Huron Consulting(HURN) - 2023 Q3 - Quarterly Report

Part I – Financial Information Consolidated Financial Statements The unaudited consolidated financial statements for Q3 and nine months ended September 30, 2023, reflect significant revenue growth, increased total assets to $1.28 billion, and improved net income and cash flow from operations Consolidated Balance Sheets As of September 30, 2023, total assets increased to $1.28 billion from $1.20 billion at year-end 2022, driven by receivables and unbilled services, while total liabilities grew due to increased long-term debt, and stockholders' equity remained stable Consolidated Balance Sheet Highlights (in thousands) | Account | Sep 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Assets | $1,282,300 | $1,199,040 | | Total current assets | $405,531 | $328,484 | | Goodwill | $625,711 | $624,966 | | Total Liabilities | $728,946 | $647,000 | | Long-term debt | $358,000 | $290,000 | | Total stockholders' equity | $553,354 | $552,040 | Consolidated Statements of Operations For Q3 2023, revenues grew 25.5% to $358.2 million with net income of $21.5 million, while nine-month revenues reached $1.02 billion, a 24.9% increase, with net income slightly up at $59.6 million Q3 2023 vs Q3 2022 Performance (in thousands, except EPS) | Metric | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $358,178 | $285,370 | 25.5% | | Operating Income | $37,342 | $29,299 | 27.5% | | Net Income | $21,516 | $17,741 | 21.3% | | Diluted EPS | $1.10 | $0.86 | 27.9% | Nine Months 2023 vs 2022 Performance (in thousands, except EPS) | Metric | Nine Months 2023 | Nine Months 2022 | % Change | | :--- | :--- | :--- | :--- | | Revenues | $1,022,832 | $818,744 | 24.9% | | Operating Income | $95,492 | $74,261 | 28.6% | | Net Income | $59,647 | $58,468 | 2.0% | | Diluted EPS | $3.05 | $2.80 | 8.9% | Consolidated Statements of Stockholders' Equity For the nine months ended September 30, 2023, total stockholders' equity slightly increased to $553.4 million, driven by net income but offset by significant share repurchases and employee tax withholdings - Key activities impacting stockholders' equity in the first nine months of 2023 include net income of $59.6 million, share repurchases of $88.4 million, and share-based compensation of $35.0 million[14] Consolidated Statements of Cash Flows For the nine months ended September 30, 2023, net cash from operating activities significantly improved to $54.9 million, while investing activities used $25.8 million and financing activities used $31.5 million, primarily due to share repurchases Cash Flow Summary (Nine Months Ended, in thousands) | Activity | Sep 30, 2023 | Sep 30, 2022 | | :--- | :--- | :--- | | Net cash from operating activities | $54,894 | $(5,779) | | Net cash used in investing activities | $(25,799) | $(10,779) | | Net cash from (used in) financing activities | $(31,518) | $4,752 | | Net decrease in cash | $(2,436) | $(11,950) | Notes to Consolidated Financial Statements The notes detail accounting policies and financial statement items, highlighting the acquisition of Roundtable Analytics, Inc., a $600 million credit facility with $358.0 million outstanding, restructuring charges, and strong revenue growth across all segments - On September 1, 2023, the company acquired Roundtable Analytics, Inc., a healthcare analytics company, which was not significant to the consolidated financial statements. Goodwill of $745,000 was recorded in the Healthcare segment[24] - As of September 30, 2023, the company had $228.4 million of remaining performance obligations under long-term engagements, with $72.6 million expected to be recognized as revenue in 2024[31][32] - The company repurchased 1,116,830 shares for $88.4 million in the first nine months of 2023. The board extended the share repurchase program through December 31, 2024, and increased the authorized amount to $400 million[40][44] Segment Revenue and Operating Income (Nine Months Ended, in thousands) | Segment | Revenue 2023 | Revenue 2022 | Op. Income 2023 | Op. Income 2022 | | :--- | :--- | :--- | :--- | :--- | | Healthcare | $501,994 | $381,669 | $128,294 | $91,441 | | Education | $325,884 | $263,234 | $77,112 | $58,848 | | Commercial | $194,954 | $173,841 | $39,971 | $38,282 | Management's Discussion and Analysis of Financial Condition and Results of Operations Management attributes strong Q3 2023 performance to continued demand across all segments, particularly Consulting and Managed Services, driving 25.5% revenue growth to $358.2 million, while maintaining a healthy liquidity position Results of Operations For Q3 2023, revenues increased 25.5% to $358.2 million, driven by strong segment growth and higher utilization rates, leading to a 27.5% increase in operating income to $37.3 million Q3 2023 Revenue by Segment (in thousands) | Segment | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Healthcare | $179,177 | $131,319 | 36.4% | | Education | $111,043 | $94,347 | 17.7% | | Commercial | $67,958 | $59,704 | 13.8% | | Total | $358,178 | $285,370 | 25.5% | Q3 2023 Revenue by Capability (in thousands) | Capability | Q3 2023 | Q3 2022 | % Change | | :--- | :--- | :--- | :--- | | Consulting and Managed Services | $214,688 | $155,901 | 37.7% | | Digital | $143,490 | $129,469 | 10.8% | | Total | $358,178 | $285,370 | 25.5% | - Direct costs for Q3 2023 increased by $51.4 million, primarily due to a $48.1 million rise in compensation costs for revenue-generating professionals, reflecting higher headcount, annual salary increases, and a $25.1 million increase in performance bonus expense[182] Non-GAAP Reconciliation Highlights (Q3 2023 vs Q3 2022, in thousands) | Metric | Q3 2023 | Q3 2022 | | :--- | :--- | :--- | | Net Income | $21,516 | $17,741 | | Adjusted EBITDA | $48,000 | $36,470 | | Adjusted Net Income | $27,166 | $20,742 | | Adjusted Diluted EPS | $1.39 | $1.01 | Liquidity and Capital Resources The company's liquidity is primarily from operations and its $600 million credit facility, with $241.4 million unused capacity as of September 30, 2023, and a recently extended $400 million share repurchase program - Net cash provided by operating activities improved to $54.9 million for the first nine months of 2023, compared to a use of $5.8 million in the prior-year period, mainly due to increased cash collections[229] - The company has a $600 million five-year senior secured revolving credit facility maturing in November 2027. As of September 30, 2023, $358.0 million was outstanding, with an unused borrowing capacity of $241.4 million[240][248] - The company was in compliance with its financial covenants as of September 30, 2023, with a Consolidated Leverage Ratio of 1.82 to 1.00 and a Consolidated Interest Coverage Ratio of 10.86 to 1.00[246] Quantitative and Qualitative Disclosures About Market Risk The company manages market risks from interest rates and foreign currency fluctuations through hedging instruments, with a hypothetical 100 basis point interest rate change impacting pretax income by $1.1 million annually, and holds investments in privately-held companies - The company hedges interest rate risk on its variable-rate borrowings. As of September 30, 2023, it had interest rate swap agreements with a notional amount of $250.0 million[257] - Foreign currency risk is managed through non-deliverable forward contracts for Indian Rupee (INR) denominated expenses, with a notional amount of $16.5 million as of September 30, 2023[258] Controls and Procedures Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of September 30, 2023, with no material changes to internal control over financial reporting during the quarter - The CEO and CFO concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective[264] Part II – Other Information Legal Proceedings The company is not currently involved in any legal proceedings expected to have a material adverse effect on its financial position or results of operations - As of the report date, the company states it is not involved in any legal proceedings that would materially impact its financials[267] Unregistered Sales of Equity Securities and Use of Proceeds On September 1, 2023, the company issued 16,337 shares for the Roundtable Analytics acquisition and repurchased 290,288 shares in Q3 2023, with the board extending and increasing the share repurchase program to $400 million - Issued 16,337 shares of common stock ($1.6 million value) for the acquisition of Roundtable Analytics, Inc. on September 1, 2023[269] Q3 2023 Share Repurchase Activity | Period | Total Shares Purchased | Average Price Paid | | :--- | :--- | :--- | | July 2023 | 9,811 | $80.79 | | August 2023 | 211,895 | $98.26 | | September 2023 | 72,402 | $99.87 | | Total | 294,108 | $98.07 | - As of September 30, 2023, $21.1 million remained available for share repurchases under the program, which was subsequently extended and increased to a $400 million authorization[271] Other Information During Q3 2023, Non-Executive Chairman John McCartney and CEO C. Mark Hussey adopted Rule 10b5-1 trading plans for the sale of company shares - CEO C. Mark Hussey adopted a Rule 10b5-1 trading plan on August 29, 2023, for the sale of 51,628 shares, expiring August 28, 2024[278]