Huron Consulting(HURN) - 2022 Q2 - Quarterly Report

Part I – Financial Information This section presents the unaudited consolidated financial statements, management's discussion and analysis, market risk, and internal controls Consolidated Financial Statements (Unaudited) These unaudited statements present Huron's financial position, operational results, and cash flows for the periods ending June 30, 2022 Consolidated Balance Sheets The balance sheets show total assets increased to $1.18 billion, driven by receivables and investments, while long-term debt rose significantly Consolidated Balance Sheet Highlights (in thousands) | Account | June 30, 2022 | December 31, 2021 | | :--- | :--- | :--- | | Assets | | | | Cash and cash equivalents | $11,958 | $20,781 | | Total current assets | $303,712 | $257,682 | | Goodwill | $623,841 | $620,879 | | Total assets | $1,177,909 | $1,119,349 | | Liabilities & Equity | | | | Total current liabilities | $158,480 | $205,184 | | Long-term debt, net of current portion | $342,000 | $232,221 | | Total liabilities | $602,550 | $547,449 | | Total stockholders' equity | $575,359 | $571,900 | Consolidated Statements of Operations and Other Comprehensive Income These statements show strong revenue growth and a significant increase in net income for both the quarter and six-month periods ending June 30, 2022 Key Operating Results (in thousands, except per share data) | Metric | Q2 2022 | Q2 2021 | Six Months 2022 | Six Months 2021 | | :--- | :--- | :--- | :--- | :--- | | Revenues | $273,325 | $230,126 | $533,374 | $433,339 | | Operating Income | $29,004 | $16,129 | $44,962 | $24,369 | | Net Income | $13,875 | $12,797 | $40,727 | $18,202 | | Diluted EPS | $0.66 | $0.59 | $1.94 | $0.82 | - Other income (expense), net, was a significant driver of pre-tax income for the six-month period, contributing $14.8 million in 2022 compared to an expense of $1.2 million in 2021[10] Consolidated Statements of Stockholders' Equity Stockholders' equity slightly increased, driven by net income but partially offset by significant share repurchases during the first half of 2022 - For the six months ended June 30, 2022, the company repurchased and retired 1,020,946 shares for $52.3 million[14] - Net income of $40.7 million and comprehensive income of $43.4 million were the primary contributors to the growth in retained earnings and total equity[14] Consolidated Statements of Cash Flows Net cash used in operating activities improved, while financing activities, primarily from borrowings, funded operations and share repurchases, leading to a decrease in cash and cash equivalents Cash Flow Summary (in thousands) | Cash Flow Category | Six Months Ended June 30, 2022 | Six Months Ended June 30, 2021 | | :--- | :--- | :--- | | Net cash used in operating activities | $(50,236) | $(61,970) | | Net cash used in investing activities | $(7,608) | $(13,752) | | Net cash provided by financing activities | $49,076 | $21,258 | | Net decrease in cash | $(8,823) | $(54,195) | - Financing activities were driven by net proceeds from bank borrowings of $109.2 million ($224 million proceeds less $114.8 million repayments), which were partially offset by $52.4 million in share repurchases[17] Notes to Consolidated Financial Statements These notes detail significant accounting policies, including a new operating model with three segments, goodwill reallocation, an unrealized investment gain, and ongoing share repurchases - Effective January 1, 2022, the company modified its operating model and began reporting under three new segments: Healthcare, Education, and Commercial, to better integrate industry expertise with digital, strategic, and financial advisory capabilities[22][23][120] - As a result of the reorganization, goodwill was reallocated among the new reporting units, with a subsequent impairment test indicating no impairment and fair values exceeding carrying values by 37% (Healthcare), 199% (Education), and 105% (Commercial)[33][35] - During Q1 2022, the company recognized a $27.0 million unrealized gain on its preferred stock investment in Medically Home based on an observable price change, increasing the investment's carrying amount to $33.6 million[91] - The board of directors extended the share repurchase program through December 31, 2023, and increased the authorized amount to $200 million, with $77.9 million remaining available as of June 30, 2022[50][51] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial performance, highlighting strong revenue growth, improved operating margin, and liquidity supported by a new operating model and credit facility Results of Operations This section details the company's operational results, showing significant revenue growth across segments and capabilities, and a substantial increase in net income for the quarter and six-month periods Revenues by Segment - Q2 2022 vs Q2 2021 (in thousands) | Segment | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Healthcare | $128,474 | $114,750 | 12.0% | | Education | $88,225 | $60,475 | 45.9% | | Commercial | $56,626 | $54,901 | 3.1% | | Total | $273,325 | $230,126 | 18.8% | Revenues by Capability - Q2 2022 vs Q2 2021 (in thousands) | Capability | Q2 2022 | Q2 2021 | % Change | | :--- | :--- | :--- | :--- | | Consulting and Managed Services | $147,871 | $145,004 | 2.0% | | Digital | $125,454 | $85,122 | 47.4% | | Total | $273,325 | $230,126 | 18.8% | - For the six months ended June 30, 2022, net income increased significantly to $40.7 million from $18.2 million in the prior year, primarily driven by a $27.0 million unrealized gain on the Medically Home preferred stock investment[227][230] - The total number of revenue-generating professionals increased to 4,243 as of June 30, 2022, from 3,459 a year prior, reflecting increased demand and acquisitions[177] Liquidity and Capital Resources The company's liquidity is supported by cash and a substantial credit facility, which funded operations and share repurchases, with management deeming it sufficient for future needs - The company has a $600 million senior secured revolving credit facility maturing in September 2024, with $342.0 million borrowed and $257.3 million unused capacity as of June 30, 2022[250][256] - During the first six months of 2022, the company repurchased $52.2 million of its common stock under its authorized program, which was increased to $200 million and extended through 2023[246][248] - Net cash used in operating activities improved to $50.2 million for the first half of 2022, compared to $62.0 million for the same period in 2021, due to increased cash collections[238] Quantitative and Qualitative Disclosures About Market Risk The company's market risks primarily involve interest rate fluctuations on variable-rate debt, mitigated by swaps, and the market value volatility of its significant private investments - The company is exposed to interest rate risk on its $342.0 million of variable-rate borrowings, where a hypothetical 100 basis point change would affect pretax income by $1.4 million annually, after considering interest rate swaps[269] - To hedge against interest rate risk, the company has three active interest rate swap agreements with notional amounts totaling $200 million, converting variable LIBOR-based payments to fixed rates of 1.900%, 1.500%, and 0.885%[270][271][272] - The company holds a preferred stock investment in Medically Home with a carrying value of $33.6 million as of June 30, 2022, whose value changes are recorded in the statement of operations and represent a market risk[278] Controls and Procedures The company's CEO and CFO concluded that disclosure controls and procedures were effective, with no material changes to internal control over financial reporting during the second quarter of 2022 - Management, including the CEO and CFO, evaluated disclosure controls and procedures and found them to be effective as of the end of the period[279] - No changes occurred in internal control over financial reporting during the quarter ended June 30, 2022, that have materially affected, or are reasonably likely to materially affect, these controls[280] Part II – Other Information This section provides information on legal proceedings, risk factors, equity sales, and other disclosures Legal Proceedings The company is involved in ordinary course legal proceedings, with management not expecting any material adverse effect on its financial position or operations - The company states that it is not a party to any litigation or legal proceeding that is reasonably expected to have a material adverse effect on its financial position or operations[283] - This section incorporates by reference the discussion of the Oaktree litigation from Note 13 of the financial statements, where it is detailed that the matter is stayed pending arbitration and the company does not expect a material loss[114][282] Risk Factors No material changes to previously disclosed risk factors are reported, with a reference to the Annual Report on Form 10-K for a complete description - The report directs investors to the Risk Factors section of the Annual Report on Form 10-K for the year ended December 31, 2021, for a full description of material risks[284] Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2022, the company repurchased shares under its extended and increased share repurchase program, with a significant amount remaining available for future repurchases Share Repurchases - Q2 2022 | Period | Total Shares Purchased | Average Price Paid per Share | Shares Purchased as Part of Program | Value Remaining under Program | | :--- | :--- | :--- | :--- | :--- | | April 2022 | 57,216 | $47.34 | 54,889 | $103,667,584 | | May 2022 | 239,650 | $56.94 | 239,650 | $90,015,176 | | June 2022 | 203,265 | $59.55 | 203,008 | $77,919,714 | | Total | 500,131 | $56.90 | 497,547 | $77,919,714 | - The share repurchase program was extended through December 31, 2023, and the total authorized amount was increased to $200 million[286][287] Defaults Upon Senior Securities No defaults upon senior securities were reported by the company - The company reported no defaults upon senior securities[291] Mine Safety Disclosures This item is not applicable to the company's operations - This item is not applicable to the company[292] Other Information No other information was reported for this item - The company reported no other information for this item[293] Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and Inline XBRL data files - The exhibits filed include certifications from the CEO and CFO as required by the Sarbanes-Oxley Act of 2002[296] - The filing includes Inline XBRL documents for financial data tagging[296]