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Item 7. Management’s Discussion and Analysis

2023-02-28 compared with 2022-02-24 · 448 added, 487 removed, 272 unchanged (77% of the section changed)

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and discusses those results of operations for 2022 compared to 2021.

For a discussion of our results of operations for 2020 compared to 2019, refer to Part II—Item 7.

Additionally, as a result of our operating segment modification effective January 1, 2022, the following MD&A discusses the segment revenue and operating income for 2021 compared to 2020.

For a discussion of our consolidated results of operations for 2021 compared to 2020, which were not impacted by the operating segment modification, refer to Part II—Item 7.

"Management’s Discussion and Analysis of Financial Condition and Results of Operations" of the Annual Report on Form 10-K for the year ended December 31, 2021, which was filed with the United States Securities and Exchange Commission on February 24, 2022.

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.

Huron is a global professional services firm that partners with clients to develop growth strategies, optimize operations and accelerate digital transformation using an enterprise portfolio of technology, data and analytics solutions to empower clients to own their future.

By collaborating with clients, embracing diverse perspectives, encouraging new ideas and challenging the status quo, we create sustainable results for the organizations we serve.

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

Healthcare, Business Advisory, and Education.

See Part I—Item 1.

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

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:

We 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.

Coronavirus (COVID- 19)

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

The pandemic had an unfavorable impact on aspects of our business, operations, and financial results, and 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 federal, state and local government restrictions evolve, 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, 2021, our employees continue to primarily work from their homes;

however, most of our offices are open and we are providing our employees the flexibility to choose to work remotely, from our offices, or from client sites as needed and in accordance with recommended public health guidelines.

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, since the beginning of the pandemic in 2020, some clients reprioritized and delayed projects which negatively impacted demand for certain offerings, particularly within 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 also within our Business Advisory segment.

Beginning in the second quarter of 2021 and continuing through the end of 2021, we saw strengthened demand for services in all of our segments compared to the same prior year period.

As a result, total revenues in the fourth quarter of 2021 increased 25.2% compared to the

fourth quarter of 2020, and full year 2021 revenues increased 7.3% compared to 2020.

We expect continued revenue growth in 2022 compared to 2021.

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 the second, third and fourth quarters of 2020, we made repayments on our borrowings to reduce our total debt outstanding to pre-pandemic levels due to our ability to maintain adequate cash flows from operations and improved clarity around access to capital resources.

In 2021, we borrowed under our credit facility primarily to fund our annual performance bonus payment in March 2021 and our acquisitions of businesses during the year.

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 December 31, 2020, as provided for under the Coronavirus Aid, Relief, and Economic Security Act ("CARES Act").

These deferred payments, which totaled $12.2 million, were paid in full in the third quarter of 2021.

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

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 was not 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.

Acquisitions and Divestiture

During 2021, we completed the following acquisitions:

• Unico Solution, Inc.

- On February 1, 2021, we completed the acquisition of 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 are included within the Business Advisory segment from the date of acquisition.

• Bad Rabbit, Inc.

- On October 1, 2021, we completed the acquisition of the research administration software services team of Bad Rabbit, Inc.

(“Bad Rabbit”).

The results of operations of Bad Rabbit are included in our consolidated financial statements and results of operations of our Education segment from the date of acquisition.

• Whiteboard Communications Ltd.

- On December 1, 2021, we completed the acquisition of Whiteboard Communications Ltd.

(“Whiteboard”), a student enrollment advisory firm that helps colleges and universities with recruitment initiatives and financial aid strategies.

The results of operations of Whiteboard are included in our consolidated financial statements and results of operations of our Education segment from the date of acquisition.

• Perception Health, Inc.

- On December 31, 2021, we completed the acquisition of Perception Health, Inc.

(“Perception Health”), a healthcare predictive analytics company focused on bringing data sources together for improved clinical and business decision-making.

The results of operations of Perception Health will be included in our consolidated financial statements and results of operations of our Healthcare segment beginning January, 1, 2022.

The acquisitions of Unico Solutions, Bad Rabbit, Whiteboard and Perception Health are not significant to our consolidated financial statements individually or in the aggregate as of and for the year ended December 31, 2021.

On November 1, 2021, we completed the divestiture of our Life Sciences business to a third-party.

The Life Sciences business, a reporting unit within the Business Advisory segment, provides commercial and research and development strategy, pricing and market access strategy solutions to customers in the life sciences industries.

For the ten months ended October 31, 2021, Life Sciences revenues were $16.7 million.

The Life Sciences business is not significant to our consolidated financial statements and does not qualify as a discontinued operation for reporting under GAAP.

How We Generate Revenues

A large portion of our revenues is generated by our full-time consultants who provide consulting and other professional services to our clients and are billable to our clients based on the number of hours worked, services provided, or achieved outcomes.

A smaller portion of our

revenues is generated by our other professionals, also referred to as full-time equivalents, some of whom work variable schedules as needed by our clients.

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, 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.

Another portion of our revenue is generated by our Healthcare Managed Services employees within our Healthcare segment.

Our Healthcare Managed Services employees manage and provide revenue cycle billing, collections, insurance verification and change integrity services to clients.

We refer to our billable consultants, full-time equivalents and Healthcare Managed Services employees as revenue-generating professionals.

Revenues generated by our billable consultants are primarily driven by the number of consultants we employ and their utilization rates, as well as the billing rates we charge our clients.

Revenues generated by our other professionals, or full-time equivalents, are largely dependent on the number of consultants we employ, their hours worked, and billing rates charged.

Revenues generated by our coaches are largely dependent on the number of coaches we employ and the total value, scope, and terms of the consulting contracts under which they provide services, which are primarily fixed-fee contracts.

Revenues generated by our Healthcare Managed Services employees are largely dependent on the total value, scope and terms of the related contracts.

We generate our revenues from providing professional services under four types of billing arrangements:

See Part I—Item 1.

“Business—Overview—Our Services” and Note 19 “Segment Information” within the notes to our consolidated financial statements for a discussion of our segments and capabilities, as well as information on the modification to our reportable segments effective January 1, 2022.

As a result of the modification, we recast our historical segment information for consistent presentation.

Our historical consolidated results have not been impacted.

COMPONENTS OF OPERATING RESULTS

Our revenues are primarily generated by our employees who provide consulting and other professional services to our clients and are billable to our clients based on the number of hours worked, services provided, or achieved outcomes.

We refer to these employees as our revenue-generating professionals.

Revenues are primarily driven by the number of revenue-generating professionals we employ as well as the total value, scope, and terms of the consulting contracts under which they provide services.

We also engage independent contractors to supplement our revenue-generating professionals on client engagements as needed.

We generate our revenues from providing professional services and software products under the following four types of billing arrangements:

fixed-fee (including software license revenue);

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and software support, maintenance and subscriptions.

• Fixed-fee (including software license revenue):

In fixed-fee billing arrangements, we agree to a pre-established fee in exchange for a predetermined set of professional services.

We set the fees based on our estimates of the costs and timing for completing the engagements.

It is the client’s expectation in these engagements that the pre-established fee will not be exceeded except in mutually agreed upon circumstances.

We generally recognize revenues under fixed-fee billing arrangements using a proportionate performance approach, which is based on work completed to-date versus our estimates of the total services to be provided under the engagement.

Contracts within our Culture and Organizational Excellence solution include fixed-fee partner contracts with multiple performance obligations, which primarily consist of coaching services, as well as speaking engagements, conferences, publications and software products (“Partner Contracts”).

Revenues for coaching services and software products are generally recognized on a straight-line basis over the length of the contract.

All other revenues under Partner Contracts, including speaking engagements, conferences and publications, are recognized at the time the goods or services are provided.

Fixed-fee arrangements also include software licenses for our revenue cycle management software and research administration and compliance software.

Licenses for our revenue cycle management software are sold only as a component of our consulting projects, and the services we provide are essential to the functionality of the software.

Therefore, revenues from these software licenses are recognized over the term of the related consulting services contract.

License revenue from our research administration and compliance software is generally recognized in the month in which the software is delivered.

Fixed-fee engagements represented 44.2%, 41.4%, and 45.8% of our revenues for the years ended December 31, 2021, 2020, and 2019, respectively.

Time-and-expense billing arrangements require the client to pay based on the number of hours worked by our revenue-generating professionals at agreed upon rates.

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 and the portion of our Healthcare Managed Services contracts that are billed under time-and-expense arrangements.

We recognize revenues under time-and-expense billing arrangements as the related services or publications are provided.

Time-and-expense engagements represented 39.2%, 43.4%, and 39.9% of our revenues in 2021, 2020, and 2019, respectively.

• Time-and-expense:

Under time-and-expense billing arrangements, we require the client to pay based on the number of hours worked by our revenue-generating professionals at agreed upon rates.

Time-and-expense arrangements also include speaking engagements, conferences and publications purchased by our clients.

• Performance-based:

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

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First, we generally earn fees that are directly related to the savings formally acknowledged by the client as a result of adopting our recommendations for improving operational and cost effectiveness in the areas we review.

Second, we have performance-based engagements in which we earn a success fee when and if certain predefined outcomes occur.

Second, we earn a success fee when and if certain predefined outcomes occur.

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

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 10.1%, 9.2%, and 8.9% of our revenues in 2021, 2020, and 2019, respectively.

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

• Software support, maintenance and subscriptions:

Clients that have purchased one of our software licenses can pay an annual fee for software support and maintenance.

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These fees are generally billed in advance and included in deferred revenues until recognized.

Software support and maintenance and subscription-based revenues represented 6.5%, 6.0%, and 5.4% of our revenues in 2021, 2020, and 2019, respectively.

Our quarterly results are impacted principally by our full-time consultants’ utilization rate, the bill rates we charge our clients, and the number of our revenue-generating professionals who are available to work.

Time-and-expense engagements do not provide us with a high degree of predictability as to performance in future periods.

Unexpected changes in the demand for our services can result in significant variations in utilization and revenues and present a challenge to optimal hiring and staffing.

Moreover, our clients typically retain us on an engagement-by-engagement basis, rather than under long-term recurring contracts.

The volume of work performed for any particular client can vary widely from period to period.

Our quarterly results are impacted principally by the total value, scope, and terms of our client contracts, the number of our revenue-generating professionals who are available to work, our revenue-generating professionals' utilization rate, and the bill rates we charge our clients.

Our utilization rate can be negatively affected by increased hiring because there is generally a transition period for new professionals that results in a temporary drop in our utilization rate.

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

Time-and-expense engagements do not provide us with a high degree of predictability as to performance in future periods.

Unexpected changes in the demand for our services can result in significant variations in utilization and revenues and present a challenge to optimal hiring and staffing.

Moreover, our clients typically retain us on an engagement-by-engagement basis, rather than under long-term recurring contracts.

The volume of work performed for any particular client can vary widely from period to period.

Reimbursable Expenses

Reimbursable expenses that are billed to clients, primarily relating to travel and out-of-pocket expenses incurred in connection with engagements, are included in total revenues and reimbursable expenses.

Under fixed-fee billing arrangements, we estimate the total amount of reimbursable expenses to be incurred over the course of the engagement and recognize the estimated amount as revenue using the proportionate performance approach, which is based on work completed to-date versus our estimates of the total services to be provided under the engagement.

Under time-and-expense billing arrangements, we recognize reimbursable expenses as revenue as the related services are provided, using the right to invoice practical expedient.

Reimbursable expenses are recognized as expenses in the period in which the expense is incurred.

Subcontractors that are billed to clients at cost are also included in reimbursable expenses.

When billings do not specifically identify reimbursable expenses, we allocate the portion of the billings equivalent to these expenses to reimbursable expenses.

Reimbursable expenses that are billed to clients, primarily relating to travel and out-of-pocket expenses incurred in connection with client engagements, are included in total revenues and reimbursable expenses.

We manage our business on the basis of revenues before reimbursable expenses, which we believe is the most accurate reflection of our services because it eliminates the effect of reimbursable expenses that we bill to our clients at cost.

Total Direct Costs

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

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 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, referred to as facilities expenses;

sales and marketing related expenses;

third-party 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.

Operating Expenses

Our most significant expenses are costs classified as direct costs.

Direct costs primarily consist of payroll costs for our revenue-generating professionals, which includes salaries, performance bonuses, share-based compensation, signing and retention bonuses, payroll taxes and benefits.

Direct costs also include fees paid to independent contractors that we retain to supplement our revenue-generating professionals, typically on an as-needed basis for specific client engagements, and technology costs, product and event costs, and commissions.

Direct costs exclude amortization of intangible assets and software development costs and reimbursable expenses, both of which are separately presented in our consolidated statements of operations.

Selling, general and administrative expenses consist primarily of salaries, performance bonuses, share-based compensation, payroll taxes and benefits for our support personnel.

Also included in selling, general and administrative expenses is third-party professional fees, software licenses and data hosting expenses, rent and other office related expenses, sales and marketing related expenses, recruiting and training expenses, and practice administration and meetings expenses.

Other operating expenses include restructuring charges, depreciation expense, amortization expense related to internally developed software costs and amortization of intangible assets acquired in business combinations.

In the first quarter of 2022, we began presenting depreciation and amortization expense in the aggregate with amortization of intangible assets and software development costs that were previously presented separately within total direct costs and reimbursable expenses.

We have recast our historical presentation of our consolidated statement of operations for consistent presentation.

Segment Results

Segment operating income consists of the revenues generated by a segment, less the direct costs of revenue and selling, general and administrative expenses that are incurred directly by the segment.

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 related 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.

Segment operating income consists of the revenues generated by a segment, less operating expenses that are incurred directly by the segment.

Other operating expenses not allocated at the segment level include corporate costs related to administrative functions that are performed in a centralized manner that are not attributable to a particular segment.

Non-GAAP Measures

We also assess our results of operations using the following non-GAAP financial measures:

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 ("EPS") from continuing operations.

These non-GAAP financial measures differ from GAAP because they 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.

Our non-GAAP financial measures may be defined differently from time to time and may be defined differently than similar terms used by other companies, and accordingly, care should be exercised in understanding how we define our non-GAAP financial measures.

Our management uses the non-GAAP financial measures to gain an understanding of our comparative operating performance, for example when comparing such results with previous periods or forecasts.

These non-GAAP financial measures are used by management in their financial and operating decision making because management believes they reflect our ongoing business in a manner that allows for

meaningful period-to-period comparisons.

Management also uses these non-GAAP financial measures when publicly providing our business outlook, for internal management purposes, and as a basis for evaluating potential acquisitions and dispositions.

We believe that these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating Huron’s current operating performance and future prospects in the same manner as management does and in comparing in a consistent manner Huron’s current financial results with Huron’s past financial results.

These non-GAAP financial measures include adjustments for the following items:

Amortization of intangible assets:

We exclude the effect of amortization of intangible assets from the calculation of adjusted net income, as it is inconsistent in its amount and frequency and is significantly affected by the timing and size of our acquisitions.

Restructuring and other charges:

We have incurred charges due to the restructuring of various parts of our business, including restructuring charges related to the sale of the Life Sciences business in the fourth quarter of 2021 and 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 primarily consist of costs associated with office space consolidations, including lease impairment charges and accelerated depreciation on lease-related property and equipment, and employee-related 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 exclude the effect of the restructuring and other charges from our non-GAAP measures to permit comparability with periods that were not impacted by these items.

Other losses (gains):

We exclude the effects of other losses (gains), which primarily relate to changes in the estimated fair value of our liabilities for contingent consideration related to business acquisitions and litigation settlement losses and gains, to permit comparability with periods that are not impacted by these items.

Transaction-related expenses :

To permit comparability with prior periods, we exclude the impact of third-party legal and accounting fees incurred related to business acquisitions.

Goodwill impairment charges:

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

Unrealized gain on preferred stock investment:

We exclude the effect of unrealized gains related to changes in the fair value of our preferred stock investment in Medically Home Group, Inc.

(“Medically Home”), which are recognized when an observable price change occurs.

These unrealized gains are included as a component of other income (expense), net.

We believe that these unrealized gains are not indicative of the ongoing performance of our business and their exclusion permits comparability with prior periods.

Losses (gains) on sales of businesses:

We exclude the effect of non-operating losses and gains 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 2021 gain relates to the sale of our Life Sciences business in the fourth quarter of 2021, and the 2020 loss primarily relates to the sale of our U.K.

life sciences drug safety practice in the fourth quarter of 2020.

Foreign currency transaction losses (gains), net:

We exclude the effect of foreign currency transaction losses and gains from the calculation of adjusted EBITDA because the amount of each loss or gain is significantly affected by changes in foreign exchange rates.

Tax effect of adjustments:

The non-GAAP income tax adjustment reflects the incremental tax impact applicable to the non-GAAP adjustments.

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

We exclude the effects of income tax expense, interest expense, net of interest income, and depreciation and amortization in the calculation of EBITDA, as these are customary exclusions as defined by the calculation of EBITDA to arrive at meaningful earnings from core operations excluding the effect of such items.

We include, within the depreciation and amortization adjustment, the amortization of capitalized implementation costs of our enterprise resource planning ("ERP") and other related software, which is included within selling, general and administrative expenses on our consolidated statements of operations.

Adjusted weighted average shares - diluted:

As we reported a net loss for the year ended December 31, 2020, GAAP diluted weighted average shares outstanding equals the basic weighted average shares outstanding for that period.

For the year ended December 31, 2020,

the non-GAAP adjustments described above resulted in adjusted net income from continuing operations.

Therefore, we include the dilutive common stock equivalents in the calculation of adjusted diluted weighted average shares outstanding for that period.

Revenue-Generating Professionals

Our revenue-generating professionals consist of our full-time consultants who generate revenues based on the number of hours worked;

full-time equivalents, which consists of coaches and their support staff within the Culture and Organizational excellence solution, consultants who work variable schedules as needed by clients, and full-time employees who provide software support and maintenance services to clients;

and our Healthcare Managed Services employees who provide revenue cycle billing, collections insurance verification and change integrity services to clients.

Utilization Rate

The utilization rate of our revenue-generating professionals is calculated by dividing the number of hours our billable consultants worked on client assignments during a period by the total available working hours for these billable consultants during the same period.

Available hours are determined by the standard hours worked by each billable consultant, adjusted for part-time hours, and U.S.

standard work weeks.

Available working hours exclude local country holidays and vacation days.

Utilization rates are presented for our revenue-generating professionals who primarily bill on an hourly basis.

We do not present utilization rates for our Managed Services professionals as most of the revenues generated by these employees are not billed on an hourly basis.

RESULTS OF OPERATIONS

The following table sets forth, for the periods indicated, selected segment and consolidated operating results and other operating data.

Executive Highlights

Highlights from the year ended December 31, 2022 include:

• Total revenues increased 25.0% to $1.13 billion in 2022 from $905.6 million in 2021

• Revenues within our Digital capability increased 41.4% to $494.5 million in 2022 from $349.7 million 2021

• Operating margin increased to 8.8% for 2022, compared to 5.8% for 2021

• Diluted EPS from continuing operations increased 26.0% to $3.64 for 2022, compared to $2.89 for 2021

• Adjusted diluted EPS from continuing operations (a non-GAAP measure) increased 31.4% to $3.43 for 2022, compared to $2.61 for 2021

• Returned $121.3 million to shareholders by repurchasing 2.0 million shares of our common stock in 2022

• Refinanced our $600 million credit facility;

including extending the maturity date to 2027 and transitioning to SOFR, while maintaining favorable pricing and flexibility

• Completed the acquisitions of AIMDATA, LLC and Customer Evolution, LLC in January 2022 and December 2022, respectively

Total revenues increased $226.8 million, or 25.0%, to $1.13 billion for the year ended December 31, 2022 from $905.6 million for the year ended December 31, 2021.

The increase in total revenues reflects continued strength in demand for our Digital capability services across all our segments as companies continue to invest in cloud-based technology and analytic solutions, as well as strengthened demand for our Consulting and Managed Services offerings within our Education and Healthcare segments.

In our Consulting and Managed Services capability, revenues for the year ended December 31, 2022 increased 14.8% to $638.0 million, compared to $555.9 million the year ended December 31, 2021, and reflected strengthened demand in our Education and Healthcare segments.

The utilization rate within our Consulting capability increased to 75.2% in 2022, compared to 70.6% in 2021.

Revenues within our Digital capability increased 41.4% to $494.5 million for the year ended December 31, 2022, compared to $349.7 million for the year ended December 31, 2021, and reflected strengthened demand in all of our segments.

The utilization rate within our Digital capability decreased to 71.0% in 2022, compared to 72.5% in 2021.

The total number of revenue-generating professionals increased to 4,832 as of December 31, 2022, compared to 3,776 as of December 31, 2021, as a result of hiring to support the overall increase in demand for our services within all of our segments.

We proactively plan and manage the size and composition of our workforce and take actions as needed to address changes in the anticipated demand for our services as compensation costs are the most significant portion of our operating expenses.

Operating margin, which is defined as operating income expressed as a percentage of revenues, increased to 8.8% for the year ended December 31, 2022, compared to 5.8% for the year ended December 31, 2021, driven by strong revenue growth that outpaced increases in operating expenses.

Net income from continuing operations increased $12.6 million, or 19.9%, to $75.6 million for the year ended December 31, 2022 from $63.0 million for the year ended December 31, 2021.

As a result of the increase in net income from continuing operations, diluted earnings per share from continuing operations increased 26.0% to $3.64 for 2022 from $2.89 for 2021.

Adjusted diluted earnings per share from continuing operations increased 31.4% to $3.43 for 2022 from $2.61 for 2021.

During 2022, we repurchased 2.0 million shares of our common stock for $121.3 million, representing 9.3% of our common stock outstanding as of December 31, 2021.

On November 15, 2022, we entered into an amended and restated credit agreement that, among other items, extends the maturity date of our credit facility from September 27, 2024 to November 15, 2027;

maintains the aggregate revolving commitments of $600 million;

maintains favorable pricing and flexibility to support our balanced approach to capital deployment;

and provides flexibility to add pricing adjustments tied to the achievement of ESG key performance indicators.

During 2022, we completed the following acquisitions:

• AIMDATA, LLC - On January 18, 2022, we completed the acquisition of AIMDATA, LLC ("AIMDATA"), an advisory and implementation consulting services firm focused on strategy, technology and business transformation.

The results of operations of AIMDATA are included within our consolidated financial statements as of the acquisition date and allocated among our three operating industries, which are our reportable segments, based on the engagements delivered by the business.

• Customer Evolution, LLC - Effective December 31, 2022, we completed the acquisition of Customer Evolution, LLC ("Customer Evolution"), a healthcare advisory and technology implementation consulting services firm.

The results of operations of Customer Evolution are included in our consolidated financial statements and results of operations of our Healthcare segment from the date of acquisition.

The acquisitions of AIMDATA and Customer Evolution are not significant to our consolidated financial statements individually or in the aggregate as of and for the year ended December 31, 2022.

Summary of Results

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 strengthens Huron’s go-to-market strategy, drives efficiencies that support margin expansion, and positions the company to accelerate growth.

To align with the new operating model, effective with reporting for periods beginning January 1, 2022, we began reporting under the following three industries, which are our reportable segments:

Healthcare, Education and Commercial.

The Commercial segment includes 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 includes all revenue and costs associated with engagements delivered in the respective segments' industries.

The new Healthcare and Education segments include some revenue and costs historically reported in the Business Advisory segment and the Healthcare segment includes some revenue and costs historically reported in the Education segment.

We also provide revenue reporting across two principal capabilities:

i) Consulting and Managed Services and ii) Digital.

These changes improve visibility into the core drivers of our business.

While our consolidated results have not been impacted, our historical segment information has been recast for consistent presentation.

The following table sets forth, for the periods indicated, selected segment and consolidated operating results and other operating data, including non-GAAP measures.

The results of operations for acquired businesses have been included in our results of operations since the date of their respective acquisition.

In conjunction with our continuous evaluation of the appropriate level of disaggregation of revenues as our business evolves and in consideration of a group hire of approximately 300 employees in our Healthcare Managed Services solution within our Healthcare segment in the second quarter of 2021, we began assessing our operating performance by the following three employee types:

billable consultants, full-time equivalents, and Healthcare Managed Services employees.

The other operating data previously reported for the twelve months ended December 31, 2020 and 2019 was revised below to reflect this change.

This change has no impact on our consolidated total revenues or total revenues by segment.

Segment and Consolidated Operating Results

(in thousands, except per share amounts):

Year Ended December 31,

2022 2021 2020

Segment and Consolidated Operating Results (in thousands):

Revenues $ 534,999 $ 444,767 $ 406,536

1 unchanged sentence

Segment operating income as a percentage of segment revenues 24.5 % 26.6 % 26.0 %

Business Advisory:

Revenues $ 359,835 $ 242,374 $ 223,325

4 unchanged sentences

Segment operating income as a percentage of segment revenues 21.1 % 15.7 % 18.2 %

Total Company:

Revenues $ 1,132,455 $ 905,640 $ 844,127

1 unchanged sentence

Total revenues and reimbursable expenses $ 1,158,961 $ 926,958 $ 871,014

Statements of Operations reconciliation:

Segment operating income $ 260,176 $ 205,018 $ 190,474

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Other operating expenses 140,145 131,545 135,105

Litigation and other losses (gains) 173 (150) (1,196)

Depreciation and amortization 20,271 20,634 24,405

Goodwill impairment charges (1)

Total operating income (loss) 52,839 (28,852) 63,706

Operating income (loss) 99,760 52,839 (28,852)

Other income (expense), net 8,817 27,197 (5,021)

5 unchanged sentences

Diluted $ 3.64 $ 2.89 $ (1.08)

Segment and Consolidated Operating Results

(in thousands, except per share amounts):

Year Ended December 31,

1 unchanged sentence

Other Operating Data:

Number of billable consultants (at period end) (2) :

Healthcare 869 820 890

Business Advisory 1,116 1,051 930

Education 901 737 756

Total 2,886 2,608 2,576

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

Healthcare 822 863 849

Business Advisory 1,115 962 892

Education 779 775 686

Total 2,716 2,600 2,427

Billable consultant utilization rate (3) :

Healthcare 72.0 % 69.0 % 79.4 %

Business Advisory 69.1 % 72.4 % 72.5 %

Education 73.0 % 70.3 % 76.8 %

Total 71.1 % 70.7 % 76.1 %

Billable consultant average billing rate per hour (4) :

Number of revenue-generating professionals by segment (at period end) (6) :

Healthcare 1,890 1,596 1,117

Business Advisory (5)

$ 198 $ 195 $ 201

Education 1,579 1,050 873

Commercial (2)

1,363 1,130 1,059

Revenue per billable consultant (in thousands):

Healthcare $ 305 $ 272 $ 328

Business Advisory $ 246 $ 264 $ 273

Education $ 253 $ 247 $ 285

Total 4,832 3,776 3,049

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

Healthcare 153 187 230

Business Advisory 52 30 14

Education 53 52 47

Revenue by capability:

Consulting and Managed Services (3)

$ 637,994 $ 555,915 $ 514,086

Digital 494,461 349,725 330,041

Total $ 1,132,455 $ 905,640 $ 844,127

Revenue per full-time equivalent (in thousands):

Healthcare $ 518 $ 481 $ 504

Business Advisory $ 343 $ 455 $ 655

Education $ 743 $ 618 $ 617

Number of revenue-generating professionals by capability (at period end):

Consulting and Managed Services (4)

2,294 1,838 1,362

Digital 2,538 1,938 1,687

Total 4,832 3,776 3,049

Healthcare Managed Services (7) :

Total revenues (in thousands) $ 47,718 $ 28,663 $ 4,453

Average number of Healthcare Managed Services employees (for the period) 382 91 14

Utilization rate by capability (5) :

Consulting 75.2% 70.6% 67.6%

Digital 71.0% 72.5% 74.3%

(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.

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

(2) Consists of our consulting professionals who provide consulting services and generate revenues based on the number of hours worked.

(3) Utilization rate for our billable consultants is calculated by dividing the number of hours all of our billable consultants worked on client assignments during a period by the total available working hours for all of these consultants during the same period, assuming a forty-hour work week, less paid holidays and vacation days.

(4) Average billing rate per hour for our billable consultants is calculated by dividing revenues for a period by the number of hours worked on client assignments during the same period.

(5) The Business Advisory segment includes operations of Huron Eurasia India.

Absent the impact of Huron Eurasia India, the average billing rate per hour for the Business Advisory segment would have been $216, $213, and $228 for the years ended December 31, 2021, 2020 and 2019, respectively.

Absent the impact of Huron Eurasia India, Huron's consolidated average billing rate per hour would have been $216, $209, and $220 for the years ended December 31, 2021, 2020 and 2019, respectively.

(6) Consists of coaches and their support staff within our Culture and Organizational Excellence solution, consultants who work variable schedules as needed by our clients, and full-time employees who provide software support and maintenance services to our clients.

(7) Consists of employees who manage and provide revenue cycle billing, collections, insurance verification and change integrity services to our healthcare clients.

(2) The majority of our revenue-generating professionals within our Commercial segment can provide services across all of our industries, including healthcare and education.

(3) Managed Services capability revenues within our Healthcare segment was $67.6 million, $47.7 million and $28.7 million for the years ended 2022, 2021 and 2020, respectively.

Managed Services capability revenues within our Education segment was $15.7 million, $9.1 million and $6.8 million for the years ended 2022, 2021 and 2020, respectively.

(4) The number of Managed Services revenue-generating professionals within our Healthcare segment as of December 31, 2022, 2021 and 2020, was 715, 509, and 96, respectively.

The number of Managed Services revenue-generating professionals within our Education segment as of December 31, 2022, 2021 and 2020, was 106, 72, and 49, respectively.

(5) Utilization rates are presented for our revenue-generating professionals who primarily bill on an hourly basis.

We do not present utilization rates for our Managed Services professionals as most of the revenues generated by these employees are not billed on an hourly basis.

(6) During the first quarter of 2022, we reclassified certain Digital revenue-generating professionals within our Healthcare and Education segments to our Commercial segment as these professionals can provide services across all of our industries.

This reclassification did not impact the total headcount within our Digital capability for any period.

The prior period headcount has been revised for consistent presentation.

Non-GAAP Measures

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 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.

Our management uses the non-GAAP financial measures to gain an understanding of our comparative operating performance, for example when comparing such results with previous periods or forecasts.

These non-GAAP financial measures are used by management in their financial and operating decision making because management believes they reflect our ongoing business in a manner that allows for meaningful period-to-period comparisons.

The reconciliations of these financial measures from GAAP to non-GAAP are as follows (in thousands, except per share amounts):

Year Ended December 31,

6 unchanged sentences

Earnings before interest, taxes, depreciation and amortization (EBITDA) 148,693 114,533 5,063

Restructuring and other charges 12,401 21,374 1,855

Litigation and other losses (gains) 198 (150) (1,196)

Restructuring charges 9,909 12,401 21,374

Other losses (gains) (193) 198 (150)

Transaction-related expenses 50 1,782 1,132

11 unchanged sentences

Amortization of intangible assets 11,198 9,251 12,696

Restructuring and other charges 12,401 21,374 1,855

Litigation and other losses (gains), net 198 (150) (1,196)

Restructuring charges 9,909 12,401 21,374

Other losses (gains) (193) 198 (150)

Transaction-related expenses 50 1,782 1,132

Goodwill impairment charges — — 59,816

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

Unrealized gain on preferred stock investment (26,964) — (1,667)

1 unchanged sentence

Tax effect of adjustments 1,590 1,742 (23,199)

Tax benefit related to “check-the-box” election

Total adjustments, net of tax (4,410) (6,136) 71,605

2 unchanged sentences

Adjusted diluted earnings per share from continuing operations $ 3.43 $ 2.61 $ 2.15

These non-GAAP financial measures include adjustments for the following items:

Amortization of intangible assets:

We have excluded the effect of amortization of intangible assets from the calculation of adjusted net income from continuing operations presented above.

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

Restructuring and other charges:

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

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

Litigation and other losses (gains), net:

We have excluded the effects of litigation and other losses (gains), net which primarily relate to the remeasurement of our contingent consideration liabilities related to business acquisitions 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 third-party legal and accounting fees incurred in 2021 and 2020 related to business 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 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:

We incurred non-cash interest expense relating to the implied value of the equity conversion component of our Convertible Notes, which matured in October 2019.

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 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 other income (expense), net in 2020 related to the fair value of our preferred stock investment in Medically Home Group, Inc.

(“Medically Home”), as management believes that this gain is not indicative of the ongoing performance of our business and its exclusion permits comparability with prior periods.

Losses (gains) on sales of businesses:

We have excluded the effect of non-operating losses and gains 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 2021 gain relates to the sale of our Life Sciences business within the Business Advisory segment in the fourth quarter of 2021, and 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.

Foreign currency transaction losses (gains), net:

We have excluded the effect of foreign currency transaction losses and gains from the calculation of adjusted EBITDA because the amount of each loss or gain is significantly affected by timing and changes in foreign exchange rates.

Tax effect of adjustments:

The non-GAAP income tax adjustment reflects the incremental tax impact applicable to the non-GAAP adjustments.

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

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

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

We have excluded the effects of income tax expense, interest expense, net of interest income, and depreciation and amortization in the calculation of EBITDA as these are customary exclusions as defined by the calculation of EBITDA to arrive at meaningful earnings from core operations excluding the effect of such items.

Included within the depreciation and amortization adjustment is the amortization of capitalized implementation costs of our ERP and other related software, which is included within selling, general and administrative expenses on our consolidated statement of operations.

Adjusted weighted average shares - diluted:

As we reported a net loss for the year ended December 31, 2020, GAAP diluted weighted average shares outstanding equals the basic weighted average shares outstanding for that period.

For the year ended December 31, 2020, the non-GAAP adjustments described above resulted in adjusted net income from continuing operations.

Therefore, we included the dilutive common stock equivalents in the calculation of adjusted diluted weighted average shares outstanding for that period.

Year Ended December 31, 2022 Compared to Year Ended December 31, 2021

Revenues increased $61.5 million, or 7.3%, to $905.6 million for the year ended December 31, 2021, from $844.1 million for the year ended December 31, 2020.

The increase in revenues reflected strengthened demand for services in all of our segments and the incremental revenues from our acquisitions, as discussed below in Segment Results.

Of the overall $61.5 million increase in revenues, $41.2 million was attributable to our billable consultants, $19.1 million was attributable to our Healthcare Managed Services employees and $1.2 million was attributable to our full-time equivalents.

The increase in billable consultant revenues was attributable to an increase in demand for services in all of our segments, as discussed below in Segment Results.

The overall increase in billable consultant revenues reflected overall increases in the average number of billable consultants, average billing rate, and consultant utilization rate in 2021 compared to 2020.

The increase in Healthcare Managed Services revenues was primarily attributable to an increase in demand for these services, which led to an increase in the average number of Healthcare Managed Services employees in 2021 compared to the prior year.

At the beginning of the second quarter of 2021, we hired approximately 300 employees to expand our capacity to manage and provide revenue cycle billing, collections, insurance verification and change integrity services to our healthcare clients.

These employees are serving clients in our Healthcare Managed Services capability, including serving under a short-term contract with an existing client which we entered into in connection with this group hire.

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

and reflected an overall increase in revenue per full-time equivalent, partially offset by an overall decrease in the average number of full-time equivalents in 2021 compared to 2020.

In most of 2020 and the first quarter of 2021, 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 as some clients reprioritized or delayed certain projects.

Subsequent to the first quarter of 2021, we saw an increase in our sales pipeline and the pace of signings in our Healthcare and Education businesses.

While overall demand for our services in the first quarter of 2021 was negatively impacted by the COVID-19 pandemic, the overall demand for our services strengthened in 2021 compared to 2020 and we expect continued revenue growth in 2022 compared to 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 capability, we continue to make investments in these offerings, both organically and through strategic acquisitions, such as our acquisitions of ForceIQ in 2020 and Unico Solutions and Perception Health in 2021, and through the addition of new offerings and solutions where we see strategic opportunities in the digital capability.

Total Direct Costs

Direct costs, excluding amortization of intangible assets and software development costs, increased $44.3 million, or 7.5%, to $636.8 million for the year ended December 31, 2021 from $592.4 million for the year ended December 31, 2020.

The overall $44.3 million increase in direct costs primarily related to a $32.5 million increase in salaries and related expenses for our revenue-generating professionals, which was largely driven by an overall increase in headcount;

an $8.0 million increase in performance bonus expense for our revenue-generating professionals;

and a $3.4 million increase in signing, retention and other bonus expense for our revenue-generating professionals.

As a percentage of revenues, our direct costs slightly increased to 70.3% during 2021 compared to 70.2% during 2020.

Total direct costs for the year ended December 31, 2021 included $3.8 million of amortization expense for internal software development costs and intangible assets, compared to $5.4 million of amortization expense in same the prior year period.

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 Losses (Gains), Net

Selling, general and administrative expenses increased $7.2 million, or 4.2%, to $177.9 million for the year ended December 31, 2021, compared to $170.7 million for the year ended December 31, 2020.

The $7.2 million increase primarily related to a $3.0 million increase in performance bonus expense for our support personnel, a $2.4 million increase in legal expense, a $2.1 million increase in software and data hosting expense, a $1.9 million increase in salaries and related expenses for our support personnel, a $1.7 million increase in third-party professional advisory expense, and a $1.6 million increase in signing, retention and other bonus expense for our support personnel.

The increase in legal expense and third-party professional advisory expense was primarily attributable to transaction-related expenses incurred with the acquisitions completed in 2021.

These increases in selling, general and administrative expenses were partially offset by a $3.2 million decrease in practice administration and meetings expense and a $1.4 million decrease in office supplies expense.

As a percentage of revenues, selling, general and administrative expenses decreased to 19.6% during 2021 compared to 20.2% during 2020, primarily due to revenue growth that outpaced the increase in salaries and related expenses for our support personnel and the decrease in practice administration and meetings expense.

Restructuring charges for the year ended December 31, 2021 totaled $12.4 million, compared to $20.5 million for the year ended December 31, 2020.

On November 1, 2021, we completed the sale of our Life Sciences business, a reporting unit within the Business Advisory segment, to a third-party.

In connection with the sale, we incurred $8.5 million of restructuring charges, consisting of $6.8 million of transaction-related employee payments, $0.9 million of third-party legal and professional advisory fees, and $0.8 million of accelerated amortization and depreciation on the operating lease right-of-use asset ("ROU") and fixed assets related to our London, U.K.

office space, which we vacated as a result of the Life Sciences divestiture.

In the ten months ended October 31, 2021, the Life Sciences business generated $16.7 million of revenue and is not significant to our consolidated financial statements.

Additionally, in 2021, we incurred $2.3 million of rent and related expenses, net of sublease income, and accelerated depreciation on furniture and fixtures for other previously vacated office spaces, $1.3 million of other employee-related expenses in our Business Advisory segment, and $0.2 million of third-party professional advisory fees related to the reorganization of our internal operating and financial reporting structure.

See Note 19 "Segment Information" within the notes to our consolidated financial statements for more information on our segment reorganization that is effective in the first quarter of 2022.

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, and additional domestic locations.

As a result, we recognized $13.2 million of non-cash lease impairment charges on the related operating lease 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 abandoned.

The fourth quarter 2020 restructuring plan also included a reduction in workforce, which resulted in a $4.8 million restructuring charge for 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.

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.

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

Litigation and other losses (gains), net totaled a loss of $0.2 million for the year ended December 31, 2021, which primarily consisted of remeasurement losses to increase the fair value of our contingent consideration liability related to a business combination.

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.

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

Depreciation and amortization expense decreased $2.6 million, or 10.7%, to $21.7 million for the year ended December 31, 2021, from $24.3 million for the year ended December 31, 2020.

The decrease was primarily attributable to decreasing amortization expense for customer relationships acquired in business acquisitions 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;

as well as a decrease in depreciation expense for leasehold improvements and furniture and fixtures related to vacated office spaces.

Intangible asset amortization expense included within operating expenses primarily related to certain customer relationships, trade names, and non-competition agreements 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.

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 were non-cash in nature and did not affect our liquidity or debt covenants.

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

Operating Income (Loss)

Operating income increased $81.7 million, to income of $52.8 million for the year ended December 31, 2021, from a loss of $28.9 million for the year ended December 31, 2020.

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

The increase in operating income is also attributable to the increase in revenues and the decrease in restructuring charges for 2021 compared to 2020, partially offset by the increases in salaries and related expenses for our revenue-generating professionals, performance bonus expense for our revenue-generating professionals, and selling, general and administrative expenses in 2021 compared to 2020.

Operating margin, which is defined as operating income (loss) expressed as a percentage of revenues, increased to 5.8% in 2021 compared to (3.4)% in 2020.

The increase in operating margin was primarily attributable to the goodwill impairment charges recognized in 2020, the decrease in restructuring charges and the increase in revenues in 2021 compared to 2020.

Total Other Income (Expense), Net

Interest expense, net of interest income decreased $1.1 million to $8.2 million for the year ended December 31, 2021 from $9.3 million for the year ended December 31, 2020, primarily attributable to lower levels of borrowing under our credit facility during 2021 compared to 2020.

See Note 7 “Financing Arrangements” within the notes to our consolidated financial statements for additional information about our senior secured credit facility.

Other income, net totaled $35.3 million for the year ended December 31, 2021 and primarily consisted of a $31.5 million pre-tax gain recognized on the sale of our Life Sciences business in the fourth quarter of 2021 and a $4.2 million net unrealized gain in the market value of our investments that are used to fund our deferred compensation liability.

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

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

and a $1.5 million loss on the sale of our U.K.

life sciences drug safety practice in the fourth quarter of 2020.

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, and Note 3 "Acquisitions and Divestitures" within the notes to our consolidated financial statements for additional information on the divestitures completed in 2021 and 2020.

Income Tax Expense (Benefit)

For the year ended December 31, 2021, our effective tax rate was 21.3% as we recognized income tax expense from continuing operations of $17.0 million on income from continuing operations of $80.0 million.

The effective tax rate for 2021 was more favorable than the statutory rate, inclusive of state income taxes, of 26.3% primarily due to the tax benefits related to the CARES Act described below.

The effective tax rate also reflected the positive impact of certain federal tax credits and a discrete tax benefit recognized during the second quarter of 2021 related to electing the Global Intangible Low-Taxed Income (“GILTI”) high-tax exclusion retroactively for the 2018 tax year.

Revenues by segment and capability for the years ended December 31, 2022 and 2021 were as follows:

Revenues (in thousands) Year Ended

December 31, Increase / (Decrease)

2022 2021 $ %

Healthcare $ 534,999 $ 444,767 $ 90,232 20.3 %

Education 359,835 242,374 117,461 48.5 %

Commercial 237,621 218,499 19,122 8.8 %

Total revenues $ 1,132,455 $ 905,640 $ 226,815 25.0 %

Consulting and Managed Services $ 637,994 $ 555,915 $ 82,079 14.8 %

Digital 494,461 349,725 144,736 41.4 %

Total revenues $ 1,132,455 $ 905,640 $ 226,815 25.0 %

Total revenues increased $226.8 million, or 25.0%, to $1.13 billion for the year ended December 31, 2022 from $905.6 million for the year ended December 31, 2021.

The overall increase in revenues reflects continued strength in demand for our Digital capability services across all our segments as companies continue to invest in cloud-based technology and analytic solutions, as well as strengthened demand for our Consulting and Managed Services offerings within our Education and Healthcare segments partially the result of a favorable comparison against Education's results in the first two quarters of 2021 which were more significantly impacted by the COVID-19 pandemic.

During 2020 and 2021, some clients reprioritized and delayed certain projects as a result of the uncertainties surrounding the pandemic.

Additional information on our revenues by segment follows.

• Healthcare revenues increased $90.2 million, or 20.3%, driven by strengthened demand for our technology and analytics services and software products within our Digital capability, as well as strengthened demand for our revenue cycle managed services and performance improvement solutions within our Consulting and Managed Services capability.

Revenues for the year ended December 31, 2022 included $6.0 million of incremental revenues from our acquisition of Perception Health, Inc., which was completed in December 2021.

The number of revenue-generating professionals within our Healthcare segment grew 18.4% to 1,890 as of December 31, 2022, compared to 1,596 as of December 31, 2021.

• Education revenues increased $117.5 million, or 48.5%, driven by strengthened demand across all of our services and products within our Consulting and Managed Services and Digital capabilities.

Revenues for the year ended December 31, 2022 included $8.2 million of incremental revenues from our acquisition of Whiteboard Communications Ltd., which was completed in December 2021.

The number of revenue-generating professionals within our Education segment grew 50.4% to 1,579 as of December 31, 2022, compared to 1,050 as of December 31, 2021.

• Commercial revenues increased $19.1 million, or 8.8%, driven by strengthened demand for our technology and analytics services within our Digital capability and our corporate finance advisory solution within our Consulting and Managed Services capability, partially offset by a decrease in revenues due to the divestiture of our Life Sciences business in the fourth quarter of 2021 and a decrease in demand for our financial advisory solutions within the Consulting and Managed Services capability.

The Life Sciences business generated $16.7 million of revenues in the first ten months of 2021.

Revenues for the year ended December 31, 2022 included $3.0 million of incremental revenues from our acquisitions of AIMDATA, LLC and Unico Solution, Inc., which were completed in January 2022 and February 2021, respectively.

Excluding the revenue generated by Life Sciences in 2021 and the acquisitions of AIMDATA and Unico Solutions in 2022, Commercial revenues increased $32.9 million, or 16.3%.

The number of revenue-generating professionals within our Commercial segment grew 20.6% to 1,363 as of December 31, 2022, compared to 1,130 as of December 31, 2021.

This increase includes the impact of the divestiture of our Life Sciences business completed in the fourth quarter of 2021.

The Life Sciences business employed approximately 65 revenue-generating professionals prior to the divestiture.

Operating Expenses

Operating expenses for the year ended December 31, 2022 increased $185.1 million, or 21.2%, over the year ended December 31, 2021.

Operating expenses and operating expenses as a percentage of revenues were as follows:

Operating Expenses (in thousands, except amounts as a percentage of revenues) Year Ended December 31, Increase / (Decrease)

Direct costs $ 785,881 69.4% $ 636,776 70.3% $ 149,105

Reimbursable expenses 26,671 2.4% 21,369 2.4% 5,302

Selling, general and administrative expenses 209,381 18.5% 178,084 19.7% 31,297

Restructuring charges 9,909 0.9% 12,401 1.4% (2,492)

Depreciation and amortization 27,359 2.3% 25,489 2.7% 1,870

Total operating expenses $ 1,059,201 93.5% $ 874,119 96.5% $ 185,082

Direct costs increased $149.1 million, or 23.4%, to $785.9 million for the year ended December 31, 2022 from $636.8 million for the year ended December 31, 2021.

The $149.1 million increase primarily related to an $113.9 million increase in compensation costs for our revenue-generating professionals, driven by increased headcount, annual salary increases that went into effect in the first quarter of 2022, and increases in performance bonus expense and share-based compensation expense.

Additional increases in direct costs include a $26.2 million increase in contractor expense, a $5.7 million increase in technology costs, and a $2.5 million increase in product and event costs.

As a percentage of revenues, direct costs decreased to 69.4% during 2022, compared to 70.3% during 2021, primarily due to revenue growth that outpaced the increase in compensation costs for our revenue-generating professionals, partially offset by the increase in contractor expense, as a percentage of revenues.

Reimbursable Expenses

Reimbursable expenses are billed to clients at cost and primarily relate to travel and out-of-pocket expenses incurred in connection with client engagements.

These expenses are also included in total revenues and reimbursable expenses.

Selling, General and Administrative Expenses

Selling, general and administrative expenses increased by $31.3 million, or 17.6%, to $209.4 million for the year ended December 31, 2022 from $178.1 million for the year ended December 31, 2021.

The $31.3 million increase primarily related to a $21.0 million increase in non-payroll costs including a $7.0 million increase in promotion and marketing expenses, a $5.2 million increase in practice administration and meetings expenses, a $4.6 million increase in software and data hosting expenses, a $2.3 million increase in training expenses, and a $1.3 million increase in third-party professional fees;

partially offset by a $2.0 million decrease in legal expenses.

Additionally, selling, general and administrative expenses increased by $10.3 million related to compensation costs for our support personnel, which includes an $11.3 million increase in salaries and related expenses, a $6.3 million increase in performance bonus expense and a $3.4 million increase in share-based compensation expense;

partially offset by an $11.7 million decrease in deferred compensation expense attributable to the change in the market value of our deferred compensation liability.

The decrease in deferred compensation expense is offset by a decrease in the gain recognized for the change in the market value of investments that are used to fund our deferred compensation liability and recognized in other income (expense), net.

As a percentage of revenues, selling, general and administrative expenses decreased to 18.5% during 2022, compared to 19.7% during 2021.

This decrease was primarily due to the decrease in deferred compensation expense attributable to the change in the market value of our deferred compensation liability and revenue growth that outpaced the increase in salaries and related expenses for our support personnel, partially offset by the increases in promotion and marketing expenses and practice administration and meetings expenses, as percentages of revenue.

Restructuring Charges

Restructuring charges for the year ended December 31, 2022 were $9.9 million, compared to $12.4 million for the year ended December 31, 2021.

The $9.9 million of restructuring charges incurred in 2022 included $5.7 million of employee-related expenses;

$2.3 million for rent and related expenses, net of sublease income, for previously vacated office spaces;

$0.7 million for third-party professional advisory fees related to the modification of our operating model;

and $0.6 million for the early termination of a contract.

Of the $12.4 million of restructuring charges incurred in 2021, $8.5 million was in connection with the sale of our Life Sciences business in the fourth quarter of 2021.

The $8.5 million charge related to the sale consisted of $6.8 million of transaction-related employee payments;

$0.9 million of third-party legal and professional advisory fees;

and $0.8 million of accelerated amortization and depreciation on the operating lease right-of-use asset and fixed assets related to our London, U.K.

office space, which we vacated as a result of the divestiture.

Depreciation and Amortization

Depreciation and amortization expense, which includes amortization of intangible assets and software development costs previously presented separately, increased $1.9 million, or 7.3%, to $27.4 million for the year ended December 31, 2022, compared to $25.5 million for the year ended December 31, 2021.

The $1.9 million increase in depreciation and amortization expense was primarily attributable to an increase in amortization of intangible assets acquired in business acquisitions completed in the fourth quarter quarter of 2021 and in 2022, partially offset by decreasing amortization expense for certain intangible assets acquired due to the accelerated basis of amortization in prior periods.

Operating Income and Operating Margin

Operating income increased $46.9 million to $99.8 million for the year ended December 31, 2022 from $52.8 million for the year ended December 31, 2021.

Operating margin, which is defined as operating income expressed as a percentage of revenues, increased to 8.8% for 2022, compared to 5.8% for 2021.

Operating income and operating margin for each of our segments is as follows.

See the Segment and Consolidated Operating Results table above for a reconciliation of our total segment operating income to consolidated Huron operating income.

Segment Operating Income (in thousands, except operating margin percentages) Year Ended December 31, Increase / (Decrease)

Healthcare $ 131,227 24.5% $ 118,324 26.6% $ 12,903

Education 78,924 21.9% 52,398 21.6% 26,526

Commercial 50,025 21.1% 34,296 15.7% 15,729

Total segment operating income $ 260,176 $ 205,018 $ 55,158

• Healthcare operating income increased primarily due to the increase in revenues, partially offset by increases in compensation costs for our revenue-generating professionals, contractor expenses, practice administration and meetings expenses, compensation costs for our support personnel, amortization of intangible assets, and technology expenses.

The increase in compensation costs for our revenue-generating professionals was driven by an increase in headcount and annual salary increases that went into effect in the first quarter of 2022, as well as increases in performance bonus expense and share-based compensation expense;

partially offset by a decrease in signing, retention and other bonus expenses.

Healthcare operating margin decreased primarily due to the increases in contractor expenses, practice administration and meetings expenses and amortization of intangible assets, as percentages of revenues;

partially offset by revenue growth that outpaced the increase in compensation costs for our revenue-generating professionals.

• Education operating income increased primarily due to the increase in revenues, partially offset by increases in compensation costs for our revenue-generating professionals, contractor expenses, restructuring charges, technology expenses, and promotion and marketing expenses.

Education operating margin increased due to revenue growth that outpaced the increase in compensation costs;

partially offset by the increases in non-payroll costs, as percentages of revenues.

• Commercial operating income increased primarily due to the increase in revenues, as well as a decrease in restructuring charges;

partially offset by increases in contractor expenses, promotion and marketing expenses, and compensation costs for both our revenue-generating professionals and support personnel.

The increase in compensation costs was driven by an increase in performance bonus expense, partially offset by a decrease in salaries and related expenses for our revenue-generating professionals primarily driven by the divestiture of our Life Sciences business in the fourth quarter of 2021.

Commercial operating margin increased due to revenue growth that outpaced the increase in compensation costs for our revenue-generating professionals and the decrease in restructuring charges;

partially offset by the increases in promotion and marketing expenses and contractor expenses, as percentages of revenues.

Other Income (Expense), Net

Interest expense, net of interest income increased $3.7 million to $11.9 million for the year ended December 31, 2022 from $8.2 million for the year ended December 31, 2021 primarily attributable to higher levels of borrowing under our credit facility in 2022 compared to 2021, as well as an increase in interest rates over the same periods.

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

Other income, net decreased $14.6 million to $20.7 million for the year ended December 31, 2022 from $35.3 million for the year ended December 31, 2021.

The $20.7 million of other income, net in 2022 includes a $27.0 million unrealized gain related to the increase in the fair value of our preferred stock investment in Medically Home, partially offset by a $7.4 million unrealized loss on the market value of our deferred compensation investments that are used to fund our deferred compensation liability.

The $35.3 million of other income, net in 2021 includes a $31.5 million pre-tax gain on the sale of our Life Sciences business in the fourth quarter of 2021 and a $4.2 million unrealized gain on the market value of our deferred compensation investments.

See Note 10 “Fair Value of Financial Instruments” within the notes to our consolidated financial statements for additional information on our preferred stock investment in Medically Home.

Income Tax Expense

For the year ended December 31, 2022, our effective tax rate was 30.4% as we recognized income tax expense of $33.0 million on income of $108.6 million.

The effective tax rate of 30.4% was less favorable than the statutory rate, inclusive of state income taxes, of 26.7%, primarily due to tax expense related to nondeductible losses on our investments used to fund our deferred compensation liability and certain nondeductible expense items.

For the year ended December 31, 2021, our effective tax rate was 21.3% as we recognized income tax expense of $17.0 million on income of $80.0 million.

The effective tax rate of 21.3% was more favorable than the statutory rate, inclusive of state income taxes, of 26.3%, primarily due to the discrete tax benefits related to the CARES Act described below.

The effective tax rate also reflected the positive impact of certain federal tax credits and the discrete tax benefit recognized during the second quarter of 2021 related to electing the Global Intangible Low-Taxed Income (“GILTI”) high-tax exclusion retroactively for the 2018 tax year.

On July 20, 2020, the U.S.

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These favorable items were partially offset by certain nondeductible business expenses and increases in our valuation allowance primarily due to increases in deferred tax assets recorded for foreign tax credits.

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.

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 below, 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 CARES Act, which was signed into law on March 27, 2020, is an approximately $2 trillion emergency economic stimulus package in response to the COVID-19 outbreak, which among other items, includes income tax provisions relating to the net operating loss carryback period, options to defer payroll tax payments for a limited period and technical corrections to tax depreciation methods for qualified improvement property.

The CARES Act, which was signed into law on March 27, 2020, is an approximately $2 trillion emergency economic stimulus package in response to the COVID-19 outbreak, which among other items, includes income tax provisions relating to net operating loss carryback period, options to defer payroll tax payments for a limited period and technical corrections to tax depreciation methods for qualified improvement property.

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

As a result of electing the retroactive GILTI high-tax exlusion in the second quarter of 2021, we recognized a $1.0 million tax benefit of which $0.4 million related to carrying back our increased 2018 federal net operating loss to prior year income for a refund at the higher, prior year tax rate.

As a result of electing the retroactive GILTI high-tax exclusion in the second quarter of 2021, we recognized a $1.0 million tax benefit of which $0.4 million related to carrying back our increased 2018 federal net operating loss to prior year income for a refund at the higher, prior year tax rate.

During the third quarter of 2021, we recognized an additional tax benefit of $2.0 million, primarily related to the U.S.

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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 increased by $86.7 million to net income from continuing operations of $63.0 million for the year ended December 31, 2021, from a net loss from continuing operations of $23.7 million for the year ended December 31, 2020.

This increase is primarily attributable to the $59.8 million non-cash pre-tax goodwill impairment charges related to our Business Advisory segment recognized in the first quarter of 2020 and the $31.5 million pre-tax gain on sale of our Life Sciences business in the fourth quarter of 2021, partially offset by the tax impact of these items, as well as the increase in revenues partially offset by the increases in direct costs and selling, general and administrative expenses discussed above.

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, 2021 was $2.89 compared to a diluted loss per share from continuing operations of $1.08 for 2020.

The gain on sale of our Life Sciences business in the fourth quarter of 2021 had a $1.09 favorable impact on diluted earnings per share from continuing operations in 2021 and the non-cash goodwill impairment charges had a $2.07 unfavorable impact on diluted earnings per share from continuing operations in 2020.

Net Income from Continuing Operations and Earnings per Share

Net income from continuing operations increased $12.6 million to $75.6 million for the year ended December 31, 2022 from $63.0 million for the year ended December 31, 2021.

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, 2022 was $3.64, compared to $2.89 for the year ended December 31, 2021.

EBITDA and Adjusted EBITDA

EBITDA increased $34.2 million to $148.7 million for the year ended December 31, 2022 from $114.5 million for the year ended December 31, 2021.

The increase in EBITDA was 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 $31.5 million gain on sale of our Life Sciences business in the fourth quarter of 2021;

and the increase in segment operating income, as discussed in Segment Results below.

Adjusted EBITDA increased $10.7 million to $97.8 million in 2021 from $87.1 million in 2020.

The increase in adjusted EBITDA was primarily attributable to the increase in segment operating income, partially offset by an increase in corporate expenses, excluding the impact of restructuring charges on these items.

The increase in EBITDA was primarily attributable to the increase in segment income and the $27.0 million unrealized gain recognized in the first quarter of 2022 related to the increase in the fair value of our preferred stock investment;

partially offset by the $31.5 million gain on sale of our Life Sciences business recognized in the fourth quarter of 2021 and an increase in corporate expenses in 2022 compared to 2021, excluding the impact of the change in the market value of our deferred compensation liability on corporate expenses.

Adjusted EBITDA increased $33.0 million to $130.8 million for the year ended December 31, 2022 from $97.8 million for the year ended December 31,2021.

The increase in adjusted EBITDA was primarily attributable to the increase in segment operating income;

partially offset by an increase in corporate expenses, excluding the impact of the change in the market value of our deferred compensation liability and restructuring charges on segment operating income and corporate expenses.

Adjusted Net Income from Continuing Operations and Adjusted Earnings per Share

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As a result of the increase in adjusted net income from continuing operations, adjusted diluted earnings per share from continuing operations was $3.43 in 2022, compared to $2.61 in 2021.

Segment Results

Healthcare segment revenues increased $24.1 million, or 6.8%, to $377.6 million for the year ended December 31, 2021, from $353.4 million for the year ended December 31, 2020.

The overall increase was primarily due to strengthened demand for this segment's services

subsequent to the first quarter of 2021 and the favorable comparison against 2020, which was more significantly impacted by the COVID-19 pandemic as some clients reprioritized and delayed certain projects as a result of the uncertainties surrounding the pandemic.

For the year ended December 31, 2021, revenues from fixed-fee arrangements;

time-and-expense arrangements;

performance-based arrangements;

and software support, maintenance and subscription arrangements represented 57.8%, 17.1%, 19.4%, and 5.7% of this segment’s revenues, respectively, compared to 57.3%, 16.5%, 19.6%, and 6.6%, respectively, in 2020.

Performance-based fee revenue was $73.4 million in 2021, compared to $69.3 million in 2020.

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 $24.1 million increase in revenues, $19.1 million was attributable to an increase in revenues from our Healthcare Managed Services employees and $15.6 million was attributable to an increase in revenues from our billable consultants, partially offset by a $10.5 million decrease in revenues from our full-time equivalents.

The increase in revenues attributable to our Healthcare Managed Services employees was primarily attributable to an increase in demand for these services, which led to an increase in the average number of managed services employees in 2021 compared to the prior year.

The increase in revenues attributable to our billable consultants reflected increases in the average billing rate and the consultant utilization rate, partially offset by a decrease in the average number of billable consultants during 2021 compared to the prior year.

The decrease in full-time equivalent revenues was primarily driven by a decrease in demand for certain services and a decreased use of contractors and project consultants;

and reflected a decrease in the average number of full-time equivalents, partially offset by an increase in revenue per full-time equivalent during 2021 compared to the same prior year period.

Operating Income

Healthcare segment operating income increased $9.1 million, or 9.6%, to $104.0 million for the year ended December 31, 2021, from $94.9 million for the year ended December 31, 2020.

The Healthcare segment operating margin, defined as segment operating income expressed as a percentage of segment revenues, increased to 27.5% in 2021 from 26.9% in 2020.

The increase in this segment’s operating margin was primarily attributable to decreases in salaries and related expenses for our support personnel, contractor expense, practice administration and meetings expense, and restructuring charges.

These increases to the segment operating margin were partially offset by an increase in performance bonus expense for our revenue-generating professionals, as a percentage of revenues.

Business Advisory

Business Advisory segment revenues increased $24.3 million, or 9.1%, to $291.7 million for the year ended December 31, 2021, from $267.4 million for the year ended December 31, 2020, primarily related to strengthened demand for our cloud-based technology and analytics solutions and our strategy and innovation solutions.

Revenues in 2021 included $14.3 million of incremental revenues from our acquisitions of ForceIQ and Unico Solutions, which were completed in November 2020 and February 2021, respectively.

For the year ended December 31, 2021, revenues from fixed-fee arrangements;

time-and-expense arrangements;

performance-based arrangements;

and software support, maintenance and subscription arrangements represented 41.7%, 49.0%, 6.3%, and 3.0% of this segment's revenues, respectively, compared to 38.0%, 57.1%, 3.0%, and 1.9%, respectively, in 2020.

Performance-based fee revenue for the year ended December 31, 2021 was $18.3 million compared to $8.1 million in 2020.

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

Of the overall $24.3 million increase in revenues, $19.9 million was attributable to an increase in revenues generated by our billable consultants and $4.4 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 increases in the average number of billable consultants and the average billing rate, partially offset by a decrease in the consultant utilization rate in 2021 compared to 2020.

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 2021 compared to 2020.

On November 1, 2021, we completed the divestiture of the Life Sciences business to a third-party.

For the ten months ended October 31, 2021, Life Sciences revenues were $16.7 million.

The Life Sciences business is not significant to our consolidated financial statements and does not qualify as a discontinued operation for reporting under GAAP.

Operating Income

Business Advisory segment operating income increased to $48.2 million for the year ended December 31, 2021, compared to $48.0 million for the year ended December 31, 2020.

The Business Advisory segment operating margin decreased to 16.5% for 2021 from 18.0% for 2020.

The decrease in this segment’s operating margin was primarily attributable to increases in restructuring charges, salaries and related expenses for our revenue-generating professionals and contractor expense, as percentages of revenues;

partially offset by a decrease in performance bonus expense for our revenue-generating professionals.

The first quarter 2020 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.

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

Education segment revenues increased $13.1 million, or 5.9%, to $236.4 million for the year ended December 31, 2021, from $223.3 million for the year ended December 31, 2020.

Year Ended December 31, 2021 Compared to Year Ended December 31, 2020

As a result of our operating segment modification effective January 1, 2022, we recast our historical segment information for consistent presentation.

Our consolidated results were not impacted by the operating segment modification.

Therefore, the following discussion compares the recast segment revenue and segment operating income for 2021 to 2020.

For a discussion of our consolidated results of operations for 2021 compared to 2020, which were not impacted by the operating segment modification, refer to Part II—Item 7.

Revenues by segment and capability for the years ended December 31, 2021 and 2020 were as follows:

Revenues (in thousands) Year Ended

December 31, Increase / (Decrease)

2021 2020 $ %

Healthcare $ 444,767 $ 406,536 $ 38,231 9.4 %

Education 242,374 223,325 19,049 8.5 %

Commercial 218,499 214,266 4,233 2.0 %

Total revenues $ 905,640 $ 844,127 $ 61,513 7.3 %

Consulting and Managed Services $ 555,915 $ 514,086 $ 41,829 8.1 %

Digital 349,725 330,041 19,684 6.0 %

Total revenues $ 905,640 $ 844,127 $ 61,513 7.3 %

Total revenues increased $61.5 million, or 7.3% to $905.6 million for the year ended December 31, 2021 from $844.1 million for the year ended December 31, 2020.

The increase in revenues reflected strengthened demand for services in all of our segments;

the favorable comparison against 2020, which was more significantly impacted by the COVID-19 pandemic as some clients reprioritized and delayed certain projects as a result of the uncertainties surrounding the pandemic, particularly within our Healthcare and Education segments;

and the incremental revenues from our acquisitions.

Additional information on our revenues by segment follows.

• Healthcare revenues increased $38.2 million, or 9.4%, which reflected strengthened demand for this segment's services as well as the favorable comparison against 2020, which was more significantly impacted by the COVID-19 pandemic as some clients reprioritized and delayed certain projects as a result of the uncertainties surrounding the pandemic.

The strengthened demand was primarily driven by our revenue cycle managed services, performance improvement, and corporate finance advisory solutions within our Consulting and Managed Services capability and our technology and analytics services within our Digital capability.

These increases in demand were partially offset by a decrease in demand for our culture and organizational excellence solution within our Consulting and Managed Services capability.

Revenues in 2021 included $6.5 million of incremental revenues from our acquisition of ForceIQ which was completed in November 2020.

The number of revenue-generating professionals within our Healthcare segment grew 42.9% to 1,596 as of December 31, 2021, compared to 1,117 as of December 31, 2020.

The increase in revenue-generating professionals includes the hiring of approximately 300 employees during the second quarter of 2021 to expand our capacity to manage and provide revenue cycle billing, collections, insurance verification and change integrity services to our healthcare clients.

These employees serve clients in our Managed Services capability, including serving under a short-term contract with an existing client which we entered into in connection with this group hire.

• Education revenues increased $19.0 million, or 8.5%.

This segment's revenues were significantly impacted by the COVID-19 pandemic beginning in the third quarter of 2020 through the first half of 2021 as some clients reprioritized and delayed certain projects as a result of the uncertainties surrounding the pandemic.

In the second half of 2021, demand for this segment's services strengthened, driving an overall increase in total revenues for full year 2021 compared to full year 2020.

Revenues in 2021 included $0.6 million of incremental revenues from our acquisition of Whiteboard, which was completed in December 2021.

For the year ended December 31, 2021, revenues from fixed-fee arrangements;

time-and-expense arrangements;

and software support, maintenance and subscription arrangements represented 25.4%, 62.3%, and 12.3% of this segment’s revenues, respectively.

Revenues from fixed-fee arrangements;

time-and-expense arrangements;

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, in 2020.

Of the overall $13.1 million increase in revenues, $7.3 million was attributable to our full-time equivalents and $5.8 million was attributable to our billable consultants.

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

The overall increase in full-time equivalent revenues reflected an increase in revenue per full-time equivalent in 2021 compared to the same prior year period.

The increase in revenues from our billable consultants reflected increases in the consultant utilization rate, average billing rate, and the average number of billable consultants in 2021 compared to 2020.

Operating Income

Education segment operating income increased $5.3 million, or 11.1%, to $52.8 million for the year ended December 31, 2021, from $47.5 million for the year ended December 31, 2020.

The Education segment operating margin increased to 22.3% for 2021 from 21.3% for 2020.

The increase in this segment's operating margin was primarily attributable to revenue growth that outpaced the increase in salaries and related expenses for our revenue-generating professionals, as well as a decrease in restructuring charges.

These increases to the operating margin were partially offset by increases in performance bonus expense and signing, retention and other bonus expense for our revenue-generating professionals, as percentages of revenues.

Demand for this segment's services strengthened over the course of 2021, primarily in our strategy and operations and research solutions within our Consulting and Managed Services capability, driving an overall increase in total revenues for full year 2021 compared to full year 2020.

Revenues in 2021 included $1.0 million of incremental revenues from our acquisitions of Unico Solutions and Whiteboard, which were completed in February 2021 and December 2021, respectively.

The number of revenue-generating professionals within our Education segment grew 20.3% to 1,050 as of December 31, 2021, compared to 873 as of December 31, 2020.

• Commercial revenues increased $4.2 million, or 2.0%, driven by strengthened demand for our cloud-based technology and analytics solutions within our Digital capability, partially offset by the decrease in revenues related to the divestiture of our Life Sciences business in the fourth quarter of 2021.

Revenues generated by the Life Sciences business in the first ten months of 2021 and full year 2020 were $16.7 million and $29.4 million, respectively.

Revenues in 2021 included $7.4 million of incremental revenues from our acquisitions of ForceIQ, Inc.

and Unico Solutions, which were completed in November 2020 and February 2021, respectively.

The number of revenue-generating professionals within our Commercial segment grew 6.7% to 1,130 as of December 31, 2021, compared to 1,059 as of December 31, 2020.

This increase includes the impact of the divestiture of our Life Sciences business, which employed 99 revenue-generating professionals as of December 31, 2020.

Operating Income and Operating Margin

Operating income increased $81.7 million to $52.8 million for the year ended December 31, 2021 from a loss of $28.9 million for the year ended December 31, 2020.

The operating loss for the year ended December 31, 2020 is primarily attributable to $59.8 million of non-cash pretax goodwill impairment charges recognized in the first quarter of 2020 that related to our legacy Business Advisory segment.

The goodwill impairment charges are not allocated at the segment level because the underlying goodwill asset is reflective of our corporate investment in the segment and we do not include the impact of goodwill impairment charges in our evaluation of segment performance.

See Note 4 “Goodwill and Intangible Assets” within the notes to our consolidated financial statements for additional information on the goodwill impairment charges recognized in the first quarter of 2020.

Operating margin, which is defined as operating income expressed as a percentage of revenues, increased to 5.8% in 2021, compared to (3.4%) in 2020.

Operating income and operating margin for each of our segments is as follows.

See the Segment and Consolidated Operating Results table above for a reconciliation of our total segment operating income to consolidated Huron operating income.

Segment Operating Income (in thousands, except operating margin percentages) Year Ended December 31, Increase / (Decrease)

Healthcare $ 118,324 26.6% $ 105,650 26.0% $ 12,674

Education 52,398 21.6% 45,780 20.5% 6,618

Commercial 34,296 15.7% 39,044 18.2% (4,748)

Total segment operating income $ 205,018 $ 190,474 $ 14,544

• Healthcare operating income increased primarily due to the increase in revenues, as well as decreases in practice administration and meetings expenses, restructuring charges and contractor expenses.

These increases to operating income were partially offset by an increase in compensation costs for our revenue-generating professionals.

The increase in compensation costs was driven by an increase in headcount, as well as increases in performance bonus expense and signing, retention and other bonus expense.

Healthcare operating margin increased primarily due to decreases in compensation costs for our support personnel, contractor expenses, practice administration and meetings expenses and restructuring charges.

These increases to the segment operating margin were partially offset by the increase in compensation costs for our revenue-generating professionals, as a percentage of revenues.

• Education operating income increased primarily due to the increase in revenues and a decrease in restructuring charges, partially offset by increases in compensation costs for our revenue-generating professionals and technology expenses.

The increase in compensation costs was driven by an increase in headcount, as well as increases in performance bonus expense and signing, retention and other bonus expenses.

Education operating margin increased due to the decrease in restructuring charges and revenue growth that outpaced the increase in compensation costs for our revenue-generating professionals.

• Commercial operating income decreased primarily due to increases in restructuring charges, contractor expenses, and compensation costs for our support personnel, partially offset by the increase in revenues and a decrease in compensation costs for our revenue-generating professionals.

The decrease in compensation costs for our revenue-generating professionals was primarily driven by a decrease in performance bonus expense, largely offset by the increase in headcount.

Commercial operating margin decreased primarily due to the increases in restructuring charges and contractor expenses, as percentages of revenues;

partially offset by the decrease in compensation costs for our revenue-generating professionals.

LIQUIDITY AND CAPITAL RESOURCES

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Our purchase obligations primarily consist of payments for software and other information technology products to support our business and corporate infrastructure.

See Note 5 "Leases" within the notes to our consolidated financial statements for information on our contractual obligations related to our office space leases.

Net cash provided by operating activities decreased $118.8 million to $18.0 million in 2021 from $136.7 million in 2020.

The decrease in net cash provided by operating activities in 2021 compared to 2020 was primarily attributable to a decrease in cash collections in 2021 compared to the prior year, increases in payments for salaries and related expenses for our employees and the $12.2 million payment in the third quarter of 2021 of the employer's portion of social security taxes deferred from 2020, as provided for under the CARES Act.

These decreases to net operating cash flows were partially offset by a decrease in the amount paid for annual performance bonuses in the first quarter of 2021 compared to the first quarter of 2020.

Net cash provided by operating activities increased $67.4 million to $85.4 million in 2022 from $18.0 million in 2021.

The increase in net cash provided by operating activities in 2022 compared to 2021 was primarily attributable to an increase in cash collections in 2022 compared to the prior year;

partially offset by increases in payments for salaries and related expenses for our revenue-generating professionals, selling, general and administrative expenses and contractor expenses for 2022 compared to 2021 and an increase in the amount paid for annual performance bonuses in the first quarter of 2022 compared to the first quarter of 2021.

Investing Activities

Our investing activities primarily consist of purchases of complementary businesses;

purchases of property and equipment, primarily related to computers and related equipment for our employees and leasehold improvements and furniture for office spaces;

purchases of property and equipment, primarily related to computers and related equipment for our employees and leasehold improvements and furniture and fixtures for office spaces;

payments related to internally developed cloud-based software sold to our clients;

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Our investments include a convertible note investment in Shorelight Holdings, LLC, a preferred stock investment in Medically Home Group, Inc., and investments in life insurance policies that are used to fund our deferred compensation liability.

Net cash used in investing activities was $20.1 million for 2022.

The use of cash in 2022 primarily consisted of $12.5 million for purchases of property and equipment, primarily related to purchases of computers and related equipment and leasehold improvements;

$11.8 million for payments related to internally developed software;

and $3.4 million for the purchases of businesses.

These uses of cash for investing activities were partially offset by $4.8 million of cash received for the sale of our aircraft in the first quarter of 2022 and $3.4 million of cash received for distributions from our life insurance policies that are used to fund our deferred compensation liability.

Net cash used in investing activities was $20.1 million for 2021.

The use of cash in 2021 primarily consisted of $44.8 million for the purchases of businesses;

$10.9 million for purchases of property and equipment;

$10.9 million for purchases of property and equipment, primarily related to leasehold improvements, computers and related equipment and furniture and fixtures for certain office spaces;

$4.9 million for payments related to internally developed software;

and $1.2 million for contributions to our life insurance policies.

These uses of cash from investing activities were partially offset by $41.3 million of cash received for the sale of the Life Sciences business within the Business Advisory segment in the fourth quarter of 2021.

The use of cash in 2020 primarily consisted of $13.0 million for the purchase of an additional convertible debt investment in Shorelight

Holdings, LLC in the first quarter of 2020;

$8.7 million for the 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;

$2.5 million for contributions to our life insurance policies;

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

life sciences drug safety practice within the Business Advisory segment.

These uses of cash from investing activities were partially offset by $41.3 million of cash received for the sale of the Life Sciences business in the fourth quarter of 2021.

We estimate that cash utilized for purchases of property and equipment and software development in 2023 will total approximately $30 million to $35 million;

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

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

Financing Activities

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See "Financing Arrangements" below for additional information on our senior secured credit facility.

Net cash used in financing activities increased by $4.8 million to $44.4 million in 2021 from $39.6 million in 2020.

Net cash used in financing activities was $74.1 million in 2022.

During 2022, we borrowed $314.0 million under our senior secured credit facility primarily to fund our operations, including our annual performance bonus payment in the first quarter of 2022, and made repayments on our borrowings of $256.8 million.

The repayments on our borrowings included the repayment of the outstanding principal of our promissory note due 2024 of $2.7 million from the proceeds received for the sale of our aircraft.

Additionally, during 2022, we repurchased and retired $121.3 million of our common stock under our share repurchase program discussed below, of which $1.1 million settled in the first quarter of 2023, and settled $0.2 million of share repurchases that were accrued as of December 31, 2021.

During 2022, we reacquired $7.8 million of common stock as a result of tax withholdings upon vesting of share-based compensation.

Additionally, we made payments of $2.7 million for debt issuance costs related to the Third Amended and Restated Credit Agreement executed in the fourth quarter of 2022.

We also made deferred acquisition payments of $1.9 million to the sellers of certain businesses we acquired.

These payments were primarily the result of achieving specified financial performance targets in accordance with the related purchase agreements.

Net cash used in financing activities was $44.4 million in 2021.

During 2021, we borrowed $235.0 million under our senior secured credit facility, primarily to fund our operations, including our annual performance bonus payment in the first quarter of 2021 and for the acquisitions completed in the fourth quarter of 2021.

We made repayments on our credit facility of $205.0 million during 2021.

Additionally, we repurchased and retired $64.6 million of our common stock under our 2020 Share Repurchase Program, as defined below, and repurchased and retired $0.2 million of our common stock that was accrued as of December 31, 2021.

We also reacquired $10.1 million of common stock as a result of tax withholdings upon vesting of share-based compensation.

During 2020, we borrowed $283.0 million under our senior secured 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 senior secured 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.

Additionally, during 2021, we repurchased and retired $64.6 million of our common stock under our share repurchase program, and repurchased and retired $0.2 million of our common stock that was accrued as of December 31, 2021.

We also reacquired $10.1 million of common stock as a result of tax withholdings upon vesting of share-based compensation.

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.

During the third quarter of 2021, our board of directors authorized an extension of the 2020 Share Repurchase Program through December 31, 2022 and increased the authorized amount from $50 million to $100 million.The amount and timing of repurchases under our share repurchase programs is determined by management and depends 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.

As of December 31, 2021, $30.2 million remains available under the plan for share repurchases.

Share Repurchase Program

In November 2020, our board of directors authorized a share repurchase program permitting us to repurchase up to $50 million of our common stock through December 31, 2021.

The share repurchase program has been subsequently extended and increased, most recently in the fourth quarter of 2022.

The current authorization extends the share repurchase program through December 31, 2023 with a repurchase amount of $300 million, of which $108.9 million remains available as of December 31, 2022.

The amount and timing of repurchases under the share repurchase program 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.

Financing Arrangements

At December 31, 2021, we had $230.0 million outstanding under our senior secured credit facility and $2.8 million outstanding under a promissory note, as discussed below.

At December 31, 2022, we had $290.0 million outstanding under our senior secured credit facility, as discussed below.

Senior Secured Credit Facility

The Company has a $600 million senior secured revolving credit facility, subject to the terms of a Second Amended and Restated Credit Agreement dated as of March 31, 2015, as amended to date (as amended and modified the "Amended Credit Agreement"), that becomes due and payable in full upon maturity on September 27, 2024.

On November 15, 2022, the Company entered into a Third Amended and Restated Credit Agreement (the “Amended Credit Agreement”).

The Amended Credit Agreement amended and restated, in its entirety, the Second Amended and Restated Credit Agreement entered into as of March 31, 2015 (as amended and modified, the "Existing Credit Agreement").

The Amended Credit Agreement consists of a $600 million five-year senior secured revolving credit facility that becomes due and payable in full upon maturity on November 15, 2027.

The Amended Credit Agreement provides the option to increase the revolving credit facility or establish term loan facilities in an aggregate amount of up to $250 million, subject to customary conditions and the approval of any lender whose commitment would be increased, resulting in a maximum available principal amount under the Amended Credit Agreement of $850 million.

Borrowings under the Amended Credit Agreement may be used for working capital, capital expenditures, acquisitions of businesses, share repurchases, and general corporate purposes.

The initial borrowings under the Amended Credit Agreement were used to refinance borrowings outstanding under the Existing Credit Agreement, and future borrowings under the Amended Credit Agreement may be used for working capital, capital expenditures, share repurchases, permitted acquisitions, and other general corporate purposes.

Fees and interest on borrowings vary based on our Consolidated Leverage Ratio (as defined in the Amended Credit Agreement).

At our option, borrowings under the Amended Credit Agreement will bear interest at one, two, three or six-month LIBOR or an alternate base rate, in each case plus the applicable margin.

The applicable margin will fluctuate between 1.125% per annum and 1.875% per annum, in the case of LIBOR borrowings, or between 0.125% per annum and 0.875% per annum, in the case of base rate loans, based upon our Consolidated Leverage Ratio at such time.

Fees and interest on borrowings is paid on a monthly basis.

At our option, borrowings under the Amended Credit Agreement will bear interest at one, three or six month Term SOFR or an alternate base rate, in each case plus the applicable margin.

The applicable margin will fluctuate between 1.125% per annum and 1.875% per annum, in the case of Term SOFR borrowings, or between 0.125% per annum and 0.875% per annum, in the case of base rate loans, based upon our Consolidated Leverage Ratio at such time.

Fees and interest on borrowings are paid on a monthly basis.

The Company and PNC Capital Markets, LLC, as Sustainability Structuring Agent, may amend the Amended Credit Agreement, with the consent of the Required Lenders (as defined in the Amended Credit Agreement), in order to incorporate specified key performance indicators with respect to certain environmental, social and governance targets of the Company.

Upon the effectiveness of any such amendment, and based upon the performance of the Company against those key performance indicators, certain adjustments to the otherwise applicable rates for interest, commitment fees and letter of credit fees will be made.

These adjustments will not exceed an increase or decrease of 0.01% in

the aggregate for all key performance indicators in the case of the commitment fee rate or an increase or decrease of 0.05% in the aggregate for all key performance indicators in the case of the Term SOFR borrowings, base rate borrowings or letter of credit fee rate.

Amounts borrowed under the Amended Credit Agreement may be prepaid at any time without premium or penalty.

We are required to prepay the amounts outstanding under the Amended Credit Agreement in certain circumstances.

We are required to prepay the amounts outstanding under the Amended Credit Agreement in certain circumstances, including upon an Event of Default (as defined in the Amended Credit Agreement).

In addition, we have the right to permanently reduce or terminate the unused portion of the commitments provided under the Amended Credit Agreement at any time.

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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 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.

however, the maximum permitted Consolidated Leverage Ratio will increase to 4.25 to 1.00 upon the occurrence of a Qualified Acquisition (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 3.00 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.

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Principal borrowings outstanding under the Amended Credit Agreement at December 31, 2022 and December 31, 2021 totaled $290.0 million and $230.0 million, respectively.

These borrowings carried a weighted average interest rate of 2.7% at December 31, 2021 and 2.5% at December 31, 2020 including the impact of the interest rate swap described in Note 12 “Derivative Instruments and Hedging Activity" within the notes to the consolidated financial statements.

These borrowings carried a weighted average interest rate of 3.8% at December 31, 2022 and 2.7% at December 31, 2021 including the impact of the interest rate swaps described in Note 12 “Derivative Instruments and Hedging Activity" within the notes to the consolidated financial statements.

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, 2021 and 2020, we had outstanding letters of credit totaling $0.7 million and $1.6 million, respectively, which are primarily used as security deposits for our office facilities, and the unused borrowing capacity under the revolving credit facility was $369.3 million and $398.4 million, respectively.

At both December 31, 2022 and 2021, we had outstanding letters of credit totaling $0.7 million, which are used as security deposits for our office facilities.

As of December 31, 2022 and 2021, the unused borrowing capacity under the revolving credit facility was $309.3 million and $369.3 million, respectively.

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

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“Risk Factors.”

Promissory Note due 2024

On June 30, 2017, in conjunction with our purchase of an aircraft related to the acquisition of Innosight, we assumed, from the sellers of the aircraft, a promissory note with an outstanding principal balance of $5.1 million.

The principal balance of the promissory note is subject to scheduled monthly principal payments until the maturity date of March 1, 2024, at which time a final payment of $1.5 million, plus any accrued and unpaid interest, will be due.

Under the terms of the promissory note, we pay interest on the outstanding principal amount at a rate of one-month LIBOR plus 1.97% per annum.

The obligations under the promissory note are secured pursuant to a Loan and Aircraft Security Agreement with Banc of America Leasing & Capital, LLC, which grants the lender a first priority security interest in the aircraft.

At December 31, 2021, the outstanding principal amount of the promissory note was $2.8 million, and the aircraft had a carrying amount of $3.7 million.

At December 31, 2020, the outstanding principal amount of the promissory note was $3.3 million, and the aircraft had a carrying amount of $4.4 million.

Principal and interest payments for the promissory note are paid on a monthly basis.

In the first quarter of 2022, we completed the sale of the aircraft to a third-party and used a portion of the sale proceeds to pay the remaining principal and unpaid interest on the promissory note.

As a result of the sale, we no longer own any aircraft.

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

Throughout 2020 and into 2021, our primary financing need was to support our operations and maintain our liquidity during the COVID-19 pandemic.

As such, we took proactive measures to increase available cash on hand, including, but not limited to, borrowing under our senior secured credit facility, reducing discretionary operating and capital expenses, and electing to defer the deposit of our employer portion of social security taxes as provided for under the CARES Act.

Given improved visibility to our project backlog and access to capital resources, our primary financing need has now returned to funding our long-term growth.

Future Financing Needs

Our primary financing need is to fund our long-term 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 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.

Our ability to secure additional financing in the future, if needed, 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.

OFF-BALANCE SHEET ARRANGEMENTS

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We continually evaluate our estimates of the provisions based on available information and experiences.

Additionally, when accounting for fixed-fee and performance-based billing arrangements, as well as reimbursable expenses, we must make additional judgments and estimates as further described below.

In fixed-fee billing arrangements, we agree to a pre-established fee in exchange for a predetermined set of professional services.

Additionally, when accounting for fixed-fee and performance-based billing arrangements, we must make additional judgments and estimates as further described below.

In fixed-fee billing arrangements for professional services, we agree to a pre-established fee in exchange for a predetermined set of professional services.

We set the fees based on our estimates of the costs and timing for completing the engagements.

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Second, we have performance-based engagements in which we earn a success fee when and if certain predefined outcomes occur.

Second, we earn a success fee when and if certain predefined outcomes occur.

We recognize revenue under performance-based billing arrangements using the following steps:

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While we believe that the estimates and assumptions we used for revenue recognition for performance-based billing arrangements are reasonable, subsequent changes could materially impact our results of operations.

Expense reimbursements that are billable to clients are included in total revenues and reimbursable expenses.

Under fixed-fee billing arrangements, we estimate the total amount of reimbursable expenses to be incurred over the course of the engagement and recognize the estimated amount as revenue using a proportionate performance approach, which is based on work completed to-date versus our estimates of the total services to be provided under the engagement.

When billings do not specifically identify reimbursable expenses under any billing arrangement type, we allocate the portion of the billings equivalent to these expenses to reimbursable expenses.

Any increased or unexpected costs in the reimbursable expenses could impact our results of operations

See Note 2 “Summary of Significant Accounting Policies” within the notes to the consolidated financial statements for additional information on our revenue recognition accounting policy.

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If the financial condition of a client deteriorates in the future, impacting the client’s ability to make payments, an increase to our allowance might be required or our allowance may not be sufficient to cover actual write-offs.

We record the provision for doubtful accounts and unbilled services as a reduction in revenue to the extent the provision relates to fee adjustments and other discretionary pricing adjustments.

To the extent the provision relates to a client’s inability to make required payments on accounts receivables, we record the provision to selling, general and administrative expenses.

We record the provision for doubtful accounts and unbilled services as a reduction in revenue.

To the extent we write-off accounts receivable due to a client’s inability to pay, the charge is recognized as a component of selling, general and administrative expenses.

Business Combinations

Upon our adoption of Accounting Standards Update ("ASU") 2021-08, Business Combinations (Topic 805):

Accounting for Contract Assets and Contract Liabilities from Contracts with Customers which we retrospectively applied to all acquisitions in 2021, contract assets and contract liabilities acquired are recorded at their carrying value under Topic 606:

Revenue from Contracts with Customers .

Prior to adoption of ASU 2021-08, contract assets and contract liabilities were recognized at their estimated fair values as of the acquisition date.

All other assets acquired and liabilities assumed in a business combination, including identifiable intangible assets, are recorded at their estimated fair values as of the acquisition date.

We use the acquisition method of accounting for business combinations .

The assets acquired and liabilities assumed in a business combination, including identifiable intangible assets, are recorded at their estimated fair values as of the acquisition date, with the exception of contract assets and liabilities which are recognized and measured in accordance with our revenue recognition accounting policy described in Note 2 "Summary of Significant Accounting Policies" within the notes to the consolidated financial statements .

Goodwill is recorded as the excess of the fair value of consideration transferred, including any contingent consideration, over the net value of the assets acquired and liabilities assumed.

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

As of December 31, 2021, we have five reporting units:

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

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

As of December 31, 2022, we have three reporting units:

Healthcare, Education, and Commercial.

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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However, if we conclude otherwise, then we are required to perform a quantitative impairment test by calculating the fair value of the reporting unit and comparing the fair value with the carrying value of the reporting unit.

If the fair value of the reporting unit is less than its carrying value, a non-cash impairment charge is recorded in an amount equal to that difference with the loss not to exceed the total amount of goodwill allocated to the reporting unit.

We determine the fair value using a combination of the income approach and the market approach.

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.

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.

If the fair value of the reporting unit is less than its carrying value, an impairment charge is recorded in an amount equal to that difference with the loss not to exceed the total amount of goodwill allocated to the reporting unit.

For the goodwill reallocation and impairment tests performed in 2022, we determined the fair value of our reporting units using the income approach.

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

We utilized 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 test performed during 2021.

The following is a discussion of the goodwill impairment tests performed during 2022.

First Quarter 2022 Goodwill Reallocation and Goodwill Impairment Test

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.

To align with the new operating model, effective with reporting for periods beginning January 1, 2022, we began reporting under the following three industries, which are our reportable segments:

Healthcare, Education and Commercial.

The Commercial segment includes 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 includes all revenue and costs associated with engagements delivered in the respective segments' industries.

The new Healthcare and Education segments include some revenue and costs historically reported in

the Business Advisory segment and the Healthcare segment includes some revenue and costs historically reported in the Education segment.

The three reportable segments of Healthcare, Education and Commercial are also our reporting units for goodwill impairment testing purposes.

As a result of the reorganization, we reallocated the goodwill balances of our historical reporting units to our new reporting units based on the relative estimated fair values of each component of the historical reporting units to be allocated to the new reporting units.

Additionally, we performed a goodwill impairment test on the goodwill balances of each of our reporting units as of January 1, 2022 by comparing the fair value of the reporting unit to its carrying value, including the reallocated goodwill.

Based on the results of the goodwill impairment test, we determined the fair values of the Healthcare, Education, and Commercial reporting units exceeded their carrying values by 37%, 199%, and 105%, respectively.

As such, we concluded that there was no indication of goodwill impairment for all three reporting units as of January 1, 2022.

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.

We relied on the income approach to estimate the fair value of the reporting units for both the goodwill reallocation and the goodwill impairment test.

The income approach utilized a discounted cash flow analysis, which involved estimating the expected after-tax cash flows that will be generated by each business 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 that reflect the risk inherent in the future cash flows.

In estimating future cash flows, we relied on internally generated ten-year forecasts.

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

2022 Annual Goodwill Impairment Analysis

Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2021 for our five reporting units with goodwill balances:

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

Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2022 for our three reporting units:

Healthcare, Education, and Commercial.

We performed a qualitative assessment over all 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.

For our qualitative assessment, we considered the most recent quantitative analysis performed for each reporting unit, which was as of November 30, 2020, including the key assumptions used within that analysis, the indicated fair values, and the amount by which those fair values exceeded their carrying amounts.

For our qualitative assessment, we considered the most recent quantitative analysis performed for each reporting unit, which was as of January 1, 2022, 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 2022 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 over the past year.

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

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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.

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 an impairment charge is recognized and also the magnitude of such charge.

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

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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.

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

The carrying value of goodwill for each of our reporting units as of December 31, 2022 is as follows (in thousands):

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Education 122,235

Business Advisory 16,094

Strategy and Innovation 37,522

Enterprise Solutions and Analytics 10,823

Commercial 48,517

Total $ 624,966

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

Our intangible assets, net of accumulated amortization, totaled $31.9 million at December 31, 2021 and primarily consist of customer relationships, trade names, technology and software, non-competition agreements, and customer contracts, all of which were acquired through business combinations.

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.

Our intangible assets, net of accumulated amortization, totaled $23.4 million at December 31, 2022 and primarily consist of customer relationships, technology and software, trade names, and non-competition agreements, all of which were acquired through business combinations.

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 impairment charges for intangible assets were recorded in 2022.

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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 18, 2022, we completed the acquisition of AIMDATA, LLC, (“AIMDATA”), an advisory and implementation consulting services firm focused on strategy, technology and business transformation.

The results of operations of AIMDATA will be included within our consolidated financial statements from the close date, and will be allocated among our three operating industries, which are our reportable segments, based on the engagements delivered by the business.

AIMDATA revenues will be reported in our Digital capability.

The acquisition of AIMDATA 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