SEC Filing - Huron Consulting Group Inc.

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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 June 30, 2020



☐	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-50976

HURON CONSULTING GROUP INC.

(Exact name of registrant as specified in its charter)



Delaware		01-0666114
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification Number)

550 West Van Buren Street

Chicago, Illinois

60607

(Address of principal executive offices)

(Zip Code)

(312) 583-8700

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



Title of each class	Trading Symbol(s)	Name of each exchange on which registered
Common Stock, par value $0.01 per share	HURN	NASDAQ Global Select Market

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and "emerging growth company" in Rule 12b-2 of the Exchange Act.



Large Accelerated Filer	☒	Accelerated Filer	☐	Non-accelerated Filer	☐	Smaller Reporting Company	☐	Emerging Growth Company	☐

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

As of July 24, 2020, 22,873,628 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
Part I – Financial Information

Item 1.	Consolidated Financial Statements (Unaudited)
	Consolidated Balance Sheets	1
	Consolidated Statements of Operations and Other Comprehensive Income	2
	Consolidated Statements of Stockholders’ Equity	3
	Consolidated Statements of Cash Flows	4
	Notes to Consolidated Financial Statements	5

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	22

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	43

Item 4.	Controls and Procedures	44

Part II – Other Information

Item 1.	Legal Proceedings	44

Item 1A.	Risk Factors	44

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45

Item 3.	Defaults Upon Senior Securities	46

Item 4.	Mine Safety Disclosures	46

Item 5.	Other Information	46

Item 6.	Exhibits	47

Signature		48

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HURON CONSULTING GROUP INC.

CONSOLIDATED BALANCE SHEETS

(In thousands, except share and per share amounts)

(Unaudited)



	June 30, 2020			December 31, 2019
Assets
Current assets:
Cash and cash equivalents	$	83,212		$	11,604
Receivables from clients, net of allowances of $8,906 and $8,907, respectively	117,632			116,571
Unbilled services, net of allowances of $3,640 and $2,994, respectively	82,932			79,937
Income tax receivable	323			2,376
Prepaid expenses and other current assets	13,863			14,248
Total current assets	297,962			224,736
Property and equipment, net	37,082			38,413
Deferred income taxes, net	12,426			1,145
Long-term investments	59,524			54,541
Operating lease right-of-use assets	52,298			54,954
Other non-current assets	55,083			52,177
Intangible assets, net	24,916			31,625
Goodwill	586,235			646,680
Total assets	$	1,125,526		$	1,104,271
Liabilities and stockholders’ equity
Current liabilities:
Accounts payable	$	5,046		$	7,944
Accrued expenses and other current liabilities	23,532			18,554
Accrued payroll and related benefits	80,066			141,605
Current maturities of long-term debt	536			529
Current maturities of operating lease liabilities	8,559			7,469
Deferred revenues	35,044			28,443
Total current liabilities	152,783			204,544
Non-current liabilities:
Deferred compensation and other liabilities	38,557			28,635
Long-term debt, net of current portion	331,054			208,324
Operating lease liabilities, net of current portion	66,547			69,233
Deferred income taxes, net	571			8,070
Total non-current liabilities	436,729			314,262
Commitments and contingencies
Stockholders’ equity
Common stock; $0.01 par value; 500,000,000 shares authorized; 25,421,974 and 25,144,764 shares issued at June 30, 2020 and December 31, 2019, respectively	246			247
Treasury stock, at cost, 2,556,012 and 2,425,430 shares at June 30, 2020 and December 31, 2019, respectively	(128,646		)	(128,348		)
Additional paid-in capital	450,391			460,781
Retained earnings	209,088			237,849
Accumulated other comprehensive income	4,935			14,936
Total stockholders’ equity	536,014			585,465
Total liabilities and stockholders’ equity	$	1,125,526		$	1,104,271

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

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HURON CONSULTING GROUP INC.

CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME (LOSS)

(In thousands, except per share amounts)

(Unaudited)



	Three Months Ended June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Revenues and reimbursable expenses:
Revenues	$	217,857		$	220,754		$	440,476		$	425,199
Reimbursable expenses	2,970			23,534			22,273			42,151
Total revenues and reimbursable expenses	220,827			244,288			462,749			467,350
Direct costs and reimbursable expenses (exclusive of depreciation and amortization shown in operating expenses):
Direct costs	149,514			141,628			305,762			279,408
Amortization of intangible assets and software development costs	1,334			1,171			2,635			2,288
Reimbursable expenses	2,866			23,657			22,255			42,326
Total direct costs and reimbursable expenses	153,714			166,456			330,652			324,022
Operating expenses and other losses (gains), net
Selling, general and administrative expenses	44,857			52,537			88,303			103,286
Restructuring charges	109			754			1,718			2,029
Litigation and other gains	—			(485		)	(150		)	(941		)
Depreciation and amortization	6,193			7,151			12,307			14,323
Goodwill impairment charges	—			—			59,816			—
Total operating expenses and other losses (gains), net	51,159			59,957			161,994			118,697
Operating income (loss)	15,954			17,875			(29,897		)	24,631
Other income (expense), net:
Interest expense, net of interest income	(2,916		)	(4,524		)	(5,257		)	(8,782		)
Other income (expense), net	3,948			695			(1,348		)	2,912
Total other income (expense), net	1,032			(3,829		)	(6,605		)	(5,870		)
Income (loss) from continuing operations before taxes	16,986			14,046			(36,502		)	18,761
Income tax expense (benefit)	3,414			3,477			(7,801		)	4,842
Net income (loss) from continuing operations	13,572			10,569			(28,701		)	13,919
Loss from discontinued operations, net of tax	(25		)	(97		)	(60		)	(143		)
Net income (loss)	$	13,547		$	10,472		$	(28,761	)	$	13,776
Net earnings (loss) per basic share:
Net income (loss) from continuing operations	$	0.62		$	0.48		$	(1.31	)	$	0.63
Loss from discontinued operations, net of tax	—			—			(0.01		)	—
Net income (loss)	$	0.62		$	0.48		$	(1.32	)	$	0.63
Net earnings (loss) per diluted share:
Net income (loss) from continuing operations	$	0.61		$	0.47		$	(1.31	)	$	0.62
Loss from discontinued operations, net of tax	—			—			(0.01		)	—
Net income (loss)	$	0.61		$	0.47		$	(1.32	)	$	0.62
Weighted average shares used in calculating earnings (loss) per share:
Basic	21,869			21,997			21,848			21,933
Diluted	22,116			22,400			21,848			22,356
Comprehensive income:
Net income (loss)	$	13,547		$	10,472		$	(28,761	)	$	13,776
Foreign currency translation adjustments, net of tax	104			(359		)	(675		)	(43		)
Unrealized gain (loss) on investment, net of tax	(5,678		)	3,915			(5,936		)	6,572
Unrealized loss on cash flow hedging instruments, net of tax	(1,705		)	(612		)	(3,390		)	(849		)
Other comprehensive income (loss)	(7,279		)	2,944			(10,001		)	5,680
Comprehensive income (loss)	$	6,268		$	13,416		$	(38,762	)	$	19,456

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

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HURON CONSULTING GROUP INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(In thousands, except share amounts)

(Unaudited)



	Three Months Ended June 30,
	Common Stock			Treasury Stock					Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income			Stockholders’ Equity
	Shares	Amount		Shares		Amount			Additional Paid-In Capital		Retained Earnings		Accumulated Other Comprehensive Income			Stockholders’ Equity
Balance at March 31, 2020	24,559,854	$	246	(2,780,835	)	$	(128,366	)	$	444,974	$	195,541	$	12,214		$	524,609
Comprehensive income											13,547		(7,279		)	6,268
Issuance of common stock in connection with:
Restricted stock awards, net of cancellations	19,582	—		(4,157	)	(196		)	196							—
Exercise of stock options	6,800	—							178							178
Share-based compensation									5,043							5,043
Shares redeemed for employee tax withholdings				(1,806	)	(84		)								(84		)
Balance at June 30, 2020	24,586,236	$	246	(2,786,798	)	$	(128,646	)	$	450,391	$	209,088	$	4,935		$	536,014

Balance at March 31, 2019	24,682,802	$	247	(2,738,850	)	$	(126,983	)	$	457,748	$	199,410	$	19,231		$	549,653
Comprehensive income											10,472		2,944			13,416
Issuance of common stock in connection with:
Restricted stock awards, net of cancellations	18,391	—		(2,438	)	(75		)	75							—
Exercise of stock options	10,000	—							234							234
Share-based compensation									5,133							5,133
Shares redeemed for employee tax withholdings				(1,538	)	(75		)								(75		)
Balance at June 30, 2019	24,711,193	$	247	(2,742,826	)	$	(127,133	)	$	463,190	$	209,882	$	22,175		$	568,361



	Six Months Ended June 30,
	Common Stock					Treasury Stock					Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income			Stockholders’ Equity
	Shares		Amount			Shares		Amount			Additional Paid-In Capital			Retained Earnings			Accumulated Other Comprehensive Income			Stockholders’ Equity
Balance at December 31, 2019	24,603,308		$	247		(2,763,302	)	$	(128,348	)	$	460,781		$	237,849		$	14,936		$	585,465
Comprehensive income														(28,761		)	(10,001		)	(38,762		)
Issuance of common stock in connection with:
Restricted stock awards, net of cancellations	270,126		2			98,310		6,919			(6,921		)							—
Exercise of stock options	26,800		—								646									646
Share-based compensation											16,763									16,763
Shares redeemed for employee tax withholdings						(121,806	)	(7,217		)										(7,217		)
Share repurchases	(313,998	)	(3		)						(20,878		)							(20,881		)
Balance at June 30, 2020	24,586,236		$	246		(2,786,798	)	$	(128,646	)	$	450,391		$	209,088		$	4,935		$	536,014

Balance at December 31, 2018	24,418,252		$	244		(2,671,962	)	$	(124,794	)	$	452,573		$	196,106		$	16,495		$	540,624
Comprehensive income														13,776			5,680			19,456
Issuance of common stock in connection with:
Restricted stock awards, net of cancellations	272,941		3			25,174		2,121			(2,124		)							—
Exercise of stock options	20,000		—								468									468
Share-based compensation											12,273									12,273
Shares redeemed for employee tax withholdings						(96,038	)	(4,460		)										(4,460		)
Balance at June 30, 2019	24,711,193		$	247		(2,742,826	)	$	(127,133	)	$	463,190		$	209,882		$	22,175		$	568,361

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

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HURON CONSULTING GROUP INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)



	Six Months Ended June 30,
	2020			2019
Cash flows from operating activities:
Net income (loss)	$	(28,761	)	$	13,776
Adjustments to reconcile net income (loss) to cash flows from operating activities:
Depreciation and amortization	14,942			17,285
Non-cash lease expense	3,880			4,397
Lease impairment charge	—			805
Share-based compensation	14,527			11,483
Amortization of debt discount and issuance costs	397			5,264
Goodwill impairment charges	59,816			—
Allowances for doubtful accounts	512			170
Deferred income taxes	(15,515		)	—
Loss on sale of business	102			—
Change in fair value of contingent consideration liabilities	—			(876		)
Changes in operating assets and liabilities, net of divestiture:
(Increase) decrease in receivables from clients, net	(339		)	(6,984		)
(Increase) decrease in unbilled services, net	(3,059		)	(22,105		)
(Increase) decrease in current income tax receivable / payable, net	6,546			6,486
(Increase) decrease in other assets	(1,674		)	(4,743		)
Increase (decrease) in accounts payable and other liabilities	(2,787		)	(133		)
Increase (decrease) in accrued payroll and related benefits	(53,420		)	(30,462		)
Increase (decrease) in deferred revenues	6,638			(570		)
Net cash provided by (used in) operating activities	1,805			(6,207		)
Cash flows from investing activities:
Purchases of property and equipment, net	(4,417		)	(6,384		)
Purchases of investment securities	(13,000		)	—
Investment in life insurance policies	(1,540		)	(4,087		)
Capitalization of internally developed software costs	(5,184		)	(4,409		)
Net cash used in investing activities	(24,141		)	(14,880		)
Cash flows from financing activities:
Proceeds from exercises of stock options	646			469
Shares redeemed for employee tax withholdings	(7,217		)	(4,460		)
Share repurchases	(22,115		)	—
Proceeds from bank borrowings	283,000			87,500
Repayments of bank borrowings	(160,263		)	(81,756		)
Payments of contingent consideration liabilities	—			(4,674		)
Net cash provided by (used in) financing activities	94,051			(2,921		)
Effect of exchange rate changes on cash	(107		)	78
Net increase (decrease) in cash and cash equivalents	71,608			(23,930		)
Cash and cash equivalents at beginning of the period	11,604			33,107
Cash and cash equivalents at end of the period	$	83,212		$	9,177
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	$	2,070		$	3,842
Operating lease right-of-use asset obtained in exchange for operating lease liability	$	1,397		$	3,611

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

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HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share amounts)

(Unaudited)

1. Description of Business

Huron is a global consultancy that 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 and six months ended June 30, 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 and our Quarterly Report on Form 10-Q for the period ended March 31, 2020. Our results for any interim period are not necessarily indicative of results for a full year or any other interim period.

Preparation of our consolidated financial statements requires management to make estimates and assumptions that affect the amounts reported in our consolidated financial statements and related disclosures. The business and economic uncertainty resulting from the coronavirus (COVID-19) pandemic has made such estimates and assumptions more difficult to predict. Accordingly, actual results and outcomes could differ from those estimates.

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.

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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 six months ended June 30, 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 June 30, 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 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 we expect it will continue to negatively 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 expected it to have an unfavorable impact on sales, increase uncertainty in the backlog and negatively impact full year 2020 results. 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, which may be considered by our clients to be more discretionary in nature, and the duration of the projects within these practices are typically short-term. Therefore, due to the uncertainty caused by the COVID-19 pandemic, 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, during the first quarter of 2020 we believed that the fair value of these two reporting units no longer exceeded their carrying values and performed an interim impairment test on both reporting units as of March 31, 2020.

Based on the estimated fair values of the Strategy and Innovation and Life Sciences reporting units, we recorded non-cash pretax goodwill impairment charges of $49.9 million and $9.9 million, respectively, 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.

Our goodwill impairment test was performed by comparing the fair value of each of the Strategy and Innovation and Life Sciences reporting units with its respective carrying value 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, with a fifty-fifty weighting.

In the income approach, we utilized a discounted cash flow analysis, which involved estimating the expected after-tax cash flows that will be generated by each reporting unit and then discounting those cash flows to present value, reflecting the relevant risks associated with each reporting unit and the time value of money. This approach requires the use of significant estimates and assumptions, including long-term projections of future cash flows, market conditions, and discount rates that reflects the risk inherent in the future cash flows. In estimating future cash flows, we relied on internally generated seven-year forecasts. For periods after the seven-year forecast, we assumed a long-term annual revenue growth rate of 3.0% for both the Strategy and Innovation and Life Sciences reporting units and a long-term EBITDA margin of 24.8% and 6.7%, respectively. Our forecasts are based on historical experience, current backlog, expected market demand, and other industry information. Our discounted cash flow analysis assumed weighted average cost of capital discount rates of 16.0% and 10.5% for the Strategy and Innovation and Life Sciences reporting units, respectively.

In the market approach, we utilized the guideline company method, which involved calculating valuation revenue multiples based on operating data from guideline publicly traded companies. Multiples derived from guideline companies provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for a company. These multiples were evaluated and adjusted based on specific characteristics of the Strategy and Innovation and Life Sciences reporting units relative to the selected guideline companies and

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HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share amounts)

(Unaudited)

applied to the reporting units' operating data to arrive at an indication of value. The range of revenue multiples used in the valuation of the Strategy and Innovation and Life Sciences reporting units was 1.20x to 1.70x and 0.30x to 0.40x, respectively.

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 as of March 31, 2020, 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.

In the second quarter of 2020, we did not identify any indicators that would lead us to believe that the fair values of any of our reporting units may not exceed their carrying values, nor did we identify any indicators that would lead us to believe that the carrying values of the long-lived assets allocated to our asset groups may not be recoverable.

Intangible Assets

Intangible assets as of June 30, 2020 and December 31, 2019 consisted of the following:



		As of June 30, 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	$	87,072	$	66,358	$	87,577	$	61,882
Trade names	5 to 6	28,930		26,490		28,930		25,894
Technology and software	5	5,440		4,739		5,694		4,321
Non-competition agreements	5	2,220		1,670		2,220		1,447
Customer contracts	2	800		289		800		52
Total		$	124,462	$	99,546	$	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 $4.3 million for the three months ended June 30, 2020 and 2019, respectively; and $6.4 million and $8.8 million for the six months ended June 30, 2020 and 2019. The table below sets forth the estimated annual amortization expense for the intangible assets recorded as of June 30, 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.

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HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share amounts)

(Unaudited)

5. Revenues

For the three months ended June 30, 2020 and 2019, we recognized revenues of $217.9 million and $220.8 million, respectively. Of the $217.9 million recognized in the second quarter of 2020, we recognized revenues of $5.6 million from obligations satisfied, or partially satisfied, in prior periods, of which $4.0 million was primarily due to the release of allowances on unbilled services as a result of securing contract amendments and $1.6 million was due to changes in the estimates of our variable consideration under performance-based billing arrangements. Of the $220.8 million recognized in the second quarter of 2019, we recognized revenues of $3.6 million from obligations satisfied, or partially satisfied, in prior periods, primarily due to the release of allowances on unbilled services due to securing contract amendments. During the second quarter of 2019, we recognized a $0.3 million decrease to revenues due to changes in the estimates of our variable consideration under performance-based billing arrangements.

For the six months ended June 30, 2020 and 2019, we recognized revenues of $440.5 million and $425.2 million, respectively. Of the $440.5 million recognized in the first six months of 2020, we recognized revenues of $10.0 million from obligations satisfied, or partially satisfied, in prior periods, of which $6.2 million was due to changes in the estimates of our variable consideration under performance-based billing arrangements and $3.8 million was primarily due to the release of allowances on unbilled services as a result of securing contract amendments. Of the $425.2 million recognized in the first six months of 2019, we recognized revenues of $2.1 million from obligations satisfied, or partially satisfied, in prior periods, primarily due to the release of allowances on unbilled services due to securing contract amendments. During the first six months of 2019, we recognized a $1.5 million decrease to revenues due to changes in the estimates of our variable consideration under performance-based billing arrangements.

As of June 30, 2020, we had $76.4 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 $76.4 million of performance obligations, we expect to recognize approximately $30.1 million as revenue in 2020, $29.7 million in 2021, and the remaining $16.6 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.

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 June 30, 2020 and December 31, 2019 was $12.7 million and $12.6 million, respectively. The $0.1 million increase 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 June 30, 2020 and December 31, 2019, was $35.0 million and $28.4 million, respectively. The $6.6 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 and six months ended June 30, 2020, $6.8 million and $21.3 million, respectively, of revenues recognized were included in the deferred revenue balance as of December 31, 2019.

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HURON CONSULTING GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Tabular amounts in thousands, except per share amounts)

(Unaudited)

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 June 30,						Six Months Ended June 30,
	2020			2019			2020			2019
Net income (loss) from continuing operations	$	13,572		$	10,569		$	(28,701	)	$	13,919
Income (loss) from discontinued operations, net of tax	(25		)	(97		)	(60		)	(143		)
Net income (loss)	$	13,547		$	10,472		$	(28,761	)	$	13,776

Weighted average common shares outstanding – basic	21,869			21,997			21,848			21,933
Weighted average common stock equivalents	247			403			—			423
Weighted average common shares outstanding – diluted	22,116			22,400