Huron Consulting(HURN) - 2024 Q2 - Quarterly Report

PART I - FINANCIAL INFORMATION Item 1. Consolidated Financial Statements (Unaudited) The unaudited consolidated financial statements for the period ended June 30, 2024, show increased assets and revenues, with higher net income despite increased cash usage from operations Consolidated Balance Sheets As of June 30, 2024, total assets increased to $1.33 billion from $1.26 billion at year-end 2023, primarily due to higher long-term debt Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2024 | December 31, 2023 | | :--- | :--- | :--- | | Total Assets | $1,325,913 | $1,262,142 | | Total Current Assets | $435,536 | $400,460 | | Goodwill | $647,451 | $625,711 | | Total Liabilities | $825,335 | $729,250 | | Total Current Liabilities | $225,751 | $302,575 | | Long-term debt, net of current portion | $496,550 | $324,000 | | Total Stockholders' Equity | $500,578 | $532,892 | Consolidated Statements of Operations and Other Comprehensive Income (Loss) For Q2 2024, revenues increased to $371.7 million and net income rose to $37.5 million, while for H1 2024, revenues reached $727.6 million with net income of $55.5 million Statement of Operations Highlights (in thousands, except per share data) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $371,654 | $346,759 | $727,615 | $664,654 | | Operating Income | $59,403 | $39,719 | $79,324 | $58,150 | | Net Income | $37,482 | $24,712 | $55,488 | $38,131 | | Diluted EPS | $2.03 | $1.27 | $2.96 | $1.95 | Consolidated Statements of Cash Flows For the six months ended June 30, 2024, net cash used in operating activities increased to $23.5 million, while financing activities provided $68.7 million, reflecting higher net borrowings Cash Flow Summary - Six Months Ended June 30 (in thousands) | Activity | 2024 | 2023 | | :--- | :--- | :--- | | Net cash used in operating activities | $(23,503) | $(13,880) | | Net cash used in investing activities | $(39,677) | $(15,763) | | Net cash provided by financing activities | $68,726 | $34,333 | | Net increase in cash and cash equivalents | $5,497 | $4,749 | Notes to Consolidated Financial Statements The notes detail the company's three business segments, accounting policies, recent acquisitions including GG+A, and financing arrangements such as a new $275 million term loan - The company operates and manages its business under three segments: Healthcare, Education, and Commercial[176] - In March 2024, the company acquired Grenzebach Glier and Associates, Inc. ("GG+A"), a philanthropic management consulting firm, which is included in the Education segment[182] - In February 2024, the company established a $275 million senior secured term loan facility, maturing in November 2027, with proceeds used to reduce borrowings under the Revolver[97][68] - The company uses forward interest rate swaps to hedge against interest rate risks on variable-rate borrowings and non-deliverable foreign exchange forward contracts to manage currency risk related to its operations in India[83][42] Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Management's discussion highlights Q2 2024 revenue growth of 7.2%, driven by Healthcare and Education, with significant increases in operating and net income due to a litigation settlement gain Results of Operations - Three Months Ended June 30, 2024 In Q2 2024, total revenues increased by 7.2% to $371.7 million, with operating income surging 49.6% to $59.4 million, significantly boosted by a $15.0 million litigation settlement gain Q2 2024 vs. Q2 2023 Revenue by Segment (in thousands) | Segment | Q2 2024 | Q2 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Healthcare | $190,098 | $173,768 | $16,330 | 9.4% | | Education | $122,753 | $110,694 | $12,059 | 10.9% | | Commercial | $58,803 | $62,297 | $(3,494) | (5.6)% | | Total Revenues | $371,654 | $346,759 | $24,895 | 7.2% | Q2 2024 vs. Q2 2023 Operating Income by Segment (in thousands) | Segment | Q2 2024 | Q2 2023 | Change ($) | | :--- | :--- | :--- | :--- | | Healthcare | $55,246 | $49,151 | $6,095 | | Education | $30,792 | $27,397 | $3,395 | | Commercial | $9,015 | $10,472 | $(1,457) | | Total Segment Operating Income | $95,053 | $87,020 | $8,033 | - Operating expenses increased by $6.4 million (2.0%), with direct costs rising 5.7% due to higher compensation and technology costs, partially offset by lower contractor expenses[358][5] - Recognized a pre-tax $15.0 million litigation settlement gain, which significantly boosted 'Other gains, net' to $15.9 million from $0.6 million in Q2 2023[360] Results of Operations - Six Months Ended June 30, 2024 For the first half of 2024, revenues grew 9.5% to $727.6 million, driven by Healthcare and Education, with operating income rising 36.3% to $79.3 million, including a $15.0 million litigation settlement gain H1 2024 vs. H1 2023 Revenue by Segment (in thousands) | Segment | H1 2024 | H1 2023 | Change ($) | Change (%) | | :--- | :--- | :--- | :--- | :--- | | Healthcare | $370,840 | $322,817 | $48,023 | 14.9% | | Education | $234,336 | $214,841 | $19,495 | 9.1% | | Commercial | $122,439 | $126,996 | $(4,557) | (3.6)% | | Total Revenues | $727,615 | $664,654 | $62,961 | 9.5% | - Healthcare operating income increased 20.3% to $97.9 million, with operating margin expanding to 26.4% from 25.2%[58][254] - Education operating income increased 4.3% to $52.7 million, but operating margin decreased to 22.5% from 23.5% due to higher compensation costs[411] - Commercial operating income decreased 6.1% to $23.1 million, with operating margin contracting to 18.8% from 19.3%[25] - Direct costs for the first six months increased by $38.3 million (8.3%), primarily due to a $43.5 million increase in compensation costs for revenue-generating professionals[19] Non-GAAP Financial Measures The company uses non-GAAP measures, with Adjusted EBITDA increasing to $55.7 million in Q2 2024 and $89.5 million in H1 2024, and Adjusted Net Income growing to $30.9 million and $54.2 million respectively Reconciliation of Net Income to Adjusted EBITDA (in thousands) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $37,482 | $24,712 | $55,488 | $38,131 | | EBITDA | $66,293 | $47,111 | $95,174 | $73,814 | | Adjusted EBITDA | $55,684 | $48,475 | $89,502 | $77,977 | | Adjusted EBITDA as a % of Revenues | 15.0% | 14.0% | 12.3% | 11.7% | Reconciliation of Net Income to Adjusted Net Income (in thousands) | Metric | Q2 2024 | Q2 2023 | H1 2024 | H1 2023 | | :--- | :--- | :--- | :--- | :--- | | Net Income | $37,482 | $24,712 | $55,488 | $38,131 | | Adjusted Net Income | $30,946 | $26,954 | $54,200 | $44,011 | | Adjusted Diluted EPS | $1.68 | $1.38 | $2.89 | $2.25 | Liquidity and Capital Resources As of June 30, 2024, the company had $17.6 million in cash, with net cash used in operating activities increasing to $23.5 million, while financing activities provided $68.7 million from net borrowings and share repurchases - Net cash used in operating activities for H1 2024 was $23.5 million, an increase from $13.9 million in H1 2023, mainly due to higher annual performance bonus payments[448][63] - Net cash used in investing activities for H1 2024 was $39.7 million, primarily for business acquisitions ($20.8 million) and internally developed software ($14.1 million)[417] - Net cash provided by financing activities for H1 2024 was $68.7 million, reflecting net borrowings of $187.6 million used to fund operations and share repurchases ($97.3 million)[201] Financing Arrangements as of June 30, 2024 | Facility | Size | Outstanding | Maturity | | :--- | :--- | :--- | :--- | | Revolver | $600M | $240.0M | Nov 15, 2027 | | Term Loan | $275M | $271.6M | Nov 15, 2027 | | Total Debt | | $511.6M | | - The company was in compliance with its financial covenants, with a Consolidated Leverage Ratio of 2.24 to 1.00 and a Consolidated Interest Coverage Ratio of 10.55 to 1.00[73][454] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from interest rate and foreign currency fluctuations using derivative instruments, with $511.6 million in variable-rate debt and $300.0 million in interest rate swaps as of June 30, 2024 - A hypothetical 100 basis point change in interest rates would have a $2.1 million effect on annualized pretax income, considering the $511.6 million in borrowings and existing interest rate swaps[203] - The company hedges a portion of its interest rate risk on variable-rate borrowings with forward interest rate swap agreements, with an aggregate notional amount of $300.0 million as of June 30, 2024[43] - Exposure to foreign currency risk between the USD and Indian Rupee (INR) is managed with non-deliverable foreign exchange forward contracts, with an aggregate notional amount of INR 629.2 million ($7.5 million) as of June 30, 2024[44] Item 4. Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of June 30, 2024, with no material changes to internal control over financial reporting during Q2 2024 - The CEO and CFO concluded that as of June 30, 2024, the company's disclosure controls and procedures were effective[48] - No material changes to the internal control over financial reporting occurred during the three months ended June 30, 2024[49] PART II - OTHER INFORMATION Item 1. Legal Proceedings The company is not currently a party to any litigation expected to have a material adverse effect on its financial position, but recognized a pre-tax $15.0 million litigation settlement gain in Q2 2024 - The company is not currently a party to any litigation or legal proceeding that management believes could have a material adverse effect on its financial position or results of operations[50][271] - In Q2 2024, the company recognized a pre-tax $15.0 million litigation settlement gain related to a completed legal matter for which Huron was the plaintiff[246] Item 1A. Risk Factors There are no new risk factors disclosed in this report, with the company referring to its Annual Report on Form 10-K for a complete description of material risks - For a complete description of material risks, the report refers to Part 1, Item 1A, "Risk Factors" in the Annual Report on Form 10-K for the year ended December 31, 2023[51] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds The company's board authorized a share repurchase program, extended through December 31, 2025, with $89.9 million remaining available, and repurchased 376,493 shares for approximately $34.0 million in Q2 2024 - The share repurchase program is authorized up to $500 million through December 31, 2025, with $89.9 million remaining available as of June 30, 2024[52][67] Share Repurchases in Q2 2024 | Period | Total Shares Purchased | Average Price per Share | Shares Purchased as Part of Program | Dollar Value Remaining under Program | | :--- | :--- | :--- | :--- | :--- | | April 2024 | 154,762 | $94.73 | 153,135 | $9,474,528 | | May 2024 | 223,358 | $87.39 | 223,358 | $89,948,343 | | June 2024 | — | — | — | $89,948,343 | | Total | 378,120 | $90.40 | 376,493 | | Item 5. Other Information During the second quarter of 2024, three directors adopted Rule 10b5-1 trading plans for the sale of company securities, with no executive officers or directors terminating any such plans - Three directors, H. Eugene Lockhart, James Roth, and Debra Zumwalt, adopted Rule 10b5-1 trading plans in May 2024[90][264] Item 6. Exhibits This section lists the exhibits filed as part of the Quarterly Report on Form 10-Q, including certifications by the CEO and CFO, and Inline XBRL documents - The report includes various exhibits, such as amendments to corporate documents and certifications from the CEO and CFO as required by the Sarbanes-Oxley Act[106][91]