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Navigant Reports Third Quarter 2016 Financial Results

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CHICAGO--(BUSINESS WIRE)--

Navigant (NYSE: NCI) today announced financial results for the third quarter ended September 30, 2016.

Financial Summary and Highlights:

  • Third quarter 2016 revenues before reimbursements (RBR) increased 13%, with 10% organic growth, over third quarter 2015
  • Third quarter 2016 net income was $17.2 million, or $0.35 per share, compared to $14.2 million, or $0.29 per share, in third quarter 2015
  • Third quarter 2016 adjusted earnings per share (EPS) of $0.37, up 23% compared to third quarter 2015
  • Third quarter 2016 adjusted EBITDA of $39.8 million, up 26% over third quarter 2015
  • Raises 2016 revenue and earnings guidance

Navigant reported third quarter 2016 RBR of $237.1 million, a 13% increase (10% organic growth), compared to $209.6 million for third quarter 2015. Total revenues increased 14% to $261.4 million for third quarter 2016 compared to $230.3 million for third quarter 2015. Net income for third quarter 2016 was $17.2 million, or $0.35 per share, compared to $14.2 million, or $0.29 per share, in the prior year third quarter. Adjusted EPS was $0.37 for third quarter 2016, up 23% compared to third quarter 2015. Third quarter 2016 adjusted EBITDA was $39.8 million, a 26% increase, compared to $31.6 million for the same period in 2015. Adjusted EBITDA margin (adjusted EBITDA as a percent of RBR) for third quarter 2016 increased to 16.8% compared to 15.1% in third quarter 2015.

"Our third quarter results reflect continued strong performance delivering double-digit organic growth and improved profitability," commented Julie Howard, Chairman and Chief Executive Officer. "I am truly pleased that the consistent execution of our strategy in combination with a robust demand environment is bearing fruit for our stakeholders. We currently are on track to meet or exceed our expectations for the full year 2016. Looking ahead, we hope to build on the momentum we have experienced to date in 2016 and enter 2017 on a strong note."

Segment Financial Summary

     
             
For the quarter ended
September 30,
    2016   2015   Change
RBR ($000)
Healthcare $ 91,046 $ 74,500 22.2 %
Energy 28,436 26,733 6.4 %
Financial Services Advisory and Compliance 40,265 28,302 42.3 %
Disputes, Forensics & Legal Technology     77,368       80,099     -3.4 %
Total Company   $ 237,115     $ 209,634     13.1 %
Total Revenues ($000)
Healthcare $ 100,033 $ 80,821 23.8 %
Energy 32,076 31,542 1.7 %
Financial Services Advisory and Compliance 46,391 31,069 49.3 %
Disputes, Forensics & Legal Technology     82,909       86,826     -4.5 %
Total Company   $ 261,409     $ 230,258     13.5 %
Segment Operating Profit ($000)
Healthcare $ 31,896 $ 24,091 32.4 %
Energy 8,336 7,698 8.3 %
Financial Services Advisory and Compliance 17,682 10,383 70.3 %
Disputes, Forensics & Legal Technology     26,099       28,445     -8.2 %
Total Company   $ 84,013     $ 70,617     19.0 %
Segment Operating Margin (% of RBR)
Healthcare 35.0 % 32.3 %
Energy 29.3 % 28.8 %
Financial Services Advisory and Compliance 43.9 % 36.7 %
Disputes, Forensics & Legal Technology     33.7 %     35.5 %    
Total Company     35.4 %     33.7 %    

Third quarter 2016 RBR for the Healthcare segment increased 22% year-over-year, with more than half of that growth organic. The performance continued to be driven by strong demand for large, strategy-led transformation projects and revenue cycle consulting engagements. Segment operating profit for third quarter 2016 was up 32% compared to the same period in 2015.

Energy segment RBR increased 6% for the third quarter 2016 compared to the equivalent period in 2015, all of which represented organic growth. RBR growth for the quarter reflected contributions across the segment's portfolio of solutions, in addition to ongoing penetration of key client accounts. Third quarter 2016 segment operating profit was also up 8% compared to the same period in 2015.

Financial Services Advisory and Compliance segment RBR for third quarter 2016 increased 42%, all on an organic basis, compared to the prior year third quarter. Growth was driven primarily by continued demand for financial crimes consulting expertise and an increase in compliance and controls engagements for major financial institutions, as compared to the prior year period which had experienced relatively lower utilization due to the wind-down of certain large engagements. RBR growth, better pricing and higher consultant utilization led to a robust 70% increase in third quarter 2016 segment operating profit year-over-year.

Disputes, Forensics & Legal Technology segment RBR was down 3% for third quarter 2016 compared the third quarter 2015. The decrease was attributable to currency fluctuations as well as a lower volume of engagements in financial services disputes and international arbitration, both which experienced particularly high demand in the prior-year period. This decline was partially offset by strong demand for our global expertise in large infrastructure claims and construction dispute matters. Segment operating profit was down 8% in third quarter 2016 compared to the respective period of 2015.

Cash Flow

Third quarter 2016 net cash provided by operating activities was $48.0 million, compared to $38.9 million for third quarter 2015, as a result of improved earnings. Free cash flow increased to $25.5 million for third quarter 2016 compared to $18.2 million for the same period in 2015, primarily driven by a decrease in capital investment spending. Days Sales Outstanding was 87 days as of September 30, 2016, up six days compared to September 30, 2015.

Bank debt was $161.2 million at September 30, 2016, compared to $146.8 million at September 30, 2015 and $189.8 million at June 30, 2016. Leverage (bank debt divided by trailing twelve month adjusted EBITDA) was 1.17 at September 30, 2016, compared to 1.22 at September 30, 2015 and 1.46 at June 30, 2016.

Navigant repurchased 309,233 shares of common stock during third quarter 2016 at an aggregate cost of $5.8 million and an average cost of $18.68 per share. As of September 30, 2016, approximately $69.3 million remained available under the Company's share repurchase authorization.

2016 Outlook

Navigant raised its 2016 outlook. Full year 2016 RBR is now expected to range between $920.0 and $940.0 million, which is the upper half of the previously-issued guidance range. The range for 2016 total revenues was increased to $1.00 and $1.02 billion, up from $960 million to $1.01 billion. Adjusted EBITDA for full year 2016 is now expected to range between $137.5 and $145.0 million, which is the upper half of the previously-issued guidance range. Adjusted EPS for full year 2016 is estimated to be between $1.15 and $1.25, an increase of $0.10 from the previous guidance range.

Non-GAAP Financial Information

This press release includes certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles (GAAP) are included in the financial schedules attached to this press release. This information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP.

No reconciliation of Navigant's 2016 adjusted EBITDA guidance and 2016 adjusted EPS guidance, both of which exclude the impact and tax-effected impact of severance expense and other operating costs (benefit), respectively, is included in the financial schedules attached to this press release. Navigant is not able to accurately forecast the excluded items at the level of precision that would be required to be included in the most directly comparable GAAP financial measure without unreasonable efforts.

Conference Call Details

Navigant will host a conference call to discuss the Company's third quarter 2016 results at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on Tuesday, October 25, 2016. The conference call may be accessed via the Navigant website (investors.navigant.com) or by dialing 888.455.9733 (630.395.0358 for international callers) and referencing pass code "NCI." An archived version of the webcast will also be available via the Navigant website. A report of financial and related supplemental information is also available via the Navigant website.

About Navigant

Navigant Consulting, Inc. (NYSE: NCI) is a specialized, global professional services firm that helps clients take control of their future. Navigant's professionals apply deep industry knowledge, substantive technical expertise, and an enterprising approach to help clients build, manage and/or protect their business interests. With a focus on industries and clients facing transformational change and significant regulatory or legal pressures, the Firm primarily serves clients in the healthcare, energy and financial services markets. Across a range of advisory, consulting, outsourcing, and technology/analytics services, Navigant's practitioners bring sharp insight that pinpoints opportunities and delivers powerful results. More information about Navigant can be found at navigant.com.

Statements included in this press release which are not historical in nature are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may generally be identified by words such as "anticipate," "believe," "intend," "estimate," "expect," "plan," "outlook" and similar expressions. These statements are based upon management's current expectations and speak only as of the date of this press release. The Company cautions readers that there may be events in the future that the Company is not able to accurately predict or control and the information contained in the forward-looking statements is inherently uncertain and subject to a number of risks that could cause actual results to differ materially from those contained in or implied by the forward-looking statements including, without limitation: the execution of the Company's long-term growth objectives and margin improvement initiatives; risks inherent in international operations, including foreign currency fluctuations; ability to make acquisitions and divestitures; pace, timing and integration of acquisitions and separation of divestitures; operational risks associated with new or expanded service areas, including business process management services; impairments; changes in accounting standards; management of professional staff, including dependence on key personnel, recruiting, retention, attrition and the ability to successfully integrate new consultants into the Company's practices; utilization rates; conflicts of interest; potential loss of clients or large engagements and the Company's ability to attract new business; competition; accurate pricing of engagements, particularly fixed fee and multi-year engagements; clients' financial condition and their ability to make payments to the Company; risks inherent with litigation; higher risk client assignments; professional liability; information security controls; potential legislative and regulatory changes; continued access to capital; and market and general economic and political conditions. Further information on these and other potential factors that could affect the Company's financial results are included under the "Risk Factors" section of the Company's Annual Report on Form 10-K for the year ended December 31, 2015, and elsewhere in the Company's filings with the Securities and Exchange Commission (SEC), which are available on the SEC's website or at investors.navigant.com. The Company cannot guarantee any future results, levels of activity, performance or achievement and undertakes no obligation to update any of its forward-looking statements.

       
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share data(1))
(Unaudited)
 
For the quarter ended For the nine months ended
September 30, September 30,
2016   2015 2016   2015
Revenues:
Revenues before reimbursements $ 237,115 $ 209,634 $ 699,075 $ 621,813
Reimbursements   24,294       20,624     69,304       65,055  
Total revenues 261,409 230,258 768,379 686,868
Cost of services:
Cost of services before reimbursable expenses 156,061 141,731 467,967 425,699
Reimbursable expenses   24,294       20,624     69,304       65,055  
Total cost of services 180,355 162,355 537,271 490,754
General and administrative expenses 42,126 36,629 126,464 111,362
Depreciation expense 7,008 5,954 20,545 17,033
Amortization expense 2,905 2,084 8,717 6,650
Other operating costs (benefit):
Contingent acquisition liability adjustments, net 480 - 1,330 (12,625 )
Office consolidation, net - - 174 2,740
Loss on disposition of assets - 283 - 283
Other impairment   -       -     -       98  
Operating income 28,535 22,953 73,878 70,573
Interest expense 1,310 1,018 3,999 3,988
Interest income (35 ) (77 ) (110 ) (178 )
Other income, net   (350 )     (328 )   (1,134 )     (480 )
Income before income tax expense 27,610 22,340 71,123 67,243
Income tax expense   10,435       8,164     26,529       20,097  
Net income $ 17,175     $ 14,176   $ 44,594     $ 47,146  
 
 
Basic per share data
Net income $ 0.36 $ 0.30 $ 0.94 $ 0.98
Shares used in computing basic per share data 47,369 47,835 47,448 48,036
 
Diluted per share data
Net income $ 0.35 $ 0.29 $ 0.91 $ 0.96
Shares used in computing diluted per share data 48,763 49,155 48,878 49,297
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AND SELECTED DATA
(In thousands, except DSO data)
   
September 30, December 31,
2016   2015
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 7,044 $ 8,895
Accounts receivable, net 272,254 216,660
Prepaid expenses and other current assets   27,989       29,729  
Total current assets 307,287 255,284
Non-current assets:
Property and equipment, net 69,833 76,717
Intangible assets, net 30,502 38,160
Goodwill 624,454 623,204
Other assets   18,660       22,531  
Total assets $ 1,050,736     $ 1,015,896  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,460 $ 9,497
Accrued liabilities 11,583 10,719
Accrued compensation-related costs 91,616 91,577
Income tax payable 12,772 -
Other current liabilities   36,566       32,147  
Total current liabilities 162,997 143,940
Non-current liabilities:
Deferred income tax liabilities 80,189 75,719
Other non-current liabilities 20,649 28,956
Bank debt non-current   161,208       173,743  
Total non-current liabilities   262,046       278,418  
Total liabilities   425,043       422,358  
Stockholders' equity:
Common stock 57 64
Additional paid-in capital 640,083 627,976
Treasury stock (175,105 ) (296,624 )
Retained earnings 182,964 278,682
Accumulated other comprehensive loss   (22,306 )     (16,560 )
Total stockholders' equity   625,693       593,538  
Total liabilities and stockholders' equity $ 1,050,736     $ 1,015,896  
 

Selected Data (unaudited)

Days sales outstanding, net (DSO) 87 76
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
       
For the quarter ended For the nine months ended
September 30, September 30,
2016   2015 2016   2015
 
Cash flows from operating activities:
Net income $ 17,175 $ 14,176 $ 44,594 $ 47,146
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation expense 7,008 5,954 20,545 17,033
Amortization expense 2,905 2,084 8,717 6,650
Amortization expense - client-facing software 173 190 526 676
Share-based compensation expense 2,921 2,682 9,445 8,206
Accretion of interest expense 171 29 526 1,164
Deferred income taxes (506 ) 2,024 625 6,710
Allowance for doubtful accounts receivable 2,459 100 7,006 1,692
Contingent acquisition liability adjustments, net 480 - 1,330 (12,625 )
Other, net - 283 33 520
Changes in assets and liabilities (net of acquisitions and dispositions):
Accounts receivable (20,152 ) 1,060 (63,917 ) (35,687 )
Prepaid expenses and other assets 6,340 (5,356 ) 5,315 (7,717 )
Accounts payable (1,519 ) (2,821 ) 959 (2,685 )
Accrued liabilities 612 727 1,084 2,171
Accrued compensation-related costs 23,084 19,148 296 (3,748 )
Income taxes payable 4,881 933 16,940 979
Other liabilities   1,944       (2,305 )   1,607       3,618  
 
Net cash provided by operating activities 47,976 38,908 55,631 34,103
 
Cash flows from investing activities:
Purchases of property and equipment (3,425 ) (7,963 ) (13,464 ) (31,160 )
Acquisitions of businesses, net of cash acquired (6,000 ) - (7,995 ) (21,379 )
Other acquisition payments - - (5,500 ) -
Payments of acquisition liabilities (667 ) (666 ) (1,165 ) (2,196 )
Capitalized client-facing software   (332 )     (265 )   (459 )     (611 )
 
Net cash used in investing activities (10,424 ) (8,894 ) (28,583 ) (55,346 )
 
Cash flows from financing activities:
Issuances of common stock 727 594 3,568 5,488
Repurchases of common stock (5,778 ) (6,126 ) (18,801 ) (18,207 )
Payments of contingent acquisition liabilities (779 ) (592 ) (828 ) (592 )
Repayments to banks (99,481 ) (91,930 ) (308,726 ) (230,633 )
Borrowings from banks 71,608 68,371 298,847 268,014
Other, net   (72 )     (52 )   (2,802 )     (1,299 )
Net cash (used in) provided by financing activities   (33,775 )     (29,735 )   (28,742 )     22,771  
 
Effect of exchange rate changes on cash and cash equivalents   (43 )     (116 )   (157 )     (159 )
Net increase (decrease) in cash and cash equivalents 3,734 163 (1,851 ) 1,369
Cash and cash equivalents at beginning of the period   3,310       3,854     8,895       2,648  
Cash and cash equivalents at end of the period $ 7,044     $ 4,017   $ 7,044     $ 4,017  
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data and percentages)
(Unaudited)
 
This press release includes certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Below are the reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles (GAAP). This information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP. Management uses these non-GAAP financial measures in addition to GAAP financial measures to assess the Company's operations and financial results and believes they are useful indicators of operating performance and the Company's ability to generate cash flows from operations that are available for interest, debt service, taxes and capital expenditures. Investors should recognize that these non-GAAP financial measures may not be comparable to similarly-titled measures of other companies.

EBITDA, adjusted EBITDA, adjusted Net Income and

  For the quarter ended     For the nine months ended  

adjusted Earnings Per Share (2)

September 30, September 30,
2016   2015 2016   2015
Severance expense $ 879   $ 283 $ 2,876   $ 5,339
Income tax benefit (3)   (288 )     (117 )   (1,028 )     (1,869 )
Tax-effected impact of severance expense $ 591     $ 166   $ 1,848     $ 3,470  
 
Other operating costs (benefit) - contingent acquisition liability adjustment, net $ 480 $ - $ 1,330 $ (12,625 )
Income tax benefit (3)(4)   (193 )     -     (534 )     (1,090 )
Tax-effected impact of other operating costs (benefit) - contingent acquisition liability adjustment, net $ 287     $ -   $ 796     $ (13,715 )
 
Other operating costs - office consolidation, net $ - $ - $ 174 $ 2,740
Income tax benefit (3)   -       -     (70 )     (1,108 )
Tax-effected impact of other operating costs - office consolidation, net $ -     $ -   $ 104     $ 1,632  
 
Other operating costs - loss on disposition of assets $ - $ 283 $ - $ 283
Income tax benefit (3)(5)   -       -     -       -  
Tax-effected impact of other operating costs - loss on disposition of assets $ -     $ 283   $ -     $ 283  
 
Other operating costs - other impairment $ - $ - $ - $ 98
Income tax benefit (3)   -       -     -       (40 )
Tax-effected impact of other operating costs - other impairment $ -     $ -   $ -     $ 58  
 
EBITDA reconciliation:
Net Income $ 17,175 $ 14,176 $ 44,594 $ 47,146
Interest expense 1,310 1,018 3,999 3,988
Interest income (35 ) (77 ) (110 ) (178 )
Other income, net (350 ) (328 ) (1,134 ) (480 )
Income tax expense 10,435 8,164 26,529 20,097
Depreciation expense 7,008 5,954 20,545 17,033
Accelerated depreciation - office consolidation (included in other operating costs - office consolidation, net) - - 33 139
Amortization expense   2,905       2,084     8,717       6,650  
EBITDA $ 38,448 $ 30,991 $ 103,173 $ 94,395
Severance expense 879 283 2,876 5,339
Other operating costs (benefit) - contingent acquisition liability adjustment, net 480 - 1,330 (12,625 )
Other operating costs - office consolidation, net (excluding accelerated depreciation - office consolidation, above) - - 141 2,601
Other operating costs - loss on disposition of assets - 283 - 283
Other operating costs - other impairment   -       -     -       98  
Adjusted EBITDA $ 39,807     $ 31,557   $ 107,520     $ 90,091  
 
Net income $ 17,175 $ 14,176 $ 44,594 $ 47,146
Tax-effected impact of severance expense 591 166 1,848 3,470
Tax-effected impact of other operating costs (benefit) - contingent acquisition liability adjustment, net 287 - 796 (13,715 )
Tax-effected impact of other operating costs - office consolidation, net - - 104 1,632
Tax-effected impact of other operating costs - loss on disposition of assets - 283 - 283
Tax-effected impact of other operating costs - other impairment   -       -     -       58  
Adjusted net income $ 18,053     $ 14,625   $ 47,342     $ 38,874  
Shares used in computing adjusted per diluted share data 48,763 49,155 48,878 49,297
Adjusted earnings per share $ 0.37     $ 0.30   $ 0.97     $ 0.79  
 
For the quarter ended For the nine months ended

Free Cash Flow (6)

September 30, September 30,
2016   2015 2016   2015
Net cash provided by operating activities $ 47,976 $ 38,908 $ 55,631 $ 34,103
Changes in assets and liabilities (15,190 ) (11,386 ) 37,716 43,069
Allowance for doubtful accounts receivable (2,459 ) (100 ) (7,006 ) (1,692 )
Purchases of property and equipment (3,425 ) (7,963 ) (13,464 ) (31,160 )
Payments of acquisition liabilities (667 ) (666 ) (1,165 ) (2,196 )
Payments of contingent acquisition liabilities   (779 )     (592 )   (828 )     (592 )
Free Cash Flow $ 25,456     $ 18,201   $ 70,884     $ 41,532  
 

Leverage Ratio (7)

At September 30,
2016   2015
Adjusted EBITDA for prior twelve-month period $ 138,371 $ 120,253
Bank debt $ 161,208 $ 146,814
Leverage ratio 1.17 1.22
 
For the quarter ended For the nine months ended

Organic Growth (8)

September 30, September 30,
2016   2015   Growth 2016   2015   Growth
Revenues before reimbursements $ 237,115 $ 209,634 13.1 % $ 699,075 $ 621,813 12.4 %
Pro forma acquisition adjustment 473 7,077 1,893 23,074
Currency impact   1,794       -         3,688       -      
Organic RBR $ 239,382 $ 216,711 10.5 % $ 704,656 $ 644,887 9.3 %
Footnotes
(1) Per share data may not sum due to rounding.
 
(2) EBITDA is earnings before interest, taxes, depreciation and amortization. Adjusted EBITDA excludes the impact of severance expense and other operating costs (benefit). Adjusted net income and adjusted earnings per share exclude net income and per share net income impact of severance expense and other operating costs (benefit). Severance expense and other operating costs (benefit) are not considered to be non-recurring, infrequent or unusual to our business. Management believes that these measures provide investors with enhanced comparability of the Company's results of operations across periods.
 
(3) Effective income tax expense (benefit) has been determined based on specific tax jurisdiction.
 
(4) A portion of the deferred contingent acquisition liability adjustment for the nine months ended September 30, 2015 was non-taxable in nature.
 
(5) The loss on dispositions recorded during the three and nine months ended September 30, 2015 is subject to capital loss treatment in Canada. The tax benefit associated with this capital loss is subject to a full valuation allowance.
 
(6) Free cash flow is calculated as net cash provided from operations excluding changes in assets and liabilities and allowance for doubtful accounts receivable less cash payments for property and equipment and deferred acquisition related payments. Free cash flow does not represent discretionary cash available for spending as it excludes certain contractual obligations such as debt repayment. However, management believes that it provides investors with an indicator of cash flows available for on-going business operations and long term value creation.
 
(7) Leverage ratio is calculated as bank debt at the end of the period divided by adjusted EBITDA for the prior twelve-month period. Management believes that leverage ratio provides investors with an indicator of the cash flows available to repay the Company's debt obligations.
 
(8) Organic growth represents revenues before reimbursements adjusted to include the impact of our acquisitions as if we owned them from the beginning of each comparable period and adjusted to exclude the impact of foreign currency exchange rate fluctuations. Management believes that organic growth reflects the growth of our existing business and is, therefore, useful in analyzing the Company's financial condition and results of operations.

Aaron Miles
Navigant Investor Relations
312.583.5820
aaron.miles@navigant.com
or
Megan Maupin
Navigant Corporate Communications
312.583.5703

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