Item 2.
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Managements Discussion and Analysis of Financial Condition and Results of Operations.
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This Managements Discussion and Analysis of Financial Condition and Results of Operations relates to, and should be read in conjunction
with, our unaudited consolidated financial statements included elsewhere in this report. In addition to historical information, this discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions, which
could cause actual results to differ materially from managements expectations. Please see the sections of this report entitled Forward-Looking Statements and Part II, Item 1A, Risk Factors.
Overview
We are a specialized, global
professional services firm that helps clients take control of their future. With a focus on markets and clients facing transformational change and significant regulatory or legal pressures, we primarily serve clients in the healthcare, energy and
financial services industries.
Revenues and Expenses
Our clients demand for our services ultimately drives our revenues and expenses. We derive our revenues from fees on services provided.
The majority of our revenues are generated on a time and materials basis, though we also have engagements where fees are a fixed amount (either in total or for a period of time). We may also earn incremental revenues, in addition to hourly or fixed
fees, which are contingent on the attainment of certain contractual milestones or outcomes. Variations in our quarterly or yearly revenues and resulting operating profit margins may occur depending on the timing of such contractual outcomes and our
ability to consider these revenues earned and realized. Revenue is also earned on a per unit or subscription basis, generally for our technology-based service offerings.
Our most significant expense is client-service employee compensation, which includes salaries, incentive compensation, amortization of sign-on
and retention incentive payments, share-based compensation and benefits. Client-service employee compensation is included in cost of services before reimbursable expenses, in addition to sales and marketing expenses and the direct costs of
recruiting and training client-service employees.
Our most significant overhead expenses included in general and administrative expense
are administrative compensation and benefits and office-related expenses. Administrative compensation includes salaries, incentive compensation, share-based compensation and benefits for corporate management and other non-billable employees that
indirectly support client engagements. Office-related expenses primarily consist of rent for our offices. General and administrative expense includes bad debt expense and marketing, technology, finance, human capital management and legal expenses.
Other non-billable employees who support the segments are recorded in cost of services before reimbursable expenses.
We periodically
review and adjust our employees total compensation (which may include salaries, annual cash incentive compensation, other cash and share-based compensation, and benefits) to ensure that it is competitive within the industry and is consistent
with our performance. We also monitor and adjust our bill rates for our service offerings and within the various industries we serve, depending on market conditions.
Hiring and Retention
Because our ability
to derive fees is largely reliant on the hiring and retention of employees, the average number of full-time employees and our ability to keep client-service employees utilized are important drivers of the business. We use full time equivalent (FTE)
as a measure of our client-service employees. The number of Client-Service FTE (as defined below) is client-service employees adjusted for part-time status and takes into account hiring and attrition which occurred during the reporting period. Our
average utilization rate as defined below provides a benchmark for how well we are managing our Consulting FTE (as defined below) levels in response to changing demand.
Client-Service FTE levels and related compensation in excess of demand drive additional costs that can negatively impact operating profit
margin. From time to time, we engage independent contractors and hire project employees to supplement our Client-Service FTE on certain engagements, which allows us to adjust staffing in response to changes in demand for our services and manage our
costs accordingly.
17
In connection with recruiting activities and business acquisitions, our general policy is to
obtain non-solicitation covenants from senior and some mid-level client-service employees. Most of these covenants have restrictions that extend 12 months beyond the termination of employment. We utilize these contractual agreements and other
agreements to reduce the risk of attrition and to safeguard our existing clients, employees and projects.
Technology
As our business has matured, we have also continued to invest in technology infrastructure to support our evolving service offerings, including
investment in more sophisticated technology infrastructure to enable our technology-based services as they expand and change over time and to deliver scalable technology solutions to meet the demands of our clients.
Additional information about our operations is included in Part I, Item 1, Business of our 2015 Form 10-K.
Acquisitions
For details regarding our
recent acquisitions, see Note 2 Acquisitions to our unaudited consolidated financial statements. Any material impact our acquisitions may have had on our results from operations or segment results for the periods presented has been included
in our discussion below.
Key Operating Metrics
The following key operating metrics provide additional operating information related to our continuing business and reporting segments. These
key operating metrics may not be comparable to similarly-titled metrics at other companies. Our Technology, Data & Process businesses are comprised of technology enabled professional services, including business process management services
and data analytics, legal technology solutions and data services and insurance claims processing, market research and benchmarking businesses.
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Average FTE
is our average headcount during the reporting period adjusted for part-time status. Average FTE is further split between the following categories:
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Client-Service FTE
combination of Consulting FTE and Technology, Data & Process FTE defined as follows:
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Consulting FTE
individuals assigned to client services who record time to client engagements; and
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Technology, Data & Process FTE
individuals in businesses primarily dedicated to maintaining and delivering the services described above and are not included in average bill rate and average
utilization metrics described below.
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Non-billable FTE
individuals assigned to administrative and support functions, including office services, corporate functions and certain practice support functions.
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Period-end FTE
represents our headcount at the last day of the reporting period adjusted for part-time status. Consulting, Technology, Data & Process and Non-billable criteria also apply to
period-end FTE.
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Average bill rate
is calculated by dividing fee revenues before certain adjustments, such as discounts and markups, by the number of hours associated with the fee revenues. Fee revenues and hours billed on
performance-based services and related to Technology, Data & Process FTE are excluded from average bill rate.
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Average utilization rate
is calculated by dividing the number of hours of our Consulting FTE who recorded time to client engagements during a period, by the total available working hours for these
consultants during the same period (1,850 hours annually). Hours related to Technology, Data & Process FTE are excluded from average utilization rate.
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Billable hours
are the number of hours our Consulting FTE recorded time to client engagements during the reporting period. Recorded hours related to Technology, Data & Process FTE are excluded
from billable hours.
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Segment operating profit
represents total revenues less cost of services excluding long-term compensation expense attributable to client-service employees. Long-term compensation expense attributable to
client-service employees includes share-based compensation expense and compensation expense attributable to retention incentives.
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All Client-Service FTE, utilization and average bill rate metric data provided in this report exclude the impact of independent contractors
and project employees.
Results of Operations
Results for the three and six months ended June 30, 2016 compared to the three and six months ended June 30, 2015
Overview.
During the three months ended June 30, 2016 and 2015, we reported $14.8 million and $7.8 million in net income,
respectively. Key highlights of our results include:
Revenues before reimbursements (RBR) increased 13.0% for the three months ended
June 30, 2016 compared to the three months ended June 30, 2015. Nearly three-quarters of the RBR increase was attributable to organic growth. See segment results below for further discussion on RBR. Cost of services increased at a slightly
lower rate than RBR and general and administrative expenses increased in line with the RBR. In addition, for the three months ended June 30, 2016, other operating costs were $1.0 million compared to the three months ended June 30, 2015 of
$4.2 million (see Note 12 Other Operating Costs (Benefit) to our unaudited consolidated financial statements for further information on such amounts). Our effective income tax rate for the three months ended June 30, 2016 and 2015 was
38.8% and 39.7%, respectively.
18
During the six months ended June 30, 2016 and 2015, we reported $27.4 million and $33.0
million in net income, respectively. Key highlights of our results include:
Revenues before reimbursements (RBR) increased 12.1% for the
six months ended June 30, 2016 compared to the six months ended June 30, 2015. Over two-thirds of the RBR increase was attributable to organic growth. See segment results below for further discussion on RBR. Cost of services increased at a
slightly lower rate than RBR, and general and administrative expenses increased in line with the RBR. In addition, for the six months ended June 30, 2016, other operating costs were $1.0 million compared to an other operating benefit for the
six months ended June 30, 2015 of $9.8 million (see Note 12 Other Operating Costs (Benefit) to our unaudited consolidated financial statements for further information on such amounts). Our effective income tax rate for the six months
ended June 30, 2016 and 2015 was 37.0% and 26.6%, respectively.
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For the three months
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2016 over
2015
Increase
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For the six months
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2016 over
2015
Increase
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ended June 30,
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(Decrease)
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ended June 30,
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(Decrease)
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2016
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2015
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Percentage
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2016
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|
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2015
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Percentage
|
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Key operating metrics:
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Average FTE
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|
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-Consulting
|
|
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1,712
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1,548
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10.6
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1,709
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1,560
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9.6
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-Technology, Data & Process
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2,747
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2,698
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1.8
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2,792
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2,268
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23.1
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-Non-billable
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827
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|
700
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18.1
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|
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817
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|
|
673
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21.4
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Period-end FTE
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|
|
|
|
|
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|
|
|
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|
-Consulting
|
|
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1,716
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|
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|
1,541
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11.4
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1,716
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1,541
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11.4
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-Technology, Data & Process
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2,642
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2,701
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(2.2
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)
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2,642
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2,701
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(2.2
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)
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-Non-billable
|
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842
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|
709
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18.8
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842
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709
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18.8
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Average bill rate
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$
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303
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$
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294
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3.1
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$
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297
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$
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289
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2.8
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Utilization
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76
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%
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75
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%
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1.3
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|
|
77
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%
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|
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76
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%
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1.3
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Key Operating Metrics.
Utilization levels were 76% and 75% for the three months ended June 30,
2016 and 2015, respectively, and average bill rate increased 3.1% to $303 over the same periods. Average FTE Consulting increased 10.6% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 due to
the acquisition of McKinnis on December 31, 2015 within our Healthcare segment as well as hiring within our Healthcare, Energy and Financial Services Advisory and Compliance segments. Average FTE Technology, Data & Process
increased 1.8% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015.
Utilization levels
were 77% and 76% for the six months ended June 30, 2016 and 2015, respectively, and average bill rate increased 2.8% to $297 over the same periods. Average FTE Consulting increased 9.6% for the six months ended June 30, 2016
compared to the six months ended June 30, 2015 due to the acquisition of McKinnis on December 31, 2015 within our Healthcare segment as well as hiring within our Healthcare and Energy segments, partially offset by a decrease in FTE
Consulting within our Disputes, Investigations & Legal Technology segment. Average FTE Technology, Data & Process increased 23.1% for the six months ended June 30, 2016 compared to the six months ended June 30, 2015
mainly due to the acquisition of RevenueMed in February 2015, which added 1,500 Client-Service FTE (Average FTE reflects partial period of ownership). Period end FTE Technology, Data & Process as of June 30, 2016 and 2015
reflected the full impact of 1,500 Client-Service FTE acquired from RevenueMed.
Cost of Services before Reimbursable Expenses.
Cost of services before reimbursable expenses increased 8.7% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The increase was due to higher compensation and benefits expenses mainly relating
to the acquisition of McKinnis and other increases in Client-Service FTE relating to hiring within our Healthcare, Energy and Financial Services Advisory and Compliance segments partially offset by lower Client-Service FTE within our Disputes,
Forensics & Legal Technology segment. Included in benefits expense was higher medical expenses. In addition, a firm wide leadership meeting was held in the second quarter 2016 while no such meeting was held in the comparative period of
2015. Incentive compensation also increased due to company performance. Severance expense relating to Client-Service FTE decreased for the three months ended June 30, 2016 compared to the corresponding period in 2015 at $1.0 million and $3.3
million, respectively.
Cost of services before reimbursable expenses increased 9.8% for the six months ended June 30, 2016 compared
to the six months ended June 30, 2015. The increase was due to higher compensation and benefits expense mainly relating to the acquisitions of RevenueMed and McKinnis and other increases in Client-Service FTE relating to hiring within our
Healthcare, Energy and Financial Services Advisory and Compliance segments, partially offset by FTE decreases within our Disputes, Forensics & Legal Technology segment. As discussed above medical and meetings expenses were higher for the
six months ended June 30, 2016 compared to the corresponding period in 2015. Recruiting and retention costs increased for the six months ended June 30, 2016 compared to the
19
six months ended June 30, 2015. Incentive compensation also increased due to company performance. Severance expense relating to Client-Service FTE decreased for the six months ended
June 30, 2016 compared to the corresponding period in 2015 at $1.8 million and $4.7 million, respectively.
General and
Administrative Expenses.
General and administrative expenses increased 13.9% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The increase was mainly due to higher compensation and benefits
expense as a result of acquisitions and new hires to support growth of the business. Training and meeting expenses were also higher for the three months ended June 30, 2016 compared to the three months ended June 30, 2015, due in part to a
firm wide leadership meeting held during the second quarter 2016 while no such meeting was held in the comparative period of 2015. In addition, bad debt expense increased to $2.9 million for the three months ended June 30, 2016 compared to $1.4
million for the three months ended June 30, 2015 due to higher aged balances for the three months ended June 30, 2016.
Average
Non-billable FTE related to general and administrative expenses for the three months ended June 30, 2016 and 2015 was 750 and 636, respectively. The increase was mainly due to the acquisitions noted above.
General and administrative expenses were 18.7% and 18.5% of RBR for the three months ended June 30, 2016 and 2015, respectively. The
increase was mainly due to the impact of our acquisitions and the increase in bad debt expense, partially offset by the increased RBR.
General and administrative expenses increased 12.9% for the six months ended June 30, 2016 compared to the six months ended June 30,
2015. The increases are due mainly to reasons discussed above. In addition, bad debt expense increased to $4.5 million for six months ended June 30, 2016 compared to $1.6 million for the six months ended June 30, 2015 due to higher aged
balances for the six months ended June 30, 2016.
Average Non-billable FTE related to general and administrative expenses for the six
months ended June 30, 2016 and 2015 was 739 and 609, respectively. The increase was mainly due to the acquisitions noted above.
General and administrative expenses were 18.3% and 18.1% RBR for the six months ended June 30, 2016 and 2015, respectively. The increase
was mainly due to the impact of our acquisitions and the increase in bad debt expense, partially offset by the increased RBR.
Depreciation Expense
. The increase in depreciation expense of 22.6% and 22.2% for the three and six months ended June 30, 2016
compared to the three and six months ended June 30, 2015, respectively, was primarily due to increased technology infrastructure spending, software, and leasehold improvements.
Amortization Expense
. Amortization expense increased 25.9% and 27.3% for the three and six months ended June 30, 2016 compared to
the three and six months ended June 30, 2015, respectively. The increase was due to the allocation of purchase price to intangible assets of recent acquisitions partially offset by amortization relating to certain intangible assets as their
useful lives came to term.
Other Operating Costs (Benefit):
Contingent acquisition liability adjustment, net.
During the three and six months ended June 30, 2016 we recorded a cost of $0.9
million relating to fair value adjustments to our estimated deferred contingent acquisition liabilities. During the three and six months ended June 30, 2015 we recorded a cost of $2.3 million and a benefit of $12.6 million, respectively. See
Note 12 Other Operating Costs (Benefit) to our unaudited consolidated financial statements for further information.
Office
Consolidation, net.
During the three and six months ended June 30, 2016, we recorded a cost of $0.2 million primarily related to the consolidation of office space acquired in Denver, Colorado from McKinnis.
During the three and six months ended June 30, 2015, we recorded costs of $1.8 million and $2.7 million, respectively, related to our new
consolidated office space located in New York City which we took possession of on October 22, 2014. The cost included rent expense for duplicate rent as we occupied our old New York City offices until completion of the build-out of the new
space.
Interest Expense
. Interest expense increased 15.4% or $0.2 million and decreased 9.5% or
$0.3 million for the three and six months ended June 30, 2016, compared to the three and six months ended June 30, 2015, respectively. The increase for the three months ended June 30, 2016 compared to the three months ended
June 30, 2015 was mainly due to a higher average debt balance due to the McKinnis acquisition. The decrease for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 was driven by lower imputed interest
related to the deferred contingent consideration payable to the Cymetrix selling stockholders, partially offset by higher average debt balance in 2016 due to the McKinnis acquisition. Average borrowing rates were 2.2% and 2.0% for the three months
ended June 30, 2016 and 2015, respectively, and 2.3% and 2.2% for the six months ended June 30, 2016 and 2015, respectively.
Income Tax Expense.
Our effective income tax rate fluctuates based on the mix of income earned in various tax jurisdictions, including
United States (U.S.) state and foreign jurisdictions which have different income tax rates, as well as various book-to-tax permanent differences. The rate is also impacted by discrete items which may not be consistent from year to year.
The effective income tax rate for the three months ended June 30, 2016 and 2015 was approximately 38.8% and 39.7%, respectively. The
decrease in the effective tax rate for the three months ended June 30, 2016 as compared to the prior period is primarily attributable to a favorable change in the mix of pre-tax income attributable to lower tax rate jurisdictions.
20
The effective tax rate for the six months ended June 30, 2016 and 2015 was 37.0% and 26.6%,
respectively. The increase in the effective income tax rate for the six months ended June 30, 2016 compared to the corresponding period in 2015 primarily relates to the tax impact of the nontaxable nature of a portion of a deferred contingent
acquisition liability fair value adjustment that reduced income tax expense by approximately $5.3 million during the six months ended June 30, 2015.
Segment Results
Based on their size and
importance, our operating segments are the same as our reporting segments. During the first quarter of 2016, we renamed two of our business segments. The Disputes, Investigations & Economics segment was renamed Disputes,
Forensics & Legal Technology, and the Financial, Risk & Compliance segment was renamed Financial Services Advisory and Compliance. Other than the changes to the names of these segments, the characteristics of our
business segments remain unchanged. Our performance is assessed and resources are allocated based on the following four reporting segments:
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Disputes, Forensics & Legal Technology
|
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Financial Services Advisory and Compliance
|
The following information includes segment RBR, segment total revenues and segment
operating profit all on a continuing basis. Certain unallocated expense amounts related to specific reporting segments have been excluded from the calculation of segment operating profit to be consistent with the information used by management to
evaluate segment performance (see Note 3 Segment Information to our unaudited consolidated financial statements). Segment operating profit represents total revenues less cost of services excluding long-term compensation expense attributable
to client-service employees. Long-term compensation expense attributable to client-service employees includes share-based compensation expense and compensation expense related to retention incentives (see Note 7 Supplemental Consolidated
Balance Sheet Information to our unaudited consolidated financial statements). Key operating metric definitions are provided above.
The
information presented does not necessarily reflect the results of segment operations that would have occurred had the segments been stand-alone businesses.
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|
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|
|
|
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|
|
Disputes, Forensics & Legal
Technology
|
|
|
|
|
|
|
|
|
|
2016 over
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|
|
|
|
|
|
|
|
2016 over
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
For the three months
|
|
|
Increase
|
|
|
For the six months
|
|
|
Increase
|
|
|
|
ended June 30,
|
|
|
(Decrease)
|
|
|
ended June 30,
|
|
|
(Decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
Percentage
|
|
|
2016
|
|
|
2015
|
|
|
Percentage
|
|
Revenues before reimbursements (in 000s)
|
|
$
|
79,320
|
|
|
$
|
81,116
|
|
|
|
(2.2
|
)
|
|
$
|
160,582
|
|
|
$
|
157,709
|
|
|
|
1.8
|
|
Total revenues (in 000s)
|
|
$
|
85,082
|
|
|
$
|
87,515
|
|
|
|
(2.8
|
)
|
|
$
|
172,081
|
|
|
$
|
168,726
|
|
|
|
2.0
|
|
Segment operating profit (in 000s)
|
|
$
|
28,963
|
|
|
$
|
25,721
|
|
|
|
12.6
|
|
|
$
|
57,673
|
|
|
$
|
49,990
|
|
|
|
15.4
|
|
Key segment operating metrics:
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit margin
|
|
|
36.5
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%
|
|
|
31.7
|
%
|
|
|
15.1
|
|
|
|
35.9
|
%
|
|
|
31.7
|
%
|
|
|
13.2
|
|
Average FTE - Consulting
|
|
|
481
|
|
|
|
483
|
|
|
|
(0.4
|
)
|
|
|
485
|
|
|
|
492
|
|
|
|
(1.4
|
)
|
Average FTE - Technology, Data & Process
|
|
|
191
|
|
|
|
213
|
|
|
|
(10.3
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)
|
|
|
192
|
|
|
|
212
|
|
|
|
(9.4
|
)
|
Average utilization rates based on 1,850 hours
|
|
|
75
|
%
|
|
|
75
|
%
|
|
|
|
|
|
|
76
|
%
|
|
|
75
|
%
|
|
|
1.3
|
|
Average bill rate
|
|
$
|
375
|
|
|
$
|
379
|
|
|
|
(1.1
|
)
|
|
$
|
378
|
|
|
$
|
373
|
|
|
|
1.3
|
|
The Disputes, Forensics & Legal Technology (formerly Disputes, Investigations &
Economics) segments professional services include accounting, regulatory, construction and computer forensic expertise, as well as valuation and economic analysis. In addition to these capabilities, our professionals use technological tools to
perform eDiscovery services and to deliver custom technology and data analytic solutions. The clients of this segment principally include companies along with their in-house counsel and law firms, as well as accounting firms, corporate boards and
government agencies.
Three months ended June 30, 2016 compared to corresponding period in 2015
RBR for this segment decreased 2.2% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The
decrease was mainly due to declines in demand and increased competition for legal technology solutions. This decline was partially offset by strong demand for our global expertise in large infrastructure and construction dispute matters as well as
increased regulatory, compliance and dispute demand within the healthcare and life sciences sectors. In addition, performance-based fees associated with mass tort claims work were recognized during the three months ended June 30, 2016.
Average FTE Consulting was relatively flat for the three months ended June 30, 2016 compared to the three months ended
June 30, 2015. Average FTE Technology, Data & Process decreased 10.3% over the same periods as we took action to better align
21
resources with demand in the prior year. Average bill rate decreased slightly to $375 for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 mainly
due to project mix. Utilization was flat for the three months ended June 30, 2016 compared to the three months ended June 30, 2015.
For the three months ended June 30, 2016 segment operating profit increased $3.2 million compared to the three months ended June 30,
2015 reflecting the impact of cost management actions taken in prior periods as well as higher performance-based fees recognized during the three months ended June 30, 2016 for which certain cost of services were incurred in prior periods.
Segment operating profit margin increased 4.8 percentage points mainly due to reasons discussed above. Severance expense for the three months ended June 30, 2016 and 2015 was $0.5 million and $2.2 million, respectively.
Six months ended June 30, 2016 compared to corresponding period in 2015
RBR for this segment increased 1.8% for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The
increase in RBR was mainly due to strong demand for our global expertise in large infrastructure claims and construction dispute matters, as well as increased regulatory, compliance and dispute demand within the healthcare and life sciences sectors.
Also contributing to the increase were performance-based fees associated with mass tort claims work recognized during the six months ended June 30, 2016. These increases were partially offset by a decline in demand and increased competition for
legal technology solutions.
Average FTE Consulting decreased 1.4% for the six months ended June 30, 2016 compared to the six
months ended June 30, 2015 due to personnel reductions taken during the year ended December 31, 2015 partially offset by new hires within key strategic growth areas. Average FTE Technology, Data & Process decreased 9.4%
over the same periods as discussed above. Average bill rate increased 1.3% to $378 for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. Utilization increased 1.3% for the six months ended June 30,
2016 compared to the six months ended June 30, 2015 mainly due to decreased FTE following the actions taken by the segment in the prior year.
For the six months ended June 30, 2016 segment operating profit increased $7.7 million compared to the six months ended June 30,
2015 mainly due to the RBR increase discussed above, partially offset by a related increase in cost of services. Segment operating profit margin increased 4.2 percentage points mainly due to higher RBR without a corresponding increase in
compensation and benefits expenses. As mentioned above, performance-based fees were realized during the six months ended June 30, 2016 for which certain cost of services were incurred in prior periods. In addition, during the six months ended
June 30, 2016 compared to the six months ended June 30, 2015, the segment benefited from ongoing cost management actions. Severance expense for the six months ended June 30, 2016 and 2015 was $0.6 million and $3.4 million,
respectively.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financial Services Advisory and
Compliance
|
|
|
|
|
|
|
|
|
|
2016 over
|
|
|
|
|
|
|
|
|
2016 over
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
For the three months
|
|
|
Increase
|
|
|
For the six months
|
|
|
Increase
|
|
|
|
ended June 30,
|
|
|
(Decrease)
|
|
|
ended June 30,
|
|
|
(Decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
Percentage
|
|
|
2016
|
|
|
2015
|
|
|
Percentage
|
|
Revenues before reimbursements (in 000s)
|
|
$
|
39,994
|
|
|
$
|
29,509
|
|
|
|
35.5
|
|
|
$
|
73,644
|
|
|
$
|
64,452
|
|
|
|
14.3
|
|
Total revenues (in 000s)
|
|
$
|
45,360
|
|
|
$
|
34,439
|
|
|
|
31.7
|
|
|
$
|
82,267
|
|
|
$
|
76,739
|
|
|
|
7.2
|
|
Segment operating profit (in 000s)
|
|
$
|
17,511
|
|
|
$
|
11,201
|
|
|
|
56.3
|
|
|
$
|
31,017
|
|
|
$
|
26,271
|
|
|
|
18.1
|
|
Key segment operating metrics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit margin
|
|
|
43.8
|
%
|
|
|
38.0
|
%
|
|
|
15.3
|
|
|
|
42.1
|
%
|
|
|
40.8
|
%
|
|
|
3.2
|
|
Average FTE - Consulting
|
|
|
305
|
|
|
|
295
|
|
|
|
3.4
|
|
|
|
298
|
|
|
|
299
|
|
|
|
(0.3
|
)
|
Average utilization rates based on 1,850 hours
|
|
|
80
|
%
|
|
|
75
|
%
|
|
|
6.7
|
|
|
|
81
|
%
|
|
|
79
|
%
|
|
|
2.5
|
|
Average bill rate
|
|
$
|
316
|
|
|
$
|
273
|
|
|
|
15.8
|
|
|
$
|
303
|
|
|
$
|
274
|
|
|
|
10.6
|
|
The Financial Services Advisory and Compliance (formerly Financial, Risk & Compliance) segment
provides strategic, operational, valuation, risk management, investigative and compliance advisory services to clients primarily in the highly-regulated financial services industry, including major financial and insurance institutions. This segment
also provides anti-corruption solutions and anti-money laundering, valuation and restructuring consulting, litigation support and tax compliance services to clients in a broad variety of industries.
Three months ended June 30, 2016 compared to corresponding period in 2015
RBR for this segment increased 35.5% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The
increase in RBR was due to continued demand for financial crimes expertise and increased demand for compliance and controls engagements from major financial institutions.
Average FTE Consulting increased 3.4% for the three months ended June 30, 2016 compared to the three months ended June 30,
2015 to meet demand needs. Average bill rate increased 15.8% to $316 for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 mainly due to a change in project mix. Utilization increased 6.7% for the three
months ended June 30, 2016 compared to the three months ended June 30, 2015, mainly due to the higher volume of work discussed above.
22
Segment operating profit and segment operating profit margin increased $6.3 million and 5.8
percentage points, respectively, for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The increase was mainly due to higher RBR, driven by higher demand and bill rates, and to a lesser extent, higher
utilization, partially offset by higher compensation and benefits expenses.
Six months ended June 30, 2016 compared to
corresponding period in 2015
RBR for this segment increased 14.3% for the six months ended June 30, 2016 compared to the six
months ended June 30, 2015. The increase was due to reasons discussed above.
Average FTE Consulting was relatively flat for
the six months ended June 30, 2016 compared to the six months ended June 30, 2015. Average bill rate increased 10.6% to $303 for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 mainly due to a
change in project mix. Utilization increased 2.5% for the six months ended June 30, 2016 compared to the six months ended June 30, 2015, mainly due to the higher volume of work discussed above.
Segment operating profit and segment operating profit margin increased $4.7 million and 1.3 percentage points, respectively, for the six
months ended June 30, 2016 compared to the six months ended June 30, 2015. The increases were due to reasons discussed above. In addition, segment operating profit margin for the six months ended June 30, 2015 benefitted from greater
use of flexible resources during that period.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Healthcare
|
|
|
|
|
|
|
|
|
|
2016 over
|
|
|
|
|
|
|
|
|
2016 over
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
For the three months
|
|
|
Increase
|
|
|
For the six months
|
|
|
Increase
|
|
|
|
ended June 30,
|
|
|
(Decrease)
|
|
|
ended June 30,
|
|
|
(Decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
Percentage
|
|
|
2016
|
|
|
2015
|
|
|
Percentage
|
|
Revenues before reimbursements (in 000s)
|
|
$
|
89,876
|
|
|
$
|
74,245
|
|
|
|
21.1
|
|
|
$
|
171,543
|
|
|
$
|
138,239
|
|
|
|
24.1
|
|
Total revenues (in 000s)
|
|
$
|
98,386
|
|
|
$
|
80,652
|
|
|
|
22.0
|
|
|
$
|
188,488
|
|
|
$
|
149,981
|
|
|
|
25.7
|
|
Segment operating profit (in 000s)
|
|
$
|
29,362
|
|
|
$
|
24,726
|
|
|
|
18.7
|
|
|
$
|
53,130
|
|
|
$
|
42,982
|
|
|
|
23.6
|
|
Key segment operating metrics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit margin
|
|
|
32.7
|
%
|
|
|
33.3
|
%
|
|
|
(1.8
|
)
|
|
|
31.0
|
%
|
|
|
31.1
|
%
|
|
|
(0.3
|
)
|
Average FTE - Consulting
|
|
|
570
|
|
|
|
437
|
|
|
|
30.4
|
|
|
|
563
|
|
|
|
438
|
|
|
|
28.5
|
|
Average FTE - Technology, Data & Process
|
|
|
2,495
|
|
|
|
2,420
|
|
|
|
3.1
|
|
|
|
2,538
|
|
|
|
1,991
|
|
|
|
27.5
|
|
Average utilization rates based on 1,850 hours
|
|
|
77
|
%
|
|
|
76
|
%
|
|
|
1.3
|
|
|
|
77
|
%
|
|
|
75
|
%
|
|
|
2.7
|
|
Average bill rate
|
|
$
|
292
|
|
|
$
|
286
|
|
|
|
2.1
|
|
|
$
|
278
|
|
|
$
|
276
|
|
|
|
0.7
|
|
The Healthcare segment provides consulting services and business process management services. Clients of
this segment include healthcare providers, payers and life sciences companies. We help clients respond to market legislative changes such as the shift to an outcomes and value-based reimbursements model, ongoing industry consolidation and
reorganization, Medicaid expansion, and the implementation of a new electronic health records system.
Three months ended
June 30, 2016 compared to corresponding period in 2015
RBR for this segment increased 21.1% for the three months ended
June 30, 2016 compared to the three months ended June 30, 2015. RBR for the three months ended June 30, 2016 reflected the benefits of the December 2015 acquisition of McKinnis. Over half of the RBR increase was organic growth, driven
by strong demand for large strategy-led transformation projects and revenue cycle consulting engagements.
Average FTE Consulting
increased 30.4% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 mainly due to the 70 professionals acquired from McKinnis and additional hiring to meet the higher demand. Average
FTE Technology, Data & Process increased 3.1% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 due to additional hiring. Utilization increased 1.3% for the three months
ended June 30, 2016 compared to the three months ended June 30, 2015. Average bill rate increased 2.1% to $292 for the three months ended June 30, 2016.
For the three months ended June 30, 2016 compared to the three months ended June 30, 2015, segment operating profit increased $4.6
million while segment operating profit margin was relatively flat. Segment operating profit was positively impacted by higher RBR, partially offset by higher compensation, and benefits expenses as well as retention and training costs mainly related
to acquired FTE and the increase in Client-Service FTE.
Six months ended June 30, 2016 compared to corresponding period in 2015
RBR for this segment increased 24.1% for the six months ended June 30, 2016 compared to the six months ended June 30, 2015.
RBR for the six months ended June 30, 2016 reflected the full six month benefit of the February 2015 acquisition of RevenueMed and the December 2015 acquisition of McKinnis. Over half of the RBR increase was organic growth as discussed above.
Average FTE Consulting increased 28.5% for the six months ended June 30, 2016 compared to the six months ended June 30,
2015 mainly due to the 70 professionals acquired from McKinnis and additional hiring to meet the higher demand. Average FTE Technology, Data & Process for the six months ended June 30, 2015 reflected partial period
employment of approximately 1,500
23
professionals acquired in February 2015 with the RevenueMed acquisition as well as additional hiring. Utilization increased 2.7% for the six months ended June 30, 2016 compared to the six
months ended June 30, 2015. Average bill rate was relatively flat for the six months ended June 30, 2016 compared to the six months ended June 30, 2015.
For the six months ended June 30, 2016 compared to the six months ended June 30, 2015, segment operating profit increased $10.1
million while segment operating profit margin was relatively flat. Segment operating profit was positively impacted by higher RBR, partially offset by higher compensation and benefits expenses as well as retention and training costs mainly related
to acquired FTE and the increase in Client-Service FTE.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Energy
|
|
|
|
|
|
|
|
|
|
2016 over
|
|
|
|
|
|
|
|
|
2016 over
|
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
|
|
|
|
|
2015
|
|
|
|
For the three months
|
|
|
Increase
|
|
|
For the six months
|
|
|
Increase
|
|
|
|
ended June 30,
|
|
|
(Decrease)
|
|
|
ended June 30,
|
|
|
(Decrease)
|
|
|
|
2016
|
|
|
2015
|
|
|
Percentage
|
|
|
2016
|
|
|
2015
|
|
|
Percentage
|
|
Revenues before reimbursements (in 000s)
|
|
$
|
29,295
|
|
|
$
|
26,153
|
|
|
|
12.0
|
|
|
$
|
56,191
|
|
|
$
|
51,779
|
|
|
|
8.5
|
|
Total revenues (in 000s)
|
|
$
|
32,855
|
|
|
$
|
30,833
|
|
|
|
6.6
|
|
|
$
|
64,134
|
|
|
$
|
61,164
|
|
|
|
4.9
|
|
Segment operating profit (in 000s)
|
|
$
|
8,402
|
|
|
$
|
7,513
|
|
|
|
11.8
|
|
|
$
|
15,116
|
|
|
$
|
15,435
|
|
|
|
(2.1
|
)
|
Key segment operating metrics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Segment operating profit margin
|
|
|
28.7
|
%
|
|
|
28.7
|
%
|
|
|
|
|
|
|
26.9
|
%
|
|
|
29.8
|
%
|
|
|
(9.7
|
)
|
Average FTE - Consulting
|
|
|
356
|
|
|
|
333
|
|
|
|
6.9
|
|
|
|
363
|
|
|
|
331
|
|
|
|
9.7
|
|
Average FTE - Technology, Data & Process
|
|
|
62
|
|
|
|
65
|
|
|
|
(4.6
|
)
|
|
|
62
|
|
|
|
65
|
|
|
|
(4.6
|
)
|
Average utilization rates based on 1,850 hours
|
|
|
74
|
%
|
|
|
75
|
%
|
|
|
(1.3
|
)
|
|
|
73
|
%
|
|
|
75
|
%
|
|
|
(2.7
|
)
|
Average bill rate
|
|
$
|
210
|
|
|
$
|
203
|
|
|
|
3.4
|
|
|
$
|
206
|
|
|
$
|
200
|
|
|
|
3.0
|
|
The Energy segment provides management advisory services to utility, government and commercial clients. We
focus on creating value for our clients by assisting in their implementation of strategy and new business models and creating sustainable excellence in areas such as investment management, integrated resource planning, renewables, distributed energy
resources, energy efficiency and demand response, and transmission and distribution operations. In addition, we provide a broad array of benchmarking and research services.
Three months ended June 30, 2016 compared to corresponding period in 2015
RBR for this segment increased 12.0% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. The
increase reflects strength across the segments portfolio of solutions in addition to ongoing penetration of key client accounts.
Utilization decreased 1.3% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015. Average bill
rate increased 3.4% to $210 due to bill rate increases and changes in project mix. Average FTE Consulting increased 6.9% related to senior hires within targeted areas of the segment. Average FTE Technology, Data & Process
decreased 4.6% for the three months ended June 30, 2016 compared to the three months ended June 30, 2015 mainly due to resource realignment.
For the three months ended June 30, 2016 compared to the three months ended June 30, 2015, segment operating profit increased $0.9
million while segment operating profit margin was flat. Segment operating profit margin was impacted by the increase in RBR which was offset by higher incentive compensation expense.
Six months ended June 30, 2016 compared to corresponding period in 2015
RBR for this segment increased 8.5% for the six months ended June 30, 2016 compared to the six months ended June 30, 2015. The
increase was due to reasons discussed above.
Utilization decreased 2.7% for the six months ended June 30, 2016 compared to the six
months ended June 30, 2015 reflecting the onboarding of senior hires ahead of expected sales pipeline conversion. Average bill rate increased 3.0% to $206 due to bill rate increases and changes in project mix. Average FTE Consulting
increased 9.7% related to the investment in senior hires as discussed above. Average FTE Technology, Data & Process decreased 4.6% for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 mainly
due to resource realignment.
For the six months ended June 30, 2016 compared to the six months ended June 30, 2015, segment
operating profit and segment operating profit margin decreased $0.3 million and 2.9 percentage points, respectively, due to higher compensation and benefits expenses associated with recent senior hires, partially offset by higher RBR and lower
incentive compensation expense.
24
Liquidity and Capital Resources
Our cash flow activities for the six months ended June 30, 2016 were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2016
|
|
|
2015
|
|
Net cash provided by (used in) operating activities
|
|
$
|
7,655
|
|
|
$
|
(4,805
|
)
|
Net cash used in investing activities
|
|
$
|
(18,159
|
)
|
|
$
|
(46,452
|
)
|
Net cash provided by financing activities
|
|
$
|
5,033
|
|
|
$
|
52,506
|
|
Generally, our net cash provided by operating activities is funded by our day to day operating activities,
augmented by borrowings under our credit facility. First quarter operating cash requirements are generally higher due to payment of our annual incentive bonuses while subsequent quarters cash requirements are generally lower. Our cash
equivalents are primarily limited to money market accounts or A rated securities, with maturity dates of 90 days or less.
We
calculate accounts receivable Days Sales Outstanding (DSO) by dividing the accounts receivable balance, net of reserves and deferred revenue credits, at the end of the quarter, by daily revenues. Daily revenues are calculated by taking quarterly
revenue divided by 90 days, approximately equal to the number of days in a quarter. DSO was 81 days at June 30, 2016, compared to 80 days at June 30, 2015.
Operating Activities
Net cash provided by operating activities was $7.7 million for the six months ended June 30, 2016, and net cash used in operating
activities was $4.8 million for the six months ended June 30, 2015. The increase in cash provided by operating activities for the six months ended June 30, 2016 compared to the six months ended June 30, 2015 was primarily due to
higher net income after non-cash adjustments as well as lower taxes paid partially offset by higher accounts receivable balances in the six months ended June 30, 2016.
Investing Activities
Net cash used in investing activities was $18.2 million and $46.5 million for the six months ended June 30, 2016 and 2015, respectively.
Cash used in investing activities was lower in the six months ended June 30, 2016 compared to the six months ended June 30, 2015 primarily due to higher payments in the prior year period for acquisitions, capital expenditures related to
the consolidation of our offices located in New York City and technology infrastructure spending primarily associated with our Technology, Data & Process businesses. The first quarter of 2016 included a working capital adjustment payment
made to the selling members of McKinnis of $5.5 million.
Financing Activities
Net cash provided by financing activities was $5.0 million and $52.5 million for the six months ended June 30, 2016 and 2015,
respectively. The higher level of cash provided by financing activities for the six months ended June 30, 2015 was primarily related to borrowings made for the RevenueMed acquisition.
Debt, Commitments and Capital
For further information regarding our debt, see Note 10 Bank Debt to our unaudited consolidated financial statements.
At June 30, 2016, we had total contractual obligations of $360.3 million. The following table shows the components of our significant
commitments at June 30, 2016 by the scheduled years of payments (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual Obligations
|
|
Total
|
|
|
2016
|
|
|
2017 to 2018
|
|
|
2019 to 2020
|
|
|
Thereafter
|
|
Deferred acquisition liabilities (a)
|
|
$
|
10,600
|
|
|
$
|
1,100
|
|
|
$
|
9,500
|
|
|
$
|
|
|
|
$
|
|
|
Revolving credit facility (b)
|
|
|
189,757
|
|
|
|
|
|
|
|
189,757
|
|
|
|
|
|
|
|
|
|
Lease commitments (c)
|
|
|
159,909
|
|
|
|
13,760
|
|
|
|
49,063
|
|
|
|
39,706
|
|
|
|
57,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations
|
|
$
|
360,266
|
|
|
$
|
14,860
|
|
|
$
|
248,320
|
|
|
$
|
39,706
|
|
|
$
|
57,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
a)
|
At June 30, 2016, we had $10.6 million in liabilities relating to deferred acquisition liability obligations (reflected in the table above). Of this balance, $9.9 million was in the form of contingent acquisition
liability obligations which were recorded at estimated fair value and discounted to present value. Settlement of the liabilities is contingent upon certain acquisitions meeting performance targets. Assuming each of these acquisitions reaches its
maximum target, our maximum deferred acquisition liabilities would have been $28.5 million at June 30, 2016.
|
b)
|
Interest incurred on amounts we borrow under the credit facility varies based on relative borrowing levels, fluctuations in the variable interest rates and the spread we pay over those interest rates. As such, we are
unable to quantify our future obligations relating to interest on the credit facility. See Note 10 Bank Debt to our unaudited consolidated financial statements for further information on our credit facility.
|
25
c)
|
At June 30, 2016, we had $4.0 million of unused letters of credit under our credit facility, which have been included as a reduction in the available borrowings. The letters of credit are primarily related to the
requirements of certain lease agreements for office space.
|
Through June 30, 2016, we have repurchased an aggregate of
7,973,232 shares of our common stock for approximately $114.1 million under our share repurchase program. At June 30, 2016, we had approximately $75.0 million remaining for share repurchases under the board authorization. See Part II,
Item 2 of this report for additional information on the share repurchases.
During the first quarter of 2016, we retired 8,000,000
shares of treasury stock. As a result, within the stockholders equity accounts on our consolidated balance sheets, treasury stock was reduced by the fair value of the shares calculated using the weighted average treasury stock inventory price,
common stock was reduced for the aggregate par value of the shares retired, with the difference recorded as a reduction to retained earnings.
We believe that our current cash and cash equivalents, future cash flows from operations and borrowings under our credit facility will provide
adequate liquidity to fund anticipated short-term and long-term operating activities. However, in the event we make significant cash expenditures in the future for major acquisitions or other unanticipated activities, we may require more liquidity
than is currently available to us under our credit facility and may need to raise additional funds through debt or equity financing, as appropriate. In addition, if our lenders are not able to fund their commitments due to disruptions in the
financial markets or otherwise, our liquidity could be negatively impacted.
Off-balance Sheet Arrangements
We do not maintain any off-balance sheet arrangements, transactions, obligations or other relationships with unconsolidated entities that would
be expected to have a material current or future impact on our financial condition or results of operations.
Critical Accounting Policies
There have been no material changes to our critical accounting policies and estimates from the information provided in Part
II, Item 7, Managements Discussion and Analysis of Financial Condition and Results of Operations Critical Accounting Policies in our 2015 Form 10-K.
Recent Accounting Pronouncements
In May
2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). This update is intended to improve the financial reporting requirements for revenue from contracts with customers by providing a principle based approach. The core
principle of the standard is that revenue should be recognized when the transfer of promised goods or services is made in an amount that the entity expects to be entitled to in exchange for the transfer of goods and services. The update also
requires disclosures enabling users of financial statements to understand the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. On July 9, 2015, the FASB voted to defer the effective
date of this guidance by one year. On March 17, 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606), Principal versus Agent Considerations, which clarifies how an entity determines if it is a principal or
an agent for each specified good or service promised to the customer, the nature of each specified good or service, and how an entity that is principal obtains control of a good and service provided by another party involved in providing goods or
services to a customer. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606), Identifying Performance Obligations and Licensing, which clarifies the guidance related to whether goods or services are distinct
within the context of contract and therefore a performance obligation and the timing and pattern of revenue recognition for IP licenses. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope
Improvements and Practical Expedients, which provides clarifying guidance in certain narrow areas and added some practical expedients. The standard and related amendments will be effective for financial statements issued by public companies for
interim and annual reporting periods beginning after December 15, 2017. Early adoption of the standard is permitted, but not before the original date of financial statements issued by public companies for interim and annual reporting
periods beginning after December 15, 2016. We currently do not plan to early adopt this guidance and are evaluating the potential impact of this guidance on our consolidated financial statements as well as transition methods.
In April 2015, the FASB issued ASU 2015-03, Simplifying the Presentation of Debt Issuance Costs. This update includes amendments that change
the presentation of debt issuance costs in financial statements. ASU 2015-03 requires an entity to present such costs in the balance sheet as a direct deduction from the related debt liability rather than as an asset. Amortization of the costs will
continue to be reported as interest expense. This standard will be effective for financial statements issued by public companies for annual reporting periods beginning after December 15, 2015. Early adoption is permitted. The new guidance will
be applied retrospectively to each prior period presented. Subsequently in August 2015, the FASB issued ASU 2015-15, which clarified the guidance in ASU 2015-03 that for a line-of-credit (revolving credit) arrangement the SEC staff would not object
to an entity deferring and presenting debt issuance costs as an asset and subsequently amortizing the deferred debt issuance costs ratably over the term. We adopted this standard as of January 1, 2016; however, since our credit facility is a
revolving credit arrangement we will continue to present our current net debt issuance cost balance in other assets. Our net debt issuance cost as of June 30, 2016 was $1.1 million.
26
In September 2015, the FASB issued ASU 2015-16, Business Combinations (Topic 805). This update
requires the acquirer in a business combination to recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which adjustment amounts are determined. The adjustments are calculated as
if the accounting had been completed at the acquisition date. Prior to this update, an acquirer was required to restate prior period financial statements as of the acquisition date for adjustments to provisional amounts. This standard became
effective for us as of January 1, 2016. The standard will be applied to future acquisitions.
In November 2015, the FASB issued ASU
2015-17, Balance Sheet Classification of Deferred Taxes (Topic 740). This update requires entities with a classified balance sheet to present all deferred tax assets and liabilities as noncurrent. The current requirement that deferred tax
liabilities and assets be offset by jurisdiction and presented as a single amount is not affected by this standard update. This standard will be effective for financial statements issued by public companies for annual and interim periods beginning
after December 15, 2016. Early adoption of the standard is permitted, and the standard may be applied either retrospectively or prospectively. We adopted this standard prospectively as of October 1, 2015, and reclassified our deferred tax
assets and liabilities to the net non-current deferred tax liability in our consolidated balance sheet as of December 31, 2015.
In
February 2016, the FASB issued ASU 2016-02, Leases (Topic 842). This update amends the requirements for assets and liabilities recognized for all leases longer than twelve months. Lessees will be required to recognize a lease liability measured on a
discounted basis, which is the lessees obligation to make lease payments arising from the lease, and a right-of-use asset, which is an asset that represents the lessees right to use, or control the use of, a specified asset for the lease
term. This standard will be effective for financial statements issued by public companies for the annual and interim periods beginning after December 15, 2018. Early adoption of the standard is permitted. The standard will be applied in a
modified retrospective approach for leases existing at or entered into after the beginning of the earliest comparative period presented. We are currently evaluating the potential impact of this guidance on our consolidated financial statements.
In March 2016, The FASB issued ASU 2016-09, Compensation-Stock Compensation (Topic 718). This update is intended to reduce the cost and
complexity of accounting for share-based payments; however, some changes may also increase volatility in reported earnings. Under the new guidance, all excess tax benefits and deficiencies will be recorded as an income tax benefit or expense in the
income statement and excess tax benefits will be recorded as an operating activity in the statement of cash flows. The new guidance also allows withholding up to the maximum individual statutory tax rate without classifying the awards as a
liability. The cash paid to satisfy the statutory income tax withholding obligation is classified as a financing activity in the statement of cash flows. Lastly, the update allows forfeitures to be estimated or recognized when they occur. The
requirements for the excess tax effects related to share-based payments at settlement must be applied on a prospective basis, and the other requirements under this standard are to be applied on a retrospective basis. This standard will be effective
for financial statements issued by public companies for annual and interim periods beginning after December 15, 2016. We currently do not plan to early adopt this guidance and are evaluating the potential impact of this guidance on our
consolidated financial statements.