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Navigant Reports First Quarter 2015 Financial Results

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Navigant (NYSE:NCI) today announced financial results for the first quarter ended March 31, 2015.

Financial Summary and Highlights:

  • First quarter 2015 revenues before reimbursements (RBR) increased 15% year-over-year to $201.2 million, and total revenues increased 13% year-over-year to $223.2 million.
  • First quarter 2015 RBR results included organic growth of 5% year-over-year, with contribution from all segments.
  • Net income from continuing operations was $25.1 million or $0.51 per share; adjusted earnings per share (EPS) increased 15% year-over-year to $0.23, and adjusted EBITDA increased 27% year-over-year to $28.4 million.
  • 426,800 shares of common stock repurchased in first quarter 2015 at an average cost of $14.33 per share.
  • Reiterates financial outlook for 2015.

Navigant reported first quarter 2015 RBR of $201.2 million, a 15% increase compared to $175.1 million for first quarter 2014, with year-over-year RBR organic growth in all four segments. Total revenues increased 13% to $223.2 million for first quarter 2015 compared to $197.7 million for first quarter 2014. Net income from continuing operations for first quarter 2015 was $25.1 million, or $0.51 per share, compared to $10.4 million, or $0.21 per share, in the prior year quarter. Adjusted EPS increased 15% to $0.23 for first quarter 2015 compared to $0.20 for first quarter 2014. Adjusted EBITDA increased 27% to $28.4 million for first quarter 2015 compared to $22.3 million for the same period in 2014.

Julie Howard, Chairman and Chief Executive Officer, commented, “We are pleased with our results in the first quarter, reflecting nice organic growth, with contributions from all segments. Each of the primary industry sectors that we serve – Financial Services, Energy and Healthcare – continue to face significant regulatory scrutiny and market pressure to transform their business models, a sweet spot for our skills and capabilities. Our Financial Risk & Compliance segment and our Energy segment contributed double digit growth, all organic, while the Healthcare segment realized 43% RBR growth year over year, primarily driven by investments in new business process management service capabilities.”

Howard further commented, “As we continue to shift our business mix to reflect a more balanced combination of consulting, business process management services and technology solutions, we anticipate there may be margin compression. Our focus for this year is to invest in our long-term strategy, while managing our bottom line performance by closely aligning resources with revenue potential.”

Segment Financial Summary

For the quarter ended

March 31,

2015

2014

Change

RBR ($000)
Disputes, Investigations & Economics $ 76,593 $ 76,032 0.7%
Financial, Risk & Compliance 34,943 31,411 11.2%
Healthcare 63,994 44,735 43.1%
Energy 25,626 22,878 12.0%
Total Company $ 201,156 $ 175,056 14.9%
Total Revenues ($000)
Disputes, Investigations & Economics $ 81,211 $ 82,084 -1.1%
Financial, Risk & Compliance 42,300 37,998 11.3%
Healthcare 69,329 50,366 37.7%
Energy 30,331 27,300 11.1%
Total Company $ 223,171 $ 197,748 12.9%
Segment Operating Profit ($000)
Disputes, Investigations & Economics $ 24,269 $ 24,718 -1.8%
Financial, Risk & Compliance 15,070 13,468 11.9%
Healthcare 18,256 14,029 30.1%
Energy 7,922 6,487 22.1%
Total Company $ 65,517 $ 58,702 11.6%
Segment Operating Margin (% of RBR)
Disputes, Investigations & Economics 31.7% 32.5%
Financial, Risk & Compliance 43.1% 42.9%
Healthcare 28.5% 31.4%
Energy 30.9% 28.4%
Total Company 32.6% 33.5%

RBR for the Healthcare segment increased 43% year-over-year for first quarter 2015 with 4% organic RBR growth for the period. RBR growth was driven primarily by business process management services. Navigant’s Life Sciences practice also contributed to a strong quarter, reflecting an increase in demand from clients to support their product commercialization efforts. Segment operating profit margin was 29% versus 31% in the same period last year, mainly due to lower margins generated by business process management services. As this business matures, the Company believes that the margin contribution will improve over time.

The Financial, Risk & Compliance segment RBR for first quarter 2015 increased 11%, all on an organic basis, compared to the prior year quarter. Growth was driven primarily by the ongoing strong demand for new compliance and control engagements for major financial institutions. The growth in RBR led to a 12% increase in first quarter 2015 segment operating profit year-over-year.

The Energy segment RBR for first quarter 2015 increased 12% compared to first quarter 2014, and increased 13% on an organic basis. The growth was driven by demand from both the public and private sector, as well as increased client penetration from the segment’s key client accounts program. First quarter 2015 segment operating profit increased 22% year-over-year.

The Disputes, Investigations & Economics segment RBR for first quarter 2015 increased 1% year-over-year, nearly all on an organic basis. The increase was driven primarily by increased demand for our global construction expertise and the segment’s legal technology solutions, partially offset by a lower contribution from economic consulting engagements. Segment operating profit decreased 2% in first quarter 2015 compared to the same period of 2014.

Cash Flow

Free cash flow was $11.8 million for first quarter 2015 compared to $18.5 million for the same period in 2014, reflecting increased capital investment spending. Days Sales Outstanding (DSO) was 80 days as of March 31, 2015, up 2 days compared to March 31, 2014.

Bank debt was $178.7 million at March 31, 2015 compared to $120.8 million at March 31, 2014. Leverage (bank debt divided by trailing twelve month adjusted EBITDA) was 1.46 at March 31, 2015 compared to 1.03 at March 31, 2014. The increase in the 2015 first quarter debt levels was mainly due to additional borrowings to fund the Cymetrix acquisition in May 2014 and, to a lesser extent, the RevenueMed acquisition in February 2015.

Navigant repurchased 426,800 shares of common stock during first quarter 2015 at an aggregate cost of $6.1 million and an average cost of $14.33 per share. As of March 31, 2015, $66.6 million remained available under the Company’s share repurchase authorization, which is set to expire on December 31, 2015.

2015 Outlook

Navigant reiterated its 2015 financial outlook. As previously disclosed, full year 2015 RBR is expected to range between $815 and $845 million while 2015 total revenues are estimated to be between $900 and $930 million. Adjusted EBITDA for full year 2015 is expected to range between $115 and $125 million and adjusted EPS for full year 2015 is estimated to be between $0.90 and $1.00.

Non-GAAP Financial Information and Key Operating Metrics

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.

As used in this press release, organic growth represents RBR adjusted to include the impact of acquisitions as if the Company owned them from the beginning of each comparable period and adjusted to exclude the impact of foreign currency exchange rate fluctuations. Our definition of organic growth may not be comparable to similarly titled metrics at other companies. 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.

Conference Call Details

Navigant will host a conference call to discuss the Company’s first quarter 2015 results at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on Tuesday, April 28, 2015. The conference call may be accessed via the Navigant website (www.navigant.com/investor_relations) 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 (NYSE:NCI) is a specialized, global professional services firm dedicated to assisting clients in creating and protecting value in the face of critical business risks and opportunities. Through senior level engagement with clients, Navigant professionals deliver expert and advisory work through implementation and business process management services. The firm combines deep technical expertise in Disputes and Investigations, Economics, Financial Advisory and Management Consulting, with business pragmatism to address clients’ needs in highly regulated industries, including Construction, Energy, Financial Services and Healthcare. 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 success of the Company’s organizational changes 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; management of professional staff, including dependence on key personnel, recruiting, 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; clients’ financial condition and their ability to make payments to the Company; risks inherent with litigation; higher risk client assignments; professional liability; potential legislative and regulatory changes; continued access to capital; and market and general economic conditions. Further information on these and other potential factors that could affect the Company’s financial results are included under the “Risk Factors” section and elsewhere in the Company’s filings with the Securities and Exchange Commission (SEC), which are available on the SEC’s website or at www.navigant.com/investor_relations. 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,
2015 2014
Revenues:
Revenues before reimbursements $ 201,156 $ 175,056
Reimbursements 22,015 22,692
Total revenues 223,171 197,748
Costs of services:
Cost of services before reimbursable expenses 138,601 120,128
Reimbursable expenses 22,015 22,692
Total costs of services 160,616 142,820
General and administrative expenses 35,665 33,102
Depreciation expense 5,355 4,309
Amortization expense 2,269 1,362
Other operating costs (benefit):
Contingent acquisition liability adjustments, net (14,933 ) (1,160 )
Office consolidation, net 936
Operating income 33,263 17,315
Interest expense 1,732 838
Interest income (55 ) (89 )
Other (income) expense, net (328 ) 82
Income from continuing operations before income tax expense 31,914 16,484
Income tax expense 6,771 6,114
Net income from continuing operations 25,143 10,370
Income from discontinued operations, net of tax 509
Net income $ 25,143 $ 10,879
Basic per share data
Net income from continuing operations $ 0.52 $ 0.21
Income from discontinued operations, net of tax $ $ 0.01
Net income (1) $ 0.52 $ 0.22
Shares used in computing basic per share data 48,123 48,906
Diluted per share data
Net income from continuing operations $ 0.51 $ 0.21
Income from discontinued operations, net of tax $ $ 0.01
Net income (1) $ 0.51 $ 0.22
Shares used in computing diluted per share data 49,413 50,477
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS AND SELECTED DATA
(In thousands, except DSO data)
March 31, December 31,
2015 2014
(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 1,988 $ 2,648
Accounts receivable, net 211,879 187,652
Prepaid expenses and other current assets 34,655 27,142
Deferred income tax assets 11,601 13,455
Total current assets 260,123 230,897
Non-current assets:
Property and equipment, net 71,785 60,617
Intangible assets, net 31,198 26,502
Goodwill 579,331 568,091
Other assets 14,455 17,386
Total assets $ 956,892 $ 903,493
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable $ 12,864 $ 11,735
Accrued liabilities 17,236 11,311
Accrued compensation-related costs 43,203 83,061
Income tax payable 4,047 1,763
Other current liabilities 40,127 52,526
Total current liabilities 117,477 160,396
Non-current liabilities:
Deferred income tax liabilities 77,736 76,329
Other non-current liabilities 18,446 14,387
Bank debt non-current 178,734 109,790
Total non-current liabilities 274,916 200,506
Total liabilities 392,393 360,902
Stockholders’ equity:
Common stock 64 64
Additional paid-in capital 617,985 611,882
Treasury stock (281,725 ) (275,608 )
Retained earnings 243,480 218,337
Accumulated other comprehensive loss (15,305 ) (12,084 )
Total stockholders’ equity 564,499 542,591
Total liabilities and stockholders’ equity $ 956,892 $ 903,493

Selected Data

Days sales outstanding, net (DSO) 80 69
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
For the quarter ended
March 31,
2015 2014
Cash flows from operating activities:
Net income $ 25,143 $ 10,879
Adjustments to reconcile net income to net cash
used in operating activities:
Depreciation expense 5,355 4,309
Amortization expense 2,269 1,362
Amortization expense – client-facing software 253 64
Share-based compensation expense 2,104 2,714
Accretion of interest expense 863 164
Deferred income taxes 3,613 7,243
Allowance for doubtful accounts receivable 190 880
Contingent acquisition liability adjustments, net (14,933 ) (1,160 )
Gain on disposition of discontinued operations (509 )
Changes in assets and liabilities (net of acquisitions and dispositions):
Accounts receivable (24,434 ) (20,350 )
Prepaid expenses and other assets (2,770 ) (2,723 )
Accounts payable 1,105 (2,451 )
Accrued liabilities 3,967 (1,223 )
Accrued compensation-related costs (39,639 ) (41,322 )
Income taxes payable 836 (1,076 )
Other liabilities 2,124 (4,509 )
Net cash used in operating activities (33,954 ) (47,708 )
Cash flows from investing activities:
Purchases of property and equipment (12,913 ) (6,492 )
Acquisitions of businesses, net of cash acquired (21,379 ) (1,500 )
Proceeds from dispositions, net of selling costs 824
Capitalized client-facing software (37 ) (828 )
Net cash used in investing activities (34,329 ) (7,996 )
Cash flows from financing activities:
Issuances of common stock 4,258 1,019
Repurchase of common stock (6,117 ) (7,391 )
Payments of contingent acquisition liabilities (107 )
Repayments to banks (71,584 ) (68,398 )
Borrowings from banks 141,394 132,354
Other, net (211 ) (1,009 )
Net cash provided by financing activities 67,740 56,468
Effect of exchange rate changes on cash and cash equivalents (117 ) 6
Net increase (decrease) in cash and cash equivalents (660 ) 770
Cash and cash equivalents at beginning of the period 2,648 1,968
Cash and cash equivalents at end of the period $ 1,988 $ 2,738
NAVIGANT CONSULTING, INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (2)
(In thousands, except per share data)
(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

adjusted Earnings Per Share (3)

March 31,
2015 2014
Severance expense $ 1,503 $ 505
Income tax benefit (4) (520 ) (199 )
Tax-effected impact of severance expense $ 983 $ 306
Other operating benefit – contingent acquisition liability adjustment, net $ (14,933 ) $ (1,160 )
Income tax (benefit) expense (4)(5) (183 ) 468
Tax-effected impact of other operating benefit – contingent acquisition liability adjustment, net $ (15,116 ) $ (692 )
Other operating costs – office consolidation $ 936 $
Income tax benefit (4) (379 )
Tax-effected impact of other operating costs – office consolidation $ 557 $
EBITDA reconciliation:
Operating income $ 33,263 $ 17,315
Depreciation expense 5,355 4,309
Amortization expense 2,269 1,362
EBITDA $ 40,887 $ 22,986
Severance expense 1,503 505
Other operating benefit – contingent acquisition liability adjustment, net (14,933 ) (1,160 )
Other operating costs – office consolidation 936
Adjusted EBITDA $ 28,393 $ 22,331
Net income from continuing operations $ 25,143 $ 10,370
Tax-effected impact of severance expense 983 306
Tax-effected impact of other operating benefit – contingent acquisition liability adjustment, net (15,116 ) (692 )
Tax-effected impact of other operating costs – office consolidation 557
Adjusted net income $ 11,567 $ 9,984
Shares used in computing adjusted per diluted share data 49,413 50,477
Adjusted earnings per share $ 0.23 $ 0.20
For the quarter ended

Free Cash Flow (6)

March 31,
2015 2014
Net cash used in operating activities $ (33,954 ) $ (47,708 )
Changes in assets and liabilities 58,811 73,654
Allowance for doubtful accounts receivable (190 ) (880 )
Purchases of property and equipment (12,913 ) (6,492 )
Payments of contingent acquisition liabilities (107 )
Free Cash Flow $ 11,754 $ 18,467
At

Leverage Ratio (7)

March 31,
2015 2014
Adjusted EBITDA for prior twelve-month period $ 122,285 $ 117,454
Bank debt $ 178,734 $ 120,835
Leverage ratio 1.46 1.03
Footnotes
(1) Per share data may not sum due to rounding.
(2) All non-GAAP financial measures are presented on a continuing operations basis unless otherwise noted.
(3) EBITDA is earnings from continuing operations 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 the net income (loss) and per share net income (loss) impact of discontinued operations, 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.
(4) Effective income tax expense (benefit) has been determined based on specific tax jurisdiction.
(5) A portion of the deferred contingent acquisition liability adjustment for the quarter ended March 31, 2015 was non-taxable in nature.
(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.

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