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Table of Contents




 
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549 
 
FORM 10-Q 
 
 
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2019
OR 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
Commission file number: 000-50976 
 
HURON CONSULTING GROUP INC.
(Exact name of registrant as specified in its charter)
 
 
Delaware
 
01-0666114
(State or other jurisdiction of
incorporation or organization)
 
(IRS Employer
Identification Number)
550 West Van Buren Street
Chicago, Illinois
60607
(Address of principal executive offices)
(Zip Code)
(312) 583-8700
(Registrant’s telephone number, including area code)
 
Securities registered pursuant to Section 12(b) of the Act:
Title of each class
Trading Symbol(s)
Name of each exchange on which registered
Common Stock, par value $0.01 per share
HURN
NASDAQ Global Select Market
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large Accelerated Filer
Accelerated Filer
Non-accelerated Filer
Smaller Reporting 
Company
Emerging Growth Company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of July 23, 2019, 22,924,170 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
 


Table of Contents




Huron Consulting Group Inc.
HURON CONSULTING GROUP INC.
INDEX

 
 
Page
 
 
 
 
Item 1.
 
 
 
 
 
 
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
 
 
 
Item 1.
 
 
 
Item 1A.
 
 
 
Item 2.
 
 
 
Item 3.
 
 
 
Item 4.
 
 
 
Item 5.
 
 
 
Item 6.
 
 



Table of Contents




PART I - FINANCIAL INFORMATION
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HURON CONSULTING GROUP INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share amounts)
(Unaudited) 
 
June 30,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
9,177

 
$
33,107

Receivables from clients, net
116,665

 
109,677

Unbilled services, net
91,751

 
69,613

Income tax receivable
846

 
6,612

Prepaid expenses and other current assets
14,766

 
13,922

Total current assets
233,205

 
232,931

Property and equipment, net
40,189

 
40,374

Deferred income taxes, net
1,094

 
2,153

Long-term investment
59,357

 
50,429

Operating lease right-of-use assets
55,045

 

Other non-current assets
41,482

 
30,525

Intangible assets, net
39,037

 
47,857

Goodwill
645,266

 
645,263

Total assets
$
1,114,675

 
$
1,049,532

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
9,456

 
$
10,020

Accrued expenses and other current liabilities
20,663

 
17,207

Accrued payroll and related benefits
78,619

 
109,825

Accrued contingent consideration for business acquisitions
535

 
9,991

Current maturities of long-term debt
248,034

 
243,132

Current maturities of operating lease liabilities
10,536

 

Deferred revenues
27,575

 
28,130

Total current liabilities
395,418

 
418,305

Non-current liabilities:
 
 
 
Deferred compensation and other liabilities
27,367

 
20,875

Accrued contingent consideration for business acquisitions, net of current portion
95

 
1,450

Long-term debt, net of current portion
59,590

 
53,853

Operating lease liabilities, net of current portion
62,130

 

Deferred lease incentives

 
13,693

Deferred income taxes, net
1,714

 
732

Total non-current liabilities
150,896

 
90,603

Commitments and contingencies

 

Stockholders’ equity
 
 
 
Common stock; $0.01 par value; 500,000,000 shares authorized; 25,316,458 and 25,114,739 shares issued at June 30, 2019 and December 31, 2018, respectively
247

 
244

Treasury stock, at cost, 2,399,279 and 2,568,288 shares at June 30, 2019 and December 31, 2018, respectively
(127,133
)
 
(124,794
)
Additional paid-in capital
463,190

 
452,573

Retained earnings
209,882

 
196,106

Accumulated other comprehensive income
22,175

 
16,495

Total stockholders’ equity
568,361

 
540,624

Total liabilities and stockholders’ equity
$
1,114,675

 
$
1,049,532

The accompanying notes are an integral part of the consolidated financial statements.

1

Table of Contents




HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
(In thousands, except per share amounts)
(Unaudited) 
 
Three Months Ended
June 30,
 
Six Months Ended
June 30,
 
2019
 
2018
 
2019
 
2018
Revenues and reimbursable expenses:
 
 
 
 
 
 
 
Revenues
$
220,754

 
$
197,544

 
$
425,199

 
$
391,223

Reimbursable expenses
23,534

 
20,733

 
42,151

 
38,352

Total revenues and reimbursable expenses
244,288

 
218,277

 
467,350

 
429,575

Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses):
 
 
 
 
 
 
 
Direct costs
141,628

 
127,574

 
279,408

 
260,360

Amortization of intangible assets and software development costs
1,171

 
968

 
2,288

 
2,186

Reimbursable expenses
23,657

 
20,915

 
42,326

 
38,464

Total direct costs and reimbursable expenses
166,456

 
149,457

 
324,022

 
301,010

Operating expenses and other gains, net
 
 
 
 
 
 
 
Selling, general and administrative expenses
52,537

 
45,488

 
103,286

 
92,566

Restructuring charges
754

 
1,984

 
2,029

 
2,696

Litigation and other gains, net
(485
)
 
(6,707
)
 
(941
)
 
(5,877
)
Depreciation and amortization
7,151

 
8,917

 
14,323

 
17,720

Total operating expenses and other gains, net
59,957

 
49,682

 
118,697

 
107,105

Operating income
17,875

 
19,138

 
24,631

 
21,460

Other income (expense), net:
 
 
 
 
 
 
 
Interest expense, net of interest income
(4,524
)
 
(5,022
)
 
(8,782
)
 
(10,008
)
Other income (expense), net
695

 
(5,693
)
 
2,912

 
(5,838
)
Total other expense, net
(3,829
)
 
(10,715
)
 
(5,870
)
 
(15,846
)
Income from continuing operations before taxes
14,046

 
8,423

 
18,761

 
5,614

Income tax expense
3,477

 
2,561

 
4,842

 
2,974

Net income from continuing operations
10,569

 
5,862

 
13,919

 
2,640

Loss from discontinued operations, net of tax
(97
)
 
(490
)
 
(143
)
 
(532
)
Net income
$
10,472

 
$
5,372

 
$
13,776

 
$
2,108

Net earnings per basic share:
 
 
 
 
 
 
 
Net income from continuing operations
$
0.48

 
$
0.27

 
$
0.63

 
$
0.12

Loss from discontinued operations, net of tax

 
(0.02
)
 

 
(0.02
)
Net income
$
0.48

 
$
0.25

 
$
0.63

 
$
0.10

Net earnings per diluted share:
 
 
 
 
 
 
 
Net income from continuing operations
$
0.47

 
$
0.27

 
$
0.62

 
$
0.12

Loss from discontinued operations, net of tax

 
(0.02
)
 

 
(0.02
)
Net income
$
0.47

 
$
0.25

 
$
0.62

 
$
0.10

Weighted average shares used in calculating earnings per share:
 
 
 
 
 
 
 
Basic
21,997

 
21,709

 
21,933

 
21,651

Diluted
22,400

 
21,918

 
22,356

 
21,866

Comprehensive income:
 
 
 
 
 
 
 
Net income
$
10,472

 
$
5,372

 
$
13,776

 
$
2,108

Foreign currency translation adjustments, net of tax
(359
)
 
(954
)
 
(43
)
 
(920
)
Unrealized gain on investment, net of tax
3,915

 
3,159

 
6,572

 
5,325

Unrealized gain (loss) on cash flow hedging instruments, net of tax
(612
)
 
183

 
(849
)
 
615

Other comprehensive income
2,944

 
2,388

 
5,680

 
5,020

Comprehensive income
$
13,416

 
$
7,760

 
$
19,456

 
$
7,128

The accompanying notes are an integral part of the consolidated financial statements.

2

Table of Contents




HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(Unaudited)
 
Three Months Ended June 30,
 
Common Stock
 
Treasury Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive
Income
 
Stockholders’
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance at March 31, 2019
24,682,802

 
$
247

 
(2,738,850
)
 
$
(126,983
)
 
$
457,748

 
$
199,410

 
$
19,231

 
$
549,653

Comprehensive income
 
 
 
 
 
 
 
 
 
 
10,472

 
2,944

 
13,416

Issuance of common stock in connection with:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock awards, net of cancellations
18,391

 

 
(2,438
)
 
(75
)
 
75

 
 
 
 
 

Exercise of stock options
10,000

 

 
 
 
 
 
234

 
 
 
 
 
234

Share-based compensation
 
 
 
 
 
 
 
 
5,133

 
 
 
 
 
5,133

Shares redeemed for employee tax withholdings
 
 
 
 
(1,538
)
 
(75
)
 
 
 
 
 
 
 
(75
)
Balance at June 30, 2019
24,711,193

 
$
247

 
(2,742,826
)
 
$
(127,133
)
 
$
463,190

 
$
209,882

 
$
22,175

 
$
568,361

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at March 31, 2018
24,307,368

 
$
243


(2,632,790
)

$
(123,235
)

$
438,325


$
179,135


$
13,002


$
507,470

Comprehensive income
 
 
 
 
 
 
 
 
 
 
5,372

 
2,388

 
7,760

Issuance of common stock in connection with:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock awards, net of cancellations
7,934

 

 
(82
)
 
56

 
(56
)
 
 
 
 
 

Exercise of stock options
10,000

 
1

 
 
 
 
 
234

 
 
 
 
 
235

Share-based compensation
 
 
 
 
 
 
 
 
3,310

 
 
 
 
 
3,310

Shares redeemed for employee tax withholdings
 
 
 
 
(883
)
 
(36
)
 
 
 
 
 
 
 
(36
)
Balance at June 30, 2018
24,325,302

 
$
244

 
(2,633,755
)
 
$
(123,215
)
 
$
441,813

 
$
184,507

 
$
15,390

 
$
518,739

 
Six Months Ended June 30,
 
Common Stock
 
Treasury Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive
Income
 
Stockholders’
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2018
24,418,252

 
$
244

 
(2,671,962
)
 
$
(124,794
)
 
$
452,573

 
$
196,106

 
$
16,495

 
$
540,624

Comprehensive income
 
 
 
 
 
 
 
 
 
 
13,776

 
5,680

 
19,456

Issuance of common stock in connection with:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock awards, net of cancellations
272,941

 
3

 
25,174

 
2,121

 
(2,124
)
 
 
 
 
 

Exercise of stock options
20,000

 

 
 
 
 
 
468

 
 
 
 
 
468

Share-based compensation
 
 
 
 
 
 
 
 
12,273

 
 
 
 
 
12,273

Shares redeemed for employee tax withholdings
 
 
 
 
(96,038
)
 
(4,460
)
 
 
 
 
 
 
 
(4,460
)
Balance at June 30, 2019
24,711,193

 
$
247

 
(2,742,826
)
 
$
(127,133
)
 
$
463,190

 
$
209,882

 
$
22,175

 
$
568,361

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
24,098,822

 
$
241

 
(2,591,135
)
 
$
(121,994
)
 
$
434,256

 
$
180,443

 
$
10,370

 
$
503,316

Comprehensive income
 
 
 
 
 
 
 
 
 
 
2,108

 
5,020

 
7,128

Issuance of common stock in connection with:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock awards, net of cancellations
206,480

 
2

 
34,095

 
1,499

 
(1,501
)
 
 
 
 
 

Exercise of stock options
20,000

 
1

 
 
 
 
 
468

 
 
 
 
 
469

Share-based compensation
 
 
 
 
 
 
 
 
8,590

 
 
 
 
 
8,590

Shares redeemed for employee tax withholdings
 
 
 
 
(76,715
)
 
(2,720
)
 
 
 

 
 
 
(2,720
)
Cumulative-effect adjustment from adoption of ASC 606
 
 
 
 
 
 
 
 
 
 
1,956

 
 
 
1,956

Balance at June 30, 2018
24,325,302

 
$
244

 
(2,633,755
)
 
$
(123,215
)
 
$
441,813

 
$
184,507

 
$
15,390

 
$
518,739

The accompanying notes are an integral part of the consolidated financial statements.

3

Table of Contents




HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Six Months Ended
June 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
13,776

 
$
2,108

Adjustments to reconcile net income to net cash provided by (used in) operating activities:
 
 
 
Depreciation and amortization
21,682

 
20,394

Lease impairment charge
805

 

Share-based compensation
11,483

 
9,117

Amortization of debt discount and issuance costs
5,264

 
5,155

Allowances for doubtful accounts and unbilled services
170

 
390

Loss on sale of business

 
5,831

Change in fair value of contingent consideration liabilities
(876
)
 
(3,350
)
Changes in operating assets and liabilities, net of acquisitions and divestiture:
 
 
 
(Increase) decrease in receivables from clients, net
(6,984
)
 
(5,384
)
(Increase) decrease in unbilled services, net
(22,105
)
 
(19,693
)
(Increase) decrease in current income tax receivable / payable, net
6,486

 
600

(Increase) decrease in other assets
(4,743
)
 
(4,140
)
Increase (decrease) in accounts payable and other liabilities
(133
)
 
(996
)
Increase (decrease) in accrued payroll and related benefits
(30,462
)
 
(4,736
)
Increase (decrease) in deferred revenues
(570
)
 
1,617

Net cash provided by (used in) operating activities
(6,207
)
 
6,913

Cash flows from investing activities:
 
 
 
Purchases of property and equipment, net
(6,384
)
 
(5,131
)
Investment in life insurance policies
(4,087
)
 
(1,689
)
Purchases of businesses, net of cash acquired

 
(215
)
Capitalization of internally developed software costs
(4,409
)
 
(2,149
)
Proceeds from note receivable

 
1,040

Divestiture of business

 
(1,862
)
Net cash used in investing activities
(14,880
)

(10,006
)
Cash flows from financing activities:
 
 
 
Proceeds from exercise of stock options
469

 
469

Shares redeemed for employee tax withholdings
(4,460
)
 
(2,720
)
Proceeds from borrowings under credit facility
87,500

 
139,300

Repayments of debt
(81,756
)
 
(134,049
)
Payments for debt issuance costs

 
(1,385
)
Payments of contingent consideration liabilities
(4,674
)
 
(4,906
)
Net cash used in financing activities
(2,921
)
 
(3,291
)
Effect of exchange rate changes on cash
78

 
(73
)
Net decrease in cash and cash equivalents
(23,930
)
 
(6,457
)
Cash and cash equivalents at beginning of the period
33,107

 
16,909

Cash and cash equivalents at end of the period
$
9,177

 
$
10,452

Supplemental disclosure of cash flow information:
 
 
 
Non-cash investing and financing activities:
 
 
 
Property and equipment expenditures and capitalized software included in accounts payable and accrued expenses
$
3,842

 
$
1,483

Contingent consideration related to business acquisition
$

 
$
212

The accompanying notes are an integral part of the consolidated financial statements.

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)


1. Description of Business
Huron is a global consultancy that helps clients drive growth, enhance performance and sustain leadership in the markets they serve. We partner with clients to develop strategies and implement solutions that enable the transformative change our clients need to own their future.
2. Basis of Presentation and Significant Accounting Policies
The accompanying unaudited consolidated financial statements reflect the financial position, results of operations, and cash flows as of and for the three and six months ended June 30, 2019 and 2018. These financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for Quarterly Reports on Form 10-Q. Accordingly, these financial statements do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America ("GAAP") for annual financial statements. In the opinion of management, these financial statements reflect all adjustments of a normal, recurring nature necessary for the fair statement of our financial position, results of operations, and cash flows for the interim periods presented in conformity with GAAP. These financial statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2018 included in our Annual Report on Form 10-K and our Quarterly Report on Form 10-Q for the period ended March 31, 2019. Our results for any interim period are not necessarily indicative of results for a full year or any other interim period.
On January 1, 2019, we adopted Accounting Standard Update ("ASU") 2016-02, Leases. Below is an update to our lease accounting policy as a result of the adoption. Refer to Note 3 "New Accounting Pronouncements" for additional information on the adoption of ASU 2016-02.
Leases
We determine if an arrangement contains a lease and the classification of such lease at inception. As of June 30, 2019, all of our material leases are classified as operating leases; we have not entered into any material finance leases. For all operating leases with an initial term greater than 12 months, we recognize an operating lease right-of-use ("ROU") asset and operating lease liability. Leases with an initial term of 12 months or less are not recorded on the balance sheet; we recognize lease expense for these leases on a straight-line basis over the lease term.
Operating lease ROU assets represent our right to use an underlying asset for the lease term, and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at the lease commencement date based on the present value of lease payments over the lease term. As our leases do not provide an implicit rate, we use our incremental borrowing rate based on the information available at the lease commencement date and provided by the administrative agent for our senior secured credit facility, in determining the present value of lease payments. Operating lease ROU assets exclude lease incentives.
Certain lease agreements contain variable lease payments that do not depend on an index or rate. These variable lease payments are not included in the calculation of the operating lease ROU asset and operating lease liability; instead, they are expensed as incurred. Certain lease agreements contain lease and nonlease components, which are accounted for separately. We separate the contract consideration between lease and nonlease components based on the relative standalone price of each component. Our leases may contain options to extend or terminate the lease, and we include these terms in our calculation of the operating lease ROU asset and operating lease liability when it is reasonably certain that we will exercise the option.
Operating lease expense is recognized on a straight-line basis over the lease term and recorded within selling, general and administrative expenses on our consolidated statement of operations. In accordance with our accounting policy for impairment of long-lived assets, operating lease ROU assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group to which the operating lease ROU asset is assigned may not be recoverable. We evaluate the recoverability of the asset group based on forecasted undiscounted cash flows. See Note 5 "Leases" for additional information on our leases, including the lease impairment charges recorded in the first six months of 2019.
3. New Accounting Pronouncements
Recently Adopted
In March 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-02, Leases, as a new Topic, ASC 842, which superseded ASC Topic 840, Leases, and sets forth the principles for the recognition, measurement, presentation, and disclosure of leases for both lessees and lessors. ASU 2016-02 requires lessees to classify leases as either finance or operating leases and to record on the balance

5

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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

sheet a right-of-use asset and a lease liability, equal to the present value of the remaining lease payments, for all leases with a term greater than 12 months regardless of the lease classification. The lease classification will determine whether the lease expense is recognized using an effective interest rate method or on a straight-line basis over the term of the lease. In July 2018, the FASB issued ASU 2018-11, Leases (Topic 842): Targeted Improvements, which provides an optional transition method that allows entities to initially apply ASC 842 at the adoption date and recognize a cumulative-effect adjustment to the opening balance of retained earnings on the adoption date. We adopted ASC 842 effective January 1, 2019 on a modified retrospective basis for existing leases using the transition method allowed by ASU 2018-11, which had no impact on our consolidated financial statements in the prior periods presented. The new lease standard had a material impact on our consolidated balance sheet upon adoption but did not impact our consolidated statement of operations. The most significant impact to our consolidated balance sheet is the recognition of ROU assets and lease liabilities for operating leases. The impact of the new lease standard on our consolidated balance sheet upon adoption follows:
 
As of
December 31, 2018
 
ASC 842
Adjustment
 
As of
January 1, 2019
Assets
 
 
 
 
 
Operating lease right-of-use assets
$

 
$
56,463

 
$
56,463

 
 
 
 
 

Liabilities
 
 
 
 
 
Accrued expenses and other current liabilities
$
17,207

 
$
(2,557
)
 
$
14,650

Current maturities of operating lease liabilities
$

 
$
10,537

 
$
10,537

Deferred compensation and other liabilities
$
20,875

 
$
(536
)
 
$
20,339

Deferred lease incentives
$
13,693

 
$
(13,693
)
 
$

Operating lease liabilities, net of current portion
$

 
$
62,712

 
$
62,712


Not Yet Adopted
In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework - Changes to the Disclosure Requirements for Fair Value Measurement, which modifies certain disclosure requirements related to fair value measurements. ASU 2018-13 will be effective for us beginning January 1, 2020, with early adoption permitted. We do not expect this guidance to have an impact on the amounts reported on our consolidated financial statements, and we are currently evaluating the potential impact this guidance will have on our disclosures within the notes to our consolidated financial statements.
4. Goodwill and Intangible Assets
The table below sets forth the changes in the carrying amount of goodwill by reportable segment for the six months ended June 30, 2019.
 

Healthcare
 

Business
Advisory
 
Education
 
Total
Balance as of December 31, 2018:
 
 
 
 
 
 
 
Goodwill
$
636,810

 
$
301,700

 
$
102,829

 
$
1,041,339

Accumulated impairment losses
(208,081
)
 
(187,995
)
 

 
(396,076
)
Goodwill, net as of December 31, 2018
428,729

 
113,705

 
102,829

 
645,263

Foreign currency translation

 
3

 

 
3

Goodwill, net as of June 30, 2019
$
428,729

 
$
113,708

 
$
102,829

 
$
645,266



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HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

Intangible Assets
Intangible assets as of June 30, 2019 and December 31, 2018 consisted of the following:
 
 
 
As of June 30, 2019
 
As of December 31, 2018
 
Useful Life 
(in years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Customer relationships
4 to 13
 
$
91,968

 
$
60,482

 
$
98,235

 
$
60,462

Trade names
5 to 6
 
28,930

 
24,537

 
28,930

 
23,181

Technology and software
3 to 5
 
5,694

 
3,581

 
5,694

 
2,842

Non-competition agreements
3 to 5
 
2,540

 
1,495

 
3,650

 
2,241

Favorable lease contract
3
 

 

 
720

 
646

Total
 
 
$
129,132

 
$
90,095

 
$
137,229

 
$
89,372


Identifiable intangible assets with finite lives are amortized over their estimated useful lives. Customer relationships, as well as certain trade names and technology and software, are amortized on an accelerated basis to correspond to the cash flows expected to be derived from the assets. All other intangible assets with finite lives are amortized on a straight-line basis.
Intangible asset amortization expense was $4.3 million and $6.0 million for the three months ended June 30, 2019 and 2018, respectively; and $8.8 million and $12.3 million for the six months ended June 30, 2019 and 2018, respectively. The table below sets forth the estimated annual amortization expense for the year ending December 31, 2019 and each of the five succeeding years for the intangible assets recorded as of June 30, 2019.
Year Ending December 31,
 
Estimated Amortization Expense
2019
 
$
17,206

2020
 
$
12,083

2021
 
$
8,064

2022
 
$
6,090

2023
 
$
3,512

2024
 
$
741

Actual future amortization expense could differ from these estimated amounts as a result of future acquisitions, dispositions, and other factors.
5. Leases
We lease office space, data centers and certain equipment under operating leases expiring on various dates through 2028, with various renewal options that can extend the lease terms by one to ten years. Our operating leases include fixed payments plus, in some cases, scheduled base rent increases over the term of the lease. Certain leases require variable payments of real estate taxes and insurance. We exclude these variable payments from the measurements of our lease liabilities and expense them as incurred. Additionally, certain leases require payments for operating expenses applicable to the property. We account for these nonlease components separately from the lease components. No lease agreements contain any residual value guarantees or material restrictive covenants. As of June 30, 2019, we have not entered into any material finance leases. We sublease certain office spaces to third parties resulting from restructuring activities in certain locations.
Operating lease right-of-use ("ROU") assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset group to which the operating lease ROU asset is assigned may not be recoverable. First, we test the asset group for recoverability by comparing the undiscounted cash flows of the asset group, which include expected future lease and nonlease payments under the lease agreement offset by expected sublease income, to the carrying amount of the asset group. If the first step of the long-lived asset impairment test concludes that the carrying amount of the asset group is not recoverable, we perform the second step of the long-lived asset impairment test by comparing the fair value of the asset group to its carrying amount and recognizing a lease impairment charge for the amount by which the carrying amount exceeds the fair value. To estimate the fair value of the asset group, we rely on a discounted cash flow approach using market participant assumptions of the expected cash flows and discount rate. During the first six

7

Table of Contents

HURON CONSULTING GROUP INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Tabular amounts in thousands, except per share amounts)
(Unaudited)

months of 2019, we recorded $0.8 million of lease impairment charges for office spaces vacated in the first six months of 2019, of which $0.6 million was allocated to the operating lease ROU assets and $0.2 million was allocated to the leasehold improvements based on their relative carrying amounts. The $0.8 million lease impairment charge was recognized in restructuring charges on our consolidated statement of operations. See Note 9 "Restructuring Charges" for additional information on our restructuring activities.
Additional information on our operating leases as of June 30, 2019 follows.
Balance Sheet
 
June 30, 2019
Operating lease right-of-use assets
 
$
55,045

 
 
 
Current maturities of operating lease liabilities
 
$
10,536

Operating lease liabilities, net of current portion
 
62,130

Total lease liabilities
 
$
72,666


Lease Cost
 
Three Months Ended
June 30, 2019
 
Six Months Ended
June 30, 2019
Operating lease cost
 
$
3,055

 
$
6,055

Short-term leases (1)
 
128

 
175

Variable lease costs
 
301

 
675

Sublease income
 
(618
)
 
(1,235
)
Net lease cost (2)(3)(4)
 
$
2,866

 
$
5,670

(1)
Includes variable lease costs related to short-term leases.
(2)
Net lease cost includes $0.2 million for both the three and six months ended June 30, 2019 recorded as restructuring charges as they relate to vacated office spaces. See Note 9 "Restructuring Charges" for additional information on our vacated office spaces.
(3)
Net lease cost includes $0.1 million for both the three and six months ended June 30, 2019 related to vacated office spaces directly related to discontinued operations.
(4)
Rent expense, including operating expenses, real estate taxes and insurance, recorded under ASC 840 for the three and six months ended June 30, 2018 was $3.7 million and $7.6 million, respectively.
The table below summarizes the remaining expected lease payments under our operating leases as of June 30, 2019 and December 31, 2018.
Future Lease Payments
 
June 30,
2019
 

December 31,
2018 (1, 2)
2019
 
$
6,851

 
$
13,701

2020
 
13,606

 
12,724

2021
 
12,536

 
11,590

2022
 
11,646

 
10,766

2023