Navigant Reports Third Quarter 2016 Financial Results

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.