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Item 7. Management’s Discussion and Analysis

2024-02-27 compared with 2023-02-28 · 216 added, 319 removed, 401 unchanged (57% of the section changed)

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and discusses those results of operations for 2023 compared to 2022.

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.

For a discussion of our results of operations for 2022 compared to 2021 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, 2022, which was filed with the United States Securities and Exchange Commission on February 28, 2023.

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.

Huron is a global professional services firm that partners with clients to develop growth strategies, optimize operations and accelerate digital transformation, including 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:

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

Healthcare, Education and Commercial.

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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.

“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.

COMPONENTS OF OPERATING RESULTS

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• 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.

Under time-and-expense billing arrangements, we invoice our clients 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.

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

We enter into performance-based engagements in essentially two forms.

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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.

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

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

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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.

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.

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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 primarily consist of compensation 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.

Selling, general and administrative expenses consist primarily of compensation costs 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

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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.

EBITDA, adjusted EBITDA, adjusted EBITDA as a percentage of revenues, adjusted net income, and adjusted diluted earnings per share.

These non-GAAP financial measures differ from GAAP because they exclude a number of items required by GAAP, each discussed below.

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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.

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.

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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.

Restructuring charges:

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

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

In addition, restructuring charges in 2021 include costs related to the sale of the Life Sciences business in the fourth quarter of 2021.

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

We do not include normal, recurring, cash operating expenses in our restructuring charges.

Other losses (gains), net:

We exclude the effects of other losses and 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.

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

Unrealized losses (gains) on preferred stock investment:

We exclude the effect of unrealized losses and gains related to changes in the fair value of our preferred stock investment in a hospital-at-home company arising from observable price changes or impairment losses.

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

We believe that these unrealized losses and 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.

The 2021 gain relates to the sale of our Life Sciences business in the fourth quarter of 2021.

Foreign currency transaction losses (gains), net:

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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.

We include, within the depreciation and amortization adjustment, the amortization of capitalized implementation costs of our ERP and other related software, which is included within selling, general and administrative expenses in our consolidated statements of operations.

Revenue-Generating Professionals

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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.

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

standard work weeks.

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Highlights from the year ended December 31, 2023 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.

• Total revenues increased 20.3% to $1.36 billion in 2023 from $1.13 billion in 2022.

• Healthcare segment revenues increased 26.0% to $674.0 million in 2023 from $535.0 million in 2022.

• Operating margin increased to 9.2% in 2023, compared to 8.8% in 2022.

• Adjusted EBITDA as a percentage of revenues increased 70 basis points to 12.3% from 11.6% in 2022.

• Diluted EPS was $3.19 for 2023, compared to $3.64 for 2022.

Results for 2023 and 2022 include a non-cash unrealized loss and a non-cash unrealized gain related to our investment in a hospital-at-home company, which had an unfavorable impact of $0.99 and a favorable impact of $0.96 on diluted earnings per share in 2023 and 2022, respectively.

• Adjusted diluted EPS increased 43.1% to $4.91 for 2023, compared to $3.43 for 2022.

• Net cash provided by operating activities increased 58.4% to $135.3 million for 2023, compared to $85.4 million for 2022.

• Returned $123.6 million shareholders by repurchasing 1,461,815 shares of our common stock in 2023.

Total revenues increased $229.6 million, or 20.3%, to $1.36 billion for the year ended December 31, 2023 from $1.13 billion for the year ended December 31, 2022.

The increase in revenues reflects continued strength in demand for both our Consulting and Managed Services capability and Digital capability across all segments, which demonstrates our focus on accelerating growth in our healthcare and education industries and growing our presence in commercial industries.

In our Consulting and Managed Services capability, revenues for the year ended December 31, 2023 increased 22.6% to $782.0 million, compared to $638.0 million for the year ended December 31, 2022, and reflected strengthened demand in all of our segments.

The utilization rate within our Consulting capability increased to 76.6% in 2023, compared to 75.2% in 2022.

Revenues within our Digital capability increased 17.3% to $580.0 million for the year ended December 31, 2023, compared to $494.5 million for the year ended December 31, 2022, 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 utilization rate within our Digital capability increased to 75.3% in 2023, compared to 71.0% in 2022.

The total number of revenue-generating professionals increased 14.2% to 5,519 as of December 31, 2023, compared to 4,832 as of December 31, 2022, 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.

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 employee 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 9.2% for the year ended December 31, 2023, compared to 8.8% for the year ended December 31, 2022, 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.

Net income was $62.5 million for the year ended December 31, 2023, compared to $75.6 million for the year ended December 31, 2022.

Results for 2023 include a non-cash impairment loss of $19.4 million, net of tax, related to our investment in a hospital-at-home company;

and results for 2022 include a non-cash unrealized gain of $19.8 million, net of tax, related to the same investment.

Diluted earnings per share was $3.19 for 2023, compared to $3.64 for 2022.

The non-cash unrealized loss related to the investment had an unfavorable impact of $0.99 on diluted earnings per share in 2023, and the non-cash unrealized gain had a favorable impact of $0.96 on diluted earnings per share in 2022.

See Note 13 “Fair Value of Financial Instruments” within the notes to our consolidated financial statements for additional information on our preferred stock investment and the non-cash unrealized gains and impairment loss recognized to date.

As of December 31, 2023, the investment's carrying value was $7.4 million, reflecting a net unrealized gain of $2.4 million since inception.

Adjusted diluted earnings per share increased 43.1% to $4.91 for 2023 from $3.43 for 2022, driven by an increase in operating income and a reduction in diluted shares outstanding resulting from share repurchases made under our share repurchase plan.

Net cash provided by operating activities increased 58.4% to $135.3 million in 2023, compared to $85.4 million in 2022.

The increase in net net cash provided by operating activities was primarily related to an increase in cash collections in 2023 compared to the prior year;

partially offset by an increase in salaries and related expenses for our revenue-generating professionals, an increase in payments for selling, general and administrative expenses in 2023 compared to the prior year, and an increase in the amount paid for annual performance bonuses in the first quarter of 2023 compared to the first quarter of 2022.

During 2023, we deployed $123.6 million of capital to repurchase 1,461,815 shares of our common stock, representing 7.4% of our common stock outstanding as of 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.

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Other operating expenses 174,762 136,459 127,020

Restructuring charges 8,204 3,686 4,525

Depreciation and amortization 17,886 20,271 20,634

Goodwill impairment charges (1)

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

Operating income 125,348 99,760 52,839

Other income (expense), net (41,453) 8,817 27,197

Income (loss) from continuing operations before taxes 108,577 80,036 (33,873)

Income tax expense (benefit) 33,025 17,049 (10,155)

Net income (loss) from continuing operations $ 75,552 $ 62,987 $ (23,718)

Earnings (loss) per share from continuing operations

Income before taxes 83,895 108,577 80,036

Income tax expense 21,416 33,025 17,049

Net income $ 62,479 $ 75,552 $ 62,987

Earnings per share

Basic $ 3.32 $ 3.73 $ 2.94

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Digital 75.3% 71.0% 72.5%

(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.

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

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Managed Services capability revenues within our Education segment was $19.5 million, $15.7 million and $9.1 million for the years ended 2023, 2022 and 2021, 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.

(3) The number of Managed Services revenue-generating professionals within our Healthcare segment was 924, 715 and 509 as of December 31, 2023, 2022 and 2021, respectively.

The number of Managed Services revenue-generating professionals within our Education segment was 103, 106 and 72 as of December 31, 2023, 2022 and 2021, respectively.

(4) 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

Reconciliation of Net Income to EBITDA and Adjusted EBITDA

Year Ended December 31,

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Revenues $ 1,362,060 $ 1,132,455 $ 905,640

Net income (loss) from continuing operations $ 75,552 $ 62,987 $ (23,718)

Income tax expense (benefit) 33,025 17,049 (10,155)

Net income $ 62,479 $ 75,552 $ 62,987

Income tax expense 21,416 33,025 17,049

Interest expense, net of interest income 19,573 11,883 8,150

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Restructuring charges 11,550 9,909 12,401

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

Other losses (gains), net (444) (193) 198

Transaction-related expenses 357 50 1,782

Goodwill impairment charges — — 59,816

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

Losses (gains) on sales of businesses — (31,510) 1,603

Unrealized loss (gain) on preferred stock investment 26,262 (26,964) —

Gain on sale of business — — (31,510)

Foreign currency transaction losses (gains), net 476 (655) 419

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Adjusted EBITDA as a percentage of revenues 12.3 % 11.6 % 10.8 %

Reconciliation of Net Income to Adjusted Net Income and Adjusted Diluted Earnings per Share

Year Ended December 31,

2023 2022 2021

Net income (loss) from continuing operations $ 75,552 $ 62,987 $ (23,718)

Net income $ 62,479 $ 75,552 $ 62,987

Weighted average shares - diluted 19,601 20,746 21,809

Diluted earnings (loss) per share from continuing operations $ 3.64 $ 2.89 $ (1.08)

Diluted earnings per share $ 3.19 $ 3.64 $ 2.89

Amortization of intangible assets 8,219 11,198 9,251

Restructuring charges 11,550 9,909 12,401

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

Other losses (gains), net (444) (193) 198

Transaction-related expenses 357 50 1,782

Goodwill impairment charges — — 59,816

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

Losses (gains) on sales of businesses — (31,510) 1,603

Unrealized loss (gain) on preferred stock investment 26,262 (26,964) —

Gain on sale of business — — (31,510)

Tax effect of adjustments (12,175) 1,590 1,742

Total adjustments, net of tax 33,769 (4,410) (6,136)

Adjusted net income from continuing operations $ 71,142 $ 56,851 $ 47,887

Adjusted net income $ 96,248 $ 71,142 $ 56,851

Adjusted weighted average shares - diluted 19,601 20,746 21,809

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

Adjusted diluted earnings per share $ 4.91 $ 3.43 $ 2.61

Year Ended December 31, 2023 Compared to Year Ended December 31, 2022

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Total revenues $ 1,362,060 $ 1,132,455 $ 229,605 20.3 %

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.

Total revenues increased $229.6 million, or 20.3%, to $1.36 billion for the year ended December 31, 2023 from $1.13 billion for the year ended December 31, 2022.

The overall increase in revenues reflects continued strength in demand for both our Consulting and Managed Services capability and Digital capability across all segments, which demonstrates our focus on accelerating growth in our healthcare and education industries and growing our presence in commercial industries.

• Healthcare revenues increased $139.0 million, or 26.0%, driven by strengthened demand for our performance improvement, financial advisory and strategy and innovation solutions within our Consulting and Managed Services capability, as well as strengthened demand for our technology and analytics services within our Digital capability.

Revenues for the year ended December 31, 2023 included $1.1 million of incremental revenues from our acquisitions of Customer Evolution, LLC and Roundtable Analytics, Inc, which were completed in December 2022 and September 2023, respectively.

The number of revenue-generating professionals within our Healthcare segment grew 20.1% to 2,270 as of December 31, 2023, compared to 1,890 as of December 31, 2022.

• 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.

• Education revenues increased $69.8 million, or 19.4%, driven by strengthened demand for our technology and analytics services and software products within our Digital capability, as well as strengthened demand for our strategy and operations and research solutions within our Consulting and Managed Services capability.

The number of revenue-generating professionals within our Education segment grew 13.2% to 1,788 as of December 31, 2023, compared to 1,579 as of December 31, 2022.

• 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%.

• Commercial revenues increased $20.8 million, or 8.7%, driven by strengthened demand for our financial advisory solutions within our Consulting and Managed Services capability and our technology and analytics services within our Digital capability, partially offset by a decrease in demand for our strategy and innovation solution within our Consulting and Managed Services capability.

The number of revenue-generating professionals within our Commercial segment grew 7.2% to 1,461 as of December 31, 2023, compared to 1,363 as of December 31, 2022.

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

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Direct costs increased $156.8 million, or 20.0%, to $942.7 million for the year ended December 31, 2023 from $785.9 million for the year ended December 31, 2022.

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.

The $156.8 million increase primarily related to a $143.2 million increase in compensation costs for our revenue-generating professionals as we continue to invest in and grow our talented team to meet increased market demand.

Specifically, the increase in compensation costs is primarily attributable to a $92.7 million increase in salaries and related expenses driven by increased headcount and annual salary increases that went into effect in the first quarter of 2023, a $42.7 million increase in performance bonus expense, and a $6.9 million increase in share-based compensation expense.

Additional increases in direct costs include a $6.2 million increase in technology costs, and a $4.0 million increase in contractor expenses.

As a percentage of revenues, direct costs decreased to 69.2% during 2023, compared to 69.4% during 2022.

The decrease was primarily due to revenue growth that outpaced the increase in salaries and related expenses for our revenue-generating professionals;

largely offset by an increase in performance bonus expense, as a percentage of revenue.

Reimbursable Expenses

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Selling, general and administrative expenses increased by $48.1 million, or 23.0%, to $257.5 million for the year ended December 31, 2023 from $209.4 million for the year ended December 31, 2022.

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.

The $48.1 million increase primarily related to a $37.2 million increase in compensation costs for our support personnel driven by a $14.4 million increase in salaries and related expenses, a $12.3 million increase in deferred compensation expense attributable to the change in market value of our deferred compensation liability, a $5.9 million increase in share-based compensation expense, and a $4.8 million increase in performance bonus expense.

The increase in deferred compensation expense is offset by an increase 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.

Additionally, selling, general and administrative expenses increased $10.8 million for non-payroll costs driven by a $3.3 million increase in promotion and marketing expenses, a $2.8 million increase in practice administration and meetings expenses, a $2.6 million increase in legal expenses, and a $1.6 million increase in software and data hosting expenses.

As a percentage of revenues, selling, general and administrative expenses increased to 18.9% during 2023, compared to 18.5% during 2022.

This increase was primarily attributable to the increase in deferred compensation expense attributable to the change in market value of our deferred compensation liability, as a percentage of revenues;

partially offset by revenue growth that outpaced the increases in total non-payroll costs.

Restructuring Charges

Restructuring charges for the year ended December 31, 2023 were $11.6 million, compared to $9.9 million for the year ended December 31, 2022.

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

During 2023, we exited our office spaces in Hillsboro, Oregon and Lexington, Massachusetts, resulting in non-cash impairment charges of $1.9 million and $3.5 million, respectively, on the related right-of-use operating lease assets and fixed assets.

Additionally, restructuring charges incurred in 2023 included $3.0 million of severance-related expenses;

$1.8 million for rent and related expenses, net of sublease income, for previously vacated office spaces;

$0.9 million related to non-cash lease impairment charges driven by updated sublease assumptions for previously vacated office spaces;

and $0.3 million related to the abandonment of a capitalized software development project.

The $9.9 million of restructuring charges incurred in 2022 included $5.7 million of severance-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.

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, and $1.3 million of other employee-related expenses.

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.

Depreciation and amortization expense decreased $2.5 million, or 9.0%, to $24.9 million for the year ended December 31, 2023, compared to $27.4 million for the year ended December 31, 2022.

The $2.5 million decrease in depreciation and amortization expense was primarily attributable to intangible assets acquired in business acquisitions that were fully amortized in prior periods and a decrease in amortization of intangible assets acquired in business acquisitions due to the accelerated basis of amortization in prior periods.

Operating Income and Operating Margin

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Total segment operating income $ 326,200 $ 260,176 $ 66,024

• 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.

• Healthcare operating income increased $41.7 million, or 31.8%, primarily due to the increase in revenues;

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

The increases in compensation costs for our revenue-generating professionals and support personnel were primarily driven by an increase in headcount, annual salary increases that went into effect in the first quarter of 2023, an increase in performance bonus expense, and an increase in share-based compensation expense.

Healthcare operating margin increased to 25.7% from 24.5% primarily due to the revenue growth that outpaced the increase in compensation costs for our revenue-generating professionals;

partially offset by an increase in contractor expenses, as a percentage of revenues.

• Education operating income increased $20.2 million, or 25.6%, primarily due to the increase in revenues as well as decreases in contractor expenses, restructuring charges, and software and data hosting expenses;

partially offset by increases in compensation costs for our revenue-generating professionals, technology expenses, practice administration and meetings expenses, and promotion and marketing expenses.

The increases in compensation costs for our revenue-generating professionals were primarily driven by an increase in headcount, annual salary increases that went into effect in the first quarter of 2023, and an increase in performance bonus expense.

Education operating margin increased to 23.1% from 21.9% primarily driven by decreases in contractor expenses and restructuring charges;

partially offset by increases in compensation costs for our revenue-generating professionals and technology expenses, as percentages of revenue.

• Commercial operating income increased $4.2 million, or 8.3%, primarily due to the increase in revenues as well as a decrease in contractor expenses;

partially offset by increases in compensation costs for our revenue-generating professionals, promotion and marketing expenses, and practice administration and meetings expenses.

The increase in compensation costs for our revenue-generating professionals was primarily driven by an increase in performance bonus expense, an increase in headcount, and annual salary increases that went into effect in the first quarter of 2023.

Commercial operating margin decreased slightly to 21.0% from 21.1% primarily driven by increases in compensation costs for our revenue-generating professionals and non-payroll selling, general and administrative costs, as percentages of revenues;

partially offset by the decrease in contractor expenses.

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.

Interest expense, net of interest income increased $7.7 million to $19.6 million for the year ended December 31, 2023 from $11.9 million for the year ended December 31, 2022, which was primarily attributable to higher interest rates and higher levels of borrowing under our credit facility in 2023 compared to 2022.

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.

Other income (expense), net decreased $42.6 million to expense of $21.9 million for the year ended December 31, 2023 from income of $20.7 million for the year ended December 31, 2022.

The decrease in other income, net was primarily attributable to changes in the fair value of our preferred stock investment in a hospital-at-home company.

In the fourth quarter of 2023, we recognized a non-cash impairment loss of $26.3 million on our preferred stock investment based on the valuation established in a new round of financing expected to close in early 2024.

In the first quarter of 2022, we recognized a non-cash unrealized gain of $27.0 million for the same investment, based on the valuation established in a round of financing that closed that quarter.

As of December 31, 2023, the investment's carrying value was $7.4 million, reflecting a net unrealized gain of $2.4 million on the investment since inception.

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

This decrease in other income, net was partially offset by a $12.2 million increase in the gain recognized for the market value of our investments that are used to fund our deferred compensation liability.

During 2023 we recognized a $4.8 million gain for the market value of our deferred compensation investments compared to a $7.4 million loss recognized in 2022.

Income Tax Expense

For the year ended December 31, 2023, our effective tax rate was 25.5% as we recognized income tax expense of $21.4 million on income of $83.9 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.

The effective tax rate of 25.5% was more favorable than the statutory rate, inclusive of state income taxes, of 26.2%, primarily due to a discrete tax benefit for share-based compensation awards that vested during the year and the positive impact of certain federal tax credits.

These favorable items were partially offset by certain nondeductible expense items.

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 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.

Treasury issued and enacted final regulations related to GILTI that allow certain U.S.

taxpayers to elect to exclude foreign income that is subject to a high effective tax rate from their GILTI inclusions.

The GILTI high-tax exclusion is an annual election and is retroactively available.

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.

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 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.

federal return to provision adjustments for carrying back our increased 2020 federal net operating loss to prior year income for a refund at the higher, prior year tax rate.

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

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.

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

Net Income and Earnings per Share

Net income decreased $13.1 million to $62.5 million for the year ended December 31, 2023 from $75.6 million for the year ended December 31, 2022.

The decrease in net income was primarily attributable to the changes in the fair value of our preferred stock investment in a hospital-at-home company recorded in other income (expense), net;

partially offset by the increase in operating income.

In 2023, we recognized a non-cash impairment loss of $26.3 million related to our preferred stock investment;

and in 2022, we recognized a non-cash unrealized gain of $27.0 million related to the same investment as discussed above.

Diluted earnings per share for the year ended December 31, 2023 decreased to $3.19, compared to $3.64 for the year ended December 31, 2022, driven by the decrease in net income partially offset by a reduction in diluted shares outstanding resulting from share repurchases made under our share repurchase plan.

The changes in fair value of our preferred stock investment in a hospital-at-home company had an unfavorable impact on our diluted earnings per share of $0.99 in 2023 and a favorable impact on our diluted earnings per share of $0.96 for 2022 .

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 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.

EBITDA decreased $19.6 million to $129.1 million for the year ended December 31, 2023 from $148.7 million for the year ended December 31, 2022.

The decrease in EBITDA was primarily attributable to the changes in the fair value of our preferred stock investment in the hospital-at-home company, as well as the increase in corporate expenses, excluding the impact of the change in the market value of our deferred compensation liability;

largely offset by the increase in segment operating income.

In 2023, we recognized a non-cash impairment loss of $26.3 million related to our preferred stock investment;

and in 2022, we recognized a non-cash unrealized gain of $27.0 million related to the same investment as discussed above.

Adjusted EBITDA increased $36.5 million to $167.3 million for the year ended December 31, 2023 from $130.8 million for the year ended December 31,2022.

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

Adjusted net income from continuing operations increased $14.3 million to $71.1 million for the year ended December 31, 2022, compared to $56.9 million for the year ended December 31, 2021.

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.

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.

"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.

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.

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.

The increase in adjusted EBITDA was primarily attributable to the increase in segment operating income, excluding the impact of segment restructuring charges;

partially offset by the increase in corporate expenses, excluding the impacts of the change in the market value of our deferred compensation liability and corporate restructuring charges.

Adjusted Net Income and Adjusted Earnings per Share

Adjusted net income increased $25.1 million to $96.2 million for the year ended December 31, 2023, compared to $71.1 million for the year ended December 31, 2022.

Adjusted diluted earnings per share increased to $4.91 in 2023, compared to $3.43 in 2022, driven by the increase in adjusted net income and a reduction in diluted shares outstanding resulting from share repurchases made under our share repurchase plan.

LIQUIDITY AND CAPITAL RESOURCES

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Net cash provided by operating activities increased $49.9 million to $135.3 million in 2023 from $85.4 million in 2022.

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.

The increase in net operating cash flows was primarily related to an increase in cash collections in 2023 compared to the prior year;

Additionally, for 2023, our unbilled receivables increased partially driven by certain large Healthcare and Education engagements where our services performed and revenue recognized exceeded the amounts billed to clients in accordance with the contractual billing terms.

In the future, we may enter into additional client engagements with similar deferred billing terms .

Investing Activities

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and investments.

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.

Our investments include a convertible note investment in Shorelight Holdings, LLC, a preferred stock investment in a hospital-at-home company, and investments in life insurance policies that are used to fund our deferred compensation liability.

Net cash used in investing activities was $36.7 million for 2023 which primarily consisted of $25.7 million for payments related to internally developed software to advance our Healthcare and Education software products;

$9.4 million for purchases of property and equipment, primarily related to purchases of computers and related equipment and leasehold improvements for certain office spaces;

$3.1 million for contributions to our life insurance policies;

and $1.6 million for the purchase of a business.

These uses of cash for investing activities were partially offset by $3.0 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 2022.

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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, 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 in the fourth quarter of 2021.

We estimate that cash utilized for purchases of property and equipment and software development in 2024 will total approximately $35 million to $40 million;

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.

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.

Financing Activities

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Net cash used in financing activities was $98.3 million in 2023.

During 2023, we borrowed $354.0 million primarily to fund our operations, including our annual performance bonus payment in the first quarter of 2023, and made repayments on our borrowings of $320.0 million.

Additionally, in 2023, we paid $122.8 million for share repurchases, including $1.1 million related to the settlement of share repurchases that were accrued as of December 31, 2022 and excluding $1.9 million that was accrued as of December 31, 2023.

During 2023, we reacquired $10.5 million of common stock as a result of tax withholdings upon vesting of share-based compensation.

We also made deferred acquisition payments of $1.5 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.

These uses of cash for financing activities were partially offset by $2.5 million of cash received from stock option exercises in 2023.

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.

Additionally, in 2022, we paid $120.4 million for share repurchases, including $0.2 million related to the settlement of share repurchases that were accrued as of December 31, 2021 and excluding $1.1 million that was accrued as of December 31, 2022.

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

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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, 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.

These uses of cash for financing activities were partially offset by $1.4 million of cash received from stock option exercises in 2022.

Share Repurchase Program

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At December 31, 2023, we had $324.0 million outstanding under our senior secured credit facility, as discussed below.

Senior Secured Credit Facility

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.

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, three or six month Term SOFR or an alternate base rate, in each case plus the applicable margin.

The Company has a $600 million five-year senior secured revolving credit facility, subject to the terms of a Third Amended and Restated Credit Agreement dated as of November 15, 2022 and amended by Amendment No.

1 (collectively, the “Amended Credit Agreement”) that becomes due and payable in full upon maturity on November 15, 2027.

In February 2024, the Company entered into Amendment No.

2 (the “Second Amendment”) to the Amended Credit Agreement to establish a $275 million term loan as discussed below under “2024 Term Loan.” Prior to the Second Amendment, the Amended Credit Agreement provided the option to increase the revolving credit facility or establish term loan facilities in an aggregate amount 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.

The initial borrowings under the revolving credit facility were used to refinance borrowings outstanding under a prior credit agreement, and future revolving credit facility 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 under the revolving credit facility vary based on our Consolidated Leverage Ratio (as defined in the Amended Credit Agreement).

At our option, these borrowings 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.

In April 2023, the Company and PNC Capital Markets, LLC, as Sustainability Structuring Agent, with the consent of the Required Lenders (as defined in the Amended Credit Agreement), entered into Amendment No.

1 to the Amended Credit Agreement (the “First Amendment”) to incorporate specified key performance indicators with respect to certain environmental, social and governance targets of the Company.

Based upon the performance of the Company against those key performance indicators in each Reference Year (as defined in the First

Amendment), certain adjustments to the otherwise applicable rates for interest, commitment fees and letter of credit fees will be made.

These annual 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.

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Pursuant to the terms of the Amended Credit Agreement, if our Consolidated Leverage Ratio is greater than 3.50, the amount of dividends and other Restricted Payments (as defined in the Amended Credit Agreement) we may pay is limited to an amount up to $50 million.

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.

Borrowings outstanding under the revolving credit facility at December 31, 2023 and 2022 totaled $324.0 million and $290.0 million, respectively.

These borrowings carried a weighted average interest rate of 4.2% at December 31, 2023 and 3.8% at December 31, 2022 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 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.

The borrowing capacity under the Amended Credit Agreement is reduced by any outstanding borrowings under the agreement and outstanding letters of credit.

At December 31, 2023 and 2022, we had outstanding letters of credit totaling $0.5 million and $0.7 million, respectively, which are used as security deposits for our office facilities.

As of December 31, 2023 and 2022, the unused borrowing capacity under the Amended Credit Agreement was $275.5 million and $309.3 million, respectively.

2024 Term Loan

In February 2024, the Company entered into Amendment No.2 to the Amended Credit Agreement (the “Second Amendment”), which established a $275 million term loan facility (the “Term Loan”) under the Amended Credit Agreement (as amended to date, the “Current Credit Agreement”).

The Term Loan is subject to scheduled quarterly amortization payments of $3.4 million beginning June 30, 2024 through the maturity date of November 15, 2027, at which time the outstanding principal balance and all accrued interest will be due.

Additionally, the Second Amendment provided for the option to increase the revolving credit facility or establish additional term loan facilities in an aggregate amount 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 Current Credit Agreement of $1.13 billion.

The proceeds of the Term Loan will be used to reduce borrowings under the company's revolving credit facility.

Interest on the Term Loan varies based on our Consolidated Leverage Ratio (as defined in the Current Credit Agreement).

At our option, the Term Loan will bear interest at one, three or six month Term SOFR plus the applicable margin.

The applicable margin will range between 1.625% per annum and 2.375% per annum based upon our Consolidated Leverage Ratio at such time and subject to the adjustments allowed for performance against certain environmental, social and governance targets of the Company as outlined in the First Amendment.

The Current Credit Agreement maintains the same prepayment provisions, usual and customary representations and warranties, fee pricing schedule, and affirmative and negative covenants as the Amended Credit Agreement discussed above.

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

For a discussion of certain risks and uncertainties related to the Amended Credit Agreement, see Part I—Item 1A.

For a discussion of certain risks and uncertainties related to the Current Credit Agreement, see Part I—Item 1A.

“Risk Factors.”

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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.

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

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.

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Specifically, multiple performance obligation arrangements require us to allocate the total transaction price to each performance obligation based on its relative standalone selling price, for which we rely on our overall pricing objectives, taking into consideration market conditions and other factors.

Provisions are recorded for the estimated realization adjustments on all engagements, including engagements for which fees are subject to review by the bankruptcy courts.

Provisions are recorded for the estimated realization on all engagements, including engagements for which fees are subject to review by the bankruptcy courts.

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

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Our estimates are monitored throughout the life of each contract and are based on an assessment of our anticipated performance, historical experience, and other information available at the time.

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.

believe that the estimates and assumptions we use for revenue recognition for performance-based billing arrangements are reasonable, subsequent changes could materially 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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Increases or decreases in the fair value of contingent consideration liabilities resulting from changes in the estimates or assumptions could materially impact the financial statements.

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

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

Carrying Values of Goodwill and Other Intangible Assets

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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.

We determine 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.

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.

We utilize a discounted cash flow analysis, which involves estimating the expected after-tax cash flows that will be generated by each reporting unit and then discounting those cash flows to present value, reflecting the relevant risks associated with each reporting unit and the time value of money.

This approach requires the use of significant estimates and assumptions, including forecasted revenue growth

rates, forecasted EBITDA margins, and discount rates.

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

2022 Annual Goodwill Impairment Analysis

The following is a discussion of the goodwill impairment test performed during 2023.

Pursuant to our policy, we performed our annual goodwill impairment test as of November 30, 2023 for our three reporting units:

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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.

therefore, we considered the actual performance of each reporting unit during 2022 and 2023 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 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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As such, the goodwill for our reporting units was not considered impaired as of November 30, 2023, and a quantitative goodwill impairment analysis was not necessary.

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 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.

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

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 goodwill impairment charges, which could be material.

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

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

The carrying value of goodwill for each of our reporting units as of December 31, 2023 is as follows (in thousands):

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Our intangible assets, net of accumulated amortization, totaled $18.1 million at December 31, 2023 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.

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 2023.

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We measure the tax benefit recognized as the largest amount of benefit which is more likely than not to be realized upon settlement with the taxing authority.

The estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks, facts and circumstances existing at that time.

The estimate of the potential outcome of any uncertain tax issue is subject to management’s assessment of relevant risks,

facts and circumstances existing at that time.

We believe that positions taken on our tax returns are fully supported.

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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 February 11, 2024, we entered into an agreement to acquire Grenzebach Glier and Associates, Inc.

(“GG+A”), a philanthropic management consulting firm that helps education institutions and healthcare, arts and other nonprofit organizations build and accelerate the philanthropic programs that support their mission.

The transaction is expected to close in March 2024, subject to customary closing conditions.

The results of operations of GG+A will be included within our consolidated financial statements and results of operations of our Education segment from the date of acquisition.

We do not expect the acquisition of GG+A to be 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