Huron Consulting(HURN) - 2018 Q4 - Annual Report

Part I Business 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] 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][16] - Business Advisory: Assists a wide range of organizations with services like capital and transaction advisory, operational improvement, restructuring, and valuation[17][19] - Education: Provides consulting and technology solutions to higher education institutions and academic medical centers, focusing on strategy, financial management, and student lifecycle solutions[20] - 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] - 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][38] Risk Factors 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] - 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][54] - 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][104] - 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][78] - 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] - 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] Unresolved Staff Comments The company reports no unresolved staff comments from the SEC - None[114] Properties 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] - Huron does not own any real property and believes its leased facilities are adequate for current needs[115] Legal Proceedings 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] Mine Safety Disclosures This item is not applicable to the company - Not applicable[117] Part II Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 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] - Huron has not declared or paid dividends on its common stock since becoming a public company[121] - 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][267] Selected Financial Data 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 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 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][226] - 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] Liquidity and Capital Resources 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] - The company expects to refinance the $250 million principal of the convertible notes at maturity using its revolving credit facility[269] Critical Accounting Policies 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] - 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] - 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][313] Quantitative and Qualitative Disclosures About Market Risk 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][323] - 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] - 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][567] Financial Statements and Supplementary Data 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] Changes in and Disagreements with Accountants on Accounting and Financial Disclosure The company reports no changes in or disagreements with its accountants on accounting and financial disclosure - None[329] Controls and Procedures 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] - Management concluded that internal control over financial reporting was effective as of December 31, 2018, based on the COSO framework (2013)[335] - The effectiveness of internal control over financial reporting was audited by PricewaterhouseCoopers LLP[336] Other Information The company reports no other information for this item - None[338] Part III Directors, Executive Officers and Corporate Governance 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][341][343] - The company has adopted a Code of Business Conduct and Ethics, which is available on its website[342] Executive Compensation 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][344] Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 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] Certain Relationships and Related Transactions, and Director Independence 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][348] Principal Accounting Fees and Services 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] Part IV Exhibits and Financial Statement Schedules 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] - Key exhibits include the company's certificate of incorporation, bylaws, indenture for convertible notes, credit agreement, and various management and compensation plan documents[350][353][355] Form 10-K Summary This item is not applicable to the company - Not applicable[358]