In this Quarterly Report on Form 10-Q, unless the context otherwise requires,
the terms "Huron," "Company," "we," "us" and "our" refer to Huron Consulting
Group Inc. and its subsidiaries.
Statements in this Quarterly Report on Form 10-Q that are not historical in
nature, including those concerning the Company's current expectations about its
future results, are "forward-looking" statements as defined in Section 21E of
the Securities Exchange Act of 1934, as amended (the "Exchange Act") and the
Private Securities Litigation Reform Act of 1995. Forward-looking statements are
identified by words such as "may," "should," "expects," "provides,"
"anticipates," "assumes," "can," "will," "meets," "could," "likely," "intends,"
"might," "predicts," "seeks," "would," "believes," "estimates," "plans,"
"continues," "guidance," or "outlook," or similar expressions. These
forward-looking statements reflect our current expectations about our future
requirements and needs, results, levels of activity, performance, or
achievements. Some of the factors that could cause actual results to differ
materially from the forward-looking statements contained herein include, without
limitation: the impact of the COVID-19 pandemic on the economy, our clients and
client demand for our services, and our ability to sell and provide services,
including the measures taken by governmental authorities and businesses in
response to the pandemic, which may cause or contribute to other risks and
uncertainties that we face; failure to achieve expected utilization rates,
billing rates, and the number of revenue-generating professionals; inability to
expand or adjust our service offerings in response to market demands; our
dependence on renewal of client-based services; dependence on new business and
retention of current clients and qualified personnel; failure to maintain
third-party provider relationships and strategic alliances; inability to license
technology to and from third parties; the impairment of goodwill; various
factors related to income and other taxes; difficulties in successfully
integrating the businesses we acquire and achieving expected benefits from such
acquisitions; risks relating to privacy, information security, and related laws
and standards; and a general downturn in market conditions. These
forward-looking statements involve known and unknown risks, uncertainties, and
other factors, including, among others, those described under Item 1A. "Risk
Factors," in our Annual Report on Form 10-K for the year ended December 31, 2019
and under Part II, Item 1A. "Risk Factors" in this Quarterly Report on Form
10-Q, that may cause actual results, levels of activity, performance or
achievements to be materially different from any anticipated results, levels of
activity, performance, or achievements expressed or implied by these
forward-looking statements. We disclaim any obligation to update or revise any
forward-looking statements as a result of new information or future events, or
for any other reason.
OVERVIEW
Our Business
Huron is a global consultancy that collaborates with clients to drive strategic
growth, ignite innovation and navigate constant change. Through a combination of
strategy, expertise and creativity, we help clients accelerate operational,
digital and cultural transformation, enabling the change they need to own their
future. By embracing diverse perspectives, encouraging new ideas and challenging
the status quo, we create sustainable results for the organizations we serve.
We provide professional services through three operating segments: Healthcare,
Business Advisory, and Education.
• Healthcare


Our Healthcare segment has a depth of expertise in financial and operational improvement, care transformation, culture and organizational excellence, strategy, and technology and analytics. We serve national and regional hospitals, integrated health systems, academic medical centers, community hospitals, and medical groups. Our solutions help clients evolve and adapt to the rapidly changing healthcare environment and achieve growth, optimize performance, enhance profitability, improve quality and clinical outcomes, align leaders, improve organizational culture, and drive physician, patient, and employee engagement across the enterprise to deliver better consumer outcomes. We help organizations transform and innovate their delivery model to focus on patient wellness by improving quality outcomes, minimizing care variation and fundamentally improving patient and population health. Our consultants partner with clients to help build and sustain today's business to invest in the future by reducing complexity, improving operational efficiency and growing market share. We enable the healthcare of the future by identifying, integrating and optimizing technology investments to collect data that transforms care delivery and improves patient outcomes. We also develop future leaders capable of driving meaningful cultural and organizational change and who transform the consumer experience. • Business Advisory

Our Business Advisory segment provides services to large and middle market organizations, lending institutions, law firms, investment banks, private equity firms, and not-for-profit organizations, including higher education and healthcare institutions. We assist clients in a broad range of industries and across the spectrum from healthy, well-capitalized companies to organizations in transition, as well as creditors, equity owners, and other key constituents. Our Enterprise Solutions and Analytics experts advise, deliver, and optimize technology and analytic solutions that enable organizations to manage and optimize their financial performance, operational efficiency, and client or stakeholder experience. Our Business Advisory experts resolve complex business issues and enhance client enterprise value



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through a suite of services including capital advisory, transaction advisory, operational improvement, restructuring and turnaround, valuation, and dispute advisory. Our Strategy and Innovation professionals collaborate with clients across a range of industries to identify new growth opportunities, build new ventures and capabilities, and accelerate organizational change. Our Life Sciences professionals provide strategic solutions to help pharmaceutical, medical device, and biotechnology companies deliver more value to patients, payers, and providers, and comply with regulations. • Education




Our Education segment provides consulting and technology solutions to higher
education institutions and academic medical centers. We collaborate with clients
to address challenges relating to business and technology strategy, financial
and operational excellence, student success, research administration, and
regulatory compliance. Our research enterprise solutions assist clients in
identifying and implementing institutional research strategy, optimizing
clinical research operations, improving financial management and cost
reimbursement, improving service to faculty, and mitigating risk compliance. Our
technology strategy, enterprise applications, and analytic solutions transform
and optimize operations, deliver time and cost savings, and enhance the student
experience. Our institutional strategy, budgeting and financial management, and
business operations align missions with business priorities, improve quality,
and reduce costs institution-wide. Our student solutions improve attraction,
retention and graduation rates, increase student satisfaction and help generate
quality outcomes.
Huron is a Platinum level member of the Oracle PartnerNetwork, an Oracle Cloud
Premier Partner within North America, a Gold level consulting partner with
Salesforce.com and a Workday Services Partner.
Coronavirus (COVID-19)
The worldwide spread of coronavirus (COVID-19) in the first quarter of 2020 has
created significant volatility, uncertainty and disruption to the global
economy. We are closely monitoring the impact of the COVID-19 pandemic on all
aspects of our business, including how it will impact our clients, employees and
business partners. In response to the pandemic, many state and local governments
have issued shelter-in-place mandates; and companies, including Huron, have
implemented work from home policies and travel restrictions. While traditionally
a majority of the work performed by our revenue-generating professionals occurs
at client sites, the nature of the services we provide allows for our
revenue-generating professionals to continue to serve clients in a remote work
environment. While the COVID-19 pandemic did not have a significant impact on
our consolidated revenues in the first quarter of 2020, we expect it to have an
unfavorable impact on sales and business development activities and full year
2020 results. However, given the dynamic nature of these circumstances, the full
impact of the COVID-19 pandemic on our consolidated operations and overall
financial performance is uncertain at this time.
In each of our segments, we are working closely with our clients to support them
and to provide relevant services to address their needs caused by the COVID-19
pandemic. However, some of the services we provide may be considered by our
clients to be more discretionary in nature and the COVID-19 pandemic is expected
to have a negative impact on the demand for those services. In addition,
conditions in the financial markets could limit our access to further capital
resources, if needed, and could increase borrowing costs. In order to support
our liquidity during the COVID-19 pandemic, we are proactively taking measures
to increase available cash on hand including, but not limited to, borrowing
under our senior secured credit facility and reducing discretionary operating
and capital spending. To further support our liquidity, we have elected to defer
the deposit of our employer portion of social security taxes beginning in April
2020 and through the end of the year, which we expect to pay in equal
installments in the fourth quarters of 2021 and 2022, as provided for under the
CARES Act.
The services provided by our Strategy and Innovation and Life Sciences reporting
units within our Business Advisory segment focus on strategic solutions for
healthy, well-capitalized companies to identify new growth opportunities and may
be considered by our clients to be more discretionary in nature. As discussed
above, the COVID-19 pandemic is expected to have an unfavorable impact on the
demand for those services. Based on our internal projections and the preparation
of our financial statements for the quarter ended March 31, 2020, and
considering the expected decrease in demand due to the COVID-19 pandemic, we
believed that the fair value of these two reporting units may no longer exceed
their carrying values and performed an interim goodwill impairment test on both
reporting units. Based on the estimated fair values of the Strategy and
Innovation and Life Sciences reporting units, we recorded non-cash pretax
goodwill impairment charges of $49.9 million and $9.9 million, respectively. We
did not identify any indicators that would lead us to believe that the fair
values of our Healthcare, Education, and Business Advisory reporting units may
not exceed their carrying values. See the "Critical Accounting Policies" section
below and Note 4 "Goodwill and Intangible Assets" within the notes to our
consolidated financial statements for additional information on the charges and
evaluations performed.
See Part II, Item 1A. "Risk Factors" of this Quarterly Report on Form 10-Q for
additional information on the potential impact the COVID-19 pandemic could have
on our business, operations and financial results.
How We Generate Revenues
A large portion of our revenues is generated by our full-time consultants who
provide consulting services to our clients and are billable to our clients based
on the number of hours worked. A smaller portion of our revenues is generated by
our other professionals, also referred to as full-time equivalents, some of whom
work variable schedules as needed by our clients. Full-time equivalent
professionals consist of our coaches and their

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support staff from our Culture and Organizational Excellence solution,
consultants who work variable schedules as needed by our clients, employees who
provide managed services in our Healthcare segment, and our employees who
provide software support and maintenance services to our clients. We translate
the hours that these other professionals work on client engagements into a
full-time equivalent measure that we use to manage our business. We refer to our
full-time consultants and other professionals collectively as revenue-generating
professionals.
Revenues generated by our full-time consultants are primarily driven by the
number of consultants we employ and their utilization rates, as well as the
billing rates we charge our clients. Revenues generated by our other
professionals, or full-time equivalents, are largely dependent on the number of
consultants we employ, their hours worked, and billing rates charged. Revenues
generated by our coaches are largely dependent on the number of coaches we
employ and the total value, scope, and terms of the consulting contracts under
which they provide services, which are primarily fixed-fee contracts. Revenues
generated by our Managed Services solution are dependent on the total value,
scope and terms of the related contracts.
We generate our revenues from providing professional services under four types
of billing arrangements: fixed-fee (including software license revenue);
time-and-expense; performance-based; and software support, maintenance and
subscriptions.
In fixed-fee billing arrangements, we agree to a pre-established fee in exchange
for a predetermined set of professional services. We set the fees based on our
estimates of the costs and timing for completing the engagements. It is the
client's expectation in these engagements that the pre-established fee will not
be exceeded except in mutually agreed upon circumstances. We generally recognize
revenues under fixed-fee billing arrangements using a proportionate performance
approach, which is based on work completed to-date versus our estimates of the
total services to be provided under the engagement. Contracts within our Culture
and Organizational Excellence solution include fixed-fee partner contracts with
multiple performance obligations, which primarily consist of coaching services,
as well as speaking engagements, conferences, publications and software products
("Partner Contracts"). Revenues for coaching services and software products are
generally recognized on a straight-line basis over the length of the contract.
All other revenues under Partner Contracts, including speaking engagements,
conferences and publications, are recognized at the time the goods or services
are provided.
Fixed-fee arrangements also include software licenses for our revenue cycle
management software and research administration and compliance software.
Licenses for our revenue cycle management software are sold only as a component
of our consulting projects, and the services we provide are essential to the
functionality of the software. Therefore, revenues from these software licenses
are recognized over the term of the related consulting services contract.
License revenue from our research administration and compliance software is
generally recognized in the month in which the software is delivered.
Fixed-fee engagements represented 42.4% and 47.8% of our revenues for the three
months ended March 31, 2020 and 2019, respectively.
Time-and-expense billing arrangements require the client to pay based on the
number of hours worked by our revenue-generating professionals at agreed upon
rates. Time-and-expense arrangements also include certain speaking engagements,
conferences and publications purchased by our clients outside of Partner
Contracts within our Culture and Organizational Excellence solution. We
recognize revenues under time-and-expense billing arrangements as the related
services or publications are provided. Time-and-expense engagements represented
43.1% and 40.8% of our revenues for the three months ended March 31, 2020 and
2019, respectively.
In performance-based fee billing arrangements, fees are tied to the attainment
of contractually defined objectives. We enter into performance-based engagements
in essentially two forms. First, we generally earn fees that are directly
related to the savings formally acknowledged by the client as a result of
adopting our recommendations for improving operational and cost effectiveness in
the areas we review. Second, we have performance-based engagements in which we
earn a success fee when and if certain predefined outcomes occur. Often,
performance-based fees supplement our time-and-expense or fixed-fee engagements.
We recognize revenues under performance-based billing arrangements by estimating
the amount of variable consideration that is probable of being earned and
recognizing that estimate over the length of the contract using a proportionate
performance approach. Performance-based fee revenues represented 8.8% and 6.1%
of our revenues for the three months ended March 31, 2020 and 2019,
respectively. The level of performance-based fees earned may vary based on our
clients' risk sharing preferences and the mix of services we provide.
Clients that have purchased one of our software licenses can pay an annual fee
for software support and maintenance. We also generate subscription revenue from
our cloud-based analytic tools and solutions. Software support, maintenance and
subscription revenues are recognized ratably over the support or subscription
period. These fees are generally billed in advance and included in deferred
revenues until recognized. Software support, maintenance and subscription
revenues represented 5.7% and 5.3% of our revenues for the three months ended
March 31, 2020 and 2019, respectively.
Our quarterly results are impacted principally by our full-time consultants'
utilization rate, the bill rates we charge our clients, and the number of our
revenue-generating professionals who are available to work. Our utilization rate
can be negatively affected by increased hiring because there is generally a
transition period for new professionals that results in a temporary drop in our
utilization rate. Our utilization rate can also be affected by seasonal
variations in the demand for our services from our clients. For example, during
the third and fourth quarters of the year, vacations taken by our clients can
result in the deferral of activity on existing and new engagements, which would
negatively affect our utilization rate. The number of business work days is also
affected by the number of vacation days taken by our consultants and holidays in
each quarter. We typically have fewer business work days available in the fourth
quarter of the year, which can impact revenues during that period.

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Time-and-expense engagements do not provide us with a high degree of
predictability as to performance in future periods. Unexpected changes in the
demand for our services can result in significant variations in utilization and
revenues and present a challenge to optimal hiring and staffing. Moreover, our
clients typically retain us on an engagement-by-engagement basis, rather than
under long-term recurring contracts. The volume of work performed for any
particular client can vary widely from period to period.
Business Strategy, Opportunities and Challenges
Our primary strategy is to meet the needs of our clients by providing a balanced
portfolio of service offerings and capabilities so that we can adapt quickly and
effectively to emerging opportunities in the marketplace. To achieve this, we
continue to hire highly qualified professionals and have entered into select
acquisitions of complementary businesses.
To expand our business, we will remain focused on growing our existing
relationships and developing new relationships, executing our managing director
compensation plan to attract and retain senior practitioners, continuing to
promote and provide an integrated approach to service delivery, broadening the
scope of our existing services, and acquiring complementary businesses. We will
regularly evaluate the performance of our practices to ensure our investments
meet these objectives. Furthermore, we intend to enhance our visibility in the
marketplace by refining our overarching messaging and value propositions for the
organization as well as each practice. We will continue to focus on reaching our
client base through clear, concise, and endorsed messages.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, selected segment and
consolidated operating results and other operating data.
                                                                Three Months Ended
Segment and Consolidated Operating Results                           March 31,
(in thousands, except per share amounts):                       2020          2019

Healthcare:


Revenues                                                     $  95,578     $  93,682
Operating income                                             $  24,050     $  27,851

Segment operating income as a percentage of segment revenues 25.2 % 29.7 % Business Advisory: Revenues

$  64,905     $  58,806
Operating income                                             $   9,842     $   9,581

Segment operating income as a percentage of segment revenues 15.2 % 16.3 % Education: Revenues

$  62,136     $  51,957
Operating income                                             $  13,116     $  12,618

Segment operating income as a percentage of segment revenues 21.1 % 24.3 % Total Company: Revenues

$ 222,619     $ 204,445
Reimbursable expenses                                           19,303        18,617
Total revenues and reimbursable expenses                     $ 241,922     $ 223,062
Statements of Operations reconciliation:
Segment operating income                                     $  47,008     $  50,050
Items not allocated at the segment level:
Other operating expenses                                        27,146        36,578
Litigation and other gains                                        (150 )        (456 )
Depreciation and amortization                                    6,047         7,172
Goodwill impairment charges (1)                                 59,816             -
Operating income (loss)                                        (45,851 )       6,756
Other expense, net                                              (7,637 )      (2,041 )

Income (loss) from continuing operations before taxes (53,488 ) 4,715 Income tax expense (benefit)

                                   (11,215 )       1,365
Net income (loss) from continuing operations                 $ (42,273 )   $   3,350
Earnings (loss) per share from continuing operations:
Basic                                                        $   (1.94 )   $    0.15
Diluted                                                      $   (1.94 )   $    0.15




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                                                                   Three Months Ended
                                                                        March 31,
Other Operating Data:                                             2020             2019
Number of full-time billable consultants (at period end)
(2):
Healthcare                                                           892               836
Business Advisory                                                    916               864
Education                                                            791               649
Total                                                              2,599             2,349
Average number of full-time billable consultants (for the
period) (2):
Healthcare                                                           897               819
Business Advisory                                                    920               839
Education                                                            778               631
Total                                                              2,595             2,289

Full-time billable consultant utilization rate (3): Healthcare

                                                          71.6 %            78.6 %
Business Advisory                                                   71.5 %            73.1 %
Education                                                           76.2 %            76.4 %
Total                                                               72.9 %            75.9 %
Full-time billable consultant average billing rate per
hour (4):
Healthcare                                                   $       228       $       224
Business Advisory (5)                                        $       198       $       200
Education                                                    $       188       $       204
Total (5)                                                    $       204       $       210

Revenue per full-time billable consultant (in thousands): Healthcare

$        73       $        79
Business Advisory                                            $        67       $        68
Education                                                    $        69       $        73
Total                                                        $        70       $        73
Average number of full-time equivalents (for the period)
(6):
Healthcare                                                           278               223
Business Advisory                                                     20                 8
Education                                                             60                36
Total                                                                358               267
Revenue per full-time equivalent (in thousands):
Healthcare                                                   $       108       $       129
Business Advisory                                            $       149       $       206
Education                                                    $       144       $       166
Total                                                        $       117       $       137


(1)   The non-cash goodwill impairment charges are not allocated at the segment
      level because the underlying goodwill asset is reflective of our corporate
      investment in the segments. We do not include the impact of goodwill
      impairment charges in our evaluation of segment performance.


(2)   Consists of our full-time professionals who provide consulting services and
      generate revenues based on the number of hours worked.


(3)   Utilization rate for our full-time billable consultants is calculated by
      dividing the number of hours our full-time billable consultants worked on
      client assignments during a period by the total available working hours for
      these consultants during the same period, assuming a forty-hour work week,
      less paid holidays and vacation days.


(4)   Average billing rate per hour for our full-time billable consultants is
      calculated by dividing revenues for a period by the number of hours worked
      on client assignments during the same period.


(5)   The Business Advisory segment includes operations of Huron Eurasia India.
      Absent the impact of Huron Eurasia India, the average billing rate per hour
      for the Business Advisory segment would have been $224 and $223 for the
      three months ended March 31, 2020 and 2019, respectively.

Absent the impact of Huron Eurasia India, Huron's consolidated average billing rate per hour would have been $213 and $218 for the three months ended March 31, 2020 and 2019, respectively.



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(6)   Consists of coaches and their support staff within our Culture and
      Organizational Excellence solution, consultants who work variable schedules
      as needed by our clients, employees who provide managed services in our
      Healthcare segment, and full-time employees who provide software support
      and maintenance services to our clients.

Non-GAAP Measures We also assess our results of operations using certain non-GAAP financial measures. These non-GAAP financial measures differ from GAAP because the non-GAAP financial measures we calculate to measure earnings (loss) before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA, adjusted EBITDA as a percentage of revenues, adjusted net income from continuing operations, and adjusted diluted earnings per share from continuing operations exclude a number of items required by GAAP, each discussed below. These non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flows, or liquidity prepared in accordance with GAAP. Our non-GAAP financial measures may be defined differently from time to time and may be defined differently than similar terms used by other companies, and accordingly, care should be exercised in understanding how we define our non-GAAP financial measures. Our management uses the non-GAAP financial measures to gain an understanding of our comparative operating performance, for example when comparing such results with previous periods or forecasts. These non-GAAP financial measures are used by management in their financial and operating decision making because management believes they reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons. Management also uses these non-GAAP financial measures when publicly providing our business outlook, for internal management purposes, and as a basis for evaluating potential acquisitions and dispositions. We believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating Huron's current operating performance and future prospects in the same manner as management does and in comparing in a consistent manner Huron's current financial results with Huron's past financial results. The reconciliations of these financial measures from GAAP to non-GAAP are as follows (in thousands, except per share amounts):


                                                                Three Months Ended
                                                                     March 31,
                                                                2020           2019
Revenues                                                    $  222,619     $  204,445
Net income (loss) from continuing operations                $  (42,273 )   $    3,350
Add back:
Income tax expense (benefit)                                   (11,215 )        1,365
Interest expense, net of interest income                         2,341          4,258
Depreciation and amortization                                    7,415          8,289
Earnings (loss) before interest, taxes, depreciation and       (43,732 )       17,262
amortization (EBITDA)
Add back:
Restructuring and other charges                                  2,458          1,275
Litigation and other gains                                        (150 )         (456 )
Goodwill impairment charges                                     59,816              -
Loss on sale of business                                           102              -
Foreign currency transaction losses (gains), net                   520            (82 )
Adjusted EBITDA                                             $   19,014     $   17,999
Adjusted EBITDA as a percentage of revenues                        8.5 %          8.8 %



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                                                                    Three Months Ended
                                                                        March 31,
                                                                   2020            2019
Net income (loss) from continuing operations                   $   (42,273 )   $    3,350
Weighted average shares - diluted                                   21,827         22,311

Diluted earnings (loss) per share from continuing operations $ (1.94 ) $ 0.15 Add back: Amortization of intangible assets

                                    3,209          4,517
Restructuring and other charges                                      2,458          1,275
Litigation and other gains                                            (150 )         (456 )
Goodwill impairment charges                                         59,816              -
Non-cash interest on convertible notes                                   -          2,120
Loss on sale of business                                               102              -
Tax effect of adjustments                                          (13,409 )       (1,953 )
Total adjustments, net of tax                                       52,026          5,503
Adjusted net income from continuing operations                 $     9,753     $    8,853
Weighted average shares - diluted                                   22,329         22,311

Adjusted diluted earnings per share from continuing operations $ 0.44 $ 0.40




These non-GAAP financial measures include adjustments for the following items:
Amortization of intangible assets: We have excluded the effect of amortization
of intangible assets from the calculation of adjusted net income from continuing
operations presented above. Amortization of intangible assets is inconsistent in
its amount and frequency and is significantly affected by the timing and size of
our acquisitions.
Restructuring and other charges: We have incurred charges due to the
restructuring of various parts of our business. These restructuring charges have
primarily consisted of costs associated with office space consolidations,
including lease impairment charges and accelerated depreciation on lease-related
property and equipment, and severance charges. Additionally, during the first
quarter of 2020, we have excluded the effect of a $0.8 million one-time charge
related to redundant administrative costs in our corporate operations which is
recorded within selling, general and administrative expenses on our consolidated
statement of operations. We have excluded the effect of the restructuring and
other charges from our non-GAAP measures to permit comparability with periods
that were not impacted by these items.
Litigation and other gains: We have excluded the effects of the litigation
settlement gain recognized in the first quarter of 2020 and the remeasurement
gain recognized in the first quarter of 2019 to decrease the estimated fair
value of our liabilities for contingent consideration payments related to
business acquisitions to permit comparability with periods that were not
impacted by these items.
Goodwill impairment charges: We have excluded the effect of the goodwill
impairment charges recognized in the first quarter of 2020 as these are
infrequent events and their exclusion permits comparability with periods that
were not impacted by such charges.
Non-cash interest on convertible notes: We incurred non-cash interest expense
relating to the implied value of the equity conversion component of our
Convertible Notes. The value of the equity conversion component was treated as a
debt discount and amortized to interest expense over the life of the Convertible
Notes using the effective interest rate method. We exclude this non-cash
interest expense that does not represent cash interest payments from the
calculation of adjusted net income from continuing operations as management
believes that this non-cash expense is not indicative of the ongoing performance
of our business.
Loss on sale of business: We excluded the effect of the loss on sale of a
software-based solution within our Business Advisory segment in the first
quarter of 2020. Divestitures of businesses are infrequent and are not
indicative of the ongoing performance of our business.
Foreign currency transaction losses (gains), net: We have excluded the effect of
foreign currency transaction losses and gains from the calculation of adjusted
EBITDA because the amount of each loss or gain is significantly affected by
changes in foreign exchange rates.
Tax effect of adjustments: The non-GAAP income tax adjustment reflects the
incremental tax impact applicable to the non-GAAP adjustments.
Income tax expense, Interest expense, net of interest income, Depreciation and
amortization: We have excluded the effects of income tax expense, interest
expense, net of interest income, and depreciation and amortization in the
calculation of EBITDA as these are customary exclusions as defined by the
calculation of EBITDA to arrive at meaningful earnings from core operations
excluding the effect of such items.
Adjusted weighted average shares - diluted: As we reported a net loss for the
first three months of 2020, GAAP diluted weighted average shares outstanding
equals the basic weighted average shares outstanding for that period. The
non-GAAP adjustments described above resulted in adjusted

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net income from continuing operations for the first quarter of 2020. Therefore,
we included the dilutive common stock equivalents in the calculation of adjusted
diluted weighted average shares outstanding for that period.
Three Months Ended March 31, 2020 Compared to Three Months Ended March 31, 2019
Revenues
Revenues increased $18.2 million, or 8.9%, to $222.6 million for the first three
months of 2020 from $204.4 million for the first three months of 2019. Of the
overall $18.2 million increase in revenues, $12.9 million was attributable to an
increase in revenues from our full-time billable consultants and $5.3 million
was attributable to our full-time equivalents.
The increase in full-time billable consultant revenues was attributable to
strengthened demand for services in all of our segments, as discussed below in
Segment Results; and reflected an overall increase in the average number of
full-time billable consultants, partially offset by overall decreases in the
consultant utilization rate and the average billing rate during the first three
months of 2020 compared to the same prior year period.
The increase in full-time equivalent revenues was attributable to increases in
full-time equivalent revenues in all of our segments, as discussed below in
Segment Results; and reflected an overall increase in the average number of
full-time equivalents, partially offset by an overall decrease in revenue per
full-time equivalent.
While the COVID-19 pandemic did not have a significant impact on our
consolidated revenues in the first quarter of 2020, we expect it to have an
unfavorable impact on sales and business development activities and full year
2020 results. Additionally, we expect a decrease in the demand for the services
we provide that may be considered by our clients to be more discretionary in
nature. However, given the dynamic nature of these circumstances, the full
impact of the COVID-19 pandemic on our consolidated revenues is uncertain at
this time.
Total Direct Costs
Our total direct costs, including amortization of intangible assets and software
development costs, increased $18.7 million, or 13.4%, to $157.5 million for the
three months ended March 31, 2020, from $138.9 million for the three months
ended March 31, 2019. The overall $18.7 million increase primarily related to a
$15.3 million increase in salaries and related expenses for our
revenue-generating professionals, which was largely driven by increased
headcount in all our segments; a $2.3 million increase in share-based
compensation expense for our revenue-generating professionals; a $1.2 million
increase in contractor expenses; and a $0.7 million increase in technology
expenses. As a percentage of revenues, our total direct costs increased to 70.8%
during the first three months of 2020 compared to 67.9% during the first three
months of 2019 primarily due to the increases in salaries and related expenses
and share-based compensation for our revenue-generating professionals, both as
percentages of revenues, partially offset by a decrease in performance bonus
expense for our revenue-generating professionals.
Total direct costs for the three months ended March 31, 2020 included $1.3
million of amortization expense for internal software development costs and
intangible assets, compared to $1.1 million of amortization expense for the same
prior year period. Intangible asset amortization included within direct costs
for the three months ended March 31, 2020 and 2019 related to technology and
software, certain customer relationships, and customer contracts acquired in
connection with our business acquisitions. See Note 4 "Goodwill and Intangible
Assets" within the notes to our consolidated financial statements for additional
information about our intangible assets.
Operating Expenses and Other Losses (Gains), Net
Selling, general and administrative expenses decreased $7.3 million, or 14.4%,
to $43.4 million in the three months ended March 31, 2020, from $50.7 million in
the three months ended March 31, 2019. Of the overall $7.3 million decrease,
$6.9 million was attributable to the change in the market value of our deferred
compensation liability, resulting from a $4.7 million decrease in the market
value during the first quarter of 2020, compared to a $2.2 million increase in
the market value during the first quarter of 2019. Additional decreases include
a $2.3 million decrease in performance bonus expense for our support personnel;
a $1.0 million decrease in facilities expense; a $0.7 million decrease in
third-party consulting expenses; a $0.4 million decrease in training expenses;
and a $0.4 million decrease in recruiting expenses. These decreases were
partially offset by a $1.8 million increase in salaries and related expenses for
our support personnel; a $1.0 million increase in practice administration and
meetings expenses; a $0.8 million increase in share-based compensation expense
for our support personnel; and a $0.8 million increase in data hosting and
software related expenses. As a percentage of revenues, selling, general and
administrative expenses decreased to 19.5% during the first quarter of 2020
compared to 24.8% during the first quarter of 2019. This decrease was primarily
attributable to the decreases in the market value of our deferred compensation
liability, performance bonus expense for our support personnel, and facilities
expenses.
Restructuring charges for the first three months of 2020 totaled $1.6 million,
compared to $1.3 million for the first three months of 2019. The $1.6 million
restructuring charge incurred in the first quarter of 2020 primarily related to
a $1.2 million accrual for the termination of a third-party advisor agreement;
$0.3 million related to workforce reductions to better align resources with
market demand; and $0.1 million related to workforce reductions in our corporate
operations. During the first quarter of 2019, we exited a portion of our Lake
Oswego, Oregon corporate office resulting in a $0.7 million lease impairment
charge on the related operating lease right-of-use asset and leasehold
improvements and $0.2 million of accelerated depreciation on furniture and
fixtures in that office. Additionally, we recognized a $0.2 million
restructuring charge related to workforce reductions in

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our corporate operations. See Note 8 "Restructuring Charges" within the notes to
our consolidated financial statements for additional information on our
restructuring charges.
Litigation and other gains totaled $0.2 million for the three months ended
March 31, 2020, which consisted of a litigation settlement gain for the
resolution of a claim that was settled in the first quarter of 2020. Other gains
totaled $0.5 million for the three months ended March 31, 2019, which primarily
consisted of a $0.4 million remeasurement gain to decrease the estimated fair
value of our liabilities for contingent consideration payments related to
business acquisitions.
Depreciation and amortization expense decreased by $1.1 million, or 14.8%, to
$6.1 million for the three months ended March 31, 2020, from $7.2 million for
the three months ended March 31, 2019. The decrease was primarily attributable
to a decrease in amortization expense for the trade name acquired in our Studer
Group acquisition that was fully amortized in the fourth quarter of 2019;
decreasing amortization expense for customer relationships due to the
accelerated basis of amortization in prior periods, including the customer
relationships acquired in our Studer Group acquisition; and customer
relationships acquired in other business acquisitions that were fully amortized
in prior periods. Intangible asset amortization included within operating
expenses for the three months ended March 31, 2020 and 2019 primarily related to
certain customer relationships, trade names and non-competition agreements
acquired in connection with our business acquisitions. See Note 4 "Goodwill and
Intangible Assets" within the notes to our consolidated financial statements for
additional information about our intangible assets.
During the first quarter of 2020, we recorded $59.8 million of non-cash pretax
goodwill impairment charges related to our Strategy and Innovation and Life
Sciences reporting units within our Business Advisory segment; primarily related
to the expected decline in sales and business development activities and a
decrease in the demand for the services these reporting units provide that may
be considered by our clients to be more discretionary in nature, as a result of
the COVID-19 pandemic. These charges are non-cash in nature and do not affect
our liquidity or debt covenants. See the "Critical Accounting Policies" section
below and Note 4 "Goodwill and Intangible Assets" within the notes to our
consolidated financial statements for additional information on the charges.
Operating Income
Operating income decreased $52.6 million to a loss of $45.9 million in the first
three months of 2020 from operating income of $6.8 million in the first three
months of 2019. This decrease is primarily attributable to the $59.8 million of
non-cash pretax goodwill impairment charges related to our Business Advisory
segment that were recognized in the first quarter of 2020. See the "Critical
Accounting Policies" section below and Note 4 "Goodwill and Intangible Assets"
within the notes to our consolidated financial statements for additional
information on the non-cash goodwill impairment charges. Operating margin, which
is defined as operating income expressed as a percentage of revenues, decreased
to (20.6)% for the three months ended March 31, 2020, compared to an operating
margin of 3.3% for the three months ended March 31, 2019. The decrease in
operating margin was primarily attributable to the goodwill impairment charges,
as well as the increases in salaries and related expenses and share-based
compensation expense for our revenue-generating professionals, as percentages of
revenues. These decreases to the operating margin were partially offset by the
decreases in the market value of our deferred compensation liability,
performance bonus expense for both our support personnel and revenue-generating
professionals, intangible asset amortization expense, and facilities expenses.
Other Expense, Net
Total other expense, net increased by $5.6 million to $7.6 million in the first
three months of 2020 from $2.0 million in the first three months of 2019. The
increase in total other expense, net was primarily attributable to a $4.7
million loss recognized during the first three months of 2020 for the market
value of our investments that are used to fund our deferred compensation
liability, compared to a gain of $2.1 million gain during the first three months
of 2019. Additionally, total other expense, net includes the recognition of $0.5
million of foreign currency transaction losses in the first three months of 2020
compared to $0.1 million of foreign currency transaction gains recognized in the
first three months of 2019.
Interest expense, net of interest income decreased $1.9 million to $2.3 million
in the first three months of 2020 from $4.3 million in the first three months of
2019, primarily attributable to the maturity of our Convertible Notes on October
1, 2019, partially offset by higher levels of borrowing under our credit
facility during the first three months of 2020 compared to the same prior year
period. See Note 7 "Financing Arrangements" within the notes to our consolidated
financial statements for additional information about our Convertible Notes and
credit facility.
Income Tax Expense
On March 27, 2020, the President of the United States signed into law the
Coronavirus Aid, Relief, and Economic Security Act ("CARES Act"). The CARES Act
is an approximately $2 trillion emergency economic stimulus package in response
to the COVID-19 outbreak, which among other items, includes income tax
provisions relating to net operating loss carryback periods and technical
corrections to tax depreciation methods for qualified improvement property. As a
result of the enactment of this legislation during the first quarter of 2020, we
recorded a tax benefit of $0.8 million related to the remeasurement of a portion
of our income tax receivable due to the ability to apply the federal net
operating loss incurred in 2018 to prior year income for a refund at a higher
tax rate in the carryback period.
For the three months ended March 31, 2020, our effective tax rate was 21.0% as
we recognized an income tax benefit from continuing operations of $11.2 million
on a loss from continuing operations of $53.5 million. The effective tax rate of
21.0% was less favorable than the statutory rate,

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inclusive of state income taxes, of 26.0% primarily due to certain nondeductible
expense items, non-deductible losses on our investments used to fund our
deferred compensation liability, and the nondeductible portion of the goodwill
impairment charges recorded during the first quarter of 2020. These unfavorable
items were partially offset by a discrete tax benefit for share-based
compensation awards that vested during the quarter and the discrete tax benefit
for the remeasurement of a portion of our income tax receivable as a result of
the enactment of the CARES Act during the first quarter of 2020.
For the three months ended March 31, 2019, our effective tax rate was 29.0% as
we recognized income tax expense from continuing operations of $1.4 million on
income from continuing operations of $4.7 million. The effective tax rate of
29.0% was less favorable than the statutory rate, inclusive of state income
taxes, of 26.4% primarily due to foreign losses with no tax benefit and
disallowed executive compensation deductions. These unfavorable items were
partially offset by a discrete tax benefit for share-based compensation awards
that vested during the first quarter of 2019.
Net Income from Continuing Operations
Net income from continuing operations decreased by $45.6 million to a net loss
from continuing operations of $42.3 million for the three months ended March 31,
2020, from net income from continuing operations of $3.4 million for the same
prior year period. This decrease is primarily attributable to the $59.8 million
of non-cash pretax goodwill impairment charges related to our Business Advisory
segment. As a result of the decrease in net income from continuing operations,
diluted loss per share from continuing operations for the first three months of
2020 was $1.94 compared to diluted earnings per share from continuing operations
of $0.15 for the first three months of 2019. The non-cash goodwill impairment
charges had a $2.19 unfavorable impact on diluted earnings per share from
continuing operations for the first quarter of 2020.
EBITDA and Adjusted EBITDA
EBITDA decreased $61.0 million to a loss of $43.7 million for the three months
ended March 31, 2020, from earnings of $17.3 million for the three months ended
March 31, 2019. Adjusted EBITDA increased $1.0 million to $19.0 million in the
first three months of 2020 from $18.0 million in the first three months of 2019.
The decrease in EBITDA was primarily attributable to the non-cash goodwill
impairment charges of $59.8 million recognized in the first quarter of 2020. The
increase in adjusted EBITDA was primarily attributable to the increase in
revenues and the decrease in performance bonus expense for our support
personnel; largely offset by the increases in salaries and related expenses and
share-based compensation expense for our revenue-generating professionals in the
first three months of 2020 compared to the same prior year period.
Adjusted Net Income from Continuing Operations
Adjusted net income from continuing operations increased $0.9 million to $9.8
million in the first three months of 2020 compared to $8.9 million in the first
three months of 2019. As a result of the increase in adjusted net income from
continuing operations, adjusted diluted earnings per share from continuing
operations for the first three months of 2020 was $0.44 compared to $0.40 for
the first three months of 2019.
Segment Results
Healthcare
Revenues
Healthcare segment revenues increased $1.9 million, or 2.0%, to $95.6 million
for the first three months of 2020 from $93.7 million for the first three months
of 2019.
During the three months ended March 31, 2020, revenues from fixed-fee
engagements; time-and-expense engagements; performance-based arrangements; and
software support, maintenance and subscription arrangements represented 58.4%,
15.4%, 19.8%, and 6.4% of this segment's revenues, respectively, compared to
67.9%, 13.6%, 12.6%, and 5.9% of this segment's revenues, respectively, for the
same prior year period. Performance-based fee revenue was $18.9 million during
the first three months of 2020, compared to $11.8 million during the first three
months of 2019. The level of performance-based fees earned may vary based on our
clients' risk sharing preferences and the mix of services we provide.
Of the overall $1.9 million increase in revenues, $1.3 million was attributable
to an increase in revenues from our full-time equivalents and $0.6 million was
attributable to our full-time billable consultants. The increase in revenues
attributable to our full-time equivalents reflected an increase in the average
number of full-time equivalents, partially offset by a decrease in revenue per
full-time equivalent in the first three months of 2020 compared to the same
prior year period. The increase in revenues attributable to our full-time
billable consultants reflected increases in the average number of full-time
billable consultants and the average billing rate, partially offset by a
decrease in the consultant utilization rate in the first three months of 2020
compared to the same prior year period.
Operating Income
Healthcare segment operating income decreased $3.8 million, or 13.6%, to $24.1
million for the three months ended March 31, 2020, from $27.9 million for the
three months ended March 31, 2019. The Healthcare segment operating margin
decreased to 25.2% for the first three months of 2020 from 29.7% in the same
period last year. The decrease in this segment's operating margin was primarily
attributable to increases in salaries and

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related expenses for our revenue-generating professionals and share-based
compensation expense for our revenue generating professionals both as a
percentage of revenues, partially offset by a decrease in performance bonus
expense for our revenue-generating professionals.
Business Advisory
Revenues
Business Advisory segment revenues increased $6.1 million, or 10.4%, to $64.9
million for the first three months of 2020 from $58.8 million for the first
three months of 2019.
During the first three months of 2020, revenues from fixed-fee engagements;
time-and-expense engagements; performance-based arrangements; and software
support, maintenance and subscription arrangements represented 39.1%, 57.9%,
1.0%, and 2.0% of this segment's revenues, respectively, compared to 36.9%,
60.0%, 1.1%, and 2.0% of this segment's revenues, respectively, during the same
prior year period. Performance-based fee revenue was $0.6 million for the first
three months of 2020, compared to $0.7 million for the first three months of
2019. The level of performance-based fees earned may vary based on our clients'
preferences and the mix of services we provide.
Of the overall $6.1 million increase in revenues, $4.9 million was attributable
to revenues generated by our full-time billable consultants and $1.2 million was
attributable to our full-time equivalents. The increase in revenues from our
full-time billable consultants was primarily driven by an increase in the
average number of full-time billable consultants, partially offset by decreases
in the consultant utilization rate and the average billing rate in the first
three months of 2020 compared to the same prior year period. The increase in
revenues from our full-time equivalents was driven by an increased use of
contractors; and reflected an increase in the average number of full-time
equivalents, partially offset by a decrease in revenue per full-time equivalent
in the first three months of 2020 compared to the same prior year period.
Operating Income
Business Advisory segment operating income increased by $0.3 million, or 2.7%,
to $9.8 million for the three months ended March 31, 2020, from $9.6 million for
the three months ended March 31, 2019. The Business Advisory segment operating
margin decreased to 15.2% for the first three months of 2020 from 16.3% in the
same period last year. The decrease in this segment's operating margin was
primarily attributable to a restructuring charge recorded in the first quarter
of 2020 for the termination of a third-party advisor agreement, as well as
increases in share-based compensation expense for our revenue-generating
professionals, contractor expenses, and salaries and related expenses for our
revenue-generating professionals, all as percentages of revenues. These
decreases to the segment's operating margin were partially offset by decreases
in promotion and marketing expenses and signing, retention and other bonus
expenses for our revenue-generating professionals.
The non-cash goodwill impairment charges related to the Strategy and Innovation
and Life Sciences reporting units within the Business Advisory segment, which
are discussed above within consolidated results, are not allocated at the
segment level because the underlying goodwill asset is reflective of our
corporate investment in the segment. We do not include the impact of goodwill
impairment charges in our evaluation of segment performance. See the "Critical
Accounting Policies" section below and Note 4 "Goodwill and Intangible Assets"
within the notes to our consolidated financial statements for additional
information on the charges and our goodwill balances. We will continue to
evaluate goodwill for impairment during future periods. Any future significant
decline in the performance of our Strategy and Innovation reporting unit could
result in another non-cash goodwill impairment charge.
Education
Revenues
Education segment revenues increased $10.2 million, or 19.6%, to $62.1 million
for the first three months of 2020 from $52.0 million for the first three months
of 2019.
For the three months ended March 31, 2020, revenues from fixed-fee engagements;
time-and-expense engagements; and software support, maintenance and subscription
arrangements represented 21.2%, 70.3%, and 8.5% of this segment's revenues,
respectively, compared to 23.8%, 68.1%, and 8.1% of this segment's revenues,
respectively, during the same prior year period.
Of the overall $10.2 million increase in revenues, $7.4 million was attributable
to revenues generated by our full-time billable consultants and $2.8 million was
attributable to revenues generated by our full-time equivalents. The increase in
revenues from our full-time billable consultants reflected an increase in the
average number of full-time billable consultants; partially offset by a decrease
in the average billing rate in the first three months of 2020 compared to the
same prior year period. The increase in revenues from our full-time equivalents
was primarily driven by an increased use of contractors and project consultants
as well as an increase in software subscriptions and data hosting revenues; and
reflected an increase in the average number of full-time equivalents, partially
offset by a decrease in revenue per full-time equivalent in the first three
months of 2020 compared to the same prior year period.

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Operating Income Education segment operating income increased $0.5 million, or 3.9%, to $13.1 million for the three months ended March 31, 2020, from $12.6 million for the three months ended March 31, 2019. The Education segment operating margin decreased to 21.1% for the first three months of 2020 from 24.3% in the same period last year. The decrease in this segment's operating margin was primarily attributable to increases in contractor expenses, practice administration and meetings expenses, and salaries and related expenses for our revenue-generating professionals, all as percentages of revenues .

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