NCI Navigant Consulting Inc

 

 

UNITED STATES

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 27, 2015

 

 

Navigant Consulting, Inc.

(Exact Name of Registrant as Specified in Charter)

 

 

 

Delaware		1-12173		36-4094854
(State or Other Jurisdiction of Incorporation)		(Commission File Number)		(I.R.S. Employer Identification No.)

 

30 South Wacker Drive, Suite 3550, Chicago, Illinois		60606
(Address of Principal Executive Offices)		(Zip Code)

(312) 573-5600

(Registrant’s telephone number, including area code)

Not Applicable

(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 (see General Instruction A.2. below):

 

¨

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 27, 2015, Navigant Consulting, Inc. issued a press release announcing its financial results for the third quarter ended September 30, 2015. A copy of the press release is attached hereto as Exhibit 99.1.

 

Item 9.01.

Financial Statements and Exhibits.

 

(d)

Exhibits.

Exhibit No.

 

99.1		Press Release dated October 27, 2015.

 

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

 

		NAVIGANT CONSULTING, INC.
Date: October 27, 2015		By:		/s/ Lucinda M. Baier
				Name:		Lucinda M. Baier
				Title:		Executive Vice President and Chief Financial Officer

 

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EXHIBIT INDEX

 

Exhibit No.		Description
99.1		Press Release dated October 27, 2015.

 

4

Exhibit 99.1

 

NAVIGANT REPORTS THIRD QUARTER 2015 FINANCIAL RESULTS

CHICAGO, October 27, 2015 – Navigant (NYSE: NCI) today announced financial results for the third quarter ended September 30, 2015.

Financial Summary and Highlights:

 

•

Third quarter 2015 revenues before reimbursements (RBR) increased 2% year-over-year; on a year-to-date basis through the end of the third quarter 2015, RBR increased 10% compared to the same period last year.

 

•

Healthcare RBR increased 18% year-over-year for third quarter 2015 with 13% organic growth.

 

•

Energy segment RBR for third quarter 2015 increased 5% compared to third quarter 2014, all on an organic basis.

 

•

Tightened financial outlook for 2015.

Navigant reported third quarter 2015 RBR of $209.6 million, a 2% increase compared to $205.5 million for third quarter 2014, with year-over-year organic growth of 1%. Total revenues for third quarter 2015 were $230.3 million compared to $230.1 million for third quarter 2014. Net income from continuing operations for third quarter 2015 was $14.2 million, or $0.29 per share, compared to $16.3 million, or $0.33 per share, in the prior year quarter. Adjusted earnings per share (EPS) was $0.30 for third quarter 2015 compared to $0.32 for third quarter 2014. Third quarter 2015 adjusted EBITDA was $31.6 million compared to $36.3 million for the same period in 2014.

“Our third quarter results were in line with our expectations, further solidifying strong year-to-date performance in 2015,” commented Julie Howard, Chairman and Chief Executive Officer. “We are making steady progress on the execution of our growth strategy, reflected by strength in the key growth sectors in which we have invested over the last several years and increasing the percentage of our overall revenue coming from our technology, data and process businesses. I am also encouraged by our margin improvement initiatives and remain confident we will continue to make progress on our longer term earnings goals.”

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Segment Financial Summary

 

		For the quarter ended September 30,
		2015				2014				Change
RBR ($000)
Disputes, Investigations & Economics		$	80,099			$	79,862				0.3	%
Financial, Risk & Compliance			28,302				37,251				-24.0	%
Healthcare			74,500				62,964				18.3	%
Energy			26,733				25,457				5.0	%
Total Company		$	209,634			$	205,534				2.0	%
Total Revenues ($000)
Disputes, Investigations & Economics		$	86,826			$	85,518				1.5	%
Financial, Risk & Compliance			31,069				44,878				-30.8	%
Healthcare			80,821				69,035				17.1	%
Energy			31,542				30,708				2.7	%
Total Company		$	230,258			$	230,139				0.1	%
Segment Operating Profit ($000)
Disputes, Investigations & Economics		$	28,445			$	27,264				4.3	%
Financial, Risk & Compliance			10,383				17,246				-39.8	%
Healthcare			24,091				18,726				28.7	%
Energy			7,698				8,766				-12.2	%
Total Company		$	70,617			$	72,002				-1.9	%
Segment Operating Margin (% of RBR)
Disputes, Investigations & Economics			35.5	%			34.1	%
Financial, Risk & Compliance			36.7	%			46.3	%
Healthcare			32.3	%			29.7	%
Energy			28.8	%			34.4	%
Total Company			33.7	%			35.0	%

RBR for the Healthcare segment increased 18% year-over-year for third quarter 2015 with 13% organic growth for the period. Overall RBR growth for the segment was driven by increased demand in all areas of healthcare consulting and business process management services. Segment operating profit margin increased to 32% compared to 30% in the same period last year, driven by better operating leverage within the segment.

The Energy segment RBR for third quarter 2015 increased 5% compared to third quarter 2014, all of which represented organic growth. The RBR growth in the quarter was partially driven by an increase in market intelligence and strategy and operations engagements, reflecting the benefits of increased client penetration from the segment’s key client accounts program. Third quarter 2015 segment operating profit was down 12% compared to the same period last year, as higher RBR was offset by higher compensation and benefits expenses associated with senior hiring to expand the segment’s capabilities.

 

2

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The Disputes, Investigations & Economics segment RBR results for third quarter 2015 were steady compared to the same period of the prior year. Performance was driven by continued demand for our global construction expertise, international arbitration, financial services disputes, healthcare disputes and commercial litigation consulting, offset by lower contributions from forensic investigations and economic consulting engagements. Segment operating profit increased 4% in third quarter 2015 compared to the same period of 2014, driven by better alignment of resources and higher utilization.

The Financial, Risk & Compliance segment RBR for third quarter 2015 decreased 24% compared to the prior year quarter, primarily reflecting the continued lower volume of work from an ongoing large financial institution client due to the extension of a regulatory deadline. Third quarter 2015 segment operating profit was down 40% year-over-year largely as a result of lower RBR and our decision to maintain capabilities in the segment based on expected future market demand.

Cash Flow

Free cash flow was $18.2 million for third quarter 2015 compared to $24.0 million for the same period in 2014, reflecting the impact of increased capital investment spending. Days Sales Outstanding (DSO) was 81 days as of September 30, 2015, up 4 days compared to September 30, 2014.

Bank debt was $146.8 million at September 30, 2015 compared to $158.0 million at September 30, 2014. Leverage (bank debt divided by trailing twelve month adjusted EBITDA) was 1.22 at September 30, 2015 compared to 1.36 at September 30, 2014.

Navigant repurchased 399,200 shares of common stock during third quarter 2015 at an aggregate cost of $6.1 million and an average cost of $15.35 per share. As of September 30, 2015, $93.9 million remained on the Company’s share repurchase authorization.

2015 Outlook

Navigant updated its 2015 financial outlook. Full year 2015 RBR is now expected to range between $822.5 and $837.5 million while 2015 total revenues are estimated to be between $907.5 and $922.5 million. Adjusted EBITDA for full year 2015 is now expected to range between $115.0 and $120.0 million and adjusted EPS for full year 2015 is estimated to be between $0.96 and $1.01.

Non-GAAP Financial Information and Key Operating Metrics

This press release includes certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles (GAAP) are included in the financial schedules attached to this press release. This information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP.

 

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As used in this press release, organic growth represents RBR adjusted to include the impact of acquisitions as if the Company owned them from the beginning of each comparable period and adjusted to exclude the impact of foreign currency exchange rate fluctuations. Our definition of organic growth may not be comparable to similarly titled metrics at other companies. Management believes that organic growth reflects the growth of our existing business and is, therefore, useful in analyzing the Company’s financial condition and results of operations.

Conference Call Details

Navigant will host a conference call to discuss the Company’s third quarter 2015 results at 10:00 a.m. Eastern Time (9:00 a.m. Central Time) on Tuesday, October 27, 2015. The conference call may be accessed via the Navigant website (www.navigant.com/investor_relations) or by dialing 888.455.9733 (630.395.0358 for international callers) and referencing pass code “NCI.” An archived version of the webcast will also be available via the Navigant website. A report of financial and related supplemental information is also available via the Navigant website.

About Navigant

Navigant Consulting, Inc. (NYSE: NCI) is an independent specialized, global professional services firm that combines deep industry knowledge with technical expertise to enable companies to defend, protect and create value. With a focus on industries and clients facing transformational change and significant regulatory and legal issues, the Firm serves clients primarily in the healthcare, energy and financial services sectors which represent highly complex market and regulatory environments. Professional service offerings include strategic, financial, operational, technology, risk management, compliance, investigative solutions, dispute resolutions services and business process management services. The Firm provides services to companies, legal counsel and governmental agencies. The business is organized in four reporting segments – Disputes, Investigations & Economics; Financial, Risk & Compliance; Healthcare; and Energy. More information about Navigant can be found at navigant.com.

Statements included in this press release which are not historical in nature are forward-looking statements as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements may generally be identified by words such as “anticipate,” “believe,” “intend,” “estimate,” “expect,” “plan,” “outlook” and similar expressions. These statements are based upon management’s current expectations and speak only as of the date of this press release. The Company cautions readers that there may be events in the future that the Company is not able to accurately predict or control and the information contained in the forward-looking statements is inherently uncertain and subject to a number of risks that could cause actual results to differ materially from those contained in or implied by the forward-looking statements including, without limitation: the success of the Company’s organizational changes and margin improvement initiatives; risks inherent in international operations, including foreign currency fluctuations; ability to make acquisitions and divestitures; pace, timing and

 

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integration of acquisitions and separation of divestitures; operational risks associated with new or expanded service areas, including business process management services; impairments; management of professional staff, including dependence on key personnel, recruiting, attrition and the ability to successfully integrate new consultants into the Company’s practices; utilization rates; conflicts of interest; potential loss of clients or large engagements; clients’ financial condition and their ability to make payments to the Company; risks inherent with litigation; higher risk client assignments; professional liability; potential legislative and regulatory changes; continued access to capital; and market and general economic conditions. Further information on these and other potential factors that could affect the Company’s financial results are included under the “Risk Factors” section and elsewhere in the Company’s filings with the Securities and Exchange Commission (SEC), which are available on the SEC’s website or at www.navigant.com/investor_relations. The Company cannot guarantee any future results, levels of activity, performance or achievement and undertakes no obligation to update any of its forward-looking statements.

For additional information contact:

Aaron Miles

Investor Relations

312.583.5820

aaron.miles@navigant.com

###

 

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NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(In thousands, except per share data(1))

(Unaudited)

 

		For the quarter ended September 30,								For the nine months ended September 30,
		2015				2014				2015				2014
Revenues:
Revenues before reimbursements		$	209,634			$	205,534			$	621,813			$	567,094
Reimbursements			20,624				24,605				65,055				68,890
Total revenues			230,258				230,139				686,868				635,984
Costs of services:
Cost of services before reimbursable expenses			141,731				135,859				425,699				382,779
Reimbursable expenses			20,624				24,605				65,055				68,890
Total costs of services			162,355				160,464				490,754				451,669
General and administrative expenses			36,629				34,067				111,362				101,406
Depreciation expense			5,954				5,116				17,033				14,378
Amortization expense			2,084				1,673				6,650				4,668
Other operating costs (benefit):
Contingent acquisition liability adjustments, net			—				(834	)			(12,625	)			(4,438	)
Office consolidation, net			—				—				2,740				—
Loss on disposition of assets			283				—				283				—
Goodwill impairment			—				—				—				122,045
Other impairment			—				—				98				204
Operating income (loss)			22,953				29,653				70,573				(53,948	)
Interest expense			1,018				1,942				3,988				4,177
Interest income			(77	)			(56	)			(178	)			(216	)
Other (income) expense, net			(328	)			(57	)			(480	)			211
Income (loss) from continuing operations before income tax (benefit) expense			22,340				27,824				67,243				(58,120	)
Income tax (benefit) expense			8,164				11,563				20,097				(8,892	)
Net income (loss) from continuing operations			14,176				16,261				47,146				(49,228	)
Income from discontinued operations, net of tax			—				—				—				509
Net income (loss)		$	14,176			$	16,261			$	47,146			$	(48,719	)
Basic per share data
Net income (loss) from continuing operations		$	0.30			$	0.33			$	0.98			$	(1.01	)
Income from discontinued operations, net of tax		$	—			$	—			$	—			$	0.01
Net income (loss) (1)		$	0.30			$	0.33			$	0.98			$	(1.00	)
Shares used in computing basic per share data			47,835				48,736				48,036				48,856
Diluted per share data
Net income (loss) from continuing operations		$	0.29			$	0.33			$	0.96			$	(1.01	)
Income from discontinued operations, net of tax		$	—			$	—			$	—			$	0.01
Net income (loss) (1)		$	0.29			$	0.33			$	0.96			$	(1.00	)
Shares used in computing diluted per share data (2)			49,155				49,827				49,297				48,856

 

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NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AND SELECTED DATA

(In thousands, except DSO data)

 

		September 30, 2015				December 31, 2014
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	4,017			$	2,648
Accounts receivable, net			221,159				187,652
Prepaid expenses and other current assets			30,536				27,142
Deferred income tax assets			15,283				13,455
Total current assets			270,995				230,897
Non-current assets:
Property and equipment, net			75,575				60,617
Intangible assets, net			26,830				26,502
Goodwill			579,876				568,091
Other assets			23,746				17,386
Total assets		$	977,022			$	903,493
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	9,104			$	11,735
Accrued liabilities			12,959				11,311
Accrued compensation-related costs			79,006				83,061
Income tax payable			4,512				1,763
Other current liabilities			37,641				52,526
Total current liabilities			143,222				160,396
Non-current liabilities:
Deferred income tax liabilities			84,385				76,329
Other non-current liabilities			20,645				14,387
Bank debt non-current			146,814				109,790
Total non-current liabilities			251,844				200,506
Total liabilities			395,066				360,902
Stockholders’ equity:
Common stock			64				64
Additional paid-in capital			625,484				611,882
Treasury stock			(293,810	)			(275,608	)
Retained earnings			265,483				218,337
Accumulated other comprehensive loss			(15,265	)			(12,084	)
Total stockholders’ equity			581,956				542,591
Total liabilities and stockholders’ equity		$	977,022			$	903,493
Selected Data
Days sales outstanding, net (DSO)			81				69

 

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NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

(Unaudited)

 

		For the quarter ended September 30,								For the nine months ended September 30,
		2015				2014				2015				2014
Cash flows from operating activities:
Net income (loss)		$	14,176			$	16,261			$	47,146			$	(48,719	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation expense			5,954				5,116				17,033				14,378
Accelerated depreciation - office consolidation			—				—				139				—
Amortization expense			2,084				1,673				6,650				4,668
Amortization expense - client-facing software			190				583				676				825
Share-based compensation expense			2,682				1,930				8,206				7,166
Accretion of interest expense			29				911				1,164				1,565
Deferred income taxes			2,024				3,193				6,710				(21,202	)
Allowance for doubtful accounts receivable			100				1,525				1,692				4,309
Contingent acquisition liability adjustments, net			—				(834	)			(12,625	)			(4,438	)
Loss on disposition of assets			283				—				283				—
Gain on disposition of discontinued operations			—				—				—				(509	)
Goodwill impairment			—				—				—				122,045
Other impairment			—				—				98				204
Changes in assets and liabilities (net of acquisitions and dispositions):
Accounts receivable			1,060				(9,229	)			(35,687	)			(38,522	)
Prepaid expenses and other assets			(5,356	)			(919	)			(7,717	)			(778	)
Accounts payable			(2,821	)			1,195				(2,685	)			(3,021	)
Accrued liabilities			727				570				2,171				(1,125	)
Accrued compensation-related costs			19,148				10,710				(3,748	)			(10,909	)
Income taxes payable			933				6,950				979				6,113
Other liabilities			(2,305	)			(278	)			3,618				(5,157	)
Net cash provided by operating activities			38,908				39,357				34,103				26,893
Cash flows from investing activities:
Purchases of property and equipment			(7,963	)			(4,123	)			(31,160	)			(15,065	)
Acquisitions of businesses, net of cash acquired			—				(4,346	)			(21,379	)			(89,180	)
Proceeds from dispositions, net of selling costs			—				—				—				824
Payments of acquisition liabilities			(666	)			(667	)			(2,196	)			(1,110	)
Capitalized client-facing software			(265	)			—				(611	)			(864	)
Net cash used in investing activities			(8,894	)			(9,136	)			(55,346	)			(105,395	)
Cash flows from financing activities:
Issuances of common stock			594				896				5,488				2,431
Repurchase of common stock			(6,126	)			(6,370	)			(18,207	)			(20,797	)
Payments of contingent acquisition liabilities			(592	)			—				(592	)			(107	)
Repayments to banks			(91,930	)			(74,306	)			(230,633	)			(231,201	)
Borrowings from banks			68,371				44,173				268,014				332,947
Other, net			(52	)			(193	)			(1,299	)			(2,474	)
Net cash provided by (used in) financing activities			(29,735	)			(35,800	)			22,771				80,799
Effect of exchange rate changes on cash and cash equivalents			(116	)			(21	)			(159	)			(13	)
Net increase (decrease) in cash and cash equivalents			163				(5,600	)			1,369				2,284
Cash and cash equivalents at beginning of the period			3,854				9,852				2,648				1,968
Cash and cash equivalents at end of the period		$	4,017			$	4,252			$	4,017			$	4,252

 

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NAVIGANT CONSULTING, INC. AND SUBSIDIARIES

RECONCILIATION OF NON-GAAP FINANCIAL MEASURES (3)

(In thousands, except per share data)

(Unaudited)

This press release includes certain non-GAAP financial measures as defined by the Securities and Exchange Commission. Below are the reconciliations of these non-GAAP financial measures to the most directly comparable financial measure calculated and presented in accordance with generally accepted accounting principles (GAAP). This information should be considered as supplemental in nature and not as a substitute for, or superior to, any measure of performance prepared in accordance with GAAP. Management uses these non-GAAP financial measures in addition to GAAP financial measures to assess the Company’s operations and financial results and believes they are useful indicators of operating performance and the Company’s ability to generate cash flows from operations that are available for interest, debt service, taxes and capital expenditures. Investors should recognize that these non-GAAP financial measures may not be comparable to similarly-titled measures of other companies.

 

EBITDA, adjusted EBITDA, adjusted Net Income and adjusted Earnings Per Share (4)		For the quarter ended September 30,								For the nine months ended September 30,
		2015				2014				2015				2014
Severance expense		$	283			$	675			$	5,339			$	3,152
Income tax benefit (5)			(117	)			(247	)			(1,869	)			(1,204	)
Tax-effected impact of severance expense		$	166			$	428			$	3,470			$	1,948
Other operating benefit - contingent acquisition liability adjustment, net		$	—			$	(834	)		$	(12,625	)		$	(4,438	)
Income tax (benefit) expense (5)(6)(7)			—				337				(1,090	)			1,790
Tax-effected impact of other operating benefit - contingent acquisition liability adjustment, net		$	—			$	(497	)		$	(13,715	)		$	(2,648	)
Other operating costs - office consolidation, net		$	—			$	—			$	2,740			$	—
Income tax benefit (5)			—				—				(1,108	)			—
Tax-effected impact of other operating costs - office consolidation, net		$	—			$	—			$	1,632			$	—
Other operating costs - loss on disposition of assets		$	283			$	—			$	283			$	—
Income tax expense (5)(8)			—				—				—				—
Tax-effected impact of other operating costs - loss on disposition of assets		$	283			$	—			$	283			$	—
Other operating costs - goodwill impairment		$	—			$	—			$	—			$	122,045
Income tax benefit (5)			—				—				—				(35,111	)
Tax-effected impact of other operating costs - goodwill impairment		$	—			$	—			$	—			$	86,934
Other operating costs - other impairment		$	—			$	—			$	98			$	204
Income tax benefit (5)			—				—				(40	)			(82	)
Tax-effected impact of other operating costs - other impairment		$	—			$	—			$	58			$	122
EBITDA reconciliation:
Operating income (loss)		$	22,953			$	29,653			$	70,573			$	(53,948	)
Depreciation expense			5,954				5,116				17,033				14,378
Accelerated depreciation - office consolidation			—				—				139				—
Amortization expense			2,084				1,673				6,650				4,668
EBITDA		$	30,991			$	36,442			$	94,395			$	(34,902	)
Severance expense			283				675				5,339				3,152
Other operating benefit - contingent acquisition liability adjustment, net			—				(834	)			(12,625	)			(4,438	)
Other operating costs - office consolidation, net			—				—				2,601				—
Other operating costs - loss on disposition of assets			283				—				283				—
Other operating costs - goodwill impairment			—				—				—				122,045
Other operating costs - other impairment			—				—				98				204
Adjusted EBITDA		$	31,557			$	36,283			$	90,091			$	86,061
Net income (loss) from continuing operations		$	14,176			$	16,261			$	47,146			$	(49,228	)
Tax-effected impact of severance expense			166				428				3,470				1,948
Tax-effected impact of other operating benefit - contingent acquisition liability adjustment, net			—				(497	)			(13,715	)			(2,648	)
Tax-effected impact of other operating costs - office consolidation, net			—				—				1,632				—
Tax-effected impact of other operating costs - loss on disposition of assets			283				—				283				—
Tax-effected impact of other operating costs - goodwill impairment			—				—				—				86,934
Tax-effected impact of other operating costs - other impairment			—				—				58				122
Adjusted net income		$	14,625			$	16,192			$	38,874			$	37,128
Shares used in computing adjusted per diluted share data (9)			49,155				49,827				49,297				50,112
Adjusted earnings per share		$	0.30			$	0.32			$	0.79			$	0.74

 

Free Cash Flow (10)		For the quarter ended September 30,								For the nine months ended September 30,
		2015				2014				2015				2014
Net cash provided by operating activities		$	38,908			$	39,357			$	34,103			$	26,893
Changes in assets and liabilities			(11,386	)			(8,999	)			43,069				53,399
Allowance for doubtful accounts receivable			(100	)			(1,525	)			(1,692	)			(4,309	)
Purchases of property and equipment			(7,963	)			(4,123	)			(31,160	)			(15,065	)
Payments of acquisition liabilities			(666	)			(667	)			(2,196	)			(1,110	)
Payments of contingent acquisition liabilities			(592	)			—				(592	)			(107	)
Free Cash Flow		$	18,201			$	24,043			$	41,532			$	59,701

 

Leverage Ratio (11)		At September 30,
		2015				2014
Adjusted EBITDA for prior twelve-month period		$	120,253			$	115,838
Bank debt		$	146,814			$	158,017
Leverage ratio			1.22				1.36

 

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Footnotes

(1)	Per share data may not sum due to rounding.

(2)

For the nine months ended September 30, 2014, the Company reported a net loss. For those periods, the basic weighted average common shares outstanding equals the diluted weighted average common shares outstanding for purposes of calculating U.S. GAAP earnings per share because potentially dilutive securities would be antidilutive.

(3)	All non-GAAP financial measures are presented on a continuing operations basis unless otherwise noted.

(4)

EBITDA is earnings from continuing operations before interest, taxes, depreciation and amortization. Adjusted EBITDA excludes the impact of severance expense and other operating costs (benefit). Adjusted net income and adjusted earnings per share exclude the net income (loss) and per share net income (loss) impact of discontinued operations, severance expense and other operating costs (benefit). Severance expense and other operating costs (benefit) are not considered to be non-recurring, infrequent or unusual to our business. Management believes that these measures provide investors with enhanced comparability of the Company’s results of operations across periods.

(5)	Effective income tax expense (benefit) has been determined based on specific tax jurisdiction.

(6)	A portion of the deferred contingent acquisition liability adjustment for the nine months ended September 30, 2015 was non-taxable in nature.

(7)

On May 15, 2015, we executed an Amendment to Merger Agreement with the Cymetrix Sellers, establishing a definitive amount for the obligation and eliminating the contingent aspect of the Cymetrix acquisition liability. As a result of this agreement, the Company will no longer record an interest expense for imputed interest resulting from the contingent aspect of the acquisition liability. Based on this change, the Company re-evaluated the need for a deferred tax liability associated with expected non-deductible imputed interest and recorded an $826 thousand benefit to reverse the remaining tax impact in the quarter ended June 30, 2015.

(8)	The loss on dispositions recorded during the quarter ended September 30, 2015 is subject to capital loss treatment in Canada. The tax benefit associated with this capital loss is subject to a full valuation allowance.

(9)	For the nine months ended September 30, 2014, the Company reported a net loss. For non-GAAP purposes, the per share and share amounts presented here reflect the inclusion of potentially dilutive shares based on the impact of the add backs included in Adjusted Net Income.

(10)

Free cash flow is calculated as net cash provided from operations excluding changes in assets and liabilities and allowance for doubtful accounts receivable less cash payments for property and equipment and deferred acquisition related payments. Free cash flow does not represent discretionary cash available for spending as it excludes certain contractual obligations such as debt repayment. However, management believes that it provides investors with an indicator of cash flows available for on-going business operations and long term value creation.

(11)	Leverage ratio is calculated as bank debt at the end of the period divided by adjusted EBITDA for the prior twelve-month period. Management believes that leverage ratio provides investors with an indicator of the cash flows available to repay the Company’s debt obligations.

 

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