Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10–Q (Mark One) ý QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2019 OR o 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) (State or other jurisdiction of incorporation or organ ...

Huron Consulting Group Inc. (NASDAQ:HURN) Q4 2018 Earnings Conference Call February 26, 2019 5:00 PM ET Company Participants Jim Roth – Chief Executive Officer John Kelly – Chief Financial Officer Mark Hussey – President and Chief Operating Officer Conference Call Participants Tim McHugh – William Blair Joseph Thompson – SunTrust Kevin Steinke – Barrington Research Operator Good afternoon, ladies and gentlemen, and welcome to Huron Consulting Group's webcast to discuss Financial Results for the Fourth Quart ...

Part I [Business](index=4&type=section&id=Item%201.%20Business) Huron is a global consultancy delivering professional services across Healthcare, Business Advisory, and Education segments, which generated 46%, 30%, and 24% of 2018 revenues, respectively - Huron operates as a global consultancy helping clients with strategy and implementation to drive growth and performance[12](index=12&type=chunk) FY2018 Revenue by Operating Segment | Segment | Revenue Percentage | | :--- | :--- | | Healthcare | 46% | | Business Advisory | 30% | | Education | 24% | - The company's services are delivered through three main segments: - **Healthcare:** Serves hospitals, health systems, and medical groups, focusing on care transformation, operational excellence, and technology analytics[15](index=15&type=chunk)[16](index=16&type=chunk) - **Business Advisory:** Assists a wide range of organizations with services like capital and transaction advisory, operational improvement, restructuring, and valuation[17](index=17&type=chunk)[19](index=19&type=chunk) - **Education:** Provides consulting and technology solutions to higher education institutions and academic medical centers, focusing on strategy, financial management, and student lifecycle solutions[20](index=20&type=chunk) - As of December 31, 2018, Huron had **3,269 full-time employees**, including **147 client-serving managing directors** who are key drivers of business growth[25](index=25&type=chunk) - The professional services industry is highly competitive and fragmented. Huron competes with a wide range of firms, including strategy, technology, and financial consulting firms, as well as the consulting practices of major accounting firms[37](index=37&type=chunk)[38](index=38&type=chunk) [Risk Factors](index=10&type=section&id=Item%201A.%20Risk%20Factors) Key risks include reliance on talent, goodwill impairment (evidenced by a 2017 charge), healthcare industry uncertainty, data security breaches, and significant debt obligations - The business is highly dependent on its senior management team and managing directors for client relationships and business generation[44](index=44&type=chunk) - Goodwill and other intangible assets totaled **$693.1 million**, or **66% of total assets**, as of December 31, 2018. The company recorded a **$253.1 million** non-cash goodwill impairment charge in 2017[50](index=50&type=chunk)[54](index=54&type=chunk) - A significant portion of revenue is derived from the healthcare industry, which is subject to changing political, legislative, and regulatory influences, creating uncertainty for the business[101](index=101&type=chunk)[104](index=104&type=chunk) - The company faces risks related to data security and must comply with numerous laws such as HIPAA and GDPR. A breach could lead to significant damages and reputational harm[77](index=77&type=chunk)[78](index=78&type=chunk) - A significant portion of revenues is derived from a limited number of clients. In 2018, the **10 largest clients** accounted for approximately **20.1% of revenues**[108](index=108&type=chunk) - The company has significant indebtedness, including **$250 million** in convertible senior notes due in 2019 and **$50.0 million** on its revolving line of credit as of year-end 2018, which could adversely affect its financial condition[86](index=86&type=chunk) [Unresolved Staff Comments](index=25&type=section&id=Item%201B.%20Unresolved%20Staff%20Comments) The company reports no unresolved staff comments from the SEC - None[114](index=114&type=chunk) [Properties](index=25&type=section&id=Item%202.%20Properties) Huron's principal executive offices are leased in Chicago, Illinois, with the lease expiring in September 2024, and the company does not own any real property - The company's principal executive offices are in Chicago, Illinois, consisting of approximately **134,000 square feet** under a lease expiring in September 2024[115](index=115&type=chunk) - Huron does not own any real property and believes its leased facilities are adequate for current needs[115](index=115&type=chunk) [Legal Proceedings](index=26&type=section&id=Item%203.%20Legal%20Proceedings) The company is involved in ordinary course legal proceedings, none of which are expected to have a material adverse effect on its financial position or results - The company is not a party to any litigation or legal proceeding that is expected to have a material adverse effect on its financial position or results of operations[116](index=116&type=chunk) [Mine Safety Disclosures](index=26&type=section&id=Item%204.%20Mine%20Safety%20Disclosures) This item is not applicable to the company - Not applicable[117](index=117&type=chunk) Part II [Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities](index=27&type=section&id=Item%205.%20Market%20for%20Registrant%27s%20Common%20Equity%2C%20Related%20Stockholder%20Matters%20and%20Issuer%20Purchases%20of%20Equity%20Securities) Huron's common stock trades on NASDAQ under 'HURN'; the company has not paid dividends and has an active share repurchase program with **$35.1 million** remaining as of December 31, 2018 - The company's common stock is traded on The NASDAQ Global Select Market under the symbol '**HURN**'[120](index=120&type=chunk) - Huron has not declared or paid dividends on its common stock since becoming a public company[121](index=121&type=chunk) - A share repurchase program is in place, authorizing up to **$125 million** of common stock repurchases, expiring on October 31, 2019. As of December 31, 2018, **$35.1 million** remained available[124](index=124&type=chunk)[267](index=267&type=chunk) [Selected Financial Data](index=28&type=section&id=Item%206.%20Selected%20Financial%20Data) This section presents a five-year summary of Huron's consolidated financial data, highlighting revenue growth and the impact of a significant 2017 goodwill impairment charge Selected Consolidated Financial Data (in thousands, except per share data) | | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | **Revenues** | $795,125 | $732,570 | $726,272 | | **Operating income (loss)** | $52,096 | $(207,456) | $74,234 | | **Net income (loss) from continuing operations** | $13,944 | $(170,505) | $39,480 | | **Net income (loss)** | $13,646 | $(170,117) | $37,617 | | **Diluted earnings (loss) per share** | $0.62 | $(7.93) | $1.76 | | **Total assets** | $1,049,532 | $1,036,928 | $1,153,215 | | **Total stockholders' equity** | $540,624 | $503,316 | $648,033 | [Management's Discussion and Analysis of Financial Condition and Results of Operations](index=30&type=section&id=Item%207.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) This section analyzes 2018 financial performance, noting **8.5% revenue growth** to **$795.1 million**, operating income recovery from a **$207.5 million** 2017 loss (due to a **$253.1 million** goodwill impairment), and liquidity supported by operations and a **$500 million** credit facility [Results of Operations](index=33&type=section&id=Results%20of%20Operations) In 2018, revenues grew **8.5%** to **$795.1 million** with operating income recovering to **$52.1 million** from a **$207.5 million** loss in 2017, primarily due to a **$253.1 million** goodwill impairment charge Revenues by Segment (in thousands) | Segment | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Healthcare | $364,763 | $356,909 | $424,912 | | Business Advisory | $236,185 | $207,753 | $151,543 | | Education | $194,177 | $167,908 | $149,817 | | **Total Revenues** | **$795,125** | **$732,570** | **$726,272** | Segment Operating Income (in thousands) | Segment | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Healthcare | $108,060 | $118,761 | $147,903 | | Business Advisory | $50,625 | $46,600 | $29,382 | | Education | $48,243 | $40,318 | $38,310 | | **Total Segment Operating Income** | **$206,928** | **$205,679** | **$215,595** | - A non-cash goodwill impairment charge of **$253.1 million** was recorded in 2017 (**$208.1 million** for Healthcare and **$45.0 million** for Business Advisory's Enterprise Solutions and Analytics unit). No impairment charge was recorded in 2018 or 2016[185](index=185&type=chunk)[226](index=226&type=chunk) - The company adopted the new revenue recognition standard ASC 606 on January 1, 2018, which most notably impacted the timing of revenue recognition for performance-based billing arrangements[174](index=174&type=chunk) [Liquidity and Capital Resources](index=54&type=section&id=Liquidity%20and%20Capital%20Resources) Primary liquidity sources are cash from operations (**$101.7 million** in 2018) and a **$500 million** credit facility, with **$250 million** convertible notes due in 2019 expected to be refinanced Summary of Cash Flows (in thousands) | Cash Flow Activity | 2018 | 2017 | 2016 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | $101,658 | $99,795 | $129,243 | | Net cash used in investing activities | $(18,562) | $(128,948) | $(86,636) | | Net cash provided by (used in) financing activities | $(66,690) | $28,821 | $(84,095) | - As of December 31, 2018, the company had outstanding debt of **$250 million** in 1.25% convertible senior notes due October 1, 2019, and **$50.0 million** under its senior secured credit facility[268](index=268&type=chunk) - The company expects to refinance the **$250 million** principal of the convertible notes at maturity using its revolving credit facility[269](index=269&type=chunk) [Critical Accounting Policies](index=61&type=section&id=Critical%20Accounting%20Policies) Critical accounting policies include revenue recognition (impacted by ASC 606 adoption in 2018), goodwill and intangible asset valuation, with the 2018 qualitative impairment test indicating no impairment - Critical accounting policies require significant management judgment and include revenue recognition, allowances for doubtful accounts, business combinations, goodwill and intangible asset valuation, and income taxes[291](index=291&type=chunk) - On January 1, 2018, the company adopted ASC 606 (Revenue from Contracts with Customers) on a modified retrospective basis, which primarily affected performance-based billing arrangements[292](index=292&type=chunk) - Goodwill is tested for impairment annually as of November 30. The 2018 annual test was a qualitative assessment which concluded that it was more likely than not that the fair values of all reporting units exceeded their carrying amounts, so no quantitative test was necessary[312](index=312&type=chunk)[313](index=313&type=chunk) [Quantitative and Qualitative Disclosures About Market Risk](index=66&type=section&id=Item%207A.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) The company faces market risks from interest rate fluctuations on its variable-rate debt and fixed-rate convertible notes, mitigated by an interest rate swap hedging **$50.0 million** of variable-rate borrowings - The company is exposed to interest rate risk on its **$250 million** fixed-rate Convertible Notes and its variable-rate borrowings under the bank credit facility[321](index=321&type=chunk)[323](index=323&type=chunk) - An interest rate swap agreement is used to hedge interest rate risk on **$50.0 million** of variable-rate debt, fixing the rate at **1.900%** plus the applicable margin[324](index=324&type=chunk) - The company holds a non-interest bearing convertible debt investment in a privately-held company (Shorelight), which is carried at a fair value of **$50.4 million** as of December 31, 2018[327](index=327&type=chunk)[567](index=567&type=chunk) [Financial Statements and Supplementary Data](index=68&type=section&id=Item%208.%20Financial%20Statements%20and%20Supplementary%20Data) The company's consolidated financial statements and supplementary data are included in the report, beginning on page F-1 - The company's Consolidated Financial Statements and supplementary data begin on page F-1 of the Annual Report on Form 10-K[328](index=328&type=chunk) [Changes in and Disagreements with Accountants on Accounting and Financial Disclosure](index=68&type=section&id=Item%209.%20Changes%20in%20and%20Disagreements%20with%20Accountants%20on%20Accounting%20and%20Financial%20Disclosure) The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[329](index=329&type=chunk) [Controls and Procedures](index=68&type=section&id=Item%209A.%20Controls%20and%20Procedures) Management concluded that disclosure controls and internal control over financial reporting were effective as of December 31, 2018, with no material changes in Q4 2018 - Management concluded that disclosure controls and procedures were effective as of December 31, 2018[330](index=330&type=chunk) - Management concluded that internal control over financial reporting was effective as of December 31, 2018, based on the COSO framework (2013)[335](index=335&type=chunk) - The effectiveness of internal control over financial reporting was audited by PricewaterhouseCoopers LLP[336](index=336&type=chunk) [Other Information](index=70&type=section&id=Item%209B.%20Other%20Information) The company reports no other information for this item - None[338](index=338&type=chunk) Part III [Directors, Executive Officers and Corporate Governance](index=70&type=section&id=Item%2010.%20Directors%2C%20Executive%20Officers%20and%20Corporate%20Governance) Information on directors, executive officers, and corporate governance is incorporated by reference from the definitive proxy statement, and the company has adopted a Code of Business Conduct and Ethics - Information required by this item is incorporated by reference from the company's definitive proxy statement[340](index=340&type=chunk)[341](index=341&type=chunk)[343](index=343&type=chunk) - The company has adopted a Code of Business Conduct and Ethics, which is available on its website[342](index=342&type=chunk) [Executive Compensation](index=71&type=section&id=Item%2011.%20Executive%20Compensation) Information regarding executive compensation, including the Compensation Committee Report, is incorporated by reference from the company's definitive proxy statement - All information required by this item is incorporated by reference from the company's definitive proxy statement[343](index=343&type=chunk)[344](index=344&type=chunk) [Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters](index=71&type=section&id=Item%2012.%20Security%20Ownership%20of%20Certain%20Beneficial%20Owners%20and%20Management%20and%20Related%20Stockholder%20Matters) This section details equity compensation plans and security ownership, noting **902,210 shares** available for future issuance under shareholder-approved plans as of December 31, 2018 Equity Compensation Plan Information as of December 31, 2018 | Plan Category | Number of Shares to be Issued Upon Exercise of Outstanding Options | Weighted Average Exercise Price of Outstanding Options | Number of Shares Remaining Available for Future Issuance | | :--- | :--- | :--- | :--- | | Equity compensation plans approved by shareholders | 154,297 | $30.52 | 902,210 | - Information regarding security ownership of certain beneficial owners and management is incorporated by reference from the company's definitive proxy statement[347](index=347&type=chunk) [Certain Relationships and Related Transactions, and Director Independence](index=73&type=section&id=Item%2013.%20Certain%20Relationships%20and%20Related%20Transactions%2C%20and%20Director%20Independence) Information regarding certain relationships, related transactions, and director independence is incorporated by reference from the company's definitive proxy statement - All information required by this item is incorporated by reference from the company's definitive proxy statement[347](index=347&type=chunk)[348](index=348&type=chunk) [Principal Accounting Fees and Services](index=73&type=section&id=Item%2014.%20Principal%20Accounting%20Fees%20and%20Services) Information regarding principal accounting fees and services is incorporated by reference from the company's definitive proxy statement - Information on principal accounting fees and services is incorporated by reference from the company's definitive proxy statement[348](index=348&type=chunk) Part IV [Exhibits and Financial Statement Schedules](index=74&type=section&id=Item%2015.%20Exhibits%20and%20Financial%20Statement%20Schedules) This section lists documents filed with the Form 10-K, including consolidated financial statements, schedules, and an index of exhibits such as corporate governance documents and material contracts - The documents filed with the report include the Consolidated Financial Statements and various exhibits[350](index=350&type=chunk) - Key exhibits include the company's certificate of incorporation, bylaws, indenture for convertible notes, credit agreement, and various management and compensation plan documents[350](index=350&type=chunk)[353](index=353&type=chunk)[355](index=355&type=chunk) [Form 10-K Summary](index=80&type=section&id=Item%2016.%20Form%2010-K%20Summary) This item is not applicable to the company - Not applicable[358](index=358&type=chunk)