Huron Consulting Group Inc. — Q1 2022 Form 10-Q Summary
Business Context and Reporting Period
Huron is a global professional services firm serving Healthcare, Education, and Commercial clients through Consulting and Managed Services and Digital capabilities. This unaudited filing covers the three months ended March 31, 2022, compared with the three months ended March 31, 2021.
Effective January 1, 2022, Huron reorganized its operating model and began reporting the Healthcare, Education, and Commercial segments. Prior-period segment information was recast for comparability; consolidated results were not affected.
Financial Performance and Liquidity
| Metric | Q1 2022 | Q1 2021 | Change |
|---|---|---|---|
| Revenue | $260.0 million | $203.2 million | Up 28.0% |
| Operating income | $16.0 million | $8.2 million | Up $7.7 million |
| Operating margin | 6.1% | 4.1% | Up 2.0 percentage points |
| Net income | $26.9 million | $5.4 million | Up $21.4 million |
| Diluted EPS | $1.27 | $0.24 | Up $1.03 |
| Adjusted diluted EPS | $0.49 | $0.35 | Up $0.14 |
| Adjusted EBITDA | $22.1 million | $16.5 million | Up $5.7 million |
| Adjusted EBITDA margin | 8.5% | 8.1% | Up 0.4 percentage points |
| Cash flow from operations | $(79.1) million | $(82.8) million | Use improved $3.7 million |
Revenue growth reflected stronger demand across all segments and easier comparisons with the COVID-19-affected first quarter of 2021. Digital revenue increased 35.7% to $109.5 million, while Consulting and Managed Services revenue increased 22.9% to $150.6 million. Utilization rose to 71.4% in Consulting and 72.4% in Digital.
| Segment | Q1 2022 Revenue | Year-over-year growth | Segment margin |
|---|---|---|---|
| Healthcare | $121.9 million | 27.0% | 23.0% |
| Education | $80.7 million | 57.1% | 17.7% |
| Commercial | $57.5 million | 2.9% | 21.2% |
Cash and cash equivalents declined to $9.7 million from $20.8 million at December 31, 2021. Operating cash usage was driven substantially by annual bonus payments and a $35.2 million increase in unbilled services. Investing cash usage was $3.3 million, including $2.3 million for an acquisition and $2.1 million for internally developed software, partially offset by $4.8 million of aircraft-sale proceeds.
Debt totaled $335.0 million at March 31, 2022, compared with $232.8 million at December 31, 2021. Huron borrowed $150.0 million and repaid $47.8 million during the quarter. The senior secured revolving facility matures September 27, 2024, with $264.3 million of unused borrowing capacity and $0.7 million of outstanding letters of credit. The weighted-average borrowing rate, including swaps, was 2.1%.
Material Changes and Unusual Items
- Net income benefited materially from a $27.0 million unrealized gain on the Medically Home preferred stock investment, which increased its carrying value to $33.6 million. Management reported the related after-tax benefit as approximately $19.8 million.
- Reported diluted EPS was $1.27, while adjusted diluted EPS excluding the investment gain and other adjustments was $0.49.
- Huron sold its aircraft, recognized a $1.0 million gain, and repaid the remaining promissory note; it no longer owns an aircraft.
- Restructuring charges increased to $1.6 million from $0.6 million, including vacated-office costs, employee-related expenses, accelerated software amortization, and operating-model transaction expenses.
- Huron completed the AIMDATA acquisition in January 2022. The acquisition was not significant to the consolidated financial statements. The company also recorded $2.3 million of Q1 revenue from the Whiteboard acquisition completed in December 2021.
- Huron repurchased 523,399 shares for $23.9 million and settled an additional $0.2 million of prior-period repurchases. The repurchase authorization was increased to $200 million and extended through December 31, 2023; $106.3 million remained available at quarter-end.
Guidance, Outlook, Risks, and Contingencies
The filing does not provide specific full-year revenue, earnings, or margin guidance. Management stated that demand and the project pipeline strengthened beginning in the second quarter of 2021 and continued into 2022. Its strategy emphasizes growth in Healthcare and Education, expansion in Commercial markets, Digital growth, acquisitions, workforce investment, and shareholder returns.
Management expects approximately $20 million to $25 million of 2022 spending on property and equipment and software development. Management believes internally generated liquidity, cash on hand, and available revolver capacity will support current financing needs and long-term growth.
- Key risks include COVID-19-related economic and client-demand effects, utilization and billing-rate volatility, employee retention and hiring, client renewals, market downturns, acquisitions and integration, cybersecurity and privacy requirements, technology-partner relationships, taxes, and goodwill impairment.
- The credit facility is subject to a maximum consolidated leverage ratio of 3.75 to 1.00, or 4.00 to 1.00 following certain transactions, and a minimum interest coverage ratio of 3.50 to 1.00. Huron was compliant at March 31, 2022, with ratios of 2.24 and 19.08, respectively.
- LIBOR is scheduled to transition away from U.S. dollar tenors after June 30, 2023. The credit agreement and interest-rate swaps provide for transition to a successor rate, but the company was still evaluating related accounting impacts.
- The Oaktree bankruptcy litigation remains unresolved. The bankruptcy court stayed claims against Huron and its chief restructuring officer pending arbitration of state-law claims; potential liability could not be estimated. Management believes the allegations are without merit.
- Remaining performance obligations under engagements with original expected durations longer than one year totaled $89.8 million at March 31, 2022. Huron expects to recognize approximately $35.6 million in 2022, $28.5 million in 2023, and $25.7 million thereafter, subject to timing and variable-consideration changes.
Most Important Facts for Investors to Verify
- Separate underlying operating improvement from the $27.0 million Medically Home fair-value gain; adjusted diluted EPS was $0.49 versus reported diluted EPS of $1.27.
- Assess cash conversion and working-capital needs, particularly the negative $79.1 million operating cash flow and $125.8 million of unbilled services.
- Monitor leverage after debt increased to $335.0 million and evaluate borrowing capacity and covenant headroom.
- Evaluate whether Healthcare and Education growth, utilization gains, and Digital expansion can offset Commercial’s modest 2.9% revenue growth.
- Review the valuation sensitivity and liquidity implications of the Medically Home and Shorelight investments, including Level 3 valuation assumptions for the $62.3 million Shorelight investment.
- Track the Oaktree arbitration and litigation exposure, LIBOR transition, restructuring spending, acquisition integration, and the continued share-repurchase program.