What changed in this filing

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Item 7. Management’s Discussion and Analysis

2021-02-23 compared with 2020-02-26 · 393 added, 240 removed, 426 unchanged (60% of the section changed)

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“ Selected Financial Data, ” and our Consolidated Financial Statements and related notes appearing under Part II—Item 8.

"Financial Statements and Supplementary Data." The following MD&A contains forward-looking statements and involves numerous risks and uncertainties, including, without limitation, those described under Part I—Item 1A.

“ Financial Statements and Supplementary Data.

” The following MD&A contains forward-looking statements and involves numerous risks and uncertainties, including, without limitation, those described under Part I—Item 1A.

“ Risk Factors ” and “ Forward-Looking Statements ” of this Annual Report on Form 10-K.

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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.

By embracing diverse perspectives, encouraging new ideas and challenging the status quo, Huron creates sustainable results for the organizations it serves.

We provide our services and manage our business under three operating segments:

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“Business—Overview—Our Services” and Note 19 “Segment Information” within the notes to our consolidated financial statements for a discussion of our three segments.

Coronavirus (COVID-19)

The worldwide spread of the COVID-19 pandemic in 2020 has created significant volatility, uncertainty and disruption to the global economy.

This pandemic has had an unfavorable impact on aspects of our business, operations, and financial results, and has caused us to significantly change the way we operate.

Near the end of the first quarter of 2020, we suspended almost all business travel and our employees began working from their homes.

While traditionally a majority of the work performed by our revenue-generating professionals occurred at client sites, the nature of the services we provide and enhanced available technology allows our revenue-generating professionals to effectively serve clients in a remote work environment.

As state and local governments ease their restrictions, we continue to refine our comprehensive plan to return to our offices and client sites with our people’s safety and the needs of our clients guiding how we implement our phased transition.

As of December 31, 2020, our employees continue to primarily work from their homes.

In each of our operating segments, we are working closely with our clients to support them and their ongoing business needs and provide relevant services to address their needs caused by the COVID-19 pandemic.

However, as some clients reprioritized and delayed projects as a result of the pandemic, demand for certain offerings has been negatively impacted, particularly within our Healthcare and Education segments.

Revenues in the first half of 2020 increased 3.6% compared to the same prior year period, while revenues in the second half of 2020 declined 10.6% compared to the same prior year period, resulting in a full year revenue decline of 3.7% in 2020 compared to full year 2019.

In addition to the impact on 2020 revenues, the COVID-19 pandemic negatively impacted sales and elongated the sales cycle for new opportunities for certain services, particularly within our Healthcare and Education segments.

Given the uncertainties around the duration of the COVID-19 pandemic, we continue to remain cautious about revenue growth for the first half of 2021.

The COVID-19 pandemic has strengthened demand for other services we provide, such as our cloud-based technology and analytics solutions within our Business Advisory segment and our restructuring and capital advisory solutions provided to organizations in transition also within our Business Advisory segment.

In order to support our liquidity during the COVID-19 pandemic, we took proactive measures to increase available cash on hand including, but not limited to, borrowing under our senior secured credit facility in the first quarter of 2020 and reducing discretionary operating and capital spending.

In each quarter subsequent to the first quarter of 2020, we made repayments on our borrowings to reduce our total debt outstanding due to our ability to maintain adequate cash flows from operations and improved clarity around access to capital resources.

To further support our liquidity during the COVID-19 pandemic, we elected to defer the deposit of our employer portion of social security taxes beginning in April 2020 and through the end of the year, which we expect to pay in equal installments in the fourth quarters of 2021 and 2022, as provided for under the Coronavirus Aid, Relief, and Economic Security Act (“CARES”) Act.

See the “Liquidity and Capital Resources” section below for additional information on these items.

Fourth Quarter 2020 Restructuring Plan

In the fourth quarter of 2020, we announced a restructuring plan to reduce operating costs to address the impact of the COVID-19 pandemic on our business.

The restructuring plan, which was substantially complete in the fourth quarter of 2020, provided for a reduction in certain

leased office spaces and a reduction in workforce of approximately 125 employees;

and resulted in an aggregate restructuring charge, including non-cash lease impairment charges, of $18.7 million.

The reduction in leased office spaces includes a portion of our principal executive office in Chicago, Illinois, as well as certain other office space in the U.S, which resulted in the recognition of $13.2 million of non-cash lease impairment charges on the related operating lease right-of-use (“ROU”) assets and fixed assets that we intend to sublease, as well as $0.7 million of accelerated amortization and depreciation on the related operating lease ROU assets and fixed assets we intend to abandon.

The reduction in workforce resulted in a $4.8 million restructuring charge related to cash employee severance costs;

of which $2.0 million related to our Education segment, $1.2 million related to our Healthcare segment, $1.0 million related to our Business Advisory segment, and $0.6 million related to our corporate operations.

We do not expect to incur additional significant employee severance costs or non-cash lease impairment charges in 2021 related to the fourth quarter 2020 restructuring plan.

However, any significant decline in the estimated amount or delayed timing of sublease income used in the calculation of each non-cash lease impairment charge could result in additional non-cash lease impairment charges through the end of the lease terms.

We expect approximately $2.5 million of ongoing lease-related costs to be reflected as restructuring charges in 2021.

As a result of the reduction in workforce, we expect to realize annualized savings of approximately $21.0 million related to employee salaries and related benefits.

As a result of the reduction in leased office space, we expect to realize annualized savings of approximately $1.0 million in lease-related expense.

First Quarter 2020 Goodwill Impairment Charges

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, at the onset of the the COVID-19 pandemic in the U.S.

and due to the uncertainty caused by the pandemic, we were 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 it was more likely than not that the fair value of these two reporting units no longer exceeded their carrying values and performed an interim goodwill impairment test on both reporting units.

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.

The non-cash goodwill impairment charge related to the Strategy and Innovation reporting unit reduced the goodwill balance of the reporting unit to $37.5 million as of March 31, 2020.

The non-cash goodwill impairment charge related to the Life Sciences reporting unit reduced the goodwill balance to zero as of March 31, 2020.

During the same time, we did not identify any indicators that would lead us to believe that the fair values of our Healthcare, Education, and Business Advisory reporting units would not exceed their carrying values.

Additionally, during the second and third quarters of 2020, we did not identify any indicators that would lead us to believe that the fair values of our reporting units would not exceed their carrying values.

Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2020 on all reporting units with goodwill balances and concluded that the fair value of all reporting units exceeded their carrying values.

See the “Critical Accounting Policies” section below and Note 4 “Goodwill and Intangible Assets” within the notes to our consolidated financial statements for additional information on the goodwill impairment tests performed in 2020.

Enterprise Resource Planning System Implementation

In the fourth quarter of 2019, we began the implementation of a new cloud-based enterprise resource planning (“ERP”) system designed to improve the efficiency of our internal finance, human resources, resource planning, and administrative operations.

In January 2021, we successfully went live with the new ERP system, and we continue to progress with additional functionality and integrations as scheduled.

The implementation progressed on schedule and has not been significantly impacted by the COVID-19 pandemic due to the ability of our implementation team to work and collaborate remotely and the enhanced technology and cloud-based nature of our new ERP system.

We believe our investment in this new system will position our teams to drive efficiencies and provide more robust management reporting and data analytics to support future growth and the goals and vision of the company.

See Part II, Item 1A.

“Risk Factors” of this Annual Report on Form 10-K for additional information on the potential impact the COVID-19 pandemic could have on our business, operations and financial results.

How We Generate Revenues

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Full-time equivalent professionals consist of our coaches and their support staff from our Culture and Organizational Excellence solution, consultants who work variable schedules as needed by our clients, employees who provide managed services in our Healthcare segment, and our employees who provide software support and maintenance services to our clients.

We translate the hours that these other professionals work on client engagements into a full-time equivalent measure that we use to manage our business.

We translate the hours that these other professionals work on client engagements into a full-time

equivalent measure that we use to manage our business.

We refer to our full-time consultants and other professionals collectively as revenue-generating professionals.

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Often, performance-based fees supplement our time-and-expense or fixed-fee engagements.

Effective January 1, 2018, we adopted ASC 606, Revenue from Contracts with Customers , on a modified retrospective basis and began recognizing revenues under performance-based billing arrangements by estimating the amount of variable consideration that is probable of being earned and recognizing that estimate over the length of the contract using a proportionate performance approach.

Prior to adopting ASC 606 in 2018, we recognized revenues under performance-based billing arrangements when all related performance criteria were met.

We recognize revenues under performance-based billing arrangements by estimating the amount of variable consideration that is probable of being earned and recognizing that estimate over the length of the contract using a proportionate performance approach.

Performance-based fee revenues represented 9.2%, 8.9%, and 6.1% of our revenues in 2020, 2019, and 2018, respectively.

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For example, during the third and fourth quarters of the year, vacations taken by our clients can result in the deferral of activity on existing and new engagements, which would negatively affect our utilization rate.

The number of business work days is also affected by the number of vacation days taken by our consultants and holidays in each quarter.

The number of business work days is also affected by the number of vacation days taken by our consultants and holidays in

each quarter.

We typically have fewer business work days available in the fourth quarter of the year, which can impact revenues during that period.

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Our most significant expenses are costs classified as total direct costs.

These total direct costs primarily include salaries, performance bonuses, signing and retention bonuses, payroll taxes, and benefits for revenue-generating professionals, as well as commissions, technology costs, product and event costs, and fees paid to independent contractors that we retain to supplement our revenue-generating professionals, typically on an as-needed basis for specific client engagements.

These total direct costs primarily include salaries, performance bonuses, signing and retention bonuses, payroll taxes, and benefits for revenue-generating professionals, as well as technology costs, product and event costs, commissions, and fees paid to independent contractors that we retain to supplement our revenue-generating professionals, typically on an as-needed basis for specific client engagements.

Direct costs also include share-based compensation, which represents the cost of restricted stock and performance-based share awards granted to our revenue-generating professionals.

Compensation expense for restricted stock awards and performance-based share awards is recognized ratably using either the straight-line attribution method or the graded vesting attribution method, as appropriate, over the requisite service period, which is generally three to four years.

Total direct costs also include amortization of intangible assets, primarily relating to certain customer relationships, technology and software, and customer contracts acquired in business combinations, and internally developed software costs.

Total direct costs also include amortization of internally developed software costs and intangible assets primarily related to technology and software, certain customer relationships, and customer contracts acquired in business combinations.

Operating Expenses and Other Losses (Gains), Net

Our operating expenses include selling, general and administrative expenses, which consist primarily of salaries, performance bonuses, payroll taxes, benefits, and share-based compensation for our support personnel.

Also included in selling, general and administrative expenses is rent and other office related expenses, sales and marketing related expenses, professional fees, recruiting and training expenses, and practice administration and meetings expenses.

Also included in selling, general and administrative expenses is rent and other office related expenses, referred to as facilities expenses;

sales and marketing related expenses;

professional fees;

recruiting and training expenses;

and practice administration and meetings expenses.

Other operating expenses include restructuring charges, other gains and losses, depreciation and certain amortization expenses not included in total direct costs.

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Unallocated costs include corporate costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment.

These administrative function costs

include corporate office support costs, office facility costs, costs relating to accounting and finance, human resources, legal, marketing, information technology, and company-wide business development functions, as well as costs related to overall corporate management.

These administrative function costs include corporate office support costs, office facility costs, costs relating to accounting and finance, human resources, legal, marketing, information technology, and company-wide business development functions, as well as costs related to overall corporate management.

RESULTS OF OPERATIONS

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Year Ended December 31,

2020 2019 2018

Segment and Consolidated Operating Results (in thousands):

Revenues $ 353,437 $ 399,221 $ 364,763

Operating income $ 94,925 $ 125,724 $ 108,060

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Business Advisory:

Revenues $ 267,361 $ 252,508 $ 236,185

Operating income $ 48,046 $ 49,695 $ 50,625

Segment operating income as a percentage of segment revenues 18.0 % 19.7 % 21.4 %

Revenues $ 223,329 $ 225,028 $ 194,177

Operating income $ 47,503 $ 55,741 $ 48,243

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Total Company:

Revenues $ 844,127 $ 876,757 $ 795,125

Reimbursable expenses 26,887 88,717 82,874

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Other operating expenses 135,255 140,285 122,276

Litigation and other losses (gains), net

Litigation and other gains, net (150) (1,196) (2,019)

Depreciation and amortization 24,405 28,365 34,575

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Earnings (loss) per share from continuing operations

Basic $ (1.08) $ 1.91 $ 0.64

Diluted $ (1.08) $ 1.87 $ 0.63

Year Ended December 31,

2020 2019 2018

Other Operating Data:

Number of full-time billable consultants (at period end) (2) :

Healthcare 820 890 813

Business Advisory 1,051 930 813

Education 737 756 621

Total 2,608 2,576 2,247

Average number of full-time billable consultants (for the period) (2) :

Healthcare 863 849 807

Business Advisory 962 892 769

Education 775 686 589

Total 2,600 2,427 2,165

Full-time billable consultant utilization rate (3) :

Healthcare 69.0 % 79.4 % 81.7 %

Business Advisory 72.4 % 72.5 % 73.8 %

Education 70.3 % 76.8 % 76.6 %

Total 70.7 % 76.1 % 77.5 %

Full-time billable consultant average billing rate per hour (4) :

Healthcare $ 246 $ 231 $ 209

Business Advisory (5)

$ 195 $ 201 $ 215

Education $ 187 $ 199 $ 202

$ 208 $ 211 $ 209

Revenue per full-time billable consultant (in thousands):

Healthcare $ 295 $ 331 $ 307

Business Advisory $ 264 $ 273 $ 293

Education $ 247 $ 285 $ 289

Total $ 269 $ 297 $ 297

Average number of full-time equivalents (for the period) (6) :

Healthcare 278 244 219

Business Advisory 30 14 22

Education 52 47 39

Total 360 305 280

Revenue per full-time equivalent (in thousands):

Healthcare $ 356 $ 485 $ 536

Business Advisory $ 455 $ 655 $ 484

Education $ 618 $ 617 $ 601

Total $ 402 $ 513 $ 541

(1) The non-cash goodwill impairment charges are not allocated at the segment level because the underlying goodwill asset is reflective of our corporate investment in the segments.

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We also assess our results of operations using certain non-GAAP financial measures.

These non-GAAP financial measures differ from GAAP because the non-GAAP financial measures we calculate to measure earnings (loss) before interest, taxes, depreciation and amortization ("EBITDA"), adjusted EBITDA, adjusted EBITDA as a percentage of revenues, adjusted net income from continuing operations, and adjusted diluted earnings per share from continuing operations exclude a number of items required by GAAP, each discussed below.

These non-GAAP financial measures differ from GAAP because the non-GAAP financial measures we calculate to measure earnings before interest, taxes, depreciation and amortization (“EBITDA”), adjusted EBITDA, adjusted EBITDA as a percentage of revenues, adjusted net income from continuing operations, and adjusted diluted earnings per share from continuing operations exclude a number of items required by GAAP, each discussed below.

These non-GAAP financial measures should be considered in addition to, and not as a substitute for or superior to, any measure of performance, cash flows, or liquidity prepared in accordance with GAAP.

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Year Ended December 31,

2020 2019 2018

Revenues $ 844,127 $ 876,757 $ 795,125

Net income (loss) from continuing operations $ (23,718) $ 41,979 $ 13,944

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Depreciation and amortization 29,644 33,740 38,822

Earnings (loss) before interest, taxes, depreciation and amortization (EBITDA)

Restructuring charges

Litigation and other losses (gains), net

Earnings before interest, taxes, depreciation and amortization (EBITDA) 5,063 101,879 83,056

Restructuring and other charges 21,374 1,855 3,657

Litigation and other gains, net (150) (1,196) (2,019)

Transaction-related expenses 1,132 2,680 —

Goodwill impairment charges 59,816 — —

Other non-operating expense (income), net

Unrealized gain on preferred stock investment (1,667) — —

Losses on sales of businesses 1,603 — 5,807

Foreign currency transaction losses (gains), net (31) 160 475

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Year Ended December 31,

2020 2019 2018

Net income (loss) from continuing operations $ (23,718) $ 41,979 $ 13,944

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Amortization of intangible assets 12,696 17,793 23,955

Restructuring charges

Litigation and other losses (gains), net

Restructuring and other charges 21,374 1,855 3,657

Litigation and other gains, net (150) (1,196) (2,019)

Transaction-related expenses 1,132 2,680 —

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Non-cash interest on convertible notes — 6,436 8,232

Other non-operating expense (income), net

Unrealized gain on preferred stock investment (1,667) — —

Losses on sales of businesses 1,603 — 5,807

Tax effect of adjustments (23,199) (7,200) (9,487)

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Amortization of intangibles is inconsistent in its amount and frequency and is significantly affected by the timing and size of our acquisitions.

Restructuring charges:

We have incurred charges due to the restructuring of various parts of our business.

These restructuring charges have primarily consisted of costs associated with office space consolidations, including lease impairment charges and accelerated depreciation on lease-related property and equipment, and severance charges.

We have excluded the effect of the restructuring charges from our non-GAAP measures because the amount of each restructuring charge is significantly affected by the timing and size of the restructured business or component of a business.

Litigation and other losses (gains), net:

We have excluded the effects of litigation and other losses (gains), net which primarily consist of net remeasurement losses and gains related to contingent acquisition liabilities and litigation settlement losses and gains to permit comparability with periods that were not impacted by these items.

Restructuring and other charges:

We have incurred charges due to the restructuring of various parts of our business, including the restructuring plan announced in the fourth quarter of 2020 to reduce operating costs to address the impact of the COVID-19 pandemic on our business.

Restructuring charges have primarily consisted of costs associated with office space consolidations, including lease impairment charges and accelerated depreciation on lease-related property and equipment, and severance charges.

Additionally, we have excluded the effect of a $0.8 million one-time charge incurred during the first quarter of 2020 related to redundant administrative costs in our corporate operations which is recorded within selling, general and administrative expenses on our consolidated statement of operations.

We have excluded the effect of the restructuring charges and other charges from our non-GAAP measures to permit comparability with periods that were not impacted by these items.

Litigation and other gains, net:

We have excluded the effects of litigation and other gains, net which primarily consist of net remeasurement gains related to contingent acquisition liabilities and litigation settlement losses and gains to permit comparability with periods that were not impacted by these items.

Transaction-related expenses:

To permit comparability with prior periods, we excluded the impact of transaction-related expenses for acquisitions, whether or not ultimately consummated, and which primarily relate to third-party legal and accounting fees.

The transaction-related expenses incurred in 2019 primarily related to the evaluation of a potential acquisition that ultimately did not consummate.

To permit comparability with prior periods, we excluded the impact of third-party legal and accounting fees incurred in 2020 related to the acquisitions of ForceIQ, Inc., which closed effective November 1, 2020, and Unico Solution, Inc., which closed effective February 1, 2021.

See Note 3 “Acquisitions” within the notes to our consolidated financial statements and the “Subsequent Event” section below for additional information on these acquisitions.

We also excluded the impact of third-party legal and accounting fees incurred in 2019 related to the evaluation of a potential acquisition that ultimately did not consummate.

Goodwill impairment charges:

We have excluded the effect of the goodwill impairment charges that occurred in 2017 as these are infrequent events and their exclusion permits comparability with periods that were not impacted by such charges.

We excluded the effect of the goodwill impairment charges recognized in the first quarter of 2020 as these are infrequent events and their exclusion permits comparability with periods that were not impacted by such charges.

Non-cash interest on convertible notes:

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The value of the equity conversion component was treated as a debt discount and amortized to interest expense over the life of the Convertible Notes using the effective interest rate method.

We exclude this non-cash interest expense that does not represent cash interest payments from the calculation of adjusted net income from continuing operations as management believes that this non-cash expense is not indicative of the ongoing performance of our business.

Other non-operating expense (income), net:

We have excluded the effects of other non-operating income and expense items as they are infrequent, management believes that these items are not indicative of the ongoing performance of our business, and their exclusion permits comparability with periods that were not impacted by such items.

The other non-operating expense for 2018 consists of the loss on the sale of the Middle East practice within the Business Advisory segment in 2018.

The other non-operating income for 2017 is primarily attributable to a $0.9 million gain on the sale of our Life Sciences C&O practice, partially offset by a $0.3 million remeasurement loss recorded on a promissory note that was amended in 2017.

We excluded this non-cash interest expense that does not represent cash interest payments from the calculation of adjusted net income from continuing operations as management believes that this non-cash expense is not indicative of the ongoing performance of our business.

Unrealized gain on preferred stock investment:

We have excluded the effect of an unrealized gain recognized in 2020 related to the fair value of our preferred stock investment in Medically Home Group, Inc.

(“Medically Home”), which is included as a component of other income (expense), net, as management believes that this gain is not indicative of the ongoing performance of our business and its exclusion permits comparability with prior periods.

See Note 13 “Fair Value of Financial Instruments” within the notes to our consolidated financial statements for additional information on our preferred stock investment in Medically Home.

Losses on sales of businesses:

We have excluded the effect of non-operating losses recognized as a result of sales of businesses as they are infrequent, management believes that these items are not indicative of the ongoing performance of our business, and their exclusion permits comparability with periods that were not impacted by such items.

The 2020 loss primarily relates to the sale of our U.K.

life sciences drug safety practice within the Business Advisory segment in the fourth quarter of 2020;

and the 2018 loss relates to the sale of our Middle East practice within the Business Advisory segment in the second quarter of 2018.

Foreign currency transaction losses (gains), net:

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federal return to provision adjustments related to 2017 Tax Reform items on our 2017 corporate tax return.

The tax expense for 2017 was primarily due to the remeasurement of net deferred tax balances at the lower federal income tax rate, additional one-time income tax expense related to the transition tax on accumulated foreign earnings, and withholding tax on outside basis differences due to our change in assertion for permanent reinvestment.

The exclusion of the 2017 Tax Reform permits comparability with periods that were not impacted by this item.

The exclusion of the 2017 Tax Reform impact permits comparability with periods that were not impacted by this item.

Tax benefit related to "check-the-box" election:

We have excluded the positive impacts of tax benefits related to our "check-the-box" elections.

The tax benefit recorded in 2019 was the result of recognizing a previously unrecognized tax benefit due to the expiration of statute of limitations on our "check-the-box" election made in 2015 to treat certain wholly-owned foreign subsidiaries as disregarded entities for U.S.

federal income tax purposes.

The tax benefit recorded in 2017 was the result of recognizing a previously unrecognized tax benefit from our "check-the-box" election made in 2014 to treat one of our wholly-owned foreign subsidiaries as a disregarded entity for U.S.

We have excluded the positive impact of a tax benefit, recorded in the third quarter of 2019, from recognizing a previously unrecognized tax benefit due to the expiration of statute of limitations on our “check-the-box” election made in 2015 to treat certain wholly-owned foreign subsidiaries as disregarded entities for U.S.

federal income tax purposes.

The exclusion of these discrete tax benefits permit comparability with periods that were not impacted by this item.

Refer to Note 17 “Income Taxes” within the notes to the consolidated financial statements for additional information on our "check-the-box" elections.

The exclusion of this discrete tax benefit permits comparability with periods that were not impacted by this item.

Refer to Note 17 “Income Taxes” within the notes to the consolidated financial statements for additional information.

Income tax expense, Interest expense, net of interest income, Depreciation and amortization:

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Year Ended December 31, 2020 Compared to Year Ended December 31, 2019

Revenues increased $81.6 million , or 10.3% , to $876.8 million for the year ended December 31, 2019 , from $795.1 million for the year ended December 31, 2018 .

Of the overall $81.6 million increase in revenues, $76.9 million was driven by our full-time billable consultants and $4.7 million was driven by our full-time equivalents.

The increase in full-time billable consultant revenues was attributable to strengthened demand for services in all of our segments, as discussed below in Segment Results, and reflected an increase in the average number of full-time billable consultants in 2019 compared to 2018.

The increase in full-time equivalent revenues was attributable to increases in full-time equivalent revenues in our Education and Healthcare segments, partially offset by a decrease in full-time equivalent revenues in our Business Advisory segment, as discussed below in Segment Results;

and reflected an overall increase in the average number of full-time equivalents, partially offset by an overall decrease in revenue per full-time equivalent.

Revenues decreased $32.6 million, or 3.7%, to $844.1 million for the year ended December 31, 2020, from $876.8 million for the year ended December 31, 2019.

Revenues in 2020 were negatively impacted by the COVID-19 pandemic as some clients reprioritized or delayed certain projects, primarily in our Healthcare and Education segments.

Conversely, the COVID-19 pandemic strengthened demand for other services we provide, such as our cloud-based technology and analytics solutions within our Business Advisory segment and our restructuring and capital advisory solutions provided to organizations in transition in our Business Advisory segment.

Of the overall $32.6 million decrease in revenues, $20.3 million was attributable to our full-time billable consultants and $12.3 million was attributable to our full-time equivalents.

The decrease in full-time billable consultant revenues was attributable to decreased demand for services in our Healthcare and Education segments, partially offset by strengthened demand for services in our Business Advisory segment, as discussed below in Segment Results.

The overall decrease in full-time billable consultant revenues reflected overall decreases in the consultant utilization rate and average billing rate, partially offset by an overall increase in the average number of full-time billable consultants in 2020 compared to 2019.

The decrease in full-time equivalent revenues was attributable to a decrease in full-time equivalent revenues in our Healthcare segment, partially offset by increases in full-time equivalent revenues in our Business Advisory and Education segments, as discussed below in Segment Results;

and reflected an overall decrease in revenue per full-time equivalent, partially offset by an overall increase in the average number of full-time equivalents.

In 2020, the COVID-19 pandemic negatively impacted sales and elongated the sales cycle for new opportunities for certain services, particularly within our Healthcare and Education segments where some clients reprioritized or delayed certain projects.

Given the uncertainties around the duration of the COVID-19 pandemic, we continue to remain cautious about revenue growth in the first half of 2021.

The COVID-19 pandemic has caused the need for many companies to accelerate their digital transformation to drive operational efficiencies, better engage with their customers, and make better data-driven decisions.

This has resulted in strong demand for our digital, technology and analytic offerings, particularly within our Business Advisory segment.

Indicative of our expectations for future growth in this segment, we continue to make investments in these offerings, both organically and through strategic acquisitions, such as our acquisitions of ForceIQ in November 2020 and Unico Solutions in February 2021, and new offerings and capabilities within this segment where we see strategic opportunities.

Total Direct Costs

Our total direct costs, including amortization of intangible assets and software development costs, increased $55.2 million , or 10.5% , to $581.0 million for the year ended December 31, 2019 from $525.8 million for the year ended December 31, 2018 .

The overall $55.2 million increase in direct costs primarily related to a $32.2 million increase in salaries and related expenses for our revenue-generating professionals, which was largely driven by increased headcount in all of our segments;

a $15.7 million increase in performance bonus expense for our revenue-generating professionals;

a $3.2 million increase in contractor expense;

and a $2.3 million increase in share-based compensation expense for our revenue-generating professionals.

As a percentage of revenues, our total direct costs increased to 66.3% during 2019 compared to 66.1% during 2018 , primarily due to the increase in performance bonus expense for our revenue-generating professionals as a percentage of revenues, largely offset by revenue growth that outpaced the increase in salaries and related expenses for our revenue-generating professionals.

Total direct costs for the year ended December 31, 2019 included $5.4 million of amortization expense for internal software development costs and intangible assets, compared to $4.2 million of amortization expense in 2018 .

The $1.1 million increase in amortization expense was primarily attributable to a $1.4 million increase in amortization of internal software development costs, partially offset by a $0.2 million decrease in intangible asset amortization attributable to certain intangible assets acquired in our Studer Group acquisition which were fully amortized in prior periods.

Intangible asset amortization included within direct costs for the years ended December 31, 2019 and 2018 related to technology and software, certain customer relationships, publishing content and customer contracts acquired in connection with our business acquisitions.

See Note 3 "Acquisitions" and Note 4 "Goodwill and Intangible Assets" within the notes to our consolidated financial statements for additional information about our intangible assets.

Operating Expenses and Other Losses (Gains), Net

Selling, general and administrative expenses increased $22.1 million , or 12.2% , to $203.1 million for the year ended December 31, 2019 , compared to $181.0 million for the year ended December 31, 2018 .

The overall increase of $22.1 million was primarily related to a $10.9 million increase in salaries and related expenses for our support personnel;

a $4.5 million increase in data hosting and software related expenses;

a $2.7 million increase in share-based compensation expense for our support personnel;

a $2.4 million increase in legal expenses;

a $1.7 million increase in performance bonus expense for our support personnel;

and a $1.3 million increase in promotion and marketing expenses.

These increases were partially offset by a $2.2 million decrease in facilities expense.

The increases in share-based compensation expense and performance bonus expense for our support personnel were largely driven by overall improved company-wide performance.

The increase in legal expenses was primarily due to third-party transaction-related expenses related to the evaluation of a potential acquisition that ultimately did not consummate.

As a percentage of revenues, selling, general and administrative expenses increased to 23.2% during 2019 compared to 22.8% during 2018 , primarily due to the items described above.

Direct costs, excluding amortization of intangible assets and software development costs, increased $16.8 million, or 2.9%, to $592.4 million for the year ended December 31, 2020 from $575.6 million for the year ended December 31, 2019.

The overall $16.8 million increase in direct costs primarily related to a $27.1 million increase in salaries and related expenses for our revenue-generating professionals, which was largely driven by increased headcount in all of our segments and primarily reflected hiring that occurred prior to the COVID-19 pandemic, as well as a $2.9 million increase in technology expenses and a $2.3 million increase in share-based compensation expense for our revenue-generating professionals.

These increases were partially offset by an $8.0 million decrease in performance bonus expense for our revenue-generating professionals, a $4.5 million decrease in signing, retention and other bonus expense for our revenue-generating professionals, and a $2.3 million decrease in product and event costs.

As a percentage of revenues, our direct costs increased to 70.2% during 2020 compared to 65.7% during 2019, primarily due to the increase in salaries and related expenses for our revenue-generating professionals, partially offset by the decrease in performance bonus expense for our revenue-generating professionals, as a percentage of revenues.

Total direct costs included $5.4 million of amortization expense for internal software development costs and intangible assets for both years ended December 31, 2020 and 2019.

Intangible asset amortization included within total direct costs related to technology and software, certain customer relationships, and customer contracts acquired in connection with our business acquisitions.

See Note 4 “Goodwill and Intangible Assets” within the notes to our consolidated financial statements for additional information on our intangible assets.

Operating Expenses and Other Gains, Net

Selling, general and administrative expenses decreased $32.4 million, or 15.9%, to $170.7 million for the year ended December 31, 2020, compared to $203.1 million for the year ended December 31, 2019.

The $32.4 million decrease primarily related to an $11.9 million decrease in promotion and marketing expenses, a $5.1 million decrease in performance bonus expense for our support personnel, a $3.2 million decrease in training expenses, a $3.2 million decrease in practice administration and meetings expenses, a $2.3 million decrease in facilities expenses, a $2.2 million decrease in third-party consulting expenses, a $1.8 million decrease in recruiting expenses, a $1.7 million decrease in share-based compensation expense for our support personnel, and a $1.1 million decrease in legal expenses.

The decreases in promotion and marketing expenses, training expenses, practice administration and meetings expenses, and recruiting expenses primarily related to the cancellation or delay of in-person meetings and events and business travel due to the COVID-19 pandemic.

The decrease in share-based compensation expense primarily related to a decrease in the expected funding of performance-based share awards for executive officers.

The decrease in legal expenses was primarily due to third-party transaction-related expenses related to the evaluation of a potential acquisition in the second quarter of 2019 that ultimately did not consummate.

As a percentage of revenues, selling, general and administrative expenses decreased to 20.2% during 2020 compared to 23.2% during 2019, primarily due to the decreases in promotion and marketing expenses, performance bonus expense for our support personnel and training expenses, all as percentages of revenues.

Restructuring charges for the year ended December 31, 2020 totaled $20.5 million, compared to $1.9 million for the year ended December 31, 2019.

During 2019, we exited a portion of our Lake Oswego, Oregon office resulting in a $0.7 million lease impairment charge on the related operating lease right-of-use (“ROU”) asset and leasehold improvements and $0.2 million of accelerated depreciation on furniture and fixtures in that office.

The lease impairment charge was recognized in accordance with ASC 842, Leases , which we adopted on a modified retrospective basis on January 1, 2019.

See Note 2 “Summary of Significant Accounting Policies” within the notes to our consolidated financial statements for additional information on our adoption of ASC 842.

See Note 5 “Leases” within the notes to our consolidated financial statements for additional information on the long-lived asset impairment test performed in 2019.

In the fourth quarter of 2020, we announced a restructuring plan to reduce operating costs to address the impact of the COVID-19 pandemic on our business.

The restructuring plan provided for a reduction in certain leased office spaces which included a portion of our principal executive office in Chicago, Illinois;

the remaining portion of our Lake Oswego, Oregon office;

our Boston, Massachusetts and Detroit, Michigan offices;

and portions of our Denver, Colorado, New York City, New York, and Pensacola, Florida offices.

As a result, we recognized $13.2 million of non-cash lease impairment charges on the related operating lease right-of-use (“ROU”) assets and fixed assets which we intend to sublease, and $0.7 million of accelerated amortization and depreciation on the related operating lease ROU assets and fixed assets we intend to abandon.

The non-cash lease impairment charges include an estimate of future sublease income.

Any significant decline in the estimated amount or delayed timing of sublease income could result in additional non-cash lease impairment charges.

See Note 5 “Leases” within the notes to our consolidated financial statements for additional information on our leases.

The restructuring plan announced in the fourth quarter of 2020 also included a reduction in workforce, which resulted in a $4.8 million restructuring charge for employee severance costs;

As of December 31, 2020, $2.4 million of the $4.8 million restructuring charge related to employee severance costs remained outstanding and is expected to be paid in the first quarter of 2021.

We expect approximately $2.5 million of ongoing lease-related costs to be reflected as restructuring charges in 2021.

result of the reduction in workforce, we expect to realize annualized savings of approximately $21.0 million related to employee salaries and related benefits.

As a result of the reduction in leased office space, we expect to realize annualized savings of approximately $1.0 million in lease-related expense.

Additional restructuring charges recognized in 2020 include a $1.2 million accrual for the termination of a third-party advisor agreement in our Business Advisory segment and $0.4 million related to workforce reductions completed prior to the fourth quarter of 2020 to better align resources with market demand.

During 2019, we exited a portion of our Lake Oswego, Oregon office resulting in a $0.7 million lease impairment charge on the related operating lease ROU asset and leasehold improvements and $0.2 million of accelerated depreciation on furniture and fixtures in that office.

Additionally, during 2019, we exited the remaining portion of our Middleton, Wisconsin office and an office space in Houston, Texas, resulting in restructuring charges of $0.4 million and $0.1 million, respectively, which primarily related to accelerated depreciation on related furniture and fixtures in those offices.

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As a result of the amendment, we recognized a restructuring gain of $0.4 million.

See Note 5 “Leases” for additional information on the amendment.

Additional restructuring charges during 2019 include $0.6 million related to workforce reductions as we continue to better align resources with market demand and workforce reductions in our corporate operations.

The $3.7 million of restructuring charges in 2018 primarily consisted of $2.1 million related to workforce reductions to better align resources with market demand;

$0.8 million related to the accrual of remaining lease payments, net of estimated sublease income, and accelerated depreciation on leasehold improvements due to exiting a portion of our Middleton, Wisconsin office;

$0.4 million related to updated lease assumptions and commission costs for our San Francisco office vacated in 2017;

and $0.3 million related to the divestiture of our Middle East practice within the Business Advisory segment.

During the second quarter of 2018, we sold our Middle East business to a former employee who was the practice leader of that business at the time.

The office exit costs incurred in 2018 were accounted for in accordance with ASC 840, Leases.

See Note 11 “Restructuring Charges” within the notes to our consolidated financial statements for further discussion of our restructuring expenses.

Litigation and other losses (gains), net totaled to a net gain of $1.2 million for the year ended December 31, 2019 , which primarily consisted of $1.5 million of remeasurement gains to decrease the estimated fair value of our liabilities for contingent consideration payments related to business acquisitions, partially offset by a $0.4 million litigation loss accrual related to a legal claim that was subsequently settled during the first quarter of 2020.

Litigation and other losses (gains), net totaled a net gain of $2.0 million for the year ended December 31, 2018 , which primarily consisted of a $2.5 million litigation settlement gain for the resolution of Huron's claim in a class action lawsuit, partially offset by $0.4 million of net remeasurement losses to increase the estimated fair value of our contingent consideration liabilities related to business acquisitions.

See Note 5 “Leases” within the notes to our consolidated financial statements for additional information on our leases.

Additional restructuring charges during 2019 included $0.6 million related to workforce reductions to better align resources with market demand and workforce reductions in our corporate operations.

See Note 11 “Restructuring Charges” within the notes to our consolidated financial statements for additional information on our restructuring events.

Litigation and other gains, net totaled a gain of $0.2 million for the year ended December 31, 2020, which consisted of a litigation settlement gain for the resolution of a claim that was settled in the first quarter of 2020.

Litigation and other gains, net totaled a net gain of $1.2 million for the year ended December 31, 2019, which primarily consisted of $1.5 million of remeasurement gains to decrease the estimated fair value of our liabilities for contingent consideration payments related to business acquisitions, partially offset by a $0.4 million litigation loss accrual related to the legal claim that was subsequently settled during the first quarter of 2020.

In connection with certain business acquisitions, we may be required to pay post-closing consideration to the sellers if specific financial performance targets are met over a number of years as specified in the related purchase agreements.

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Depreciation and amortization expense decreased $4.1 million, or 14.4%, to $24.3 million for the year ended December 31, 2020, from $28.4 million for the year ended December 31, 2019.

The decrease was primarily attributable to decreasing amortization expense of the trade name and customer relationships acquired in our Studer Group acquisition and certain customer relationships acquired in other business

acquisitions, due to the accelerated basis of amortization in prior periods, as well as certain other customer relationships acquired in business acquisitions that were fully amortized in prior periods.

The decrease was primarily attributable to a decrease in amortization expense for the trade name acquired in our Studer Group acquisition that was fully amortized in the fourth quarter of 2019;

decreasing amortization expense for customer relationships due to the accelerated basis of amortization in prior periods, including the customer relationships acquired in our Studer Group acquisition;

and customer relationships acquired in other business acquisitions that were fully amortized in prior periods.

Intangible asset amortization included within operating expenses for the years ended December 31, 2020 and 2019 primarily related to certain customer relationships, trade names and non-competition agreements acquired in connection with our business acquisitions.

See Note 3 “Acquisitions” and Note 4 “Goodwill and Intangible Assets” within the notes to our consolidated financial statements for additional information about our intangible assets.

Operating Income

Operating income increased $11.6 million , to $63.7 million for the year ended December 31, 2019 , from $52.1 million for the year ended December 31, 2018 .

Operating margin, which is defined as operating income expressed as a percentage of revenues, increased to 7.3% in 2019 compared to 6.6% in 2018 .

The increase in operating margin was primarily attributable to the revenue growth that outpaced the increase in salaries and related expenses for our revenue-generating professionals and the decrease in intangible asset amortization expense;

partially offset by the increase in performance bonus expense for our revenue-generating professionals, as a percentage of revenues.

Other Expense, Net

Total other expense, net decreased by $15.7 million to $11.2 million for the year ended December 31, 2019 , from $26.9 million for the year ended December 31, 2018 .

The decrease in total other expense, net was primarily attributable to a $4.5 million net gain recognized in 2019 for the market value of our investments that are used to fund our deferred compensation liability, compared to a net loss of $1.6 million in 2018;

as well as a $5.8 million loss recorded in 2018 related to the divestiture of our Middle East practice within our Business Advisory segment.

During the second quarter of 2018, we sold our Middle East business to a former employee who was the practice leader of that business at the time.

Interest expense, net of interest income decreased $3.4 million to $15.6 million in 2019 from $19.0 million in 2018 , which was primarily attributable to the maturity of our Convertible Notes on October 1, 2019.

See Note 7 “Financing Arrangements” within the notes to our consolidated financial statements for additional information about our Convertible Notes.

Income Tax Expense

For the year ended December 31, 2019 , our effective tax rate was 20.0% as we recognized income tax expense from continuing operations of $10.5 million on income from continuing operations of $52.5 million .

See Note 4 “Goodwill and Intangible Assets” within the notes to our consolidated financial statements for additional information on our intangible assets.

During the first quarter of 2020, we recorded $59.8 million of non-cash pretax goodwill impairment charges related to our Strategy and Innovation and Life Sciences reporting units within our Business Advisory segment primarily related to the expected decline in sales, increased uncertainty in the backlog and a decrease in the demand for the services these reporting units provide as a result of the COVID-19 pandemic.

These charges are non-cash in nature and do not affect our liquidity or debt covenants.

The non-cash goodwill impairment charge related to the Strategy and Innovation reporting unit reduced the goodwill balance of the reporting unit to $37.5 million as of March 31, 2020.

The non-cash goodwill impairment charge related to the Life Sciences reporting unit reduced the goodwill balance to zero as of March 31, 2020.

Operating Income (Loss)

Operating income decreased $92.6 million, to an operating loss of $28.9 million for the year ended December 31, 2020, from operating income of $63.7 million for the year ended December 31, 2019.

This decrease is primarily attributable to the $59.8 million non-cash pretax goodwill impairment charges related to our Business Advisory segment that were recognized in the first quarter of 2020, the decrease in revenues, the increase in salaries and related expenses for our revenue-generating professionals, and the increase in restructuring charges;

partially offset by the decrease in selling, general and administrative expenses as discussed above.

Operating margin, which is defined as operating income (loss) expressed as a percentage of revenues, decreased to (3.4)% in 2020 compared to 7.3% in 2019.

The decrease in operating margin was primarily attributable to the goodwill impairment charges recognized in 2020 and the increases in salaries and related expenses for our revenue-generating professionals

and restructuring charges.

These decreases to the operating margin were partially offset by the decrease in selling, general and administrative expenses, as a percentage of revenues.

Total Other Expense, Net

Interest expense, net of interest income decreased $6.4 million to $9.3 million for the year ended December 31, 2020 from $15.6 million for the year ended December 31, 2019, primarily due to the maturity of our Convertible Notes on October 1, 2019, partially offset by higher levels of borrowing under our credit facility in 2020 compared to 2019.

See the “Liquidity and Capital Resources” section below and Note 7 “Financing Arrangements” within the notes to our consolidated financial statements for additional information on our Convertible Notes and credit facility.

Other income, net totaled $4.3 million for the year ended December 31, 2020 and primarily consisted of a $4.1 million net gain related to the increase in the market value of our investments that are used to fund our deferred compensation liability;

a $1.7 million unrealized gain related to the increase in the fair value of our preferred stock investment in Medically Home Group, Inc.;

and a $1.5 million loss on sale of business recorded in the fourth quarter of 2020.

On December 30, 2020, we sold our U.K.

life sciences drug safety practice that was part of the Life Sciences reporting unit within our Business Advisory segment to former employees.

The sale did not meet the criteria for reporting separately as discontinued operations.

In 2020, this practice generated $2.3 million of revenue and was not significant to our consolidated financial statements.

See Note 13 “Fair Value of Financial Instruments” within the notes to our consolidated financial statements for additional information on our preferred stock investment in Medically Home Group, Inc.

Other income, net totaled $4.4 million for the year ended December 31, 2019 and primarily consisted of a $4.5 million net gain related to the increase in the market value of our investments that are used to fund our deferred compensation liability.

Income Tax Expense (Benefit)

On March 27, 2020, the President of the United States signed into law the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), a nearly $2 trillion emergency economic stimulus package in response to the COVID-19 outbreak, which among other items, includes income tax provisions relating to a five-year net operating loss carryback period and technical corrections to tax depreciation methods for qualified improvement property.

During 2020, as a result of the CARES Act, we recognized a $1.5 million tax benefit related to the remeasurement of a portion of our income tax receivable for the federal net operating loss incurred in 2018 and the expected federal net operating loss in 2020 that will be carried back to prior year income, both for a refund at the higher, prior year tax rate.

For the year ended December 31, 2020, our effective tax rate was 30.0% as we recognized an income tax benefit from continuing operations of $10.2 million on a loss from continuing operations of $33.9 million.

For the year ended December 31, 2019, our effective tax rate was 20.0% as we recognized income tax expense from continuing operations of $10.5 million on income from continuing operations of $52.5 million.

The effective tax rate for 2019 was more favorable than the statutory rate, inclusive of state income taxes, of 25.9%, primarily due to a $1.6 million tax benefit related to federal and state tax credits, which had a favorable impact of 3.1% on the effective tax rate;

a $1.5 million tax benefit related to the change in valuation allowance primarily due to realizing deferred tax assets recorded for foreign tax credits, which had a favorable impact of 2.9% on the effective tax rate;

and a $1.0 million tax benefit related to non-taxable gains on our investments used to fund our deferred compensation liability, which had a favorable impact of 1.8% on the effective tax rate .

These favorable items were partially offset by $1.0 million of additional tax expense related to disallowed executive compensation, which had an unfavorable impact of 2.0% on the effective tax rate.

The effective tax rate for 2018 was less favorable than the statutory rate, inclusive of state income taxes, of 26.2%, primarily due to $1.8 million of discrete tax expense for valuation allowances, primarily due to uncertainties relating to the ability to utilize deferred tax assets recorded for foreign tax credits, which had an unfavorable impact of 6.9% on the effective tax rate;

$1.2 million of discrete tax expense for share-based compensation awards that vested during 2018, which had an unfavorable impact of 4.9% on the effective tax rate;

$0.6 million of additional tax expense related to disallowed executive compensation, which had an unfavorable impact of 2.5% on the effective tax rate;

and $0.6 million of additional tax expense related to the change in fair value of contingent consideration, which had an unfavorable impact of 2.4% on the effective tax rate.

Net Income from Continuing Operations

Net income from continuing operations increased by $28.0 million to $42.0 million for the year ended December 31, 2019 , from $13.9 million for the year ended December 31, 2018 .

As a result of the increase in net income from continuing operations, diluted earnings per share from continuing operations for the year ended December 31, 2019 was $1.87 compared to $0.63 for 2018 .

The effective tax rate for 2020 was more favorable than the statutory rate, inclusive of state income taxes, of 26.5%, primarily due to the tax benefit related to the CARES Act described above, a discrete tax benefit for share-based compensation awards that vested primarily in the first quarter of 2020, the positive impact of certain federal tax credits and a tax benefit related to non-taxable gains on our investments used to fund our deferred compensation liability.

These favorable items were partially offset by increases in our valuation allowance primarily due to increases in deferred tax assets recorded for foreign tax credits, certain nondeductible business expenses and the nondeductible portion of the goodwill impairment charges recorded during the first quarter of 2020.

The effective tax rate for 2019 was more favorable than the statutory rate, inclusive of state income taxes, of 25.9%, primarily due to federal and state tax credits, a tax benefit related to the change in valuation allowance primarily due to realizing deferred tax assets recorded for foreign tax credits, and a tax benefit related to non-taxable gains on our investments used to fund our deferred compensation liability.

These favorable items were partially offset by additional tax expense related to disallowed executive compensation.

See Note 17 “Income Taxes” within the notes to our consolidated financial statements for additional information on our income tax expense (benefit).

Net Income (Loss) from Continuing Operations and Earnings (Loss) per Share

Net income from continuing operations decreased by $65.7 million to a net loss from continuing operations of $23.7 million for the year ended December 31, 2020, from net income from continuing operations of $42.0 million for the year ended December 31, 2019.

This decrease is primarily attributable to the $59.8 million non-cash goodwill impairment charges related to our Business Advisory segment recognized in the first quarter of 2020;

the decrease in revenues;

the increase in salaries and related expenses for our revenue-generating professionals;

and the increase in restructuring charges in 2020 compared to 2019, primarily related to the $18.7 million of restructuring charges recognized in the fourth quarter of 2020;

partially offset by the decrease in selling, general and administrative expenses in 2020 compared to 2019 and the related tax impact of these items.

Diluted loss per share from continuing operations for the year ended December 31, 2020 was $1.08 compared to diluted earnings per share from continuing operations of $1.87 for 2019.

The non-cash goodwill impairment charges and the

restructuring charges related to the fourth quarter 2020 restructuring plan had unfavorable impacts on our diluted earnings per share from continuing operations of $2.07 and $0.63, respectively.

EBITDA and Adjusted EBITDA

EBITDA increased $18.8 million to $101.9 million for the year ended December 31, 2019 , from $83.1 million for the year ended December 31, 2018 .

Adjusted EBITDA increased $14.4 million to $105.4 million in 2019 from $91.0 million in 2018 .

The increase in EBITDA was primarily attributable to the increase in revenues for the year ended December 31, 2019 compared to the same prior year period and the loss on the divestiture of our Middle East business within our Business Advisory segment recorded in 2018.

These increases to EBITDA were partially offset by the increases in salaries and related expenses for our revenue-generating professionals, selling, general and administrative

expenses, and performance bonus expense for our revenue-generating professionals recognized in 2019 compared to 2018.

The increase in adjusted EBITDA was primarily attributable to the increase in revenues, partially offset by the increases in salaries and related expenses for our revenue-generating professionals, selling, general and administrative expenses, and performance bonus expense for our revenue-generating professionals in 2019 compared to 2018.

Adjusted Net Income from Continuing Operations

Adjusted net income from continuing operations increased $15.8 million to $61.6 million for the year ended December 31, 2019 , compared to $45.8 million for the year ended December 31, 2018 .

As a result of the increase in adjusted net income from continuing operations, adjusted diluted earnings per share from continuing operations increased by $0.66 to $2.74 in 2019, compared to $2.08 in 2018 .

EBITDA decreased $96.8 million to $5.1 million for the year ended December 31, 2020, from $101.9 million for the year ended December 31, 2019.

The decrease in EBITDA was primarily attributable to the non-cash goodwill impairment charges of $59.8 million recognized in the first quarter of 2020, the decrease in revenues, and the increases in salaries and related expenses for our revenue-generating professionals and restructuring charges in 2020 compared to 2019;

partially offset by the decrease in selling, general and administrative expenses in 2020 compared to 2019.

Adjusted EBITDA decreased $18.2 million to $87.1 million in 2020 from $105.4 million in 2019.

The decrease in adjusted EBITDA was primarily attributable to the decrease in revenues and increase in salaries and related expenses for our revenue-generating professionals in 2020 compared to 2019;

partially offset by the decrease in selling, general and administrative expenses, excluding transaction-related expenses related to the evaluation of acquisitions, in 2020 compared to 2019.

Adjusted Net Income from Continuing Operations and Adjusted Earnings per Share

Adjusted net income from continuing operations decreased $13.7 million to $47.9 million for the year ended December 31, 2020, compared to $61.6 million for the year ended December 31, 2019.

As a result of the decrease in adjusted net income from continuing operations, adjusted diluted earnings per share from continuing operations was $2.15 in 2020 compared to $2.74 in 2019.

Segment Results

Healthcare segment revenues increased $34.5 million , or 9.4% , to $399.2 million for the year ended December 31, 2019 , from $364.8 million for the year ended December 31, 2018 .

Healthcare segment revenues decreased $45.8 million, or 11.5%, to $353.4 million for the year ended December 31, 2020, from $399.2 million for the year ended December 31, 2019, primarily due to the negative impact of the COVID-19 pandemic on demand for our services within this segment, as some clients reprioritized and delayed certain projects as a result of the uncertainties surrounding the pandemic.

For the year ended December 31, 2020, revenues from fixed-fee arrangements;

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The level of performance-based fees earned may vary based on our clients’ risk sharing preferences and the mix of services we provide.

Of the overall $34.5 million increase in revenues, $33.5 million was attributable to an increase in revenues from our full-time billable consultants and $1.0 million was attributable to our full-time equivalents.

The increase in revenues attributable to our full-time billable consultants reflected increases in the average billing rate and the average number of full-time billable consultants, partially offset by a decrease in the consultant utilization rate in 2019 compared to 2018.

The increase in revenues attributable to our full-time equivalents reflected an increase in the average number of full-time equivalents, partially offset by a decrease in the revenue per full-time equivalent in 2019 compared to 2018.

Of the overall $45.8 million decrease in revenues, $26.3 million was attributable to a decrease in revenues from our full-time billable consultants and $19.5 million was attributable to our full-time equivalents.

The decrease in revenues attributable to our full-time billable consultants reflected a decrease in the consultant utilization rate, partially offset by increases in the average billing rate and the average number of full-time billable consultants in 2020 compared to 2019.

The decrease in revenues attributable to our full-time equivalents reflected a decrease in revenue per full-time equivalent, partially offset by an increase in the average number of full-time equivalents in 2020 compared to 2019.

Operating Income

Healthcare segment operating income increased $17.7 million , or 16.3% , to $125.7 million for the year ended December 31, 2019 , from $108.1 million for the year ended December 31, 2018 .

The Healthcare segment operating margin, defined as segment operating income expressed as a percentage of segment revenues, increased to 31.5% in 2019 from 29.6% in 2018 .

The increase in this segment’s operating margin was primarily attributable to revenue growth that outpaced an increase in salaries and related expenses for our revenue-generating professionals, partially offset by an increase in performance bonus expense for our revenue-generating professionals, as a percentage of revenues.

Healthcare segment operating income decreased $30.8 million, or 24.5%, to $94.9 million for the year ended December 31, 2020, from $125.7 million for the year ended December 31, 2019.

The Healthcare segment operating margin, defined as segment operating income expressed as a percentage of segment revenues, decreased to 26.9% in 2020 from 31.5% in 2019.

The decrease in this segment’s operating margin was primarily attributable to an increase in salaries and related expenses for our revenue-generating professionals;

partially offset by decreases in performance bonus expense for our revenue-generating professionals, product and event costs, and contractor expenses, all as percentages of revenues.

Business Advisory

Business Advisory segment revenues increased $16.3 million , or 6.9% , to $252.5 million for the year ended December 31, 2019 , from $236.2 million for the year ended December 31, 2018 .

Business Advisory segment revenues increased $14.9 million, or 5.9%, to $267.4 million for the year ended December 31, 2020, from $252.5 million for the year ended December 31, 2019, primarily related to strengthened demand for our cloud-based technology and analytics solutions and our restructuring and capital advisory solutions provided to organizations in transition.

For the year ended December 31, 2020, revenues from fixed-fee arrangements;

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The level of performance-based fees earned may vary based on our clients’ preferences and the mix of services we provide.

Of the overall $16.3 million increase in revenues, $18.0 million was attributable to an increase in revenues generated by our full-time billable consultants;

partially offset by a $1.7 million decrease in revenues generated by our full-time equivalents.

The increase in revenues from our full-time billable consultants reflected an increase in the average number of full-time billable consultants, partially offset by decreases in the average billing rate and the consultant utilization rate.

The decrease in revenues from our full-time equivalents was driven by a decreased use of contractors and project consultants, partially offset by an increase in software support and maintenance revenues;

and reflected a decrease in the average number of full-time equivalents, partially offset by an increase in revenue per full-time equivalent in 2019 compared to 2018.

Of the overall $14.9 million increase in revenues, $10.4 million was attributable to an increase in revenues generated by our full-time billable consultants and $4.5 million was attributable to an increase in revenues generated by our full-time equivalents.

The increase in revenues from our full-time billable consultants reflected an increase in the average number of full-time billable consultants, partially offset by a decrease in the average billing rate in 2020 compared to 2019.

The increase in revenues from our full-time equivalents was driven by an increased use of contractors and reflected an increase in the average number of full-time equivalents, partially offset by a decrease in revenue per full-time equivalent in 2020 compared to 2019.

Operating Income

Business Advisory segment operating income decreased by $1.6 million, or 3.3%, to $48.0 million for the year ended December 31, 2020, compared to $49.7 million for the year ended December 31, 2019.

Segment operating margin decreased to 19.7% for 2019 from 21.4% for 2018 .

The decrease in this segment’s operating margin was also attributable to increases in salaries and related expenses and performance bonus expense for our revenue-generating professionals, as percentages of revenues.

These decreases to the operating margin, were offset by decreases in contractor expense, restructuring charges, and third-party consulting expenses.

Additionally, the decrease in the operating margin reflected a higher percentage of this segment's revenues derived from our lower margin solutions in 2019 compared to 2018.

Education segment revenues increased $30.9 million , or 15.9% , to $225.0 million for the year ended December 31, 2019 , from $194.2 million for the year ended December 31, 2018 .

The Business Advisory segment operating margin decreased to 18.0% for 2020 from 19.7% for 2019.

The decrease in this segment’s operating margin was partially attributable to a higher percentage of this segment's revenues derived from our lower margin solutions in 2020 compared to 2019.

Additionally, the decrease in this segment’s operating margin was attributable to overall increases in performance bonus expense for our revenue-generating professionals, contractor expenses, restructuring charges, and share-based compensation expense for our revenue-generating professionals, as percentages of revenues;

partially offset by overall decreases in promotion and marketing expenses and signing, retention and other bonus expense for our revenue-generating professionals.

The restructuring charges within the Business Advisory segment in 2020 primarily related to the termination of a third-party advisor agreement.

The non-cash goodwill impairment charges related to the Strategy and Innovation and Life Sciences reporting units within the Business Advisory segment, which are discussed above within consolidated results, are not allocated at the segment level because the underlying goodwill asset is reflective of our corporate investment in the segment.

We do not include the impact of goodwill impairment charges in our evaluation of segment performance.

Education segment revenues decreased $1.7 million, or 0.8%, to $223.3 million for the year ended December 31, 2020, from $225.0 million for the year ended December 31, 2019.

The decrease in revenues was primarily related to the negative impact of the COVID-19 pandemic on demand for our on-premise technology consulting solutions, largely offset by an increase in demand for our cloud-based technology and analytics solutions and strategy and research consulting solutions in the first half of 2020.

For the year ended December 31, 2020, revenues from fixed-fee arrangements;

time-and-expense arrangements;

and software support, maintenance and subscription arrangements represented 23.0%, 68.8%, and 8.2% of this segment’s revenues, respectively, compared to 20.4%, 72.5%, and 7.1%, respectively, in 2018 .

Of the overall $30.9 million increase in revenues, $25.4 million was attributable to revenues generated by our full-time billable consultants and $5.5 million was attributable to our full-time equivalents.

The increase in revenues from our full-time billable consultants reflected an increase in the average number of full-time billable consultants;

partially offset by a decrease in the average billing rate in 2019 compared to 2018.

The increase in revenues from our full-time equivalents was primarily driven by an increased use of contractors and an increase in software and data hosting revenues, partially offset by a decreased use of project consultants;

and reflected increases in the average number of full-time equivalents and revenue per full-time equivalent in 2019 compared to 2018.

performance-based arrangements;

and software support, maintenance and subscription arrangements represented 20.1%, 69.6%, 0.3%, and 10.0% of this segment’s revenues, respectively.

Revenues from fixed-fee arrangements;

time-and-expense arrangements;

and software support, maintenance and subscription arrangements represented 23.0%, 68.8%, and 8.2% of this segment's revenues, respectively, in 2019.

Of the overall $1.7 million decrease in revenues, $4.4 million was attributable to a decrease in revenues generated by our full-time billable consultants, partially offset by a $2.7 million increase in revenues generated by our full-time equivalents.

The decrease in revenues from our full-time billable consultants reflected decreases in the consultant utilization rate and average billing rate;

partially offset by an increase in the average number of full-time billable consultants in 2020 compared to 2019.

The increase in the average number of full-time billable consultants primarily related to hiring that occurred prior to the COVID-19 pandemic.

The increase in revenues from our full-time equivalents was primarily driven by an increase in software subscriptions and data hosting revenues;

and reflected an increase in the average number of full-time equivalents in 2020 compared to 2019.

Operating Income

Education segment operating income increased $7.5 million , or 15.5% , to $55.7 million for the year ended December 31, 2019 , from $48.2 million for the year ended December 31, 2018 .

The Education segment operating margin was 24.8% for both 2019 and 2018 .

The Education segment's revenue growth outpaced increases in salaries and related expenses for our revenue-generating professionals and selling, general and administrative expenses.

This increase to the operating margin was offset by increases in contractor expense and performance bonus expense for our revenue-generating professionals, as percentages of revenues.

Education segment operating income decreased $8.2 million, or 14.8%, to $47.5 million for the year ended December 31, 2020, from $55.7 million for the year ended December 31, 2019.

The Education segment operating margin decreased to 21.3% for 2020 from 24.8% for 2019.

The decrease in this segment's operating margin was primarily attributable to an increase in salaries and related expenses for our revenue-generating professionals, as well as increases in restructuring charges and technology expenses.

These decreases to the operating margin were partially offset by decreases in performance bonus expense for our revenue-generating professionals and promotion and marketing expenses, as percentages of revenues.

LIQUIDITY AND CAPITAL RESOURCES

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Year Ended December 31,

2020 2019 2018

Net cash provided by operating activities $ 136,738 $ 132,220 $ 101,658

Net cash used in investing activities (42,034) (35,002) (18,562)

Net cash provided by (used in) financing activities

Net cash used in financing activities (39,615) (118,836) (66,690)

Effect of exchange rate changes on cash 484 115 (208)

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The volume of services rendered and the related billings and timing of collections on those billings, as well as payments of our accounts payable and salaries, bonuses, and related benefits to employees affect these account balances.

The increase in cash provided by operating activities in 2019 compared to 2018 was primarily attributable to an increase in cash collections from clients, which was driven by revenue growth, partially offset by the higher amount paid for annual performance bonuses during the first quarter of 2019 compared to the first quarter of 2018.

The increase in cash provided by operating activities in 2020 compared to 2019 was primarily attributable to a decrease in selling, general and administrative expenses in 2020 compared to 2019 and the deferral of $12.2 million of our employer portion of social security taxes as provided for under the CARES Act.

These increases to cash provided by operating activities were partially offset by a decrease in cash collections from clients, which was driven by a decrease in revenues, an increase in payments to employees for salaries and related benefits in 2020 compared to 2019, and an increase in the amount paid for annual performance bonuses in the first quarter of 2020 compared to the first quarter of 2019.

Of the $12.2 million of social security taxes deferred, we expect to pay $6.1 million in the fourth quarter of 2021 and the remaining $6.1 million in the fourth quarter of 2022.

Investing Activities

Net cash used in investing activities was $42.0 million and $35.0 million for the years ended December 31, 2020 and 2019, respectively.

The use of cash in 2020 primarily consisted of $13.0 million for the purchase of of an additional convertible debt investment in Shorelight Holdings, LLC in the first quarter of 2020;

$8.7 million for purchases of businesses in the second half of 2020;

$8.3 million for payments related to internally developed software;

$8.1 million for purchases of property and equipment, primarily related to purchases of computers and related equipment and leasehold improvements and furniture for certain office spaces;

$2.5 million for contributions to our life insurance policies which fund our deferred compensation plan;

and $1.5 million for payments related to the divestiture of our U.K.

life sciences drug safety practice within the Business Advisory segment.

The use of cash in 2019 primarily consisted of $13.2 million for purchases of property and equipment, primarily related to purchases of computers and network equipment and leasehold improvements for new office spaces in certain locations;

$10.3 million for payments related to internally developed software;

$5.0 million for a purchase of investment securities in the fourth quarter of 2019;

$5.0 million for a purchase of preferred stock securities of Medically Home Group, Inc.

in the fourth quarter of 2019;

$4.7 million for contributions to our life insurance policies which fund our deferred compensation plan;

and $2.5 million for the purchase of a business in the third quarter of 2019.

The use of cash in 2018 primarily consisted of $8.9 million for purchases of property and equipment, primarily related to purchases of computers and network equipment;

$6.1 million for payments related to internally developed software;

$2.3 million for payments related to the divestiture of our Middle East practice within the Business Advisory segment;

and $2.0 million for contributions to our life insurance policies which fund our deferred compensation plan.

We estimate that cash utilized for purchases of property and equipment and software in 2020 will be approximately $25 to $30 million;

primarily consisting of software development costs, information technology related equipment to support our corporate infrastructure, and leasehold improvements for certain office locations.

We estimate that cash utilized for purchases of property and equipment and software development in 2021 will total approximately $15 million to $20 million;

primarily consisting of information technology related equipment to support our corporate infrastructure, leasehold improvements for certain office locations, and software development costs.

Financing Activities

Net cash used in financing activities was $39.6 million and $118.8 million for the years ended December 31, 2020 and 2019, respectively.

During 2019, we borrowed $347.0 million under our credit facility, of which $217.0 million was used to repay a portion of the $250.0 million outstanding principal on our Convertible Notes in the fourth quarter of 2019.

The remaining $33.0 million outstanding principal on our Convertible Notes was repaid with cash on hand.

During 2020, we borrowed $283.0 million under our credit facility, all of which was in the first quarter of 2020, including $125.0 million in March 2020 to maintain excess cash and support liquidity during the period of uncertainty created by the COVID-19 pandemic, as well as to fund our annual performance bonus payment.

During 2020, we made repayments on our credit facility of $288.0 million due to our ability to maintain adequate cash flows from operations and improved clarity around access to capital resources during the COVID-19 pandemic, and repayments of $0.6 million on our promissory note due 2024.

Additionally, we repurchased and retired $25.9 million of our common stock under our share repurchase programs, discussed below, and settled $1.2 million of share repurchases that were accrued as of December 31, 2019.

During 2019, we borrowed $347.0 million under our credit facility, of which $217.0 million was used to repay a portion of the $250.0 million

outstanding principal on our Convertible Notes in the fourth quarter of 2019.

The remaining $33.0 million outstanding principal on our

Convertible Notes was repaid with cash on hand.

During 2019, we also made repayments on our credit facility of $192.5 million.

Additionally, we repurchased and retired $14.2 million of our common stock under our Share Repurchase Program, as defined below, of which $1.2 million settled in the first quarter of 2020.

During 2019, we paid $10.0 million to the sellers of certain business acquisitions for achieving specified financial performance targets in accordance with the related purchase agreements.

Of the total $10.0 million paid, $4.7 million is classified as a cash outflow from financing activities and represents the amount paid up to the initial fair value of contingent consideration liability recorded as of the acquisition date.

The remaining $5.3 million is classified as a cash outflow from operating activities.

During 2018, we borrowed $204.3 million under our credit facility and made repayments on our credit facility of $259.8 million.

We also paid $12.0 million to the sellers of certain businesses acquisitions for achieving specified financial performance targets in accordance with the related purchase agreements.

Of the $12.0 million paid, $7.0 million is classified as a cash outflow from financing activities and represents the amount paid up to the initial fair value of the contingent consideration liability recorded as of the acquisition date.

Additionally,

we repurchased and retired $14.2 million of our common stock under our share repurchase program discussed below, of which $1.2

million settled in the first quarter of 2020.

During 2019, we paid $10.0 million to the sellers of certain business acquisitions for achieving

specified financial performance targets in accordance with the related purchase agreements.

Of the total $10.0 million paid, $4.7 million is

classified as a cash outflow from financing activities and represents the amount paid up to the initial fair value of contingent consideration

liability recorded as of the acquisition date.

The remaining $5.3 million is classified as a cash outflow from operating activities.

Share Repurchase Program

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 2019, we repurchased and retired 210,437 shares for $14.2 million , of which $1.2 million settled in the first quarter of 2020.

No shares were repurchased under this program in 2018.

As of December 31, 2019 , $20.9 million remains available for share repurchases.

Share Repurchase Programs

In November 2020, our board of directors authorized a share repurchase program (the “2020 Share Repurchase Program”) permitting us to repurchase up to $50 million of our common stock through December 31, 2021.

The 2020 Share Repurchase Program was authorized subsequent to the expiration of our prior share repurchase program (the “2015 Share Repurchase Program”) on October 31, 2020.

The 2015 Share Repurchase Program permitted us to repurchase up to $125 million of our common stock through October 31, 2020.

The 2020 Share Repurchase Program and 2015 Share Repurchase Program are collectively known as the “Share Repurchase Programs.” The amount and timing of repurchases under the Share Repurchase Programs were and will continue to be determined by management and 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 2020, we repurchased and retired 425,164 shares for $25.9 million under the Share Repurchase Programs.

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.

As of December 31, 2020, $45.0 million remained available for share repurchases under the 2020 Share Repurchase Program.

Financing Arrangements

At December 31, 2020, we had $200.0 million outstanding under our senior secured credit facility and $3.3 million outstanding under a promissory note, as discussed below.

The Convertible Notes matured on October 1, 2019.

1.25% Convertible Senior Notes

In September 2014, we issued $250 million principal amount of 1.25% convertible senior notes due 2019 in a private offering.

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% .

The Convertible Notes matured on October 1, 2019.

Upon maturity, we refinanced $217.0 million of the principal amount of the outstanding Convertible Notes with the borrowing capacity available under our revolving credit facility and funded the remaining $33.0 million principal payment with cash on hand.

See Note 7 “Financing Arrangements” within the notes to the consolidated financial statements for additional information on our Convertible Notes.

Senior Secured Credit Facility

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(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.

however, the maximum permitted Consolidated Leverage Ratio will increase to 4.00 to 1.00 upon the occurrence of certain Qualified Acquisitions (as defined in the

Amended Credit Agreement), 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.

For purposes of the Consolidated Leverage Ratio, total debt is on a gross basis and is not netted against our cash balances.

At December 31, 2020 and December 31, 2019, we were in compliance with these financial covenants.

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Our Consolidated Interest Coverage Ratio as of December 31, 2020 was 12.51 to 1.00, compared to 15.29 to 1.00 as of December 31, 2019.

The reduction in our Consolidated Leverage Ratio as of December 31, 2019 compared to December 31, 2018 was driven by an increase in cash flows from operations, deployment of cash to reduce borrowings and improved profitability.

Our maximum borrowing capacity, after consideration of our restrictive covenants and the unused borrowing capacity under the revolving credit facility, was $271.6 million at December 31, 2019 compared to $100.1 million at December 31, 2018.

The increase in our Consolidated Leverage Ratio as of December 31, 2020 compared to December 31, 2019 was driven by decreased profitability in 2020 compared to 2019, as discussed in the “Results of Operations” section above.

The Amended Credit Agreement contains restricted payment provisions, including a potential limit on the amount of dividends we may pay.

Pursuant to the terms of the Amended Credit Agreement, if our Consolidated Leverage Ratio is greater than 3.25, the amount of dividends and other Restricted Payments (as defined in the Amended Credit Agreement) we may pay is limited to an amount up to $25 million.

Principal borrowings outstanding under the Amended Credit Agreement at December 31, 2020 and December 31, 2019 totaled $200.0 million and $205.0 million, respectively.

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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 December 31, 2019 , we had outstanding letters of credit totaling $1.7 million , which are primarily used as security deposits for our office facilities.

The Amended Credit Agreement contains restricted payment provisions, including a potential limit on the amount of dividends we may pay.

At December 31, 2020 and 2019, we had outstanding letters of credit totaling $1.6 million and $1.7 million, respectively, which are primarily used as security deposits for our office facilities, and the unused borrowing capacity under the revolving credit facility was $398.4 million and $393.3 million, respectively.

For further information, see Note 7 “Financing Arrangements” within the notes to the consolidated financial statements.

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For further information, see Note 7 “Financing Arrangements” within the notes to the consolidated financial statements.

Our primary financing need has been to fund our growth.

Our current primary financing need is to support our operations during the COVID-19 pandemic.

The pandemic has created significant volatility and uncertainty in the economy, which could limit our access to capital resources and could increase our borrowing costs.

In order to support our liquidity during the pandemic, we took proactive measures to increase available cash on hand, including, but not limited to, borrowing under our senior secured credit facility in the first quarter of 2020 and reducing discretionary operating and capital expenses.

To further support our liquidity, we elected to defer the deposit of our employer portion of social security taxes beginning in April 2020 and through the end of the year, which we expect to pay in equal installments in the fourth quarters of 2021 and 2022, as provided for under the CARES Act.

Our long-term financing need has been to fund our growth.

Our growth strategy is to expand our service offerings, which may require investments in new hires, acquisitions of complementary businesses, possible expansion into other geographic areas, and related capital expenditures.

We believe our internally generated liquidity, together with our available cash, the borrowing capacity available under our revolving credit facility, and access to external capital resources will be adequate to fund our long-term growth and capital needs arising from cash commitments and debt service obligations.

Our ability to secure short-term and long-term financing in the future will depend on several factors, including our future profitability, the quality of our accounts receivable and unbilled services, our relative levels of debt and equity, and the overall condition of the credit markets.

We believe our internally generated liquidity, together with our available cash, and the borrowing capacity available under our revolving credit facility will be adequate to support our current financing needs and long-term growth strategy.

Our ability to secure additional financing, if needed, in the future will depend on several factors, including our future profitability, the quality of our accounts receivable and unbilled services, our relative levels of debt and equity, and the overall condition of the credit markets.

CONTRACTUAL OBLIGATIONS

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Payments Due by Period

Total 2021 2022-2023 2024-2025 Thereafter

Long-term bank borrowings—principal and interest (1)

$ 224,441 $ 6,518 $ 13,035 $ 204,888 $ —

Promissory note—principal and interest (2)

3,442 558 1,229 1,655 —

Operating lease obligations (3)

81,743 11,572 23,506 22,052 24,613

Purchase obligations (4)

26,650 15,954 8,399 2,297 —

Deferred employer payroll taxes (5)

12,188 6,094 6,094 — —

Deferred compensation (6)

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Purchase obligations do not include agreements that are cancelable without penalty.

(5) As allowed under the provisions of the CARES Act enacted in the first quarter of 2020, we elected to defer the deposit of our employer portion of social security tax payments beginning in April 2020 through December 31, 2020.

As of December 31, 2020, we deferred $12.2 million of such payments, which we expect to pay in equal installments in the fourth quarters of 2021 and 2022.

(6) Included in deferred compensation and other liabilities on our consolidated balance sheet as of December 31, 2020 is a $34.3 million obligation for deferred compensation.

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Time-and-expense arrangements also include certain speaking engagements, conferences, and publications purchased by our clients outside of Partner Contracts within our Culture and Organizational Excellence solution.

We recognize revenues under time-and-expense arrangements as the related services or publications are provided, using the right to invoice practical

expedient which allows us to recognize revenue in the amount that we have a right to invoice based on the number of hours worked and the agreed upon hourly rates or the value of the speaking engagements, conferences or publications purchased by our clients.

We recognize revenues under time-and-expense arrangements as the related services or publications are provided, using the right to invoice practical expedient which allows us to recognize revenue in the amount that we have a right to invoice based on the number of hours worked and the agreed upon hourly rates or the value of the speaking engagements, conferences or publications purchased by our clients.

In performance-based billing arrangements, fees are tied to the attainment of contractually defined objectives.

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Increases or decreases in the fair value of contingent consideration liabilities resulting from changes in the estimates or assumptions could materially impact the financial statements.

See Note 3 "Acquisitions" within the notes to our consolidated financial statements for additional information regarding our acquisitions.

Carrying Values of Goodwill and Other Intangibles Assets

See Note 3 “Acquisitions” within the notes to our consolidated financial statements for additional information on our acquisitions and Note 13 “Fair Value of Financial Instruments” within the notes to our consolidated financial statements for additional information on our contingent consideration liabilities.

Carrying Values of Goodwill and Other Intangible Assets

We test goodwill for impairment, at the reporting unit level, annually and whenever events or circumstances make it more likely than not that an impairment may have occurred.

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We assign goodwill to reporting units based on our integration plans and the expected synergies resulting from the acquisition.

At the time of our November 30, 2019 annual goodwill impairment test, we had five reporting units with goodwill balances:

Healthcare, Education, Business Advisory, Strategy and Innovation, and Life Sciences.

The Business Advisory, Strategy and Innovation, and Life Sciences reporting units, along with the Enterprise Solutions and Analytics reporting unit which does not have a goodwill balance, make up our Business Advisory operating segment.

As of December 31, 2020, we have six reporting units:

Healthcare, Education, Business Advisory, Strategy and Innovation, Enterprise Solutions and Analytics, and Life Sciences.

The Business Advisory, Strategy and Innovation, Enterprise Solutions and Analytics, and Life Sciences reporting units, make up our Business Advisory operating segment.

Under GAAP, we have the option to first assess qualitative factors to determine whether the existence of current events or circumstances would lead to a determination that it is more likely than not that the fair value of one of our reporting units is greater than its carrying value.

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For a company such as ours, the income and market approaches will generally provide the most reliable indications of fair value because the value of such companies is dependent on their ability to generate earnings.

The following is a discussion of our goodwill impairment analysis performed during 2019.

In the income approach, we utilize a discounted cash flow analysis, which involves 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 forecasted revenue growth rates, forecasted EBITDA margins, and discount rates.

Our forecasts are based on historical experience, current backlog, expected market demand, and other industry information.

In the market approach, we utilize the guideline company method, which involves calculating revenue and EBITDA 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 are evaluated and adjusted based on specific characteristics of the reporting units relative to the selected guideline companies and applied to the reporting units' operating data to arrive at an indication of value.

The following is a discussion of our goodwill impairment tests performed during 2020.

First Quarter 2020 Goodwill Impairment Test

The worldwide spread of the COVID-19 pandemic in the first quarter of 2020 has created significant volatility, uncertainty and disruption to the global economy.

From the onset of the COVID-19 pandemic, we closely monitored the impact it could have on all aspects of our business, including how we expect it 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.

Therefore, at the onset of the COVID-19 pandemic in the U.S.

and due to the uncertainty caused by the pandemic, we were cautious about near-term results for these two 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 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, as discussed above, with a fifty-fifty weighting.

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 existed that would lead us to believe that the fair values of our Healthcare, Education, and Business Advisory reporting units would not exceed their carrying values.

Our Enterprise Solutions and Analytics reporting unit did not have a goodwill balance as of March 31, 2020.

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 would not exceed their carrying values as of March 31, 2020.

2020 Annual Goodwill Impairment Analysis

Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2020 on our five reporting units with goodwill balances:

Healthcare, Education, Business Advisory, Strategy and Innovation, and Life Sciences.

We performed a qualitative assessment over the Healthcare, Education, Business Advisory, and Life Sciences reporting units to determine if it was more likely than not the respective fair values of these reporting units were less than their carrying amounts, including goodwill.

We elected to bypass the qualitative assessment and performed a quantitative impairment test for the Strategy and Innovation reporting unit as the reporting unit is a relatively new business resulting from an acquisition in 2017 and also fell short of internal financial expectations in 2019.

For our qualitative assessment of the Healthcare, Education, Business Advisory and Life Sciences reporting units, we considered the most recent quantitative analysis performed for these reporting units, which was as of November 30, 2017, including the key assumptions used within that analysis, the indicated fair values, and the amount by which those fair values exceeded their carrying amounts.

One of the key assumptions used within the prior quantitative analysis was our internal financial projections;

therefore, we considered the actual performance of each reporting unit during 2019 and 2018 compared to the internal financial projections used, as well as specific outlooks for each reporting unit based on our most recent internal financial projections.

We also considered the market-based valuation multiples used in the market approach within our prior quantitative analysis, which were derived from guideline companies, and noted that the valuation multiples generally increased compared to November 30, 2017.

We also reviewed the current carrying value of each reporting unit in comparison to the carrying values as of the prior quantitative analysis.

In addition, we considered various factors, including macroeconomic conditions, relevant industry and market trends for each reporting unit, and other entity-specific events, that could indicate a potential change in the fair value of our reporting units or the composition of their carrying values.

Based on our assessments, we determined that it was more likely than not that the fair values of the Healthcare, Education, Business Advisory and Life Sciences reporting units exceeded their respective carrying amounts.

As such, the goodwill for these reporting units was not considered impaired as of November 30, 2019, and a quantitative goodwill impairment analysis was not necessary.

The qualitative assessment of our reporting units requires us to make significant judgments, estimates, and assumptions.

While we believe that the estimates and assumptions underlying our analysis are reasonable, there is no assurance that the actual future earnings or cash flows of our reporting units will be consistent with our projections.

We will monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods.

Any significant decline in our operations could result in non-cash goodwill impairment charges.

For the Strategy and Innovation reporting unit, we reviewed goodwill for impairment by comparing the fair value of the reporting unit to its carrying value, including goodwill.

In estimating the fair value of the 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 results of the goodwill impairment test,

we determined the fair value of the Strategy and Innovation reporting unit exceeded its carrying value by 41% .

As such, we concluded that there was no indication of goodwill impairment for the reporting unit.

In the income approach used to calculate the fair value of the Strategy and Innovation reporting unit, we utilized a discounted cash flow analysis, which involves estimating the expected after-tax cash flows that will be generated by the reporting unit and then discounting those cash flows to present value reflecting the relevant risks associated with the reporting unit and the time value of money.

This approach requires the use of significant estimates and assumptions, such as long-term projections of future cash flows, including estimates of revenues and operating margins;

market conditions;

and discount rates reflecting the risk inherent in future cash flows.

In estimating future cash flows, we relied on internally generated forecasts based on historical experience, current backlog, expected market demand, and other industry information, and assumed a long-term annual revenue growth rate of 3.0%.

Our discounted cash flow analysis assumed a weighted average cost of capital discount rate of 14.0% for the Strategy and Innovation reporting unit.

In the market approach, we utilized the guideline company method, which involved calculating valuation 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.

For the Strategy and Innovation reporting unit, these multiples are evaluated and adjusted based on specific characteristics of the reporting unit relative to the selected guideline companies and applied to the reporting unit's operating data to arrive at an indication of value.

Determining the fair value of the Strategy and Innovation reporting unit requires us to make significant judgments, estimates, and assumptions.

While we believe that the estimates and assumptions underlying our valuation methodology are reasonable, these estimates and assumptions could have a significant impact on whether or not a non-cash goodwill impairment charge is recognized and also the magnitude of any such charge.

Healthcare, Education, Business Advisory, Strategy and Innovation, and Enterprise Solutions and Analytics.

We elected to bypass the qualitative assessment and proceeded directly to the quantitative goodwill impairment test.

For each reporting unit, we reviewed goodwill for impairment by comparing the fair value of the reporting unit to its carrying value, including goodwill.

In estimating the fair value of the reporting unit, we relied on a combination of the income approach and the market approach, as discussed above, with a fifty-fifty weighting.

Based on the results of the goodwill impairment test, we determined the fair value of the Healthcare, Education, Business Advisory, Strategy and Innovation, and Enterprise Solutions and Analytics reporting units exceeded their carrying value by 42%, 132%, 584%, 29%, and 146%, respectively.

As such, we concluded that there was no indication of goodwill impairment for these five reporting units.

Further, we determined that neither a 100 basis point decrease in the estimated long-term growth rate nor a 100 basis point increase in the discount rate for each reporting unit would have resulted in an indication of goodwill impairment for any of the reporting units.

Determining the fair value of any reporting unit requires us to make significant judgments, estimates, and assumptions.

While we believe that the estimates and assumptions underlying our valuation methodology are reasonable, these estimates and assumptions could have a significant impact on whether or not a non-cash impairment charge is recognized and also the magnitude of such charge.

The results of an impairment analysis are as of a point in time.

There is no assurance that the actual future earnings or cash flows of our reporting units will be consistent with our projections.

We will monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods.

Any significant decline in our operations could result in non-cash goodwill impairment charges.

The table below presents, based on the quantitative goodwill impairment test performed as of November 30, 2019, the decrease in the fair value of the Strategy and Innovation reporting unit given a 100 basis point increase in the assumed discount rate or a 100 basis point decrease in the assumed long-term annual revenue growth rate.

Discount rate increased by 100 bps

Long-term growth rate decreased by 100 bps

Strategy and Innovation:

Decrease in fair value

Percentage by which fair value exceeds carrying value

The carrying values of goodwill for each of our reporting units as of December 31, 2019 are as follows (in thousands):

Reporting Unit

Carrying Value

We will continue to monitor any changes to our assumptions and will evaluate goodwill as deemed warranted during future periods.

Any significant decline in our operations compared to our internal forecasts could result in additional non-cash goodwill impairment charges, which could be material.

The carrying value of goodwill for each of our reporting units as of December 31, 2020 is as follows (in thousands):

Reporting Unit Carrying Value

Healthcare $ 428,729

Education 104,384

Business Advisory 16,094

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Enterprise Solutions and Analytics 7,508

Total $ 594,237

Intangible assets represent purchased assets that lack physical substance but can be distinguished from goodwill.

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We evaluate our intangible assets for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets may not be recoverable.

No material impairment charges for intangible assets were recorded in 2019.

No impairment charges for intangible assets were recorded in 2020.

Our income tax expense, deferred tax assets and liabilities, and reserves for unrecognized tax benefits reflect management’s best assessment of estimated future taxes to be paid.

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Refer to Note 2 “Summary of Significant Accounting Policies" within the notes to the consolidated financial statements for information on new accounting pronouncements.

SUBSEQUENT EVENT

On January 7, 2021, we entered into an agreement to acquire Unico Solution, Inc.

(“Unico Solutions”), a data strategy and technology consulting firm focused on helping clients enhance the use of their data to speed business transformation and accelerate cloud adoption.

The acquisition expands our cloud-based technology offerings within the Business Advisory segment.

The results of operations of Unico Solutions will be included within the Business Advisory segment from the close date, February 1, 2021.

The acquisition of Unico Solutions is not significant to our consolidated financial statements.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 7. Management’s Discussion and Analysis