6 million thereafter. Actual revenue recognition could differ from these amounts as a result of changes in the estimated timing of work to
be performed, adjustments to estimated variable consideration in performance-based arrangements, or other factors.
Contract Assets and Liabilities
The payment terms and conditions in our customer contracts vary. Differences between the timing of billings and the recognition of revenue
are recognized as either unbilled services or deferred revenues in the consolidated balance sheets.
Unbilled services include revenues recognized for services performed but not yet billed to clients. Services performed that we are not yet
entitled to bill because certain events must occur, such as the completion of the measurement period or client approval in performance-based
engagements, are recorded as contract assets and included within unbilled services, net. The contract asset balance as of December 31,
2020 and 2019 was $17.3 million and $12.6 million, respectively. The $4.7 million increase primarily reflects timing differences between the
completion of our performance obligations and the amounts billed or billable to clients in accordance with their contractual billing terms.
Client prepayments and retainers are classified as deferred revenues and recognized over future periods in accordance with the applicable
engagement agreement and our revenue recognition policy. Our deferred revenues balance as of December 31, 2020 and December 31,
2019 was $34.7 million and $28.4 million respectively. The $6.3 million increase primarily reflects timing differences between client payments
in accordance with their contract terms and the completion of our performance obligations. For the year ended December 31, 2020, $25.1
million of revenues recognized were included in the deferred revenue balance as of December 31, 2019. For the year ended December 31,
2019, $22.8 million of revenues recognized were included in the deferred revenue balance as of December 31, 2018.
F-24
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
10. Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares
outstanding for the period, excluding unvested restricted common stock. Diluted earnings per share reflects the potential reduction in
earnings per share that could occur if securities or other contracts to issue common stock were exercised or converted into common stock
under the treasury stock method. Such securities or other contracts include unvested restricted stock awards, outstanding common stock
options, convertible senior notes, and outstanding warrants, to the extent dilutive. In periods for which we report a net loss from continuing
operations, diluted weighted average common shares outstanding excludes all potential common stock equivalents as their impact on diluted
net loss from continuing operations per share would be anti-dilutive.
Earnings (loss) per share under the basic and diluted computations are as follows:
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,
2019
2018
2020
$
$
$
$
$
$
(23,718) $
(122)
(23,840) $
41,979
(236)
41,743
$
$
21,882
—
21,882
21,993
514
22,507
(1.08) $
(0.01)
(1.09) $
(1.08) $
(0.01)
(1.09) $
1.91
(0.01)
1.90
1.87
(0.02)
1.85
$
$
$
$
13,944
(298)
13,646
21,706
352
22,058
0.64
(0.01)
0.63
0.63
(0.01)
0.62
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
2020
As of December 31,
2019
2018
1,016
66
—
—
1,082
—
—
—
3,129
3,129
—
—
3,129
3,129
6,258
See Note 7 “Financing Arrangements” for further information on the convertible senior notes and warrants related to the issuance of
convertible notes.
In November 2020, our board of directors authorized a share repurchase program (the “2020 Share Repurchase Program”) permitting us to
repurchase up to $50 million of our common stock through December 31, 2021. The 2020 Share Repurchase Program was authorized
subsequent to the expiration of our prior share repurchase program (the “2015 Share Repurchase Program”) on October 31, 2020. The 2015
Share Repurchase Program permitted us to repurchase up to $125 million of our common stock through October 31, 2020. The amount and
timing of repurchases under both share repurchase programs were determined by management and depend on a variety of factors, including
F-25
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
the trading price of our common stock, capacity under our credit facility, general market and business conditions, and applicable legal
requirements.
Under the 2020 Share Repurchase Program, we repurchased and retired 111,166 shares for $5.0 million in the fourth quarter of 2020, which
are reflected as a reduction to our basic weighted average shares outstanding for the year ended December 31, 2020 based on the trade
date of the share repurchase. As of December 31, 2020, $45.0 million remains available under the plan for share repurchases.
Under the 2015 Share Repurchase Program, we repurchased and retired 313,998 shares for $20.9 million in the first quarter of 2020, which
are reflected as a reduction to our basic weighted average shares outstanding for the year ended December 31, 2020 based on the trade
date of the share repurchase. Additionally, in the first quarter of 2020, we settled the repurchase of 18,000 shares for $1.2 million that were
accrued as of December 31, 2019. In 2019, we repurchased and retired 210,437 shares for $14.2 million, including the 18,000 shares for
$1.2 million which settled in the first quarter of 2020. All of the 210,437 shares repurchased and retired in 2019 were included as a reduction
to our basic weighted average shares outstanding for the year ended December 31, 2019 based on the trade date of the share repurchase.
No shares were repurchased under the 2015 Share Repurchase Program in 2018.
11. Restructuring Charges
2020
In 2020, we incurred $20.5 million of total pretax restructuring expense. Of the $20.5 million pretax restructuring expense, $18.7 million
related to the restructuring plan executed in the fourth quarter of 2020 to reduce operating costs to address the impact of the COVID-19
pandemic on our business. The total pretax restructuring expense of $20.5 million recognized in 2020 consisted of the following charges:
Severance - We incurred $5.3 million of severance-related restructuring expense, of which, $4.8 million related to the fourth quarter 2020
restructuring plan and $0.4 million related to workforce reductions completed prior to the fourth quarter of 2020 to better align resources with
market demand. Of the total $5.3 million of severance-related restructuring expense, $2.0 million related to our Education segment,
$1.5 million related to our Healthcare segment, $1.0 million related to our Business Advisory segment, and $0.8 million related to our
corporate operations.
Office space reductions - We incurred $14.0 million of restructuring expense related to office space reductions, which primarily related to the
fourth quarter 2020 restructuring plan. The fourth quarter 2020 restructuring plan provided for a reduction in certain leased office spaces
which included a portion of our principal executive office in Chicago, Illinois; the remaining portion of our Lake Oswego, Oregon office; our
Boston, Massachusetts and Detroit, Michigan offices; and portions of our Denver, Colorado, New York City, New York, and Pensacola,
Florida offices. As a result, we recognized $13.2 million of non-cash lease impairment charges on the related operating lease right-of-use
(“ROU”) assets and fixed assets for those we intend to sublease, as well as $0.7 million of accelerated amortization and depreciation on the
related operating lease ROU assets and fixed assets we intend to abandon. See Note 5 “Leases” for additional information on the long-lived
asset impairment test. We also incurred $0.1 million related to rent and related expenses, net of sublease income, for previously vacated
office spaces.
Other - We incurred $1.2 million of other restructuring charges primarily related to an accrual for the termination of a third-party advisor
agreement in our Business Advisory segment.
Of the total $20.5 million pretax restructuring charge, $14.8 million related to our corporate operations, $2.2 million related to our Business
Advisory segment, $2.0 million related to our Education segment, and $1.5 million related to our Healthcare segment.
2019
In 2019, we incurred $1.9 million of pretax restructuring expense. This expense primarily consisted of the following charges:
Severance - We incurred $0.6 million of severance expense as a result of workforce reductions to better align resources with market demand
and workforce reductions in our corporate operations.
Office space reductions - We incurred $1.2 million of restructuring expense related to office space reductions. During 2019, we exited a
portion of our Lake Oswego, Oregon office resulting in a $0.7 million lease impairment charge on the related operating lease ROU asset and
leasehold improvements and $0.2 million of accelerated depreciation on furniture and fixtures in that office. See Note 5 “Leases” for
additional information on the long-lived asset impairment test. Additionally, during 2019, we exited the remaining portion of our Middleton,
Wisconsin office and an office in Houston, Texas, resulting in restructuring charges of $0.4 million and $0.1 million, respectively, which
primarily consisted of accelerated depreciation on furniture and fixtures in those offices. During the fourth quarter of 2019, we entered into an
amendment to the lease of our principal executive office in Chicago, Illinois. Among other items, the amendment terminated the lease with
F-26
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
respect to certain leased space which we previously vacated and currently sublease to a third-party. As a result of the amendment, we
recognized a restructuring gain of $0.4 million. See Note 5 “Leases” for additional information on the amendment.
Of the $1.9 million pretax restructuring charge, $1.5 million related to our corporate operations, $0.3 million related to our Healthcare
segment, and $0.1 million related to our Business Advisory segment.
2018
In 2018, we incurred $3.7 million of pretax restructuring expense. This expense primarily consisted of the following charges:
Severance - We incurred $2.1 million of severance expense as a result of workforce reductions to better align resources with market demand.
Office space reductions - We incurred $1.3 million of restructuring expense related to office space reductions. Of the $1.3 million, $0.8 million
related to the accrual of remaining lease payments, net of estimated sublease income, accelerated depreciation on leasehold improvements,
and moving expenses due to exiting a portion of our Middleton, Wisconsin office; $0.4 million related to updated lease assumptions,
commission costs, and moving expenses for our San Francisco office vacated in 2017; and $0.1 million related to updated lease assumptions
for our Chicago office consolidation. The restructuring expense related to office space reductions incurred in 2018 were accounted for in
accordance with ASC 840, Leases. See Note 2 “Summary of Significant Accounting Policies” for additional information on our adoption of
ASC 842 on a modified retrospective basis on January 1, 2019.
Other - We incurred $0.3 million related to the divestiture of our Middle East practice within the Business Advisory segment in the second
quarter of 2018. During the second quarter of 2018, we sold our Middle East practice to a former employee who was the practice leader of
that business at the time, and we recorded a $5.8 million loss which is included in other income (expense), net in our consolidated statements
of operations.
Of the $3.7 million pretax restructuring charge, $1.1 million was related to our Healthcare segment, $1.0 million was related to our Business
Advisory segment, and $1.6 million was related to our corporate operations.
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, 2020 and 2019.
Balance as of December 31, 2018
$
443
$
2,468
$
— $
Employee Costs
Office Space
Reductions
Other
Total
Adoption of ASC 842 (1)
Balance as of January 1, 2019
Additions (2) (3)
Payments
Adjustments (2) (3)
Balance as of December 31, 2019
Additions (2)(3)
Payments
Adjustments (2)(3)
Balance as of December 31, 2020
$
—
443
636
(995)
(16)
68
5,290
(2,907)
(4)
2,447
$
(1,119)
1,349
9
(383)
(884)
91
—
—
(7)
84
$
—
—
—
—
—
—
1,256
(363)
—
893
$
2,911
(1,119)
1,792
645
(1,378)
(900)
159
6,546
(3,270)
(11)
3,424
(1) Upon adoption of ASC 842 on January 1, 2019, we reclassified the restructuring charge liabilities, which represented the present value
of remaining lease payments, net of estimated sublease income, for vacated office spaces from restructuring charge liabilities to
operating lease right-of-use assets. See Note 2 “Summary of Significant Accounting Polices” for additional information on the impact of
adoption.
(2) Additions and adjustments for the years ended December 31, 2020 and 2019 include restructuring charges of $0.2 million and
$0.1 million, respectively, related to office space reductions directly related to discontinued operations.
(3) Additions and adjustments exclude non-cash items related to vacated office spaces, such as lease impairment charges and accelerated
depreciation on abandoned operating lease ROU assets and fixed assets, which are recorded as restructuring charges on our
consolidated statements of operations.
F-27
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
All of the $2.4 million restructuring charge liability related to employee costs at December 31, 2020 relates to the fourth quarter 2020
restructuring plan. This liability is included as a component of accrued payroll and related benefits and is expected to be paid in the first
quarter of 2021. The $0.1 million restructuring charge liability related to office space reductions at December 31, 2020 is included as a
component of deferred compensation and other liabilities. The $0.9 million other restructuring charge liability at December 31, 2020 is
primarily related to the termination of a third-party advisory agreement and is expected to be paid over the next 25 months. This liability is
included as a component of accrued expenses and other current liabilities and deferred compensation and other liabilities.
12. Derivative Instruments and Hedging Activity
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 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%.
On January 30, 2020, we entered into a forward interest rate swap agreement effective December 31, 2019 and ending December 31, 2024,
with a notional amount of $50.0 million. We entered into this derivative instrument to further hedge against the interest rate risks of our
variable-rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional
amount based on one month LIBOR and we pay to the counterparty a fixed rate of 1.500%.
On March 16, 2020, we entered into a forward interest rate swap agreement effective February 28, 2020 and ending February 28, 2025, with
a notional amount of $100.0 million. We entered into this derivative instrument to further hedge against the interest rate risks of our variable-
rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount
based on one month LIBOR and we pay to the counterparty a fixed rate of 0.885%.
We recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. We have designated these derivative
instruments as cash flow hedges. Therefore, changes in the fair value of the derivative instruments are recorded to other comprehensive
income (“OCI”) to the extent effective and reclassified into interest expense upon settlement. As of December 31, 2020, it was anticipated
that $1.8 million of the losses, net of tax, currently recorded in accumulated other comprehensive income will be reclassified into earnings
within the next 12 months.
The table below sets forth additional information relating to our interest rate swaps designated as cash flow hedging instruments as of
December 31, 2020 and 2019.
Balance Sheet Location
Accrued expenses
Deferred compensation and other liabilities
Fair Value (Derivative Asset and Liability)
As of December 31,
2020
2019
$
$
2,100
3,297
$
$
159
387
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 14 “Other Comprehensive Income (Loss)” for
additional information on our derivative instrument.
F-28
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
13. Fair Value of Financial Instruments
Certain of our assets and liabilities are measured at fair value. Fair value is defined as the price that would be received to sell an asset or the
price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP
establishes a fair value hierarchy for inputs used in measuring fair value and requires companies to maximize the use of observable inputs
and minimize the use of unobservable inputs. The fair value hierarchy consists of three levels based on the objectivity of the inputs as
follows:
Level 1 Inputs
Level 2 Inputs
Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at
the measurement date.
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 tables 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, 2020 and 2019.
Level 1
Level 2
Level 3
Total
December 31, 2020
Assets:
Convertible debt investment
Deferred compensation assets
Total assets
Liabilities:
Interest rate swap
Contingent consideration for business acquisition
Total liabilities
December 31, 2019
Assets:
Convertible debt investment
Deferred compensation assets
Total assets
Liabilities:
Interest rate swaps
Total liabilities
$
$
$
$
$
$
$
$
— $
—
— $
— $
—
— $
— $
34,056
34,056
5,397
—
5,397
$
$
$
64,364
—
64,364
$
$
— $
1,770
1,770
$
64,364
34,056
98,420
5,397
1,770
7,167
Level 1
Level 2
Level 3
Total
— $
—
— $
— $
— $
— $
27,445
27,445
546
546
$
$
$
49,542
—
49,542
$
$
—
— $
49,542
27,445
76,987
546
546
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 swap utilizing market-based inputs and discount
rates reflecting the risks involved.
In 2014 and 2015, we invested $27.9 million, in the form of zero coupon convertible debt (the “initial convertible
Convertible debt investment:
notes”), in Shorelight Holdings, LLC (“Shorelight”), the parent company of Shorelight, 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. In the first quarter of 2020, we invested an additional $13.0 million, in the form of 1.69% convertible debt with a senior
liquidation preference to the initial convertible notes (the “additional convertible note”); and amended our initial convertible notes to include a
coupon rate of 1.69% and extend the maturity date to January 17, 2024, which coincides with the maturity date of the additional convertible
note.
F-29
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
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 estimate the fair value of our investment using a scenario-based approach in the form of a hybrid analysis that consists of a
Monte Carlo simulation model and an expected return analysis. The conclusion of value for our investment is based on the probability-
weighted assessment of both scenarios. The hybrid analysis utilizes certain assumptions including the assumed holding period through the
maturity date of January 17, 2024, the applicable waterfall distribution at the end of the expected holding period based on the rights and
privileges of the various instruments, cash flow projections discounted at the risk-adjusted rate of 24.0%, and the concluded equity volatility of
45.0%, all of which are Level 3 inputs. The valuation of our investment as of December 31, 2019 takes into consideration the equity value
indication as well as the dilutive impact of the convertible debt issued by Shorelight in the first quarter of 2020, the terms of which were known
or knowable as of December 31, 2019. 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 investments on our consolidated balance
sheets.
The table below sets forth the changes in the balance of the convertible debt investment for the years ended December 31, 2020 and 2019.
Balance as of December 31, 2018
Change in fair value of convertible debt investment
Balance as of December 31, 2019
Purchases
Change in fair value of convertible debt investment
Balance as of December 31, 2020
Convertible Debt Investment
$
$
50,429
(887)
49,542
13,000
1,822
64,364
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
consolidated balance sheets. Realized and unrealized gains (losses) from the deferred compensation assets are recorded to other income
(expense), net in our consolidated statements of operations.
Contingent consideration for business acquisition: We estimate the fair value of acquisition-related contingent consideration using either a
probability-weighted assessment of the specific financial performance targets being measured or a Monte Carlo simulation model, as
appropriate. These fair value measurements are based on significant inputs not observable in the market and thus represent Level 3 inputs.
The significant unobservable inputs used in the fair value measurements of our contingent consideration are our measures of the estimated
payouts based on internally generated financial projections on a probability-weighted basis and a discount rate which typically reflects a risk-
free rate, and was 2.41% as of December 31, 2020. 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.
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 balance of the contingent consideration for business acquisitions for the years ended
December 31, 2020 and 2019.
Balance as of December 31, 2018
Payments
Remeasurement of contingent consideration for business acquisitions
Unrealized loss due to foreign currency translation
Balance as of December 31, 2019
Acquisition
Balance as of December 31, 2020
Financial assets and liabilities not recorded at fair value on a recurring basis are as follows:
Preferred Stock Investment
Contingent Consideration for
Business Acquisitions
$
$
11,441
(10,041)
(1,506)
106
—
1,770
1,770
In the fourth quarter of 2019, we invested $5.0 million, in the form of preferred stock, in Medically Home Group, Inc. (“Medically Home”), a
healthcare technology-enabled services company. To determine the appropriate accounting treatment for our investment, we performed a
VIE analysis and concluded that Medically Home does not meet the definition of a VIE. We also reviewed the characteristics of our
investment to confirm that the preferred stock is not in-substance common stock that would warrant equity method accounting. After we
reviewed all of the terms of the investment, we concluded the appropriate accounting treatment for our investment in Medically Home to be
that of an equity security with no readily determinable fair value. We elected to apply the measurement alternative at the time of the purchase
and will continue to do so until the investment does not qualify to be so measured. Under the measurement alternative, the investment is
carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the
identical or similar investment in Medically Home. On a quarterly basis, we review the information available to determine whether an orderly
and observable transaction for the same or similar equity instrument occurred, and remeasure the fair value of the preferred stock using such
identified transactions, with changes in the fair value recorded to other income (expense), net in our consolidated statement of operations.
In October 2020, we recognized an unrealized gain of $1.7 million to increase the carrying amount of our preferred stock investment to
$6.7 million, based on an observable price change of preferred stock with similar rights and preferences to our preferred stock investment
issued by Medically Home, a Level 2 input. The unrealized gain of $1.7 million is recorded to other income (expense), net on our consolidated
statement of operations. We have not identified any impairments or additional observable price changes in 2020.
Senior Secured Credit Facility
The carrying value of our borrowings outstanding under our senior secured credit facility is stated at cost. Our carrying value approximates
fair value, using Level 2 inputs, as the senior secured credit facility bears interest at variable rates based on current market rates as set forth
in the Amended Credit Agreement. Refer to Note 7 “Financing Arrangements” for additional information on our senior secured credit facility.
Promissory Note due 2024
The carrying value of our promissory note due 2024 is stated at cost. Our carrying value approximates fair value, using Level 2 inputs, as the
promissory note bears interest at rates based on current market rates as set forth in the terms of the promissory note. Refer to Note 7
“Financing Arrangements” for additional information on our promissory note due 2024.
Cash and Cash Equivalents and Other Financial Instruments
Cash and cash equivalents are stated at cost, which approximates fair market value. The carrying values of all other financial instruments not
described above reasonably approximate fair market value due to the nature of the financial instruments and the short-term maturity of these
items.
F-31
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
14. Other Comprehensive Income (Loss)
The table below sets forth the components of accumulated other comprehensive income (loss), net of tax for the years ended December 31,
2020, 2019, and 2018.
Foreign
Currency
Translation
Available-for-
Sale
Investments
Cash Flow
Hedges (1)
Total
Balance as of December 31, 2017
$
1,149
$
8,812
$
409
$
Foreign currency translation adjustment, net of tax of $0
(1,814)
—
Unrealized gain on investments:
Change in fair value, net of tax of $(2,753)
Unrealized gain (loss) on cash flow hedges:
Change in fair value, net of tax of $(63)
Reclassification adjustment into earnings, net of tax of $(10)
Balance as of December 31, 2018
Foreign currency translation adjustment, net of tax of $0
Unrealized gain (loss) on investments:
Change in fair value, net of tax of $185
Unrealized gain (loss) on cash flow hedges:
Change in fair value, net of tax of $295
Reclassification adjustment into earnings, net of tax of $48
Balance as of December 31, 2019
Foreign currency translation adjustment, net of tax of $0
Unrealized gain (loss) on investments:
Change in fair value, net of tax of $(499)
Unrealized gain (loss) on cash flow hedges:
Change in fair value, net of tax of $1,693
Reclassification adjustment into earnings, net of tax of $(388)
—
—
—
(665)
99
—
—
—
(566)
348
—
—
—
7,772
—
—
16,584
—
(702)
—
—
15,882
—
1,323
—
—
197
(30)
576
—
—
(819)
(137)
(380)
—
10,370
(1,814)
7,772
197
(30)
16,495
99
(702)
(819)
(137)
14,936
348
(4,652)
1,106
13,061
—
1,323
—
—
(4,652)
1,106
Balance as of December 31, 2020
$
(218) $
17,205
$
(3,926) $
(1) The before tax amounts reclassified from accumulated other comprehensive income (loss) related to our cash flow hedges are recorded
to interest expense, net of interest income.
15. Employee Benefit and Deferred Compensation Plans
We sponsor a qualified defined contribution 401(k) plan covering substantially all of our employees. Under the plan, employees are entitled to
make pretax, post-tax, and/or Roth post-tax contributions up to the annual maximums established by the Internal Revenue Service. We
match an amount equal to the employees’ contributions up to 6% of the employees’ eligible earnings. Our matching contributions for the
years ended December 31, 2020, 2019, and 2018 were $25.1 million, $22.8 million, and $20.8 million, respectively.
We have a non-qualified deferred compensation plan (the “Plan”) that is administered by our board of directors or a committee designated by
the board of directors. Under the Plan, members of the board of directors and a select group of our employees may elect to defer the receipt
of their director retainers and meeting fees or base salary and bonus, as applicable. Additionally, we may credit amounts to a participant’s
deferred compensation account in accordance with employment or other agreements entered into between us and the participant. At our sole
discretion, we may, but are not required to, credit any additional amount we desire to any participant’s deferred compensation account.
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, 2020 and 2019 was $34.3 million and $27.5 million,
respectively. This deferred compensation liability is funded by the Plan assets.
F-32
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
16. Equity Incentive Plans
In 2012, Huron adopted the 2012 Omnibus Incentive Plan (the “2012 Plan”) which replaced, on a prospective basis, our 2004 Omnibus Stock
Plan (the "2004 Plan") such that future grants will be granted under the 2012 Plan and any outstanding awards granted under the 2004 Plan
that are cancelled, expired, forfeited, settled in cash, or otherwise terminated without a delivery of shares to the participant will not become
available for grant under the 2012 Plan. The 2012 Plan permits the grant of stock options, stock appreciation rights, restricted stock,
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. Subsequent to the initial approval of the 2012 Plan and through December 31, 2020, our shareholders approved
amendments to the 2012 Plan to increase the number of shares authorized for issuance to 3.9 million, in the aggregate. As of December 31,
2020, 0.9 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 period. Subsequent to the initial approval of the SOPP and through December 31, 2020, our shareholders
approved amendments to the SOPP to increase the total number of shares authorized for issuance to 0.7 million, in the aggregate. Prior to
the adoption of the SOPP, the matching share grants and the employee purchased shares under the stock ownership participation program
were governed by the 2012 Plan. As of December 31, 2020, 0.3 million shares remain available for issuance under the SOPP.
It has been our practice to issue shares of common stock upon exercise of stock options and granting of restricted stock from authorized but
unissued shares, with the exception of the SOPP under which shares are issued from treasury stock. Certain grants of restricted stock under
the 2012 Plan may be issued from treasury stock at the direction of the Compensation Committee.
Share-based awards outstanding under our 2012 Plan and our 2004 Plan provide for a retirement eligibility provision, under which eligible
employees who have reached 62 years of age and have completed seven years of employment with Huron will continue vesting in their
share-based awards after retirement, subject to certain conditions. This retirement eligibility provision also applies to future awards granted to
eligible employees under the 2012 Plan. 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.
Total share-based compensation cost recognized for the years ended December 31, 2020, 2019, and 2018 was $23.9 million, $24.2 million,
and $18.8 million, respectively, with related income tax benefits of $5.4 million, $5.3 million, and $4.6 million, respectively. As of
December 31, 2020, there was $30.4 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 2.3 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, 2020.
Nonvested restricted stock at December 31, 2019
Granted
Vested
Forfeited
Nonvested restricted stock at December 31, 2020
Number of Shares
Stock Ownership
Participation
Program
2012 Omnibus
Incentive Plan
Total
12
19
(10)
(3)
18
774
460
(319)
(34)
881
F-33
Weighted
Average
Grant Date
Fair Value
(in dollars)
786
479
$
$
(329) $
(37) $
899
$
44.27
58.13
45.16
51.95
51.12
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The aggregate fair value of restricted stock that vested during the years ended December 31, 2020, 2019, and 2018 was $18.6 million, $14.5
million, and $9.1 million, respectively. The weighted average grant date fair value per share of restricted stock granted during 2019 and 2018
was $48.57 and $38.45, respectively.
Performance-based Share Awards
During 2020, 2019, and 2018, the Company granted performance-based stock 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, certain awards are subject to the completion of a service period, which is generally an
additional two years. These 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, 2020. All nonvested performance-based
stock outstanding at December 31, 2020 and 2019 was granted under the 2012 Omnibus Incentive Plan.
Nonvested performance-based stock at December 31, 2019
Granted (1)
Vested
Forfeited (2)
Nonvested performance-based stock at December 31, 2020 (3)
Weighted
Average
Grant Date
Fair Value
(in dollars)
Number of
Shares
$
500
236
$
(100) $
(117) $
$
519
42.72
58.84
42.05
46.12
49.42
(1) Shares granted in 2020 are presented at the stated target, which represents the base number of shares that could be earned. Actual
shares earned may be below or, for certain grants, above the target based on the achievement of specific financial goals.
(2) Forfeited shares include shares forfeited as a result of not meeting the performance criteria of the award as well as shares forfeited upon
termination.
(3) Of the 519,000 nonvested performance-based shares outstanding as of December 31, 2020, 398,506 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 2020 financial results, approximately 139,673 of the 398,506 unearned shares will be forfeited in the first quarter
of 2021.
The aggregate fair value of performance-based stock that vested during the years ended December 31, 2020, 2019, and 2018 was $5.9
million, $3.4 million, and $1.5 million, respectively. The weighted average grant date fair value per share of performance-based stock granted
during 2019 and 2018 was $47.93 and $35.25, respectively.
Stock Options
Prior to 2014, the Company granted stock option awards to certain named executive officers. No stock option awards were granted in 2020,
2019, or 2018. 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.
F-34
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Stock option activity for the year ended December 31, 2020 was as follows:
Outstanding at December 31, 2019
Granted
Exercised
Forfeited or expired
Outstanding at December 31, 2020 (1)
Exercisable at December 31, 2020
Number
of
Options
(in thousands)
Weighted
Average
Exercise
Price
(in dollars)
Weighted
Average
Remaining
Contractual
Term
(in years)
Aggregate
Intrinsic
Value
(in millions)
106
$
—
(40) $
—
66
66
$
$
32.57
24.82
37.31
37.31
1.9 $
$
1.5 $
1.5 $
3.8
1.1
1.4
1.4
(1) Of the 66,000 outstanding options, approximately 34,000 were granted under the 2004 Omnibus Stock Plan, and the remaining 32,000
options were granted under the 2012 Omnibus Incentive Plan.
The aggregate intrinsic value of options exercised during 2019 and 2018 was $1.6 million and $0.8 million, respectively.
17. Income Taxes
On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES
Act”). The CARES Act is an approximately $2 trillion emergency economic stimulus package in response to the COVID-19 outbreak, which
among other items, includes income tax provisions relating to a five-year net operating loss carryback period, options to defer payroll tax
payments for a limited period and technical corrections to tax depreciation methods for qualified improvement property. During 2020, as a
result of the CARES Act, we recognized a $1.5 million tax benefit related to the remeasurement of a portion of our income tax receivable for
the federal net operating loss incurred in 2018 and the expected federal net operating loss in 2020 that will be carried back to prior year
income, both for a refund at the higher, prior year tax rate. Through December 31, 2020, we deferred $12.2 million of payroll tax payments, of
which $6.1 million is expected to be paid in the fourth quarter of 2021 and $6.1 million is expected to be paid in the fourth quarter of 2022.
The deferred payroll tax payments are included as components of accrued payroll and related benefits and deferred compensation and other
liabilities on our consolidated balance sheet.
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, reduced the corporate federal income tax rate from 35% to 21% and moved from a worldwide tax system to a
territorial system. During 2018, we completed our accounting for all of the enactment-date income tax effects of 2017 Tax Reform. For the
year ended December 31, 2018, we recorded tax expense of $2.2 million related to establishing a valuation allowance for foreign tax credits,
a tax benefit of $0.6 million related to the U.S. federal return to provision adjustments for the remeasurement of our net deferred taxes based
on the new lower rate and tax expense of $0.2 million related to withholding tax on outside basis differences due to our change in assertion
for permanent reinvestment. These amounts were recorded as a component of income tax expense from continuing operations.
F-35
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The income tax expense for continuing operations for the years ended December 31, 2020, 2019, and 2018 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,
2019
2018
2020
$
$
(2,480) $
168
2,016
(296)
(7,414)
(2,025)
(420)
(9,859)
(10,155) $
125
2,014
(422)
1,717
7,467
1,610
(282)
8,795
10,512
$
$
(1,611)
286
1,885
560
9,742
2,008
(1,033)
10,717
11,277
The components of income from continuing operations before taxes were as follows:
U.S.
Foreign
Total
2020
Year Ended December 31,
2019
2018
$
$
(35,054) $
1,181
(33,873) $
53,898
(1,407)
52,491
$
$
17,025
8,196
25,221
A reconciliation of the U.S. statutory income tax rate to our effective tax rate for continuing operations is as follows:
Year Ended December 31,
2019
2018
2020
Percent of pretax income from continuing operations:
At U.S. statutory tax rate
State income taxes, net of federal benefit
CARES Act net operating loss carryback
Stock-based compensation
Tax credits
Realized investment gains/losses
Deferred tax adjustments
Foreign source income
Valuation allowance
Disallowed executive compensation
Goodwill impairment charges
Unrecognized tax benefits
Meals and entertainment
Net tax benefit related to “check-the-box” election
Change in fair value of contingent consideration liabilities
Global intangible low-taxed income
Transition tax on accumulated foreign earnings, net of credits
US federal rate change
Other
Effective income tax rate for continuing operations
F-36
21.0 %
4.4
4.4
4.3
3.0
2.6
1.7
0.5
(3.1)
(2.8)
(2.6)
(2.0)
(0.6)
—
—
—
—
—
(0.8)
30.0 %
21.0 %
6.1
—
(1.1)
(3.1)
(1.8)
0.6
(0.5)
(2.9)
2.0
—
(0.4)
1.6
(1.4)
—
—
—
—
(0.1)
20.0 %
21.0 %
7.2
—
4.9
(1.4)
1.3
(1.7)
(1.7)
6.9
2.5
—
0.4
2.0
—
2.4
2.1
0.8
(2.3)
0.3
44.7 %
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The net deferred tax asset (liability) for continuing operations at December 31, 2020 and 2019 consisted of the following:
Deferred tax assets:
Operating lease liabilities
Deferred compensation liability
Share-based compensation
Accrued payroll and payroll related liabilities
Deferred payroll tax payments
Tax credits
Net operating loss carryforwards
Other
Total deferred tax assets
Valuation allowance
Net deferred tax assets
Deferred tax liabilities:
Intangibles and goodwill
Operating lease right-of-use assets
Convertible debt investment
Software development costs
Property and equipment
Prepaid expenses
Other
Total deferred tax liabilities
Net deferred tax asset (liability) for continuing operations
As of December 31,
2020
2019
19,617
9,002
7,579
3,745
3,235
1,773
944
3,278
49,173
(2,112)
47,061
(12,956)
(11,079)
(6,219)
(6,054)
(3,007)
(2,708)
(1,275)
(43,298)
3,763
$
$
20,541
7,084
6,970
5,205
—
465
280
1,451
41,996
(1,016)
40,980
(16,421)
(14,675)
(5,608)
(4,496)
(4,039)
(2,183)
(483)
(47,905)
(6,925)
$
$
As of December 31, 2020 and 2019, we had valuation allowances of $2.1 million and $1.0 million, respectively, primarily due to uncertainties
relating to the ability to realize deferred tax assets recorded for foreign losses and tax credits. The increase in valuation allowances in 2020
primarily related to an increase in the valuation allowance for foreign losses and tax credits.
The Company has foreign net operating losses of $3.8 million which begin to expire in 2027 and state net operating loss carryforwards of
$5.1 million which will begin to expire in 2023, if not utilized. We have federal and state tax credit carryforwards of $1.8 million which will
begin to expire in 2021, if not utilized.
We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on
examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements
from such a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate
resolution.
A reconciliation of our beginning and ending amount of unrecognized tax benefits is as follows:
Balance at December 1, 2017
Additions based on tax positions related to prior years
Decrease due to lapse of statute of limitations
Balance at December 31, 2018
Decrease due to settlements of prior year tax positions
Decrease due to lapse of statute of limitations
Balance at December 31, 2019
Additions based on tax positions related to prior years
Balance at December 31, 2020
F-37
Unrecognized Tax Benefits
813
115
(28)
900
(115)
(735)
50
694
744
$
$
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
As of December 31, 2020, we had $0.7 million of unrecognized tax benefits which would affect the effective tax rate of continuing operations
if recognized.
As of both December 31, 2020 and 2019, we had less than $0.1 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 operations.
We file income tax returns with federal, state, local and foreign jurisdictions. Tax years 2017 through 2019 are subject to future examinations
by federal tax authorities. Tax years 2014 through 2019 are subject to future examinations by state and local tax authorities. Our foreign
income tax filings are subject to future examinations by the local foreign tax authorities for tax years 2015 through 2019. Currently, we are not
under audit by any tax authority.
18. Commitments, Contingencies and Guarantees
Lease Commitments
We lease office space, data centers and certain equipment under non-cancelable operating lease arrangements expiring on various dates
through 2029, with various renewal options. Office facilities under operating leases include fixed payments plus, in some cases, scheduled
base rent increases over the term of the lease. Certain leases require variable payments of real estate taxes, insurance and operating
expenses. See Note 5 “Leases” for additional information on our leases, including the remaining expected lease payments under our
operating leases as of December 31, 2020.
Litigation
During the year ended December 31, 2020, we recognized a $0.2 million litigation settlement gain for the resolution of a claim that was
settled in the first quarter of 2020. During the year ended December 31, 2019, we recorded a $0.4 million litigation loss accrual related to the
legal claim that was subsequently settled during the first quarter of 2020. During the year ended December 31, 2018, we reached a
settlement agreement related to Huron's claim in a class action lawsuit, resulting in a gain of $2.5 million. These items are recorded in
litigation and other gains, net on our consolidated statement of operations.
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 $1.6 million and $1.7 million were outstanding at December 31, 2020 and 2019,
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, 2020, the
estimated fair value of our outstanding contingent consideration liability was $1.8 million. As of December 31, 2019, the total estimated fair
value of our contingent consideration liabilities was zero.
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.
19. Segment Information
Segments are defined as components of a company that engage in business activities from which they may earn revenues and incur
expenses, and for which separate financial information is available and is evaluated regularly by the chief operating decision maker, or
decision-making group, in deciding how to allocate resources and in assessing performance. Our chief operating decision maker, who is our
chief executive officer, manages the business under three operating segments, which are our reportable segments: Healthcare, Business
Advisory, and Education.
F-38
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
•
Healthcare
Our Healthcare segment serves national and regional hospitals, integrated health systems, academic medical centers, community
hospitals, and medical groups. Our Healthcare professionals have a depth of expertise in business operations, including financial
and operational improvement, care transformation, and revenue cycle managed services; organizational transformation; and digital,
technology and analytic solutions. Most healthcare organizations are focused on changing the way care is delivered; establishing a
sustainable business model centered around optimal cost structures, reimbursement models and financial strategies; and evolving
their digital, technology and analytic capabilities. Our solutions help clients adapt to this rapidly changing healthcare environment to
become a more agile, efficient and consumer-centric organization. We use our deep industry expertise to help clients solve a
diverse set of business issues, including, but not limited to, optimizing financial and operational performance, improving care
delivery and clinical outcomes, increasing physician, patient and employee satisfaction, evolving organizational culture, and
maximizing return on technology investments.
•
Business Advisory
Our Business Advisory segment works with C-suite executives, boards, and business unit and functional leadership across a
diverse set of organizations, including healthy, well-capitalized companies to organizations in transition, and across a broad range
of industries, including life sciences, financial services, healthcare, education, energy and utilities, industrials and manufacturing,
and the public sector. Our Business Advisory professionals have deep industry, functional and technical expertise that they put
forward when delivering our digital, technology and analytics, strategy and innovation and corporate finance and restructuring
services. In today’s disruptive environment, organizations must reimagine their historical strategies and financial and operating
models to sustain and advance their competitive advantage. Organizations also recognize the need to adopt technologies,
automation and analytics to improve their operations and compete in a rapidly changing environment. Our experts help
organizations across industries with a variety of business challenges, including, but not limited to, embedding technology and
analytics throughout their internal and customer-facing operations, developing insights into the needs of tomorrow’s customers in
order to evolve their enterprise and business unit strategies, bringing new products to market, and managing through stressed and
distressed situations to create a viable path forward for stakeholders.
•
Education
Our Education segment serves public and private colleges and universities, academic medical centers, research institutes and
other not-for-profit organizations. Our Education professionals have a depth of expertise in strategy and innovation; business
operations, including the research enterprise and student lifecycle; digital, technology and analytic solutions; and organizational
transformation. Our Education segment clients are increasingly faced with financial and/or demographic challenges as well as
increased competition. To remain competitive, organizations must challenge traditional operating and financial models and
reimagine strategic, operational and research-centered opportunities that advance their mission while strengthening their business
models. We collaborate with clients to address these challenges and ensure they have a sustainable future. We combine our deep
industry, functional and technical expertise to help clients solve their most pressing challenges, including, but not limited to,
transforming business operations with technology; strengthening research strategies and support services; evolving their
organizational strategy; optimizing financial and operational performance; and enhancing the student lifecycle.
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
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.
F-39
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The tables below set forth information about our operating segments for the years ended December 31, 2020, 2019, and 2018, along with the
items necessary to reconcile the segment information to the totals reported in the accompanying consolidated financial statements. We do
not present financial information by geographic area because the financial results of our international operations are not significant to our
consolidated financial statements.
Year Ended December 31,
2019
2018
2020
Healthcare:
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
Education:
Revenues
Operating income
Segment operating income 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 gains, net
Depreciation and amortization
Goodwill impairment charges (1)
Other expense, net
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
353,437
94,925
26.9 %
267,361
48,046
18.0 %
223,329
47,503
21.3 %
844,127
26,887
871,014
190,474
135,255
(150)
24,405
59,816
5,021
Income (loss) from continuing operations before taxes
$
(33,873)
$
399,221
125,724
31.5 %
252,508
49,695
19.7 %
225,028
55,741
24.8 %
876,757
88,717
965,474
231,160
$
$
$
$
$
$
$
$
$
364,763
108,060
29.6 %
236,185
50,625
21.4 %
194,177
48,243
24.8 %
795,125
82,874
877,999
206,928
140,285
122,276
(1,196)
28,365
—
11,215
52,491
$
(2,019)
34,575
—
26,875
25,221
(1) The goodwill impairment charges are not allocated at the segment level because the underlying goodwill asset is reflective of our
corporate investment in the segments. We do not include the impact of goodwill impairment charges in our evaluation of segment
performance.
Segment Assets:
Healthcare
Business Advisory
Education
Unallocated assets (1)
Total assets
2020
40,217
38,402
34,534
944,323
1,057,476
As of December 31,
2019
$
$
73,019
59,315
38,881
933,056
1,104,271
$
$
$
$
2018
65,133
59,017
26,990
898,392
1,049,532
(1) Unallocated assets include goodwill and intangible assets and our long-term investments, as management does not evaluate these
items at the segment level when assessing segment performance or allocating resources. Refer to Note 4 “Goodwill and Intangible
Assets” and Note 13 “Fair Value of Financial Instruments” for further information on these assets.
F-40
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
The following table illustrates the disaggregation of revenues by billing arrangements, employee types, and timing of revenue recognition,
including a reconciliation of the disaggregated revenues to revenues from our three operating segments for the year ended December 31,
2020, 2019 and 2018.
Billing Arrangements
Fixed-fee
Time and expense
Performance-based
Software support, maintenance and subscriptions
Total
Employee Type (1)
Revenue generated by full-time billable consultants
Revenue generated by full-time equivalents
Total
Timing of Revenue Recognition
Revenue recognized over time
Revenue recognized at a point in time
Total
Billing Arrangements
Fixed-fee
Time and expense
Performance-based
Software support, maintenance and subscriptions
Total
Employee Type (1)
Revenue generated by full-time billable consultants
Revenue generated by full-time equivalents
Total
Timing of Revenue Recognition
Revenue recognized over time
Revenue recognized at a point in time
Total
Year Ended December 31, 2020
Healthcare
Business
Advisory
Education
Total
$
$
$
$
$
$
202,513
58,322
69,316
23,286
353,437
254,595
98,842
353,437
349,676
3,761
353,437
$
$
$
$
$
$
101,561
152,716
8,059
5,025
267,361
253,747
13,614
267,361
267,361
—
267,361
$
$
$
$
$
$
44,839
155,510
695
22,285
223,329
191,467
31,862
223,329
223,007
322
223,329
$
$
$
$
$
$
348,913
366,548
78,070
50,596
844,127
699,809
144,318
844,127
840,044
4,083
844,127
Year Ended December 31, 2019
Healthcare
Business
Advisory
Education
Total
$
$
$
$
$
$
249,479
55,204
71,051
23,487
399,221
280,915
118,306
399,221
390,884
8,337
399,221
$
$
$
$
$
$
100,635
139,610
6,856
5,407
252,508
243,350
9,158
252,508
252,508
—
252,508
$
$
$
$
$
$
51,826
154,893
—
18,309
225,028
195,844
29,184
225,028
223,673
1,355
225,028
$
$
$
$
$
$
401,940
349,707
77,907
47,203
876,757
720,109
156,648
876,757
867,065
9,692
876,757
F-41
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
Billing Arrangements
Fixed-fee
Time and expense
Performance-based
Software support, maintenance and subscriptions
Total
Employee Type (1)
Revenue generated by full-time billable consultants
Revenue generated by full-time equivalents
Total
Timing of Revenue Recognition
Revenue recognized over time
Revenue recognized at a point in time
Total
Year Ended December 31, 2018
Healthcare
Business
Advisory
Education
Total
$
$
$
$
$
$
239,263
58,377
42,684
24,439
364,763
247,416
117,347
364,763
356,826
7,937
364,763
$
$
$
$
$
$
98,119
128,583
5,405
4,078
236,185
225,335
10,850
236,185
236,185
—
236,185
$
$
$
$
$
$
39,586
140,824
—
13,767
194,177
170,496
23,681
194,177
190,526
3,651
194,177
$
$
$
$
$
$
376,968
327,784
48,089
42,284
795,125
643,247
151,878
795,125
783,537
11,588
795,125
(1) Full-time billable consultants consist of our full-time professionals who provide consulting services to our clients and are billable to our
clients based on the number of hours worked. Full-time equivalent professionals consist of our coaches and their support staff within our
Culture and Organizational Excellence solution, consultants who work variable schedules as needed by our clients, employees who
provide managed services in our Healthcare segment, and full-time employees who provide software support and maintenance services
to our clients.
For the years ended December 31, 2020, 2019, and 2018, substantially all of our revenues and long-lived assets were attributed to or located
in the United States.
At December 31, 2020 and 2019, no single client accounted for greater than 10% of our combined receivables and unbilled services
balances. During the years ended December 31, 2020, 2019, and 2018, no single client generated greater than 10% of our consolidated
revenues.
20. Valuation and Qualifying Accounts
The table below sets forth the changes in the carrying amount of our allowances for doubtful accounts and unbilled services and valuation
allowance for deferred tax assets for the years ended December 31, 2020, 2019, and 2018. Allowances for doubtful accounts and unbilled
services includes allowances for fee adjustments and other discretionary pricing adjustments as well as allowances related to clients' inability
to make required payments on accounts receivable.
Year ended December 31, 2018:
Allowances for doubtful accounts and unbilled services
Valuation allowance for deferred tax assets
Year ended December 31, 2019:
Allowances for doubtful accounts and unbilled services
Valuation allowance for deferred tax assets
Year ended December 31, 2020:
Allowances for doubtful accounts and unbilled services
Valuation allowance for deferred tax assets
Beginning
balance
Additions (1)
Deductions
Ending
balance
24,499
1,247
22,241
3,143
18,668
1,016
49,390
2,314
69,979
1
63,268
1,160
51,648
418
73,552
2,128
60,630
64
$
$
$
$
$
$
22,241
3,143
18,668
1,016
21,306
2,112
$
$
$
$
$
$
F-42
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(1) Additions to allowances for doubtful accounts and unbilled services are charged to revenues to the extent the provision relates to fee
adjustments and other discretionary pricing adjustments. To the extent the provision relates to a client’s inability to make required
payments on accounts receivable, the provision is charged to operating expenses.
21. Selected Quarterly Financial Data (Unaudited)
2020
Revenues
Reimbursable expenses
Total revenues and reimbursable expenses
Gross profit
Operating income (loss)
Net income (loss) from continuing operations
Loss from discontinued operations, net of tax
Net income (loss)
Net earnings per basic share:
Net income (loss) from continuing operations
Loss from discontinued operations, net of tax
Net income (loss)
Net earnings per diluted share:
Net income (loss) from continuing operations
Loss from discontinued operations, net of tax
Net income (loss)
Weighted average shares used in calculating earnings per share:
Basic
Diluted
2019
Revenues
Reimbursable expenses
Total revenues and reimbursable expenses
Gross profit
Operating income
Net income from continuing operations
Loss from discontinued operations, net of tax
Net income
Net earnings per basic share:
Net income from continuing operations
Loss from discontinued operations, net of tax
Net income
Net earnings per diluted share:
Net income from continuing operations
Loss from discontinued operations, net of tax
Net income
Weighted average shares used in calculating earnings per share:
Basic
Diluted
22. Subsequent Event
$
$
$
$
$
$
$
$
$
$
Mar. 31
Jun. 30
Sep. 30
Dec. 31
Quarter Ended
$
222,619
19,303
241,922
64,984
(45,851)
(42,273)
(35)
(42,308)
(1.94) $
—
(1.94) $
(1.94) $
—
(1.94) $
217,857
2,970
220,827
67,113
15,954
13,572
(25)
13,547
0.62
—
0.62
0.61
—
0.61
$
$
$
$
$
205,304
2,860
208,164
58,495
13,699
11,087
(29)
11,058
0.50
—
0.50
0.50
—
0.50
$
$
$
$
$
198,347
1,754
200,101
55,710
(12,654)
(6,104)
(33)
(6,137)
(0.28)
—
(0.28)
(0.28)
—
(0.28)
21,827
21,827
21,869
22,116
21,905
22,175
21,903
21,903
Mar. 31
Jun. 30
Sep. 30
Dec. 31
Quarter Ended
204,445
18,617
223,062
65,496
6,756
3,350
(46)
3,304
0.15
—
0.15
0.15
—
0.15
$
$
$
$
$
220,754
23,534
244,288
77,832
17,875
10,569
(97)
10,472
0.48
—
0.48
0.47
—
0.47
$
$
$
$
$
219,289
23,636
242,925
75,158
20,576
13,706
(52)
13,654
0.62
—
0.62
0.61
—
0.61
$
$
$
$
$
232,269
22,930
255,199
77,315
18,499
14,354
(41)
14,313
0.65
—
0.65
0.63
—
0.63
21,868
22,311
21,997
22,400
22,052
22,561
22,051
22,676
On January 7, 2021, we entered into an agreement to acquire Unico Solution, Inc. (“Unico Solutions”), a data strategy and technology
consulting firm focused on helping clients enhance the use of their data to speed business transformation and accelerate cloud adoption. The
F-43
HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
acquisition expands our cloud-based technology offerings within the Business Advisory segment. The results of operations of Unico Solutions
will be included within the Business Advisory segment from the close date, February 1, 2021. The acquisition of Unico Solutions is not
significant to our consolidated financial statements.
F-44
LIST OF SUBSIDIARIES OF HURON CONSULTING GROUP INC.
(as of December 31, 2020)
EXHIBIT 21.1
Name
Huron Consulting Group Holdings LLC
Huron Consulting Services LLC
Huron Consulting Saudi Limited
Huron Saudi Limited
Huron Advisors Canada Limited
Huron Transaction Advisory LLC
Huron Eurasia India Private Limited
Pope Woodhead and Associates Limited
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
Huron Managed Services LLC
Jurisdiction of Organization
Delaware
Delaware
Saudi Arabia
Saudi Arabia
Canada
Delaware
India
England
Delaware
Delaware
Singapore
Switzerland
Delaware
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. 333-166542, 333-181445,
333-196397, 333-204353, 333-218108, 333-231566, 333-238605, and 333-238606) of Huron Consulting Group Inc. of our report dated
February 23, 2021 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, Illinois
February 23, 2021
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.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Huron Consulting Group Inc.;
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;
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;
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 23, 2021
By:
/s/
JAMES H. ROTH
James H. Roth
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.
2.
3.
4.
I have reviewed this Annual Report on Form 10-K of Huron Consulting Group Inc.;
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;
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;
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 23, 2021
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, 2020 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, James H. Roth, 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.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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 23, 2021
By:
/S/
JAMES H. ROTH
James H. Roth
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, 2020 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.
2.
The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
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 23, 2021
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
Allie Bovis
Public Relations Manager
312-583-8700 x671422
abovis@hcg.com
Investor Relations
John D. Kelly
Executive Vice President,
Chief Financial Officer
and Treasurer
312-583-8722
investor@hcg.com
Corporate Secretary
Ernest Torain Jr.
Executive Vice President,
General Counsel and
Corporate Secretary
312-212-6730
corporatesecretary@hcg.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 7, 2021
Stock Performance
Huron Consulting Group Inc.
The NASDAQ Composite Index
Peer Group Index
$300
$250
$200
$150
$100
$50
$0
2015
2016
2017
2018
2019
2020
Value of Investment
Huron Consulting Group Inc.
$100.00
$85.27
$68.10
$86.38
$115.69
$99.24
-1%
2015
2016
2017
2018
2019
2020 % return
The NASDAQ Composite Index
$100.00
$107.50
$137.86 $132.51
$179.19
$257.38
157%
Peer Group Index
$100.00
$119.76
$114.74 $149.83
$202.58
$190.57
91%
The above graph and table compare the cumulative
total shareholder return on our common stock
from December 31, 2015 through December 31,
2020, 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., Premier, 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, 2015, 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
results, are “forward-looking” statements as defined
in Section 21E of the Securities Exchange Act of
1934, as amended, and the Private Securities
Litigation Reform Act of 1995. Forward-looking
statements are identified by words such as “may,”
“should,” “expects,” “provides,” “anticipates,”
“assumes,” “can,” “will,” “meets,” “could,” “likely,”
“intends,” “might,” “predicts,” “seeks,” “would,”
“believes,” “estimates,” “plans,” “continues,”
“guidance,” or “outlook” or similar expressions. These
forward-looking statements reflect the Company’s
current expectations about future requirements
and needs, results, levels of activity, performance,
or achievements. Some of the factors that could
cause actual results to differ materially from the
forward-looking statements contained herein include,
without limitation: the impact of the COVID-19
pandemic on the economy, our clients and client
demand for our services, and our ability to sell and
provide services, including the measures taken by
governmental authorities and businesses in response
to the pandemic, which may cause or contribute to
other risks and uncertainties that we face; failure to
achieve expected utilization rates, billing rates and
the number of revenue-generating professionals;
inability to expand or adjust our service offerings in
response to market demands; our dependence on
renewal of client-based services; dependence on
new business and retention of current clients and
qualified personnel; failure to maintain third-party
provider relationships and strategic alliances; inability
to license technology to and from third parties; the
impairment of goodwill; various factors related to
income and other taxes; difficulties in successfully
integrating the businesses we acquire and achieving
expected benefits from such acquisitions; risks
relating to privacy, information security, and related
laws and standards; and a general downturn in
market conditions. These forward-looking statements
involve known and unknown risks, uncertainties,
and other factors, including, among others, those
described under Item 1A. “Risk Factors” in Huron’s
Annual Report on Form 10-K for the year ended
December 31, 2020, 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. The
Company disclaims 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
Twitter.com/Huron
huronconsultinggroup.com
Facebook.com/HuronConsulting
© 2021 Huron Consulting Group Inc. and affiliates. Huron is a global consultancy 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 the trading name of Pope Woodhead & Associates Ltd.