UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
x |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2016
OR
¨ |
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from to
Commission file number 001-14875
FTI CONSULTING, INC.
(Exact Name of Registrant as Specified in its Charter)
Maryland |
52-1261113 |
(State or Other Jurisdiction of Incorporation or Organization) |
(I.R.S. Employer Identification No.) |
|
|
1101 K Street NW, Washington, D.C. |
20005 |
(Address of Principal Executive Offices) |
(Zip Code) |
(202) 312-9100
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer |
x |
Accelerated filer |
¨ |
|
|
|
|
Non-accelerated filer |
¨ (Do not check if a smaller reporting company) |
Smaller reporting company |
¨ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes ¨ No x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
Class |
Outstanding at April 22, 2016 |
Common stock, par value $0.01 per share |
41,447,033 |
FTI CONSULTING, INC. AND SUBSIDIARIES
INDEX
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Page |
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Item 1. |
3 |
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|
|
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Condensed Consolidated Balance Sheets—March 31, 2016 and December 31, 2015 |
3 |
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|
|
Condensed Consolidated Statements of Comprehensive Income—Three Months Ended March 31, 2016 and 2015 |
4 |
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Condensed Consolidated Statement of Stockholders’ Equity—Three Months Ended March 31, 2016 |
5 |
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Condensed Consolidated Statements of Cash Flows—Three Months Ended March 31, 2016 and 2015 |
6 |
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7 |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
16 |
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Item 3. |
32 |
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Item 4. |
33 |
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Item 1. |
34 |
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Item 1A. |
34 |
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Item 2. |
34 |
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Item 3. |
34 |
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Item 4. |
34 |
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Item 5. |
34 |
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Item 6. |
35 |
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36 |
2
FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
(Unaudited)
|
|
March 31, |
|
|
December 31, |
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||
|
|
2016 |
|
|
2015 |
|
||
Assets |
|
(Unaudited) |
|
|
|
|
|
|
Current assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
114,451 |
|
|
$ |
149,760 |
|
Accounts receivable: |
|
|
|
|
|
|
|
|
Billed receivables |
|
|
420,824 |
|
|
|
405,000 |
|
Unbilled receivables |
|
|
329,933 |
|
|
|
280,538 |
|
Allowance for doubtful accounts and unbilled services |
|
|
(197,527 |
) |
|
|
(185,754 |
) |
Accounts receivable, net |
|
|
553,230 |
|
|
|
499,784 |
|
Current portion of notes receivable |
|
|
31,474 |
|
|
|
36,115 |
|
Prepaid expenses and other current assets |
|
|
45,196 |
|
|
|
55,966 |
|
Total current assets |
|
|
744,351 |
|
|
|
741,625 |
|
Property and equipment, net of accumulated depreciation |
|
|
71,263 |
|
|
|
74,760 |
|
Goodwill |
|
|
1,198,070 |
|
|
|
1,198,298 |
|
Other intangible assets, net of amortization |
|
|
61,193 |
|
|
|
63,935 |
|
Notes receivable, net of current portion |
|
|
108,095 |
|
|
|
106,882 |
|
Other assets |
|
|
42,072 |
|
|
|
43,518 |
|
Total assets |
|
$ |
2,225,044 |
|
|
$ |
2,229,018 |
|
Liabilities and Stockholders' Equity |
|
|
|
|
|
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|
|
Current liabilities |
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other |
|
$ |
95,606 |
|
|
$ |
89,845 |
|
Accrued compensation |
|
|
157,687 |
|
|
|
227,783 |
|
Billings in excess of services provided |
|
|
34,226 |
|
|
|
29,449 |
|
Total current liabilities |
|
|
287,519 |
|
|
|
347,077 |
|
Long-term debt, net |
|
|
501,961 |
|
|
|
494,772 |
|
Deferred income taxes |
|
|
150,557 |
|
|
|
139,787 |
|
Other liabilities |
|
|
103,761 |
|
|
|
99,779 |
|
Total liabilities |
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|
1,043,798 |
|
|
|
1,081,415 |
|
Commitments and contingent liabilities (note 10) |
|
|
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Stockholders' equity |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; shares authorized — 5,000; none outstanding |
|
|
— |
|
|
|
— |
|
Common stock, $0.01 par value; shares authorized — 75,000; shares issued and outstanding — 41,385 (2016) and 41,234 (2015) |
|
|
414 |
|
|
|
412 |
|
Additional paid-in capital |
|
|
404,523 |
|
|
|
400,705 |
|
Retained earnings |
|
|
885,662 |
|
|
|
855,481 |
|
Accumulated other comprehensive loss |
|
|
(109,353 |
) |
|
|
(108,995 |
) |
Total stockholders' equity |
|
|
1,181,246 |
|
|
|
1,147,603 |
|
Total liabilities and stockholders' equity |
|
$ |
2,225,044 |
|
|
$ |
2,229,018 |
|
See accompanying notes to condensed consolidated financial statements
3
FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(in thousands, except per share data)
(Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
Revenues |
|
$ |
470,285 |
|
|
$ |
432,338 |
|
Operating expenses |
|
|
|
|
|
|
|
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Direct cost of revenues |
|
|
305,636 |
|
|
|
279,030 |
|
Selling, general and administrative expenses |
|
|
103,609 |
|
|
|
102,214 |
|
Special charges |
|
|
5,061 |
|
|
|
— |
|
Acquisition-related contingent consideration |
|
|
1,134 |
|
|
|
234 |
|
Amortization of other intangible assets |
|
|
2,606 |
|
|
|
3,012 |
|
|
|
|
418,046 |
|
|
|
384,490 |
|
Operating income |
|
|
52,239 |
|
|
|
47,848 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
Interest income and other |
|
|
2,557 |
|
|
|
(137 |
) |
Interest expense |
|
|
(6,229 |
) |
|
|
(12,368 |
) |
|
|
|
(3,672 |
) |
|
|
(12,505 |
) |
Income before income tax provision |
|
|
48,567 |
|
|
|
35,343 |
|
Income tax provision |
|
|
18,386 |
|
|
|
11,657 |
|
Net income |
|
$ |
30,181 |
|
|
$ |
23,686 |
|
Earnings per common share — basic |
|
$ |
0.75 |
|
|
$ |
0.59 |
|
Earnings per common share — diluted |
|
$ |
0.73 |
|
|
$ |
0.57 |
|
Other comprehensive loss, net of tax |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax expense of $0 |
|
$ |
(358 |
) |
|
$ |
(20,482 |
) |
Total other comprehensive loss, net of tax |
|
|
(358 |
) |
|
|
(20,482 |
) |
Comprehensive income |
|
$ |
29,823 |
|
|
$ |
3,204 |
|
See accompanying notes to condensed consolidated financial statements
4
FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Statement of Stockholders’ Equity
(in thousands)
(Unaudited)
|
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Accumulated |
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Additional |
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Other |
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||
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Common Stock |
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Paid-in |
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Retained |
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Comprehensive |
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||||||||
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Shares |
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Amount |
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Capital |
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Earnings |
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(Loss) |
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Total |
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||||||
Balance at December 31, 2015 |
|
|
41,234 |
|
|
$ |
412 |
|
|
$ |
400,705 |
|
|
$ |
855,481 |
|
|
$ |
(108,995 |
) |
|
$ |
1,147,603 |
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
$ |
30,181 |
|
|
|
— |
|
|
$ |
30,181 |
|
Other comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(358 |
) |
|
|
(358 |
) |
Issuance of common stock in connection with: |
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Exercise of options, net of income tax benefit from share-based awards of $107 |
|
|
53 |
|
|
|
1 |
|
|
|
1,312 |
|
|
|
— |
|
|
|
— |
|
|
|
1,313 |
|
Restricted share grants, less net settled shares of 69 |
|
|
183 |
|
|
|
2 |
|
|
|
(2,377 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,375 |
) |
Stock units issued under incentive compensation plan |
|
|
— |
|
|
|
— |
|
|
|
1,842 |
|
|
|
— |
|
|
|
— |
|
|
|
1,842 |
|
Purchase and retirement of common stock |
|
|
(85 |
) |
|
|
(1 |
) |
|
|
(2,902 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,903 |
) |
Share-based compensation |
|
|
— |
|
|
|
— |
|
|
|
5,943 |
|
|
|
— |
|
|
|
— |
|
|
|
5,943 |
|
Balance at March 31, 2016 |
|
|
41,385 |
|
|
$ |
414 |
|
|
$ |
404,523 |
|
|
$ |
885,662 |
|
|
$ |
(109,353 |
) |
|
$ |
1,181,246 |
|
See accompanying notes to condensed consolidated financial statements
5
FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
Operating activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
30,181 |
|
|
$ |
23,686 |
|
Adjustments to reconcile net income to net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and amortization |
|
|
7,971 |
|
|
|
7,808 |
|
Amortization and impairment of other intangible assets |
|
|
2,606 |
|
|
|
3,012 |
|
Acquisition-related contingent consideration |
|
|
1,134 |
|
|
|
234 |
|
Provision for doubtful accounts |
|
|
437 |
|
|
|
2,998 |
|
Non-cash share-based compensation |
|
|
6,158 |
|
|
|
6,736 |
|
Non-cash interest expense |
|
|
497 |
|
|
|
671 |
|
Other |
|
|
(81 |
) |
|
|
(132 |
) |
Changes in operating assets and liabilities, net of effects from acquisitions: |
|
|
|
|
|
|
|
|
Accounts receivable, billed and unbilled |
|
|
(52,047 |
) |
|
|
(41,330 |
) |
Notes receivable |
|
|
3,853 |
|
|
|
(1,003 |
) |
Prepaid expenses and other assets |
|
|
3,824 |
|
|
|
3,583 |
|
Accounts payable, accrued expenses and other |
|
|
5,619 |
|
|
|
15,959 |
|
Income taxes |
|
|
17,561 |
|
|
|
5,524 |
|
Accrued compensation |
|
|
(65,511 |
) |
|
|
(74,987 |
) |
Billings in excess of services provided |
|
|
4,699 |
|
|
|
(4,092 |
) |
Net cash used in operating activities |
|
|
(33,099 |
) |
|
|
(51,333 |
) |
Investing activities |
|
|
|
|
|
|
|
|
Purchases of property and equipment |
|
|
(6,362 |
) |
|
|
(8,876 |
) |
Other |
|
|
34 |
|
|
|
71 |
|
Net cash used in investing activities |
|
|
(6,328 |
) |
|
|
(8,805 |
) |
Financing activities |
|
|
|
|
|
|
|
|
Borrowings under revolving line of credit, net |
|
|
7,000 |
|
|
|
— |
|
Deposits |
|
|
2,590 |
|
|
|
1,380 |
|
Purchase and retirement of common stock |
|
|
(2,903 |
) |
|
|
— |
|
Net issuance of common stock under equity compensation plans |
|
|
(1,371 |
) |
|
|
4,031 |
|
Other |
|
|
(135 |
) |
|
|
(85 |
) |
Net cash provided by financing activities |
|
|
5,181 |
|
|
|
5,326 |
|
Effect of exchange rate changes on cash and cash equivalents |
|
|
(1,063 |
) |
|
|
(3,573 |
) |
Net decrease in cash and cash equivalents |
|
|
(35,309 |
) |
|
|
(58,385 |
) |
Cash and cash equivalents, beginning of period |
|
|
149,760 |
|
|
|
283,680 |
|
Cash and cash equivalents, end of period |
|
$ |
114,451 |
|
|
$ |
225,295 |
|
Supplemental cash flow disclosures |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
1,255 |
|
|
$ |
226 |
|
Cash paid for income taxes, net of refunds |
|
$ |
824 |
|
|
$ |
6,134 |
|
Non-cash investing and financing activities: |
|
|
|
|
|
|
|
|
Issuance of stock units under incentive compensation plans |
|
$ |
1,842 |
|
|
$ |
2,124 |
|
See accompanying notes to condensed consolidated financial statements
6
FTI Consulting, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(dollar and share amounts in tables in thousands, except per share data)
(Unaudited)
1. Basis of Presentation and Significant Accounting Policies
The unaudited condensed consolidated financial statements of FTI Consulting, Inc., including its consolidated subsidiaries (collectively, the “Company,” “we,” “our,” or “FTI Consulting”), presented herein, have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and under the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Some of the information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. Certain prior period amounts have been reclassified to conform to the current period presentation. In management’s opinion, the interim financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented. All adjustments made were normal recurring accruals. Results of operations for the interim periods presented herein are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.
2. Earnings Per Common Share
Basic earnings per common share are calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share adjust basic earnings per common share for the effects of potentially dilutive common shares. Potentially dilutive common shares include the dilutive effects of shares issuable under our equity compensation plans, including stock options and restricted stock, each using the treasury stock method.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
Numerator—basic and diluted |
|
|
|
|
|
|
|
|
Net income |
|
$ |
30,181 |
|
|
$ |
23,686 |
|
Denominator |
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding — basic |
|
|
40,506 |
|
|
|
40,384 |
|
Effect of dilutive stock options |
|
|
131 |
|
|
|
376 |
|
Effect of dilutive restricted shares |
|
|
511 |
|
|
|
564 |
|
Weighted average number of common shares outstanding — diluted |
|
|
41,148 |
|
|
|
41,324 |
|
Earnings per common share — basic |
|
$ |
0.75 |
|
|
$ |
0.59 |
|
Earnings per common share — diluted |
|
$ |
0.73 |
|
|
$ |
0.57 |
|
Antidilutive stock options and restricted shares |
|
|
2,657 |
|
|
|
2,173 |
|
3. New Accounting Standards
In March 2016, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting. This standard makes several modifications to Topic 718, including the accounting for forfeitures, employer tax withholding on share-based compensation and income tax consequences, which are intended to simplify various aspects of the accounting for share-based compensation. ASU 2016-09 also clarifies the statement of cash flows presentation for certain components of share-based awards. The standard is effective beginning January 1, 2017, although early adoption is permitted. We have not yet determined the impact that the adoption of this guidance will have on our consolidated financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842), that replaces existing lease guidance. Under this ASU, leases will be required to record right-of-use assets and corresponding lease liabilities on the balance sheet. This guidance is effective beginning January 1, 2019. The new standard is required to be applied with a modified retrospective approach to each prior reporting period presented. We have not yet determined the impact that the adoption of this guidance will have on our consolidated financial statements.
7
In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). Under this ASU and subsequently issued amendments, revenue is recognized at the time when goods or services are transferred to a customer in an amount that reflects the consideration it expects to receive in exchange for those goods or services. Companies may use either a full retrospective or a modified retrospective approach to adopt this ASU. This guidance is effective beginning January 1, 2018. We are currently evaluating how the adoption of this accounting standard will impact our consolidated financial statements and related disclosures, including the transition approach.
4. Special Charges
During the three months ended March 31, 2016, we recorded special charges totaling $5.1 million related to the termination of 53 employees in our Technology segment to address current business demands and to position for future growth. The special charges consisted of salary continuance and other contractual employee-related costs, including loan forgiveness and accelerated recognition of costs related to share-based compensation. The total cash outflow associated with the special charges recorded in 2016 is expected to be $4.9 million, of which $2.3 million has been paid as of March 31, 2016. Approximately $2.3 million is expected to be paid during the remainder of 2016, and the remaining balance of $0.3 million is expected to be paid in 2017.
We have paid approximately $54.3 million of the $65.5 million total expected payments related to special charges previously recorded in 2014, 2013, and 2012. Approximately $2.7 million is expected to be paid during the remainder of 2016, $3.1 million is expected to be paid in 2017, $2.6 million is expected to be paid in 2018, $1.2 million is expected to be paid in 2019, and the remaining balance of $1.6 million will be paid from 2020 to 2026. A liability for the current and noncurrent portions of the amounts to be paid is included in “Accounts payable, accrued expenses and other” and “Other liabilities,” respectively, on the Condensed Consolidated Balance Sheets.
Activity related to the liability for these costs for the three months ended March 31, 2016 is as follows:
|
|
Employee |
|
|
Lease |
|
|
|
|
|
||
|
|
Termination |
|
|
Termination |
|
|
|
|
|
||
|
|
Costs |
|
|
Costs |
|
|
Total |
|
|||
Balance at December 31, 2015 |
|
$ |
7,768 |
|
|
$ |
4,045 |
|
|
$ |
11,813 |
|
Additions |
|
|
4,873 |
|
|
|
— |
|
|
|
4,873 |
|
Payments |
|
|
(2,787 |
) |
|
|
(67 |
) |
|
|
(2,854 |
) |
Foreign currency translation adjustment and other |
|
|
(3 |
) |
|
|
— |
|
|
|
(3 |
) |
Balance at March 31, 2016 |
|
$ |
9,851 |
|
|
$ |
3,978 |
|
|
$ |
13,829 |
|
5. Allowance for Doubtful Accounts and Unbilled Services
We record adjustments to the allowance for doubtful accounts and unbilled services as a reduction in revenue when there are changes in estimates of fee reductions that may be imposed by bankruptcy courts and other regulatory institutions, for both billed and unbilled receivables. The allowance for doubtful accounts and unbilled services is also adjusted after the related work has been billed to the client and we discover that collectability is not reasonably assured. These adjustments are recorded to “Selling, general and administrative expenses” on the Condensed Consolidated Statements of Comprehensive Income and totaled $0.4 million and $3.0 million for the three months ended March 31, 2016 and 2015, respectively.
6. Research and Development Costs
Research and development costs related to software development totaled $4.0 million and $5.9 million for the three months ended March 31, 2016 and 2015, respectively. Research and development costs are included in “Selling, general and administrative expenses” on the Condensed Consolidated Statements of Comprehensive Income.
7. Financial Instruments
Fair Value of Financial Instruments
We consider the recorded value of certain financial assets and liabilities, which consist primarily of cash equivalents, accounts receivable and accounts payable, to approximate the fair value of the respective assets and liabilities at March 31, 2016 and December 31, 2015, based on the short-term nature of the assets and liabilities. The fair value of our long-term debt at March 31, 2016 was $522.0 million compared to a carrying value of $507.0 million. At December 31, 2015, the fair value of our long-term debt was $513.5 million compared to a carrying value of $500.0 million. We determine the fair value of our long-term debt primarily based on quoted market
8
prices for our 6% Senior Notes Due 2022 (“2022 Notes”). The fair value of our long-term debt is classified within Level 2 of the fair value hierarchy, because it is traded in less active markets.
For business combinations consummated on or after January 1, 2009, we estimate the fair value of acquisition-related contingent consideration based on the present value of the consideration expected to be paid during the remainder of the earnout period, based on management’s assessment of the acquired operations’ forecasted earnings. This fair value measure is based on significant inputs not observed in the market and thus represents a Level 3 measurement.
The significant unobservable inputs used in the fair value measurements of our acquisition-related contingent consideration include our measures of the future profitability and related cash flows of the acquired business or assets, impacted by appropriate discount rates. Significant increases (decreases) in any of these inputs in isolation would result in a significantly lower (higher) fair value measurement. Generally, a change in the assumptions used for the discount rates is accompanied by a directionally opposite change in the fair value measurement and a change in the assumptions used for the future cash flows is accompanied by a directionally similar change in the fair value measurement. The fair value of the contingent consideration is reassessed on a quarterly basis by the Company using additional information as it becomes available.
Any change in the fair value of an acquisition’s contingent consideration liability results in a remeasurement gain or loss that is recorded as income or expense, respectively, and is included within “Acquisition-related contingent consideration” in the Condensed Consolidated Statements of Comprehensive Income. During the three months ended March 31, 2016, we recorded a $1.0 million expense related to the increase in the liability for future expected contingent consideration payments, driven by improved business results in the current period as well as expected results during the remainder of the earn-out period. No remeasurement adjustments were recorded in the three months ended March 31, 2015.
Accretion expense for acquisition-related contingent consideration totaled $0.2 million and $0.2 million for the three months ended March 31, 2016 and 2015, respectively.
8. Goodwill and Other Intangible Assets
Goodwill
The changes in the carrying amounts of goodwill by operating segment for the three months ended March 31, 2016, are as follows:
|
|
Corporate |
|
|
Forensic and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
||
|
|
Finance & |
|
|
Litigation |
|
|
Economic |
|
|
|
|
|
|
Strategic |
|
|
|
|
|
||||
|
|
Restructuring |
|
|
Consulting |
|
|
Consulting |
|
|
Technology |
|
|
Communications |
|
|
Total |
|
||||||
Balance at December 31, 2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Goodwill |
|
|
441,548 |
|
|
|
235,211 |
|
|
|
269,341 |
|
|
|
117,888 |
|
|
|
328,449 |
|
|
|
1,392,437 |
|
Accumulated goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(194,139 |
) |
|
|
(194,139 |
) |
Goodwill, net at December 31, 2015 |
|
$ |
441,548 |
|
|
$ |
235,211 |
|
|
$ |
269,341 |
|
|
$ |
117,888 |
|
|
$ |
134,310 |
|
|
$ |
1,198,298 |
|
Foreign currency translation adjustment and other |
|
|
1,640 |
|
|
|
(415 |
) |
|
|
(102 |
) |
|
|
(48 |
) |
|
|
(1,303 |
) |
|
|
(228 |
) |
Goodwill |
|
|
443,188 |
|
|
|
234,796 |
|
|
|
269,239 |
|
|
|
117,840 |
|
|
|
327,146 |
|
|
|
1,392,209 |
|
Accumulated goodwill impairment |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(194,139 |
) |
|
|
(194,139 |
) |
Goodwill, net at March 31, 2016 |
|
$ |
443,188 |
|
|
$ |
234,796 |
|
|
$ |
269,239 |
|
|
$ |
117,840 |
|
|
$ |
133,007 |
|
|
$ |
1,198,070 |
|
Other Intangible Assets
Other intangible assets with finite lives are amortized over their estimated useful lives. For intangible assets with finite lives, we recorded amortization expense of $2.6 million and $3.0 million for the three months ended March 31, 2016 and 2015, respectively. Based solely on the amortizable intangible assets recorded as of March 31, 2016, we estimate amortization expense to be $7.8 million during the remainder of 2016, $9.6 million in 2017, $8.0 million in 2018, $7.4 million in 2019, $7.2 million in 2020, $6.7 million in 2021, and $8.9 million in years after 2021. Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, finalization of asset valuations for newly acquired assets, changes in useful lives, changes in value due to foreign currency translation, and other factors.
9
9. Long-Term Debt
The components of debt obligations are presented in the table below:
|
|
March 31, |
|
|
December 31, |
|
||
|
|
2016 |
|
|
2015 |
|
||
6% senior notes due 2022 |
|
|
300,000 |
|
|
|
300,000 |
|
Senior bank credit facility |
|
|
207,000 |
|
|
|
200,000 |
|
Total debt |
|
|
507,000 |
|
|
|
500,000 |
|
Less deferred debt issue costs |
|
|
(5,039 |
) |
|
|
(5,228 |
) |
Long-term debt, net |
|
$ |
501,961 |
|
|
$ |
494,772 |
|
There were $207.0 million in borrowings outstanding under the Company’s senior secured bank revolving credit facility (“Senior Bank Credit Facility”) as of March 31, 2016. The Company has classified these borrowings as long-term debt in the accompanying Condensed Consolidated Balance Sheets as the Company has the intent and ability, as supported by availability under the credit agreement entered into as of June 26, 2015, to refinance these borrowings for more than one year from the Balance Sheet date. Additionally, $1.4 million of the borrowing limit was utilized (and, therefore, unavailable) as of March 31, 2016 for letters of credit.
For further information on our 6% senior notes due 2022 and Senior Bank Credit Facility, see footnote “12. Long-Term Debt” in Part II, Item 8 of our Annual Report on Form 10-K filed with the SEC for the year ended December 31, 2015.
10. Commitments and Contingencies
Contingencies
We are subject to legal actions arising in the ordinary course of business. In management’s opinion, we believe we have adequate legal defenses and/or insurance coverage with respect to the eventuality of such actions. We do not believe any settlement or judgment relating to any pending legal action would materially affect our financial position or results of operations.
11. Share-Based Compensation
Share-based Awards and Share-based Compensation Expense
Our officers, employees, non-employee directors and certain individual service providers are eligible to participate in the Company’s equity compensation plans, subject to the discretion of the administrator of the plans. During the three months ended March 31, 2016, we awarded 225,272 restricted shares, stock options exercisable for up to 118,865 shares, 53,104 restricted stock units, and 83,914 performance stock units. These awards are recorded as equity on the Condensed Consolidated Balance Sheets. During the three months ended March 31, 2016, stock options exercisable for up to 31,467 shares and 10 restricted shares were forfeited prior to the completion of the vesting requirements.
Total share-based compensation expense, net of forfeitures, for the three months ended March 31, 2016 and 2015 is detailed in the following table:
|
|
Three Months Ended March 31, |
|
|||||
Income Statement Classification |
|
2016 |
|
|
2015 |
|
||
Direct cost of revenues |
|
$ |
3,848 |
|
|
$ |
3,899 |
|
Selling, general and administrative expenses |
|
|
2,709 |
|
|
|
3,043 |
|
Special charges |
|
|
105 |
|
|
|
— |
|
Total share-based compensation expense |
|
$ |
6,662 |
|
|
$ |
6,942 |
|
12. Segment Reporting
We manage our business in five reportable segments: Corporate Finance & Restructuring, Forensic and Litigation Consulting, Economic Consulting, Technology and Strategic Communications.
Our Corporate Finance & Restructuring segment focuses on the strategic, operational, financial and capital needs of businesses around the world and provides consulting and advisory services on a wide range of areas, such as restructuring (including bankruptcy), interim management, financings, mergers and acquisitions (“M&A”), M&A integration, valuations and tax issues, as well as financial,
10
operational and performance improvement. Our distressed service offerings generally include corporate restructurings and interim management, and our non-distressed service offerings generally include all other services mentioned above.
Our Forensic and Litigation Consulting segment provides law firms, companies, government clients and other interested parties with dispute advisory, investigations, forensic accounting, business intelligence assessments, data analytics and risk mitigation services and performance improvement services for our health solutions practice clients, as well as interim management services.
Our Economic Consulting segment provides law firms, companies, government entities and other interested parties with analysis of complex economic issues for use in legal, regulatory and international arbitration proceedings, strategic decision making and public policy debates in the U.S. and around the world.
Our Technology segment provides e-discovery and information governance, hosting and consulting services and software to its clients. It provides products, services and consulting to companies, law firms, courts and government agencies worldwide. Its comprehensive suite of software and services help clients locate, review and produce electronically stored information (“ESI”), including e-mail, computer files, voicemail, instant messaging, cloud and social media data, as well as financial and transactional data.
Our Strategic Communications segment provides advice and consulting services relating to financial and corporate communications, investor relations, reputation management, brand communications, public affairs, business consulting, digital design and marketing.
We evaluate the performance of our operating segments based on Adjusted Segment EBITDA. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges. We define Total Adjusted Segment EBITDA as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. Although Adjusted Segment EBITDA is not a measure of financial condition or performance determined in accordance with GAAP, we use Adjusted Segment EBITDA to internally evaluate the financial performance of our segments because we believe it is a useful supplemental measure which reflects current core operating performance and provides an indicator of the segment’s ability to generate cash.
The table below presents revenues and Adjusted Segment EBITDA for our reportable segments:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
Revenues |
|
|
|
|
|
|
|
|
Corporate Finance & Restructuring |
|
$ |
127,156 |
|
|
$ |
106,212 |
|
Forensic and Litigation Consulting |
|
|
119,004 |
|
|
|
123,265 |
|
Economic Consulting |
|
|
130,731 |
|
|
|
106,081 |
|
Technology |
|
|
48,281 |
|
|
|
54,654 |
|
Strategic Communications |
|
|
45,113 |
|
|
|
42,126 |
|
Total revenues |
|
$ |
470,285 |
|
|
$ |
432,338 |
|
Adjusted Segment EBITDA |
|
|
|
|
|
|
|
|
Corporate Finance & Restructuring |
|
$ |
31,603 |
|
|
$ |
22,480 |
|
Forensic and Litigation Consulting |
|
|
19,808 |
|
|
|
22,071 |
|
Economic Consulting |
|
|
21,319 |
|
|
|
11,556 |
|
Technology |
|
|
7,823 |
|
|
|
10,073 |
|
Strategic Communications |
|
|
6,108 |
|
|
|
5,752 |
|
Total Adjusted Segment EBITDA |
|
$ |
86,661 |
|
|
$ |
71,932 |
|
11
The table below reconciles Total Adjusted Segment EBITDA to income before income tax provision:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
Total Adjusted Segment EBITDA |
|
$ |
86,661 |
|
|
$ |
71,932 |
|
Segment depreciation expense |
|
|
(7,029 |
) |
|
|
(6,991 |
) |
Amortization of intangible assets |
|
|
(2,606 |
) |
|
|
(3,012 |
) |
Special charges |
|
|
(5,061 |
) |
|
|
— |
|
Unallocated corporate expenses, excluding special charges |
|
|
(18,746 |
) |
|
|
(14,081 |
) |
Interest income and other |
|
|
2,557 |
|
|
|
(137 |
) |
Interest expense |
|
|
(6,229 |
) |
|
|
(12,368 |
) |
Remeasurement of acquisition-related contingent consideration |
|
|
(980 |
) |
|
|
— |
|
Income before income tax provision |
|
$ |
48,567 |
|
|
$ |
35,343 |
|
13. Supplemental Condensed Consolidating Guarantor and Non-Guarantor Financial Information
Substantially all of our domestic subsidiaries are guarantors of borrowings under our Senior Bank Credit Facility and 2022 Notes. The guarantees are full and unconditional and joint and several. All of our guarantors are wholly owned, direct or indirect, subsidiaries.
The following financial information presents condensed consolidating balance sheets, statements of comprehensive income (loss) and statements of cash flows for FTI Consulting, all the guarantor subsidiaries, all the non-guarantor subsidiaries and the eliminations necessary to arrive at the consolidated information for FTI Consulting and its subsidiaries. For purposes of this presentation, we have accounted for our investments in our subsidiaries using the equity method of accounting. The principal eliminating entries eliminate investment in subsidiary and intercompany balances and transactions
Condensed Consolidating Balance Sheet Information as of March 31, 2016
|
|
FTI |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Consulting, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
13,992 |
|
|
$ |
163 |
|
|
$ |
100,296 |
|
|
$ |
— |
|
|
$ |
114,451 |
|
Accounts receivable, net |
|
|
176,302 |
|
|
|
191,471 |
|
|
|
185,457 |
|
|
|
— |
|
|
|
553,230 |
|
Intercompany receivables |
|
|
— |
|
|
|
921,720 |
|
|
|
39,450 |
|
|
|
(961,170 |
) |
|
|
— |
|
Other current assets |
|
|
33,076 |
|
|
|
22,789 |
|
|
|
20,805 |
|
|
|
— |
|
|
|
76,670 |
|
Total current assets |
|
|
223,370 |
|
|
|
1,136,143 |
|
|
|
346,008 |
|
|
|
(961,170 |
) |
|
|
744,351 |
|
Property and equipment, net |
|
|
31,765 |
|
|
|
12,649 |
|
|
|
26,849 |
|
|
|
— |
|
|
|
71,263 |
|
Goodwill |
|
|
558,978 |
|
|
|
416,053 |
|
|
|
223,039 |
|
|
|
— |
|
|
|
1,198,070 |
|
Other intangible assets, net |
|
|
24,877 |
|
|
|
15,013 |
|
|
|
41,528 |
|
|
|
(20,225 |
) |
|
|
61,193 |
|
Investments in subsidiaries |
|
|
2,021,892 |
|
|
|
495,463 |
|
|
|
— |
|
|
|
(2,517,355 |
) |
|
|
— |
|
Other assets |
|
|
40,855 |
|
|
|
70,630 |
|
|
|
38,682 |
|
|
|
— |
|
|
|
150,167 |
|
Total assets |
|
$ |
2,901,737 |
|
|
$ |
2,145,951 |
|
|
$ |
676,106 |
|
|
$ |
(3,498,750 |
) |
|
$ |
2,225,044 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payables |
|
$ |
914,711 |
|
|
$ |
7,087 |
|
|
$ |
39,372 |
|
|
$ |
(961,170 |
) |
|
|
— |
|
Other current liabilities |
|
|
109,576 |
|
|
|
92,243 |
|
|
|
85,700 |
|
|
|
— |
|
|
|
287,519 |
|
Total current liabilities |
|
|
1,024,287 |
|
|
|
99,330 |
|
|
|
125,072 |
|
|
|
(961,170 |
) |
|
|
287,519 |
|
Long-term debt, net |
|
|
501,961 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
501,961 |
|
Other liabilities |
|
|
194,243 |
|
|
|
14,387 |
|
|
|
45,688 |
|
|
|
— |
|
|
|
254,318 |
|
Total liabilities |
|
|
1,720,491 |
|
|
|
113,717 |
|
|
|
170,760 |
|
|
|
(961,170 |
) |
|
|
1,043,798 |
|
Stockholders' equity |
|
|
1,181,246 |
|
|
|
2,032,234 |
|
|
|
505,346 |
|
|
|
(2,537,580 |
) |
|
|
1,181,246 |
|
Total liabilities and stockholders' equity |
|
$ |
2,901,737 |
|
|
$ |
2,145,951 |
|
|
$ |
676,106 |
|
|
$ |
(3,498,750 |
) |
|
$ |
2,225,044 |
|
12
Condensed Consolidating Balance Sheet Information as of December 31, 2015
|
|
FTI |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Consulting, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
35,211 |
|
|
$ |
165 |
|
|
$ |
114,384 |
|
|
$ |
— |
|
|
$ |
149,760 |
|
Accounts receivable, net |
|
|
159,121 |
|
|
|
169,488 |
|
|
|
171,175 |
|
|
|
— |
|
|
|
499,784 |
|
Intercompany receivables |
|
|
— |
|
|
|
936,452 |
|
|
|
62,651 |
|
|
|
(999,103 |
) |
|
|
— |
|
Other current assets |
|
|
44,086 |
|
|
|
25,627 |
|
|
|
22,368 |
|
|
|
— |
|
|
|
92,081 |
|
Total current assets |
|
|
238,418 |
|
|
|
1,131,732 |
|
|
|
370,578 |
|
|
|
(999,103 |
) |
|
|
741,625 |
|
Property and equipment, net |
|
|
33,699 |
|
|
|
13,409 |
|
|
|
27,652 |
|
|
|
— |
|
|
|
74,760 |
|
Goodwill |
|
|
558,978 |
|
|
|
416,053 |
|
|
|
223,267 |
|
|
|
— |
|
|
|
1,198,298 |
|
Other intangible assets, net |
|
|
25,863 |
|
|
|
15,571 |
|
|
|
43,542 |
|
|
|
(21,041 |
) |
|
|
63,935 |
|
Investments in subsidiaries |
|
|
1,995,409 |
|
|
|
486,462 |
|
|
|
— |
|
|
|
(2,481,871 |
) |
|
|
— |
|
Other assets |
|
|
40,359 |
|
|
|
72,981 |
|
|
|
37,060 |
|
|
|
— |
|
|
|
150,400 |
|
Total assets |
|
$ |
2,892,726 |
|
|
$ |
2,136,208 |
|
|
$ |
702,099 |
|
|
$ |
(3,502,015 |
) |
|
$ |
2,229,018 |
|
Liabilities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intercompany payables |
|
$ |
930,066 |
|
|
$ |
8,921 |
|
|
$ |
60,116 |
|
|
$ |
(999,103 |
) |
|
$ |
— |
|
Other current liabilities |
|
|
135,421 |
|
|
|
107,188 |
|
|
|
104,468 |
|
|
|
— |
|
|
|
347,077 |
|
Total current liabilities |
|
|
1,065,487 |
|
|
|
116,109 |
|
|
|
164,584 |
|
|
|
(999,103 |
) |
|
|
347,077 |
|
Long-term debt, net |
|
|
494,772 |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
494,772 |
|
Other liabilities |
|
|
184,864 |
|
|
|
12,562 |
|
|
|
42,140 |
|
|
|
— |
|
|
|
239,566 |
|
Total liabilities |
|
|
1,745,123 |
|
|
|
128,671 |
|
|
|
206,724 |
|
|
|
(999,103 |
) |
|
|
1,081,415 |
|
Stockholders' equity |
|
|
1,147,603 |
|
|
|
2,007,537 |
|
|
|
495,375 |
|
|
|
(2,502,912 |
) |
|
|
1,147,603 |
|
Total liabilities and stockholders' equity |
|
$ |
2,892,726 |
|
|
$ |
2,136,208 |
|
|
$ |
702,099 |
|
|
$ |
(3,502,015 |
) |
|
$ |
2,229,018 |
|
Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended
March 31, 2016
|
|
FTI |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Consulting, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Revenues |
|
$ |
182,994 |
|
|
$ |
162,563 |
|
|
$ |
127,066 |
|
|
$ |
(2,338 |
) |
|
$ |
470,285 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost of revenues |
|
|
114,429 |
|
|
|
109,190 |
|
|
|
84,315 |
|
|
|
(2,298 |
) |
|
|
305,636 |
|
Selling, general and administrative expenses |
|
|
44,667 |
|
|
|
30,721 |
|
|
|
28,261 |
|
|
|
(40 |
) |
|
|
103,609 |
|
Special charges |
|
|
— |
|
|
|
4,563 |
|
|
|
498 |
|
|
|
— |
|
|
|
5,061 |
|
Acquisition-related contingent consideration |
|
|
6 |
|
|
|
1,128 |
|
|
|
— |
|
|
|
— |
|
|
|
1,134 |
|
Amortization of other intangible assets |
|
|
986 |
|
|
|
558 |
|
|
|
1,879 |
|
|
|
(817 |
) |
|
|
2,606 |
|
|
|
|
160,088 |
|
|
|
146,160 |
|
|
|
114,953 |
|
|
|
(3,155 |
) |
|
|
418,046 |
|
Operating income |
|
|
22,906 |
|
|
|
16,403 |
|
|
|
12,113 |
|
|
|
817 |
|
|
|
52,239 |
|
Other (expense) income |
|
|
(5,077 |
) |
|
|
(710 |
) |
|
|
2,115 |
|
|
|
— |
|
|
|
(3,672 |
) |
Income before income tax provision |
|
|
17,829 |
|
|
|
15,693 |
|
|
|
14,228 |
|
|
|
817 |
|
|
|
48,567 |
|
Income tax provision |
|
|
8,149 |
|
|
|
6,859 |
|
|
|
3,378 |
|
|
|
— |
|
|
|
18,386 |
|
Equity in net earnings of subsidiaries |
|
|
20,501 |
|
|
|
9,882 |
|
|
|
— |
|
|
|
(30,383 |
) |
|
|
— |
|
Net income |
|
$ |
30,181 |
|
|
$ |
18,716 |
|
|
$ |
10,850 |
|
|
$ |
(29,566 |
) |
|
$ |
30,181 |
|
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax expense of $0 |
|
|
— |
|
|
|
— |
|
|
|
(358 |
) |
|
|
— |
|
|
|
(358 |
) |
Other comprehensive loss, net of tax: |
|
|
— |
|
|
|
— |
|
|
|
(358 |
) |
|
|
— |
|
|
|
(358 |
) |
Comprehensive income |
|
$ |
30,181 |
|
|
$ |
18,716 |
|
|
$ |
10,492 |
|
|
$ |
(29,566 |
) |
|
$ |
29,823 |
|
13
Condensed Consolidating Statement of Comprehensive Income for the Three Months Ended
March 31, 2015
|
|
FTI |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|
|
|
|
|||
|
|
Consulting, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Eliminations |
|
|
Consolidated |
|
|||||
Revenues |
|
$ |
169,135 |
|
|
$ |
144,139 |
|
|
$ |
121,852 |
|
|
$ |
(2,788 |
) |
|
$ |
432,338 |
|
Operating expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Direct cost of revenues |
|
|
105,063 |
|
|
|
96,587 |
|
|
|
80,083 |
|
|
|
(2,703 |
) |
|
|
279,030 |
|
Selling, general and administrative expenses |
|
|
43,411 |
|
|
|
29,877 |
|
|
|
29,011 |
|
|
|
(85 |
) |
|
|
102,214 |
|
Special charges |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
Acquisition-related contingent consideration |
|
|
65 |
|
|
|
169 |
|
|
|
— |
|
|
|
— |
|
|
|
234 |
|
Amortization of other intangible assets |
|
|
986 |
|
|
|
715 |
|
|
|
2,181 |
|
|
|
(870 |
) |
|
|
3,012 |
|
|
|
|
149,525 |
|
|
|
127,348 |
|
|
|
111,275 |
|
|
|
(3,658 |
) |
|
|
384,490 |
|
Operating income |
|
|
19,610 |
|
|
|
16,791 |
|
|
|
10,577 |
|
|
|
870 |
|
|
|
47,848 |
|
Other (expense) income |
|
|
(13,866 |
) |
|
|
(2,010 |
) |
|
|
3,371 |
|
|
|
— |
|
|
|
(12,505 |
) |
Income before income tax provision |
|
|
5,744 |
|
|
|
14,781 |
|
|
|
13,948 |
|
|
|
870 |
|
|
|
35,343 |
|
Income tax provision |
|
|
2,563 |
|
|
|
5,726 |
|
|
|
3,368 |
|
|
|
— |
|
|
|
11,657 |
|
Equity in net earnings of subsidiaries |
|
|
20,505 |
|
|
|
9,825 |
|
|
|
— |
|
|
|
(30,330 |
) |
|
|
— |
|
Net income |
|
$ |
23,686 |
|
|
$ |
18,880 |
|
|
$ |
10,580 |
|
|
$ |
(29,460 |
) |
|
$ |
23,686 |
|
Other comprehensive loss, net of tax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments, net of tax expense of $0 |
|
|
— |
|
|
|
— |
|
|
|
(20,482 |
) |
|
|
— |
|
|
|
(20,482 |
) |
Other comprehensive loss, net of tax: |
|
|
— |
|
|
|
— |
|
|
|
(20,482 |
) |
|
|
— |
|
|
|
(20,482 |
) |
Comprehensive income |
|
$ |
23,686 |
|
|
$ |
18,880 |
|
|
$ |
(9,902 |
) |
|
$ |
(29,460 |
) |
|
$ |
3,204 |
|
Condensed Consolidating Statement of Cash Flows for the Three Months Ended March 31, 2016
|
|
FTI |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|||
|
|
Consulting, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Consolidated |
|
||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
$ |
(7,700 |
) |
|
$ |
(8,956 |
) |
|
$ |
(16,443 |
) |
|
$ |
(33,099 |
) |
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment and other |
|
|
(788 |
) |
|
|
(3,945 |
) |
|
|
(1,629 |
) |
|
|
(6,362 |
) |
Other |
|
|
34 |
|
|
|
— |
|
|
|
— |
|
|
|
34 |
|
Net cash used in investing activities |
|
|
(754 |
) |
|
|
(3,945 |
) |
|
|
(1,629 |
) |
|
|
(6,328 |
) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Borrowings under revolving line of credit, net |
|
|
7,000 |
|
|
|
— |
|
|
|
— |
|
|
|
7,000 |
|
Deposits |
|
|
— |
|
|
|
— |
|
|
|
2,590 |
|
|
|
2,590 |
|
Purchase and retirement of common stock |
|
|
(2,903 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,903 |
) |
Net issuance of common stock under equity compensation plans |
|
|
(1,371 |
) |
|
|
— |
|
|
|
— |
|
|
|
(1,371 |
) |
Other |
|
|
(135 |
) |
|
|
— |
|
|
|
— |
|
|
|
(135 |
) |
Intercompany transfers |
|
|
(15,356 |
) |
|
|
12,899 |
|
|
|
2,457 |
|
|
|
— |
|
Net cash (used in) provided by financing activities |
|
|
(12,765 |
) |
|
|
12,899 |
|
|
|
5,047 |
|
|
|
5,181 |
|
Effects of exchange rate changes on cash and cash equivalents |
|
|
— |
|
|
|
— |
|
|
|
(1,063 |
) |
|
|
(1,063 |
) |
Net decrease in cash and cash equivalents |
|
|
(21,219 |
) |
|
|
(2 |
) |
|
|
(14,088 |
) |
|
|
(35,309 |
) |
Cash and cash equivalents, beginning of year |
|
|
35,211 |
|
|
|
165 |
|
|
|
114,384 |
|
|
|
149,760 |
|
Cash and cash equivalents, end of year |
|
$ |
13,992 |
|
|
$ |
163 |
|
|
$ |
100,296 |
|
|
$ |
114,451 |
|
14
Condensed Consolidating Statement of Cash Flows for the Three Months Ended March 31, 2015
|
|
FTI |
|
|
Guarantor |
|
|
Non-Guarantor |
|
|
|
|
|
|||
|
|
Consulting, Inc. |
|
|
Subsidiaries |
|
|
Subsidiaries |
|
|
Consolidated |
|
||||
Operating activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in operating activities |
|
$ |
(27,664 |
) |
|
$ |
(5,191 |
) |
|
$ |
(18,478 |
) |
|
$ |
(51,333 |
) |
Investing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Purchases of property and equipment and other |
|
|
(3,979 |
) |
|
|
(3,513 |
) |
|
|
(1,384 |
) |
|
|
(8,876 |
) |
Other |
|
|
32 |
|
|
|
— |
|
|
|
39 |
|
|
|
71 |
|
Net cash used in investing activities |
|
|
(3,947 |
) |
|
|
(3,513 |
) |
|
|
(1,345 |
) |
|
|
(8,805 |
) |
Financing activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net issuance of common stock under equity compensation plans |
|
|
4,031 |
|
|
|
— |
|
|
|
— |
|
|
|
4,031 |
|
Deposits |
|
|
— |
|
|
|
— |
|
|
|
1,380 |
|
|
|
1,380 |
|
Other |
|
|
(85 |
) |
|
|
— |
|
|
|
— |
|
|
|
(85 |
) |
Intercompany transfers |
|
|
(8,255 |
) |
|
|
8,701 |
|
|
|
(446 |
) |
|
|
— |
|
Net cash (used in) provided by financing activities |
|
|
(4,309 |
) |
|
|
8,701 |
|
|
|
934 |
|
|
|
5,326 |
|
Effects of exchange rate changes on cash and cash equivalents |
|
|
— |
|
|
|
— |
|
|
|
(3,573 |
) |
|
|
(3,573 |
) |
Net decrease in cash and cash equivalents |
|
|
(35,920 |
) |
|
|
(3 |
) |
|
|
(22,462 |
) |
|
|
(58,385 |
) |
Cash and cash equivalents, beginning of year |
|
|
171,090 |
|
|
|
159 |
|
|
|
112,431 |
|
|
|
283,680 |
|
Cash and cash equivalents, end of year |
|
$ |
135,170 |
|
|
$ |
156 |
|
|
$ |
89,969 |
|
|
$ |
225,295 |
|
15
The following is a discussion and analysis of our consolidated financial condition and results of operations for the three months ended March 31, 2016 and 2015 and significant factors that could affect our prospective financial condition and results of operations. This discussion should be read together with the accompanying unaudited condensed consolidated financial statements and related notes and with our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission (“SEC”). In addition to historical information, the following discussion includes forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations and intentions. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect, and actual results could differ materially from those projected or assumed in the forward-looking statements.
BUSINESS OVERVIEW
We are a global business advisory firm dedicated to helping organizations protect and enhance their enterprise value. We work closely with our clients to help them anticipate, understand, manage and overcome complex business matters arising from such factors as the economy, financial and credit markets, governmental regulation and legislation and litigation. We assist clients in addressing a broad range of business challenges, such as restructuring (including bankruptcy), capital market issues and indebtedness, interim business management, forensic accounting and litigation matters, international arbitrations, Mergers & Acquisitions (“M&A”), antitrust and competition matters, securities litigation, e-discovery, management and retrieval of electronically stored information ("ESI"), reputation management and strategic communications. We also provide services to help our clients take advantage of economic, regulatory, financial and other business opportunities. Our experienced teams of professionals include many individuals who are widely recognized as experts in their respective fields. We believe clients retain us because of our recognized expertise and capabilities in highly specialized areas as well as our reputation for satisfying client needs.
We report financial results for the following five reportable segments:
Our Corporate Finance & Restructuring (“Corporate Finance”) segment focuses on the strategic, operational, financial and capital needs of businesses around the world and provides consulting and advisory services on a wide range of areas, such as restructuring (including bankruptcy), interim management, financings, M&A, M&A integration, valuations and tax issues, as well as financial, operational and performance improvement. Our distressed service offerings generally include corporate restructurings and interim management, and our non-distressed service offerings generally include all other services mentioned above.
Our Forensic and Litigation Consulting (“FLC”) segment provides law firms, companies, government clients and other interested parties with dispute advisory, investigations, forensic accounting, business intelligence assessments, data analytics and risk mitigation services and performance improvement services for our health solutions practice clients, as well as interim management services.
Our Economic Consulting segment provides law firms, companies, government entities and other interested parties with analysis of complex economic issues for use in legal, regulatory and international arbitration proceedings, strategic decision making and public policy debates in the U.S. and around the world.
Our Technology segment provides e-discovery and information governance, hosting and consulting services and software to its clients. It provides products, services and consulting to companies, law firms, courts and government agencies worldwide. Its comprehensive suite of software and services help clients locate, review and produce ESI, including e-mail, computer files, voicemail, instant messaging, cloud and social media data, as well as financial and transactional data.
Our Strategic Communications segment provides advice and consulting services relating to financial and corporate communications, investor relations, reputation management, brand communications, public affairs, business consulting, digital design and marketing.
We derive substantially all of our revenues from providing professional services to both U.S. and global clients. Most of our services are rendered under time-and-expense arrangements that obligate the client to pay us a fee for the hours that we incur at agreed upon rates. Under this arrangement, we typically bill our clients for reimbursable expenses, which may include the cost of producing our work product and other direct expenses that we incur on behalf of the client, such as travel costs. We also render services for which certain clients may be required to pay us a fixed fee or recurring retainer. These arrangements are generally cancellable at any time. Some of our engagements contain performance-based arrangements in which we earn a success fee when and if certain predefined outcomes occur. This type of success fee may supplement a time-and-expense or fixed-fee arrangement. Success fee revenues may cause variations in our revenues and operating results due to the timing of achieving the performance-based criteria. In our Technology segment, certain clients are also billed based on the amount of data stored on our electronic systems, the volume of
16
information processed or the number of users licensing our Ringtail® software products for use or installation within their own environments. We license certain products directly to end users as well as indirectly through our channel partner relationships. Unit-based revenue is defined as revenue billed on a per-item, per-page, or some other unit-based method and includes revenue from data processing and hosting, software usage and software licensing. Unit-based revenue includes revenue associated with our proprietary software that is made available to customers, either via a web browser (“on-demand”) or installed at our customer or partner locations (“on-premise”). On-demand revenue is charged on a unit or monthly basis and includes, but is not limited to, processing and review related functions. On-premise revenue is comprised of up-front license fees, with recurring support and maintenance. Seasonal factors, such as the timing of our employees’ and clients’ vacations and holidays, impact the timing of our revenues.
Our financial results are primarily driven by:
|
· |
the number, size and type of engagements we secure; |
|
· |
the rate per hour or fixed charges we charge our clients for services; |
|
· |
the utilization rates of the revenue-generating professionals we employ; |
|
· |
the number of revenue-generating professionals; |
|
· |
fees from clients on a retained basis or other; |
|
· |
licensing of our software products and other technology services; |
|
· |
the types of assignments we are working on at different times; |
|
· |
the length of the billing and collection cycles; and |
|
· |
the geographic locations of our clients or locations in which services are rendered. |
We define acquisition growth as revenue of acquired companies in the first twelve months following the effective date of an acquisition. Our definition of organic growth is the change in revenue excluding the impact of all such acquisitions.
When significant, we identify the estimated impact of foreign currency translation driven by our businesses with functional currencies other than the U.S. dollar, on the period-to-period performance results. The estimated impact of foreign currency translation is calculated as the difference between the prior period results multiplied by the average foreign currency exchange rates in the current period and the prior period results multiplied by the average foreign currency rates in the prior period.
Non-GAAP Measures
In the accompanying analysis of financial information, we sometimes use information derived from consolidated and segment financial information that is not presented in our financial statements and prepared in accordance with accounting principles generally accepted in the United States (“GAAP”). Certain of these measures are considered “non-GAAP financial measures” under the SEC rules. Specifically, we have referred to:
|
· |
Segment Operating Income (Loss) |
|
· |
Total Segment Operating Income (Loss) |
|
· |
Adjusted EBITDA |
|
· |
Adjusted Segment EBITDA |
|
· |
Total Adjusted Segment EBITDA |
|
· |
Adjusted EBITDA Margin |
|
· |
Adjusted Segment EBITDA Margin |
|
· |
Adjusted Net Income |
|
· |
Adjusted Earnings per Diluted Share |
We define Segment Operating Income (Loss) as a segment’s share of consolidated operating income (loss). We define Total Segment Operating Income (Loss) as the total of Segment Operating Income (Loss) for all segments, which excludes unallocated corporate expenses. We use Segment Operating Income (Loss) for the purpose of calculating Adjusted Segment EBITDA. We define Adjusted EBITDA as consolidated net income (loss) before income tax provision, other non-operating income (expense), depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment
17
charges and losses on early extinguishment of debt. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income (loss) before depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges. We define Total Adjusted Segment EBITDA as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of total revenues. We define Adjusted Segment EBITDA Margin as Adjusted Segment EBITDA as a percentage of a segment’s share of revenue. We use Adjusted Segment EBITDA to internally evaluate the financial performance of our segments because we believe it is a useful supplemental measure which reflects current core operating performance and provides an indicator of the segment’s ability to generate cash. We also believe that these measures, when considered together with our GAAP financial results, provide management and investors with a more complete understanding of our operating results, including underlying trends, by excluding the effects of remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges. In addition, EBITDA is a common alternative measure of operating performance used by many of our competitors. It is used by investors, financial analysts, rating agencies and others to value and compare the financial performance of companies in our industry. Therefore, we also believe that these measures, considered along with corresponding GAAP measures, provide management and investors with additional information for comparison of our operating results to the operating results of other companies.
We define Adjusted Net Income and Adjusted Earnings per Diluted Share (“Adjusted EPS”) as net income (loss) and earnings per diluted share, respectively, excluding the impact of remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt. We use Adjusted Net Income for the purpose of calculating Adjusted EPS. Management uses Adjusted EPS to assess total company operating performance on a consistent basis. We believe that this measure, when considered together with our GAAP financial results, provides management and investors with an additional understanding of our business operating results, including underlying trends, by excluding the effects of the remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt.
Non-GAAP financial measures are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, the information contained in our Condensed Consolidated Statements of Comprehensive Income. Reconciliations of non-GAAP financial measures to the most directly comparable GAAP financial measures are included elsewhere in this filing.
EXECUTIVE HIGHLIGHTS
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollar amounts in thousands, except per share data) |
|
|||||
Revenues |
|
$ |
470,285 |
|
|
$ |
432,338 |
|
Special charges (1) |
|
$ |
5,061 |
|
|
$ |
— |
|
Adjusted EBITDA |
|
$ |
68,857 |
|
|
$ |
58,668 |
|
Net income |
|
$ |
30,181 |
|
|
$ |
23,686 |
|
Earnings per common share — diluted |
|
$ |
0.73 |
|
|
$ |
0.57 |
|
Adjusted earnings per common share — diluted |
|
$ |
0.83 |
|
|
$ |
0.57 |
|
Net cash used in operating activities |
|
$ |
(33,099 |
) |
|
$ |
(51,333 |
) |
Total number of employees |
|
|
4,610 |
|
|
|
4,454 |
|
(1) |
Excluded from non-GAAP measures. |
First Quarter 2016 Executive Highlights
Revenues
Revenues for the three months ended March 31, 2016 increased $38.0 million, or 8.8%, to $470.3 million, which included a $7.1 million, or 1.6%, estimated negative impact of foreign currency translation. Excluding the estimated impact of foreign currency translation, revenues increased $45.1 million, or 10.4%, primarily driven by higher demand for distressed service offerings in North America in our Corporate Finance segment and higher demand for our M&A related antitrust and financial economics services in our Economic Consulting segment.
18
Special Charges
During the three months ended March 31, 2016, we recorded special charges of $5.1 million related to the termination of 53 employees in our Technology segment, to address current business demands and position the segment for future growth. The special charges consisted of salary continuance and other contractual employee-related costs, including loan forgiveness and accelerated recognition of costs related to share-based compensation.
Adjusted EBITDA
Adjusted EBITDA for the three months ended March 31, 2016 increased $10.2 million, or 17.4%, to $68.9 million compared to $58.7 million for the three months ended March 31, 2015. Adjusted EBITDA was 14.6% of revenues for the three months ended March 31, 2016 compared to 13.6% of revenues for the three months ended March 31, 2015. The increase in Adjusted EBITDA was driven by higher revenues in our Corporate Finance and Economic Consulting segments, partially offset by an increase in unallocated corporate expenses.
Net Income
Net income for the three months ended March 31, 2016 increased $6.5 million, or 27.4%, to $30.2 million compared to $23.7 million for the three months ended March 31, 2015. This increase was driven by the business results described above, as well as lower interest expense due to the debt restructuring completed in the third quarter of 2015. Partially offsetting these increases were the special charges in our Technology segment, higher income tax expense due to the favorable discrete tax adjustment recorded in the first quarter of 2015, and a $1.0 million expense related to the increase in the liability for future expected contingent consideration payments.
Earnings per diluted share and Adjusted EPS
Earnings per diluted share for the three months ended March 31, 2016 increased $0.16 to $0.73 compared to $0.57 for the three months ended March 31, 2015. Earnings per diluted share for the three months ended March 31, 2016 were impacted by the results as outlined above.
Adjusted EPS for the three months ended March 31, 2016 increased $0.26 to $0.83 compared to $0.57 for the three months ended March 31, 2015. The amount for the three months ended March 31, 2016 excludes the special charges and remeasurement of acquisition-related contingent consideration described above.
Liquidity and Capital Allocation
Cash used in operating activities for the three months ended March 31, 2016 decreased $18.2 million, or 35.5%, to $33.1 million compared to $51.3 million for the three months ended March 31, 2015. The decrease was primarily due to higher cash collections, lower payments for income taxes and lower forgivable loan funding, partially offset by increased payments for compensation and other operating expenses. Days sales outstanding (“DSO”), which is one measure of the collections cycle, was 98 days at March 31, 2016 compared to 101 days at March 31, 2015, reflecting improved collections. We calculate DSO at the end of each reporting period by dividing net accounts receivable reduced by billings in excess of services provided, by revenue for the quarter, adjusted for changes in foreign exchange rates. We multiply the result by the number of days in the quarter.
Financing activities in the three months ended March 31, 2016 included $7.0 million of additional borrowings under the Company’s senior secured bank revolving credit facility (“Senior Bank Credit Facility”), as well as the repurchase and retirement of 85,100 shares of our common stock for an average price per share of $34.12, at a total cost of $2.9 million. Our Board of Directors authorized a stock repurchase program of up to $50.0 million at any time prior to May 5, 2016 (the “2015 Repurchase Program”). As of March 31, 2016, we have $20.6 million available under this program to repurchase additional shares.
Headcount
As of March 31, 2016, our total headcount of 4,610 increased by 156 from 4,454 as of March 31, 2015.
19
We decreased the number of non-billable employees by 18, from 1,118 as of December 31, 2015 to 1,100 as of March 31, 2016. Net change to billable headcount for the three months ended March 31, 2016 is summarized in the table below.
Billable Headcount |
|
Corporate Finance & Restructuring |
|
|
Forensic and Litigation Consulting |
|
|
Economic Consulting |
|
|
Technology |
|
|
Strategic Communications |
|
|
Total |
|
||||||
December 31, 2015 |
|
|
838 |
|
|
|
1,131 |
|
|
|
599 |
|
|
|
349 |
|
|
|
599 |
|
|
|
3,516 |
|
Additions (reductions), net |
|
|
19 |
|
|
|
1 |
|
|
|
8 |
|
|
|
(36 |
) |
|
|
2 |
|
|
|
(6 |
) |
March 31, 2016 |
|
|
857 |
|
|
|
1,132 |
|
|
|
607 |
|
|
|
313 |
|
|
|
601 |
|
|
|
3,510 |
|
Percentage change in headcount from prior year |
|
|
2.3 |
% |
|
|
0.1 |
% |
|
|
1.3 |
% |
|
|
-10.3 |
% |
|
|
0.3 |
% |
|
|
-0.2 |
% |
CONSOLIDATED RESULTS OF OPERATIONS
Segment and Consolidated Operating Results:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(in thousands, except per share data) |
|
|||||
Revenues |
|
|
|
|
|
|
|
|
Corporate Finance & Restructuring |
|
$ |
127,156 |
|
|
$ |
106,212 |
|
Forensic and Litigation Consulting |
|
|
119,004 |
|
|
|
123,265 |
|
Economic Consulting |
|
|
130,731 |
|
|
|
106,081 |
|
Technology |
|
|
48,281 |
|
|
|
54,654 |
|
Strategic Communications |
|
|
45,113 |
|
|
|
42,126 |
|
Total revenues |
|
$ |
470,285 |
|
|
$ |
432,338 |
|
Operating income (loss) |
|
|
|
|
|
|
|
|
Corporate Finance & Restructuring |
|
$ |
30,076 |
|
|
$ |
20,764 |
|
Forensic and Litigation Consulting |
|
|
18,213 |
|
|
|
20,474 |
|
Economic Consulting |
|
|
20,211 |
|
|
|
10,296 |
|
Technology |
|
|
(1,180 |
) |
|
|
6,198 |
|
Strategic Communications |
|
|
3,665 |
|
|
|
4,197 |
|
Segment operating income |
|
|
70,985 |
|
|
|
61,929 |
|
Unallocated corporate expenses |
|
|
(18,746 |
) |
|
|
(14,081 |
) |
Operating income |
|
|
52,239 |
|
|
|
47,848 |
|
Other income (expense) |
|
|
|
|
|
|
|
|
Interest income and other |
|
|
2,557 |
|
|
|
(137 |
) |
Interest expense |
|
|
(6,229 |
) |
|
|
(12,368 |
) |
Other income (expense) |
|
|
(3,672 |
) |
|
|
(12,505 |
) |
Income before income tax provision |
|
|
48,567 |
|
|
|
35,343 |
|
Income tax provision |
|
|
18,386 |
|
|
|
11,657 |
|
Net income |
|
$ |
30,181 |
|
|
$ |
23,686 |
|
Earnings per common share — basic |
|
$ |
0.75 |
|
|
$ |
0.59 |
|
Earnings per common share — diluted |
|
$ |
0.73 |
|
|
$ |
0.57 |
|
20
Reconciliation of Net Income to Adjusted EBITDA:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(in thousands) |
|
|||||
Net income |
|
$ |
30,181 |
|
|
$ |
23,686 |
|
Add back: |
|
|
|
|
|
|
|
|
Income tax provision |
|
|
18,386 |
|
|
|
11,657 |
|
Other income (expense), net |
|
|
3,672 |
|
|
|
12,505 |
|
Depreciation and amortization |
|
|
7,971 |
|
|
|
7,808 |
|
Amortization of other intangible assets |
|
|
2,606 |
|
|
|
3,012 |
|
Special charges |
|
|
5,061 |
|
|
|
— |
|
Remeasurement of acquisition-related contingent consideration |
|
|
980 |
|
|
|
— |
|
Adjusted EBITDA |
|
$ |
68,857 |
|
|
$ |
58,668 |
|
Reconciliation of Net Income to Adjusted Net Income and Earnings Per Share to Adjusted Earnings Per Share:
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(in thousands, except per share data) |
|
|||||
Net income |
|
$ |
30,181 |
|
|
$ |
23,686 |
|
Add back: |
|
|
|
|
|
|
|
|
Special charges, net of tax (1) |
|
|
3,269 |
|
|
|
— |
|
Remeasurement of acquisition-related contingent consideration, net of tax (1) |
|
|
600 |
|
|
|
— |
|
Adjusted Net Income |
|
$ |
34,050 |
|
|
$ |
23,686 |
|
Earnings per common share — diluted |
|
$ |
0.73 |
|
|
$ |
0.57 |
|
Add back: |
|
|
|
|
|
|
|
|
Special charges, net of tax (1) |
|
|
0.08 |
|
|
|
— |
|
Remeasurement of acquisition-related contingent consideration, net of tax (1) |
|
|
0.02 |
|
|
|
— |
|
Adjusted earnings per common share — diluted |
|
$ |
0.83 |
|
|
$ |
0.57 |
|
Weighted average number of common shares outstanding — diluted |
|
|
41,148 |
|
|
|
41,324 |
|
(1) |
The tax effect takes into account the tax treatment and related tax rates that apply to each adjustment in the applicable tax jurisdiction. As a result, the effective tax rates for the adjustments related to special charges for the three months ended March 31, 2016 was 35.4%. The tax expense related to the adjustments for special charges for the three months ended March 31, 2016 was $1.8 million or $0.04 impact on adjusted earnings per diluted share. There were no special charges for 2015. |
(2) |
The tax effect takes into account the tax treatment and related tax rates that apply to each adjustment in the applicable tax jurisdiction. As a result, the effective tax rate for the adjustments related to the remeasurement of acquisition-related contingent consideration for the three months ended March 31, 2016 was 38.8%. The tax expense related to the adjustment for the remeasurement of acquisition-related contingent consideration for the three months ended March 31, 2016 was $0.4 million or $0.01 impact on adjusted earnings per diluted share. There were no adjustments related to the remeasurement of acquisition-related contingent consideration in 2015. |
Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015
Revenues and operating income
See “Segment Results” for an expanded discussion of segment revenues and operating income.
Unallocated corporate expenses
Unallocated corporate expenses for the three months ended March 31, 2016 increased $4.7 million, or 33.1%, to $18.7 million compared to $14.1 million for the three months ended March 31, 2015. The increase was primarily due to higher costs related to our
21
U.S. health and welfare plans, an increase in infrastructure department costs to support growth in the business and to support strategic initiatives, and higher legal expenses.
Interest income and other
Interest income and other, which includes foreign currency transaction gains and losses, increased $2.7 million to income of $2.6 million for the three months ended March 31, 2016 compared to a $0.1 million loss for the three months ended March 31, 2015. The increase was primarily due to an increase in net foreign currency transaction gains, which were $1.4 million for the three months ended March 31, 2016 compared to a $1.4 million loss for the three months ended March 31, 2015. Transaction gains and losses, both realized and unrealized, relate to the remeasurement or settlement of monetary assets and liabilities that are denominated in a currency other than an entity’s functional currency. These monetary assets and liabilities include both client and current intercompany receivables and payables.
Interest expense
Interest expense for the three months ended March 31, 2016 decreased $6.2 million, or 49.6%, to $6.2 million compared to $12.4 million for three months ended March 31, 2015. Interest expense in for the three months ended March 31, 2016 was favorably impacted by the debt restructuring completed in the third quarter of 2015.
Income tax provision
Our provision for income taxes in interim periods is computed by applying our estimated annual effective tax rate against income before income tax expense for the period. In addition, non-recurring or discrete items are recorded during the period in which they occur or become known. The effective tax rate for the three months ended March 31, 2016 was 37.9% compared to 33.0% for the three months ended March 31, 2015. The effective tax rate for the three months ended March 31, 2015 was favorably impacted by a $1.4 million discrete item related to the impact of 2015 state tax law changes on our deferred state tax liabilities as of December 31, 2014. Excluding the impact of this discrete item, the effective tax rate for the three months ended March 31, 2015 would have been 36.9%.
SEGMENT RESULTS
Total Adjusted Segment EBITDA
We evaluate the performance of our operating segments based on Adjusted Segment EBITDA, which is a non-GAAP measure. The following table reconciles Net Income to Total Adjusted Segment EBITDA for the three months ended March 31, 2016 and 2015.
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
30,181 |
|
|
$ |
23,686 |
|
Add back: |
|
|
|
|
|
|
|
|
Income tax provision |
|
|
18,386 |
|
|
|
11,657 |
|
Other income (expense), net |
|
|
3,672 |
|
|
|
12,505 |
|
Unallocated corporate expenses |
|
|
18,746 |
|
|
|
14,081 |
|
Total segment operating income |
|
|
70,985 |
|
|
|
61,929 |
|
Add back: |
|
|
|
|
|
|
|
|
Segment depreciation expense |
|
|
7,029 |
|
|
|
6,991 |
|
Amortization of other intangible assets |
|
|
2,606 |
|
|
|
3,012 |
|
Segment special charges |
|
|
5,061 |
|
|
|
— |
|
Remeasurement of acquisition-related contingent consideration |
|
|
980 |
|
|
|
— |
|
Total Adjusted Segment EBITDA |
|
$ |
86,661 |
|
|
$ |
71,932 |
|
22
Other Segment Operating Data
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
Number of revenue-generating professionals: (at period end) |
|
|
|
|
|
|
|
|
Corporate Finance & Restructuring |
|
|
857 |
|
|
|
735 |
|
Forensic and Litigation Consulting (1) |
|
|
1,132 |
|
|
|
1,145 |
|
Economic Consulting |
|
|
607 |
|
|
|
566 |
|
Technology (2) |
|
|
313 |
|
|
|
360 |
|
Strategic Communications |
|
|
601 |
|
|
|
556 |
|
Total revenue-generating professionals |
|
|
3,510 |
|
|
|
3,362 |
|
Utilization rates of billable professionals: (3) |
|
|
|
|
|
|
|
|
Corporate Finance & Restructuring |
|
|
74 |
% |
|
|
74 |
% |
Forensic and Litigation Consulting |
|
|
64 |
% |
|
|
68 |
% |
Economic Consulting |
|
|
79 |
% |
|
|
73 |
% |
Average billable rate per hour: (4) |
|
|
|
|
|
|
|
|
Corporate Finance & Restructuring |
|
$ |
384 |
|
|
$ |
374 |
|
Forensic and Litigation Consulting |
|
$ |
333 |
|
|
$ |
318 |
|
Economic Consulting |
|
$ |
531 |
|
|
$ |
501 |
|
(1) |
There were 85 revenue-generating professionals as of March 31, 2015 related to a business in Latin America that was disposed during 2015. Excluding these professionals, the total number of revenue-generating professionals of our Forensic and Litigation Consulting segment would be 1,060 as of March 31, 2015. |
(2) |
The number of revenue-generating professionals for the Technology segment excludes as-needed professionals, who we employ based on demand for the segment’s services. We employed an average of 353 as-needed employees during the three-months ended March 31, 2016. |
(3) |
We calculate the utilization rate for our billable professionals by dividing the number of hours that all of our billable professionals worked on client assignments during a period by the total available working hours for all of our billable professionals during the same period. Available hours are determined by the standard hours worked by each employee, adjusted for part-time hours, local country standard work weeks and local country holidays. Available working hours include vacation and professional training days, but exclude holidays. Utilization rates are presented for our segments that primarily bill clients on an hourly basis. We have not presented a utilization rate for our Technology and Strategic Communications segments as most of the revenues of these segments are not generated on an hourly basis. |
(4) |
For engagements where revenues are based on number of hours worked by our billable professionals, average billable rate per hour is calculated by dividing revenues (excluding revenues from success fees, pass-through and outside consultants) for a period by the number of hours worked on client assignments during the same period. We have not presented an average billable rate per hour for our Technology and Strategic Communications segments as most of the revenues of these segments are not based on billable hours. |
23
CORPORATE FINANCE & RESTRUCTURING
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands, except rate per hour) |
|
|||||
Revenues |
|
$ |
127,156 |
|
|
$ |
106,212 |
|
Percentage change in revenues from prior year |
|
|
19.7 |
% |
|
|
13.0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
Direct cost of revenues |
|
|
75,452 |
|
|
|
63,933 |
|
Selling, general and administrative expenses |
|
|
20,823 |
|
|
|
20,528 |
|
Acquisition-related contingent consideration |
|
|
— |
|
|
|
53 |
|
Amortization of other intangible assets |
|
|
805 |
|
|
|
934 |
|
|
|
|
97,080 |
|
|
|
85,448 |
|
Segment operating income |
|
|
30,076 |
|
|
|
20,764 |
|
Percentage change in segment operating income from prior year |
|
|
44.8 |
% |
|
|
141.2 |
% |
Add back: |
|
|
|
|
|
|
|
|
Depreciation and amortization of intangible assets |
|
|
1,527 |
|
|
|
1,716 |
|
Adjusted Segment EBITDA |
|
$ |
31,603 |
|
|
$ |
22,480 |
|
Gross profit (1) |
|
$ |
51,704 |
|
|
$ |
42,279 |
|
Percentage change in gross profit from prior year |
|
|
22.3 |
% |
|
|
40.9 |
% |
Gross profit margin (2) |
|
|
40.7 |
% |
|
|
39.8 |
% |
Adjusted Segment EBITDA as a percent of revenues |
|
|
24.9 |
% |
|
|
21.2 |
% |
Number of revenue-generating professionals (at period end) |
|
|
857 |
|
|
|
735 |
|
Percentage change in number of revenue-generating professionals from prior year |
|
|
16.6 |
% |
|
|
1.2 |
% |
Utilization rates of billable professionals |
|
|
74 |
% |
|
|
74 |
% |
Average billable rate per hour |
|
$ |
384 |
|
|
$ |
374 |
|
(1) |
Revenues less direct cost of revenues |
(2) |
Gross profit as a percent of revenues |
Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015
Revenues increased $20.9 million, or 19.7%, to $127.2 million for the three months ended March 31, 2016, which included a 1.9% estimated negative impact from foreign currency translation. Excluding the estimated impact of foreign currency translation, revenues increased by $23.0 million, or 21.6%. This increase was primarily driven by higher demand and realized rates for the segment’s distressed service offerings in North America.
Gross profit increased $9.4 million, or 22.3%, to $51.7 million for the three months ended March 31, 2016. Gross profit margin increased 0.9 percentage points for the three months ended March 31, 2016. Stronger demand, higher realized rates and success fees in North America distressed service offerings drove a majority of the increase.
SG&A expense increased $0.3 million, or 1.4%, to $20.8 million for the three months ended March 31, 2016. SG&A expense was 16.4% of revenue for the three months ended March 31, 2016 compared to 19.3% for the three months ended March 31, 2015. The increase is SG&A expense was due to higher infrastructure charges and recruiting expense to support additional headcount. These expenses were partially offset due to the collections of prior period bad debts.
24
FORENSIC AND LITIGATION CONSULTING
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands, except rate per hour) |
|
|||||
Revenues |
|
$ |
119,004 |
|
|
$ |
123,265 |
|
Percentage change in revenues from prior year |
|
|
-3.5 |
% |
|
|
1.5 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
Direct cost of revenues |
|
|
80,077 |
|
|
|
78,563 |
|
Selling, general and administrative expenses |
|
|
20,192 |
|
|
|
23,634 |
|
Acquisition-related contingent consideration |
|
|
6 |
|
|
|
12 |
|
Amortization of other intangible assets |
|
|
516 |
|
|
|
582 |
|
|
|
|
100,791 |
|
|
|
102,791 |
|
Segment operating income |
|
|
18,213 |
|
|
|
20,474 |
|
Percentage change in segment operating income from prior year |
|
|
-11.0 |
% |
|
|
-19.4 |
% |
Add back: |
|
|
|
|
|
|
|
|
Depreciation and amortization of intangible assets |
|
|
1,595 |
|
|
|
1,597 |
|
Adjusted Segment EBITDA |
|
$ |
19,808 |
|
|
$ |
22,071 |
|
Gross profit (1) |
|
$ |
38,927 |
|
|
$ |
44,702 |
|
Percentage change in gross profit from prior year |
|
|
-12.9 |
% |
|
|
-6.1 |
% |
Gross profit margin (2) |
|
|
32.7 |
% |
|
|
36.3 |
% |
Adjusted Segment EBITDA as a percent of revenues |
|
|
16.6 |
% |
|
|
17.9 |
% |
Number of revenue-generating professionals (at period end) |
|
|
1,132 |
|
|
|
1,145 |
|
Percentage change in number of revenue-generating professionals from prior year |
|
|
-1.1 |
% |
|
|
6.4 |
% |
Utilization rates of billable professionals |
|
|
64 |
% |
|
|
68 |
% |
Average billable rate per hour |
|
$ |
333 |
|
|
$ |
318 |
|
(1) |
Revenues less direct cost of revenues. |
(2) |
Gross profit as a percent of revenues. |
Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015
Revenues decreased $4.3 million, or 3.5%, to $119.0 million for the three months ended March 31, 2016, which included a 1.4% estimated negative impact from foreign currency translation. Excluding the estimated impact of foreign currency translation, revenues decreased by $2.6 million, or 2.1%, due to lower demand and success fees in our health solutions practice, lower demand in both our construction solutions practice and our global dispute advisory services practice. These decreases were partially offset by increased demand in our global financial and enterprise data analytics practice and our global risk and investigations practice.
Gross profit decreased $5.8 million, or 12.9%, to $38.9 million for the three months ended March 31, 2016. Gross profit margin decreased 3.6 percentage points for the three months ended March 31, 2016. This was driven by a decrease in demand and success fees in our health solution practice, and lower demand in our construction solutions practice. This decline was partially offset by higher utilization in our global financial and enterprise data analytics practice.
SG&A expense decreased $3.4 million, or 14.6%, to $20.2 million for the three months ended March 31, 2016. SG&A expense was 17.0% of revenue for the three months ended March 31, 2016 compared to 19.2% for the three months ended March 31, 2015. The decrease in SG&A expense was driven by lower bad debt expense, lower compensation costs related to the departure of certain senior personnel in 2015, and lower recruiting expenses.
25
ECONOMIC CONSULTING
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands, except rate per hour) |
|
|||||
Revenues |
|
$ |
130,731 |
|
|
$ |
106,081 |
|
Percentage change in revenues from prior year |
|
|
23.2 |
% |
|
|
-0.7 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
Direct cost of revenues |
|
|
93,895 |
|
|
|
79,939 |
|
Selling, general and administrative expenses |
|
|
16,426 |
|
|
|
15,501 |
|
Acquisition-related contingent consideration |
|
|
16 |
|
|
|
37 |
|
Amortization of other intangible assets |
|
|
183 |
|
|
|
308 |
|
|
|
|
110,520 |
|
|
|
95,785 |
|
Segment operating income |
|
|
20,211 |
|
|
|
10,296 |
|
Percentage change in segment operating income from prior year |
|
|
96.3 |
% |
|
|
-17.2 |
% |
Add back: |
|
|
|
|
|
|
|
|
Depreciation and amortization of intangible assets |
|
|
1,108 |
|
|
|
1,260 |
|
Adjusted Segment EBITDA |
|
$ |
21,319 |
|
|
$ |
11,556 |
|
Gross profit (1) |
|
$ |
36,836 |
|
|
$ |
26,142 |
|
Percentage change in gross profit from prior year |
|
|
40.9 |
% |
|
|
-9.5 |
% |
Gross profit margin (2) |
|
|
28.2 |
% |
|
|
24.6 |
% |
Adjusted Segment EBITDA as a percent of revenues |
|
|
16.3 |
% |
|
|
10.9 |
% |
Number of revenue-generating professionals (at period end) |
|
|
607 |
|
|
|
566 |
|
Percentage change in number of revenue-generating professionals from prior year |
|
|
7.2 |
% |
|
|
5.2 |
% |
Utilization rates of billable professionals |
|
|
79 |
% |
|
|
73 |
% |
Average billable rate per hour |
|
$ |
531 |
|
|
$ |
501 |
|
(1) |
Revenues less direct cost of revenues |
(2) |
Gross profit as a percent of revenues |
Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015
Revenues increased $24.7 million, or 23.2%, to $130.7 million for the three months ended March 31, 2016, which included a 1.2% estimated negative impact from foreign currency translation. Excluding the estimated impact of foreign currency translation, revenues increased by $25.9 million, or 24.4%, primarily due to higher demand for our M&A related antitrust services, financial economics services and other litigation services in Europe, Middle East and Africa (“EMEA”).
Gross profit increased $10.7 million, or 40.9%, to $36.8 million for the three months ended March 31, 2016. Gross profit margin increased 3.5 percentage points for the three months ended March 31, 2016. This increase was primarily driven by higher utilization in North America and higher realized bill rates in EMEA and North America.
SG&A expense increased $0.9 million, or 6.0%, to $16.4 million for the three months ended March 31, 2016. SG&A expense was 12.6% of revenue for the three months ended March 31, 2016 compared to 14.6% for the three months ended March 31, 2015. The increase in SG&A expense was driven primarily by higher outside services for legal expenses and general overhead expense, which was partially offset by lower bad debt expense.
26
TECHNOLOGY
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands) |
|
|||||
Revenues |
|
$ |
48,281 |
|
|
$ |
54,654 |
|
Percentage change in revenues from prior year |
|
|
-11.7 |
% |
|
|
-9.0 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
Direct cost of revenues |
|
|
28,228 |
|
|
|
30,232 |
|
Selling, general and administrative expenses |
|
|
16,014 |
|
|
|
18,026 |
|
Special charges |
|
|
5,061 |
|
|
|
— |
|
Amortization of other intangible assets |
|
|
158 |
|
|
|
198 |
|
|
|
|
49,461 |
|
|
|
48,456 |
|
Segment operating loss (income) |
|
|
(1,180 |
) |
|
|
6,198 |
|
Percentage change in segment operating income from prior year |
|
|
-119.0 |
% |
|
|
-52.6 |
% |
Add back: |
|
|
|
|
|
|
|
|
Depreciation and amortization of intangible assets |
|
|
3,942 |
|
|
|
3,875 |
|
Special charges |
|
|
5,061 |
|
|
|
— |
|
Adjusted Segment EBITDA |
|
$ |
7,823 |
|
|
$ |
10,073 |
|
Gross profit (1) |
|
$ |
20,053 |
|
|
$ |
24,422 |
|
Percentage change in gross profit from prior year |
|
|
-17.9 |
% |
|
|
-16.8 |
% |
Gross profit margin (2) |
|
|
41.5 |
% |
|
|
44.7 |
% |
Adjusted Segment EBITDA as a percent of revenues |
|
|
16.2 |
% |
|
|
18.4 |
% |
Number of revenue-generating professionals (at period end) (3) |
|
|
313 |
|
|
|
360 |
|
Percentage change in number of revenue-generating professionals from prior year |
|
|
-13.1 |
% |
|
|
12.1 |
% |
(1) |
Revenues less direct cost of revenues |
(2) |
Gross profit as a percent of revenues |
(3) |
Includes personnel involved in direct client assistance and revenue generating consultants |
Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015
Revenues decreased $6.4 million, or 11.7%, to $48.3 million for the three months ended March 31, 2016, which included a 1.3% estimated negative impact from foreign currency translation. Excluding the estimated impact of foreign currency translation, revenues decreased by $5.7 million, or 10.4%, largely due to reduced demand for cross-border investigations and financial services litigations, partially offset by an increase in M&A related second request activity.
Gross profit decreased $4.4 million, or 17.9%, to $20.1 million for the three months ended March 31, 2016. Gross profit margin decreased 3.2 percentage points for the three months ended March 31, 2016. The decrease in gross profit margin was due to lower demand for managed review services and lower realized pricing for consulting based on our mix of clients.
SG&A expense decreased $2.0 million, or 11.2%, to $16.0 million for the three months ended March 31, 2016. SG&A expense was 33.2% of revenue for the three months ended March 31, 2016 compared to 33.0% for the three months ended March 31, 2015. The decrease in SG&A expense was due to lower compensation as a result of headcount reduction and lower occupancy costs, partially offset by higher bad debt. Research and development expense related to software development was $4.0 million for the three months ended March 31, 2016 compared to $5.9 million for the three months ended March 31, 2015.
27
STRATEGIC COMMUNICATIONS
|
|
Three Months Ended March 31, |
|
|||||
|
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands) |
|
|||||
Revenues |
|
$ |
45,113 |
|
|
$ |
42,126 |
|
Percentage change in revenues from prior year |
|
|
7.1 |
% |
|
|
-2.5 |
% |
Operating expenses: |
|
|
|
|
|
|
|
|
Direct cost of revenues |
|
|
27,984 |
|
|
|
26,363 |
|
Selling, general and administrative expenses |
|
|
11,408 |
|
|
|
10,444 |
|
Remeasurement of acquisition-related contingent consideration |
|
|
980 |
|
|
|
— |
|
Acquisition-related contingent consideration |
|
|
132 |
|
|
|
132 |
|
Amortization of other intangible assets |
|
|
944 |
|
|
|
990 |
|
|
|
|
41,448 |
|
|
|
37,929 |
|
Segment operating income |
|
|
3,665 |
|
|
|
4,197 |
|
Percentage change in segment operating income from prior year |
|
|
-12.7 |
% |
|
|
317.6 |
% |
Add back: |
|
|
|
|
|
|
|
|
Depreciation and amortization of intangible assets |
|
|
1,463 |
|
|
|
1,555 |
|
Remeasurement of acquisition-related contingent consideration |
|
|
980 |
|
|
|
— |
|
Adjusted Segment EBITDA |
|
$ |
6,108 |
|
|
$ |
5,752 |
|
Gross profit (1) |
|
$ |
17,129 |
|
|
$ |
15,763 |
|
Percentage change in gross profit from prior year |
|
|
8.7 |
% |
|
|
2.4 |
% |
Gross profit margin (2) |
|
|
38.0 |
% |
|
|
37.4 |
% |
Adjusted Segment EBITDA as a percent of revenues |
|
|
13.5 |
% |
|
|
13.7 |
% |
Number of revenue-generating professionals (at period end) |
|
|
601 |
|
|
|
556 |
|
Percentage change in number of revenue-generating professionals from prior year |
|
|
8.1 |
% |
|
|
-4.8 |
% |
(1) |
Revenues less direct cost of revenues |
(2) |
Gross profit as a percent of revenues |
Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015
Revenues increased $3.0 million, or 7.1%, to $45.1 million for the three months ended March 31, 2016, which included a 3.3% estimated negative impact from foreign currency translation. Excluding the estimated impact of foreign currency translation, revenues increased by $4.4 million, or 10.4%, primarily driven by increased project-based revenues in North America and EMEA, predominantly in public affairs and financial communications-related engagements, and increased pass-through income, which was partially offset by a decrease in revenue from crisis mandates.
Gross profit increased $1.4 million, or 8.7%, to $17.1 million for the three months ended March 31, 2016. Gross profit margin increased 0.6 percentage points for the three months ended March 31, 2016. The increase in gross profit margin was primarily due to improved staff leverage, which was partially offset by a higher proportion of revenues from lower margin pass-through income.
SG&A expense increased $1.0 million, or 9.2%, to $11.4 million for the three months ended March 31, 2016. SG&A expense was 25.3% of revenue for the three months ended March 31, 2016 compared to 24.8% for the three months ended March 31, 2015. The increase in SG&A expense was primarily due to higher occupancy and support costs.
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which we have prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Note 1 to the Consolidated Financial Statements in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC describes the significant accounting policies and methods used in preparation of the Consolidated Financial Statements. We evaluate our estimates, including those related to bad debts, goodwill, income taxes and
28
contingencies on an ongoing basis. We base our estimates on historical experience and on various other assumptions that we believe are reasonable under the circumstances. These results form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting policies that reflect our more significant estimates, judgments and assumptions and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results include the following:
|
· |
Revenue recognition |
|
· |
Allowance for doubtful accounts and unbilled services |
|
· |
Goodwill and other intangible assets |
|
· |
Share-based compensation |
|
· |
Income taxes |
There have been no material changes to our critical accounting policies and estimates from the information provided in “Critical Accounting Policies” in Part II, Item 7 of our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.
Goodwill and Other Intangible Assets
On a quarterly basis, we monitor the key drivers of fair value to detect events or other changes that would warrant an interim impairment test of our goodwill and intangible assets. Factors we consider important that could trigger an interim impairment review include, but are not limited to the following: significant underperformance relative to historical or projected future operating results; a significant change in the manner of our use of the acquired asset or strategy for our overall business; a significant negative industry or economic trend; and our market capitalization relative to net book value. When we evaluate these factors and determine that a triggering event has occurred, we perform an interim impairment analysis.
As of October 1, 2015, the date of our last annual goodwill impairment test, the estimated fair value of each of our reporting units significantly exceeded their respective carrying values and no further testing was required. Through our quarterly assessment, we determined that there were no events or circumstances that more likely than not would reduce the fair value of any of our reporting units below their carrying value.
There can be no assurance that the estimates and assumptions used in our goodwill impairment testing will prove to be accurate predictions of the future. If our assumptions regarding forecasted cash flows are not achieved, we may be required to perform the two-step quantitative goodwill impairment analysis prior to our next annual impairment test. In addition, if the aforementioned factors have the effect of changing one of the critical assumptions or estimates we use to calculate the value of our goodwill or intangible assets, we may be required to record goodwill and/or intangible asset impairment charges in future periods, whether in connection with our next annual impairment test or if a triggering event occurs outside of the quarter during which the annual goodwill impairment test is performed. It is not possible at this time to determine if any future impairment charge would result or, if it does, whether such charge would be material.
SIGNIFICANT NEW ACCOUNTING PRONOUNCEMENTS
See “Note 3 – New Accounting Standards” in Part I, Item 1 of this Quarterly Report on Form 10-Q.
LIQUIDITY AND CAPITAL RESOURCES
Cash Flows
|
|
Three Months Ended March 31, |
|
|||||
Cash flows |
|
2016 |
|
|
2015 |
|
||
|
|
(dollars in thousands) |
|
|||||
Net cash used in operating activities |
|
$ |
(33,099 |
) |
|
$ |
(51,333 |
) |
Net cash used in investing activities |
|
$ |
(6,328 |
) |
|
$ |
(8,805 |
) |
Net cash provided by financing activities |
|
$ |
5,181 |
|
|
$ |
5,326 |
|
DSO |
|
|
98 |
|
|
|
101 |
|
We have generally financed our day-to-day operations, capital expenditures and acquisition-related contingent payments through cash flows from operations. Generally, during our first quarter of each fiscal year, our cash needs exceed our cash flows from operations due to the payments of annual incentive compensation and acquisition-related contingent payments. Our operating cash flows generally exceed our cash needs subsequent to the second quarter of each year.
29
Our operating assets and liabilities consist primarily of billed and unbilled accounts receivable, notes receivable from employees, accounts payable, accrued expenses and accrued compensation expense. The timing of billings and collections of receivables as well as payments for compensation arrangements affect the changes in these balances.
DSO is a performance measure used to assess how quickly revenues are collected by the Company. We calculate DSO at the end of each reporting period by dividing net accounts receivable reduced by billings in excess of services provided, by revenue for the quarter, adjusted for changes in foreign exchange rates. We multiply the result by the number of days in the quarter. Our DSO typically reaches its lowest point at December 31st each year and has consistently increased during the following quarters.
Three Months Ended March 31, 2016 Compared to Three Months Ended March 31, 2015
Cash used in operating activities decreased $18.2 million, or 35.5%, to $33.1 million for the three months ended March 31, 2016 compared to $51.3 million for the three months ended March 31, 2015. The decrease was primarily due to higher cash collections, lower payments for income taxes and lower net funding of notes receivable, which were partially offset by increased payments for compensation and other operating expenses. DSO was 98 days at March 31, 2016 compared to 101 days at March 31, 2015 reflecting improved collections.
Net cash used in investing activities for the three months ended March 31, 2016 was $6.3 million compared to net cash used in investing activities of $8.8 million for the three months ended March 31, 2015. Capital expenditures were $6.4 million for the three months ended March 31, 2016 compared to $8.9 million for the three months ended March 31, 2015.
Net cash provided by financing activities for the three months ended March 31, 2016 was $5.2 million compared to $5.3 million for the three months ended March 31, 2015. Cash provided by financing activities in the three months ended March 31, 2016 included net borrowings of $7.0 million under our Senior Bank Credit Facility, payments of $2.9 million to settle repurchases of our common stock and $1.4 million related to cash paid from the issuance of common stock under our equity compensation plan. Our financing activities for the three months ended March 31, 2015 primarily related to cash received from the issuance of common stock under our equity compensation plan.
Capital Resources
As of March 31, 2016, our capital resources included $114.5 million of cash and cash equivalents and available borrowing capacity of $341.6 million under our five-year $550.0 million Senior Bank Credit Facility. As of March 31, 2016, we had $207.0 million of borrowing outstanding under our Senior Bank Credit Facility and $1.4 million of outstanding letters of credit, which reduced the availability of borrowings. We use letters of credit primarily in lieu of security deposits for our leased office facilities.
Future Capital Needs
We anticipate that our future capital needs will principally consist of funds required for:
|
· |
operating and general corporate expenses relating to the operation of our businesses; |
|
· |
capital expenditures, primarily for information technology equipment, office furniture and leasehold improvements; |
|
· |
debt service requirements, including interest payments on our long-term debt; |
|
· |
compensating designated executive management and senior managing directors under our various long-term incentive compensation programs; |
|
· |
discretionary funding of our stock repurchase program; |
|
· |
contingent obligations related to our acquisitions; |
|
· |
potential acquisitions of businesses that would allow us to diversify or expand our service offerings; and |
|
· |
other known future contractual obligations. |
We currently anticipate capital expenditures of $35 million to $45 million to support our organization during 2016, including direct support for specific client engagements. Our estimate takes into consideration the needs of our existing businesses but does not include the impact of any purchases that we make as a result of future acquisitions or specific client engagements that are not currently contemplated. Our capital expenditure requirements may change if our staffing levels or technology needs change significantly from what we currently anticipate, if we are required to purchase additional equipment specifically to support a client engagement, or if we pursue and complete additional acquisitions.
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For business combinations consummated on or after January 1, 2009, contingent consideration obligations are recorded as liabilities on our Condensed Consolidated Balance Sheets and remeasured to fair value at each subsequent reporting date with an offset to current period earnings. During the three months ended March 31, 2016, we recorded a $1.0 million expense related to the increase in the liability for future expected contingent consideration payments, driven by improved business results in the current period as well as expected results during the remainder of the earn-out period. The fair value of future expected contingent purchase price obligations for these business combinations was $5.3 million at March 31, 2016 with payment dates extending through 2018.
For the last several years, our cash flows from operations have exceeded our cash needs for capital expenditures and debt service requirements. We believe that our cash flows from operations, supplemented by short-term borrowings under our Senior Bank Credit Facility, as necessary, will provide adequate cash to fund our long-term cash needs from normal operations for at least the next twelve months.
Our conclusion that we will be able to fund our cash requirements by using existing capital resources and cash generated from operations does not take into account the impact of any future acquisition transactions or any unexpected significant changes in the number of employees or other expenditures that are currently not contemplated. The anticipated cash needs of our businesses could change significantly if we pursue and complete additional business acquisitions, if our business plans change, if economic conditions change from those currently prevailing or from those now anticipated, if our business does not perform at expected levels or is less profitable than expected, or if other unexpected circumstances arise that have a material effect on the cash flow or profitability of our business. Any of these events or circumstances, including any new business opportunities, could involve significant additional funding needs in excess of the identified currently available sources and could require us to raise additional debt or equity funding to meet those needs. Our ability to raise additional capital, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:
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· |
our future profitability; |
|
· |
the quality of our accounts receivable; |
|
· |
our relative levels of debt and equity; |
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· |
the volatility and overall condition of the capital markets; and |
|
· |
the market prices of our securities. |
Any new debt funding, if available, may be on terms less favorable to us than our Senior Bank Credit Facility or the indenture that governs our 6% Senior Notes Due 2022. See “Forward-Looking Statements” of this Quarterly Report on Form 10-Q and “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements, other than operating leases, and we have not entered into any transactions involving unconsolidated subsidiaries or special purpose entities.
Future Contractual Obligations
There have been no significant changes in our future contractual obligations information as disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act, that involve uncertainties and risks. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues, future results and performance, future capital expenditures, expectations, plans or intentions relating to acquisitions and other matters, business trends and other information that is not historical. Forward-looking statements often contain words such as “estimates”, “expects”, “anticipates”, “projects”, “plans”, “intends”, “believes”, “forecasts” and variations of such words or similar expressions. All forward-looking statements, including, without limitation, management’s examination of operating trends, are based upon our historical performance and our current plans, estimates and expectations at the time we make them and various assumptions. There can be no assurance that management’s expectations, beliefs and projections will result or be achieved. Our actual financial results, performance or achievements could differ materially from those expressed in, or implied by, any forward-looking statements. The inclusion of any forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. Given these risks, uncertainties and other factors, you should not place undue reliance on any forward-looking statements.
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There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in, or implied by, this Quarterly Report on Form 10-Q. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q are set forth under the heading “Risk Factors” in Part I, Item 1A of our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q include, but not limited to the following:
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· |
changes in demand for our services; |
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· |
our ability to attract and retain qualified professionals and senior management; |
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· |
conflicts resulting in our inability to represent certain clients; |
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· |
our former employees joining or forming competing businesses; |
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· |
our ability to manage our professionals’ utilization and billing rates and maintain or increase the pricing of our services and products; |
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· |
our ability to identify suitable acquisition candidates, negotiate favorable terms, take advantage of opportunistic acquisition situations and integrate the operations of acquisitions as well as the costs of integration; |
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· |
our ability to adapt to and manage the risks associated with operating in non-U.S. markets; |
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· |
our ability to replace key personnel, including former executives, officers, senior managers and practice and regional leaders who have highly specialized skills and experience; |
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· |
our ability to protect the confidentiality of internal and client data and proprietary and confidential information; |
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· |
legislation or judicial rulings, including rulings regarding data privacy and the discovery process; |
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· |
periodic fluctuations in revenues, operating income and cash flows; |
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· |
damage to our reputation as a result of claims involving the quality of our services; |
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· |
fee discounting or renegotiation, lower pricing, less advantageous contract terms and unexpected terminations of client engagements; |
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· |
competition for clients and key personnel; |
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· |
general economic factors, industry trends, restructuring and bankruptcy rates, legal or regulatory requirements, capital market conditions, merger and acquisition activity, major litigation activity and other events outside of our control; |
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· |
our ability to manage growth; |
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· |
risk of non-payment of receivables; |
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· |
the amount and terms of our outstanding indebtedness; |
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· |
risks relating to the obsolescence of, changes to, or the protection of, our proprietary software products and intellectual property rights; and |
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· |
fluctuations in the mix of our services and the geographic locations in which our clients are located or our services are rendered. |
There may be other factors that may cause our actual results to differ materially from our forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included herein. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances and do not intend to do so.
For information regarding our exposure to certain market risks see “Quantitative and Qualitative Disclosures about Market Risk” in Part II, Item 7A of our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the SEC. There have been no significant changes in our market risk exposure during the period covered by this Quarterly Report on Form 10-Q.
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Evaluation of Disclosure Controls and Procedures. An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q was made under the supervision and with the participation of our management, including our Chief Executive Officer and Interim Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Interim Chief Financial Officer have concluded that our disclosure controls and procedures (a) were effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) included, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Interim Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. There have not been any changes in our internal control over financial reporting that occurred during the three months ended March 31, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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From time to time in the ordinary course of business, we are subject to claims, asserted or unasserted, or named as a party to lawsuits or investigations. Litigation, in general, and intellectual property and securities litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings cannot be predicted with any certainty and in the case of more complex legal proceedings such as intellectual property and securities litigation, the results are difficult to predict at all. We are not aware of any asserted or unasserted legal proceedings or claims that we believe would have a material adverse effect on our financial condition or results of our operations.
There has been no material change in any risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2015, filed with the SEC. We may disclose changes to risk factors or disclose additional factors from time to time in our future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
Unregistered sales of equity securities.
None
Repurchases of our common stock.
The following table provides information with respect to purchases we made of our common stock during the three months ended March 31, 2016.
|
|
Total Number of Shares Purchased(1) |
|
|
|
Average Price Paid per Share |
|
|
Total Number of Shares Purchased as Part of Publicly Announced Program |
|
|
Approximate Dollar Value that May Yet Be Purchased Under the Program(3) |
|
||||
|
|
(in thousands, except per share data) |
|
||||||||||||||
January 1 through January 31, 2016 |
|
|
19 |
|
(1) |
|
$ |
32.50 |
|
|
|
— |
|
|
$ |
— |
|
February 1 through February 29, 2016 |
|
|
1 |
|
(1) |
|
$ |
33.00 |
|
|
|
— |
|
|
$ |
— |
|
March 1 through March 31, 2016 |
|
|
49 |
|
(1) |
|
$ |
34.91 |
|
|
|
85 |
|
(2) |
$ |
20,565 |
|
Total |
|
|
69 |
|
|
|
|
|
|
|
|
85 |
|
|
|
|
|
(1) |
Represents shares of common stock withheld to cover payroll tax withholdings related to the lapse of restrictions on restricted stock. |
(2) |
In November 2015, our Board of Directors authorized a six-month stock repurchase program of up to $50.0 million under the 2015 Repurchase Program. During the month ended March 31, 2016, we repurchased and retired 85,100 shares of common stock, at an average per share price of $34.12, for an aggregate cost of $2.9 million, under the 2015 Repurchase Program. |
(3) |
At March 31, 2016, a balance of approximately $20.6 million remained available for share repurchases under the 2015 Repurchase Program. |
None
Not Applicable
None
34
(a) Exhibits.
Exhibit Number |
|
Exhibit Description |
|
|
|
3.1 |
|
Articles of Incorporation of FTI Consulting, Inc., as amended and restated. (Filed with the SEC on May 23, 2003 as an exhibit to FTI Consulting, Inc.’s Current Report on Form 8-K dated May 21, 2003 and incorporated herein by reference.) |
|
|
|
3.2 |
|
Articles of Amendment of FTI Consulting, Inc. (Filed with the SEC on June 2, 2011 as exhibit 3.1 to FTI Consulting, Inc.’s Current Report on Form 8-K dated June 1, 2011 and incorporated herein by reference.) |
|
|
|
3.3 |
|
Bylaws of FTI Consulting, Inc., as amended and restated, adopted on June 1, 2011 (Filed with the SEC on June 2, 2011 as exhibit 3.2 to FTI Consulting, Inc.’s Current Report on Form 8-K dated June 1, 2011 and incorporated herein by reference.) |
|
|
|
3.4 |
|
Amendment No. 1 to Amended and Restated Bylaws of FTI Consulting, Inc. (Filed with the Securities and Exchange Commission on December 16, 2013 as exhibit 3.2 to FTI Consulting, Inc.’s Current Report on Form 8-K dated December 13, 2013 and incorporated herein by reference.) |
|
|
|
3.5 |
|
Amendment No. 2 to Amended and Restated Bylaws of FTI Consulting, Inc. (Filed with the Securities and Exchange Commission on September 22, 2014 as exhibit 3.2 to FTI Consulting, Inc.’s Current Report on Form 8-K dated September 17, 2014 and incorporated herein by reference.) |
|
|
|
31.1† |
|
Certification of Principal Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended (Section 302 of the Sarbanes-Oxley Act of 2002). |
|
|
|
31.2† |
|
Certification of Principal Financial Officer pursuant to Rule 13a-14(a) and 15d-14(a) under the Securities Exchange Act of 1934, as amended (Section 302 of the Sarbanes-Oxley Act of 2002). |
|
|
|
32.1†* |
|
Certification of Principal Executive Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002). |
|
|
|
32.2†* |
|
Certification of Principal Financial Officer pursuant to 18 U.S.C. Section 1350 (Section 906 of the Sarbanes-Oxley Act of 2002). |
|
|
|
101 |
|
The following financial information from the Quarterly Report on Form 10-Q of FTI Consulting, Inc., included herewith, and formatted in XBRL (Extensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of March 31, 2016 and December 31, 2015; (ii) Condensed Consolidated Statements of Comprehensive Income for the three months ended March 31, 2016 and 2015; (iii) Condensed Consolidated Statement of Stockholders’ Equity for the three months ended March 31, 2016; (iv) Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015; and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text. |
† |
Filed herewith |
* |
This certification is deemed not filed for purposes of section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act. |
35
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: April 28, 2016
FTI CONSULTING, INC. |
|
|
|
By |
/s/ Catherine M. Freeman |
|
Catherine M. Freeman |
|
Senior Vice President, Controller, Chief Accounting Officer and Interim Chief Financial Officer |
|
(principal financial officer and principal accounting officer) |
36