FCN FTI Consulting Inc

 

 

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): October 29, 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))

 

 

 

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ITEM 2.02. Results of Operations and Financial Condition

On October 29, 2015, FTI Consulting, Inc. (“FTI Consulting”) announced financial results for the three- and nine-months ended September 30, 2015 and updated guidance for the year ending December 31, 2015. A copy of the press release (including accompanying financial tables) is attached as Exhibit 99.1 to this Current Report on Form 8-K and hereby is incorporated by reference herein.

ITEM 7.01. Regulation FD Disclosure

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.

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

 

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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 accompanying tables to the press release.

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		Press Release dated October 29, 2015 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: October 30, 2015				By:		/S/ CURTIS LU
						Curtis Lu
						General Counsel

 

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EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Press Release dated October 29, 2015 of FTI Consulting, Inc.

 

5

Exhibit 99.1

 

FTI Consulting, Inc.

1101 K Street NW

Washington, DC 20005

+1.202.312.9100

Investor Contact:

Abaigeal Healy

+1.617.747.1727

abaigeal.healy@fticonsulting.com

Media Contact:

Nicole Madison

+1.212.850.5647

nicole.madison@fticonsulting.com

FTI Consulting Reports Third Quarter 2015 Results

• Third Quarter Revenues of $455.5 Million

• Third Quarter Adjusted EPS of $0.53; Fully Diluted EPS of $0.25

• Company Updates Revenue Guidance for 2015 of between $1.74 Billion and $1.78 Billion and

Adjusted EPS Guidance of between $1.80 and $1.95

Washington, D.C., Oct. 29, 2015 — FTI Consulting, Inc. (NYSE: FCN) (the “Company”), the global business advisory firm dedicated to helping organizations protect and enhance their enterprise value, today released its financial results for the quarter ended September 30, 2015.

For the quarter, revenues increased 1.0 percent to $455.5 million compared to $451.2 million in the prior year quarter. Excluding the estimated negative impact of foreign currency translation (“FX”), revenues increased 4.1 percent compared to the prior year quarter. Fully diluted earnings per share (“EPS”) were $0.25 compared to $0.55 in the prior year quarter. EPS in the quarter includes a $19.6 million loss on early extinguishment of debt, which decreased EPS by $0.28. EPS in the prior year quarter included a special charge of $5.3 million, which decreased EPS by $0.08. Adjusted EPS and Adjusted EBITDA, which exclude the loss on extinguishment of debt and special charges, were $0.53 and $56.1 million, respectively, compared to $0.63 and $63.4 million, respectively, in the prior year quarter. Adjusted EBITDA was 12.3 percent of revenues as compared to 14.1 percent of revenues in the prior year quarter.

Adjusted EPS, Adjusted EBITDA and Adjusted Segment EBITDA are non-GAAP measures defined elsewhere in this press release and are reconciled to GAAP measures in the accompanying financial tables.

Commenting on these results, Steven H. Gunby, President and Chief Executive Officer of FTI Consulting, said, “While we had a solid quarter, persistent headwinds facing three of our core businesses have caused us to downgrade our expectations for 2015 and our aspirational targets for 2016. Notwithstanding those headwinds, however, I am pleased that we continue to anticipate double-digit EPS growth.”

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Cash Position

Net cash provided by operating activities for the quarter was $74.0 million compared to net cash provided by operating activities of $97.6 million in the prior year quarter. Cash and cash equivalents were $105.0 million at September 30, 2015 compared to $178.8 million at September 30, 2014.

Third Quarter Segment Results

Corporate Finance & Restructuring

Revenues in the Corporate Finance & Restructuring (f/k/a Corporate Finance/Restructuring) segment increased $13.4 million or 13.4 percent to $113.5 million in the quarter compared to $100.0 million in the prior year quarter. Excluding the estimated negative impact of FX, revenues increased $17.8 million or 17.8 percent compared to the prior year quarter. The increase in revenues was driven by higher demand for distressed service offerings in North America. Adjusted Segment EBITDA was $26.7 million, or 23.5 percent of segment revenues, compared to $15.5 million, or 15.5 percent of segment revenues in the prior year quarter. The increase in Adjusted Segment EBITDA margin was due to the higher demand for distressed service offerings, which contributed to improvements in staff leverage and utilization.

Forensic and Litigation Consulting

Revenues in the Forensic and Litigation Consulting segment decreased $5.6 million or 4.6 percent to $116.2 million in the quarter compared to $121.7 million in the prior year quarter. Excluding the estimated negative impact of FX, revenues decreased $2.8 million or 2.3 percent. The decrease in revenues was driven by lower demand in the global disputes and investigations practices, which was partially offset by higher demand in the financial and enterprise data analytics practice and success fees in the health solutions practice. Adjusted Segment EBITDA was $13.4 million, or 11.5 percent of segment revenues, compared to $22.3 million, or 18.3 percent of segment revenues in the prior year quarter. The decrease in Adjusted Segment EBITDA margin was due to lower demand in the global disputes and investigations practices coupled with the ramp up of hiring in certain core practices and higher bad debt expenses compared to recoveries in the prior year quarter. These decreases were partially offset by the increase in success fees.

Economic Consulting

Revenues in the Economic Consulting segment decreased $6.0 million or 4.9 percent to $114.5 million in the quarter compared to $120.5 million in the prior year quarter. Revenues increased $1.7 million, or 1.4 percent, from an acquisition as compared to the same prior year period. Excluding the estimated negative impact of FX, revenues declined organically $5.0 million or 4.2 percent. The decline in organic revenues was driven by decreased demand in non-mergers and acquisitions (“M&A”) related antitrust and financial economics services, which was partially offset by higher demand for M&A and international arbitration services. Adjusted Segment EBITDA was $16.7 million, or 14.5 percent of segment revenues, compared to $18.4 million, or 15.3 percent of segment revenues in the prior year quarter. The decrease in Adjusted Segment EBITDA margin was impacted by lower revenue realization in the international arbitration, regulatory and valuation practices in the Europe, Middle East and Africa (“EMEA”) region. Lower utilization in the antitrust and financial economics practices were offset by lower variable compensation.

Technology

Revenues in the Technology segment decreased $6.8 million or 10.9 percent to $55.6 million in the quarter compared to $62.4 million in the prior year quarter. Excluding the estimated negative impact of FX, revenues decreased $5.9 million, or 9.4 percent. The decline in revenues was impacted by a decline in consulting and a decline in other services related to financial services and cross-border investigations, which were partially offset by higher M&A-related “second request” work. Adjusted Segment EBITDA was $10.8 million, or 19.5 percent of segment revenues, compared to $17.8 million, or 28.6 percent of segment revenues in the prior year quarter. The decrease in Adjusted Segment EBITDA margin was due to lower utilization and realized pricing related to client mix and reduced licensing revenues.

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Strategic Communications

Revenues in the Strategic Communications segment increased $9.2 million or 19.7 percent to $55.7 million in the quarter compared to $46.6 million in the prior year quarter. Excluding the estimated negative impact of FX, revenues increased $12.4 million or 26.7 percent with $9.3 million of higher pass-through income and higher M&A and public affairs project revenues in EMEA and North America. Adjusted Segment EBITDA was $8.7 million, or 15.6 percent of segment revenues, compared to $6.6 million, or 14.2 percent of segment revenues in the prior year quarter. The increase in Adjusted Segment EBITDA margin was due to an increase in higher priced project revenues combined with improved staff leverage.

2015 Guidance Update

The Company now estimates that revenue for 2015 will be between $1.74 billion and $1.78 billion and Adjusted EPS will be between $1.80 and $1.95.

Third Quarter 2015 Conference Call

FTI Consulting will host a conference call for analysts and investors to discuss third quarter 2015 financial results at 9:00 a.m. Eastern Time on October 29, 2015. The call can be accessed live and will be available for replay over the Internet for 90 days by logging onto the Company’s website at www.fticonsulting.com.

About FTI Consulting

FTI Consulting, Inc. is a global business advisory firm dedicated to helping organizations protect and enhance enterprise value in an increasingly complex legal, regulatory and economic environment. With more than 4,400 employees located in 26 countries, FTI Consulting professionals work closely with clients to anticipate, illuminate and overcome complex business challenges in areas such as investigations, litigation, mergers and acquisitions, regulatory issues, reputation management, strategic communications and restructuring. The company generated $1.76 billion in revenues during fiscal year 2014. More information can be found at www.fticonsulting.com.

Use of Non-GAAP Measures

Note: 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 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 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

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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. Reconciliations of GAAP to non-GAAP financial measures are included in the financial tables accompanying this press release.

Safe Harbor Statement

This press release 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 future financial results. When used in this press release, words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” “forecasts” 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 future financial results, are based upon our expectations at the time we make them and various assumptions. Our expectations, beliefs and projections 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 and estimates will be achieved, and the Company’s actual results may differ materially from our expectations, beliefs and estimates. Further, preliminary results are subject to normal year-end adjustments. 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.

FINANCIAL TABLES FOLLOW

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FTI CONSULTING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE THREE MONTHS ENDED September 30, 2015 AND 2014

(in thousands, except per share data)

(unaudited)

 

		Three Months Ended
		September 30,
		2015				2014
Revenues		$	455,470			$	451,178
Operating expenses
Direct cost of revenues			301,609				293,244
Selling, general and administrative expenses			105,058				102,461
Special charges			—				5,347
Acquisition-related contingent consideration			159				257
Amortization of other intangible assets			2,900				3,398
			409,726				404,707
Operating income			45,744				46,471
Other income (expense)
Interest income and other			2,027				1,014
Interest expense			(11,696	)			(12,634	)
Loss on early extinguishment of debt			(19,589	)			—
			(29,258	)			(11,620	)
Income before income tax provision			16,486				34,851
Income tax provision			6,177				12,329
Net income		$	10,309			$	22,522
Earnings per common share - basic		$	0.25			$	0.57
Earnings per common share - diluted		$	0.25			$	0.55
Weighted average common shares outstanding - basic			41,094				39,789
Weighted average common shares outstanding - diluted			41,982				40,819
Other comprehensive loss, net of tax:
Foreign currency translation adjustments, net of tax of $0		$	(17,229	)		$	(22,542	)
Total other comprehensive loss, net of tax			(17,229	)			(22,542	)
Comprehensive loss		$	(6,920	)		$	(20	)

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FTI CONSULTING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE Nine MONTHS ENDED September 30, 2015 AND 2014

(in thousands, except per share data)

(unaudited)

 

		Nine Months Ended
		September 30,
		2015				2014
Revenues		$	1,336,945			$	1,331,054
Operating expenses
Direct cost of revenues			872,108				863,068
Selling, general and administrative expenses			316,317				317,880
Special charges			—				14,711
Acquisition-related contingent consideration			(1,145	)			(1,591	)
Amortization of other intangible assets			8,919				11,466
			1,196,199				1,205,534
Operating income			140,746				125,520
Other income (expense)
Interest income and other			2,840				3,465
Interest expense			(36,537	)			(38,197	)
Loss on early extinguishment of debt			(19,589	)			—
			(53,286	)			(34,732	)
Income before income tax provision			87,460				90,788
Income tax provision			31,756				32,902
Net income		$	55,704			$	57,886
Earnings per common share - basic		$	1.37			$	1.46
Earnings per common share - diluted		$	1.34			$	1.43
Weighted average common shares outstanding - basic			40,771				39,637
Weighted average common shares outstanding - diluted			41,682				40,608
Other comprehensive loss, net of tax:
Foreign currency translation adjustments, net of tax of $0		$	(24,412	)		$	(10,120	)
Total other comprehensive loss, net of tax			(24,412	)			(10,120	)
Comprehensive income		$	31,292			$	47,766

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FTI CONSULTING, INC.

OPERATING RESULTS BY BUSINESS SEGMENT

 

																		Average				Revenue-
						Adjusted												Billable				Generating
		Revenues				EBITDA				Margin				Utilization				Rate				Headcount
		(in thousands)																				(at period end)
Three Months Ended September 30, 2015
Corporate Finance/Restructuring		$	113,487			$	26,662				23.5	%			69	%		$	390				830
Forensic and Litigation Consulting			116,158				13,406				11.5	%			60	%		$	318				1,209
Economic Consulting			114,541				16,654				14.5	%			71	%		$	523				594
Technology (1)			55,568				10,813				19.5	%			N/M				N/M				354
Strategic Communications (1)			55,716				8,717				15.6	%			N/M				N/M				594
		$	455,470				76,252				16.7	%											3,581
Selling, general and administrative expenses							(20,150	)
Adjusted EBITDA						$	56,102				12.3	%
Nine Months Ended September 30, 2015
Corporate Finance/Restructuring		$	328,812			$	71,174				21.6	%			71	%		$	382				830
Forensic and Litigation Consulting			365,554				55,456				15.2	%			65	%		$	315				1,209
Economic Consulting			329,320				43,502				13.2	%			72	%		$	506				594
Technology (1)			172,048				33,052				19.2	%			N/M				N/M				354
Strategic Communications (1)			141,211				20,100				14.2	%			N/M				N/M				594
		$	1,336,945				223,284				16.7	%											3,581
Corporate							(52,725	)
Adjusted EBITDA						$	170,559				12.8	%
Three Months Ended September 30, 2014
Corporate Finance/Restructuring		$	100,041			$	15,534				15.5	%			70	%		$	396				722
Forensic and Litigation Consulting			121,732				22,260				18.3	%			68	%		$	323				1,135
Economic Consulting			120,494				18,426				15.3	%			77	%		$	535				551
Technology (1)			62,359				17,835				28.6	%			N/M				N/M				335
Strategic Communications (1)			46,552				6,605				14.2	%			N/M				N/M				549
		$	451,178				80,660				17.9	%											3,292
Corporate							(17,265	)
Adjusted EBITDA						$	63,395				14.1	%
Nine Months Ended September 30, 2014
Corporate Finance/Restructuring		$	298,043			$	45,618				15.3	%			71	%		$	388				722
Forensic and Litigation Consulting			362,242				71,025				19.6	%			71	%		$	323				1,135
Economic Consulting			344,572				49,499				14.4	%			77	%		$	517				551
Technology (1)			183,142				50,287				27.5	%			N/M				N/M				335
Strategic Communications (1)			143,055				15,168				10.6	%			N/M				N/M				549
		$	1,331,054				231,597				17.4	%											3,292
Corporate							(57,103	)
Adjusted EBITDA						$	174,494				13.1	%

 

(1)	The majority of the Technology and Strategic Communications segments’ revenues are not generated based on billable hours. Accordingly, utilization and average billable rate metrics are not presented as they are not meaningful as a segment-wide metric.

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FTI CONSULTING, INC.

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES

FOR THE THREE AND Nine MONTHS ENDED September 30, 2015 AND 2014

(in thousands, except per share data)

 

		Three Months Ended September 30,								Nine Months Ended September 30,
		2015				2014				2015				2014
Net income		$	10,309			$	22,522			$	55,704			$	57,886
Add back:
Special charges, net of tax effect (1)			—				3,154				—				8,676
Remeasurement of acquisition-related contingent consideration, net of tax effect (2)			—				—				(1,005	)			(1,514	)
Loss on early extinguishment of debt, net of tax effect (3)			11,881				—				11,881				—
Adjusted net income		$	22,190			$	25,676			$	66,580			$	65,048
Earnings per common share – diluted		$	0.25			$	0.55			$	1.34			$	1.43
Add back:
Special charges, net of tax effect (1)			—				0.08				—				0.21
Remeasurement of acquisition-related contingent consideration, net of tax effect (2)			—				—				(0.02	)			(0.04	)
Loss on early extinguishment of debt, net of tax effect (3)			0.28				—				0.28				—
Adjusted EPS – diluted		$	0.53			$	0.63			$	1.60			$	1.60
Weighted average number of common shares outstanding – diluted			41,982				40,819				41,682				40,608

 

(1)

The tax effect takes into account the tax treatment and related tax rate(s) that apply to each adjustment in the applicable tax jurisdiction(s). As a result, the effective tax rate for the adjustments related to special charges for the three and nine months ended September 30, 2014 was 41.0%. The tax expense related to the adjustment for special charges for the three and nine months ended September 30, 2014 was $2.2 million, or a $0.05 impact on diluted earnings per share, and $6.0 million, or a $0.15 impact on diluted earnings per share, respectively. During the three and nine months ended, September 30, 2015, there were no special charges.

(2)

The tax effect takes into account the tax treatment and related tax rate(s) that apply to each adjustment in the applicable tax jurisdiction(s). As a result, the effective tax rates for the adjustments related to the remeasurement of acquisition-related contingent consideration for the nine months ended September 30, 2015 was 40.0%. The tax expense related to the remeasurement of acquisition-related contingent consideration for the nine months ended September 30, 2015 was $0.7 million, or a $0.02 impact on diluted earnings per share. The effective tax rates for the adjustments related to the remeasurement of acquisition-related contingent consideration for the nine months ended September 30, 2014 was 36.5%. The tax expense related to the remeasurement of acquisition-related contingent consideration for the nine months ended September 30, 2014 was $0.9 million, or a $0.02 impact on diluted earnings per share. There were no adjustments related to the remeasurrement of acquisition-related contingent consideration for the three months ended September 30, 2015 and 2014.

(3)

The tax effect takes into account the tax treatment and related tax rate(s) that apply to each adjustment in the applicable tax jurisdiction(s). As a result, the effective tax rates for the loss on early extinguishment of debt for the three and nine months ended September 30, 2015 was 39.3%. The tax expense related to the loss on early extinguishment of debt for the three and nine months ended September 30, 2015 was $7.7 million, or a $0.18 impact on diluted earnings per share. During the three and nine months ended, September 30, 2014, there was no loss on early extinguishment of debt.

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RECONCILIATION OF NET INCOME AND OPERATING INCOME TO ADJUSTED EBITDA

(in thousands)

 

Three Months Ended September 30, 2015		Corporate Finance / Restructuring				Forensic and Litigation Consulting				Economic Consulting				Technology				Strategic Communications				Corp HQ				Total
Net income																										$	10,309
Interest income and other																											(2,027	)
Interest expense																											11,696
Loss on extinguishment of debt																											19,589
Income tax provision																											6,177
Operating income		$	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		$	26,662			$	13,406			$	16,654			$	10,813			$	8,717			$	(20,150	)		$	56,102
Nine Months Ended September 30, 2015
Net income																										$	55,704
Interest income and other																											(2,840	)
Interest expense																											36,537
Loss on extinguishment of debt																											19,589
Income tax provision																											31,756
Operating income		$	67,782			$	50,894			$	40,076			$	21,493			$	15,558			$	(55,057	)		$	140,746
Depreciation and amortization			2,141				2,862				2,686				10,969				1,579				2,332				22,569
Amortization of other intangible assets			2,742				1,700				924				590				2,963				—				8,919
Remeasurement of acquisition-related contingent consideration			(1,491	)			—				(184	)			—				—				—				(1,675	)
Adjusted EBITDA		$	71,174			$	55,456			$	43,502			$	33,052			$	20,100			$	(52,725	)		$	170,559
Three Months Ended September 30, 2014		Corporate Finance / Restructuring				Forensic and Litigation Consulting				Economic Consulting				Technology				Strategic Communications				Corp HQ				Total
Net income																										$	22,522
Interest income and other																											(1,014	)
Interest expense																											12,634
Income tax provision																											12,329
Operating income		$	13,406			$	20,276			$	17,245			$	13,741			$	4,875			$	(23,072	)		$	46,471
Depreciation and amortization			869				1,023				934				3,857				610				886				8,179
Amortization of other intangible assets			1,175				653				235				218				1,117				—				3,398
Special charges			84				308				12				19				3				4,921				5,347
Adjusted EBITDA		$	15,534			$	22,260			$	18,426			$	17,835			$	6,605			$	(17,265	)		$	63,395
Nine Months Ended September 30, 2014
Net income																										$	57,886
Interest income and other																											(3,465	)
Interest expense																											38,197
Income tax provision																											32,902
Operating income		$	39,081			$	66,517			$	46,515			$	37,712			$	9,910			$	(74,215	)		$	125,520
Depreciation and amortization			2,514				3,057				2,996				11,902				1,884				2,827				25,180
Amortization of other intangible assets			4,601				2,077				763				654				3,371				—				11,466
Special charges			84				308				12				19				3				14,285				14,711
Remeasurement of acquisition-related contingent consideration			(662	)			(934	)			(787	)			—				—				—				(2,383	)
Adjusted EBITDA		$	45,618			$	71,025			$	49,499			$	50,287			$	15,168			$	(57,103	)		$	174,494

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FTI CONSULTING, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE Nine MONTHS ENDED September 30, 2015 AND 2014

(in thousands)

(unaudited)

 

		Nine Months Ended
		September 30,
		2015				2014
Operating activities
Net income		$	55,704			$	57,886
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization			22,569				26,318
Amortization of other intangible assets			8,919				11,466
Selling, general and administrative expenses			(1,145	)			(1,591	)
Provision for doubtful accounts			10,364				11,896
Non-cash share-based compensation			14,356				18,930
Non-cash interest expense			2,029				2,020
Loss on early extinguishment of debt			19,589				—
Other			(674	)			(358	)
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, billed and unbilled			(84,411	)			(107,847	)
Notes receivable			(334	)			(18,266	)
Prepaid expenses and other assets			(4,396	)			7,099
Accounts payable, accrued expenses and other			10,158				10,538
Income taxes			15,371				8,315
Accrued compensation			(19,518	)			(16,958	)
Billings in excess of services provided			(5,278	)			11,031
Net cash provided by operating activities			43,303				20,479
Investing activities
Payments for acquisition of businesses, net of cash received			(575	)			(15,684	)
Purchases of property and equipment			(24,674	)			(31,797	)
Other			94				69
Net cash used in investing activities			(25,155	)			(47,412	)
Financing activities
Borrowings under revolving line of credit, net			220,000				—
Payments of long-term debt			(425,671	)			(6,014	)
Payments of debt financing fees			(3,701	)			—
Purchase and retirement of common stock			—				(4,367	)
Net issuance of common stock under equity compensation plans			13,931				(29	)
Deposits			2,406				12,956
Other			124				(1,036	)
Net cash (used in) provided by financing activities			(192,911	)			1,510
Effect of exchange rate changes on cash and cash equivalents			(3,943	)			(1,632	)
Net decrease in cash and cash equivalents			(178,706	)			(27,055	)
Cash and cash equivalents, beginning of period			283,680				205,833
Cash and cash equivalents, end of period		$	104,974			$	178,778

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FTI CONSULTING, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

AT September 30, 2015 AND DECEMBER 31, 2014

(in thousands, except per share amounts)

 

		September 30,				December 31,
		2015				2014
		(unaudited)
Assets
Current assets
Cash and cash equivalents		$	104,974			$	283,680
Accounts receivable:
Billed receivables			426,947				381,464
Unbilled receivables			310,778				248,462
Allowance for doubtful accounts and unbilled services			(183,325	)			(144,825	)
Selling, general and administrative expenses			554,400				485,101
Current portion of notes receivable			35,097				27,208
Prepaid expenses and other current assets			55,166				60,852
Current portion of deferred tax assets			38,842				27,332
Total current assets			788,479				884,173
Property and equipment, net of accumulated depreciation			77,716				82,163
Goodwill			1,199,490				1,211,689
Other intangible assets, net of amortization			67,252				77,034
Notes receivable, net of current portion			112,711				122,149
Other assets			48,364				53,319
Total assets		$	2,294,012			$	2,430,527
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable, accrued expenses and other		$	101,464			$	99,494
Accrued compensation			203,492				220,959
Current portion of long-term debt			—				11,000
Billings in excess of services provided			29,554				35,639
Total current liabilities			334,510				367,092
Long-term debt, net of current portion			520,000				700,000
Deferred income taxes			178,180				161,932
Other liabilities			98,919				98,757
Total liabilities			1,131,609				1,327,781
Stockholders’ equity
Preferred stock, $0.01 par value; shares authorized — 5,000; none outstanding			—				—
Common stock, $0.01 par value; shares authorized — 75,000; shares issued and outstanding — 41,887 (2015) and 41,181 (2014)			419				412
Additional paid-in capital			421,532				393,174
Retained earnings			845,132				789,428
Accumulated other comprehensive loss			(104,680	)			(80,268	)
Total stockholders’ equity			1,162,403				1,102,746
Total liabilities and stockholders’ equity		$	2,294,012			$	2,430,527