SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 OR 15(d)
of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): November 6, 2015
FTI CONSULTING, INC.
(Exact Name of Registrant as Specified in Charter)
| Maryland | 001-14875 | 52-1261113 | ||
| (State or other jurisdiction of incorporation) |
(Commission File Number) |
(IRS Employer Identification No.) |
1101 K Street NW, Washington, D.C. 20005
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (202) 312-9100
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
| Item 7.01. | Regulation FD Disclosure. |
FTI Consulting, Inc. (“FTI Consulting”) uses a presentation from time to time in its discussions with investors (the “Presentation”). The Presentation includes FTI Consulting’s past and present financial results, operating data and other information. A copy of the Presentation is furnished as Exhibit 99.1 and has been posted to the FTI Consulting website at www.fticonsulting.com.
The Presentation includes information regarding Segment Operating Income (Loss), Total Segment Operating Income (Loss), Adjusted EBITDA, Adjusted Segment EBITDA, Total Adjusted Segment EBITDA, Adjusted EBITDA Margin, Adjusted Segment EBITDA Margin, Adjusted Net Income and Adjusted Earnings per Share (“Adjusted EPS”).
FTI Consulting defines “Segment Operating Income (Loss)” as a segment’s share of consolidated operating income (loss). FTI Consulting defines “Total Segment Operating Income (Loss)” as the total of Segment Operating Income (Loss) for all segments, which excludes unallocated corporate expenses. FTI Consulting uses Segment Operating Income (Loss) for the purpose of calculating Adjusted Segment EBITDA. FTI Consulting defines “Adjusted EBITDA” as consolidated net income (loss) before income tax provision, other non-operating income (expense), depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt, “Adjusted Segment EBITDA” as a segment’s share of consolidated operating income (loss) before depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges, and “Total Adjusted Segment EBITDA” as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. FTI Consulting defines “Adjusted EBITDA Margin” as Adjusted EBITDA as a percentage of total revenues, and “Adjusted Segment EBITDA Margin” as Adjusted Segment EBITDA as a percentage of a segment’s share of revenue. Although Adjusted EBITDA, Adjusted Segment EBITDA, Total Adjusted Segment EBITDA, Adjusted EBITDA Margin and Adjusted Segment EBITDA Margin are not measures of financial condition or performance determined in accordance with U.S. generally accepted accounting principles (“GAAP”), FTI Consulting believes that they can be useful supplemental operating performance measures. FTI Consulting uses Adjusted Segment EBITDA to internally evaluate the financial performance of each of its segments because it believes it is a useful supplemental measure which reflects current core operating performance and provides an indicator of the segment’s ability to generate cash. FTI Consulting also believes that these non-GAAP measures, when considered together with GAAP financial results, provide management and investors with a more complete understanding of FTI Consulting’s operating results, including underlying trends, by excluding the effects of remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges. In addition, EBITDA is a common alternative measure of operating performance used by many of FTI Consulting’s competitors. It is used by investors, financial analysts, rating agencies and others to value and compare the financial performance of companies in FTI Consulting’s industry. Therefore, FTI Consulting also believes that these measures, considered along with corresponding GAAP measures, provide management and investors with additional information for comparison of its operating results to the operating results of other companies.
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FTI Consulting defines “Adjusted Net Income” and “Adjusted EPS” as net income (loss) and earnings per diluted share, respectively, excluding the impact of remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt. FTI Consulting uses Adjusted Net Income for the purpose of calculating Adjusted EPS and uses Adjusted EPS to assess total FTI Consulting operating performance on a consistent basis. FTI Consulting believes that this non-GAAP measure, when considered together with its GAAP financial results, provides management and investors with a more complete understanding of its business operating results, including underlying trends, by excluding the effects of remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt.
Non-GAAP financial measures are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, the information contained in FTI Consulting’s Consolidated Statements of Comprehensive Income. Reconciliations of GAAP to non-GAAP financial measures are included in the Presentation.
The Presentation contains forward-looking statements within the meaning of the federal securities laws. These forward-looking statements are necessarily based on certain assumptions as of the date such forward-looking statements were made and are subject to significant risks and uncertainties. FTI Consulting does not undertake any responsibility for the adequacy, accuracy or completeness, or to update, any of these statements in the future. Actual future performance and results could differ from that contained in or suggested by the forward-looking statements.
The information included herein, including Exhibit 99.1 furnished herewith, shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), or otherwise subject to the liabilities of that section, nor shall it be incorporated by reference into any filing pursuant to the Securities Act of 1933, as amended, or the Exchange Act, regardless of any incorporation by reference language in any such filing, except as expressly set forth by specific reference in such filing.
| ITEM 9.01. | Financial Statements and Exhibits |
(d) Exhibits.
| 99.1 | November 2015 Investor Presentation of FTI Consulting, Inc. | |
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, FTI Consulting, Inc. has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| FTI CONSULTING, INC. | ||||||
| Dated: November 6, 2015 | By: | /S/ CURTIS LU | ||||
| Curtis Lu General Counsel | ||||||
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EXHIBIT INDEX
| Exhibit No. |
Description | |
| 99.1 | November 2015 Presentation of FTI Consulting, Inc. | |
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| Exhibit 99.1
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FTI Consulting, Inc.
Current Investor Presentation
November 2015
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Cautionary Note About Forward-Looking Statements
This presentation includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which involve uncertainties and risks. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues, future results and performance, expectations, plans or intentions relating to acquisitions and other matters, business trends and other information that is not historical, including statements regarding estimates of our medium-term growth targets or other future financial results. When used in this press release, words such as “anticipates,” “aspirational,” “estimates,” “expects,” “goals,” “intends,” “believes,” “forecasts,” “targets,” “objectives” and variations of such words or similar expressions are intended to identify forward looking statements. All forward looking statements, including, without limitation, estimates of our medium-term growth targets and our future financial results, are based upon our expectations at the time we make them and various assumptions. Our expectations, beliefs, projections and growth targets are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management’s expectations, beliefs, estimates or growth targets will be achieved, and the Company’s actual results may differ materially from our expectations, beliefs, estimates and growth targets. The Company has experienced fluctuating revenues, operating income and cash flow in prior periods and expects that this will occur from time to time in the future. Other factors that could cause such differences include declines in demand for, or changes in, the mix of services and products that we offer, the mix of the geographic locations where our clients are located or where services are performed, adverse financial, real estate or other market and general economic conditions, which could impact each of our segments differently, the pace and timing of the consummation and integration of past and future acquisitions, the Company’s ability to realize cost savings and efficiencies, competitive and general economic conditions, retention of staff and clients and other risks described under the heading “Item 1A Risk Factors” in the Company’s most recent Form 10-K filed with the SEC and in the Company’s other filings with the SEC, including the risks set forth under “Risks Related to Our Reportable Segments” and “Risks Related to Our Operations.” We are under no duty to update any of the forward looking statements to conform such statements to actual results or events and do not intend to do so.
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FTI Consulting: A Leader Among Leaders
FCN $1.7BLN 1982 4,700+
Publicly traded Equity market capitalization(1) Year founded Total employees worldwide
440+ 80 9 2 Nobel
Senior Managing Directors Offices in 80 cities around 9 specialized industry Laureates
the globe practice groups
10/10 94/100 47/100
Advisor to the world’s top Advisor to 94 of the world’s 47 of Global 100
10 bank holding top 100 law firms corporations are clients
companies
(1)Total Shares outstanding times the closing share price as of December 31, 2014.
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Overview
FTI Consulting is a leading professional services company with strong people and strong positions –corporations and law firms come to FTI Consulting when there is a critical need
New management team (CEO, CFO, CHRO, Chief Strategy, General Counsel) over past 23 months focused on analysis, accountability and discipline
Shifting from a capital driven to an organic growth strategy – with an emphasis on profitable revenue growth
Committed to building a profitable business with sustainable underlying growth, regardless of economic conditions
Willingness to invest EBITDA in key growth areas where we have strong people and strong positions
Believe we are on a path towards double-digit year-over-year Adjusted EPS growth
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Balanced and Diversified Portfolio
Corporate Finance & Restructuring
Bankruptcy Support Services Performance Improvement
Interim Management Services Private Equity Advisory
Investment Banking Restructuring/Turnaround Services
Litigation Support Transaction Advisory Services
Business Transformation Services Valuation & Financial Advisory Services
Forensic and Litigation Consulting
Business Insurance Claims Services
Compliance, Monitoring & Receivership Global Risk & Investigations Practice
Construction & Environmental Solutions Government Contracts
Dispute Advisory Services Health Solutions
Financial Enterprise & Data Analytics Insurance
Financial Services Intellectual Property
Forensic Accounting & Advisory Trial Services
Economic Consulting
Antitrust & Competition Economics Labor & Employment
Business Valuation Public Policy
Center for Healthcare Economics & Regulated Industries
Policy Securities Litigation & Risk
Intellectual Property Management
International Arbitration
Technology
Computer Forensics & Investigations Discovery Consulting
E-discovery Software & Services
Strategic Communications
Corporate Communications Litigation Communications
Creative Engagement & Digital M&A Communications
Communications Public Affairs
Crisis Communications Restructuring & Financial Issues
Employee Engagement & Change Shareholder Activism & Proxy Advisory
Communications
Strategy Consulting & Research
Financial Communications
Q3 2015 Segment Revenues
12%
25%
12%
25% 26%
Q3 2015 Segment EBITDA
11%
14% 35%
22%
18%
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Corporate Finance & Restructuring
Services
Bankruptcy Support Services Interim Management Services Investment Banking Litigation Support Business Transformation Services Performance Improvement Private Equity Advisory Restructuring/Turnaround Services
Transaction Advisory Services
Valuation & Financial Advisory Services
Clients
Corporations/C-Suite Boards of Directors Equity Sponsors Secured Lenders Unsecured Creditors
2010 2011 2012 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2014 Q1 2015 Q2 2015 Q3 2015
Segment Revenue $396,216 $364,409 $394,718 $382,586 $93,982 $104,020 $100,041 $93,072 $391,115 $106,212 $109,133 $113,487
Segment Gross Profit
Margin 41.8% 37.4% 39.5% 35.9% 31.9% 35.1% 33.8% 29.3% 32.6% 39.8% 37.6% 39.5%
Segment SG&A $59,629 $60,499 $61,027 $71,966 $19,786 $18,191 $19,047 $18,358 $75,382 $20,528 $19,695 $18,852
Adjusted Segment
EBITDA1 $108,152 $75,942 $95,916 $67,183 $10,951 $19,133 $15,534 $9,874 $55,492 $22,480 $22,032 $26,662
Adjusted Segment
EBITDA Margin1 27.3% 20.8% 24.3% 17.6% 11.7% 18.4% 15.5% 10.6% 14.2% 21.2% 20.2% 23.5%
Segment Billable
Headcount 620 587 697 737 726 713 722 706 706 735 775 830
(in thousands, except percentages and headcount data) (unaudited)
1 See accompanying financial tables and “End Notes: FTI Consulting Non-GAAP Data Reconciliations” for the definition and reconciliations of Adjusted
Segment EBITDA, which is a non-GAAP financial measure, to the most directly comparable GAAP measure, and the definition of Adjusted Segment
EBITDA Margin.
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Corporate Finance & Restructuring (continued)
Segment Offering
The Corporate Finance & Restructuring segment focuses on strategic, operational, financial and capital needs of businesses by addressing the full spectrum of financial and transactional challenges faced by companies, boards, private equity sponsors, creditor constituencies and other stakeholders.
Medium–Term Initiatives
Reinforce core positions e.g., TMT, retail, company-side, interim management, creditor rights
Drive organic growth in new/adjacent businesses where we have the right to win, e.g., Office of the CFO, carve out
Drive overseas bets to fruition e.g., EMEA transaction advisory services, EMEA Tax
Focus on profitability enhancements e.g., geographic rationalization, cost control, engagement profitability improvements
Q3 2015 Form 10–Q Management’s Discussion & Analysis
Revenues increased $13.4 million, or 13.4%, to $113.5 million for the three months ended September 30, 2015 compared to $100.0 million for the same prior year period, which included a 4.3% estimated negative impact from foreign currency translation.
?Excluding the foreign currency translation impact, the revenue increase of 17.8% was largely due to higher demand for the segment’s distressed service offerings in North America.
?Improvements in the North America non-distressed services were offset by lower restructuring activity in our Asia Pacific bankruptcy and restructuring practice.
Gross profit increased $11.1 million, or 32.8%, to $44.8 million for the three months ended September 30, 2015 compared to $33.8 million for the same prior year period. Gross profit margin increased 5.7 percentage points to 39.5% for the three months ended September 30, 2015 compared to 33.8% for the same prior year period.
?The increase in gross profit margin was due to higher demand for the segment’s distressed service offerings, which lead to improved staff leverage and utilization in the North America practice.
Adjusted Segment EBITDA increased $11.1 million, or 71.6%, to $26.7 million for the three months ended September 30, 2015 compared to $15.5 million for the same prior year period.
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Forensic and Litigation Consulting
Services
Business Insurance Claims
Compliance, Monitoring & Receivership Construction & Environmental Solutions Dispute Advisory Services Financial Enterprise & Data Analytics (“FEDA”) Financial Services
Forensic Accounting & Advisory Services (“FAAS”)
Global Risk & Investigations Practice (“GRIP”)
Government Contracts
Health Solutions Insurance Intellectual Property Trial Services
Clients
Corporations Boards of Directors Governments Law Firms
2010 2011 2012 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2014 Q1 2015 Q2 2015 Q3 2015
Segment Revenue $379,780 $428,730 $407,586 $433,632 $121,429 $119,081 $121,732 $121,138 $483,380 $123,265 $126,131 $116,158
Segment Gross Profit
Margin 37.5% 36.5% 33.8% 35.9% 39.2% 36.7% 35.0% 35.4% 36.6% 36.3% 35.2% 30.0%
Segment SG&A $69,712 $78,745 $80,842 $84,616 $22,121 $22,481 $21,409 $24,696 $90,707 $23,634 $25,347 $22,349
Adjusted Segment
EBITDA1 $76,402 $80,923 $60,566 $74,481 $26,494 $22,271 $22,260 $19,443 $90,468 $22,071 $19,979 $13,406
Adjusted Segment
EBITDA Margin1 20.1% 18.9% 14.9% 17.2% 21.8% 18.7% 18.3% 16.1% 18.7% 17.9% 15.8% 11.5%
Segment Billable
Headcount 911 957 952 1,061 1,076 1,059 1,135 1,154 1,154 1,145 1,169 1,209
(in thousands, except percentages and headcount data) (unaudited)
1 See accompanying financial tables and “End Notes: FTI Consulting Non-GAAP Data Reconciliations” for the definition and reconciliations of Adjusted
Segment EBITDA, which is a non-GAAP financial measure, to the most directly comparable GAAP measure, and the definition of Adjusted Segment
EBITDA Margin.
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Forensic and Litigation Consulting (continued)
Segment Offering
The Forensic and Litigation Consulting segment provides a complete range of multidisciplinary, independent dispute advisory, investigative, data acquisition/analysis and forensic accounting services. Our professionals combine end-to-end capabilities when clients face high stakes litigation, arbitration and compliance investigations and regulatory scrutiny.
Medium–Term Initiatives
Reinvest behind core areas of strength e.g., FAAS, FEDA
Grow key regions where we have a right to win in e.g., with a focus in construction & environmental solutions
Invest behind people to expand key businesses e.g., insurance, cyber security
Q3 2015 Form 10–Q Management’s Discussion & Analysis
Revenues decreased $5.6 million, or 4.6%, to $116.2 million for the three months ended September 30, 2015 compared to $121.7 million for the same prior year period, which included a 2.3% estimated negative impact from foreign currency translation.
?Excluding the estimated impact of foreign currency translation, revenue decreased $2.8 million, or 2.3%, driven by decreased demand in our global disputes and investigations practices, partially offset by increased demand in our North America data analytics practice and higher success fees in our health solutions practice.
Gross profit decreased $7.8 million, or 18.3%, to $34.8 million for the three months ended September 30, 2015 compared to $42.7 million for the same prior year period. Gross profit margin decreased five percentage points to 30.0% for the three months ended September 30, 2015 compared to 35.0% for the same prior year period.
?The decrease in gross profit margin is related to lower demand in the segment’s disputes and investigations practices, as well as additional hiring in certain core practices, partially offset by the increase in success fees.
Adjusted Segment EBITDA decreased $8.9 million, or 39.8%, to $13.4 million for the three months ended September 30, 2015 compared to $22.3 million for the same prior year period.
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Economic Consulting
Services
Antitrust & Competition Economics Business Valuation Center for Healthcare Economics & Policy Intellectual Property International Arbitration Labor & Employment Public Policy
Regulated Industries
Securities Litigation & Risk Management
Clients
Corporations Government Entities Law Firms
2010 2011 2012 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2014 Q1 2015 Q2 2015 Q3 2015
Segment Revenue $255,660 $ 353,981 $391,622 $447,366 $106,851 $117,227 $120,494 $106,468 $451,040 $106,081 $108,698 $114,541
Segment Gross Profit
Margin 33.2% 31.4% 32.3% 32.9% 27.0% 27.6% 27.6% 25.5% 27.0% 24.6% 26.9% 27.4%
Segment SG&A $37,879 $46,802 $51,912 $58,282 $16,880 $15,242 $ 15,683 $18,354 $66,159 $15,501 $14,858 $15,538
Adjusted Segment
EBITDA1 $49,481 $67,028 $77,461 $92,204 $13,030 $18,043 $18,426 $9,783 $59,282 $11,556 $15,292 $16,654
Adjusted Segment
EBITDA Margin1 19.4% 18.9% 19.8% 20.6% 12.2% 15.4% 15.3% 9.2% 13.1% 10.9% 14.1% 14.5%
Segment Billable
Headcount 297 433 474 530 538 525 551 574 574 566 554 594
(in thousands, except percentages and headcount data) (unaudited)
1 See accompanying financial tables and “End Notes: FTI Consulting Non-GAAP Data Reconciliations” for the definition and reconciliations of Adjusted
Segment EBITDA, which is a non-GAAP financial measure, to the most directly comparable GAAP measure, and the definition of Adjusted Segment
EBITDA Margin.
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Economic Consulting (continued)
Segment Offering
The Economic Consulting segment provides analysis of complex economic issues. We help our clients with legal, regulatory and international arbitration proceedings; strategic decision making; and public policy debates in the U.S. and around the world. We deliver sophisticated economic analysis and modeling of issues arising in M&A transactions, complex antitrust litigation, commercial disputes, international arbitration, regulatory proceedings and a wide range of securities litigation. Our statistical and economic experts help clients analyze complex economic issues, such as the economic impact of deregulation on a particular industry or the amount of damages suffered by a business as a result of particular events.
Medium–Term Initiatives
Continue driving Compass Lexecon
Expand international arbitration, energy and Center for Healthcare Economics and Policy offerings
Continue to expand cross-segment collaboration
Q3 2015 Form 10–Q Management’s Discussion & Analysis
Revenues decreased $6.0 million, or 4.9%, to $114.5 million for the three months ended September 30, 2015 compared to $120.5 million for the same prior year period, which included a 2.2% estimated negative impact of foreign currency translation.
?Revenues increased $1.7 million, or 1.4%, due to acquisitions as compared to the same prior year period.
?Excluding the foreign currency and acquisition related impacts, organic revenue declined $5.0 million, or 4.2%, primarily due to decreased demand in our non-M&A related antitrust and financial economics services, partially offset by higher demand for our international arbitration and M&A related services.
Gross profit decreased $1.9 million, or 5.6%, to $31.4 million for the three months ended September 30, 2015 compared to $33.2 million for the same prior year period. Gross profit margin decreased 0.2 percentage points to 27.4% for the three months ended September 30, 2015 compared to 27.6% for the same prior year period.
?The decrease in gross profit margin was impacted by lower utilization in our EMEA international arbitration, regulatory and valuation practice
?Lower utilization in the antitrust and financial economics practices were offset by lower variable compensation.
Adjusted Segment EBITDA decreased $1.8 million, or 9.6%, to $16.7 million for the three months ended September 30, 2015 compared to $18.4 million for the same prior year period.
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Technology
Software & Services
Computer Forensics & Investigations Discovery Consulting E-discovery Software & Services
Clients
Corporations
Government Agencies
Law Firms
2010 2011 2012 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2014 Q1 2015 Q2 2015 Q3 2015
Segment Revenue $176,607 $218,738 $195,194 $202,663 $60,063 $60,720 $62,359 $58,168 $241,310 $54,654 $61,826 $55,568
Segment Gross Profit
Margin 62.7% 60.0% 54.9% 52.2% 48.9% 45.7% 49.7% 47.8% 48.0% 44.7% 43.6% 43.9%
Segment SG&A $ 59,721 $65,322 $62,436 $59,890 $16,079 $16,648 $17,017 $18,418 $68,162 $18,026 $18,297 $17,386
Adjusted Segment
EBITDA1 $64,358 $77,011 $57,203 $60,655 $17,348 $15,104 $17,835 $13,258 $63,545 $10,073 $12,166 $10,813
Adjusted Segment
EBITDA Margin1 36.4% 35.2% 29.3% 29.9% 28.9% 24.9% 28.6% 22.8% 26.3% 18.4% 19.7% 19.5%
Segment Billable
Headcount 257 290 277 306 321 328 335 344 344 360 364 354
(in thousands, except percentages and headcount data) (unaudited)
1 See accompanying financial tables and “End Notes: FTI Consulting Non-GAAP Data Reconciliations” for the definition and reconciliations of Adjusted
Segment EBITDA, which is a non-GAAP financial measure, to the most directly comparable GAAP measure, and the definition of Adjusted Segment
EBITDA Margin.
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Technology (continued)
Segment Offering
The Technology segment is a leading provider of software, services and consulting for e-discovery and information management. We assist clients with internal, regulatory and global investigations, early case assessment, litigation and joint defense, antitrust and competition investigations, including pre-merger notification “Second Request”, and the secure management, analysis and use of critical corporate information. We provide a comprehensive suite of software and services to help clients locate, review and produce electronically stored information (“ESI”) including e-mail, computer files, voicemail, instant messaging and financial and transactional data. Our proprietary Ringtail® software and Acuity® managed review are used for e-discovery and document review in litigation and secure information management.
Medium–Term Initiatives
Increased investment in sales and marketing
Ongoing investment in new products and services and geographic expansion to stay leading edge with respect to the most complicated, major corporate events
Q3 2015 Form 10–Q Management’s Discussion & Analysis
Revenues decreased $6.8 million, or 10.9%, to $55.6 million for the three months ended September 30, 2015 compared to $62.4 million for the same prior year period, which included a 1.5% estimated negative impact of foreign currency translation.
?Excluding the estimated impact of foreign currency translation, revenues decreased $5.9 million, or 9.4%, due to a decline in consulting and a decline in other services related to financial services and cross-border investigations and reduced licensing revenues, partially offset by higher M&A related second request work.
Gross profit decreased $6.6 million, or 21.2%, to $24.4 million for the three months ended September 30, 2015 compared to $31.0 million for the same prior year period. Gross profit margin decreased 5.8 percentage points to 43.9% for the three months ended September 30, 2015 compared to 49.7% for the same prior year period.
?The decrease in gross profit margin was due to lower utilization and realized pricing related to client mix and reduced licensing fees.
Adjusted Segment EBITDA decreased $7.0 million, or 39.4%, to $10.8 million for the three months ended September 30, 2015 compared to $17.8 million for the same prior year period.
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Strategic Communications
Services
Corporate Communications
Creative Engagement & Digital Communications Crisis Communications Employee Engagement & Change Communications Financial Communications Litigation Communications M&A Communications Public Affairs Restructuring & Financial Issues
Shareholder Activism & Proxy Advisory
Strategy Consulting & Research
Clients
CEOs
CFOs
Chief Communications Officers Investor Relations Officers Boards of Directors
2010 2011 2012 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 2014 Q1 2015 Q2 2015 Q3 2015
Segment Revenue $193,198 $200,910 $187,750 $186,245 $43,227 $53,276 $46,552 $46,312 $189,367 $42,126 $43,369 $55,716
Segment Gross Profit
Margin 37.4% 37.2% 36.9% 34.7% 35.6% 34.5% 37.1% 39.7% 36.7% 37.4% 36.9% 33.0%
Segment SG&A $46,469 $50,919 $46,852 $47,874 $13,128 $13,084 $11,154 $11,524 $48,890 $10,444 $10,747 $10,058
Adjusted Segment
EBITDA1 $28,971 $26,801 $25,019 $18,737 $2,729 $5,834 $ 6,605 $7,420 $22,588 $5,752 $5,631 $8,717
Adjusted Segment
EBITDA Margin1 15.0% 13.3% 13.3% 10.1% 6.3% 10.9% 14.2% 16.0% 11.9% 13.7% 13.0% 15.6%
Segment Billable
Headcount 583 582 593 590 584 566 549 566 566 556 551 594
(in thousands, except percentages and headcount data) (unaudited)
1 See accompanying financial tables and “End Notes: FTI Consulting Non-GAAP Data Reconciliations” for the definition and reconciliations of Adjusted
Segment EBITDA, which is a non-GAAP financial measure, to the most directly comparable GAAP measure, and the definition of Adjusted Segment
EBITDA Margin.
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Strategic Communications (continued)
Segment Offering
The Strategic Communications segment provides advice and consulting services relating to financial and corporate communications and investor relations, reputation management and brand communications, public affairs, business consulting and digital design and marketing.
Medium–Term Initiatives
Reinforce financial and corporate communications positions Continued expansion of public affairs practice Focus on EBIT improvement
Q3 2015 Form 10–Q Management’s Discussion & Analysis
Revenues increased $9.2 million, or 19.7%, to $55.7 million for the three months ended September 30, 2015 compared to $46.6 million for the same prior year period, which included a 7.0% estimated negative impact of foreign currency translation.
?Excluding the estimated impact of foreign currency translation, revenues increased $12.4 million, or 26.7%, largely due to an increase in pass-through income of $9.3 million, with the remaining increase coming from higher M&A and public affairs project-based revenues in our EMEA and North America regions.
Gross profit increased $1.1 million, or 6.5%, to $18.4 million for the three months ended September 30, 2015 compared to $17.3 million for the same prior year period. Gross profit margin decreased 4.1 percentage points to 33.0% for the three months ended September 30, 2015 compared to 37.1% for the same prior year period.
?Gross profit margin, excluding the impact of low margin pass-through income, was 41.9% for the three months ended September 30, 2015 compared to 39.6 % for the same prior year period.
?The increase in gross profit margin, excluding pass-through income, was primarily due to improved mix of higher priced project revenue, combined with better staff leverage.
Adjusted Segment EBITDA increased $2.1 million, or 32.0%, to $8.7 million for the three months ended September 30, 2015 compared to $6.6 million for the same prior year period.
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Financial Overview
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Revenues and Adjusted Earnings Per Share
($ Millions)
$2,100 Revenues
$1,756 $1,740-$1,780
$1,750 $1,652
$1,567 $1,577
$1,401
$1,400
$1,050
$700
$432 $449 $455
$350
$0
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Q1 2015 Q2 2015 Q3 2015 2015 Guidance
$2.50 $2.37 Adjusted Earnings Per Share
$2.13 $2.17 $2.09
$2.00 $1.80-$1.95
$1.64
$1.50
$1.00
$0.57 $0.50 $0.53
$0.50
$0.00
FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 Q1 2015 Q2 2015 Q3 2015 2015 Guidance
See accompanying financial tables and “End Notes: FTI Consulting Non-GAAP Data Reconciliations” for the definition and reconciliations of Adjusted Earnings Per Share, which is a non-GAAP financial measure, to the most directly comparable GAAP measure.
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Financial Profile
In thousands, except for DSOs
Q3 2015 Q2 2015 Q1 2015 Q3 2014 FY 2014 FY 2013
Cash and cash equivalents $ 104,974 $ 239,988 $ 225,295 $ 94,412 $ 283,680 $ 205,833
Accounts receivable, net $ 554,400 $ 549,300 $ 513,285 $ 579,737 $ 485,101 $ 476,445
Days sales outstanding 105 104 101 107 97 97
(“DSO”)1
Net cash (used in) provided by
operating activities $ 43,303 $ (30,731) $ (51,333) $ (77,104) $ 135,401 $ 193,271
Purchases of property and $ 24,674 $ 17,533 $ 8,876 $ 31,797 $ 39,256 $ 42,544
equipment
businesses, net of cash $ 575 $ 576 - $ 15,684 $ 23,467 $ 55,498
received
common stock - - - $ 4,367 $ 4,367 $ 66,763
Total debt $ 520,000 $ 711,000 $ 711,000 $ 711,000 $ 711,000 $ 717,014
DSO is a performance measure used to assess how quickly revenues are collected by the Company. We calculate DSO at the end of each reporting period by dividing net accounts receivable reduced by billings in excess of services provided, by revenue for the quarter, adjusted for changes in foreign exchange rates. We multiply the result by the number of days in the quarter.
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Appendix
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Third Quarter 2015 Awards & Accolades
Who’s Who Legal: Asset Recovery 2015 and Global Investigations Review recognized six
FTI Consulting professionals as world leading expert witnesses in asset recovery
Five Forensic and Litigation Consulting professionals recognized by Who’s Who Legal as world leading construction and insurance experts
FTI Consulting’s Technology and Forensic and Litigation Consulting segments recognized in numerous categories of The Recorder’s Best of 2015 Legal Products and Services and The National Law Journal’s 2015 Best of Chicago Honored as the #1 Firm in the categories of E-Discovery Managed Service Provider, Corporate Investigations Provider, End-to-End Litigation Consulting and Securities Litigation Consulting from the NY Law Journal annual Reader Rankings survey
FTI Consulting’s Strategic Communications segment in the Asia Pacific region awarded a gold SABRE Award from The Holmes Report for their work with Out Leadership promoting LGBT Equality in Asia Compass Lexecon named 2015 Competition Economist Firm of the Year and Janusz Ordover named Competition Economist Individual Expert of the Year by Who’s Who Legal
Five professionals recognized as world leading patent litigation expert witnesses in Intellectual Asset Management (“IAM”) magazine’s Patent 1000 – The World’s Leading Patent Professionals guide
Honored with eight Turnaround Atlas Awards from the Global M&A Network, including engagements with Momentive Performance Materials, IAP Worldwide Services, Overseas Shipholding Group, Classic Party Rentals, Preferred Sands, Unitek Global Services, Clearlake Capital Group and FiberTower Network Services
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Financial Tables
Q3 2015 – FY 2010 Reconciliations of Non-GAAP Financial Measures
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Q3 2015 - FY 2010 Reconciliations of Net Income (Loss) to Adjusted Net Income and Earnings (Loss) Per Share to Adjusted Earnings Per Share
In thousands, except for per share data
Q3 2015 Q2 2015 Q1 2015 2014 2013 2012 2011 2010
Net income (loss) $10,309 $21,709 $23,686 $58,807 ($10,594) ($36,986) $103,903 $65,984
Add back:
Special charges, net of tax - - - 9,637 23,267 19,115 9,285 32,733
Goodwill impairment charge - - - - 83,752 110,387 - -
Loss on early extinguishment of debt, net of tax 11,881 - - - - 2,910 - 3,019
Remeasurement of acquisition-related contingent (1,005) - (1,718) (12,054) (5,228) (9,953) -
consideration, net of taxes
Adjusted Net Income (1) $22,190 $20,704 $23,686 $66,726 $84,371 $90,198 $103,235 $101,736
Earnings (loss) per common share – diluted $0.25 $0.52 $0.57 $1.44 ($0.27) ($0.92) $2.39 $1.38
Add back:
Special charges, net of tax - - - 0.24 0.59 0.47 0.21 0.69
Goodwill impairment charge - - - - 2.14 2.74 - -
Loss on early extinguishment of debt, net of tax 0.28 - - - - 0.07 - 0.06
Remeasurement of acquisition-related contingent - (0.02) - (0.04) (0.30) (0.13) (0.23) -
consideration, net of taxes
Impact of denominator for diluted adjusted - - - - (0.07) (0.06) - -
earnings per common share
Adjusted earnings per common share – diluted (1) $0.53 $0.50 $0.57 $1.64 $2.09 $2.17 $2.37 $2.13
Weighted average number of common shares 41,982 41,696 41,324 40,729 40,421 41,578 43,473 47,664
outstanding – diluted
(1) See “End Notes: FTI Consulting Non-GAAP Data Reconciliations” for the definition of Adjusted Net Income and Adjusted Earnings per Share.
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Q2 and Q3 2015: Reconciliation of Net Income And Operating Income to Adjusted EBITDA
In thousands
Corporate Forensic and
Three Months Ended September 30, Economic Strategic Unallocated
Finance & Litigation Technology Total
2015 Consulting Communications Corporate
Restructuring Consulting
Net income $10,309
Interest income and other (2,027)
Interest expense 11,696
Loss on early extinguishment of debt 19,589
Income tax provision 6,177
Operating income (1) $25,112 $11,944 $15,498 $6,830 $7,235 ($20,875) $45,744
Depreciation and amortization 677 925 848 3,784 499 725 7,458
Amortization of other intangible assets 873 537 308 199 983 - 2,900
Adjusted EBITDA (1) $26,662 $13,406 $16,654 $10,813 $8,717 ($20,150) $56,102
Corporate Forensic and
Economic Strategic Unallocated
Three Months Ended June 30, 2015 Finance & Litigation Technology Total
Restructuring Consulting Consulting Communications Corporate
Net income $21,709
Interest income and other (950)
Interest expense 12,473
Income tax provision 13,922
Operating income (1) $21,906 $18,476 $14,282 $8,465 $4,126 ($20,101) $47,154
Depreciation and amortization 682 922 886 3,508 515 790 7,303
Amortization of other intangible assets 935 581 308 193 990 - 3,007
Remeasurement of acquisition-related
contingent consideration (1,491) - (184) - - - (1,675)
Adjusted EBITDA (1) $22,032 $19,979 $15,292 $12,166 $5,631 ($19,311) $55,789
(1) See “End Notes: FTI Consulting Non-GAAP Data Reconciliations” for the definition of Segment Operating Income, Adjusted EBITDA and Adjusted Segment EBITDA.
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Q1 2015 and FY 2014: Reconciliation of Net Income And Operating Income to Adjusted EBITDA
In thousands
Corporate Forensic and Economic Strategic
Three Months Ended March 31, 2015 Finance & Litigation Technology Corporate Total
Restructuring Consulting Consulting Communications
Net income $23,686
Interest income and other 137
Interest expense $12,368
Income tax provision $11,657
Operating income(1) $20,764 $20,474 $10,296 $6,198 $4,197 ($14,081) $47,848
Depreciation and amortization of $1,716 $1,597 $1,260 $3,875 $1,555 $817 $10,820
intangible assets
Adjusted EBITDA (1) $22,480 $22,071 $11,556 $10,073 $5,752 ($13,264) $58,668
Corporate Forensic and Economic Strategic
Year Ended December 31, 2014 Finance & Litigation Technology Corporate Total
Restructuring Consulting Consulting Communications
Net income $58,807
Interest income and other ($4,670)
Interest expense $50,685
Income tax provision $42,604
Operating income (1) $46,913 $83,180 $55,282 $46,906 $15,603 ($100,458) $147,426
Depreciation and amortization of
intangible assets $3,568 $4,301 $4,068 $15,768 $2,562 $3,722 $33,989
Amortization of other intangible assets $5,589 $3,613 $1,047 $852 $4,420 - $15,521
Special charges $84 $308 $12 $19 $3 $15,913 $16,339
Remeasurement of acquisition-related ($662) ($934) ($1,127) - - - ($2,723)
contingent consideration
Adjusted EBITDA (1) $55,492 $90,468 $59,282 $63,545 $22,588 ($80,823) $210,552
(1) See “End Notes: FTI Consulting Non-GAAP Data Reconciliations” for the definition of Segment Operating Income, Adjusted EBITDA and Adjusted Segment EBITDA.
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Q1 and Q2 2014: Reconciliation of Net Income And Operating Income to Adjusted EBITDA
In thousands
Corporate Forensic and Economic Strategic
Three Months Ended March 31, 2014 Finance & Litigation Technology Corporate Total
Restructuring Consulting Consulting Communications
Net income $18,117
Interest income and other ($1,003)
Interest expense $12,655
Income tax provision $10,348
Operating income(1) $8,607 $25,402 $12,430 $13,066 $1,005 ($20,393) $40,117
Depreciation and amortization of
intangible assets $3,006 $1,765 $1,387 $4,282 $1,724 $1,037 $13,201
Remeasurement of acquisition-related ($662) ($673) ($787) - - - ($2,122)
contingent consideration
Adjusted EBITDA (1) $10,951 $26,494 $13,030 $17,348 $2,729 ($19,356) $51,196
Corporate Forensic and Economic Strategic
Three Months Ended June 30, 2014 Finance & Litigation Technology Corporate Total
Restructuring Consulting Consulting Communications
Net Income $17,247
Interest income and other ($1,448)
Interest expense $12,908
Income tax provision $10,225
Operating income (1) $17,068 $20,839 $16,840 $10,905 $4,030 ($30,750) $38,932
Depreciation and amortization of $2,065 $1,693 $1,203 $4,199 $1,804 $904 $11,868
intangible assets
Special charges - - - - - $9,364 $9,364
Remeasurement of acquisition-related - ($261) - - - - ($261)
contingent consideration
Adjusted EBITDA (1) $19,133 $22,271 $18,043 $15,104 $5,834 ($20,482) $59,903
(1) See “End Notes: FTI Consulting Non-GAAP Data Reconciliations” for the definition of Segment Operating Income, Adjusted EBITDA and Adjusted Segment EBITDA.
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Q3 and Q4 2014: Reconciliation of Net Income And Operating Income to Adjusted EBITDA
In thousands
Corporate Forensic and
Three Months Ended September 30, Economic Strategic
Finance & Litigation Technology Corporate Total
2014 Consulting Communications
Restructuring Consulting
Net income $22,522
Interest income and other ($1,014)
Interest expense $12,634
Income tax provision $12,329
Operating income(1) $13,406 $20,276 $17,245 $13,741 $4,875 ($23,072) $46,471
Depreciation and amortization of $2,044 $1,676 $1,169 $4,075 $1,727 $886 $11,577
intangible assets
Special charges $84 $308 $12 $19 $3 $4,921 $5,347
Adjusted EBITDA (1) $10,951 $26,494 $13,030 $17,348 $2,729 ($19,356) $63,395
Corporate Forensic and Economic Strategic
Three Months Ended December 31, 2014 Finance & Litigation Technology Corporate Total
Restructuring Consulting Consulting Communications
Net Income $921
Interest income and other ($1,205)
Interest expense $12,488
Income tax provision $9,702
Operating income (1) $7,832 $16,663 $8,767 $9,194 $5,693 ($26,243) $21,906
Depreciation and amortization of $2,042 $2,780 $1,356 $4,064 $1,727 $895 $12,864
intangible assets
Special charges - - - - - $1,628 $1,628
Remeasurement of acquisition-related - - ($340) - - - ($340)
contingent consideration
Adjusted EBITDA (1) $9,874 $19,443 $9,783 $13,258 $7,420 ($23,720) $36,058
(1) See “End Notes: FTI Consulting Non-GAAP Data Reconciliations” for the definition of Segment Operating Income (Loss), Adjusted EBITDA and Adjusted Segment EBITDA.
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Reconciliation of 2013 and 2012 Net Loss And Operating Income (Loss) to Adjusted EBITDA
In thousands
Corporate Forensic and Economic Strategic
Year Ended December 31, 2013 Finance & Litigation Technology Corporate Total
Restructuring Consulting Consulting Communications
Net loss ($10,594)
Interest income and other ($1,748)
Interest expense $51,376
Income tax provision $42,405
Operating income (loss)1 $58,594 $68,211 $86,714 $38,038 ($72,129) ($97,989) $81,439
Depreciation and amortization of
intangible assets $9,929 $6,100 $5,479 $22,601 $7,048 $4,338 $55,495
Special charges $10,274 $2,111 $11 $16 $66 $25,936 $38,414
Goodwill impairment charge - - - - $83,752 - $83,752
Remeasurement of acquisition-related
contingent consideration ($11,614) ($1,941) - - - - ($13,555)
Adjusted EBITDA1 $67,183 $74,481 $92,204 $60,655 $18,737 ($67,715) $245,545
Corporate Forensic and Economic Strategic
Year Ended December 31, 2012 Finance & Litigation Technology Corporate Total
Restructuring Consulting Consulting Communications
Net loss ($36,986)
Interest income and other ($5,659)
Interest expense $56,731
Income tax provision $40,100
Loss on early extinguishment of debt $4,850
Operating income (loss) (1) $80,970 $45,809 $71,992 $33,642 ($97,298) ($76,079) $59,036
Depreciation and amortization of $8,835 $6,487 $4,478 $20,447 $7,218 $4,546 $52,011
intangible assets
Special charges $11,332 $8,276 $991 $3,114 $4,712 $1,132 $29,557
Goodwill impairment charge - - - - $110,387 - $110,387
Remeasurement of acquisition-related ($5,222) ($6) - - - - ($5,228)
contingent consideration
Adjusted EBITDA(1) $95,915 $60,566 $77,461 $57,203 $25,019 ($70,401) $245,763
(1) See “End Notes: FTI Consulting Non-GAAP Data Reconciliation” for definitions of Segment Operating Income (Loss), Adjusted EBITDA and Adjusted Segment EBITDA.
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Reconciliation of 2011 and 2010 Net Income And Operating Income to Adjusted EBITDA
In thousands
Forensic and
Corporate Finance & Economic Strategic
Year Ended December 31, 2011 Litigation Technology Corporate Total
Restructuring Consulting Communications
Consulting
Net income $103,903
Interest income and other ($6,304)
Interest expense $58,624
Income tax provision $49,224
Operating income (1) $66,591 $74,831 $60,890 $57,917 $19,066 ($73,848) $205,447
Depreciation and amortization of
intangible assets $8,902 $6,215 $4,045 $19,094 $7,735 $4,962 $50,953
Special charges $9,440 $839 $2,093 - - $2,840 $15,212
Remeasurement of acquisition-related
contingent consideration ($8,991) ($962) - - - - ($9,953)
Adjusted EBITDA (1) $75,942 $80,923 $67,028 $77,011 $26,801 ($66,046) $261,659
Corporate Forensic and Economic Strategic
Year Ended December 31, 2010 Finance & Litigation Technology Corporate Total
Restructuring Consulting Consulting Communications
Net income $65,984
Interest income and other ($4,423)
Interest expense $50,263
Income tax provision $41,407
Loss on early extinguishment of debt $5,161
Operating income (1) $89,861 $62,759 $39,180 $27,569 $11,602 ($72,579) $158,392
Depreciation and amortization of $9,730 $7,447 $3,634 $20,876 $8,325 $5,232 $55,244
intangible assets
Special charges $8,561 $6,196 $6,667 $15,913 $9,044 $4,750 $51,131
Adjusted EBITDA (1) $108,152 $76,402 $49,481 $64,358 $28,971 ($62,597) $264,767
(1) See “End Notes: FTI Consulting Non-GAAP Data Reconciliations” for the definition of Segment Operating Income, Adjusted EBITDA and Adjusted Segment EBITDA.
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End Notes: FTI Consulting Non-GAAP Data Reconciliations
We define Adjusted Net Income and Adjusted Earnings per Diluted Share (“Adjusted EPS”) as Net Income and Earnings Per Diluted Share, respectively, excluding the impact of remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt. We use Adjusted Net Income for the purpose of calculating Adjusted EPS. Management uses Adjusted EPS to assess total Company operating performance on a consistent basis. We believe that this measure, when considered together with our GAAP financial results, provides management and investors with a more complete understanding of our business operating results, including underlying trends, by excluding the effects of remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt.
We define Segment Operating Income (loss) as a segment’s share of consolidated operating income (loss). We define Total Segment Operating Income (loss) as the total of Segment Operating Income (loss) for all segments, which excludes unallocated corporate expenses. We use Segment Operating Income (loss) for the purpose of calculating Adjusted Segment EBITDA (loss). We define Adjusted EBITDA as consolidated net income (loss) before income tax provision, other non-operating income (expense), depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and losses on early extinguishment of debt. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income (loss) before depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges. We define Total Adjusted Segment EBITDA as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. We define Adjusted EBITDA Margin as Adjusted EBITDA as a percentage of total revenues. We define Adjusted Segment EBITDA margin as Adjusted Segment EBITDA as a percentage of a segment’s share of revenue. We use Adjusted Segment EBITDA to internally evaluate the financial performance of our segments because we believe it is a useful supplemental measure which reflects current core operating performance and provides an indicator of the segment’s ability to generate cash. We also believe that these measures, when considered together with our GAAP financial results, provide management and investors with a more complete understanding of our operating results, including underlying trends, by excluding the effects of remeasurement of acquisition-related contingent consideration, special charges, and goodwill impairment charges. In addition, EBITDA and Adjusted EBITDA are common alternative measures of operating performance used by many of our competitors. It is used by investors, financial analysts, rating agencies and others to value and compare the financial performance of companies in our industry. Therefore, we also believe that these measures, considered along with corresponding GAAP measures, provide management and investors with additional information for comparison of our operating results to the operating results of other companies.
Non-GAAP financial measures are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, the information contained in our Consolidated Statements of Comprehensive Income (loss).
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