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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 March 31, 2020
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 April 23, 2020, 22,849,043 shares of the registrant’s common stock, par value $0.01 per share, were outstanding.
 






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.
 
 







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) 
 
March 31,
2020
 
December 31,
2019
Assets
 
 
 
Current assets:
 
 
 
Cash and cash equivalents
$
151,009

 
$
11,604

Receivables from clients, net of allowances of $9,187 and $8,907, respectively
105,379

 
116,571

Unbilled services, net of allowances of $3,356 and $2,994, respectively
88,960

 
79,937

Income tax receivable
748

 
2,376

Prepaid expenses and other current assets
13,309

 
14,248

Total current assets
359,405

 
224,736

Property and equipment, net
38,326

 
38,413

Deferred income taxes, net
8,334

 
1,145

Long-term investment
67,194

 
54,541

Operating lease right-of-use assets
52,849

 
54,954

Other non-current assets
49,578

 
52,177

Intangible assets, net
28,127

 
31,625

Goodwill
586,235

 
646,680

Total assets
$
1,190,048

 
$
1,104,271

Liabilities and stockholders’ equity
 
 
 
Current liabilities:
 
 
 
Accounts payable
$
5,799

 
$
7,944

Accrued expenses and other current liabilities
21,580

 
18,554

Accrued payroll and related benefits
53,380

 
141,605

Current maturities of long-term debt
533

 
529

Current maturities of operating lease liabilities
8,206

 
7,469

Deferred revenues
30,010

 
28,443

Total current liabilities
119,508

 
204,544

Non-current liabilities:
 
 
 
Deferred compensation and other liabilities
26,854

 
28,635

Long-term debt, net of current portion
451,189

 
208,324

Operating lease liabilities, net of current portion
67,317

 
69,233

Deferred income taxes, net
571

 
8,070

Total non-current liabilities
545,931

 
314,262

Commitments and contingencies

 

Stockholders’ equity
 
 
 
Common stock; $0.01 par value; 500,000,000 shares authorized; 25,391,801 and 25,144,764 shares issued at March 31, 2020 and December 31, 2019, respectively
246

 
247

Treasury stock, at cost, 2,546,566 and 2,425,430 shares at March 31, 2020 and December 31, 2019, respectively
(128,366
)
 
(128,348
)
Additional paid-in capital
444,974

 
460,781

Retained earnings
195,541

 
237,849

Accumulated other comprehensive income
12,214

 
14,936

Total stockholders’ equity
524,609

 
585,465

Total liabilities and stockholders’ equity
$
1,190,048

 
$
1,104,271

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

1





HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)
(In thousands, except per share amounts)
(Unaudited) 
 
Three Months Ended
March 31,
 
2020
 
2019
Revenues and reimbursable expenses:
 
 
 
Revenues
$
222,619

 
$
204,445

Reimbursable expenses
19,303

 
18,617

Total revenues and reimbursable expenses
241,922

 
223,062

Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses):
 
 
 
Direct costs
156,248

 
137,780

Amortization of intangible assets and software development costs
1,301

 
1,117

Reimbursable expenses
19,389

 
18,669

Total direct costs and reimbursable expenses
176,938

 
157,566

Operating expenses and other losses (gains), net
 
 
 
Selling, general and administrative expenses
43,446

 
50,749

Restructuring charges
1,609

 
1,275

Litigation and other gains
(150
)
 
(456
)
Depreciation and amortization
6,114

 
7,172

Goodwill impairment charges
59,816

 

Total operating expenses and other losses (gains), net
110,835

 
58,740

Operating income (loss)
(45,851
)
 
6,756

Other income (expense), net:
 
 
 
Interest expense, net of interest income
(2,341
)
 
(4,258
)
Other income (expense), net
(5,296
)
 
2,217

Total 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

Loss from discontinued operations, net of tax
(35
)
 
(46
)
Net income (loss)
$
(42,308
)
 
$
3,304

Net earnings (loss) per basic share:
 
 
 
Net income (loss) from continuing operations
$
(1.94
)
 
$
0.15

Loss from discontinued operations, net of tax

 

Net income (loss)
$
(1.94
)
 
$
0.15

Net earnings (loss) per diluted share:
 
 
 
Net income (loss) from continuing operations
$
(1.94
)
 
$
0.15

Loss from discontinued operations, net of tax

 

Net income (loss)
$
(1.94
)
 
$
0.15

Weighted average shares used in calculating earnings (loss) per share:
 
 
 
Basic
21,827

 
21,868

Diluted
21,827

 
22,311

Comprehensive income:
 
 
 
Net income (loss)
$
(42,308
)
 
$
3,304

Foreign currency translation adjustments, net of tax
(779
)
 
316

Unrealized gain (loss) on investment, net of tax
(258
)
 
2,657

Unrealized loss on cash flow hedging instruments, net of tax
(1,685
)
 
(237
)
Other comprehensive income (loss)
(2,722
)
 
2,736

Comprehensive income (loss)
$
(45,030
)
 
$
6,040

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

2





HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(In thousands, except share amounts)
(Unaudited)
 
Three Months Ended March 31, 2020
 
Common Stock
 
Treasury Stock
 
Additional
Paid-In
Capital
 
Retained
Earnings
 
Accumulated Other
Comprehensive
Income
 
Stockholders’
Equity
 
Shares
 
Amount
 
Shares
 
Amount
 
 
 
 
Balance at December 31, 2019
24,603,308

 
$
247

 
(2,763,302
)
 
$
(128,348
)
 
$
460,781

 
$
237,849

 
$
14,936

 
$
585,465

Comprehensive income
 
 
 
 
 
 
 
 
 
 
(42,308
)
 
(2,722
)
 
(45,030
)
Issuance of common stock in connection with:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock awards, net of cancellations
250,544

 
2

 
102,467

 
7,115

 
(7,117
)
 
 
 
 
 

Exercise of stock options
20,000

 

 
 
 
 
 
468

 
 
 
 
 
468

Share-based compensation
 
 
 
 
 
 
 
 
11,720

 
 
 
 
 
11,720

Shares redeemed for employee tax withholdings
 
 
 
 
(120,000
)
 
(7,133
)
 
 
 
 
 
 
 
(7,133
)
Share repurchases
(313,998
)
 
(3
)
 
 
 
 
 
(20,878
)
 
 
 
 
 
(20,881
)
Balance at March 31, 2020
24,559,854


$
246


(2,780,835
)

$
(128,366
)
 
$
444,974


$
195,541


$
12,214

 
$
524,609

 
Three Months Ended March 31, 2019
 
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
 
 
 
 
 
 
 
 
 
 
3,304

 
2,736

 
6,040

Issuance of common stock in connection with:
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Restricted stock awards, net of cancellations
254,550

 
3

 
27,612

 
2,196

 
(2,199
)
 
 
 
 
 

Exercise of stock options
10,000

 

 
 
 
 
 
234

 
 
 
 
 
234

Share-based compensation
 
 
 
 
 
 
 
 
7,140

 
 
 
 
 
7,140

Shares redeemed for employee tax withholdings
 
 
 
 
(94,500
)
 
(4,385
)
 
 
 
 
 
 
 
(4,385
)
Balance at March 31, 2019
24,682,802

 
$
247

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

 
$
199,410

 
$
19,231

 
$
549,653

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

3





HURON CONSULTING GROUP INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
 
Three Months Ended
March 31,
 
2020
 
2019
Cash flows from operating activities:
 
 
 
Net income (loss)
$
(42,308
)
 
$
3,304

Adjustments to reconcile net income (loss) to cash flows from operating activities:
 
 
 
Depreciation and amortization
7,415

 
8,538

Non-cash lease expense
1,938

 
2,172

Lease impairment charge

 
740

Share-based compensation
8,504

 
5,366

Amortization of debt discount and issuance costs
198

 
2,618

Goodwill impairment charges
59,816

 

Allowances for doubtful accounts
21

 
59

Deferred income taxes
(14,016
)
 

Loss on sale of business
102

 

Change in fair value of contingent consideration liabilities

 
(391
)
Changes in operating assets and liabilities, net of divestiture:
 
 
 
(Increase) decrease in receivables from clients, net
11,698

 
5,129

(Increase) decrease in unbilled services, net
(9,138
)
 
(16,850
)
(Increase) decrease in current income tax receivable / payable, net
2,332

 
3,490

(Increase) decrease in other assets
4,304

 
(2,554
)
Increase (decrease) in accounts payable and other liabilities
(3,708
)
 
2,396

Increase (decrease) in accrued payroll and related benefits
(84,910
)
 
(54,151
)
Increase (decrease) in deferred revenues
1,606

 
1,845

Net cash used in operating activities
(56,146
)
 
(38,289
)
Cash flows from investing activities:
 
 
 
Purchases of property and equipment, net
(1,001
)
 
(2,349
)
Purchases of investment securities
(13,000
)
 

Investment in life insurance policies
(1,472
)
 
(3,645
)
Capitalization of internally developed software costs
(2,922
)
 
(2,093
)
Net cash used in investing activities
(18,395
)

(8,087
)
Cash flows from financing activities:
 
 
 
Proceeds from exercises of stock options
468

 
234

Shares redeemed for employee tax withholdings
(7,133
)
 
(4,385
)
Share repurchases
(22,115
)
 

Proceeds from bank borrowings
281,000

 
40,500

Repayments of bank borrowings
(38,131
)
 
(14,627
)
Net cash provided by financing activities
214,089

 
21,722

Effect of exchange rate changes on cash
(143
)
 
73

Net increase (decrease) in cash and cash equivalents
139,405

 
(24,581
)
Cash and cash equivalents at beginning of the period
11,604

 
33,107

Cash and cash equivalents at end of the period
$
151,009

 
$
8,526

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
$
3,716

 
$
1,913

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

4


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 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.
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 months ended March 31, 2020 and 2019. 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, 2019 included in our Annual Report on Form 10-K. Our results for any interim period are not necessarily indicative of results for a full year or any other interim period.
3. New Accounting Pronouncements
Recently Adopted
In June 2016, the Financial Accounting Standards Board ("FASB") issued ASU 2016-13, Financial Instruments - Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments which provides a new current expected credit loss model to account for credit losses on certain financial assets, including trade receivables. That model requires an entity to estimate lifetime credit losses based on relevant historical information, adjusted for current conditions and reasonable and supportable forecasts that could affect the collectability of the reported amount. The ASU also makes targeted amendments to the current impairment model for available-for-sale debt securities, which includes requiring the recognition of an allowance rather than a direct write-down of the investment, which may be reversed in the event that the credit of an issuer improves. We adopted ASU 2016-13 effective January 1, 2020, which did not have a material impact on our consolidated financial statements.
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. We adopted ASU 2018-13 effective January 1, 2020, which had no impact on the amounts reported on our consolidated financial statements. We updated our disclosures within the notes to our consolidated financial statements as required by ASU 2018-13.
In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes. ASU 2019-12 simplifies the accounting for income taxes by eliminating certain exceptions to the guidance in ASC 740, Income Taxes, related to the approach for intraperiod tax allocation, the methodology for calculating income taxes in an interim period and the recognition of deferred tax liabilities for outside basis differences. The new guidance also simplifies other aspects of the accounting for franchise taxes and enacted changes in tax laws or tax rates and clarifies the accounting for transactions that result in a step-up in the tax basis of goodwill. On January 1, 2020, we elected to early adopt ASU 2019-12 on a modified retrospective basis for those amendments that are not applied on a prospective basis. The adoption of ASU 2019-12 did not have a material impact on our consolidated financial statements.

5


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 three months ended March 31, 2020.
 

Healthcare
 

Business
Advisory
 
Education
 
Total
Balance as of December 31, 2019:
 
 
 
 
 
 
 
Goodwill
$
636,810

 
$
302,057

 
$
103,889

 
$
1,042,756

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

 
(396,076
)
Goodwill, net as of December 31, 2019
428,729

 
114,062

 
103,889

 
646,680

Goodwill impairment charges

 
(59,816
)
 

 
(59,816
)
Foreign currency translation

 
(629
)
 

 
(629
)
Goodwill, net as of March 31, 2020
$
428,729

 
$
53,617

 
$
103,889

 
$
586,235


First Quarter 2020 Goodwill Impairment Charges
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. 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. 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; therefore, we are cautious about near-term results for these two reporting units. 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 impairment test on both reporting units.
Our goodwill impairment test was performed by comparing the fair value of each of the Strategy and Innovation and Life Sciences reporting units with their respective carrying values and recognizing an impairment charge for the amount by which the carrying value exceeded the fair value. To estimate the fair value of each reporting unit, we relied on a combination of the income approach and the market approach, utilizing the guideline company method, with a fifty-fifty weighting. Based on the estimated fair values of the Strategy and Innovation and Life Sciences reporting units described below, we recorded non-cash pretax goodwill impairment charges of $49.9 million and $9.9 million, respectively, in the first quarter of 2020. The $49.9 million non-cash pretax charge related to the Strategy and Innovation reporting unit reduced the goodwill balance of the reporting unit to $37.5 million. The $9.9 million non-cash pretax charge related to the Life Sciences reporting unit reduced the goodwill balance of the reporting unit to zero.
Concurrently with the goodwill impairment tests performed over the Strategy and Innovation and Life Sciences reporting units, we evaluated whether any indicators exist 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. Based on our internal projections, consideration of the impact of the COVID-19 pandemic on these reporting units, and review of the amounts by which the fair values of these reporting units exceeded their carrying values in the most recent quantitative goodwill impairment analysis performed, we did not identify any indicators that would lead us to believe that the fair values of these reporting units may not exceed their carrying values as of March 31, 2020.
In connection with the goodwill impairment tests performed on the Strategy and Innovation and Life Sciences reporting units, we performed impairment tests on the long-lived assets allocated to the asset groups of the Strategy and Innovation and Life Sciences reporting units. Based on the impairment tests performed, we concluded that the long-lived assets allocated to the asset groups were not impaired as of March 31, 2020. We did not identify any indicators that would lead us to believe that the carrying values of the long-lived assets allocated to our other asset groups may not be recoverable as of March 31, 2020.


6


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

Intangible Assets
Intangible assets as of March 31, 2020 and December 31, 2019 consisted of the following:
 
 
 
As of March 31, 2020
 
As of December 31, 2019
 
Useful Life 
(in years)
 
Gross
Carrying
Amount
 
Accumulated
Amortization
 
Gross
Carrying
Amount
 
Accumulated
Amortization
Customer relationships
3 to 13
 
$
87,379

 
$
64,265

 
$
87,577

 
$
61,882

Trade names
5 to 6
 
28,930

 
26,192

 
28,930

 
25,894

Technology and software
5
 
5,440

 
4,456

 
5,694

 
4,321

Non-competition agreements
5
 
2,220

 
1,559

 
2,220

 
1,447

Customer contracts
2
 
800

 
170

 
800

 
52

Total
 
 
$
124,769

 
$
96,642

 
$
125,221

 
$
93,596


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.
Intangible asset amortization expense was $3.2 million and $4.5 million for the three months ended March 31, 2020 and 2019, respectively. The table below sets forth the estimated annual amortization expense for the intangible assets recorded as of March 31, 2020.
Year Ending December 31,
 
Estimated Amortization Expense
2020
 
$
12,561

2021
 
$
8,358

2022
 
$
6,111

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. Revenues
For the three months ended March 31, 2020 and 2019, we recognized revenues of $222.6 million and $204.4 million, respectively. Of the $222.6 million recognized in the first quarter of 2020, we recognized revenues of $7.9 million from obligations satisfied, or partially satisfied, in prior periods, of which $4.8 million was due to changes in the estimates of our variable consideration under performance-based billing arrangements and $3.1 million was primarily due to the release of allowances on unbilled services as a result of securing contract amendments. Of the $204.4 million recognized in the first quarter of 2019, we recognized revenues of $3.9 million from obligations satisfied, or partially satisfied, in prior periods, due to the release of allowances on unbilled services due to securing contract amendments. During the first quarter of 2019, we recognized a $1.2 million decrease to revenues due to changes in the estimates of our variable consideration under performance-based billing arrangements.
As of March 31, 2020, we had $92.5 million of remaining performance obligations under engagements with original expected durations greater than one year. These remaining performance obligations exclude obligations under contracts with an original expected duration of one year or less, variable consideration which has been excluded from the total transaction price due to the constraint, and performance obligations under time-and-expense engagements which are recognized in the amount invoiced. Of the $92.5 million of performance obligations, we expect to recognize approximately $49.6 million as revenue in 2020, $28.2 million in 2021, and the remaining $14.7 million thereafter. Actual revenue recognition could differ from these amounts as a result of changes in the estimated timing of work to be performed, adjustments to estimated variable consideration in performance-based arrangements, or other factors.
Contract Assets and Liabilities
The payment terms and conditions in our customer contracts vary. Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferred revenues in the consolidated balance sheets.

7


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

Unbilled services include revenues recognized for services performed but not yet billed to clients. Services performed that we are not yet entitled to bill because certain events, such as the completion of the measurement period or client approval in performance-based engagements, must occur are recorded as contract assets and included within unbilled services, net. The contract asset balance as of March 31, 2020 and December 31, 2019 was $12.4 million and $12.6 million, respectively. The $0.2 million decrease primarily reflects timing differences between the completion of our performance obligations and the amounts billed or billable to clients in accordance with their contractual billing terms.
Client prepayments and retainers are classified as deferred revenues and recognized over future periods in accordance with the applicable engagement agreement and our revenue recognition policy. Our deferred revenues balance as of March 31, 2020 and December 31, 2019, was $30.0 million and $28.4 million, respectively. The $1.6 million increase primarily reflects timing differences between client payments in accordance with their contract terms and the completion of our performance obligations. For the three months ended March 31, 2020, $14.4 million of revenues recognized were included in the deferred revenue balance as of December 31, 2019.
6. Earnings Per Share
Basic earnings per share excludes dilution and is computed by dividing net income by the weighted average number of common shares outstanding for the period, excluding unvested restricted common stock. Diluted earnings per share reflects the potential reduction in earnings per share that could occur if securities or other contracts to issue common stock were exercised or converted into common stock under the treasury stock method. Such securities or other contracts include unvested restricted stock awards, outstanding common stock options, convertible senior notes, and outstanding warrants, to the extent dilutive. In periods for which we report a net loss from continuing operations, diluted weighted average common shares outstanding excludes all potential common stock equivalents as their impact on diluted net loss from continuing operations per share would be anti-dilutive. Earnings (loss) per share under the basic and diluted computations are as follows: 
 
Three Months Ended
March 31,
 
2020
 
2019
Net income (loss) from continuing operations
$
(42,273
)
 
$
3,350

Income (loss) from discontinued operations, net of tax
(35
)
 
(46
)
Net income (loss)
$
(42,308
)
 
$
3,304

 
 
 
 
Weighted average common shares outstanding – basic
21,827

 
21,868

Weighted average common stock equivalents

 
443

Weighted average common shares outstanding – diluted
21,827

 
22,311

 
 
 
 
Net earnings (loss) per basic share:
 
 
 
Net income (loss) from continuing operations
$
(1.94
)
 
$
0.15

Income (loss) from discontinued operations, net of tax

 

Net income (loss)
$
(1.94
)
 
$
0.15

 
 
 
 
Net earnings (loss) per diluted share:
 
 
 
Net income (loss) from continuing operations
$
(1.94
)
 
$
0.15

Income (loss) from discontinued operations, net of tax

 

Net income (loss)
$
(1.94
)
 
$
0.15



8


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

The number of anti-dilutive securities excluded from the computation of the weighted average common stock equivalents presented above were as follows:
 
As of March 31,
 
2020
 
2019
Unvested restricted stock awards
992

 
12

Outstanding common stock options
86

 

Convertible senior notes

 
3,129

Warrants related to the issuance of convertible senior notes
3,129

 
3,129

Total anti-dilutive securities
4,207

 
6,270


See Note 7 “Financing Arrangements” for further information on the convertible senior notes and warrants related to the issuance of convertible notes.
We currently have a share repurchase program permitting us to repurchase up to $125 million of our common stock through October 31, 2020 (the “Share Repurchase Program”). The amount and timing of the repurchases will be determined by management and will depend on a variety of factors, including the trading price of our common stock, capacity under our credit facility, general market and business conditions, and applicable legal requirements. In the first quarter of 2020, we repurchased and retired 313,998 shares for $20.9 million. The 313,998 shares repurchased and retired in the first quarter of 2020 were included as a reduction to our basic weighted average shares outstanding for the quarter ended March 31, 2020 based on the trade date of the share repurchase. Additionally, in the first quarter of 2020, we settled the repurchase of 18,000 shares for $1.2 million that were accrued as of December 31, 2019. These shares were reflected as a reduction to our basic weighted average shares outstanding in the fourth quarter of 2019 based on the trade date of the share repurchase. No shares were repurchased during the first three months of 2019. As of March 31, 2020, less than $0.1 million remains available for share repurchases.
7. Financing Arrangements
A summary of the carrying amounts of our debt follows:
 
March 31, 2020
 
December 31, 2019
Senior secured credit facility
$
448,000

 
$
205,000

Promissory note due 2024
3,722

 
3,853

Total long-term debt
$
451,722

 
$
208,853

Current maturities of long-term debt
(533
)
 
(529
)
Long-term debt, net of current portion
$
451,189

 
$
208,324


Below is a summary of the scheduled remaining principal payments of our debt as of March 31, 2020.
 
Principal Payments of Long-Term Debt
2020
$
398

2021
$
544

2022
$
559

2023
$
575

2024
$
449,646


Convertible Notes
In September 2014, the Company issued $250 million principal amount of 1.25% convertible senior notes due 2019 (the “Convertible Notes”) in a private offering. The Convertible Notes were governed by the terms of an indenture between the Company and U.S. Bank National Association, as Trustee (the “Indenture”). The Convertible Notes were senior unsecured obligations of the Company and paid interest semi-annually on April 1 and October 1 of each year at an annual rate of 1.25%.

9


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

Prior to maturity, upon conversion, the Convertible Notes would have been settled, at our election, in cash, shares of the Company’s common stock, or a combination of cash and shares of the Company’s common stock. Our intent and policy was to settle conversions with a combination of cash and shares of common stock with the principal amount of the Convertible Notes paid in cash, in accordance with the settlement provisions of the Indenture.
Upon issuance, we separated the Convertible Notes into liability and equity components. The carrying value of the equity component representing the conversion option, which was recognized as a debt discount, was determined by deducting the fair value of the liability component from the proceeds of the Convertible Notes. The debt discount was amortized to interest expense using an effective interest rate of 4.751% over the term of the Convertible Notes. The equity component was not remeasured as it continued to meet the conditions for equity classification.
The transaction costs related to the issuance of the Convertible Notes were separated into liability and equity components based on their relative values. Transaction costs attributable to the liability component were recorded as a deduction to the carrying amount of the liability and amortized to interest expense over the term of the Convertible Notes; and transaction costs attributable to the equity component were netted with the equity component of the Convertible Notes in stockholders’ equity.
The following table presents the amount of interest expense recognized related to the Convertible Notes for the period presented.
 
Three Months Ended
March 31, 2019
Contractual interest coupon
$
781

Amortization of debt discount
2,120

Amortization of debt issuance costs
315

Total interest expense
$
3,216


In connection with the issuance of the Convertible Notes, we entered into convertible note hedge transactions and warrant transactions. The convertible note hedge transactions were intended to reduce the potential future economic dilution associated with the conversion of the Convertible Notes and, combined with the warrants, effectively raised the price at which economic dilution would occur from the initial conversion price of approximately $79.89 to approximately $97.12 per share. The convertible note hedge transactions expired in the third quarter of 2019. The holders of the warrants have the option to purchase an initial total of approximately 3.1 million shares of the Company’s common stock at a strike price of approximately $97.12. The warrants are expiring incrementally on 100 different dates from January 6, 2020 to May 28, 2020 and are exercisable at each such expiry date. If the average market value per share of our common stock for the reporting period exceeds the strike price of the warrants, the warrants will have a dilutive effect on our earnings per share. The warrants are separate transactions and are not part of the terms of the Convertible Notes or the convertible note hedge transactions.
Senior Secured Credit Facility
The Company has a $600 million senior secured revolving credit facility, subject to the terms of a Second Amended and Restated Credit Agreement dated as of March 31, 2015, as amended to date (as amended and modified the "Amended Credit Agreement"), that becomes due and payable in full upon maturity on September 27, 2024. The Amended Credit Agreement provides the option to increase the revolving credit facility or establish term loan facilities in an aggregate amount of up to $150 million, subject to customary conditions and the approval of any lender whose commitment would be increased, resulting in a maximum available principal amount under the Amended Credit Agreement of $750 million. The initial borrowings under the Amended Credit Agreement were used to refinance borrowings outstanding under a prior credit agreement, and future borrowings under the Amended Credit Agreement may be used for working capital, capital expenditures, acquisitions of businesses, share repurchases, and general corporate purposes.
Fees and interest on borrowings vary based on our Consolidated Leverage Ratio (as defined in the Amended Credit Agreement). At our option, borrowings under the Amended Credit Agreement will bear interest at one, two, three or six-month LIBOR or an alternate base rate, in each case plus the applicable margin. The applicable margin will fluctuate between 1.125% per annum and 1.875% per annum, in the case of LIBOR borrowings, or between 0.125% per annum and 0.875% per annum, in the case of base rate loans, based upon our Consolidated Leverage Ratio at such time.
Amounts borrowed under the Amended Credit Agreement may be prepaid at any time without premium or penalty. We are required to prepay the amounts outstanding under the Amended Credit Agreement in certain circumstances, including upon an Event of Default (as defined in the Amended Credit Agreement). In addition, we have the right to permanently reduce or terminate the unused portion of the commitments provided under the Amended Credit Agreement at any time.

10


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

The loans and obligations under the Amended Credit Agreement are secured pursuant to a Second Amended and Restated Security Agreement and a Second Amended and Restated Pledge Agreement (as amended, the “Pledge Agreement”) with Bank of America, N.A. as collateral agent, pursuant to which the Company and the subsidiary guarantors grant Bank of America, N.A., for the ratable benefit of the lenders under the Amended Credit Agreement, a first-priority lien, subject to permitted liens, on substantially all of the personal property assets of the Company and the subsidiary guarantors, and a pledge of 100% of the stock or other equity interests in all domestic subsidiaries and 65% of the stock or other equity interests in each “material first-tier foreign subsidiary” (as defined in the Pledge Agreement).
The Amended Credit Agreement contains usual and customary representations and warranties; affirmative and negative covenants, which include limitations on liens, investments, additional indebtedness, and restricted payments; and two quarterly financial covenants as follows: (i) a maximum Consolidated Leverage Ratio (defined as the ratio of debt to consolidated EBITDA) of 3.75 to 1.00; however the maximum permitted Consolidated Leverage Ratio will increase to 4.00 to 1.00 upon the occurrence of certain transactions, and (ii) a minimum Consolidated Interest Coverage Ratio (defined as the ratio of consolidated EBITDA to interest) of 3.50 to 1.00. Consolidated EBITDA for purposes of the financial covenants is calculated on a continuing operations basis and includes adjustments to add back non-cash goodwill impairment charges, share-based compensation costs, certain non-cash restructuring charges, pro forma historical EBITDA for businesses acquired, and other specified items in accordance with the Amended Credit Agreement. At March 31, 2020, we were in compliance with these financial covenants with a Consolidated Leverage Ratio of 3.48 to 1.00 and a Consolidated Interest Coverage Ratio of 15.13 to 1.00.
Borrowings outstanding under the Amended Credit Agreement at March 31, 2020 totaled $448.0 million. These borrowings carried a weighted average interest rate of 2.3%, including the effect of the interest rate swaps described in Note 9 “Derivative Instruments and Hedging Activity." Borrowings outstanding under the Amended Credit Agreement at December 31, 2019 were $205.0 million and carried a weighted average interest rate of 3.0%, including the effect of the interest rate swap outstanding at the time and described in Note 9 “Derivative Instruments and Hedging Activity." The borrowing capacity under the revolving credit facility is reduced by any outstanding borrowings under the revolving credit facility and outstanding letters of credit. At March 31, 2020, we had outstanding letters of credit totaling $1.6 million, which are primarily used as security deposits for our office facilities. As of March 31, 2020, the unused borrowing capacity under the revolving credit facility was $150.4 million.
Promissory Note due 2024
On June 30, 2017, in conjunction with our purchase of an aircraft related to the acquisition of Innosight, we assumed, from the sellers of the aircraft, a promissory note with an outstanding principal balance of $5.1 million. The principal balance of the promissory note is subject to scheduled monthly principal payments until the maturity date of March 1, 2024, at which time a final payment of $1.5 million, plus any accrued and unpaid interest, will be due. Under the terms of the promissory note, we will pay interest on the outstanding principal amount at a rate of one month LIBOR plus 1.97% per annum. The obligations under the promissory note are secured pursuant to a Loan and Aircraft Security Agreement with Banc of America Leasing & Capital, LLC, which grants the lender a first priority security interest in the aircraft. At March 31, 2020, the outstanding principal amount of the promissory note was $3.7 million, and the aircraft had a carrying amount of $4.9 million. At December 31, 2019, the outstanding principal amount of the promissory note was $3.9 million, and the aircraft had a carrying amount of $5.1 million.
8. Restructuring Charges
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 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 our corporate operations.

11


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

The table below sets forth the changes in the carrying amount of our restructuring charge liability by restructuring type for the three months ended March 31, 2020.
 
Employee Costs
 
Office Space Reductions
 
Other
 
Total
Balance as of December 31, 2019
$
68

 
$
91

 
$

 
$
159

Additions
411

 

 
1,188

 
1,599

Payments
(473
)
 

 
(67
)
 
(540
)
Adjustments 
8

 

 

 
8

Balance as of March 31, 2020
$
14

 
$
91

 
$
1,121

 
$
1,226

The $0.1 million restructuring charge liability related to office space reductions at March 31, 2020 is included as a component of accrued expenses and other current liabilities and deferred compensation and other liabilities. The restructuring charge liability related to employee costs at March 31, 2020 is expected to be paid in the next 12 months and is included as a component of accrued payroll and related benefits. The $1.1 million restructuring charge liability related to the termination of a third-party advisor agreement at March 31, 2020 is expected to be paid over the next 34 months and is included as a component of accrued expenses and other current liabilities and deferred compensation and other liabilities.
9. Derivative Instruments and Hedging Activity
On June 22, 2017, we entered into a forward interest rate swap agreement effective August 31, 2017 and ending August 31, 2022, with a notional amount of $50.0 million. We entered into this derivative instrument to hedge against the interest rate risks of our variable-rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month LIBOR and we pay to the counterparty a fixed rate of 1.900%.
On January 30, 2020, we entered into a forward interest rate swap agreement effective December 31, 2019 and ending December 31, 2024, with a notional amount of $50.0 million. We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month LIBOR and we pay to the counterparty a fixed rate of 1.500%.
On March 16, 2020, we entered into a forward interest rate swap agreement effective February 28, 2020 and ending February 28, 2025, with a notional amount of $100.0 million. We entered into this derivative instrument to further hedge against the interest rate risks of our variable-rate borrowings. Under the terms of the interest rate swap agreement, we receive from the counterparty interest on the notional amount based on one month LIBOR and we pay to the counterparty a fixed rate of 0.885%.
We recognize all derivative instruments as either assets or liabilities at fair value on the balance sheet. We have designated these derivative instruments as cash flow hedges. Therefore, changes in the fair value of the derivative instruments are recorded to other comprehensive income (“OCI”) to the extent effective and reclassified into interest expense upon settlement. As of March 31, 2020, it was anticipated that $1.4 million of the losses, net of tax, currently recorded in accumulated other comprehensive income will be reclassified into earnings within the next 12 months.
The table below sets forth additional information relating to the interest rate swaps designated as a cash flow hedging instrument as of March 31, 2020 and December 31, 2019.
 
 
Fair Value (Derivative Asset and Liability)
Balance Sheet Location
 
March 31,
2020
 
December 31,
2019
Accrued expenses and other current liabilities
 
$
1,156

 
$
159

Deferred compensation and other liabilities
 
$
1,666

 
$
387


All of our derivative instruments are transacted under the International Swaps and Derivatives Association (ISDA) master agreements. These agreements permit the net settlement of amounts owed in the event of default and certain other termination events. Although netting is permitted, it is our policy to record all derivative assets and liabilities on a gross basis on our consolidated balance sheet.

12


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

We do not use derivative instruments for trading or other speculative purposes. Refer to Note 11 “Other Comprehensive Income (Loss)” for additional information on our derivative instruments.
10. Fair Value of Financial Instruments
Certain of our assets and liabilities are measured at fair value. Fair value is defined as the price that would be received to sell an asset or the price that would be paid to transfer a liability in an orderly transaction between market participants at the measurement date. GAAP establishes a fair value hierarchy for inputs used in measuring fair value and requires companies to maximize the use of observable inputs and minimize the use of unobservable inputs. The fair value hierarchy consists of three levels based on the objectivity of the inputs as follows:
Level 1 Inputs
 
Quoted prices in active markets for identical assets or liabilities that the reporting entity has the ability to access at the measurement date.
 
 
Level 2 Inputs
 
Quoted prices in active markets for similar assets or liabilities; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
 
 
Level 3 Inputs
 
Unobservable inputs for the asset or liability, and include situations in which there is little, if any, market activity for the asset or liability.

The table below sets forth our fair value hierarchy for our financial assets and liabilities measured at fair value on a recurring basis as of March 31, 2020 and December 31, 2019.
 
 
Level 1
 
Level 2
 
Level 3
 
Total
March 31, 2020
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Convertible debt investment
 
$

 
$

 
$
62,194

 
$
62,194

Deferred compensation assets
 

 
24,220

 

 
24,220

Total assets
 
$

 
$
24,220

 
$
62,194

 
$
86,414

Liabilities:
 
 
 
 
 
 
 
 
Interest rate swaps
 
$

 
$
2,822

 
$

 
$
2,822

Total liabilities
 
$

 
$
2,822

 
$

 
$
2,822

December 31, 2019
 
 
 
 
 
 
 
 
Assets:
 
 
 
 
 
 
 
 
Convertible debt investment
 

 

 
49,542

 
49,542

Deferred compensation assets
 

 
27,445

 

 
27,445

Total assets
 
$

 
$
27,445

 
$
49,542

 
$
76,987

Liabilities:
 
 
 
 
 
 
 
 
Interest rate swap
 
$

 
$
546

 
$

 
$
546

Total liabilities
 
$

 
$
546

 
$

 
$
546


Interest rate swaps: The fair values of our interest rate swaps were derived using estimates to settle the interest rate swap agreements, which are based on the net present value of expected future cash flows on each leg of the swaps utilizing market-based inputs and a discount rate reflecting the risks involved.
Convertible debt investment: In 2014 and 2015, we invested $27.9 million, in the form of zero coupon convertible debt (the "initial convertible
notes"), in Shorelight Holdings, LLC (“Shorelight”), the parent company of Shorelight, a U.S.-based company that partners with leading nonprofit universities to increase access to and retention of international students, boost institutional growth, and enhance an institution’s global footprint. In the first quarter of 2020, we invested an additional $13.0 million, in the form of 1.69% convertible debt with a senior liquidation preference to the initial convertible notes (the "additional convertible note"); and amended our initial convertible notes to include a coupon rate of 1.69% and extend the maturity date to January 17, 2024, which coincides with the maturity date of the additional convertible note.

13


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

To determine the appropriate accounting treatment for our investment, we performed a variable interest entity (“VIE”) analysis and concluded that Shorelight does not meet the definition of a VIE. We also reviewed the characteristics of our investment to confirm that the convertible notes are not in-substance common stock that would warrant equity method accounting. After we reviewed all of the terms of the investment, we concluded the appropriate accounting treatment to be that of an available-for-sale debt security.
The investment is carried at fair value with unrealized holding gains and losses excluded from earnings and reported in other comprehensive
income. We estimate the fair value of our investment using a scenario-based approach in the form of a hybrid analysis that consists of a Monte Carlo simulation model and an expected return analysis. The conclusion of value for our investment is based on the probability weighted assessment of both scenarios. The hybrid analysis utilizes certain assumptions including the assumed holding period through the maturity date of January 17, 2024, the applicable waterfall distribution at the end of the expected holding period based on the rights and privileges of the various instruments, cash flow projections discounted at the risk-adjusted rate of 26%, and the concluded equity volatility of 42.5%, all of which are Level 3 inputs. The valuation of our investment as of December 31, 2019 takes into consideration the equity value indication as well as the dilutive impact of the convertible debt issued by Shorelight in the first quarter of 2020, the terms of which were known or knowable as of December 31, 2019. The use of alternative estimates and assumptions could increase or decrease the estimated fair value of the investment, which would result in different impacts to our consolidated balance sheet and comprehensive income. Actual results may differ from our estimates. The fair value of the convertible debt investment is recorded in long-term investments on our consolidated balance sheets.
The table below sets forth the changes in the balance of the convertible debt investment for the three months ended March 31, 2020.
 
 
Convertible Debt Investment
Balance as of December 31, 2019
 
$
49,542

Purchases
 
13,000

Change in fair value of convertible debt investment
 
(348
)
Balance as of March 31, 2020
 
$
62,194


Deferred compensation assets: We have a non-qualified deferred compensation plan (the "Plan") for the members of our board of directors and a select group of our employees. The deferred compensation liability is funded by the Plan assets, which consist of life insurance policies maintained within a trust. The cash surrender value of the life insurance policies approximates fair value and is based on third-party broker statements which provide the fair value of the life insurance policies' underlying investments, which are Level 2 inputs. The cash surrender value of the life insurance policies is invested primarily in mutual funds. The Plan assets are included in other non-current assets on our consolidated balance sheets. Realized and unrealized gains (losses) from the deferred compensation assets are recorded to other income (expense), net in our consolidated statements of operations.
Financial assets and liabilities not recorded at fair value are as follows:
Preferred Stock Investment
In the fourth quarter of 2019, we invested $5.0 million, in the form of preferred stock, in Medically Home Group, Inc. ("Medically Home"), a healthcare technology-enabled services company. To determine the appropriate accounting treatment for our investment, we performed a VIE analysis and concluded that Medically Home does not meet the definition of a VIE. We also reviewed the characteristics of our investment to confirm that the preferred stock is not in-substance common stock that would warrant equity method accounting. After we reviewed all of the terms of the investment, we concluded the appropriate accounting treatment for our investment in Medically Home to be that of an equity security with no readily determinable fair value. We elected to apply the measurement alternative at the time of the purchase and will continue to do so until the investment does not qualify to be so measured. Under the measurement alternative, the investment is carried at cost minus impairment, if any, plus or minus changes resulting from observable price changes in orderly transactions for the identical or similar investment in Medically Home. On a quarterly basis, we review the information available to determine whether an orderly and observable transaction for the same or similar equity instrument occurred, and remeasure the fair value of the preferred stock using such identified transactions, with changes in the fair value recorded in consolidated statement of operations. Following our purchase, there has been no impairment, nor any observable price changes to our investment.

14


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

Senior Secured Credit Facility
The carrying value of our borrowings outstanding under our senior secured credit facility is stated at cost. Our carrying value approximates fair value, using Level 2 inputs, as the senior secured credit facility bears interest at variable rates based on current market rates as set forth in the Amended Credit Agreement. Refer to Note 7 “Financing Arrangements” for additional information on our senior secured credit facility.
Promissory Note due 2024
The carrying value of our promissory note due 2024 is stated at cost. Our carrying value approximates fair value, using Level 2 inputs, as the promissory note bears interest at rates based on current market rates as set forth in the terms of the promissory note. Refer to Note 7 “Financing Arrangements” for additional information on our promissory note due 2024.
Cash and Cash Equivalents and Other Financial Instruments
Cash and cash equivalents are stated at cost, which approximates fair market value. The carrying values of all other financial instruments not described above reasonably approximate fair market value due to the nature of the financial instruments and the short-term maturity of these items.
11. Other Comprehensive Income (Loss)
The table below sets forth the components of other comprehensive income (loss), net of tax, for the three months ended March 31, 2020 and 2019.
 
Three Months Ended
March 31, 2020
 
Three Months Ended
March 31, 2019
 
Before
Taxes
 
Tax
(Expense)
Benefit
 
Net of
Taxes
 
Before
Taxes
 
Tax
(Expense)
Benefit
 
Net of
Taxes
Other comprehensive income (loss):
 
 
 
 
 
 
 
 
 
 
 
Foreign currency translation adjustments
$
(779
)
 
$

 
$
(779
)
 
$
316

 
$

 
$
316

Unrealized gain (loss) on investment
$
(348
)
 
$
90

 
$
(258
)
 
$
3,609

 
$
(952
)
 
$
2,657

Unrealized gain (loss) on cash flow hedges:
 
 
 
 
 
 
 
 
 
 
 
Change in fair value
$
(2,272
)
 
$
590

 
$
(1,682
)
 
$
(247
)
 
$
65

 
$
(182
)
Reclassification adjustments into earnings
(4
)
 
1

 
(3
)
 
(74
)
 
19

 
(55
)
Net unrealized gain (loss)
$
(2,276
)
 
$
591

 
$
(1,685
)
 
$
(321
)
 
$
84

 
$
(237
)
Other comprehensive income (loss)
$
(3,403
)
 
$
681

 
$
(2,722
)
 
$
3,604

 
$
(868
)
 
$
2,736


The before tax amounts reclassified from accumulated other comprehensive income related to our cash flow hedges are recorded to interest expense, net of interest income.
Accumulated other comprehensive income, net of tax, includes the following components: 
 
Foreign Currency
Translation
 
Available-for-Sale Investment
 
Cash Flow Hedges
 
Total
Balance, December 31, 2019
$
(566
)
 
$
15,882

 
$
(380
)
 
$
14,936

Current period change
(779
)
 
(258
)
 
(1,685
)
 
(2,722
)
Balance, March 31, 2020
$
(1,345
)
 
$
15,624

 
$
(2,065
)
 
$
12,214


12. Income Taxes
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

15


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

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, 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 in 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