Huron Consulting Group Inc. 10-K

ITEM 1. BUSINESS. OVERVIEW Huron is a global consultancy that collaborates with clients to drive strategic growth, ignite innovation and navigate constant change. Through a combination of strategy, expertise and creativity, we help clients accelerate operational, digital and cultural transformation, enabling the change our clients need to own their future. By embracing diverse perspectives, encouraging new ideas and challenging the status quo, Huron delivers sustainable results for the organizations it serves. We are headquartered in Chicago, Illinois, with additional locations in the United States and abroad in Canada, India, Singapore, and Switzerland. OUR SERVICES We provide professional services through three operating segments: Healthcare, Business Advisory, and Education, which for the year ended December 31, 2021, we derived 42%, 32%, and 26% of our consolidated revenues from these operating segments, respectively. Effective January 1, 2022, we modified our operating model to expand and more deeply integrate our industry expertise with our digital, strategic and financial advisory capabilities. The new operating model will strengthen Huron’s go-to-market strategy, drive efficiencies that support margin expansion, and position the company to accelerate growth. To align with the new operating model, effective with reporting for periods beginning January 1, 2022, we will begin reporting under the following three industries, which will be our reportable segments: Healthcare, Education and Commercial. The Commercial segment will include all industries outside of healthcare and education, including, but not limited to, financial services and energy and utilities. In the new reporting structure, each segment will include all revenue and costs associated with engagements delivered in the respective industry segments. The new Healthcare and Education segments will include some revenue and costs historically reported in the Business Advisory segment and the Healthcare segment will include some revenue and costs historically reported in the Education segment. We will also provide revenue reporting across two principal capabilities: i) Consulting and Managed Services and ii) Digital. These changes will create greater transparency for investors by improving visibility into the core drivers of our business. While our consolidated results will not be impacted, we will recast our historical segment information during 2022 for consistent presentation. For further financial information on our segment results, see Part II - Item 7. "Management's Discussion and Analysis of Financial Condition and Results of Operations" and Note 19 "Segment Information" within the notes to our consolidated financial statements. 1 Table of Contents • Healthcare Our Healthcare segment serves providers and payors including national and regional hospitals, integrated health systems, academic medical centers, community hospitals, medical groups and health plans. Our Healthcare professionals have a depth of expertise in business operations, including financial and operational improvement, care transformation, and revenue cycle managed services; organizational transformation; and digital, technology and analytic solutions. Most healthcare organizations are focused on changing the way care is delivered; establishing a sustainable business model centered around optimal cost structures, reimbursement models and financial strategies; evolving their digital, technology and analytic capabilities; and exceeding the expectations of their employees and patients. Our solutions help clients adapt to this rapidly changing healthcare environment to become a more nimble, efficient and consumer-centric organization. We use our deep industry expertise to help clients solve a diverse set of business issues, including, but not limited to, optimizing financial and operational performance, improving care delivery and clinical outcomes, increasing physician, patient and employee satisfaction, evolving organizational culture, and maximizing return on technology investments. • Business Advisory Our Business Advisory segment works with C-suite executives and business unit and functional leadership across a diverse set of organizations, including healthy, well-capitalized companies to organizations in transition, and across a broad range of industries, including healthcare, energy and utilities, financial services, life sciences, industrials and manufacturing, education, and the public sector. Our Business Advisory professionals have deep industry, functional and technical expertise that they put forward when delivering our digital, technology and analytics, strategy and innovation and restructuring and corporate finance services. In today’s disruptive environment, organizations must reimagine their historical strategies and financial and operating models to sustain and advance their competitive advantage. Organizations also recognize the need to adopt technologies, automation and analytics to improve their operations and compete in a rapidly changing landscape. Our experts help organizations across industries with a variety of business challenges, including, but not limited to, embedding technology and analytics throughout their internal and customer-facing operations, developing insights into the needs of tomorrow’s customers to evolve their enterprise and business unit strategies, bringing new products to market, and managing through stressed and distressed situations to create a viable path forward for stakeholders. • Education Our Education segment serves public and private colleges and universities, academic medical centers, research institutes and other not-for-profit organizations. Our Education professionals have a depth of expertise in strategy; business operations, including in the areas of the research enterprise and student lifecycle; digital, technology and analytic solutions; and organizational transformation. Our Education segment clients are increasingly faced with financial and/or demographic and enrollment challenges as well as increased competition. To remain competitive, organizations must challenge traditional operating and financial models and reimagine strategic, operational and research-centered opportunities that advance their mission while strengthening their business models. We collaborate with clients to address these challenges and ensure they have a sustainable future. We combine our deep industry, functional and technical expertise to help clients solve their most pressing challenges, including, but not limited to, transforming business operations with technology; strengthening research strategies and support services; evolving their organizational strategy; optimizing financial and operational performance; and enhancing the student experience. Huron is an Oracle partner, a Gold-level consulting partner with Salesforce.com and a Premium Partner with Salesforce.org, a Workday Services and Software Partner, an Amazon Web Services consulting partner, a Silver-level system integrator with Informatica and an SAP Concur implementation partner. We also partner with other technology organizations whose products and services support our core industries. OUR CLIENTS AND INDUSTRIES We provide services to both financially sound organizations and organizations in transition across industries, including healthcare, education, financial services, energy and utilities, industrials and manufacturing, public sector and other commercial industries. Our clients span hospitals, health systems and academic medical centers; colleges, universities and research institutes; banks, asset managers, insurance companies and private equity firms; oil and gas and utilities companies, manufacturing organizations and the federal government. In 2021, we served over 1,900 clients, and our 10 largest clients accounted for approximately 19% of our consolidated revenues. HUMAN CAPITAL RESOURCES AND MANAGEMENT Our success depends on our ability to attract, engage, develop and retain highly talented professionals. Our growth strategy depends on creating a work environment where employees are engaged and rewarded for their own contributions and the success of our organization. We are focused on advancing every facet of the employee experience, beginning with the recruiting process through post-employment or retirement. We create a personalized experience for our people and empower them to make a meaningful impact on our clients, our 2 Table of Contents communities, and one another. We have developed comprehensive programs incorporating learning opportunities, beginning with the onboarding process and continuing throughout one’s career journey to enable the professional development of our team. We provide a competitive total rewards package including robust benefits that are tailored to the diverse needs of our employees and are refreshed regularly to maintain competitiveness. Our total rewards program has continuously helped Huron to be recognized as a Best Firm to Work For by Consulting magazine, including 2021 which marks our eleventh consecutive year earning this distinction. In addition to external recognitions, we monitor human capital-related internal metrics. Our leading measure is our quarterly employee engagement score, which was consistently in the high 70s throughout 2021 compared to the Glint Employee Engagement global benchmark of 74. In addition, we regularly review voluntary turnover across a number of key variables including business unit, performance achievement, geography, and demographics in order to assess the effectiveness of our employee development and total rewards programs. As of December 31, 2021, we had 4,609 full-time client service and support professionals, including 168 client-serving managing directors. Our client-serving employees act as critical business advisors, collaborating with clients to help solve their most complex business problems. Our managing directors are the key drivers of growth in our business, generating revenue streams from new and existing clients. Our managing directors also enhance our market reputation by working closely with our clients to address their most pressing challenges and ensuring high-quality delivery of our engagements. Internally, they lead the creation of our intellectual capital, develop our people, and are stewards of our culture. Our principals, senior directors, directors, and managers manage day-to-day client relationships and engagement teams, develop our people, nurture our culture, and oversee the delivery and quality of our work product. Our associates and analysts gather and organize data, conduct detailed analyses, evolve our culture and prepare presentations that synthesize and distill information to support recommendations we deliver to clients. Our support professionals include our senior management team as well as those who provide sales support, methodology creation, software development, and corporate functions consisting of corporate development, facilities, finance and accounting, human resources, information technology, legal, and marketing. These professionals provide strategic direction for the enterprise and support that enables the success of our businesses and client-serving employees. At December 31, 2021, our support professionals team was led by 29 executives, managing directors, and corporate vice presidents. In addition to our full-time client-serving employees, we engage temporary employees on an as-needed basis. We primarily use this contingent workforce to engage talent with specialized skills and/or experience or to expand our capacity to be able to deliver on client engagements or internal initiatives. We will continue to use temporary employees going forward as a key part of achieving our growth strategy. The ability to advance one’s career is critical to our employee retention and engagement. As part of our onboarding process, our employee experience team facilitates a robust and structured curriculum for newly hired employees. We strive to develop world class leaders and are committed to providing programs and opportunities that achieve this goal by focusing on key leadership behaviors at all levels. We also provide a variety of learning opportunities, through both individual on-demand courses and virtual classroom environments, to further develop employees’ skills, including technical knowledge, soft skills, team dynamics, and coaching and developing others. We encourage our employees to enhance their professional capabilities through external learning opportunities that certify their technical skills and to pursue certain advanced degrees. Employees are matched with internal onboarding stewards, performance coaches, mentors, and in some cases sponsors to facilitate their growth and network of support. Our total rewards philosophy focuses on rewarding and retaining our high performing employees. To accomplish this, we offer employees a competitive base salary, performance incentives, and robust, market-competitive benefits. Our incentive compensation plan is designed to recognize and reward performance at both the organization and individual level. We take both practice and company financial performance into consideration in the determination of bonus pool funding. At the practice level, the annual bonus pool is funded based on achievement of its annual financial goals. Our board of directors reviews and approves the total incentive compensation pool for all practices in the context of Huron’s overall financial performance. Individual bonus awards are based on the practice’s financial performance, individual bonus targets, and the individual’s performance as evaluated through our performance management process. The intent of the incentive compensation plan is to differentiate rewards based on individual performance, ensuring that our top performers receive incentives that are commensurate with their contributions in a given year. The incentive compensation plan for our named executive officers is funded based on a blend of achievement of company-wide financial goals and strategic initiatives. Managing directors’ individual compensation levels, including base salary and target incentive awards, are set to align with the value of their expected contributions to Huron, including collaboration across practices. As the key drivers of the organization’s success, their compensation is designed to include equity awards as a core component. The use of equity is intended to encourage retention, align the interests of our managing directors with shareholders, and help build wealth over a managing director's career at Huron through annual grants as well as stock price appreciation. Our benefit programs are designed to be comprehensive, competitive and personalized to the needs of our employees. We provide opportunities that allow employees to focus and care for their personal well-being which are aimed at providing tools and resources to focus 3 Table of Contents on their physical, financial, social, and emotional health given the demanding nature of their work. In addition, our health and welfare plans, retirement benefits, and stock purchase plan provide a core foundation of security to our employees and their families. Diversity, Equity and Inclusion Huron’s value of inclusion has been embedded across our organization since our founding and is fostered in our work environment every day. In 2020, we renewed our commitment to holding ourselves accountable by developing a five-year diversity and inclusion action plan to help build a more equitable society. Through our action plan in 2021, we continued to foster an inclusive culture, advanced diverse representation across all levels of the organization, expanded our community outreach and support, and performed a new pay equity study. Additionally, in 2021, the strategic measures included in the annual incentive program for our named executive officers were enhanced to include quantitative and qualitative measures against the progress towards the goals outlined in our five-year action plan. We will continue to execute and expand on our diversity and inclusion action plan in 2022 and beyond. CORPORATE RESPONSIBILITY AND SUSTAINABILITY We are fully committed to our expanded societal role in making a lasting, positive impact on our people, our clients, our communities and the environment. In 2021, we published our second Corporate Social Responsibility (CSR) report, highlighting the actions we have taken to support our clients, our communities, our people and the environment. Our CSR report reflects our efforts in support of the United Nations Sustainable Development Goals (SDGs), particularly five goals that are integrally aligned with our values-driven culture and the work we do for our clients: good health and well-being, quality education, gender equality, decent work and economic growth and climate action. We have and will continue to support these goals through our Huron Helping Hands program, employee resource groups, sustainability efforts, and corporate partnerships. As an addendum to our 2021 CSR report, we published our inaugural Sustainability Accounting Standards Board (SASB) index in line with SASB’s Professional & Commercial Services standards. Our SASB index provides further quantitative and qualitative information regarding our data security programs, practices and policies, workforce diversity and engagement metrics, and our approach to promoting professional integrity and ethical behavior among our workforce, commensurate with best practices for professional services organizations. For additional information on Huron’s commitment to a more sustainable future, refer to our annual Corporate Social Responsibility report, which includes our SASB index, and is available on the investor relations website which is located at ir.huronconsultinggroup.com. BUSINESS DEVELOPMENT AND MARKETING Our business development and marketing activities are aimed at cultivating relationships, generating leads, and building a strong brand reputation with offices of the C-suite and senior level influencers and decision makers of organizations within our core industries. We believe excellent service delivery to clients is critical to building and maintaining relationships and sustaining and strengthening our brand reputation, and we emphasize the importance of high-quality client service to all of our employees. Currently, we generate new business opportunities through the combination of relationships our managing directors have with individuals working at our prospective clients and marketing activities. We also view market-based collaboration between our employees as a key component in building our business. Often, the client relationship of an employee in one area of our business leads to opportunities in another area. All of our managing directors understand their roles in ongoing relationship and business development, which is reinforced through our compensation and incentive programs. We actively seek to identify new business opportunities and frequently receive referrals and repeat business from past and current clients. In addition, to complement the business development efforts of our managing directors, we have dedicated business development professionals who are focused exclusively on developing client relationships and generating new business. COMPETITION The professional services industry is extremely competitive, highly fragmented, and constantly evolving. The industry includes a large number of participants with a variety of skills and industry expertise, including other strategy, business operations, technology, and financial advisory consulting firms; general management consulting firms; the consulting practices of major accounting firms; technical and economic advisory firms; regional and specialty consulting firms; consulting divisions of our technology partners; and the internal professional resources of organizations. We compete with a large number of service and technology providers in all of our segments. Our competitors vary, depending on the particular industry and expertise area, and we expect to continue to face competition from new market entrants. We believe the principal competitive factors in our market include reputation, the ability to attract and retain top talent, the capacity to manage engagements effectively to drive high value to clients, and the ability to deliver measurable and sustainable results. There is also competition on price, although to a lesser extent due to the criticality of the issues that many of our services address. Some competitors have a greater geographic footprint, broader international presence, and more resources than we do, but we believe our reputation and ability to deliver high-value, quality service and measurable results to our clients across a balanced portfolio of services and to attract and retain employees with broad capabilities and deep industry expertise enable us to compete favorably in the professional services marketplace. 4 Table of Contents AVAILABLE INFORMATION We file annual, quarterly and current reports, proxy statements, and other information with the Securities and Exchange Commission (the “SEC”). These filings are available on the SEC’s website at http://www.sec.gov. Our website is located at www.huronconsultinggroup.com, and our investor relations website is located at ir.huronconsultinggroup.com. We make our annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and any amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 available through our website, free of charge, as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. We provide information about our business and financial performance, including our corporate profile, on the Investor Relations page of our website. Additionally, we webcast our earnings calls and certain events we participate in with members of the investment community on the Investor Relations page of our website. Further corporate governance information, including our code of ethics, code of business conduct, corporate governance guidelines, and board committee charters, is also available on the Investor Relations page of our website. The content of our websites is not incorporated by reference into this Annual Report on Form 10-K or in any other report or document we file with the SEC, and any references to our websites are intended to be inactive textual references only.