Market Overview

Navigant Reports First Quarter 2018 Financial Results

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Navigant (NYSE:NCI) today reported financial results for the quarter
ended March 31, 2018.

First quarter 2018 financial summary:

  • Revenues and revenues before reimbursements (RBR) of $264.5 million
    and $243.9 million, respectively were both up 3% compared to first
    quarter 2017
  • Net income was $11.9 million, or $0.25 per share, compared to $11.1
    million, or $0.23 per share, for first quarter 2017
  • Adjusted Earnings per Share (EPS) of $0.30 increased $0.03 compared to
    first quarter 2017
  • Repurchased $11.4 million of common stock in the quarter,
    significantly higher than the $5.0 million repurchased in the prior
    year period
  • Management affirms previously provided 2018 financial guidance targets

"We are pleased with our first quarter results which reflect improving
trends in several areas of our business," said Julie Howard, chairman
and CEO of Navigant. "In the quarter, our DFLT and Energy segments
produced solid year-over-year and sequential RBR improvements. We also
realized strong growth in our Financial Services Advisory and Compliance
segment. In each of these three segments, revenue improvement translated
to margin gains in the period. In Healthcare, as expected, performance
for the segment was down in the quarter, however, we see early signs of
demand recovery for strategic, provider-related engagements.
Additionally, we are excited about future growth opportunities related
to our recently announced joint venture with Baptist Health South
Florida. All-in-all, after the solid start to the year, we remain well
positioned to achieve our full-year 2018 guidance targets."

 

CONSOLIDATED RESULTS

         
  The quarter ended March 31,
        Increase /

(Dollars in millions, excluding per share data)

  2018   2017   (Decrease)
Revenue $   264.5 $   257.8 $   6.7
RBR $ 243.9 $ 236.2 $ 7.7
Net Income $ 11.9 $ 11.1 $ 0.8
Adjusted EBITDA (1) $ 29.9 $ 31.5 $ (1.6 )
Adjusted Net Income per Share (1)     $0.30       $0.27       $0.03  
(1) See definition and reconciliation of non-GAAP measures
elsewhere in this release.
 

Navigant reported first quarter 2018 revenues and RBR of $264.5 million
and $243.9 million, respectively, up 3% compared to the first quarter
2017 reflecting higher revenue in three of the Company's four segments.
On an organic, exchange rate neutral basis, RBR growth for the quarter
was up 2% compared to the first quarter 2017.

First quarter 2018 Adjusted EBITDA was $29.9 million, down $1.6 million
from the same prior year period as lower margins in the Healthcare
segment and higher bad debt expense, due to receivable aging and client
specific reserves in the current year period and the absence of bad debt
expense in the prior year period, contributed to decreased performance.
When excluding bad debt, general and administrative cost as a percent of
RBR were 16.9%, a 70bps improvement compared to the first quarter 2017.

First quarter 2018 net income of $11.9 million was up $0.8 million
compared to first quarter 2017 as the operating performance discussed
above was more than offset by lower depreciation and amortization
expense, as well as lower taxes due to the impact of the 2017 Tax Cuts
and Jobs Act in the current year period. GAAP EPS and Adjusted EPS were
$0.25 and $0.30, respectively, for first quarter 2018, $0.02 and $0.03
higher, respectively, than the prior year period.

CASH FLOW AND BALANCE SHEET

First quarter 2018 net cash used in operating activities was $34.8
million compared to a use of $23.0 million for first quarter 2017 driven
primarily by higher accounts receivable in the current year period. Days
Sales Outstanding on March 31, 2018 was 91 days, a 6-day increase
compared to December 31, 2017, driven by slower collections. Free Cash
Flow, which as defined excludes working capital, increased to $20.1
million for first quarter 2018 compared to $13.3 million for the same
period in 2017, primarily due to lower capital expenditures in the
current year period.

Bank debt outstanding on March. 31, 2018 was $184.3 million, up $6.0
million compared to $178.3 million outstanding on March 31, 2017.
Leverage (bank debt divided by trailing twelve month Adjusted EBITDA)
was 1.48 times at March 31, 2018.

Navigant continued executing its share repurchase program with an
additional 569 thousand shares of common stock repurchased during the
first quarter 2018 at an aggregate cost of $11.4 million and an average
price of $19.95 per share. As of March 31, 2018, the company had $52.3
million remaining under its stock repurchase authorization which expires
on December 31, 2019.

 

FIRST QUARTER 2018 SEGMENT RESULTS

       
  The quarter ended March 31,  
    Increase /

(Dollars in millions, numbers may not foot due to rounding)

2018   2017   (Decrease)  
RBR
Healthcare $ 90.1 $ 94.0 $ (3.9 )
Energy 33.7 32.5 1.2
Financial Services Advisory and Compliance 41.4 32.9 8.5
Disputes, Forensics, and Legal Technology   78.6     76.8     1.8  
Total Company $ 243.9   $ 236.2   $ 7.7  
Total Revenues
Healthcare $ 98.7 $ 103.0 $ (4.3 )
Energy 37.6 37.7 (0.1 )
Financial Services Advisory and Compliance 45.6 36.9 8.7
Disputes, Forensics, and Legal Technology   82.6     80.2     2.4  
Total Company $ 264.5   $ 257.8   $ 6.7  
Segment Operating Profit
Healthcare $ 20.4 $ 28.5 $ (8.1 )
Energy 10.7 8.9 1.8
Financial Services Advisory and Compliance 16.0 11.6 4.4
Disputes, Forensics, and Legal Technology   27.9     25.5     2.4  
Total Company $ 75.1   $ 74.4   $ 0.7  
Segment Operating Margin (% of RBR)
Healthcare 22.6 % 30.3 % -7.7 %
Energy 31.8 % 27.3 % 4.5 %
Financial Services Advisory and Compliance 38.7 % 35.3 % 3.4 %
Disputes, Forensics, and Legal Technology   35.5 %   33.2 %   2.3 %
Total Company     30.8 %     31.5 %     -0.7 %
 

Healthcare segment RBR of $90.1 million decreased 4%, or 6% on an
organic basis, for first quarter 2018 compared to the same prior year
period. Consistent with 2017 and as anticipated, the demand environment
for certain of our consulting services remained depressed and impacted
revenue performance in the quarter. Segment operating profit of $20.4
million declined $8.1 million in first quarter 2018 compared to the
first quarter 2017 as lower revenue, higher strategic development costs,
increased headcount in managed services, as well as the maintenance of
resources in consulting, in anticipation of improving demand for the
remainder of 2018, contributed to the decline. Additionally, headcount
reductions taken in the quarter to better position the segment for
improved performance going forward increased severance expense in the
current year period.

Energy segment RBR for first quarter 2018 of $33.7 million increased 4%
compared to first quarter 2017 and was up 10% sequentially. Improving
demand from commercial client engagements for services such as grid
modernization and distributed energy resource planning helped drive the
revenue improvement. Segment operating profit for the quarter was up 21%
compared to the first quarter 2017 due to increased revenue and lower
headcount driven by 2017 cost management actions.

Financial Services Advisory and Compliance segment RBR finished at $41.4
million, up 26% compared to first quarter 2017. Strong growth across the
segment was driven by increased activity in financial crime, sanctions,
and operational efficiency engagements across a number of our largest
clients. Segment operating profit increased 38% as revenue performance
more than offset increased headcount and higher incentive compensation
costs.

Disputes, Forensics, and Legal Technology segment RBR for first quarter
2018 of $78.6 million was up 2% compared to first quarter 2017 and
increased 11% sequentially. The quarter benefited from continued demand
for cyber security services, as well a robust market for commercial
disputes expertise, particularly in construction, healthcare and
intellectual property related matters. Lower mass tort claim volume in
the current year period partially offset robust performance elsewhere in
the segment. Segment operating profit for first quarter 2018 was up 10%
compared to the first quarter 2017 driven primarily by higher revenue.

2018 OUTLOOK

Management affirms full year 2018 financial outlook as originally
communicated on February 20, 2018:

  • Total revenues estimated to be between $1.030 billion and $1.065
    billion
  • RBR expected to range between $940 million and $975 million
  • Adjusted EBITDA expected to range between $125 million and $137 million
  • Adjusted EPS estimated to be between $1.26 and $1.44
  • Capital expenditures estimated to be approximately $25 million
  • Free Cash Flow expected to range between $75 million and $90 million

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.

Navigant has provided guidance regarding Adjusted EBITDA and Adjusted
Earnings Per Share, both of which exclude the impact of severance
expense and other operating costs (benefit), as applicable. 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 first
quarter 2018 results at 10 a.m. Eastern Time (9 a.m. Central Time) on
Wed., May 2, 2018. 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.

DEFINITIONS

  • Adjusted EBITDA, Adjusted Net Income and Adjusted Earnings per
    Share (EPS)
    Adjusted EBITDA is EBITDA – earnings from continuing
    operations before interest, taxes, depreciation, and amortization –
    excluding the impact of severance expense and other operating costs
    (benefit), as applicable. Adjusted Net Income and Adjusted Earnings
    per Share exclude the net income and per share net income impact of
    severance expense, other operating costs (benefit), and the benefit
    recognized in the fourth quarter 2017 related to the 2017 Tax Cuts and
    Jobs Act, as applicable. Severance expense and other operating costs
    (benefit) are not considered to be non-recurring, infrequent or
    unusual to our business. Management believes that these non-GAAP
    financial measures provide investors with enhanced comparability of
    Navigant's results of operations across periods.
  • Free Cash Flow is calculated as net cash provided by (used in)
    operations excluding the change in asset, liabilities and allowance
    for doubtful accounts less cash payment for property, equipment and
    deferred acquisition liabilities. Free Cash Flow does not represent
    cash available for spending as it excludes certain contractual
    obligations such as debt repayment. However, management believes that
    Free Cash Flow provides investors with an indicator of cash available
    for on-going business operations and long-term value creation.

ABOUT NAVIGANT

Navigant Consulting, Inc. (NYSE:NCI) ("the Company") 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 markets and clients facing transformational change and
significant regulatory or legal pressures, the firm primarily serves
clients in the healthcare, energy, and financial services industries.
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," "may," "could," "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 or tax rates, laws or regulations; 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; brand equity; 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;
government contracting; professional liability; information security;
the adequacy of our business, financial and information systems and
technology; maintenance of effective internal controls; potential
legislative and regulatory changes; continued and sufficient access to
capital; compliance with covenants in our credit agreement; interest
rate risk; 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, 2016, 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
March 31,  
2018     2017  
Revenues:
Revenues before reimbursements $ 243,879 $ 236,211
Reimbursements   20,641     21,626  
Total revenues 264,520 257,837
Cost of services before reimbursable expenses 171,406 165,052
Reimbursable expenses   20,641     21,626  
Total cost of services 192,047 186,678
General and administrative expenses 44,362 41,484
Depreciation expense 6,845 7,473
Amortization expense 1,856 2,319
Other operating costs:
Contingent acquisition liability adjustments, net - 1,199
Other costs   983     107  
Operating income 18,427 18,577
Interest expense 1,316 1,069
Interest income (119 ) (31 )
Other expense (income), net   390     (217 )
Income before income tax expense 16,840 17,756
Income tax expense   4,987     6,660  
Net income $ 11,853   $ 11,096  
 
Basic per share data
Net income $ 0.26 $ 0.24
Shares used in computing basic per share data 45,120 46,932
 
Diluted per share data
Net income $ 0.25 $ 0.23
Shares used in computing diluted per share data 46,834 48,969
 
 
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AND SELECTED DATA
(In thousands, except DSO data)
   
March 31, December 31,
2018   2017  
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 6,646 $ 8,449
Accounts receivable, net and contract assets 288,744 267,841
Prepaid expenses and other current assets   33,616     32,921  
Total current assets 329,006 309,211
Non-current assets:
Property and equipment, net 87,921 89,169
Intangible assets, net 19,247 21,053
Goodwill 638,953 637,287
Other assets   23,210     23,544  
Total assets $ 1,098,337   $ 1,080,264  
 
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 10,345 $ 12,398
Accrued liabilities 15,923 13,895
Accrued compensation-related costs 60,567 96,773
Income tax payable 7,171 4,720
Other current liabilities   32,633     38,895  
Total current liabilities 126,639 166,681
Non-current liabilities:
Deferred income tax liabilities 62,665 61,131
Other non-current liabilities 32,000 32,174
Bank debt non-current   184,327     132,944  
Total non-current liabilities   278,992     226,249  
Total liabilities   405,631     392,930  
Stockholders' equity:
Common stock 58 58
Additional paid-in capital 662,924 659,825
Treasury stock (235,723 ) (224,366 )
Retained earnings 282,999 270,995
Accumulated other comprehensive loss   (17,552 )   (19,178 )
Total stockholders' equity   692,706     687,334  
Total liabilities and stockholders' equity $ 1,098,337   $ 1,080,264  
 

Selected Data (unaudited)

Days sales outstanding, net (DSO) 91 85
 
 
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
   
For the quarter ended
March 31,
2018   2017
Cash flows from operating activities:

Net income

$ 11,853 $ 11,096

Adjustments to reconcile net income to net cash used in operating
activities:

Depreciation expense 6,845 7,473
Amortization expense 1,856 2,319
Share-based compensation expense 3,377 3,022
Deferred income taxes 968 1,339
Allowance for doubtful accounts receivable 3,130 4
Contingent acquisition liability adjustments, net - 1,199
Other, net 1,007 651
Changes in assets and liabilities (net of acquisitions):
Accounts receivable, net and contract assets (23,615 ) (4,279 )
Prepaid expenses and other assets (716 ) (1,197 )
Accounts payable (2,100 ) (81 )
Accrued liabilities 2,200 584
Accrued compensation-related costs (36,458 ) (49,256 )
Income taxes payable 2,926 4,353
Other liabilities   (6,120 )   (188 )
Net cash used in operating activities (34,847 ) (22,961 )
 
Cash flows from investing activities:
Purchases of property and equipment (5,750 ) (13,789 )
Other, net   -   (116 )
Net cash used in investing activities (5,750 ) (13,905 )
 
Cash flows from financing activities:
Issuances of common stock 1,238 1,914
Repurchases of common stock (11,357 ) (4,961 )
Repayments to banks (79,144 ) (150,800 )
Borrowings from banks 129,677 193,802
Payments of debt issuance costs - (1,166 )
Other, net   (1,596 )   (1,327 )
Net cash provided by financing activities 38,818 37,462
 
Effect of exchange rate changes on cash and cash equivalents   (24 )   245
Net (decrease) increase in cash and cash equivalents (1,803 ) 841
Cash and cash equivalents at beginning of the period   8,449   8,291
Cash and cash equivalents at end of the period $ 6,646 $ 9,132
 
 
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
(In thousands, except per share data and percentages)
(Unaudited)
   

EBITDA, Adjusted EBITDA, Adjusted Net
Income and Adjusted Earnings Per Share (2)

For the quarter ended
March 31,  
2018     2017  
Severance expense $ 1,799 $ 1,786
Income tax benefit (3)   (480 )   (656 )
Tax-effected impact of severance expense $ 1,319   $ 1,130  
 
Other operating costs - contingent acquisition liability adjustment,
net
$ - $ 1,199
Income tax benefit (3)   -     (481 )
Tax-effected impact of other operating costs - contingent
acquisition liability adjustment, net
$ -   $ 718  
 
Other operating costs - other costs $ 983 $ 107
Income tax benefit (3)   (268 )   (43 )
Tax-effected impact of other operating costs - other costs $ 715   $ 64  
 
EBITDA reconciliation:
Net Income $ 11,853 $ 11,096
Interest expense 1,316 1,069
Interest income (119 ) (31 )
Other expense (income), net 390 (217 )
Income tax expense 4,987 6,660
Depreciation expense 6,845 7,473
Amortization expense   1,856     2,319  
EBITDA $ 27,128 $ 28,369
Severance expense 1,799 1,786
Other operating costs - contingent acquisition liability adjustment,
net
- 1,199
Other operating costs - other costs   983     107  
Adjusted EBITDA $ 29,910   $ 31,461  
 
Net income $ 11,853 $ 11,096
Tax-effected impact of severance expense 1,319 1,130
Tax-effected impact of other operating costs - contingent
acquisition liability adjustment, net
- 718
Tax-effected impact of other operating costs - other costs   715     64  
Adjusted net income $ 13,887   $ 13,008  
Shares used in computing adjusted per diluted share data 46,834 48,969
Adjusted earnings per share $ 0.30   $ 0.27  
 
For the quarter ended

Free Cash Flow (4)

March 31,  
2018   2017  
Net cash used in operating activities $ (34,847 ) $ (22,961 )
Changes in assets and liabilities 63,883 50,064
Allowance for doubtful accounts receivable (3,130 ) (4 )
Purchases of property and equipment (5,750 ) (13,789 )
Payments of contingent acquisition liabilities   (80 )   -  
Free Cash Flow $ 20,076   $ 13,310  
 

Leverage Ratio (5)

At March 31,  
2018   2017  
Adjusted EBITDA for prior twelve-month period $ 124,287 $ 143,190
Bank debt $ 184,327 $ 178,336
Leverage ratio 1.48 1.25
 
For the quarter ended

Organic Growth (6)

March 31,  
2018   2017   Growth  
Revenues before reimbursements $ 243,879 $ 236,211 3.2 %
Pro forma acquisition adjustment - 1,420
Currency impact   (1,598 )   -        
Organic RBR $ 242,281 $ 237,631 2.0 %
 
 
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), as applicable. 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), and the benefit recognized in the fourth quarter
2017 related to the 2017 Tax Cuts and Jobs Act, as applicable.
Severance expense and other operating costs are not considered to be
non-recurring, infrequent or unusual to our business. Management
believes that these non-GAAP financial measures provide investors
with enhanced comparability of Navigant's results of operations
across periods.
(3) Effective income tax expense has been determined based on
specific tax jurisdiction.
(4) 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.
(5) 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.
(6) 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.
 

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