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): August 10, 2016
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),” “Adjusted Segment EBITDA” and “Adjusted Segment EBITDA Margin,” measures of financial condition or performance determined in accordance with U.S. generally accepted accounting principles (“GAAP”), below in order to more fully define the components of the certain measures of financial condition or performance not determined in accordance with GAAP (“Non-GAAP”). FTI Consulting defines “Segment Operating Income (Loss)” as a segment’s share of Consolidated Operating Income (Loss) and “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 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. FTI Consulting defines “Adjusted Segment EBITDA Margin” as Adjusted Segment EBITDA as a percentage of a segment’s revenues. FTI Consulting uses “Adjusted Segment EBITDA” to internally evaluate the financial performance of its segments because FTI Consulting 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 defines Non-GAAP measures, “Total Adjusted Segment EBITDA” as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses, and “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. FTI Consulting believes that its Non-GAAP financial measures, when considered together with its GAAP financial results and GAAP measures, 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 and “Adjusted EBITDA” are common alternative measures of operating performance used by many of FTI Consulting’s competitors. They are 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 Non-GAAP measures, considered along with corresponding GAAP measures, provide management and investors with additional information for comparison of FTI Consulting’s operating results to the operating results of other companies.
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FTI Consulting defines “Adjusted Net Income” and “Adjusted Earnings per Diluted Share” (“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. FTI Consulting uses Adjusted EPS to assess total company 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 financial tables included in this Presentation do not include a reconciliation of FTI Consulting’s 2016 Adjusted EPS guidance to an estimate of GAAP EPS. It is difficult to predict and estimate future remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges and/or losses on early extinguishment of debt, as these items are dependent on future events that are uncertain. Accordingly, a reconciliation of FTI Consulting’s Non-GAAP financial measure guidance to the corresponding GAAP measure is not available without unreasonable effort.
The Presentation may contain 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 | August 2016 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: August 16, 2016 | By: | /S/ CURTIS LU | ||||
| Curtis Lu | ||||||
| General Counsel | ||||||
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EXHIBIT INDEX
| Exhibit No. |
Description | |
| 99.1 | August 2016 Presentation of FTI Consulting, Inc. | |
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| Exhibit 99.1
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F T I TM
CONSULTINS
FTI Consulting, Inc.
Current Investor Presentation
August 2016
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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 presentation, words such as “anticipates,” “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
Publicly traded
$1.7BLN
Equity market capitalization(1)
1982
Year founded
4,600+
Total employees worldwide
440+
Senior Managing Directors
81
Offices in 81 cities around the globe
9
9 Specialized Industry Practice Groups
2 Nobel Laureates
10/10
Advisor to world’s top
10 bank holding companies
92/100
Advisor to 92 of the world’s top 100 law firms
48/100
48 of Global 100 corporations are clients
(1)Total Shares outstanding times the closing share price as of June 30, 2016.
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Investment Thesis
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
The first six months of 2016 mark the best first-half ever in the history of FTI Consulting in terms of revenue, GAAP EPS and Adjusted EPS
Shifting from a capital driven to an organic growth strategy with an emphasis on profitable revenue growth – organic revenue growth in the first half of 2016 was 6% or 7%, excluding FX
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 Services Business Transformation Services Valuation & Financial Advisory Services
Forensic and Litigation Consulting
Business Insurance Claims Global Risk & Investigations Practice Compliance, Monitoring & Receivership Government Contracts Construction & Environmental Solutions Health Solutions Dispute Advisory Services Insurance Financial Enterprise & Data Analytics Intellectual Property Financial Services Trial Services Forensic Accounting & Advisory Services
Economic Consulting
Antitrust & Competition Economics Labor & Employment Business Valuation Public Policy Center for Healthcare Economics & Policy Regulated Industries
Intellectual Property Securities Litigation & Risk 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
Q2 2016 Segment Revenues
11%
9% 29%
25%
26%
Q2 2016 Total Adjusted Segment EBITDA
11% 7%
42%
20%
20%
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Advising Across a Global Economy
3,400+ Professionals Deployed in 29 Countries
With offices in every major financial center and every corner of the globe, we successfully serve our clients wherever challenges and opportunities arise.
Asia Pacific India Europe, Middle Qatar Latin America North America Denver Princeton
Mumbai East, Africa Doha Great Neck Red Bank
Australia Argentina Canada
New Delhi Belgium Houston Rockville Brisbane Russia Buenos Aires Calgary Brussels Indianapolis Roseland Gold Coast Indonesia Moscow Toronto Brazil Los Angeles Saddle Brook Melbourne Jakarta Vancouver Perth Denmark South Africa Rio de Janeiro Lake Oswego San Francisco Japan Copenhagen Cape Town São Paulo United States McLean Santa Barbara Sydney Tokyo Johannesburg Annapolis Miami Seattle
Caribbean
China France Atlanta Mountain View Tucson Korea Spain British Virgin Islands Beijing Seoul Paris Austin New York Walnut Creek Madrid Cayman Islands Guangzhou Malaysia Germany Baltimore Oakland Washington, D.C. Hong Kong United Arab Colombia Boston Pasadena Wayne Kuala Lumpur Berlin Shanghai Emirates Bogotá Brentwood Philadelphia West Palm Beach Frankfurt Philippines 1 Abu Dhabi Charlotte Phoenix Mexico Winston-Salem Dubai Chicago Pittsburgh Manila Ireland Mexico City
Singapore Dublin United Kingdom Coral Gables Panama Dallas
London
Netherlands Panama City
Stirling Den Haag
1. Affiliate
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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 Services
Valuation & Financial Advisory Services
Clients
Corporations/C-Suite Boards of Directors Equity Sponsors Secured Lenders Unsecured Creditors
2010 2011 2012 2013 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 Q1 2016 Q2 2016
Segment Revenue $396,216 $364,409 $394,719 $382,526 $391,115 $106,212 $109,113 $113,487 $111,586 $440,398 $127,156 $132,142
Segment Gross Profit
Margin 41.8% 37.4% 39.5% 35.9% 32.6% 39.8% 37.6% 39.5% 36.5% 38.3% 40.7% 38.8%
Segment SG&A $59,629 $60,499 $61,027 $71,966 $75,382 $20,528 $19,695 $18,852 $22,475 $81,550 $20,823 $19,983
Adjusted Segment
EBITDA $108,152 $75,942 $95,916 $67,183 $55,492 $22,480 $22,032 $26,662 $18,927 $90,101 $31,603 $32,041
Adjusted Segment
EBITDA Margin 27.3% 20.8% 24.3% 17.6% 14.2% 21.2% 20.2% 23.5% 17.0% 20.5% 24.9% 24.2%
Segment Billable
Headcount 620 587 697 737 706 735 775 830 838 838 857 853
(in thousands, except percentages and headcount data) (unaudited)
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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, company-side, interim management, creditor rights
Drive organic growth in new/adjacent businesses where we have the right to win, e.g., EMEA restructuring, performance improvement, carve out
Drive overseas bets to fruition e.g., EMEA transaction advisory services, EMEA Tax
Focus on profitability enhancements cost control, engagement profitability improvements
Q2 2016 Form 10–Q Management’s Discussion & Analysis
Revenues increased $23.0 million, or 21.1%, to $132.1 million for the three months ended June 30, 2016, which included a
1.4% estimated negative impact from foreign currency translation.
Excluding the estimated impact of foreign currency translation, revenues increased by $24.5 million, or 22.5%.
This increase was primarily due to higher demand for the segment’s distressed service offerings in North America and higher demand for distressed, tax and transaction advisory services in EMEA.
Gross profit increased $10.2 million, or 24.9%, to $51.3 million for the three months ended June 30, 2016. Gross profit margin increased 1.2 percentage points for the three months ended June 30, 2016.
Higher realized rates and improved utilization in EMEA drove a majority of the increase.
Adjusted Segment EBITDA for the quarter was $32.0 million or 24.2% of revenues as compared to $22.0 million or 20.2% of revenues in the prior year quarter.
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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 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 Q1 2016 Q2 2016
Segment Revenue $379,780 $428,730 $407,586 $433,632 $483,380 $123,265 $126,131 $116,158 $116,715 $482,269 $119,004 $118,193
Segment Gross Profit
Margin 37.5% 36.5% 33.8% 35.9% 36.6% 36.3% 35.2% 30.0% 26.7% 32.2% 32.7% 31.1%
Segment SG&A $69,712 $78,745 $80,842 $84,616 $90,707 $23,634 $25,347 $22,349 $23,387 $94,717 $20,192 $22,523
Adjusted Segment
EBITDA $76,402 $80,923 $60,566 $74,481 $90,468 $22,071 $19,979 $13,406 $8,811 $64,267 $19,808 $15,190
Adjusted Segment
EBITDA Margin 20.1% 18.9% 14.9% 17.2% 18.7% 17.9% 15.8% 11.5% 7.5% 13.3% 16.6% 12.9%
Segment Billable
Headcount 911 957 952 1,061 1,154 1,145 1,169 1,209 1,131 1,131 1,132 1,117
(in thousands, except percentages and headcount data) (unaudited)
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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, GRIP
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, geopolitical intelligence
Q2 2016 Form 10–Q Management’s Discussion & Analysis
Revenues decreased $7.9 million, or 6.3%, to $118.2 million for the three months ended June 30, 2016, which included a 1.0% estimated negative impact from foreign currency translation.
Excluding the estimated impact of foreign currency translation, revenues decreased by $6.7 million, or 5.3%, due to lower demand and success fees in our health solutions practice.
These decreases were partially offset by increased demand in our global risk and investigations practice.
Gross profit decreased $7.7 million, or 17.3%, to $36.7 million for the three months ended June 30, 2016. Gross profit margin decreased 4.1 percentage points for the three months ended June 30, 2016.
This was driven by a decrease in lower utilization and success fees in our health solutions practice. This decline was partially offset by higher average realization in our global risk and investigations practice.
Adjusted Segment EBITDA was $15.2 million or 12.9% of revenues compared to $20.0 million or 15.8% of segment revenues in the prior year quarter.
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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 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 Q1 2016 Q2 2016
Segment Revenue $255,660 $ 353,981 $391,622 $447,366 $451,040 $106,081 $108,698 $114,541 $118,589 $447,909 $130,731 $118,006
Segment Gross Profit
Margin 33.2% 31.4% 32.3% 32.9% 27.0% 24.6% 26.9% 27.4% 28.1% 26.8% 28.2% 27.2%
Segment SG&A $37,879 $46,802 $51,912 $58,282 $66,159 $15,501 $14,858 $15,538 $15,316 $61,213 $16,426 $17,604
Adjusted Segment
EBITDA $49,481 $67,028 $77,461 $92,204 $59,282 $11,556 $15,292 $16,654 $18,828 $62,330 $21,319 $15,381
Adjusted Segment
EBITDA Margin 19.4% 18.9% 19.8% 20.6% 13.1% 10.9% 14.1% 14.5% 15.9% 13.9% 16.3% 13.0%
Segment Billable
Headcount 297 433 474 530 574 566 554 594 599 599 607 604
(in thousands, except percentages and headcount data) (unaudited)
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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
Q2 2016 Form 10–Q Management’s Discussion & Analysis
Revenues increased $9.3 million, or 8.6%, to $118.0 million for the three months ended June 30, 2016, which included a 1.0% estimated negative impact from foreign currency translation.
Excluding the estimated impact of foreign currency translation, revenues increased by $10.4 million, or 9.6%, primarily due to higher demand for financial economics services in North America and non-M&A antitrust services in North America and EMEA.
Gross profit increased $2.8 million, or 9.6%, to $32.1 million for the three months ended June 30, 2016. Gross profit margin increased 0.3 percentage points for the three months ended June 30, 2016.
This increase was primarily driven by higher utilization in North America and higher average realization in EMEA.
Adjusted Segment EBITDA was $15.4 million or 13.0% of revenues compared to $15.3 million or 14.1% of revenues in the prior year quarter.
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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 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 Q1 2016 Q2 2016
Segment Revenue $176,607 $218,738 $195,194 $202,663 $241,310 $54,654 $61,826 $55,568 $46,551 $218,599 $48,281 $41,882
Segment Gross Profit
Margin 62.7% 60.0% 54.9% 52.2% 48.0% 44.7% 43.6% 43.9% 40.7% 43.3% 41.5% 41.2%
Segment SG&A $ 59,721 $65,322 $62,436 $59,890 $68,162 $18,026 $18,297 $17,386 $17,411 $71,120 $16,014 $16,211
Adjusted Segment
EBITDA $64,358 $77,011 $57,203 $60,655 $63,545 $10,073 $12,166 $10,813 $5,958 $39,010 $7,823 $5,035
Adjusted Segment
EBITDA Margin 36.4% 35.2% 29.3% 29.9% 26.3% 18.4% 19.7% 19.5% 12.8% 17.8% 16.2% 12.0%
Segment Billable
Headcount 257 290 277 306 344 360 364 354 349 349 313 301
(in thousands, except percentages and headcount data) (unaudited)
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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 R&D and sales and marketing to expand the ecosystem for Ringtail®
Ongoing investment in new products and services e.g., RadianceTM, to stay leading edge with respect to the most complicated, major corporate events
Q2 2016 Form 10–Q Management’s Discussion & Analysis
Revenues decreased $19.9 million, or 32.3%, to $41.9 million for the three months ended June 30, 2016.
This decrease was largely due to a decrease in M&A-related second request activity and reduced demand for cross-border investigations.
Gross profit decreased $9.7 million, or 36.0%, to $17.3 million for the three months ended June 30, 2016. Gross profit margin decreased 2.4 percentage points for the three months ended June 30, 2016.
The decrease in gross profit margin was primarily due to lower demand for managed review services and lower realized pricing for consulting based on our mix of clients.
Adjusted Segment EBITDA was $5.0 million or 12.0% of segment revenues compared to $12.2 million or 19.7% of segment revenues in the prior year quarter.
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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 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 Q1 2016 Q2 2016
Segment Revenue $193,198 $200,910 $187,750 $186,245 $189,367 $42,126 $43,369 $55,716 $48,763 $189,974 $45,113 $49,924
Segment Gross Profit
Margin 37.4% 37.2% 36.9% 34.7% 36.7% 37.4% 36.9% 33.0% 38.4% 36.3% 38.0% 39.4% Segment SG&A $46,469 $50,919 $46,852 $47,874 $48,890 $10,444 $10,747 $10,058 $11,471 $42,720 $11,408 $11,518
Adjusted Segment
EBITDA $28,971 $26,801 $25,019 $18,737 $22,588 $5,752 $5,631 $8,717 $7,627 $27,727 $6,108 $8,440
Adjusted Segment
EBITDA Margin 15.0% 13.3% 13.3% 10.1% 11.9% 13.7% 13.0% 15.6% 15.6% 14.6% 13.5% 16.9%
Segment Billable
Headcount 583 582 593 590 566 556 551 594 599 599 601 606
(in thousands, except percentages and headcount data) (unaudited)
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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
Q2 2016 Form 10–Q Management’s Discussion & Analysis
Revenues increased $6.6 million, or 15.1%, to $49.9 million for the three months ended June 30, 2016, which included a 2.5% estimated negative impact from foreign currency translation.
Excluding the estimated impact of foreign currency translation, revenues increased by $7.6 million, or 17.6%, primarily due to increased project-based revenues in North America and EMEA, predominantly in financial communications and public affairs-related engagements.
Gross profit increased $3.7 million, or 22.9%, to $19.7 million for the three months ended June 30, 2016. Gross profit margin increased 2.5 percentage points for the three months ended June 30, 2016.
The increase in gross profit margin was primarily due to the mix of higher margin large project engagements with improved utilization across North America.
Adjusted Segment EBITDA was $8.4 million or 16.9% of segment revenues compared to $5.6 million or 13.0% of segment revenues in the prior year quarter.
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Recent Awards and Accolades
Who’s Who Legal: Consulting Experts Guide recognized FTI Consulting and Compass Lexecon among the Most Highly
Regarded Consulting Firms with the most experts (98) of any firm named (2016) Who’s Who Legal named FTI Consulting the 2016
Arbitration Expert Firm of the Year and Compass Lexecon the 2016 Competition Economist Firm of the Year (2016 and 2015) FTI Consulting won four 2016 Association of Management Consulting Firms Spotlight Awards and RadioShack engagement won “Project of the Year”
FTI Consulting named Global Turnaround Consulting Firm of the Year for the second consecutive year and was awarded four Turnaround Atlas Awards by the Global M&A Network
Compass Lexecon worked on several matters that won 2016
Global Competition Review awards and Compass Lexecon’s
Neil Dryden named 2016 Economist of the Year
Intellectual Asset Management magazine’s Patent 1000 – The World’s Leading Patent Professionals guide recognized five Forensic and Litigation Consulting professionals as leading patent litigation expert witnesses
Corporate Counsel Names FTI Consulting a Top Service Provider in the Legal Industry and as the #1 Provider for Crisis Management, Litigation Valuation, Case Management Software and Corporate Investigations Support
Forbes magazine named FTI Consulting to inaugural list of
America’s Best Management Consulting Firms in 17 categories
FTI Consulting’s Transaction Services practice received top ranking in ALM Intelligence’s Transaction Advisory Services 2016 report with The ALM Vanguard™ status
FTI Consulting ranked as the #1 Crisis Management Firm in The Deal’s Bankruptcy League Tables for the second quarter of 2016 for creditors and debtors
FTI Consulting had the most professionals of any firm named to the Who’s Who Legal 2016 Insurance and Reinsurance Expert list
FTI Consulting recognized as the top intellectual property litigation consulting firm in the 2016 Best of The National Law Journal reader rankings
Nine professionals from Forensic and Litigation Consulting named to the Who’s Who Legal 2016 Construction Expert Witness list and Patrick McGeehin, Leader of FTI Consulting’s North American Construction Solutions practice, was ranked as one of the five most highly regarded experts worldwide
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Financial Overview
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Revenues and Adjusted Earnings Per Share
$2,100 Revenues
$1,800-$1,870 $1,756 $1,779 $1,750 $1,652 $1,567 $1,577 $1,400 $1,401 $1,400
Millions) $1,050 $ ( $700 $470 $460 $350
$0
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Q1 2016 Q2 2016 2016 Guidance
$3.00 Adjusted Earnings Per Share
$2.63 $2.15-$2.45
$2.50 $2.37
$2.13 $2.17 $2.09
$2.00 $1.84
$1.64
$1.50
$1.00 $0.83 $0.66
$0.50
$0.00
FY 2009 FY 2010 FY 2011 FY 2012 FY 2013 FY 2014 FY 2015 Q1 2016 Q2 2016 2016 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)
Three Months Three Months Twelve Months Three Months Twelve Months Ended June 30, Ended March 31, Ended December 31, Ended June 30, Ended December 31, 2016 2016 2015 2015 2016
Cash and cash equivalents $ 182,665 $ 114,451 $ 149,760 $ 239,988 $ 283,680
Accounts receivable, net $ 547,298 $ 553,230 $ 499,784 $ 549,300 $ 485,101
Days sales outstanding (“DSO”)(1) 100 98 97 104 97
Net cash provided by (used in) $ 73,732 $ (33,099) $ 139,920 $ 20,602 $ 135,401 operating activities
Purchases of property and $ 5,621 $ 6,362 $ 31,399 $ 8,657 $ 39,256 equipment
Payments for acquisition of
$ 56— $ 575 $ 576 $ 23,467 businesses, net of cash received
Purchase and retirement of
—$ 2,903 $ 26,532 — $ 4,367 common stock
Total debt $ 500,000 $ 507,000 $ 500,000 $ 711,000 $ 711,000
(1) 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. 20
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Appendix
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Financial Tables
Reconciliations of Non-GAAP Financial Measures
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Q2 2016—FY 2009 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
Q2 2016 Q1 2016 2015 2014 2013 2012 2011 2010 2009
Net income (loss) $26,547 $30,181 $66,053 $58,807 ($10,594) ($36,986) $103,903 $65,984 $139,843
Add back:
Special charges, net of tax 1,059 3,269—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
— 11,881 — 2,910 — 3,019 —tax Remeasurement of acquisition-related— 600 (1,120) (1,718) (12,054) (5,228) (9,953)— —contingent consideration, net of tax
Adjusted Net Income (1) $27,606 $34,050 $76,814 $66,726 $84,371 $90,198 $103,235 $101,736 $139,843
Earnings (loss) per common share – diluted $0.64 $0.73 $1.58 $1.44 ($0.27) ($0.92) $2.39 $1.38 $2.63
Add back:
Special charges, net of tax 0.02 0.08—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
— 0.28 — 0.07 — 0.06 —tax Remeasurement of acquisition-related
- 0.02 (0.02) (0.04) (0.30) (0.13) (0.23)— —contingent consideration, net of tax Impact of denominator for diluted adjusted
— — (0.07) (0.06)— — —earnings per common share
Adjusted earnings per common share –
(1) $0.66 $0.83 $1.84 $1.64 $2.09 $2.17 $2.37 $2.13 $2.63 diluted
Weighted average number of common shares
41,599 41,148 41,729 40,729 40,421 41,578 43,473 47,664 53,127 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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Reconciliation of Total Adjusted Segment EBITDA to Income Before Income Tax Provision and Net Income
In thousands, except for per share data
data
Q2 2016
Adjusted Segment EBITDA
Corporate Finance & Restructuring $ 32,041 Forensic and Litigation Consulting 15,190 Economic Consulting 15,381 Technology 5,035 Strategic Communications 8,440
Total Adjusted Segment EBITDA (1) $ 76,087
Segment depreciation expense (7,179) Amortization of intangible assets (2,590) Special charges (1,750) Unallocated corporate expenses, excluding special
(20,406) charges Interest income and other 4,125 Interest expense (6,303)
Income before income tax provision $ 41,984
Income tax provision (15,437)
Net Income $ 26,547
(1) See “End Notes: FTI Consulting Non-GAAP Data Reconciliations” for the definition of Total Adjusted Segment EBITDA.
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End Notes: FTI Consulting Non-GAAP Data Reconciliations
We have included the definitions of Segment Operating Income (Loss), Adjusted Segment EBITDA and Adjusted Segment EBITDA Margin, GAAP measures, below in order to more fully define the components of the certain non-GAAP measures presented in this presentation. 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. 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 Adjusted Segment EBITDA Margin as Adjusted Segment EBITDA as a percentage of a segment’s revenues. 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 define non-GAAP measures, Total Adjusted Segment EBITDA as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses and 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 believe that our non-GAAP financial measures, when considered together with our GAAP financial results and GAAP measures, 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. They are 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.
We define Adjusted Net Income and Adjusted Earnings Per Diluted Share (“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. 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.
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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