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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 September 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 October 22, 2019, 22,913,192 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) 
 
September 30,
2019
 
December 31,
2018
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
49,410

 
$
33,107

Receivables from clients, net
116,318

 
109,677

Unbilled services, net
99,784

 
69,613

Income tax receivable
713

 
6,612

Prepaid expenses and other current assets
14,211

 
13,922

Total current assets
280,436

 
232,931

Property and equipment, net
39,972

 
40,374

Deferred income taxes, net
1,108

 
2,153

Long-term investment
60,943

 
50,429

Operating lease right-of-use assets
52,342

 

Other non-current assets
45,005

 
30,525

Intangible assets, net
36,141

 
47,857

Goodwill
645,986

 
645,263

Total assets
$
1,161,933

 
$
1,049,532

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
10,440

 
$
10,020

Accrued expenses and other current liabilities
22,719

 
17,207

Accrued payroll and related benefits
108,111

 
109,825

Accrued contingent consideration for business acquisitions

 
9,991

Current maturities of long-term debt
250,525

 
243,132

Current maturities of operating lease liabilities
10,529

 

Deferred revenues
31,224

 
28,130

Total current liabilities
433,548

 
418,305

Non-current liabilities:
 
 
 
Deferred compensation and other liabilities
26,308

 
20,875

Accrued contingent consideration for business acquisitions, net of current portion

 
1,450

Long-term debt, net of current portion
53,457

 
53,853

Operating lease liabilities, net of current portion
59,460

 

Deferred lease incentives

 
13,693

Deferred income taxes, net
1,603

 
732

Total non-current liabilities
140,828

 
90,603

Commitments and contingencies

 

Stockholders’ equity
 
 
 
Common stock; $0.01 par value; 500,000,000 shares authorized; 25,337,297 and 25,114,739 shares issued at September 30, 2019 and December 31, 2018, respectively
248

 
244

Treasury stock, at cost, 2,416,530 and 2,568,288 shares at September 30, 2019 and December 31, 2018, respectively
(128,048
)
 
(124,794
)
Additional paid-in capital
469,257

 
452,573

Retained earnings
223,536

 
196,106

Accumulated other comprehensive income
22,564

 
16,495

Total stockholders’ equity
587,557

 
540,624

Total liabilities and stockholders’ equity
$
1,161,933

 
$
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
September 30,
 
Nine Months Ended
September 30,
 
2019
 
2018
 
2019
 
2018
Revenues and reimbursable expenses:
 
 
 
 
 
 
 
Revenues
$
219,289

 
$
198,448

 
$
644,488

 
$
589,671

Reimbursable expenses
23,636

 
21,296

 
65,787

 
59,648

Total revenues and reimbursable expenses
242,925

 
219,744

 
710,275

 
649,319

Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses):
 
 
 
 
 
 
 
Direct costs
143,034

 
128,596

 
422,442

 
388,956

Amortization of intangible assets and software development costs
1,162

 
1,009

 
3,450

 
3,195

Reimbursable expenses
23,571

 
21,246

 
65,897

 
59,710

Total direct costs and reimbursable expenses
167,767

 
150,851

 
491,789

 
451,861

Operating expenses and other losses (gains), net
 
 
 
 
 
 
 
Selling, general and administrative expenses
48,123

 
45,915

 
151,409

 
138,481

Restructuring charges
127

 
(31
)
 
2,156

 
2,665

Litigation and other losses (gains), net
(630
)
 
887

 
(1,571
)
 
(4,990
)
Depreciation and amortization
6,962

 
8,561

 
21,285

 
26,281

Total operating expenses and other losses (gains), net
54,582

 
55,332

 
173,279

 
162,437

Operating income
20,576

 
13,561

 
45,207

 
35,021

Other income (expense), net:
 
 
 
 
 
 
 
Interest expense, net of interest income
(4,374
)
 
(4,628
)
 
(13,156
)
 
(14,636
)
Other income (expense), net
(82
)
 
707

 
2,830

 
(5,131
)
Total other expense, net
(4,456
)
 
(3,921
)
 
(10,326
)
 
(19,767
)
Income from continuing operations before taxes
16,120

 
9,640

 
34,881

 
15,254

Income tax expense
2,414

 
1,391

 
7,256

 
4,365

Net income from continuing operations
13,706

 
8,249

 
27,625

 
10,889

Income (loss) from discontinued operations, net of tax
(52
)
 
228

 
(195
)
 
(304
)
Net income
$
13,654

 
$
8,477

 
$
27,430

 
$
10,585

Net earnings per basic share:
 
 
 
 
 
 
 
Net income from continuing operations
$
0.62

 
$
0.38

 
$
1.26

 
$
0.50

Income (loss) from discontinued operations, net of tax

 
0.01

 
(0.01
)
 
(0.01
)
Net income
$
0.62

 
$
0.39

 
$
1.25

 
$
0.49

Net earnings per diluted share:
 
 
 
 
 
 
 
Net income from continuing operations
$
0.61

 
$
0.37

 
$
1.23

 
$
0.50

Income (loss) from discontinued operations, net of tax

 
0.01

 
(0.01
)
 
(0.02
)
Net income
$
0.61

 
$
0.38

 
$
1.22

 
$
0.48

Weighted average shares used in calculating earnings per share:
 
 
 
 
 
 
 
Basic
22,052

 
21,745

 
21,973

 
21,683

Diluted
22,561

 
22,110

 
22,425

 
21,947

Comprehensive income:
 
 
 
 
 
 
 
Net income
$
13,654

 
$
8,477

 
$
27,430

 
$
10,585

Foreign currency translation adjustments, net of tax
(630
)
 
(579
)
 
(673
)
 
(1,499
)
Unrealized gain (loss) on investment, net of tax
1,168

 
(852
)
 
7,740

 
4,473

Unrealized gain (loss) on cash flow hedging instruments, net of tax
(149
)
 
206

 
(998
)
 
821

Other comprehensive income (loss)
389

 
(1,225
)
 
6,069

 
3,795

Comprehensive income
$
14,043

 
$
7,252

 
$
33,499

 
$
14,380

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 September 30,
 
Common Stock
 
Treasury Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive
Income
 
Stockholders’
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance at June 30, 2019
24,711,193

 
$
247

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

 
$
209,882

 
$
22,175

 
$
568,361

Comprehensive income
 
 
 
 
 
 
 
 
 
 
13,654

 
389

 
14,043

Issuance of common stock in connection with:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock awards, net of cancellations
58,164

 
1

 
(3,741
)
 
(169
)
 
168

 
 
 
 
 

Exercise of stock options
10,000

 

 
 
 
 
 
235

 
 
 
 
 
235

Share-based compensation
 
 
 
 
 
 
 
 
5,664

 
 
 
 
 
5,664

Shares redeemed for employee tax withholdings
 
 
 
 
(12,657
)
 
(746
)
 
 
 
 
 
 
 
(746
)
Balance at September 30, 2019
24,779,357

 
$
248

 
(2,759,224
)
 
$
(128,048
)
 
$
469,257

 
$
223,536

 
$
22,564

 
$
587,557

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at June 30, 2018
24,325,302

 
$
244


(2,633,755
)

$
(123,215
)

$
441,813


$
184,507


$
15,390


$
518,739

Comprehensive income
 
 
 
 
 
 
 
 
 
 
8,477

 
(1,225
)
 
7,252

Issuance of common stock in connection with:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock awards, net of cancellations
45,485

 

 
(13,688
)
 
(583
)
 
583

 
 
 
 
 

Exercise of stock options
10,000

 

 
 
 
 
 
234

 
 
 
 
 
234

Share-based compensation
 
 
 
 
 
 
 
 
4,019

 
 
 
 
 
4,019

Shares redeemed for employee tax withholdings
 
 
 
 
(8,241
)
 
(371
)
 
 
 
 
 
 
 
(371
)
Balance at September 30, 2018
24,380,787

 
$
244

 
(2,655,684
)
 
$
(124,169
)
 
$
446,649

 
$
192,984

 
$
14,165

 
$
529,873

 
Nine Months Ended September 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
 
 
 
 
 
 
 
 
 
 
27,430

 
6,069

 
33,499

Issuance of common stock in connection with:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock awards, net of cancellations
331,105

 
4

 
21,433

 
1,952

 
(1,956
)
 
 
 
 
 

Exercise of stock options
30,000

 

 
 
 
 
 
703

 
 
 
 
 
703

Share-based compensation
 
 
 
 
 
 
 
 
17,937

 
 
 
 
 
17,937

Shares redeemed for employee tax withholdings
 
 
 
 
(108,695
)
 
(5,206
)
 
 
 
 
 
 
 
(5,206
)
Balance at September 30, 2019
24,779,357

 
$
248

 
(2,759,224
)
 
$
(128,048
)
 
$
469,257

 
$
223,536

 
$
22,564

 
$
587,557

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Balance at December 31, 2017
24,098,822

 
$
241

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

 
$
180,443

 
$
10,370

 
$
503,316

Comprehensive income
 
 
 
 
 
 
 
 
 
 
10,585

 
3,795

 
14,380

Issuance of common stock in connection with:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock awards, net of cancellations
251,965

 
3

 
20,407

 
916

 
(919
)
 
 
 
 
 

Exercise of stock options
30,000

 

 
 
 
 
 
703

 
 
 
 
 
703

Share-based compensation
 
 
 
 
 
 
 
 
12,609

 
 
 
 
 
12,609

Shares redeemed for employee tax withholdings
 
 
 
 
(84,956
)
 
(3,091
)
 
 
 

 
 
 
(3,091
)
Cumulative-effect adjustment from adoption of ASC 606
 
 
 
 
 
 
 
 
 
 
1,956

 
 
 
1,956

Balance at September 30, 2018
24,380,787

 
$
244

 
(2,655,684
)
 
$
(124,169
)
 
$
446,649

 
$
192,984

 
$
14,165

 
$
529,873

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)
 
Nine Months Ended
September 30,
 
2019
 
2018
Cash flows from operating activities:
 
 
 
Net income
$
27,430

 
$
10,585

Adjustments to reconcile net income to net cash provided by operating activities:
 
 
 
Depreciation and amortization
31,823

 
29,965

Lease impairment charge
805

 

Share-based compensation
18,094

 
12,840

Amortization of debt discount and issuance costs
8,066

 
7,721

Allowances for doubtful accounts and unbilled services
191

 
573

Deferred income taxes
(262
)
 
179

Loss on sale of business

 
5,863

Change in fair value of contingent consideration liabilities
(1,506
)
 
(2,463
)
Changes in operating assets and liabilities, net of acquisitions and divestiture:
 
 
 
(Increase) decrease in receivables from clients, net
(6,817
)
 
(9,103
)
(Increase) decrease in unbilled services, net
(30,163
)
 
(16,714
)
(Increase) decrease in current income tax receivable / payable, net
10,561

 
1,400

(Increase) decrease in other assets
(4,160
)
 
(3,768
)
Increase (decrease) in accounts payable and other liabilities
(3,565
)
 
186

Increase (decrease) in accrued payroll and related benefits
(1,850
)
 
9,445

Increase (decrease) in deferred revenues
3,098

 
2,158

Net cash provided by operating activities
51,745

 
48,867

Cash flows from investing activities:
 
 
 
Purchases of property and equipment, net
(10,024
)
 
(6,662
)
Investment in life insurance policies
(4,434
)
 
(1,689
)
Purchases of businesses
(2,500
)
 
(215
)
Capitalization of internally developed software costs
(7,462
)
 
(3,611
)
Proceeds from note receivable

 
1,040

Divestiture of business

 
(2,359
)
Net cash used in investing activities
(24,420
)

(13,496
)
Cash flows from financing activities:
 
 
 
Proceeds from exercise of stock options
703

 
703

Shares redeemed for employee tax withholdings
(5,206
)
 
(3,091
)
Proceeds from borrowings under credit facility
105,500

 
179,800

Repayments of debt
(105,885
)
 
(213,674
)
Payments for debt issuance costs
(1,498
)
 
(1,385
)
Payments of contingent consideration liabilities
(4,674
)
 
(5,494
)
Net cash used in financing activities
(11,060
)
 
(43,141
)
Effect of exchange rate changes on cash
38

 
(114
)
Net increase (decrease) in cash and cash equivalents
16,303

 
(7,884
)
Cash and cash equivalents at beginning of the period
33,107

 
16,909

Cash and cash equivalents at end of the period
$
49,410

 
$
9,025

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
$
3,085

 
$
1,500

Contingent consideration related to business acquisition
$

 
$
212

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

4

Table of Contents

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 nine months ended September 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 Reports on Form 10-Q for the periods ended March 31, 2019 and June 30, 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 September 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.
We elected the practical expedient to combine lease and nonlease components. 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. 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 nine 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 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

5

Table of Contents

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

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


In August 2018, the FASB issued ASU 2018-15, Intangibles - Goodwill and Other - Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. This update aligns the requirements for capitalizing implementation costs incurred in a cloud computing arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software. Capitalized implementation costs are amortized on a straight-line basis generally over the term of the service contract with the amortization recognized in the same financial statement line item as the fees related to the service contract. ASU 2018-15 is effective beginning January 1, 2020, with early adoption permitted. We adopted this ASU in the third quarter of 2019 on a prospective basis. During the third quarter of 2019, we capitalized an immaterial amount of implementation costs for cloud computing arrangements that are service contracts. The future impact of adoption of this ASU on our consolidated financial statements will depend on the magnitude of implementation costs we may incur to implement cloud computing arrangements that are service contracts.
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.

6

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

4. Goodwill and Intangible Assets
The table below sets forth the changes in the carrying amount of goodwill by reportable segment for the nine months ended September 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

Goodwill recorded in connection with a business acquisition (1)

 

 
1,060

 
1,060

Foreign currency translation

 
(337
)
 

 
(337
)
Goodwill, net as of September 30, 2019
$
428,729

 
$
113,368

 
$
103,889

 
$
645,986


(1)
On September 30, 2019, we completed the acquisition of a business in our Education segment. The results of operations of the acquired business is included in our consolidated financial statements and results of operations of our Education segment from the date of acquisition. This acquisition is not significant to our consolidated financial statements.
Intangible Assets
Intangible assets as of September 30, 2019 and December 31, 2018 consisted of the following:
 
 
 
As of September 30, 2019
 
As of December 31, 2018
 
Useful Life 
(in years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Customer relationships
3 to 13
 
$
91,614

 
$
63,109

 
$
98,235

 
$
60,462

Trade names
5 to 6
 
28,930

 
25,215

 
28,930

 
23,181

Technology and software
3 to 5
 
5,694

 
3,951

 
5,694

 
2,842

Non-competition agreements
3 to 5
 
2,515

 
1,607

 
3,650

 
2,241

Customer contracts
2
 
1,270

 

 

 

Favorable lease contract
3
 

 

 
720

 
646

Total
 
 
$
130,023

 
$
93,882

 
$
137,229

 
$
89,372


Identifiable intangible assets with finite lives are amortized over their estimated useful lives. Customer relationships and customer contracts, 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.

7

Table of Contents

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

Intangible asset amortization expense was $4.2 million and $5.9 million for the three months ended September 30, 2019 and 2018, respectively; and $13.0 million and $18.2 million for the nine months ended September 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 September 30, 2019.
Year Ending December 31,
 
Estimated Amortization Expense
2019
 
$
17,484

2020
 
$
12,978

2021
 
$
8,306

2022
 
$
6,114

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, insurance and operating expenses. We exclude these variable payments from the measurements of our lease liabilities and expense them as incurred. We elected the practical expedient to combine lease and nonlease components. No lease agreements contain any residual value guarantees or material restrictive covenants. As of September 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 nine months of 2019, we recorded $0.8 million of lease impairment charges for office spaces vacated in the first nine 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 September 30, 2019 follows.
Balance Sheet
 
September 30, 2019
Operating lease right-of-use assets
 
$
52,342

 
 
 
Current maturities of operating lease liabilities
 
$
10,529

Operating lease liabilities, net of current portion
 
59,460

Total lease liabilities
 
$
69,989



8

Table of Contents

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

Lease Cost
 
Three Months Ended
September 30, 2019
 
Nine Months Ended
September 30, 2019
Operating lease cost
 
$
3,036

 
$
9,092

Short-term leases (1)
 
88

 
263

Variable lease costs
 
995

 
3,154

Sublease income
 
(648
)
 
(2,075
)
Net lease cost (2)(3)(4)
 
$
3,471

 
$
10,434

(1)
Includes variable lease costs related to short-term leases.
(2)
Net lease cost includes $0.1 million and $0.3 million for the three and nine months ended September 30, 2019, respectively, recorded as restructuring charges as they relate to vacated office spaces. See Note 9 "Restructuring Charges" for additional information on our vacated office spaces.